Attached files
file | filename |
---|---|
EX-32 - EXHIBIT 32 - PINNACLE AIRLINES CORP | exhibit32.htm |
EX-31.2 - EXHIBIT 31.2 - PINNACLE AIRLINES CORP | exhibit31-2.htm |
EX-31.1 - EXHIBIT 31.1 - PINNACLE AIRLINES CORP | exhibit31-1.htm |
EX-10.77 - CREDIT AGREEMENT - PINNACLE AIRLINES CORP | exhibit10-77.htm |
EX-10.78 - PURCHASE AND RELEASE AGREEMENT - PINNACLE AIRLINES CORP | exhibit10-78.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x
|
Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
For
the quarterly period ended September 30, 2009
|
|
or
|
|
¨
|
Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
For
the transition period from__________
to__________
|
Commission
File Number 001-31898
PINNACLE
AIRLINES CORP.
(Exact
name of registrant as specified in its charter)
Delaware
(State or other
jurisdiction
of
incorporation or organization)
|
03-0376558
(I.R.S.
Employer
Identification
No.)
|
1689
Nonconnah Blvd, Suite 111
Memphis,
Tennessee
(Address
of principal executive offices)
|
38132
(Zip
Code)
|
901-348-4100
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
x
|
No
¨
|
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files).
Yes
¨
|
No
¨
|
Indicate
by check mark whether the registrant is a larger accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “accelerated filer”, “large accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer ¨
|
Accelerated
filer x
|
Non-accelerated
filer ¨
|
Smaller
reporting company ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
¨
|
No
x
|
As of
October 30, 2009, 18,342,334 shares of common stock were
outstanding.
Table
of Contents
Part
I. Financial Information
|
|
Item
1. Financial Statements
|
|
Part
II. Other Information
|
|
2
Part
1. Financial Information
Item
1. Financial Statements
Pinnacle
Airlines Corp.
(in
thousands, except per share data)
Three
Months Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
(Restated)
|
||||||||
Operating
revenues
|
||||||||
Regional
airline services
|
$ | 214,478 | $ | 220,242 | ||||
Other
|
2,730 | 1,550 | ||||||
Total
operating revenues
|
217,208 | 221,792 | ||||||
Operating
expenses
|
||||||||
Salaries,
wages and benefits
|
55,402 | 56,378 | ||||||
Aircraft
rentals
|
30,093 | 31,411 | ||||||
Ground
handling services
|
21,964 | 21,651 | ||||||
Aircraft
maintenance, materials and repairs
|
25,311 | 20,612 | ||||||
Other
rentals and landing fees
|
17,659 | 19,369 | ||||||
Aircraft
fuel
|
6,197 | 14,831 | ||||||
Commissions
and passenger related expense
|
5,660 | 7,183 | ||||||
Depreciation
and amortization
|
9,377 | 7,586 | ||||||
Other
|
21,749 | 21,692 | ||||||
Impairment
and aircraft retirement charges
|
- | 1,069 | ||||||
Total
operating expenses
|
193,412 | 201,782 | ||||||
Operating
income
|
23,796 | 20,010 | ||||||
Operating
income as a percentage of operating revenues
|
11.0 | % | 9.0 | % | ||||
Nonoperating
(expense) income
|
||||||||
Interest
income
|
277 | 1,289 | ||||||
Interest
expense
|
(11,989 | ) | (12,758 | ) | ||||
Investment
gain
|
4,233 | - | ||||||
Miscellaneous
income, net
|
101 | 192 | ||||||
Total
nonoperating expense
|
(7,378 | ) | (11,277 | ) | ||||
Income
before income taxes
|
16,418 | 8,733 | ||||||
Income
tax expense
|
(5,041 | ) | (2,526 | ) | ||||
Net
income
|
$ | 11,377 | $ | 6,207 | ||||
Basic
earnings per share
|
$ | 0.63 | $ | 0.35 | ||||
Diluted
earnings per share
|
$ | 0.62 | $ | 0.35 | ||||
Shares
used in computing basic earnings per share
|
17,970 | 17,867 | ||||||
Shares
used in computing diluted earnings per share
|
18,204 | 17,891 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
3
Pinnacle
Airlines Corp.
Condensed
Consolidated Statements of Operations (Unaudited)
(in
thousands, except per share data)
Nine
Months Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
(Restated)
|
||||||||
Operating
revenues
|
||||||||
Regional
airline services
|
$ | 629,614 | $ | 640,414 | ||||
Other
|
6,679 | 6,873 | ||||||
Total
operating revenues
|
636,293 | 647,287 | ||||||
Operating
expenses
|
||||||||
Salaries,
wages and benefits
|
167,999 | 165,582 | ||||||
Aircraft
rentals
|
90,679 | 97,439 | ||||||
Ground
handling services
|
70,622 | 72,712 | ||||||
Aircraft
maintenance, materials and repairs
|
74,800 | 66,261 | ||||||
Other
rentals and landing fees
|
53,987 | 52,123 | ||||||
Aircraft
fuel
|
15,968 | 41,603 | ||||||
Commissions
and passenger related expense
|
15,714 | 21,438 | ||||||
Depreciation
and amortization
|
26,740 | 18,566 | ||||||
Other
|
54,890 | 68,614 | ||||||
Impairment
and aircraft retirement charges
|
1,980 | 13,688 | ||||||
Total
operating expenses
|
573,379 | 618,026 | ||||||
Operating
income
|
62,914 | 29,261 | ||||||
Operating
income as a percentage of operating revenues
|
9.9 | % | 4.5 | % | ||||
Nonoperating
(expense) income
|
||||||||
Interest
income
|
1,942 | 5,326 | ||||||
Interest
expense
|
(34,712 | ) | (31,194 | ) | ||||
Investment
gain (loss)
|
3,944 | (8,675 | ) | |||||
Miscellaneous
income, net
|
445 | 166 | ||||||
Total
nonoperating expense
|
(28,381 | ) | (34,377 | ) | ||||
Income
(loss) before income taxes
|
34,533 | (5,116 | ) | |||||
Income
tax benefit (expense)
|
1,680 | (355 | ) | |||||
Net
income (loss)
|
$ | 36,213 | $ | (5,471 | ) | |||
Basic
earnings (loss) per share
|
$ | 2.02 | $ | (0.31 | ) | |||
Diluted
earnings (loss) per share
|
$ | 2.01 | $ | (0.31 | ) | |||
Shares
used in computing basic earnings (loss) per share
|
17,968 | 17,864 | ||||||
Shares
used in computing diluted earnings (loss) per share
|
18,050 | 17,864 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
4
Pinnacle
Airlines Corp.
(in
thousands, except share data)
September
30, 2009
|
December
31, 2008
|
|||||||
Assets | (Unaudited) | (Restated) | ||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 81,211 | $ | 69,469 | ||||
Restricted
cash
|
4,158 | 5,417 | ||||||
Receivables,
net
|
33,486 | 31,619 | ||||||
Spare
parts and supplies, net
|
18,570 | 17,106 | ||||||
Prepaid
expenses and other assets
|
6,157 | 8,160 | ||||||
Assets
held for sale
|
1,020 | 2,786 | ||||||
Deferred
income taxes, net of allowance
|
10,058 | 13,908 | ||||||
Income
taxes receivable
|
34,186 | 31,117 | ||||||
Total
current assets
|
188,846 | 179,582 | ||||||
Property
and equipment
|
||||||||
Flight
equipment
|
754,274 | 721,499 | ||||||
Aircraft
pre-delivery payments
|
10,022 | 5,721 | ||||||
Other
property and equipment
|
47,336 | 46,218 | ||||||
Less
accumulated depreciation
|
(77,954 | ) | (53,507 | ) | ||||
Net
property and equipment
|
733,678 | 719,931 | ||||||
Investments
|
4,078 | 116,900 | ||||||
Deferred
income taxes, net of allowance
|
- | 40,847 | ||||||
Other
assets
|
319,726 | 33,724 | ||||||
Debt
issuance costs, net
|
3,737 | 3,711 | ||||||
Goodwill
|
18,422 | 18,422 | ||||||
Intangible
assets, net
|
12,784 | 14,585 | ||||||
Total
assets
|
$ | 1,281,271 | $ | 1,127,702 | ||||
Liabilities
and stockholders’ equity
|
||||||||
Current
liabilities
|
||||||||
Current
maturities of long-term debt
|
$ | 35,918 | $ | 32,116 | ||||
Bank
line of credit
|
- | 8,275 | ||||||
Senior
convertible notes
|
29,853 | 10,754 | ||||||
Pre-delivery
payment facility
|
- | 4,075 | ||||||
Accounts
payable
|
20,748 | 30,431 | ||||||
Deferred
revenue
|
24,363 | 23,851 | ||||||
Accrued
expenses and other current liabilities
|
59,131 | 74,669 | ||||||
Total
current liabilities
|
170,013 | 184,171 | ||||||
Senior
convertible notes
|
- | 97,683 | ||||||
Noncurrent
pre-delivery payment facility
|
4,910 | - | ||||||
Long-term
debt, less current maturities
|
529,045 | 502,741 | ||||||
Credit
facility
|
- | 90,000 | ||||||
Deferred
revenue, net of current portion
|
182,464 | 192,191 | ||||||
Deferred
income taxes, net of allowance
|
4,191 | - | ||||||
Other
liabilities
|
295,214 | 5,182 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders’
equity
|
||||||||
Common
stock, $0.01 par value; 40,000,000 shares authorized;
22,792,426
and 22,514,782 shares issued, respectively
|
228 | 225 | ||||||
Treasury
stock, at cost, 4,450,092 shares
|
(68,152 | ) | (68,152 | ) | ||||
Additional
paid-in capital
|
120,838 | 119,610 | ||||||
Accumulated
other comprehensive loss
|
(14,916 | ) | (17,172 | ) | ||||
Retained
earnings
|
57,436 | 21,223 | ||||||
Total
stockholders’ equity
|
95,434 | 55,734 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 1,281,271 | $ | 1,127,702 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
5
Pinnacle
Airlines Corp.
(in
thousands)
Nine
Months Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
Operating
activities
|
(Restated)
|
|||||||
Net
income (loss)
|
$ | 36,213 | $ | (5,471 | ) | |||
Adjustments
to reconcile net income to cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
31,097 | 20,321 | ||||||
Impairment
charges
|
- | 10,557 | ||||||
Loss
on ineffective portion of derivative
|
1,424 | - | ||||||
Investment
(gain) loss
|
(3,944 | ) | 8,675 | |||||
Interest
accretion, net
|
5,704 | 7,162 | ||||||
Gain
on debt extinguishment
|
(1,963 | ) | - | |||||
Excess
of insurance proceeds over cost basis of aircraft
|
(842 | ) | - | |||||
Deferred
income taxes
|
47,694 | 26,421 | ||||||
Recognition
of deferred revenue
|
(17,400 | ) | (18,668 | ) | ||||
Other
|
7,197 | 9,730 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Restricted
cash
|
1,259 | 770 | ||||||
Receivables
|
(1,867 | ) | (2,487 | ) | ||||
Prepaid
expenses and other assets
|
(1,300 | ) | (1,714 | ) | ||||
Insurance
proceeds
|
3,127 | 1,999 | ||||||
Hedge
related payments
|
- | (19,530 | ) | |||||
Spare
parts and supplies
|
(2,375 | ) | (6,249 | ) | ||||
Income
taxes receivable
|
(3,069 | ) | (29,336 | ) | ||||
Accounts
payable and accrued expenses
|
(5,813 | ) | 10,418 | |||||
Change
in unrecognized tax benefits and related interest
|
(19,345 | ) | - | |||||
Increase
in deferred revenue
|
8,185 | 1,229 | ||||||
Cash
provided by operating activities
|
83,982 | 13,827 | ||||||
Investing
activities
|
||||||||
Purchases
of property and equipment
|
(7,021 | ) | (25,854 | ) | ||||
Insurance
proceeds related to property and equipment
|
3,576 | - | ||||||
Proceeds
from sales of property and equipment
|
- | 142 | ||||||
Purchases
of auction rate securities
|
- | (82,200 | ) | |||||
Proceeds
from auction rate securities redemptions and sales
|
27,770 | 133,450 | ||||||
Cash
provided by investing activities
|
24,325 | 25,538 | ||||||
Financing
activities
|
||||||||
Proceeds
from debt
|
24,761 | 91,810 | ||||||
Payments
on credit facilities
|
(12,875 | ) | (59,415 | ) | ||||
Repurchase
of senior convertible notes
|
(83,870 | ) | - | |||||
Payments
on other long-term debt
|
(23,358 | ) | (11,707 | ) | ||||
Purchase
of Series A Preferred Share
|
- | (20,000 | ) | |||||
Other
financing activities
|
(1,223 | ) | (3,009 | ) | ||||
Cash
used in financing activities
|
(96,565 | ) | (2,321 | ) | ||||
Net
increase in cash and cash equivalents
|
11,742 | 37,044 | ||||||
Cash
and cash equivalents at beginning of period
|
69,469 | 26,785 | ||||||
Cash
and cash equivalents at end of period
|
$ | 81,211 | $ | 63,829 | ||||
Noncash
investing and financing activities
|
||||||||
Property
and equipment acquired through the issuance of debt
|
$ | 49,511 | $ | 404,098 | ||||
Debt
retired with insurance proceeds
|
15,424 | - | ||||||
Debt
retired with auction rate securities proceeds
|
90,000 | - |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
6
Pinnacle
Airlines Corp.
Notes
to Condensed Consolidated Financial Statements
(all
amounts in thousands, except per share data)
Pinnacle
Airlines Corp. and its wholly owned subsidiaries, Pinnacle Airlines, Inc. and
Colgan Air, Inc., are collectively referred to in this report as the “Company,”
except as otherwise noted. The Company’s subsidiaries will be
referred to as “Pinnacle” for Pinnacle Airlines, Inc. and “Colgan” for Colgan
Air, Inc.
Pinnacle
operates an all-regional jet fleet providing regional airline capacity to Delta
Air Lines, Inc. and its subsidiaries (“Delta”) at its hub airports in Atlanta,
Detroit, Memphis, and Minneapolis/St. Paul. At September 30, 2009,
Pinnacle operated 126 Canadair Regional Jet (“CRJ”)-200 aircraft under Delta
brands with approximately 650 daily departures to 108 cities in 31 states, the
District of Columbia and three Canadian provinces. Pinnacle also
operated a fleet of 16 CRJ-900 aircraft as a Delta Connection carrier with
approximately 85 daily departures to 27 cities in 15 states, the District of
Columbia, Belize, Mexico, Turks and Caicos Islands, and the U.S. Virgin
Islands.
Colgan
operates an all-turboprop fleet under a regional airline capacity purchase
agreement with Continental Airlines, Inc. (“Continental”), and also under
revenue pro-rate agreements with Continental, United Air Lines, Inc. (“United”)
and US Airways Group, Inc. (“US Airways”). As of September 30, 2009,
Colgan operated a fleet of 14 Q400 aircraft under a capacity purchase agreement
with Continental, providing 92 daily departures to 15 cities in 11 states, the
District of Columbia and one Canadian province. Colgan also operated 34 Saab
aircraft under its pro-rate operations with approximately 243 daily departures
to 43 destinations in ten states and the District of Columbia.
These
interim financial statements of the Company have been prepared in accordance
with accounting principles generally accepted in the United States, the
instructions to Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X,
and should be read in conjunction with the Company’s Annual Report on Form 10-K
for the year ended December 31, 2008.
In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments (including normal recurring
adjustments) necessary to present fairly the Company's financial position, the
results of its operations and its cash flows for the periods
indicated. Operating results for the periods presented are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2009.
All
amounts contained in the notes to the condensed consolidated financial
statements are presented in thousands, with the exception of years, per share
amounts and number of aircraft. Certain reclassifications have been
made to conform prior year financial information to the current period
presentation. In addition, certain prior period amounts have been
restated to conform to the provisions of a newly adopted accounting standard
that affected the accounting treatment of the Company’s senior convertible
notes. See Note 4 for further discussion of this
standard.
Effective
June 15, 2009, the Company adopted a new accounting standard related to
subsequent events. This standard established standards for accounting
for and disclosing subsequent events (events that occur after the balance sheet
date, but before financial statements are issued or are available to be
issued). Entities must now disclose the date subsequent events were
evaluated and whether that evaluation took place on the date financial
statements were issued or were available to be issued. The adoption
of this standard did not have a material impact on the Company’s statement of
operations or balance sheet. For the three months ended September 30,
2009, the Company has considered subsequent events through November 3, 2009,
which is the date its condensed consolidated financial statements were filed
with the Securities and Exchange Commission on Form 10-Q.
7
Pinnacle
Airlines Corp.
Notes
to Condensed Consolidated Financial Statements
(all
amounts in thousands, except per share data)
As
discussed in greater detail in Note 4, in 2005, the Company issued $121,000 of
its 3.25% senior convertible notes (“the Notes”). Holders of the
outstanding Notes can require the Company to repurchase the Notes on February
15, 2010 (the “Put Date”) for a cash payment equal to the then outstanding par
amount, plus accrued interest.
Throughout
2009, the Company has undertaken a number of initiatives to increase liquidity
and reduce the amount of Notes outstanding in advance of the Put
Date. During the third quarter of 2009, the Company completed a
$25,000, three-year term loan secured by its pool of spare rotable and
expendable aircraft parts and certain spare engines (the “Spare Parts
Loan”). In addition, the Company reached an agreement to sell its
portfolio of auction rate securities (“ARS”) to the financial institution that
originally sold the ARS portfolio to the Company (the “ARS
Settlement”). After repayment of a related credit facility, the
Company received approximately $27,000 in net cash proceeds from this
transaction.
Throughout
2009, the Company used the proceeds from these transactions and its existing
cash balances to repurchase $90,021 par amount of the outstanding
Notes. Currently, $30,979 par amount of the Notes remains
outstanding.
