UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2011
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File No. 0-23224
GREAT LAKES AVIATION, LTD.
(Exact name of registrant as specified in its charter)
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Iowa
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42-1135319
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1022 Airport Parkway, Cheyenne, WY
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82001
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code: (307) 432-7000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
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No
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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
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files). Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or
a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
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No
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The aggregate market value of common stock held by non-affiliates of the registrant as of the last business day of registrant’s most
recently completed second fiscal quarter was approximately $1,325,000.
As of March 20, 2012 there were 8,919,990 shares
of Common Stock of the registrant issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
GREAT LAKES AVIATION, LTD.
FORM 10-K
For the Fiscal Year Ended December 31, 2011
INDEX
Forward-Looking Statements
This Annual Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Great Lakes Aviation,
Ltd. (Great Lakes, we, our, its, it or the Company) notes that certain statements in this Form 10-K and elsewhere are forward-looking and provide other than historical information. Our management may also make oral, forward-looking statements from
time to time. These forward-looking statements include, among others, statements concerning our general business strategies, financing decisions, and expectations for funding expenditures and operations in the future. The words “may,”
“will,” “believe,” “plan,” “continue,” “could,” “should,” “hope,” “likely,” “estimate,” “project,” “intend,” “expect,”
“anticipate” and similar expressions reflected in such forward-looking statements are based on reasonable assumptions, and none of the forward-looking statements contained in this Form 10-K or elsewhere should be relied on as predictions
of future events. Such statements are necessarily dependent on assumptions, data, or methods that may prove to 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, but are not limited to:
1) the receipt of sufficient passenger revenues on the routes that we serve;
2) the continued
funding of the Essential Air Service program;
3) the volatility of fuel costs;
4) the effect of general economic conditions on business and leisure travel;
5) dependence on
other air carrier connecting capacity at our hubs;
6) the payments and restrictions resulting from our contractual obligations;
7) the effect of rules regarding the effect of stock sales on the availability of net operating loss carryforwards;
8) exposure to increases in interest rates associated with our new debt financing;
9) our ability to maintain compliance with specified financial and non-financial covenants.
10)
the incidence of domestic or international terrorism and military actions;
11) competition from other airlines and from ground transportation;
12) the incidence of labor disruptions or strikes;
13) dependence on our key personnel;
14) the incidence of aircraft accidents;
15) the level of regulatory and environmental costs;
16) the incidence of technological failures or attacks;
17) maintenance costs related to aging
aircraft;
18) the possibility of substantial numbers of shares being sold by our current investors;
19) the limited market for our securities;
20)
our ability to remediate timely any deficiencies in our internal controls;
21) no expectation of dividends; and
22) anti-takeover provisions in our charter documents and Iowa law.
See also Item 1A.”Risk Factors,” below for additional discussion of these factors.
Readers are cautioned not to attribute undue certainty on the forward-looking statements contained herein, which speak only as of the date hereof.
Changes may occur after that date, and we assume no obligation to publicly update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting these statements other than as required by
applicable law.
1
PART I
Item 1. BUSINESS
General
We were incorporated on October 25, 1979 as an Iowa corporation and became a
publicly traded company in January 1994. We commenced scheduled air service operations on October 12, 1981. Great Lakes Airlines currently operates hubs at Albuquerque, NM, Denver, CO, Los Angeles, CA, Las Vegas, NV, Minneapolis, MN and
Phoenix, AZ.
We are a regional airline operating as an independent carrier and as a code share partner with United Air Lines, Inc. (United or
United Airlines) and Frontier Airlines, Inc. (Frontier or Frontier Airlines). Our code share agreements allow our mutual customers to purchase connecting flights through our code share partners and to share other benefits such as baggage transfer
and frequent flyer benefits (in certain instances), while we maintain our own branding on our planes and ticket counters and our own designator code on all our flights. As of March 20, 2012, we served 46 airports in 13 states with a fleet of
six Embraer EMB-120 Brasilias and 28 Raytheon/Beech 1900D regional airliners.
General information about us and a current route map can be
found at www.flygreatlakes.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, as well as any amendments and exhibits to those reports, are available free of charge through our website after we have
filed such reports with, or furnished them to, the United States Securities and Exchange Commission. Information on our website is not incorporated into, nor a part of, this Form 10-K or our other securities filings.
Essential Air Service (EAS) Program
We
derived approximately 42% of our total revenue from the EAS program in 2011, which is administered by the United States Department of Transportation (DOT). The EAS program was instituted under the Airline Deregulation Act of 1978 (the
“Deregulation Act”), which allowed airlines greater freedom to introduce, increase, and generally reduce or eliminate service to existing markets. Under the EAS program, certain communities are guaranteed specified levels of
“essential air service.” In order to promote the provision of essential air services, the DOT may authorize the payment of federal subsidies to compensate an air carrier that is providing essential air services in otherwise unprofitable or
minimally profitable markets.
The FAA Modernization and Reform Act of 2012 was enacted into law on February 14, 2012. This legislation
provides for the authorization of the Essential Air Service program for federal fiscal years 2011 through 2014. Federal fiscal year 2014 ends on September 30, 2015. The FAA Modernization and Reform Act of 2012 reaffirmed the Congressional
commitment to the continuance of the Essential Air Service program.
An airline serving a community that qualifies for essential air services
is required to give the DOT advance notice before the airline may terminate, suspend, or reduce service. Depending on the circumstances, the DOT may require the continuation of existing service until a replacement carrier is found. EAS rates are
normally set for two-year periods for each city. Significant fluctuations in passenger traffic, fares and associated revenues, as well as fluctuations in fuel and other costs, may cause EAS routes to become unprofitable during these two-year terms.
Near the end of the two year term for EAS service to a particular city, the DOT will request service proposals from the Company and competitive proposals from other airlines. Proposals, when requested, are evaluated on, among other things, the level
of service provided, the amount of subsidy requested, the fitness of the applicant, and comments from the communities served.
As of
March 20, 2012, we served 32 EAS communities on a subsidized basis.
2
During 2011, we deliberately exited certain EAS markets, including ceasing operations at our Kansas City,
MO, Milwaukee, WI and Billings, MT hubs, which had been developed by our company in recent years to serve EAS markets exclusively, due to the substantial downsizing of other air carrier provided connecting capacity at these hubs.
Going forward, we expect EAS revenue to increase but to represent a lower percentage of total revenue. This shift in revenue mix is due to our deliberate
efforts to maximize the utilization of our aircraft and other resources by deploying our resources to larger hubs offering more connecting opportunities to the domestic and international air transportation system. Our expansion into the Minneapolis,
MN EAS markets is consistent with this strategy.
For additional information regarding the EAS Program see Item 1A “Risk
Factors.”
Essential Air Service (“EAS”) Program Activity
On February 10, 2011, we transitioned Joplin, MO service to another carrier and ceased operations at our Kansas City, MO hub.
On April 18, 2011 we transitioned Ironwood and Manistee, MI service to another carrier and ceased operations at our Milwaukee, WI hub.
In May of 2011, we transitioned EAS service at Glasgow, Glendive, Havre, Lewiston, Miles City, Sidney and Wolf Point, MT to another carrier. We subsequently ceased operations at our Billings, MT hub on
June 30, 2011. Great Lakes viewed Denver as a better hub opportunity to increase passenger traffic for these markets as they are historically relatively low load factor markets and inherently dependent on higher levels of EAS subsidy. However,
the communities’ preferences were to maintain service to Billings primarily due to the regional medical facilities that are located in Billings.
We transitioned EAS service at Grand Island, NE to another carrier on June 9, 2011.
On
December 17, 2011, February 1, 2012, March 11, 2012 and March 17, 2012, we initiated service to our Minneapolis hub from Devil’s Lake, ND, Pierre, SD (non-EAS subsidized), Ironwood, MI, Jamestown, ND and Williston,
ND (non-EAS subsidized), respectively.
In addition to the three EAS-subsidized destinations and two non-EAS subsidized
destinations mentioned above, on April 2, 2012 we will initiate service from Watertown, SD to Minneapolis, MN and on April 11
th
we will initiate service from Fort Dodge, IA and Mason City, IA to Minneapolis, MN.
On April 4, 2012 we will discontinue EAS service to Garden City, KS and transition this service to another carrier.
We have also been selected to provide EAS service from Minneapolis, MN to Iron Mountain, MI, Brainerd, MN, International Falls, MN, Thief River Falls, MN
and Rhinelander, WI. Commencement dates for initial service to these communities is yet to be determined.
United Airlines and Frontier
Airlines Code Share Relationships
United Airlines
. We have operated under ticket revenue proration code share agreements
with United Airlines since April 1992. On May 1, 2001, we transitioned from a United Express branded code share agreement to a unique code share agreement that provides United with code share marketable access to all seats on Great Lakes
aircraft where the United code share product can provide our mutual customers connecting opportunities and
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access to all of the benefits of the United product line including convenient baggage transfer and United’s frequent flyer program. The Company and United entered into a new code share
agreement on September 1, 2011. Terms of the agreement provide for the Company to continue United Airlines code sharing for destinations the Company currently services to and from our Denver, CO, Los Angeles, CA and Phoenix, AZ hubs.
Frontier Airlines
. On May 3, 2001, we entered into a code share agreement with Frontier, which was implemented
July 9, 2001. While the Frontier agreement does not have a fixed termination date, it is terminable 180 days after written notice by either party. The Frontier agreement facilitates additional convenient access to connecting seat inventories
and makes available the entire Frontier product line to all Great Lakes communities. The Frontier flight designator code (F9) can be used on Great Lakes’ flights connecting with Frontier’s flights at our Albuquerque, NM, Denver, CO, Las
Vegas, NV, Los Angeles, CA and Phoenix, AZ hubs. Accordingly, certain flights to and from our Denver, Los Angeles and Phoenix hubs carry both the United Airlines and Frontier Airlines flight designator codes and all flights throughout our route
system carry the Great Lakes designator code.
During 2011, we estimate that approximately 39% of Great Lakes’ passenger traffic utilized
the United code share product line and approximately 21% of Great Lakes’ passenger traffic utilized the Frontier code share product line.
Interline Relationships
Since 1982,
Great Lakes has developed and maintained various interline relationships with numerous domestic and international airlines. In recent years, the airline industry has modified its interline ticketing and baggage agreements to move towards electronic
processing of interline transactions and related customer services. Great Lakes is committed to being part of the airline industry’s mission to simplify the customer relationship. As a byproduct of this commitment, we have developed electronic
ticketing (e-ticket) interline agreements with American Airlines, Delta Airlines, Frontier Airlines, United Airlines and U.S. Airways. We intend to update our remaining paper ticket interline agreements with e-ticket processing procedures.
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Markets
As of March 20, 2012 we operated 237 weekday flights. Service scheduled to and from our six hubs includes: 148 flights at Denver, 8 flights at Albuquerque, 12 flights at Phoenix, 8 flights at Los
Angeles (LAX), 8 flights at Las Vegas, and 16 flights at Minneapolis. Great Lakes’ route map below illustrates our current route map as well as, the future destinations as part of our expansion at our Minneapolis hub:
We frequently modify our routes. For a current map of routes being flown, please visit our website at
www.flygreatlakes.com
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Marketing
Our services are marketed primarily by means of our internet website, code-share partners’ websites, the Delta.com website, global distributions systems (travel agencies and travel agent websites)
and our reservation system’s call center. Our promotional programs emphasize our close affiliation with our code share and interline e-ticket partners and, in particular, the opportunity for our passengers to participate in related customer
service benefits, such as frequent flyer programs.
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Yield Management
We monitor our inventory and pricing of available seats utilizing yield management techniques. These processes enable our revenue control analysts to examine our past traffic and pricing trends, and to
estimate the optimal number of seats to make available for sale at various fares. The analysts then monitor each flight to adjust seat allocations and booking levels, with the objective of maximizing total revenue for each flight.
Charter, Freight and Contract Service
Great Lakes uses its Beechcraft 1900Ds and Embraer Brasilia aircraft to provide charter services to private individuals, corporations and athletic teams.
We also carry freight and small packages on most of our scheduled flights and provide contract services for other airlines. Combined revenues from our charter flights, freight and contract services were 0.8%, 1.5%, and 1.5% of our total revenues for
the years ended December 31, 2011, 2010, and 2009, respectively.
Seasonality
Seasonal factors, related to weather conditions and changes in passenger demand, generally affect our monthly passenger enplanements. We have historically
shown a higher level of passenger enplanements in the May through October period as compared with the November through April period for many of the cities served. These seasonal factors have generally resulted in reduced revenues, lower operating
income, and reduced cash flow for us during the November through April period. As a result of such factors, our revenues and earnings have shown a corresponding increase during the May through October period. Essential Air Service revenues are
generated under subsidy per departure rates established by the DOT and we realize revenue as departures are performed. Inherently, most of our EAS revenues, other than winter weather related cancellations, are not affected by seasonality, but
certain EAS markets do receive summer season increased departures which are eligible for subsidy revenue.
Competition
Great Lakes competes for passenger traffic with regional and major air carriers and ground transportation. We also compete with other regional air
carriers to receive EAS subsidies for providing air service to small communities. Our competition from other air carriers varies from location to location and, in certain areas, comes from regional and major carriers who serve airports in close
proximity to destinations we serve.
Aircraft
As of March 1, 2012, our fleet consisted of 28 Beechcraft Model 1900D 19-passenger aircraft and six Embraer Brasilia Model 120 30-passenger aircraft.
Beechcraft 1900D Aircraft
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The 19 passenger Beechcraft 1900D aircraft are pressurized and weather radar equipped, and offer a
310-mile per hour cruising speed.
Embraer Brasilia Aircraft
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The 30-passenger Embraer Brasilia aircraft are pressurized,
weather radar equipped, configured with lavatories, staffed with a flight attendant, and offer a 330-mile per hour cruising speed.
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A summary of our operating aircraft as of December 31, 2011, 2010 and 2009 is as follows:
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2011
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2010
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2009
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Beechcraft
1900D(1)
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Embraer
Brasilia
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Beechcraft
1900D
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Embraer
Brasilia
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Beechcraft
1900D
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Embraer
Brasilia
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Owned
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27
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4
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25
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4
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25
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4
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Operating leases
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0
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2
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7
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2
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7
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2
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27
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6
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32
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6
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32
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6
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(1)
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An additional Beechcraft 1900D was acquired January 16, 2012, making our current total 28 Beechcraft 1900D.
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As of March 1, 2012, the average age of our aircraft was approximately 17 years.
Maintenance
We utilize Federal Aviation Administration (“FAA”) approved FAR part
121 maintenance programs developed by Great Lakes for periodic inspection and maintenance of our aircraft. We have operated and maintained Beechcraft 1900 aircraft since August of 1987 and we have operated and maintained Embraer Brasilia EMB 120
aircraft since June of 1994. We perform inspection and maintenance of our aircraft at our maintenance bases in Cheyenne, WY, Farmington, NM and Williston, ND. Select components such as engine gas generators, power sections and avionics repairs
and/or overhauls may be contracted with third parties certified to perform such maintenance. Line maintenance is also performed in Denver, CO. Parts inventories are maintained at these locations to promote the mechanical dispatch reliability of the
fleet. We also keep an inventory of spare engines and propellers for our fleet to allow for minimal downtime during major overhauls.
Since
1979, we have operated a FAA certified repair station (CRS), under FAA Federal Aviation Regulation (FAR) part 145. We currently utilize the repair station, located in Cheyenne, WY, to perform overhaul and repair of selected aircraft components for
our fleet of Beechcraft 1900D and Embraer Brasilia EMB-120 aircraft.
Fuel
We expect to continue to be able to obtain fuel in quantities sufficient to meet our future requirements. We contract, both through intermediaries and directly with refiners, for the purchase of a
significant portion of our aircraft fuel requirements. However, standard industry contracts generally do not provide protection against fuel price increases and do not ensure availability of supply. Accordingly, an increase in the cost of fuel, if
not accompanied by an equivalent increase in passenger revenues or subsidies, could have a material adverse impact on our future operating results. During 2011, our average price of fuel, including taxes and into plane service fees, was $3.69 per
gallon, as compared to $2.83 in 2010 and $2.29 in 2009. Based on rates of consumption for 2011, a one cent increase or decrease in the per gallon price of fuel would increase or decrease our fuel expense by approximately $108,000 annually.
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Liquidity, Financing and Capital Resources
New Financing Agreement
On November 16, 2011, we entered into a new financing
agreement with GB Merchant Partners, LLC, serving as Collateral Agent, and Crystal Capital LLC, serving as Administrative Agent (the “Credit Agreement”) at which time we borrowed a total of $29.5 million. Terms of the financing include a
four-year term loan in the amount of $24 million and a revolving loan credit facility in which we may borrow up to $10 million for a total of $34 million of available financing. This Credit Agreement enabled us to:
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Make a one-time payment to Raytheon Aircraft Credit Corporation (“Raytheon”) in the amount of $27 million to satisfy $37.2 million of
outstanding debt obligations, extinguishing all our debt obligations to Raytheon;
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Pay related expenses of $2.5 million, and
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Obtain, as a part of the transaction, the return of all 5,371,980 shares of Great Lakes common stock previously held by Raytheon.
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Pursuant to the terms of a pledge and security agreement and an aircraft security agreement, our obligations to the lenders
identified in Credit Agreement are secured by substantially all assets of the Company, including all owned aircraft. The term loan bears interest at a floating rate of 30 day LIBOR rate plus 11% with a minimum rate of 15.5%.
As of December 31, 2011, we had borrowed $5.5 million on the revolving credit facility secured by accounts receivable, parts inventory and spare
engines. The revolving credit facility bears interest at the rate of 30 day LIBOR rate plus 8.0% with a minimum interest rate of 10.5%. We were also required to pay a closing fee based on the initial facility commitment, and are required to pay a
monthly unused line fee, a specified fee for certain prepayments of the term loan, and certain administrative and fronting fees related to the new financing agreement. The term loan and the revolving loan credit facility are set to mature on
November 16, 2015.
Gain on Extinguishment of Debt and Return of Raytheon Shares
For the consideration of $27 million, Raytheon agreed to terminate principal amounts of $30.6 million of Aircraft Notes from the Company, secured by 25
Beechcraft 1900D aircraft, and a $6.6 million Senior Note, secured by four Embraer Brasilia EMB 120 aircraft and all other assets of the Company. Raytheon also agreed to return 5,371,980 shares of Great Lakes common stock. The Company deemed $3.5
million of the $27 million payment to Raytheon to be for the repurchase of common stock and $23.5 million for the settlement of the outstanding debt obligations. As a result of this transaction, we realized a non-cash gain on the extinguishment of
debt of $13.7 million representing the difference between the $23.5 million and the carrying value of the debt of $37.2 million.
Expansion to Minneapolis Hub
In
December 2011, we commenced service to Devil’s Lake, ND from Minneapolis, MN. In March 2012, we initiated service from Ironwood, MI and Jamestown, ND into our Minneapolis hub. Service to these communities is subsidized under the EAS program. We
have also been awarded an additional 8 communities under the EAS program which we intend to service to our Minneapolis hub. These communities include: Watertown, SD, Fort Dodge, IA, Mason City, IA, Iron Mountain, MI, Brainerd, MN, International
Falls, MN, Thief River Falls, MN and Rhinelander, WI.
