ATSG Reports Results For Second Quarter 2012

Air Transport Services Group, Inc. (NASDAQ:ATSG) today reported financial results as follows for the second quarter of 2012:
     
Summary GAAP Results          
  Quarter Ended June 30, Six Months Ended June 30,
(in millions, except per-share amounts)   2012   2011   Chg. 2012   2011   Chg.
Revenues $ 153.6   $ 193.1   $ (39.5 ) $ 299.1   $ 368.2 $ (69.1 )
Pre-tax Earnings from Continuing Operations $ 18.2 $ 19.7 $ (1.5 ) $ 28.9 $ 24.2 $ 4.7
Net Earnings from Continuing Operations $ 11.2 $ 12.3 $ (1.1 ) $ 17.9 $ 15.2 $ 2.7
Earnings Per Share from Continuing Operations   $ 0.17     $ 0.19     $ (0.02 ) $ 0.28     $ 0.24     $ 0.04  
Adjusted (non-GAAP) Results *                      
Revenues excluding Reimbursed Expenses $ 133.2 $ 143.4 $ (10.2 ) $ 261.8 $ 274.3 $ (12.5 )
Adjusted Pre-tax Earnings from Continuing Operations $ 18.0 $ 19.3 $ (1.3 ) $ 28.3 $ 30.7 $ (2.4 )
Adjusted EBITDA from Continuing Operations   $ 43.1     $ 46.7     $ (3.6 )     $ 77.2     $ 84.5     $ (7.3 )

* A table defining and reconciling adjusted results to comparable GAAP measures is provided at the end of this release.

"Our results for the second quarter are indicative of both our good internal progress toward reorganizing our ACMI Services operations, and the uncertain economic conditions that are causing some regional customers to prolong the commitment process," Joe Hete, President and CEO of ATSG, said. “While our business with global carriers like DHL continues to expand, regional market conditions are proving challenging to other customers. But we can still deploy our unique assets, complementary services, and leverage our strong balance sheet to adapt and grow as market conditions change because of our dominant global market share of mid-sized 767 freighters in a mix of long-term dry leases or shorter-term ACMI operating agreements."

Earnings for the first half of 2011 included an aggregate $6.8 million in net charges related to the 2011 refinancing of ATSG's credit facilities. Adjusted EBITDA from Continuing Operations excludes the effect of these items. Revenues also include reimbursement of certain expenses, particularly fuel, from some of ATSG's customers, including $35.0 million in reimbursement revenues in the second quarter of 2011 from former customer D.B. Schenker (Schenker), a North American logistics company.

Operating Results

Aircraft Leasing

Pre-tax earnings for Cargo Aircraft Management (CAM) were $16.7 million, up 22 percent from the year-earlier period. Revenues increased 16 percent to $38.1 million compared to the same period a year ago. CAM's second-quarter revenues and pre-tax earnings reflect a $0.7 million reserve for unpaid rent associated with a Boeing 767-200 freighter under dry lease to a regional air carrier.

At the end of June, CAM owned 54 aircraft in serviceable condition, including 21 leased to external customers and 32 leased to its ATSG airline affiliates. Additionally, ATSG airlines operate six freighters (four Boeing 767-200s, and two 767-300s) under operating leases with third parties. During the recent second quarter, ATSG added three Boeing 767-300 freighter aircraft. ATSG's aircraft fleet at year-end 2011, at June 30, 2012, and its current outlook for aircraft in service at the end of 2012 are summarized in a table at the end of this release.

ACMI Services

Second quarter revenues for ATSG's airline operations were $101.3 million, excluding fuel and other reimbursed expenses, down from $115.1 million in the second quarter of 2011. The second-quarter pre-tax loss of $1.6 million was down from a $4.6 million pre-tax profit in the second quarter of 2011, but a $6.6 million improvement from the first quarter of 2012.

Results for the second quarter of 2011 included $25.0 million in airline services revenues from Schenker. As previously reported, Schenker ended its North American air freight network agreements with ATSG in the second half of 2011. Decreased segment results for the second quarter of 2012 primarily reflect the loss of the Schenker business and delays in customer commitments to ATSG aircraft.

ATSG is reorganizing its two airlines that served Schenker. The operations of Air Transport International (ATI) and Capital Cargo International Airlines (CCIA) are being combined, with CCIA's operations expected to merge into ATI by the end of 2012. Significant savings in these operations have already been achieved, as personnel expenses at ATI and CCIA have been reduced 24 percent from second-quarter 2011 levels. Further overhead expense reductions are expected in the second half, offset in part by expenses related to the reorganization.