As of
September 30, 2009, the Company had $81,211 of unrestricted cash and cash
equivalents. In addition, the Company expects to receive a federal
income tax refund of approximately $40,000 during the first half of
2010. Management believes that the Company’s unrestricted cash and
cash equivalents, combined with its expected operating cash flow through
February 2010, will be adequate to repurchase the remaining balance of $30,979
par amount of the Notes if the Note holders exercise their
options. However, the Company is subject to minimum cash balances in
some of its financing agreements, including a required month-end minimum
unrestricted cash balance related to the Spare Parts Loan. The
minimum liquidity amount required in January and February 2010 is
$30,000. In addition, most of the Company’s long-term debt
obligations contain cross-default provisions. The Company may not
meet its minimum unrestricted cash balance requirements after repurchase of the
remaining outstanding Notes in February 2010 until it receives its federal
income tax refund. Management is in discussions with several parties
about the possibility of a short-term credit facility that would be repaid upon
receipt of the Company’s federal income tax refund. If the Company is
not able to complete a short-term credit facility, then it would seek a waiver
of the minimum cash requirement with its lender; however, no assurance can be
given at this time that such a waiver can be obtained.
For
additional information regarding the Company’s liquidity, please refer to
Management’s Discussion and Analysis included in Item 2 of this Form
10-Q.
The
Company’s operating contracts fall under two categories: capacity purchase
agreements and revenue pro-rate agreements. The following is a
summary of the percentage of regional airline services revenue attributable to
each contract type and code-share partner for the three and nine months ended
September 30, 2009.
Three
Months Ended September 30, 2009
|
||||||
Percentage
of Regional Airline Services Revenue
|
||||||
Source
of Revenue
|
Capacity
Purchase
Agreements
|
Pro-Rate
Agreements
|
Total
|
|||
Delta
|
71%
|
-
|
71%
|
|||
Continental
|
9%
|
|
6%
|
15%
|
||
US
Airways
|
-
|
6%
|
6%
|
|||
United
|
-
|
|
6%
|
6%
|
||
Essential
Air Service
|
-
|
2%
|
2%
|
|||
Total
|
80%
|
20%
|
100%
|
8
Pinnacle
Airlines Corp.
Notes
to Condensed Consolidated Financial Statements
(all
amounts in thousands, except per share data)
3. Code-Share
Agreements with Partners (continued)
Nine
Months Ended September 30, 2009
|
||||||
Percentage
of Regional Airline Services Revenue
|
||||||
Source
of Revenue
|
Capacity
Purchase
Agreements
|
Pro-Rate
Agreements
|
Total
|
|||
Delta
|
73%
|
-
|
73%
|
|||
Continental
|
9%
|
6%
|
15%
|
|||
US
Airways
|
-
|
5%
|
5%
|
|||
United
|
-
|
5%
|
5%
|
|||
Essential
Air Service
|
-
|
2%
|
2%
|
|||
Total
|
82%
|
18%
|
100%
|
Recent
Developments
In
January 2009, the Company amended its capacity purchase agreement with
Continental to operate an additional 15 Q400 aircraft, beginning in September
2010. These additional aircraft have scheduled delivery dates from
August 2010 through April 2011.
In June
2009, the Company amended its CRJ-200 airline services agreement with Delta (the
“CRJ-200 ASA”) to increase the size of its CRJ-200 operating fleet by two
aircraft. These two aircraft will not be scheduled for regular
service. Instead, they will be used as spare aircraft to increase the
efficiency of the Company’s CRJ-200 operations. The Company does not
expect this fleet addition to have a material effect on its results of
operations.
Senior Convertible Notes
In
February 2005, the Company completed the private placement of $121,000 principal
amount of 3.25% senior convertible notes due February 15, 2025 (the "Notes"), of
which $30,979 par amount remains outstanding as of September 30,
2009. If certain conditions are met, the Notes are convertible into a
combination of cash and common stock equivalent to the value of 75.6475 shares
of the Company’s common stock per $1 par amount of Notes, or a conversion price
of $13.22 per share.
Beginning
on February 15, 2010 the Company may redeem the Notes for cash, in whole or in
part at any time or from time to time. The Company will give not less
than 30 days’ or more than 60 days’ notice of redemption by mail to holders of
the Notes. If the Company elects to redeem the Notes, it will pay a
redemption price equal to 100% of the principal amount of the Notes to be
redeemed, plus accrued interest to the redemption date. The holders of the Notes
may require the Company to purchase all or a portion of their Notes for cash on
February 15, 2010, February 15, 2015 and February 15, 2020 at a purchase price
equal to 100% of their principal amount plus accrued interest, if
any. As a result, the entire remaining obligation is shown as a
current liability in the Company’s condensed consolidated balance sheet as of
September 30, 2009.
New
Accounting Standard
A new
accounting standard related to convertible debt became effective for and was
adopted by the Company beginning January 1, 2009. This standard
changed the accounting for convertible debt instruments that may be settled in
cash (including partial cash settlement) upon conversion. Issuers
must account separately for the liability and equity components of certain
convertible debt instruments in a manner that reflects the issuer's
nonconvertible debt (unsecured debt) borrowing rate when interest cost is
recognized. In addition, issuers are required to bifurcate the value
of the convertible instrument upon its issuance into the component that
represented debt and the component that represented the imbedded equity
option. The value of the imbedded equity option is reclassified to
additional paid-in capital. The resulting discount on the par amount
of the debt is recognized as interest expense in the Company’s consolidated
statement of operations over the expected term of the debt.
9
Pinnacle
Airlines Corp.
Notes
to Condensed Consolidated Financial Statements
(all
amounts in thousands, except per share data)
4. Borrowings
(continued)
The new
accounting standard requires
retrospective application to the terms of instruments as they existed for all
periods presented. The cumulative effect of the changes in accounting
principle on periods prior to those presented is recognized as of the beginning
of the first period presented with an offsetting adjustment made to the opening
balance of retained earnings for that period. As a result, the
Company recorded a net $12,565 reduction to the January 1, 2008 balance of
retained earnings to apply the provisions of the new standard from the
February 15, 2005 issuance date of the Notes.
The
Company estimated the fair value of the Notes as of the date of
issuance. The difference between the fair value and the principal
amounts of the Notes was $44,046. This amount was retrospectively
applied to the Company’s financial statements from the issuance date, and was
retrospectively recorded as a debt discount and as an increase to additional
paid-in capital, net of tax. The discount is being amortized over the
expected five-year life of the Notes resulting in an increase to interest
expense in historical and future periods. The following
reconciles the Company’s consolidated statements of operations for the three and
nine months ended September 30, 2008 and its condensed consolidated balance
sheet as of December 31, 2008, as originally reported to the restated statements
contained in these financial statements.
Three
Months Ended September 30, 2008
|
||||||||||||
As
Reported
|
Adjustments
|
Restated
|
||||||||||
Operating
income
|
$ | 20,010 | $ | - | $ | 20,010 | ||||||
Nonoperating
(expense) income
|
||||||||||||
Interest
income
|
1,289 | - | 1,289 | |||||||||
Interest
expense
|
(10,253 | ) | (2,505 | ) | (12,758 | ) | ||||||
Miscellaneous
income
|
192 | - | 192 | |||||||||
Total
nonoperating expense
|
(8,772 | ) | (2,505 | ) | (11,277 | ) | ||||||
Income
before income taxes
|
11,238 | (2,505 | ) | 8,733 | ||||||||
Income
tax (expense) benefit
|
(3,521 | ) | 995 | (2,526 | ) | |||||||
Net
income
|
$ | 7,717 | $ | (1,510 | ) | $ | 6,207 | |||||
Basic
and diluted income per share
|
$ | 0.43 | $ | (0.08 | ) | $ | 0.35 |
Nine
Months Ended September 30, 2008
|
||||||||||||
As
Reported
|
Adjustments
|
Restated
|
||||||||||
Operating
income
|
$ | 29,261 | $ | - | $ | 29,261 | ||||||
Nonoperating
(expense) income
|
||||||||||||
Interest
income
|
5,326 | - | 5,326 | |||||||||
Interest
expense
|
(23,915 | ) | (7,279 | ) | (31,194 | ) | ||||||
Net
investment loss
|
(8,675 | ) | - | (8,675 | ) | |||||||
Miscellaneous
income
|
166 | - | 166 | |||||||||
Total
nonoperating expense
|
(27,098 | ) | (7,279 | ) | (34,377 | ) | ||||||
Income
(loss) before income taxes
|
2,163 | (7,279 | ) | (5,116 | ) | |||||||
Income
tax (expense) benefit
|
(3,244 | ) | 2,889 | (355 | ) | |||||||
Net
loss
|
$ | (1,081 | ) | $ | (4,390 | ) | $ | (5,471 | ) | |||
Basic
and diluted loss per share
|
$ | (0.06 | ) | $ | (0.25 | ) | $ | (0.31 | ) |
10
Pinnacle
Airlines Corp.
Notes
to Condensed Consolidated Financial Statements
(all
amounts in thousands, except per share data)
4. Borrowings
(continued)
As
of December 31, 2008
|
||||||||||||
As
Reported
|
Adjustments
|
Restated
|
||||||||||
Current
deferred tax asset
|
$ | 14,338 | $ | (430 | ) | $ | 13,908 | |||||
Total
current assets
|
180,012 | (430 | ) | 179,582 | ||||||||
Net
property and equipment
|
717,970 | 1,961 | 719,931 | |||||||||
Noncurrent
deferred tax asset
|
45,004 | (4,157 | ) | 40,847 | ||||||||
Debt
issuance costs, net
|
6,505 | (2,794 | ) | 3,711 | ||||||||
Total
assets
|
1,133,122 | (5,420 | ) | 1,127,702 | ||||||||
Senior
convertible notes
|
121,000 | (12,563 | ) | 108,437 | ||||||||
Additional
paid-in capital
|
93,812 | 25,798 | 119,610 | |||||||||
Retained
earnings
|
39,878 | (18,655 | ) | 21,223 | ||||||||
Total
liabilities and stockholders’ equity
|
$ | 1,133,122 | $ | (5,420 | ) | $ | 1,127,702 |
In
January 2009, the Company repurchased $12,000 par value of the Notes for $8,870
plus accrued and unpaid interest. The book value of that portion of
the Notes at the time of the repurchase was $10,801. As a result, the
Company recorded a gain on debt extinguishment of $1,931 during the three months
ended March 31, 2009.
In August
2009, the Company repurchased $78,021 par value of the Notes for $75,000 plus
accrued and unpaid interest. The book value of that portion of the
Notes at the time of the repurchase was $74,492. As a result, the
Company recorded a gain on debt extinguishment of $115 and a reduction to
additional paid-in capital of $523, net of tax, during the three months ended
September 30, 2009.
As a
result of the adoption of the new accounting standard, interest expense
increased by $1,898 and $6,952 for the three and nine months ended September 30,
2009. Income before income taxes, net income and EPS decreased by
$1,898, $1,147, and $0.06, respectively, for the three months ended September
30, 2009, and by $6,952, $4,202, and $0.23, respectively, for the nine months
ended September 30, 2009.
The
unamortized discount of the liability component was $1,127 and $12,563 at
September 30, 2009 and December 31, 2008, respectively. This discount
will be amortized through February 15, 2010. The fair value of the
Notes as of September 30, 2009 and December 31, 2008 was $29,623 and $80,465,
respectively.
The
following table provides additional information about the Company’s
Notes:
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||||
2009
|
2008
|
2009
|
2008
|
||||||||||||
Effective
interest rate on liability component
|
13.5 | % | 13.5 | % | 13.5 | % | 13.5 | % | |||||||
Interest
cost recognized as amortization of the discount
of
liability
component
|
$ | 1,841 | $ | 2,466 | $ | 6,708 | $ | 7,162 | |||||||
Cash
interest cost recognized (coupon interest)
|
$ | 662 | $ | 983 | $ | 2,440 | $ | 2,949 |
11
Pinnacle
Airlines Corp.
Notes
to Condensed Consolidated Financial Statements
(all
amounts in thousands, except per share data)
4. Borrowings
(continued)
Credit
Facility
In March
2008, the Company entered into a revolving term loan (the “Credit Facility”)
with a financial institution. The Credit Facility provided for
advances up to $60,000 and was collateralized by the Company’s ARS portfolio.
The Company amended the Credit Facility in June 2008, to increase the eligible
amount for borrowing from $60,000 to $80,000, and again in November 2008 to
increase the eligible amount for borrowing from $80,000 to
$90,000. The agreement allowed up to $80,000 of the proceeds to be
used to support the Company’s aircraft purchases and for general working capital
purposes. The remaining $10,000 was restricted for use to retire
other outstanding debt, which the Company used to repurchase $12,000 par value
of the Notes in January 2009 and to repay a portion of its pre-delivery deposit
financing facility as aircraft delivered in December 2008.
During
the three months ended September 30, 2009, the Company repaid in full the Credit
Facility as a result of the ARS Settlement. See Note 10 for further
discussion.
Line
of Credit
The
Company maintained a revolving line of credit with an institutional lender for a
principal amount not to exceed $8,500 or 75% of the net unpaid balance of
Colgan’s eligible accounts receivable. Amounts outstanding under this
line of credit were $8,275 at December 31, 2008. This instrument had
an interest rate of Prime plus 0.25%, which was 3.50% as of December 31,
2008. The line of credit expired on April 15, 2009, and the
outstanding balance was paid in full.
Long-Term
Notes Payable
As of
September 30, 2009 and December 31, 2008, the Company had long-term notes
payable of $564,963 and $534,857, respectively. Included in long-term
notes payable are borrowings from Export Development Canada (“EDC”) for owned
aircraft. The borrowings are collateralized by the Company’s fleet of
CRJ-900 and Q400 aircraft and bear interest at rates ranging between 3.8% and
6.7% with maturities through the fourth quarter of 2023. Amounts
outstanding under these EDC borrowings were $522,276 and $512,575 at September
30, 2009 and December 31, 2008, respectively.
The fair
value of the Company’s long-term notes payable as of September 30, 2009 and
December 31, 2008 was $477,274 and $435,949, respectively. These
estimates were based on either market prices or the discounted amount of future
cash flows using the Company’s current incremental rate of borrowing for similar
liabilities.
As
discussed in Note 11, one of the Company’s Q400 aircraft was destroyed in an
accident on February 12, 2009. The insurance proceeds were used to
retire the related debt of approximately $15,400 during the three months ended
March 31, 2009.
As
previously discussed, on January 13, 2009, the Company amended its Continental
CPA to operate an additional 15 Q400 aircraft beginning in September
2010. The aircraft have scheduled delivery dates from August 2010
through April 2011. In connection with this amendment, the Company
executed a new pre-delivery payment financing facility with EDC for up to
$35,600 on substantially similar terms to its other pre-delivery payment
facilities. This instrument has an interest rate indexed to LIBOR,
which was 3.43% as of September 30, 2009. Amounts outstanding under
this facility were $4,910 at September 30, 2009, and were classified as
long-term.
12
Pinnacle
Airlines Corp.
Notes
to Condensed Consolidated Financial Statements
(all
amounts in thousands, except per share data)
4. Borrowings
(continued)
Spare
Parts Loan
On July
30, 2009, the Company completed a $25,000, three-year term loan financing with
C.I.T. Leasing and funded by CIT Bank. The Spare Parts Loan is
secured by the Company’s pool of spare repairable, rotable and expendable parts
and certain aircraft engines. The interest rate for the Spare Parts
Loan is a variable rate, which for the first interest period is indexed to LIBOR
(subject to a floor) and was 8.5% as of September 30, 2009. The Spare Parts Loan
requires that the Company maintain a minimum liquidity level at the end of every
month and at specified times preceding the maturity date or call date of certain
other indebtedness. The Spare Parts Loan also has standard provisions relating
to the Company’s obligation to timely repay the indebtedness and maintenance of
the collateral base relative to the outstanding principal amount of the
borrowing. The proceeds of the Spare Parts Loan were used to
repurchase a portion of the Notes during the three months ended September 30,
2009. Amounts outstanding under the Spare Parts Loan were $24,684 as
of September 30, 2009.
As of
September 30, 2009 and December 31, 2008, the Company had no outstanding
interest rate derivatives. The tables below present the effect of the
Company’s derivative financial instruments on the condensed consolidated
statements of operations for the three and nine months ended September 30, 2009
and 2008:
Three
Months Ended
September
30,
|
Amount
of Loss Reclassified
from
OCI into Income
(Effective Portion)
(2)
|
Amount
of Loss Recognized
in
Income on Derivative (Ineffective
Portion
and Amount Excluded from
Effectiveness
Testing)
|
||||||
2009
|
$ | (774 | ) | $ | - | |||
2008
|
$ | (734 | ) | $ | - |
Nine
Months Ended
September
30,
|
Amount
of Loss Reclassified
from
OCI into Income
(Effective Portion)
(2)
|
Amount
of Loss Recognized
in
Income on Derivative (Ineffective
Portion
and Amount Excluded from
Effectiveness
Testing)
|
||||||
2009
|
$ | (2,372 | ) | $ | (1,424 | )(1) | ||
2008
|
$ | (1,518 | ) | $ | - |
(1)
|
This
charge is related to the debt that financed the Q400 aircraft that was
destroyed in an accident during the three months ended March 31,
2009. The associated debt was repaid during the first quarter
of 2009. This loss is included in miscellaneous nonoperating
expense in the Company’s condensed consolidated statement of operations
for the nine months ended September 30, 2009.
|
(2)
|
Derivatives
classified as cash flow hedges include interest rate
swaps. Amounts reclassified from OCI into income are recorded
in interest expense within the Company’s condensed consolidated statements
of operations.
|
The
losses from settled interest rates swaps recorded in other comprehensive income
(“OCI”), net of tax and amortization, within the condensed consolidated balance
sheets were $15,347 and $17,752 as of September 30, 2009 and December 31, 2008,
respectively. Included in the above total net realized losses from
interest rate swaps as of September 30, 2009, are $3,004 in net unrecognized
losses that are expected to be amortized into earnings during the 12 months
following September 30, 2009.
13
Pinnacle
Airlines Corp.
