Pinnacle Airlines Reports Fourth Quarter 2005 Financial Results
Posted on: Thursday, 23 February 2006, 06:00 CST
Pinnacle Airlines Corp. (NASDAQ: PNCL) today reported fourth quarter 2005 earnings per fully diluted share ("EPS") of $0.45. Fourth quarter net income was reduced by an after tax charge of approximately $3.2 million, or $0.15 per fully diluted share, associated with the bankruptcy filings of Northwest Airlines, Inc. ("Northwest") and Mesaba Aviation, Inc. ("Mesaba"). Excluding this charge, Pinnacle's fourth quarter pro forma EPS was $0.60, an increase of 28% over EPS of $0.47 in the fourth quarter of 2004. Net income in the fourth quarter of 2005 was $10.0 million ($13.2 million excluding the above referenced charge).
For the full year 2005, Pinnacle reported net income of $25.7 million, or EPS of $1.17, which includes after tax charges of approximately $37.8 million, or $1.73 per share, for items associated with the bankruptcy filings of Northwest and Mesaba and an after tax gain of $11.3 million, or $0.52 per share, from Pinnacle's purchase of its note payable to Northwest in February 2005. Excluding the impact of these items, Pinnacle's pro forma net income for 2005 increased 28% to $52.2 million ($2.38 per fully diluted share), as compared to 2004 net income of $40.7 million ($1.86 per fully diluted share).
The fourth quarter and full year after-tax charges of $3.2 million and $37.8 million, respectively, relate to provisions for uncollectible amounts owed by Northwest to Pinnacle at the time of Northwest's bankruptcy filing, and a loss provision related to Saab turboprop aircraft that have been returned to Pinnacle by Mesaba as a result of Mesaba's bankruptcy filing. Mesaba had previously subleased the aircraft from Pinnacle.
During the quarter, Northwest rejected the primary leases on 15 of Pinnacle's CRJ aircraft and returned the aircraft to their lessors. As a result, Pinnacle's operating fleet has been reduced to 124 aircraft.
In the fourth quarter of 2005, Pinnacle recorded operating revenue of $213.0 million, an increase of $31.7 million, or 17%, over the same period in 2004. For the quarter, Pinnacle completed 107,098 block hours and 62,074 cycles, increases of 12% and 10%, respectively, over the same period in 2004.
Excluding the Northwest and Mesaba bankruptcy charge, Pinnacle's pro forma operating margin for the fourth quarter of 2005 was 10.4%, as compared to an operating margin of 9.7% for the fourth quarter of 2004. Pinnacle's operating margin in the fourth quarter of 2004 was negatively impacted by operating performance penalties contained in Pinnacle's Airline Services Agreement ("ASA") which were incurred during the second half of 2004. For the second half of 2005, Pinnacle exceeded all performance levels required under its ASA with Northwest. In addition, Pinnacle was able to reduce its costs during the fourth quarter of 2005 commensurate with the reduction in revenue associated with Northwest's removal of 15 aircraft, thereby maintaining a pro forma operating margin in excess of the 10% target operating margin contained in the ASA.
"2005 was an extraordinary year for Pinnacle Airlines. Despite the many challenges we faced, including the sudden fleet reduction of 15 aircraft, our People exceeded all performance goals and managed extremely effective cost control," said Philip H. Trenary, Pinnacle's President and Chief Executive Officer.
For the year, Pinnacle recorded operating revenue of $841.6 million, an increase of 32% over 2004. Pinnacle completed 432,900 block hours and 249,262 cycles, increases of 34% and 24%, respectively, over 2004.
Pinnacle ended the quarter with cash and short-term investments totaling $75.7 million. Due to the timing of payments from Northwest under the ASA, Pinnacle's balance of cash and short-term investments is typically at its highest level at the end of a month. Pinnacle's balance of cash and short-term investments can decline by as much as $35 million intra-month as it meets regular operating cash flow needs prior to receiving revenue payments from Northwest.
