Abx Air (NASDAQ:ABXA)
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ABX Holdings, Inc., (NASDAQ: ABXA) today reported first-quarter net
earnings of $3.8 million, or $0.06 per common share, on strong revenue
growth to $382.1 million, driven both by its acquired airline and air
services businesses and its expanded charter fleet of Boeing 767
freighters. In the first quarter of 2007, ABX Holdings earned $4.3
million, or $0.07 per share, on revenues of $288.1 million.
ABX Holdings acquired the businesses of Cargo Holdings International
(CHI) at the end of last year. The principal businesses of CHI include
two independently certificated airlines, Air Transport International
(ATI) and Capital Cargo International Airlines (CCIA), and a leasing
company, Cargo Aircraft Management (CAM). Collectively, the CHI
businesses contributed approximately $75.4 million, or 80% of the
year-over-year increase in ABX Holdings’
first-quarter consolidated revenues. Growth in ABX Air’s
businesses, principally its air charter operations, provided the
remainder of the revenue gain. The CHI businesses also contributed
approximately $1.7 million in net earnings during the quarter, net of
acquisition-related interest expense.
Joe Hete, President and CEO of ABX Holdings, said, “Our
first-quarter results reflect across-the-board growth in each of our
operating segments, and substantial growth in our charter segment, plus
substantial operating cash flows stemming from our increasing fleet of
modern, fuel efficient wide-body freighter aircraft. While we remain
strongly supportive of our principal customer DHL, and expect to remain
a key provider of services to its U.S. network, these results also show
that we are making great strides toward our goal of diversifying into
new markets, via new, profitable air transportation related businesses.
We will continue to invest in and grow our family of businesses with an
eye toward even stronger operating cash flow, supporting our current
customers and attracting new ones with our expanded range of services
and platform options.”
ABX Holdings’ pre-tax earnings declined to
$6.2 million in the first quarter from $6.9 million a year ago. The
decline principally reflects a $4.6 million increase in net interest
expense associated with financing of acquired businesses and additional
aircraft. EBITDA (Earnings before Interest, Taxes, Depreciation and
Amortization) increased 78% to $36.8 million in the first quarter,
compared with $20.7 million in the year-earlier period (see
Reconciliation of EBITDA to GAAP Net Earnings at the end of this
release). EBITDA is a non-GAAP measure of financial performance that
management believes better reflects the cash-generating performance of
asset-intensive, financially leveraged businesses such as ABX Holdings.
Revenues from the two commercial agreements with DHL increased 3 percent
to $280.8 million for the quarter, as expenses reimbursed without markup
(principally fuel costs), increased sharply. Revenues from ACMI Services
increased nearly eightfold due to the addition of revenues from the CHI
airlines, and growth in ABX Air’s charter
fleet. Revenues from all other operations, excluding reimbursed ACMI
expenses, increased 6 percent to $8.5 million. Pretax earnings were up
from the DHL commercial agreements, and lower from ACMI Services and
other operations.
“Under our aircraft, crew, maintenance and
insurance (ACMI) agreements with principal customers, we are largely
protected from the direct impact of sharply rising energy prices. At the
same time, those rising costs are increasingly drawing customers to the
fuel-efficient attributes of our Boeing 767 cargo aircraft, where we are
No. 1 in the world with 40,” Hete said. “Labor
and other operating costs, however, continued to affect our charter
margins during the first quarter. We expect some relief from some of
those costs, now that our flight crew and maintenance domicile in Japan
is operating as planned. In the meantime, we continue to benefit from
the powerful cash-generating effects of our business model, and our
ongoing relationships with many large customers around the world.”
Net earnings for the first quarter each year included deferred
(non-cash) income tax expense, with the entire federal tax amount offset
by a reduction in our net deferred tax assets. ABX expects to record
deferred income tax expense in 2008 at approximately 39% of pre-tax
earnings. Remaining deferred tax assets are such that the Company does
not expect to be a cash payer of federal income taxes until 2011, or
later.
Results Associated with the DHL Segment
ABX Air’s commercial agreements with DHL are
an ACMI agreement and a Hub Services agreement. Under each agreement,
ABX Air earns a base mark-up of 1.75% on eligible costs and can earn
incremental mark-ups for meeting certain quarterly cost-related goals as
well as other annual cost-related and service goals. Any earnings from
attainment of annual cost-related and service-related goals are
recognized in the fourth quarter.