Notes
to Condensed Consolidated Financial Statements
(all
amounts in thousands, except per share data)
The
components of comprehensive income (loss), net of related taxes, for the three
and nine months ended September 30, 2009 and 2008 are as follows:
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||||
2009
|
2008
|
2009
|
2008
|
||||||||||||
(Restated)
|
(Restated)
|
||||||||||||||
Net
income (loss)
|
$ | 11,377 | $ | 6,207 | $ | 36,213 | $ | (5,471 | ) | ||||||
Adjustments:
|
|||||||||||||||
Retired
Pilots’ Insurance Benefit Plan unrealized
actuarial gain
|
(136 | ) | (6 | ) | (149 | ) | (59 | ) | |||||||
Change
in cash flow hedge unrealized loss
|
494 | 230 | 2,405 | (5,591 | ) | ||||||||||
Reversal
of unrealized gain on investments
|
(4,404 | ) | - | - | - | ||||||||||
Total
comprehensive income (loss)
|
$ | 7,331 | $ | 6,431 | $ | 38,469 | $ | (11,121 | ) |
The
following table sets forth the computation of basic and diluted earnings per
share:
Three
Months Ended September
30,
|
Nine
Months Ended September
30,
|
||||||||||||||
2009
|
2008
|
2009
|
2008
|
||||||||||||
(Restated)
|
(Restated)
|
||||||||||||||
Net
income (loss)
|
$ | 11,377 | $ | 6,207 | $ | 36,213 | $ | (5,471 | ) | ||||||
Basic
earnings (loss) per share
|
$ | 0.63 | $ | 0.35 | $ | 2.02 | $ | (0.31 | ) | ||||||
Diluted
earnings (loss) per share
|
$ | 0.62 | $ | 0.35 | $ | 2.01 | $ | (0.31 | ) | ||||||
Share
computation:
|
|||||||||||||||
Weighted
average number of shares outstanding for basic earnings per
share
|
17,970 | 17,867 | 17,968 | 17,864 | |||||||||||
Senior
convertible notes
|
- | - | - | - | |||||||||||
Share-based
compensation (1)
|
234 | 24 | 82 | - | |||||||||||
Weighted
average number of shares outstanding for diluted earnings per
share
|
18,204 | 17,891 | 18,050 | 17,864 |
(1)
|
During
the three months ended September 30, 2009 and 2008 options to acquire
1,094 and 1,119 shares, respectively, were excluded from the computation
of diluted EPS as their impact was anti-dilutive. During the nine months
ended September 30, 2009 and 2008 options to acquire 1,684 and 920 shares,
respectively, were excluded from the computation of diluted EPS as their
impact was anti-dilutive.
|
In
January 2009, the Company granted 626 stock options with an exercise price of
$2.65 per share to members of its Board of Directors, its officers and certain
other employees. These grants will vest ratably over three
years. Total expense to be recognized over the vesting period, net of
expected annual forfeitures of 4%, is $834. The following table presents the
assumptions used and fair value for the 2009 equity grant:
14
Pinnacle
Airlines Corp.
Notes
to Condensed Consolidated Financial Statements
(all
amounts in thousands, except per share data)
8. Share-Based
Compensation (continued)
2009
|
|||
Expected
price volatility
|
58.3%
|
||
Risk-free
interest rate
|
1.4%
|
||
Expected
lives (years)
|
5.0
|
||
Dividend
yield
|
0.0%
|
||
Expected
annual forfeiture rate
|
4.0%
|
||
Exercise
price of option grants
|
$2.65
|
||
Fair
value of option grants
|
$1.33
|
In
January 2009, the Company awarded 278 shares of restricted stock to certain
officers and members of the Board of Directors. Using the
straight-line method, the fair value of $738 is being expensed ratably over the
three-year vesting period. The grant date fair value of these shares
was $2.65 per share, which was the closing stock price on the date of
grant.
During
the three and nine months ended September 30, 2009, the Company recognized $586
and $1,948, respectively, of share-based compensation expense, and $616 and
$1,989, respectively, for the same periods of the prior year.
The
following table provides certain information with respect to the Company’s stock
options:
Stock
Options
|
||||||||||||
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Life
|
Aggregate
Intrinsic
Value
|
|||||||||
Outstanding
at January 1, 2009
|
1,106 | $ | 13.09 | |||||||||
Granted
|
626 | 2.65 | ||||||||||
Exercised
|
- | - | ||||||||||
Expired
|
(8 | ) | 11.70 | |||||||||
Forfeited
|
(11 | ) | 7.11 | |||||||||
Outstanding
at September 30, 2009
|
1,713 | $ | 9.32 |
7.2
years
|
$ | 2,553 | ||||||
Options
exercisable at September 30, 2009
|
857 | $ | 12.58 |
5.5
years
|
$ | 47 |
The
following table provides certain information with respect to the Company’s
restricted stock:
Restricted
Stock
|
|||||||
Shares
|
Fair Value
|
||||||
Unvested
at January 1, 2009
|
197 | $ | 2,599 | ||||
Granted
|
278 | 738 | |||||
Vested
|
(102 | ) | (1,186) | ||||
Forfeited
|
- | - | |||||
Unvested
at September 30, 2009
|
373 | $ | 2,151 |
During
the three months ended March 31, 2009, the Company reached agreement with the
Internal Revenue Service (the “Service”) to resolve certain matters related to
the Service’s examination of the Company’s federal income tax returns for
calendar years 2003, 2004 and 2005. Previously, the Service had proposed a
number of adjustments to the Company’s returns totaling approximately $35,000 of
additional tax, plus accrued interest and penalties on these proposed
adjustments.
15
Pinnacle
Airlines Corp.
Notes
to Condensed Consolidated Financial Statements
(all
amounts in thousands, except per share data)
9.
Income Taxes (continued)
The
Company and the Service agreed for the Company to pay approximately $3,000 of
additional income tax and accrued interest in settlement of all open tax matters
for these years. With this agreement, the Service completed its
examination of the Company’s federal tax filings for 2003, 2004 and
2005. The Company paid the settlement amount during the three months
ended June 30, 2009. As a result of the completion of this
examination, the Company recorded during the three months ended March 31, 2009 a
reduction to income tax expense of $13,551 and a pre-tax reduction to interest
expense of $2,926.
The
following summarizes the significant components of the Company’s income tax
expense for the periods indicated:
Three
Months Ended September 30,
|
||||||||||||||||
2009
|
2008
(Restated)
|
|||||||||||||||
Dollars
|
Percent
|
Dollars
|
Percent
|
|||||||||||||
Income
tax expense at statutory rate
|
$ | (5,746 | ) | (35.0 | )% | $ | (3,057 | ) | (35.0 | )% | ||||||
State
income taxes, net of federal taxes
|
(534 | ) | (3.2 | )% | (789 | ) | (9.0 | )% | ||||||||
Settlements
|
- | - | - | - | ||||||||||||
Tax-exempt
income
|
71 | 0.4 | % | 2,145 | 24.6 | % | ||||||||||
Meals
and entertainment
|
(146 | ) | (0.9 | )% | (733 | ) | (8.4 | )% | ||||||||
Valuation
allowance
|
1,248 | 7.6 | % | - | - | |||||||||||
Other
|
66 | 0.4 | % | (92 | ) | (1.1 | )% | |||||||||
Income
tax expense
|
$ | (5,041 | ) | (30.7 | )% | $ | (2,526 | ) | (28.9 | )% |
Nine
Months Ended September 30,
|
||||||||||||||||
2009
|
2008
(Restated)
|
|||||||||||||||
Dollars
|
Percent
|
Dollars
|
Percent
|
|||||||||||||
Income
tax (expense) benefit at statutory rate
|
$ | (12,087 | ) | (35.0 | )% | $ | 1,791 | (35.0 | )% | |||||||
State
income taxes, net of federal taxes
|
(816 | ) | (2.4 | )% | (484 | ) | 9.5 | % | ||||||||
Settlements
|
13,401 | 38.8 | % | - | - | |||||||||||
Tax-exempt
income
|
290 | 0.9 | % | 3,394 | (66.3 | )% | ||||||||||
Meals
and entertainment
|
(391 | ) | (1.1 | )% | (1,110 | ) | 21.7 | % | ||||||||
Valuation
allowance
|
1,377 | 4.0 | % | (3,036 | ) | 59.3 | % | |||||||||
Other
|
(94 | ) | (0.3 | )% | (910 | ) | 17.7 | % | ||||||||
Income
tax benefit (expense)
|
$ | 1,680 | 4.9 | % | $ | (355 | ) | 6.9 | % |
The
Company provides for interest and penalties accrued related to unrecognized tax
benefits in nonoperating expenses. As of September 30, 2009 and
December 31, 2008, the Company had $317 and $3,692 of accrued interest and
penalties, respectively.
The
following table reconciles the Company’s beginning and ending unrecognized tax
benefits balances:
2009
|
||||
Unrecognized
tax benefits balance at January 1
|
$ | 16,518 | ||
Increases
(decreases) for prior period positions
|
(1,525 | ) | ||
Increases
(decreases) for current period positions
|
- | |||
Settlements
|
(14,446 | ) | ||
Lapses
of statutes
|
- | |||
Unrecognized
tax benefits balance at September 30
|
$ | 547 |
The
amount of unrecognized tax benefits that would affect the Company’s effective
tax rate if recognized was $547 as of September 30,
2009.
16
Pinnacle
Airlines Corp.
Notes
to Condensed Consolidated Financial Statements
(all
amounts in thousands, except per share data)
The
Company invests excess cash balances primarily in short-term money market
instruments. Investments in marketable securities are classified as
available-for-sale and presented at their estimated fair values based on quoted
market prices for those securities.
The
Company’s investment portfolio previously consisted primarily of ARS. As discussed
in Note 2, on August 24, 2009, the Company entered into the ARS Settlement,
whereby a financial institution purchased the ARS from the Company at a discount
to par plus accrued interest, and the Company utilized a portion of the purchase
price of the ARS to repay all amounts outstanding under the Credit
Facility. In addition, the ARS Settlement provides that for a period
of three years from the date of the ARS Settlement, the Company shall have the
right to repurchase all or a portion of the ARS at the same discount to par the
bank paid to the Company under the ARS Settlement (the “ARS Call
Options”). The Company determined the fair value of the ARS Call
Options to be $4,078 at September 30, 2009. They are classified as
investments on the Company’s condensed consolidated balance sheet as of
September 30, 2009.
Fair
Value Measurements
The
Company’s borrowings and investments are required to be measured at fair value
on a recurring basis. Due to events in the credit markets that
predominantly began during the first quarter of 2008, there is no longer an
active trading market for ARS. Therefore, the fair values of the
Company’s ARS were estimated utilizing a discounted cash flow
model. This model considered, among other items, the
collateralization underlying the investments, the creditworthiness of the
counterparty, the timing of expected future cash flows, and an estimate of when
the security is expected to have a successful auction or be called by the
issuer. These securities were also compared, when possible, to other
observable market data with similar characteristics to the securities held by
the Company. As previously discussed, the Company’s balance of ARS as
of September 30, 2009 was $0.
The fair
values of the ARS Call Options were also estimated using a discounted cash flow
model. The model considered potential changes in yields for securities
with similar characteristics to the underlying ARS and evaluated possible future
refinancing opportunities for the issuers of the ARS. The analysis then
assessed the likelihood that the options would be exercisable as a result of the
underlying ARS being redeemed or traded in a secondary market at an amount
greater than the exercise price prior to the end of the option
term. Future changes in the fair values of the ARS Call Options will
be marked to market through the statement of operations.
The
tables below present the Company’s assets and liabilities measured at fair value
as of September 30, 2009, aggregated by the level in the fair value hierarchy
within which those measurements fall.
Level
1
|
Level 2
|
Level 3
|
Balance
at
September
30, 2009
|
|||||||||||
Assets
|
||||||||||||||
Investments
in ARS
|
$ | - | $ | - | $ | - | $ | - | ||||||
ARS
Call Options
|
$ | - | $ | - | $ | 4,078 | $ | 4,078 |
17
Pinnacle
Airlines Corp.
Notes
to Condensed Consolidated Financial Statements
(all
amounts in thousands, except per share data)
10.
Investments and Fair Value Measurements (continued)
The
following table presents the Company’s assets and liabilities measured at fair
value on a recurring basis using significant unobservable inputs (Level
3):
Asset
|
||||||||
Auction
Rate Securities
|
||||||||
Nine
Months Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
Balance
at beginning of period
|
$ | 116,900 | $ | - | ||||
Transfers
to Level 3
|
- | 136,100 | ||||||
Total
unrealized gains (losses)
|
||||||||
Included
in nonoperating expense
|
- | - | ||||||
Included
in other comprehensive income (“OCI”)
|
- | (9,955 | ) | |||||
Realized
gains on redemptions, included in nonoperating expense(1)
|
44 | - | ||||||
Interest
accretion
|
438 | - | ||||||
Redemptions
(2)
|
(2,700 | ) | - | |||||
Balance
at March 31
|
$ | 114,682 | $ | 126,145 | ||||
Transfers
to Level 3
|
- | - | ||||||
Total
unrealized gains (losses)
|
||||||||
Included
in nonoperating expense
|
(966 | ) | (8,675 | ) | ||||
Included
in OCI
|
4,598 | 9,955 | ||||||
Realized
gains on redemptions, included in nonoperating expense(1)
|
632 | - | ||||||
Interest
accretion
|
437 | - | ||||||
Redemptions
(2)
|
(2,950 | ) | - | |||||
Balance
at June 30
|
$ | 116,433 | $ | 127,425 | ||||
Transfers
to Level 3
|
- | - | ||||||
Total
unrealized gains (losses)
|
||||||||
Included
in nonoperating expense
|
155 | - | ||||||
Included
in OCI
|
(4,598 | ) | - | |||||
Interest
accretion
|
130 | - | ||||||
Redemptions
(2)
|
(800 | ) | (500 | ) | ||||
Sales
(3)
|
(111,320 | ) | - | |||||
Balance
at September 30
|
$ | - | $ | 126,925 | ||||
(1) The
Company determines the cost basis for ARS redemptions using the specific
identification method.
|
||||||||
(2) Partial
redemption of securities at par by the issuer.
|
||||||||
(3) Proceeds
received from the sale of the ARS portfolio in connection with the ARS
Settlement.
|
18
Pinnacle
Airlines Corp.
Notes
to Condensed Consolidated Financial Statements
(all
amounts in thousands, except per share data)
10.
Investments and Fair Value Measurements (continued)
Asset
|
||||||
ARS
Call Options
|
||||||
Nine
Months Ended September 30,
|
||||||
2009
|
2008
|
|||||
Balance
at beginning of period
|
$ | - | $ | - | ||
Transfers
to Level 3
|
- | - | ||||
Balance
at March 31
|
$ | - | $ | - | ||
Transfers
to Level 3
|
- | - | ||||
Balance
at June 30
|
$ | - | $ | - | ||
Transfers
to Level 3
|
4,078 | - | ||||
Total
unrealized gains (losses)
|
||||||
Included
in nonoperating income
|
- | - | ||||
Included
in OCI
|
- | - | ||||
Balance
at September 30
|
$ | 4,078 | $ | - |
Effective June 30, 2009, the Company
adopted new accounting guidance that extends the disclosure requirements
regarding fair value of financial instruments to interim financial
statements. The adoption of this standard affects disclosures only
and had no effect on the Company’s statement of operations, balance sheet, or
statement of cash flows. The carrying amounts and estimated fair
values of the Company’s borrowings, which are discussed in detail in Note 4, as
of September 30, 2009 were as follows:
Carrying
Amount
|
Estimated
Fair Value
|
|||||
Senior
convertible notes
|
$ | 29,853 | $ | 29,623 | ||
Pre-delivery
payment financing facilities
|
4,910 | 4,910 | ||||
Long-term
notes payable, primarily related to owned aircraft
|
564,963 | 434,586 |
Employees. The Company
operates under several collective bargaining agreements with groups of its
employees. Pinnacle has been involved in active negotiations with the
Air Line Pilots Association (“ALPA”) since April 2005, when the collective
bargaining agreement between the two parties became amendable. On
August 4, 2009, Pinnacle and ALPA reached a tentative agreement to amend the
collective bargaining agreement. The tentative agreement contained
substantial wage rate increases and a proposed $10,200 signing bonus for
Pinnacle’s pilots. However, on September 24, 2009, Pinnacle’s pilots
voted against ratification of the tentative agreement. The National
Mediation Board will determine when the parties will resume
negotiations.
In late
2008, Colgan’s pilot group elected representation by ALPA. The
Company and ALPA began negotiating an initial collective bargaining agreement to
cover Colgan’s pilot group in September 2009. The Company is not yet
able to estimate the timing or financial impact of a new collective bargaining
agreement.
Guarantees and
Indemnifications. In the Company’s aircraft lease and
financing agreements, including sublease agreements with Delta, the Company
typically indemnifies the primary lessor or lender, financing parties, trustees
acting on their behalf and other related parties against liabilities that arise
from the manufacture, design, ownership, financing, use, operation and
maintenance of the aircraft and for tort liability, whether or not these
liabilities arise out of or relate to the negligence of these indemnified
parties, except for their gross negligence or willful
misconduct.
19
Pinnacle
Airlines Corp.
Notes
to Condensed Consolidated Financial Statements
(all
amounts in thousands, except per share data)
11.
Commitments and Contingencies (continued)
The
Company is party to numerous contracts and real estate leases in which it is
common for it to agree to indemnify third parties for tort liabilities that
arise out of or relate to the subject matter of the contract or occupancy of the
leased premises. In some cases, this indemnity extends to related liabilities
arising from the negligence of the indemnified parties, but usually excludes any
liabilities caused by their gross negligence or willful misconduct.
Additionally, the Company typically indemnifies the lessors and related third
parties for any environmental liability that arises out of or relates to its use
of the leased premises.
The
Company expects that its levels of insurance coverage (subject to deductibles)
would be adequate to cover most tort liabilities and related indemnities
described above with respect to real estate it leases and aircraft it
operates. The Company does not expect the potential amount of future
payments under the foregoing indemnities and agreements to be
material.
Litigation
Contingencies. Colgan is a defendant in litigation related to
the September 11, 2001 terrorist attacks. The Company expects that
any adverse outcome from this litigation will be covered by insurance, and
therefore, will have no material adverse effect on the Company’s financial
statements as a whole.
On
February 12, 2009, Colgan Flight 3407, operated for Continental under the
Company’s Continental CPA, crashed in a neighborhood near the Buffalo Niagara
International Airport in Buffalo, New York. All 49 people aboard, including 45
passengers and four members of the flight crew, died in the accident.
Additionally, one individual died inside the home destroyed by the aircraft’s
impact. Several lawsuits related to this accident have been filed
against the Company, and additional litigation is anticipated. The
Company carries aviation risk liability insurance and believes that this
insurance is sufficient to cover any liability arising from this
accident.
