<PAGE>
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 June 30, 1999
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
incorporation or organization) Identification No.)
1965 330TH STREET, SPENCER, IOWA 51301
--------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (712) 262-1000
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 August 10, 1999 there were 8,637,440 shares of Common Stock, par value
$.01 per share, issued and outstanding.
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TABLE OF CONTENTS
<TABLE>
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Page
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PART I. FINANCIAL INFORMATION.................................................3
Item 1. Financial Statements..................................................3
a) Condensed Consolidated Balance Sheets June 30, 1999
and December 31, 1998...........................................3
b) Condensed Consolidated Statements of Operations Three
months and Six months ended June 30, 1999 and 1998..............4
c) Condensed Consolidated Statements of Cash Flows
Three months ended June 30, 1999 and 1998.......................5
d) Notes to Condensed Consolidated Financial Statements............6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................7
Item 3. Quantitative and Qualitative Disclosures
About Market Risk...................................................14
PART II. OTHER INFORMATION..................................................14
Item 1. Legal Proceedings...................................................14
Item 2. Changes in Securities and Use of Proceeds...........................14
Item 3. Defaults Upon Senior Debt...........................................14
Item 4. Submission of Matters to a Vote of Security Holders.................14
Item 5. Other Information...................................................15
Item 6. Exhibits and Reports on Form 8-K....................................15
SIGNATURES...................................................................16
EXHIBIT INDEX................................................................17
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited)
June 30, 1999 December 31, 1998
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 179,000 $ 189,000
Accounts receivable, net allowance for doubtful accounts
of approximately $153,000 and $153,000 respectively 10,072,000 8,375,000
Inventories, net 19,910,000 18,458,000
Prepaid expenses and other current assets 515,000 623,000
------------------ ------------------
Total current assets 30,676,000 27,645,000
------------------ ------------------
PROPERTY AND EQUIPMENT:
Flight equipment 46,453,000 45,533,000
Other property and equipment 4,798,000 4,553,000
Less accumulated depreciation and amortization (9,427,000) (7,968,000)
------------------ ------------------
Total property and equipment 41,824,000 42,118,000
OTHER ASSETS 2,625,000 3,019,000
------------------ ------------------
$ 75,125,000 $ 72,782,000
------------------ ------------------
------------------ ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 10,067,000 $ 11,383,000
Current maturities of long-term debt 2,997,000 2,264,000
Accounts payable 12,237,000 12,251,000
Deferred lease payments 3,488,000 1,021,000
Accrued liabilities and unearned revenue 3,980,000 3,751,000
------------------ ------------------
Total Current Liabilities 32,769,000 30,670,000
------------------ ------------------
LONG-TERM DEBT, net of current maturities 27,563,000 28,471,000
DEFERRED LEASE PAYMENTS 2,828,000 2,854,000
DEFERRED CREDITS 4,787,000 4,937,000
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 50,000,000 shares authorized,
8,637,440 and 8,590,843 shares issued and outstanding
at June 30, 1999, and December 31, 1998 respectively 86,000 86,000
Paid-in capital 31,610,000 31,569,000
Accumulated deficit (24,518,000) (25,805,000)
------------------ ------------------
Total stockholders' equity 7,178,000 5,850,000
------------------ ------------------
$ 75,125,000 $ 72,782,000
------------------ ------------------
------------------ ------------------
</TABLE>
See condensed notes to financial statements
3
<PAGE>
GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended June 30 For the Six Months Ended June 30
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger $ 27,340,000 $ 22,463,000 $ 51,058,000 $ 37,593,000
Public service 4,240,000 3,892,000 8,497,000 6,664,000
Freight, charter and other 1,720,000 1,102,000 3,927,000 2,061,000
-------------- -------------- -------------- --------------
Total operating revenues 33,300,000 27,457,000 63,482,000 46,318,000
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Salaries, wages and benefits 8,086,000 6,870,000 16,354,000 12,949,000
Aircraft fuel 3,984,000 3,214,000 7,468,000 6,060,000
Aircraft maintenance materials
and component repairs 3,400,000 1,547,000 6,879,000 3,993,000
Commissions 1,529,000 1,362,000 2,885,000 2,360,000
