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Pinnacle Airlines Reports Third Quarter 2006 Financial Results

Posted on: Tuesday, 7 November 2006, 09:00 CST

Pinnacle Airlines Corp. (NASDAQ: PNCL) ("Pinnacle" or the "Company") today reported third quarter 2006 earnings per fully diluted share ("EPS") of $0.72. Operating income and net income were $25.6 million and $15.8 million, respectively. For the nine months ended September 30, 2006, Pinnacle reported EPS of $1.87. Operating income and net income for the nine-month period were $66.6 million and $41.0 million, respectively.

Operating income during the third quarter was impacted by a pre-tax benefit of $3.5 million related to a change in estimate in Pinnacle's provision for sublease losses associated with the return of eleven Saab 340 aircraft from Mesaba Aviation, Inc. This one-time item increased third quarter EPS by $0.10. Pinnacle sold its unsecured claim against Mesaba to a third party in early October 2006 at a price equal to 42% of the claim that is ultimately allowed to Pinnacle in the Mesaba bankruptcy case. Accordingly, Pinnacle lowered its estimate of sublease losses as of September 30 to reflect the fair value of its claims against Mesaba. Pinnacle's third quarter 2006 EPS would have been $0.62 without this nonrecurring item. Third quarter 2005 EPS was $0.60, excluding charges related to the bankruptcy filings of Northwest and Mesaba of $1.58.

For the three months ended September 30, 2006, Pinnacle recorded operating revenue of $208.5 million, a decrease of $12.4 million, or 6%, over the same period in 2005. Pinnacle completed 104,435 block hours and 63,713 cycles, decreases of 9% and 4%, respectively, over the same periods in 2005. The decrease in revenue, block hours and cycles was primarily attributable to the removal of 15 CRJ aircraft from Pinnacle's operating fleet in November 2005. Pinnacle operated 124 aircraft throughout the third quarter of 2006, as compared to 139 aircraft operated during the third quarter of 2005.

EPS for the nine months ended September 30, 2006 was $1.87. In addition to the gain related to Pinnacle's claim against Mesaba mentioned above, EPS for the nine months was impacted by a one-time, non-cash pre-tax charge of $1.3 million related to the previously unrecorded obligation for Pilot post-retirement health care benefits that was recorded during the second quarter of 2006. Excluding these two items, EPS for the nine months ended September 30, 2006 was $1.84, a 3% increase over the prior year excluding one-time items. EPS for the nine months ended September 30, 2005 was $1.78, excluding a charge associated with Northwest and Mesaba's bankruptcy filings of $1.58 and a gain associated with the repurchase of the Company's debt obligation to Northwest totaling $0.52.

For the nine months ended September 30, 2006, Pinnacle recorded operating revenue of $620.1 million, a decrease of $8.5 million, or 1%, over the same period in 2005. For the nine months ended September 30, 2006, Pinnacle completed 310,503 block hours and 188,031 cycles, a decrease of 5% and an increase of less than 1%, respectively, over the same periods in 2005. While block hours decreased due to the decrease in fleet size, cycles increased due to a decrease in the average length of Pinnacle's flights.

Pinnacle's operating margin for the three months ended September 30, 2006 was 12.3%. Excluding the aforementioned benefit related to the adjustment for Saab sublease losses, Pinnacle's margin for the quarter was 10.6%. Pinnacle's operating margin for the three months ended September 30, 2005 was 9.8% excluding one-time charges related to the bankruptcies of Northwest and Mesaba. Some contributing factors to the increase in margin were lower external consulting fees and reduced training costs. During the three months ended September 30, 2005, Pinnacle was performing the initial training of flight crews related to the increase in its fleet. With a stable fleet size throughout 2006, Pinnacle's initial training requirements have decreased.

Pinnacle ended the quarter with cash and short-term investments totaling $58.7 million. Because September 30 occurred on a Saturday, this total did not include Pinnacle's normal month-end payment of $31.7 million, which was received from Northwest on October 2.

