ATSG Reports Results for Third Quarter 2012

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ATSG Reports Results for Third Quarter 2012

WILMINGTON, Ohio--(BUSINESS WIRE)-- Air Transport Services Group, Inc. (NAS: ATSG) today reported financial results as follows for the third quarter of 2012:

 
Summary GAAP Results
 Quarter Ended  Nine Months Ended
September 30,September 30,
(in millions, except per share amounts) 2012 2011 Chg.2012 2011 Chg.
Revenues$153.8 $195.5 $(41.7)$452.9 $563.7 $(110.8)
Pre-tax Earnings (Loss) from Continuing Operations$19.0$(6.7)$25.7$47.9$17.6$30.3
Net Earnings (Loss) from Continuing Operations$11.6$(4.8)$16.4$29.4$10.3$19.1
Earnings (Loss) Per Share from Continuing Operations $0.18  $(0.08) $0.26 $0.46  $0.16  $0.30 
Adjusted (non-GAAP) Results *           
Revenues excluding Reimbursed Expenses$133.4$151.4$(18.0)$395.2$425.7$(30.5)
Adjusted Pre-tax Earnings from Continuing Operations$18.7$22.4$(3.7)$46.9$53.0$(6.1)
Adjusted EBITDA from Continuing Operations $43.4  $48.3  $(4.9)  $120.6  $132.7  $(12.1)

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


Joe Hete, President and CEO of ATSG, said, "Our results for the third quarter of 2012 were in line with the outlook we provided in August. We continued to pursue further deployment of freighter aircraft and the reorganization of two of our airlines, which will result in meaningful savings in 2013. However, we continue to experience the effects of the soft air-freight market."

Earnings for the nine months of 2011 included $6.8 million in net charges related to the 2011 refinancing of ATSG's credit facilities, and $27.1 million in pre-tax impairment charges related primarily to the 2011 termination of the company's business with D.B. Schenker ("Schenker"), a North American logistics company. Adjusted EBITDA from Continuing Operations excludes the effect of those items. Revenues also include reimbursement of certain expenses, particularly fuel, from some of ATSG's customers, including $94.6 million in reimbursement revenues from Schenker for the first nine months of 2011. Excluding revenues from reimbursed expenses and from Schenker-related business, revenues for the third quarter and first nine months of 2012 increased 5 percent and 12 percent, respectively, from 2011 levels.

Operating Results

Aircraft Leasing

Pre-tax third-quarter earnings for Cargo Aircraft Management (CAM) were $17.3 million, up 7 percent from the year-earlier period. Revenues increased 6 percent to $39.2 million.

At the end of September, CAM owned 53 aircraft in service condition, including 21 leased to external customers and 32 leased to its ATSG airline affiliates. ATSG airline affiliates pay market rates on aircraft leased from CAM. ATSG's airlines operate an additional six freighters (four Boeing 767-200s, and two 767-300s) under operating leases with third parties. ATSG's aircraft fleet at year-end 2011, at Sept. 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

Third quarter revenues for ATSG's airline operations were $102.9 million, excluding fuel and other reimbursed expenses, down from $118.9 million in the third quarter of 2011. The third-quarter pre-tax loss of $1.7 million was down from a $2.8 million pre-tax profit in the third quarter of 2011, excluding third-quarter 2011 impairment charges.

Results for the third quarter of 2011 included $24.2 million in airline services revenues from Schenker, excluding reimbursed amounts. As previously reported, Schenker ended its North American air freight network agreements with ATSG at the end of 2011. Decreased segment results for the third quarter of 2012 primarily reflect the loss of the Schenker business, and upfront expenses incurred in anticipation of future freighter deployments.

ATSG is reorganizing its two airlines that served Schenker, Air Transport International (ATI) and Capital Cargo International Airlines (CCIA). CCIA's operations will merge into ATI, generating significant savings in these operations beginning in 2013.

Delayed aircraft deployments also affected ACMI Services results. Two Boeing 767-300 freighters entered service on an ACMI basis in October on international routes. Those aircraft had been projected to enter service in August. ATSG's latest two-year combi (combination passenger/freighter) service award from the U.S. Military also began in October, under terms that will allow ATSG to replace its four DC-8 combis with more modern, efficient 757-200s. The combi business has been a steady, reliable source of cash flow generation to ATI for several years.

Third-quarter ACMI block hours were down 16 percent overall from a year ago, but increased 6 percent excluding block hours operated for Schenker in the third quarter of 2011.

Other Activities

Third quarter revenues from ATSG's other businesses increased 2 percent, to $26.8 million, before the elimination of inter-company results. Pre-tax profit from other activities was $3.4 million down 8 percent from the year-earlier quarter but up sequentially from the second quarter this year. During the third quarter, ATSG completed agreements with the U.S. Postal Service extending ATSG's management of USPS sorting facilities in Indianapolis, Dallas, and Memphis for two more years.

