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Atlas Air Worldwide Holdings, Inc.$64.55$.901.41%

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 Atlas Air Worldwide Reports Fourth-Quarter and Full-Year 2016 Results
   Thursday, February 23, 2017 8:01:40 AM ET

-- Record 4Q Revenues, Significant Increase in 4Q Reported Earnings, Record Adjusted 4Q Earnings; Positioned for Earnings Growth in 2017

-- 4Q16 Reported Income from Continuing Operations of $28.7 Million, $1.12 per Share

-- 4Q16 Adjusted Income from Continuing Operations of $59.0 Million, $2.24 per Share

-- 2016 Reported Income from Continuing Operations of $42.6 Million, $1.70 per Share

-- 2016 Adjusted Income from Continuing Operations of $114.3 Million, $4.50 per Share

-- Adjusted EPS Reflects Higher Diluted Shares Related to Warrant Accounting

Atlas Air Worldwide Holdings, Inc. (AAWW ) today announced income from continuing operations, net of taxes, of $28.7 million, or $1.12 per diluted share, which included an unrealized loss on financial instruments of $27.9 million related to outstanding warrants, for the three months ended December 31, 2016. Results compared with a loss from continuing operations, net of taxes, of $37.6 million, or $1.53 per diluted share, for the three months ended December 31, 2015, which was primarily due to charges of $102.8 million associated with a litigation settlement.

On an adjusted basis, income from continuing operations, net of taxes, in the fourth quarter of 2016 totaled $59.0 million, or $2.24 per diluted share, compared with $39.4 million, or $1.59 per diluted share, in the year-ago quarter.

Adjusted earnings per share for the fourth quarter and full year of 2016 were affected by the increase in the market price of the company’s shares, which, as a consequence of warrant accounting, led to an increase in the number of diluted shares.

"2016 was a historic year for Atlas, and we finished it on a strong note," said William J. Flynn, President and Chief Executive Officer.

"We acquired Southern Air, expanding the array of aircraft and services that we provide, especially to the fast-growing express market. We entered into strategic, long-term agreements with Amazon to serve its rapidly growing e-commerce business. And we generated strong sequential and year-over-year improvements in our block-hour volumes, revenue, profitability and margins in the fourth quarter. In addition to record revenues in the quarter, we delivered a significant increase in reported earnings and record adjusted earnings for the period.

"Our performance in the fourth quarter was driven by the additional seasonal flying we did for express operators, growing e-commerce demand, and a lower level of maintenance expense. It also reflected a solid peak season and a seasonal improvement in commercial airfreight yields.

"In ACMI, we benefited from Southern Air’s 777 and 737 express CMI services and better contributions and synergies than originally anticipated. We also continued ramping up for Amazon, which enabled us to place the second of twenty 767-300 aircraft into service for them this month. In Charter, our results reflected an increase in commercial cargo demand. And our Dry Leasing business maintained its steady, annuity-like performance."

Mr. Flynn added: "With our expanding business base and the ongoing development of our strategic platform, we are well-positioned to grow earnings this year.

"In addition to the demand we are seeing for our aircraft and services, including our recently announced agreements with Asiana Cargo, Nippon Cargo Airlines and FedEx, we expect to see initial accretion from our operations for Amazon and a full year of contribution from Southern Air in 2017. We expect those positives to be partially offset by an increase in maintenance expense and lower cost-based rates paid by the military.

"As a result, we expect to increase adjusted income from continuing operations, net of taxes, by a mid-single-digit to low-double-digit percentage in 2017."

Fourth-Quarter Results

Record ACMI segment revenues and contribution in the fourth quarter of 2016 were primarily driven by our acquisition of Southern Air and lower heavy maintenance expense, partially offset by the temporary redeployment of 747-8F aircraft to our Charter segment. Segment revenue growth benefited from an increase in block-hour volumes, partially offset by a lower average rate per block hour. Both our volumes and average rate reflected an increase in 777 and 737 CMI flying following the acquisition of Southern Air, an increase in 767 CMI flying, as well as the temporary redeployment of 747-8F aircraft to our Charter segment.

Higher Charter segment contribution during the period reflected an increase in commercial cargo demand, including the beneficial impact of additional 747-8F flying, and a decrease in heavy maintenance expense. Lower revenue per block hour during the period was primarily due to a reduction in fuel prices in 2016, which was partially offset by the beneficial impact of additional 747-8F aircraft.

Segment contribution in Dry Leasing was slightly better on a year-over-year basis.

Lower unallocated income and expenses in the fourth quarter of 2016 primarily reflected the absence of charges incurred in the fourth quarter of 2015 in connection with the settlement of a U.S. class action litigation and for related legal fees.

Reported earnings for the fourth quarter of 2016 included an effective income tax rate of 47.2%, principally due to a nondeductible customer incentive. On an adjusted basis, our results reflected an effective income tax rate of 31.3%.