Depreciation and amortization 904,000 922,000 1,801,000 1,469,000
Aircraft rental 4,258,000 4,100,000 8,564,000 7,599,000
Other rentals and landing fees 1,892,000 1,191,000 3,831,000 2,537,000
Other operating expenses 6,268,000 5,627,000 12,575,000 9,749,000
-------------- -------------- -------------- --------------
Total operating expenses 30,321,000 24,833,000 60,357,000 46,716,000
-------------- -------------- -------------- --------------
Operating income (loss) 2,979,000 2,624,000 3,125,000 (398,000)
INTEREST EXPENSE 945,000 831,000 1,838,000 1,688,000
-------------- -------------- -------------- --------------
Income/(loss) before income taxes 2,034,000 1,793,000 1,287,000 (2,086,000)
INCOME TAX EXPENSE (BENEFIT) -- -- -- --
-------------- -------------- -------------- --------------
NET INCOME/(LOSS) $ 2,034,000 $ 1,793,000 $ 1,287,000 $ (2,086,000)
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
NET INCOME/(LOSS) PER SHARE:
Basic $ .24 $ .24 $ .15 $ (.27)
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Diluted $ .22 $ .22 $ .14 $ (.27)
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
WEIGHTED AVERAGE SHARES USED IN
COMPUTATION:
Basic 8,624,496 7,590,843 8,624,496 7,590,110
Diluted 9,351,659 8,327,685 9,345,187 7,590,110
</TABLE>
See condensed notes to financial statements
4
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GREAT LAKES AVIATION, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30
(Unaudited)
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<CAPTION>
1999 1998
-------------- --------------
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OPERATING ACTIVITIES:
Net income/(loss) $ 1,287,000 $ (2,086,000)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 1,711,000 1,128,000
Change in current operating items:
Accounts receivable, net (1,697,000) (2,582,000)
Inventories, net (1,704,000) (1,009,000)
Prepaid expenses and other current assets 108,000 278,000
Accounts payable and accrued liabilities 215,000 1,201,000
Deferred lease payments and deferred credits 2,291,000 --
-------------- --------------
Net cash flows provided by (used in)
operating acitivies 2,211,000 (3,070,000)
-------------- --------------
INVESTING ACTIVITIES:
Purchases of flight equipment and
other property and equipment (1,165,000) (1,613,000)
Proceeds from certificate of deposit -- 2,247,000
Change in other assets 394,000 --
-------------- --------------
Net cash flows provided by (used in)
investing activities (771,000) 634,000
-------------- --------------
FINANCING ACTIVITIES:
Proceeds from issuance of notes payable and long term debt -- 5,582,000
Repayment of long term debt (175,000) (2,436,000)
Payments on short-term note payable and line of credit (1,316,000) --
Proceeds from sale of common stock 41,000 2,000
-------------- --------------
Net cash flows provided by (used in)
financing activities (1,450,000) 3,148,000
-------------- --------------
NET CHANGE IN CASH (10,000) 712,000
CASH:
Beginning of period 189,000 6,000
-------------- --------------
End of period $ 179,000 $ 718,000
-------------- --------------
-------------- --------------
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 1,324,000 $ 850,000
-------------- --------------
-------------- --------------
</TABLE>
See condensed notes to financial statements
5
<PAGE>
GREAT LAKES AVIATION, LTD.
CONDENSED NOTES TO THE UNAUDITED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
GENERAL
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. It
is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements for the year ended
December 31, 1998 and the notes thereto included in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission. The
foregoing financial statements contain an opinion by the Company's
independent public accountants indicating substantial doubt as to the
Company's ability to continue as a going concern.
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 June 30,
1999, the Company had no derivative instruments.
6
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
1. OVERVIEW
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.
The Company began providing air charter service in 1979, and has provided
scheduled passenger service in the Upper Midwest since 1981, along the East
Coast from October 1995 to May 1997, and in the Southwest and Mexico from
August 1995 to May 1997. In April 1992, the Company began operating as a
United Express carrier under a cooperative marketing agreement with United
that expired April 25, 1997, but was extended through December 31, 1997. As
of June 30, 1999, the Company served 71 destinations in 14 states with 451
scheduled departures each weekday.
As part of the realignment of United's relationships with its United Express
carriers on April 23, 1998, the Company replaced service from Denver which
had previously been provided by another United Express carrier. The service
from Denver represents a significant expansion of the Company's previous
service.
