SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES      
 

EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2001

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 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, 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 ý              NO o

As of August 13, 2001 there were 8,657,651 shares of Common Stock, par value $.01 per share, issued and outstanding.

 

     
TABLE OF CONTENTS
     
     
PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
a) Condensed Balance Sheets June 30, 2001 and December 31, 2000  
     
b) Condensed Statements of Operations Three months and Six months ended June 30, 2001 and 2000  
     
c) Condensed Statements of Cash Flows Six months ended June 30, 2001 and 2000  
     
d) Condensed Notes to the Unaudited Interim Financial Statements  
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk  
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings  
     
Item 2. Changes in Securities  
     
Item 3. Defaults Upon Senior Securities  
     
Item 4. Submission of Matters to a Vote of Security Holders  
     
Item 5. Other Information  
     
Item 6. Exhibits and Reports on Form 8-K  
     
SIGNATURES  
     
     

 

PART I:   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL INFORMATION

GREAT LAKES AVIATION, LTD.
Balance Sheets
(In thousands, except share information)

  (unaudited)
June 30, 2001 		  December 31, 2000  
 
 
 
ASSETS        
CURRENT ASSETS:        
  Cash $ 16   $ 1,996  
  Accounts receivable, net allowance for doubtful accounts of $160 12,914   12,541  
  Inventories, net 15,493   15,383  
  Prepaid expenses and other current assets 767   924  
 
 
 
Total current assets 29,190   30,844  
 
 
 
PROPERTY AND EQUIPMENT:        
  Flight equipment 123,150   122,993  
  Other property and equipment 5,709   5,600  
  Less accumulated depreciation and amortization (21,373 ) (18,311 )
 
 
 
Total property and equipment 107,486   110,282  
OTHER ASSETS 1,941   2,053  
 
 
 
  $ 138,617   $ 143,179  
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)        
CURRENT LIABILITIES:        
  Notes payable and current maturities of long-term debt $ 27,443   $ 22,576  
  Accounts payable 21,475   14,176  
  Deferred lease payments 2,112   897  
  Accrued liabilities and unearned revenue 3,335   3,560  
 
 
 
Total current liabilities 54,365   41,209  
 
 
 
LONG-TERM DEBT, net of current maturities 92,296   96,054  
DEFERRED LEASE PAYMENTS 2,221   2,221  
DEFERRED CREDITS 3,331   3,565  
STOCKHOLDERS' EQUITY (DEFICIT):        
  Common stock, $.01 par value; 50,000,000 shares authorized, 8,657,651 shares issued and outstanding at June 30, 2001 and December 31, 2000 86   86  
  Paid-in capital 31,359   31,359  
  Accumulated deficit (45,041 ) (31,315 )
 
 
 
Total stockholders' equity (deficit) (13,596 ) 130  
 
 
 
  $ 138,617   $ 143,179  
 
 
 

See condensed notes to financial statements.

GREAT LAKES AVIATION, LTD.
Statements of Operations
For the Three and Six Months Ended June 30
(Unaudited)
(In thousands, except share and per share information)

  For the Three Months Ended June 30   For the Six Months Ended June 30  
                 
  2001   2000   2001   2000  
 
 
 
 
 
OPERATING REVENUES:                
  Passenger $ 21,680   $ 28,009   $ 44,811   $ 53,869  
  Public service 3,905   4,344   7,267   8,426  
  Freight, charter and other 1,298   1,609   2,735   3,617  
 
 
 
 
 
Total operating revenues 26,883   33,962   54,813   65,912  
 
 
 
 
 
OPERATING EXPENSES:                
  Salaries, wages and benefits 8,508   8,534   17,579   16,973  
  Aircraft fuel 5,083   5,022   10,148   9,777  
  Aircraft maintenance materials and component repairs 3,878     3,128     8,822     6,832    
  Commissions 713   1,064   1,480   2,202  
  Depreciation and amortization 1,771   1,762   3,504   3,520  
  Aircraft rental 2,087   2,283   4,418   4,748  
  Other rentals and landing fees 1,744   1,837   3,902   3,636  
  Other operating expenses 5,860   6,296   13,693   13,286  
 
