Segment Information

12 Months Ended

Dec. 31, 2019

SEGMENT AND REVENUE INFORMATION

The Company operates in two reportable segments. The CAM segment consists of the Company's aircraft leasing operations. The ACMI Services segment consists of the Company's airline operations, including CMI agreements as well as ACMI, charter service and passenger service agreements that the Company has with its customers. The Company's aircraft maintenance services, aircraft modification services, ground services and other services, are not large enough to constitute reportable segments and are combined in All other. Intersegment revenues are valued at arms-length market rates.

The Company's segment information from continuing operations is presented below (in thousands):



	Year Ended December 31
	2019			2018			2017
Total revenues:
CAM	$	285,276		$	228,956		$	209,213
ACMI Services	1,078,288			548,839			614,741
All other	314,014			286,579			433,208
Eliminate inter-segment revenues	(225,395		)	(172,029		)	(188,962		)
Total	$	1,452,183		$	892,345		$	1,068,200
Customer revenues:
CAM	$	168,106		$	156,516		$	140,434
ACMI Services	1,078,143			548,804			614,721
All other	205,934			187,025			313,045
Total	$	1,452,183		$	892,345		$	1,068,200

ACMI Services revenues are generated from airline service agreements and are typically based on hours flown, the amount of aircraft operated and crew resources provided during a month. ACMI Services revenues are recognized over time using the invoice practical expedient as flight hours are performed for the customer. Certain agreements include provisions for incentive payments based upon on-time reliability. These incentives are measured on a monthly basis and recorded to revenue in the corresponding month earned. Under CMI agreements, the Company's airlines have an obligation to provide integrated services including flight crews, aircraft maintenance and insurance for the customer's cargo network. Under ACMI agreements, the Company's airlines are also obligated to provide aircraft. Under CMI and ACMI agreements, customers are generally responsible for aviation fuel, landing fees, navigation fees and certain other flight expenses. When functioning as the customers' agent for arranging such services, the Company records amounts reimbursable from the customer as revenues net of the related expenses as the costs are incurred. Under charter agreements, the Company's airline is obligated to provide full services for one or more flights having specific origins and destinations. Under charter agreements in which the Company's airline is responsible for fuel, airport fees and all flight services, the related costs are recorded in operating expenses. Any sales commissions paid for charter agreements are generally expensed when incurred because the amortization period is less than one year. ACMI Services are invoiced monthly or more frequently. (There are no customer rewards programs associated with services offered by the Company nor does the Company sell passenger tickets or issue freight bills.)

The Company's revenues for customer contracts for airframe maintenance and aircraft modification services that do not have an alternative use and for which the Company has an enforceable right to payment are generally recognized over time based on the percentage of costs completed. Services for airframe maintenance and aircraft modifications typically have project durations lasting a few weeks to a few months. Other revenues for aircraft part sales, component repairs and line service are recognized at a point in time typically when the parts are delivered to the customer and the services are completed. For airframe maintenance, aircraft modifications and aircraft component repairs, contracts include assurance warranties that are not sold separately.

The Company records revenues and estimated earnings over time for its airframe maintenance and aircraft modification contracts using the costs to costs input method. For such services, the Company estimates the earnings on a contract as the difference between the expected revenue and estimated costs to complete a contract and recognizes

revenues and earnings based on the proportion of costs incurred compared to the total estimated costs. Unexpected or abnormal costs that are not reflected in the price of a contract are excluded from calculations of progress toward contract obligations. The Company's estimates consider the timing and extent of the services, including the amount and rates of labor, materials and other resources required to perform the services. These production costs are specifically planned and monitored for regulatory compliance. The expenditure of these costs closely reflect the progress made toward completion of an airframe maintenance and aircraft modification project. The Company recognizes adjustments in estimated earnings on a contract under the cumulative catch-up method in which the impact of the adjustment on estimated earnings of a contract is recognized in the period the adjustment is identified.

The Company's ground services revenues include load transfer and sorting services, facility and equipment maintenance services. These revenues are recognized as the services are performed for the customer over time. Revenues from related facility and equipment maintenance services are recognized over time and at a point in time depending on the nature of the customer contracts.

