##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 Form 10-K
 þ
    
    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2005
 or
 o
    
    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 111Memphis, Tennessee
    
    38132(Address of principal executive offices)
    
    (Zip Code)
 901-348-4100  (Registrants telephone number, including area code)
 Title of each class:
    
    Name of each exchange on which registered:Common Stock, $.01 par value
    
    Nasdaq National Market
   Yes o
    
    No þ
  Yes o
    
    No þ
  Yes þ
    
    No o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
  Yes o
    
    No þ
     1




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Documents Incorporated by Reference
  2




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Table of Contents
 PART IItem 1. Business
    
    
    5Our Company
    
    
    5Our Airline Services Agreement with Northwest
    
    
    6Our Employees
    
    
    11Maintenance of Aircraft
    
    
    11Training
    
    
    12Safety and Security
    
    
    12Insurance
    
    
    12Regulations
    
    
    13Markets and Routes
    
    
    13Website21Item 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. Properties
    
    
    23Flight Equipment
    
    
    23Facilities
    
    
    23Item 3. Legal Proceedings
    
    
    24Environmental Matters
    
    
    24Regulatory Matters
    
    
    24Item 4. Submission of Matters to a Vote of Security Holders
    
    
    24PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and issuer purchases of equity securities
    
    
    25Item 6. Selected Financial DataItem 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    29Outlook for 2006Certain Statistical Information
    
    
    31Basis of Presentation
    
    
    32Results of Operations
    
    
    34Liquidity and Capital Resources
    
    
    38Critical Accounting Policies
    
    
    41Forward Looking Statements
    
    
    44Item 7A. Quantitative and Qualitative Disclosure About Market Risk
    
    
    45
    

Item 8. Financial Statements and Supplementary Data
    
    
    46Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
    
    
    78
 3




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Table of Contents (continued)Item 9A. Controls and Procedures
    
    
    80
    

PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    82Item 11. Executive Compensation
    
    
    82Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    82Item 13. Certain Relationships and Related Transactions
    
    
    82Item 14. Principal Accountant Fees and Services
    
    
    82PART IVItem 15. Exhibits AND Financial Statement Schedules
    
    
    83SIGNATURES
    
    
    90EX-23.1 CONSENT OF ERNST & YOUNG LLPEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32 SECTION 906 CERTIFICATIONS OF THE CEO & CFO
  4




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Item 1. Business
 
 Part I
 
 Item 1. Business
  
 Our Company
     Northwest and Mesaba Bankruptcies
   5




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Item 1. Business
     
 Our Airline Services Agreement with Northwest
     6




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Item 1. Business
        Other Agreements with Northwest
 7




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Item 1. Business
 Scope of Agreement
  Code-Sharing and Marketing
  Aircraft Financing
  Airport Facilities and Ground Handling
    Establishing New Operations
  8




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Item 1. Business
    Northwests Ability to Use Other Regional Airlines
  Labor Disruption
  
    
    terminate the ASA, which would immediately terminate the leases and
subleases for all of our CRJs; and
    
    prior to electing to terminate the ASA, immediately terminate the subleases
for 89 of our CRJs, and if the strike continues for more than 45 days, terminate the
subleases for all but 50 of our CRJs.
 Term and Termination of Agreement; Remedies for Breach
  
    
    our failure to make any payment under any aircraft lease or sublease;
    
    an event of default by us of any term of any aircraft lease or sublease;
    
    an event of default under any of our other agreements with Northwest;
    
    our failure to make payments under the NWA Note (which was subsequently
repurchased by us in February 2005);
 9




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Item 1. Business
 
    
    our failure to make payments under our revolving credit facility with
Northwest (which was subsequently terminated in June 2005);
    
    our failure to maintain required insurance coverages;
    
    our failure to comply with Northwests inspection requirements;
    
    our failure to operate more than 50% of our aircraft for more than seven
consecutive days or our failure to operate more than 25% of our aircraft for more than
21 consecutive days, other than as a result of:1) an FAA order grounding all commercial flights or all air carriers or
grounding a specific aircraft type of all carriers,2) a scheduling action by Northwest or3) Northwests inability to perform its obligations under the ASA as a
result of a strike by Northwest employees;
    
    suspension or revocation of our authority to operate as an airline by the
FAA or the Department of Transportation (DOT);
    
    a change of control of our company or our affiliates;
    
    operation by Pinnacle Airlines, Inc. or an affiliate of (1) an aircraft
type which causes Northwest to violate its collective bargaining agreement with its
pilots or (2) an aircraft certificated as having (a) 60 or more seats or (b) a maximum
gross takeoff weight of 70,000 pounds or more (or such greater seat or weight limits as
may be established under Northwests collective bargaining agreement with its pilots);
and
    
    any replacement of the chief executive officer of either Pinnacle Airlines
Corp. or Pinnacle Airlines, Inc. that is not approved by Northwest.
  Treatment of Assets upon Termination
   Indemnification
  10




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Item 1. Business
 
 Our Employees
    ContractEmployee Group
    
    Number of Employees
    
    Representing Union
    

Amendable DatePilots
    
    
    1,075
    
    
    Airline Pilots Association
    
    April 30, 2005Flight Attendants
    
    
    600
    
    
    United Steel Workers of America
    
    July 31, 2006Customer Service
    
    
    950
    
    
    United Steel Workers of America
    
    March 19, 2010Flight Dispatchers
    
    
    29
    
    
    Transit Workers Union of America
    
    Initial contract currently being negotiated
  
 Maintenance of Aircraft
     11




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Item 1. Business
   
 Training
    
 Safety and Security
   
    
    implementation of a system-wide positive bag match program;
    
    reinforcement of all cockpit doors; and
    
    implementation of strict in-flight cockpit access procedures, including the
removal of all cockpit access keys from within the main cabin.
  
 Insurance
    12




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Item 1. Business
 
 Regulations
   
 Markets and Routes
  
 Website
 www.nwairlink.com
 13




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Item 1A. Risk Factors
 Risks Relating to our Airline Services Agreement (ASA) with Northwest
 Northwests bankruptcy proceedings will continue to impact us.
        We are dependent on the services that Northwest provides to us. If our ASA with Northwest is
terminated, we could lose our only significant source of revenue and earnings, our regional jet
fleet, access to our airport facilities and the services Northwest provides to us.
  14




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Item 1A. Risk Factors
     
    
    our failure to make any payment under any aircraft lease or sublease;
    
    an event of default by us under any other term of any aircraft lease or sublease;
    
    an event of default under any of our other agreements with Northwest;
    
    our failure to maintain required insurance coverages;
    
    our failure to comply with Northwests inspection requirements;
    
    our failure to operate more than 50% of our aircraft for more than seven consecutive days,
or our failure to operate more than 25% of our aircraft for more than 21 consecutive days,
other than as a result of (1) an FAA order grounding all commercial flights of all air
carriers or grounding a specific aircraft type of all air carriers, (2) a scheduling action by
Northwest or (3) Northwests inability to perform its obligations under the ASA as a result of
a strike by Northwest employees;
    
    suspension or revocation of our authority to operate as an airline by the FAA or the DOT;
    
    a change of control of our company or our affiliates;
    
    (1) the commencement of operation by Pinnacle Airlines, Inc. or an affiliate of an aircraft
type which causes Northwest to violate its collective bargaining agreement with its pilots or
(2) operation by an affiliate of Pinnacle Airlines, Inc. of aircraft certificated as having
(a) 60 or more seats or (b) a maximum gross takeoff weight of 70,000 pounds or more (or such
greater seat or weight limits as may be established under Northwests collective bargaining
agreement with its pilots); and
    
    any replacement of the chief executive officer of either Pinnacle Airlines Corp. or
Pinnacle Airlines, Inc. that is not approved by Northwest.
  Northwest may decide not to grow our fleet beyond the CRJ aircraft commitment in our ASA,
and any future growth from Northwest may be on less than favorable terms.
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Item 1A.
Risk Factors
   Reduced utilization levels of our aircraft under the ASA would reduce our revenues and
earnings.
  Our ASA may cause us to earn lower operating margins than we have targeted, or to experience
losses, if some of our future costs are higher than expected and may limit our ability to benefit
from improved market conditions or increased operational efficiency. In addition, our target
operating margin under the ASA could be reduced beginning in 2008, and our operating margin will
not be subject to any guaranteed floor.
  16




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Item 1A.
Risk Factors
   We are increasingly dependent on technology in our operations, and if our technology fails,
our business may be adversely affected.
   There are constraints on our ability to establish new operations to provide airline service to
major airlines other than Northwest.
  Risks Related to Our Business and Operations
 We may experience difficulty finding, training and retaining employees, which may interfere
with our expansion plans.
   17




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Item 1A.
Risk Factors
 Strikes or labor disputes with our employees may adversely affect our ability to conduct our
business and could result in the termination of the ASA or in significant reductions in the
benefits of the agreement to us.
  Increases in our labor costs, which constitute a substantial portion of our total operating
costs, may directly impact our earnings.
   We are highly leveraged, which could hurt our ability to meet our strategic goals.
  
    
    limit our ability to obtain additional financing to support capital expansion plans
and for working capital and other purposes;
    
    divert substantial cash flow from our operations and expansion plans in order to
service our debt;
    
    limit our flexibility in planning for, or reacting to, changes in our business and
the industry in which we compete; and
    
    place us at a possible competitive disadvantage compared to less leveraged
competitors and competitors that have better access to capital resources.
 Our quarterly results of operations will fluctuate.
  18




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Item 1A.
Risk Factors
   We may be unable to obtain all of the aircraft, engines, parts or related maintenance and
support services we require from Bombardier or General Electric, which could have a material
adverse impact on our business.
   Our reputation and financial results could be harmed in the event of an accident or incident
involving our aircraft.
    Under certain circumstances, we may be required to pay cash or a combination of cash and our
common stock to holders of our 3.25% senior convertible notes due 2025 at their option prior to the
maturity date.
  19