ABX Air’s pre-tax earnings from its two
commercial agreements with DHL increased four percent to $4.0 million
from $3.8 million during the first quarter of 2007. The principal factor
was an increase in incremental markup revenues of nearly $200,000,
driven by improved performance against cost-related goals in both ACMI
and Hub Services operations, despite challenging winter weather and
other operating conditions in many parts of the country. Base markup
revenues were lower in the first quarter, as eligible costs subject to
markup declined 10 percent. U.S. network facilities and assets
recaptured or removed from service by DHL since the first quarter of
2007 were the principal cause of the reduction.
For the first quarter, ABX Air achieved the maximum level of incremental
mark-up possible related to cost goals under the ACMI agreement and 39%
of the maximum, cost-related markup under the Hub Services agreement. In
the first quarter of 2007, ABX Air achieved 100% of its incremental
cost-related markup under the ACMI agreement, but did not earn any
incremental cost-related markup under its Hub Services agreement.
Results from Non-DHL Operations
ACMI Services Segment
Following the acquisition of CHI, the Charter segment has become the
ACMI Services segment, and now includes all of the ACMI and charter
services that are provided outside the principal ACMI commercial
agreement with DHL. Revenues for that segment increased to $63.1 million
in the first quarter, excluding reimbursable expenses (principally fuel
for ACMI customers) of $30.2 million, compared with $7.0 million for the
first quarter the prior year. Pretax earnings for the segment were $1.1
million, down from $1.0 million in the first quarter of 2007.
The two former CHI airlines, CCIA and ATI, operated 30 aircraft during
the quarter, mostly under ACMI service contracts for customers that
include BAX Global Inc., the U.S. military, and DHL for international
service. ABX Air generated $18.0 million of the ACMI Services revenues,
and approximately 20 percent of total ACMI/Charter revenue growth in
that segment for the quarter. That growth came mainly from additional
Boeing 767 aircraft that ABX Air has deployed with non-DHL customers
since the first quarter of 2007.
The charter operations of ABX Air operated at a small loss for the first
quarter of 2008 due to higher aircraft maintenance and labor costs.
Flight crew wages were negatively impacted during the first quarter of
2008, when ABX Air flight crews decided not to voluntarily bid for extra
flying, as is customary. As a result, ABX Air assigned the trips at an
additional cost. Additionally, expenses during the quarter included
additional flight crew costs associated with ABX Air’s
Asian operations, while it completed the set-up of a domicile of flight
crews and maintenance employees in Japan.
“We are very pleased with the strong growth
of our ACMI Services businesses, both from our legacy ABX Air operations
and the two airlines we acquired with CHI,”
Hete said. “The outlook for this segment for
the remainder of the year is encouraging, despite U.S. economic
conditions and continued record high fuel costs, as we deploy more
Boeing 767 and 757 aircraft via all three airlines to serve customers
into growing markets, either under traditional ACMI or leased aircraft
agreements.”
CAM
Results from Cargo Aircraft Management (CAM) became a separate business
segment effective with the first quarter of 2008. CAM’s
revenues from aircraft leasing operations were $10.1 million during the
quarter, and segment earnings were $4.3 million. While CAM is expected
to grow to serve outside customers, during the first quarter its results
were derived from leasing aircraft to airline subsidiaries of the
Company, and therefore largely eliminated in consolidated results. CAM
expects to add four Boeing 767-200 extended-range aircraft during 2008,
two of which will be leased to an outside customer.
Other Business Activities
Other non-DHL revenues increased 6 percent to $8.5 million in the first
quarter of 2008 compared to the first quarter of 2007, driven by growth
in aircraft maintenance services and parts sales. During 2008, margins
in this segment declined, due principally to higher non-reimbursed
corporate expenses, including expenses related to the CHI acquisition.
Selected Items
DHL’s Plan for Improvement in its U.S.
Financial Performance
On May 6, 2008, Deutsche Post World Net, DHL’s
parent company, again reaffirmed that DHL will maintain a strong market
presence in the U.S., and expects to announce later this month its plan
to improve DHL’s financial performance in the
U.S. market. ABX Air continues to hold discussions with DHL regarding DHL’s
U.S. operations, and expects that it will remain a strong business
partner to DHL in the future.
