PAGI Pemco Aviation Grp. (MM)

Pemco Aviation Group, Inc. (NASDAQ: PAGI), a leading provider of aircraft maintenance and modification services, today announced results of its first quarter performance of 2006. The net income from the first three months of 2006 was $0.08 million ($.02 per share) compared with a net income of $1.16 million ($.28 per share) in the first quarter of 2005, a decrease in net income of 93.1%. Revenue for the first quarter of 2006 was $37.64 million compared to $44.05 million in the first quarter of 2005, a decrease of 14.5%. According to Ronald Aramini, Pemco's President and CEO, "Pemco's has returned to profitability after two years of net losses. While revenues decreased 14.5% from the first quarter of 2005, there was an increase of 2.8% from the fourth quarter of 2005. In addition, new sources of revenue from programs started in the last six months have continued to provide revenue growth in the second quarter of 2006 and beyond. Pemco began providing maintenance work on U.S. Navy P-3 Orion maritime patrol and antisubmarine warfare aircraft at our Birmingham, Alabama facility in November 2005. The first P-3 aircraft was delivered during the first week of April 2006, 16 days ahead of schedule. At our Dothan, Alabama facility, we are close to completing the first-ever conversion of B737-400 aircraft from passenger to freighter for Alaska Airlines. The first Alaska conversion will deliver in the second quarter of 2006. The agreement with Alaska Airlines calls for the conversion of five B737-400s with options for two additional conversions. Work on the second Alaska Airlines conversion has already begun. During the first quarter of 2006, our CSS segment teamed with Taikoo (Xiamen) Aircraft Engineering Co. Ltd. ("TAECO") in Mainland China to begin work on a passenger to freighter conversion which should deliver later in 2006. We expect to perform additional conversion with TAECO in 2006 with increased deliveries in 2006 and 2007. Finally, in January 2006, the Company began performing maintenance work for Southwest Airlines at its Dothan facility. Southwest is now up to four lines of maintenance at our facility." Mr. Aramini added, "Pemco continues to make progress improving the Company's operational efficiency and focus the business on profitable programs. On May 6, 2006, the Company delivered the first KC-135 aircraft inducted under the fiscal 2006 contract year in 200 days earning an award fee for early delivery. Also, on March 27, 2006, the Company delivered the final U.S. Coast Guard C-130 aircraft with no additional losses in the first quarter of 2006. This program resulted in significant losses for Pemco in 2003, 2004 and 2005. Our continued focus on operational improvements to make existing programs more profitable, revenue growth from new programs, and diversification of our core business should improve revenues and net income throughout 2006. We are excited about the future and the prospects for significant revenue and net income growth in 2006 and beyond." First Quarter 2006 vs. 2005 Results -0- *T Summary of comparative results for the first quarter ended March 31: (Dollars in Millions) 2006 2005 % Change ---------- ---------- ---------- Revenue $ 37.64 $ 44.05 (14.53%) Gross Profit 6.82 8.18 (15.65%) Operating Income 0.79 2.38 (62.18%) Income Before Taxes 0.13 1.94 (87.63%) Net Income 0.08 1.16 (87.10%) EBITDA(a) 1.73 3.30 (44.10%) (a) A description of the Company's use of non-GAAP information is provided below under "Use of Non-GAAP Financial Measures." A reconciliation of net income to EBITDA is provided at the end of this press release. *T Total GSS revenues for 2006 and 2005 were comparable with a slight increase of $0.6 million or 2.6%. The KC-135 Programmed Depot Maintenance ("PDM") program delivered fewer aircraft in 2006 versus 2005 resulting in a $2.0 million decrease in revenue. Offsetting this decrease was the completion and delivery of two C-130 Coast Guard aircraft producing a $2.1 million increase in revenues over the first quarter 2005 revenues for the same program. Non-routine maintenance and repairs of C-130 Air Force aircraft provided $0.6 million in first quarter 2006 revenue for which there was no comparable revenue in the first quarter of 2005. GSS obtained a new contract to service U.S. Navy P3 aircraft. Pursuant to this arrangement, non-routine services for the P3 generated $0.2 million in new revenue. CSS revenue decreased approximately $7.5 million in 2006 as compared to first quarter of 2005. The decrease is attributable to lower passenger-to-cargo conversion revenues in 2006 of $2.9 million and a reduction in maintenance, repair and overhaul ("MRO") revenues of $5.0 million. The decreases were offset by $0.8 million of revenue related to settlement of the H3 Request for Equitable Adjustment ("REA") claim described in Note 9 of the Financial Statements. MCS revenue increased $0.2 million, or 6.5%, from the first quarter of 2005. Pemco Engineer's revenue decreased $0.3 million as shipments of aircraft cargo system parts were lower when compared to the first three months of 2005. Space Vector's revenue increased $0.4 million due to additional work on U.S. government launch vehicle programs and the sales of component parts. Consolidated cost of sales decreased $5.0 million, or 14.0%, to $30.8 million during the first quarter of 2006. As a percentage of sales, cost of sales increased slightly from 81.4% for the first quarter of 2005 to 81.9% for the first quarter of 2006. Cost of sales was negatively impacted by delivery of two Coast Guard aircraft during the first quarter of 2006 for which no profit or loss was