ABX Air, Inc. Reports Increase in Fourth Quarter Annual Earnings

WILMINGTON, OH - February 25, 2005 - ABX Air, Inc., (OTC:ABXA.OB) reported today increased earnings for both the quarter and year ended December 31, 2004.

For the fourth quarter of 2004, ABX reported revenue of $361.4 million and net earnings of $18.1 million, or $0.31 cents per diluted share. For the fourth quarter of 2003, ABX posted revenues of $274.1 million and net earnings of $7.6 million, or $0.13 per diluted share.

For the year ended December 31, 2004, ABX reported revenue of $1.20 billion and net earnings of $37.0 million, or $0.63 per diluted share. For the year ended December 31, 2003, ABX posted revenues of $1.16 billion and a net loss of ($446.9) million, or ($8.52) per diluted share. The loss resulted from a $466.1 million impairment charge, net of tax benefit, taken during the third quarter of 2003. Excluding the impairment charge, 2003 net earnings were $19.2 million, or $0.33 per diluted share. The impairment charge was taken after ABX was separated from its former parent, Airborne, Inc. ("Airborne") on August 15, 2003, in conjunction with the acquisition of Airborne by DHL Worldwide Express B.V.

Comparisons between 2004 and 2003 financial results are complicated by the separation from Airborne in August of 2003, and the differences in ABX's contractual mark-up and cost structure before and after the separation. Comparisons of fourth quarter net earnings are further complicated due to the shortened period during which mark-ups under ABX's contractual arrangements with DHL were applied in 2003.

Results Associated with the DHL Contracts

ABX's net earnings of $18.1 million during the fourth quarter of 2004 included $16.0 million from its two contracts with DHL. Under the aircraft, crew, maintenance and insurance agreement ("ACMI agreement") and hub and line-haul services agreement ("Hub Services agreement"), ABX earns a base mark-up of 1.75% on eligible costs and can earn incremental mark-up for meeting certain quarterly cost-related goals and annual cost-related and service goals. Any mark-up earned from attainment of the annual cost-related and service goals is recognized in the fourth quarter. ABX's fourth quarter 2004 net earnings of $16.0 million from the two contracts include $4.4 million from the base mark-up and $11.6 million from the incremental mark-up goals. The incremental mark-up earned consisted of $0.7 million from attainment of the quarterly cost goal under the ACMI agreement and $10.9 million earned from the annual cost and service goals from the two agreements. Net earnings for the fourth quarter of 2003 included $2.6 million of incremental mark-up from cost and service goals. During 2003, incremental mark-ups for service goals and certain cost goals were applied to costs incurred only during the 138 days after the separation from Airborne.

For the year ended December 31, 2004, ABX's net earnings of $37.0 million included $30.2 million from the two contracts with DHL. The base mark-up accounted for $15.8 million of the net earnings, while the incremental cost and service mark-up goals totaled an additional $14.4 million.

Performance Versus Quarterly Cost-Related Goals:

Under the two commercial agreements with DHL, ABX has the potential to earn incremental mark-up each quarter based on achieving certain cost-related goals. During the fourth quarter of 2004, ABX earned $0.7 million or 50.4% of the maximum incremental mark-up available under the two contracts for performance against quarterly cost-related targets. While the maximum incremental mark-up was achieved on the quarterly cost goal under the ACMI agreement, no incremental mark-up was earned under the Hub Services agreement during the fourth quarter. Higher than forecasted package volumes, which drove greater than planned labor and truck line haul costs, were the primary factors which negatively impacted ABX's performance versus the quarterly cost-related goal for the Hub Services agreement. In addition, unusually severe weather conditions during December at the main sort hub in Wilmington, Ohio, resulted in unanticipated labor hours, over-time premiums, and increased truck line haul costs.

Packages handled during the fourth quarter 2004 totaled 161.9 million, a 29.0% increase compared to fourth quarter 2003 package volumes, and a 22.2% increase as compared to third quarter 2004 volumes. "While the stronger than forecasted package volumes are an encouraging sign, the greater than anticipated growth combined with adverse weather presented a significant challenge," stated Joe Hete, President and CEO.