The Company has suffered significant losses and negative operating cash flows
in the recent past, which raises substantial doubt about its ability to
continue as a going concern. The Company's viability as a going concern
depends upon its return to sustained profitability.
7
<PAGE>
2. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
JUNE 30, 1999 AND 1998
The following table sets forth certain financial information regarding the
Company:
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
For the Three Months Ended June 30
------------------------------------------------------------------------
1999 1998
------------------------------------------ ---------------------------
Cents % Increase Cents
Amount Per (decrease) Amount Per
(in 000s) ASM from 1996 (in 000s) ASM
------------ -------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
TOTAL OPERATING REVENUES $ 33,300 24.8 21.3% $ 27,457 23.7
------------ -------- ------------ ------------ -----------
Salaries, Wages and Benefits 8,086 6.0 17.7 6,870 5.9
Aircraft Fuel 3,984 3.0 24.0 3,214 2.8
Aircraft Maintenance
Materials and Component Repairs 3,400 2.5 119.8 1,547 1.3
Commissions 1,529 1.1 12.3 1,362 1.2
Depreciation and Amortization 904 0.7 (2.0) 922 0.8
Aircraft Rental 4,258 3.2 3.9 4,100 3.5
Other Rentals and Landing Fees 1,892 1.4 58.9 1,191 1.0
Other Operating Expense 6,268 4.7 11.4 5,627 4.9
------------ -------- ------------ ------------ -----------
Total Operating Expenses 30,321 22.6 22.1% 24,833 21.4
------------ -------- ------------ ------------ -----------
Operating Income 2,979 2.2 -- 2,624 2.3
------------ -------- ------------ ------------ -----------
Interest Expense (net) 945 0.7 13.7% 831 0.7
------------ -------- ------------ ------------ -----------
</TABLE>
SELECTED OPERATING DATA
<TABLE>
<CAPTION>
Increase/Decrease
1999 from 1998 1998
------------------ ------------------------ -------------------
<S> <C> <C> <C>
Available Seat Miles (000s) 134,102 15.7% 115,932
Revenue Passenger Miles (000s) 65,808 11.2% 59,176
Passenger Load Factor 49.1% -1.9pts 51.0%
Passengers carried 257,503 24.4% 206,966
Yield per RPM 41.5CENTS 9.2% 38.0CENTS
Revenue per ASM 24.8CENTS 4.6% 23.7CENTS
Operating costs per ASM 22.6CENTS 5.6% 21.4CENTS
</TABLE>
OPERATING REVENUES
Operating revenues increased 21.3% to $33.3 million in the second quarter of
1999 from $27.5 million during the second quarter of 1998. The $4.9 million
increase in operating revenues over the same period in the prior year is
primarily a result of the expansion of service at the Denver hub. An increase
of 11.2% in revenue passenger miles flown to 65.8 million was further
enhanced by a 9.2% increase in yield to 41.5 cents.
8
<PAGE>
OPERATING EXPENSES
Total operating expenses were $30.3 million, or 22.6 cents per ASM, in the
second quarter of 1999 compared to $24.8 million or 21.4 cents per ASM in the
second quarter of 1998. The increase in cost per ASM is primarily due to the
increased cost of aircraft maintenance materials and component repair
expenses during the quarter.
Salaries, wages, and benefits expense increased to 6.0 cents per ASM during
the second quarter of 1999, from 5.9 cents per ASM during the second quarter
of 1998, due to staffing additions and normal salary increases.
Aircraft fuel expenses increased 17.7%, to 3.0 cents per ASM in the second
quarter of 1999 from 2.8 cents in the second quarter of 1998. This increase
was due to higher fuel prices.
Aircraft maintenance materials and component repair expense increased to 2.5
cents per ASM during the second quarter of 1999 from 1.3 cents per ASM during
the second quarter of 1998. Maintenance materials expense in 1998 was
favorably impacted by the use of certain inventoried parts which had been
partially reserved in prior years.
Other operating expenses decreased to 4.7 cents per ASM in the second quarter
of 1999 from 4.9 cents in the second quarter of 1998, due to general and
administrative, marketing, communications, supplies, and contract airline
handling costs being spread across a larger ASM base in the second quarter of
1999.