Pinnacle is holding discussions with Northwest regarding the assumption of the ASA between the two companies, and expects that the two parties will reach agreement on an amended ASA in the near future that will likely substantially reduce Pinnacle's revenue, certain expenses and earnings. Northwest has also maintained that Pinnacle must reach a tentative agreement for an amended collective bargaining agreement with the Airline Pilots Association ("ALPA"), the union that represents Pinnacle's Pilots, before Pinnacle can continue as a Northwest Airlink partner. After holding discussions with ALPA since the current agreement became amendable in April 2005, Pinnacle filed for mediation with the National Mediation Board in August 2006. Since then, Pinnacle and ALPA have met several times with the mediator assigned to the case, but have been unable to reach an agreement.

"Once again, Pinnacle reported a quarter of strong operational and consistent financial performance," said Phil Trenary, Pinnacle's President and Chief Executive Officer. "I am proud that our People continue to take care of our Customers and turn in operating performance at the top of the regional industry. However, I am disappointed that we have been unable to reach an agreement with ALPA that is fair to both our Pilots and our airline. I believe that we can reach a consensual agreement soon, because I trust that our Pilots will support an agreement that is fair to them and provides for the growth and long-term success of Pinnacle Airlines."

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 and EPS for the three and nine months ended September 30, 2006 and 2005 excluding the losses and gains associated with the bankruptcy filings of Northwest and Mesaba, the nonrecurring charge related to the pilot post-retirement liability and the nonrecurring gain on repurchase of the note payable with Northwest. 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.

