Pemco Aviation Group Reports First Quarter 2006 Profit
May 16 2006 - 9:00AM
Business Wire
Pemco Aviation Group, Inc. (NASDAQ: PAGI), a leading provider of
aircraft maintenance and modification services, today announced
results of its first quarter performance of 2006. The net income
from the first three months of 2006 was $0.08 million ($.02 per
share) compared with a net income of $1.16 million ($.28 per share)
in the first quarter of 2005, a decrease in net income of 93.1%.
Revenue for the first quarter of 2006 was $37.64 million compared
to $44.05 million in the first quarter of 2005, a decrease of
14.5%. According to Ronald Aramini, Pemco's President and CEO,
"Pemco's has returned to profitability after two years of net
losses. While revenues decreased 14.5% from the first quarter of
2005, there was an increase of 2.8% from the fourth quarter of
2005. In addition, new sources of revenue from programs started in
the last six months have continued to provide revenue growth in the
second quarter of 2006 and beyond. Pemco began providing
maintenance work on U.S. Navy P-3 Orion maritime patrol and
antisubmarine warfare aircraft at our Birmingham, Alabama facility
in November 2005. The first P-3 aircraft was delivered during the
first week of April 2006, 16 days ahead of schedule. At our Dothan,
Alabama facility, we are close to completing the first-ever
conversion of B737-400 aircraft from passenger to freighter for
Alaska Airlines. The first Alaska conversion will deliver in the
second quarter of 2006. The agreement with Alaska Airlines calls
for the conversion of five B737-400s with options for two
additional conversions. Work on the second Alaska Airlines
conversion has already begun. During the first quarter of 2006, our
CSS segment teamed with Taikoo (Xiamen) Aircraft Engineering Co.
Ltd. ("TAECO") in Mainland China to begin work on a passenger to
freighter conversion which should deliver later in 2006. We expect
to perform additional conversion with TAECO in 2006 with increased
deliveries in 2006 and 2007. Finally, in January 2006, the Company
began performing maintenance work for Southwest Airlines at its
Dothan facility. Southwest is now up to four lines of maintenance
at our facility." Mr. Aramini added, "Pemco continues to make
progress improving the Company's operational efficiency and focus
the business on profitable programs. On May 6, 2006, the Company
delivered the first KC-135 aircraft inducted under the fiscal 2006
contract year in 200 days earning an award fee for early delivery.
Also, on March 27, 2006, the Company delivered the final U.S. Coast
Guard C-130 aircraft with no additional losses in the first quarter
of 2006. This program resulted in significant losses for Pemco in
2003, 2004 and 2005. Our continued focus on operational
improvements to make existing programs more profitable, revenue
growth from new programs, and diversification of our core business
should improve revenues and net income throughout 2006. We are
excited about the future and the prospects for significant revenue
and net income growth in 2006 and beyond." First Quarter 2006 vs.
2005 Results -0- *T Summary of comparative results for the first
quarter ended March 31: (Dollars in Millions) 2006 2005 % Change
---------- ---------- ---------- Revenue $ 37.64 $ 44.05 (14.53%)
Gross Profit 6.82 8.18 (15.65%) Operating Income 0.79 2.38 (62.18%)
Income Before Taxes 0.13 1.94 (87.63%) Net Income 0.08 1.16
(87.10%) EBITDA(a) 1.73 3.30 (44.10%) (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 net income to
EBITDA is provided at the end of this press release. *T Total GSS
revenues for 2006 and 2005 were comparable with a slight increase
of $0.6 million or 2.6%. The KC-135 Programmed Depot Maintenance
("PDM") program delivered fewer aircraft in 2006 versus 2005
resulting in a $2.0 million decrease in revenue. Offsetting this
decrease was the completion and delivery of two C-130 Coast Guard
aircraft producing a $2.1 million increase in revenues over the
first quarter 2005 revenues for the same program. Non-routine
maintenance and repairs of C-130 Air Force aircraft provided $0.6
million in first quarter 2006 revenue for which there was no
comparable revenue in the first quarter of 2005. GSS obtained a new
contract to service U.S. Navy P3 aircraft. Pursuant to this
arrangement, non-routine services for the P3 generated $0.2 million
in new revenue. CSS revenue decreased approximately $7.5 million in
2006 as compared to first quarter of 2005. The decrease is
