Pemco Aviation Group Reports Record Results for 2003 BIRMINGHAM,
Ala., April 19 /PRNewswire-FirstCall/ -- Pemco Aviation Group, Inc.
, a leading provider of aircraft maintenance and modification
services, today reported record sales of $190.4 million in 2003, a
16.9% increase over 2002 sales of $162.9 million. There were double
digit sales increases for both the Government Services and
Commercial Services segments. Net income for 2003 was $10.0 million
($2.47 per share) compared with $8.8 million ($2.24 per share) in
2002, a 13.6% increase. The company also announced that it has
filed its annual report on Form 10-K and amended quarterly reports
on Form 10-Q for the first, second and third quarters of fiscal
year 2003. "Pemco's record results for 2003 were due to strong
performances from both the Government Services and Commercial
Services segments," stated Michael Tennenbaum, Chairman of Pemco
Aviation Group. "Our Government Services segment successfully
re-established Pemco as a major factor in the C-130 Maintenance
market. The Commercial Services segment finished the year with
double digit sales increases. The annualized EBITDA run rate for
our aircraft maintenance and modification segments is currently in
the range of approximately $30 million, and the annualized run rate
for net income is currently in the range of approximately $15.3
million for this business, in each case before unusual costs of
approximately $1.6 million associated with our accounting
restatements. Projected EBITDA and net income for 2004 are expected
to be somewhat less than these current run rates. 2003 EBITDA and
net income from our aircraft maintenance and modification business
were approximately $23 million and $11.3 million, respectively. Our
Manufacturing & Components segment had EBITDA and net income
losses of approximately ($1.8) million and ($1.3) million during
2003, respectively, but is expected to be about break even this
year and profitable next year. If the conditions in our industry
continue to improve through calendar year 2005, earnings are
expected to significantly exceed our current run rate."* Summary of
comparative results for the year ended December 31: (in millions
except per share amounts) 2003 2002 % Change Revenue $190.4 $162.9
16.9% Gross profit 42.3 35.8 18.2% Operating income 16.2 14.3 13.3%
Income before taxes 15.8 14.3 10.5% Net income 10.0 8.8 13.6% Net
income per share 2.47 2.24 10.3% EBITDA* 21.1 19.3 9.3% * 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 release. Record Year-End Results Revenues for 2003 increased
16.9% to a record $190.4 million compared with $162.9 million in
2002. The company delivered 32 PDM aircraft and 2 drop-in aircraft
compared to 35 PDM and 1 drop-in aircraft during 2002. Year-over-
year, the Government Services revenues increased as the company has
realized an increase in sales per PDM aircraft due to an increase
in the amount of work performed on each aircraft delivered. The
Government Services segment also began selling certain material on
the KC-135 program where in prior years this material was furnished
by the government. Commercial Services increased primarily due to
increases in conversion revenues. The Manufacturing and Components
segment sales declined primarily as a result of the early
termination of a government contract for a launch vehicle program.
Gross profit for 2003 rose 18.2% to a record $42.3 million compared
with $35.8 million in 2002. The increase was attributable to
several factors. The KC-135 aircraft delivered during 2003 were on
average more profitable than those delivered during 2002 as a
result of an increase in work and changes in the KC-135 model mix.