In anticipation of servicing these markets, since our new credit agreement was
established on November 16, 2011, we have recently purchased three Beechcraft 1900D aircraft. Two aircraft were purchased in December 2011, one was purchased without engines and was placed into service utilizing two of the Company’s owned
spare engines, and the third aircraft was purchased in January 2012. On January 16, 2012 we borrowed an additional $2 million under our revolving credit facility to accommodate our liquidity needs for the purchase of these aircraft. As of
March 20, 2012 we have borrowed $7.5 million under our revolving credit facility. We are evaluating our need for additional aircraft to service our expansion effort into our Minneapolis hub. We expect this expansion to generate incremental
passenger revenue, public service revenue and net income.
8
For additional information regarding the EAS Program and Liquidity, Financing and Capital Resources see
Item 1A “Risk Factors.” For additional information regarding the our arrangements with GB Merchant Partners, LLC and Crystal Capital LLC, see Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operation – Liquidity, Financing and Capital Resources” and Notes 3 and 5 to the Company’s financial statements included in this Annual Report on Form 10-K.
Employees
At March 1, 2012, the Company had 743 full-time and 325 part-time active
employees, as compared to 759 full-time and 363 part-time active employees at March 1, 2011.
The Company’s pilots are represented
by the United Transportation Union (“UTU”). The pilot collective bargaining agreement became amendable on September 16, 2010. The Company and the UTU are currently engaged in contract mediation under the auspices of the National
Mediation Board.
The Company’s flight attendants are also represented by the UTU. The Company entered into a new agreement with the
flight attendants on May 17, 2011. This agreement will continue in full force and effect for four years and thereafter is subject to amendment, which would reopen collective bargaining.
The Company’s mechanics and maintenance clerks are represented by the International Association of Machinists and Aerospace Workers (“IAM”). The collective bargaining agreements between the
Company and the clerks and mechanics represented by IAM, District 143, became amendable in 2002 and 2005, respectively. We are currently engaged in contract mediation under the auspices of the National Mediation Board.
In 2003, the Company’s dispatchers voted to be represented by the International Brotherhood of Teamsters. Negotiations with the dispatchers are not
active at the present time.
Executive Officers of the Registrant
The following table provides information with respect to the Company’s executive officers as of March 20, 2012.
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Name
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Age
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Title
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Douglas G. Voss
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57
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Chairman of the Board of Directors and President
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Charles R. Howell IV
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54
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Chief Executive Officer
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Michael O. Matthews
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55
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Vice President and Chief Financial Officer
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Michael L. Tuinstra
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58
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Treasurer
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Douglas G. Voss.
Mr. Voss co-founded the Company in 1979 and served in the position of Chief Executive
Officer from the Company’s inception until December 31, 2002. Mr. Voss has served as a director of the Company since the Company’s inception. Mr. Voss was initially licensed as a private pilot in 1974 and today holds both an
Airline Transport Pilot Certificate and Airframe and Powerplant Mechanic Certificates. Mr. Voss is a graduate of Colorado Aero Tech. Mr. Voss has previously served the Company in the FAA Air Carrier Certificate required operational control
positions of Director of Operations and Director of Maintenance.
Charles R. Howell IV.
Mr. Howell became the Chief Executive
Officer of the Company on December 31, 2002. Mr. Howell served as Chief Operating Officer from August 2002 until December 31, 2002. Prior to joining the Company, Mr. Howell was the President and Chief Executive Officer of
Corporate Airlines, Inc., a Nashville-based airline that he co-founded in 1996.
9
Michael O. Matthews.
Mr. Matthews became the Vice President and Chief Financial Officer of the
Company on March 28, 2005.
Mr. Matthews joined the Company in November 2004 as Vice President of Finance. Prior to joining the Company, Mr. Matthews was employed as Director of Treasury for Budget Group, Inc. Prior to joining
Budget Group, Inc. in 2000, Mr. Matthews held management positions in the financial services industry including Newcourt Financial, MetLife Capital, Sanwa Business Credit and Societe Generale Financial Corporation.
Michael L. Tuinstra.
Mr. Tuinstra became the Company’s Treasurer in January 2002. From April 1999 to January 2002, Mr. Tuinstra
served as the Company’s Director of Purchasing and Inventory Control. From August 1998 until April 1999, Mr. Tuinstra was the Company’s Budget and Financial Analyst.
Regulation
The U.S. Department of Transportation (“DOT”) has continuous economic
and fitness oversight of the Company’s operations. The Company’s economic authority is authorized under DOT Part 298 commuter air carrier certification regulations. The Deregulation Act of 1978 eliminated many regulatory constraints so
that airlines became free to set fares and, with limited exceptions, to establish domestic routes without the necessity of seeking government approval.
The DOT is authorized to establish consumer protection regulations in order to prohibit certain pricing practices, influence conditions of carriage, and make ongoing determinations of a carrier’s
fitness, willingness, and ability to provide air transportation properly and lawfully. The DOT also has the power to bring proceedings to enforce its regulations and seek penalties, including the assessment of civil penalties, the revocation of
operating authority, and criminal sanctions.
We hold an air carrier operating certificate and a certified repair station certificate issued
by the Federal Aviation Administration (“FAA”) pursuant to Federal Aviation Regulation (FAR) Part 121 and Federal Aviation Regulation (FAR) Part 145, respectively. As a result, we are subject to the jurisdiction of the FAA with respect to
our flight operations, aircraft maintenance, and safety related matters, including, but not limited to, equipment, ground facilities, dispatch, communications, training, weather observation, flight personnel, and other matters affecting air safety.
Our certificate is subject to suspension or revocation for cause.
The Aviation and Transportation Security Act requires the adoption of
certain security measures by airlines and airports, including the screening of passengers and baggage. The security measures are being partially funded by a per flight segment tax on tickets. We are responsible for certain security costs above this
level.
We are subject to the jurisdiction and regulations of the Federal Communications Commission regarding the use of our radio facilities.
In addition, local governments and authorities in certain markets have adopted regulations governing various aspects of aircraft operations, including noise abatement, curfews, and use of airport facilities. We believe that we are in compliance with
all such regulations.
We are subject to regulation under various environmental laws and regulations, including the Clean Air Act, the Clean
Water Act and Comprehensive Environmental Response, Compensation and Liability Act of 1980. In addition, many state and local governments have adopted environmental laws and regulations to which our operations are subject.
10
Insurance
Great Lakes carries the types and amounts of insurance that are required by the DOT and are customary in the regional airline industry, including coverage for public liability, property damage, aircraft
loss or damage, baggage and cargo liability, and workers’ compensation.
As a result of the September 11, 2001 terrorist attacks,
aviation insurers have significantly increased premiums for all aviation coverage, while dramatically reducing the amount of coverage available for war-risk occurrences. In response to the reduction in coverage, the Air Transportation Safety and
System Stabilization Act (the Stabilization Act) provided U.S. air carriers with the option to purchase certain war-risk liability insurance from the United States government on an interim basis at rates that are more favorable than those available
in the private market. We have purchased this coverage and anticipate renewing it for as long as the coverage is available from the United States government. The airline and insurance industries, together with the United States and other
governments, are continuing to evaluate both the cost of aviation insurance and options for providing insurance coverage. We anticipate that we will follow industry practices with respect to sources of insurance. We believe our insurance is adequate
as to amounts and risks covered. There can be no assurance, however, that the limits of our insurance will be sufficient to cover any catastrophic loss, or that we will be able to renew insurance at commercially reasonable rates.
11
Investing in our common stock involves a high degree of risk. You should consider carefully the risks described below and the other information
included or incorporated by reference into this annual report, including our financial statements and the related notes, before deciding to invest in our common stock. The risks described below may not be the only risks we face. Additional risks
that we do not yet know of or that we currently do not deem material may also impair our business operations. If any of the events or circumstances described in the following risk factors actually occur, or if any unforeseen risk develops, our
business, financial condition and results of operations could suffer, the trading price of our stock could decline, and you could lose part or all of your investment.
Risks Related to Our Business
We depend on Essential Air Service revenue to justify
a substantial portion of our capacity.
We receive Essential Air Service (“EAS”) revenue as compensation for essential air
service provided by us to smaller communities. We received $52.4 million of EAS revenue for the twelve month period ending December 31, 2011, representing approximately 42% of our total operating revenue, compared to $60.4 million of EAS
revenue, or approximately 48% of our total operating revenue, for the twelve month period ending December 31, 2010. The total amount of EAS revenue ultimately received by us over an extended period is determined by, among other things, overall
funding levels of the EAS program by the U.S. Congress (which could be reduced), competitive bids by other carriers (which could cause us to lose EAS revenue to competitors), and our ability to optimize our schedules. EAS revenue awards generally
have a term of two years. The U.S. Department of Transportation, which administers the EAS program, has the right to cancel EAS revenue awards if it deems that the communities served by such arrangements are no longer eligible.
The FAA Modernization and Reform Act of 2012 was enacted into law on February 14, 2012. This legislation provides for the authorization of the
Essential Air Service program for federal fiscal years 2011 through 2014. Federal fiscal year 2014 ends on September 30, 2015. The FAA Modernization and Reform Act of 2012 reaffirmed the Congressional commitment to the continuance of the
Essential Air Service program. However, there can be no assurances that future legislation will be consistent with this current legislation or that Congress will provide appropriated funding for the program at any particular level. A reduction of
EAS revenue could adversely affect our business, financial condition, operating results and cash flows.
Our senior credit facility with
GB Merchant Partners, LLC and Crystal Capital LLC requires us to maintain certain financial ratios and comply with various operational and other covenants.
Our failure to comply with the covenants contained in the credit agreement, including as a result of events beyond our control, could result in an event of default. If there were an event of default under
our senior credit facility that was not cured or waived, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately. We cannot assure you that our assets or cash flow will be
sufficient to fully repay borrowings under our outstanding debt instruments, either upon maturity or if accelerated, upon an event of default, or that we would be able to refinance or restructure the payments on those debt instruments. This would
have a material adverse impact on our liquidity, financial position and results of operations.
Airline industry conditions constantly
change, and negative economic conditions in the United States may materially and adversely affect our business and results of operations.
The airline industry is significantly affected by general economic conditions, and the global economic recession has resulted in weaker demand for air travel in general. Economic and competitive
conditions in the airline industry have contributed to a number of airline bankruptcies in recent years. A worsening of current economic conditions, or an extended period of recession, whether nationally or regionally, would have a material adverse
effect on our business, financial condition, operating results and cash flows.
12
We depend on connecting capacity at our hubs and the activities of our code share partners affect
that capacity.
Our business depends on, and is sensitive to, events affecting the airline industry capacity at our connecting hubs.
The operations of other airlines with substantial business at those hubs, therefore, impact our business. Our code share partners United Airlines and Frontier Airlines operate a large percentage of the flights at Denver International Airport, our
largest hub. Changes in their business plans or models, employee strikes or job actions, or significant curtailment of services could have an adverse effect on our financial results.
Our code share agreements with Frontier Airlines and United Airlines do not have a fixed termination date, but are cancellable by either party upon sufficient notice. We estimate that approximately 39%
and 21% of our connecting passenger traffic utilizes the United Airline and Frontier Airlines code share product line, respectively. While we are the only carrier serving the majority of the non-hub destinations we serve, we can make no assurances
that absent a code share agreement with United Airlines or Frontier Airlines, that passengers wishing to travel to these destinations would either: (i) purchase travel through our interline e-ticketing agreements established with United
Airlines, Frontier Airlines, Continental Airlines, Delta Airlines, U.S. Airways and American Airlines or (ii) purchase their travel directly through our own sales channels. Therefore, if the United Airlines or Frontier Airlines code share
agreements are terminated, we cannot predict the effect this would have on our future total operating revenue.
An “ownership
change” under IRS Section 382 could reduce, eliminate, or defer the utilization of our net operating loss carryforwards.
At
December 31, 2011, we had estimated net operating loss carryforwards (“NOLs”) of $28.6 million for federal income tax purposes that expire beginning in 2021 and continuing through 2024. Section 382 of the Internal Revenue Code
(“Section 382”) imposes limitations on a corporation’s ability to utilize NOLs if it experiences an “ownership change”. Generally, an ownership change occurs if one or more shareholders, each of whom owns 5% or more in value
of a corporation’s stock, increase their percentage ownership, in the aggregate, by more than 50% over the lowest percentage of stock owned by such shareholders at any time during the preceding three-year period.
If we were to undergo an ownership change as defined in Section 382, our NOLs generated prior to the ownership change would be subject to annual
limitations, which could reduce, eliminate, or defer the utilization of these losses. Our NOLs available to offset future taxable income could be severely limited and the NOLs may expire as a result of the limitation. If we were to experience an
ownership change as defined in Section 382 we may have to reduce or eliminate our deferred tax assets, incur future income taxes payable that could require cash payments or a combination of both. The effect could be materially adverse to our
financial statements and cash flows.
At this time, we cannot predict if future transactions in our shares would constitute a change in
ownership as defined by Section 382, and, therefore, affect the availability of our NOLs.
Our operations could be negatively
impacted by terrorist events or war activity.
Our operations are sensitive to changes in the economy and airline industry that are
caused by, or related to, past and future terrorist attacks. Such changes include, but are not limited to, the impact of additional airline and security charges on our costs, reduced customer demand for travel, the cost and availability of war-risk
and other aviation insurance (including the federal government’s provision of third party war-risk coverage). War or other military action by the United States or other countries could have a significant effect on passenger traffic and
passenger revenue, which could adversely affect our business, financial condition, operating results and cash flows.
We compete for
passenger traffic and EAS revenue with other air carriers.
We compete for passenger traffic with regional and major air carriers. We
also compete with other regional air carriers to receive EAS revenue for providing air service to small communities. Our competition from other air carriers varies from location to location and, in certain areas, comes from regional and major
carriers who serve the same airports or larger airports which are in close proximity to some of the destinations we serve. Additionally, passengers may decide to drive or utilize other ground transportation services to nearby airports which we do
not serve and/or hubs in which we serve. These competing factors could adversely affect our future passenger revenues.
Fuel prices or
disruptions in fuel supplies could have a material adverse effect on us.
Expenditures for fuel and related taxes represent one of the
largest costs of operating our business. Our operations depend on the availability of jet fuel supplies, and our results are significantly impacted by changes in jet fuel prices, which have been volatile in the last 36 months. Jet fuel
prices increased in 2011 and continue to increase in first quarter of 2012. We
13
do not participate in fuel hedging instruments. Fuel prices could increase dramatically and supplies could be disrupted as a result of many factors outside of our control. Further volatility in
jet fuel prices or disruptions in fuel supplies could have a material adverse effect on our results of operations, financial condition and liquidity.
Any labor disruption by our employees or those of our code share partners would adversely affect our ability to conduct our business.
Our pilots, flight attendants, mechanics and maintenance clerks, and dispatchers are represented by unions. Collectively, these employees represented approximately 41% of our workforce as of
December 31, 2011. The collective bargaining agreements became amendable in 2010 for the pilots and 2005 for the mechanics. If we are unable to reach agreement with any of our unionized work groups when collective bargaining agreements are
amendable and the work group is released from bargaining by the National Mediation Board, we may be subject to work interruptions and/or stoppages, which could adversely affect our business, financial condition, operating results and cash flows.
Our business could be harmed if we lose the services of our key personnel.
Our business depends upon the efforts of our Chairman of the Board and President, Douglas G. Voss, and our other key management and operating personnel.
We depend on the experience and industry knowledge of these individuals to execute our business plans. If we experience turnover in our leadership and other key employees, our business, financial condition, operating results and cash flows could be
materially adversely impacted.
We are at risk of losses stemming from an accident involving any of our aircraft.
If one of our aircraft were to be involved in a serious accident, we could be exposed to significant liability for loss of life or other damages. Though
we carry insurance against liability resulting from accidents, we cannot assure you of its adequacy in all circumstances. An accident could result in decreased revenues which could materially adversely affect our business, financial condition,
operating results and cash flows. In addition, depending on the circumstances, any accident involving a particular aircraft of the type that we operate could result in a negative perception of that type of aircraft by air travelers. This could
adversely affect our revenue whether or not our company was actually involved in the accident.
The airline industry is subject to
extensive government regulation, and new regulations, or changes in interpretations of current regulations, could increase our operating costs.
Airlines are subject to extensive regulatory and legal compliance requirements that result in significant costs. The Federal Aviation Administration (“FAA”) from time to time issues directives
and other regulations relating to the maintenance and operation of aircraft that may necessitate significant expenditures. Other laws, regulations, taxes and airport rates and charges have also been imposed from time to time that significantly
increase the cost of airline operations and/or reduce our revenue. The Aviation and Transportation Security Act, which became law in November 2001, mandated the federalization of certain airport security procedures and imposed additional security
requirements on airports and airlines, most of which are funded by a per ticket tax on passengers and a tax on airlines.
In 2010 Congress
passed legislation, effective in July 2013, which may require the company to alter its minimum flight crew (pilot) hiring requirements for First Officers. The legislation statutorily will require a minimum of 1,500 hours of piloting experience and
Airline Transport Pilot FAA certificate. This Act is subject to further rulemaking and the FAA Administrator has been designated by Congress with the authority to grant exemptions to the new hiring standard subject to the development of specialized
pilot training programs. The airline industry has had a long history of recognizing regional airlines, such as Great Lakes, for providing initial FAR Part 121 pilot experience development.
With the most recent economic recession and the statutory retirement age for airline pilots increasing from age 60 to age 65, the airline industry has experienced a reduced level of pilot hiring as pilots
have been allowed to extend their careers. New student pilot certificates have decreased dramatically in the past three years and subsequently the pool of eligible pilots qualified to be new hires into the airline industry has been diminishing
significantly. The new federally mandated changes to hiring requirements, along with the current reduction of eligible and qualified pilot work force, could create a potentially serious regional airline pilot shortage. Depending on the outcome
of this active rulemaking process, the provisions could significantly negatively impact the supply of pilots available to conduct our flight operations.
14
We incur substantial costs in maintaining our current certifications and otherwise complying with the laws,
rules and regulations to which we are subject. We expect to continue incurring expenses to comply with the FAA’s regulations, as well as regulation by states, airports and municipalities that have jurisdiction over our operations.
In addition, proposed laws, regulations, taxes and user fees, if enacted, may increase our operating expenses and otherwise affect our business. Examples
of this are the recent proposals to impose substantial user fees on aviation (including airlines) to fund air traffic control system costs and upgrades to that system. Future regulatory action concerning climate change and aircraft emissions also
could have a significant effect on the airline industry, including the potential for increased fuel costs, carbon taxes or fees or a requirement to purchase carbon credits. We cannot predict whether these or other new regulations may be imposed on
airlines and we cannot assure that laws or regulations enacted in the future will not materially adversely affect our business, financial condition, operating results and cash flows.
We rely on technology and automated systems to operate our business, and a failure of these technologies or systems, or failures by their operators, could harm our business.
