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Pemco Aviation Group, Inc. (NASDAQ: PAGI), a leading provider of
aircraft maintenance and modification services, today reported the
operating results for its year ended and three months ended December
31, 2006. The Company reported that revenue increased to $160.7
million in 2006 compared to $134.8 million in 2005, an increase of
19.2%, and income from continuing operations of $0.1 million for the
year ended December 31, 2006, compared to a loss from continuing
operations of $6.1 million for the year ended December 31, 2005. The
income from continuing operations in 2006 was positively impacted by
the settlement of the H-3 Request for Equitable Adjustment with the
U.S. Government, the sale of receivables related to the Northwest
Airlines bankruptcy, amendments to the settlement agreement on the
Falcon Air claim, and the settlement of claims by the EEOC and was
negatively impacted by losses incurred on the U.S. Navy P-3 contract.
The loss from continuing operations for 2005 was negatively affected
by several unusual events, including the Northwest Airlines
bankruptcy, the two-month lockout of the union employees at the
Company's Dothan, Alabama facility, the initial settlement of the
Falcon Air claim, the temporary suspension of KC-135 inputs earlier in
2005, and losses incurred completing the U.S. Coast Guard contract.
Ronald Aramini, Pemco's President and CEO, stated "We are very
pleased to return to profitable operations and report net income for
2006. In addition, we are progressing with several strategic
initiatives to increase shareholder value. In the fourth quarter of
2006 we sold our Pemco Engineers subsidiary. Several companies have
now approached us with an interest in purchasing our Space Vector
subsidiary in California. One of those parties has signed a letter of
intent, and we expect to sell Space Vector in the second quarter of
2007. In the first quarter of 2007 we engaged investment bankers to
assist Pemco with either taking our Commercial Services business
public or selling that business. We are presently in discussions with
several interested parties. Consummation of these strategic
transactions should enable to the Company to meet its goal of
eliminating its debt and providing the necessary working capital to
support the Government Services business. We remain very optimistic
about winning the KC-135 contract. We believe we have submitted the
best proposal based on our track record on highest quality,
significantly lower flow days and reduced cost to our customer. We
expect the U.S. Government to award the contract in May 2007."
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2006 vs. 2005 Results
Summary of comparative results for the year ended December 31, 2006:
(Dollars in Millions)
2006 2005 % Change
--------- --------- ---------
Revenue $160.7 $134.8 19.2%
Gross profit 20.7 10.9 89.9%
Operating income/(loss) from continuing
operations 3.3 (8.6) 138.4%
Income/(loss) from continuing operations
before taxes 0.3 (9.7) 103.1%
Income/(loss) from continuing operations 0.1 (6.1) 101.6%
Net income/(loss) 0.5 (5.8) 108.6%
EBITDA from continuing operations 6.7 (4.3) 255.7%
(a) A description of the Company's use of non-GAAP information is
provided below under "Use of Non-GAAP Financial Measures." A
reconciliation of income/(loss) from continuing operations to EBITDA
is provided at the end of this press release.
*T
Revenue at GSS increased $3.5 million primarily due to an increase
in C-130 and P-3 deliveries. The KC-135 PDM program, which accounted
for 84% of GSS revenue in 2006, allows for the Company to provide
services on PDM aircraft, drop-in aircraft, and other aircraft related
areas. Revenue from the KC-135 program increased $1.1 million during
2006. During 2006, the Company delivered 19 PDM KC-135 aircraft and
two drop-ins, compared to 20 PDM aircraft and three drop-ins during
2005. The amount of non-routine work performed per aircraft varies as
a result of differences in aircraft condition and model mix.
Year-over-year the Company realized an increase in revenue per PDM
aircraft delivered in 2006 due to an increase in the amount of work
performed on each aircraft delivered. The Company delivered two USCG
C-130 aircraft during 2006 compared to one USCG C-130 during 2005 for
depot level maintenance. Revenue from the USCG program decreased $3.6
million due to a decrease in revenue from non-routine services which
is recorded as the work is performed versus when the aircraft is
redelivered for routine services revenue. GSS delivered three P-3
aircraft in 2006 compared with zero in 2005. Revenue for the P-3
program increased $4.6 million from 2005 during which no revenue was
recorded. GSS revenue increased $1.4 million under contracts to
perform non-routine maintenance work on other aircraft, primarily
C-130 aircraft. Revenue increased as a result of more C-130 aircraft
in process during 2006 which increased the amount of non-routine
services provided to the program.