DHL Arbitration Status
In November 2007, ABX Air and DHL agreed to arbitrate a dispute over the
allocation of certain overhead expenses currently reimbursed by DHL to
ABX Air under the terms of the commercial agreements and several other
issues relating to reimbursement of expenses in 2007. A panel of three
arbitrators is reviewing the pending issues. ABX Air expects a ruling on
these issues by the end of the second quarter of this year. While the
growth of ABX Air’s non-DHL operations would
make it likely that those operations would assume an appropriate level
of allocated overhead expense at some point in the future, no allocation
of overhead expenses to ABX Air’s non-DHL
operations for 2007 is expected, and, accordingly, no reserves for that
purpose have been established.
Conference Call
ABX Air will host a conference call to review its financial results for
the first quarter of 2008 on Wednesday, May 14, 2007, at 10:00 AM
Eastern Time. Participants should dial (888) 713-4216 and international
participants should dial (617) 213-4868 ten minutes before the scheduled
start of the call and ask for conference ID #41822189. The call will
also be webcast live (listen-only mode) via either www.abxholdings.com
or www.earnings.com
for individual investors and www.streetevents.com
for institutional investors. A replay of the conference call will be
available an hour after the conclusion of the call. It will be available
by phone for five days after the call at (888) 286-8010 (international
callers (617) 801-6888); use pass code ID #94609973. The webcast replay
will remain available via www.abxholdings.com
or www.earnings.com
for 30 days.
About ABX Holdings
ABX Holdings is a leading provider of air cargo transportation and
related services to domestic and foreign air carriers and other
companies that outsource their air cargo lift requirements. Through five
principal subsidiaries, including three airlines with separate and
distinct U.S. FAA Part 121 Air Carrier certificates, ABX Holdings also
provides aircraft leasing, aircraft maintenance services, airport ground
services, fuel management, specialized transportation management, and
air charter brokerage services. ABX Holdings’
subsidiaries include ABX Air, Inc., Air Transport International, LLC,
Capital Aircraft Management, Inc., Capital Cargo International Airlines,
Inc. and LGSTX Services, Inc. For more information, please see www.abxholdings.com
and www.cargoholdings.com.
Except for historical information contained herein, the matters
discussed in this release contain forward-looking statements that
involve risks and uncertainties. ABX Holdings, Inc.'s actual results may
differ materially from the results discussed in the forward-looking
statements. There are a number of important factors that could cause the
Company's actual results to differ materially from those indicated by
such forward-looking statements. These factors include, but are not
limited to, reductions in the scope of services ABX Air performs under
its commercial agreements with DHL, the resolution via arbitration of
certain issues related to overhead allocation under ABX Air’s
commercial agreements with DHL, maintaining cost and service level
performance under those agreements, the ability to generate revenues and
cash flow from sources other than DHL, the ability to generate earnings
and cash flow sufficient to repay debt and realize certain tax benefits,
the potential for accelerated repayment of ABX Air’s
Promissory Note with DHL, achieving objectives for growth and
profitability anticipated from the purchase of Cargo Holdings
International, Inc., and other factors that are contained from time to
time in ABX Holdings’ filings with the U.S.
Securities and Exchange Commission, including ABX Holdings' 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 the
Company's forward-looking statements. These forward-looking statements
were based on information, plans and estimates as of the date of this
release. ABX Holdings undertakes no obligation to update any
forward-looking statements to reflect changes in underlying assumptions
or factors, new information, future events or other changes.