Non-GAAP Disclosures
This release and certain tables accompanying this release include certain financial information not prepared in accordance with generally accepted accounting principles ("GAAP"), regarding operating income, operating margin, net income, EPS, operating cost per block hour and operating cost per available seat mile ("ASM") for the three months ended December 31, 2005 regarding the previously discussed charge associated with the bankruptcy filings of Northwest and Mesaba. Similar tables have also been prepared for the year ended December 31, 2005 that exclude the nonrecurring gain on repurchase of the note payable with Northwest and the charge associated with the bankruptcy filings of Northwest and Mesaba. Pinnacle believes that this information is useful to investors as it indicates more clearly Pinnacle's comparative year-to-year results. None of this information should be considered a substitute for any measures prepared in accordance with GAAP. Pinnacle has included its reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measures in the accompanying schedules.
Auditor's Opinion
Pinnacle's independent registered public accounting firm, Ernst & Young LLP ("Ernst & Young") is now performing its annual audit of the Company's financial statements for the year ended December 31, 2005. Due to the uncertainties arising from the bankruptcy proceedings of Pinnacle's only customer, Northwest Airlines, Ernst & Young has advised that its audit opinion will contain an explanatory paragraph discussing going concern uncertainties (commonly referred to as a "going concern opinion"). Pinnacle is in ongoing communications with Northwest concerning the nature of the future relationship between the companies, and Pinnacle intends to work with Northwest to determine mutually satisfactory conditions under which Northwest will continue its business relationship with Pinnacle.
About Pinnacle
Pinnacle Airlines Corp. operates through its wholly owned subsidiary, Pinnacle Airlines, Inc., as a regional airline that provides airline capacity to Northwest Airlines, Inc. Pinnacle operates as a Northwest Airlink carrier at Northwest's domestic hub airports in Detroit, Minneapolis/St. Paul and Memphis and the focus city of Indianapolis. Pinnacle currently operates an all-jet fleet of 124 Canadair Regional Jets and offers scheduled passenger service with 709 daily departures to 110 cities in 36 states and three Canadian provinces. Pinnacle Airlines maintains its headquarters in Memphis, Tennessee, and employs approximately 3,450 People.
Forward-Looking Statements
This press release contains various forward-looking statements that are based on management's beliefs, as well as assumptions made by and information currently available to management. Although Pinnacle believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Such statements are subject to certain risks, uncertainties and assumptions, including those set forth in our filings with the Securities and Exchange Commission, which are available to investors at our web-site or online from the Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove erroneous, actual results may vary materially from results that were anticipated or projected. Pinnacle does not intend to update these forward-looking statements before its next required filing with the Securities and Exchange Commission.
Pinnacle Airlines Corp. Condensed Consolidated Statements of Income (Unaudited) (in thousands, except per share data) Three Months Ended December 31, ------------------------------ 2005 2004 ----------- ----------- Operating revenues: Regional airline services $ 210,584 $ 179,400 Other 2,447 1,910 ----------- ----------- Total operating revenues 213,031 181,310 Operating expenses: Salaries, wages and benefits 34,613 29,619 Aircraft fuel 28,006 24,689 Aircraft maintenance, materials and repairs 8,319 6,618 Aircraft rentals 71,282 60,075 Other rentals and landing fees 10,304 10,119 Ground handling services 23,284 