The
Company has recorded a related liability of approximately $300,000 in other
non-current liabilities on its condensed consolidated balance sheet at September
30, 2009 related to potential claims associated with this
accident. This liability is offset in its entirety by a corresponding
long-term receivable, recorded in other assets on the condensed consolidated
balance sheet that the Company expects to receive from insurance carriers as
claims are resolved. These estimates may be revised as additional
information becomes available.
Disputes with Codeshare
Partner. The Company is in discussions with Delta regarding
certain disputed contractual items in its CRJ-200 ASA. Specifically, Delta
has challenged a one-time adjustment to the Company’s block hour, cycle and
fixed payment rates that was to become effective January 1, 2006. The
impact of Delta’s assertion could be a cumulative adjustment of as much as
$11,000 from 2006 through September 30, 2009, and a rate decrease of
approximately $3,000 annually until the next contractually scheduled rate
adjustment on January 1, 2013. The parties have agreed to arbitrate this
dispute, and the Company expects arbitration proceedings to begin
shortly.
In
addition, Delta has asserted that it may materially alter the payments related
to the Company’s ground handling in the majority of the airports where Pinnacle
operates, which would result in a decrease in Pinnacle’s 2009 operating income
of approximately $1,100. This disputed amount could change in future
periods due to potential changes in the mix of cities in which Pinnacle
operates. In August 2009, Delta began to apply
its interpretation of ground handling to the monthly wires that Pinnacle
received, resulting in a net reduction of payments to Pinnacle of approximately
$300 for August and September. In addition, Delta asserted that Pinnacle
owes Delta a retroactive payment related to this ground handling issue of
approximately $4,000. The Company believes Delta’s assertion is
invalid and continues to discuss this dispute with Delta. If the Company
is unable to resolve this dispute through discussions, it may jointly seek
arbitration with Delta.
20
Pinnacle
Airlines Corp.
Notes
to Condensed Consolidated Financial Statements
(all
amounts in thousands, except per share data)
11.
Commitments and Contingencies (continued)
Finally,
Delta has disputed its obligation to fully reimburse Pinnacle for its aviation
insurance premiums. During the second quarter of 2009, Delta requested
that Pinnacle exit the Delta aviation insurance program and independently source
its own aviation insurance. Effective July 1, 2009, Pinnacle obtained its
own independent insurance program at a cost significantly higher than what it
was allocated by Delta under the Delta insurance program. Delta has
asserted that it is not obligated to reimburse the full costs of Pinnacle’s
independent insurance program, despite the fact that the Company believes both
Pinnacle’s CRJ-200 ASA and the CRJ-900 Delta Connection Agreement require full
reimbursement. Delta has not reimbursed Pinnacle for approximately $1,700
related to the three months ended September 30, 2009. The Company believes
Delta’s assertion is without merit, and the Company is reviewing its legal
options to enforce its rights under its operating contracts with
Delta.
Generally
accepted accounting principles require disclosures related to components of a
company for which separate financial information is available to and regularly
evaluated by the company’s chief operating decision maker (“CODM”) when deciding
how to allocate resources and in assessing performance.
The
Company’s two operating segments consist of its two subsidiaries, Pinnacle
Airlines, Inc. (“Pinnacle”) and Colgan Air, Inc.
(“Colgan”). Corporate overhead costs incurred by Pinnacle
Airlines Corp. are allocated to the operating costs of each
subsidiary.
The
following represents the Company’s segment data for the periods
indicated:
Three
Months Ended September 30,
|
Nine
Months Ended September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(restated)
|
(restated)
|
|||||||||||||||
Operating
revenues:
|
||||||||||||||||
Pinnacle
|
$ | 155,253 | $ | 148,142 | $ | 465,177 | $ | 458,244 | ||||||||
Colgan
|
61,955 | 73,650 | 171,116 | 189,043 | ||||||||||||
Consolidated
|
$ | 217,208 | $ | 221,792 | $ | 636,293 | $ | 647,287 | ||||||||
Operating
income (loss):
|
||||||||||||||||
Pinnacle
|
$ | 15,686 | $ | 12,016 | $ | 46,582 | $ | 39,752 | ||||||||
Colgan
|
8,110 | 7,994 | 16,332 | (10,491 | ) | |||||||||||
Consolidated
|
$ | 23,796 | $ | 20,010 | $ | 62,914 | $ | 29,261 |
The
following represents the Company’s segment assets:
September
30, 2009
|
December
31, 2008
|
|||||||
Total
assets:
|
(restated)
|
|||||||
Pinnacle
|
$ | 610,124 | $ | 582,176 | ||||
Colgan
|
680,535 | 388,990 | ||||||
Unallocated
|
(9,388 | ) | 156,536 | |||||
Consolidated
|
$ | 1,281,271 | $ | 1,127,702 |
21
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Certain
statements in this Current Report on Form 10-Q (or otherwise made by or on the
behalf of Pinnacle Airlines Corp.) contain various forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) and the Private Securities Litigation Reform Act of 1995. Such
statements represent management's beliefs and assumptions concerning future
events. When used in this document and in documents incorporated by reference,
forward-looking statements include, without limitation, statements regarding
financial forecasts or projections, our expectations, beliefs, intentions or
future strategies that are signified by the words "expects," "anticipates,"
"intends," "believes" or similar language. These forward-looking statements are
subject to risks, uncertainties and assumptions that could cause our actual
results and the timing of certain events to differ materially from those
expressed in the forward-looking statements. All forward-looking statements
included in this Report are based on information available to us on the date of
this Report. It is routine for our internal projections and expectations to
change as the year or each quarter in the year progress, and therefore it should
be clearly understood that the internal projections, beliefs and assumptions
upon which we base our expectations may change prior to the end of each quarter
or the year. Although these expectations may change, we may not inform you if
they do. Our policy is generally to provide our expectations only once per
quarter, and not to update that information until the next quarter.
Many
important factors, in addition to those discussed in this Report, could cause
our results to differ materially from those expressed in the forward-looking
statements. Some of the potential factors that could affect our results are
described in “Overview and Outlook.” In light of these risks and
uncertainties, and others not described in this Report, the forward-looking
events discussed in this Report might not occur, might occur at a different
time, or might cause effects of a different magnitude or direction than
presently anticipated.
General
The
following management’s discussion and analysis describes the principal factors
affecting the Company’s results of operations, liquidity, capital resources and
contractual cash obligations. This discussion should be read in
conjunction with the accompanying unaudited condensed consolidated financial
statements and our Annual Report on Form 10-K for the year ended December 31,
2008 (“Annual Report”), which include additional information about our business
practices, significant accounting policies, risk factors, and the transactions
that underlie our financial results.
Our
website address is www.pncl.com.
All of our filings with the SEC are available free of charge through our website
as soon as reasonably practicable after we file them with, or furnish them to,
the SEC.
Overview
and Outlook
As with
the second quarter of 2009, our results of operations improved substantially
year-over-year during the third quarter of 2009. Our consolidated
operating income improved by $3.8 million as compared to the third quarter of
2008. As more fully discussed below under “Results of Operations,”
these improvements came about through, among other things, the full
implementation of our new capacity purchase agreements with Delta and
Continental, a significant decrease in the cost of fuel incurred by Colgan, and
the restructuring of Colgan’s pro-rate operations, partially offset by a decline
in unit revenue in Colgan’s pro-rate operations. Our net income in
2009 is also substantially increased as a result of our settlement with the
Internal Revenue Service related to their review of our tax filings for 2003,
2004, and 2005. We recorded a nonrecurring increase in net income of
$13.6 million from this settlement.
22
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
In addition to
improvements in our operating and net income, we have completed a number of
transactions during 2009 to increase our liquidity in advance of the date that
holders of our remaining outstanding 3.25% senior convertible notes (the
“Notes”) may require us to repurchase them. Holders of the Notes have
an option on February 15, 2010 (the “Put Date”) to require us to repurchase the
then outstanding Notes for the par amount plus accrued
interest. Because of this impending obligation in February 2010, we
have focused on increasing our liquidity and reducing the amount of the Notes
outstanding through secondary market repurchases. During the third
quarter of 2009, we completed a $25 million term loan collateralized by our pool
of spare rotable and expendable inventory
and certain spare engines (the “Spare Parts Loan”). In addition, we
entered into a settlement agreement (the “ARS Settlement”) with a financial
institution that sold us our portfolio of auction rate securities
(“ARS”). The ARS Settlement increased our cash balance by
approximately $27 million. As a result of these transactions and positive
operating cash flow of $84.0 million for the first nine months of 2009, we have
substantially increased our liquidity position. We used this increase
in liquidity to repurchase $12 million par amount of the Notes in the first
quarter of 2009 and approximately $78 million par amount of the Notes during the
third quarter of 2009. Approximately $31 million par amount of the
Notes remains outstanding as of September 30, 2009.
In
addition to the initiatives outlined above, we expect to receive a federal
income tax refund in the first half of 2010 totaling approximately $40 million
related to our 2009 federal income tax return. Although we likely
will not receive this refund until after the Put Date on the Notes, receipt of
this refund will further enhance our liquidity position.
As a
result of these accomplishments, we believe we have sufficient resources to
repay the remaining outstanding $31.0 million par amount of Notes on the Put
Date. However, we may not have sufficient liquidity to meet the
month-end minimum unrestricted cash and cash equivalents requirements contained
in some of our financing agreements (primarily the Spare Parts Loan) after the
Put Date until we receive our 2009 federal income tax refund (for additional
information regarding this minimum cash requirement test, please refer to Notes
2 and 4 of our condensed consolidated financial statements, which are contained
in Item 1 of this Form 10-Q). We are in discussions with several
parties about the possibility of a short-term credit facility to bridge the
period between the Put Date and receipt of our 2009 federal income tax
refund. To the extent we are unsuccessful in sourcing a short-term
credit facility or otherwise increasing liquidity to meet our month-end minimum
cash requirements, we will seek a temporary waiver of the requirement from our
lender; however no assurance can be given at this time that such a waiver can be
obtained.
We are in
discussions with Delta regarding certain disputed contractual items in our
CRJ-200 ASA. Specifically, Delta has challenged a one-time adjustment
to our block hour, cycle and fixed payment rates that was to become effective
January 1, 2006. The impact of Delta’s assertion could be a
cumulative adjustment of as much as $11.0 million from 2006 through September
30, 2009, and a rate decrease of approximately $3.0 million annually until the
next contractually scheduled rate adjustment on January 1, 2013. The parties
have agreed to arbitrate this dispute, and we expect arbitration proceedings to
begin shortly.
In
addition, Delta has asserted that it may materially alter the payments related
to Pinnacle’s ground handling in the majority of the airports where Pinnacle
operates, which would result in a decrease of Pinnacle’s
2009 operating income of approximately $1.1 million. This
disputed amount could change in future periods due to potential changes in the
mix of cities in which Pinnacle operates. In August 2009, Delta began
to apply its interpretation of ground handling to the monthly wires that
Pinnacle received, resulting in a net reduction of payments to Pinnacle of
approximately $0.3 million for August and September. In addition,
Delta asserted that Pinnacle owes Delta a retroactive payment of approximately
$4 million related to this ground handling issue. We believe Delta’s
assertions are invalid, and we continue to discuss this dispute with
Delta. If we are unable to resolve this dispute through discussions,
we may jointly seek arbitration with Delta or pursue other legal
options.
Finally,
Delta has disputed its obligation to fully reimburse Pinnacle for its aviation
insurance premiums. During the second quarter of 2009, Delta
requested that Pinnacle exit the Delta aviation insurance program and
independently source its own aviation insurance. Effective July 1,
2009, Pinnacle obtained its own independent insurance program at a cost
significantly higher than what it was allocated by Delta under the Delta
insurance program. Delta has asserted that it is not obligated to
reimburse the full costs of Pinnacle’s independent insurance program, despite
the fact that both Pinnacle’s CRJ-200 ASA and CRJ-900 DCA require full
reimbursement. Delta has not reimbursed Pinnacle for approximately
$1.5 million related to the third quarter of 2009. We expect
insurance premiums in future quarters to be approximately the same
amount. We believe Delta’s assertion is without merit, and we are
reviewing our legal options to enforce our rights under our operating contracts
with Delta.
23
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Our
pro-rate operations, which account for approximately 20% of our consolidated
revenue, are susceptible to changes in passenger demand and fuel price
volatility. We took a number of steps during 2008 to eliminate
unprofitable markets, reduce costs, and increase revenue in our remaining
pro-rate markets. These steps and lower fuel prices have
significantly reduced the operating losses of our pro-rate operations, and in
fact, our pro-rate operations were profitable during the second and third
quarters of 2009. However, the airline industry is experiencing
the effects of the current recessionary environment in the United
States. Industry passenger revenue has declined dramatically during
2009, and our pro-rate operations were negatively affected by this
drop. We cannot predict how severely the recessionary environment
will affect us in the fourth quarter of 2009 and in 2010. Further,
our pro-rate operations are still susceptible to seasonal demand fluctuations,
with passenger demand materially weaker during the fourth and first quarter of
each year as compared to the seasonally high demand we typically experience in
the second and third quarters of each year. Similar to prior years,
we do not expect to earn a significant amount of operating income from our
pro-rate operations during the fourth quarter of 2009 or the first quarter of
2010. Accordingly, similar to prior years, we expect a decline in our
consolidated operating and net income as compared to our recent results in the
second and third quarters of 2009.
We are in
the process of relocating Colgan’s headquarters from Manassas, Virginia to
Memphis, Tennessee. We believe that relocating Colgan’s leadership
team and system operations control center to our headquarters will enhance the
financial and operational performance of Colgan long-term due to a lower cost of
living and the sharing of operational and safety “best practices” between
Pinnacle and Colgan. In addition, we are negotiating with state and
local authorities to obtain certain long-term incentives that will help offset
the cost of relocating Colgan’s headquarters. We expect the cost of
relocation, training and infrastructure associated with this move to be as much
as $3 million, and we incurred approximately $0.4 million of this cost during
the third quarter of 2009. We expect Colgan’s headquarters relocation
to be completed early in the first quarter of 2010.
Pinnacle
has been involved in negotiations with the Air Line Pilots Association (“ALPA”)
since April 2005, when the collective bargaining agreement between the two
parties became amendable. On August 4, 2009, Pinnacle and ALPA
reached a tentative agreement to amend the collective bargaining
agreement. However, Pinnacle’s pilots did not ratify the tentative
agreement. The National Mediation Board now controls the timing of
further negotiations with ALPA, and we do not yet have information as to when
further negotiations will take place. The failed tentative agreement
provided for an increase in compensation for Pinnacle’s pilots to the industry
average, which is consistent with our company-wide philosophy of
industry-average pay and benefits. In addition, the failed tentative
agreement called for a one-time signing bonus of approximately $10.2
million. While we cannot predict what the terms of a new tentative
agreement will contain, we do expect any new tentative agreement to
substantially increase Pinnacle’s salaries, wages and benefits
costs.
Colgan’s
pilots also elected representation by ALPA in late 2008, and we recently began
negotiations with ALPA. It is too early in the negotiation process
for us to predict the timing or impact of a new collective bargaining agreement
with ALPA covering Colgan’s pilots.
Throughout
2009 we have been positioning ourselves for additional profitable growth
opportunities in 2010 and beyond. We recently agreed with Continental
to expand our Continental CPA by acquiring 15 Q400 aircraft from August 2010
through April 2011. We also acquired an additional 15 Q400 options
from the aircraft manufacturer, thereby increasing the total remaining number of
our Q400 options to 30. These options, if exercised, provide for the
delivery of 15 Q400s in 2011 and the remaining 15 in 2013. The Q400
aircraft has become a very competitive product within the regional airline
industry. The purchase price of the Q400 is significantly less than
that of comparably sized regional jets, and the Q400 uses up to 30% less
fuel. As a result, we can offer our airline partners a large,
passenger-friendly regional aircraft with a lower operating cost than that of
similar regional jets.
In
addition to growing Colgan with the Q400 aircraft, we are positioning ourselves
to capitalize on long-term opportunities to increase the number of regional jets
that we operate at Pinnacle. Capacity purchase agreements for over
400 50-seat regional jet aircraft at our competitors are set to expire between
2009 and 2015. While many of these regional jets will likely no
longer operate within the networks of the major U.S. airlines, we believe some
of these contracts will be renewed or offered to other regional airlines and
some will be replaced with larger regional jets. We intend to
actively compete to obtain profitable regional jet flying during this period of
transition within the industry, and we believe our history of strong operating
performance with a competitive cost structure will position us to
succeed. Our capacity purchase contracts do not begin to expire until
December 2017.
24
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Results
of Operations
The following represents our results of
operations, by segment and consolidated, for the three months ended September
30, 2009. A discussion of our results of operations as compared to
the same period in 2008 follows.