recognized due to the provisions for losses being recorded in 2005. Cost of sales for the CSS decreased $7.2 million as a result of decreased revenue. As a percentage of sales, cost of sales was positively impacted by $0.8 million of revenue from the settlement H3 REA for which the related cost of sales was recognized in periods prior to 2005. The gross profit percentage at the MCS decreased from 35.4% of sales in 2005 to 29.0% of sales in 2006. The decrease is primarily related to a 19.9% decrease in revenue at Pemco Engineers resulting in greater absorption of fixed costs as a percent of revenue. The decrease was partially offset by a 19.7% increase in revenue at Space Vector, which resulted in an increase in gross profit of 34.6%. Selling, general and administrative ("SG&A") expense increased $0.2 million, or 0.5%, to $6.0 million for the first quarter 2006. The Company recognized $0.3 million in realized investment gains during the first quarter of 2005 related to the liquidation and reinvestment of assets held in a rabbi trust for its deferred compensation plan. The gain is reflected in the 2005 SG&A, consistent with the classification of compensation expense associated with the deferred compensation plan. In 2006, the Company recorded $0.2 million in stock-based compensation expense. Interest expense was approximately $0.2 million higher in the first quarter of 2006 than the first quarter of 2005 primarily resulting from additional debt. (a)Use of Non-GAAP Financial Measures EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Pemco presents EBITDA because its management uses the measure to evaluate the Company's performance and to allocate resources. In addition, Pemco believes EBITDA is a measure of performance used by some commercial banks, investment banks, investors, analysts and others to make informed investment decisions. EBITDA is an indicator of cash generated to service debt and fund capital expenditures. EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered as a substitute for or superior to other measures of financial performance reported in accordance with GAAP. EBITDA as presented herein may not be comparable to similarly titled measures reported by other companies. See the reconciliation of net income to EBITDA at the end of this release. About Pemco Pemco Aviation Group, Inc., with executive offices in Birmingham, Alabama, and facilities in Alabama and California, performs maintenance and modification of aircraft for the U.S. Government and for foreign and domestic commercial customers. The Company also provides aircraft parts and support and engineering services, in addition to developing and manufacturing aircraft cargo systems, rocket vehicles and control systems, and precision components. For more information: www.pemcoaviationgroup.com. This press release contains forward-looking statements made in reliance on the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may be identified by their use of words, such as "believe," "expect," "intend" and other words and terms of similar meaning, in connection with any discussion of the Company's prospects, financial statements, business, financial condition, revenues, results of operations or liquidity. Factors that could affect the Company's forward-looking statements include, among other things: changes in global or domestic economic conditions; the loss of one or more of the Company's major customers; the Company's ability to obtain additional contracts and perform under existing contracts; the outcome of pending and future litigation and the costs of defending such litigation; financial difficulties experienced by the Company's customers; potential environmental and other liabilities; the inability of the Company to obtain additional financing; material weaknesses in the Company's internal control over financial reporting; regulatory changes that adversely affect the Company's business; loss of key personnel; and other risks detailed from time to time in the Company's SEC reports, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2005. The Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date on which they are made. The Company does not undertake any obligation to update or revise any forward-looking statements and is not responsible for changes made to this release by wire services or Internet services. -0- *T PEMCO AVIATION GROUP, INC. (In thousands except per share information) First Quarter Ended March 31, ---------------------- 2006 2005 ---------- ---------- Sales: Government Services Segment $ 22,030 $ 21,465 Commercial Services Segment 12,054 19,564 Manufacturing and Components Segment 3,783 3,554 Inter-segment Revenue (224) (535) ---------- ---------- Total Sales 37,643 44,048 Cost of Sales 30,828 35,864 ---------- ---------- Gross Profit 6,815 8,184 Selling, General and Administrative Expenses 6,029 5,805 ---------- ---------- Income from Operations 786 2,379 Other Income (Expense): Interest Expense (655) (442) ---------- ---------- Income Before Income Taxes 131 1,937 Income Tax Expense (Benefit) 52 778 ---------- ---------- Net Income $ 79 $ 1,159 ========== ========== Weighted Average Common Shares Outstanding: Basic 4,119 4,105 ========== ========== Diluted 4,237 4,411 ========== ========== Net Income Per Common Share: Basic $ 0.02 $ 0.28 ========== ========== Diluted $ 0.02 $ 0.26 ========== ========== EBITDA Reconciliation(a) ------------------------ Net Income $ 79 $ 1,159 Interest 655 442 Income Taxes 52 778 Depreciation and Amortization 938 906 ---------- ---------- EBITDA $ 1,724 $ 3,285 ========== ========== (a) See note above on Use of Non-GAAP Financial Measures *T