Full-Year Results

For the twelve months ended December 31, 2016, our continuing operations generated income of $42.6 million, or $1.70 per diluted share. For the twelve months ended December 31, 2015, our income from continuing operations totaled $7.3 million, or $0.29 per diluted share.

On an adjusted basis, income from continuing operations in 2016 totaled $114.3 million, or $4.50 per diluted share, compared with $125.3 million, or $5.01 per diluted share, in 2015.

Both reported and adjusted results in 2016 reflected the impact of startup expenses for our new service for Amazon, while reported and adjusted results in 2015 benefited from U.S. West Coast port-congestion-related earnings.

Reported earnings in 2016 included an effective income tax rate of 52.3%, principally due to a nondeductible customer incentive and to nondeductible compensation expenses. On an adjusted basis, our results reflected an effective income tax rate of 29.8%.

Cash and Short-Term Investments

At December 31, 2016, our cash, cash equivalents, restricted cash and short-term investments totaled $142.6 million, compared with $444.0 million at December 31, 2015. The change in position resulted from cash used for investing and financing activities, partially offset by cash provided by operating activities.

Net cash used for investing activities during 2016 primarily related to payments for flight equipment and modifications, including the acquisition of 767-300 aircraft to be converted to freighter configuration for our service for Amazon; our acquisition of Southern Air; and capital expenditures. We expect to finance a substantial portion of the acquisition and conversion costs for these aircraft as they are placed into service with Amazon.

Net cash used for financing activities primarily reflected payments on debt obligations, partially offset by new debt financing.

2017 Guidance Framework

Our guidance framework in 2017 and the foreseeable future will focus primarily on our adjusted income from continuing operations, net of taxes. We view this as the most useful information to provide securities analysts and investors.

Earnings per share remain very important, but, because of the unique characteristics of warrant accounting, our EPS can be substantially influenced by changes in the market price of our shares.

Those analysts and investors who wish to focus on EPS as an analytical metric should use the treasury stock method of accounting to calculate the weighted average shares outstanding.

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

Outlook

We are a stronger company today. We begin 2017 with solid demand from our customers for our aircraft and services. We are also capitalizing on the steps we have taken to align our business with the faster-growing express and e-commerce markets.

We believe the current demand, the initial accretion from our Amazon operations, and the first full-year of contribution from Southern Air provide a strong foundation for earnings growth this year.

As a result, we expect our adjusted income from continuing operations, net of taxes, to grow by a mid-single-digit to low-double-digit percentage compared with 2016. Given the inherent seasonality of airfreight demand, we anticipate that results in 2017 will reflect historical patterns, with approximately 70% of our adjusted income occurring in the second half.

In addition, we expect adjusted income in the first quarter of 2017, which is usually the lowest demand and highest maintenance-expense quarter of the year, to be consistent with or slightly better than the first quarter of 2016.

For the full year, we expect total block hours to increase approximately 20% compared with 2016, including Southern Air, our new services for Asiana Cargo and Nippon Cargo Airlines, and our ongoing ramp up for Amazon. More than 75% of our 2017 hours are expected to be in ACMI and the balance in Charter.

Aircraft maintenance expense in 2017 should total approximately $240 million, and depreciation and amortization is expected to total approximately $170 million. In addition, core capital expenditures, which exclude aircraft and engine purchases, are expected to total approximately $55 to $65 million, mainly for parts and components for our fleet.

Conference Call

Management will host a conference call to discuss Atlas Air Worldwide’s fourth-quarter and full-year 2016 financial and operating results at 11:00 a.m. Eastern Time on Thursday, February 23, 2016.

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

http://edge.media-server.com/m/p/iwp9hht2

For those unable to listen to the live call, a replay will be archived on the above websites following the call. A replay will also be available through March 1 by dialing (855) 859-2056 (U.S. Toll Free) or (404) 537-3406 (from outside the U.S.) and using Access Code 54207082#.

About Non-GAAP Financial Measures

To supplement our financial statements presented in accordance with U.S. GAAP, we present certain non-GAAP financial measures to assist in the evaluation of our business performance. These non-GAAP measures include EBITDAR, as adjusted; EBITDA, as adjusted; Direct Contribution; Adjusted income from continuing operations, net of taxes; Adjusted Diluted EPS from continuing operations; Adjusted effective tax rate; and Free Cash Flow, which exclude certain noncash income and expenses, and items impacting year-over-year comparisons of our results. These non-GAAP measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for Income from continuing operations, net of taxes, Diluted EPS from continuing operations, Effective tax rate and Net Cash Provided by Operating Activities, which are the most directly comparable measures of performance prepared in accordance with U.S. GAAP.

