ABX Air Reports First Quarter Results

Continued Strong Growth in Charter Segment Results

WILMINGTON, Ohio - May 9, 2007 - ABX Air, Inc. (NASDAQ:ABXA) today reported net earnings of $4.3 million, or $0.07 per common share, and revenues of $288.1 million for the first quarter of 2007.

Revenues declined $81.1 million from $369.2 million in the first quarter of last year. Net earnings declined to $4.3 million from $8.1 million, or $0.14 per share, in the first quarter of 2006.

Comparisons of ABX Air's results in the first quarter of 2007 with its results in the first quarter of 2006 are principally affected by two significant items:

  • Net earnings for the first quarter of 2007 included a deferred (non-cash) income tax expense of $2.6 million, or $0.04 per share. No such expense was recorded in the first quarter of 2006 as the amount was offset by a reduction in the tax valuation allowance. While ABX expects to record deferred income tax expense in 2007 at approximately 38% of pre-tax earnings, existing net operating loss carryforwards are such that the Company does not expect to be a cash payer of federal income taxes until 2009 or later.
  • Net earnings for the first quarter of 2006 included $1.3 million, or $0.02 per share, in income from line-haul management operations for ABX Air's principal customer, DHL. DHL assumed those operations from ABX Air in the second quarter of 2006.

"As expected, the 2007 non-cash income tax expense and last year's transition of line-haul to DHL had a significant effect on year-over-year comparisons," stated Joe Hete, President and CEO of ABX. "On the other hand, our business is better positioned for growth as an independent provider of air cargo services than it was a year ago, and our new agreement with All Nippon Airways launches us into new global markets."

Pre-tax earnings declined $1.2 million to $6.9 million compared to $8.1 million a year ago. The declines in revenues and pre-tax earnings were expected as a result of DHL assuming management of its line-haul trucking operations from ABX Air in May of last year. ABX Air's pre-tax earnings from those line-haul management operations were approximately $1.3 million on revenues of $65.3 million in the first quarter of 2006.

Revenues from ABX Air's charter segment increased 83% to $7.0 million in the first quarter of 2007 compared to the corresponding period in 2006. ABX continues to deploy additional aircraft into its charter segment, as demand for these aircraft is strong, giving ABX the opportunity to further diversify its customer base and grow earnings. Pre-tax earnings from this segment increased to $1.0 million in the first quarter of 2007 compared to $0.2 million in the first quarter of 2006.

"We are looking forward to expanding our own ACMI operations via our new agreement with All Nippon Airways, under which we will operate two of our Boeing 767-200 aircraft in support of ANA's cargo operations throughout the Asian market. We're particularly honored to be the first non-Japanese carrier approved to conduct air cargo operations on behalf of a Japanese airline," stated Hete.

Results Associated with the DHL Segment

ABX Air's commercial agreements with DHL are an aircraft, crew, maintenance and insurance agreement ("ACMI agreement"), and a hub services agreement ("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 were $3.8 million during the first quarter of 2007, compared to $5.3 million in the first quarter of 2006, or $4.0 million excluding line-haul operations that transitioned to DHL in May 2006. The 2007 pre-tax results included $3.2 million from the base mark-up and $0.6 million in incremental mark-up, the latter representing 100% of the maximum, cost-related incremental mark-up possible under the ACMI agreement. No incremental mark-up was realized from the Hub Services agreement in the first quarter of 2007.

In the first quarter of 2006, ABX Air recognized $3.7 million of pre-tax earnings from the base mark-up and $1.5 million from incremental mark-up, including $0.7 million related to the ACMI agreement and $0.8 million under the Hub Services agreement. The maximum incremental mark-up was earned under both the ACMI and Hub Services agreements in 2006. The decline in incremental mark-up in 2007 is primarily related to lower package volumes handled and comparatively more severe winter weather during the first quarter of 2007, which negatively impacted Hub Services costs.

Results from Non-DHL Operations

Charter Segment

Charter revenues grew to $7.0 million for the first quarter of 2007 compared with $3.9 million in the first quarter of 2006. Additional Boeing 767 freighter aircraft that ABX Air has deployed since the first quarter of 2006 drove charter revenue growth. ABX Air began 2007 with four Boeing 767 aircraft in this segment, added one more aircraft during the first quarter and added two more in April. During the first quarter of 2006, the Company operated two Boeing 767 aircraft in its charter operations. Charter pre-tax earnings were $1.0 million, 14% of charter revenues, for the first quarter of 2007, as compared to pre-tax earnings of $0.2 million, or 6% of charter revenues in the first quarter of 2006. As a percentage of revenues, 2007 margins improved due to the deployment of lower cost aircraft compared to the first quarter of 2006.

"We are pleased with our charter results during what is traditionally a soft quarter for ACMI markets," stated Hete. "The outlook for the remainder of the year is encouraging. We expect to deploy five more Boeing 767 in 2007 along with one in 2008 for a total of thirteen aircraft in this segment. Our new agreement with All Nippon Airways to place two Boeing 767 aircraft in Asia starting this month is expected to generate a minimum of $22 million in additional revenues per year and will provide us with the momentum to expand into the fast growing Asian cargo markets," continued Hete. Including the two aircraft under contract to All Nippon Airways Co., Ltd., three of the five remaining aircraft that ABX plans to add in 2007 are already under contract.

