GREAT LAKES AVIATION LTD - 10-Q Quarterly Report

UNITED STATES

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, 2004

¨	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 incorporation or organization)		(I.R.S. Employer Identification No.)

1022 Airport Parkway, Cheyenne, WY		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 ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ¨ No x

As of June 30, 2004, 14,071,970 shares of Common Stock of the registrant were issued and outstanding.

GREAT LAKES AVIATION, LTD.

FORM 10-Q

For the Quarterly Period Ended June 30, 2004

INDEX


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS		1

PART I - FINANCIAL INFORMATION		2
Item 1.	FINANCIAL STATEMENTS	2
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	11
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	25
Item 4.	CONTROLS AND PROCEDURES	25

PART II - OTHER INFORMATION		25
Item 1.	LEGAL PROCEEDINGS	25
Item 3.	DEFAULTS UPON SENIOR SECURITIES	26
Item 5.	OTHER INFORMATION	26
Item 6.	EXHIBITS AND REPORTS ON FORM 8-K	26

SIGNATURES		30

Cautionary Statement Regarding Forward-Looking Statements

In accordance with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, Great Lakes Aviation, Ltd. (“Great Lakes” or the “Company”) notes that certain statements in this Quarterly Report on Form 10-Q and elsewhere are forward-looking and provide other than historical information. The Company’s management may also make oral, forward-looking statements from time to time. These forward-looking statements include, among others, statements concerning the Company’s general business strategies, financing decisions and expectations for funding expenditures and operations in the future. The words, “believe,” “plan,” “continue,” “hope,” “estimate,” “project,” “intend,” “expect,” and similar expressions reflected in such forward-looking statements are based on reasonable assumptions, and none of the statements contained in this Quarterly Report on Form 10-Q or elsewhere should be relied upon as predictions of future events. Such statements are necessarily dependent on assumptions, data or methods that may be incorrect or imprecise, and may be incapable of being realized. The risks and uncertainties that are inherent in these forward-looking statements could cause actual results to differ materially from those expressed in or implied by these statements.

As more fully described in this report, important factors that could cause results to differ materially from the expectations reflected in any forward-looking statements include:

1)	the Company’s dependence on its code-sharing relationships with United Air Lines, Inc. (“United Air Lines” or “United”), which is undergoing reorganization under the United States Bankruptcy Code, and Frontier Airlines, Inc. (“Frontier Airlines” or “Frontier”);

2)	the outcome of United’s bankruptcy proceedings, including whether United amends or rejects its code share agreement with the Company;

3)	the Company’s ability to either:

(i)

generate cash flows sufficient to enable the Company to pay its debt obligations as they become due, return to compliance with the Company’s existing debt and lease obligations, including those debt and lease obligations that were restructured as of December 31, 2002, or

(ii)

re-negotiate the Company’s debt and lease obligations to a level that the Company can reasonably service, based upon the Company’s current and projected cash flows;

4)	the effect of general economic conditions on business and leisure travel;

5)	the acceleration of one or more of the Company’s debt obligations, thereby forcing the Company to seek legal protection from its creditors or discontinue operations;

6)	the incidence of domestic and international terrorism and military actions;

7)	the level of passenger confidence in the safety of air travel;

8)	the volatility of fuel costs;

9)	seasonality of passenger traffic;

10)	the ability to renew current and receive additional Essential Air Service awards and the availability of Essential Air Service subsidies at currently contemplated rates;

11)	the uncertainty concerning future insurance and security expenses; and

12)	the possibility of increased competition from other air carriers (including United) and from ground transportation.

Readers are cautioned not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. Changes may occur after that date, and the Company does not undertake to update any forward-looking statements except as required by law in the normal course of its public disclosure practices.

PART I - FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

GREAT LAKES AVIATION, LTD.

Balance Sheets


	June 30, 2004			December 31, 2003
	(unaudited)
Assets
Current assets:
Cash	$	2,347,069		$	3,700,511
Accounts receivable, net of allowance of $160,000, at June 30, 2004 and December 31, 2003		7,427,929			6,148,793
Inventories, net		2,243,374			2,863,514
Prepaid expenses and other current assets		549,369			964,160

Total current assets		12,567,741			13,676,978

Property and equipment:
Flight equipment		128,407,697			135,079,588
Other property and equipment		7,899,391			7,608,767
Less accumulated depreciation and amortization		(41,214,048	)		(39,715,272	)