PROVISION FOR INCOME TAXES
No income tax expense was recorded for the second quarter of 1999 due to the
fact that the Company is in a net loss carry forward position and the
benefits of such carry forwards were not recognized in prior periods since
the realization of any such benefits is substantially in doubt.
9
<PAGE>
3. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998
The following table sets forth certain financial information regarding the
Company:
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
For the Six Months Ended June 30
------------------------------------------------------------------------
1999 1998
------------------------------------------ ---------------------------
Cents % Increase Cents
Amount Per (decrease) Amount Per
(in 000s) ASM from 1996 (in 000s) ASM
------------ -------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
TOTAL OPERATING REVENUES $ 63,482 23.5 37.1% $ 46,318 22.2
------------ -------- ------------ ------------ --------
Salaries, Wages and Benefits 16,354 6.1 26.3 12,949 6.2
Aircraft Fuel 7,468 2.8 23.2 6,060 2.9
Aircraft Maintenance --
Materials and Component Repairs 6,879 2.6 72.3 3,993 1.9
Commissions 2,885 1.1 22.2 2,360 1.1
Depreciation and Amortization 1,801 0.7 22.6 1,469 0.7
Aircraft Rental 8,564 3.2 12.7 7,599 3.6
Other Rentals and Landing Fees 3,831 1.4 51.0 2,537 1.2
Other Operating Expense 12,575 4.7 29.0 9,748 4.7
------------ -------- ------------ ------------ --------
Total Operating Expenses 60,357 22.4 29.2% 46,715 22.3
------------ -------- ------------ ------------ --------
Operating Income (Loss) 3,125 1.2 -- (397) --
------------ -------- ------------ ------------ --------
Interest Expense (net) 1,838 0.7 8.9 1,688 0.8
------------ -------- ------------ ------------ --------
</TABLE>
SELECTED OPERATING DATA
<TABLE>
<CAPTION>
Increase/Decrease
1999 from 1998 1998
--------------- ------------------------------ ------------------
<S> <C> <C> <C>
Available Seat Miles (000s) 269,581 29.0% 209,030
Revenue Passenger Miles (000s) 124,142 22.5% 101,360
Passenger Load Factor 46.0% -2.5 pts 48.5%
Passengers carried 479,831 37.3% 349,393
Yield per RPM 41.0CENTS 10.5% 37.1CENTS
Revenue per ASM 23.5CENTS 5.9% 22.2CENTS
Operating costs per ASM 22.4CENTS 0.4% 22.3CENTS
</TABLE>
OPERATING REVENUES
Operating revenues increased 37.1 percent to $63.5 million in the first half
of 1999 from $46.3 million during the first half of 1998. The increase in
operating revenue includes a $13.5 million increase in passenger revenues
from the same period in the prior year, partially as a result of the Denver
hub expansion. Revenue passenger miles flown increased by 22.5% to 124.1
million in the first half of 1999 in addition to a 3.9 cent increase in yield
per revenue passenger mile to 41.0 cents per revenue passenger mile. The
increase in revenues for the first half of 1999 also included an increase of
$1.8 million in public service revenues to a total of $8.5 million and a $1.8
million increase in other revenues to a total of $3.9 million.
10
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OPERATING EXPENSES
Total operating expenses increased 29.2% to 60.4 million in the first half of
1999 from $46.7 million in the first half of 1998. Total operating expenses
increased to 22.4 cents per ASM in the first half of 1999 from 22.3 cents per
ASM in the first half of 1998. Cost per ASM in the first half of 1999
increased primarily as a result of the increased cost of aircraft maintenance
materials and component repairs expense, which was partially offset by lower
aircraft rentals expense per ASM.
Salaries, wages, and benefits expense decreased to 6.1 cents per ASM during
the first half of 1999, from 6.2 cents per ASM during the same period of
1998. Cost per ASM for the first half of 1998 was impacted by the additional
staffing and training as a result of the Denver hub expansion beginning in
April 1998.
Aircraft fuel expense decreased to 2.8 cents per ASM in the first half of
1999 from 2.9 cents per ASM the first half of 1998 . This decrease was due to
lower fuel prices during the first quarter of 1999 as compared to the first
half of 1998.
