Atlas Air Worldwide Reports Fourth-Quarter and Full-Year 2012 Earnings

PURCHASE, N.Y.—(BUSINESS WIRE)—Atlas Air Worldwide Holdings, Inc. (Nasdaq: AAWW), a leading global provider of outsourced aircraft and aviation operating solutions, today announced a 23% increase in adjusted net income attributable to common stockholders for the fourth quarter of 2012, with adjusted net income rising to $48.7 million, or $1.83 per diluted share. For the full year, adjusted net income attributable to common stockholders rose 17% to $127.0 million, or $4.78 per share.

On a reported basis, net income attributable to common stockholders totaled $52.4 million, or $1.97 per diluted share, in the fourth quarter, and $129.9 million, or $4.89 per diluted share, for the year.

Adjusted earnings exclude net gains in the fourth quarter and for the full year that primarily reflected an insurance gain of $0.15 per diluted share related to flood damage at an aircraft parts warehouse during Superstorm Sandy.

Revenues grew 17% to $452.8 million in the fourth quarter and 18% to $1.65 billion for the year. Free cash flow for 2012 totaled $208.5 million.

“Our fourth-quarter and our full-year results highlight the resilience of our business model and our ability to deliver improved margins, strong earnings and growing free cash flow in a challenging business environment,” said William J. Flynn, President and Chief Executive Officer.

“We are executing a strategic plan that leverages our core competencies. Our plan includes 747-8F aircraft in ACMI; new organizational capabilities, such as our military passenger flying, growing CMI operations and expanding 767 service; and additional operating efficiencies driven by our culture of continuous improvement.

“As a result, we achieved the best quarterly and second-best annual operating results in the company’s history and generated significant free cash flow. We also maintained a strong balance sheet, and we expect that cash in excess of business investments and balance sheet maintenance will be available to return capital to stockholders through share repurchases beginning this quarter.

“Looking to full-year 2013, the actions we have taken to transform our company and diversify our business model should enable us to overcome market and business headwinds and deliver earnings per share consistent with 2012, with strong free cash flow generation.”

Fourth-Quarter Results

Revenue and profitability growth in our core ACMI business during the fourth quarter were driven by our new 747-8Fs, which began to enter service late in the fourth quarter of 2011. Volume growth was primarily due to the continued ramp up of CMI flying for Boeing and DHL Express. ACMI results during the period benefited from higher rates per block hour and lower maintenance expense for our 747-8Fs, partially offset by the redeployment of 747-400 aircraft to other business segments. ACMI customers flew 4.3% above contractual minimums during the quarter.

In AMC Charter, strong growth in our passenger service and rate premiums earned on flying more efficient 747-400 cargo aircraft in the fourth quarter of 2012 compared with less efficient 747-200 aircraft in 2011 partially offset a 48% reduction in cargo block hours and a reduction in the number of one-way AMC missions.

In Commercial Charter, increased revenues and volumes reflected the deployment of 747-400 cargo aircraft in lieu of retired 747-200s, the deployment of an additional 747-400 cargo aircraft to support increased demand in South America, and 747-400 aircraft from ACMI during remarketing periods. Commercial Charter results were affected by a reduction in yields driven by softer charter-market conditions compared with the fourth quarter of 2011, and a reduction in return legs due to fewer one-way AMC Charter missions.

Fourth-quarter results in each segment were affected by increased crew costs, with AMC Charter and Commercial Charter incurring other volume-driven operating expenses and higher aircraft ownership costs related to the deployment of 747-400 aircraft in lieu of 747-200 aircraft.

Unallocated income and expenses during the quarter reflected a pretax insurance gain of $6.3 million (equivalent to $0.15 per fully diluted share on an after-tax basis) related to flood damage incurred at an aircraft parts warehouse during Superstorm Sandy.

Income Taxes

Adjusted and reported earnings for the fourth quarter of 2012 included an effective income tax rate of 35.9%, reflecting an adjustment to reserves related to U.S. federal income tax benefits claimed in prior periods that totaled $0.06 per fully diluted share.

Adjusted and reported earnings for the full year of 2012 included an effective income tax rate of 36.8%, relating to the adjustment to U.S. federal income tax reserves and the settlement of income tax examinations in Hong Kong that totaled $0.09 per fully diluted share.

Cash, Cash Equivalents and Short-Term Investments

At December 31, 2012, our cash, cash equivalents and short-term investments totaled $419.9 million, compared with $195.2 million at December 31, 2011.

The growth in cash, cash equivalents and short-term investments in 2012 was primarily driven by an increase in cash provided by operating and financing activities, partially offset by an increase in cash used for investing activities.