Three
Months Ended September 30, 2009
|
||||||||||||
Pinnacle
|
Colgan
|
Consolidated
|
||||||||||
(in
thousands)
|
||||||||||||
Operating
revenues
|
||||||||||||
Regional
airline services
|
$ | 152,704 | $ | 61,774 | $ | 214,478 | ||||||
Other
|
2,549 | 181 | 2,730 | |||||||||
Total
operating revenues
|
155,253 | 61,955 | 217,208 | |||||||||
Operating
expenses
|
||||||||||||
Salaries,
wages and benefits
|
40,651 | 14,751 | 55,402 | |||||||||
Aircraft
rentals
|
29,204 | 889 | 30,093 | |||||||||
Ground
handling services
|
19,007 | 2,957 | 21,964 | |||||||||
Aircraft
maintenance, materials and repairs
|
16,318 | 8,993 | 25,311 | |||||||||
Other
rentals and landing fees
|
12,301 | 5,358 | 17,659 | |||||||||
Aircraft
fuel
|
- | 6,197 | 6,197 | |||||||||
Commissions
and passenger related expense
|
817 | 4,843 | 5,660 | |||||||||
Depreciation
and amortization
|
5,129 | 4,248 | 9,377 | |||||||||
Other
|
16,140 | 5,609 | 21,749 | |||||||||
Total
operating expenses
|
139,567 | 53,845 | 193,412 | |||||||||
Operating
income
|
15,686 | 8,110 | 23,796 | |||||||||
Operating
margin
|
10.1 | % | 13.1 | % | 11.0 | % | ||||||
Nonoperating
income (expense)
|
||||||||||||
Interest
income
|
277 | |||||||||||
Interest
expense
|
(11,989 | ) | ||||||||||
Investment
gain
|
4,233 | |||||||||||
Miscellaneous
income, net
|
101 | |||||||||||
Total
nonoperating expense
|
(7,378 | ) | ||||||||||
Income
before income taxes
|
16,418 | |||||||||||
Income
tax expense
|
(5,041 | ) | ||||||||||
Net
income
|
$ | 11,377 |
25
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Nine
Months Ended September 30, 2009
|
||||||||||||
Pinnacle
|
Colgan
|
Consolidated
|
||||||||||
(in
thousands)
|
||||||||||||
Operating
revenues
|
||||||||||||
Regional
airline services
|
$ | 458,784 | $ | 170,830 | $ | 629,614 | ||||||
Other
|
6,393 | 286 | 6,679 | |||||||||
Total
operating revenues
|
465,177 | 171,116 | 636,293 | |||||||||
Operating
expenses
|
||||||||||||
Salaries,
wages and benefits
|
125,673 | 42,326 | 167,999 | |||||||||
Aircraft
rentals
|
87,564 | 3,115 | 90,679 | |||||||||
Ground
handling services
|
61,568 | 9,054 | 70,622 | |||||||||
Aircraft
maintenance, materials and repairs
|
45,203 | 29,597 | 74,800 | |||||||||
Other
rentals and landing fees
|
38,677 | 15,310 | 53,987 | |||||||||
Aircraft
fuel
|
- | 15,968 | 15,968 | |||||||||
Commissions
and passenger related expense
|
2,876 | 12,838 | 15,714 | |||||||||
Depreciation
and amortization
|
15,011 | 11,729 | 26,740 | |||||||||
Other
|
42,023 | 12,867 | 54,890 | |||||||||
Impairment
and aircraft retirement charges
|
- | 1,980 | 1,980 | |||||||||
Total
operating expenses
|
418,595 | 154,784 | 573,379 | |||||||||
Operating
income
|
46,582 | 16,332 | 62,914 | |||||||||
Operating
margin
|
10.0 | % | 9.5 | % | 9.9 | % | ||||||
Nonoperating
income (expense)
|
||||||||||||
Interest
income
|
1,942 | |||||||||||
Interest
expense
|
(34,712 | ) | ||||||||||
Investment
gain
|
3,944 | |||||||||||
Miscellaneous
income, net
|
445 | |||||||||||
Total
nonoperating expense
|
(28,381 | ) | ||||||||||
Income
before income taxes
|
34,533 | |||||||||||
Income
tax benefit
|
1,680 | |||||||||||
Net
income
|
$ | 36,213 |
26
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
The
following discussion provides an analysis of our results of operations and
reasons for material changes therein for the three months ended September 30,
2009 compared to the same period in 2008. As discussed in Note 4 in
Item 1 of this Form 10-Q, certain prior year amounts have been restated to
comply with the provisions of the newly adopted accounting standard that
affected the accounting for our senior convertible notes.
Consolidated and Segmented
Results of Operations
Consolidated
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||||||||||||||||
2009
|
2008
(Restated)
|
$
Change
|
%
Change
|
2009
|
2008
(Restated)
|
$
Change
|
%
Change
|
||||||||||||||||||||
(in
thousands)
|
|||||||||||||||||||||||||||
Total
operating revenue
|
$ | 217,208 | $ | 221,792 | $ | (4,584 | ) | (2 | )% | $ | 636,293 | $ | 647,287 | $ | (10,994 | ) | (2 | )% | |||||||||
Total
operating expenses
|
193,412 | 201,782 | (8,370 | ) | (4 | )% | 573,379 | 618,026 | (44,647 | ) | (7 | )% | |||||||||||||||
Operating
income
|
23,796 | 20,010 | 3,786 | 19 | % | 62,914 | 29,261 | 33,653 | 115 | % | |||||||||||||||||
Operating
margin
|
11.0 | % | 9.0 | % |
2.0
pts.
|
9.9 | % | 4.5 | % |
5.4
pts.
|
|||||||||||||||||
Total
nonoperating expense
|
(7,378 | ) | (11,277 | ) | 3,899 | (35 | )% | (28,381 | ) | (34,377 | ) | 5,996 | (17 | )% | |||||||||||||
Income
(loss) before income taxes
|
16,418 | 8,733 | 7,685 | 88 | % | 34,533 | (5,116 | ) | 39,649 | (775 | )% | ||||||||||||||||
Income
tax (expense) benefit
|
(5,041 | ) | (2,526 | ) | (2,515 | ) | 100 | % | 1,680 | (355 | ) | 2,035 | (573 | )% | |||||||||||||
Net
income (loss)
|
$ | 11,377 | $ | 6,207 | $ | 5,170 | 83 | % | $ | 36,213 | $ | (5,471 | ) | $ | 41,684 | (762 | )% |
Several
nonrecurring items affected both operating and nonoperating expense for the
three and nine months ended September 30, 2009. During the nine
months ended September 30, 2009, we recorded a net increase to operating expense
related to $2.0 million ($1.3 million net of tax) of return costs associated
with the retirement of our Beech 1900 aircraft fleet, partially offset by the
$0.8 million ($0.5 million net of tax) excess of insurance proceeds received
over the cost basis of an aircraft that was destroyed. These items
cumulatively reduced operating income by $1.1 million for the nine months ended
September 30, 2009, respectively.
During
the three months ended September 30, 2009, we recorded a nonoperating gain of
$4.2 million ($4.1 million net of tax) related to the sale of our auction rate
securities (“ARS”) portfolio. Our net income for the nine months
ended September 30, 2009 also includes net nonoperating gains of $0.1 million
associated with the repurchase of certain indebtedness in the first quarter of
2009, hedge losses associated with one Q400 aircraft that was destroyed, and
impairment charges incurred in the second quarter of 2009 associated with our
ARS portfolio. Our net income for the nine months ended September 30,
2009 was also increased by $15.4 million related to our settlement with the
Internal Revenue Service on its examination of our federal tax returns for the
tax years 2003 through 2005.
During
the three and nine months ended September 30, 2008, we recorded charges of $1.1
million ($0.7 million net of tax) and $13.7 million ($8.8 million net of tax)
related to the impairment of Colgan’s goodwill and certain charges necessary to
retire several of Colgan’s aircraft associated with its pro-rate
operations. In addition, during the nine months ended September 30,
2008, we recorded an impairment charge of $8.7 million ($8.3 million net of tax)
to write down the value of our portfolio of auction rate securities to fair
value.
27
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
The
following summarizes the nonrecurring items affecting our results for the three
and nine months ended September 30, 2009 and 2008 (in thousands):
Three
Months Ended
September
30, 2009
|
Three
Months Ended
September
30, 2008
|
|||||||||||||
Pre-tax
|
Net
of tax
|
Pre-tax
|
Net
of tax
|
|||||||||||
Impairment
and aircraft retirement charges
|
$ | - | $ | - | $ | 1,069 | $ | 673 | ||||||
Net
investment gain
|
(4,233 | ) | (4,054 | ) | - | - | ||||||||
Total
nonrecurring charges (gains)
|
$ | (4,233 | ) | $ | (4,054 | ) | $ | 1,069 | $ | 673 |
Nine
Months Ended
September
30, 2009
|
Nine
Months Ended
September
30, 2008
|
|||||||||||||
Pre-tax
|
Net
of tax
|
Pre-tax
|
Net
of tax
|
|||||||||||
Impairment
and aircraft retirement charges
|
$ | 1,980 | $ | 1,281 | $ | 13,688 | $ | 8,828 | ||||||
Excess
of property insurance proceeds over cost
basis of aircraft
|
(835 | ) | (540 | ) | - | - | ||||||||
Net
investment (gain) loss
|
(3,944 | ) | (3,777 | ) | 8,675 | 8,309 | ||||||||
Ineffective
portion of hedge
|
1,424 | 921 | - | - | ||||||||||
Reversal
of interest on tax reserves
|
(2,926 | ) | (1,850 | ) | - | - | ||||||||
Gain
on debt extinguishment
|
(1,856 | ) | (1,122 | ) | - | - | ||||||||
IRS
settlement
|
- | (13,551 | ) | - | - | |||||||||
Total
nonrecurring charges (gains)
|
$ | (6,157 | ) | $ | (18,638 | ) | $ | 22,363 | $ | 17,137 |
Operating
Revenues
Operating
revenue of $217.2 million and $636.3 million for the three and nine months ended
September 30, 2009 decreased $4.6 million, or 2%, and $11.0 million, or 2%,
respectively, compared to the same periods in 2008. Changes in our
capacity purchase related operating revenue are primarily caused by changes in
our operating fleet size and aircraft utilization. Changes in our
pro-rate related operating revenue are primarily caused by a reduction in the
scope of our pro-rate operations that we undertook in the fall of 2008, and by
the average load factor, average passenger fare, and average incentive payments
we receive from our partners and under our Essential Air Service
agreements. These changes are discussed in greater detail within our
segmented results of operations.
Operating
Expenses
For the
three and nine months ended September 30, 2009, operating expenses decreased by
$8.4 million and $44.6 million, or 4% and 7%, respectively, as compared to the
same periods in 2008, primarily due to the decrease in fuel expense and gallons
consumed at our Colgan subsidiary, along with the impairment of Colgan’s
goodwill and other intangible assets during the nine months ended September 30,
2008. This change and others are discussed in greater detail within
our segmented results of operations.
Nonoperating
Expense
Net
nonoperating expense of $7.4 million for the three months ended September 30,
2009 decreased by approximately $3.9 million as compared to the same period in
2008. The decrease is primarily related to the $4.2 million
investment gain recorded during the three months ended September 30, 2009
related to the sale of our ARS portfolio to a financial institution in exchange
for cash and options to repurchase the portfolio. In addition,
interest expense decreased by $0.8 million, primarily related to the cumulative
repurchase of $90.0 million par amount of senior convertible notes during
2009. These decreases were offset by a decrease in interest income of
$1.0 million, primarily due to a decrease in interest rates on our ARS
portfolio, as well as the sale of our ARS portfolio in August
2009.
28
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Net
nonoperating expense of $28.4 million for the nine months ended September 30,
2009 decreased by approximately $6.0 million as compared to the same period in
2008. The decrease is primarily related to the $4.2 million
investment gain discussed above, as compared to the $8.7 million ARS impairment
charge recorded in 2008. This was offset by a $3.5 million increase
in interest expense, primarily related to the addition of CRJ-900 and Q400
aircraft to our fleet throughout 2008, offset by the reversal of interest on tax
reserves and the repurchase of the Notes, as discussed above. In
addition, interest income decreased $3.4 million due to the decrease in interest
rates on our ARS portfolio, as well as the sale of our ARS portfolio in August
2009.
Income
Tax Expense
For the
three and nine months ended September 30, 2009, we recorded income tax expense
of $5.0 million and an income tax benefit of $1.7 million,
respectively. As previously discussed, we recently reached settlement
with the IRS regarding our examination for tax years 2003 through 2005. The IRS
had proposed a number of adjustments to our returns totaling approximately $35.0
million of additional tax, plus accrued interest and penalties on these proposed
adjustments. We agreed to pay approximately $3 million of additional
income tax and accrued interest in settlement of all open tax matters for the
years examined. As a result, we recorded a reduction to income tax
expense of $13.6 million during the nine months ended September 30, 2009 to
reduce our accrued income tax reserves pursuant to the settlement.
Pinnacle
Operating Statistics
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
||||||||||||||||
Other
Data:
|
|||||||||||||||||||||
Revenue
passengers (in thousands)
|
2,953 | 2,619 | 13 | % | 8,116 | 7,770 | 4 | % | |||||||||||||
Revenue
passenger miles (“RPMs”) (in thousands)
|
1,203,519 | 1,236,067 | (3 | )% | 3,504,903 | 3,622,776 | (3 | )% | |||||||||||||
Available
seat miles (“ASMs”) (in thousands)
|
1,508,956 | 1,598,929 | (6 | )% | 4,638,257 | 4,715,054 | (2 | )% | |||||||||||||
Passenger
load factor
|
79.8 | % | 77.3 | % |
2.5
pts.
|
75.6 | % | 76.8 | % |
(1.2)
pts.
|
|||||||||||
Operating
revenue per ASM (in cents)
|
10.29 | 9.27 | 11 | % | 10.03 | 9.72 | 3 | % | |||||||||||||
Operating
cost per ASM (in cents)
|
9.25 | 8.51 | 9 | % | 9.02 | 8.88 | 2 | % | |||||||||||||
Operating
revenue per block hour
|
$ | 1,454 | $ | 1,376 | 6 | % | $ | 1,442 | $ | 1,381 | 4 | % | |||||||||
Operating
cost per block hour
|
$ | 1,307 | $ | 1,265 | 3 | % | $ | 1,298 | $ | 1,261 | 3 | % | |||||||||
Block
hours
|
106,802 | 107,632 | (1 | )% | 322,517 | 331,744 | (3 | )% | |||||||||||||
Departures
|
71,002 | 66,779 | 6 | % | 206,458 | 200,568 | 3 | % | |||||||||||||
Average
daily utilization (block hours)
|
8.29 | 8.74 | (5 | )% | 8.36 | 8.91 | (6 | )% | |||||||||||||
Average
stage length (miles)
|
404 | 465 | (13 | )% | 427 | 462 | (8 | )% | |||||||||||||
Number
of operating aircraft (end of period)
|
|||||||||||||||||||||
CRJ-200
|
126 | 124 | 2 | % | |||||||||||||||||
CRJ-900
|
16 | 11 | 45 | % | |||||||||||||||||
Employees
(end of period)
|
3,903 | 4,164 | (6 | )% |
29
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Pinnacle
Operating Revenues
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||||||||||||||||||
2009
|
2008
|
$
Change
|
%
Change
|
2009
|
2008
|
$
Change
|
%
Change
|
||||||||||||||||||||||
(in
thousands)
|
|||||||||||||||||||||||||||||
Operating
Revenues
|
|||||||||||||||||||||||||||||
Regional
airline services
|
|||||||||||||||||||||||||||||
CRJ-200
|
$ | 134,448 | $ | 136,710 | $ | (2,262 | ) | (2 | )% | $ | 407,902 | $ | 429,608 | $ | (21,706 | ) | (5 | )% | |||||||||||
CRJ-900
|
18,256 | 9,933 | 8,323 | 84 | % | 50,882 | 21,906 | 28,976 | 132 | % | |||||||||||||||||||
Other
|
2,549 | 1,499 | 1,050 | 70 | % | 6,393 | 6,730 | (337 | ) | (5 | )% | ||||||||||||||||||
Total
operating revenues
|
$ | 155,253 | $ | 148,142 | $ | 7,111 | 5 | % | $ | 465,177 | $ | 458,244 | $ | 6,933 | 2 | % |
Regional
Airline Services
For the
three months ended September 30, 2009, revenue earned under our CRJ-200 ASA of
$134.4 million decreased by $2.3 million, or 2%, compared to the same period in
2008. For the nine months ended September 30, 2009, revenue earned
under our CRJ-200 ASA of $407.9 million decreased by $21.7 million, or 5%,
compared to the same period in 2008.
Revenue
earned under our CRJ-200 ASA was reduced by the return of 13 CRJ-200 aircraft
during 2008 pursuant to the terms of our CRJ-200 ASA. During the three and
nine months ended September 30, 2009, we operated 2% and 5% fewer average
CRJ-200 aircraft than the same periods in 2008. Compounding the reduction
in our operating fleet size, we experienced declines in aircraft
utilization. As a result of both the reduction in our CRJ-200 fleet size
and the decline in aircraft utilization, volume based revenue decreased by $2.4
million, or 3%, and $18.1 million, or 7%, respectively, during the three and
nine months ended September 30, 2009, as compared to the same periods in
2008.
In
addition, during the three months ended September 30, 2009, we recorded $4.4
million less in departure based revenue as a result of a dispute with Delta over
the amount that we earn for each departure under the CRJ-200
ASA. Delta has asserted that it has the right under the CRJ-200 ASA
to dramatically reduce both the revenue we receive and the cost we pay for
ground handling services in certain cities where Delta or its designee provides
ground handling services to us. During the three months ended
September 30, 2009, Delta began to compensate us according to its interpretation
of the CRJ-200 ASA. As a result, the revenue we received during the
three and nine months ended September 30, 2009, related to certain ground
handling services was reduced by approximately $4.4 million, and our related
ground handling costs were reduced by $4.1 million, with the resulting net
effect of a reduction of operating income of approximately $0.3 million.
While we have disputed Delta’s interpretation of the CRJ-200 ASA, we have only
recorded the amounts received from Delta as revenue until this dispute is
resolved.
Lastly, a
change in other reimbursable expenses caused revenue to increase by $4.0
million, or 8%, during the three months ended September 30, 2009, as compared to
the same period in 2008. Revenue from reimbursable expenses increased
by $2.9 million related to heavy maintenance checks and $2.7 million related to
increased insurance expenses. These increases were offset by a
decrease of $0.9 million related to reduced property taxes, $0.5 million related
to reduced engine maintenance expense, and $0.2 million related to reduced
aircraft rental expense.
Revenue
from reimbursable expenses decreased by $1.4 million during the nine months
ended September 30, 2009, as compared to the same period in
2008. Revenue from reimbursable expenses increased by $3.5 million
related to heavy maintenance checks, $2.5 million related to increased insurance
expenses, $2.1 million related to increased deicing expense, and $0.4 million
related to increased landing fees expense. These increases were
offset by a decrease of $3.7 million related to reduced property taxes, $2.3
million related to reduced engine maintenance expense, and $3.9 million related
to reduced aircraft rental expense.
30
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Revenue
earned under the CRJ-900 DCA was $18.3 million for the three months ended
September 30, 2009, an increase of $8.3 million, or 84%, as compared to the same
period in 2008. Revenue earned under the CRJ-900 DCA was $50.9
million for the nine months ended September 30, 2009, an increase of $29.0
million, or 132%, as compared to the same period in 2008. During the
three and nine months ended September 30, 2009, we operated 67% and 139% more
average CRJ-900 aircraft than the same periods in 2008. As of
September 30, 2009, we operated 16 CRJ-900 aircraft under our DCA, as compared
to the 11 CRJ-900 aircraft we operated under the DCA at September 30,
2008.