Our management uses these non-GAAP financial measures in assessing the performance of the Company’s ongoing operations and in planning and forecasting future periods. We believe that these adjusted measures, when considered together with the corresponding U.S. GAAP financial measures and the reconciliations to those measures, provide meaningful information to assist investors and analysts in understanding our financial results and assessing our prospects for future performance.

About Atlas Air Worldwide:

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

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

This release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect Atlas Air Worldwide’s current views with respect to certain current and future events and financial performance. Those statements are based on management’s beliefs, plans, expectations and assumptions, and on information currently available to management. Generally, the words "will," "may," "should," "expect," "anticipate," "intend," "plan," "continue," "believe," "seek," "project," "estimate," and similar expressions used in this release that do not relate to historical facts are intended to identify forward-looking statements.

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

Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following: our ability to effectively operate the network service contemplated by our agreements with Amazon, including the cost and timing of securing any aircraft necessary to fulfill our agreements; the risk that the anticipated benefits of our agreements with Amazon will not be realized when expected, or at all; the possibility that Amazon may terminate its agreements with the companies; the effect of the announcement or pendency of the transactions contemplated by the agreements with Amazon; costs associated with the acquisition of Southern Air; failure to achieve expected synergies, accretion and other anticipated benefits of the transaction or to successfully integrate the Southern Air business; adverse reactions to the acquisition by employees, key customers, including DHL Express, suppliers or competitors of either Atlas Air Worldwide, Southern Air, or their subsidiaries; our ability to effectively operate the 777 platform or grow the business of Southern Air; the ability of the companies to operate pursuant to the terms of their financing facilities; the ability of the companies to obtain and maintain normal terms with vendors and service providers; the companies’ ability to maintain contracts that are critical to their operations; the ability of the companies to fund and execute their business plan; the ability of the companies to attract, motivate and/or retain key executives and associates; the ability of the companies to attract and retain customers; the continued availability of our wide-body aircraft; demand for cargo services in the markets in which the companies operate; economic conditions; the effects of any hostilities or act of war (in the Middle East or elsewhere) or any terrorist attack; labor costs and relations; financing costs; the cost and availability of war risk insurance; our ability to maintain adequate internal controls over financial reporting; aviation fuel costs; security-related costs; competitive pressures on pricing (especially from lower-cost competitors); volatility in the international currency markets; weather conditions; government legislation and regulation; consumer perceptions of the companies’ products and services; anticipated and future litigation; and other risks and uncertainties set forth from time to time in Atlas Air Worldwide’s reports to the United States Securities and Exchange Commission.

