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Atlas Air Worldwide Reports Strong Third-Quarter Earnings Growth, Raises Full-Year Outlook

Atlas Air Worldwide Reports Strong Third-Quarter Earnings Growth, Raises Full-Year Outlook
  • Ongoing Market Strength, Customer Demand, Core Business Development Drove Record Volumes 
  • Reported Results Reflect Impact of Warrant Accounting
  • Adjusted Income and Adjusted EBITDA Increased Sharply
  • 2018 Adjusted Earnings Now Expected to Grow Near or Above 50%*  

PURCHASE, N.Y., Nov. 01, 2018 (GLOBE NEWSWIRE) -- Atlas Air Worldwide Holdings, Inc. (AAWW) today announced strong third-quarter earnings growth and raised its outlook for full-year 2018, driven by ongoing market strength, customer demand and business development.

“We continue to leverage the scale and scope of our enterprise and our leadership in global aviation outsourcing,” said President and Chief Executive Officer William J. Flynn.

“We are in a good place to deliver quality results today and in the future. We have the aircraft and provide the services that customers want. We are focused on the right markets. And we are executing on strategic initiatives to grow and diversify our fleet, expand our customer base and enhance our business mix.

“Secular trends are driving opportunities and growth in airfreight. And our focus is on express, e-commerce and fast-growing regions where efficient, time-definite, freighter networks are essential to meet the growing demands of businesses and consumers.

“Looking to the full year, we continue to expect our revenue to exceed $2.6 billion. We project adjusted EBITDA to increase to more than $525 million. And we anticipate our full-year adjusted net income to grow near or above 50% compared with 2017.”

Mr. Flynn continued: “Our full-year outlook reflects our expectations for another great fourth quarter. We see solid peak-season yields and volumes, including the additional seasonal flying we do for express and e-commerce operators. And we anticipate record fourth-quarter block hours, revenue, adjusted EBITDA and adjusted net income.

“The fourth quarter will also benefit from our second 747-400 freighter for Asiana Cargo, which began flying in September, and our first 747-400 freighter for SF Express, China’s leading express operator, which began service in October. In addition, we expect to add two more 767-300 converted freighters for Amazon before Thanksgiving, which will bring us to 20 aircraft in line with the schedule we announced in May 2016.”

He concluded: “While tariffs and trade are important topics, neither we nor our customers, with whom we are in close contact, have seen a material impact on airfreight demand. Airfreight tonnage continues to grow from record levels, and airfreight demand is growing in line with its longer-term rate of about 4% per year, with express and e-commerce growing much more than that.”    

Third-Quarter Results

Volumes in the third quarter of 2018 increased 14% to a record 73,672 block hours, with revenue growing 23% to $656.6 million.

Reported income from continuing operations, net of taxes, totaled $71.1 million, or $0.84 per diluted share, during the period compared with a reported loss of $24.2 million, or $0.96 per diluted share, in the third quarter of 2017. Reported results in the third quarter of 2018 included an unrealized gain on outstanding warrants of $46.1 million compared with an unrealized loss on outstanding warrants of $44.8 million in the year-ago period. 

On an adjusted basis, income from continuing operations, net of taxes, in the third quarter of 2018 increased $14.1 million to $43.8 million, or $1.54 per diluted share, from $29.7 million, or $1.08 per diluted share, in the year-ago quarter. Adjusted EBITDA increased $25.3 million over the year-ago period to $124.8 million.

ACMI segment contribution in the third quarter of 2018 increased slightly compared with the prior-year period, primarily due to a significant increase in block-hour volumes partially offset by the impact of unscheduled maintenance; higher crew costs, including enhanced wages and work rules resulting from an interim labor agreement with our Southern Air pilots; and the redeployment of 747-400 VIP-configured passenger aircraft to Charter after acquisition from a former CMI customer. Block hours grew 13% during the period, reflecting increased 767 flying for Amazon and the start-up of 747-400 flying for several new customers. Revenue per block hour during the quarter was relatively in line with the third quarter of 2017, primarily due to a mix effect reflecting an increase in widebody 747-400F ACMI flying that was offset by an increase in smaller-gauge 767 CMI flying.

Higher Charter segment contribution during the period was primarily driven by an increase in military and commercial cargo demand and higher yields excluding fuel, partially offset by an increase in heavy maintenance. Higher average block-hour rates during the quarter primarily reflected higher fuel prices and higher yields excluding fuel. 