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Item 1A.
Risk Factors
  §
    
    during a quarter (and only during such quarter) if the closing price of our
common stock exceeds 120% of the conversion price of the Notes (initially $15.86
per share) for at least 20 of the last 30 trading days of the preceding quarter;§
    
    during a five-day period after the Notes have traded for a
five-day period at a
price that is less than 98% of the equivalent value that could be realized upon
conversion of the Notes;§
    
    if we call the Notes for redemption;§
    
    if a change of control or other specified corporate transactions or
distributions to holders of our common stock occurs (and in some instances, we may
also owe an additional premium upon a change in control); and§
    
    during the ten trading days prior to the maturity date of February 15, 2025.
  Risks Associated with the Airline Industry
 Increased competition in the airline industry could reduce Northwests need to utilize our
services and limit Northwests desire to expand its relationship with us.
   Increased competition in the regional jet industry could affect our growth opportunities.
   Changes in government regulation imposing additional requirements and restrictions on our
operations could increase our operating costs and result in service delays and disruptions
  20




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Item 1A.
Risk Factors
    Aviation insurance is a critical safeguard of our financial condition. It might become
difficult to obtain adequate insurance at a reasonable rate in the future.
   We may be affected by factors beyond our control, including weather conditions, increased
security measures and U.S. and world conditions and events.
   21




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Item 1B. Unresolved Staff Comments.
  22




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Item 2. Properties
 
 Flight Equipment
  Aircraft Type
    
    Number of Aircraft
    
    Standard Seating ConfigurationCanadair Regional Jet 200
    
    53
    
    50Canadair Regional Jet 440
    
    71
    
    44124
  
 Facilities
  Square
    
    Lease ExpirationLocation
    
    Description
    
    Footage
    
    DateMemphis, TN
    
    Corporate Headquarters and
Corporate Education Center
    
    
    47,000
    
    
    August 2011Memphis, TN
    
    Hangar and Maintenance
Facility
    
    
    51,250
    
    
    December 2016Knoxville, TN
    
    Hangar and Maintenance
Facility
    
    
    55,000
    
    
    Termination of the
ASASouth Bend, IN
    
    Hangar and Maintenance
Facility
    
    
    30,000
    
    
    Termination of the
ASAFt. Wayne, IN
    
    Hangar and Maintenance
Facility
    
    
    18,000
    
    
    December 2006
   23




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Item 3. Legal Proceedings
  Business
 
 Environmental Matters
  
 Regulatory Matters
  
 Item 4. Submission of Matters to a Vote of Security Holders
  24




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Part II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
  High
    
    Low2004First Quarter
    
    $
    15.99
    
    
    $
    12.55Second Quarter
    
    $
    14.63
    
    
    $
    11.30Third Quarter
    
    $
    11.01
    
    
    $
    8.55Fourth Quarter
    
    $
    13.94
    
    
    $
    9.172005First Quarter
    
    $
    13.90
    
    
    $
    10.17Second Quarter
    
    $
    10.93
    
    
    $
    8.59Third Quarter
    
    $
    10.40
    
    
    $
    6.36Fourth Quarter
    
    $
    7.04
    
    
    $
    4.63
      25




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Item 6. Selected Financial Data
 Managements Discussion and Analysis of Financial Condition and Results of Operation Risk Factors Affecting our Business
   Years Ended December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(in thousands, except per share data)Statement of Operations Data:Total operating revenues
    
    $
    841,605
    
    
    $
    635,448
    
    
    $
    456,770
    
    
    $
    331,568
    
    
    $
    202,050Total operating expenses
    
    
    814,676
    
    
    
    568,145
    
    
    
    392,601
    
    
    
    283,912
    
    
    
    185,077Operating income
    
    
    26,929
    
    
    
    67,303
    
    
    
    64,169
    
    
    
    47,656
    
    
    
    16,973Operating income excluding the
provision for losses associated
with the bankruptcy filings of
Northwest and Mesaba
    
    
    86,528
    
    
    
    67,303
    
    
    
    64,169
    
    
    
    47,656
    
    
    
    16,973Operating income as a
percentage of operating
revenues (1)
    
    
    3.2
    %
    
    
    10.6
    %
    
    
    14.0
    %
    
    
    14.4
    %
    
    
    8.4
    %Operating income as a
percentage of operating
revenues excluding the
provision for losses associated
with the bankruptcy filings of
Northwest and Mesaba (1)
    
    
    10.3
    %
    
    
    10.6
    %
    
    
    14.0
    %
    
    
    14.4
    %
    
    
    8.4
    %Nonoperating income (expense)
(2)
    
    
    14,482
    
    
    
    (4,178
    )
    
    
    (6,770
    )
    
    
    2,672
    
    
    
    6,094Net income
    
    
    25,698
    
    
    
    40,725
    
    
    
    35,067
    
    
    
    30,785
    
    
    
    14,246Basic and diluted net income per
share
    
    $
    1.17
    
    
    $
    1.86
    
    
    $
    1.60
    
    
    $
    1.41
    
    
    $
    0.65Shares used in computing basic
net income per share
    
    
    21,913
    
    
    
    21,892
    
    
    
    21,892
    
    
    
    21,892
    
    
    
    21,892Shares used in computing
diluted net income per share
    
    
    21,932
    
    
    
    21,911
    
    
    
    21,892
    
    
    
    21,892
    
    
    
    21,892
 26




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Item 6. Selected Financial Data
 As of December 31,Balance Sheet Data:
    
    2005
    
    2004
    
    2003
    
    2002
    
    2001(in thousands)Cash and cash equivalents
    
    $
    31,567
    
    
    $
    34,912
    
    
    $
    31,523
    
    
    $
    4,580
    
    
    $
    1,891Short-term investments
    
    
    44,160
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Property and equipment
    
    
    42,535
    
    
    
    39,416
    
    
    
    34,286
    
    
    
    26,631
    
    
    
    32,785Total assets
    
    
    228,799
    
    
    
    165,960
    
    
    
    128,906
    
    
    
    143,284
    
    
    
    92,250Lines of credit
    
    
    17,000
    
    
    
    
    
    
    
    
    
    
    
    4,245
    
    
    
    4,245Senior convertible notes
    
    
    121,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Borrowings from Northwest
    
    
    
    
    
    
    125,000
    
    
    
    142,000
    
    
    
    
    
    
    
    Stockholders equity (deficiency)
    
    
    18,618
    
    
    
    (7,548
    )
    
    
    (42,382
    )
    
    
    82,051
    
    
    
    55,651
 Years Ended December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001Other Data:Revenue passengers (in thousands)
    
    
    8,105
    
    
    
    6,340
    
    
    
    4,540
    
    
    
    2,938
    
    
    
    2,031Revenue passenger miles (in
thousands) (3)
    
    
    4,129,039
    
    
    
    2,894,776
    
    
    
    1,797,631
    
    
    
    1,091,181
    
    
    
    673,395Available seat miles (ASMs) (in
thousands) (4)
    
    
    5,732,773
    
    
    
    4,219,078
    
    
    
    2,678,000
    
    
    
    1,714,151
    
    
    
    1,153,620Passenger load factor (5)
    
    
    72.0
    %
    
    
    68.6
    %
    
    
    67.1
    %
    
    
    63.7
    %
    
    
    58.4
    %Operating revenue per ASM (in
cents) (1)
    
    
    14.68
    
    
    
    15.06
    
    
    
    17.06
    
    
    
    19.34
    
    
    
    17.51Operating revenue per block hour
(1)
    
    $
    1,944
    
    
    $
    1,962
    
    
    $
    2,168
    
    
    $
    2,190
    
    
    $
    1,620Operating costs per ASM (in
cents) (1)
    
    
    14.21
    
    
    
    13.47
    
    
    
    14.66
    
    
    
    16.56
    
    
    
    16.04Operating costs per ASM excluding
the provision of 1.04 cents per
ASM for losses associated with
the bankruptcies of Northwest and
Mesaba (in cents) (1)
    
    
    13.17
    
    
    
    13.47
    
    
    
    14.66
    
    
    
    16.56
    
    
    
    16.04Operating costs per block hour (1)
    
    $
    1,882
    
    
    $
    1,754
    
    
    $
    1,864
    
    
    $
    1,875
    
    
    $
    1,484Operating costs per block hour
excluding the provision of $138
per block hour for losses
associated with the bankruptcies
of Northwest and Mesaba (1)
    
    $
    1,744
    
    
    $
    1,754
    
    
    $
    1,864
    
    
    $
    1,875
    
    
    $
    1,484Block hoursCRJs
    
    
    432,900
    
    
    
    323,810
    
    
    
    210,646
    
    
    
    124,889
    
    
    
    58,584Turboprops (6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,509
    
    
    
    66,145CyclesCRJs
    
    
    249,262
    
    
    
    201,816
    
    
    
    146,898
    
    
    
    85,478
    
    
    
    41,238Turboprops (6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,262
    
    
    
    47,570Average daily utilization (in
block hours)CRJs
    
    
    9.07
    
    
    
    8.98
    
    
    
    8.83
    
    
    
    8.47
    
    
    
    8.22Turboprops (6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.81
    
    
    
    7.54Average stage length (in miles)
    
    
    500
    
    
    
    450
    
    
    
    384
    
    
    
    353
    
    
    
    318Number of operating aircraft (end
of period)CRJs
    
    
    124
    
    
    
    117
    
    
    
    76
    
    
    
    51
    
    
    
    30Turboprops (6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Employees
    
    
    3,436
    
    
    
    3,056
    
    
    
    2,253
    
    
    
    2,403
    
    
    
    1,738
 27




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Item 6. Selected Financial Data
 (1)
    
    As discussed in Our Airline Services Agreement with Northwest in Item 1 Business, our target operating margin under the ASA was 14% from
March 1, 2002 to November 30, 2003. Effective December 1, 2003, the target operating margin is 10%. Prior to March 1, 2002, there was no
target operating margin as we did not operate under an airline services agreement. For further discussion of the target operating margin,
refer to Note 4 Our Airline Services Agreement with Northwest in Item 8 of this Form 10-K.(2)
    
    Nonoperating income (expense) for the year ended December 31, 2005 includes a gain of $18.0 million related to
the repurchase of our note payable to Northwest.(3)
    
    Revenue passenger miles represents the number of miles flown by revenue passengers.(4)
    
    Available seat miles represents the number of seats available for passengers multiplied by the number of miles the seats are flown.(5)
    