Other
Revenue
Other
revenue increased $1.1 million, or 70%, for the three months ended September 30,
2009, as compared to the same period in 2008. This increase is
related to an increase in third party ground handling revenue, as we are
providing these services to an increased number of stations. Other
revenue decreased $0.3 million, or 5%, for the nine months ended September 30,
2009, as compared to the same period in 2008. This decrease was
primarily related to a decline in revenue earned from providing baggage handling
services to Delta at its Memphis hub, offset by the increase in third party
ground handling as described above.
Pinnacle
Operating Expenses
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||||||||||||||||||
2009
|
2008
|
$
Change
|
%
Change
|
2009
|
2008
|
$
Change
|
%
Change
|
||||||||||||||||||||||
(in
thousands)
|
|||||||||||||||||||||||||||||
Operating
expenses
|
|||||||||||||||||||||||||||||
Salaries,
wages and benefits
|
$ | 40,651 | $ | 41,005 | $ | (354 | ) | (1 | )% | $ | 125,673 | $ | 122,994 | $ | 2,679 | 2 | % | ||||||||||||
Aircraft
rentals
|
29,204 | 29,517 | (313 | ) | (1 | )% | 87,564 | 91,674 | (4,110 | ) | (4 | )% | |||||||||||||||||
Ground
handling services
|
19,007 | 18,580 | 427 | 2 | % | 61,568 | 62,579 | (1,011 | ) | (2 | )% | ||||||||||||||||||
Aircraft
maintenance,
materials
and repairs
|
16,318 | 12,040 | 4,278 | 36 | % | 45,203 | 35,675 | 9,528 | 27 | % | |||||||||||||||||||
Other
rentals and landing fees
|
12,301 | 13,436 | (1,135 | ) | (8 | )% | 38,677 | 38,879 | (202 | ) | (1 | )% | |||||||||||||||||
Commissions
and passenger
related
expense
|
817 | 1,397 | (580 | ) | (42 | )% | 2,876 | 4,972 | (2,096 | ) | (42 | )% | |||||||||||||||||
Depreciation
and amortization
|
5,129 | 3,828 | 1,301 | 34 | % | 15,011 | 9,572 | 5,439 | 57 | % | |||||||||||||||||||
Other
|
16,140 | 16,323 | (183 | ) | (1 | )% | 42,023 | 52,147 | (10,124 | ) | (19 | )% | |||||||||||||||||
Total
operating expenses
|
139,567 | 136,126 | 3,441 | 3 | % | 418,595 | 418,492 | 103 | 0 | % | |||||||||||||||||||
Operating
income
|
$ | 15,686 | $ | 12,016 | $ | 3,670 | 31 | % | $ | 46,582 | $ | 39,752 | $ | 6,830 | 17 | % | |||||||||||||
Operating
margin
|
10.1 | % | 8.1 | % |
2.0
pts.
|
10.0 | % | 8.7 | % |
1.3
pts.
|
Salaries,
wages and benefits decreased by $0.4 million, or 1%, for the three months ended
September 30, 2009 as compared to the same period in 2008. This
decrease is primarily related to the 6% decrease in number of
employees. We have reduced the number of ground handling personnel in
a number of stations where we operate as a result of Delta reassigning ground
handling functions to itself or its designee. This reduction in
ground handling staff was partially offset by an increase in wage rates for
other employees. Salaries, wages and benefits increased by $2.7
million, or 2%, for the nine months ended September 30, 2009 as compared to the
same period in 2008. These increases were due to the increase in wage
rates and benefits for existing employees and increases in health care and
insurance costs as compared to the same period in 2008. These increases were
offset by a 6% decrease in the number of employees from the previously discussed
changes in ground handling.
Aircraft
rental expense decreased $0.3 million, or 1%, and $4.1 million, or 4%, during
the three and nine months ended September 30, 2009 as compared to the same
periods in 2008. This decrease relates to decreases of 2% and 5% in
the average number of CRJ-200 aircraft, which are leased from Delta, operated
during 2009 as compared to 2008. As previously discussed, aircraft
rentals are reimbursable expenses under our CRJ-200 ASA, and as a
result of the fewer average number of CRJ-200 aircraft in our fleet, revenue
under our CRJ-200 ASA decreased by $0.3 million and $4.5 million for the three
and nine months ended September 30, 2009.
31
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Ground
handling services increased by $0.4 million during the three months ended
September 30, 2009, as compared to the same period in 2008. Ground
handling services decreased by $1.0 million, or 2%, during the nine months ended
September 30, 2009, as compared to the same period in 2008. Although
these changes are nominal, there were large changes in the mix of reimbursed and
unreimbursed ground handling expense. These changes caused
significant decreases in regional airlines services revenue.
Aircraft
maintenance, materials and repairs expenses increased $4.3 million, or 36%, and
$9.5 million, or 27%, for the three and nine months ended September 30, 2009 as
compared to the same periods in 2008. These increases are
attributable to additional maintenance related to the aging of our CRJ-200 fleet
as the majority of our CRJ-200 aircraft are no longer covered under
warranty. We are also incurring additional maintenance expense on our
CRJ-200 fleet for specific maintenance programs and upgrades recommended by the
manufacturer associated with engine fan blade replacement and adjustments to the
motor controlling deployment of the wing flaps. We expect additional
maintenance costs associated with these programs throughout 2009.
Commissions
and passenger related expense decreased by $0.6 million, or 42%, and by $2.1
million, or 42%, respectively, for the three and nine months ended September 30,
2009 as compared to the same periods in 2008. This is primarily
related to the decrease in the number of airport locations we staff under our
CRJ-200 ASA. As a result, we do not incur the same level of passenger
related expenses, as these are now paid directly by Delta or its designated
ground handler.
Depreciation
and amortization expense increased by $1.3 million and $5.4 million,
respectively, for the three and nine months ended September 30, 2009 as compared
to the same periods in 2008. This is primarily related to
depreciation on our fleet of CRJ-900 aircraft, the majority of which were added
to our fleet in 2008.
Other
expense decreased by $0.2 million, or 1%, for the three months ended September
30, 2009 as compared to the same period in 2008. Effective July 1,
2009, we are no longer participating in Delta’s insurance
program. The rates for our new coverage are significantly higher than
those of our previous coverage, which caused an increase in insurance expense of
$3.2 million. These insurance costs are reimbursed with margin by
Delta. Offsetting this increase is a decrease in other expenses
primarily related to decreases in costs related to crew training and other crew
related expenses. As previously discussed, we are experiencing low
levels of attrition within our flight crews and are not currently hiring or
training new crew members and as a result, flight crew related costs decreased
by $2.0 million for the three months ended September 30, 2009. In
addition, property tax expense decreased by $1.2 million due to a reduced
assessment in the state of Tennessee. Property tax is also reimbursed
with margin by Delta.
Other
expense decreased by $10.1 million, or 19%, for the nine months ended September
30, 2009 as compared to the same period in 2008. This is primarily
related to a decrease of $6.3 million in flight crew related costs and a
decrease of $4.1 million in property tax expense. These decreases are
offset by the aforementioned increase in insurance expense of $3.2
million. The remainder of the decrease is attributable to the fleet
expansion expenses we incurred in 2008 as we were bringing the CRJ-900
operations online, and a decrease in professional services costs related to our
systems integration project in 2008.
32
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Colgan
Operating Statistics
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
||||||||||||||||
Pro-rate
Agreements:
|
|||||||||||||||||||||
Revenue
passengers (in thousands)
|
332 | 356 | (7 | )% | 885 | 1,082 | (18 | )% | |||||||||||||
RPMs
(in thousands)
|
58,486 | 65,192 | (10 | )% | 154,100 | 197,977 | (22 | )% | |||||||||||||
ASMs
(in thousands)
|
122,642 | 146,997 | (17 | )% | 348,434 | 446,643 | (22 | )% | |||||||||||||
Passenger
load factor
|
47.7 | % | 44.3 | % |
3.4
pts.
|
44.2 | % | 44.3 | % |
(0.1)
pts.
|
|||||||||||
Passenger
yield (in cents)
|
73.75 | 82.26 | (10 | )% | 75.16 | 77.76 | (3 | )% | |||||||||||||
Operating
revenue per ASM (in cents)
|
35.17 | 36.48 | (4 | )% | 33.24 | 34.47 | (4 | )% | |||||||||||||
Operating
revenue per block hour
|
$ | 1,786 | $ | 1,804 | (1 | )% | $ | 1,683 | $ | 1,675 | 0 | % | |||||||||
Block
hours
|
24,152 | 29,722 | (19 | )% | 68,836 | 91,888 | (25 | )% | |||||||||||||
Departures
|
21,273 | 25,679 | (17 | )% | 60,911 | 77,147 | (21 | )% | |||||||||||||
Fuel
consumption (in thousands of gallons)
|
2,935 | 3,918 | (25 | )% | 8,340 | 11,535 | (28 | )% | |||||||||||||
Average
price per gallon
|
$ | 2.11 | $ | 3.79 | (44 | )% | $ | 1.91 | $ | 3.61 | (47 | )% | |||||||||
Average
fare
|
$ | 130 | $ | 151 | (14 | )% | $ | 131 | $ | 142 | (8 | )% |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||
2009 | 2008 | Change | 2009 | 2008 | Change | ||||||||||||||||
Capacity
Purchase Agreement:
|
|||||||||||||||||||||
Revenue
passengers (in thousands)
|
427 | 394 | 8 | % | 1,161 | 770 | 51 | % | |||||||||||||
RPMs
(in thousands)
|
122,312 | 109,687 | 12 | % | 325,113 | 214,582 | 52 | % | |||||||||||||
ASMs
(in thousands)
|
169,371 | 175,823 | (4 | )% | 476,134 | 325,365 | 46 | % | |||||||||||||
Passenger
load factor
|
72.2 | % | 62.4 | % |
9.8
pts.
|
68.3 | % | 66.0 | % |
2.3
pts.
|
|||||||||||
Operating
revenue per ASM (in cents)
|
11.00 | 11.36 | (3 | )% | 11.55 | 10.74 | 8 | % | |||||||||||||
Operating
revenue per block hour
|
$ | 1,540 | $ | 1,504 | 2 | % | $ | 1,547 | $ | 1,413 | 9 | % | |||||||||
Block
hours
|
12,103 | 13,282 | (9 | )% | 35,563 | 24,741 | 44 | % | |||||||||||||
Departures
|
8,059 | 8,641 | (7 | )% | 23,193 | 15,927 | 46 | % |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||
2009 | 2008 | Change | 2009 | 2008 | Change | ||||||||||||||||
Total
Colgan:
|
|||||||||||||||||||||
Block
hours
|
36,255 | 43,004 | (16 | )% | 104,399 | 116,629 | (10 | )% | |||||||||||||
Departures
|
29,332 | 34,320 | (15 | )% | 84,104 | 93,074 | (10 | )% | |||||||||||||
ASMs
(in thousands)
|
292,013 | 322,820 | (10 | )% | 824,568 | 772,008 | 7 | % | |||||||||||||
Total
operating cost per ASM (in cents)
|
18.44 | 20.34 | (9 | )% | 18.77 | 25.85 | (27 | )% | |||||||||||||
Total
operating cost per ASM (in cents)
(excluding
impairment and aircraft lease
return
costs)
|
18.44 | 20.01 | (8 | )% | 18.53 | 24.07 | (23 | )% | |||||||||||||
Total
operating cost per block hour
|
$ | 1,485 | $ | 1,527 | (3 | )% | $ | 1,483 | $ | 1,711 | (13 | )% | |||||||||
Total
operating cost per block hour
(excluding
impairment and aircraft lease
return
costs)
|
$ | 1,485 | $ | 1,502 | (1 | )% | $ | 1,464 | $ | 1,593 | (8 | )% | |||||||||
Average
daily utilization (block hours)
|
8.21 | 7.88 | 4 | % | 7.89 | 7.56 | 4 | % | |||||||||||||
Average
stage length (miles)
|
224 | 221 | 1 | % | 221 | 209 | 6 | % | |||||||||||||
Number
of operating aircraft (end of period)
|
|||||||||||||||||||||
Saab
340
|
34 | 37 | (8 | )% | |||||||||||||||||
Beech
1900
|
- | 4 | (100 | )% | |||||||||||||||||
Q400
|
14 | 15 | (7 | ) % | |||||||||||||||||
Employees
|
1,326 | 1,389 | (5 | )% |
33
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Colgan
Operating Revenue
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||||||||||||||||||
2009
|
2008
|
$
Change
|
%
Change
|
2009
|
2008
|
$
Change
|
%
Change
|
||||||||||||||||||||||
(in
thousands)
|
|||||||||||||||||||||||||||||
Operating
Revenues
|
|||||||||||||||||||||||||||||
Regional
airline services
|
|||||||||||||||||||||||||||||
Pro-rate
and EAS
|
$ | 43,135 | $ | 53,628 | $ | (10,493 | ) | (20 | )% | $ | 115,829 | $ | 153,949 | $ | (38,120 | ) | (25 | )% | |||||||||||
Capacity purchase agreement
|
18,639 | 19,971 | (1,332 | ) | (7 | )% | 55,001 | 34,951 | 20,050 | 57 | % | ||||||||||||||||||
Other
|
181 | 51 | 130 | 255 | % | 286 | 143 | 143 | 100 | % | |||||||||||||||||||
Total
operating revenues
|
$ | 61,955 | $ | 73,650 | $ | (11,695 | ) | (16 | )% | $ | 171,116 | $ | 189,043 | $ | (17,927 | ) | (9 | )% |
Total
operating revenue for the three and nine months ended September 30, 2009 of
$62.0 million and $171.1 million decreased by $11.7 million, or 16%, and $17.9
million, or 9%, respectively, from the same periods in 2008. The
primary reason for this decrease is the decrease in our pro-rate operations,
which was offset in the nine months ended September 30, 2009 by an increase in
revenue earned under our Continental CPA.
Revenue
earned under our pro-rate and Essential Air Service (“EAS”) agreements decreased
by $10.5 million, or 20%, and $38.1 million, or 25%, respectively, during the
three and nine months ended September 30, 2009. This decrease is
attributable to decreases in ASMs of 17% and 22%, respectively, as compared to
the same periods in 2008, which resulted from the retirement of seven of our
Saab and Beech aircraft in conjunction with eliminating certain markets within
our pro-rate agreements. As of September 30, 2009, we operated 34
Saab aircraft under pro-rate agreements, as compared to 37 Saab and four Beech
aircraft at September 30, 2008. In addition, during the three and
nine months ended September 30, 2009, we experienced decreases of 4% in revenue
per available seat mile in our remaining markets, which was primarily
attributable to decreases in average fares.
Revenue
under our Continental CPA for the three and nine months ended September 30, 2009
decreased by $1.3 million, or 7%, and increased by $20.1 million, or 57%, due to
changes in our Q400 aircraft fleet. The average number of Q400
aircraft in our fleet during the three and nine months ended September 30, 2009
decreased by 7% and increased by 39%, respectively, as compared to the same
periods in 2008. The Q400 aircraft were added to our fleet primarily
in the first half of 2008. During the three months ended September
30, 2009, we operated one fewer aircraft than the same period in the previous
year. In addition, CPA revenue during the three and nine months ended
September 30, 2008 was negatively affected by performance penalties incurred as
we were introducing the new fleet.
34
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Colgan
Operating Expenses
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||||||||||||||||||
2009
|
2008
|
$
Change
|
%
Change
|
2009
|
2008
|
$
Change
|
%
Change
|
||||||||||||||||||||||
(in
thousands)
|
|||||||||||||||||||||||||||||
Operating
expenses
|
|||||||||||||||||||||||||||||
Salaries,
wages and benefits
|
$ | 14,751 | $ | 15,373 | $ | (622 | ) | (4 | )% | $ | 42,326 | $ | 42,588 | (262 | ) | (1 | )% | ||||||||||||
Aircraft
rentals
|
889 | 1,894 | (1,005 | ) | (53 | )% | 3,115 | 5,765 | (2,650 | ) | (46 | )% | |||||||||||||||||
Ground
handling services
|
2,957 | 3,071 | (114 | ) | (4 | )% | 9,054 | 10,133 | (1,079 | ) | (11 | )% | |||||||||||||||||
Aircraft
maintenance,
materials
and repairs
|
8,993 | 8,572 | 421 | 5 | % | 29,597 | 30,586 | (989 | ) | (3 | )% | ||||||||||||||||||
Other
rentals and landing fees
|
5,358 | 5,933 | (575 | ) | (10 | )% | 15,310 | 13,244 | 2,066 | 16 | % | ||||||||||||||||||
Aircraft
fuel
|
6,197 | 14,831 | (8,634 | ) | (58 | )% | 15,968 | 41,603 | (25,635 | ) | (62 | )% | |||||||||||||||||
Commissions
and passenger
related
expense
|
4,843 | 5,786 | (943 | ) | (16 | )% | 12,838 | 16,466 | (3,628 | ) | (22 | )% | |||||||||||||||||
Depreciation
and amortization
|
4,248 | 3,758 | 490 | 13 | % | 11,729 | 8,994 | 2,735 | 30 | % | |||||||||||||||||||
Other
|
5,609 | 5,369 | 240 | 4 | % | 12,867 | 16,467 | (3,600 | ) | (22 | )% | ||||||||||||||||||
Impairment
of goodwill and
aircraft
lease return costs
|
- | 1,069 | (1,069 | ) | (100 | )% | 1,980 | 13,688 | (11,708 | ) | (86 | )% | |||||||||||||||||
Total
operating expenses
|
53,845 | 65,656 | (11,811 | ) | (18 | )% | 154,784 | 199,534 | (44,750 | ) | (22 | )% | |||||||||||||||||
Operating
income (loss)
|
$ | 8,110 | $ | 7,994 | $ | 116 | 1 | % | $ | 16,332 | $ | (10,491 | ) | 26,823 | (256 | )% | |||||||||||||
Operating
margin
|
13.1 | % | 10.9 | % |
2.2
pts.
|
9.5 | % | (5.5 | )% |
15.0
pts.
|
Salaries,
wages and benefits decreased by $0.6 million, or 4%, and by $0.3 million, or 1%,
during the three and nine months ended September 30, 2009 as compared to the
same periods in 2008. The primary reason for this fluctuation is a 5%
decrease in headcount, primarily due to the elimination of pro-rate markets
previously discussed, offset by wage rate and benefit increases for existing
employees.