 
 
 
 
Total operating expenses 29,644   29,926   63,546   60,974  
 
 
 
 
 
Operating income (loss) (2,761 ) 4,036   (8,733 ) 4,938  
Interest expense 2,336   2,269   4,993   4,348  
 
 
 
 
 
NET INCOME (LOSS) $ (5,097 ) $ 1,767   $ (13,726 ) $ 590  
 
 
 
 
 
NET INCOME (LOSS) PER SHARE:                
                 
Basic $ (0.59 ) $ 0.20   $ (1.59 ) $ 0.07  
 
 
 
 
 
Diluted $ (0.59 ) $ 0.19   $ (1.59 ) $ 0.06  
 
 
 
 
 
WEIGHTED AVERAGE SHARES USED IN COMPUTATION:                
                 
Basic 8,657,651   8,647,891   8,657,651   8,642,723  
Diluted 8,657,651   9,254,832   8,657,651   9,270,673  

 

See condensed notes to financial statements.

GREAT LAKES AVIATION, LTD.
Statements of Cash Flow
For the Six Months Ended June 30
(Unaudited)
(in thousands)

  2001   2000  
 
 
 
OPERATING ACTIVITIES:        
  Net (loss) income $ (13,726 ) $ 590  
  Adjustments to reconcile net loss (income) to net cash used in operating activities        
  Depreciation and amortization 3,273   3,332  
  Change in current operating items :        
  Accounts receivable, net (373 ) (5,050 )
  Inventories, net (320 ) (239 )
  Prepaid expenses and other current assets 157   (216 )
  Accounts payable and accrued liabilityies 7,074   (75 )
  Deferred lease payments and deferred credits 980   404  
   
 
 
  Net cash flows used in operating activities (2,935 ) (1,254 )
   
 
 
           
INVESTING ACTIVITIES:        
  Purchases of flight equipment and other property and equipment (266 ) (361 )
  Change in other assets 112   (81 )
   
 
 
  Net cash flows used in investing activities (154 ) (442 )
 
 
 
         
FINANCING ACTIVITIES:        
  Proceeds from issuance of notes payable and long-term debt 8,787   7,715  
  Repayment of notes payable and long-term debt (2,954 ) (2,347 )
  Payments on line of credit (4,724 ) (3,597 )
  Proceeds from sale of common stock -   21  
   
 
 
  Net cash flows provided by financing activities 1,109   1,792  
   
 
 
NET CHANGE IN CASH (1,980 ) 96  
CASH:        
  Beginning of period 1,996   84  
   
 
 
  End of period $ 16   $ 180  
   
 
 
SUPPLEMENTARY CASH FLOW INFORMATION:        
  Cash paid during the period for interest $ 589   $ 4,397  
   
 
 

See condensed notes to financial statements.

GREAT LAKES AVIATION, LTD.
CONDENSED NOTES TO THE UNAUDITED
INTERIM FINANCIAL STATEMENTS

General

The 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 financial statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such 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 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 financial statements be read in conjunction with the financial statements for the year ended December 31, 2000 and the notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.

United and Frontier Code Sharing Relationships

Prior to February 1, 2001, the Company had been operating scheduled passenger and airfreight service exclusively under a cooperative marketing with United Airlines, Inc. (“United”).  On February 1, 2001, the Company and United entered into a new three-year code sharing agreement which became effective May 1, 2001.  Under this new United agreement, the Company no longer operates under the name “United Express”; rather, it operates under its own name , but will continue to use the UA code for local service until such time as the Company’s own hosting site has completed development.  Connecting service to points beyond the Company’s hubs will continue to display the code sharing services required by the code sharing agreements.  The United agreement provides for use of United’s flight designator for Great Lakes flights connecting with United flights in Denver, Chicago and Minneapolis, and permits the Company to enter into code sharing agreements with certain other carriers.  The Company will continue to participate in United’s Mileage Plus frequent flyer program.  The United agreement also requires United to provide financial support to Great Lakes to cover a portion of the Company’s cost of returning to marketing itself under its own identity.