In Dry Leasing, higher segment contribution primarily reflected the placement of additional 767-300 converted freighter aircraft throughout the second half of 2017 and first three quarters of 2018, as well as the placement of one 777-200 freighter in February 2018 and a second one in July 2018.

Higher unallocated income and expenses, net during the quarter primarily reflected a ratification bonus related to an interim agreement to enhance the terms and conditions of employment of our Southern Air, Inc. pilots; fleet growth initiatives; amortization of a customer incentive asset; and an increase in unallocated interest expense.

Reported earnings in the third quarter of 2018 also included an effective income tax rate of 0.0%, due mainly to nondeductible or nontaxable changes in the value of outstanding warrants as well as a deferred income tax benefit of approximately $8.7 million related to the renewal of our Titan dry-leasing subsidiary’s participation in an aircraft-leasing incentive program in Singapore. On an adjusted basis, our results reflected an effective income tax rate of 0.0%.

Nine-Month Results

Reported income from continuing operations, net of taxes, for the nine months ended September 30, 2018, totaled $59.6 million, or $2.27 per diluted share, which included an unrealized loss on financial instruments of $11.7 million related to outstanding warrants and a special charge of $9.4 million related to engines held for sale. Results for the first nine months compared with income from continuing operations of $14.9 million, or $0.58 per diluted share, which included an unrealized loss on financial instruments of $36.2 million, for the nine months ended September 30, 2017.

On an adjusted basis, income from continuing operations, net of taxes, in the first nine months of 2018 totaled $117.3 million, or $4.17 per diluted share, compared with $67.1 million, or $2.48 per diluted share, in the first nine months of 2017. Adjusted EBITDA in the first nine months of 2018 increased $78.2 million to $344.1 million.   

Cash and Short-Term Investments

At September 30, 2018, our cash and cash equivalents, short-term investments and restricted cash totaled $244.7 million, compared with $305.5 million at December 31, 2017.

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

Net cash used for investing activities during the first nine months of 2018 primarily related to capital expenditures and payments for flight equipment and modifications, including the acquisition of 777-200 aircraft, 767-300 passenger aircraft and related freighter-conversion costs, spare engines and GEnx engine performance upgrade kits.

Net cash provided by financing activities during the period primarily reflected proceeds from our financings of 777-200 and 767-300 aircraft, partially offset by payments on debt obligations. 

Enhanced 2018 Outlook

Consistent with our strong year-to-date performance and our fourth-quarter expectations, we expect our full-year 2018 revenue to exceed $2.6 billion; our adjusted EBITDA to increase to more than $525 million; and our adjusted net income to increase near or above 50% compared with 2017 adjusted net income of $133.7 million.

We see volumes for the year rising approximately 17% to around 297,000 block hours, with about 75% of the hours in ACMI and the balance in Charter.

Aircraft maintenance expense in 2018 is expected to total approximately $335 million, mainly reflecting an increase in daily line maintenance due to the growth in block hours. Depreciation and amortization is expected to total approximately $215 million. In addition, core capital expenditures, which exclude aircraft and engine purchases, are expected to total approximately $105 to $115 million, mainly for parts and components for our fleet.

We also expect our full-year 2018 adjusted effective income tax rate to be approximately 15%. 

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

Conference Call

Management will host a conference call to discuss Atlas Air Worldwide’s third-quarter 2018 financial and operating results at 11:00 a.m. Eastern Time on Thursday, November 1, 2018.

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

https://edge.media-server.com/m6/p/9hco3uij  

For those unable to listen to the live call, a replay will be archived on the above websites following the call. A replay will also be available through November 8 by dialing (855) 859-2056 (U.S. Toll Free) or (404) 537-3406 (from outside the U.S.) and using Access Code 8787259#.

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

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

  • Adjusted EBITDA; Adjusted income from continuing operations, net of taxes; and Adjusted Diluted EPS from continuing operations, net of taxes, provide a more comparable basis to analyze operating results and earnings and are measures commonly used by shareholders to measure our performance. In addition, management’s incentive compensation is determined, in part, by using Adjusted EBITDA and Adjusted income from continuing operations, net of taxes.
     
  • Adjusted effective tax rate provides improved insight into the tax effects of our ongoing business operations.
     