Aircraft maintenance materials and component repair expenses increased to 2.6
cents per ASM during the first half of 1999 from 1.9 cents per ASM during the
first half of 1998. Maintenance materials expense in 1998 was favorably
impacted by the use of certain inventoried parts which had been partially
reserved in prior years.
Other operating expenses were 4.7 cents per ASM in the first half of 1999 and
were also 4.7 cents per ASM in the first half of 1998.
PROVISION FOR INCOME TAXES
No income tax expense was recorded for the first half of 1999 due to the fact
that the Company is in a net loss carry forward position and the benefits of
such carry forwards were not recognized in prior periods since the
realization of any such benefits are substantially in doubt.
4. LIQUIDITY AND CAPITAL RESOURCES
Cash decreased to $179,000 at June 30, 1999 from $189,000 at December 31,
1998. Net cash flows used by operating activities were $2.2 million in the
first half of 1999, and cash flows used in operating activities were $3.1
million in the first half of 1998. The major use of such cash flows in the
first half of 1999 was an increase in accounts receivable and inventory
offset by an increase in deferred lease payments.
Capital expenditures related to aircraft and equipment totaled $1.2 million
in the first half of 1999 and $1.6 million during the first half of 1998.
Principal repayments on notes payable and long-term debt were $1.5 million
and there were no new borrowings in the first half of 1999.
Long-term debt, net of current maturities of $3.0 million, totaled $27.6
million at June 30, 1999 compared to $28.5 million, net of current maturities
of $2.3 million, at December 31, 1998.
11
<PAGE>
The Company has suffered significant losses in three of the last five years
and negative cash flows in two of the last three years. The Company has no
further availability on its $5 million line of credit with Raytheon Aircraft
Company and its financing affiliates (collectively, "Raytheon") and has no
other credit facilities available to it at this time.
The Company is heavily dependent on Raytheon and United for its liquidity
requirements, however neither Raytheon nor United is under any current
obligation to provide further financing to the Company. The Company's
viability as a going concern depends upon its return to sustained
profitability, positive operating cash flow and reaching viable long-term
agreements with Raytheon and United. These matters raise substantial doubt
about the Company's ability to continue as a going concern and, as a result,
the Independent Auditors' Report on the financial statements for the year
ended December 31, 1998, contains a statement to this effect.
Raytheon is the Company's primary aircraft supplier and largest creditor. The
Company has financed all its Beechcraft 1900 aircraft and one of its Brasilia
aircraft under related lease and debt agreements with Raytheon, and Raytheon
has also extended the Company a $5 million working capital line of credit
(payable on demand and expiring September 30, 1999) and a $5 million
short-term loan, collateralized by Beechcraft spare parts and equipment and
accounts receivable. The Company is actively seeking alternate lenders for
these short-term loans. However, no assurance can be given that the alternate
financing will be arranged, or that the current loans will be extended. In
addition, Raytheon was granted a warrant for a period of ten years,
exercisable commencing July 16, 1998, to purchase one million shares of Great
Lakes common stock at a price of $.75 per share. Raytheon has not exercised
the warrant as of the date of this filing.
The Company currently leases five 1900C aircraft under month-to-month leases
for use in contracted mail service and as a spare passenger service aircraft.
In addition, the Company is utilizing 22 1900D aircraft under short-term
operating leases. The Company is negotiating with Raytheon to purchase these
22 1900D aircraft through the issuance of notes payable to Raytheon. If this
transaction is consummated, it will increase the Company's flight equipment
and long-term debt by approximately $77 million. Management does not expect
the purchase to have a material impact on earnings.
Additionally, the Company has financed seven of its Brasilia aircraft through
lease and debt agreements with other unrelated entities.
5. YEAR 2000 READINESS DISCLOSURE
The Year 2000 computer issue, common to most companies, concerns the
inability of information and noninformation systems to recognize and process
date-sensitive information after 1999 due to the use of only the last two
digits to refer to a year. This problem could affect both information systems
(software and hardware) and other equipment that relies on microprocessors.
Management has completed a Company-wide evaluation of this impact on its
computer systems, applications and other date-sensitive equipment. Systems
and equipment that are not Year 2000 compliant have been identified and
remediation efforts are nearly complete.
12
<PAGE>
Certain equipment has been updated or replaced, and the efforts will continue
during the third quarter of 1999 to complete the remediation process.
