Year Marks Completion of Long-Term Agreements
and Improved Cash Flow Generation
Air Transport Services Group, Inc. (Nasdaq: ATSG), the leading
provider of medium wide-body aircraft leasing, air cargo
transportation and related services, today reported consolidated
financial results for the quarter and full year ended December 31,
2014.
For the fourth quarter of 2014:
- Adjusted pre-tax earnings from
continuing operations increased 19 percent to $17.7 million. The
adjustments remove the effects of pension settlement charges,
derivative transactions, and year-earlier impairment charges. These
and other adjusted amounts referenced below are non-GAAP financial
measures, defined and reconciled to comparable GAAP results in
tables at the end of this release.
- Adjusted net earnings from continuing
operations increased 11 percent to $10.8 million, or 17 cents per
share diluted. Operating loss carryforwards for U.S. federal income
tax purposes offset much of the company’s federal tax liabilities.
ATSG does not expect to pay significant federal income taxes until
2017 at the earliest.
- Revenues were $157.9 million, slightly
higher than a year ago and up $19.5 million from the third quarter
of 2014. Excluding revenues from reimbursable expenses, revenues
decreased 3 percent compared to the fourth quarter of 2013.
Increases in revenues from additional dry leases to external
customers in 2014 offset the ending of Mideast ACMI operations for
DHL in 2013.
- Adjusted EBITDA (Earnings Before
Interest, Taxes, Depreciation and Amortization) increased by 15
percent to $50.8 million from $44.3 million a year ago. Full year
adjusted EBITDA grew by 14 percent to $179.5 million from $157.5
million in 2013.
In January, ATSG completed a multi-year commercial agreement
with DHL that calls for the extension through March 2019 of the
Boeing 767 freighter leases and operating services that ATSG has
provided in support of DHL’s U.S. network for more than a decade.
Dry leases for 13 ATSG-owned Boeing 767 freighters already leased
to DHL were extended through March 2019, and two others operating
for DHL will be converted to four year leases. ATSG’s businesses
will continue to operate and maintain those aircraft through March
2019 under an amended and restated CMI (Crew, Maintenance and
Insurance) Agreement.
Joe Hete, President and Chief Executive Officer of ATSG, said,
“ATSG’s principal businesses made significant progress in 2014, as
our leasing unit grew its portfolio of multi-year dry leases by 20
percent, to 24 aircraft, and our airlines turned in a strong
holiday season performance to cap a successful year. In the fourth
quarter, we achieved our best Adjusted EBITDA in six years, aided
by full deployment of our available aircraft. Fundamental industry
dynamics point toward an excellent year for air cargo companies in
2015, and we fully expect to benefit from these factors assuming
these trends continue.”
ATSG’s GAAP net earnings for the fourth quarter reflect a
one-time settlement option offered to certain beneficiaries of its
qualified pension plans in December 2014. The response to the offer
settled $98.7 million of pension obligations under two plans and
led to pre-tax non-cash charges of $6.7 million to continuing
operations and $5.0 million to discontinued operations in the
fourth quarter of 2014. GAAP results for 2013 include a $52.6
million pre-tax impairment charge in the fourth quarter related to
airline entity goodwill.
The one-time pension settlements, which will result in a
reduction in future pension obligations and expense volatility,
reduced net earnings from continuing operations by $0.07 per share
and from discontinued operations by $0.05 per share in 2014. The
impairment charges reduced 2013 net earnings by $0.82 per
share.
Segment Results
Cargo Aircraft Management (CAM)
CAM Fourth Quarter
Year ($ in thousands)
2014
2013 2014
2013 Revenues $ 44,852 $ 41,922 $ 166,303 $ 160,342 Pre-Tax
Earnings 14,478 16,228
53,159 66,208
Significant Developments:
- All of CAM’s $2.9 million increase in
fourth-quarter revenue came from external customers, totaling $21.2
million for the quarter. Externally leased freighters increased to
24 during 2014, from 20 at the end of 2013.
- Lower pre-tax earnings for the quarter
reflect a $2.4 million increase in depreciation costs primarily
attributable to fleet upgrades and expansion.
