Document

0000894081-17-000153.txt : 20171107 0000894081-17-000153.hdr.sgml : 20171107 20171106173120 ACCESSION NUMBER: 0000894081-17-000153 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20171106 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20171107 DATE AS OF CHANGE: 20171106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Air Transport Services Group, Inc. CENTRAL INDEX KEY: 0000894081 STANDARD INDUSTRIAL CLASSIFICATION: AIR COURIER SERVICES [4513] IRS NUMBER: 261631624 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-50368 FILM NUMBER: 171180401 BUSINESS ADDRESS: STREET 1: 145 HUNTER DR CITY: WILMINGTON STATE: OH ZIP: 45177 BUSINESS PHONE: 937-382-5591 MAIL ADDRESS: STREET 1: 145 HUNTER DR CITY: WILMINGTON STATE: OH ZIP: 45177 FORMER COMPANY: FORMER CONFORMED NAME: ABX Holdings, Inc. DATE OF NAME CHANGE: 20080102 FORMER COMPANY: FORMER CONFORMED NAME: ABX AIR INC DATE OF NAME CHANGE: 19950728 8-K 1 a2017q3form8kcover-earning.htm 8-K Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

Form 8-K

_____________________

Current Report

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 6, 2017

_____________________

(Exact name of registrant as specified in its charter)

_____________________




DE	000-50368	26-1631624
(State or other jurisdiction of incorporation)	Commission File Number:	(IRS Employer Identification No.)

145 Hunter Drive, Wilmington, OH 45177

(Address of principal executive offices, including zip code)

(937) 382-5591

(Registrant's telephone number, including area code)

_____________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:



o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)



o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)



o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))



o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Item 2.02 Results of Operations and Financial Condition.

On November 6, 2017, Air Transport Services Group, Inc. issued a press release relating to its results for the third quarter ended September 30, 2017. A copy of the press release is furnished herewith as Exhibit 99.1 and incorporated herein by reference.

The information in this Item 2.02 is "furnished" and not "filed" for purposes of Section 18 of the Securities and Exchange Act of 1934, or otherwise subject to the liabilities of that section.

Item 9.01 Financial Statements and Exhibits.



Exhibit No.	Description
99.1	Press release issued by Air Transport Services Group, Inc. on November 6, 2017, relating to its results for the third quarter ended September 30, 2017.

SIGNATURES

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



AIR TRANSPORT SERVICES GROUP, INC.

By:	/S/ W. JOSEPH PAYNE
	W. Joseph Payne
	Chief Legal Officer & Secretary

Date:	November 6, 2017

EX-99.1 2 a2017q3earningsrelease.htm EXHIBIT 99.1 Exhibit

Dry-Leasing Drives ATSG Operating Gains

Boeing 767 Operating Freighter Fleet Increases By Eight;

81% of 767 Fleet Under Multi-Year Dry Lease

WILMINGTON, OH, November 6, 2017 - Air Transport Services Group, Inc. (Nasdaq: ATSG), the leading provider of medium wide-body aircraft leasing, air cargo transportation and related services, today reported consolidated financial results for the quarter ended September 30, 2017.

Compared with amounts for the third quarter of 2016 (except as noted):


•	Revenues increased $60.8 million, or 31 percent, to $254.1 million. Excluding revenues from reimbursable airline expenses, revenues increased $49 million, or 29 percent. ATSG's dry leasing, and maintenance and logistics businesses recorded double-digit revenue increases before eliminations.

•

GAAP Earnings from Continuing Operations were a loss of $28.2 million, or $0.48 per share diluted, compared with a positive $2.1 million, or $0.04 per share, in the year-earlier quarter. This quarter's earnings included non-cash after-tax charges totaling $43.1 million for revaluation of the warrants granted to Amazon Fulfillment Services, Inc. in connection with operating and lease agreements which began in April 2016, the amortization of lease incentives related to those Amazon warrants, a non-cash pension settlement charge, and other items. The value of the warrant liability increased versus the same period a year ago due to additional warrants vesting, and from calculating the value based on a 12 percent gain in ATSG's stock price during the third quarter.