Total property and equipment		95,093,040			102,973,083

Other assets		993,952			1,127,708

Total assets	$	108,654,733		$	117,777,769

Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Notes payable and current maturities of long-term debt	$	18,353,983		$	16,369,997
Long-term debt classified as current		88,441,208			98,557,635
Accounts payable		10,758,461			10,968,984
Accrued liabilities and unearned revenue		5,979,203			8,673,103
Deferred lease payments		7,034,302			7,721,004

Total current liabilities		130,567,157			142,290,723

Long-term debt, net of current maturities		241,060			336,100
Deferred credits		350,531			512,070
Stockholders’ equity (deficit):
Common stock, $0.01 par value. Authorized: 50,000,000 shares Issued and outstanding: 14,071,970 at June 30, 2004 and at December 31, 2003		140,720			140,720
Paid-in capital		33,468,644			33,468,644
Accumulated deficit		(56,113,379	)		(58,970,488	)

Total stockholders’ equity (deficit)		(22,504,015	)		(25,361,124	)

Total liabilities and stockholders’ equity (deficit)	$	108,654,733		$	117,777,769

See condensed notes to financial statements.

GREAT LAKES AVIATION, LTD.

Statements of Operations

For the Three and Six Months Ended June 30, 2004 and June 30, 2003

(Unaudited)


	For the Three Months Ended June 30						For the Six Months Ended June 30
	2004			2003			2004			2003
Operating revenues:
Passenger	$	13,328,245		$	11,248,562		$	25,935,289		$	21,263,377
Public service		6,088,973			6,404,293			11,288,269			12,251,222
Freight, charter, and other		134,094			565,305			414,875			1,429,258

Total operating revenues		19,551,312			18,218,160			37,638,433			34,943,857

Operating expenses:
Salaries, wages, and benefits		5,495,112			5,364,409			11,310,635			11,558,069
Aircraft fuel		3,323,299			2,721,007			6,686,813			6,013,867
Aircraft maintenance, materials and repairs		3,381,065			1,936,995			5,824,059			4,257,335
Commissions		69,372			68,870			130,261			132,353
Depreciation and amortization		1,637,045			2,026,055			3,362,025			4,059,678
Aircraft rental		489,771			812,219			1,115,128			1,518,108
Other rentals and landing fees		588,889			1,119,897			1,868,170			2,631,039
Other operating expense		3,729,767			3,691,306			7,751,302			7,630,576

Total operating expenses		18,714,320			17,740,758			38,048,393			37,801,025

Operating income (loss)		836,992			477,402			(409,960	)		(2,857,168	)
Other income (expense):
Interest expense, net		(295,621	)		(990,831	)		(716,109	)		(1,574,096	)
Other expense		(75,392	)		—			(31,468	)		—
Gain on termination of aircraft leases		657,588			—			1,367,576			—
Gain on extinguishment of debt		1,297,510			—			2,647,069			—

Income (loss) before income taxes		2,421,077			(513,429	)		2,857,108			(4,431,264	)
Income tax expense		—			—			—			—

Net income (loss)	$	2,421,077		$	(513,429	)	$	2,857,108		$	(4,431,264	)

Net income (loss) per share:
Basic	$	0.17		$	(0.04	)	$	0.20		$	(0.32	)
Diluted	$	0.17		$	(0.04	)	$	0.20		$	(0.32	)
Average shares outstanding:
Basic		14,071,970			14,052,166			14,071,970			14,052,166
Diluted		14,204,842			14,052,166			14,179,127			14,052,166

See condensed notes to financial statements.

GREAT LAKES AVIATION, LTD.

Statements of Cash Flows

For the Six Months Ended June 30,

(Unaudited)


	2004			2003
OPERATING ACTIVITIES:
Net income (loss)	$	2,857,108		$	(4,431,264	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization		3,362,024			4,059,678
Non-cash loss on write-off of obsolete parts inventory and other assets		275,607			—
Non-cash gain on termination of lease		(1,367,576	)		—
Non-cash gain on extinguishment of debt		(2,647,069	)		—
Change in current operating items:
(Increase)/Decrease in accounts receivable		(1,279,135	)		2,289,076
Decrease in inventories		620,140			1,106,621
(Increase)/Decrease in prepaid expenses and other current assets		449,491			(86,556	)
(Decrease) in accounts payable		(210,524	)		(1,484,140	)
Increase in accrued liabilities and unearned revenue		524,661			322,316
Increase in deferred lease payments		693,496			866,202

Net cash provided by operating activities		3,278,223			2,641,933

CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of flight equipment and other property and equipment		(658,315	)		(486,848	)
Decrease (increase) in other assets		(944	)		95,931

Net cash flows used in investing activities		(659,259	)		(390,917	)

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