On May 3, 2001, The Company entered into a code sharing agreement with Frontier Airlines, Inc. (“Frontier”) which became effective July 9, 2001.  Under the Frontier agreement, passengers served by Great Lakes at 37 cities through its Denver hub will conveniently connect to all 22 cities served by Frontier throughout the United States.  The code sharing schedules are being phased in throughout the summer and fall with anticipation that all cities will be added by November 1, 2001.

Liquidity

Due to recent losses, the Company has exhausted its readily available sources of working capital.  The Company is currently exploring alternatives to meet its future liquidity requirements and is making payments to significant creditors as current cash flow allows.  If the Company is unable to find such alternatives to meet future liquidity requirements, it may be required to take steps to change the Company’s business strategy in order to continue operations. The Company has received notice of default from one of its Brasilia aircraft lessors as a result of non payment of amounts due.  No formal action has been taken by the Company’s Brasilia aircraft lessor, nor by any of the Company’s other creditors. However, no assurance can be given that the Company’s creditors may not take such action.   As of August 10, the Company is utilizing in its schedule four of the eight Brasilia aircraft.  On August 27, the Company will reduce Brasilia schedules to utilize three  aircraft.  The Company has informed both Brasilia lessors of its desire to negotiate a return agreement as it believes it no longer needs the aircraft.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board (“FASB”) issued Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“FASB 133”). 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. FASB 133 was effective January 1, 2001.  The Company had no derivative instruments at January 1, 2001 through June 30, 2001.

In 1999, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements.  The SAB summarizes the SEC staff’s views on applying generally accepted accounting principles to revenue recognition in financial statements.  The Company has reviewed its revenue recognition policies and has determined that they comply with the principles as set forth is SAB No. 101.  Accordingly, the adoption of the SAB No. 101 had no effect on the Company’s financial position or results of operations.

In June, 2001, the FASB issued Statement No. 142, “Goodwill and Other Intangible Assets” (FASB 142).  The statement address financial accounting and reporting for acquired goodwill and other intangible assets.  It changes the approach to amortizing goodwill and other assets after their initial recognition, so that the fair value of the assets are more properly stated.  FASB 142 will be effective for the Company January 1, 2002.  The Company has no acquired goodwill or other intangible assets at June 30, 2001.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   
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 SEC.

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, which was replaced on February 1, 2001, with a new three-year code sharing agreement described more fully under the caption “United and Frontier Code Sharing Relationships” in this Form 10-Q.  On May 3, 2001, the Company entered into a code sharing agreement with Frontier Airlines which became effective July 9, 2001.  As of June 30, 2001, the Company served 58 destinations in 16 states with 288 scheduled departures each weekday in passenger and mail service.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
JUNE 30, 2001 AND 2000

The following table sets forth certain financial information regarding the Company:

Statement of Operations Data

  For the Three Months Ended June 30    
 
   
  2001   2000    
 
 
   
  Amount   Cents Per ASM   % Increase (decrease) from 2000   Amount   Cents Per ASM    
 
 
 
 
 
   
Total Operating Revenues $ 26,883   23.9   (20.8 )% $ 33,962     25.8  
 
 
 
 
 
   
Salaries, wages and benefits 8,508   7.6   (0.3 ) 8,534   6.5    
Aircraft fuel 5,083   4.5   1.2   5,022   3.8    
Aircraft maintenance materials and component repairs 3,878     3.5     24.0     3,128     2.4      
Commissions 713   0.6   (33.0 ) 1,064   0.8    
Depreciation and amortization 1,771   1.6 0.5   1,762   1.3        
Aircraft rental 2,087   1.9   (8.6 ) 2,283   1.7    
Other rentals and landing fees 1,744   1.6   (5.1 ) 1,837   1.4    
Other operating expense 5,860   5.2   (6.9 ) 6,296   4.8    
 