19,747 Depreciation 998 851 Other 14,107 12,068 Provision for losses associated with bankruptcy filings of Northwest and Mesaba 5,685 - ----------- ----------- Total operating expenses 196,598 163,786 ----------- ----------- Operating income 16,433 17,524 Operating income as a percentage of operating revenues 7.7% 9.7% Nonoperating expense: Interest expense, net (1,086) (1,048) Miscellaneous income, net 17 119 ----------- ----------- Total nonoperating expense (1,069) (929) ----------- ----------- Income before income taxes 15,364 16,595 Income tax expense 5,402 6,271 ----------- ----------- Net income $ 9,962 $ 10,324 =========== =========== Basic and diluted earnings per share $ 0.45 $ 0.47 =========== =========== Shares used in computing basic earnings per share 21,934 21,892 =========== =========== Shares used in computing diluted earnings per share 21,934 21,954 =========== =========== Pinnacle Airlines Corp. Condensed Consolidated Statements of Income (in thousands, except per share data) Years Ended December 31, ------------------------- 2005 2004 ----------- ----------- (Unaudited) Operating revenues: Regional airline services $ 833,125 $ 631,504 Other 8,480 3,944 ----------- ----------- Total operating revenues 841,605 635,448 Operating expenses: Salaries, wages and benefits 134,277 105,143 Aircraft fuel 112,666 83,572 Aircraft maintenance, materials and repairs 31,865 23,545 Aircraft rentals 277,914 209,047 Other rentals and landing fees 42,972 37,101 Ground handling services 92,689 65,877 Depreciation 4,017 3,153 Other 58,677 40,707 Provision for losses associated with bankruptcy filings of Northwest and Mesaba 59,599 - ----------- ----------- Total operating expenses 814,676 568,145 ----------- ----------- Operating income 26,929 67,303 Operating income as a percentage of operating revenues 3.2% 10.6% Nonoperating income (expense): Interest income 1,239 301 Interest expense (4,772) (4,907) Miscellaneous income, net 15 428 Gain on extinguishment of debt 18,000 - ----------- ----------- Total nonoperating income (expense) 14,482 (4,178) ----------- ----------- Income before income taxes 41,411 63,125 Income tax expense 15,713 22,400 ----------- ----------- Net income $ 25,698 $ 40,725 =========== =========== Basic and diluted earnings per share $ 1.17 $ 1.86 =========== =========== Shares used in computing basic earnings per share 21,913 21,892 =========== =========== Shares used in computing diluted earnings per share 21,932 21,911 =========== =========== Pinnacle Airlines Corp. Condensed Consolidated Balance Sheets (in thousands) December 31, -------------------------- 2005 2004 ------------ ------------ (Unaudited) Assets Current assets: Cash and cash equivalents $ 31,567 $ 34,912 Short-term investments 44,160 - Receivables, principally from Northwest, net of allowances of $51,523 in 2005 and $34 in 2004 30,190 25,139 Spare parts and supplies, net of allowances of $1,084 in 2005 and $494 in 2004 6,368 5,341 Prepaid expenses and other assets 5,623 5,644 Deferred income taxes, net of allowance 9,146 860 ------------ ------------ Total current assets 127,054 71,896 Property and equipment: Aircraft and rotable spares 39,362 35,837 Other property and equipment 19,209 16,161 Office furniture and fixtures 2,002 1,863 ------------ ------------ 60,573 53,861 Less accumulated depreciation (18,038) (14,445) ------------ ------------ Net property and equipment 42,535 39,416 Other assets, primarily aircraft deposits with Northwest 22,155 21,111 Debt issuance costs, net of amortization of $194 4,198 - Goodwill, net of amortization of $4,027 18,422 18,422 Contractual rights acquired from Northwest, net of amortization of $680 in 2005 and $0 in 2004 14,435 15,115 ------------ ------------ Total assets $ 228,799 $ 165,960 ============ ============ Pinnacle Airlines Corp. Condensed Consolidated Balance Sheets (in thousands, except share data) December 31, -------------------------- 2005 2004 ------------ ------------ (Unaudited) Liabilities