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

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

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

                   Atlas Air Worldwide Holdings, Inc.
                   Consolidated Statements of Operations
                   (in thousands, except per share data)
                   (Unaudited)
                                                                                 For the Three Months Ended            For the Twelve Months Ended
                                                                                 December 31, 2016  December 31, 2015  December 31, 2016  December 31, 2015
Operating Revenue                                                                $     529,725      $     472,077      $     1,839,627    $     1,822,659
Operating Expenses
                   Salaries, wages and benefits                                        102,967            89,303             424,332            351,372
                   Aircraft fuel                                                       85,131             71,234             275,113            333,390
                   Maintenance, materials and repairs                                  43,886             60,168             206,106            202,337
                   Depreciation and amortization                                       39,154             31,987             148,876            128,740
                   Aircraft rent                                                       36,620             37,148             146,110            145,031
                   Travel                                                              33,457             30,557             127,748            102,755
                   Passenger and ground handling services                              25,086             21,365             89,657             83,185
                   Navigation fees, landing fees and other rent                        22,050             27,763             78,441             99,345
                   Loss (gain) on disposal of aircraft                                 -                  7                  (11       )        1,538
                   Special charge                                                      3,509              9,783              10,140             17,388
                   Transaction-related expenses                                        585                -                  22,071             -
                   Other                                                               35,848             136,506            142,733            234,073
                   Total Operating Expenses                                            428,293            515,821            1,671,316          1,699,154
                   Operating Income (Loss)                                             101,432            (43,744 )          168,311            123,505
Non-operating Expenses (Income)
                   Interest income                                                     (1,207  )          (1,601  )          (5,532    )        (12,554   )
                   Interest expense                                                    21,055             25,065             84,650             96,756
                   Capitalized interest                                                (1,207  )          (268    )          (3,313    )        (1,027    )
                   Loss on early extinguishment of debt                                -                  2,999              132                69,728
                   Gain on investments                                                 -                  -                  -                  (13,439   )
                   Unrealized loss on financial instruments                            27,901             -                  2,888              -
                   Other expense (income), net                                         442                (494    )          70                 1,261
                   Total Non-operating Expenses                                        46,984             25,701             78,895             140,725
                                                                                                          -
                   Income (loss) from continuing operations before income taxes        54,448             (69,445 )          89,416             (17,220   )
                   Income tax expense (benefit)                                        25,712             (31,863 )          46,791             (24,506   )
                   Income (loss) from continuing operations, net of taxes              28,736             (37,582 )          42,625             7,286
                   Loss from discontinued operations, net of taxes                     (319    )          -                  (1,109    )        -
Net Income (Loss)                                                                $     28,417       $     (37,582 )    $     41,516       $     7,286
Earnings (loss) per share from continuing operations:
                   Basic                                                         $     1.15         $     (1.53   )    $     1.72         $     0.29
                   Diluted                                                       $     1.12         $     (1.53   )    $     1.70         $     0.29
Earnings (loss) per share from discontinued operations:
                   Basic                                                         $     (0.01   )    $     -            $     (0.04     )  $     -
                   Diluted                                                       $     (0.01   )    $     -            $     (0.04     )  $     -
Earnings (loss) per share:
                   Basic                                                         $     1.14         $     (1.53   )    $     1.67         $     0.29
                   Diluted                                                       $     1.11         $     (1.53   )    $     1.65         $     0.29
Weighted average shares:
                   Basic                                                               25,008             24,633             24,843             24,833
                   Diluted                                                             25,554             24,633             25,120             25,018
Atlas Air Worldwide Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
                                                                                                                                                                                                                                                                                                December 31, 2016                  December 31, 2015
Assets
Current Assets
                Cash and cash equivalents                                                                                                                                                                                                                                     $               123,890            $               425,950
                Short-term investments                                                                                                                                                                                                                                                     4,313                              5,098
                Restricted cash                                                                                                                                                                                                                                                     14,360                             12,981
                Accounts receivable, net of allowance of $997 and $1,247, respectively                                                                                                                                                                                                                          166,486                            164,308
                Prepaid maintenance                                                                                                                                                                                                                                                     4,418                              6,052
                Prepaid expenses and other current assets                                                                                                                                                                                                                                                     44,603                             37,548
                Total current assets                                                                                                                                                                                                                                                     358,070                            651,937
Property and Equipment
                Flight equipment                                                                                                                                                                                                                                                     3,886,714                          3,687,248
                Ground equipment                                                                                                                                                                                                                                                     68,688                             58,487
                                                                                                                                                                    Less:  accumulated depreciation                                                                                                             (568,946        )                  (450,217        )
                Flight equipment modifications in progress                                                                                                                                                                                                                                                     154,226                            39,678
                Property and equipment, net                                                                                                                                                                                                                                                     3,540,682                          3,335,196
Other Assets
                Long-term investments and accrued interest                                                                                                                                                                                                                                                     27,951                             37,604
                Deferred costs and other assets                                                                                                                                                                                                                                                     204,647                            81,183
                Intangible assets, net and goodwill                                                                                                                                                                                                                                                     116,029                            58,483
Total Assets                                                                                                                                                                                                                                     $               4,247,379          $               4,164,403
Liabilities and Equity
Current Liabilities
                Accounts payable                                                                                                                                                                                                                                     $               59,543             $               93,278
                Accrued liabilities                                                                                                                                                                                                                                                     320,887                            293,138
                Current portion of long-term debt and capital leases                                                                                                                                                                                                                                            184,748                            161,811
                Total current liabilities                                                                                                                                                                                                                                                     565,178                            548,227
Other Liabilities
                Long-term debt                                                                                                                                                                                                                                                     1,666,663                          1,739,496
                Deferred taxes                                                                                                                                                                                                                                                     298,165                            286,928