On a sequential-quarter basis, the $6.6 million improvement in ACMI Services' pre-tax earnings from the first quarter of 2012 included stronger results from all three airline affiliates. More than two-thirds of that improvement came from ATI and CCIA, including a combination of increased revenues and net savings from the reorganization.

In June, ATI began operating three Boeing 767-200 freighters for DHL in the Middle East, bringing the total number of 767s in service for DHL in that region to four. It was originally anticipated that these three aircraft would go into service in the first quarter. Also, in June, ABX Air began to operate one 767-200 and one 767-300 freighter for DHL in the U.S.

First-half ACMI Services results also were affected by higher employee pension and engine maintenance expenses, and delays in aircraft deployments. Second-quarter ACMI block hours were down 15 percent overall from a year ago, but increased 15 percent excluding block hours operated for Schenker in the second quarter of 2011.

Other Activities

Second quarter revenues from ATSG's other businesses rose 5 percent from the second quarter of 2011 to $26.7 million before the elimination of inter-company results. Pre-tax profit from other activities totaled $3.2 million, nearly double the $1.7 million earned a year earlier. Higher revenues from ATSG's aircraft maintenance subsidiary (AMES) as well as the improved efficiency of mail sorting operations yielded improved results from those businesses.

Outlook for Second Half 2012

ATSG's outlook for the second half of 2012 remains positive overall, as revenues, earnings and cash flow (as measured by our Adjusted EBITDA), are all expected to improve compared with the first half of the year.

As noted above, ATI was awarded another two-year agreement for combi service beginning with the government's 2013 fiscal year in October, maintaining ATI's status as the military's sole source of combi service, primarily serving remote locations around the world.

Hete noted, "We are particularly proud to have been selected by the U.S. military to remain its exclusive supplier of combi service, and we look forward to the transition from our DC-8 combis to a more efficient 757-based combi fleet. The two-year revenue stream from the military validates our investment in the Boeing 757 platform and our plan to merge CCIA's Boeing 757 operation with ATI's military flying expertise."

Hete continued, "Our efforts to drive out costs while remaining prepared to seize new-business opportunities that achieve our investment return hurdles will continue. Our ACMI Services businesses are steadily recovering from the loss of our Schenker business, and weathering the impact of economic trends on our more regionally focused customers. We remain confident that we have the customer demand for our expanding fleet of modified aircraft. The delays in projected start dates, however, for 767 aircraft deployments are now significant enough that our previously issued guidance is no longer appropriate. We now expect Adjusted EBITDA from Continuing Operations for 2012 to be approximately $170 million. We will continue to aggressively pursue both cost savings and new business that can yield even stronger results in 2013 and beyond."

Conference Call

ATSG will host a conference call on Friday, August 3, 2012, at 10:00 a.m. Eastern time to review its financial results for the second quarter of 2012. Participants should dial 800-591-6923 and international participants should dial 617-614-4907 ten minutes before the scheduled start of the call and ask for conference pass code 55450067. The call will also be webcast live (listen-only mode) via www.atsginc.com and www.earnings.com for individual investors, and via www.streetevents.com for institutional investors.

A replay of the conference call will be available by phone on August 3, 2012, beginning at 2:00 p.m. and continuing through Friday, August 10, 2012, at 888-286-8010 (international callers 617-801-6888); use pass code 11883104. The webcast replay will remain available via www.atsginc.com and www.earnings.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 three 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, LLC; Cargo Aircraft Management, Inc.; Capital Cargo International Airlines, Inc.; and Airborne Maintenance and Engineering 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, the cost and timing associated with the modification and deployment of Boeing 767 and Boeing 757 aircraft, the availability and cost to acquire used passenger aircraft for freighter modification, ATSG's continuing ability to place modified aircraft into commercial service, ABX Air's ability to maintain on-time service and control costs under its operating agreement with DHL, ATSG's effectiveness in restructuring its airline operations affected by DB Schenker's restructuring of its U.S. air cargo operations, 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.
 
AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)
 
  Three Months Ended     Six Months Ended
June 30,   June 30,
2012   2011 2012   2011
REVENUES $ 153,554 $ 193,061 $ 299,060 $ 368,188
 
OPERATING EXPENSES
Salaries, wages and benefits 44,570 45,326 91,674 91,674
Fuel 14,084 48,640 27,924 88,316
Maintenance, materials and repairs 25,270 22,380 48,384 43,686
Depreciation and amortization 21,514 23,878 41,814 46,249
Landing, ramp, rent and insurance 11,950 13,860 23,756 28,255
Travel 5,566 6,918 11,544 13,228
Other operating expenses 8,998   9,258   18,560   18,550  
131,952   170,260   263,656   329,958  
OPERATING INCOME 21,602 22,801 35,404 38,230
OTHER INCOME (EXPENSE)
Interest income 38 33 66 99
Interest expense (3,671 ) (3,537 ) (7,218 ) (7,640 )
Unrealized gain/(loss) on derivative instruments 202 376 662 (3,556 )
Write off of unamortized debt issuance costs   (16 )   (2,886 )
(3,431 ) (3,144 ) (6,490 ) (13,983 )
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 18,171 19,657 28,914 24,247
INCOME TAX EXPENSE (6,952 ) (7,377 ) (11,033 ) (9,086 )
EARNINGS FROM CONTINUING OPERATIONS 11,219 12,280 17,881 15,161
EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX (160 ) 19   (390 ) (98 )
NET EARNINGS $ 11,059   $ 12,299   $ 17,491   $ 15,063  
 
EARNINGS PER SHARE - Basic
Continuing operations $ 0.18   $ 0.19   $ 0.28   $ 0.24  
Discontinued operations (0.01 )      
NET EARNINGS PER SHARE $ 0.17   $ 0.19   $ 0.28   $ 0.24  
 
EARNINGS PER SHARE - Diluted
Continuing operations $ 0.17   $ 0.19   $ 0.28   $ 0.24  
Discontinued operations     (0.01 )  
NET EARNINGS PER SHARE $ 0.17   $ 0.19   $ 0.27   $ 0.24  
 
WEIGHTED AVERAGE SHARES
Basic 63,431   63,333   63,431   63,233  
Diluted 64,393   64,172   64,383   64,055  
 
 
AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)
 
  June 30,     December 31,
2012 2011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 47,527 $ 30,503
Accounts receivable, net of allowance of $457 in 2012 and $434 in 2011 39,817 42,278
Inventory 8,657 8,906
Prepaid supplies and other 7,777 9,785
Deferred income taxes 17,418 31,548
Aircraft and engines held for sale 5,474   9,831  
TOTAL CURRENT ASSETS 126,670 132,851
 
Property and equipment, net 778,113 748,913
Other assets 19,558 18,579
Intangibles 5,938 6,396
Goodwill 86,980   86,980  
TOTAL ASSETS $ 1,017,259   $ 993,719  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 37,165 $ 48,360
Accrued salaries, wages and benefits 20,645 23,226
Accrued expenses 10,287 10,291
Current portion of debt obligations 17,239 13,223
Unearned revenue 11,071   12,487  
TOTAL CURRENT LIABILITIES 96,407 107,587
 
Long term debt obligations 345,956 333,681
Post-retirement liabilities 180,286 185,562
Other liabilities 63,281 54,212
Deferred income taxes 40,140 42,530
 
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; 75,000,000 shares authorized; 64,261,289 and 64,015,789 shares issued and outstanding in 2012 and 2011, respectively 643 640
Additional paid-in capital 522,427 520,613
Accumulated deficit (130,568 ) (148,059 )
Accumulated other comprehensive loss (101,313 ) (103,047 )
TOTAL STOCKHOLDERS’ EQUITY 291,189   270,147  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,017,259   $ 993,719  
 
 
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     Six Months Ended
June 30, June 30,
2012   2011 2012   2011
Revenues
CAM Leasing $ 38,067 $ 32,762 $ 75,918 $ 64,890
ACMI Services
Airline services 101,261 115,050 197,603 217,500
Reimbursables 20,369   49,659   37,222   93,914  
Total ACMI Services 121,630 164,709 234,825 311,414
Other Activities 26,682   25,469   55,103   50,907  
Total Revenues 186,379 222,940 365,846 427,211
Eliminate internal revenues (32,825 ) (29,879 ) (66,786 ) (59,023 )
Customer Revenues $ 153,554   $ 193,061   $ 299,060   $ 368,188  
 