•

Adjusted Earnings from Continuing Operations, which exclude non-cash warrant, pension, and other items, were $14.9 million, up 72 percent. Adjusted Earnings Per Share from Continuing Operations were $0.22 for the quarter, up eight cents versus a year ago. The EPS calculation also reflects 9.9 million shares related to the warrants for the third quarter, versus 3.3 million a year ago. These Adjusted Earnings and other adjusted amounts referenced below are non-GAAP financial measures, and are reconciled to GAAP results in tables in this release.


•	GAAP Pre-tax Earnings from Continuing Operations were a negative $20.8 million, versus a positive $3.1 million a year ago. Adjusted Pre-tax Earnings, which exclude warrant effects along with the pension settlement charges and other non-cash items, increased 58 percent to $24.0 million.


•	GAAP Operating Income increased 31 percent to $18.9 million.


•	Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization, as defined and adjusted in a table later in this release) increased 27 percent to $65.9 million versus a year ago, and increased $1.8 million from the second quarter of 2017.


•	Capital expenditures through the first nine months of 2017 were $218.8 million versus $182.1 million in the same period of 2016. ATSG’s operating 767 freighter fleet has increased by six, to 58, during the first nine months of 2017.

Joe Hete, President and Chief Executive Officer of ATSG, said, “As we indicated in August, our adjusted results for the third quarter were very similar to those in the second quarter, and were up significantly from the third quarter a year ago. They reflect growth in our operating fleet and strong double-digit growth in associated lease revenues. We expect to deploy five more freighters to lease customers by year-end, and increase operating utilization for our CMI and ACMI fleets during a good peak season.”

ATSG's results for the first nine months of 2017 included a revenue increase of 36 percent to $745.2 million, and GAAP Earnings from Continuing Operations of negative $72.4 million, or a $1.23 per-share loss. Nine-months Adjusted Earnings From Continuing Operations in 2017 were $40.0 million, up 56 percent from a year ago. On a per-share adjusted basis, ATSG earned $0.60 per share, up from $0.39 in the first nine months of 2016.

In August, ATSG completed the purchase of an annuity contract that will pay pension benefits to nearly twelve hundred retirees of ABX Air. The transaction reduced ATSG’s exposure to future financial market fluctuations by applying pension plan assets towards the transfer of plan liabilities totaling approximately $100 million to a qualified insurer. The transaction will not affect pension benefits payable to eligible retirees. Accordingly, the Company's pretax results include a non-cash settlement charge of $12.9 million, of which $5.3 million was charged to continuing operations and the remainder to discontinued operations.

In September, ATSG completed a private offering of $258.75 million of convertible senior notes (including exercise of a $33.75 million greenshoe option) maturing in 2024. The notes have a coupon interest rate of 1.125 percent, and are convertible at a price of $31.90 per common share. In conjunction with the issuance of the notes, we also entered into related bond hedge and warrant transactions. Taken together, the bond hedge and warrant transactions are intended to prevent potential dilution of ATSG stock until its traded market price exceeds $41.35. Net proceeds of these transactions were used to reduce debt under the company’s revolving credit facility, and for other corporate purposes.

Segment Results

Cargo Aircraft Management (CAM)



CAM	Third Quarter						Nine Months
($ in thousands)	2017			2016			2017			2016
Aircraft leasing and related revenues	$	62,351		$	47,778		$	165,733		$	147,877
Lease incentive amortization	(3,886		)	(1,432		)	(9,760		)	(2,366		)
Total CAM revenues	$	58,465		$	46,346		$	155,973		$	145,511
Pre-Tax Earnings	$	19,445		$	16,110		$	45,570		$	51,849

Significant Developments:

•

CAM's revenues increased $12.1 million, or 26 percent, to $58.5 million from the third quarter last year, and included $3.9 million of non-cash amortization associated with the warrant-related Amazon lease incentive. Excluding the amortization effects of this lease incentive, CAM’s revenues increased 31 percent. CAM was leasing forty-seven 767s to external customers as of Sept. 30, 2017, nine more than a year earlier. Two of those leases started during the third quarter. CAM leased one additional 767 to an ATSG airline during the third quarter.