- At December 31, 2014, CAM owned 53
Boeing cargo aircraft in serviceable condition. CAM added four
aircraft in total during 2014, including first-quarter additions of
one 757 combi and one 767-300 freighter, and two 767-300 freighters
purchased in the third quarter from the lessor.
- In February, we executed our 25th dry
lease by placing a 767 with Cargojet, and we exercised a purchase
option to acquire our 10th 767-300 freighter. This aircraft, which
we previously leased in from a third party, will be deployed as our
26th external dry lease, as DHL has committed to take it through
March 2019.
- CAM’s earnings are expected to increase
in 2015, as growth in leasing revenues under agreements completed
over the last year exceeds increases in depreciation and other
fixed charges.
ACMI Services
ACMI Services Fourth Quarter
Year ($ in thousands)
2014 2013
2014 2013 Revenues Airline services $
95,342 $ 100,399 $ 355,678 $ 376,592 Reimbursables 21,824
16,756 84,241 67,912 Total ACMI Services
Revenues 117,166 117,155 439,919 444,504 Pre-Tax Earnings
(Loss) Excluding Charges 1,482 (3,991 ) (5,381 ) (25,601 ) Less
Impairment Charge — (52,585 ) — (52,585 ) Less Pension Settlement
Charge (6,700 ) — (6,700 ) — Pre-Tax Loss
(5,218 ) (56,576 ) (12,081 ) (78,186 )
Significant Developments:
- Total ACMI Services revenues were flat
in the fourth quarter compared to the prior year quarter, and down
$5.1 million excluding reimbursables. Increased holiday-season
flying in the fourth quarter of 2014 did not entirely offset
reductions in revenues from international operations since the
fourth quarter of 2013. Airline services revenues grew more than
$11 million from the third quarter of 2014. ACMI block hours for
the fourth quarter were down 10 percent from a year ago, but down 1
percent excluding those from Mideast operations in the prior-year
period.
- Pre-tax profitability improved sharply
for the quarter, excluding the effect of the pension settlement, as
airline operating expenses declined. Principal factors were
reductions in employee wages and benefit costs due to workforce
reductions, and lower direct operating costs, including those costs
for newer 757 combi aircraft.
- Results also reflect the reallocation
of several aircraft from the airlines' fleets to CAM. Three 767
freighters were returned to CAM during 2014 for deployment to
external dry-lease customers. Also, two of four DHL-owned 767s that
ABX Air has leased and operated for DHL in the U.S. were returned
in December 2014; the other two are expected to be returned by the
end of this month.
- As results for the ACMI Services
segment in 2015 will include the effect of higher pension expense,
changes in pricing under the DHL agreements, additional airframe
heavy maintenance checks, and other items, we anticipate 2015
pre-tax results for the segment will decline approximately $6
million from 2014.
Other Activities
Other Activities Fourth Quarter
Year ($ in thousands)
2014
2013 2014
2013 Revenues $ 36,938 $ 34,050 $ 142,294 $ 117,292 Pre-Tax
Earnings Excluding Pension Settlement Costs 2,228
3,012 11,363 12,200
Significant Developments:
- External customer revenues from all
other activities in the fourth quarter were $19.6 million, down 10
percent compared to 2013. Fourth-quarter revenues increased 5
percent for AMES, the company’s maintenance and repair business.
However, the gain was offset by higher costs, including more costs
for expanded hangar operations in Wilmington. Revenues from
management of sorting centers for the U.S. Postal Service increased
for the quarter and the full year. The company is in discussions
with the USPS about renewal of postal center contracts, some of
which would otherwise expire during 2015.
Outlook
ATSG now projects that its baseline Adjusted EBITDA from
Continuing Operations for 2015 will be approximately $180 million,
recognizing the offsetting effects of additional 767 dry leases,
higher pension expense due to lower discount rates and pricing
under its new DHL agreements, among other factors.
Capital expenditures are projected to decrease to approximately
$80 million in 2015 compared to $112.2 million in 2014.
