SOURCE: Pinnacle Airlines

February 27, 2007 07:00 ET

Pinnacle Airlines Reports Fourth Quarter 2006 Financial Results

MEMPHIS, TN -- (MARKET WIRE) -- February 27, 2007 -- Pinnacle Airlines Corp. (NASDAQ: PNCL) ("Pinnacle" or the "Company") today reported fourth quarter 2006 earnings per fully diluted share ("EPS") of $1.67, as compared to EPS of $0.45 during the fourth quarter of 2005. Net income during the fourth quarter of 2006 was positively impacted by an after-tax benefit of $26.1 million, or $1.18 per share, associated with the settlement with Northwest Airlines ("Northwest") and the related revaluation of the Company's reserve for items owed by Northwest. Net income was also affected by a $1.5 million charge, or $0.07 per share, to increase the Company's reserve related to uncertain tax positions. Excluding these two items, Pinnacle's net income and EPS for the fourth quarter 2006 would have been $12.3 million and $0.56, respectively. Net income and EPS for the fourth quarter 2005 was $13.2 million and $0.60, excluding charges related to the bankruptcy filings of Northwest and Mesaba Aviation, Inc. ("Mesaba").

For the full year 2006, Pinnacle reported net income of $77.8 million, as compared to $25.7 million for 2005. EPS for 2006 was $3.54, $2.37 higher than 2005 EPS of $1.17. The 2006 full year results include an after-tax benefit of $27.4 million, or $1.25 per share, for items associated with the bankruptcy filings of Northwest and Mesaba, a charge of $1.5 million, or $0.07 per share, to increase the Company's reserve related to uncertain tax positions, and a one-time, non-cash, after-tax charge of $0.8 million, or $0.04 per share, related to the previously unrecorded obligation for pilot post-retirement health care benefits that was recorded during the second quarter of 2006. Excluding the impact of these items, Pinnacle's net income for 2006 was $52.7 million, or $2.40 per share. Net income and EPS for 2005, excluding charges related to Northwest's and Mesaba's bankruptcy filings, was $52.2 million and $2.38, respectively.

During and subsequent to the fourth quarter of 2006, Pinnacle completed several major transactions that dramatically improved the Company's competitive and financial prospects. These items included the following:

-- An Amended and Restated Airline Services Agreement (the "Amended ASA") between Pinnacle and Northwest, which eliminates restrictions for Pinnacle's wholly owned subsidiary, Pinnacle Airlines, Inc., to fly for other major carriers, adds 17 CRJ-200 aircraft to Pinnacle Airlines' fleet, provides for an unsecured claim in Northwest's bankruptcy case of at least $335 million, and supplies Northwest with new competitive economics. The Amended ASA and related documents were entered into in December 2006, effective as of January 1, 2007 and confirmed in Northwest's bankruptcy proceedings in January 2007.

-- The sale of $335 million of Pinnacle's unsecured claim against Northwest in January 2007 for net proceeds of $283 million, significantly strengthening Pinnacle's balance sheet and liquidity.

-- The acquisition of Colgan Air, Inc. ("Colgan") during January 2007 for a purchase price of $20 million. Colgan operates 51 regional aircraft on behalf of Continental Airlines, United Airlines, and US Airways. Colgan provides revenue diversification for Pinnacle and a new platform for growth in turbo-prop aircraft.

-- A new capacity purchase agreement with Continental Airlines that provides for Colgan to operate 15 Bombardier Q400 regional aircraft for Continental at its New York City hub at Newark Liberty International airport. The Q400 aircraft will be delivered from December 2007 to June 2008.

Additional information about these significant events can be found in Pinnacle's recent filings with the Securities and Exchange Commission. These filings can also be found at Pinnacle's new web site, www.pncl.com.