•	Pre-tax earnings were $19.4 million for the quarter, up 21 percent from $16.1 million in the third quarter last year. Principal contributors to the increase included the additional leased aircraft in service and higher revenues for engine maintenance services, offset in part by the warrant-related lease incentive, higher interest expense and increased depreciation from fleet expansion.

•

At September 30, 2017, CAM owned seventy-four Boeing cargo aircraft, of which sixty-six cargo aircraft were in service, including fifty-eight 767s. Eight of the seventy-four aircraft were awaiting or undergoing modification from passenger to freighter configuration at the end of the quarter, including six 767s and two 737s. In addition to the six 767s in mod, CAM expects to close on purchases of five additional 767s in the fourth quarter of 2017. CAM will have eight 767s in cargo conversion at year-end, with all expected to be in service by the end of the third quarter of 2018.


•	CAM expects to deliver three more 767s and two 737s during the fourth quarter. That includes the first of three 767-300 freighters for Northern Aviation Services, the remaining two of which are expected to

enter service in early 2018. CAM also anticipates delivering a 767-300 to both Amerijet and Cargojet during the quarter.

ACMI Services



ACMI Services	Third Quarter						Nine Months
($ in thousands)	2017			2016			2017			2016
Revenues
Airline services	$	112,203		$	105,747		$	332,120		$	305,587
Reimbursables	34,740			22,955			104,271			52,216
Total ACMI Services Revenues	146,943			128,702			436,391			357,803

Pre-Tax Earnings (Loss)	(5,223		)	(9,686		)	(8,841		)	(27,172		)

Significant Developments:

•

Airline services revenues increased 6 percent to $112.2 million and the segment recorded a pre-tax loss of $5.2 million in the third quarter. The reported loss included the previously mentioned non-cash pension settlement charge of approximately $5.3 million. Excluding this non-cash charge, ACMI Services results reflect significant improvement versus the prior-year quarter. Principal factors contributing to this improvement are increased revenues from additional CMI customer flying and reductions in pilot premium and training pay from year-ago levels.


•	Pre-tax results for the nine months of 2017 improved by $23.6 million versus the prior year, excluding the aforementioned non-cash pension charge in the third quarter.

Other Activities



Other Activities	Third Quarter				Nine Months
($ in thousands)	2017		2016		2017		2016
Revenues	$	94,470	$	65,328	$	300,184	$	177,592
Pre-Tax Earnings	655		5,089		11,977		13,087

Significant Developments:

•

Total revenues from all other activities in the third quarter were $94.5 million. External customer revenues increased by 81 percent versus the third quarter of last year to $66.2 million. PEMCO, acquired in December 2016, accounted for $7.9 million of external revenues during third quarter. Logistics services provided at gateways for Amazon were the single largest contributor to revenue growth in other activities versus the prior-year quarter.


•	Third-quarter pre-tax earnings of $0.7 million were down sharply from a year ago, principally reflecting the termination of hub logistics support for Amazon in Wilmington last May, and the timing of completion of heavy maintenance services for AMES/PEMCO customers. Revenues are recognized by ATSG’s maintenance and repair subsidiaries when customer work is completed.

Outlook

ATSG continues to expect that its Adjusted EBITDA from Continuing Operations for 2017 will be approximately $260 million, or a more than 20 percent increase compared with the prior year, with all available aircraft in service during what is expected to be a strong peak season.

"Our outlook for peak season and early 2018 remains bright, as we continue to grow our portfolio of leased freighters, including our first two Boeing 737s," Hete said. "From September 30 this year through 2018, we will place at least eleven more Boeing 767 freighters in service, nine of which are committed to customers at this time. Our superior service performance, wide range of capabilities, and e-commerce-driven growth trends in the air express industry are continuing to attract new customers to ATSG."

ATSG continues to project 2017 capital expenditures of approximately $335 million, mostly for purchase and freighter modification of passenger aircraft.