    Passenger load factor equals revenue passenger miles divided by available seat miles.(6)
    
    As of December 31, 2002, all Saab turboprop aircraft were removed from our operating fleet.
 28




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 
 Outlook
 Risk Factors
      29




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    30




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 
 Certain Statistical Information
  Years Ended December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001Operating expenses per block hour:Salaries, wages and benefits
    
    $
    310
    
    
    $
    325
    
    
    $
    395
    
    
    $
    456
    
    
    $
    456Aircraft fuel
    
    
    260
    
    
    
    258
    
    
    
    261
    
    
    
    224
    
    
    
    181Aircraft maintenance, materials and
repairs
    
    
    74
    
    
    
    73
    
    
    
    67
    
    
    
    88
    
    
    
    166Aircraft rentals
    
    
    642
    
    
    
    645
    
    
    
    647
    
    
    
    575
    
    
    
    326Other rentals and landing fees
    
    
    99
    
    
    
    114
    
    
    
    139
    
    
    
    151
    
    
    
    69Ground handling services
    
    
    214
    
    
    
    203
    
    
    
    212
    
    
    
    155
    
    
    
    43Depreciation
    
    
    9
    
    
    
    10
    
    
    
    14
    
    
    
    40
    
    
    
    36Government reimbursements
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    Other
    
    
    136
    
    
    
    126
    
    
    
    134
    
    
    
    186
    
    
    
    207Provision for losses associated with
bankruptcy filings of Northwest and
Mesaba
    
    
    138
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    $
    1,882
    
    
    $
    1,754
    
    
    $
    1,864
    
    
    $
    1,875
    
    
    $
    1,484
  Years Ended December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001Operating expenses per available seat mile
(in cents):Salaries, wages and benefits
    
    
    2.34
    
    
    
    2.49
    
    
    
    3.11
    
    
    
    4.03
    
    
    
    4.93Aircraft fuel
    
    
    1.96
    
    
    
    1.98
    
    
    
    2.05
    
    
    
    1.98
    
    
    
    1.96Aircraft maintenance, materials and
repairs
    
    
    0.56
    
    
    
    0.56
    
    
    
    0.53
    
    
    
    0.77
    
    
    
    1.79Aircraft rentals
    
    
    4.85
    
    
    
    4.95
    
    
    
    5.09
    
    
    
    5.08
    
    
    
    3.52Other rentals and landing fees
    
    
    0.75
    
    
    
    0.88
    
    
    
    1.09
    
    
    
    1.33
    
    
    
    0.74Ground handling services
    
    
    1.62
    
    
    
    1.56
    
    
    
    1.67
    
    
    
    1.37
    
    
    
    0.47Depreciation
    
    
    0.07
    
    
    
    0.08
    
    
    
    0.11
    
    
    
    0.36
    
    
    
    0.39Government reimbursements
    
    
    
    
    
    
    
    
    
    
    (0.04
    )
    
    
    
    
    
    
    Other
    
    
    1.02
    
    
    
    0.97
    
    
    
    1.05
    
    
    
    1.64
    
    
    
    2.24Provision for losses associated with
bankruptcy filings of Northwest and
Mesaba
    
    
    1.04
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    14.21
    
    
    
    13.47
    
    
    
    14.66
    
    
    
    16.56
    
    
    
    16.04
 31




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 
 Basis of Presentation
   Increase/
    
    
    
    
    
    
    Increase/(Decrease)
    
    
    
    
    
    
    (Decrease)2005
    
    
    2005-2004
    
    
    2004
    
    
    2004-2003
    
    
    2003Operating revenues:Regional airline services
    
    $
    833,125
    
    
    
    
    
    
    $
    631,504
    
    
    
    
    
    
    $
    450,611Other
    
    
    8,480
    
    
    
    
    
    
    
    3,944
    
    
    
    
    
    
    
    6,159Total operating revenues
    
    
    841,605
    
    
    
    32
    %
    
    
    635,448
    
    
    
    39
    %
    
    
    456,770Operating expenses:Salaries, wages and benefits
    
    
    134,277
    
    
    
    28
    %
    
    
    105,143
    
    
    
    26
    %
    
    
    83,316Aircraft fuel
    
    
    112,666
    
    
    
    35
    %
    
    
    83,572
    
    
    
    52
    %
    
    
    55,007Aircraft maintenance, materials and
repairs
    
    
    31,865
    
    
    
    35
    %
    
    
    23,545
    
    
    
    67
    %
    
    
    14,116Aircraft rentals
    
    
    277,914
    
    
    
    33
    %
    
    
    209,047
    
    
    
    53
    %
    
    
    136,273Other rentals and landing fees
    
    
    42,972
    
    
    
    16
    %
    
    
    37,101
    
    
    
    27
    %
    
    
    29,255Ground handling services
    
    
    92,689
    
    
    
    41
    %
    
    
    65,877
    
    
    
    48
    %
    
    
    44,622Depreciation
    
    
    4,017
    
    
    
    27
    %
    
    
    3,153
    
    
    
    8
    %
    
    
    2,912Government reimbursements
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    (100
    )%
    
    
    (1,114
    )Other
    
    
    58,677
    
    
    
    44
    %
    
    
    40,707
    
    
    
    44
    %
    
    
    28,214Provision for losses associated with
bankruptcy filings of Northwest
and
Mesaba
    
    
    59,599
    
    
    
    100
    %
    
    
    
    
    
    
    0
    %
    
    
    Total operating expenses
    
    
    814,676
    
    
    
    43
    %
    
    
    568,145
    
    
    
    45
    %
    
    
    392,601Operating income
    
    
    26,929
    
    
    
    (60
    )%
    
    
    67,303
    
    
    
    5
    %
    
    
    64,169Nonoperating income (expense)
    
    
    14,482
    
    
    
    (447
    )%
    
    
    (4,178
    )
    
    
    (38
    )%
    
    
    (6,770
    )Income before income taxes
    
    
    41,411
    
    
    
    (34
    )%
    
    
    63,125
    
    
    
    10
    %
    
    
    57,399Income tax expense
    
    
    15,713
    
    
    
    (30
    )%
    
    
    22,400
    
    
    
    0
    %
    
    
    22,332Net income
    
    $
    25,698
    
    
    
    (37
    )%
    
    $
    40,725
    
    
    
    16
    %
    
    $
    35,067
  32




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Basis of Presentation (continued)
    Years Ended December 31,% Increase2005
    
    
    2004
    
    
    (Decrease)(in thousands, except per share data)Operating and Net Income:Operating income in accordance with GAAP
    
    $
    26,929
    
    
    $
    67,303
    
    
    
    (60
    )%Add: Provision for losses associated with
bankruptcy
filings of Northwest and Mesaba
    
    
    59,599
    
    
    
    
    
    
    
    100
    %Pro forma operating income
    
    $
    86,528
    
    
    $
    67,303
    
    
    
    29
    %Operating margin in accordance with GAAP
    
    
    3.2
    %
    
    
    10.6
    %
    
    (7.4
)pts.Add: Provision for losses associated with
bankruptcy
filings of Northwest and Mesaba
    
    
    7.1
    %
    
    
    
    
    
    7.1
pts.Pro forma operating margin
    
    
    10.3
    %
    
    
    10.6
    %
    
    (0.3
)pts.Net income in accordance with GAAP
    
    $
    25,698
    
    
    $
    40,725
    
    
    
    (37
    )%Add: Provision for losses associated with
bankruptcy
filings of Northwest and Mesaba,
net of related
tax
    
    
    37,763
    
    
    
    
    
    
    
    100
    %Deduct: Gain on repurchase of debt, net of
related tax
    
    
    (11,302
    )
    
    
    
    
    
    
    (100
    )%Pro forma net income
    
    $
    52,159
    
    
    $
    40,725
    
    
    
    28
    %
 33




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Years Ended December 31,% Increase2005
    
    
    2004
    
    
    (Decrease)(in thousands, except per share data)Basic and Diluted EPS:Basic and diluted EPS in accordance with GAAP
    
    $
    1.17
    
    
    $
    1.86
    
    
    
    (37
    )%Add: Provision for losses associated with
bankruptcy filings of Northwest
and Mesaba,
net of related tax
    
    
    1.73
    
    
    
    
    
    
    
    100
    %Deduct: Gain on repurchase of debt, net of
related tax
    
    
    (0.52
    )
    
    
    
    
    
    
    (100
    )%Pro forma basic and diluted EPS
    
    $
    2.38
    
    
    $
    1.86
    
    
    
    28
    %
  Year Ended December 31, 2005Operating Cost
    
    
    Operating Costper Block Hour
    
    
    per ASM (in cents)Selected data derived from operating expenses in
accordance with GAAP
    
    $
    1,882
    
    
    
    14.21Deduct: Provision for losses associated with
bankruptcy filings of Northwest
and Mesaba
    
    
    (138
    )
    
    
    (1.04
    )Pro forma selected data
    
    $
    1,744
    
    
    
    13.17
 34




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 
 Results of Operations
 2005 Compared to 2004
  Years Ended December 31,(in thousands)2005
    
    
    2004Reimbursed
    
    
    Unreimbursed
    
    
    Other
    
    
    Total
    
    
    Reimbursed
    
    
    Unreimbursed
    
    
    TotalOperating revenues:Regional airline services
    
    $
    564,030
    
    
    $
    269,095
    
    
    $
    
    
    
    $
    833,125
    
    
    $
    423,911
    
    
    $
    207,593
    
    
    $
    631,504Other revenue
    
    
    
    
    
    
    8,480
    
    
    
    
    
    
    
    8,480
    
    
    
    
    
    
    
    3,944
    
    
    
    3,944Total operating revenues
    
    
    564,030
    
    
    
    277,575
    
    
    
    
    
    
    
    841,605
    
    
    
    423,911
    
    
    
    211,537
    
    
    
    635,448Operating expenses:Salaries, wages and benefits
    
    
    
    
    
    
    134,277
    
    
    
    
    
    
    
    134,277
    
    
    
    
    
    
    
    105,143
    
    
    
    105,143Aircraft fuel
    
    
    111,993
    
    
    
    673
    
    
    
    
    
    
    
    112,666
    
    
    
    83,061
    
    
    
    511
    
    
    