Hete noted that "In 2014, ATSG set the stage for several years
of continued strong cash generation. New agreements with DHL that
begin in April and continue through March 2019, together with the
multi-year dry leases we have executed with other customers,
provide excellent visibility of future revenue and cash flow. We
plan to take advantage of our strong balance sheet and substantial
cash flow to grow our businesses through selected investments that
meet our ROIC hurdles. At the same time, in the second quarter, we
plan to initiate the share repurchase program that our Board
authorized last summer."
Conference Call
ATSG will host a conference call on Friday, March 6, 2015, at
10:00 a.m. Eastern time to review its financial results for the
fourth quarter of 2014. 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 38990766. The call will also be webcast live (listen-only
mode) via www.atsginc.com.
A replay of the conference call will be available by phone on
March 6, 2015, beginning at 2:00 p.m. and continuing through March
13, 2015, at (888) 843-7419 (international callers (630) 652-3042);
use pass code 38990766#. The webcast replay will remain available
via www.atsginc.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
two 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, Inc.; Cargo Aircraft
Management, 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 number and timing of deployments of our aircraft, our operating
airlines' ability to maintain on-time service and control and
reduce costs, 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
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF EARNINGS(In
thousands, except per share data)
Three Months Ended Year Ended
December 31, December 31, 2014
2013 2014 2013 REVENUES $ 157,938 $
156,963 $ 589,592 $ 580,023 OPERATING EXPENSES Salaries,
wages and benefits 43,470 48,612 166,526 175,383 Maintenance,
materials and repairs 26,399 25,270 91,528 97,053 Depreciation and
amortization 29,826 25,672 108,254 91,749 Fuel 13,188 11,219 53,521
49,376 Rent 5,727 6,940 26,650 27,468 Travel 4,481 4,785 17,662
18,693 Landing and ramp 2,541 2,940 10,305 11,204 Insurance 1,417
1,750 5,304 6,216 Pension settlement 6,700 — 6,700 — Impairment of
goodwill — 52,585 — 52,585 Other operating expenses 9,904
11,197 38,617 37,111 143,653 190,970 525,067
566,838
OPERATING INCOME 14,285 (34,007 ) 64,525 13,185 OTHER INCOME
(EXPENSE) Interest income 26 18 92 74 Interest expense (3,324 )
(3,749 ) (13,937 ) (14,249 ) Net gain on derivative instruments 127
206 1,096 631 (3,171 ) (3,525 ) (12,749
) (13,544 )
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
11,114 (37,532 ) 51,776 (359 ) INCOME TAX EXPENSE (4,455 ) (5,308 )
(19,702 ) (19,266 )
EARNINGS (LOSS) FROM CONTINUING OPERATIONS 6,659
(42,840 ) 32,074 (19,625 ) EARNINGS (LOSS) FROM DISCONTINUED
OPERATIONS, NET OF TAX (2,948 ) (1 ) (2,214 ) (3 ) NET EARNINGS
(LOSS) $ 3,711 $ (42,841 ) $ 29,860 $ (19,628 )
EARNINGS (LOSS) PER SHARE - Basic Continuing operations $
0.10 $ (0.67 ) $ 0.50 $ (0.31 ) Discontinued operations (0.04 ) —
(0.04 ) — NET EARNINGS (LOSS) PER SHARE $ 0.06
$ (0.67 ) $ 0.46 $ (0.31 ) EARNINGS (LOSS) PER SHARE
- Diluted Continuing operations $ 0.10 $ (0.67 ) $ 0.49 $ (0.31 )
Discontinued operations (0.04 ) — (0.03 ) — NET