                Financial instruments and other liabilities                                                                                                                                                                                                                                                     200,035                            135,569
                Total other liabilities                                                                                                                                                                                                                                                     2,164,863                          2,161,993
Commitments and contingencies
Equity
                Stockholders’ Equity
                                        Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued                                                                                                                                                                                           ???                                ???
                                        Common stock, $0.01 par value; 100,000,000 and 50,000,000 shares authorized; 29,633,605 and 28,955,445 shares issued, 25,017,242 and 24,636,651 shares outstanding (net of treasury stock), as of December 31, 2016 and December 31, 2015, respectively                 296                                290
                Additional paid-in-capital                                                                                                                                                                                                                                                     657,082                            625,244
                Treasury stock, at cost; 4,616,363 and 4,318,794 shares, respectively                                                                                                                                                                                                                           (183,119        )                  (171,844        )
                Accumulated other comprehensive loss                                                                                                                                                                                                                                                     (4,993          )                  (6,063          )
                Retained earnings                                                                                                                                                                                                                                                     1,048,072                          1,006,556
                Total equity                                                                                                                                                                                                                                                     1,517,338                          1,454,183
Total Liabilities and Equity                                                                                                                                                                                                                                     $               4,247,379          $               4,164,403
Balance sheet debt at December 31, 2016 totaled $1,851.4 million, including the impact of $43.0 million of unamortized discount and debt issuance costs of $49.0 million.
The face value of our debt at December 31, 2016 totaled $1,943.4 million, compared with $2,008.1 million on December 31, 2015.
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
                                                                                                                               For the Twelve Months Ended
                                                                                                                               December 31, 2016 December 31, 2015
Operating Activities:
Income from continuing operations, net of taxes                                                                                $     42,625      $     7,286
                                         Less: Loss from discontinued operations, net of taxes                                       (1,109   )        ???
                                         Net Income                                                                                  41,516            7,286
Adjustments to reconcile Net Income to net cash provided by operating activities:
                                         Depreciation and amortization                                                               168,721           147,604
                                         Accretion of debt securities discount                                                       (1,277   )        (4,651   )
                                         Provision for allowance for doubtful accounts                                               508               171
                                         Special charge, net of cash payments                                                        10,140            16,351
                                         Loss on early extinguishment of debt                                                        132               69,728
                                         Unrealized loss on financial instruments                                                    2,888             ???
                                         Loss (gain) on disposal of aircraft                                                         (11      )        1,538
                                         Deferred taxes                                                                              47,381            (25,898  )
                                         Stock-based compensation expense                                                            32,724            16,181
Changes in:
                                         Accounts receivable                                                                         22,974            2,016
                                         Prepaid expenses, current assets and other assets                                           (29,455  )        23,171
                                         Accounts payable and accrued liabilities                                                    (64,059  )        119,390
Net cash provided by operating activities                                                                                            232,182           372,887
Investing Activities:
                                         Capital expenditures                                                                        (46,717  )        (45,040  )
                                         Payments for flight equipment and modifications                                             (316,993 )        (227,048 )
                                         Acquisition of business, net of cash acquired                                               (105,392 )        ???
                                         Proceeds from investments                                                                   11,714            80,302
                                         Proceeds from disposal of aircraft                                                          ???               25,441
Net cash used for investing activities                                                                                               (457,388 )        (166,345 )
Financing Activities:
                                         Proceeds from debt issuance                                                                 103,492           568,033
                                         Customer maintenance reserves received                                                      15,105            16,148
                                         Customer maintenance reserves paid                                                          ???               (3,801   )
                                         Proceeds from sale of warrants                                                              ???               36,290
                                         Payments for convertible note hedges                                                        ???               (52,903  )
                                         Proceeds from stock option exercises                                                        ???               1,193
                                         Purchase of treasury stock                                                                  (11,275  )        (26,522  )
                                         Excess tax benefit from stock-based compensation expense                                    390               555
                                         Payment of debt extinguishment costs                                                        ???               (36,054  )
                                         Payment of debt issuance costs                                                              (4,034   )        (14,509  )
                                         Payments of debt                                                                            (179,153 )        (568,923 )
Net cash used for financing activities                                                                                               (75,475  )        (80,493  )
Net increase (decrease) in cash and cash equivalents                                                                                 (300,681 )        126,049
Cash, cash equivalents and restricted cash at the beginning of period                                                                438,931           312,882
Cash, cash equivalents and restricted cash at the end of period                                                                $     138,250     $     438,931
Non-cash Investing and Financing Activities:
                                         Acquisition of flight equipment included in Accounts payable and accrued liabilities  $     14,345      $     33,294
                                         Acquisition of flight equipment under capital lease                                   $     10,800      $     ???
Atlas Air Worldwide Holdings, Inc.
Direct Contribution
(in thousands)
(Unaudited)
                                                             For the Three Months Ended           For the Twelve Months Ended
                                                             December 31, 2016  December 31, 2015 December 31, 2016  December 31, 2015
Segment Revenue:
ACMI                                                         $     234,225      $     216,120     $     834,997      $     791,442
Charter                                                            265,197            228,111           881,991            908,753
Dry Leasing                                                        26,630             23,983            105,795            107,218
Customer incentive asset amortization                              (363    )          -                 (537      )        -
Other                                                              4,036              3,863             17,381             15,246
Total Operating Revenue                                      $     529,725      $     472,077     $     1,839,627    $     1,822,659
Direct Contribution:
ACMI                                                         $     78,725       $     47,564      $     200,563      $     185,615
Charter                                                            55,146             39,834            133,727            124,808
Dry Leasing                                                        8,414              7,931             33,114             42,023
Total Direct Contribution for Reportable Segments                  142,285            95,329            367,404            352,446
Add back (subtract):
Unallocated income and expenses, net                               (55,842 )          (151,985 )        (242,768  )        (294,451  )
Loss on early extinguishment of debt                               -                  (2,999   )        (132      )        (69,728   )
Unrealized loss (gain) on financial instruments                    (27,901 )          -                 (2,888    )        -
Gain on investments                                                -                  -                 -                  13,439
Special charge                                                     (3,509  )          (9,783   )        (10,140   )        (17,388   )
Transaction-related expenses                                       (585    )          -                 (22,071   )        -
Loss (gain) on disposal of aircraft                                -                  (7       )        11                 (1,538    )
Income (loss) from continuing operations before income taxes       54,448             (69,445  )        89,416             (17,220   )
Add back (subtract):
Interest income                                                    (1,207  )          (1,601   )        (5,532    )        (12,554   )
Interest expense                                                   21,055             25,065            84,650             96,756
Capitalized interest                                               (1,207  )          (268     )        (3,313    )        (1,027    )
Loss on early extinguishment of debt                               -                  2,999             132                69,728
Unrealized loss on financial instruments                           27,901             -                 2,888              -
Gain on investments                                                -                  -                 -                  (13,439   )
Other expense (income), net                                        442                (494     )        70                 1,261
Operating Income (Loss)                                      $     101,432      $     (43,744  )  $     168,311      $     123,505