We depend on technology and automated systems to operate our business, including our computerized airline reservations system, our telecommunication
systems, our website, our maintenance and engineering systems, our flight dispatching and crew management systems, our flight scheduling systems, and other technologies and systems. Disruption in, changes to, or a breach of, these systems could
result in the loss of important data, negatively affect our customer service, increase our expenses, delay or impede our flight and related operations, or otherwise adversely impact our business. We may be vulnerable to external interruption in
technology infrastructure on which we depend, such as power, telecommunications or the internet, whether due to large-scale events, such as natural disasters, or directed actions, including terrorist attacks and system security attacks seeking to
compromise or obtain financial data, infect systems with computer viruses or impair or disrupt functionality through denial of services.
Production of both types of aircraft which we fly has ceased.
As of March 20, 2012, we operated a fleet of 28 Beechcraft Model 1900D 19-passenger aircraft and 6 Embraer Brasilia Model 120 30-passenger aircraft, neither of which of which are currently in
production. These aircraft types continue to receive factory parts, manufacturing and engineering support. We may experience increased maintenance costs as our fleet ages.
Risks Related to Our Securities
The limited market for our securities could make
trading more difficult or more expensive.
Trading in our common stock is conducted on the Over-the-Counter Bulletin Board, which was
established for securities that do not meet NASDAQ listing requirements. We cannot assure you of an active public market for our common stock. Consequently, trading our common stock may be more difficult because of lower trading volumes, transaction
delays, and reduced security analyst and news media coverage. These factors also could contribute to lower prices and larger spreads in the bid and ask prices for our common stock than might otherwise prevail.
The market price of our common stock may be subject to wide fluctuations.
The price of our common stock may fluctuate, depending on many factors, some of which are beyond our control and may not be related to our operating performance. As a result of this volatility, investors
may not be able to sell their common stock at or above the price paid for the stock. The price of our common stock will be determined in the marketplace and may be influenced by many factors, including:
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•
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the extremely limited “float” in the public market;
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•
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price and volume fluctuations in the overall stock market from time to time;
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•
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significant volatility in the market price and trading volume of companies in the airline industry;
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•
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actual or anticipated changes in our earnings or fluctuations in our operating results or in the expectations of financial market analysts;
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•
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regulatory changes affecting the airline industry;
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•
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investor perceptions of our industry, in general, and our company, in particular;
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15
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•
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passenger concerns about the safety of air travel, in general, and public perceptions of our company, in particular;
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•
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the operating and stock performance of comparable companies;
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•
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general economic conditions and trends;
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•
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major catastrophic events;
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•
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loss of external funding sources;
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•
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sales of large blocks of our stock or sales by insiders; or
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•
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departures of key personnel.
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A decline in the market price of our common stock could cause you to lose some or all of your investment and may adversely impact our ability to attract and retain employees and raise capital. In
addition, stockholders may initiate securities class action lawsuits if the market price of our stock drops significantly, which may cause us to incur substantial costs and could divert the time and attention of our management.
We are controlled by our Chairman and President.
Our Chairman of the Board and President, Douglas G. Voss, beneficially owns 4,160,247 shares of our outstanding common stock, representing approximately 46.6% of our outstanding shares. As a result,
Mr. Voss may be able to control our company and direct our affairs, including the election of directors and approval of significant corporate transactions.
This concentration of ownership could also delay, defer or prevent a change in control of our company, and make some transactions more difficult or impossible without Mr. Voss’ support. These
transactions might include proxy contests, tender offers, open market purchase programs or other share purchases that could give our stockholders the opportunity to realize a premium over the then-prevailing market price of our securities. As a
result, this concentration of ownership could depress the price of our securities.
We may be exposed to potential risks relating to our
internal control over financial reporting and our ability to have those controls remediated timely.
In the event we identify control
deficiencies that we cannot remediate in a timely manner, investors and others may lose confidence in the reliability of our financial statements, and the trading price of our common stock and our ability to obtain any necessary equity or debt
financing could suffer.
We are restricted from paying cash dividends on our shares of common stock in the foreseeable future.
We have never declared or paid any cash dividends on our shares of common stock. We intend to retain any future earnings to fund the
operation and expansion of our business and, therefore, we do not anticipate paying cash dividends on our shares of common stock in the foreseeable future. In addition, we are restricted from paying dividends under the current terms of our debt
instruments. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for investors in our common stock for the foreseeable future.
Provisions in our credit agreement restrict us from issuing preferred stock, merging with or acquiring another entity or modifying any of our organizational documents.
Our current credit agreement restricts us from issuing preferred stock or amending, modifying or waiving any term or provision of our organizational
documents, including our articles of incorporation, certificates of designation pertaining to preferred stock, by-laws, or other operating agreement in any manner adverse to our current lenders without their prior consent.
Our credit agreement also restricts us from participating in any merger or acquisition activity that would be adverse to our current lenders without
their prior consent. This provision could discourage others from bidding for our common stock and could, as a result, reduce the likelihood of an increase in our stock price that would otherwise occur if a bidder sought to buy our stock.
16
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
Aircraft
We
currently operate a total of 34 aircraft consisting of 28 19-passenger Beechcraft 1900D aircraft and six 30-passenger Embraer Brasilia aircraft. The average age of our fleet is approximately 17 years. All 28 of the Beechcraft 1900D aircraft are
owned. Four of the Embraer Brasilia aircraft are owned and two are leased. All of our owned aircraft are pledged as security for our loan agreements with GB Merchant Partners, LLC and Crystal Capital LLC.
Ground Facilities
We lease
approximately 94,000 square feet of space for maintenance, operations, and administration in Cheyenne, Wyoming.
On September 1, 2008 we
entered into a lease for an approximate 120,000 square foot hangar and aircraft maintenance facility in Farmington, NM.
As of March 20,
2012 we have leased gate, terminal and ramp facilities at 46 airports where ticketing and passenger loading and unloading are handled by Great Lakes personnel.
Item 3. LEGAL PROCEEDINGS
We are a party to ongoing legal
claims and assertions arising in the ordinary course of business. Management believes that the resolution of these matters will not have a material adverse effect on our financial position, results of operations, or cash flows.
Item 4. MINE SAFETY DISCLOSURES
Not Applicable.
17
PART II
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Item 5.
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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
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Our Common Stock is traded under the symbol “GLUX.OB” on the Over-the-Counter Bulletin Board (the “OTCBB”). The following table sets
forth the range of high and low sale prices for our Common Stock for each of the fiscal quarters for the past two years as reported on the OTCBB. These prices represent inter-dealer prices without adjustments for mark-up, mark-down, or commission
and do not necessarily reflect actual transactions.
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Stock Quotations
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High
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Low
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2011:
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First quarter
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$
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1.70
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$
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1.20
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Second quarter
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1.43
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0.35
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Third quarter
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0.85
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0.40
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Fourth quarter
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0.83
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0.50
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2010:
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First quarter
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$
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1.50
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$
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1.20
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Second quarter
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1.69
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1.36
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Third quarter
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1.61
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1.05
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Fourth quarter
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2.50
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1.35
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As of March 20, 2012, we had approximately 294 record holders of our Common Stock.
The transfer agent for our Common Stock is Wells Fargo Bank Minnesota, N.A., 161 North Concord Exchange, South St. Paul, Minnesota 55075-0738, telephone:
(651) 450-4064.
We have not paid any dividends on our Common Stock since our initial public offering in January 1994. We expect that,
for the foreseeable future, we will follow a policy of retaining earnings in order to finance the continued development of our business. Payment of dividends is within the discretion of our Board of Directors and will depend, among other factors,
upon the earnings, capital requirements, operating and financial condition of Great Lakes, and any applicable restrictive debt and lease covenants. In addition, the provisions of our November 16, 2011 financing agreement with GB Merchant
Partners, LLC and Crystal Capital LLC, restrict us from paying dividends without their prior consent.
There were no sales of unregistered
securities of the Company during the fiscal year ended December 31, 2011.
See Item 12 with respect to securities authorized for
issuance under equity compensation plans.
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Item 6.
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SELECTED FINANCIAL AND OPERATING DATA
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The following statement of operations and balance sheet data as of, and for each of the years in the five-year period ended December 31, 2011 have
been derived from our audited financial statements. The financial statements as of December 31, 2011 and 2010, and for each of the years in the three-year period ended December 31, 2011, and the audit report thereon, are included elsewhere
in this Form 10-K. The following selected financial data should be read in conjunction with, and are qualified in their entirety by, the financial statements and the notes thereto included elsewhere in this Form 10-K.
18
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Year Ended December 31,
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2011
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2010
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2009
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2008
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2007
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(in thousands, except per share and selected operating data)
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Statement of Operations Data:
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Passenger revenues
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$
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70,989
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$
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63,066
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$
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58,737
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$
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75,719
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$
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73,283
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Public service revenues
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52,406
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60,398
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61,258
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39,250
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24,149
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Freight, charter, and other
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970
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1,937
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1,849
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1,187
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728
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Total operating revenues
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124,365
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125,401
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121,844
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116,156
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98,160
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Operating expenses:
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Salaries, wages and benefits
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32,118
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32,847
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31,500
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26,834
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22,505
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Aircraft fuel
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38,955
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31,374
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26,631
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38,556
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24,913
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Aircraft maintenance, material, and repairs
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13,368
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16,066
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16,925
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13,774
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|
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13,781
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Depreciation and amortization
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5,236
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5,300
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5,641
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|
|
5,606
|
|
|
|
5,632
|
|
|
Aircraft rental
|
|
|
1,907
|
|
|
|
2,294
|
|
|
|
2,066
|
|
|
|
968
|
|
|
|
620
|
|
|
Other rentals and landing fees
|
|
|
6,046
|
|
|
|
5,717
|
|
|
|
6,646
|
|
|
|
5,162
|
|
|
|
4,225
|
|
|
Other operating expense
|
|
|
20,411
|
|
|
|
21,160
|
|
|
|
20,490
|
|
|
|
18,411
|
|
|
|
15,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
118,041
|
|
|
|
114,758
|
|
|
|
109,899
|
|
|
|
109,311
|
|
|
|
87,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
6,324
|
|
|
|
10,643
|
|
|
|
11,945
|
|
|
|
6,845
|
|
|
|
10,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(2,618
|
)
|
|
|
(1,910
|
)
|
|
|
(2,160
|
)
|
|
|
(2,336
|
)
|
|
|
(2,319
|
)
|
|
Gain on extinguishment of debt and deferred leases
|
|
|
13,697
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
17,403
|
|
|
|
8,733
|
|
|
|
9,785
|
|
|
|
4,509
|
|
|
|
8,628
|
|
|
Income tax benefit (expense)
|
|
|
(6,715
|
)
|
|
|
(3,680
|
)
|
|
|
(4,003
|
)
|
|
|
(2,568
|
)
|
|
|
9,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,688
|
|
|
$
|
5,053
|
|
|
$
|
5,782
|
|
|
$
|
1,941
|
|
|
$
|
18,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.78
|
|
|
$
|
0.35
|
|
|
$
|
0.40
|
|
|
$
|
0.14
|
|
|
$
|
1.29
|
|
|
Diluted
|
|
|
0.78
|
|
|
|
0.35
|
|
|
|
0.40
|
|
|
|
0.13
|
|
|
|
1.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
13,630
|
|
|
|
14,292
|
|
|
|
14,292
|
|
|
|
14,237
|
|
|
|
14,077
|
|
|
Diluted
|
|
|
13,740
|
|
|
|
14,446
|
|
|
|
14,442
|
|
|
|
14,414
|
|
|
|
14,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(in thousands, except per share and selected operating data)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital (1)
|
|
$
|
15,110
|
|
|
$
|
(18,778
|
)
|
|
$
|
9,647
|
|
|
$
|
3,086
|
|
|
$
|
3,764
|
|
|
Total assets
|
|
|
83,778
|
|
|
|
84,350
|
|
|
|
84,644
|
|
|
|
86,217
|
|
|
|
92,049
|
|
|
Long-term debt (including current installments) and
|
|
|
29,473
|
|
|
|
43,988
|
|
|
|
51,779
|
|
|
|
59,411
|
|
|
|
67,202
|
|
|
long-term debt classified as current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
36,137
|
|
|
|
28,941
|
|
|
|
23,887
|
|
|
|
17,385
|
|
|
|
15,364
|
|
|
Common Stock Issued and Outstanding (2)
|
|
|
8,920
|
|
|
|
14,292
|
|
|
|
14,292
|
|
|
|
14,292
|
|
|
|
14,292
|
|
|
(1)
|
The working capital deficit of $18.8 million, at December 31, 2010, was due to our aircraft notes for 25 Beechcraft 1900D aircraft maturing on June 30, 2011
which required a $32.7 million balloon payment. This debt was included in current notes payable and current maturities of long-term debt at December 31, 2010, as required by GAAP.
|
|
(2)
|
On November 16, 2011, Raytheon Aircraft Credit Corporation returned 5,371,980 shares of common stock to the Company. These shares were retired, resulting in our
issued and outstanding shares of common stock decreasing from 14,291,970 shares to 8,919,990 shares.
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Selected Operating Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available seat miles (in thousands) (1)
|
|
|
370,376
|
|
|
|
388,162
|
|
|
|
401,068
|
|
|
|
360,636
|
|
|
|
318,524
|
|
|
Revenue passenger miles (in thousands) (2)
|
|
|
162,893
|
|
|
|
149,131
|
|
|
|
134,077
|
|
|
|
154,655
|
|
|
|
157,144
|
|
|
Revenue passengers carried
|
|
|
519,601
|
|
|
|
499,439
|
|
|
|
481,668
|
|
|
|
569,846
|
|
|
|
578,773
|
|
|
Departures flown
|
|
|
74,888
|
|
|
|
82,802
|
|
|
|
92,517
|
|
|
|
82,477
|
|
|
|
68,360
|
|
|
Passenger load factor (3)
|
|
|
44.0
|
%
|
|
|
38.4
|
%
|
|
|
33.4
|
%
|
|
|
42.9
|
%
|
|
|
49.3
|
%
|
|
Average yield per revenue passenger mile (4)
|
|
|
43.6
|
¢
|
|
|
42.3
|
¢
|
|
|
43.8
|
¢
|
|
|
49.0
|
¢
|
|
|
46.6
|
¢
|
|
Revenue per available seat mile (5)
|
|
|
33.6
|
¢
|
|
|
32.3
|
¢
|
|
|
30.4
|
¢
|
|
|
32.2
|
¢
|
|
|
30.8
|
¢
|
|
Operating cost per available seat mile (6)
|
|
|
31.9
|
¢
|
|
|
29.6
|
¢
|
|
|
27.4
|
¢
|
|
|
30.3
|
¢
|
|
|
27.5
|
¢
|
|
Average passenger fare (7)
|
|
$
|
136.62
|
|
|
$
|
126.27
|
|
|
$
|
121.94
|
|
|
$
|
132.88
|
|
|
$
|
126.62
|
|
|
Average passenger trip length (miles) (8)
|
|
|
313
|
|
|
|
299
|
|
|
|
278
|
|
|
|
271
|
|
|
|
272
|
|
|
Aircraft in service (end of period)
|
|
|
34
|
|
|
|
38
|
|
|
|
38
|
|
|
|
34
|
|
|
|
31
|
|
|
Destinations served (end of period)
|
|
|
44
|
|
|
|
58
|
|
|
|
62
|
|
|
|
59
|
|
|
|
44
|
|
|
(1)
|
“Available seat miles” or “ASMs” represent the number of seats available for passengers in scheduled flights multiplied by the number of scheduled
miles those seats are flown.
|
|
(2)
|
“Revenue passenger miles” represent the number of miles flown by revenue passengers.
|
|
(3)
|
“Passenger load factor” represents the percentage of seat miles flown by revenue passengers and is calculated by dividing revenue passenger miles by available
seat miles.
|
|
(4)
|
“Average yield per revenue passenger mile” represents the average passenger revenue received for each mile a revenue passenger is carried.
|
|
(5)
|
“Revenue per available seat mile” represents the average total operating revenue received for each available seat mile.
|
|
(6)
|
“Operating cost per available seat mile” represents operating expenses divided by available seat miles.
|
|
(7)
|
“Average passenger fare” represents passenger revenue divided by the number of revenue passengers carried.
|
|
(8)
|
“Average passenger trip length” represents revenue passenger miles divided by the number of revenue passengers carried.
|
|
Item 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
|
Overview
The discussion and analysis throughout this report contains certain
forward-looking terminology such as “believes,” “anticipates,” “will,” and “intends” or comparable terminology. Such statements are subject to certain risks and uncertainties that could cause actual results to
differ materially from those projected. Potential purchasers of Great Lakes 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.
See “Forward-Looking Statements” at the front of this report.
20
Great Lakes began providing air charter service in 1979, and has provided scheduled passenger service since
1981. We provide scheduled air service to our hubs under the Great Lakes brand. Connecting code share and interline e-ticket products are available to both United and Frontier Airlines at selected hubs. American Airlines, Delta Airlines, Frontier
Airlines, United Airlines and U.S. Airways interline e-ticket products are available at all of the hubs which we serve. As of March 20, 2012, we provided passenger service to 46 airports in 13 states.
Financial Highlights
On
November 16, 2011, we entered into a new financing agreement with GB Merchant Partners, LLC, serving as Collateral Agent, and Crystal Capital LLC, serving as Administrative Agent (the “Credit Agreement”) at which time we borrowed a
total of $29.5 million. Terms of the financing include a four-year term loan in the amount of $24 million and a revolving loan credit facility in which we may borrow up to $10 million for a total of $34 million of available financing. This new
financing arrangement, as more fully described below, enabled us to:
|
|
•
|
|
Make a one-time payment to Raytheon in the amount of $27 million to satisfy $37.2 million of outstanding debt obligations, extinguishing all of our
debt obligations to Raytheon;
|
|
|
•
|
|
Pay related expenses of $2.5 million, and
|
|
|
•
|
|
Obtain, as a part of the transaction, the return of all 5,371,980 shares of Great Lakes common stock previously held by Raytheon.
|
We had operating revenue of $124.4 million for the year ending December 31, 2011, a 0.8 percent decrease compared to
operating revenue of $125.4 million for the year ending December 31, 2010. We realized a $7.9 million increase in passenger revenue and an $8.0 million decrease in public service revenue. This shift in revenue mix is a result of redeploying
aircraft to hubs with greater connecting opportunities that offer the highest and best use of our aircraft and offer a greater number of passengers the ability to connect to the national and international air transportation system. In the first and
second quarters of 2011 we discontinued operations at our Billings, MT, Kansas City, MO and Milwaukee, WI hubs. These three hubs were developed to serve EAS subsidized communities exclusively and the discontinuation of service to these highly
subsidized communities, combined with the redeployment of aircraft to higher passenger enplanement markets, is the primary reason for our shift in revenue mix for the year ending December 31, 2011. Additionally, we realized $1.0 million
decrease in other revenue principally attributable to the termination of ground handling services provided to other carriers in certain destinations where both Great Lakes and the other carriers provided scheduled air service.
We had operating income of $6.3 million for the year ending December 31, 2011, a 40.6 percent decrease compared to operating income of $10.6 million
for the year ending December 31, 2010. The decrease in operating income is mostly attributable to increases in fuel prices resulting in a $7.6 million increase in fuel cost in 2011.