"The outstanding operational performance by our People during 2006 is one of the primary reasons for our recent successes," said Philip H. Trenary, Pinnacle's President and Chief Executive Officer. "We welcome the People of Colgan Air, who also share the same commitment for operational excellence. We now have two competitive regional airline operating units that will lead the industry with low cost structures and superior operational performance."

"With the sale of our Northwest claim, the acquisition of Colgan Air, and the expansion of Colgan's relationship with Continental Airlines, we now have a strong balance sheet and revenue diversification to match our industry-leading operating performance," said Peter Hunt, Pinnacle's Chief Financial Officer. "We believe these investments provide the prospects for long-term profitable growth for our shareholders."

For the three months ended December 31, 2006, Pinnacle recorded operating revenue of $204.5 million, a decrease of $8.5 million, or 4%, over the same period in 2005. The Company's Pinnacle Airlines unit completed 104,566 block hours and 63,060 cycles, a decrease and an increase of 2%, respectively, over the same periods in 2005. The decrease in revenue and block hours was primarily attributable to the removal of 15 CRJ aircraft from Pinnacle Airlines' operating fleet in November 2005. Pinnacle Airlines operated an average of 124 aircraft throughout the fourth quarter of 2006, as compared to an average of 129 aircraft during the fourth quarter of 2005. The increase in cycles is due to the 5% decrease in the average length of Pinnacle's flights from 493 to 469 miles.

Operating income for the fourth quarter 2006 was $61.0 million, or $19.6 million excluding the $41.4 million benefit associated with the changes in reserves related to Northwest receivables. Pinnacle's operating margin for the three months ended December 31, 2006 was 29.8%. Excluding the previously mentioned benefit, Pinnacle's margin for the quarter would have been 9.6%. Operating margin for the fourth quarter 2005 was 10.4% excluding certain nonrecurring charges. The 12% decrease in operating income and the decrease of 0.8 points in operating margin, both excluding bankruptcy-related items, were primarily attributable to costs associated with initiating ground handling operations in thirteen cities transitioned from Northwest during the quarter, increased pilot labor costs resulting from a decrease in pilot utilization, and additional year-end management incentive compensation costs. Pinnacle expects that its first quarter 2007 operating income will also be negatively impacted by additional ground handling transition costs and by pilot labor and training costs associated with the addition of 15 CRJ-200 aircraft during the quarter.

For the twelve months ended December 31, 2006, Pinnacle recorded operating revenue of $824.6 million, a decrease of $17.0 million, or 2%, over the same period in 2005. For the twelve months ended December 31, 2006, the Company's Pinnacle Airlines unit completed 415,069 block hours and 251,091 cycles, a decrease of 4% and an increase of 1%, respectively, over the same periods in 2005. While block hours decreased due to the decrease in fleet size, cycles increased due to a 6% decrease in the average length of Pinnacle's flights from 500 to 470 miles.

Operating income for the full year 2006 was $127.5 million, or $85.3 million excluding the $43.6 million benefit associated with the previously mentioned nonrecurring items and the $1.3 million charge related to pilot post-retirement benefits. Pinnacle's operating margin for 2006 was 15.5%. Excluding the nonrecurring items, Pinnacle's margin for 2006 would have been 10.3%. Operating income for 2005 was $26.9 million, or $86.5 million excluding the $59.6 million charge related to the bankruptcies of Northwest and Mesaba. Operating margin for 2005 was 3.2% or 10.3% excluding those charges.

Pinnacle is currently under Internal Revenue Service ("IRS") review for the tax years 2003, 2004 and 2005. As a result, Pinnacle recorded an increase in income tax expense of $1.5 million in the fourth quarter of 2006 to reserve certain items under review. This charge decreased EPS by $0.07 for the fourth quarter and full year 2006. The IRS review is ongoing, and the IRS may propose adjustments that could be material to Pinnacle's future financial results.

Pinnacle ended the quarter with cash and short-term investments totaling $73.4 million. Because December 31, 2006 occurred on a Saturday, this total did not include Pinnacle's normal month-end payment of $31.9 million, which was received from Northwest on January 2, 2007. After the sale of Pinnacle's $335 million Northwest claim, Pinnacle ended January 2007 with $374.8 million in cash and short-term investments.