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

Direct Contribution consists of income (loss) from continuing operations before taxes, excluding special charges, transaction-related expenses, nonrecurring items, losses (gains) on the disposal of aircraft, losses on early extinguishment of debt, unrealized losses (gains) on financial instruments, gains on investments, and unallocated income and expenses, net.

Direct operating and ownership costs include crew costs, maintenance, fuel, ground operations, sales costs, aircraft rent, interest expense on the portion of debt used for financing aircraft, interest income on debt securities, and aircraft depreciation.

Unallocated income and expenses, net include corporate overhead, nonaircraft depreciation, noncash expenses and income, interest expense on the portion of debt used for general corporate purposes, interest income on nondebt securities, capitalized interest, foreign exchange gains and losses, and other revenue and other nonoperating costs.

Atlas Air Worldwide Holdings, Inc.
Reconciliation to Non-GAAP Measures
(in thousands, except per share data)
(Unaudited)
                                                              For the Three Months Ended
                                                              December 31, 2016  December 31, 2015  Percent Change
Income (loss) from continuing operations, net of taxes        $     28,736       $     (37,582 )    NM
Impact from:
Charges associated with benefit plan change in control              (2,642 )           -
Loss on disposal of aircraft                                        -                  7
Special charge                                                      3,509              10,353
Transaction-related expenses                                        585                -
Accrual for legal matters and professional fees                     (312   )           102,841
Noncash expenses and income, net                                    2,304              1,818
Charges associated with refinancing debt                            -                  6,682
Unrealized loss on financial instruments                            27,901             -
Income tax effect of reconciling items                              (1,116 )           (44,682 )
Adjusted Income from continuing operations, net of taxes      $     58,965       $     39,437       49.5    %
Weighted average diluted shares outstanding                         25,554             24,843
Add: dilutive warrants                                              772                -
Adjusted weighted average diluted shares outstanding                26,326             24,843
Adjusted Diluted EPS from continuing operations, net of taxes $     2.24         $     1.59         40.9    %
                                                              For the Twelve Months Ended
                                                              December 31, 2016  December 31, 2015  Percent Change
Income from continuing operations, net of taxes               $     42,625       $     7,286        485.0   %
Impact from:
Charges associated with benefit plan change in control              23,527             -
Loss (gain) on disposal of aircraft                                 (11     )          1,538
Special charge                                                      10,140             17,958
Transaction-related expenses                                        22,071             -
Accrual for legal matters and professional fees                     6,465              104,380
Noncash expenses and income, net                                    8,111              4,480
Charges associated with refinancing debt                            132                73,411
Gain on investments                                                 -                  (13,439 )
Unrealized loss on financial instruments                            2,888              -
Income tax effect of reconciling items                              (1,651  )          (66,300 )
ETI tax benefit                                                     -                  (4,008  )
Adjusted Income from continuing operations, net of taxes      $     114,297      $     125,306      (8.8    %)
Weighted average diluted shares outstanding                         25,120             25,018
Add: dilutive warrants                                              299                -
Adjusted weighted average diluted shares outstanding                25,419             25,018
Adjusted Diluted EPS from continuing operations, net of taxes $     4.50         $     5.01         (10.2   %)

Compensation costs resulting from a change in control under certain benefit plans.

Noncash expenses and income, net in 2016 primarily related to amortization of debt discount on the convertible notes and amortization of customer incentive related to outstanding warrants. Noncash expenses and income, net in 2015 primarily related to amortization and accretion of debt, lease and investment discounts.

Unrealized loss on financial instruments related to warrants granted to Amazon.

Unrealized loss on financial instruments is excluded from the calculation of Diluted EPS from continuing operations as the calculation assumes exercise of the outstanding warrants occurred upon their issuance.

Income tax effect of reconciling items is primarily impacted by a nondeductible incentive and nondeductible expenses resulting from a change in control under certain of the company’s benefit plans.

Reported and adjusted diluted EPS are determined using the most dilutive measure, either including unrealized gains or losses related to the warrants in the calculation of diluted income (loss) from continuing operations, net of tax, or including the impact of assumed exercise of the warrants in the calculation of weighted average diluted shares outstanding. Therefore, reported and adjusted diluted EPS may be calculated using different methods.