We had net income of $10.7 million for the year ending December 31, 2011, a 111.5 percent increase compared to net income of $5.1 million for the year ending December 31, 2010. The increase in
net income is primarily a result of a $13.7 million gain on extinguishment of debt due to our one-time payment to Raytheon and the return of 5,371,980 shares of common stock described above, offset by the increase in fuel costs. The Company deemed
$3.5 million of the $27 million payment to Raytheon to be for the repurchase of common stock and $23.5 million for the settlement of the outstanding debt obligations. As a result of this transaction, we realized a non-cash gain on the extinguishment
of debt of $13.7 million representing the difference between the $23.5 million and the carrying value of the debt of $37.2 million.
21
Results of Operations
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Amount
|
|
|
Cents
per
ASM
|
|
|
% Increase
(decrease)
from 2010
|
|
|
Amount
|
|
|
Cents
per
ASM
|
|
|
% Increase
(decrease)
from 2009
|
|
|
Amount
|
|
|
Cents
per
ASM
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
|
|
$
|
70,989
|
|
|
|
|
|
|
|
12.6
|
%
|
|
$
|
63,066
|
|
|
|
|
|
|
|
7.4
|
%
|
|
$
|
58,737
|
|
|
|
|
|
|
Public service
|
|
|
52,406
|
|
|
|
|
|
|
|
(13.2
|
)
|
|
|
60,398
|
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
61,258
|
|
|
|
|
|
|
Other
|
|
|
970
|
|
|
|
|
|
|
|
(49.9
|
)
|
|
|
1,937
|
|
|
|
|
|
|
|
4.8
|
|
|
|
1,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
124,365
|
|
|
|
|
|
|
|
(0.8
|
)%
|
|
|
125,401
|
|
|
|
|
|
|
|
2.9
|
%
|
|
|
121,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages, and benefits
|
|
|
32,118
|
|
|
|
8.7
|
¢
|
|
|
(2.2
|
)%
|
|
|
32,847
|
|
|
|
8.5
|
¢
|
|
|
4.3
|
%
|
|
|
31,500
|
|
|
|
7.9
|
¢
|
|
Aircraft fuel
|
|
|
38,955
|
|
|
|
10.5
|
|
|
|
24.2
|
|
|
|
31,374
|
|
|
|
8.1
|
|
|
|
17.8
|
|
|
|
26,631
|
|
|
|
6.6
|
|
|
Aircraft maintenance materials and component repairs
|
|
|
13,368
|
|
|
|
3.6
|
|
|
|
(16.8
|
)
|
|
|
16,066
|
|
|
|
4.1
|
|
|
|
(5.1
|
)
|
|
|
16,925
|
|
|
|
4.2
|
|
|
Depreciation and amortization
|
|
|
5,236
|
|
|
|
1.4
|
|
|
|
(1.2
|
)
|
|
|
5,300
|
|
|
|
1.4
|
|
|
|
(6.0
|
)
|
|
|
5,641
|
|
|
|
1.4
|
|
|
Aircraft rental
|
|
|
1,907
|
|
|
|
0.5
|
|
|
|
(16.9
|
)
|
|
|
2,294
|
|
|
|
0.6
|
|
|
|
11.0
|
|
|
|
2,066
|
|
|
|
0.5
|
|
|
Other rentals and landing fees
|
|
|
6,046
|
|
|
|
1.6
|
|
|
|
5.8
|
|
|
|
5,717
|
|
|
|
1.5
|
|
|
|
(14.0
|
)
|
|
|
6,646
|
|
|
|
1.7
|
|
|
Other operating expense
|
|
|
20,411
|
|
|
|
5.5
|
|
|
|
(3.5
|
)
|
|
|
21,160
|
|
|
|
5.5
|
|
|
|
3.3
|
|
|
|
20,490
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
118,041
|
|
|
|
31.9
|
¢
|
|
|
2.9
|
%
|
|
|
114,758
|
|
|
|
29.7
|
¢
|
|
|
4.4
|
%
|
|
|
109,899
|
|
|
|
27.5
|
¢
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
6,324
|
|
|
|
|
|
|
|
|
|
|
$
|
10,643
|
|
|
|
|
|
|
|
|
|
|
$
|
11,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
Increase/
(decrease)
from 2010
|
|
|
2010
|
|
|
Increase/
(decrease)
from 2009
|
|
|
2009
|
|
|
Available seat miles (thousands)
|
|
|
370,376
|
|
|
|
(4.6
|
)%
|
|
|
388,162
|
|
|
|
(3.2
|
)%
|
|
|
401,068
|
|
|
Revenue passenger miles (thousands)
|
|
|
162,893
|
|
|
|
9.2
|
%
|
|
|
149,131
|
|
|
|
11.2
|
%
|
|
|
134,077
|
|
|
Passenger load factor
|
|
|
44.0
|
%
|
|
|
14.6
|
%
|
|
|
38.4
|
%
|
|
|
15.0
|
%
|
|
|
33.4
|
%
|
|
Average yield per revenue passenger mile
|
|
|
43.6
|
¢
|
|
|
3.1
|
%
|
|
|
42.3
|
¢
|
|
|
(3.4
|
)%
|
|
|
43.8
|
¢
|
|
Revenue per available seat mile
|
|
|
33.6
|
¢
|
|
|
4.0
|
%
|
|
|
32.3
|
¢
|
|
|
6.3
|
%
|
|
|
30.4
|
¢
|
|
Cost per available seat mile
|
|
|
31.9
|
¢
|
|
|
7.8
|
%
|
|
|
29.6
|
¢
|
|
|
8.0
|
%
|
|
|
27.4
|
¢
|
Comparison of 2011 to 2010
Passenger Revenues
. Passenger revenues increased 12.6% from 2010. The increase in passenger revenues was largely due to a 9.2% increase in revenue passenger miles in addition to a 3.1%
increase in average yield per revenue passenger mile.
Public Service Revenues
. Public service revenues earned through the
Essential Air Service program decreased 13.2% to $52.4 million in 2011, as compared to $60.4 million in 2010. The decrease in public service revenues was mainly attributable to a net decrease in communities served by us under the EAS program,
partially offset by subsidy rate increases, stemming primarily from higher fuel costs, in recent rate renewals for EAS markets in which we were reselected to continue subsidized air service. In February of 2011, we discontinued our Kansas City EAS
hub operation and in April of 2011 we discontinued our EAS hub operation in Milwaukee. We discontinued EAS operations to seven Montana communities in May of 2011 and ceased operations at our Billings, MT EAS hub on June 30, 2011. All four of
these hubs were developed by the Company in recent years to serve EAS markets exclusively. Due to the substantial downsizing of connecting capacity at these
22
hubs, we determined that redeploying aircraft to hubs with greater connecting opportunities would offer the highest and best use of our aircraft and offer a greater number of passengers the
ability to connect to the national and international air transportation system. The discontinuation of these EAS routes, offset by increases in other public service revenues, resulted in a net decrease of $8.0 million of EAS revenue in 2011 as
compared to 2010.
Other Revenues
. Other revenues decreased 49.9% to $1.0 million in 2011. This decrease was mainly due to a
$0.9 million decrease in ground handling services provided to other carriers who served the same locations in which we had ongoing operations.
Operating Expenses
. Total operating expenses increased 2.9%, or $3.3 million from the previous year, primarily related to increased fuel
costs. Fuel costs increased 24.2%, or $7.6 million, from 8.1 cents per ASM in 2010 to 10.5 cents per ASM in 2011.
Salaries, wages, and
benefits decreased 2.2% to $32.1 million, which was primarily attributable to fewer employees needed to support the decreased number of communities served and a reduction of health insurance claims.
Aircraft fuel expense, in 2011, was $39.0 million, or 10.5 cents per ASM, an increase of $7.6 million compared to 2010. In 2010, aircraft fuel expense
was $31.4 million, or 8.1 cents per ASM. The average cost of fuel increased from $2.83 per gallon in 2010 to $3.69 per gallon in 2011. The effect of the $0.86 increase in cost per gallon, net of a decrease in consumption, was an increase in total
cost of approximately $7.6 million in 2011. At 2011 rates of consumption, a one cent increase or decrease in the price per gallon of fuel will increase or decrease our fuel expense by approximately $108,000 annually.
Aircraft maintenance, materials and component repair expense was $13.4 million, or 3.6 cents per ASM, in 2011, a decrease of $2.7 million from 2010. In
comparison, our aircraft maintenance, materials, and repairs expense for 2010 was $16.1 million, or 4.1 cents per ASM. The 16.8% decrease in 2011 aircraft maintenance expense was primarily attributable a 9.6% reduction in the number of departures
and a 6.0 % reduction in aircraft block hour time. Our Fleet Management Program (FMP) with Pratt and Whitney Canada Corporation expired by its terms on June 30, 2011. The termination of this contract also contributed to lower aircraft
maintenance expense in 2011. Aircraft maintenance, materials and component expense does not include internal salaries, wages and benefit expenses incurred as a result of employees performing aircraft maintenance.
Depreciation and amortization expense was $5.2 million during 2011 and $5.3 million during 2010.
Aircraft rental expense was $1.9 million during 2011, a decrease of 16.9% compared to $2.3 million during 2010. The decrease resulted from the return of
seven Beechcraft model 1900D aircraft leased from Raytheon during the second half of 2011.
Other rentals and landing fees increased 5.8% to
$6.0 million in 2011 from $5.7 million in 2010. The increase is mostly attributable to reduced retroactive annual rate adjustment from Denver International Airport (“DIA”), which was partially offset by net decreases in expense mostly
attributable to the decrease in communities served.
Other operating expenses decreased 3.5% in 2011 to $20.4 million, or 5.5 cents per ASM
from $21.2 million or 5.5 cents per ASM in 2010. The decrease in other operating expenses is primarily due to a decrease in pilot training and associated lodging expenses of $0.5 million, contract handling of $0.3 million, communication expenses
$0.3 million, contract maintenance of $0.2 million and passenger related expenses of $0.1 million. These were offset by increases for professional fees of $0.4 million, deicing expenses of $0.1 million and insurance of $0.1 million.
23
Interest Expense.
Interest expense was $2.6 million during 2011, an increase of 37.1% from
$1.9 million in 2010. The increase was mostly the result of the amortization of gains from the 2002 deferred debt restructuring becoming fully amortized as of June 30, 2011.
Income Tax Expense
.
We had income tax expense of $6.7 million in 2011 compared to $3.7 million in 2010. The provision for income taxes, as a percentage of income before taxes,
decreased to 38.6 percent in 2011 from 42.1 percent in 2010.
As of December 31, 2011, we had approximately $28.6 million of federal net
operating loss carryforwards which will be available to offset future taxable income. We also had $13.6 million of state net operating loss carryforwards, of which $10.0 million ($0.6 million tax effected) is expected to expire unused and $3.6
million will be available to offset future taxable income. A valuation allowance of approximately $646,000 remained at December 31, 2011 for state net operating loss carryforwards that may not be utilized before they expire.
Comparison of 2010 to 2009
Passenger Revenues
. Passenger revenues increased 7.4% from 2009. The increase in passenger revenues was largely due to an 11.2% increase in
revenue passenger miles offset by a 3.4% reduction in average yield per revenue passenger mile.
Public Service Revenues
. Public
service revenues earned through the Essential Air Service program decreased 1.4% to $60.4 million in 2010, as compared to $61.3 million in 2009. The decrease in public service revenues was mainly attributable to a net decrease in communities served
by us under the Essential Air Service Program, partially offset by an increase in service renewals supporting higher subsidy levels. In January of 2010, we exited the St. Louis EAS hub and transitioned EAS service to Ft. Leonard Wood, MO to our
Kansas City EAS hub. In April of 2010, we also discontinued EAS service to Manhattan and Salina KS, from our Kansas City EAS hub. The discontinuation of these EAS routes, offset by increases in other public service revenues, resulted in a net
decrease of $0.9 million of EAS revenue in 2010 as compared to 2009.
Other Revenues
. Other revenues increased 4.8% to $1.9
million in 2010. This increase was mainly due to ground handling services provided to other carriers who served the same locations in which we had ongoing operations, offset in part by a decrease in cargo revenue and charter income.
Operating Expenses
. Total operating expenses increased 4.4%, or $4.9 million from the previous year, primarily related to fuel costs. Fuel
costs increased 17.8 %, or $4.7 million, from 6.6 cents per ASM in 2009 to 8.1 cents per ASM in 2010.
Salaries, wages, and benefits
increased 4.3% to $32.8 million, which was primarily attributable to increasing insurance benefit costs, an increase in the number of employees from the prior year and pay rate increases.
Aircraft fuel expense, in 2010, was $31.4 million, or 8.1 cents per ASM, in 2010, an increase of $4.7 million compared to 2009. In 2009, our aircraft fuel expense was $26.6 million, or 6.6 cents per ASM.
The average cost of fuel increased from $2.29 per gallon in 2009 to $2.83 per gallon in 2010. The effect of the $0.54 increase in cost per gallon increased our total fuel cost by $6.1 million in 2010. The 17.8% increase in our aircraft fuel expense
was attributable to the 23.6% increase in the average cost of fuel per gallon, partially offset by a 4.7% decrease in consumption resulting from the 3.2% decrease in ASMs.
24
Aircraft maintenance, materials, and component repair expense was $16.1 million, or 4.1 cents per ASM, in
2010, a decrease of $0.9 million from 2009. In comparison, our aircraft maintenance, materials, and repairs expense for 2009 was $16.9 million, or 4.2 cents per ASM. The 5.1% decrease in 2010 aircraft maintenance was primarily attributable to the
accelerated maintenance expenses associated with the preparation of six Company owned Beechcraft 1900D spare engines for installation on three Raytheon aircraft leased without engines during 2009. Aircraft maintenance, materials and component
expense does not include internal salaries, wages and benefit expenses incurred as a result of employees performing aircraft maintenance.
Depreciation and amortization expense was $5.3 million during 2010 and $5.6 million during 2009. The decrease was primarily attributable to a reduction
of depreciation on items becoming fully depreciated.
Aircraft rental expense was $2.3 million during 2010, an increase of 11.0% compared to
$2.1 million during 2009. The increase was primarily attributable to the addition of four 1900D aircraft leases during 2009 from Raytheon.
Other rentals and landing fees decreased 14.0% to $5.7 million in 2010 from $6.6 million in 2009. The decrease in other rentals and landing fees expenses
is mostly attributable to a retroactive annual rate adjustment from Denver International Airport whereby we received a net credit of $1.1 million, which was $0.6 million more than 2009. Additionally, we had a 10.5% decrease in departures flown,
primarily attributable to the discontinuation of service to our former St. Louis hub, whereby we incurred less landing fee expense.
Other
operating expenses increased 3.3% in 2010 to $21.2 million, or 5.5 cents per ASM from $20.5 million or 5.1 cents per ASM in 2009. The increase in other operating expenses is primarily due to an increase of approximately $0.9 million in passenger
related expenses, $0.6 million in pilot training and associated lodging expenses and $0.2 million for other expenses. These were offset by reductions for professional fees of $0.5 million, deicing fluid expense of $0.3 million and contract
maintenance of $0.2 million.
Interest Expense
. Interest expense was $1.9 million during 2010, a decrease of 11.6% from $2.2
million in 2009. The decrease was mostly the result of interest on the lower principal portion of long-term debt balance, partially offset by a reduction in deferred debt restructuring gain amortization in interest expense related to the
restructured Raytheon debt in 2002.
Income Tax Expense
.
We had income tax expense of $3.7 million in 2010
compared to $4.0 million in 2009. The provision for income taxes, as a percentage of income before taxes, increased to 42.1 percent in 2010 from 40.9 percent in 2009. The 2010 rate includes $0.1 million for the impact of changes in rates due to
state apportionment of income factor changes and $0.1 million charge related to an increase of valuation allowances on state NOLs which were previously expected to be utilized prior to expiration.
As of December 31, 2010, we had approximately $46.4 million of federal net operating loss carryforwards, and $16.9 million in state net operating
loss carryforwards, which were available to offset future taxable income. A valuation allowance of approximately $624,608 remained at December 31, 2010 for state net operating loss carryforwards that may not be utilized before they expire.
Liquidity, Financing and Capital Resources
New Financing Agreement
On November 16, 2011, we entered into a new financing
agreement with GB Merchant Partners, LLC, serving as Collateral Agent, and Crystal Capital LLC, serving as Administrative Agent (the “Credit Agreement”) at which time we borrowed a total of $29.5 million. Terms of the financing include a
four-year term loan in the amount of $24 million and a revolving loan credit facility in which we may borrow up to $10 million for a total of $34 million of available financing. This Credit Agreement enabled us to:
25
|
|
•
|
|
Make a one-time payment to Raytheon in the amount of $27 million to satisfy $37.2 million of outstanding debt obligations, extinguishing all of our
debt obligations to Raytheon;
|
|
|
•
|
|
Pay related expenses of $2.5 million, and
|
|
|
•
|
|
Obtain, as a part of the transaction, the return of all 5,371,980 shares of Great Lakes common stock previously held by Raytheon.
|
Pursuant to the terms of a pledge and security agreement and an aircraft security agreement, our obligations to the lenders
identified in Credit Agreement are secured by substantially all assets of the Company, including all owned aircraft. The term loan bears interest at a floating rate of 30 day LIBOR rate plus 11% with a minimum rate of 15.5%.
As of December 31, 2011, we had borrowed $5.5 million on the revolving credit facility, secured by accounts receivable, parts inventory and spare
engines. The revolving credit facility bears interest at the rate of 30 day LIBOR rate plus 8.0% with a minimum interest rate of 10.5%. We were also required to pay a closing fee based on the initial facility commitment, and are required to pay a
monthly unused line fee, a specified fee for certain prepayments of the term loan, and certain administrative and fronting fees related to the new financing agreement. The term loan and the revolving loan credit facility are set to mature on
November 16, 2015.
Gain on Extinguishment of Debt and Return of Raytheon Shares
For the consideration of $27 million, Raytheon agreed to terminate principal amounts of $30.6 million of Aircraft Notes, secured by 25 Beechcraft 1900D
aircraft, and a $6.6 million Senior Note, secured by four Embraer Brasilia EMB 120 aircraft and all other assets of the Company. Raytheon also agreed to return 5,371,980 shares of Great Lakes common stock. The Company deemed $3.5 million of the $27
million payment to Raytheon to be for the repurchase of common stock and $23.5 million for the settlement of the outstanding debt obligations. As a result of this transaction, we realized a non-cash gain on the extinguishment of debt of $13.7
million representing the difference between the $23.5 million and the carrying value of the debt of $37.2 million.
Working Capital
Net cash provided by operating activities was $8.0 million at December 31, 2011 compared to $10.6 million at December 31,
2010. We had positive working capital of $15.1 million and a current ratio of 2.3:1 at December 31, 2011, compared to negative working capital of $18.8 million and a current ratio of 0.6:1 at December 31, 2010. The increase in working
capital, at December 31, 2011, is primarily due to our Aircraft Notes for 25 Beechcraft 1900D aircraft, which had a June 30, 2011 maturity date and required a $32.7 million balloon payment, being classified as current notes payable and
current maturities of long-term debt at December 31, 2010.