 
 
 
 
   
  Total Operating Expenses 29,644   26.4   (0.9 ) 29,926   22.7    
 
 
 
 
 
   
Operating income (loss) $ (2,761 ) -   -   $ 4,036   -  
 
 
 
 
 
 
Interest expense $ 2,336   2.1   3.0 % $ 2,269   1.7  
 
 
 
 
 
 

 

 

Selected operating Data

  2001   Increase/(Decrease) from 2000   2000  
 
 
 
 
Available Seat Miles (000s) 112,364   (14.8 )% 131,822  
Revenue Passenger Miles (000s) 58,999   (10.1 )% 65,627  
Passenger Load Factor 52.5 % 2.7 pts   49.8 %
Passengers carried 237,210   (12.4 )% 270,654  
Average Yield per Revenue Passenger Mile 36.8 ¢ (13.8 )% 42.7 ¢
Revenue per ASM 23.9 ¢ (7.4 )% 25.8 ¢

 

Operating Revenues

Operating revenues decreased 20.8% to $26.9 million in the second quarter of 2001 from $34.0 million during the second quarter of 2000.  The decrease in operating revenues over the same period in the prior year is the result of a 12.4% decrease in revenue passengers carried to 237,210 in the second quarter of 2001, from 270,654 during the same period of 2000 and a 13.8% decrease in yield to 36.8 cents in the second quarter of 2001, from 42.7 cents during the same period of 2000.   Available Seat Miles decreased 14.8% to 112,364 during the second quarter of 2001 from 131,822 for the same period of 2000 as a result of planned schedule reductions.  The Company anticipates an increase in yield will be realized as a result of fare increases filed during the second quarter of 2001.  The Company intends to continue to reduce Available Seat Mile production until either yields or subsidy levels produce a positive return on investment, exclusive of excess aircraft inventory costs.

The Company has been experiencing significant yield reduction due to customers utilizing travel vouchers issued by United during their period of operational disruptions caused by a labor job action in the summer of 2000.  Most of the travel vouchers carried a one year redemption period, and the Company anticipates that a majority of these vouchers will be consumed by early September of this year.

Operating Expenses

Total operating expenses were $29.6 million, or 26.4 cents per ASM, in the second quarter of 2001 compared to $29.9 million or 22.7 cents per ASM in the second quarter of 2000.  The increase in cost per ASM is primarily due to fixed expenses spread over a smaller ASM base, and an increase in engine overhaul activity during the second quarter of 2001.

Salaries, wages, and benefits expense increased to 7.6 cents per ASM during the second quarter of 2001, from 6.5 cents per ASM during the second quarter of 2000, due to a smaller ASM base over  which to spread the expense.

Aircraft fuel expenses increased to 4.5 cents per ASM in the second quarter of 2001 from 3.8 cents in the second quarter of 2000.  This increase was due to higher fuel prices during the second quarter of 2001 compared to the same period in 2000.

Aircraft maintenance materials and component repair expense increased to 3.5 cents per ASM during the second quarter of 2001 from 2.4 cents per ASM during the second quarter of 2000 as a result of increased engine overhaul activity in the second quarter of 2001 versus a period of abnormally low engine overhaul activity in 2000.

Commissions decreased 33% to $713,000 in the second quarter of 2001, from $1.1 million during the same period of 2000, as a result of lower commission rates and increasing direct ticket sales through the internet.

Aircraft rental expense decreased during the second quarter of 2001 to $2.0 million from $2.3 million during the second quarter of 2000 due to reimbursements by United for repainting of the aircraft as part of the code sharing agreement more fully discussed under the caption “United and Frontier Code Sharing Relationship”.