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 twelve months ended December 31, 2006 and 2005 excluding the increases and decreases in losses associated with the bankruptcy filings of Northwest and Mesaba, the increase the Company's reserve related to uncertain tax positions 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., an airline holding company, is the parent company of Pinnacle Airlines, Inc. and Colgan Air, Inc. Pinnacle Airlines, Inc. operates under the name Northwest Airlink and operates 129 Canadair Regional Jets in the United States and Canada. Colgan Air, Inc. operates as Continental Connection, United Express and US Airways Express. Colgan Air operates a fleet of 40 Saab 340 and 11 Beech 1900 turbo-prop regional airliners.

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
                                                        December 31,
                                                  ------------------------
                                                      2006         2005
                                                  -----------  -----------

Operating revenues
  Regional airline services                       $   202,144  $   210,584
  Other                                                 2,376        2,447
                                                  -----------  -----------
Total operating revenues                              204,520      213,031

Operating expenses
  Salaries, wages and benefits                         37,248       34,613
  Aircraft fuel                                        27,650       28,006
  Aircraft maintenance, materials and repairs           8,161        8,319
  Aircraft rentals                                     66,031       71,282
  Other rentals and landing fees                        9,181       10,304
  Ground handling services                             21,603       23,284
  Depreciation                                          1,053          998
  Other                                                14,027       14,107
  Provision for (decreases) increases in losses
   associated with bankruptcy filings of
   Northwest and Mesaba                               (41,399)       5,685
                                                  -----------  -----------
Total operating expenses                              143,555      196,598
                                                  -----------  -----------

Operating income                                       60,965       16,433

Operating income as a percentage of operating
 revenues                                                29.8%         7.7%

Nonoperating (expense) income:
   Interest expense                                    (1,429)      (1,086)
   Interest income                                        760            -
   Miscellaneous income, net                               13           17
                                                  -----------  -----------
Total nonoperating expense                               (656)      (1,069)
                                                  -----------  -----------

Income before income taxes                             60,309       15,364
Income tax expense                                     23,534        5,402
                                                  -----------  -----------
Net income                                        $    36,775  $     9,962
                                                  ===========  ===========

Basic earnings per share                          $      1.68  $      0.45
                                                  ===========  ===========

                                                  ===========  ===========
Diluted earnings per share                        $      1.67  $      0.45
                                                  ===========  ===========

Shares used in computing basic earnings per share      21,945       21,934
                                                  ===========  ===========
Shares used in computing diluted earnings per
 share                                                 22,022       21,934
                                                  ===========  ===========





                        Pinnacle Airlines Corp.
             Condensed Consolidated Statements of Operations
                  (in thousands, except per share data)


                                                    Twelve Months Ended
                                                        December 31,
                                                  ------------------------
                                                      2006         2005
                                                  -----------  -----------
                                                   (Unaudited)

Operating revenues
  Regional airline services                       $   816,787  $   833,125
  Other                                                 7,836        8,480
                                                  -----------  -----------
Total operating revenues                              824,623      841,605
Operating expenses
  Salaries, wages and benefits                        141,835      134,277
  Aircraft fuel                                       109,224      112,666
  Aircraft maintenance, materials and repairs          35,110       31,865
  Aircraft rentals                                    264,124      277,914
  Other rentals and landing fees                       43,135       42,972
  Ground handling services                             87,390       92,689
  Depreciation                                          3,985        4,017
  Other                                                55,843       58,677
  Provision for (decreases) increases in losses
   associated with bankruptcy filings of
   Northwest and Mesaba                               (43,571)      59,599
                                                  -----------  -----------
Total operating expenses                              697,075      814,676
                                                  -----------  -----------

Operating income                                      127,548       26,929

Operating income as a percentage of operating
 revenues                                                15.5%         3.2%

