SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
Commission File No. 0-23224
GREAT LAKES AVIATION, LTD.
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
IOWA 42-1135319
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1022 AIRPORT PARKWAY, CHEYENNE, WYOMING 82001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (307) 432-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------------- ------------
As of May 11, 2000 there were 8,647,891 shares of Common Stock, par value $.01
per share, issued and outstanding.
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION...................................................................... 1
Item 1. Financial Statements........................................................................ 1
a) Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999........................................... 1
b) Condensed Consolidated Statements of Operations
Three months ended March 31, 2000 and 1999..................................... 2
c) Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 2000 and 1999..................................... 3
d) Condensed Notes to the Unaudited Consolidated
Interim Financial Statements................................................... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................................. 5
Item 3. Quantitative and Qualitative Disclosures
About Market Risk..........................................................................10
PART II. OTHER INFORMATION.........................................................................10
Item 1. Legal Proceedings...........................................................................10
Item 2. Changes in Securities......................................................................10
Item 3. Defaults Upon Senior Securities............................................................10
Item 4. Submission of Matters to a Vote of Security Holders........................................10
Item 5. Other Information..........................................................................10
Item 6. Exhibits and Reports on Form 8-K...........................................................10
SIGNATURES...........................................................................................11
EXHIBIT INDEX........................................................................................12
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31, 2000 December 31, 1999
-------------- ---------------
ASSETS
CURRENT ASSETS:
Cash $ 373,000 $ 84,000
Accounts receivable, net allowance for doubtful accounts
of approximately $153,000 and $153,000 respectively 14,154,000 12,576,000
Inventories, net 18,134,000 17,975,000
Prepaid expenses and other current assets 693,000 643,000
------------- -------------
Total current assets 33,354,000 31,278,000
------------- -------------
PROPERTY AND EQUIPMENT:
Flight equipment 122,260,000 122,250,000
Other property and equipment 5,437,000 5,188,000
Less accumulated depreciation and amortization (13,611,000) (12,073,000)
------------- -------------
Total property and equipment 114,086,000 115,365,000
OTHER ASSETS 2,127,000 2,233,000
------------- -------------
$ 149,567,000 $ 148,876,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current maturities of long-term debt $ 17,781,000 $ 14,424,000
Accounts payable 14,281,000 12,727,000
Deferred lease payments 2,084,000 2,457,000
Accrued liabilities and unearned revenue 3,458,000 4,783,000
------------- -------------
Total current liabilities 37,604,000 34,391,000
------------- -------------
LONG-TERM DEBT, net of current maturities 97,474,000 98,701,000
DEFERRED LEASE PAYMENTS 2,458,000 2,538,000
DEFERRED CREDITS 4,568,000 4,627,000
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 50,000,000 shares authorized,
8,647,891 and 8,637,440 shares issued and outstanding
at March 31, 2000, and December 31, 1999 respectively 86,000 86,000
Paid-in capital 31,631,000 31,610,000
Accumulated deficit (24,254,000) (23,077,000)
------------- -------------
Total stockholders' equity 7,463,000 8,619,000
------------- -------------
$ 149,567,000 $ 148,876,000
============= =============
See condensed notes to financial statements.
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31
(Unaudited)
2000 1999
----------- ------------
OPERATING REVENUES:
Passenger $ 25,859,000 $ 23,718,000
Public service 4,083,000 4,257,000
Freight, charter and other 2,008,000 2,208,000
------------ ------------
Total operating revenues 31,950,000 30,183,000
------------ ------------
OPERATING EXPENSES:
Salaries, wages and benefits 8,439,000 8,267,000
Aircraft fuel 4,755,000 3,484,000
Aircraft maintenance materials
and component repairs 3,692,000 3,479,000
Commissions 1,138,000 1,356,000
Depreciation and amortization 1,758,000 897,000
Aircraft rental 2,465,000 4,306,000
Other rentals and landing fees 1,799,000 1,940,000
Other operating expenses 7,002,000 6,309,000
------------ ------------
Total operating expenses 31,048,000 30,038,000
------------ ------------
Operating income 902,000 145,000
INTEREST EXPENSE: 2,079,000 892,000
------------ ------------
Loss before income taxes (1,177,000) (747,000)
INCOME TAX EXPENSE (BENEFIT) - -
------------ ------------
(1,177,000) $ (747,000)
============ ============
BASIC AND DILUTED LOSS PER SHARE $ (0.14) $ (.09)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 8,637,555 8,624,496
============ ============
See condensed notes to financial statements.