The Company is also in the process of monitoring the progress of material
third parties (vendors and business partners) in their efforts to become Year
2000 compliant. These third parties include, but are not limited to: aircraft
manufacturers, fuel and parts suppliers, governmental agencies, financial
institutions, and United. As a result of the code sharing relationship with
United, the Company's business is sensitive to events and risks affecting
United. The Company is actively working with United in efforts to reduce the
risk of adverse effects that might result from any failure to be Year 2000
compliant by United.
The Company relies primarily on outside sources for its software
requirements. Most of these software vendors have provided updated, Year 2000
compliant software. The remaining vendors are in the final process of testing
the upgrades and the Company anticipates delivery by August 31, 1999.
Internally developed applications have been updated to the extent possible,
and the upgrade should be completed by September 30, 1999. As a result of the
Company's use of third party software, the primary cost for remediation has
been in the form of new or updated hardware. Remaining remediation costs are
not expected to exceed $20,000, with the total cost for Year 2000 compliance
issues of approximately $100,000.
The Company believes that the greatest potential for disruption lies not in
the Company's internal systems but rather in the external systems of the
Company's service providers. The Company believes, based on research to date,
that disruptions in these external systems will be short-lived, and that
through contingency planning the Company can minimize the impact on the
service it provides. The Company is developing contingency plans that it
expects to be completed by September 30, 1999. However, there can be no
guarantee that material third parties, on which the Company relies, will
properly address all Year 2000 issues on a timely basis or that their failure
to successfully address all issues would not have an adverse effect on the
Company.
6. 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 19 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. Certain material provisions
of the prior code sharing agreement and related agreements, the "United
Express Agreements" are described herein because any new code sharing
agreement may contain similar terms. Any
13
<PAGE>
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no significant changes to the information reported in
the 1998 Annual Report on Form 10-K.
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 AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. The Annual Meeting of Shareholders was held on June 25, 1999.
b. Three Proposals were submitted for shareholder approval, all of which
passed with voting results as follows:
(1) To elect four directors for the ensuing year and until their
successors shall be elected and duly qualified.
<TABLE>
<CAPTION>
For Withhold
-------------- --------------
<S> <C> <C>
Douglas G. Voss 8,441,655 21,711
Vernon A. Mickelson 8,442,155 21,211
Gayle R. Voss 8,439,605 23,761
Ivan L. Simpson 8,442,455 20,911
</TABLE>
14
<PAGE>
(2) To ratify and approve the appointment of KPMG Peat Marwick LLP as
the Company's independent public accountants for the fiscal year
ending December 31, 1999.
<TABLE>
<S> <C> <C> <C>
For: 6,038,433 Against: 58,751
Abstain: 8,175 Non-Votes: 2,358,007
</TABLE>
(3) To approve an amendment to the Company's Amended and Restated
Articles of Incorporation to authorize the issuance of preferred
stock.
<TABLE>
<S> <C> <C> <C>
For: 8,447,966 Against: 6,000
Abstain: 9,400 Non-Votes: -0-
</TABLE>
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 June 30, 1999.
15
<PAGE>
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: August 10, 1999 By /s/ Douglas G. Voss
-------------------------------------
Douglas G. Voss
President and Chief Executive Officer
By /s/ Thomas J. Ahmann
-------------------------------------
Thomas J. Ahmann
Chief Financial Officer
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 179,000
<SECURITIES> 0
<RECEIVABLES> 10,072,000
<ALLOWANCES> 153,000
<INVENTORY> 19,910,000
<CURRENT-ASSETS> 30,676,000
<PP&E> 51,251,000
<DEPRECIATION> (9,427,000)
<TOTAL-ASSETS> 75,125,000
<CURRENT-LIABILITIES> 32,769,000
<BONDS> 0
0
0
<COMMON> 86,000
<OTHER-SE> 7,092,000
<TOTAL-LIABILITY-AND-EQUITY> 75,125,000
<SALES> 0
<TOTAL-REVENUES> 63,482,000
<CGS> 0
<TOTAL-COSTS> 60,357,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,838,000
<INCOME-PRETAX> 1,287,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,287,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,287,000
<EPS-BASIC> .15
<EPS-DILUTED> .14
</TABLE>