Conference Call

ATSG will host a conference call on November 7, 2017, at 9:30 a.m. Eastern time to review its financial results for the third quarter of 2017. Participants should dial 800-708-4540 and international participants should dial 847-619-6397 ten minutes before the scheduled start of the call and ask for conference pass code 45911211. The call will also be webcast live (listen-only mode) via www.atsginc.com.

A replay of the conference call will be available by phone on November 7, 2017, beginning at 2 p.m. and continuing through November 14, 2017, at (888) 843-7419 (international callers (630) 652-3042); use pass code 45911211#. The webcast replay will remain available via www.atsginc.com for 30 days.

About ATSG

ATSG is a leading provider of aircraft leasing and air cargo transportation and related services to domestic and foreign air carriers and other companies that outsource their air cargo lift requirements. ATSG, through its leasing and airline subsidiaries, is the world's largest owner and operator of converted Boeing 767 freighter aircraft. Through its principal subsidiaries, including two airlines with separate and distinct U.S. FAA Part 121 Air Carrier certificates, ATSG provides aircraft leasing, air cargo lift, aircraft maintenance services and airport ground services. ATSG's subsidiaries include ABX Air, Inc.; Airborne Global Solutions, Inc.; Air Transport International, Inc.; Cargo Aircraft Management, Inc.; and Airborne Maintenance and Engineering Services, Inc. including its division, PEMCO World Air Services, Inc. For more information, please see www.atsginc.com.

Except for historical information contained herein, the matters discussed in this release contain forward-looking statements that involve risks and uncertainties. There are a number of important factors that could cause Air Transport Services Group's (ATSG's) actual results to differ materially from those indicated by such forward-looking statements. These factors include, but are not limited to, changes in market demand for our assets and services; our operating airlines' ability to maintain on-time service and control costs; the cost and timing with respect to which we are able to purchase and modify aircraft to a cargo configuration; fluctuations in ATSG's traded share price, which may result in mark-to-market charges on certain financial instruments; the number, timing and scheduled routes of our aircraft deployments to customers; and other factors that are contained from time to time in ATSG's filings with the U.S. Securities and Exchange Commission, including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Readers should carefully review this release and should not place undue reliance on ATSG's forward-looking statements. These forward-looking statements were based on information, plans and estimates as of the date of this release. ATSG undertakes no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

Contact:

Quint O. Turner, ATSG Inc. Chief Financial Officer

937-382-5591

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
REVENUES	$	254,101		$	193,261		$	745,229		$	547,195

OPERATING EXPENSES
Salaries, wages and benefits	66,706			59,405			205,379			165,471
Depreciation and amortization	37,605			33,939			111,828			99,605
Maintenance, materials and repairs	33,100			30,196			100,970			90,968
Fuel	34,035			24,372			101,134			58,171
Contracted ground and aviation services	40,445			12,865			93,283			32,664
Travel	6,357			5,440			20,543			14,926
Landing and ramp	4,682			3,220			14,338			9,523
Rent	3,052			3,309			10,091			8,515
Insurance	1,234			1,099			3,451			3,335
Other operating expenses	7,962			4,960			24,588			18,409
	235,178			178,805			685,605			501,587

OPERATING INCOME	18,923			14,456			59,624			45,608
OTHER INCOME (EXPENSE)
Net loss on financial instruments	(34,433		)	(8,473		)	(100,213		)	(3,443		)
Interest expense	(4,351		)	(2,897		)	(11,658		)	(8,229		)
Charges from non-consolidated affiliate	(945		)	—			(945		)	—
Interest income	37			37			85			98
	(39,692		)	(11,333		)	(112,731		)	(11,574		)

EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	(20,769		)	3,123			(53,107		)	34,034
INCOME TAX EXPENSE	(7,460		)	(1,007		)	(19,244		)	(12,219		)

EARNINGS (LOSS) FROM CONTINUING OPERATIONS	(28,229		)	2,116			(72,351		)	21,815

EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX	(4,655		)	47			(4,271		)	141
NET EARNINGS (LOSS)	$	(32,884	)	$	2,163		$	(76,622	)	$	21,956