Aircraft
rentals decreased by $1.0 million, or 53%, and $2.7 million, or 46%, for the
three and nine months ended September 30, 2009. This decrease is
attributable to the return of eight leased Saab and Beech aircraft.
Ground
handling services decreased by $0.1 million, or 4%, and $1.1 million, or 11%,
during the three and nine months ended September 30, 2009, as compared to the
same periods in 2008. This was primarily attributable to the decrease
in departures in our pro-rate operations. The increase in our Q400
operations had no effect on ground handling services expense, as ground handling
services associated with our Q400 operations are provided by Continental at no
cost under the Continental CPA.
Aircraft
maintenance, materials and repairs expenses increased by $0.4 million, or 5%,
and decreased by $1.0 million, or 3%, respectively, for the three and nine
months ended September 30, 2009 as compared to the same periods in
2008. These increases are primarily related to the fact that during
the three months ended September 30, 2008, we adjusted certain maintenance
related accruals. The offsetting decrease is related to the removal
of seven Saab and Beech aircraft from our pro-rate fleet. These
aircraft were out of warranty and required more maintenance expense than our new
fleet of Q400 aircraft, which are currently covered under warranty.
Other
rentals and landing fees decreased by $0.6 million, or 10%, and increased by
$2.1 million, or 16%, for the three and nine months ended September 30, 2009, as
compared to the same periods in 2008. Landing fees associated with
our pro-rate operations decreased by $2.4 million and $5.4 million,
respectively, related to the overall decrease in our pro-rate
operations. Landing fees associated with the Continental CPA
increased by $1.8 million and $7.6 million, respectively, as a result of changes
in Q400 fleet size, along with the fact that we are now serving markets with
significantly higher landing fee rates, such as Newark/Liberty International
Airport. Most airports in our network have also increased their rates
as a result of an overall reduction in industry-wide capacity.
35
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Aircraft
fuel expense decreased by $8.6 million, or 58%, and $25.6 million, or 62%, for
the three and nine months ended September 30, 2009 as compared to the same
periods in 2008. This decline is primarily related to the decrease in
the average price of fuel. Colgan’s average price paid per gallon
decreased 44% and 47%, respectively, during the three and nine months ended
September 30, 2009, as compared to the same periods in 2008. In
addition, gallons consumed decreased by 25% and 28%, respectively, for the three
and nine months ended September 30, 2009, due to the retirement of several of
our Saab and Beech aircraft in conjunction with the elimination of certain
markets operated under pro-rate agreements. Aircraft fuel associated
with our Q400 operations is provided at no cost under the Continental
CPA.
Commissions
and passenger related expenses decreased by $0.9 million, or 16%, and by $3.6
million, or 22%, for the three and nine months ended September 30, 2009 as
compared to the same periods in the 2008. This is primarily
attributable to the 7% and 18% decreases in passengers carried by our pro-rate
operations.
Depreciation
and amortization expense increased by $0.5 million, or 13%, and $2.7 million, or
30%, for the three and nine months ended September 30, 2009, as compared to the
same periods in 2008. This is primarily related to changes in the
Q400 aircraft fleet size. The Q400 aircraft were added to our fleet
throughout 2008. However, during the three months ended September 30,
2009, we operated one fewer aircraft than the same period in the previous
year. In addition, during the three months ended September 30, 2009,
we recorded expense of $0.5 million to accelerate the amortization of one of our
landing slots at La Guardia airport, which we will vacate in early
2010.
Other
expenses increased by $0.2 million, or 4%, during the three months ended
September 30, 2009, as compared to the same period in 2008. This increase
is primarily related to an increase in insurance expense of $0.5
million. As previously discussed, effective July 1, 2009, we obtained
new insurance coverage with significantly higher rates. The
offsetting decrease is attributable to the fleet expansion expenses we incurred
in 2008 as we were bringing the Q400 operations online. Other
expenses decreased by $3.6 million, or 22%, during the nine months ended
September 30, 2009, as compared to the same period in
2008. This was primarily related to low levels of flight crew
attrition, which reduced levels of training as experienced flight crews are
retained. In contrast, we incurred significant training costs during
the first half of 2008 as we were introducing the Q400 fleet. As a
result, crew related expense decreased $3.2 million during the nine months ended
September 30, 2009, as compared to the same period in 2008. This was
offset by an increase in insurance expense of $0.9 million. The
remaining decrease is attributable to the fleet expansion expenses we incurred
in 2008.
Impairment
and aircraft retirement charges of $2.0 million for the nine months ended
September 30, 2009 related to certain maintenance costs necessary to restore
certain Saab and Beech aircraft to a condition suitable for return to the lessor
or for sale. In the nine months ended September 30, 2008, impairment
and aircraft retirement charges of $13.7 million primarily related to the
impairment of Colgan’s goodwill.
Liquidity
and Capital Resources
We
generate cash primarily by providing regional airline and related services to
our code-share partners and passengers. As of September 30, 2009, we
had cash and cash equivalents of $81.2 million. Net cash provided by
operations was $84.0 million for the nine months ended September 30,
2009. This included a 2008 federal income tax refund of approximately
$33 million that we received on April 1, 2009. We do not anticipate making
federal income tax payments in 2009 and 2010 due to the accelerated depreciation
recognized for tax purposes related to our newly acquired CRJ-900 and Q400
aircraft, and we anticipate a federal tax refund of approximately $40 million in
2010 related to the 2009 tax year.
During
the three months ended September 30, 2009, we entered into a Purchase and
Release Agreement (the “ARS Settlement Agreement”) with the financial
institution that originally sold us the ARS portfolio. Pursuant to
the terms of the ARS Settlement Agreement, the institution purchased our ARS
portfolio at a discount to par plus accrued interest. In addition,
the institution granted us three-year options to repurchase all or a portion of
the ARS from the institution at the same discount to par that the institution
paid to us under the ARS Settlement Agreement (the “ARS Call
Options”. We used the majority of the proceeds to repay the margin
loan facility that the institution had previously provided to us in response to
the failure of the ARS market (the “Credit Facility”). After
repayment of the Credit Facility, we received approximately $27 million from the
ARS Settlement. Our ARS Call Options are valued at $4.1 million at
September 30, 2009.
36
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
On July
30, 2009, we completed a three-year term loan financing for $25 million (the
“Spare Parts Loan”). The Spare Parts Loan is secured by our pool of
spare repairable, rotable and expendable parts and certain aircraft
engines. The interest rate for the Spare Parts Loan is a variable
rate, which is indexed to LIBOR (subject to a floor) and was 8.5% as of
September 30, 2009. The Spare Parts Loan requires that we maintain a minimum
liquidity level at the end of every month and at specified times preceding the
maturity date or call date of certain other indebtedness. The Spare Parts Loan
also has standard provisions relating to our obligation to timely repay the
indebtedness and maintenance of the collateral base relative to the outstanding
principal amount of the borrowing. Amounts outstanding under the
Spare Parts Loan were $24.7 million as of September 30, 2009.
In
February 2005, we issued $121.0 million principal amount of our 3.25% senior
convertible notes due 2025. The Notes bear interest at the rate of
3.25% per year, payable in cash semiannually in arrears on February 15 and
August 15 of each year. The Notes are convertible into a combination
of cash and common stock at a conversion price of approximately
$13.22. The Notes are convertible in any quarter subsequent to a
quarter in which the closing price of our common stock exceeds $15.86 for 20 of
the last 30 trading days. This condition was not met during the third
quarter of 2009, and consequently the Notes are not convertible at this
time. As discussed, holders of the Notes have the right to require us
to repurchase the Notes plus any accrued and unpaid interest on the Put
Date. As a result, the entire remaining carrying amount of the Notes
is classified as a current liability on our condensed consolidated balance sheet
as of September 30, 2009. In January 2009, we repurchased $12.0
million par amount of the Notes for approximately $8.9 million plus accrued
interest and in August 2009, we repurchased $78.0 million par amount for $75.0
million plus accrued interest. The current outstanding par amount of
the Notes is $31.0 million.
As a
result of these transactions in 2009, we believe we have sufficient resources to
repay the remaining outstanding $31.0 million par amount of Notes on the Put
Date. However, we may not have sufficient liquidity to meet the
month-end minimum requirement of unrestricted cash and cash equivalents
contained in our Spare Parts Loan after the Put Date until we receive our 2009
federal income tax refund (for additional information regarding this minimum
cash requirement test, please refer to Notes 2 and 4 of our condensed
consolidated financial statements, contained in Item 1 of this Form
10-Q). We are in discussions with several parties about the
possibility of a short-term credit facility to bridge the period between the Put
Date and receipt of our 2009 federal income tax refund. To the extent we are
unsuccessful in sourcing a short-term credit facility or otherwise increasing
liquidity to meet our month-end minimum cash requirements, we will seek a
temporary waiver of the requirement from our lender.
In
February 2007, we entered into a purchase agreement for up to 25 firm and 20
option Q400 aircraft with Bombardier, Inc. Under the agreement, we
were obligated to purchase a minimum of 15 Q400 regional aircraft, which we
satisfied during 2008. In January 2009, we modified the purchase
agreement to exercise our right to purchase the remaining ten firm Q400 aircraft
and five of the option Q400 aircraft, which will be delivered between August
2010 and April 2011. The contractual obligations table in our 2008
Form 10-K included amounts related to this purchase commitment. We
also secured additional options to acquire 15 Q400 aircraft that would be
delivered in 2013. Upon completion of this amendment, we now have
optional rights to acquire a total of 30 Q400 aircraft, 15 of which would
deliver in 2011 and 15 of which would deliver in 2013.
In April
2007, Delta assigned to us its rights to purchase 16 CRJ-900 aircraft from
Bombardier, Inc. As of September 30, 2009, we had accepted delivery
of all 16 of these aircraft. Under the DCA, Delta has the right to
require us to purchase and operate an additional seven CRJ-900
aircraft.
We are
required to make pre-delivery payments to Bombardier for the 15 firm Q400
aircraft that we have on order, which will be made from January 2009 to October
2010. Approximately 85% of the remaining pre-delivery payments to be
made in 2009 and 2010 will be financed under a pre-delivery payment financing
facility provided by Export Development Canada (“EDC”). The remaining
amount of approximately $5 million will be funded through our internal capital
resources. This unfinanced portion of our pre-delivery payment
requirements is not scheduled to be paid until the second quarter of
2010. The interest rate associated with this pre-delivery payment
facility is indexed to LIBOR, and was 3.43% as of September 30,
2009. The outstanding balance of these borrowings as of September 30,
2009 was $4.9 million. As each aircraft is delivered to us, we repay
the associated borrowings.
37
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Upon delivery of our CRJ-900 and Q400 aircraft, we obtained long-term financing,
ranging from 10 to 15 years, for 85% of the aircraft purchase price, the balance
of which was $522.3 million at September 30, 2009. We have also
obtained a commitment from EDC to finance 85% of the purchase price of the
remaining aircraft on order from the delivery date of each
aircraft. In addition to utilizing EDC’s offer for debt financing, we
expect to seek operating lease financing for some of our remaining Q400
deliveries to reduce the amount of initial capital required to obtain the
aircraft and to potentially more favorably utilize certain income tax
benefits.
We
maintained a revolving line of credit with an institutional lender for a
principal amount not to exceed $8.5 million or 75% of the net unpaid balance of
our Colgan subsidiary’s eligible accounts receivable. This facility
matured on April 15, 2009 and all amounts outstanding were repaid.
We
reached a settlement agreement with the Internal Revenue Service (the “Service”)
concerning their examination of our federal income tax returns for 2003, 2004,
and 2005. The Service had initially proposed a number of adjustments
to the Company’s returns totaling approximately $35 million of additional tax,
plus accrued interest and penalties on these proposed adjustments. We
agreed to pay approximately $3 million of additional income tax and accrued
interest in settlement of all open tax matters for these years. We
paid this settlement amount during the second quarter of 2009. With
this agreement, the Service completed its examination of our federal tax filings
for 2003, 2004 and 2005.
Operating activities. Net
cash provided by operating activities was $84.0 million during the nine months
ended September 30, 2009. This is primarily attributable to the
approximately $33 million tax refund we received in April 2009, and due to
approximately $51 million in cash generated from our operations. Net
cash provided by operating activities was $13.8 million during the nine months
ended September 30, 2008. This was due primarily to the $19.5 million
in hedge related payments made during the first nine months, offset by cash
primarily generated from regional airline service operations of $33.3
million.
Investing activities.
Net cash provided by investing activities for the nine months ended September
30, 2009 was $24.3 million. This was primarily attributable to proceeds
received from certain ARS redemptions by the issuer and from the ARS Settlement
totaling $27.7 million, and insurance proceeds of $3.6 million, offset by $7.0
million in cash purchases of property and equipment.
Net cash
provided by investing activities for the nine months ended September 30, 2008
was $25.5 million. This was primarily attributable to net proceeds
from the sale of ARS of $51.3 million, offset by $25.8 million in cash purchases
of property and equipment, primarily consisting of flight
equipment.
We expect
non-aircraft cash capital expenditures for the remainder of 2009 to be
approximately $2 million. We expect to fund the non-aircraft capital
expenditures with existing cash resources and cash flows generated from our
operations.
Financing activities. Net
cash used in financing activities for the nine months ended September 30, 2009
totaled $96.6 million. This was primarily related to $83.9 million used to
repurchase a portion of the Company’s Notes, $12.9 million repaid on credit
facilities and $24.5 million of principal payments on other debt
obligations. These debt payments were offset by the $24.7 million
proceeds received related to the Spare Parts Loan.
Net cash
used in financing activities for the nine months ended September 30, 2008
totaled $2.3 million. During the nine months of 2008, we received
$91.8 million in debt proceeds, primarily related to the Credit Facility. This
was offset by $74.1 million of principal payments on debt obligations, primarily
related to our pre-delivery payment facilities, and the $20.0 million purchase
of our Series A Preferred Share from Northwest Airlines, Inc. on January 4,
2008.
Deferred tax
asset. We have recorded a deferred tax asset of $5.9
million related to
future tax benefits. This primarily relates to future tax benefits we
will receive for our deferred CRJ-200 ASA revenue. We are recognizing
the deferred CRJ-200 ASA revenue over the 11-year term of the CRJ-200
ASA.
38
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Guarantees and
indemnifications. We maintain certain standby letter of credit
facilities for various vendors. As of September 30, 2009 and December
31, 2008, we had approximately $3.0 million outstanding under these facilities,
which are collateralized by $4.2 million that we have invested in certificates
of deposit or similar instruments. Total amounts invested in
certificates of deposit and other similar instruments were $4.2 million and $5.4
million at September 30, 2009 and December 31, 2008, respectively.
We are
party to numerous contracts and real estate leases in which it is common for us
to agree to indemnify third parties for tort liabilities that arise out of or
relate to the subject matter of the contract or occupancy of the leased
premises. In some cases, this indemnity extends to related liabilities arising
from the negligence of the indemnified parties, but usually excludes any
liabilities caused by their gross negligence or willful misconduct.
Additionally, we typically indemnify the lessors and related third parties for
any environmental liability that arises out of or relates to our leased
premises.
In our
aircraft lease agreements, we typically indemnify the prime lessor, financing
parties, trustees acting on their behalf and other related parties against
liabilities that arise from the manufacture, design, ownership, financing, use,
operation and maintenance of the aircraft and for tort liability, whether or not
these liabilities arise out of or relate to the negligence of these indemnified
parties, except for their gross negligence or willful misconduct.
We expect
that we would be covered by insurance (subject to deductibles) for most tort
liabilities and related indemnities described above with respect to real estate
we lease and aircraft we operate.
We do not
expect the potential amount of future payments under the foregoing indemnities
and agreements to be material.
Off-Balance Sheet
Arrangements. None of our operating lease obligations are
reflected on our consolidated balance sheets. We are responsible for all
maintenance, insurance and other costs associated with these leased assets;
however, the lease agreements do not include a residual value guarantee, fixed
price purchase option or other similar guarantees. We have no other
off-balance sheet arrangements.
39
Because
the majority of our contracts are capacity purchase agreements, our exposure to
market risks such as commodity price risk (e.g., aircraft fuel prices) is
primarily limited to our pro-rate operations, which comprise 19% of our
consolidated revenues. With our 2007 acquisition of Colgan and our
contracts with Delta and Continental that include the purchase of aircraft, we
are exposed to commodity price and interest rate risks as discussed
below.
Commodity
Price Risk
Our
pro-rate operations include exposure to certain market risks primarily related
to aircraft fuel, which recently has been extremely volatile. Aviation
fuel expense is a significant expense for any air carrier, and even marginal
changes in the cost of fuel greatly affect a carrier’s profitability.
Standard industry contracts do not generally provide protection against fuel
price increases, nor do they ensure availability of supply. While our
capacity purchase agreements require that fuel be provided to us at no cost,
thereby reducing our overall exposure to fuel price fluctuations, our pro-rate
code-share agreements with Continental, US Airways, and United expose us to fuel
price risk. Slightly offsetting our fuel risk, our agreement with
Continental provides for an adjustment to the pro-rate revenue we receive from
Continental based on projected changes in fuel prices. For the projected
annualized fuel consumption related to these agreements, each ten percent change
in the price of jet fuel amounts to an approximate $2.5 million change in annual
fuel costs.
Interest
Rate Risk
Aircraft financing. We are
exposed to interest rate risk from the time of entering into purchase
commitments until the delivery of aircraft, at which time we receive permanent,
fixed-rate financing for each aircraft. As of September 30, 2009, we
accepted delivery of all of 16 CRJ-900 aircraft. In January 2009, we entered
into a purchase agreement for 15 firm Q400 aircraft with Bombardier, which will
be delivered between August 2010 and April 2011. Should interest
rates change by 100 basis points before we take delivery, and assuming that we
do not hedge the anticipated debt on the remaining Q400 aircraft, aggregate
interest expense in the first year of financing would change by approximately
$2.0 million.
Investment
income. Our earnings are affected by fluctuations in interest
rates due to the impact those changes have on the amount of interest income we
earn from our investments, which primarily consists taxable money market
securities. We do not purchase or hold any derivative financial
instruments to protect against the effects of changes in interest rates on our
interest income. Based on our current balance of taxable money market
securities, a 100 basis point change in interest rates would result in an
increase or decrease in annual investment income of approximately $0.7
million. See Note 10 in Item 1 of this Form 10-Q for additional
information about ARS.