CSS revenue increased $22.3 million, primarily due to increases in
cargo conversion revenues of $11.9 million, increases in maintenance,
repair and overhaul ("MRO") revenue from Southwest Airlines of $15.5
million and increases in revenue from Northwest Airlines of $6.1
million. It was offset by decreases in revenue from various
miscellaneous customers of $9.8 million. CSS delivered six cargo
conversions during 2006 compared to one during 2005. Three of the six
cargo conversions were performed in mainland China. Both Southwest
Airlines and Northwest Airlines have maintained consistent
nose-to-tail lines that provide for more efficient use of hangar
space. CSS has several customers that provide drop-in aircraft on an
inconsistent basis. These drop-in aircraft from various customers
accounted for a larger percentage of revenue in 2005. MRO revenues
were adversely impacted in the third and fourth quarters of 2005 by
the bankruptcy of CSS's largest customer and by a two-month lockout of
all union employees at the Company's Dothan, Alabama facility.
Cost of sales increased to $140.0 million in 2006 from $123.9
million in 2005. Cost of sales increased at a slightly lower rate than
revenue because of charges related to the USCG C-130 program and fixed
expenses. Cost of sales in 2005 was adversely impacted by $5.3 million
of losses on the USCG contract compared to losses of $0.5 million in
2006 to complete this program. The Company also incurred losses of
$3.7 million and $0.4 million during 2006 and 2005, respectively,
related to costs incurred for implementing a new maintenance line and
learning curve costs for the new U.S. Navy P-3 program. Cost of sales
was impacted by a charge for the Falcon Air settlement of $1.1 million
in 2005 and the reversal of $1.0 million in 2006 as a result of
amendments to the settlement agreement.
Gross profit at GSS decreased $1.0 million due to decreased
deliveries of KC-135 aircraft. Gross profit at CSS increased from $3.0
million in 2005 to $13.8 million in 2006. Gross profit in 2005 was
adversely impacted by the lockout of all union employees at the
Company's Dothan, Alabama facility from August 11, 2005 to October 9,
2005, the bankruptcy of CSS's largest customer and fewer cargo
conversion deliveries in 2005. The CSS also recorded a charge of $1.1
million in 2005 related to the settlement of the Falcon Air claim, of
which $1.0 million was reversed in 2006 as a result of amendments to
the settlement agreement. Gross profit at CSS in 2006 was positively
impacted by the settlement of the H-3 REA which resulted in an
increase in revenue of $0.8 million.
Overall, the Company's gross profit percentage increased to 12.9%
in 2006 from 8.1% in 2005. The increase in gross profit as a percent
of revenue in 2006 is primarily due to the revenue growth at CSS from
both cargo conversions and MRO activities. Gross profit in 2005 was
adversely impacted by the impact of losses on the USCG program at GSS
and low facility utilization at CSS as a result of the lockout of
union employees in Dothan and a decline in revenue due to the
bankruptcy of Northwest Airlines.
Selling, general and administrative ("SG&A") expenses increased
$0.1 million, or 0.5%, to $18.1 million in 2006 from $18.0 million in
2005. As a percent of sales, SG&A expenses decreased to 11.3% in 2006
from 13.3% in 2005. The increase in SG&A expense is primarily
attributable to stock option expense of $1.0 million in 2006 which was
offset by cost reductions to improve the profitability of the Company.
The Company also recorded a $1.5 million provision for doubtful
accounts during the third quarter of 2005 related to the Chapter 11
bankruptcy filing of Northwest Airlines. The Company's claim to the
$1.5 million of accounts receivable related to the bankruptcy was sold
in 2006 for $0.6 million.
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*T
Fourth Quarter Results
Summary of comparative results for the three months ended
December 31, 2006:
(Dollars in Millions)
2006 2005 % Change
-------- -------- ---------
Revenue $45.9 $32.8 40.0%
Gross profit/(loss) 5.5 (1.0) (625.9%)
Operating income/(loss) from continuing
operations 1.3 (4.2) (130.3%)
Income/(loss) from continuing operations
before taxes 0.4 (4.7) (108.7%)
Income/(loss) from continuing operations 0.2 (3.1) (107.1%)
Net income/(loss) 0.5 (2.9) (119.5%)
EBITDA from continuing operations 2.3 (3.2) (171.6%)
(a) A description of the Company's use of non-GAAP information is
provided below under "Use of Non-GAAP Financial Measures." A
reconciliation of income/(loss) from continuing operations to EBITDA
is provided at the end of this press release.