Interest expense increased to $2.3 million for the second quarter of 2001, from $2.2 million from the second quarter of 2000, as a result of a higher interest rate charged on the Company’s revolving credit facility.

Other operating expenses increased to 5.2 cents per ASM in the second quarter of 2001 from 4.8 cents in the second quarter of 2000, primarily due to fixed expenses spread over a smaller ASM base.

Income Tax Expense (Benefit)

No income tax benefit was recorded for the three months ended June 30, 2001 due to the fact that the Company is in a loss carry forward position and that the realization of any benefits of such are substantially in doubt.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 2001 AND 2000

The following table sets forth certain financial information regarding the Company:

Statement of Operations Data

  For the Six Months Ended June 30  
 
 
  2001   2000  
 
 
 
  Amount   Cents
Per
 ASM 		  % Increase (decrease)
 from 2000 		  Amount   Cents
 Per
ASM 		 
 
 
 
 
 
 
Total Operating Revenues $ 54,813   23.8   (16.8 )% $ 65,912   $ 25.4  
 
 
 
 
 
 
Salaries, wages and benefits 17,579   7.6   3.6   16,973   6.5  
Aircraft fuel 10,148   4.4   3.8   9,777   3.8  
Aircraft maintenance materials                    
and component repairs 8,822   3.8   29.1   6,832   2.6  
Commissions 1,480   0.6   (32.8 ) 2,202   0.8  
Depreciation and amortization 3,504   1.5   (0.5 ) 3,520   1.4  
Aircraft rental 4,418   1.9   (7.0 ) 4,748   1.8  
Other rentals and landing fees 3,902   1.7   7.3   3,636   1.4  
Other operating expenses 13,693   5.9   3.1   13,286   5.1  
 
 
 
 
 
 
  Total Operating Expenses 63,546   27.6   4.2   60,974   23.5  
 
 
 
 
 
 
Operating income (loss) $ (8,733 ) -   -   $ 4,938   -  
 
 
 
 
 
 
Interest expense $ 4,993   2.2   14.8 % $ 4,348   1.7  
 
 
 
 
 
 

 

Selected operating Data

  2001   Increase/(Decrease) from 2000   2000  
 
 
 
 
Available Seat Miles (000s) 230,490   (11.3 )% 259,814  
Revenue Passenger Miles (000s) 111,709   (10.3 )% 124,583  
Passenger Load Factor 48.5 % 0.5 Pts 48.0 %
Passengers carried 459,980   (11.1 )% 517,181  
Average Yield per Revenue Passenger Mile 40.1 ¢ (7.2 )% 43.2 ¢
Revenue per ASM 23.8 ¢ (6.3 )% 25.4 ¢

Operating Revenues

Operating revenues decreased 16.8% to $54.8 million  in the first half of 2001 from $65.9 million during the first half of 2000.  Revenue passengers carried decreased by 11.1% to 459,980 in the first half of 2001, from 517,181 during the first half of 2000, in addition to a 7.2% decrease in yield to 40.1 cents per revenue passenger mile in the first half of 2001 from 43.2 cents during the same period of 2000.   Available Seat Miles decreased 11.3% to 230,490 during the first half of 2001 from 259,814 for the same period of 2000, as a result of weather related cancellations during the first quarter of the 2001 and planned schedule reductions during the second quarter of the year. The Company anticipates an increase in yield will be realized as a result of fare increases filed during the second quarter of 2001.

The Company has been experiencing significant yield reduction due to customers utilizing travel vouchers issued by United during their period of operational disruptions caused by a labor job action in the summer of 2000.  Most of the travel vouchers carried a one year redemption period, and the Company anticipates that a majority of these vouchers will be consumed by early September of this year.

Operating Expenses

Total operating expenses increased 4.2% to $63.5 million in the first half of 2001 from $61.0 million in the first half of 2000.  Total operating expenses increased to 27.6 cents per ASM in the first half of 2001 from 23.5 cents per ASM in the first half of 2000, due to a significant increase in engine overhaul activity during the first half of 2001 as compared to the same period of 2000.

