XML 21 R9.htm IDEA: XBRL DOCUMENT v3.7.0.1
Significant Customers
6 Months Ended
Jun. 30, 2017
Significant Customers [Abstract]  
Significant Customers
SIGNIFICANT CUSTOMERS
DHL
The Company has had long term contracts with DHL Network Operations (USA), Inc. and its affiliates ("DHL") since August 2003. Revenues from aircraft leases and related services performed for DHL were approximately 25% and 26% of the Company's consolidated revenues from continuing operations for the three and six month periods ending June 30, 2017, respectively compared to 37% and 36% for the corresponding periods of 2016. The Company’s balance sheets include accounts receivable with DHL of $6.7 million and $7.3 million as of June 30, 2017 and December 31, 2016, respectively.
The Company leases 16 Boeing 767 aircraft to DHL under both long-term and short-term lease agreements. Under a separate crew, maintenance and insurance (“CMI”) agreement, the Company operates Boeing 767 aircraft that DHL leases from the Company. Pricing for services provided through the CMI agreement is based on pre-defined fees, scaled for the number of aircraft operated and the number of flight crews provided to DHL for its U.S. network. The Company provides DHL with scheduled maintenance services for aircraft that DHL leases. The Company also provides Boeing 767 and Boeing 757 air cargo transportation services for DHL through additional ACMI agreements in which the Company provides the aircraft, crews, maintenance and insurance under a single contract. Revenues generated from the ACMI agreements are typically based on hours flown. The Company also provides ground equipment, such as power units, air starts and related maintenance services to DHL under separate agreements.
Amazon
The Company has been providing freighter aircraft and services for cargo handling and logistical support for Amazon Fulfillment Services, Inc. ("AFS"), a subsidiary of Amazon.com, Inc. ("Amazon") since September 2015. On March 8, 2016, the Company entered into an Air Transportation Services Agreement (the “ATSA”) with AFS pursuant to which CAM will lease 20 Boeing 767 freighter aircraft to AFS, including 12 Boeing 767-200 freighter aircraft for a term of five years and eight Boeing 767-300 freighter aircraft for a term of seven years. The ATSA, which has a term of five years, also provides for the operation of those aircraft by the Company’s airline subsidiaries, and the performance of hub and gateway services by the Company's subsidiary LGSTX Services Inc. ("LGSTX"). CAM owns all of the Boeing 767 aircraft that are or will be leased and operated under the ATSA. The ATSA became effective on April 1, 2016. As of June 30, 2017, the Company has leased 18 aircraft to AFS and is obligated to lease two more Boeing 767-300 aircraft to AFS during 2017 to meet its 20 aircraft commitment.
Revenues from aircraft leases and related services performed for AFS comprised approximately 42% and 41% of the Company's consolidated revenues from continuing operations for the three and six month periods ending June 30, 2017 respectively, compared to 22% and 20% for the corresponding periods of 2016. The Company’s balance sheets include accounts receivable with AFS of $23.9 million and $24.6 million as of June 30, 2017 and December 31, 2016, respectively.
In conjunction with the execution of the ATSA, the Company and Amazon entered into an Investment Agreement and a Stockholders Agreement on March 8, 2016. The Investment Agreement calls for the Company to issue warrants in three tranches which will grant Amazon the right to acquire up to 19.9% of the Company’s outstanding common shares as described below. The first tranche of warrants, issued upon execution of the Investment Agreement, grants Amazon the right to purchase approximately 12.81 million ATSG common shares, with the right to purchase 7.69 million common shares vesting upon issuance on March 8, 2016, and the right to purchase the remaining 5.12 million common shares vesting as the Company delivers additional aircraft leased under the ATSA, or as the Company achieves specified revenue targets in connection with the ATSA. The second tranche of warrants grants Amazon a right to purchase approximately 1.59 million ATSG common shares, and will be issued and vest on March 8, 2018. The third tranche of warrants will be issued and vest on September 8, 2020. The third tranche of warrants will grant Amazon the right to purchase such additional number of ATSG common shares as is necessary to bring Amazon’s ownership to 19.9% of the Company’s pre-transaction outstanding common shares measured on a GAAP-diluted basis, adjusted for share issuances and repurchases by the Company following the date of the Investment Agreement and after giving effect to the warrants granted. The exercise price of the warrants will be $9.73 per share, which represents the closing price of ATSG’s common shares on February 9, 2016. Each of the three tranches of warrants will be exercisable in accordance with its terms through March 8, 2021. The Company anticipates making available the common shares required for the underlying warrants through a combination of share repurchases and the issuance of additional shares.
The Company’s accounting for the warrants has been determined in accordance with the financial reporting guidance for equity-based payments to non-employees and for financial instruments. During both the second quarter and first quarter of 2017, 1.3 million additional warrants vested in conjunction with the execution of two aircraft leases during each quarter. As of June 30, 2017, the Company's liabilities reflected 13.62 million warrants having a fair value of $13.06 per share. As of June 30, 2017, the re-measurements of the warrants to fair value resulted in a non-operating loss of $67.3 million before the effect of income taxes. As of June 30, 2017, an additional 1.3 million warrants are expected to vest as AFS leases the two remaining aircraft from the Company.
The Company's earnings in future periods will be impacted by the number of warrants granted, the re-measurements of warrant fair value, amortizations of the lease incentive asset and the related income tax effects. For income tax calculations, the value and timing of related tax deductions will differ from the guidance described above for financial reporting.
U.S. Military
A substantial portion of the Company's revenues is also derived from the U.S. Military. The U.S. Military awards flights to U.S. certificated airlines through annual contracts and through temporary "expansion" routes. Revenues from services performed for the U.S. Military were approximately 7% and 7% of the Company's total revenues from continuing operations for the three and six month periods ending June 30, 2017, respectively, compared to 13% and 14% for the corresponding periods of 2016. The Company's balance sheets included accounts receivable with the U.S. Military of $7.0 million and $7.0 million as of June 30, 2017 and December 31, 2016, respectively.