Net cash used for investing activities in 2012 primarily related to the purchase of four 747-8F aircraft for our ACMI operations, a third 767-300ER passenger aircraft for our AMC Charter operations, and a 737-300 cargo aircraft for our Dry Leasing business.

Net cash provided by financing activities primarily reflected proceeds from the issuance of debt in connection with the delivery of the four 747-8Fs. These proceeds were partially offset by payments on debt obligations and debt issuance costs. Both the proceeds from our issuance of debt and the payments on our debt obligations reflect the refinancing of a total of $571 million of floating-rate term loans with fixed-rate notes issued in the capital markets.

Share Repurchases

We recently reviewed our capital allocation strategy, which addressed the appropriate allocation of the company’s current and expected future cash balances between investments to support business growth, balance sheet strength, and returns of capital to stockholders.

Cash in excess of our business investment and balance sheet maintenance requirements will be available for share repurchases, which will be immediately accretive. Reflecting our strong balance sheet and cash flows, we intend to begin actively purchasing shares in the first quarter of 2013.

Share purchases would recommence under a previously announced share repurchase program. Repurchases of shares may take the form of an open market repurchase program, accelerated share repurchase program, privately negotiated transactions, or a combination of these methods. The actual timing and amount of our repurchases will depend on market conditions.

Outlook

“We continue to anticipate strong earnings and cash flow in 2013,” said Mr. Flynn.

“While global economic growth and airfreight market conditions remain uncertain, our model is working. We are well-positioned to serve our customers and the airfreight markets, and we expect that our reported fully diluted earnings per share this year will total approximately $4.65.”

Earnings in 2013 will reflect strong growth from the company’s 747-8Fs, driven by an increase in the number of -8F aircraft in service compared with 2012.

That growth will offset headwinds related to a combined 18% reduction in military cargo and passenger block hours compared with 2012, which, when combined with the impact of a reduction in one-way military missions on our commercial charter operations, will reduce diluted earnings per share by $1.19.

Additional expected headwinds totaling $0.91 per share compared with 2012 include increased heavy maintenance expense, a reduction in capitalized interest, and income tax benefits that we recognized in 2012.

Reflecting the transformation and diversification of the company’s business model, we expect to overcome these headwinds and deliver earnings per share consistent with 2012, with strong free cash flow generation.

Market growth during 2013 should be seasonal and second-half weighted. In addition, more than 60% of our estimated maintenance expense of $193 million should be incurred in the first half of the year. As a result, we anticipate a sequential increase in our quarterly earnings throughout the year, starting at a marginal level in the first quarter with approximately 75% occurring in the second half.

Block-hour volumes should total approximately 185,000 hours in 2013, an increase of more than 32,000 hours compared with 2012.

Forecast block-hour volumes in 2013 reflect our decision to temporarily park an unencumbered, company-owned 747-400 converted freighter in mid-February to reduce costs and enhance profitability in our charter business.

ACMI segment flying should account for about 133,000, or 72%, of expected 2013 block hours, with about 33,500, or 18%, in Commercial Charter and 18,500, or 10%, in AMC Charter. Passenger charter flying should account for more than 10,000 AMC Charter block hours in 2013.

Based on anticipated deliveries and placements in the first half of 2013 for the two remaining 747-8Fs in our outstanding order, the average number of -8Fs in service in 2013 should increase to more than eight from 4.3 in 2012. In ACMI, customers are expected to fly approximately 3% to 5% above contractual minimums for the entire year.

In addition, we are assessing a recent court decision that may enable us to reduce our effective income tax rate in 2013. We expect to complete our assessment and report on its outcome by the time we announce our first-quarter earnings in early May, as well as update our annual guidance as we regularly do each quarter.

“Our capital allocation strategy demonstrates our commitment to creating, enhancing and returning value to our stockholders,” Mr. Flynn added. “Any impact from prospective share repurchases in 2013 is not included in, and would be accretive to, our guidance.”

Long-Term Growth

Mr. Flynn concluded: “We are executing a strategic plan that has built a resilient company with strong earnings, cash flow and a solid balance sheet. We are also leveraging our core competencies, industry leadership and deep understanding of our markets to deliver advantage and value to our customers and stockholders.

“Our disciplined approach to business growth in the next five years includes evaluating potential opportunities for adding incremental aircraft that provide our customers with the most efficient assets to meet their needs; expansion of our Titan dry-leasing platform through investments in aircraft with lease commitments; and continuing to develop our operating capabilities.”