Pinnacle Airlines Corp. expects to report its second quarter 2008 financial results August 11, but gave a preliminary assessment last week saying it expects to report second quarter 2008 fully diluted earnings per share of approximately $0.28 to $0.32.
Factors affecting the quarter include continued significant increases in fuel costs related to the pro-rate, code-share operations of Colgan Air, Inc., offset by increased operating income from Colgan’s new Q400 operations and the new CRJ-900 operations at Pinnacle Airlines, Inc. In addition, Pinnacle incurred lower-than-expected performance-related penalties under its contract with Northwest Airlines for the six months ended June 30, based on improved operating performance during the second quarter.
The company is currently analyzing two special charges. It holds a $136 million par value portfolio of Auction Rate Securities (“ARS”). Earlier in 2008, the auctions to sell ARS at par value began to fail, and a liquid secondary market has not developed. The company estimated the current fair value of these securities to be approximately $127.4 million. Given the uncertainty about if or when these securities will be salable for par value, the company expects to recognize a non-cash other-than-temporary impairment charge of approximately $8.7 million in its second quarter results to reflect its portfolio of ARS at its estimated fair value.
Additionally, the company is evaluating the fair value of certain intangible and tangible assets at Colgan in light of the impact of continued high fuel prices on the entire airline industry. While the results of the company’s valuation work are still preliminary, the company expects to record a non-cash adjustment of approximately $10.6 million related to the reduced value of Colgan’s goodwill and other intangible assets. The company also expects to record a charge of approximately $2.0 million related to return condition costs for Saab and Beech aircraft that it expects to return to lessors within the next six months in connection with its plans to achieve profitability in the pro-rate code-share operations at Colgan.