EARNINGS (LOSS) PER SHARE - CONTINUING OPERATIONS
Basic	$	(0.48	)	$	0.04		$	(1.23	)	$	0.35
Diluted*	$	(0.48	)	$	0.04		$	(1.23	)	$	0.34

WEIGHTED AVERAGE SHARES - CONTINUING OPERATIONS
Basic	58,733			59,379			58,965			62,084
Diluted	58,733			60,283			58,965			64,024

Revenues and operating expenses include the activities of PEMCO World Air Services, Inc., a wholly owned subsidiary, for periods since its acquisition by ATSG on December 30, 2016. Certain historical expenses have been reclassified to conform to the presentation above.

* For additional information about the calculation of diluted earnings per share, see accompanying schedule.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)



	September 30,			December 31,
	2017			2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	53,891		$	16,358
Accounts receivable, net of allowance of $1,352 in 2017 and $1,264 in 2016	65,563			77,247
Inventory	17,282			19,925
Prepaid supplies and other	23,699			19,123
TOTAL CURRENT ASSETS	160,435			132,653

Property and equipment, net	1,111,201			1,000,992
Lease incentive	84,910			54,730
Goodwill and acquired intangibles	45,317			45,586
Convertible note hedges	60,605			—
Other assets	24,435			25,369
TOTAL ASSETS	$	1,486,903		$	1,259,330

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	75,820		$	60,704
Accrued salaries, wages and benefits	30,260			37,044
Accrued expenses	10,745			10,324
Current portion of debt obligations	19,247			29,306
Unearned revenue	29,186			18,407
TOTAL CURRENT LIABILITIES	165,258			155,785
Long term debt	473,924			429,415
Convertible note obligations	61,230			—
Stock warrant obligations	229,965			89,441
Post-retirement obligations	72,876			77,713
Other liabilities	48,039			52,542
Deferred income taxes	143,337			122,532

STOCKHOLDERS’ EQUITY:
Preferred stock, 20,000,000 shares authorized, including 75,000 Series A Junior Participating Preferred Stock	—			—
Common stock, par value $0.01 per share; 85,000,000 shares authorized; 59,123,112 and 59,461,291 shares issued and outstanding in 2017 and 2016, respectively	591			595
Additional paid-in capital	471,950			443,416
Accumulated deficit	(108,865		)	(32,243		)
Accumulated other comprehensive loss	(71,402		)	(79,866		)
TOTAL STOCKHOLDERS’ EQUITY	292,274			331,902
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,486,903		$	1,259,330

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

PRE-TAX EARNINGS AND ADJUSTED PRE-TAX EARNINGS SUMMARY

FROM CONTINUING OPERATIONS

NON-GAAP RECONCILIATION

(In thousands)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Revenues
CAM
Aircraft leasing and related revenues	$	62,351		$	47,778		$	165,733		$	147,877
Lease incentive amortization	(3,886		)	(1,432		)	(9,760		)	(2,366		)
Total CAM	58,465			46,346			155,973			145,511
ACMI Services
Airline services	112,203			105,747			332,120			305,587
Reimbursables	34,740			22,955			104,271			52,216
Total ACMI Services	146,943			128,702			436,391			357,803
Other Activities	94,470			65,328			300,184			177,592
Total Revenues	299,878			240,376			892,548			680,906
Eliminate internal revenues	(45,777		)	(47,115		)	(147,319		)	(133,711		)
Customer Revenues	$	254,101		$	193,261		$	745,229		$	547,195

Pre-tax Earnings (Loss) from Continuing Operations
CAM, inclusive of interest expense	19,445			16,110			45,570			51,849
ACMI Services	(5,223		)	(9,686		)	(8,841		)	(27,172		)
Other Activities	655			5,089			11,977			13,087
Net, unallocated interest expense	(268		)	83			(655		)	(287		)
Net loss on financial instruments	(34,433		)	(8,473		)	(100,213		)	(3,443		)
Charges for non-consolidated affiliates	(945		)	—			(945		)	—
Total Earnings (Loss) from Continuing Operations before Income Taxes	$	(20,769	)	$	3,123		$	(53,107	)	$	34,034

