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 September 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 September 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 September 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	24
	Item 4.	CONTROLS AND PROCEDURES	24

PART II - OTHER INFORMATION			24
	Item 1.	LEGAL PROCEEDINGS	24
	Item 3.	DEFAULTS UPON SENIOR SECURITIES	24
	Item 5.	OTHER INFORMATION	25
	Item 6.	EXHIBITS	25

SIGNATURES			28

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 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


	September 30, 2004 (unaudited)			December 31, 2003
Assets
Current assets:
Cash	$	2,007,599		$	3,700,511
Accounts receivable, net of allowance of $160,000, at September 30, 2004 and December 31, 2003		6,595,653			6,148,793
Inventories, net		2,027,207			2,863,514
Prepaid expenses and other current assets		239,726			964,160

Total current assets		10,870,185			13,676,978

Property and equipment:
Flight equipment		128,434,207			135,079,588
Other property and equipment		8,217,297			7,608,767
Less accumulated depreciation and amortization		(42,790,949	)		(39,715,272	)

Total property and equipment		93,860,555			102,973,083

Other assets		993,952			1,127,708

Total assets	$	105,724,692		$	117,777,769

Liabilities and Stockholders’ Equity (Deficit)

Current liabilities:
Notes payable and current maturities of long-term debt	$	17,251,849		$	16,369,997
Long-term debt classified as current		86,406,339			98,557,635
Accounts payable		9,477,208			10,968,984
Accrued liabilities and unearned revenue		5,973,013			8,673,103
Deferred lease payments		7,333,674			7,721,004

Total current liabilities		126,442,083			142,290,723

Long-term debt, net of current maturities		191,736			336,100
Deferred credits		316,642			512,070

Stockholders’ equity (deficit):
Common stock, $0.01 par value.		140,720			140,720
Authorized: 50,000,000 shares
Issued and outstanding: 14,071,970 at September 30, 2004 and at December 31, 2003
Paid-in capital		33,468,644			33,468,644
Accumulated deficit		(54,835,133	)		(58,970,488	)

Total stockholders’ equity (deficit)		(21,225,769	)		(25,361,124	)

Total liabilities and stockholders’ equity (deficit)	$	105,724,692		$	117,777,769

See condensed notes to financial statements.

GREAT LAKES AVIATION, LTD.

Statements of Operations

For the Three and Nine Months Ended September 30, 2004 and September 30, 2003

(Unaudited)


	For the Three Months Ended September 30						For the Nine Months Ended September 30
	2004			2003			2004			2003
Operating revenues:
Passenger	$	15,027,051		$	13,680,261		$	40,962,340		$	34,943,638
Public service		4,946,442			7,386,792			16,234,710			19,638,014
Freight, charter, and other		226,240			206,501			609,647			1,635,759

Total operating revenues		20,199,733			21,273,554			57,806,697			56,217,411

Operating expenses:
Salaries, wages, and benefits		5,425,487			5,381,084			16,736,121			16,939,153
Aircraft fuel		3,674,485			3,009,010			10,361,298			9,022,877
Aircraft maintenance, materials and repairs		2,803,717			2,894,522			8,627,772			7,151,857
Commissions		72,308			81,104			202,569			213,457
Depreciation and amortization		1,635,832			1,998,441			4,997,857			6,058,119
Aircraft rental		415,623			757,383			1,530,751			2,275,491
Other rentals and landing fees		1,269,938			512,205			3,138,109			3,143,244
Other operating expense		3,326,699			3,111,442			11,078,003			10,742,009

Total operating expenses		18,624,089			17,745,191			56,672,480			55,546,207

Operating income (loss)		1,575,644			3,528,363			1,134,217			671,204
Other income (expense):
Interest expense, net		(297,398	)		(832,002	)		(982,039	)		(2,406,098	)
Other expense		—			—			(31,468	)		—
Gain on termination of aircraft leases		—			—			1,367,576			—
Gain on extinguishment of debt		—			1,793,204			2,647,069			1,793,204

Income (loss) before income taxes		1,278,246			4,489,565			4,135,355			58,310
Income tax expense		—			—			—			—

Net income (loss)	$	1,278,246		$	4,489,565		$	4,135,355		$	58,310

Net income (loss) per share:
Basic	$	0.09		$	0.32		$	0.29		$	0.00
Diluted	$	0.09		$	0.32		$	0.29		$	0.00
Average shares outstanding:
Basic		14,071,970			14,071,970			14,071,970			14,058,840
Diluted		14,188,656			14,071,970			14,180,420			14,058,840

See condensed notes to financial statements.

GREAT LAKES AVIATION, LTD.

Statements of Cash Flows

For the Nine Months Ended September 30,

(Unaudited)


	2004			2003
OPERATING ACTIVITIES:
Net income	$	4,135,355		$	58,310
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		4,997,857			6,058,121
Non-cash loss on write-off of obsolete parts inventory and other assets		306,256			—
Non-cash gain on termination of lease		(1,367,576	)		—
Non-cash gain on extinguishment of debt		(2,647,069	)		(1,793,203	)
Change in current operating items:
(Increase)/Decrease in accounts receivable		(446,859	)		2,613,454
Decrease in inventories		836,307			2,573,575
(Increase)/Decrease in prepaid expenses and other current assets		759,134			(75,076	)
(Decrease) in accounts payable		(1,491,781	)		(4,967,715	)
Increase in accrued liabilities and unearned revenue		484,585			577,262
Increase in deferred lease payments		992,868			1,506,120

Net cash provided by operating activities		6,559,077			6,550,848

CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of flight equipment and other property and equipment		(1,092,312	)		(296,606	)
Decrease (increase) in other assets

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