    83,572Aircraft maintenance, materials
and repairs
    
    
    14,582
    
    
    
    17,283
    
    
    
    
    
    
    
    31,865
    
    
    
    11,842
    
    
    
    11,703
    
    
    
    23,545Aircraft rentals
    
    
    277,914
    
    
    
    
    
    
    
    
    
    
    
    277,914
    
    
    
    209,047
    
    
    
    
    
    
    
    209,047Other rentals and landing fees
    
    
    17,914
    
    
    
    25,058
    
    
    
    
    
    
    
    42,972
    
    
    
    18,651
    
    
    
    18,450
    
    
    
    37,101Ground handling services
    
    
    69,580
    
    
    
    23,109
    
    
    
    
    
    
    
    92,689
    
    
    
    47,533
    
    
    
    18,344
    
    
    
    65,877Depreciation
    
    
    
    
    
    
    4,017
    
    
    
    
    
    
    
    4,017
    
    
    
    
    
    
    
    3,153
    
    
    
    3,153Other
    
    
    15,644
    
    
    
    43,033
    
    
    
    
    
    
    
    58,677
    
    
    
    11,386
    
    
    
    29,321
    
    
    
    40,707Provision for losses associated
with bankruptcy filings of
Northwest and Mesaba
    
    
    
    
    
    
    
    
    
    
    59,599
    
    
    
    59,599
    
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    507,627
    
    
    
    247,450
    
    
    
    59,599
    
    
    
    814,676
    
    
    
    381,520
    
    
    
    186,625
    
    
    
    568,145Operating income (loss):
    
    $
    56,403
    
    
    $
    30,125
    
    
    $
    (59,599
    )
    
    $
    26,929
    
    
    $
    42,391
    
    
    $
    24,912
    
    
    $
    67,303Operating income as a percent of
operating revenues
    
    
    10.0
    %
    
    
    10.9
    %
    
    
    
    
    
    
    3.2
    %
    
    
    10.0
    %
    
    
    11.8
    %
    
    
    10.6
    %
   Operating Expenses.
 35




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
          36




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 2004 Compared to 2003
  Years Ended December 31,(in thousands)2004
    
    

2003Reimbursed
    
    

Unreimbursed
    
    

Total
    
    

Reimbursed
    
    

Unreimbursed
    
    

TotalOperating revenues:Regional airline services
    
    $
    423,911
    
    
    $
    207,593
    
    
    $
    631,504
    
    
    $
    296,257
    
    
    $
    154,354
    
    
    $
    450,611Other revenue
    
    
    
    
    
    
    3,944
    
    
    
    3,944
    
    
    
    
    
    
    
    6,159
    
    
    
    6,159Total operating revenues
    
    
    423,911
    
    
    
    211,537
    
    
    
    635,448
    
    
    
    296,257
    
    
    
    160,513
    
    
    
    456,770Operating expenses:Salaries, wages and benefits
    
    
    
    
    
    
    105,143
    
    
    
    105,143
    
    
    
    
    
    
    
    83,316
    
    
    
    83,316Aircraft fuel
    
    
    83,061
    
    
    
    511
    
    
    
    83,572
    
    
    
    54,731
    
    
    
    276
    
    
    
    55,007Aircraft maintenance, materials and repairs
    
    
    11,842
    
    
    
    11,703
    
    
    
    23,545
    
    
    
    6,548
    
    
    
    7,568
    
    
    
    14,116Aircraft rentals
    
    
    209,047
    
    
    
    
    
    
    
    209,047
    
    
    
    136,273
    
    
    
    
    
    
    
    136,273Other rentals and landing fees
    
    
    18,651
    
    
    
    18,450
    
    
    
    37,101
    
    
    
    16,512
    
    
    
    12,743
    
    
    
    29,255Government reimbursements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,000
    )
    
    
    (114
    )
    
    
    (1,114
    )Ground handling services
    
    
    47,533
    
    
    
    18,344
    
    
    
    65,877
    
    
    
    33,223
    
    
    
    11,399
    
    
    
    44,622Depreciation
    
    
    
    
    
    
    3,153
    
    
    
    3,153
    
    
    
    
    
    
    
    2,912
    
    
    
    2,912Other
    
    
    11,386
    
    
    
    29,321
    
    
    
    40,707
    
    
    
    9,600
    
    
    
    18,614
    
    
    
    28,214Total operating expenses
    
    
    381,520
    
    
    
    186,625
    
    
    
    568,145
    
    
    
    255,887
    
    
    
    136,714
    
    
    
    392,601Operating income:
    
    $
    42,391
    
    
    $
    24,912
    
    
    $
    67,303
    
    
    $
    40,370
    
    
    $
    23,799
    
    
    $
    64,169Operating income as a percent of operating revenues
    
    
    10.0
    %
    
    
    11.8
    %
    
    
    10.6
    %
    
    
    13.6
    %
    
    
    14.8
    %
    
    
    14.0
    %
    Operating Expenses.
 37




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
          
 Liquidity and Capital Resources
   38




---



##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Contractual
Obligations Contractual Obligations
 Contractual obligations
 Payments Due by Period(in thousands)Total
    
    2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    ThereafterContractual obligations:Senior convertible
notes
    
    $
    121,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    121,000Line of credit (1)
    
    
    17,000
    
    
    
    17,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest payments on
long-term debt
    
    
    76,684
    
    
    
    3,933
    
    
    
    3,933
    
    
    
    3,933
    
    
    
    3,933
    
    
    
    3,933
    
    
    
    57,019Operating leases (4)
    
    
    3,268,186
    
    
    
    288,253
    
    
    
    279,334
    
    
    
    277,563
    
    
    
    275,982
    
    
    
    275,930
    
    
    
    1,871,124Additional aircraft
deposits (2)
    
    
    21,700
    
    
    
    
    
    
    
    21,700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations (3)
    
    
    6,389
    
    
    
    1,613
    
    
    
    1,525
    
    
    
    1,102
    
    
    
    1,186
    
    
    
    531
    
    
    
    432Total contractual cash
obligations
    
    $
    3,510,959
    
    
    $
    310,799
    
    
    $
    306,492
    
    
    $
    282,598
    
    
    $
    281,101
    
    
    $
    280,394
    
    
    $
    2,049,575
 (1)
    
    Borrowings outstanding as of December 31, 2005, under our revolving credit facility with
First Tennessee Bank, which expires June 16, 2006.(2)
    
    Disputed additional aircraft deposits that the Company believes are due in November 2007.
Northwest has demanded them to be paid by March 15, 2006.(3)
    
    Amounts represent noncancelable commitments to purchase goods and services, including certain
aircraft parts and information technology.(4)
    
    Amounts for 2006 include $2,360 for rentals owed under facility revenue bonds discussed below
in Guarantees and Indemnification.
  Risks Related to Our Business and Operations
 39




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
      Operating activities.
 Investing activities
   40




---



##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Financing activities
 Deferred tax asset.
 Guarantees and indemnifications
     Off-Balance Sheet Arrangements
 
 Critical Accounting Policies
 41




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 General Financial Statements and Supplementary
Data
 Revenue recognition
   Allowance for Doubtful Accounts.
 Maintenance.
  Spare parts
 42




---



##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Property and equipment
 Long-lived assets
  Estimated losses on subleased aircraft.
 Recent Accounting Pronouncements
   43




---



##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 
 Forward-Looking Statements
  Risk Factors
 44




---



##### Table of Contents



Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  Aircraft fuel.
 Interest rates.
 Senior Convertible Notes.
 45




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Report of Independent Registered Public Accounting Firm
    
    
    47Consolidated Statements of Income
for the Years Ended December 31, 2005, 2004 and 2003
    
    
    48Consolidated Balance Sheets
as of December 31, 2005 and 2004
    
    
    49Consolidated Statements of Stockholders Equity (Deficiency)
for the Years Ended December 31, 2005, 2004 and 2003
    
    
    51Consolidated Statements of Cash Flows
for the Years Ended December 31, 2005, 2004 and 2003
    
    
    52Notes to Consolidated Financial Statements
    
    
    53Report of Independent Registered Public Accounting Firm on Managements
Assessment and the Effectiveness of Internal Control Over
Financial Reporting
    
    
    78
 46




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
 
      
  47




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##### Table of Contents



Pinnacle Airlines Corp.
 
 Consolidated Statements of Income
(in thousands, except per share data)
 Years Ended December 31,2005
    
    
    2004
    
    
    2003Operating revenues:Regional airline services
    
    $
    833,125
    
    
    $
    631,504
    
    
    $
    450,611Other
    
    
    8,480
    
    
    
    3,944
    
    
    
    6,159Total operating revenues
    
    
    841,605
    
    
    
    635,448
    
    
    
    456,770Operating expenses:Salaries, wages and benefits
    
    
    134,277
    
    
    
    105,143
    
    
    
    83,316Aircraft fuel
    
    
    112,666
    
    
    
    83,572
    
    
    
    55,007Aircraft maintenance, materials and repairs
    
    
    31,865
    
    
    
    23,545
    
    
    
    14,116Aircraft rentals
    
    
    277,914
    
    
    
    209,047
    
    
    
    136,273Other rentals and landing fees
    
    
    42,972
    
    
    
    37,101
    
    
    
    29,255Ground handling services
    
    
    92,689
    
    
    
    65,877
    
    
    
    44,622Depreciation
    
    
    4,017
    
    
    
    3,153
    
    
    
    2,912Government reimbursements
    
    
    
    
    
    
    
    
    
    
    (1,114
    )Other
    
    
    58,677
    
    
    
    40,707
    
    
    
    28,214Provision for losses associated with bankruptcy filings of
Northwest and Mesaba (Note 3)
    
    
    59,599
    
    
    
    
    
    
    
    Total operating expenses
    
    
    814,676
    
    
    
    568,145
    
    
    
    392,601Operating income
    
    
    26,929
    
    
    
    67,303
    
    
    
    64,169Operating income as a percentage of operating revenues
    
    
    3.2
    %
    
    
    10.6
    %
    
    
    14.0
    %Nonoperating income (expense):Interest income
    
    
    1,239
    
    
    
    301
    
    
    
    230Interest expense
    
    
    (4,772
    )
    
    
    (4,907
    )
    
    
    (7,387
    )Miscellaneous income, net
    
    
    15
    
    
    
    428
    
    
    
    387Gain on repurchase of debt
    
    
    18,000
    
    
    
    
    
    
    
    Total nonoperating income (expense)
    
    
    14,482
    
    
    
    (4,178
    )
    
    
    (6,770
    )Income before income taxes
    
    
    41,411
    
    
    
    63,125
    
    
    
    57,399Income tax expense
    
    
    15,713
    
    
    
    22,400
    
    
    
    22,332Net income
    
    $
    25,698
    
    
    $
    40,725
    
    
    $
    35,067Basic earnings per share
    
    $
    1.17
    
    
    $
    1.86
    
    
    $
    1.60Diluted earnings per share
    
    $
    1.17
    
    
    $
    1.86
    
    
    $
    1.60Shares used in computing basic earnings per share
    
    
    21,913
    
    
    
    21,892
    
    
    
    21,892Shares used in computing diluted earnings per share
    
    
    21,932
    
    
    
    21,911
    
    
    
    21,892
  48




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##### Table of Contents



Pinnacle Airlines Corp.
 