Salaries, wages and benefits expense increased to 7.6 cents per ASM during the first half of 2001, from 6.5 cents per ASM during the same period of 2000.  Cost per ASM is higher due to normal salary increases spread over a smaller ASM base for the first half of 2001 and a 7% increase in mechanics’ wages as the result of a new union contract that went into effect November 1, 2000.  In addition, severe weather conditions during the first quarter of 2001 increased labor costs through flight delays and deicing needs.

Aircraft fuel expense increased to 4.4 cents per ASM in the first half of 2001 from 3.8 cents per ASM the first half of 2000.  This increase was due to significantly higher fuel prices during the first half of 2001 as compared to the first half of 2000.

Aircraft maintenance materials and component repair expenses increased 29.1% to 3.8 cents per ASM during the first half of 2001 from 2.6 cents per ASM during the first half of 2000, as a result of increased engine overhaul activity during 2001 versus an unusually low level of engine overhaul activity in the second quarter of 2000.

Aircraft rental expense decreased during the first half of 2001 to $4.4 million from $4.7 million during the first half of 2000 due to reimbursements by United for repainting of aircraft as part of the code sharing agreement more fully discussed previously under the caption “United and Frontier Code Sharing Relationship”.

Interest expense increased to $4.9 million for the first half of 2001, from $4.3 million during the first half of 2000, as a result of higher interest rate charged on,  and a larger daily balance on the Company’s revolving credit facility.

Other operating expenses increased 3.1% to 5.9 cents per ASM in the first half of 2001 from 5.1 cents per ASM in the first half of 2000, due to increased weather related expenses and a lower ASM base over which to spread fixed costs.

Income Tax Expense (Benefit)

No income tax benefit was recorded for the six months ended June 30, 2001 due to the fact that the Company is in a loss carry forward position and that the realization of any benefits of such are substantially in doubt.

LIQUIDITY AND CAPITAL RESOURCES

Cash decreased to $16,000 at June 30, 2001 from $2.0 million at December 31, 2000.  Net cash flows used by operating activities were $2.9 million in the first six months of 2001 and $1.3 million in the first six months of 2000.  The major use of cash flow during the first half of 2001 was to fund operating losses, offset by increased accounts payable and accrued expenses.

On January 7, 2000, the Company entered into an agreement with Coast Business Credit (“Coast”) to provide the Company with a $20 million revolving credit facility, collateralized by accounts receivable.  The maximum borrowings available to the Company under such credit facility is based upon 85% of eligible receivables, less reserves,  to collateralize the amount being borrowed.  At June 30, 2001, the amount available under the line of credit agreement was $8,437,145, all of which had been borrowed.  The agreement with Coast contains a covenant which requires the Company to maintain a specific balance of tangible net worth, (as defined in such agreement).  Throughout the first and second quarters of 2001, the Company was not in compliance with that covenant.  Under the Coast agreement, such noncompliance permits Coast, at its option, to require immediate payment of all amounts owed by Great Lakes to Coast ($8.4 million at June 30, 2001, which has been reduced from $12.8 million at March 31, 2001).  Such action would further exacerbate the corporate liquidity issues described above.  The agreement was amended May 15, 2001 to address the noncompliance status by reducing the availability and accelerating the maturity of the agreement to December 31, 2001.  The interest rate on the Coast loan has been increased by 3% annually, as a result of not meeting this  tangible net worth requirement.