Outlook for the Fourth Quarter and 2013

Hete said that ATSG continues to project strong gains in its GAAP earnings for 2012 as a whole, improved results for the second half of 2012 versus the first half, and substantial growth in revenues, earnings and cash flow in 2013.

"But when setting our $170 million target for Adjusted EBITDA for 2012, we had assumed no further delays in our projections of aircraft deployments," he said. "Unfortunately, those delays have continued beyond what we projected in August. We now expect our Adjusted EBITDA for 2012 to approximate $160 million, including approximately $40 million in the fourth quarter."

Hete noted that some of ATSG's customers are delaying commitments, which will impact the fourth quarter. In addition, he said that certain international customers have faced unexpected regulatory hurdles unrelated to market conditions, leading to new-service delays.

"Deployment of our modified freighter aircraft are occurring later than we had anticipated, due to both delays in the modification process and longer transition periods for aircraft returned from customers," he said. "Given that there are meaningful fixed costs associated with each aircraft in service, having revenue lag for even one month can have a near-term negative impact on EBITDA and earnings."

Hete concluded that while those delays will negatively affect this year's Adjusted EBITDA and earnings, they do not affect the intrinsic earnings power of ATSG's business model and its strong cash flow generation characteristics when deployments are completed.

"With reduced growth capital expenditure commitments for 2013, and the benefit of our significant investment in our fleet becoming more evident, we expect to reap substantial earnings, EBITDA, and free cash flow gains in 2013."

Conference Call

ATSG will host a conference call on Friday, November 9, 2012, at 10:00 a.m. Eastern time to review its financial results for the third quarter of 2012. Participants should dial 888-895-5479 and international participants should dial 847-619-6250 ten minutes before the scheduled start of the call and ask for conference pass code 33635520. 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 November 9, 2012, beginning at 2:00 p.m. and continuing through Friday, November 16, 2012, at 888-843-7419 (international callers 630-652-3042); use pass code 33635520#. 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 costs and timing associated with the modification and deployment of Boeing 767 and Boeing 757 aircraft, the timing associated with the redeployment of aircraft among customers, 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 Nine Months Ended
September 30,September 30,
2012 20112012 2011
REVENUES$153,826$195,480$452,886$563,668
 
OPERATING EXPENSES
Salaries, wages and benefits44,15348,872135,827140,546
Fuel12,03841,82939,962130,145
Maintenance, materials and repairs26,75123,74075,13567,426
Depreciation and amortization21,05722,61662,87168,865
Landing, ramp, rent and insurance12,56614,28336,32242,538
Travel5,6187,57517,16220,803
Other operating expenses9,34810,93127,90829,481
Impairment of aircraft, goodwill and acquired intangibles 27,144  27,144 
131,531196,990395,187526,948
    
OPERATING INCOME (LOSS)22,295(1,510)57,69936,720
OTHER INCOME (EXPENSE)
Interest income3829104128
Interest expense(3,668)(3,304)(10,886)(10,944)
Unrealized gain/(loss) on derivative instruments294(1,881)956(5,437)
Write off of unamortized debt issuance costs   (2,886)
(3,336)(5,156)(9,826)(19,139)
    
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES18,959(6,666)47,87317,581
INCOME TAX EXPENSE(7,403)1,840(18,436)(7,246)
    
EARNINGS (LOSS) FROM CONTINUING OPERATIONS11,556(4,826)29,43710,335
 
EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX(186)24 (576)(74)
NET EARNINGS (LOSS)$11,370 $(4,802)$28,861 $10,261 
 
EARNINGS (LOSS) PER SHARE - Basic
Continuing operations$0.18 $(0.08)$0.46 $0.16 
Discontinued operations  (0.01) 
NET EARNINGS (LOSS) PER SHARE$0.18 $(0.08)$0.45 $0.16 
 
EARNINGS (LOSS) PER SHARE - Diluted
Continuing operations$0.18 $(0.08)$0.46 $0.16 
Discontinued operations  (0.01) 
NET EARNINGS (LOSS) PER SHARE$0.18 $(0.08)$0.45 $0.16 
 
WEIGHTED AVERAGE SHARES
Basic63,456 63,334 63,439 63,267 
Diluted64,667 63,334 64,478 64,078 
 
 

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 
  September 30,  December 31,
20122011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$28,213$30,503
Accounts receivable, net of allowance of $677 in 2012 and $434 in 201141,04342,278
Inventory9,4408,906
Prepaid supplies and other9,7169,785
Deferred income taxes17,41831,548
Aircraft and engines held for sale4,400 9,831 
TOTAL CURRENT ASSETS110,230132,851
 
Property and equipment, net802,291748,913
Other assets20,35118,579
Intangibles5,6536,396
Goodwill86,980 86,980 
TOTAL ASSETS$1,025,505 $993,719 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
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