*T
GSS revenue decreased $3.1 million, or 13.3%, due to decreased
delivery of KC-135 aircraft compared with the prior year fourth
quarter due to fewer inductions of aircraft. The USAF has reduced the
total number of KC-135 aircraft in operation, resulting in fewer
aircraft being outsourced for maintenance. The GSS delivered five
KC-135 PDM aircraft during the fourth quarter of 2006, compared with
six in the fourth quarter of 2005. In addition, the GSS delivered one
aircraft under the USCG C-130 UDLM contract and one aircraft under a
subcontract to perform maintenance services on U.S. Navy P-3 during
the fourth quarter of 2006 for which there were no comparable
deliveries in the fourth quarter of 2005.
CSS revenue increased from $9.6 million in the fourth quarter of
2005 to $25.8 million in the fourth quarter of 2006. Fourth quarter
2006 was positively impacted by the delivery of three cargo
conversions and additional work from Southwest Airlines and Northwest
Airlines when compared to the fourth quarter of 2005. During the
fourth quarter of 2005, revenues at CSS were adversely impacted by the
lockout of union employees at the Dothan, Alabama facility which ended
on October 11, 2005. Few aircraft were inducted during the two-month
lockout, and it took several months for operations to return to normal
levels of activity.
Gross profit increased to $5.5 million during the fourth quarter
of 2006, compared with ($1.0) million during the fourth quarter of
2005. The increase in gross profit quarter-over-quarter is primarily
attributable to increased revenue at CSS. CSS gross profit improved
from ($2.1) million in the fourth quarter of 2005 to $4.9 million in
the fourth quarter of 2006 due to the delivery of three cargo
conversions in the fourth quarter of 2006 and increased revenue from
Southwest Airlines and Northwest Airlines. In addition, the
profitability in the fourth quarter of 2006 compared to the fourth
quarter of 2005 was positively impacted by the reversal of $0.5
million for a Falcon Air claim for which an accrual of $1.1 million
was made in the fourth quarter of 2005.
(a) Use of Non-GAAP Financial Measures
EBITDA is defined as earnings before interest, taxes, depreciation
and amortization. Pemco presents EBITDA because its management uses
the measure to evaluate the Company's performance and to allocate
resources. In addition, EBITDA has been used as one of the components
to calculate the Company's debt covenants. Pemco believes EBITDA is
also a measure of performance used by some commercial banks,
investment banks, investors, analysts and others to make informed
investment decisions. EBITDA is an indicator of cash generated to
service debt and fund capital expenditures. EBITDA is not a measure of
financial performance under generally accepted accounting principles
and should not be considered as a substitute for or superior to other
measures of financial performance reported in accordance with GAAP.
EBITDA as presented herein may not be comparable to similarly titled
measures reported by other companies. See the reconciliation of net
income to EBITDA at the end of this release.
About Pemco
Pemco Aviation Group, Inc., with executive offices in Birmingham,
Alabama, and facilities in Alabama and California, performs
maintenance and modification of aircraft for the U.S. Government as
well as for foreign and domestic commercial customers. The Company
also provides aircraft parts and support and engineering services in
addition to developing rocket vehicles and control systems and
precision components. For more information:
www.pemcoaviationgroup.com.
This press release contains forward-looking statements made in
reliance on the safe harbor provisions of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These statements may be identified
by their use of words, such as "believe," "expect," "intend,"
"anticipate," "estimate" and other words and terms of similar meaning,
in connection with any discussion of the Company's prospects,
financial statements, business, financial condition, revenues, results
of operations or liquidity. Factors that could affect the Company's
forward-looking statements include, among other things: changes in
global or domestic economic conditions; the loss of one or more of the
Company's major customers; the Company's ability to obtain new and
additional contracts and perform under existing contracts; the outcome
of pending and future litigation and the costs of defending such
litigation; financial difficulties experienced by the Company's
customers; potential environmental and other liabilities; the
inability of the Company to obtain additional financing; material
weaknesses in the Company's internal control over financial reporting;
regulatory changes that adversely affect the Company's business; loss
of key personnel; and other risks detailed from time to time in the
Company's SEC reports, including its most recent Annual Report on Form
10-K and Quarterly Reports on Form 10-Q. The Company cautions readers
not to place undue reliance on any forward-looking statements, which
speak only as of the date on which they are made. The Company does not
undertake any obligation to update or revise any forward-looking
statements and is not responsible for changes made to this release by
wire services or Internet services.