EARNINGS (LOSS) PER SHARE $ 0.06 $ (0.67 ) $ 0.46 $
(0.31 ) WEIGHTED AVERAGE SHARES Basic 64,289 64,054
64,253 63,992 Diluted 65,222 64,054
65,211 63,992
AIR TRANSPORT SERVICES GROUP, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(In thousands,
except share data)
December 31, December 31, 2014
2013 ASSETS CURRENT ASSETS: Cash and cash equivalents
$ 30,560 $ 31,699 Accounts receivable, net of allowance of $812 in
2014 and $717 in 2013 43,513 52,247 Inventory 10,665 9,050 Prepaid
supplies and other 11,898 9,730 Deferred income taxes 19,770 13,957
Aircraft and engines held for sale 715 2,995 TOTAL
CURRENT ASSETS 117,121 119,678 Property and equipment, net
847,268 838,172 Other assets 28,230 21,143 Pension assets, net of
obligations — 14,855 Goodwill and acquired intangibles 39,010
39,291
TOTAL ASSETS $ 1,031,629
$ 1,033,139 LIABILITIES AND
STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable $
40,608 $ 34,818 Accrued salaries, wages and benefits 25,633 23,163
Accrued expenses 8,201 9,695 Current portion of debt obligations
24,344 23,721 Unearned revenue 12,914 8,733 TOTAL
CURRENT LIABILITIES 111,700 100,130 Long term debt 319,750
360,794 Post-retirement obligations 92,050 30,638 Other liabilities
57,647 62,740 Deferred income taxes 102,993 109,869
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; 64,854,950 and 64,618,305 shares
issued and outstanding in 2014 and 2013, respectively 649 646
Additional paid-in capital 526,669 524,953 Accumulated deficit
(96,953 ) (126,813 ) Accumulated other comprehensive loss (82,876 )
(29,818 ) TOTAL STOCKHOLDERS’ EQUITY 347,489 368,968
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $
1,031,629 $ 1,033,139
AIR TRANSPORT SERVICES GROUP, INC. AND
SUBSIDIARIESPRE-TAX EARNINGS AND ADJUSTED PRE-TAX EARNINGS
SUMMARYFROM CONTINUING OPERATIONSNON-GAAP RECONCILIATION(In
thousands)
Three Months Ended Year Ended
December 31, December 31, 2014
2013 2014 2013 Revenues
CAM $ 44,852 $ 41,922 $ 166,303 $ 160,342
ACMI
Services Airline services 95,342 100,399 355,678 376,592
Reimbursables 21,824 16,756 84,241 67,912
Total ACMI Services 117,166 117,155 439,919 444,504
Other Activities 36,938 34,050 142,294
117,292
Total Revenues 198,956 193,127 748,516
722,138 Eliminate internal revenues (41,018 ) (36,164 ) (158,924 )
(142,115 )
Customer Revenues $ 157,938
$ 156,963 $ 589,592
$ 580,023 Pre-tax Earnings from
Continuing Operations CAM, inclusive of interest expense
14,478 16,228 53,159 66,208
ACMI Services 1,482 (3,991 )
(5,381 ) (25,601 )
Other Activities 2,228 3,012 11,363
12,200
Pension settlement charge (6,700 ) — (6,700 ) —
Goodwill impairment charge — (52,585 ) — (52,585 )
Net,
unallocated interest expense (501 ) (402 ) (1,761 ) (1,212 )
Net gain (loss) on derivative instruments 127 206
1,096 631
Total Pre-tax Earnings
$ 11,114 $ (37,532 ) $
51,776 $ (359 ) Adjustments
to Pre-tax Earnings Add pension settlement cost 6,700 — 6,700 —
Add goodwill impairment charge — 52,585 — 52,585 Less net (gain)
loss on derivative instruments (127 ) (206 ) (1,096 ) (631 )
Adjusted Pre-tax Earnings $ 17,687
$ 14,847 $ 57,380
$ 51,595
Adjusted Pre-tax Earnings is defined as Earnings from Continuing
Operations Before Income Taxes less derivative gains or losses,
plus a pension settlement charge and goodwill impairment charge.