and stockholders' equity (deficiency) Current liabilities: Accounts payable $ 12,945 $ 12,634 Accrued expenses 25,158 19,432 Line of credit 17,000 - Income taxes payable 17,756 1,633 Other current liabilities 7,161 6,756 ------------ ------------ Total current liabilities 80,020 40,455 Deferred income taxes 7,426 7,105 Senior convertible notes 121,000 - Note payable and line of credit from Northwest - 125,000 Other liabilities 1,735 948 Commitments and contingencies Stockholders' equity (deficiency): Preferred stock, par value $0.01 per share; 1,000,000 shares authorized, no shares issued - - Series A preferred stock, stated value $100 per share; one share authorized and issued - - Series common stock, par value $0.01 per share; 5,000,000 shares authorized; no shares issued - - Common stock, $0.01 par value; 40,000,000 shares authorized, 21,945,260 and 21,950,260 shares issued in 2005 and 2004, respectively. 219 220 Additional paid-in capital 85,550 85,603 Accumulated deficit (67,151) (92,849) Unearned compensation on restricted stock - (522) ------------ ------------ Total stockholders' equity (deficiency) 18,618 (7,548) ------------ ------------ Total liabilities and stockholders' equity (deficiency) $ 228,799 $ 165,960 ============ ============ Pinnacle Airlines Corp. Condensed Consolidated Statements of Cash Flows (in thousands) Years Ended December 31, 2005 2004 --------- --------- (Unaudited) Cash provided by operating activities $ 27,284 $ 37,997 Cash used in investing activities (57,237) (17,590) Cash provided by (used in) financing activities 26,608 (17,018) --------- --------- Net (decrease) increase in cash and cash equivalents (3,345) 3,389 Cash and cash equivalents at beginning of period 34,912 31,523 --------- --------- Cash and cash equivalents at end of period $ 31,567 $ 34,912 ========= ========= Pinnacle Airlines Corp. Reconciliation of Non-GAAP Disclosures (Unaudited) Three Months Ended December 31, % Increase 2005 2004 (decrease) ------- ------- --------- (in thousands, except per share data) Operating Income: Operating income in accordance with GAAP $16,433 $17,524 (6)% Add: Provision for losses associated with Northwest and Mesaba bankruptcy filings 5,685 - 100% ------- ------- ------- Pro forma operating income $22,118 $17,524 26% ------- ------- ------- Operating Margin: Operating margin in accordance with GAAP 7.7% 9.7% (2.0)pts. Add: Provision for losses associated with Northwest and Mesaba bankruptcy filings 2.7% - 2.7 pts. ------- ------- ------- Pro forma operating margin 10.4% 9.7% 0.7 pts. ------- ------- ------- Net Income: Net income in accordance with GAAP $ 9,962 $10,324 (4)% Add: Provision for losses associated with Northwest and Mesaba bankruptcy filings, net of tax 3,244 - 100% ------- ------- ------- Pro forma net income $13,206 $10,324 28% ------- ------- ------- Basic and Diluted EPS: Basic and diluted EPS in accordance with GAAP $ 0.45 $ 0.47 (4)% Add: Provision for losses associated with Northwest and Mesaba bankruptcy filings, net of tax 0.15 - 100% ------- ------- ------- Pro forma basic and diluted EPS $ 0.60 $ 0.47 28% ------- ------- ------- Three Months Ended December 31, 2005 Operating Cost Operating Cost per Block Hour per ASM (in cents) ------- ------- Selected Data: Selected data derived from operating expenses in accordance with GAAP $ 1,836 13.98 Deduct: Provision for losses associated with Northwest and Mesaba bankruptcy filings (53) (0.40) ------- ------- Pro forma selected data $ 1,783 13.58 ======= ======= Pinnacle Airlines Corp. Reconciliation of Non-GAAP Disclosures (Unaudited) Years Ended December 31, % Increase 2005 2004 (Decrease) -------- -------- -------- (in thousands, except per share data) Operating Income: Operating income in accordance with GAAP $ 26,929 $ 67,303 (60)% Add: Provision for losses associated with Northwest and Mesaba bankruptcy filings 59,599 - 100% -------- -------- -------- Pro forma operating income $ 86,528 $ 67,303 29% -------- -------- -------- Operating