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 696 daily departures to 116 cities in 36 states and six Canadian provinces. Pinnacle Airlines maintains its headquarters in Memphis, Tennessee, and employs approximately 3,600 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 Operations (Unaudited)                   (in thousands, except per share data)                                                        Three Months Ended                                                           September 30,                                                       --------------------                                                         2006       2005                                                       ---------  --------- Operating revenues   Regional airline services                           $ 206,827  $ 218,832   Other                                                   1,673      2,111                                                       ---------  --------- Total operating revenues                                208,500    220,943 Operating expenses   Salaries, wages and benefits                           34,567     35,155   Aircraft fuel                                          28,041     30,555   Aircraft maintenance, materials and repairs             8,691      7,473   Aircraft rentals                                       66,031     73,737   Other rentals and landing fees                         11,480     11,464   Ground handling services                               21,663     23,616   Depreciation                                            1,003      1,041   Other                                                  15,002     16,344 Provision for (decreases) increases in losses  associated with bankruptcy filings of Northwest  and Mesaba                                              (3,537)    53,914                                                       ---------  --------- Total operating expenses                                182,941    253,299                                                       ---------  --------- Operating income (loss)                                  25,559    (32,356) Operating income (loss) as a percentage of operating  revenues                                                  12.3%   (14.6%) Nonoperating income (expense)    Interest expense                                      (1,198)    (1,109)    Interest income                                          640        402    Miscellaneous income (expense), net                       18         (2)                                                       ---------  --------- Total nonoperating expense                                 (540)      (709)                                                       ---------  --------- Income (loss) before income taxes                        25,019    (33,065) Income tax expense (benefit)                              9,182    (11,673)                                                       ---------  --------- Net income (loss)                                     $  15,837  $ (21,392)                                                       =========  ========= Basic and diluted earnings (loss) per share           $    0.72  $   (0.98)                                                       =========  ========= Shares used in computing basic earnings (loss) per  share                                                   21,945     21,908                                                       =========  ========= Shares used in computing diluted earnings (loss) per  share                                                   21,990     21,908                                                       =========  =========                           Pinnacle Airlines Corp.         Condensed Consolidated Statements of Operations (Unaudited)                   (in thousands, except per share data)                                                         Nine Months Ended                                                           September 30,                                                       --------------------                                                          2006       2005                                                       ---------  --------- Operating revenues   Regional airline services                           $ 614,643  $ 622,541   Other                                                   5,460      6,033                                                       ---------  --------- Total operating revenues                                620,103    628,574 Operating expenses   Salaries, wages and benefits                          104,587     99,664   Aircraft fuel                                          81,953     84,660   Aircraft maintenance, materials and repairs            26,949     23,546   Aircraft rentals                                      198,093    206,632   Other rentals and landing fees                         33,954     32,668   Ground handling services                               65,787     69,405   Depreciation                                            2,932      3,019   Other                                                  41,437     44,570   Provision for (decreases) increases in losses    associated with bankruptcy filings of Northwest    and Mesaba                                            (2,172)    53,914                                                       ---------  --------- Total operating expenses                                553,520    618,078                                                       ---------  --------- Operating income                                         66,583     10,496 Operating income as a percentage of operating  revenues                                                  10.7%       1.7% Nonoperating income (expense)    Interest expense                                      (4,150)    (3,266)    Interest income                                        1,789        819    Miscellaneous income (expense), net                       69         (2)    Gain on extinguishment of debt                             -     18,000                                                       ---------  --------- Total nonoperating (expense) income                      (2,292)    15,551                                                       ---------  --------- Income before income taxes                               64,291     26,047 Income tax expense                                       23,267     10,311                                                       ---------  --------- Net income                                            $  41,024  $  15,736                                                       =========  ========= Basic and diluted earnings per share                  $    1.87  $    0.72                                                       =========  ========= Shares used in computing basic earnings per share        21,945     21,908                                                       =========  ========= Shares used in computing diluted earnings per share      21,981     21,923                                                       =========  =========                         Pinnacle Airlines Corp.                   