Pre-tax Earnings from Continuing Operations
CAM, inclusive of interest expense 16,667 13,634 33,485 27,100
ACMI Services (1,582 ) 4,560 (9,797 ) 2,050
Other Activities 3,228 1,675 5,229 3,329
Net, unallocated interest expense (344 ) (572 ) (665 ) (1,790 )
Net gain (loss) on derivative instruments 202 376 662 (3,556 )
Write off of unamortized debt issuance costs   (16 )   (2,886 )
Total Pre-tax Earnings $ 18,171 $ 19,657 $ 28,914 $ 24,247
 
Adjustments to Pre-tax Earnings
Less Net (Gain) Loss on derivative instruments (202 ) (376 ) (662 ) 3,556
Add Write-off of unamortized debt issuance costs   16     2,886  
Adjusted Pre-tax Earnings $ 17,969   $ 19,297   $ 28,252   $ 30,689  
 

Notes: During the first half of 2011, the Company refinanced its long-term debt, recorded charges to write-off unamortized debt origination costs associated with terminated credit agreements and recognized losses for certain interest rate swaps which had been designated as hedges of the previous debt. Reimbursable revenues include certain operating costs that are reimbursed to the airlines by their customers. Such costs include fuel used, landing fees and certain aircraft maintenance expenses. The decline in reimbursable revenues during 2012 compared to 2011 reflects the discontinuation of D.B. Schenker's air network in the fourth quarter of 2011.

Adjusted Pre-tax Earnings is defined as Earnings from Continuing Operations Before Income Taxes plus derivative losses, less derivative gains, plus the write-off related to the termination of certain credit agreements in conjunction with the refinancing of the Company's debt. Management uses Adjusted Pre-tax Earnings from Continuing Operations to assess the performance of its operating results among periods. Adjusted Pre-tax earnings from Continuing Operations is a non-GAAP financial measure and 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
UNAUDITED ADJUSTED EARNINGS FROM CONTINUING OPERATIONS BEFORE INTEREST, TAXES
DEPRECIATION AND AMORTIZATION

NON-GAAP RECONCILIATION

(In thousands)
 
  Three Months Ended     Six Months Ended
June 30,   June 30,
2012   2011 2012   2011
 
Earnings from Continuing Operations Before Income Taxes $ 18,171 $ 19,657 $ 28,914 $ 24,247
Interest Income (38 ) (33 ) (66 ) (99 )
Interest Expense 3,671 3,537 7,218 7,640
Depreciation and Amortization 21,514   23,878   41,814   46,249  
EBITDA from Continuing Operations $ 43,318 $ 47,039 $ 77,880 $ 78,037
Less Net (Gain) Loss on derivative instruments (202 ) (376 ) (662 ) 3,556
Add Write-off of unamortized debt issuance costs 16 2,886
       
Adjusted EBITDA from Continuing Operations $ 43,116   $ 46,679   $ 77,218   $ 84,479  
 

EBITDA and Adjusted 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.

EBITDA from Continuing Operations is defined as Earnings from Continuing Operations Before Income Taxes plus net interest expense, depreciation, and amortization expense. Adjusted EBITDA from Continuing Operations is defined as EBITDA from Continuing Operations plus net derivative losses, less derivative gains, plus the write-off related to the termination of certain credit agreements in conjunction with the refinancing of the Company's debt.

Management uses EBITDA from Continuing Operations as an indicator of the cash-generating performance of the operations of the Company. Management uses Adjusted EBITDA and Adjusted Pre-tax Earnings from Continuing Operations to assess the performance of its operating results among periods. EBITDA and Adjusted EBITDA from Continuing Operations, and Adjusted Pre-tax Earnings 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

IN-SERVICE AIRCRAFT FLEET
 
Aircraft Types
  December 31,   June 30,   December 31,
2011 2012 2012 Projected
    Operating     Operating     Operating
Total Owned Lease Total Owned Lease Total Owned Lease
B767-200 40 36 4 41 37 4 41 37 4
B767-300 3 2 1 6 4 2 9 7 2
B757-200 3 3 3 3 4 4
B757 Combi 1 1
DC-8 3 3 2 2 2 2
DC-8 Combi 4 4 4 4 3 3
B727-200 4 4 4 4 3 3
Total Aircraft In-Service 57 52 5 60 54 6 63 57 6
 
Owned Aircraft Placements
December 31, June 30, December 31,
2011 2012 2012 Projected
 
ATSG airlines 31 33 30-36
External customers 21 21 21-27
52 54

Copyright Business Wire 2010

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