  • Free Cash Flow helps investors assess our ability, over the long term, to create value for our shareholders as it represents cash available to execute our capital allocation strategy.

*We provide guidance on an adjusted basis and are unable to provide forwarding-looking guidance on a U.S. GAAP basis or a reconciliation to the most directly comparable U.S. GAAP measures because we are unable to predict with reasonable certainty the ultimate outcome of certain significant items. The principal item is the impact on our results of our outstanding warrants, which are highly dependent on the change in our stock price during the period reported. These items are uncertain, depend on various factors, and could have a material impact on our U.S. GAAP results.

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 cargo and passenger operations.

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 speak only as of the date of this release. They 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 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, pilots 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; failure or disruption of our information technology systems; labor costs and relations, work stoppages and service slowdowns; the outcome of pending negotiations with our pilots’ union; 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; changes to our provisional estimates of the impact of the U.S. Tax Cuts and Jobs Act of 2017; 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 2018 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 and expressly disclaims any obligation to revise or update publically any forward-looking statement to reflect future events or circumstances.


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, 2018      September 30, 2017     September 30, 2018
    September 30, 2017   
                               
Operating Revenue $ 656,607     $ 535,748     $ 1,912,766     $ 1,528,508  
                             
Operating Expenses                            
Salaries, wages and benefits   138,345       114,505       392,603     330,080  
Aircraft fuel   119,604       74,048       345,613     239,966  
Maintenance, materials and repairs   88,136       74,457       261,251     212,042  
Depreciation and amortization   55,417       42,033       155,881     120,913  
Travel   41,605       38,260       123,810     105,510  
Aircraft rent   39,973       33,873       119,778       103,738  
Navigation fees, landing fees and other rent   43,258       33,468       116,553       77,258  
Passenger and ground handling services   28,716       28,491       86,980       77,187  
Loss on disposal of aircraft   -       211       -       64  
Special charge   -       -       9,374       -  
Transaction-related expenses   765       1,092       1,275       3,403  
Other   46,318       42,598       143,663       123,121  
Total Operating Expenses   602,137       483,036       1,756,781       1,393,282  
                               
Operating Income   54,470       52,712       155,985       135,226  
                               
Non-operating Expenses (Income)                              
Interest income   (1,592 )     (1,688     (4,704 )     (4,286 )
Interest expense   31,115       26,553       87,639       72,747  
Capitalized interest   (1,120 )     (1,922     (4,335 )     (5,633 )
Loss on early extinguishment of debt   -       167       -       167  
Unrealized loss (gain) on financial instruments   (46,080 )     44,775       11,691       36,225  
Other expense (income)   975       (1,165     (10,777 )     (357 )
Total Non-operating Expenses (Income)   (16,702 )     66,720       79,514       98,863  
Income (loss) from continuing operations before income taxes   71,172       (14,008     76,471       36,363  
Income tax expense   34       10,187       16,828       21,479  
                               
Income (loss) from continuing operations, net of taxes   71,138       (24,195     59,643       14,884  
Income (loss) from discontinued operations, net of taxes   (7 )     33       (50 )     (859 )
                               
Net Income (Loss) $ 71,131     $ (24,162   $ 59,593     $ 14,025  
Earnings (loss) per share from continuing operations:                              
Basic $ 2.78     $ (0.96   $ 2.34     $ 0.59  
Diluted $ 0.84     $ (0.96   $ 2.27     $ 0.58  
Loss per share from discontinued operations:                              
Basic $ (0.00 )   $ 0.00     $ (0.00 )   $ (0.03 )
Diluted $ (0.00 )   $ 0.00     $ (0.00 )   $ (0.03 )
Earnings (loss) per share:                              
Basic $ 2.78     $ (0.96   $ 2.33     $ 0.56  
Diluted $ 0.84     $ (0.96   $ 2.27     $ 0.54  
Weighted average shares:                              
Basic   25,575       25,262       25,526       25,229  
Diluted   28,747       25,262       26,274       25,822  


Atlas Air Worldwide Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)