Condensed Consolidated Balance Sheets                   (in thousands, except per share data)                                                 September 30,  December 31,                                                      2006          2005                                                   ---------     ---------                                                  (Unaudited) Assets Current assets Cash and cash equivalents                         $   1,330     $  31,567 Short-term investments                               57,375        44,160 Receivables, net of allowance                        64,157        30,192 Spare parts and supplies, net                         7,571         6,368 Prepaid expenses and other assets                     9,915         5,014 Deferred income taxes, net of allowance               7,566         9,146                                                   ---------     ---------     Total current assets                            147,914       126,447 Property and equipment   Aircraft and rotable spares                        39,002        39,362   Other property and equipment                       21,162        19,209   Office furniture and fixtures                       2,031         2,002                                                   ---------     ---------                                                      62,195        60,573   Less accumulated depreciation                     (20,890)      (18,038)                                                   ---------     --------- Net property and equipment                           41,305        42,535 Other assets, primarily aircraft deposits            24,225        22,765 Debt issuance costs, net                              4,033         4,198 Contractual rights under airline services  agreement, net                                      13,533        14,435 Goodwill, net                                        18,422        18,422                                                   ---------     --------- Total assets                                      $ 249,432     $ 228,802                                                   =========     =========                         Pinnacle Airlines Corp.                   Condensed Consolidated Balance Sheets                   (in thousands, except per share data)                                               September 30,   December 31,                                                   2006           2005                                               -------------  -------------                                                (Unaudited) Liabilities and stockholders' equity Current liabilities    Accounts payable                           $      15,071  $      12,945    Accrued expenses                                  27,795         25,161    Line of credit with First Tennessee                    -         17,000    Income taxes payable                              14,355         17,756    Other current liabilities                          1,176          7,161                                               -------------  -------------       Total current liabilities                      58,397         80,023 Deferred income taxes                                 7,507          7,426 Other liabilities                                     2,466          1,735 Senior convertible notes                            121,000        121,000 Commitments and contingencies Stockholders' equity    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; 22,080,585 and 21,945,260  shares issued, respectively                            221            219 Additional paid-in capital                           85,968         85,550 Accumulated deficit                                 (26,127)       (67,151)                                               -------------  -------------       Total stockholders' equity                     60,062         18,618                                               -------------  -------------       Total liabilities and stockholders'        equity                                 $     249,432  $     228,802                                               =============  =============                            Pinnacle Airlines Corp.         Condensed Consolidated Statements of Cash Flows (Unaudited)                                (in thousands)                                                         Nine Months Ended                                                           September 30,                                                         ------------------                                                           2006      2005                                                         --------  -------- Cash provided by operating activities                   $  2,590  $ 13,214 Cash used in investing activities                        (15,827)  (16,183) Cash (used in) provided by financing activities          (17,000)   26,607                                                         --------  -------- Net (decrease) increase in cash and cash equivalents     (30,237)   23,638 Cash and cash equivalents at beginning of period          31,567    34,912                                                         --------  -------- Cash and cash equivalents at end of period              $  1,330  $ 58,550                                                         ========  ========                           Pinnacle Airlines Corp.             Reconciliation of Non-GAAP Disclosures (Unaudited)                                       Three Months Ended September 30,                                   =======================================                                                                % Increase                                       2006          2005       (Decrease)                                   ============  ============  =========== Operating Income:                   (in thousands, except per share data) Operating income (loss) in  accordance with GAAP             $     25,559  $    (32,356)         179 % Add: Provision for (decreases)  increases in losses associated  with bankruptcy filings of  Northwest and Mesaba                   (3,537)       53,914         (107)%                                   ------------  ------------  ----------- Non-GAAP operating income         $     22,022  $     21,558            2 %                                   ============  ============  =========== Operating Margin: Operating margin in accordance  with GAAP                                12.3%      (14.6%)    26.9 pts. Add: Provision for (decreases)  increases in losses associated  with bankruptcy filings of  Northwest and Mesaba                    (1.7%)          24.4% (26.1) pts.                                   ------------  ------------  ----------- Non-GAAP operating margin                 10.6%          9.8%    0.8 pts.                                   ============  ============  =========== Net Income: Net income (loss) in accordance  with GAAP                        $     15,837  $    (21,392)         174 % Add: Provision for (decreases)  increases in losses associated  with bankruptcy filings of  Northwest and Mesaba, net of  related tax                            (2,227)       34,519         (106)%                                   ------------  ------------  ----------- Non-GAAP net income               $     13,610  $     13,127            4 %                                   ============  ============  =========== Basic and Diluted EPS: Basic and diluted EPS in  accordance with GAAP             $       0.72  $      (0.98)         173 % Add: Provision for (decreases)  increases in losses associated  with bankruptcy filings of  Northwest and Mesaba, net of  related tax                             (0.10)         1.58         (106)%                                   ------------  ------------  ----------- Non-GAAP basic and diluted EPS    $       0.62  $       0.60            3 %                                   ============  ============  ===========                           Pinnacle Airlines Corp.             