Adjustments to Pre-tax Earnings
Add non-service components of retiree benefit costs, net	5,529			2,203			5,883			6,609
Add charges for non-consolidated affiliates	945			—			945			1,229
Add lease incentive amortization	3,886			1,432			9,760			2,366
Add net loss on financial instruments	34,433			8,473			100,213			3,443
Adjusted Pre-tax Earnings	$	24,024		$	15,231		$	63,694		$	47,681

Non-GAAP financial measures: This report contains non-GAAP financial measures that management uses to evaluate the Company’s historical results. Management believes that these non-GAAP measures assist in highlighting operational trends, facilitate period-over-period comparisons and provide additional clarity about events and trends impacting core operating performance. Disclosing these non-GAAP measures provides insight to investors about additional metrics that the Company’s management uses to evaluate past performance and prospects for future performance.

Adjusted Pre-tax Earnings excludes certain items included in GAAP based pre-tax earnings (loss) from continuing operations because they are distinctly different in their predictability among periods or not closely related to our operations. Presenting this measure provides investors with a comparative metric of fundamental operations while highlighting changes to certain items among periods. Adjusted Pre-tax Earnings is defined as Earnings (Loss) from Continuing Operations Before Income Taxes less financial instrument revaluation gains or losses, non-service components of retiree benefit costs including pension plan settlements, lease incentive amortization and costs from non-consolidated affiliates. Adjusted Pre-tax Earnings should not be considered an alternative to Earnings from Continuing Operations Before Income Taxes or any other performance measure derived in accordance with GAAP.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

ADJUSTED EARNINGS FROM CONTINUING OPERATIONS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION

NON-GAAP RECONCILIATION

(In thousands)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016

Earnings (Loss) from Continuing Operations Before Income Taxes	$	(20,769	)	$	3,123		$	(53,107	)	$	34,034
Interest Income	(37		)	(37		)	(85		)	(98		)
Interest Expense	4,351			2,897			11,658			8,229
Depreciation and Amortization	37,605			33,939			111,828			99,605
EBITDA from Continuing Operations	$	21,150		$	39,922		$	70,294		$	141,770
Add non-service components of retiree benefit costs, net	5,529			2,203			5,883			6,609
Add charges for non-consolidated affiliates	945			—			945			1,229
Add lease incentive amortization	3,886			1,432			9,760			2,366
Add net loss on financial instruments	34,433			8,473			100,213			3,443

Adjusted EBITDA	$	65,943		$	52,030		$	187,095		$	155,417

Management uses Adjusted EBITDA to assess the performance of its operating results among periods. It is a metric that facilitates the comparison of financial results of underlying operations. Additionally, these non-GAAP adjustments are similar to the adjustments used by lenders in the Company’s Senior Credit Agreement to assess financial performance and determine cost of borrowed funds. The adjustments also exclude the non-service cost components of retiree benefit plans because they are not closely related to on-going operating activities. Management presents EBITDA from Continuing Operations, a commonly referenced metric, as a subtotal toward computing Adjusted EBITDA.

EBITDA from Continuing Operations is defined as Earnings (Loss) from Continuing Operations Before Income Taxes plus net interest expense, depreciation, and amortization expense. Adjusted EBITDA is defined as EBITDA from Continuing Operations less financial instrument revaluation gains or losses, non-service components of retiree benefit costs including pension plan settlements, amortization of lease incentive costs recorded in revenue and costs from non-consolidated affiliates.

Adjusted EBITDA and EBITDA from Continuing Operations are non-GAAP financial measures and should not be considered as alternatives to Earnings from Continuing Operations Before Income Taxes or any other performance measure derived in accordance with GAAP. Adjusted EBITDA and EBITDA from Continuing Operations should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP, or as an alternative measure of liquidity.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

ADJUSTED EARNINGS PER SHARE FROM CONTINUING OPERATIONS

NON-GAAP RECONCILIATION

(In thousands)

Management presents Adjusted Earnings and Adjusted Earnings per Share from Continuing Operations, non-GAAP calculations, to provide additional information regarding earnings per share without the volatility otherwise caused by the items below. Management uses Adjusted Earnings and Adjusted Earnings per Share from Continuing Operations to compare the performance of its operating results among periods.