Performance Versus Annual Cost-Related and Service Goals:

The two commercial agreements with DHL allow ABX to earn additional incremental mark-up for meeting certain annual cost and service goals. Incremental mark-up earned on the annual goals is only recognized in the fourth quarter. During the fourth quarter of 2004, ABX earned $4.0 million or 100% of the maximum available incremental mark-up from the annual cost incentive under the ACMI agreement, and $2.7 million or 75.9% of the maximum annual cost incentive under the Hub Services agreement.

During the fourth quarter of 2004, ABX recognized revenue from the annual service incentive in the ACMI agreement of $0.9 million, or 80% of the maximum available. Mark-up earned in the fourth quarter from the annual service incentives under the Hub Services agreement totaled $3.3 million, or 100% of the maximum available under that contract.

Non-DHL Results

Non-DHL revenues grew to $12.7 million in the fourth quarter of 2004 and $26.7 million for the year, compared to $3.5 million and $11.6 million for the corresponding 2003 periods. Earnings from non-DHL business increased by $0.8 million to $2.1 million for the fourth quarter, and by $4.0 million to $6.8 million for the year, compared to a year ago. Non-DHL revenues in the fourth quarter of 2004 grew 86.7% compared to the third quarter of 2004 primarily due to a contract awarded to ABX by the US Postal Service ("USPS") to manage an air network to transport mail during the 2004 holiday season. Profit margins on non-DHL revenues were 16.2% and 25.4% for the fourth quarter of 2004 and year, respectively. The lower profit margin in the fourth quarter of 2004, as compared to prior 2004 quarters, reflects the impact of the change in the revenue mix, caused primarily by the additional USPS business. (See also the footnote on the exhibit entitled "Earnings Summary" regarding the allocation of overhead costs with respect to non-DHL business.)

"One of our goals for 2004 was to significantly increase our revenue and net earnings from non-DHL business," Hete said. "We accomplished that goal by more than doubling both and have made excellent progress at building relationships with customers who can leverage our core competencies. We view 2004 as a successful first step at diversifying our revenue stream, while at the same time maintaining focus on providing value to our largest customer."

Plans for Reduced DHL Airlift Requirements in 2005

As announced by the Company in the third quarter earnings release on November 9, 2004, ABX received 2005 budget planning assumptions from DHL that call for a reduction in the airlift provided by the Company of 26 aircraft (16 DC9s and 10 DC8s) by the end of 2005. Operating results for 2004 were not impacted by the airlift reduction plans. The current planning information provided by DHL indicates that 7 of the 26 aircraft (3 DC9s and 4 DC8s) will be removed during the first quarter of 2005, with the remaining 19 aircraft removed by the end of the year. The number of affected aircraft and the timing of planned reductions are subject to change. Accordingly, management cannot predict whether the number of aircraft ultimately removed during 2005 will be greater or less than the aforementioned 26 aircraft. Projections relevant to the impact of the aircraft reductions (when fully implemented) upon the Company's revenues, cash flows and net earnings were included in the third quarter 2004 earnings release and 10-Q filing.

Other Items/Outlook

The Consolidated Condensed Balance Sheets at year-end 2004 shown on the attached exhibit reflect a $49.2 million increase in accounts receivable from December 31, 2003. This increase is due primarily to the increase in DHL business activity during the fourth quarter 2004, which resulted in actual expenses exceeding funded expenses (which are based on budget) during the quarter. The difference between the actual and funded DHL contractual expenses as well as the DHL incremental mark-ups earned during the fourth quarter account for $46.1 million of the increase. A receivable from the USPS related to the December air network accounts for an additional $4.5 million of the increase in accounts receivable versus the December 31, 2003, balance. The majority of these receivables have been paid since year-end 2004, and the balance is anticipated to be collected within 30 days.

"2005 will be another eventful year for ABX, as DHL consolidates its main base of operations at its airport here in Wilmington and seeks to further grow its domestic market share," Hete said. "We look forward to providing value to our largest customer as it builds its infrastructure, while also seeking opportunities to diversify our revenue."

ABX Air, Inc. is a cargo airline with a fleet of 115 in-service aircraft that operates out of Wilmington, Ohio, and 18 hubs throughout the United States. ABX became an independent public company effective August 16, 2003, as a result of the separation from its former parent company, Airborne, Inc., which was acquired by DHL Worldwide Express B. V. In addition to providing airlift capacity and sort center staffing to DHL Express (USA), Inc., a wholly owned subsidiary of DHL Holdings (USA), Inc., ABX provides charter and maintenance services to a diverse group of customers. With over 7,000 employees, ABX is the largest employer in a several-county area in southwestern Ohio.