The Company's external customer revenues from other activities for the years ending December 31, 2019, 2018 and 2017 are presented below (in thousands):



	Year Ended December 31,
	2019		2018		2017
Aircraft maintenance, modifications and part sales	$	117,772	$	117,832	$	106,767
Ground services	69,596		66,567		204,151
Other, including aviation fuel sales	18,566		2,626		2,127
Total customer revenues	$	205,934	$	187,025	$	313,045

CAM's aircraft lease revenues are recognized as operating lease revenues on a straight-line basis over the term of the applicable lease agreements. Customer payments for leased aircraft and equipment are typically paid monthly in advance. CAM's leases do not contain residual guarantees. Approximately 10% of CAM's leases to external customers contain purchase options at projected market values. As of December 31, 2019, minimum future payments from external customers for leased aircraft and equipment were scheduled to be $186.8 million, $178.2 million, $152.0 million, $110.1 million and $75.5 million, respectively, for each of the next 5 years ending December 31, 2024 and $186.2 million thereafter.

For customers that are not a governmental agency or department, the Company generally receives partial payment in advance of services, otherwise customer balances are typically paid within 30 to 60 days of service. The Company recognized $2.8 million of non lease revenue that was reported in deferred revenue at the beginning of the year, compared to $9.3 million in 2018. Deferred revenue was $3.0 million and $3.1 million at December 31, 2019 and 2018, respectively, for contracts with customers.

The Company had revenues of approximately $716.9 million, $231.8 million and $170.1 million for 2019, 2018 and 2017, respectively, derived primarily from aircraft leases in foreign countries, routes with flights departing from or arriving in foreign countries or aircraft maintenance and modification services performed in foreign countries. All revenues from the CMI agreement with DHL and the ATSA agreement with ASI are attributed to U.S. operations. As of December 31, 2019 and 2018, the Company had 20 and 23 aircraft, respectively, deployed outside of the United States.

Effective January 1, 2018, the Company adopted Topic 606 for revenue recognition using a modified retrospective approach, under which financial statements are prepared under the revised guidance for the year of adoption, but not for prior years. The effects of Topic 606 on the Company's customer revenues and earnings are summarized below for the year of adoption:



	For the year ended December 31, 2018
	As Reported			Without Topic 606			Increase (decrease)
Revenue
CAM	$	156,516		$	156,516		$	—
ACMI Services	548,804			743,112			(194,308		)
All other	187,025			350,012			(162,987		)
Total Revenue	892,345			1,249,640			(357,295		)
Operating Expense	781,327			1,138,462			(357,135		)
Earnings (Loss) from Continuing Operations before Income Taxes	87,478			87,638			(160		)
Income Tax Benefit (Expense)	(19,595		)	(19,559		)	(36		)
Income from Continuing Operations	$	67,883		$	68,079		$	(196	)

The Company's other segment information from continuing operations is presented below (in thousands):



	Year Ended December 31,
	2019			2018			2017
Depreciation and amortization expense:
CAM	$	158,470		$	126,856		$	108,106
ACMI Services	96,191			49,068			41,929
All other	2,871			2,971			4,521
Total	$	257,532		$	178,895		$	154,556
Interest expense
CAM	38,300			21,819			15,585
ACMI Services	24,950			6,269			810
Segment earnings (loss):
CAM	$	68,643		$	65,576		$	61,510
ACMI Services	32,055			11,448			7,747
All other	13,422			11,170			13,748
Net unallocated interest expense	(3,024		)	(460		)	(512		)
Net gain (loss) on financial instruments	(12,302		)	7,296			(79,789		)
Transaction fees	(373		)	(5,264		)	—
Other non-service components of retiree benefit costs, net	(9,404		)	8,180			(6,105		)
Loss from non-consolidated affiliate	(17,445		)	(10,468		)	(3,135		)
Pre-tax earnings from continuing operations	$	71,572		$	87,478		$	(6,536	)

In previous years, the Company disclosed reportable segments for "Ground Services" and "MRO Services" which included aircraft maintenance and modification businesses. Due to the relative size of these business units and organizational changes, Ground Services and MRO Services and no longer reportable segments.

The Company's assets are presented below by segment (in thousands). Cash and cash equivalents are reflected in Assets - All other.



	December 31
	2019		2018		2017
Assets:
CAM	$	1,857,687	$	1,577,182	$	1,192,890
ACMI Services	830,620		759,131		189,379
Discontinued operations	1,499		—		—
All other	130,372		134,272		166,575
Total	$	2,820,178	$	2,470,585	$	1,548,844

During 2019, the Company had capital expenditures for property and equipment of $87.2 million and $368.8 million for the ACMI Services and CAM, respectively.