2
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31
(Unaudited)
2000 1999
---------- ------------
OPERATING ACTIVITIES:
Net loss $(1,177,000) $ (747,000)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 1,663,000 850,000
Change in current operating items:
Accounts receivable, net (1,578,000) 209,000
Inventories, net (284,000) (368,000)
Prepaid expenses and other current assets (50,000) 96,000
Accounts payable and accrued liabilities 229,000 58,000
Deferred lease payments and deferred credits (512,000) 2,272,000
----------- -----------
Net cash flows (used in) provided by
operating acitivies (1,709,000) 2,370,000
----------- -----------
INVESTING ACTIVITIES:
Purchases of flight equipment and
other property and equipment (259,000) (974,000)
Change in other assets 106,000 108,000
----------- -----------
Net cash flows used in investing activities (153,000) (866,000)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of notes payable and long term debt 7,715,000 -
Repayment of notes payable and long term debt (1,227,000) (526,000)
Payments on short-term note payable and line of credit (4,358,000) (166,000)
Proceeds from sale of common stock 21,000 41,000
----------- -----------
Net cash flows provided by (used in)
financing activities 2,151,000 (651,000)
----------- -----------
NET CHANGE IN CASH 289,000 853,000
CASH:
Beginning of period 84,000 189,000
----------- -----------
End of period $ 373,000 $ 1,042,000
=========== ===========
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 2,649,000 $ 930,000
=========== ===========
See condensed notes to financial statements.
3
GREAT LAKES AVIATION, LTD.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by
Great Lakes Aviation, Ltd. (the "Company"), without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. The information
furnished in the consolidated financial statements includes normal recurring
adjustments and reflects all adjustments, which are, in the opinion of
management, necessary for a fair presentation of such consolidated financial
statements. The Company's business is seasonal and, accordingly, interim results
are not necessarily indicative of results for a full year. Certain information
and footnote disclosures normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. The Balance Sheet at December 31, 1999 has been
derived from the audited financial statements as of that date. It is suggested
that these consolidated financial statements be read in conjunction with the
consolidated financial statements for the year ended December 31, 1999 and the
notes thereto included in the Company's Annual Report on Form 10-K, filed with
the Securities and Exchange Commission.
The consolidated financial statements include the accounts of Great Lakes
Aviation, Ltd. and its wholly owned subsidiary "RDU Inc.", referred to
collectively as the Company. All significant inter-company transactions and
balances have been eliminated in consolidation. RDU, Inc. currently has no
activity and is not being utilized by the Company.
The Company is currently operating scheduled passenger and airfreight service
exclusively under a cooperative marketing agreement, (the "United Express
Agreement") with United Airlines, Inc. ("United"). (See United Express
Relationship)
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments and
all hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities at their fair values. Accounting for changes in the
fair value of a derivative depends on its designation and effectiveness. For
derivatives that qualify as effective hedges, the change in fair value will have
no impact on earnings until the hedged item affects earnings. For derivatives
that are not designated as hedging instruments, or for the ineffective portion
of a hedging instrument, the change in fair value will affect current period
earnings. At March 31, 2000, the Company had no derivative instruments.
4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion and analysis in this section and in the notes to the financial
statements contain certain forward-looking terminology such as "believes,"
"anticipates," "will," and "intends," or comparable terminology which are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected. Potential purchasers of the Company's securities are cautioned not to
place undue reliance on such forward-looking statements which are qualified in
their entirety by the cautions and risks described herein and in other reports
filed by the Company with the Securities and Exchange Commission.
OVERVIEW
The Company began providing air charter service in 1979, and has provided
scheduled passenger service in the Upper Midwest since 1981. In April 1992, the
Company began operating as a United Express carrier under a cooperative
marketing agreement with United. As of March 31, 2000, the Company served 67
destinations in 14 states with 390 scheduled departures each weekday.