Raytheon Aircraft Credit Corporation (“Raytheon”) is the Company’s primary aircraft supplier and largest creditor.  The Company has financed all of its Beechcraft 1900 aircraft and one of its Brasilia aircraft under related lease and debt agreements with Raytheon. Additionally, Raytheon has provided the Company working capital in the form of a three year note which had a balance of $4.6 million at June 30, 2001.  In accordance with the Beechcraft 1900C operating lease agreements, the Company, on June 15, 2001, provided Raytheon ninety day notice of its intent to return the four 1900C aircraft currently used in mail service.  The Company intends on converting three 1900D aircraft to a freight configuration to maintain the mail contract. The Company has entered into discussions with Raytheon regarding the potential return of excess 1900D aircraft as a result of the deteriorating economic environment.  Due to losses incurred, the Company has not been making scheduled debt and lease payments.  On June 29, 2001, the Company restructured its obligation to Raytheon for deferred debt and lease payments through the issuance of a $8.8 million Demand Promissory Note.  The note bears interest at 8% and is payable upon demand.

The Company has financed seven of its Brasilia aircraft through lease and debt agreements with other unrelated entities.  One of the Company’s Brasilia lessors has issued a notice of default for nonpayment of amounts due.  The Company has informed both Brasilia aircraft lessors of its desire to negotiate a return agreement as it believes it no longer needs the aircraft.

The Company currently has no financing agreements in place under which it can secure additional funds.  The Company is currently exploring alternatives to meet its future liquidity requirements and is making payments to significant creditors as current cash flow allows.  The Company is also in contact with certain of these creditors regarding its slowness in payments.  In order for the Company to meet its obligations for the next year, the Company will need to generate sufficient revenues and reach satisfactory agreements with its creditors.  No assurances can be given that the Company will generate sufficient revenues and reach satisfactory agreements with its creditors.

Capital expenditures related to aircraft and equipment totaled $266,000 in the first half of 2001 compared to $361,000 during the first half of 2000.

Long-term debt, net of current maturities of $10.2 million, totaled $92.3 million at June 30, 2001 compared to $96.1 million, net of current maturities of $9.4 million, at December 31, 2000.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  
     
  There have been no material changes from the disclosures presented in the Form 10-K filing for the year ended December 31, 2000.  
     
     
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  
     
  None to report.  
     
ITEM 3. DEFUALTS UPON  SENIOR SECURITES  
     
  None to report.  
     
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  
     
  a.          The Annual Meeting of Shareholders was held on May 18, 2001.  
     
  b.          Four proposals were submitted for Shareholder approval:  
     
  1.) To amend the Company’s 1993 Director Stock Option Plan to increase the number of shares for which options may be granted under such plan from 100,000 to 300,000 shares.  The following are the voting results:
         
  For: 5,452,137              Against: 33,339  
  Abstain: 224              Non-Votes: 3,165,582  
             

 

  2.) To amend the Company’s 1993 Director Stock Option Plan to increase the number of shares for which options may be granted under such plan from 500,000 to 1,000,000 shares.  The following are the voting results:
       
  For: 5,451,430              Against: 37,739  
  Abstain: 2,524              Non-Votes: 3,165,582  
             
  3.) To elect four directors for the ensuing year and until their successors shall be elected and duly qualified.  The following are the voting results:  
         
      For Withhold  
    Douglas G. Voss 8,635,102 16,540  
    Vernon A. Mickelson 8,635,952 15,330  
    Gayle R. Brandt 8,634,552 16,730  
    Ivan L. Simpson 8,636,052 15,230  
         
         
  4.) To ratify and approve the appointment of KPMG LLP as the Company’s independent public accountants for the fiscal year ending December 31, 2001.  
       
  For: 8,647,652              Against: 880  
  Abstain: 2,750              Non-Votes 0  
         
ITEM 5. OTHER INFORMATION      
  None to report.      
         
ITEM 6. EXHIBITS AND REPORTS IN FORM 8-K      
         
  a.) Exhibits      
           
    None      
           
  b.) Reports on Form 8-K      
           
    The registrant filed no Current Reports on Form 8-K for the quarter ended June 30, 2001.  

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 13, 2001 By: /s/   Douglas G. Voss
 
    Douglas G. Voss
    President and Chief Executive Officer
     
     
  By: /s/    Richard A. Hanson
 
    Richard A. Hanson
    Vice President - Finance