 Consolidated Balance Sheets
(in thousands, except share data)
 December 31,2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    31,567
    
    
    $
    34,912Short-term investments
    
    
    44,160
    
    
    
    Receivables, principally from Northwest, net of
allowances of $51,523 in 2005 and $34 in 2004
    
    
    30,190
    
    
    
    25,139Spare parts and supplies, net of allowances of $1,084
in 2005 and $494 in 2004
    
    
    6,368
    
    
    
    5,341Prepaid expenses and other assets
    
    
    5,623
    
    
    
    5,644Deferred income taxes, net of allowance
    
    
    9,146
    
    
    
    860Total current assets
    
    
    127,054
    
    
    
    71,896Property and equipment:Aircraft and rotable spares
    
    
    39,362
    
    
    
    35,837Other property and equipment
    
    
    19,209
    
    
    
    16,161Office furniture and fixtures
    
    
    2,002
    
    
    
    1,86360,573
    
    
    
    53,861Less accumulated depreciation
    
    
    (18,038
    )
    
    
    (14,445
    )Net property and equipment
    
    
    42,535
    
    
    
    39,416Other assets, primarily aircraft deposits with Northwest
    
    
    22,155
    
    
    
    21,111Debt issuance costs, net of amortization of $194
    
    
    4,198
    
    
    
    Goodwill, net of amortization of $4,027
    
    
    18,422
    
    
    
    18,422Contractual rights acquired from Northwest, net of
amortization of $680 in 2005
and $0 in 2004
    
    
    14,435
    
    
    
    15,115Total assets
    
    $
    228,799
    
    
    $
    165,960
  49




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##### Table of Contents



Pinnacle Airlines Corp.
Consolidated Balance Sheets
(in thousands, except share data)
 December 31,2005
    
    
    2004Liabilities and stockholders equity (deficiency)Current liabilities:Accounts payable
    
    $
    12,945
    
    
    $
    12,634Accrued expenses
    
    
    25,158
    
    
    
    19,432Bank line of credit
    
    
    17,000
    
    
    
    Income taxes payable
    
    
    17,756
    
    
    
    1,633Other current liabilities
    
    
    7,161
    
    
    
    6,756Total current liabilities
    
    
    80,020
    
    
    
    40,455Deferred income taxes
    
    
    7,426
    
    
    
    7,105Senior convertible notes
    
    
    121,000
    
    
    
    Note payable and line of credit from Northwest
    
    
    
    
    
    
    125,000Other liabilities
    
    
    1,735
    
    
    
    948Commitments and contingenciesStockholders equity (deficiency):Preferred stock, par value $0.01 per share; 1,000,000 shares authorized,
no shares issued
    
    
    
    
    
    
    Series A preferred stock, stated value $100 per share; one share
authorized and issued
    
    
    
    
    
    
    Series common stock, par value $0.01 per share; 5,000,000 shares
authorized, no shares issued
    
    
    
    
    
    
    Common stock, $0.01 par value; 40,000,000 shares authorized, 21,945,260
and 21,950,260 shares issued in 2005 and 2004, respectively
    
    
    219
    
    
    
    220Additional paid-in capital
    
    
    85,550
    
    
    
    85,603Accumulated deficit
    
    
    (67,151
    )
    
    
    (92,849
    )Unearned compensation on restricted stock
    
    
    
    
    
    
    (522
    )Total stockholders equity (deficiency)
    
    
    18,618
    
    
    
    (7,548
    )Total liabilities and stockholders equity (deficiency)
    
    $
    228,799
    
    
    $
    165,960
  50




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##### Table of Contents



Pinnacle Airlines Corp.
 
 Consolidated Statements of Stockholders Equity (Deficiency)
(in thousands, except share and per share data)
 UnearnedAdditional
    
    
    Retained
    
    
    CompensationCommon
    
    
    Paid-In
    
    
    Earnings
    
    
    on RestrictedStock
    
    
    Capital
    
    
    (Deficiency)
    
    
    Stock
    
    
    TotalBalance, December 31, 2002
    
    $
    219
    
    
    $
    34,973
    
    
    $
    46,859
    
    
    $
    
    
    
    $
    82,051Contribution of capital
by Northwest
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    50,000Dividend to Northwest
($9.84 per share)
    
    
    
    
    
    
    
    
    
    
    (215,500
    )
    
    
    
    
    
    
    (215,500
    )Net income
    
    
    
    
    
    
    
    
    
    
    35,067
    
    
    
    
    
    
    
    35,067Balance, December 31, 2003
    
    
    219
    
    
    
    84,973
    
    
    
    (133,574
    )
    
    
    
    
    
    
    (48,382
    )Restricted stock
issuance  58,200
shares
    
    
    1
    
    
    
    630
    
    
    
    
    
    
    
    (631
    )
    
    
    Amortization of
unearned compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    109Net income
    
    
    
    
    
    
    
    
    
    
    40,725
    
    
    
    
    
    
    
    40,725Balance, December 31, 2004
    
    
    220
    
    
    
    85,603
    
    
    
    (92,849
    )
    
    
    (522
    )
    
    
    (7,548
    )Forfeiture of
restricted stock 
5,000 shares
    
    
    (1
    )
    
    
    (53
    )
    
    
    
    
    
    
    54
    
    
    
    Amortization of
unearned compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    468
    
    
    
    468Net income
    
    
    
    
    
    
    
    
    
    
    25,698
    
    
    
    
    
    
    
    25,698Balance, December 31, 2005
    
    $
    219
    
    
    $
    85,550
    
    
    $
    (67,151
    )
    
    $
    
    
    
    $
    18,618
  51




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##### Table of Contents



Pinnacle Airlines Corp.
 
 Consolidated Statements of Cash Flows
(in thousands)
 Years Ended December 31,2005
    
    
    2004
    
    
    2003Operating activitiesNet income
    
    $
    25,698
    
    
    $
    40,725
    
    
    $
    35,067Adjustments to reconcile net income to cash provided by
operating activities:Provision for Northwest and Mesaba bankruptcies
    
    
    59,254
    
    
    
    
    
    
    
    Depreciation
    
    
    4,017
    
    
    
    3,153
    
    
    
    2,912Deferred income taxes (benefit)
    
    
    (7,965
    )
    
    
    2,394
    
    
    
    1,885Other
    
    
    777
    
    
    
    (485
    )
    
    
    151Gain on
repurchase of debt
    
    
    (18,000
    )
    
    
    
    
    
    
    Amortization of unearned compensation
    
    
    468
    
    
    
    109
    
    
    
    Amortization of debt issuance costs
    
    
    194
    
    
    
    
    
    
    
    Amortization of contractual rights
    
    
    680
    
    
    
    
    
    
    
    Changes in operating assets and liabilities:Receivables, principally from Northwest
    
    
    (56,574
    )
    
    
    (7,575
    )
    
    
    5,168Spare parts and supplies
    
    
    (1,617
    )
    
    
    (1,905
    )
    
    
    (954
    )Prepaid expenses and other assets
    
    
    (1,023
    )
    
    
    (6,184
    )
    
    
    3,407Accounts payable and accrued expenses
    
    
    6,037
    
    
    
    10,975
    
    
    
    (2,213
    )Other current liabilities
    
    
    (785
    )
    
    
    753
    
    
    
    (121
    )Income taxes payable
    
    
    16,123
    
    
    
    (3,963
    )
    
    
    4,780Cash provided by operating activities
    
    
    27,284
    
    
    
    37,997
    
    
    
    50,082Investing activitiesPurchases of property and equipment
    
    
    (7,962
    )
    
    
    (8,647
    )
    
    
    (10,894
    )Proceeds from the sale of property and equipment
    
    
    
    
    
    
    1,057
    
    
    
    Purchases of short-term investments
    
    
    (114,900
    )
    
    
    
    
    
    
    Proceeds from sale of short-term investments
    
    
    70,740
    
    
    
    
    
    
    
    Purchase of contractual rights from Northwest
    
    
    (5,115
    )
    
    
    (10,000
    )
    
    
    Cash used in investing activities
    
    
    (57,237
    )
    
    
    (17,590
    )
    
    
    (10,894
    )Financing activitiesPayments on long-term debt with Northwest
    
    
    (101,600
    )
    
    
    (12,000
    )
    
    
    (18,000
    )Proceeds from line of credit with a bank
    
    
    17,000
    
    
    
    
    
    
    
    Repayments on line of credit with a bank
    
    
    
    
    
    
    
    
    
    
    (4,245
    )(Repayments) borrowings under line of credit with Northwest
    
    
    (5,000
    )
    
    
    (5,000
    )
    
    
    10,000Gross proceeds from issuance of senior convertible notes
    
    
    121,000
    
    
    
    
    
    
    
    Debt issuance costs
    
    
    (4,392
    )
    
    
    
    
    
    
    Other costs to retire note payable
    
    
    (400
    )
    
    
    
    
    
    
    Other financing activities
    
    
    
    
    
    
    (18
    )
    
    
    Cash provided by (used in) financing activities
    
    
    26,608
    
    
    
    (17,018
    )
    