The company experienced several delays on KC-135 aircraft during
2002 due to the inability to obtain required parts which resulted
in increased costs during the period. In addition, included in cost
of sales during 2003 is a $0.7 million insurance recovery related
to a fire at the company's Dothan, Alabama facility in January
2002. Income from operations for 2003 rose 13.3% to a record $16.2
million compared with $14.3 million in 2002. Net income increased
13.6% to $10.0 million, or $2.47 per share, in 2003 compared with
$8.8 million, or $2.24 per share, in 2002. The results for 2003
included approximately $1.4 million from contract adjustments, and
2002 included approximately $1.4 million from litigation
settlements. In addition, the 2003 results included a $1.2 million
insurance recovery related to the Dothan plant fire that occurred
in January 2002, which is included in other income ($0.5 million)
and cost of sales ($0.7 million). Fourth Quarter Results Summary of
unaudited comparative results for the fourth quarter ended December
31: (in millions except per share amounts) 2003 2002 % Change
Revenue $63.4 $49.5 28.1% Gross profit 12.0 11.9 0.8% Operating
income 5.1 5.8 (12.1)% Income before taxes 4.9 5.1 (3.9)% Net
income 3.2 3.2 0.0% Net income per share 0.79 0.84 (6.0)% EBITDA
6.6 6.9 (4.3)% Government Services segment sales rose 1.9% to $35.9
million and represented 56.6% of total sales in the fourth quarter
of 2003. "Commercial Services segment revenues more than doubled to
a record $26.6 million and represented 42.0% of fourth quarter 2003
sales compared with $11.9 million (24.0% of sales) in the fourth
quarter of last year. Our record fourth quarter sales in our
Commercial Services segment was due to increased deliveries as we
worked through our backlog," said Ron Aramini, President and Chief
Executive Officer of Pemco Aviation Group. "The quarter also
benefited from timing issues as aircraft were delivered early in
the fourth quarter where much of the work was completed in prior
quarters." Gross profit increased 0.8% to $12.0 million and
represented 18.9% of 2003 fourth quarter sales compared with $11.9
million and 24.0% of sales in the fourth quarter of last year. The
decrease in gross profit percent was primarily due to learning
curve costs experienced on C-130 aircraft. In addition, the lower
margin was due to a change in sales mix related to higher revenues
from the Commercial Services segment, which typically experiences
lower gross profit than the Government Services segment. "Our
Government Services segment is involved in the support of military
transport aircraft and these aircraft continue to play critical
roles in the military's operational readiness," noted Mr. Aramini.
"In 2003, in addition to our continued support of KC-135 programmed
depot maintenance, we built on current Air Force C-130 work and
signed contracts in the third quarter valued at $41.5 million for
C-130 and HC-130 maintenance with the Air Force, Navy and Coast
Guard. We are actively pursuing additional contracts and believe
our technical capabilities will be an important factor in securing
new business." "We are optimistic about expanding our Commercial
Services contracts and are reviewing plans for new hangar space to
increase capacity at our Dothan facility," Mr. Aramini said.
"Several key factors suggest that the growth of the market for
outsourced maintenance and modifications should outpace that of the
air transportation market in general. As commercial airlines
continue to face pressures to reduce operating costs, they are
turning more and more to outsourcing their maintenance. Further,
Low Cost Carriers, which typically outsource all of their heavy
maintenance requirements, continue to gain market share. Finally,
recovery and growth of the air cargo market is favorable for
increasing the amount of maintenance outsourced as well as the
market for cargo conversions. We are working with a number of
commercial carriers on maintenance proposals and are soliciting
additional business for cargo conversions from operators around the
world. We believe that the outlook for the commercial airline
industry is improving and that this should increase the demand for
our services." Restatement Subsequent to the filing of the
company's Quarterly Report on Form 10-Q for the period ended
September 30, 2003, the company identified certain revenue
transactions that did not meet all of the criteria required for
revenue recognition pursuant to the U.S. generally accepted
accounting principles, Statement of Position 81-1 "Accounting for
Performance of Construction-Type and Certain Production-Type
Contracts," and related authoritative guidance. Consequently, as
described in its press release dated March 31, 2004, the company
has restated its first, second and third quarter Reports on Form
10-Q, the impact of which is summarized as follows: First Three
Quarters of Fiscal Year 2003 (in thousands, except per share data)
Quarter Ended 3/31/03 Quarter Ended 6/30/03 As As Net As As Net
Reported Restated Change Reported Restated Change Net Sales $35,669
$35,669 $ -- $48,681 $47,253 ($1,428) Gross Profit 7,442 6,505
(937) 12,251 11,120 (1,131) Net Income 1,273 693 (580) 2,830 2,129
(701) Net Income per Share: Basic $0.32 $0.17 $(0.15) $0.70 $0.53
$(0.17) Diluted $0.29 $0.16 $(0.13) $0.65 $0.49 $(0.16) First Three
Quarters of Fiscal Year 2003 (in thousands, except per share data)
Quarter Ended 9/30/03 As As Net Reported Restated Change Net Sales
$43,946 $44,095 $149 Gross Profit 12,453 12,657 204 Net Income
3,840 3,967 127 Net Income per Share: Basic $0.95 $0.98 $0.03
Diluted $0.88 $0.91 $0.03 For the overall fiscal year 2003, the
restatement had the following effect on net sales, gross profits