Senior convertible notes.
While we pay interest on the Notes at a fixed rate of 3.25%, the fair value of
the Notes is sensitive to changes in interest rates and to changes in the market
price of our common stock. Interest rate changes may result in
increases or decreases in the fair value of the Notes due to differences between
market interest rates and rates in effect at the inception of the
obligation. The fair value of the Notes may also increase or decrease
with differences between the current market price of our common stock and the
market price on the original issuance date of the Notes. Unless we
elect to repurchase additional Notes in the open market, changes in their fair
value have no impact on our consolidated financial statements as a whole. The
estimated fair value of the Notes on November 2, 2009 was approximately $30.2
million, based on quoted market prices.
The
Company, under the supervision and participation of its management, including
the Chief Executive Officer and the Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are effective.
Disclosure controls and procedures are controls and procedures that are designed
to ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and
completely and accurately reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms. There has been no
change in our internal control over financial reporting during the three months
ended September 30, 2009 that has materially affected, or is reasonably likely
to materially affect our internal control over financial
reporting.
40
Part
II. Other Information
Pinnacle
and Colgan are defendants in various ordinary and routine lawsuits incidental to
our business. While the outcome of these lawsuits and proceedings cannot be
predicted with certainty, it is the opinion of our management, based on current
information and legal advice, that the ultimate disposition of these suits will
not have a material adverse effect on our financial statements as a
whole.
September 11, 2001
Litigation. Colgan is a defendant in litigation resulting from
the September 11, 2001 terrorist attacks. The Company believes it
will prevail in this litigation; any adverse outcome from this litigation is
expected to be covered by insurance and would therefore have no material adverse
effect on the Company’s financial position, results of operations and cash
flows.
Colgan Flight
3407. On February 12, 2009, Colgan Flight 3407, operated for
Continental under the Company’s Continental CPA, crashed in a neighborhood near
the Buffalo Niagara International Airport in Buffalo, New York. All 49 people
aboard, including 45 passengers and four members of the flight crew, died in the
accident. Additionally, one individual died inside the home destroyed by the
aircraft’s impact, increasing the total fatality count to 50
individuals. Several lawsuits related to this accident have been
filed against the Company, and additional litigation is
anticipated. We carry aviation risk liability insurance and believe
that this insurance is sufficient to cover any liability arising from this
accident.
There are no material changes to the risk factors described under the title
“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008.
None.
None.
None.
None.
41
Certain
portions of the exhibits described below have been omitted. The Company has
filed and requested confidential treatment for non-public information with the
Securities and Exchange Commission.
The
following exhibits are filed as part of this Form 10-Q.
Exhibit
Number Description
3.1
|
Second
Amended and Restated Certificate of Incorporation of Pinnacle Airlines
Corp. (the “Registrant”) (Incorporated by reference to the Registrant’s
Registration Statement Form S-1 (Registration No. 333-83359), as amended
(the “S-1”) initially filed on February 25,
2002)
|
3.2
|
Certificate
of Correction Filed to Correct a Certain Error in the Second Amended and
Restated Certificate of Incorporation of the Registrant (Incorporated by
reference to the S-1)
|
3.3
|
Amended
and Restated Bylaws, dated January 14, 2003, of the Registrant
(Incorporated by reference to the
S-1)
|
4.1
|
Specimen
Stock Certificate (Incorporated by reference to the
S-1)
|
4.2
|
Rights
Agreement between the Registrant and EquiServe Trust Company, N.A., as
Rights Agent (Incorporated by reference to the
S-1)
|
4.3
|
Indenture,
3.25% Senior Convertible Notes due 2025, dated as of February 8, 2005, by
and between the Registrant and Deutsche Bank National Trust
Company (Incorporated by reference to the Registrant’s Current Report on
Form 8-K filed on February 8,
2005)
|
4.4
|
Registration
Rights Agreement made pursuant to the Purchase Agreement dated February 3,
2005, dated as of February 8, 2005, by and among the Registrant, Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Raymond James &
Associates, Inc. (Incorporated by reference to the Registrant’s Current
Report on Form 8-K filed on February 8,
2005)
|
10.1#
|
Loan
Agreement dated as of June 16, 2005 between Pinnacle Airlines, Inc, the
Registrant, and First Tennessee Bank National Association (Incorporated by
reference to the Registrant’s Current Report on Form 8-K filed on June 23,
2005)
|
10.2
|
Sublease
Agreement between Pinnacle Airlines, Inc. and Northwest Airlines, Inc.
(Incorporated by reference to the
S-1)
|
10.2.1
|
Form
of First Amendment to Sublease Agreement between Pinnacle Airlines, Inc.
and Northwest Airlines, Inc. (Incorporated by reference to the
S-1)
|
10.2#
|
Guaranty
Agreement between Pinnacle Airlines, Inc. and First Tennessee Bank
National Association (Incorporated by reference to the Registrant’s
Current Report on Form 8-K filed on June 23,
2005)
|
10.3
|
Engine
Lease Agreement between Pinnacle Airlines, Inc., the Registrant, and
Northwest Airlines, Inc. (Incorporated by reference to the
S-1)
|
10.3.1
|
Form
of First Amendment to Engine Lease Agreement between Pinnacle Airlines,
Inc. and Northwest Airlines, Inc. (Incorporated by reference to the
S-1)
|
10.4#
|
Revolving
Credit Note dated as of June 16, 2005 between Pinnacle Airlines, Inc. and
First Tennessee Bank National Association (Incorporated by reference to
the Registrant’s Current Report on Form 8-K filed on June 23,
2005)
|
10.5#
|
Security
Agreement dated as of June 16, 2005 between Pinnacle Airlines, Inc. and
First Tennessee Bank National Association (Incorporated by reference to
the Registrant’s Current Report on Form 8-K filed on June 23,
2005)
|
10.6#
|
Negative
Pledge Agreement dated as of June 16, 2005 between Pinnacle Airlines, Inc.
and First Tennessee Bank National Association (Incorporated by reference
to the Registrant’s Current Report on Form 8-K filed on June 23,
2005)
|
10.7#
|
Negative
Pledge Agreement dated as of June 16, 2005 between the Registrant and
First Tennessee Bank National Association (Incorporated by reference to
the Registrant’s Current Report on Form 8-K filed on June 23,
2005)
|
10.8†
|
Pinnacle
Airlines Corp. 2003 Stock Incentive Plan (Incorporated by reference to the
S-1)
|
10.9
|
Form
of Incentive Stock Option Agreement for options granted under the Pinnacle
Airlines Corp. 2003 Stock Incentive Plan (Incorporated by reference to the
S-1)
|
10.10†
|
Pinnacle
Airlines, Inc. Annual Management Bonus Plan (Incorporated by reference to
the S-1)
|
42
Exhibit
Number Description
10.11
|
Amended
and Restated Sublease Agreement dated as of January 14, 2003 between
Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (SBN Facilities)
(Incorporated by reference to the
S-1)
|
10.12
|
Sublease
Agreement dated as of August 1, 2002 between Pinnacle Airlines, Inc. and
Northwest Airlines, Inc. (TYS Facilities) (Incorporated by reference to
the S-1)
|
10.13
|
Form
of Amended and Restated Facilities Use Agreement between Pinnacle
Airlines, Inc. and Northwest Airlines, Inc. (DTW Facilities) (Incorporated
by reference to the S-1)
|
10.14
|
Form
of Amended and Restated Facilities Use Agreement between Pinnacle
Airlines, Inc. and Northwest Airlines, Inc. (MEM Facilities) (Incorporated
by reference to the S-1)
|
10.15
|
Form
of Amended and Restated Facilities Use Agreement between Pinnacle
Airlines, Inc. and Northwest Airlines, Inc. (MSP Facilities) (Incorporated
by reference to the S-1)
|
10.16
|
Intentionally
omitted
|
10.17
|
Intentionally
omitted
|
10.18
|
Lease
Guaranty issued by the Registrant to Northwest Airlines, Inc.
(Incorporated by reference to the
S-1)
|
10.19
|
Sublease
Guaranty issued by the Registrant to Northwest Airlines, Inc.
(Incorporated by reference to the
S-1)
|
10.20
|
Airline
Services Agreement dated as of March 1, 2002 among the Registrant,
Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by
reference to the S-1)
|
10.21
|
Airline
Services Agreement dated as of January 14, 2003 among the Registrant,
Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by
reference to the S-1)
|
10.21.1
|
Amendment
No. 1 dated as of September 11, 2003 to the Airline Services Agreement
dated as of January 14, 2003 among the Registrant, Pinnacle Airlines, Inc.
and Northwest Airlines, Inc. (Incorporated by reference to the
S-1)
|
10.21.2
|
Form
of Amendment No. 2 dated as of November 26, 2003 to the Airline Services
Agreement dated as of January 14, 2003 among the Registrant, Pinnacle
Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to
the S-1)
|
10.22
|
Form
of Amended and Restated Ground Handling Agreement between Pinnacle
Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to
the S-1)
|
10.23
|
Form
of Amended and Restated Information Technology Services Agreement between
Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by
reference to the S-1)
|
10.24
|
Form
of Amended and Restated Family Assistance Services Agreement between
Pinnacle Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by
reference to the S-1)
|
10.25
|
Form
of Amended and Restated Manufacturer Benefits Agreement between Pinnacle
Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to
the S-1)
|
10.26
|
Form
of Amended and Restated Preferential Hiring Agreement between Pinnacle
Airlines, Inc. and Northwest Airlines, Inc. (Incorporated by reference to
the S-1)
|
10.27
|
Purchase
Agreement, Senior Convertible Notes due 2025, dated as of February 3,
2005, by and among, the Registrant., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Raymond James & Associates, Inc. (Incorporated
by reference to the Registrant’s Current Report on Form 8-K filed on
February 8, 2005)
|
10.28†
|
Second
Amended and Restated Management Compensation Agreement between Pinnacle
Airlines, Inc. and Philip H. Trenary (Incorporated by reference to the
Registrant’s Current Report on Form 8-K filed on December 16,
2008)
|
10.29†
|
Amended
and Restated Management Compensation Agreement between Pinnacle Airlines,
Inc. and Peter D. Hunt (Incorporated by reference to the Registrant’s
Current Report on Form 8-K filed on December 16,
2008)
|
10.30†
|
Amended
and Restated Management Compensation Agreement between Pinnacle Airlines,
Inc. and Douglas W. Shockey (Incorporated by reference to the Registrant’s
Current Report on Form 8-K filed on December 16,
2008)
|
10.31†
|
Form
of Indemnity Agreement between the Registrant and its directors and
officers (Incorporated by reference to the Registrant’s Current Report on
Form 8-K filed on February 1, 2006)
|
10.32
|
Assignment
of Claim Agreement between Pinnacle Airlines, Inc. and Goldman Sachs
Credit Partners, L.P., dated as of October 5, 2006 (Incorporated by
reference to the Registrant’s Form 10-K filed on March 8,
2007)
|
43
Exhibit
Number Description
10.40
|
Assumption
and Claim Resolution Agreement between Pinnacle Airlines, Inc., the
Registrant, and Northwest Airlines, Inc., dated as of December 20,
2006 (Incorporated by reference to the Registrant’s Current Report on Form
8-K filed on January 3, 2007)
|
10.41
|
Amended
and Restated Airline Services Agreement by and among Pinnacle Airlines,
Inc., the Registrant, and Northwest Airlines, Inc., dated December 15,
2006, effective as of January 1, 2007 (Incorporated by reference to the
Registrant’s Form 10-K filed on March 8,
2007)
|
10.42
|
Amendment
No. 1 dated as of November 21, 2007 to the Amended and Restated Airline
Services Agreement by and among Pinnacle Airlines, Inc., the Registrant,
and Northwest Airlines, Inc., dated December 15,
2006
|
10.43
|
CF34-3B1
Engine Hourly Rate Program Repair and Services Agreement between Northwest
Airlines, Inc. and Standard Aero Ltd., dated as of September 1, 2007
(Incorporated by reference to the Registrant’s Form 10-K/A filed on August
28, 2008)
|
10.50
|
Stock
Purchase Agreement, dated as of January 18, 2007, by and among Colgan Air,
Inc. and the Registrant (Incorporated by reference to the Registrant’s
Current Report on Form 8-K filed on January 24,
2007)
|
10.60
|
Capacity
Purchase Agreement between Continental Airlines, Inc., the Registrant, and
Colgan Air, Inc., dated as of February 2, 2007 (Incorporated by reference
to the Registrant’s Form 10-Q filed on November 2,
2007)
|
10.61
|
Purchase
Agreement between Bombardier Inc. and the Registrant, relating to the
purchase of twenty-five (25) Bombardier Q400 series aircraft, dated as of
February 17, 2007 (Incorporated by reference to the Registrant’s Form 10-K
filed on March 17, 2008)
|
10.62
|
Form
of Loan Agreement, between the Registrant and Export Development Canada,
for the financing of Q400 and CRJ-900 aircraft (Incorporated by reference
to the Registrant’s Form 10-K/A filed on August 28,
2008)
|
10.65
|
Delta
Connection Agreement among Delta Air Lines, Inc., the Registrant, and
Pinnacle Airlines, Inc., dated as of April 27, 2007 (Incorporated by
reference to the Registrant’s Form 10-Q filed on November 2,
2007)
|
10.66
|
Purchase
Agreement between Bombardier Inc. and Pinnacle Airlines, Inc, relating to
the purchase of sixteen (16) Bombardier CRJ-900 series aircraft, dated as
of April 26, 2007 (Incorporated by reference to the Registrant’s Form 10-K
filed on March 17, 2008)
|
10.70
|
Credit
Facility Agreement between Citigroup Global Markets, Inc. and the
Registrant, dated as of March 11, 2008 (Incorporated by reference to the
Registrant’s Form 10-Q filed on May 8,
2008)
|
10.71
|
Amendment
No. 1, dated as of June 18, 2008, to the Credit Facility Agreement between
the Registrant, and Citigroup Global Markets, Inc., dated as of March 11,
2008 (Incorporated by reference to the Registrant’s Current Report on Form
8-K filed on June 20, 2008)
|
10.72
|
Amendment
No. 1, dated as of March 2, 2009, to the Amended and Restated Loan
Agreement between the Registrant and Citigroup Global Markets, Inc., dated
as of November 5, 2008 (Incorporated by reference to the Registrant’s
Current Report on Form 8-K filed on March 5,
2009)
|
10.73
|
Third
Amendment, dated as of January 13, 2009, to the Capacity Purchase
Agreement between Continental Airlines, Inc., the Registrant, and Colgan
Air, Inc., dated as of February 2,
2007
|
10.74
|
Loan
Agreement, dated as of January 30, 2009, between Colgan Air, Inc., and
Export Development Canada
|
10.75
|
Change
Order No. 16, dated as of January 13, 2009, and Change Order No. 18, dated
as of February 6, 2009, to the Purchase Agreement between Bombardier Inc.
and the Registrant, relating to the purchase of Bombardier Q400 series
aircraft, dated as of February 17,
2007
|
10.76
|
United
Express Agreement, dated as of November 1, 2008, between United Air Lines,
Inc. and Colgan Air, Inc.
|
10.77*
|
Credit
Agreement, dates as of July 30, 2009, by and amount Pinnacle Airlines,
Inc. and Colgan Air, Inc., C.I.T. Leasing Corporation, and CIT
Bank.
|
10.78*
|
Purchase
and Release Agreement, dated August 27,
2009
|
10.99.1#
|
Form
of Promissory Note issued by Pinnacle Airlines, Inc. to Northwest
Airlines, Inc. (Incorporated by reference to the
S-1)
|
10.99.2#
|
Form
of Guaranty of Promissory Note issued by Registrant to Northwest Airlines,
Inc. (Incorporated by reference to the
S-1)
|
44
Exhibit
Number Description
10.99.3#
|
Revolving
Credit Facility dated as of January 14, 2003 between Pinnacle Airlines,
Inc. and Northwest Airlines, Inc. (Incorporated by reference to the
S-1)
|
10.99.4#
|
First
Amendment dated as of February 5, 2003 to Revolving Credit Facility dated
as of January 14, 2003 between Pinnacle Airlines, Inc. and Northwest
Airlines, Inc. (Incorporated by reference to the
S-1)
|
10.99.5#
|
Second
Amendment dated as of November 28, 2003 to Revolving Credit Facility dated
as of January 14, 2003 between Pinnacle Airlines, Inc. and Northwest
Airlines, Inc. (Incorporated by reference to the
S-1)
|
10.99.6#
|
Third
Amendment dated as of December 13, 2004 to Revolving Credit Facility dated
as of January 14, 2003 between Pinnacle Airlines, Inc. and Northwest
Airlines, Inc. (Incorporated by reference to the Registrant’s Current
Report on Form 8-K filed on December 16,
2004)
|
10.99.7#
|
Fourth
Amendment dated as of February 8, 2005 to Revolving Credit Facility dated
as of January 14, 2003 between Pinnacle Airlines, Inc. and Northwest
Airlines, Inc. (Incorporated by reference to the Registrant’s Current
Report on Form 8-K filed on February 8,
2005)
|
10.99.8#
|
Guaranty
dated as of January 14, 2003 issued by Registrant to Northwest Airlines,
Inc. (Incorporated by reference to the
S-1)
|
21.1
|
List
of Subsidiaries (Incorporated by reference to the
S-1)
|
23.1 Consent
of Independent Registered Public Accounting Firm
31.1* Certification
of Chief Executive Officer
31.2* Certification
of Chief Financial Officer
32*
Certifications of CEO and CFO
*
|
Filed
herewith (certain portions of certain exhibits have been omitted based
upon a request for confidential
treatment)
|
†
|
Management
contract or compensatory plan or
arrangement
|
#
Cancelled agreement referenced in this Form 10-Q
45
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
PINNACLE
AIRLINES CORP.
|
|
By: |
/s/
Philip H. Trenary
|
|
Philip
H. Trenary
|
Date: November
3, 2009
|
President
and Chief Executive Officer
|
By: | /s/ Peter D. Hunt |
|
Peter
D. Hunt
|
Date: November
3, 2009
|
Vice
President and Chief Financial Officer
|
|
46