Other Business Activities

Other non-DHL revenues increased $3.6 million to $8.1 million in the first quarter of 2007 compared to the first quarter of 2006, driven by mail handling services for the United States Postal Service and aircraft maintenance services. During 2007, margins as a percentage of revenues declined due to a revenue mix weighted more toward lower-margin mail handling compared to 2006. Pre-tax earnings from other non-DHL activities declined slightly during the first quarter of 2007 compared to the first quarter of 2006 due to additional expenditures for supporting and expanding other non-DHL business opportunities.

Conference Call

ABX Air will host a conference call to review its financial results for the first quarter of 2007 on Thursday, May 10, 2007, at 10:00 AM Eastern Time. Participants should dial (800) 237-9752 and international participants should dial (617) 847-8706 ten minutes before the scheduled start of the call and ask for conference ID #60119922. The call will also be webcast live (listen-only mode) via either www.abxair.com/investor-relations 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 #40839702. The webcast replay will remain available via www.abxair.com/investor-relations or www.earnings.com for 30 days.

Except for historical information contained herein, the matters discussed in this release contain forward-looking statements that involve risks and uncertainties. ABX Air'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 Air'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 Air's filings with the U.S. Securities and Exchange Commission, including ABX Air'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 Air's forward-looking statements. These forward-looking statements were based on information, plans and estimates as of the date of this release. ABX Air 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 earnings per share)

     

 

  Three Months Ended March 31,
      2007     2006
         
REVENUES   $ 288,062   $ 369,165
         
OPERATING EXPENSES:        
Salaries, wages and benefits     157,925     164,765
Fuel     58,953     61,338
Maintenance, materials and repairs     22,872     32,638
Depreciation and amortization     11,943     11,003
Landing and ramp     9,801     7,606
Rent     2,518     2,430
Purchased line-haul     1,671     65,494
Other     13,592     14,109
      279,275     359,383
      8,787     9,782
         
INTEREST EXPENSE, NET OF INTEREST        
INCOME     (1,905)     (1,689)
         
EARNINGS BEFORE INCOME TAXES     6,882     8,093
INCOME TAX EXPENSE     (2,615)     -
         
NET EARNINGS   $ 4,267   $ 8,093
         
EARNINGS PER SHARE:        
Basic earnings per share   $ 0.07   $ 0.14
Diluted earnings per share   $ 0.07   $ 0.14
WEIGHTED AVERAGE SHARES:        
Basic     58,282     58,270
Diluted     58,589     58,413

 

ABX AIR, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands)

         
   

March 31,

2007

 

December 31,

2006

         
ASSETS:        
Cash   $ 37,382   $ 63,219
Marketable securities     17,295     15,374
Accounts receivable, net     17,060     10,365
Deferred income taxes     14,691     14,691
Other current assets     21,229     22,521
Total Current Assets     107,657     126,170
         
Other assets     9,875     7,966
Deferred taxes     82,070     87,024
Property and equipment, net     482,413     458,638
Total Assets   $ 682,015   $ 679,798
         
         
LIABILITIES AND STOCKHOLDERS' EQUITY:        
Current Liabilities   $ 126,139   $ 144,278
         
Post-retirement liabilities     223,657     222,587
Other long-term obligations     206,740     192,723
Stockholders' Equity     125,479     120,210
Total Liabilities and Stockholders' Equity   $ 682,015   $ 679,798

 

ABX AIR, INC.
EARNINGS SUMMARY

(In thousands)

 
      Three Months Ended March 31,
      2007   2006 
REVENUES        
  DHL Contracts        
  ACMI        
  Base mark-up   $ 116,087   $ 128,145
  Incremental mark-up     648     748
  Total ACMI     116,735     128,893
  Hub Services        
  Base mark-up     81,266     148,483
  Incremental mark-up     -     792
  Total Hub Services     81,266     149,275
  Other Reimbursable     74,952     82,644
  Total DHL Contracts     272,953     360,812
  Charters     7,045     3,850
  Other Activities     8,064     4,503
  Total Revenues   $ 288,062   $ 369,165
         
EXPENSES        
  DHL Contracts        
  ACMI   $ 114,299   $ 126,054
  Hub Services     79,888     146,863
  Other Reimbursable     74,952     82,644
  Total DHL Contracts     269,139     355,561
  Charters     6,055     3,608
  Other Activities     6,952     3,203
  Total Expenses   $ 282,146   $ 362,372
         
PRE-TAX EARNINGS        
  DHL Contracts   $ 3,814   $ 5,251
  Charters     990     242
  Other Activities     1,112     1,300
  Interest Income and Other     966     1,300
  Pre-Tax Earnings   $ 6,882   $ 8,093

 

The Company does not allocate overhead costs that are reimbursed by DHL to its non-DHL activities. 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 activities.

Contact:
ABX Air, Inc.
Quint Turner, 937-382-5591