We believe the cash we expect to generate from operations and our ability to
borrow under our revolving credit facility, remains adequate to meet our short-term and long-term liquidity requirements, meet debt service, and fulfill our other cash requirements.
For additional information regarding Liquidity and Capital Resources see Item 1A “Risk Factors.”
Operating Activities
. Net cash provided by operating activities for the year ended December 31, 2011 was $8.0 million as compared to $10.6 million for the year ended December 31,
2010.
26
Investing Activities
.
Net cash used in investing activities for the year ended
December 31, 2011 was $3.9 million for the purchase of flight equipment and other property and equipment. Net cash used in investing activities for the year ended December 31, 2010 was $2.8 million.
Financing Activities
. Net cash used in financing activities for the year ended December 31, 2011 was ($6.2) million consisting of $27
million to satisfy all outstanding debt obligations owed to Raytheon on November 16, 2011, including the return and subsequent retirement of 5,371,980 shares of Great Lakes common stock previously held by Raytheon. Additionally, we made $6.2
million of principal payments to Raytheon prior to November 16, 2011. We issued new debt of $29.5 million on November 16, 2011, of which $2.5 million consisted of debt issuance costs.
Contractual Obligations
The following
table summarizes our major contractual payment obligations as of December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2013-2014
|
|
|
2015-2016
|
|
|
After 2016
|
|
|
Total
|
|
|
Long-term debt—contractual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loan facility
|
|
$
|
3,000,000
|
|
|
$
|
7,500,000
|
|
|
$
|
13,500,000
|
|
|
$
|
—
|
|
|
$
|
24,000,000
|
|
|
Revolving credit facility
|
|
|
—
|
|
|
|
—
|
|
|
|
5,473,333
|
|
|
|
—
|
|
|
|
5,473,333
|
|
|
Contractual interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loan facility
|
|
|
3,604,073
|
|
|
|
5,605,564
|
|
|
|
1,658,500
|
|
|
|
—
|
|
|
|
10,868,137
|
|
|
Revolving credit facility
|
|
|
630,299
|
|
|
|
1,257,155
|
|
|
|
551,082
|
|
|
|
—
|
|
|
|
2,438,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
7,234,372
|
|
|
|
14,362,719
|
|
|
|
21,182,915
|
|
|
|
—
|
|
|
|
42,780,006
|
|
|
Aircraft lease obligations
|
|
|
600,000
|
|
|
|
125,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
725,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease obligations
|
|
|
600,000
|
|
|
|
125,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
725,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Obligations
|
|
$
|
7,834,372
|
|
|
$
|
14,487,719
|
|
|
$
|
21,182,915
|
|
|
$
|
—
|
|
|
$
|
43,505,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See discussion below for contractual interest obligations.
Contractual Interest Expense
Due to the amortization of the deferred gain on forgiveness
of debt associated with our 2002 Restructuring Agreement with Raytheon, in accordance with procedures set forth in ASC Section 470-60-15 (originally pursuant to SFAS No. 15-
Accounting by Debtors and Creditors for Troubled Debt
Restructurings
), our recorded interest expense was less than the contractual interest expense. Going forward, as a result of extinguishing the Raytheon debt, our recorded interest expense will no longer be less than our contractual interest
expense. During 2011, our contractual interest expense for all long-term debt obligations was $3.1 million. In 2011, we amortized $0.6 million of the deferred gain on forgiven debt associated with the Raytheon 2002 Restructuring Agreement in
accordance with ASC Section 470-60-15. As a result, our net interest expense on long-term debt obligations including amortization of $0.1 million of transaction expenses related to our new financing agreement, as reflected on the financial
statements, was $2.6 million.
27
The projected contractual interest expense on our long-term obligations (based on the variable interest
rate stated in the debt instruments) for the next five years and thereafter is as follows:
|
|
|
|
|
|
|
Maturity
|
|
Variable Rate
Contractual
Interest
|
|
|
2012
|
|
$
|
4,234,372
|
|
|
2013
|
|
|
3,721,204
|
|
|
2014
|
|
|
3,141,515
|
|
|
2015
|
|
|
2,209,582
|
|
|
2016
|
|
|
—
|
|
|
Thereafter
|
|
|
—
|
|
The preceding projected contractual interest rate expenses are calculated based on borrowings as of December 31,
2011. Our contractual interest expense is subject to fluctuations in the amount of debt outstanding at any given time, particularly under our revolving credit facility, as well as increases in 30-day LIBOR. Under the provisions of our revolving
credit facility LIBOR would have to increase approximately 2.2 percentage points before we would realize increases in interest expense as a result of the variable rate nature of our debt instruments.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates, judgments, and assumptions that affect the
reported amounts of assets and liabilities as of the date of the financial statements; revenues and expenses during the reporting period; and related disclosures of contingent assets and liabilities in the financial statements and the accompanying
notes. Actual results could differ from those estimates.
The United States Securities and Exchange Commission (the “SEC”) has
defined a company’s most critical accounting policies as the ones that are most important to the portrayal of our financial condition and results and that require us to make our most difficult and subjective judgments, often as a result of the
need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified our critical accounting policies as including those addressed below. We also have other key accounting policies, which involve the use of
estimates, judgments, and assumptions. See Note 2, “Summary of Significant Accounting Policies and Procedures,” in the Notes to the Financial Statements for additional discussion of these items. Management believes that its estimates and
assumptions are reasonable, based on information presently available; however, changes in these estimates, judgments, and assumptions will occur as a result of future events. Accordingly, actual results could differ from amounts estimated.
Depreciation and Residual Values of Aircraft
. In accounting for long-lived assets, we make estimates about the expected useful
lives, projected residual values, and the potential for impairment. Estimates of useful lives and residual values of aircraft are based on actual industry experience with the same or similar aircraft types and anticipated utilization of the
aircraft. Changing market prices of new and used aircraft, government regulations, and changes in our maintenance program or operations could result in changes to these estimates.
Accounting for Maintenance Deposits
. We have evaluated the maintenance deposits on account which relate to two Brasilia aircraft and amount to approximately $1.7 million at December 31,
2011 and determined that, based on historical and forecasted usage of the aircraft, that all amounts on deposit are probable of being returned as a result of the maintenance expected to be performed on the aircraft’s components prior to the
leased aircraft’s lease expiration (April 2013). If amounts paid on deposit are probable of being returned, as a result of the maintenance expected to be performed on the aircraft’s components prior to lease expiration, we will treat
28
that amount paid as a refundable deposit. If, based on historical and forecasted usage of the aircraft, we do not expect an amount paid to be returned, we will expense that amount as maintenance
expense at the time that expense is incurred. We will continue to evaluate our maintenance deposit account as the leases progress toward lease termination, and make the determination if any maintenance deposits should be expensed if it becomes less
than probable that the deposits will be returned.
Inventories
. Inventories are comprised primarily of expendable spare aircraft
parts, fuel, materials, and supplies relating to flight equipment, which are recorded at the lower of cost (average cost) or market. Expendable spare aircraft parts are subject to reserves for obsolescence.
Aircraft Valuation and Impairments
. In accordance with ASC Section 360-10-35 (originally Statement of Financial Accounting Standards
No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed of
) long-lived assets, such as property, plant, equipment and aircraft, subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of
the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated. The assets and liabilities of a disposal
group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.
Income Taxes
. We account for income taxes using the asset and liability method. Under that method, deferred income taxes are
recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and tax bases of existing assets and
liabilities and net operating losses (“NOLs”) and tax credit carryforwards. A valuation allowance is provided to the extent that it is more likely than not that deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary
differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The tax net operating loss carryforwards (NOLs) that have been
generated are due in large part to the accelerated depreciation of property and equipment over a shorter useful life for tax purposes. Our NOLs will expire between 2021 and 2024. The book basis of property and equipment is approximately $42.9
million greater than the tax basis at December 31, 2011, all of which is expected to reverse during periods in which NOLs are available. Approximately $10.0 million ($0.6 million tax effected) of state NOLs are expected to expire unused and
accordingly a valuation allowance has been provided for these deferred tax assets. Based upon the projections for future taxable income over the periods in which the deferred tax assets become deductible, the Company believes it is more likely than
not that it will realize the benefits of most of the deductible temporary differences and NOLs. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
Liability Accruals and Reserves
. We are obligated under various agreements relating to
employee health and welfare, injuries, tax and fee remittances, and other contractual matters, some of which involve estimates of the ultimate amounts due and impacts of insurance coverage. Changes in the estimates and assumptions could occur and
would result in actual results being different than those estimated.
29
Effects of Inflation
We are subject to inflationary pressures from labor agreements, fuel price escalations, and increased operating costs at airports served by us. We attempt to counteract the effects of inflation through
fare increases, subsidy increases and capacity adjustments.
Environmental Matters
In the normal course of our operations, we are subject to various federal, state, local and foreign laws and regulations relating to environmental
protection matters. These laws and regulations govern such matters as environmental reporting, storage and disposal of materials and chemicals and aircraft noise. We are, and expect in the future to be, involved in various environmental matters and
conditions at, or related to, our properties. We are not currently subject to any environmental cleanup orders or actions imposed by regulatory authorities. We are not aware of any active material environmental investigation related to our assets or
properties.
Off Balance Sheet Arrangements
An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained
or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing,
liquidity, market risk or credit risk support to the company, or that engages in leasing, hedging or research and development arrangements with the company.
We have no off-balance sheet arrangements of the types described in the four categories above that we believe may have a material current or future effect on our financial condition, liquidity or results
of operations.
|
Item 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Market Risks
We are susceptible to certain risks related to changes in the cost of
aircraft fuel and changes in interest rates. As of December 31, 2011, we did not have any derivative financial instruments.
Aircraft
Fuel
Due to the airline industry’s dependency on aircraft fuel for operations, airline operators including Great Lakes are impacted
by changes in aircraft fuel prices. Aircraft fuel represented approximately 33.0% of our operating expenses in 2011. At 2011 rates of consumption, a one cent increase or decrease in the per gallon price of fuel would increase or decrease our fuel
expense by approximately $108,000 annually.
Interest Rates
Our operations are very capital intensive because the vast majority of our assets consist of flight equipment, which is financed primarily with long-term debt. At December 31, 2011, we replaced
approximately $38 million of fixed rate debt with $30 million of variable rate debt. Going forward, we could be subject to increased rates of interest on our debt if the 30 day LIBOR rate increases by more than 2.2 percentage points.
30
|
Item 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
The financial statements of the Company as of December 31, 2011 and 2010 and for the each of the years in the three year period ended December 31, 2011, together with the Report of the
Company’s Independent Registered Public Accounting Firm, are included in this Form 10-K on the pages indicated below.
Supporting schedules are omitted because they are inapplicable, not required, or the information is presented in the
financial statements or notes thereto.
31
Report of Independent Registered Public Accounting Firm
The Board of Directors
Great
Lakes Aviation, Ltd.:
We have audited the accompanying balance sheets of Great Lakes Aviation, Ltd. (the Company) as of December 31,
2011 and 2010, and the related statements of income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2011. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Great Lakes Aviation, Ltd. as of December 31, 2011 and 2010, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Denver, Colorado
March 29, 2012
32
GREAT LAKES AVIATION, LTD.
Balance Sheets
December 31, 2011 and 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,592,993
|
|
|
$
|
5,716,105
|
|
|
Accounts receivable and other receivables
|
|
|
9,945,461
|
|
|
|
9,100,412
|
|
|
Inventories
|
|
|
7,568,792
|
|
|
|
6,591,209
|
|
|
Prepaid expenses and other current assets
|
|
|
1,962,959
|
|
|
|
2,037,525
|
|
|
Deferred income taxes
|
|
|
3,789,530
|
|
|
|
3,770,873
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
26,859,735
|
|
|
|
27,216,124
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
|
Flight equipment
|
|
|
117,573,486
|
|
|
|
114,415,177
|
|
|
Other property and equipment
|
|
|
9,766,209
|
|
|
|
9,485,938
|
|
|
Less accumulated depreciation and amortization
|
|
|
(75,696,512
|
)
|
|
|
(70,714,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
51,643,183
|
|
|
|
53,186,398
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance deposits
|
|
|
1,718,943
|
|
|
|
2,024,444
|
|
|
Other assets
|
|
|
3,555,639
|
|
|
|
1,923,459
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
83,777,500
|
|
|
$
|
84,350,425
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Notes payable and current maturities of long-term debt
|
|
$
|
3,000,000
|
|
|
$
|
38,420,169
|
|
|
Accounts payable
|
|
|
4,301,993
|
|
|
|
3,233,965
|
|
|
Accrued interest, unearned revenue and other liabilities
|
|
|
4,447,321
|
|
|
|
4,340,469
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
11,749,314
|
|
|
|
45,994,603
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current maturities
|
|
|
26,473,333
|
|
|
|
5,567,646
|
|
|
Deferred income taxes
|
|
|
9,417,813
|
|
|
|
3,812,182
|
|
|
Deferred credits
|
|
|
—
|
|
|
|
35,435
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
47,640,460
|
|
|
|
55,409,866
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock; $0.01 par value; Authorized: 25,000,000 shares.
|
|
|
|
|
|
|
|
|
|
No shares issued or outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Common stock; $0.01 par value; Authorized: 50,000,000 shares.
|
|
|
|
|
|
|
|
|
|
Issued and outstanding: 8,919,990 and 14,291,970 shares
|
|
|
89,200
|
|
|
|
142,920
|
|
|
Paid-in capital
|
|
|
31,473,597
|
|
|
|
33,568,669
|
|
|
Accumulated earnings (deficit)
|
|
|
4,574,243
|
|
|
|
(4,771,030
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
36,137,040
|
|
|
|
28,940,559
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
83,777,500
|
|
|
$
|
84,350,425
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
33
GREAT LAKES AVIATION, LTD.
Statements of Income
Years Ended December 31, 2011, 2010, and 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger
|
|
$
|
70,989,350
|
|
|
$
|
63,065,692
|
|
|
$
|
58,736,610
|
|
|
Public service
|
|
|
52,406,337
|
|
|
|
60,398,036
|
|
|
|
61,258,859
|
|
|
Freight, charter, and other
|
|
|
969,770
|
|
|
|
1,936,602
|
|
|
|
1,849,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
|
124,365,457
|
|
|
|
125,400,330
|
|
|
|
121,844,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages, and benefits
|
|
|
32,117,733
|
|
|
|
32,846,739
|
|
|
|
31,500,185
|
|
|
Aircraft fuel
|
|
|
38,954,692
|
|
|
|
31,374,203
|
|
|
|
26,630,846
|
|
|
Aircraft maintenance, materials, and repairs
|
|
|
13,367,928
|
|
|
|
16,065,583
|
|
|
|
16,925,204
|
|
|
Depreciation and amortization
|
|
|
5,236,110
|
|
|
|
5,300,217
|
|
|
|
5,640,649
|
|
|
Aircraft rental
|
|
|
1,906,682
|
|
|
|
2,294,100
|
|
|
|
2,066,334
|
|
|
Other rentals and landing fees
|
|
|
6,046,212
|
|
|
|
5,717,207
|
|
|
|
6,646,086
|
|
|
Other operating expense
|
|
|
20,411,414
|
|
|
|
21,159,510
|
|
|
|
20,489,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
118,040,771
|
|
|
|
114,757,559
|
|
|
|
109,898,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
6,324,686
|
|
|
|
10,642,771
|
|
|
|
11,945,886
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense net of interest income of $4,043, $6,104 and $7,949 respectively
|
|
|
(2,618,222
|
)
|
|
|
(1,909,642
|
)
|
|
|
(2,160,483
|
)
|
|
Gain on extinguishment of debt
|
|
|
13,696,695
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
11,078,473
|
|
|
|
(1,909,642
|
)
|
|
|
(2,160,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
17,403,159
|
|
|
|
8,733,129
|
|
|
|
9,785,403
|
|
|
Income tax expense
|
|
|
(6,714,891
|
)
|
|
|
(3,679,851
|
)
|
|
|
(4,003,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,688,268
|
|
|
$
|
5,053,278
|
|
|
$
|
5,781,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.78
|
|
|
$
|
0.35
|
|
|
$
|
0.40
|
|
|
Diluted
|
|
|
0.78
|
|
|
|
0.35
|
|
|
|
0.40
|
|
|
Average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
13,629,671
|
|
|
|
14,291,970
|
|
|
|
14,291,970
|
|
|
Diluted
|
|
|
13,739,516
|
|
|
|
14,445,732
|
|
|
|
14,442,357
|
|
See accompanying notes to financial statements.
34
GREAT LAKES AVIATION, LTD.
Statements of Stockholders’ Equity
Years Ended December 31, 2011, 2010, and 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in capital
|
|
|
Earnings
|
|
|
Total
|
|
|
Balance at January 1, 2009
|
|
|
14,291,970
|
|
|
$
|
142,920
|
|
|
$
|
33,568,669
|
|
|
$
|
(15,606,192
|
)
|
|
$
|
18,105,397
|
|
|
Net income and comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,781,884
|
|
|
|
5,781,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
14,291,970
|
|
|
|
142,920
|
|
|
|
33,568,669
|
|
|
|
(9,824,308
|
)
|
|
|
23,887,281
|
|
|
Net income and comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,053,278
|
|
|
|
5,053,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
14,291,970
|
|
|
$
|
142,920
|
|
|
$
|
33,568,669
|
|
|
|
(4,771,030
|
)
|
|
$
|
28,940,559
|
|
|
Repurchase and retirement of common stock
|
|
|
(5,371,980
|
)
|
|
|
(53,720
|
)
|
|
|
(2,095,072
|
)
|
|
|
(1,342,995
|
)
|
|
|
(3,491,787
|
)
|
|
Net income and comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,688,268
|
|
|
|
10,688,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
8,919,990
|
|
|
$
|
89,200
|
|
|
$
|
31,473,597
|
|
|
$
|
4,574,243
|
|
|
$
|
36,137,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
35
GREAT LAKES AVIATION, LTD.