attributable to lower passenger-to-cargo conversion revenues in
2006 of $2.9 million and a reduction in maintenance, repair and
overhaul ("MRO") revenues of $5.0 million. The decreases were
offset by $0.8 million of revenue related to settlement of the H3
Request for Equitable Adjustment ("REA") claim described in Note 9
of the Financial Statements. MCS revenue increased $0.2 million, or
6.5%, from the first quarter of 2005. Pemco Engineer's revenue
decreased $0.3 million as shipments of aircraft cargo system parts
were lower when compared to the first three months of 2005. Space
Vector's revenue increased $0.4 million due to additional work on
U.S. government launch vehicle programs and the sales of component
parts. Consolidated cost of sales decreased $5.0 million, or 14.0%,
to $30.8 million during the first quarter of 2006. As a percentage
of sales, cost of sales increased slightly from 81.4% for the first
quarter of 2005 to 81.9% for the first quarter of 2006. Cost of
sales was negatively impacted by delivery of two Coast Guard
aircraft during the first quarter of 2006 for which no profit or
loss was recognized due to the provisions for losses being recorded
in 2005. Cost of sales for the CSS decreased $7.2 million as a
result of decreased revenue. As a percentage of sales, cost of
sales was positively impacted by $0.8 million of revenue from the
settlement H3 REA for which the related cost of sales was
recognized in periods prior to 2005. The gross profit percentage at
the MCS decreased from 35.4% of sales in 2005 to 29.0% of sales in
2006. The decrease is primarily related to a 19.9% decrease in
revenue at Pemco Engineers resulting in greater absorption of fixed
costs as a percent of revenue. The decrease was partially offset by
a 19.7% increase in revenue at Space Vector, which resulted in an
increase in gross profit of 34.6%. Selling, general and
administrative ("SG&A") expense increased $0.2 million, or
0.5%, to $6.0 million for the first quarter 2006. The Company
recognized $0.3 million in realized investment gains during the
first quarter of 2005 related to the liquidation and reinvestment
of assets held in a rabbi trust for its deferred compensation plan.
The gain is reflected in the 2005 SG&A, consistent with the
classification of compensation expense associated with the deferred
compensation plan. In 2006, the Company recorded $0.2 million in
stock-based compensation expense. Interest expense was
approximately $0.2 million higher in the first quarter of 2006 than
the first quarter of 2005 primarily resulting from additional debt.
(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,
Pemco believes EBITDA is 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 and for foreign and domestic
commercial customers. The Company also provides aircraft parts and
support and engineering services, in addition to developing and
manufacturing aircraft cargo systems, 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" 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 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 Annual Report on Form 10-K for the fiscal year ended
December 31, 2005. 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. -0- *T PEMCO AVIATION GROUP, INC.
(In thousands except per share information) First Quarter Ended
March 31, ---------------------- 2006 2005 ---------- ----------
Sales: Government Services Segment $ 22,030 $ 21,465 Commercial
Services Segment 12,054 19,564 Manufacturing and Components Segment
3,783 3,554 Inter-segment Revenue (224) (535) ---------- ----------
Total Sales 37,643 44,048 Cost of Sales 30,828 35,864 ----------
---------- Gross Profit 6,815 8,184 Selling, General and
Administrative Expenses 6,029 5,805 ---------- ---------- Income
from Operations 786 2,379 Other Income (Expense): Interest Expense
(655) (442) ---------- ---------- Income Before Income Taxes 131
1,937 Income Tax Expense (Benefit) 52 778 ---------- ---------- Net
Income $ 79 $ 1,159 ========== ========== Weighted Average Common
Shares Outstanding: Basic 4,119 4,105 ========== ========== Diluted
4,237 4,411 ========== ========== Net Income Per Common Share:
Basic $ 0.02 $ 0.28 ========== ========== Diluted $ 0.02 $ 0.26
========== ========== EBITDA Reconciliation(a)
------------------------ Net Income $ 79 $ 1,159 Interest 655 442
Income Taxes 52 778 Depreciation and Amortization 938 906
---------- ---------- EBITDA $ 1,724 $ 3,285 ========== ==========
(a) See note above on Use of Non-GAAP Financial Measures *T
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