    September 30, 2018     December 31, 2017  
Assets                
Current Assets                
Cash and cash equivalents   $ 214,961     $ 280,809  
Short-term investments     18,511       13,604  
Restricted cash     11,194       11,055  
Accounts receivable, net of allowance of $1,381 and $1,494, respectively     254,425       194,478  
Prepaid maintenance     30,988       13,346  
Prepaid expenses and other current assets     70,568       74,294  
Total current assets     600,647       587,586  
Property and Equipment                
Flight equipment     5,085,594       4,447,097  
Ground equipment     78,389       70,951  
Less:  accumulated depreciation     (821,203 )     (701,249 )
Flight equipment modifications in progress     107,290       186,302  
Property and equipment, net     4,450,070       4,003,101  
Other Assets                
Long-term investments and accrued interest     1,722       15,371  
Deferred costs and other assets     324,740       242,919  
Intangible assets, net and goodwill     99,860       106,485  
Total Assets   $ 5,477,039     $ 4,955,462  
                 
Liabilities and Equity                
Current Liabilities                
Accounts payable   $ 81,682     $ 65,740  
Accrued liabilities     482,085       454,843  
Current portion of long-term debt and capital lease     256,184       218,013  
Total current liabilities     819,951       738,596  
Other Liabilities                
Long-term debt and capital lease     2,280,790       2,008,986  
Deferred taxes     231,673       214,694  
Financial instruments and other liabilities     292,840       203,330  
Total other liabilities     2,805,303       2,427,010  
Commitments and contingencies                
Equity                
Stockholders’ Equity                
Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued     -       -  
Common stock, $0.01 par value; 100,000,000 shares authorized; 30,582,571 and 30,104,648 shares issued, 25,590,293 and 25,292,454 shares outstanding (net of treasury stock), as of September 30, 2018 and December 31, 2017, respectively     306       301  
Additional paid-in-capital     731,106       715,735  
Treasury stock, at cost; 4,992,278 and 4,812,194 shares, respectively     (204,501 )     (193,732 )
Accumulated other comprehensive loss     (4,108 )     (3,993 )
Retained earnings     1,328,982       1,271,545  
Total equity     1,851,785       1,789,856  
Total Liabilities and Equity   $ 5,477,039     $ 4,955,462  

1  Balance sheet debt at September 30, 2018 totaled $2,537.0 million, including the impact of $89.5 million of unamortized discount and debt issuance costs of $47.7 million.
The face value of our debt at September 30, 2018 totaled $2,674.2 million, compared with $2,378.8 million on December 31, 2017.


Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)

    For the Nine Months Ended  
    September 30, 2018     September 30, 2017  
                 
Operating Activities:                
Income from continuing operations, net of taxes   $ 59,643     $ 14,884  
Less: Loss from discontinued operations, net of taxes     (50 )     (859 )
Net Income     59,593       14,025  
                 
Adjustments to reconcile Net Income to net cash provided by operating activities:                
Depreciation and amortization     189,682       142,042  
Accretion of debt securities discount     (719 )     (892 )
Provision for allowance for doubtful accounts     40       304  
Special charge, net of cash payments     9,374       -  
Loss on early extinguishment of debt     -       167  
Unrealized loss (gain) on financial instruments     11,691       36,225  
Loss on disposal of aircraft     -       64  
Deferred taxes     16,453       21,106  
Stock-based compensation     15,376       17,030  
Changes in:                
Accounts receivable     (59,058 )     (12,004 )
Prepaid expenses, current assets and other assets     (34,483 )     (53,343 )
Accounts payable and accrued liabilities     56,174       30,382  
Net cash provided by operating activities     264,123       195,106  
Investing Activities:                
Capital expenditures     (84,819 )     (66,395 )
Payments for flight equipment and modifications     (543,342 )     (338,524 )
Proceeds from investments     9,461       3,247  
Net cash used for investing activities     (618,700 )     (401,672 )
Financing Activities:                
Proceeds from debt issuance     400,471       447,865  
Payment of debt issuance costs     (6,632 )     (11,146 )
Payments of debt     (180,722 )     (153,292 )
Proceeds from revolving credit facility     135,000       150,000  
Payment of revolving credit facility     (60,000 )     (150,000 )
Customer maintenance reserves and deposits received     11,520       22,006  
Customer maintenance reserves paid     -       (18,538 )
Proceeds from sale of convertible note warrants     -       38,148  
Payments for convertible note hedges     -       (70,140 )
Purchase of treasury stock     (10,769 )     (10,307 )
Net cash provided by financing activities     288,868       244,596  
Net increase (decrease) in cash, cash equivalents and restricted cash     (65,709 )     38,030  
Cash, cash equivalents and restricted cash at the beginning of period     291,864       138,250  
Cash, cash equivalents and restricted cash at the end of period   $ 226,155     $ 176,280  
                 