Statements of Cash Flows
Years Ended December 31, 2011, 2010, and 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,688,268
|
|
|
$
|
5,053,278
|
|
|
$
|
5,781,884
|
|
|
Adjustments to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,236,110
|
|
|
|
5,300,217
|
|
|
|
5,640,649
|
|
|
Loss on items beyond economic repair
|
|
|
166,117
|
|
|
|
178,341
|
|
|
|
148,481
|
|
|
Amortization of deferred debt restructuring gain
|
|
|
(599,945
|
)
|
|
|
(1,344,610
|
)
|
|
|
(1,517,335
|
)
|
|
Amortization of debt issuance costs
|
|
|
78,153
|
|
|
|
—
|
|
|
|
—
|
|
|
Non-cash gain on extinguishment of debt
|
|
|
(13,696,695
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Deferred tax expense
|
|
|
5,586,974
|
|
|
|
3,193,333
|
|
|
|
3,570,531
|
|
|
Change in current operating items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(845,050
|
)
|
|
|
427,690
|
|
|
|
(1,030,144
|
)
|
|
Inventories
|
|
|
(977,583
|
)
|
|
|
(218,452
|
)
|
|
|
(2,100,496
|
)
|
|
Prepaid expenses and other current assets
|
|
|
715,679
|
|
|
|
(958,394
|
)
|
|
|
(293,608
|
)
|
|
Maintenance deposits
|
|
|
305,501
|
|
|
|
(461,876
|
)
|
|
|
(403,931
|
)
|
|
Other assets
|
|
|
184,309
|
|
|
|
(61,370
|
)
|
|
|
(238,420
|
)
|
|
Accounts payable
|
|
|
1,068,028
|
|
|
|
(355,168
|
)
|
|
|
(128,368
|
)
|
|
Accrued interest, unearned revenue and other liabilities
|
|
|
106,851
|
|
|
|
47,895
|
|
|
|
(570,919
|
)
|
|
Other long-term liabilities
|
|
|
—
|
|
|
|
(152,866
|
)
|
|
|
(558,196
|
)
|
|
Deferred credits
|
|
|
(35,434
|
)
|
|
|
(46,837
|
)
|
|
|
(46,838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
7,981,283
|
|
|
|
10,601,181
|
|
|
|
8,253,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of flight equipment and other property and equipment
|
|
|
(3,859,011
|
)
|
|
|
(2,765,732
|
)
|
|
|
(1,306,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in investing activities
|
|
|
(3,859,011
|
)
|
|
|
(2,765,732
|
)
|
|
|
(1,306,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of notes payable and repurchase of common stock
|
|
|
(33,182,962
|
)
|
|
|
(6,446,882
|
)
|
|
|
(6,114,139
|
)
|
|
Proceeds from the issuance of debt
|
|
|
29,473,333
|
|
|
|
—
|
|
|
|
—
|
|
|
Payments for debt issuance costs
|
|
|
(2,535,755
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(6,245,384
|
)
|
|
|
(6,446,882
|
)
|
|
|
(6,114,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(2,123,112
|
)
|
|
|
1,388,567
|
|
|
|
833,054
|
|
|
Cash and Cash Equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
5,716,105
|
|
|
|
4,327,538
|
|
|
|
3,494,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
3,592,993
|
|
|
$
|
5,716,105
|
|
|
$
|
4,327,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest (contractual)
|
|
$
|
3,144,060
|
|
|
$
|
3,260,357
|
|
|
$
|
3,692,657
|
|
|
Cash paid during the year for income taxes
|
|
$
|
368,576
|
|
|
$
|
660,226
|
|
|
$
|
299,950
|
|
See accompanying notes to financial statements.
36
Great Lakes Aviation, Ltd.
Notes to Financial Statements for December 31, 2011 and December 31, 2010
Note 1. Business
Passenger Revenue
Great Lakes Aviation, Ltd. (Great Lakes, the Company, we or us) is a regional airline operating as an independent carrier and as a code share partner with United Air Lines, Inc. (United Airlines or
United) and Frontier Airlines, Inc. (Frontier Airlines or Frontier). The Company and United entered into a new code share agreement on September 1, 2011. Terms of the agreement provide for the Company to continue United Airlines code sharing
for destinations the Company currently services to and from Denver, CO, Los Angeles, CA and Phoenix, AZ hubs.
The Company operates under a
similar code share agreement with Frontier. The Frontier agreement provides for the use of Frontier’s flight designator code on the Company’s flights connecting with Frontier’s flights in Albuquerque, NM, Denver, CO, Los Angeles, CA,
and Phoenix, AZ. The Company’s code share agreements do not have fixed termination dates and are cancellable by either party upon sufficient notice.
Currently, we estimate that approximately 39% of Great Lakes’ passenger revenue is earned from the United code share product line and approximately 21% of Great Lakes’ passenger traffic is
earned from the Frontier code share product line.
The Company provides charter air services to private individuals, corporations, and
athletic teams. The Company also carries cargo on most of the Company’s scheduled flights.
Public Service Revenue
Approximately 42.1% and 48.2% of the Company’s total revenue during the twelve months ended December 31, 2011 and 2010,
respectively, were generated by services provided under the Essential Air Service (EAS) program administered by the United States Department of Transportation (DOT). The FAA Modernization and Reform Act of 2012 was enacted into law on
February 14, 2012. This legislation provides for the authorization of the Essential Air Service program for federal fiscal years 2011 through 2014. Federal fiscal year 2014 ends on September 30, 2015.
As of March 20, 2011, the Company served 46 airports, of which 32 locations receive EAS subsidy, in 13 states with a fleet of six Embraer EMB-120
Brasilia and 28 Raytheon/Beechcraft 1900D regional airliners. The Company currently operates hubs at Albuquerque, NM, Denver, CO, Las Vegas, NV, Los Angeles, CA Minneapolis, MN and Phoenix, AZ.
Liquidity
The Company has
historically used debt to finance the purchase of its aircraft. On November 16, 2011, the Company entered into a new financing agreement with GB Merchant Partners, LLC, serving as Collateral Agent, and Crystal Capital LLC, serving as
Administrative Agent (the “Credit Agreement”). Terms of the financing include a four-year term loan in the amount of $24 million and a revolving loan credit facility in which the Company may borrow up to $10 million. Pursuant to the terms
of a pledge and security agreement and an aircraft security agreement, the Company’s obligations to the lenders identified in the Credit Agreement are secured by substantially all assets of the Company, including all owned aircraft.
The Company has subsequently drawn down $5.5 million on the revolving credit facility during 2011 and an additional $2.0 million in 2012. The draws are
secured by accounts receivable, parts inventory and spare engines. The Company was also required to pay a closing fee based on the initial facility commitment, and is required to pay a monthly unused line fee, a specified fee for certain prepayments
of the term loan, and certain administrative and fronting fees related to the Credit Agreement. The term loan and the revolving loan credit facility are set to mature on November 16, 2015.
37
Great Lakes Aviation, Ltd.
Notes to Financial Statements for December 31, 2011 and December 31, 2010
On November 16, 2011, the Company used $27 million of the proceeds obtained from the Credit Agreement to satisfy all of the Company’s outstanding debt obligations with Raytheon Aircraft Credit
Corporation (Raytheon), at a discount, and to repurchase the Company’s common stock owned by Raytheon representing approximately 37.6% of the then outstanding shares of common stock. On that day, the debt obligations with Raytheon were
extinguished and 5,371,980 shares of the Company’s common stock were returned resulting in a current issued and outstanding balance of common stock of 8,919,990 shares. The Company used $2.5 million of the proceeds to pay the closing fee and
professional fees associated with the transaction. As a result of entering into the new financing arrangement and extinguishing the obligations with Raytheon, the Company’s mandatory contractual principal and interest obligations for the next
12 months will be approximately $7.2 million. In addition to the mandatory contractual principal and interest obligations, the Company is required to make principal payments, based on a percentage of excess cash flows, on September 30 of each
year beginning September 30, 2012, as determined in the Credit Agreement.
In 2008 and 2009, the Company entered into agreements with
Raytheon to lease seven Beechcraft model 1900D aircraft, four with attached engines and three without engines. The Company returned these seven aircraft in the quarters ended September 30, 2011 and December 31, 2011. The Company
subsequently purchased three Beechcraft model 1900D aircraft. Two aircraft, one of which was purchased without engines, were purchased in December 2011 and the third aircraft was purchased in January 2012.
In December 2011, the Company initiated service to Minneapolis, MN from Devil’s Lake, ND. In addition to Devil’s Lake, ND, the Company has been
awarded ten other communities, eligible under the EAS program, which it intends to service to and from Minneapolis, MN. The Company is evaluating its need for additional aircraft to be able to service these additional communities.
Note 2. Summary of Significant Accounting Policies and Procedures
(a) Use of Estimates
. The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of
fixed assets; the salvage value of fixed assets; the valuation of deferred tax assets, fixed assets, maintenance deposits and inventory; and reserves for employee benefit obligations and other contingencies.
(b) Cash and Cash Equivalents
. Cash and cash equivalents include highly liquid investments with original maturities of three
months or less that are readily convertible into cash. Cash equivalents are not subject to significant risk from fluctuations in interest rates and as a result, the carrying amount of cash equivalents approximates fair value. To preserve capital and
maintain liquidity, we invest with financial institutions we deem to be of sound financial condition, and in high quality and relatively risk-free investment products. Our cash investment policy limits the concentration of investments with specific
financial institutions or among certain products and includes criteria related to credit worthiness of any particular financial institution.
38
Great Lakes Aviation, Ltd.
Notes to Financial Statements for December 31, 2011 and December 31, 2010
(c) Accounts Receivable and Other Receivables
. Approximately 85% of accounts receivable balances are due from various
airlines, credit card companies, or the United States government. Approximately 15% of other receivables are for maintenance deposit reimbursement and insurance claim receivables. The table below shows the composition and approximate percentages
attributable to our receivables at December 31, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2011
|
|
|
December
31, 2010
|
|
|
United Airlines
|
|
|
10
|
%
|
|
|
10
|
%
|
|
Frontier Airlines
|
|
|
11
|
|
|
|
10
|
|
|
Other Airlines
|
|
|
3
|
|
|
|
1
|
|
|
Credit card companies
|
|
|
13
|
|
|
|
14
|
|
|
United States government
|
|
|
48
|
|
|
|
62
|
|
|
Other
|
|
|
15
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accounts receivable
|
|
|
100
|
%
|
|
|
100
|
%
|
All receivables are pledged as collateral under the Company’s debt agreements.
(d) Inventories
. Inventories consist of expendable spare parts, fuel, materials, and supplies relating to flight equipment.
Inventories are stated at the lower of average cost or market. Expendable parts are charged to maintenance expense as used. Inventories consisting of expendable spare parts and equipment are pledged as collateral for our loan agreements.
(e) Property and Equipment
. Property and equipment includes aircraft and major parts relating to such aircraft. Property is
stated at cost and depreciated on a straight-line basis for financial reporting purposes over estimated useful lives of 10 to 20 years for flight equipment and 3 to 10 years for other property and equipment. The estimated lives used to record
depreciation on the Company’s aircraft may be affected by the revenue generating capability of the aircraft, technology, policies regarding EAS subsidies promulgated by the DOT, and changes in strategy by the Company. In accounting for
long-lived assets, we make estimates about the expected useful lives and projected residual values. Estimates of useful lives and residual values of aircraft are based on actual industry experience with the same or similar aircraft types and
anticipated utilization of the aircraft. Changing market prices of new and used aircraft, government regulations, and changes in our maintenance program or operations could result in changes to these estimates. Leasehold improvements are amortized
over the shorter of the life of the lease or the life of the asset. Accelerated methods of depreciation are used for tax reporting purposes. All owned aircraft are pledged as collateral for our loan agreements
(f)
Impairment of Long Lived Assets
.
In accordance with ASC Section 360-10-35, (originally
Statement of Financial Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed of
) long-lived assets, such as property, plant, equipment, and aircraft,
subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be
depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. An impairment loss is recognized to the extent that the
carrying amount exceeds the asset’s fair value.
39
Great Lakes Aviation, Ltd.
Notes to Financial Statements for December 31, 2011 and December 31, 2010
(g) Other Assets
.
Other assets consist primarily of prepayments of debt issuance costs, deposits with financial
institutions, bonding companies, facilities lessors, aircraft lessors and others to secure the payment of fixed obligations. We incurred $2.5 million of debt issuance costs in 2011 of which $0.7 million is classified as a prepaid expense that will
be amortized in 2012 and the prepaid balance of $1.8 million is classified in other assets which will amortize in the years 2013, 2014 and 2015. Security deposits related to long-term facility leases were $1.2 million and $1.0 million, and deposits
related to aircraft lessors were $0 and $0.4 million at December 31, 2011 and 2010, respectively.
(h) Maintenance
Deposits
.
The Company is required to make maintenance deposit payments for two of its Embraer EMB-120 Brasilia leased aircraft to the lessor. These maintenance deposits are refunded if and when the Company performs specified
maintenance activities. At December 31, 2011 and December 31, 2010, the Company had maintenance deposits of approximately $1.7 million and $2.0 million respectively. These maintenance deposits are accounted for in accordance with ASC
subtopic 840-10, whereby the deposits are capitalized until such time as the maintenance event occurs, or the Company determines it is no longer probable that an amount on deposit with its lessor will be returned to reimburse the costs of the
maintenance activities incurred by the lessee. When an amount on deposit is less than probable of being returned, it shall be recognized as additional expense. The Company has evaluated the maintenance deposits on account and determined that, based
on historical and forecasted usage of the aircraft and the ability to perform maintenance to meet the requirements of receiving reimbursement for the deposits on account, that all amounts on deposit are probable of being returned as a result of the
maintenance expected to be performed on the aircraft’s components prior to the leased aircraft’s lease expiration. The Company will continue to evaluate its maintenance deposit account as the leases progress towards lease expiration in
April 2013, and make the determination if any existing or future maintenance deposits should be expensed if it becomes less than probable that the deposits will be returned.
(i) Revenue Recognition
.
Revenue generated from passenger, cargo, and other activities are recorded as revenue either when the respective services are rendered or when the time for
use of the ticket has expired, one year after the date of issuance, and are net of excise taxes, passenger facility charges and security fees. Unused tickets issued by the Company are recorded in the accompanying balance sheets as unearned revenue.
The Company also receives public service subsidy revenues for providing air service to certain communities that do not
generate sufficient traffic to fully support profitable air service under the EAS program. With respect to awarded EAS subsidy cases, the Company records revenues based on departures performed at departure rates that were approved by the DOT during
the term of service agreement.
(j) Code Share Relationships.
At December 31, 2011, the Company operated
under code share agreements with United Airlines and Frontier Airlines. These code share agreements are prorate agreements whereby the passenger’s fare is split between the two carriers based on the distance traveled by the passenger on each
airline. Revenue from these code share agreements is recorded as passenger revenue when the services are rendered. The Company also participates in United’s “Mileage Plus” frequent flyer program. If a customer books travel on United
which includes a segment on Great Lakes, the United customer earns points in their United frequent flier account for the miles flown on the Great Lakes segment. When a United frequent flier customer earns sufficient points to earn an award, he or
she can choose whether to redeem those points on a United flight connecting with a Great Lakes flight. Our participation in United’s frequent flyer program
40
Great Lakes Aviation, Ltd.
Notes to Financial Statements for December 31, 2011 and December 31, 2010
does not require us to issue tickets in exchange for frequent flyer awards. Award redemption can only be facilitated through United on
United flights in conjunction with a Great Lakes flight. Tickets sold to passengers on Great Lakes ticket stock for Great Lakes flight segments (ZK designator) are not eligible to accrue United frequent flyer credits. The Company accounts for the
incremental cost to fly United frequent flyer passengers at the time of service since the Company does not have sufficient information to estimate future awards expected to be redeemed on a Great Lakes segment, and an estimated frequent flyer
liability would be insignificant in the aggregate given the historical volume of awards used for flights including Great Lakes segments.
(k) Income Taxes
. The Company accounts for income taxes using the asset and liability method. Under that method, deferred income taxes are recognized for the tax consequences of
“temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and tax basis of existing assets and liabilities and net operating losses and tax
credit carryforwards. A valuation allowance is provided to the extent that it is more likely than not that deferred tax assets will not be realized. The effect on deferred taxes from a change in tax rates is recognized in income in the period that
includes the enactment date.
(l) Income Per Share
. Basic income per share has been computed by dividing the net
income for a particular year by the weighted average number of shares of common stock outstanding during such year. Diluted earnings per share reflects the potential dilution of securities that could share in earnings. The Company currently has
8,919,990 shares of common stock outstanding.
(m) Stock Option Plans
. For the years ending December 31,
2011, 2010 and 2009 there were no stock-based compensation awards granted.
(n) Aircraft Maintenance
. The Company
operates under an FAA-approved continuous inspection and maintenance program. The Company accounts for maintenance activities on the direct expense method. Under this method, major airframe overhaul maintenance costs are recognized as expense as
maintenance services are performed. Routine maintenance and repairs are charged to operations as incurred. For the first six months of 2011, major Beechcraft 1900D engine maintenance for most of our 1900D engines were performed under a Fleet
Management Program (FMP) with Pratt and Whitney Canada Corporation which expired by its terms on June 30, 2011. Under the FMP contract, the Company paid a fixed amount per flight hour (subject to fixed nominal annual rate increases) in exchange
for required maintenance and repairs under the predefined maintenance program. The expense over the life of the contract was recognized at a level rate per hour during the minimum, non-cancelable term of the agreement. Beginning July 1, 2011
all maintenance costs related to our Beechcraft 1900D engines are recognized as an expense as the maintenance services are performed.
41
Great Lakes Aviation, Ltd.
Notes to Financial Statements for December 31, 2011 and December 31, 2010
(o) Fair Value of Financial Instruments
. Fair value estimates, methods, and assumptions of financial instruments are set
forth below:
Cash, accounts receivable, accounts payable, and accrued liabilities.
The carrying amount approximates
fair value because of the short-term nature of these instruments.
Long-term debt
. Based on the proximity of when the
Company entered into its long-term debt to December 31, 2011 and the variable rate nature of the long-term debt, the carrying value of long-term debt approximates its fair value at December 31, 2011.
(p) Recent Accounting Pronouncements
. In May 2011, the FASB issued ASU No. 2011-04 “
Fair Value Measurement:
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”
which relates to fair value measurement (FASB ASC Topic 820), which amends current guidance to achieve common fair value measurement and
disclosure requirements in U.S. GAAP and International Financial Reporting Standards. The amendments generally represent clarification of FASB ASC Topic 820, but also include instances where a particular principle or requirement for measuring fair
value or disclosing information about fair value measurements has changed. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company will adopt this pronouncement
for its fiscal year beginning January 1, 2012. The Company does not expect this pronouncement to have a material effect on its consolidated financial statements.
In June 2011, the FASB ratified ASU No. 2011-05, “
Presentation of Comprehensive Income
.” This ASU eliminates the current option to report other comprehensive income and its
components in the statement of changes in equity. Upon adoption, other comprehensive income must be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU will not have a
material effect on the Company’s financial position or results of operations and is not expected to change the Company’s disclosure policies for other comprehensive income. This ASU is effective for fiscal years, and interim periods within
those years, beginning after December 15, 2011. This ASU must be applied retrospectively and early adoption is permitted.
Note 3. Leases
Aircraft Leases
At
December 31, 2011 and 2010 the Company operated two leased Embraer Brasilia Model 120 aircraft, which are accounted for under operating lease agreements that expire in April 2013. In addition to scheduled future minimum lease payments, the
Company is required to make supplemental rent payments to cover the cost of major scheduled maintenance overhauls of these aircraft which are reimbursable to the Company at the time maintenance overhauls are completed. These supplemental rentals are
based on the number of flight hours flown and/or flight departures and are recorded as maintenance deposits. See Note 2(h)
Summary of Significant Accounting Policies and Procedures – Maintenance Deposits
for the Company’s accounting
policy. The lease agreements also require the Company to pay taxes, maintenance, insurance, and other operating expenses applicable to the leased property. During the years ended December 31, 2011, 2010 and 2009 supplemental rent payments were
$403,221, $486,848 and $589,377, respectively.
42
Great Lakes Aviation, Ltd.