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*T
PEMCO AVIATION GROUP, INC.
(In thousands, except per share information)
Fourth Quarter Ended
December 31,
---------------------
2006 2005
---------- ----------
Sales:
Government Services Segment $20,159 $23,258
Commercial Services Segment 25,791 9,596
Inter-segment Revenue (70) (52)
---------- ----------
Total Sales 45,880 32,802
Cost of Sales 40,329 33,850
---------- ----------
Gross Profit/(Loss) 5,551 (1,048)
Selling, General and Administrative Expenses 4,253 3,171
---------- ----------
Operating Income/(Loss) from Continuing
Operations 1,298 (4,219)
Other Income (Expense):
Interest Expense (919) (440)
---------- ----------
Income/(loss) from Continuing Operations Before
Income Taxes 379 (4,659)
Income Tax Expense/(Benefit) 175 (1,599)
---------- ----------
Income/(loss) from Continuing Operations 204 (3,060)
Income from Discontinued Operations, Net of Tax 339 202
---------- ----------
Net Income/(Loss) $543 $(2,858)
========== ==========
Weighted Average Common Shares Outstanding:
Basic 4,126 4,112
========== ==========
Diluted 4,132 4,112
========== ==========
Net Income/(Loss) Per Common Share:
Basic net income/(loss) from continuing
operations $0.05 $(0.74)
Basic net income/(loss) from discontinued
operations 0.08 0.05
---------- ----------
Basic net income/(loss) per share $0.13 $(0.70)
========== ==========
Diluted net income/(loss) from continuing
operations $0.05 $(0.74)
Diluted net income/(loss) from
discontinued operations 0.08 0.05
---------- ----------
Diluted net income/(loss) per share $0.13 $(0.70)
========== ==========
EBITDA Reconciliation(a)
------------------------------------------------
Income/(Loss) from Continuing Operations $204 $(3,060)
Interest Expense 919 440
Income Tax Expense/(Benefit) 175 (1,599)
Depreciation and Amortization 961 1,019
---------- ----------
EBITDA from Continuing Operations $2,259 $(3,200)
========== ==========
(a) See note above on Use of Non-GAAP Financial Measures.
*T
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PEMCO AVIATION GROUP, INC.
(In thousands, except per share information)
Year Ended
December 31,
-------------------
2006 2005
--------- ---------
Sales:
Government Services Segment $85,499 $81,960
Commercial Services Segment 75,507 53,217
Inter-segment Revenue (297) (345)
--------- ---------
Total Sales 160,709 134,832
Cost of Sales 140,004 123,931
--------- ---------
Gross Profit 20,705 10,901
Selling, General and Administrative Expenses 18,092 17,997
Provision for/(Reversal of) Doubtful Accounts (638) 1,519
--------- ---------
Operating Income/(Loss) from Continuing Operations 3,251 (8,615)
Other Income (Expense):
Other Income - 650
Interest Expense (2,914) (1,741)
--------- ---------
Income/(Loss) from Continuing Operations Before
Income Taxes 337 (9,706)
Income Tax Expense (Benefit) 207 (3,576)
--------- ---------
Income/(Loss) from Continuing Operations 130 (6,130)
Income from Discontinued Operations, Net of Tax 389 316
--------- ---------
Net Income/(Loss) $519 $(5,814)
========= =========
Weighted Average Common Shares Outstanding:
Basic 4,123 4,108
========= =========
Diluted 4,228 4,108
========= =========
Net Income/(Loss) Per Common Share:
Basic net income/(loss) from continuing
operations 0.03 (1.49)
Basic net income from discontinued
operations 0.09 0.08
--------- ---------
Basic net income/(loss) per share $0.13 $(1.42)
========= =========
Diluted net income/(loss) from continuing
operations 0.03 (1.49)
Diluted net income from discontinued
operations 0.09 0.08
--------- ---------
Diluted net income (loss) per share $0.12 $(1.42)
========= =========
EBITDA Reconciliation(a)
--------------------------------------------------
Income/(Loss) from Continuing Operations $130 $(6,130)
Interest Expense 2,914 1,741
Income Tax Expense/(Benefit) 207 (3,576)
Depreciation and Amortization 3,441 3,704
--------- ---------
EBITDA from Continuing Operations $6,692 $(4,261)
========= =========
(a) See note above on Use of Non-GAAP Financial
Measures.
*T
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