	Three Months Ended										Nine Months Ended
	September 30, 2017						September 30, 2016				September 30, 2017						September 30, 2016
	$			$ Per Share			$		$ Per Share		$			$ Per Share			$		$ Per Share

Earnings (loss) from Continuing Operations - (GAAP)	$	(28,229	)	$	(0.48	)	$	2,116	$	0.04	$	(72,351	)	$	(1.23	)	$	21,815	$	0.34
Adjustments, net of tax
Loss from warrant revaluation ¹	33,158			0.53			5,637		0.09		95,015			1.53			2,232		0.03
Lease incentive amortization ²	6,368			0.11			912		0.01		13,708			0.24			1,507		0.02
Pension settlement charge ³	3,400			0.06			—		—		3,400			0.06			—		—
Gain from convertible note obligations and hedges ⁴	(412		)	(0.01		)	—		—		(412		)	(0.01		)	—		—
Loss from joint venture ⁵	602			0.01			—		—		602			0.01			—		—
Adjusted Earnings from Continuing Operations (non-GAAP)	$	14,887		$	0.22		$	8,665	$	0.14	$	39,962		$	0.60		$	25,554	$	0.39

	Shares						Shares				Shares						Shares
Weighted Average Shares - diluted (GAAP)	58,733						60,283				58,965						64,024
Additional weighted average shares ¹	9,861						3,342				8,066						1,114
Adjusted Shares (non-GAAP)	68,594						63,625				67,031						65,138

Adjusted Earnings from Continuing Operations, Adjusted Shares and Adjusted Earnings per Share from Continuing Operations are non-GAAP financial measures and should not be considered as alternatives to Earnings from Continuing Operations, Weighted Average Shares - diluted or Earnings per Share from Continuing Operations or any other performance measure derived in accordance with GAAP. Adjusted Earnings and Adjusted Earnings per Share from Continuing Operations should not be considered in isolation or as a substitute for analysis of the company's results as reported under GAAP.

Removes the unrealized losses for a large grant of stock warrants granted to a customer as a lease incentive and adds the effect of the warrants to the weighted average number of shares. Under U.S. GAAP, these warrants are reflected as a liability and unrealized warrant gains are typically removed from diluted earnings per share (“EPS”) calculations while unrealized warrant losses are not removed because they are dilutive to EPS. As a result, the Company’s EPS, as calculated under U.S. GAAP, can vary significantly among periods due to unrealized mark-to-market losses created by an increased trading value for the Company's shares.


2.	Removes the amortization of the customer lease incentive which are recorded against revenue over the term of the related aircraft leases.


3.	Removes the pension charge to settle certain retirement obligations of former employees through the purchase of a third party group annuity contract during the third quarter of 2017.


4.	Removes the net fair value adjustments for equity linked instruments which under U.S. GAAP are reflected as assets and liabilities and marked to market at the end of each quarter.


5.	Removes the charge for the Company's share of development costs for a new joint venture accounted for under the equity method.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

CARGO AIRCRAFT FLEET



Owned Aircraft Types
	December 31,		September 30,		December 31,
	2016		2017		2017 Projected

B767-200		36		36		36
B767-300		16		22		25
B757-200		4		4		4
B757 Combi		4		4		4
B737-400		—		—		2
Total Aircraft in Service		60		66		71

B767-300 in or awaiting cargo conversion		7		6		8
B737-400 in or awaiting cargo conversion		—		2		—
Total Aircraft		67		74		79

Aircraft in Service Deployments
	December 31,		September 30,		December 31,
	2016		2017		2017 Projected

Dry leased without CMI		13		15		20
Dry leased with CMI		28		32		32
ACMI/Charter		18		19		19
Staging/Unassigned		1		—		—