Atlas Air Worldwide Holdings, Inc.
Reconciliation to Non-GAAP Measures
(in thousands, except per share data)
(Unaudited)
                                           For the Three Months Ended
                                                 December 31, 2016  December 31, 2015
Net Cash Provided by Operating Activities        $        131,338   $        107,038
Less:
Capital expenditures                                      9,845              11,205
Capitalized interest                                      1,207              268
Free Cash Flow                                   $        120,286   $        95,565
                                           For the Twelve Months Ended
                                                 December 31, 2016  December 30, 2015
Net Cash Provided by Operating Activities        $        232,182   $        372,887
Less:
Capital expenditures                                      46,717             45,040
Capitalized interest                                      3,313              1,027
Free Cash Flow                                   $        182,152   $        326,820

Free Cash Flow = Cash Flows from Operations minus Capital Expenditures and Capitalized Interest.

Capital Expenditures exclude purchases of aircraft.

Atlas Air Worldwide Holdings, Inc.

Reconciliation to Non-GAAP Measures

(in thousands)

(Unaudited)

                                                             For the Three Months Ended         For the Twelve Months Ended
                                                             December 31,    December 31,       December 31,       December 31,
                                                             2016            2015               2016               2015
Income (loss) from continuing operations, net of taxes       $   28,736      $    (37,582 )     $    42,625        $    7,286
Income tax expense (benefit)                                     25,712           (31,863 )          46,791             (24,506 )
Income (loss) from continuing operations before income taxes     54,448           (69,445 )          89,416             (17,220 )
Noncash interest expenses and income, net                        2,304            1,818              8,111              4,480
Loss (gain) on disposal of aircraft                              -                7                  (11     )          1,538
Special charge                                                   3,509            10,353             10,140             17,388
Charges associated with benefit plan  change in control          (2,642 )         -                  23,527             -
Transaction-related expenses                                     585              -                  22,071             -
Accrual for legal matters and professional fees                  (312   )         102,841            6,465              104,380
Charges associated with refinancing  debt                        -                6,682              132                69,728
Gain on investments                                              -                -                  -                  (13,439 )
Unrealized loss on financial instruments                         27,901           -                  2,888              -
Adjusted pretax income                                           85,793           52,256             162,739            166,855
Interest (income) expense, net                                   17,296           21,975             70,616             81,081
Other non-operating expenses (income)                            442              (494    )          70                 1,261
Adjusted operating income                                        103,531          73,737             233,425            249,197
Depreciation and amortization                                    39,154           31,987             148,876            128,740
EBITDA, as adjusted                                              142,685          105,724            382,301            377,937
Aircraft rent                                                    36,024           36,551             143,725            142,645
EBITDAR, as adjusted                                         $   178,709     $    142,275       $    526,026       $    520,582
Income tax expense (benefit)                                 $   25,712      $    (31,863 )     $    46,791        $    (24,506 )
Income tax effect of reconciling items                           (1,116 )         (44,682 )          (1,651  )          (66,300 )
ETI tax benefit                                                  -                -                  -                  (4,008  )
Adjusted income tax expense                                      26,828           12,819             48,442             45,802
Adjusted pretax income                                       $   85,793      $    52,256        $    162,739       $    166,855
Adjusted effective tax rate                                      31.3   %         24.5    %          29.8    %          27.5    %

Reflects impact of noncash expenses and income related to convertible notes, debt and investments, and amortization of customer incentive related to outstanding warrants.

Special charge in 2016 primarily represented a loss on engines held for sale.

Adjusted EBITDA: Earnings before interest, taxes, depreciation, amortization, noncash interest expenses and income, net, loss (gain) on disposal of aircraft, special charge, charges associated with benefit plan change in control, transaction-related expenses, accrual for legal matters and professional fees, charges associated with refinancing debt, gain on investments, unrealized loss on financial instruments, and ETI tax benefit, as applicable.

Adjusted EBITDAR: Earnings before interest, taxes, depreciation, amortization, aircraft rent expense, noncash interest expenses and income, net, loss (gain) on disposal of aircraft, special charge, charges associated with benefit plan change in control, transaction-related expenses, accrual for legal matters and professional fees, charges associated with refinancing debt, gain on investments, unrealized loss on financial instruments, and ETI tax benefit, as applicable.

See Non-GAAP reconciliation of Adjusted income from continuing operations, net of taxes.