Except for historical information contained herein, the matters discussed in this release contain forward-looking statements that involve risks and uncertainties. ABX Air, 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 ABX's actual results to differ materially from those indicated by such forward-looking statements. These factors include but are not limited to a significant reduction in the scope of services under the commercial agreements with DHL, maintaining cost and service level performance, the ability to generate revenues from sources other than DHL and other factors that are contained from time to time in ABX's filings with the U.S. Securities and Exchange Commission, including ABX's 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 ABX's forward-looking statements. These forward-looking statements were based on information, plans and estimates as of the date of this release. ABX 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          Twelve  Months
                            Ended December 31,     Ended December 31,
                            ------------------     ------------------
                              2004      2003        2004      2003
                              ----      ----        ----      ----   

REVENUES                     $361,361 $274,065  $1,202,509 $1,160,959
OPERATING EXPENSES:
 Salaries, wages and benefits 139,266  119,771     500,831    472,028
 Purchased line haul           78,842   49,929     233,367    172,126
 Fuel                          63,825   38,539     197,879    150,454
 Maintenance, materials and
  repairs                      26,330   26,816     108,425    114,032
 Depreciation and
  amortization                  9,505    9,180      36,817     98,503
 Landing and ramp               6,775    6,254      23,040     27,385
 Rent                           2,386    1,653       6,993      9,748
 Other operating expenses      14,528   11,995      50,159     74,978
 Impairment charge                  -        -           -    600,871
                              -------- --------  ---------- ----------
                              341,457  264,137   1,157,511  1,720,125
                              -------- --------  ---------- ----------
EARNINGS (LOSS) FROM
 OPERATIONS                    19,904    9,928      44,998   (559,166)
INTEREST EXPENSE               (2,124)  (2,453)     (8,956)   (16,517)
INTEREST INCOME                   288      138         931        138
                              -------- --------  ---------- ----------
EARNINGS (LOSS) BEFORE INCOME
 TAX BENEFIT                   18,068    7,613      36,973   (575,545)
INCOME TAX BENEFIT                  -        -           -    128,644
                              -------- --------  ---------- ----------

NET EARNINGS (LOSS)          $ 18,068 $  7,613  $   36,973 $ (446,901)
                              ======== ========  ========== ==========

EARNINGS PER SHARE:
  Basic earnings (loss) 
   per share                 $   0.31 $   0.14  $     0.63 $    (8.52)
                              ======== ========  ========== ==========
  Diluted earnings (loss) 
   per share                 $   0.31 $   0.13  $     0.63 $    (8.52)
                              ======== ========  ========== ==========

WEIGHTED AVERAGE SHARES:
  Basic                        58,270   53,562      58,270     52,474
                              ======== ========  ========== ==========
  Diluted                      58,270   58,521      58,270     52,474
                              ======== ========  ========== ==========

 


--------------------------------------------------------------------------------

                             ABX AIR, INC.
                 CONSOLIDATED CONDENSED BALANCE SHEETS
                            (In thousands)

                                           December 31,  December 31,
                                               2004          2003
                                           ------------  ------------

ASSETS:
Cash                                          $ 38,749    $ 65,741
Accounts receivable, net                        54,677       5,482
Other current assets                            17,595      18,763
                                               --------    --------
Total Current Assets                           111,021      89,986

Property and equipment, net                    351,646     312,803
Other assets                                    10,256      10,317
                                               --------    --------
   Total Assets                               $472,923    $413,106
                                               ========    ========


LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities                           $142,569    $113,140

Long-term Obligations                          242,405     241,300
Stockholders' Equity                            87,949      58,666
                                               --------    --------
   Total Liabilities and Stockholders' Equity $472,923    $413,106
                                               ========    ========

 


--------------------------------------------------------------------------------

                             ABX AIR, INC.
                           EARNINGS SUMMARY
                            (In thousands)

                         For the Three Months Ended December 31, 2004
                         --------------------------------------------
                                              DHL
                           -------------------------------------------
                                        Hub        Other
                             ACMI     Services  Reimbursable Subtotal
                           --------- --------- ------------- ---------