    
    (12,245
    )Net increase (decrease) in cash and cash equivalents
    
    
    (3,345
    )
    
    
    3,389
    
    
    
    26,943Cash and cash equivalents at beginning of period
    
    
    34,912
    
    
    
    31,523
    
    
    
    4,580Cash and cash equivalents at end of period
    
    $
    31,567
    
    
    $
    34,912
    
    
    $
    31,523Supplemental disclosure of cash flow informationInterest paid
    
    $
    7,562
    
    
    $
    5,920
    
    
    $
    6,345Income tax payments
    
    $
    2,837
    
    
    $
    23,970
    
    
    $
    15,553Other non-cash transactionsDividends issued to Northwest
    
    $
    
    
    
    $
    
    
    
    $
    215,500Capital contribution from Northwest applied to note payable
    
    $
    
    
    
    $
    
    
    
    $
    50,000Payments owed to Northwest for purchase of contractual rights
    
    $
    
    
    
    $
    5,115
    
    
    $
    Property acquired through a capital lease obligation
    
    $
    
    
    
    $
    87
    
    
    $
    
  52




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 1. Description of Business
   2. Significant Accounting Policies
 Principles of Consolidation
  Cash and Cash Equivalents
  Revenue Recognition
    53




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 2. Significant Accounting Policies (continued)
  Allowance for Doubtful Accounts
  Concentration of Credit Risk
  Property and Equipment
  Spare Parts and Supplies
  Maintenance
  Warranty
  54




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 2. Significant Accounting Policies (continued)
 Manufacturer Credits
   Aircraft Deposits
  Income Taxes
  Goodwill
   Contractual Rights Acquired from Northwest
   55




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 2. Significant Accounting Policies (continued)
 Impairment of Long-Lived Assets
  Estimated Losses on Subleased Aircraft
  Earnings Per Share
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Net income
    
    $
    25,698
    
    
    $
    40,725
    
    
    $
    35,067Basic and diluted earnings per share
    
    $
    1.17
    
    
    $
    1.86
    
    
    $
    1.60Share computation:Weighted average number of shares outstanding for basic EPS
    
    
    21,913
    
    
    
    21,892
    
    
    
    21,892Assumed exercise of stock options
    
    
    19
    
    
    
    19
    
    
    
    Weighted average number of shares outstanding for diluted EPS
    
    
    21,932
    
    
    
    21,911
    
    
    
    21,892
  56




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 2. Significant Accounting Policies (continued)
 Stock-Based Compensation
   Years Ended December 31,2005
    
    
    2004
    
    
    2003Net income
    
    $
    25,698
    
    
    $
    40,725
    
    
    $
    35,067Add: Stock-based compensation expense included in reported
net income, net of tax
    
    
    291
    
    
    
    68
    
    
    
    Deduct: Stock-based compensation expense determined under
the fair value method, net of tax
    
    
    (1,091
    )
    
    
    (991
    )
    
    
    (121
    )Pro forma net income
    
    $
    24,898
    
    
    $
    39,802
    
    
    $
    34,946Net income
per common share  basic and diluted, as reported
    
    $
    1.17
    
    
    $
    1.86
    
    
    $
    1.60Pro forma
net income per common share  basic and diluted
    
    $
    1.14
    
    
    $
    1.82
    
    
    $
    1.60
    57




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##### Table of Contents



Item 8. Financial Statement and Supplementry Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 2. Significant Accounting Policies (continued)
 Financial Instruments
    Short-Term Investments
     Segment Reporting
  58




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##### Table of Contents



Item 8. Financial Statement and Supplementry Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 2. Significant Accounting Policies (continued)
 Comprehensive Income
  Significant Concentration
  Reclassification
  Use of Estimates
  3. Northwest and Mesaba Bankruptcy Filings
    59




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##### Table of Contents



Item 8. Financial Statement and Supplementry Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 3. Northwest and Mesaba Bankruptcy Filings (continued)
       60




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##### Table of Contents



Item 8. Financial Statement and Supplementry Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 3. Northwest and Mesaba Bankruptcy Filings (continued)
    4. Airline Services Agreement
     61




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##### Table of Contents



Item 8. Financial Statement and Supplementry Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 4. Airline Services Agreement (continued)
        62




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##### Table of Contents



Item 8. Financial Statement and Supplementry Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 4. Airline Services Agreement (continued)
  5. Other Agreements with Northwest
  Aircraft and Spare Engine Lease Agreements
 Manufacturer Benefits Agreement
 Sublease and Facilities Use Agreements
 Information Technology Support Agreement
 Family Assistance Services Agreement
 Ground Handling Agreement
 63




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##### Table of Contents



Item 8. Financial Statement and Supplementry Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 5. Other Agreements with Northwest (continued)
 Preferential Pilot Hiring Agreement
 6. Change in Ownership and Public Offering
    7. Note Payable and Dividends to Northwest
   Net receivables due from Northwest
    
    $
    59,632Less: Income taxes payable to Northwest
    
    
    26,843Net deferred taxes payable to Northwest
    
    
    1,843Dividend to Northwest
    
    
    15,500Cash payment to the Company
    
    $
    15,446
  64




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##### Table of Contents



Item 8. Financial Statement and Supplementry Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 7. Note Payable and Dividends to Northwest (continued)
   8. Senior Convertible Notes
      
    
    During a quarter (and only during such quarter) if the closing price of the
Companys common stock exceeds 120% of the conversion price of the Notes (initially
$15.86 per share) for at least 20 of the last 30 trading days of the preceding
quarter;
    
    During a five day period after the Notes have traded for a five day period at a
price that is less than 98% of the equivalent value that could be realized upon
conversion of the Notes;
    
    If the Company calls the Notes for redemption;
 65




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##### Table of Contents



Item 8. Financial Statement and Supplementry Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 8. Senior Convertible Notes (continued)
 
    
    If a change of control or other specified corporate transactions or
distributions to holders of the Companys common stock occurs (and in some
instances, the Company may also owe an additional premium upon a change in
control); and
    
    During the ten trading days prior to the maturity date of February 15, 2025.
   9. Lines of Credit
      66




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##### Table of Contents



Item 8. Financial Statement and Supplementry Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 10. Summary of Revenue from Regional Airline Services
   Years Ended December 31,(in thousands)2005
    
    
    2004
    
    
    2003Reimbursed
    
    
    Unreimbursed
    
    
    Other
    
    
    Total
    
    
    Reimbursed
    
    
    Unreimbursed
    
    
    Total
    
    
    Reimbursed
    
    
    Unreimbursed
    
    
    TotalOperating revenues:Regional airline services
    
    $
    564,030
    
    
    $
    269,095
    
    
    $
    
    
    
    $
    833,125
    
    
    $
    423,911
    
    
    $
    207,593
    
    
    $
    631,504
    
    
    $
    296,257
    
    
    $
    154,354
    
    
    $
    450,611Other revenue
    
    
    
    
    
    
    8,480
    
    
    
    
    
    
    
    8,480
    
    
    
    
    
    
    
    3,944
    
    
    
    3,944
    
    
    
    
    
    
    
    6,159
    
    
    
    6,159Total operating revenues
    
    
    564,030
    
    
    
    277,575
    
    
    
    
    
    
    
    841,605
    
    
    
    423,911
    
    
    
    211,537
    
    
    
    635,448
    
    
    
    296,257
    
    
    
    160,513
    
    
    
    456,770Operating expenses:Salaries, wages and benefits
    
    
    
    
    
    
    134,277
    
    
    
    
    
    
    
    134,277
    
    
    
    
    
    
    
    105,143
    
    
    
    105,143
    
    
    
    
    
    
    
    83,316
    
    
    
    83,316Aircraft fuel
    
    
    111,993
    
    
    
    673
    
    
    
    
    
    
    
    112,666
    
    
    
    83,061
    
    
    
    511
    
    
    
    83,572
    
    
    
    54,731
    
    
    
    276
    
    
    
    55,007Aircraft maintenance, materials and repairs
    
    
    14,582
    
    
    
    17,283
    
    
    
    
    
    
    
    31,865
    
    
    
    11,842
    
    
    
    11,703
    
    
    
    23,545
    
    
    
    6,548
    
    
    
    7,568
    
    
    
    14,116Aircraft rentals
    
    
    277,914
    
    
    
    
    
    
    
    
    
    
    
    277,914
    
    
    
    209,047
    
    
    
    
    
    
    
    209,047
    
    
    
    136,273
    
    
    
    
    
    
    
    136,273Other rentals and landing fees
    
    
    17,914
    
    
    
    25,058
    
    
    
    
    
    
    
    42,972
    
    
    
    18,651
    
    
    
    18,450
    
    
    
    37,101
    
    
    
    16,512
    
    
    
    12,743
    
    
    
    29,255Government reimbursements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,000
    )
    
    
    (114
    )
    
    
    (1,114
    )Ground handling services
    
    
    69,580
    
    
    
    23,109
    
    
    
    
    
    
    
    92,689
    
    
    
    47,533
    
    
    
    18,344
    
    
    
    65,877
    
    
    
    33,223
    
    
    
    11,399
    
    
    
    44,622Depreciation
    
    
    
    
    
    
    4,017
    
    
    
    
    
    
    
    4,017
    
    
    
    
    
    
    
    3,153
    
    
    
    3,153
    
    
    
    
    
    
    
    2,912
    
    
    
    2,912Other
    
    
    15,644
    
    
    
    43,033
    
    
    
    
    
    
    
    58,677
    
    
    
    11,386
    
    
    
    29,321
    
    
    
    40,707
    
    
    
    9,600
    
    
    
    18,614
    
    
    
    28,214Provision for losses associated with bankruptcy filings
of Northwest and Mesaba
    
    
    
    
    
    
    
    
    
    
    59,599
    
    
    
    59,599
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    507,627
    
    
    
    247,450
    
    
    
    59,599
    
    
    
    814,676
    
    
    
    381,520
    
    
    
    186,625
    
    
    
    568,145
    
    
    
    255,887
    
    
    
    136,714
    
    
    
    392,601Operating income (loss):
    
    $
    56,403
    
    
    $
    30,125
    
    
    $
    (59,599
    )
    