5
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999
The following table sets forth certain financial information regarding the
Company:
STATEMENT OF OPERATIONS DATA
For the Three Months Ended March 31
-------------------------------------------------------------------
2000 1999
------------------------------------- -----------------------
Cents % Increase Cents
Per (decrease) Per
Amount ASM from 1999 Amount ASM
TOTAL OPERATING REVENUES $31,950,000 25.0 5.9% $30,183,000 22.3
----------- ----- --------- ----------- ---------
Salaries, wages and benefits 8,439,000 6.6 2.1 8,267,000 6.1
Aircraft fuel 4,755,000 3.7 36.5 3,484,000 2.6
Aircraft maintenance materials
and component repairs 3,692,000 2.9 6.1 3,479,000 2.6
Commissions 1,138,000 0.9 (16.1) 1,356,000 1.0
Depreciation and amortization 1,758,000 1.4 96.0 897,000 0.7
Aircraft rental 2,465,000 1.9 (42.8) 4,306,000 3.2
Other rentals and landing fees 1,799,000 1.4 (7.3) 1,940,000 1.4
Other operating expense 7,002,000 5.5 11.0 6,309,000 4.7
----------- ----- --------- ----------- ---------
Total Operating Expenses 31,048,000 24.3 3.4 30,038,000 22.2
----------- ----- --------- ----------- ---------
Operating income 902,000 - 522.1 145,000 -
=========== ===== ========= =========== =========
Interest expense (net) 2,079,000 1.6 132.8 893,000 0.7
=========== ===== ========= =========== =========
SELECTED OPERATING DATA Increase/(Decrease)
2000 from 1999 1999
------- ---- -------
Available Seat Miles (000s) 127,991 (5.5) 135,479
Revenue Passenger Miles (000s) 58,986 1.3 58,201
Passenger Load Factor 46.1% 3.1 pts 43.0%
Passengers carried 246,527 11.1 221,813
Average Yield per Revenue Passenger Mile 43.8(cent) 7.4 % 40.8(cent)
OPERATING REVENUES
Operating revenues increased 5.9% to $32.0 million in the first quarter of 2000
from $30.2 million during the first quarter of 1999. The increase in operating
revenues resulted from a 7.4% increase to 43.8 cents in average yield per
revenue passenger mile in the first quarter of 2000 from 40.8 cents in the first
quarter of 1999, and an 11.1% increase in the number of passengers carried to
246,527 in the first quarter of 2000 from 221,813 during the first quarter of
1999.
OPERATING EXPENSES
Total operating expenses increased to $31.0 million from $30.0 million in the
first quarter of 1999, primarily as a result of increased pilot training costs
due to turnover and higher fuel prices.
6
Salaries, wages, and benefits expense increased 2.1%, to 6.6 cents per ASM
during the first quarter of 2000, from 6.1 cents per ASM during the first
quarter of 1999. This increase was due to normal salary increases spread over a
smaller ASM base for the first quarter of 2000.
Aircraft fuel expense per ASM increased 36.5%, to 3.7 cents per ASM in the first
quarter of 2000 from 2.6 cents in the first quarter of 1999 as a result of an
increase in fuel prices which began in late 1999, and continued into 2000.
Aircraft parts and component repair expenses increased 6.1%, to 2.9 cents per
ASM during the first quarter of 2000 from 2.6 cents per ASM during the same
period in 1999, due to an increased level of scheduled maintenance.
Aircraft rental expense decreased during the first quarter of 2000 to $2.5
million or 1.9 cents per ASM from $4.3 million or 3.2 cents per ASM during the
first quarter of 1999. This decrease is due to the Company's purchase and debt
financing of 22 1900D aircraft which the Company had previously leased under
short-term operating leases.
Interest expense increased to 1.6 cents per ASM for the first quarter of 2000,
from 0.7 cents per ASM during the first quarter of 1999. Depreciation and
amortization increased to 1.4 cents per ASM during the first quarter of 2000,
from 0.7 cents per ASM in the first quarter of 1999. The increases in these
expenses was the result of the above-mentioned conversion of short-term leases
to aircraft utilizing long-term debt.
Other operating expenses increased to 5.5 cents per ASM in the first quarter of
2000 from 4.7 cents in the first quarter of 1999, primarily due to the increased
training of flight crews during the first quarter of 2000 as a result of a
higher level of attrition during the quarter.
INCOME TAX EXPENSE (BENEFIT)
No income tax benefit was recorded for the first quarter of 2000 due to the fact
that the Company is in a loss carry forward position and it is more likely than
not that the benefits will not be realized.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased to $373,000 at March 31, 2000 from $84,000 at December 31, 1999.
Net cash flows used by operating activities were $1.7 million in the first
quarter of 2000 compared to cash flow of $2.4 million in the first quarter of
1999. The major use of cash flow during the first quarter of 2000 was an
increase in accounts receivable and the payment of previously deferred aircraft
lease payments.
7
Raytheon is the Company's primary aircraft supplier and largest creditor. The
Company has financed all its Beechcraft 1900D aircraft and one of its Brasilia
aircraft under related lease and debt agreements with Raytheon, and Raytheon has
also provided the Company a $5.0 million working capital line of credit (payable
on demand) and had provided a $5.0 million short term loan, payable on demand,
which is collateralized by Beechcraft spare parts and equipment and accounts
receivable. On January 7, 2000, the Company entered into an agreement with Coast
Business Credit, a division of Southern Pacific Bank, for a $20.0 million
revolving credit facility. This credit facility bears interest at prime plus
0.5%, payable monthly, and requires a minimum loan balance of $7.0 million.
