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ATSG REPORTS RESULTS FOR THIRD QUARTER 2012

WILMINGTON, Ohio - November 8, 2012 - Air Transport Services Group, Inc. (NASDAQ: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 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 also will be webcast live (listen-only mode) via the link below, via 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 Friday, 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 the link above and www.earnings.com for 30 days.
 

 
 

webcast

Live Webcast - Third Quarter 2012 Conference Call
November 9, 2012 at 10:00 a.m. Eastern standard time
 
 


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.

ATTACHMENTS:
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
CONDENSED CONSOLIDATED BALANCE SHEETS
PRE-TAX EARNINGS AND ADJUSTED PRE-TAX EARNINGS SUMMARY FROM CONTINUING OPERATIONS NON-GAAP RECONCILIATION
UNAUDITED ADJUSTED EBITDA FROM CONTINUING OPERATIONS NON-GAAP RECONCILIATION
IN-SERVICE AIRCRAFT FLEET

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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   2011 2012   2011
REVENUES $ 153,826 $ 195,480 $ 452,886 $ 563,668
 
OPERATING EXPENSES
Salaries, wages and benefits 44,153 48,872 135,827 140,546
Fuel 12,038 41,829 39,962 130,145
Maintenance, materials and repairs 26,751 23,740 75,135 67,426
Depreciation and amortization 21,057 22,616 62,871 68,865
Landing, ramp, rent and insurance 12,566 14,283 36,322 42,538
Travel 5,618 7,575 17,162 20,803
Other operating expenses 9,348 10,931 27,908 29,481
Impairment of aircraft, goodwill and acquired intangibles   27,144     27,144  
131,531 196,990 395,187 526,948
       
OPERATING INCOME (LOSS) 22,295 (1,510 ) 57,699 36,720
OTHER INCOME (EXPENSE)
Interest income 38 29 104 128
Interest expense (3,668 ) (3,304 ) (10,886 ) (10,944 )
Unrealized gain/(loss) on derivative instruments 294 (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 TAXES 18,959 (6,666 ) 47,873 17,581
INCOME TAX EXPENSE (7,403 ) 1,840 (18,436 ) (7,246 )
       
EARNINGS (LOSS) FROM CONTINUING OPERATIONS 11,556 (4,826 ) 29,437 10,335
 
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
Basic 63,456   63,334   63,439   63,267  
Diluted 64,667   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,
2012 2011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 28,213 $ 30,503
Accounts receivable, net of allowance of $677 in 2012 and $434 in 2011 41,043 42,278
Inventory 9,440 8,906
Prepaid supplies and other 9,716 9,785
Deferred income taxes 17,418 31,548
Aircraft and engines held for sale 4,400   9,831  
TOTAL CURRENT ASSETS 110,230 132,851
 
Property and equipment, net 802,291 748,913
Other assets 20,351 18,579
Intangibles 5,653 6,396
Goodwill 86,980   86,980  
TOTAL ASSETS $ 1,025,505   $ 993,719  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 48,018 $ 48,360
Accrued salaries, wages and benefits 23,673 23,226
Accrued expenses 9,026 10,291
Current portion of debt obligations 19,251 13,223
Unearned revenue 10,636   12,487  
TOTAL CURRENT LIABILITIES 110,604 107,587
 
Long term debt obligations 338,604 333,681
Post-retirement liabilities 160,873 185,562
Other liabilities 63,781 54,212
Deferred income taxes 47,610 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; 64,174,283 and 64,015,789 shares issued and outstanding in 2012 and 2011, respectively 642 640
Additional paid-in capital 523,035 520,613
Accumulated deficit (119,198 ) (148,059 )
Accumulated other comprehensive loss (100,446 ) (103,047 )
TOTAL STOCKHOLDERS’ EQUITY 304,033   270,147  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1,025,505   $ 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
    Nine Months Ended
September 30, September 30,
2012   2011 2012   2011
Revenues
CAM Leasing $ 39,155 $ 37,045 $ 115,073 $ 101,935
ACMI Services
Airline services 102,863 118,936 300,466 336,436
Reimbursables 20,454   44,100   57,676   138,014  
Total ACMI Services 123,317 163,036 358,142 474,450
Other Activities 26,773   26,335   81,876   77,242  
Total Revenues 189,245 226,416 555,091 653,627
Eliminate internal revenues (35,419 ) (30,936 ) (102,205 ) (89,959 )
Customer Revenues $ 153,826   $ 195,480   $ 452,886   $ 563,668  
 
Pre-tax Earnings (Loss) from Continuing Operations
CAM, inclusive of interest expense 17,334 16,156 50,819 43,256
ACMI Services (1,746 ) 2,758 (11,543 ) 4,808
Asset impairments (27,144 ) (27,144 )
Other Activities 3,373 3,672 8,602 7,001
Net, unallocated interest expense (296 ) (227 ) (961 ) (2,017 )
Net gain (loss) on derivative instruments 294 (1,881 ) 956 (5,437 )
Write off of unamortized debt issuance costs       (2,886 )
Total Pre-tax Earnings (Loss) $ 18,959 $ (6,666 ) $ 47,873 $ 17,581
 
Adjustments to Pre-tax Earnings (Loss)
Add Asset impairment charges 27,144 27,144
Less Net (Gain) Loss on derivative instruments (294 ) 1,881 (956 ) 5,437
Add Write-off of unamortized debt issuance costs       2,886  
Adjusted Pre-tax Earnings $ 18,665   $ 22,359   $ 46,917   $ 53,048  
 

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     Nine Months Ended
September 30,   September 30,
2012   2011 2012   2011
 
Earnings (Loss) from Continuing Operations Before Income Taxes $ 18,959 $ (6,666 ) $ 47,873 $ 17,581
Interest Income (38 ) (29 ) (104 ) (128 )
Interest Expense 3,668 3,304 10,886 10,944
Depreciation and Amortization 21,057   22,616   62,871   68,865  
EBITDA from Continuing Operations $ 43,646 $ 19,225 $ 121,526 $ 97,262
Add Asset impairment charges 27,144 27,144
Less Net (Gain) Loss on derivative instruments 2,886
Add Write-off of unamortized debt issuance costs (294 ) 1,881 (956 ) 5,437
       
Adjusted EBITDA from Continuing Operations $ 43,352   $ 48,250   $ 120,570   $ 132,729  
 

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 asset impairment charges, 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,       September 30,       December 31,
2011 2012 2012 Projected
    Operating     Operating     Operating
Total Owned Lease Total Owned Lease Total Owned Lease
B767-200 40 36 4 40 36 4 40 36 4
B767-300 3 2 1 6 4 2 7 5 2
B757-200 3 3 3 3 4 4
DC-8 3 3 2 2 2 2
DC-8 Combi 4 4 4 4 4 4
B727-200 4 4 4 4 3 3
Total Aircraft In-Service 57 52 5 59 53 6 60 54 6
 
Owned Aircraft Placements
December 31, September 30, December 31,
2011 2012 2012 Projected
 
ATSG airlines 31 32 32-34
External customers 21 21 20-22
52 53

 

 

 
 

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For more information, co
ntact:
Air Transport Services Group, Inc.
Quint Turner
Chief Financial Officer
937-382-5591

 
             
             

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