Nonoperating (expense) income:
   Interest expense                                    (5,578)      (4,772)
   Interest income                                      2,548        1,239
   Miscellaneous income, net                               82           15
   Gain on extinguishment of debt                           -       18,000
                                                  -----------  -----------
Total nonoperating (expense) income                    (2,948)      14,482
                                                  -----------  -----------

Income before income taxes                            124,600       41,411
Income tax expense                                     46,801       15,713
                                                  -----------  -----------
Net income                                        $    77,799  $    25,698
                                                  ===========  ===========

Basic earnings per share                          $      3.55  $      1.17
                                                  ===========  ===========

Diluted earnings per share                        $      3.54  $      1.17
                                                  ===========  ===========

Shares used in computing basic earnings per share      21,945       21,913
                                                  ===========  ===========
Shares used in computing diluted earnings per
 share                                                 21,974       21,932
                                                  ===========  ===========





                         Pinnacle Airlines Corp.
                 Condensed Consolidated Balance Sheets
            (in thousands, except share and per share data)


                                                  December 31, December 31,
                                                      2006         2005
                                                  -----------  -----------
                                                  (Unaudited)
Assets

Current assets

Cash and cash equivalents                         $       705  $    31,567

Short-term investments                                 72,700       44,160

Receivables, net of allowance                         100,925       29,569

Spare parts and supplies, net                           8,061        6,368

Prepaid expenses and other assets                      15,003        5,637

Deferred income taxes, net of allowance                     -        9,146
                                                  -----------  -----------

    Total current assets                              197,394      126,447

Property and equipment
  Aircraft rotable spares                              38,436       39,362
  Other property and equipment                         22,322       19,209
  Office furniture and fixtures                         2,148        2,002
                                                  -----------  -----------
                                                       62,906       60,573
  Less accumulated depreciation                       (21,921)     (18,038)
                                                  -----------  -----------
Net property and equipment                             40,985       42,535

Other assets, primarily aircraft deposits              27,262       22,765

Debt issuance costs, net                                3,978        4,198

Contractual rights under airline services
 agreement, net                                        13,232       14,435

Goodwill, net                                         18,422       18,422
                                                  -----------  -----------

Total assets                                      $   301,273  $   228,802
                                                  ===========  ===========



                        Pinnacle Airlines Corp.
               Condensed Consolidated Balance Sheets
           (in thousands, except share and per share data)


                                                  December 31, December 31,
                                                      2006         2005
                                                  -----------  -----------
                                                  (Unaudited)

Liabilities and stockholders’ equity

Current liabilities

  Accounts payable                               $     18,201  $    12,945

  Accrued expenses                                     26,190       25,160

  Line of credit with First Tennessee                       -       17,000

  Income taxes payable                                 16,658       17,756

  Deferred income tax                                   6,815            -

  Other current liabilities                             5,980        7,161
                                                  -----------  -----------

         Total current liabilities                     73,844       80,022

Deferred income taxes                                   7,112        7,426

Other liabilities                                       2,296        1,736

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 in 2006 and 2005,
   respectively                                           221          219

Additional paid-in capital                             86,152       85,550

Accumulated earnings (deficiency)                      10,648      (67,151)
                                                  -----------  -----------

           Total stockholders’ equity                  97,021       18,618
                                                  -----------  -----------

           Total liabilities and
            stockholders’ equity                  $   301,273  $   228,802
                                                  ===========  ===========





                          Pinnacle Airlines Corp.
              Condensed Consolidated Statements of Cash Flows
                               (in thousands)


                                                    Twelve Months Ended
                                                        December 31,
                                                  ------------------------
                                                      2006         2005
                                                  -----------  -----------
                                                  (Unaudited)

Cash provided by operating activities             $    21,101  $    27,284

Cash used in investing activities                     (34,963)     (57,237)