Borrowings under this facility are payable on demand and are limited to certain
eligible accounts receivable. The line of credit agreement is effective through
December 31, 2002. The line of credit agreement contains various restrictive
covenants which require the Company to maintain minimum levels of tangible net
worth and remain current on all other outstanding debt obligations, among other
matters. The credit facility also limits additional indebtedness, capital
expenditures and dividends. The Company was in compliance with all such
covenants at March 31, 2000. In connection with entering into this revolving
credit facility, the Company paid Raytheon $5.0 million on the short-term loan
and entered into an agreement, whereby Raytheon would receive certain aircraft
parts as payment for the remaining line of credit balance.
The Company currently leases four 1900C aircraft from Raytheon under short-term
operating leases for use in contracted mail. Additionally, the Company has
financed seven of its Brasilia aircraft through lease and debt agreements with
other unrelated entities.
Capital expenditures related to aircraft and equipment totaled $259,000 in the
first quarter of 2000 compared to $974,000 during the first quarter of 1999.
Principal repayments were $5.6 million in the first quarter of 2000.
Long-term debt, net of current maturities of $5.5 million, totaled $97.5 million
at March 31, 2000 compared to $98.7 million, net of current maturities of $5.5
million, at December 31, 1999.
YEAR 2000 READINESS DISCLOSURE
As of May 11, 2000, the Company has not experienced and does not anticipate any
material adverse effects on its systems and operations as a result of Year 2000
issues. Business is continuing as usual, and internal systems will continue to
be monitored for any likely disruptions. Further, as of May 11, 2000, the
Company has not experienced any operational difficulties as a result of Year
2000 issues with its vendors, suppliers or other critical third parties with
whom the Company conducts business. However, Year 2000 compliance has many
elements and potential consequences, some of which may not be foreseeable or may
be realized in future periods. Consequently, there can be no assurance that
unforeseen circumstances may not arise, or that the Company will not in the
future identify equipment or systems which are not year 2000 compliant.
8
Although the transition to the Year 2000 did not have any significant impact on
the Company or its systems and operations, the Company will continue to monitor
the impact of Year 2000 on its systems and those of its vendors, suppliers and
other critical third parties. The contingency plans that were developed for use
in the event of Year 2000-related failures will be maintained and generalized
for ongoing business use.
UNITED EXPRESS RELATIONSHIP
The code sharing agreement with United expired in December 1997. The Company
believes its relationship with United is satisfactory, as evidenced by United's
selection, during 1998, of the Company as the United Express carrier for
additional routes serving the Denver airport. Since December 31, 1997, the
Company has been operating as if the principal day-to-day operational provisions
of the previous code sharing agreement are still effective. The Company and
United have entered into negotiations to renew the code sharing agreement. As
part of their negotiations, United has restructured its operating relationships
with certain of its United Express carriers, pursuant to which the Company has
provided service to Denver from 24 additional cities since April 23, 1998. As a
result of this restructuring, the Company is the only United Express carrier
providing service with nineteen seat aircraft at the Chicago and Denver hubs.
While the Company expects a new code sharing agreement to be finalized on a
mutually advantageous basis, no assurance can be given that this actually will
be accomplished. Any failure to enter into a new code sharing agreement with
United, any material adverse change in terms from the prior code sharing
agreement, or any substantial decrease in the number of routes served by the
Company under this agreement could have a material adverse effect on the
Company's business. As a result of the code sharing relationship with United,
the Company's business is sensitive to events and risks affecting United. If
adverse events affect United's business, the Company's business may also be
adversely affected.
9
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II: OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its
business, none of which is likely to have a material effect on
the Company's financial position.
ITEM 2 CHANGES IN SECURITIES
None to report.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None to report.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None to report.
ITEM 5 OTHER INFORMATION
None to report.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
The registrant filed no Current Reports on Form 8-K for
the quarter ended March 31, 2000.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunder duly authorized.
GREAT LAKES AVIATION, LTD.
Dated: May 11, 2000 By /s/ DOUGLAS G. VOSS
-------------------------------------
Douglas G. Voss
President and Chief Executive Officer
By /s/ RICHARD A. HANSON
-------------------------------------
Richard A. Hanson
Vice President - Finance
11
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27.1 Financial Data Schedule
12