Noncash Investing and Financing Activities:                
                 
Acquisition of flight equipment included in Accounts payable and accrued liabilities   $ 42,826     $ 61,734  
Acquisition of flight equipment under capital lease   $ -     $ 32,380  


Atlas Air Worldwide Holdings, Inc.
Direct Contribution

(in thousands)
(Unaudited)

    For the Three Months Ended     For the Nine Months Ended  
    September 30, 2018     September 30, 20171     September 30, 2018     September 30, 20171  
Operating Revenue:                                
ACMI   $ 288,602     $ 258,109     $ 832,777     $ 687,982  
Charter     322,750       243,583       954,725       743,302  
Dry Leasing     44,487       30,804       120,837       86,120  
Customer incentive asset amortization     (4,124 )     (1,531 )     (10,010 )     (2,873 )
Other     4,892       4,783       14,437       13,977  
Total Operating Revenue   $ 656,607     $ 535,748     $ 1,912,766     $ 1,528,508  
                                 
Direct Contribution:                                
ACMI   $ 51,672     $ 51,185     $ 145,251     $ 139,858  
Charter     44,370       34,510       129,738       87,911  
Dry Leasing     12,645       10,245       36,195       29,629  
Total Direct Contribution for Reportable Segments     108,687       95,940       311,184       257,398  
                                 
Unallocated income and expenses, net     (82,830 )     (63,703 )    

(212,373
)     (181,176 )
Loss on early extinguishment of debt     -       (167 )     -       (167
Unrealized gain (loss) on financial instruments     46,080       (44,775 )     (11,691 )     (36,225 )
Special charge     -       -       (9,374 )     -  
Transaction-related expenses     (765 )     (1,092 )     (1,275 )     (3,403 )
Loss on disposal of aircraft     -       (211 )     -       (64 )
Income (loss) from continuing operations before income taxes     71,172       (14,008 )     76,471       36,363  
                                 
Add back (subtract):                                
Interest income     (1,592 )     (1,688 )     (4,704 )     (4,286 )
Interest expense     31,115       26,553       87,639       72,747  
Capitalized interest     (1,120 )     (1,922 )     (4,335 )     (5,633 )
Loss on early extinguishment of debt     -       167       -       167  
Unrealized loss (gain) on financial instruments     (46,080 )     44,775       11,691       36,225  
Other expense (income)     975       (1,165 )     (10,777 )     (357 )
Operating Income   $ 54,470     $ 52,712     $ 155,985     $ 135,226  

1   The direct contribution amounts for the ACMI and Charter segments and the unallocated income and expenses, net above have been revised to reflect immaterial adjustments. The Company does not believe the impact to the previously issued consolidated financial statements was material.

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, and unallocated income and expenses, net.

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

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


Atlas Air Worldwide Holdings, Inc.
Reconciliation to Non-GAAP Measures
(in thousands, except per share data)
(Unaudited)

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      For the Three Months Ended  
      September 30, 2018       September 30, 2017     Percent Change  
                             
Income (loss) from continuing operations, net of taxes     $ 71,138       $ (24,195 )     NM  
Impact from:                            
Loss on disposal of aircraft       -         211          
Costs associated with transactions1       9,979         1,355          
Accrual for legal matters and professional fees       373         1,264          
Noncash expenses and income, net2       8,369         5,474          
Charges associated with refinancing debt       -         167          
Unrealized loss (gain) on financial instruments       (46,080 )       44,775          
Income tax effect of reconciling items       47         643          
Adjusted income from continuing operations, net of taxes     $ 43,826       $ 29,694       47.6 %
                             
Weighted average diluted shares outstanding       28,747         25,262          
Add: dilutive warrant3       -         1,501          
dilutive convertible notes       -         109          
effect of convertible notes hedges4       (269 )       (109 )        
dilutive restricted stock       -         636          
Adjusted weighted average diluted shares outstanding       28,478         27,399          
                             
Adjusted Diluted EPS from continuing operations, net of taxes     $ 1.54       $ 1.08       42.6 %
                             
      For the Nine Months Ended  
      September 30, 2018       September 30, 2017     Percent Change