Cash (used in) provided by financing activities       (17,000)      26,608
                                                  -----------  -----------

Net decrease in cash and cash equivalents             (30,862)      (3,345)

Cash and cash equivalents at beginning of period       31,567       34,912
                                                  -----------  -----------

Cash and cash equivalents at end of period        $       705  $    31,567
                                                  ===========  ===========



                        Pinnacle  Airlines  Corp.
          Reconciliation  of  Non-GAAP  Disclosures  (Unaudited)



                                      Three Months Ended December 31,
                                  ---------------------------------------
                                                               % Increase
                                      2006          2005       (Decrease)
                                  -----------   ------------  -----------
Operating Income:                   (in thousands, except per share data)
Operating income in accordance
 with GAAP                        $    60,965   $     16,433          271 %
Add:  Provision for (decreases)
      increases in losses
      associated with bankruptcy
      filings of Northwest and
      Mesaba                          (41,399)         5,685         (828)%
                                  -----------   ------------  -----------
Non-GAAP operating income         $    19,566   $     22,118          (12)%
                                  ===========   ============  ===========
Operating Margin:
Operating margin in accordance
 with GAAP                               29.8 %          7.7%    22.1 pts
Add:  Provision for (decreases)
      increases in losses
      associated with bankruptcy
      filings of Northwest and
      Mesaba                            (20.2)%          2.7% (22.9) pts.
                                  -----------   ------------  -----------
Non-GAAP operating margin                 9.6 %         10.4%  (0.8) pts.
                                  ===========   ============  ===========
Net Income:
Net income in accordance with
 GAAP                             $    36,775   $      9,962          269 %
Add:  Provision for (decreases)
      increases in losses
      associated with bankruptcy
      filings of Northwest and
      Mesaba, net of related tax      (26,052)         3,244         (903)%
Add:  Provision for uncertain tax
      positions identified in
      connection with IRS review        1,542              -          100 %
                                  -----------   ------------  -----------
Non-GAAP net income               $    12,265   $     13,206           (7)%
                                  ===========   ============  ===========
Diluted EPS:
Diluted EPS in accordance with
 GAAP                             $      1.67   $       0.45          271 %
Add:  Provision for (decreases)
      increases in losses
      associated with bankruptcy
      filings of Northwest and
      Mesaba, net of related tax        (1.18)          0.15         (889)%
Add:  Provision for uncertain tax
      positions identified in
      connection with IRS review         0.07              -          100 %
                                  -----------   ------------  -----------
Non-GAAP diluted EPS              $      0.56   $       0.60           (7)%
                                  ===========   ============  ===========


                          Pinnacle Airlines Corp.
            Reconciliation of Non-GAAP Disclosures (Unaudited)