    $
    26,929
    
    
    $
    42,391
    
    
    $
    24,912
    
    
    $
    67,303
    
    
    $
    40,370
    
    
    $
    23,799
    
    
    $
    64,169Operating income (loss) as a percent of operating
revenues
    
    
    10.0
    %
    
    
    10.9
    %
    
    
    
    
    
    
    3.2
    %
    
    
    10.0
    %
    
    
    11.8
    %
    
    
    10.6
    %
    
    
    13.6
    %
    
    
    14.8
    %
    
    
    14.0
    %
 11. Related Party Transactions
  67




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 11. Related Party Transactions (continued)
  Years Ended December 31,2005
    
    2004
    
    2003Revenue:Regional airline services revenue
    
    $
    833,125
    
    
    $
    631,504
    
    
    $
    450,611Other revenue
    
    
    5,873
    
    
    
    2,380
    
    
    
    2,020Expenses:Aircraft fuel
    
    
    111,993
    
    
    
    83,061
    
    
    
    53,909Aircraft rentals
    
    
    277,914
    
    
    
    209,047
    
    
    
    136,273Other rentals and landing fees
    
    
    11,250
    
    
    
    11,250
    
    
    
    11,250Ground handling services
    
    
    66,671
    
    
    
    46,112
    
    
    
    32,069Other
    
    
    2,623
    
    
    
    394
    
    
    
    275Provision for losses associated
with the Northwest
bankruptcy filing (Note 3)
    
    
    51,523
    
    
    
    
    
    
    
    Interest expense
    
    
    463
    
    
    
    4,765
    
    
    
    7,176
     68




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 12. Leases
    Fleet Size as of December 31,Aircraft
    
    Standard Seating Configuration
    
    2005
    
    2004
    
    2003CRJ 200
    
    
    50
    
    
    
    53
    
    
    
    42
    
    
    
    35CRJ 440
    
    
    44
    
    
    
    71
    
    
    
    75
    
    
    
    41124
    
    
    
    117
    
    
    
    76
  Operating LeasesAircraft
    
    
    Non-aircraft2006
    
    $
    267,882
    
    
    $
    20,3712007
    
    
    262,785
    
    
    
    16,5492008
    
    
    261,792
    
    
    
    15,7712009
    
    
    260,458
    
    
    
    15,5242010
    
    
    260,400
    
    
    
    15,530Thereafter
    
    
    1,822,800
    
    
    
    48,324Total future rental payments
    
    $
    3,136,117
    
    
    $
    132,069
  2005
    
    
    2004
    
    
    2003Gross rental expense
    
    $
    303,560
    
    
    $
    233,947
    
    
    $
    160,723Sublease rental payments
    
    
    (7,082
    )
    
    
    (7,811
    )
    
    
    (8,181
    )Net rental expense
    
    $
    296,478
    
    
    $
    226,136
    
    
    $
    152,542
  69




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 13. Accrued Expenses
  2005
    
    
    2004Taxes other than income
    
    $
    8,342
    
    
    $
    6,637Compensation
    
    
    6,842
    
    
    
    6,018Ground handling and landing fees
    
    
    5,489
    
    
    
    4,349Insurance costs
    
    
    1,882
    
    
    
    1,795Interest
    
    
    1,574
    
    
    
    2Other
    
    
    1,029
    
    
    
    631$
    25,158
    
    
    $
    19,432
 14. Other Expenses
  2005
    
    
    2004
    
    
    2003Passenger liability insurance
    
    $
    3,427
    
    
    $
    2,682
    
    
    $
    2,427Hull and other insurance
    
    
    3,047
    
    
    
    2,785
    
    
    
    1,664Property and other taxes
    
    
    9,701
    
    
    
    6,884
    
    
    
    5,635Crew training expense
    
    
    5,165
    
    
    
    5,124
    
    
    
    2,515Crew overnight accommodations
    
    
    10,252
    
    
    
    6,250
    
    
    
    3,517Catering expense
    
    
    1,644
    
    
    
    1,208
    
    
    
    1,217Professional services fees
    
    
    4,994
    
    
    
    2,048
    
    
    
    420Canadian air traffic control
    
    
    2,076
    
    
    
    1,388
    
    
    
    591Other
    
    
    18,371
    
    
    
    12,338
    
    
    
    10,228$
    58,677
    
    
    $
    40,707
    
    
    $
    28,214
 70




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 15. Income Taxes
  December 31,2005
    
    
    2004Deferred tax assets:Asset valuation reserves
    
    $
    412
    
    
    $
    292Vacation pay
    
    
    1,213
    
    
    
    983Bad debt reserves
    
    
    8,992
    
    
    
    Other accruals
    
    
    48
    
    
    
    133Valuation allowance
    
    
    (288
    )
    
    
    Total deferred tax assets
    
    
    10,377
    
    
    
    1,408Deferred tax liabilities:Prepaid insurance
    
    
    (376
    )
    
    
    (408
    )Tax over book depreciation
    
    
    (7,967
    )
    
    
    (7,245
    )Other
    
    
    (314
    )
    
    
    Total deferred tax liabilities
    
    
    (8,657
    )
    
    
    (7,653
    )Net deferred tax asset (liability)
    
    $
    1,720
    
    
    $
    (6,245
    )
  2005
    
    
    
    
    
    
    2004
    
    
    2003Current:Federal
    
    $
    21,726
    
    
    
    
    
    
    $
    19,179
    
    
    $
    17,293State
    
    
    1,952
    
    
    
    
    
    
    
    827
    
    
    
    3,15423,678
    (1)
    

    
    
    
    
    
    20,006
    
    
    
    20,447Deferred:Federal
    
    
    (7,732
    )
    
    
    
    
    
    
    2,511
    
    
    
    1,454State
    
    
    (233
    )
    
    
    
    
    
    
    (117
    )
    
    
    431(7,965
    )(2)
    
    
    

    
    
    
    2,394
    
    
    
    1,885$
    15,713
    
    
    
    
    
    
    $
    22,400
    
    
    $
    22,332
    71




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 15. Income Taxes (continued)
  2005
    
    
    2004
    
    
    2003$
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %Income tax expense at
statutory
rate
    
    $
    14,494
    
    
    
    35.0
    %
    
    $
    22,094
    
    
    
    35.0
    %
    
    $
    20,090
    
    
    
    35.0
    %State income taxes, net of
federal taxes
    
    
    832
    
    
    
    2.0
    %
    
    
    1,279
    
    
    
    2.0
    %
    
    
    2,239
    
    
    
    3.9
    %Valuation reserve
    
    
    288
    
    
    
    0.7
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Decrease in estimate of prior
year taxes
    
    
    
    
    
    
    
    
    
    
    (1,063
    )
    
    
    (1.6
    %)
    
    
    
    
    
    
    Other
    
    
    99
    
    
    
    0.2
    %
    
    
    90
    
    
    
    0.1
    %
    
    
    3
    
    
    
    0.0
    %Income tax expense
    
    $
    15,713
    
    
    
    37.9
    %
    
    $
    22,400
    
    
    
    35.5
    %
    
    $
    22,332
    
    
    
    38.9
    %
       72




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 16. Stock-Based Compensation
     2005
    
    
    2004
    
    
    2003Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedStock
    
    
    Average
    
    
    Stock
    
    
    Average
    
    
    Stock
    
    
    AverageOptions
    
    
    Exercise Price
    
    
    Options
    
    
    Exercise Price
    
    
    Options
    
    
    Exercise PriceOutstanding at beginning
of year
    
    
    759
    
    
    $
    13.84
    
    
    
    858
    
    
    $
    14.00
    
    
    
    
    
    
    $
    Granted
    
    
    
    
    
    
    
    
    
    
    32
    
    
    $
    10.23
    
    
    
    858
    
    
    $
    14.00Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    96
    
    
    $
    14.00
    
    
    
    131
    
    
    $
    14.00
    
    
    
    
    
    
    
    Outstanding at end of year
    
    
    663
    
    
    $
    14.00
    
    
    
    759
    
    
    $
    13.84
    
    
    
    858
    
    
    $
    14.00Options exercisable at end of
year
    
    
    663
    
    
    $
    13.82
    
    
    
    182
    
    
    $
    14.00
    
    
    
    
    
    
    $
    
    73




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 16. Stock-Based Compensation (continued)
  17. Employee Benefit Plan
    Years of Service
    
    Company Match6 months  5 years
    
    25% of first 5%6  9 years
    
    40% of first 6%10  12 years
    
    60% of first 7%13 or more years
    
    70% of first 7%
  Employee Contribution
    
    Company MatchFirst 3%
    
    Dollar for dollar, or 100%Next 3%
    
    Matched at 67%
  74




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 18. Commitments and Contingencies
 Employees.
 Legal Proceedings.
 Purchase Commitments.
   Self-Insurance.
 Regulatory Matters.
 Guarantees
and Indemnifications
 75




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 18. Commitments and Contingencies (continued)
     19. Quarterly Financial Data (Unaudited)
  Three Months Ended2005
    
    March 31
    
    June 30
    
    September 30
    
    December 31Operating revenue
    
    $
    194,732
    
    
    $
    212,899
    
    
    $
    220,943
    
    
    $
    213,031Operating income (loss)
    
    
    20,071
    
    
    
    22,781
    
    
    
    (32,356
    )
    
    
    16,433Net income (loss)
    
    
    23,332
    
    
    
    13,796
    
    
    
    (21,392
    )
    
    
    9,962Basic and diluted
income (loss) per
share
    
    $
    1.06
    
    
    $
    0.63
    
    
    $
    (0.98
    )
    
    $
    0.45Operating income
(loss) as a percentage
of operating revenues
    
    
    10.3
    %
    
    
    10.7
    %
    
    
    (14.6
    %)
    
    
    7.7
    %
 Three Months Ended2004
    
    March 31
    
    June 30
    
    September 30
    
    December 31Operating revenue
    
    $
    133,879
    
    
    $
    152,173
    
    
    $
    168,086
    
    
    $
    181,310Operating income
    
    
    14,344
    
    
    
    16,910
    
    
    
    18,525
    
    
    
    17,524Net income
    
    
    8,054
    
    
    
    9,698
    
    
    
    12,649
    
    
    
    10,324Basic and diluted income per share
    
    $
    0.37
    
    
    $
    0.44
    
    
    $
    0.58
    
    
    $
    0.47Operating income as a percentage
of operating revenues
    
    
    10.7
    %
    
    
    11.1
    %
    
    
    11.0
    %
    
    
    9.7
    %
  76




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Item 8. Financial Statements and Supplementary Data
 Notes to Consolidated Financial Statements
(all amounts in thousands, except per share data)
 19. Quarterly Financial Data (Unaudited)
   77




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
 The Board of Directors and Shareholders
Pinnacle Airlines Corp.
     .
   