Notes to Financial Statements for December 31, 2011 and December 31, 2010
The lease agreements described above contain aircraft return provisions which require specified time remaining between scheduled maintenance events, as mandated by our FAA-approved maintenance program for
major components of the aircraft. In the event that the aircraft are returned and do not meet the specified times remaining for each identified component, we are subject to compensate the lessor for components that are below the specified times
remaining when the aircraft is returned. The Company plans to satisfy its lease return obligations by (a) performing maintenance (either internally or by contracting a third-party service provider) to return the aircraft to the level of
maintenance required by the contract, (b) paying cash to compensate the lessor if the aircraft is returned with less flight time remaining than specified under the lease, or (c) swapping owned components (or other leased components) for
leased components (engines) with sufficient time remaining on them. As the end of the lease term approaches, the Company re-evaluates the lease return conditions to determine if it is necessary to accrue any incremental amounts expected to become
due, and makes accruals if supplemental payments to the lessor become probable and estimable.
At December 31, 2010, the Company operated
seven Beechcraft 1900D aircraft leased from Raytheon which were accounted for under operating lease agreements. These aircraft were returned to Raytheon in the quarters ended September 30 and December 31, 2011. Four of the aircraft were
complete with engines and three aircraft were without engines. The lease agreements required the Company to pay taxes, maintenance, insurance, and other operating expenses applicable to the leased property. In addition to scheduled minimum lease
payments, the Company was required to make payments to cover the cost of components related to leased engines, attached to four of the leased aircraft, as these components usable life cycle is consumed. During the years ended December 31, 2011,
2010 and 2009 engine consumption fees were $186,276, $313,997 and $314,462, respectively.
Other Leases
The Company leases office and hangar space, spare engines and office equipment for its headquarters, reservation facilities, airport facilities, and
certain other equipment. The Company’s headquarter lease provides for three five-year renewal options making this facility available to the Company through the year 2020. The Company also leases certain airport gate facilities on a
month-to-month basis.
At December 31, 2011, commitments under non-cancelable operating leases (excluding aircraft supplemental rent
requirements and assuming the aircraft leases are not terminated early) with terms in excess of one year were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft
|
|
|
Other
|
|
|
Total
|
|
|
2012
|
|
$
|
600,000
|
|
|
$
|
—
|
|
|
$
|
600,000
|
|
|
2013
|
|
|
125,000
|
|
|
|
—
|
|
|
|
125,000
|
|
|
2014
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
2015
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
2016
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Thereafter
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
725,000
|
|
|
$
|
—
|
|
|
$
|
725,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities rental expense under operating leases, including month-to-month leases, for the years ended December 31,
2011, 2010 and 2009 was $3.1 million, $2.8 million, and $3.9 million, respectively.
43
Great Lakes Aviation, Ltd.
Notes to Financial Statements for December 31, 2011 and December 31, 2010
Note 4. Accrued Liabilities
Accrued liabilities consisted of the following balances at December 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Accrued expenses
|
|
$
|
25,178
|
|
|
$
|
297,547
|
|
|
Unearned revenue
|
|
|
1,703,358
|
|
|
|
1,810,263
|
|
|
Accrued property taxes
|
|
|
226,318
|
|
|
|
63,766
|
|
|
Accrued Interest
|
|
|
373,719
|
|
|
|
—
|
|
|
Accrued payroll
|
|
|
2,118,748
|
|
|
|
2,168,893
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
4,447,321
|
|
|
$
|
4,340,469
|
|
|
|
|
|
|
|
|
|
|
|
Note 5. Notes Payable and Long-Term Debt
On November 16, 2011, the Company entered into a new financing agreement with GB Merchant Partners, LLC, serving as Collateral
Agent, and Crystal Capital LLC, serving as Administrative Agent (the “Credit Agreement”). Terms of the financing include a four-year term loan in the amount of $24 million and a revolving loan credit facility in which the Company may
borrow up to $10 million. Pursuant to the terms of a pledge and security agreement and an aircraft security agreement, the Company’s obligations to the lenders identified in the Credit Agreement are secured by substantially all assets of the
Company, including all owned aircraft. The term loan bears interest at a floating rate of 30 day LIBOR rate plus 11% with a minimum rate of 15.5%.
During 2011 the Company borrowed $5.5 million available under the revolving credit facility secured by accounts receivable, parts inventory and spare engines. The revolving credit facility bears interest
at the rate of 30 day LIBOR rate plus 8.0% with a minimum interest rate of 10.5%. The Company was also required to pay a closing fee based on the initial facility commitment, and is required to pay a monthly unused line fee, a specified fee for
certain prepayments of the term loan, and certain administrative and fronting fees related to the Credit Agreement. The term loan and the revolving loan credit facility are set to mature on November 16, 2015.
On November 16, 2011, the Company used $27 million of the proceeds obtained from the Credit Agreement to satisfy all of the Company’s
outstanding debt obligations with Raytheon Aircraft Credit Corporation (Raytheon), at a discount, and to repurchase the Company’s common stock owned by Raytheon representing approximately 37.6% of the then-outstanding shares of common stock. On
that day, the debt obligations with Raytheon were extinguished and 5,371,980 shares of the Company’s common stock were returned resulting in a current issued and outstanding balance of common stock of 8,919,990 shares. The Company used $2.5
million of the proceeds to pay the closing fee and professional fees associated with the transaction. As a result of entering into the new financing arrangement and extinguishing the obligations with Raytheon, the Company’s mandatory
contractual principal and interest obligations for the next 12 months will be approximately $7.2 million. In addition to the mandatory contractual principal and interest obligations, the Company is required to make principal payments, based on a
percentage of excess cash flows, on September 30 of each year beginning September 30, 2012, as determined in the Credit Agreement. The Company’s ability to comply with the new debt may be impacted by the Company’s ability to
maintain compliance with specified financial and non-financial covenants.
44
Great Lakes Aviation, Ltd.
Notes to Financial Statements for December 31, 2011 and December 31, 2010
In connection with the extinguishment of the Raytheon debt obligation, the Company recorded a gain on extinguishment of debt of $13.7 million. The $27 million paid to Raytheon was allocated between the
settlement of the debt obligation and the repurchase of shares of common stock. The carrying value of the company’s debt owed to Raytheon was $37.2 million and the proceeds deemed allocated to the settlement of the debt was $23.5 million.
The following table sets forth, as of December 31, 2011 and December 31, 2010, the carrying amount of the Company’s long-term
debt and the current maturities of long term debt. The carrying amount of the debt includes the principal payments contractually required under the debt agreements and the unamortized deferred debt restructuring gain. In 2002, the Company
restructured its debt. The debt restructuring was accounted for as a troubled debt restructuring, which resulted in the Company recording a deferred gain that is being amortized into income as a decrease to interest expense over the remaining term
of the debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
Raytheon Aircraft Notes - principal
|
|
$
|
—
|
|
|
$
|
35,324,205
|
|
|
New (GB/Crystal) Term Loan - principal
|
|
|
24,000,000
|
|
|
|
—
|
|
|
Raytheon Senior Note - principal
|
|
|
—
|
|
|
|
8,063,665
|
|
|
New (GB/Crystal) Revolving Loan- principal
|
|
|
5,473,333
|
|
|
|
—
|
|
|
Raytheon Aircraft Notes deferred debt restructuring gains
|
|
|
—
|
|
|
|
599,945
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
29,473,333
|
|
|
|
43,987,815
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Current maturities of Raytheon Aircraft Notes - principal
|
|
|
—
|
|
|
|
(35,324,205
|
)
|
|
New (GB/Crystal) Term Loan - principal
|
|
|
(3,000,000
|
)
|
|
|
—
|
|
|
Current maturities of Raytheon Senior Note - principal
|
|
|
—
|
|
|
|
(2,496,019
|
)
|
|
Current portion of deferred debt restructuring gains
|
|
|
—
|
|
|
|
(599,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current portion
|
|
|
(3,000,000
|
)
|
|
|
(38,420,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term portion
|
|
$
|
26,473,333
|
|
|
$
|
5,567,646
|
|
The Company amortized $0.6 million, $1.3 million and $1.5 million of deferred debt restructuring gains for the year
ending December 31, 2011, 2010 and 2009, respectively.
45
Great Lakes Aviation, Ltd.
Notes to Financial Statements for December 31, 2011 and December 31, 2010
Contractual Debt Payments
. As of December 31, 2011, the long-term debt obligations due in the five subsequent years and thereafter under their contractual terms were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan
|
|
|
Revolving Loan
|
|
|
Total
|
|
|
2012
|
|
$
|
3,000,000
|
|
|
$
|
—
|
|
|
$
|
3,000,000
|
|
|
2013
|
|
|
3,500,000
|
|
|
|
—
|
|
|
|
3,500,000
|
|
|
2014
|
|
|
4,000,000
|
|
|
|
—
|
|
|
|
4,000,000
|
|
|
2015
|
|
|
13,500,000
|
|
|
|
5,473,333
|
|
|
|
18,973,333
|
|
|
2016
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Thereafter
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,000,000
|
|
|
$
|
5,473,333
|
|
|
$
|
29,473,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6. Income Taxes
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which
those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The tax net operating loss carryforwards (NOLs)
that have been generated are due in large part to the accelerated depreciation of property and equipment over a shorter useful life for tax purposes. Our NOLs will expire between 2021 and 2024. The book basis of property and equipment is
approximately $42.9 million greater than the tax basis at December 31, 2011, all of which is expected to reverse during periods in which NOLs are available. Approximately $10.0 million ($0.6 million tax effected) of state NOLs are expected to
expire unused and accordingly a valuation allowance has been provided for these deferred tax assets. Based upon the projections for future taxable income over the periods in which the deferred tax assets become deductible, the Company believes it is
more likely than not that it will realize the benefits of most of the deductible temporary differences and NOLs. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable
income during the carryforward period are reduced.
The Company’s estimated net operating loss carryforwards for federal income tax
purposes totaling approximately $28.6 million at December 31, 2011, expire in years 2021 through 2024 as follows (in thousands):
|
|
|
|
|
|
|
Year of Expiration
|
|
Amount
|
|
|
2021
|
|
|
22,487
|
|
|
2023
|
|
|
4,011
|
|
|
2024
|
|
|
2,055
|
|
|
|
|
$
|
28,553
|
|
|
|
|
|
|
|
In order for the Company to utilize these NOLs prior to expiration, the Company would need to generate taxable income of
$26.5 million during the next 10 years, or approximately $2.7 million per year. The Company had taxable income of $17.8 million in 2011 and $10.0 million in 2010.
46
Great Lakes Aviation, Ltd.
Notes to Financial Statements for December 31, 2011 and December 31, 2010
Income tax expense (benefit) for the years ended December 31, 2011, 2010 and 2009 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
|
Year ended December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
337,604
|
|
|
$
|
5,611,401
|
|
|
$
|
5,949,005
|
|
|
State and local
|
|
$
|
790,317
|
|
|
|
(24,431
|
)
|
|
$
|
765,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,127,921
|
|
|
$
|
5,586,970
|
|
|
$
|
6,714,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
232,586
|
|
|
$
|
2,740,756
|
|
|
$
|
2,973,342
|
|
|
State and local
|
|
$
|
253,932
|
|
|
|
452,577
|
|
|
$
|
706,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
486,518
|
|
|
$
|
3,193,333
|
|
|
$
|
3,679,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
200,909
|
|
|
$
|
3,127,525
|
|
|
$
|
3,328,434
|
|
|
State and local
|
|
|
232,079
|
|
|
$
|
443,006
|
|
|
$
|
675,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
432,988
|
|
|
$
|
3,570,531
|
|
|
$
|
4,003,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The federal statutory tax rate of 35% differs from the Company’s effective income tax rate for the years ended
December 31, 2011, 2010, and 2009 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Income tax expense at the federal statutory income tax rate
|
|
$
|
6,091,106
|
|
|
$
|
3,056,595
|
|
|
$
|
3,424,891
|
|
|
State income tax expense, net of federal income tax benefit
|
|
|
507,910
|
|
|
|
280,601
|
|
|
|
428,787
|
|
|
Book expenses not deductible for tax purposes
|
|
|
125,959
|
|
|
|
164,025
|
|
|
|
134,800
|
|
|
Increase (Decrease) in valuation allowance
|
|
|
21,111
|
|
|
|
111,950
|
|
|
|
(117,192
|
)
|
|
Impact of changes in rates
|
|
|
(31,195
|
)
|
|
|
66,680
|
|
|
|
132,756
|
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
(523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
6,714,891
|
|
|
$
|
3,679,851
|
|
|
$
|
4,003,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets (liabilities) as of December 31, 2011 and 2010, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
10,753,078
|
|
|
$
|
17,063,218
|
|
|
Alternative minimum tax credit carryforwards
|
|
|
994,545
|
|
|
|
642,537
|
|
|
Deferred debt restructuring gain
|
|
|
—
|
|
|
|
229,405
|
|
|
Inventory reserve
|
|
|
784,751
|
|
|
|
858,462
|
|
|
Deferred revenue
|
|
|
649,572
|
|
|
|
692,202
|
|
|
Other reserves
|
|
|
258,555
|
|
|
|
306,200
|
|
|
Other
|
|
|
6,985
|
|
|
|
1,755
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
13,447,486
|
|
|
|
19,793,779
|
|
|
Less: valuation allowance
|
|
|
(645,719
|
)
|
|
|
(624,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
12,801,767
|
|
|
|
19,169,171
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(18,319,511
|
)
|
|
|
(18,988,799
|
)
|
|
Other
|
|
|
(110,540
|
)
|
|
|
(221,681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax (liability) asset
|
|
$
|
(5,628,284
|
)
|
|
$
|
(41,309
|
)
|
47
Great Lakes Aviation, Ltd.
Notes to Financial Statements for December 31, 2011 and December 31, 2010
The Company files income tax returns in the U.S., and various state and local jurisdictions. Federal tax returns remain subject to examination for three years after a tax net operating loss is utilized,
accordingly the tax returns may remain subject to audit beyond the original statute of limitations State jurisdictions also remain subject to examination.
The Company believes that its income tax filing positions and deductions related to tax periods subject to examination will be sustained upon audit and does not anticipate any adjustments that will result
in a material adverse effect on the Company’s financial condition, results of operations, or cash flows. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740-10-25.
Note 7. Employee Benefit Plans
The Company maintains a qualified 401(k) employee savings plan for the benefit of substantially all of the Company’s employees.
The Company matches up to 4% of participating employees’ contributions. Company contributions, net of forfeitures, totaled $317,299 in 2011, $340,630 in 2010, and $294,594 in 2009.
In 1993, the Company adopted the Great Lakes Aviation, Ltd. 1993 Stock Option Plan and the Great Lakes Aviation, Ltd. 1993 Director Stock Option Plan (collectively, the Plans). The Plans permitted the
grant of stock options in the aggregate of 1,300,000 shares of the Company’s common stock to key employees, officers, and directors of the Company. Pursuant to their terms, both Plans expired on October 31, 2003, and no options have been
granted after October 31, 2003. However, all outstanding options remain in effect until such outstanding options have either expired or been cancelled.
Options granted under the Plans become 20% vested upon the completion of 12 continuous months of employment from the date of grant, with additional 20% vesting in each subsequent 12-month period of
employment over a continuous five-year period. The options expire 10 years from the date of grant. Options are forfeited upon termination from employment for reasons other than retirement, death, or disability.
During the year ended December 31, 2011, there were no options granted. The Company did not realize any tax deductions related to the exercise of
stock options during 2011, 2010 or 2009. The Company will record such deductions to additional paid in capital when realized. The aggregate intrinsic value for options outstanding and exercisable at December 31, 2011 and 2010 was $94,153 and
$262,148 respectively. There was no unrecognized compensation cost from unvested stock options at the implementation date of ASC Section 718-10-25 (originally pursuant to SFAS 123(R)-
Share Based Payment).
48
Great Lakes Aviation, Ltd.
Notes to Financial Statements for December 31, 2011 and December 31, 2010
A summary of the option activity under all stock option plans during the year ended December 31, 2011 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining Contractual
Life (Years)
|
|
|
Outstanding at January 1, 2011
|
|
|
210,000
|
|
|
$
|
0.42
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Canceled
|
|
|
5,000
|
|
|
|
1.31
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2011
|
|
|
205,000
|
|
|
$
|
0.40
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
205,000
|
|
|
$
|
0.40
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8. Income Per Share
The following table provides a reconciliation of the numerators and denominators of the basic and diluted income per share
computations for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
Income
|
|
|
Shares
|
|
|
share
|
|
|
Income
|
|
|
Shares
|
|
|
share
|
|
|
Income
|
|
|
Shares
|
|
|
share
|
|
|
|
|
(numerator)
|
|
|
(denominator)
|
|
|
amount
|
|
|
(numerator)
|
|
|
(denominator)
|
|
|
amount
|
|
|
(numerator)
|
|
|
(denominator)
|
|
|
amount
|
|
|
Basic income per share attributable to common stockholders
|
|
$
|
10,688,268
|
|
|
|
13,629,671
|
|
|
$
|
0.78
|
|
|
$
|
5,053,278
|
|
|
|
14,291,970
|
|
|
$
|
0.35
|
|
|
$
|
5,781,884
|
|
|
|
14,291,970
|
|
|
$
|
0.40
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
—
|
|
|
|
109,845
|
|
|
|
—
|
|
|
|
—
|
|
|
|
153,762
|
|
|
|
—
|
|
|
|
—
|
|
|
|
150,387
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share attributable to common stockholders
|
|
$
|
10,688,268
|
|
|
|
13,739,516
|
|
|
$
|
0.78
|
|
|
$
|
5,053,278
|
|
|
|
14,445,732
|
|
|
$
|
0.35
|
|
|
$
|
5,781,884
|
|
|
|
14,442,357
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2011, 2010 and 2009, there were no stock options excluded from the calculation of
diluted earnings per share.
Under the terms of the Company’s debt agreements, the Company is prohibited from paying dividends.
49
Great Lakes Aviation, Ltd.
Notes to Financial Statements for December 31, 2011 and December 31, 2010
Note 9. Fair Value Measurements
A fair value hierarchy that prioritizes the inputs used to measure fair value has been established by ASC 820,
Fair Value
Measurement
. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This hierarchy
requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
|
|
|
|
|
|
|
|
Level 1
|
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
|
|
|
Level 2
|
|
Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar
assets and liabilities in markets that are not active; and other inputs that are observable or can be corroborated by observable market data.
|
|
|
|
|
Level 3
|
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value and then we rank the estimated values
based on the reliability of the inputs used following the fair value hierarchy set forth by the Financial Accounting Standards Board (the “FASB”).
Our financial instruments consist of cash, accounts receivable, accounts payable, accrued liabilities and long-term debt including the current portion. The carrying values of cash, accounts receivable,
accounts payable and accrued liabilities approximate their fair values. These are considered Level 1 measurements. The carrying value of our long term debt including the current portion reflects original cost net of unamortized deferred debt
restructuring gain and was $29.5 million and $44.0 million as of December 31, 2011 and December 31, 2010, respectively. For additional information, see Note 5 Long-Term Debt.