                                      Twelve Months Ended December 31,
                                  ---------------------------------------
                                                               % Increase
                                      2006          2005       (Decrease)
                                  -----------   ------------  -----------
                                    (in thousands, except per share data)
Operating Income:
Operating income in accordance
 with GAAP                        $   127,548   $     26,929          374 %
Add:  Provision for (decreases)
      increases in losses
      associated with bankruptcy
      filings of Northwest and
      Mesaba                          (43,571)        59,599          173 %
Add:  Pilot post-retirement
      liability                         1,300              -          100 %
                                  -----------   ------------  -----------
Non-GAAP operating income         $    85,277   $     86,528           (1)%
                                  ===========   ============  ===========
Operating Margin:
Operating margin in accordance
 with GAAP                               15.5 %          3.2%   12.3 pts.
Add:  Provision for (decreases)
      increases in losses
      associated with bankruptcy
      filings of Northwest and
      Mesaba                             (5.3)%          7.1% (12.4) pts.
Add:  Pilot post-retirement
      liability                           0.1 %            -     0.1 pts.
                                  -----------   ------------  -----------
Non-GAAP operating margin                10.3 %         10.3%    0.0 pts.
                                  ===========   ============  ===========
Net Income:
Net income in accordance with
 GAAP                             $    77,799   $     25,698          203 %
Add:  Provision for (decreases)
      increases in losses
      associated with bankruptcy
      filings of  Northwest and
      Mesaba, net of related tax      (27,417)        37,763         (173)%
Add:  Provision for uncertain tax
      positions identified in
      connection with IRS review        1,542              -          100 %
Add:  Pilot post-retirement
      liability                           812              -          100 %
Deduct:  Gain on repurchase of
         debt, net of related tax           -        (11,302)        (100)%
                                  -----------   ------------  -----------
Non-GAAP net income               $    52,736   $     52,159            1 %
                                  ===========   ============  ===========
Diluted EPS:
Diluted EPS in accordance with
 GAAP                             $      3.54   $       1.17          203 %
Add:  Provision for (decreases)
      increases in losses
      associated with bankruptcy
      filings of  Northwest and
      Mesaba, net of related tax        (1.25)          1.73         (172)%
Add:  Provision for uncertain tax
      positions identified in
      connection with IRS review         0.07              -          100 %
Add:  Pilot post-retirement
      liability                          0.04              -          100 %
Deduct: Gain on repurchase of
        debt, net of related tax            -          (0.52)        (100)%
                                  -----------   ------------  -----------
Non-GAAP diluted EPS              $      2.40   $       2.38            1 %
                                  ===========   ============  ===========


                          Pinnacle Airlines Corp.
                     Operating Statistics (Unaudited)



                                            Three Months Ended December 31,
                                             ----------------------------
                                               2006       2005     Change
                                             ---------  ---------  ------
Other Data for Pinnacle Airlines, Inc.:
Revenue passengers (in thousands)                2,303      2,134       8 %
Revenue passenger miles (in thousands) (1)   1,094,815  1,064,392       3 %
Available seat miles (in thousands)          1,467,479  1,406,272       4 %
Passenger load factor (2)                         74.6%      75.7%     (1)%
Operating revenue per available seat mile
 (in cents)                                      13.94      15.15      (8)%
Operating costs per available seat mile (in
 cents)                                           9.78      13.98     (30)%
Operating revenue per block hour             $   1,956  $   1,989      (2)%
Operating costs per block hour               $   1,373  $   1,836     (25)%
Block hours                                    104,566    107,098      (2)%
Cycles                                          63,060     62,074       2 %
Average daily utilization (block hours)           9.17       8.69       5 %
Average stage length (miles)                       469        493      (5)%
Number of operating aircraft (end of period)       124        124       0 %
Employees (end of period)                        3,860      3,436      12 %
                                             ---------  ---------  ------

                                           Twelve Months Ended December 31,
                                             ----------------------------
                                               2006       2005     Change
                                             ---------  ---------  ------
Other Data for Pinnacle Airlines, Inc.:
Revenue passengers (in thousands)                8,988      8,105      11 %
Revenue passenger miles (in thousands) (1)   4,288,531  4,129,039       4 %
Available seat miles (in thousands)          5,640,629  5,732,773      (2)%
Passenger load factor (2)                         76.0%      72.0%      4 %
Operating revenue per available seat mile
 (in cents)                                      14.62      14.68       0 %
Operating costs per available seat mile (in
 cents)                                          12.36      14.21     (13)%
Operating revenue per block hour             $   1,987  $   1,944       2 %
Operating costs per block hour               $   1,679  $   1,882     (11)%
Block hours                                    415,069    432,900      (4)%
Cycles                                         251,091    249,262       1 %
Average daily utilization (block hours)           9.17       9.07       1 %
Average stage length (miles)                       470        500      (6)%
Number of operating aircraft (end of period)       124        124       0 %
Employees (end of period)                        3,860      3,436      12 %
                                             ---------  ---------  ------

(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.

Contact Information

  • For further information, please contact:
    Philip Reed
    (901) 348-4257
    visit our Web site at www.pncl.com