Atlas Air Worldwide Holdings, Inc.
Operating Statistics and Traffic Results
(Unaudited)
                                                         For the Three Months Ended                             For the Twelve Months Ended
                                                                     December 31,                Increase/                  December 31,                Increase/
                                                                     2016          2015          (Decrease)                 2016          2015          (Decrease)
Block Hours
              ACMI                                                   43,081        33,716        9,365                      151,919       126,206       25,713
              Charter
              Cargo                                                  13,678        9,417         4,261                      40,376        35,463        4,913
              Passenger                                              3,650         3,529         121                        16,403        14,776        1,627
              Other                                                  397           475           (78         )              1,746         1,615         131
              Total Block Hours                                      60,806        47,137        13,669                     210,444       178,060       32,384
Revenue Per Block Hour
              ACMI                                       $           5,437       $ 6,410       $ (973        )  $           5,496       $ 6,271       $ (775        )
              Charter                                                15,305        17,620        (2,315      )              15,534        18,089        (2,555      )
              Cargo                                                  14,827        17,428        (2,601      )              14,861        17,655        (2,794      )
              Passenger                                              17,094        18,134        (1,040      )              17,191        19,130        (1,939      )
Average Utilization (block hours per day)
              ACMI                                                   9.3           9.3           -                          8.9           9.3           (0.4        )
              Charter
              Cargo                                                  12.7          11.4          1.3                        9.6           10.1          (0.5        )
              Passenger                                              6.5           8.2           (1.7        )              8.0           8.6           (0.6        )
              All Operating Aircraft                                 9.7           9.6           0.1                        9.0           9.5           (0.5        )
Fuel
              Charter
                            Average fuel cost per gallon $           1.65        $ 1.89        $ (0.24       )  $           1.68        $ 2.27        $ (0.59       )
                            Fuel gallons consumed (000s)             51,614        37,737        13,877                     163,862       147,081       16,781
ACMI and All Operating Aircraft averages in the fourth quarter and twelve months of 2016 reflect the impact of increases in the number of CMI aircraft and amount of CMI flying compared with the same periods of 2015.
Average of All Operating Aircraft excludes Dry Leasing aircraft, which do not contribute to block-hour volumes.
Atlas Air Worldwide Holdings, Inc.
Operating Statistics and Traffic Results
(Unaudited)
                                                                          For the Three Months Ended              For the Twelve Months Ended
                                                                          December 31,                Increase/   December 31,                 Increase/
                                                                          2016     2015               (Decrease)  2016     2015                (Decrease)
Segment Operating Fleet (average aircraft equivalents during the period)
                         ACMI
                         747-8F Cargo                                     7.8      9.0                (1.2  )     8.1      8.9                 (0.8  )
                         747-400 Cargo                                    13.7     14.2               (0.5  )     13.1     12.6                0.5
                         747-400 Dreamlifter                              2.4      2.8                (0.4  )     2.8      3.0                 (0.2  )
                         777-200 Cargo                                    5.0      -                  5.0         3.7      -                   3.7
                         767-300 Cargo                                    5.3      2.2                3.1         4.3      2.1                 2.2
                         767-200 Cargo                                    9.0      9.0                -           9.0      8.3                 0.7
                         737-400 Cargo                                    5.0      -                  5.0         3.7      -                   3.7
                         747-400 Passenger                                1.0      1.3                (0.3  )     1.0      1.2                 (0.2  )
                         767-200 Passenger                                1.0      1.0                -           1.0      1.0                 -
                         Total                                            50.2     39.5               10.7        46.7     37.1                9.6
                         Charter
                         747-8F Cargo                                     2.2      0.6                1.6         1.9      0.2                 1.7
                         747-400 Cargo                                    9.5      8.4                1.1         9.6      9.4                 0.2
                         747-400 Passenger                                2.0      1.7                0.3         2.0      1.8                 0.2
                         767-300 Passenger                                4.1      3.0                1.1         3.6      2.9                 0.7
                         Total                                            17.8     13.7               4.1         17.1     14.3                2.8
                         Dry Leasing
                         777-200 Cargo                                    6.0      6.0                -           6.0      6.0                 -
                         767-300 Cargo                                    3.0      -                  3.0         2.3      -                   2.3
                         757-200 Cargo                                    1.0      1.0                -           1.0      1.0                 -
                         737-300 Cargo                                    1.0      1.0                -           1.0      1.0                 -
                         737-800 Passenger                                1.0      1.0                -           1.0      1.2                 (0.2  )
                         Total                                            12.0     9.0                3.0         11.3     9.2                 2.1
                         Less: Aircraft Dry Leased to CMI customers       (3.0  )  -                  (3.0  )     (2.3  )  -                   (2.3  )
                         Total Operating Aircraft                         77.0     62.2               14.8        72.8     60.6                12.2
                         Out of Service                                   -        -                  -           -        0.4                 (0.4  )
                         ACMI average fleet excludes spare aircraft provided by CMI customers.
                         Out-of-service aircraft were temporarily parked during the period and are completely unencumbered.
Contacts:
Dan Loh (Investors) -???(914) 701-8200
Bonnie Rodney (Media) - (914) 701-8580

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