Reconciliation of Non-GAAP Disclosures (Unaudited)                                         Nine Months Ended September 30,                                      ====================================                                                                % Increase                                          2006         2005     (Decrease)                                      ==========   ===========  ==========                                      (in thousands, except per share data) Operating Income: Operating income in accordance with  GAAP                                $   66,583   $    10,496         534%   Add: Pilot post-retirement    liability                              1,300             -         100%   Add: Provision for (decreases)    increases in losses associated    with bankruptcy filings of    Northwest and Mesaba                  (2,172)       53,914        (104)%                                      ----------   -----------  ---------- Non-GAAP operating income            $   65,711   $    64,410           2%                                      ==========   ===========  ========== Operating Margin: Operating margin in accordance with  GAAP                                      10.7 %         1.7%  10.0 pts.   Add: Pilot post-retirement    liability                                0.2 %         0.0%   0.2 pts.   Add: Provision for (decreases)    increases in losses associated    with bankruptcy filings of    Northwest and Mesaba                    (0.3)%         8.5% (8.8) pts.                                      ----------   -----------  ---------- Non-GAAP operating margin                  10.6 %        10.2%   0.4 pts.                                      ==========   ===========  ========== Net Income: Net income in accordance with GAAP   $   41,024   $    15,736         161 %   Add: Pilot post-retirement    liability, net of related tax            830             -         100 %   Add: Provision for (decreases)    increases in losses associated    with bankruptcy filings of    Northwest and Mesaba, net of    related tax                           (1,366)       34,519        (104)%   Deduct: Gain on repurchase of    debt, net of related tax                   -       (11,302)       (100)%                                      ----------   -----------  ---------- Non-GAAP net income                  $   40,488   $    38,953           4 %                                      ==========   ===========  ========== Basic and Diluted EPS: Basic and diluted EPS in accordance  with GAAP                           $     1.87   $      0.72         160 %   Add: Pilot post-retirement    liability, net of related tax           0.04             -         100 %   Add: Provision for (decreases)    increases in losses associated    with bankruptcy filings of    Northwest and Mesaba, net of    related tax                            (0.07)         1.58        (104)%   Deduct: Gain on repurchase of    debt, net of related tax                   -         (0.52)       (100)%                                      ----------   -----------  ---------- Non-GAAP basic and diluted EPS       $     1.84   $      1.78           3 %                                      ==========   ===========  ==========                            Pinnacle Airlines Corp.                      Operating Statistics (Unaudited)                                            Three Months Ended September 30,                                            -------------------------------                                              2006       2005       Change                                            ---------  ---------  -------- Other Data: Revenue passengers (in thousands)              2,330      2,192         6 % Revenue passenger miles (in thousands) (1) 1,110,898  1,160,095        (4)% Available seat miles (in thousands)        1,459,943  1,555,520        (6)% Passenger load factor (2)                       76.1%      74.6%    1.5pts. Operating revenue per available seat mile  (in cents)                                    14.28      14.20         1 % Operating costs per available seat mile  (in cents)                                    12.53      16.29       (23)% Operating revenue per block hour           $   1,996  $   1,915         4 % Operating costs per block hour             $   1,752  $   2,195       (20)% Block hours                                  104,435    115,358        (9)% Cycles                                        63,713     66,094        (4)% Average daily utilization (block hours)         9.15       9.04         1 % Average stage length (miles)                     471        510        (8)% Number of operating aircraft (end of  period)                                         124        139       (11)% Employees (end of period)                      3,554      3,605        (1)%                                            ---------  ---------  --------                                            Nine Months Ended September 30,                                            ------------------------------                                              2006       2005       Change                                            ---------  ---------  -------- Other Data: Revenue passengers (in thousands)              6,685      5,971        12 % Revenue passenger miles (in thousands) (1) 3,193,715  3,064,647         4 % Available seat miles (in thousands)        4,173,150  4,326,501        (4)% Passenger load factor (2)                       76.5%      70.8%    5.7pts. Operating revenue per available seat mile  (in cents)                                    14.86      14.53         2 % Operating costs per available seat mile  (in cents)                                    13.26      14.22        (7)% Operating revenue per block hour           $   1,997  $   1,929         4 % Operating costs per block hour             $   1,783  $   1,888        (6)% Block hours                                  310,503    325,802        (5)% Cycles                                       188,031    187,188         0 % Average daily utilization (block hours)         9.17       9.20        (0)% Average stage length (miles)                     471        502        (6)% Number of operating aircraft (end of  period)                                         124        139       (11)% Employees (end of period)                      3,554      3,605        (1)%                                            ---------  ---------  -------- (1) Revenue passenger miles represents 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 Vice President of Marketing (901) 348-4257 or visit our Web site at www.nwairlink.com

SOURCE: Pinnacle Airlines

Source: MARKET WIRE

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