ABX AIR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended
March 31
2008
2007
REVENUES
$ 382,056
$ 288,062
OPERATING EXPENSES
Salaries, wages and benefits
158,757
157,925
Fuel
119,892
58,953
Maintenance, materials and repairs
26,144
22,872
Depreciation and amortization
21,242
11,943
Landing and ramp
14,037
9,801
Rent
3,446
2,518
Purchased line-haul and yard management
1,447
1,671
Other
21,511
13,592
366,476
279,275
INTEREST EXPENSE
(10,375
)
(3,163
)
INTEREST INCOME
1,002
1,258
INCOME BEFORE INCOME TAXES
6,207
6,882
INCOME TAXES
(2,420
)
(2,615
)
NET EARNINGS
$ 3,787
$ 4,267
EARNINGS PER SHARE
Basic
$ 0.06
$ 0.07
Diluted
$ 0.06
$ 0.07
WEIGHTED AVERAGE SHARES
Basic
62,417
58,282
Diluted
62,651
58,589
ABX AIR, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
March 31,
December 31,
2008
2007
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$ 96,508
$ 59,271
Marketable securities - available-for-sale
3,848
49,636
Accounts receivable, net of allowance of $363 in 2008 and 2007
26,957
55,339
Inventory
15,740
14,701
Prepaid supplies and other
11,935
19,621
Deferred income taxes
18,311
19,262
Aircraft and engines held for sale
1,768
1,896
TOTAL CURRENT ASSETS
175,067
219,726
Property and equipment, net
702,995
690,813
Other assets
27,480
26,280
Deferred income taxes
13,882
15,794
Intangibles
31,041
31,700
Goodwill
178,654
178,654
TOTAL ASSETS
$ 1,129,119
$ 1,162,967
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
$ 62,902
$ 76,425
Accrued salaries, wages and benefits
54,319
64,560
Accrued expenses
11,705
11,266
Current portion of debt obligations
30,050
22,815
Unearned revenue
30,290
21,046
TOTAL CURRENT LIABILITIES
189,266
196,112
Long-term obligations
528,758
567,987
Post-retirement liabilities
195,984
186,338
Other liabilities
9,978
12,527
Commitments and contingencies (Note G)
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; 63,227,084 and 62,650,278 shares issued and outstanding
in 2008 and 2007, respectively
632
626
Additional paid-in capital
458,422
458,091
Accumulated deficit
(185,757
)
(189,544
)
Accumulated other comprehensive loss
(68,164
)
(69,170
)
TOTAL STOCKHOLDERS' EQUITY
205,133
200,003
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 1,129,119
$ 1,162,967
ABX AIR, INC.
PRE-TAX EARNINGS SUMMARY
(In thousands)
Three Months Ended March 31
2008
2007
Revenues:
DHL
ACMI
Base mark-up
$ 106,754
$ 116,087
Incremental mark-up
693
648
Total ACMI
107,447
116,735
Hub Services
Base mark-up
71,754
81,266
Incremental mark-up
150
-
Total Hub Services
71,904
81,266
Other Reimbursable
101,466
74,952
Total DHL
280,817
272,953
ACMI Services
Charter and ACMI
63,115
7,045
Other Reimbursable
30,178
-
Total ACMI Services
93,293
7,045
CAM
10,092
-
Other Activities
8,549
8,064
Total Revenues
392,751
288,062
Eliminate internal revenues
(10,695
)
-
Customer Revenues
$ 382,056
$ 288,062
Pre-tax Earnings:
DHL
ACMI
$ 2,530
$ 2,436
Hub Services
1,431
1,378
Other Reimbursable
-
-
Total DHL
3,961
3,814
ACMI Services
1,089
990
ACMI Other Reimbursable
-
-
CAM
4,319
-
Other Activities
430
1,112
Net non-reimbursed interest income (expense)
(3,592
)
966
Total Pre-tax Earnings
$ 6,207
$ 6,882
The Company does not allocate ABX Air’s
overhead costs that are reimbursed by DHL to ABX Air’s
non-DHL activities. The provisions of the commercial agreements between
ABX Air and DHL do not require an allocation of ABX Air’s
overhead until such time as ABX Air derives more than 10% of its total
revenue from non-DHL business activities.
ABX HOLDINGS, INC.
NON-GAAP RECONCILIATION
Net Earnings to Earnings Before Interest, Taxes, Depreciation
and Amortization
(EBITDA)
(Unaudited)
Three Months Ended March 31,
2008
2007
GAAP NET EARNINGS
$ 3,787
$ 4,267
Income Tax Expense
2,420
2,615
Interest Income
(1,002
)
(1,258
)
Interest Expense
10,375
3,163
Depreciation and Amortization
21,242
11,943
EARNINGS BEFORE INTEREST, TAXES
DEPRECIATION AND AMORTIZATION
$ 36,822
$ 20,730
EBITDA is a non-GAAP financial measure and should not be considered an
alternative to net income (loss) or any other performance measure
derived in accordance with GAAP. EBITDA is defined as income (loss) from
operations plus net interest expense, provision for income taxes,
depreciation and amortization. The Company’s
management uses this adjusted financial measure in conjunction with GAAP
financial measures to monitor and evaluate the performance of the
Company, including as a measure of liquidity. EBITDA 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.