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
SUBSIDIARIESUNAUDITED ADJUSTED EARNINGS FROM CONTINUING
OPERATIONS BEFORE INTEREST, TAXES, DEPRECIATION AND
AMORTIZATIONNON-GAAP RECONCILIATION(In thousands)
Three Months Ended Year Ended
December 31, December 31, 2014
2013 2014 2013 Earnings from
Continuing Operations Before Income Taxes $ 11,114 $ (37,532 )
$ 51,776 $ (359 ) Interest Income (26 ) (18 ) (92 ) (74 ) Interest
Expense 3,324 3,749 13,937 14,249 Depreciation and Amortization
29,826 25,672 108,254 91,749
EBITDA
from Continuing Operations $ 44,238 $ (8,129 ) $ 173,875 $
105,565 Add pension settlement charge 6,700 — 6,700 — Add goodwill
impairment charge — 52,585 — 52,585 Less net (gain) loss on
derivative instruments (127 ) (206 ) (1,096 ) (631 )
Adjusted EBITDA from
Continuing Operations $ 50,811 $ 44,250 $ 179,479
$ 157,519
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 a pension settlement charge and a goodwill
impairment charge and less derivative gains or losses.
Management uses EBITDA from Continuing Operations as an
indicator of the cash-generating performance of the operations of
the Company. Management uses Adjusted EBITDA from Continuing
Operations to assess the performance of its operating results among
periods. EBITDA and Adjusted EBITDA from Continuing Operations
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
SUBSIDIARIESUNAUDITED ADJUSTED EARNINGSNON-GAAP
RECONCILIATION(In thousands, except per share data)
Three Months Ended Year Ended
December 31, 2014 December 31, 2014 Per
Share Per Share Earnings Basic
Diluted Earnings Basic
Diluted Earnings (loss) from continuing
operations 6,659 $ 0.10 $ 0.10 32,074 $ 0.50 $ 0.49 Effect of
pension settlement charge, net of tax 4,147 0.07 0.07
4,147 0.06 0.07
Adjusted
earnings from continuing operations 10,806 $ 0.17
$ 0.17 36,221 $ 0.56 $ 0.56
Weighted Average Shares 64,289 65,222 64,253
65,211
Three Months Ended
Year Ended December 31, 2013 December 31, 2013
Per Share Per Share Earnings Basic
Diluted Earnings Basic Diluted
Earnings (loss) from continuing operations (42,840 ) $ (0.67
) $ (0.67 ) (19,625 ) $ (0.31 ) $ (0.31 ) Effect of goodwill
impairment charge 52,585 0.82 0.82 52,585
0.83 0.82
Adjusted earnings from
continuing operations 9,745 $ 0.15 $ 0.15
32,960 $ 0.52 $ 0.51
Weighted
Average Shares 64,054 65,004 63,992 64,857
Adjusted earnings and adjusted earnings per share from
continuing operations are a non-GAAP financial measures and should
not be considered as alternatives to earnings or earnings per share
from continuing operations or any other performance measure derived
in accordance with GAAP.
Adjusted earnings from continuing operations is defined as
earnings (loss) from continuing operations plus a pension
settlement charge and goodwill impairment charge. The goodwill
impairment charge is not deductible for income tax purposes.
Management uses adjusted earnings and adjusted earnings per
share from continuing operations to assess the performance of its
operating results. Adjusted earnings from continuing operations
should not be considered in isolation or as a substitute for
analysis of the Company's results as reported under GAAP.
AIR TRANSPORT SERVICES GROUP, INC. AND
SUBSIDIARIESIN-SERVICE CARGO AIRCRAFT FLEET
Aircraft Types December 31,
December 31, December 31, 2013
2014 2015 Projected Operating
Operating Operating Total Owned Lease Total
Owned Lease Total Owned Lease B767-200 40 36 4 38 36 2 36 36 —
B767-300 8 6 2 10 9 1 10 10 — B757-200 4 4 — 4 4 — 4 4 — B757 Combi
3 3 — 4 4 — 4 4 —
Total Aircraft 55 49
6 56 53 3 54 54 —
Owned Aircraft In Serviceable Condition December
31, December 31, December 31, 2013
2014 2015 Projected ATSG airlines 29 28 27-29
External customers 20 24 25-27 Staging/Unassigned — 1 —
49
53 54
ATSG Inc.Quint O. Turner, Chief Financial Officer,
937-382-5591
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