and net income: Quarter Quarter Quarter Quarter 2003 Ended Ended
Ended Ended Aggregate 3/31/03 6/30/03 9/30/03 12/31/03 Impact (in
thousands) Increase (Decrease) Net Sales $ $(1,428) $149 $ 150
$(1,129) Increase(Decrease) Gross Profit $(937) $(1,131) $204
$1,636 $ (228) Increase(Decrease) Net Income $(580) $ (701) $127
$1,014 $ (140) In total, the company is reversing approximately
$1.4 million in revenue in the second quarter of 2003. Of this
total amount, approximately $300,000 was recognized prematurely and
approximately $228,000 was improperly recognized. Of the $300,000
recognized prematurely, the company is recognizing approximately
$150,000 during each of the third and fourth quarters of 2003. In
addition, the company is reversing $900,000 of revenue during the
second quarter of 2003 and is reversing a charge to bad debt
expense of equal amount associated with this revenue during the
third quarter of 2003. The company provides for losses on
uncompleted contracts in the period in which its management
determines that the estimated total costs under a contract will
exceed the estimated total contract revenues. The company's
reductions of total estimated contract revenues has affected the
company's calculation of its provision for losses on uncompleted
contracts and is including the effect of these revenue adjustments
in the company's reserve for contract loss calculations, which has
resulted in an increase to cost of sales of approximately $937,000,
$640,000 and $1,141,000, and a corresponding increase to the
reserve for contract losses for the first, second and third
quarters of fiscal year 2003, respectively. The accrual of these
loss provisions during the first, second and third quarters of
fiscal year 2003 has resulted in an adjustment to decrease cost of
sales previously recorded during the second, third and fourth
quarters of fiscal year 2003 by approximately $937,000, $640,000
and $1,141,000, respectively. The company has also made other
adjustments to the quarters in connection with transactions during
2003. In addition to the restatement adjustments described in the
preceding paragraphs, the company recorded additional charges to
cost of sales in the third quarter totaling approximately $344,000
related to warranty expense, bad debt expense, and other contract
loss provisions, all of which were originally charged to cost of
sales during the fourth quarter. The restatement is not expected to
have any impact on the company's financial condition, results of
operations or liquidity for any period prior to 2003. In addition,
Ernst & Young LLP has advised the company of reportable
conditions that together constitute a material weakness in internal
control over financial reporting involving incorrect applications
of generally accepted accounting principles as a result of
personnel in certain areas of the company who did not have a full
understanding of pertinent accounting and financial reporting
principles and as a result of the untimely resolution of errors.
The incorrect applications of accounting principles involve revenue
recognition, estimates to complete certain contracts made in
connection with projecting losses on contracts for recognition in a
current period, the untimely resolution of errors involved
inventory accounting and the reconciliation of intercompany
transactions. The company has taken steps to remediate the material
weakness, including re-evaluating and adding staffing and level of
expertise, increased training of its corporate and accounting staff
to heighten awareness among corporate and accounting personnel of
generally accepted accounting principles, establishing policies and
procedures, including documentation, designed to enhance
coordination and reporting procedures between management and the
company's accounting staff, centralizing review and monitoring of
accounting issues and allocation of senior accounting personnel to
provide additional on-site supervision of accounting functions. In
addition, the company has transferred its corporate vice president
of finance to Pemco World Air Services, Inc., in Dothan to oversee
accounting functions there. The company is also continuing to
review and enhance policies and procedures involving accounting,
information systems and monitoring. *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, Florida 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:
http://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: negative reactions from the company's stockholders,
creditors or customers to the results of the investigation and
restatement or further delay in providing financial information
caused by the investigation and restatement; the impact and result
of any litigation (including private litigation), any action by The
Nasdaq Stock Market, or of any investigation by the Securities and
Exchange Commission (SEC) or any investigation by any other
governmental agency related to the company; the company's ability
to obtain any necessary waivers from its creditors in the event of
a further delay in, or other adverse developments relating to, the
restatement; the company's ability to manage its operations during
and after the financial statement restatement process; the
company's ability to successfully implement internal controls and
procedures that remediate the material weakness resulting in the
restatement, and ensure timely, effective and accurate financial
reporting; changes in economic conditions; the company's ability to
obtain additional contracts and perform under existing contracts;
the outcome of pending and future litigation; potential
environmental and other liabilities; 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, 2003.