Revenues:
 Base                      $118,585  $139,722       $78,810  $337,117
 Quarterly incremental
  mark-up                       691         -             -       691
 Annual incremental 
  mark-up                     4,967     5,910             -    10,877
                           --------- --------- ------------- ---------
Total revenues              124,243   145,632        78,810   348,685

Operating expenses          115,062   137,318        78,457   330,837
Interest expense, net         1,483         -           353     1,836
                           --------- --------- ------------- ---------
Total expense               116,545   137,318        78,810   332,673

                           --------- --------- ------------- ---------
Earnings                   $  7,698  $  8,314       $     -  $ 16,012
                           ========= ========= ============= =========


                                                   Customers
                                                     other
                                                    than DHL   Total
                                                   --------- ---------

Revenues:
 Base                                               $12,676  $349,793
 Quarterly incremental mark-up                            -       691
 Annual incremental mark-up                               -    10,877
                                                   --------- ---------
Total revenues                                       12,676   361,361

Operating expenses                                   10,620   341,457
Interest expense, net                                     -     1,836
                                                   --------- ---------
Total expense                                        10,620   343,293

                                                   --------- ---------
Earnings                                            $ 2,056  $ 18,068
                                                   ========= =========

     
                        For the Twelve Months Ended December 31, 2004
                        ---------------------------------------------
                                            DHL
                         ---------------------------------------------
                                     Hub        Other
                           ACMI     Services  Reimbursable  Subtotal
                         --------- --------- ------------- -----------

Revenues:
 Base                    $475,826  $440,602      $244,935  $1,161,363
 Quarterly incremental
  mark-up                   2,309     1,255             -       3,564
 Annual incremental
  mark-up                   4,967     5,910             -      10,877
                         --------- --------- ------------- -----------
Total revenues            483,102   447,767       244,935   1,175,804

Operating expenses        461,750   433,024       242,802   1,137,576
Interest expense, net       5,892         -         2,133       8,025
                         --------- --------- ------------- -----------
Total expense             467,642   433,024       244,935   1,145,601

                         --------- --------- ------------- -----------
Earnings                 $ 15,460  $ 14,743      $      -  $   30,203
                         ========= ========= ============= ===========


                                                 Customers
                                                   other
                                                  than DHL    Total
                                                 --------- -----------

Revenues:
 Base                                             $26,705  $1,188,068
 Quarterly incremental mark-up                          -       3,564
 Annual incremental mark-up                             -      10,877
                                                 --------- -----------
Total revenues                                     26,705   1,202,509

Operating expenses                                 19,935   1,157,511
Interest expense, net                                   -       8,025
                                                 --------- -----------
Total expense                                      19,935   1,165,536

                                                 --------- -----------
Earnings                                          $ 6,770  $   36,973
                                                 ========= ===========

   The results above for customers other than DHL do not reflect an
allocation of overhead costs. The provisions of the commercial
agreements with DHL do not require an allocation of overhead until
such time as ABX derives more than 10% of its total revenue from
non-DHL business.

 
--------------------------------------------------------------------------------

                             ABX AIR, INC.
             RECONCILIATION OF GAAP FINANCIAL MEASURES TO
                      NON-GAAP FINANCIAL MEASURES
                 (In thousands, except per share data)

   This communication release includes a non-GAAP measure of net
income for 2003 operating results that excludes the impairment charge
and the tax effects related to our separation from Airborne, Inc. on
August 15, 2003. Excluding the impairment charge, net of tax, is
important when comparing operating results among periods and forming
expectations about our future operating results. The table below
presents a reconciliation of our non-GAAP measures to the most
directly comparable GAAP measures.

                                       For the Twelve Months Ended
                                            December 31, 2003
                                            -----------------        

GAAP net loss                                  $(446,901)
Unusual items:
   Impairment charge                             600,871
   Tax benefit on impairment charge             (134,738)
                                                ---------
Non-GAAP net earnings                          $  19,232
                                                =========

GAAP diluted loss per share                    $   (8.52)
   Effect of unusual items, net of tax              8.88
   Effect of anti-dilutive equivalent shares       (0.03)
                                                ---------
Non-GAAP diluted EPS                           $    0.33
                                                =========

For more information, contact ABX Air.