 78




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  79




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##### Table of Contents



Item 9A. Controls and Procedures
 Disclosure Controls and Procedures.
 Managements Report on Internal Control over Financial Reporting Internal Control  Integrated Framework
  Changes in Internal Control over Financial Reporting.
 80




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##### Table of Contents



Item 9B. Other Information
  81




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##### Table of Contents



Part III
 
 Item 10. Directors and Executive Officers of the Registrant
 
 Item 11. Executive Compensation
 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
 
 Item 13. Certain Relationships and Related Transactions
 
 Item 14. Principal Accountant Fees and Services
  82




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##### Table of Contents



Part IV
 
 Item 15. Exhibits and Financial Statement Schedules
  1.
    
    The following financial statements are included in Part II, Item 8. Financial
Statements and Supplementary Data:Report of Independent Registered Public Accounting Firm:
 i)
    
    Consolidated Statements of Income for the Years Ended December 31, 2005, 2004,
and 2003ii)
    
    Consolidated Balance Sheets as of December 31, 2005 and 2004iii)
    
    Consolidated Statements of Stockholders Equity (Deficiency) for the Years Ended
December 31, 2005, 2004 and 2003iv)
    
    Consolidated Statements of Cash Flows for the Years Ended December 31, 2005,
2004 and 2003v)
    
    Notes to Consolidated Financial Statementsvi)
    
    Report of Independent Registered Public Accounting Firm on Managements
Assessment and the Effectiveness of Internal Control Over Financial Reporting
 2.
    
    Financial Statement Schedule:Report of Independent Registered Public Accounting
Firm on Financial Statement Schedule                      S-1Schedule IIValuation and Qualifying Accounts
                                                                                         S-2All schedules have been omitted because they are inapplicable, not
required, or the information is included elsewhere in the
consolidated financial statements or notes thereto.3.
    
    Exhibits: See accompanying Exhibit Index included after the signature page of this report
for a list of the exhibits filed or furnished with or incorporated by reference in this
report.
 83




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##### Table of Contents



SIGNATURES
  Pinnacle Airlines
Corp.(Registrant)By:
    
    /s/ Philip H. TrenaryName:
    
    Philip H. TrenaryMarch 3, 2006
    
    Title:
    
    President, Chief Executive Officer
  Signature
    

Title/s/ Philip H. Trenary
    
    President, Chief Executive Officer and DirectorPhilip H. Trenary
    
    (Principal
Executive Officer)/s/ Peter D. Hunt
    
    Vice-President, Chief Financial OfficerPeter D. Hunt
    
    (Principal
Accounting Officer)/s/ Stephen E. Gorman
    
    Chairman, DirectorStephen E. Gorman/s/ Donald J. Breeding
    
    DirectorDonald J. Breeding/s/ Ian Massey
    
    DirectorIan Massey/s/ James E. McGehee, Jr.
    
    DirectorJames E. McGehee, Jr./s/ Thomas S. Schreier, Jr.
    
    DirectorThomas S. Schreier, Jr./s/ R. Philip Shannon
    
    DirectorR. Philip Shannon/s/ Nicholas R. Tomassetti
    
    DirectorNicholas R. Tomassetti
 84




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##### Table of Contents



Index of Exhibits
  ExhibitNumber
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of the registrant (Incorporated by
reference to the Companys Registration Statement Form S-1 (Registration No. 333-83359), as
amended (the S-1) initially filed on February 25, 2002)3.1.1
    
    Second Amended and Restated Certificate of Incorporation of the registrant (Incorporated by
reference to the S-1)3.2
    
    Certificate of Designations for Series A preferred stock of the registrant (Incorporated by reference to the S-1)3.3
    
    Bylaws of the registrant (Incorporated by reference to the S-1)3.3.1
    
    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 Pinnacle Airlines Corp. and Deutsche Bank Trust Company (Incorporated by reference to
Exhibits 99.2 and 99.3 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 Pinnacle Airlines Corp., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Raymond James & Associates, Inc. (Incorporated by
reference to Exhibits 99.2 and 99.3 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. 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
    
    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. and Northwest Airlines, Inc.
(Incorporated by reference to the S-1)10.3.1
    
    First Amendment to Engine Lease Agreement between Pinnacle Airlines, Inc. and Northwest
Airlines, Inc. (Incorporated by reference to the S-1)10.3
    
    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)10.4
    
    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)10.5
    
    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)
 85




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##### Table of Contents



ExhibitNumber
    
    Description10.6
    
    Negative Pledge Agreement dated as of June 16, 2005 between Pinnacle Airlines Corp. 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 Plan10.9
    
    Non-Qualified 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)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
    
    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
    
    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
    
    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 omitted10.17
    
    Intentionally omitted10.18
    
    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
    
    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
    
    Amended and Restated Ground Handling Agreement between Pinnacle Airlines, Inc. and
Northwest Airlines, Inc. (Incorporated by reference to the S-1)10.23
    
    Amended and Restated Information Technology Services Agreement between Pinnacle Airlines,
Inc. and Northwest Airlines, Inc. (Incorporated by reference to the S-1)10.24
    
    Amended and Restated Family Assistance Services Agreement between Pinnacle Airlines, Inc.
and Northwest Airlines, Inc. (Incorporated by reference to the S-1)10.25
    
    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, Pinnacle Airlines Corp., 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
    
    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 August 12, 2005)
 86




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##### Table of Contents



ExhibitNumber
    
    Description10.29
    
    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 August 12, 2005)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 August 12, 2005)10.31
    
    Form of Indemnity Agreement between Pinnacle Airlines Corp. and its directors and officers
(Incorporated by reference to the Registrants Current Report on Form 8-K filed on January
26, 2006)10.99.1#
    
    Promissory Note issued by Pinnacle Airlines, Inc. to Northwest Airlines, Inc.
(Incorporated by reference to the S-1)10.99.2#
    
    Guarantee of Promissory Note issued by registrant to Northwest Airlines, Inc.
(Incorporated by reference to the S-1)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 February 8, 2005)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 Firm31.1*
    
    Certification of Chief Executive Officer31.2*
    
    Certification of Chief Financial Officer32*
    
    Certifications of CEO and CFO
 
 *
    
    Filed herewith
    
    Management contract or compensatory plan or arrangement#
    
    Cancelled agreement referenced in this Form 10-K
 87




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
 
     
 88




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##### Table of Contents



(d) Schedule II
 Pinnacle Airlines Corp.
Valuation and Qualifying Accounts  Unaudited
(in thousands)
 AdditionsBalance at
    
    
    Charged to
    
    
    Charged
    
    
    
    
    
    
    Balance atBeginning
    
    
    Costs and
    
    
    to Other
    
    
    
    
    
    
    End ofDescription
    

of
Period
    
    

Expenses
    
    

Accounts
    
    

Deductions
    
    

PeriodYear Ended December 31, 2005Allowance deducted from asset accounts:Allowance for doubtful accounts
    
    $
    34
    
    
    $
    51,523
    
    
    $
    (31
    )
    
    $
    (3
    )           (1)
    
    $
    51,523Allowance for obsolete inventory parts
    
    
    494
    
    
    
    590
    
    
    
    
    
    
    
    
    
    
    
    1,084Year Ended December 31, 2004Allowance deducted from asset accounts:Allowance for doubtful accounts
    
    
    146
    
    
    
    422
    
    
    
    
    
    
    
    (534
    )
    
    
    34Allowance for obsolete inventory parts
    
    
    2,606
    
    
    
    177
    
    
    
    142
    
    
    
    (2,431
    )           (1)
    
    
    494Year Ended December 31, 2003Allowance deducted from asset accounts:Allowance for doubtful accounts
    
    
    536
    
    
    
    
    
    
    
    
    
    
    
    (390
    )
    
    
    146Allowance for obsolete inventory parts
    
    
    2,603
    
    
    
    106
    
    
    
    
    
    
    
    (103
    )           (1)
    
    
    2,606
 
 (1)
    
    Dispositions and write-offs 89




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##### Table of Contents



Pinnacle Airlines Corp.
Ratio of Earnings to Fixed Charges  Unaudited
(in thousands, except ratios)
 Years Ended December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001Earnings:Income from operations before taxes (1)
    
    $
    41,411
    
    
    $
    63,125
    
    
    $
    57,399
    
    
    $
    50,328
    
    
    $
    23,067Add back:Interest expense
    
    
    4,772
    
    
    
    4,907
    
    
    
    7,387
    
    
    
    409
    
    
    
    443Portion of rent expense representative
of interest factor
    
    
    134,442
    
    
    
    107,118
    
    
    
    71,072
    
    
    
    51,378
    
    
    
    33,491Earnings as adjusted
    
    $
    180,625
    
    
    $
    175,150
    
    
    $
    135,858
    
    
    $
    102,115
    
    
    $
    57,001Fixed charges:Interest expense
    
    $
    4,772
    
    
    $
    4,907
    
    
    $
    7,387
    
    
    $
    409
    
    
    $
    443Portion of rent expense representative
of interest factor
    
    
    134,442
    
    
    
    107,118
    
    
    
    71,072
    
    
    
    51,378
    
    
    
    33,491$
    139,214
    
    
    $
    112,025
    
    
    $
    78,459
    
    
    $
    51,787
    
    
    $
    33,934Ratio of earnings to fixed charges
    
    
    1.30
    
    
    
    1.56
    
    
    
    1.73
    
    
    
    1.97
    
    
    
    1.68
 
 (1)
    
    Income from operations before taxes for the year ended December 31,
2005 includes a gain of $18.0 million related to the repurchase of the Northwest
note payable in February 2005 and a $59.6 million charge for provisions related to
the bankruptcy filings of Northwest and Mesaba. 90