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. PEMCO AVIATION GROUP, INC. (In thousands except
per share information) Fourth Quarter Ended December 31, 2003 2002
Sales: Government Services Segment $35,850 $35,177 Commercial
Services Segment 26,613 11,940 Manufacturing and Components Segment
1,743 2,386 Inter-segment Revenue (847) (7) Total Sales 63,359
49,496 Cost of Sales 51,332 37,599 Gross Profit 12,027 11,897
Selling, General and Administrative Expenses 6,895 6,133 Income
from Operations 5,132 5,764 Other expense (income): Interest
expense 236 632 Income Before Income Taxes 4,896 5,132 Provision
For Income Taxes 1,701 1,950 Net Income $3,195 $3,182 Net Income
Per Common Share: Basic $0.79 $0.84 Diluted $0.71 $0.77 EBITDA
Reconciliation* Net Income $3,195 $3,182 Interest 236 632 Taxes
1,701 1,950 Depreciation and Amortization 1,475 1,087 EBITDA $6,607
$6,851 *See note on Use of Non-GAAP Financial Measures. PEMCO
AVIATION GROUP, INC. (In thousands except per share information)
Year Ended December 31, 2003 2002 Sales: Government Services
Segment $126,361 $102,231 Commercial Services Segment 59,128 48,660
Manufacturing and Components Segment 7,776 12,093 Inter-segment
Revenue (2,889) (121) Total Sales 190,376 162,863 Cost of Sales
148,067 127,075 Gross Profit 42,309 35,788 Selling, General and
Administrative Expenses 26,084 21,516 Income from Operations 16,225
14,272 Other expense (income): Proceeds From Insurance Claim (527)
-- Interest expense 909 1,493 Litigation, net -- (1,480) Income
Before Income Taxes 15,843 14,259 Provision For Income Taxes 5,859
5,418 Net Income $9,984 $8,841 Net Income Per Common Share: Basic
$2.47 $2.24 Diluted $2.27 $2.02 EBITDA Reconciliation* Net Income
$9,984 $8,841 Interest 909 1,493 Taxes 5,859 5,418 Depreciation and
Amortization 4,387 3,550 EBITDA $21,139 $19,302 *See note on Use of
Non-GAAP Financial Measures. PEMCO AVIATION GROUP, INC.
Supplemental Information Reconciliation of Net Income to EBITDA by
Business Segments For the Year Ended December 31, 2003 (In
thousands) Aircraft Maintenance Manufacturing and and Total Pemco
Modification Components Aviation Segment Segments Group, Inc. Total
Net Income $11,284 ($1,300) $9,984 Interest 830 79 909 Income Taxes
6,639 (780) 5,859 Depreciation & Amortization 4,167 220 4,387
EBITDA $22,920 ($1,781) $21,139 PEMCO AVIATION GROUP, INC.
Supplemental Information Reconciliation of Net Income Guidance to
EBITDA Guidance Maintenance and Modification Segments For the
Current Run Rate (In thousands) Total Pemco Aviation Group, Inc.
Maintenance and Modification Segments Total Estimated Maintenance
and Modification Segments Net Income $15,300 Interest 950 Income
Taxes 9,400 Depreciation & Amortization 4,350 EBITDA $30,000* *
Our actual EBITDA for the Maintenance and Modification segments for
the last two quarters of 2003 was $14.8 million. DATASOURCE: Pemco
Aviation Group, Inc. CONTACT: John R. Lee, Senior Vice President
& Chief Financial Officer of Pemco Aviation Group, Inc.,
+1-205-510-4051 Web site: http://www.pemcoaviationgroup.com/
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