Margin: Operating margin in accordance with GAAP 3.2% 10.6% (7.4)pts. Add: Provision for losses associated with Northwest and Mesaba bankruptcy filings 7.1% - 7.1 pts. -------- -------- -------- Pro forma operating margin 10.3% 10.6% (0.3)pts. -------- -------- -------- Net Income: Net income in accordance with GAAP $ 25,698 $ 40,725 (37)% Add: Provision for losses associated with Northwest and Mesaba bankruptcy filings, net of related tax 37,763 - 100% Deduct: Gain on repurchase of debt, net of related tax (11,302) - (100)% -------- -------- -------- Pro forma net income $ 52,159 $ 40,725 28% -------- -------- -------- Basic and Diluted EPS: Basic and diluted EPS in accordance with GAAP $ 1.17 $ 1.86 (37)% Add: Provision for losses associated with Northwest and Mesaba bankruptcy filings, net of related tax 1.73 - 100% Deduct: Gain on repurchase of debt, net of related tax (0.52) - (100)% -------- -------- -------- Pro forma basic and diluted EPS $ 2.38 $ 1.86 28% -------- -------- -------- Year Ended December 31, 2005 Operating Cost Operating Cost per Block Hour per ASM (in cents) -------------- ----------------- Selected Data: Selected data derived from operating expenses in accordance with GAAP $ 1,882 14.21 Deduct: Provision for losses associated with Northwest and Mesaba bankruptcy filings (138) (1.04) ------- ------- Pro forma selected data $ 1,744 13.17 ======= ======= Pinnacle Airlines Corp. Operating Statistics (Unaudited) Three Months Ended December 31, 2005 2004 Change ---------- ---------- ---------- Other Data: Revenue passengers (in thousands) 2,134 1,715 24% Revenue passenger miles (in thousands) (1) 1,064,392 827,901 29% Available seat miles (in thousands) 1,406,272 1,252,166 12% Passenger load factor (2) 75.7% 66.1% 9.6 pts. Operating revenue per available seat mile (in cents) 15.15 14.48 5% Operating costs per available seat mile (in cents) 13.98 13.08 7% Operating costs per available seat mile excluding the provision for losses associated with the bankruptcies of Northwest and Mesaba (in cents) 13.58 13.08 4% Operating revenue per block hour $ 1,989 $ 1,892 5% Operating costs per block hour $ 1,836 $ 1,709 7% Operating costs per block hour excluding the provision for losses associated with the bankruptcies of Northwest and Mesaba $ 1,783 $ 1,709 4% Block hours 107,098 95,834 12% Cycles 62,074 56,338 10% Average daily utilization (block hours) 8.69 9.21 (6)% Average stage length (miles) 493 482 2% Number of operating aircraft (end of period) 124 117 6% Employees 3,436 3,056 12% Years Ended December 31, 2005 2004 Change ---------- ---------- ---------- Other Data: Revenue passengers (in thousands) 8,105 6,340 28% Revenue passenger miles (in thousands) (1) 4,129,039 2,894,776 43% Available seat miles (in thousands) 5,732,773 4,219,078 36% Passenger load factor (2) 72.0% 68.6% 3.4 pts. Operating revenue per available seat mile (in cents) 14.68 15.06 (3)% Operating revenue per block hour $ 1,944 $ 1,962 (1)% Operating costs per available seat mile (in cents) 14.21 13.47 5% Operating costs per available seat mile excluding the provision for losses associated with the bankruptcies of Northwest and Mesaba (in cents) 13.17 13.47 (2)% Operating costs per block hour $ 1,882 $ 1,754 7% Operating costs per block hour excluding the provision for losses associated with the bankruptcies of Northwest and Mesaba $ 1,744 $ 1,754 (1)% Block hours 432,900 323,810 34% Cycles 249,262 201,816 24% Average daily utilization (block hours) 9.07 8.98 1% Average stage length (miles) 500 450 11% Number of operating aircraft (end of period) 124 117 6% Employees 3,436 3,056 12% (1) Revenue passenger miles represent the number of miles flown by revenue passengers. (2) Passenger load factor equals revenue passenger miles divided by available seat miles.
For further information, please contact: Philip Reed (901) 348-4257 www.nwairlink.com
SOURCE: Pinnacle Airlines
Source: MARKET WIRE
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