All of the Company’s debt is comprised of variable rate debt (see Note 5). There is not an active market for the Company’s notes. Based on the proximity of when the Company entered into its
long-term debt to December 31, 2011 and the variable rate nature of the long-term debt, the carrying value of long-term debt approximates its fair value at December 31, 2011. The fair value of the long-term debt is a Level 3 measurement
and takes into consideration inputs which include the future expected cash flows, the probability of early redemption, the probability of default on the part of the Company including overall creditworthiness, the interest rate of the debt and the
prevailing interest rate in the market for similar financial instruments.
Note 10. Transactions with Affiliates
On November 16, 2011, the Company used $27 million of the proceeds obtained from the Credit Agreement to satisfy all of the
Company’s outstanding debt obligations with Raytheon Aircraft Credit Corporation (Raytheon), at a discount, and to repurchase the Company’s common stock owned by Raytheon representing approximately 37.6% of the then-outstanding shares of
common stock. On that day, the debt obligations with Raytheon were extinguished and 5,371,980 shares of the Company’s common stock were returned resulting in a current issued and outstanding balance of common stock of 8,919,990 shares. Raytheon
was our principal
50
Great Lakes Aviation, Ltd.
Notes to Financial Statements for December 31, 2011 and December 31, 2010
creditor and major shareholder prior to November 16, 2011. In the twelve month period ending December 31, 2011, the Company made principal repayments of debt to Raytheon in the amount of $33.2
million, including a one-time payment of $27.0 million on November 16, 2011 and a non-scheduled prepayment of debt on its Senior Note in the amount of $843,247 as a result of the Company’s “Excess cash” position for the year
ending December 31, 2010. See Note 5 for a discussion of these debt obligations.
In addition, during 2011 the Company operated seven
Beechcraft 1900D aircraft leased from Raytheon, four complete with engines and three without engines, which are accounted for under operating lease agreements. These aircraft were returned to Raytheon in the quarters ended September 30 and
December 31, 2011 and the leases were terminated. During the years ended December 31, 2011, 2010 and 2009 lease payments made to Raytheon were $1.3 million, $1.7 million and $1.4 million, respectively. The lease agreements required the
Company to pay taxes, maintenance, insurance, and other operating expenses applicable to the leased property. In addition to scheduled minimum lease payments, the Company was required to make payments to cover the cost of components related to
leased engines, attached to four of the leased aircraft, as these components usable life cycle was consumed. During the years ended December 31, 2011, 2010 and 2009 engine consumption fees were $186,276, $313,997 and $314,462, respectively.
The Company rents two six-passenger aircraft and a vehicle from Iowa Great Lakes Flyers, Inc., a corporation solely owned by Douglas G. Voss,
the Company’s Chairman and major stockholder. Total payments for the leases were $28,500 in 2011, $28,500 in 2010, and $28,500 in 2009. As of December 31, 2011, Mr. Douglas Voss controlled 4,160,247 shares of common stock of the
Company, representing an approximate 46.6% interest in the Company’s outstanding common stock.
Note 11. Commitments and Contingencies
Litigation
.
The Company is a party to ongoing legal claims and assertions arising in the ordinary course of
business. Management believes that the resolution of these matters will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
Union Agreements
.
As of March 20, 2012, approximately 41 percent of the Company’s employees are subject to union agreements.
The Company’s pilots are represented by the United Transportation Union (“UTU”). The pilot collective bargaining agreement became
amendable on September 16, 2010. The Company and the UTU are currently engaged in contract mediation under the auspices of the National Mediation Board.
The Company’s flight attendants are also represented by the UTU. The Company entered into a new agreement with the flight attendants on May 17, 2011. This agreement will continue in full force
and effect for four years and thereafter is subject to amendment, which would reopen collective bargaining.
The Company’s mechanics and
maintenance clerks are represented by the International Association of Machinists and Aerospace Workers (“IAM”). The collective bargaining agreements between the Company and the clerks and mechanics represented by IAM, District 143, became
amendable in 2002 and 2005, respectively. We are currently engaged in contract mediation under the auspices of the National Mediation Board.
In 2003, the Company’s dispatchers voted to be represented by the International Brotherhood of Teamsters. Negotiations with the dispatchers are not
active at the present time.
51
Great Lakes Aviation, Ltd.
Notes to Financial Statements for December 31, 2011 and December 31, 2010
Note 12. Selected Quarterly Financial Data (unaudited)
The following table presents selected quarterly unaudited financial data for quarters during the year ended December 31, 2011 and
2010 (in thousands, except for per share information):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
Total Year
|
|
|
Operating revenues
|
|
$
|
29,691
|
|
|
$
|
31,216
|
|
|
$
|
32,773
|
|
|
$
|
30,685
|
|
|
$
|
124,365
|
|
|
Operating income
|
|
|
(650
|
)
|
|
|
1,512
|
|
|
|
3,937
|
|
|
|
1,526
|
|
|
|
6,325
|
|
|
Net income
|
|
|
(577
|
)
|
|
|
607
|
|
|
|
1,823
|
|
|
|
8,835
|
|
|
|
10,688
|
|
|
Net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.04
|
)
|
|
$
|
0.04
|
|
|
$
|
0.13
|
|
|
$
|
0.76
|
|
|
$
|
0.78
|
|
|
Diluted
|
|
|
(0.04
|
)
|
|
|
0.04
|
|
|
|
0.13
|
|
|
|
0.75
|
|
|
|
0.78
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
14,292
|
|
|
|
14,292
|
|
|
|
14,292
|
|
|
|
11,664
|
|
|
|
13,630
|
|
|
Diluted
|
|
|
14,292
|
|
|
|
14,372
|
|
|
|
14,385
|
|
|
|
11,753
|
|
|
|
13,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
28,784
|
|
|
$
|
31,026
|
|
|
$
|
33,450
|
|
|
$
|
32,140
|
|
|
$
|
125,400
|
|
|
Operating income
|
|
|
154
|
|
|
|
3,049
|
|
|
|
4,778
|
|
|
|
2,662
|
|
|
|
10,643
|
|
|
Net income
|
|
|
(205
|
)
|
|
|
1,424
|
|
|
|
2,693
|
|
|
|
1,141
|
|
|
|
5,053
|
|
|
Net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
0.10
|
|
|
$
|
0.19
|
|
|
$
|
0.08
|
|
|
$
|
0.35
|
|
|
Diluted
|
|
|
(0.01
|
)
|
|
|
0.10
|
|
|
|
0.19
|
|
|
|
0.08
|
|
|
|
0.35
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
14,292
|
|
|
|
14,292
|
|
|
|
14,292
|
|
|
|
14,292
|
|
|
|
14,292
|
|
|
Diluted
|
|
|
14,292
|
|
|
|
14,446
|
|
|
|
14,449
|
|
|
|
14,450
|
|
|
|
14,446
|
|
The above financial data includes normal recurring adjustments and reflects all adjustments that are, in the opinion of
management, necessary for a fair presentation of such financial data. The Company’s business is seasonal and, accordingly, interim results are not indicative of results for a full year.
52
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed in our Exchange Act
reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on this evaluation, our
Chief Executive Officer and our Chief Financial Officer concluded that, as of December 31, 2011, our disclosure controls and procedures were effective.
Management’s Annual Report On Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), is a process designed by, or under the supervision
of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
|
|
•
|
|
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
|
|
|
•
|
|
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
|
|
|
•
|
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a
material effect on the financial statements.
|
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
Our management assessed the effectiveness of our internal control over financial reporting (ICFR) as
of December 31, 2011. Management assessed the effectiveness of our ICFR based on the criteria for effective ICFR established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) and SEC guidance on conducting such assessments by smaller reporting companies and non-accelerated filers. Based on this assessment, management believes that as of December 31, 2011, our internal control over financial
reporting was effective based on those criteria.
53
This Annual Report on Form 10-K does not include an attestation report of the Company’s independent
registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to an exemption for smaller
reporting companies under Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Changes in Internal Control
Over Financial Reporting
During the Company’s most recent fiscal quarter, there has been no change in our internal control over
financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. OTHER INFORMATION
Not applicable.
54
PA
RT III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our Directors
The following table and
narrative provide information concerning the members of our board of directors as of March 20, 2012. Our directors are elected by a plurality of the votes cast. Each director has been appointed to serve until the next annual meeting of
shareholders and until their respective successors are elected and duly qualified. There are no familial relationships between any director or officer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
Position with
|
|
Director
|
|
Name
|
|
Age
|
|
|
Occupation
|
|
Company
|
|
Since
|
|
Douglas G. Voss
|
|
|
57
|
|
|
Chairman of the Board of Directors and President of Great Lakes Aviation, Ltd.
|
|
Chairman of the Board of Directors and President of Great Lakes Aviation, Ltd.
|
|
1979
|
|
A.L. Maxson(1)
|
|
|
76
|
|
|
Financial Consultant
|
|
Director
|
|
2010
|
|
Vernon A. Mickelson(1)(2)(3)
|
|
|
85
|
|
|
Business Consultant
|
|
Director
|
|
1994
|
|
A.R. Moulton, III(1)(2)
|
|
|
69
|
|
|
Financial Consultant
|
|
Director
|
|
2005
|
|
Ivan L. Simpson(1)(2)(3)
|
|
|
61
|
|
|
Retired Airline Transport Pilot for American Airlines
|
|
Director
|
|
1997
|
|
(1)
|
Member of the audit committee.
|
|
(2)
|
Member of the compensation committee.
|
|
(3)
|
Member of the nominating committee.
|
Douglas
G. Voss.
Mr. Voss co-founded the Company in 1979 and served in the position of Chief Executive Officer from the Company’s inception until December 31, 2002. Mr. Voss has served as a director of the Company since the
Company’s inception. Mr. Voss was initially licensed as a private pilot in 1974 and today holds both an Airline Transport Pilot Certificate and Airframe and Powerplant Mechanic Certificates. Mr. Voss is a graduate of Colorado Aero
Tech. Mr. Voss has previously served the Company in the FAA Air Carrier Certificate required operational control positions of Director of Operations and Director of Maintenance. He is uniquely qualified to serve as our Chairman based on his
rich experience with our Company as our founder and longtime leader.
A.L. Maxson.
Mr. Maxson became a director of the Company in
August 2010. He previously served as the Company’s Chief Financial Officer and a director from 1993-1997. Mr. Maxson began his career in the aviation industry in 1966 when he joined Southern Airways, Inc. as its Controller and was made
Chief Financial Officer shortly thereafter. Southern Airways, Inc. was ultimately merged with North Central Airlines Inc. to create Republic Airlines Inc., where Mr. Maxson also served as Chief Financial Officer. Mr. Maxson became Vice
President Financial Planning for Northwest Airlines, Inc. upon that company’s acquisition of Republic Airlines, Inc. in 1986. Mr. Maxson remained with Northwest Airlines, Inc. until 1991, and was self-employed as a financial consultant
during the period from 1991 to December of 1993. Since 1997, Mr. Maxson has been self-employed as a financial consultant. Mr. Maxson serves as one of our independent directors and our “audit committee financial expert,” and he
brings to our board his financial expertise and industry perspective.
55
Vernon A. Mickelson.
Mr. Mickelson became a director of the Company in January 1994. For more
than the past 20 years, Mr. Mickelson has been self-employed as a business consultant. He provided services to the Company concerning matters involving FAA regulatory compliance and maintenance quality control from 1988 to 1994.
Mr. Mickelson has worked in the aviation industry since 1949, primarily in the field of aircraft manufacturing and maintenance. From 1969 to 1988, Mr. Mickelson was employed by the FAA in Flight Standards as principal inspector and
supervisor of FAA maintenance and avionics inspectors assigned in the states of Indiana and Iowa. In his career, he has held or holds several FAA maintenance certificates and FAA designations in aircraft maintenance in addition to holding a
commercial pilot’s certificate. Mr. Mickelson is a graduate of Spartan School of Aeronautics (1948-49), specializing in aircraft maintenance. Mr. Mickelson brings his long history with our industry and his more than 21 years as a
business consultant to his role as one of our independent directors.
A.R. Moulton, III.
Mr. Moulton became a director of the
Company in September 2005. Until 2010 Mr. Moulton was a Managing Director of Airline Capital Associates, a consulting firm serving the commercial air transport sector. During his career at Airline Capital Associates he served as a financial
advisor to manufacturing companies, financial institutions, and labor unions, providing advice on all aspects of the commercial air transportation industry. Prior to joining Airline Capital Associates in 1990, Mr. Moulton was a Senior Vice
President and head of Bank of New England’s loan production office in New York City from June 1988 to June 1990. Prior to joining Bank of New England, Mr. Moulton was a Vice President at Morgan Guaranty Trust Company from April 1974 to
June 1988. Mr. Moulton is qualified to serve on our board as one of our independent directors through his combination of over 35 years as a commercial banker and financial consultant, giving him financial and industry experience.
Ivan L. Simpson.
Mr. Simpson became a director of the Company in 1997. Mr. Simpson co-founded the Company in 1979, and served in various
operational roles through 1987, including Chief Pilot and Vice President and Director of Operations. He is a retired Airline Transport Pilot with American Airlines. Mr. Simpson brings a deep knowledge of our Company and our industry to his work
as one of our independent directors.
Our Executive Officers
Pursuant to General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K, information regarding our executive officers was provided in Part I of our Form 10-K under
separate caption.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers, directors and persons who own more than 10% of a registered class of our equity securities
to file reports of ownership and changes in ownership with the SEC. Such officers, directors and shareholders are required by the SEC to furnish us with copies of all such reports. To our knowledge, based solely on a review of copies of reports
filed with the SEC during the last fiscal year and furnished to the registrant with respect to its most recent fiscal year, all applicable Section 16(a) filing requirements were met on a timely basis except for a Form 3 and Form 4 for Gayle
Brandt.
Code of Ethics
We
have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. Our code of ethics satisfies the requirements of
Item 406(b) of Regulation S-K. Our code of ethics is posted on the Company’s web site at
www.flygreatlakes.com
and is available in print upon written request to our Corporate Secretary at Great Lakes Aviation, Ltd., 1022 Airport
Parkway, Cheyenne, WY 82001. We intend to disclose any amendments to or waivers from a provision of our code of ethics that requires disclosure on our website at
www.flygreatlakes.com
.
56
Audit Committee Matters
We have an audit committee that was established in accordance with Section 3(a)(58)(A) of the Exchange Act, comprised of A.L. Maxson, Vernon A. Mickelson, A.R. Moulton, III and Ivan L. Simpson. Under
NASDAQ Marketplace Rules that would apply if our common stock was listed on NASDAQ, each member of the audit committee would be required to (i) be independent as defined under Rule 5605(a)(2) of the NASDAQ Marketplace Rules; (ii) meet the
criteria for independence set forth in Rule 10A-3 under the Exchange Act; (iii) not have participated in the preparation of the financial statements of our company or any current subsidiary of our company at any time during the past three
years, and (iv) be able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement. Our company’s board of directors has determined that each member of the
audit committee would meet these requirements, except that Mr. Maxson is not independent under the specific standards applicable to audit committee members in Rule 10A-3 due to the consulting services he has provided to our company from time to
time. The audit committee, Mr. Maxson abstaining, has considered this issue and has approved Mr. Maxson’s consulting services under its charter and Mr. Maxson’s service on the audit committee.
The functions of the audit committee include oversight of the integrity of our financial statements, our compliance with legal and regulatory
requirements, and the performance, qualifications and independence of our independent auditors. Our audit committee is directly responsible for the appointment, retention, compensation, evaluation, termination and oversight of the work of any
independent auditor engaged for the purpose of preparing or issuing an audit report or related work.
In addition, our board of directors has
determined that Mr. Maxson qualifies as our audit committee financial expert under the rules of the SEC. Our audit committee charter is posted on our web site at www.flygreatlakes.com and is available in print upon written request to our
Corporate Secretary at Great Lakes Aviation, Ltd., 1022 Airport Parkway, Cheyenne, WY 82001.
57
Item 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the compensation of our named executive officers for the fiscal years ended December 31, 2011,
2010, 2009 and 2008:
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All Other
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Salary
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Bonus
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Compensation
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Total
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Name and Principal Position
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Y ear
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($)
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($)
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($)(a)
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($)
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Charles R. Howell IV
Chief Executive Officer
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2011
2010
2009
2008
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155,000
155,000
155,000
155,000
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|
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—
—
—
—
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3,100
3,100
3,100
3,300
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158,100
158,100
158,100
158,300
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Michael O. Matthews
Vice President and Chief Financial Officer
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2011
2010
2009
2008
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150,000
150,000
150,000
150,000
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—
—
—
—
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6,000
6,000
6,000
6,800
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156,000
156,000
156,000
156,800
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Douglas G. Voss
Chairman of the Board of Directors and President
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2011
2010
2009
2008
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175,000
175,000
175,000
175,000
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—
—
—
—
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—
—
—
—
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175,000
175,000
175,000
175,000
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(a)
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Represents matching contributions made by the company on behalf of Mr. Howell and Mr. Matthews under our 401(k) retirement savings plan. These matching
contributions are subject to vesting in accordance with the terms of the plan. See discussion below under “Retirement Savings Plan.”
|
Employment Agreement
On December 31, 2002, we entered into a two-year employment
agreement with Mr. Voss under which he serves as Chairman of the Board of Directors. The agreement specifies a base salary of $120,000 annually and entitles him to participate in the Company’s compensation and benefit plans. Subsequent to
entering into this agreement, we have amended the compensatory arrangements under the agreement to increase the annual base salary payable thereunder. The agreement provides that it may be terminated by either party upon six months’ notice. In
addition, under the agreement, if we terminate Mr. Voss without cause, or if he terminates because of the company’s breach of the agreement, he would receive his regular base pay for the remainder of the contract period. Our company and
Mr. Voss have agreed to continue operating under this agreement indefinitely, until such time as a new agreement becomes effective.
We
currently do not have any other employment agreements with our executive officers, and do not have any other arrangements between our company and our executive officers in connection with termination of employment, change of control of our company,
or any changes to the executive officer’s responsibilities following a change of control.
58
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information concerning the outstanding equity awards held by our named executive officers as of December 31, 2011:
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Option Awards
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Name
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Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
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Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
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Option
Exercise
Price
($)
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Option
Expiration
Date
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Charles R. Howell IV
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200,000
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(a)
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—
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0.40
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12/30/2012
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Michael O. Matthews
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—
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—
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N/A
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N/A
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Douglas G. Voss
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—
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|
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—
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N/A
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N/A
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(a)
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These options vested as to 100,000 shares on each of December 31, 2003 and December 31, 2004.
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Retirement Savings Plan
We provide a
401(k) Retirement Savings Plan in which our employees, including the executive officers, may participate. The plan permits all employees to set aside a portion of their income into the 401(k) Retirement Savings Plan and the company matches one
hundred percent (100%) of the first four percent (4%) contributed by an employee up to the statutory maximum. Employee contributions are vested immediately, while matching contributions by the company vest 20% after two years of service
with the company, and 20% for each year of service thereafter until fully vested. The participation of the executive officers is on the same terms as any other participant in the plan.
Director Compensation
Our directors who are not employees of the Company were paid a
director fee consisting of a quarterly retainer fee of $1,000 for Messrs. Maxson, Moulton and Simpson and $2,000 for Mr. Mickelson who serves as Chairman of the Audit Committee, $1,000 per day for each board conference attended and $1,000 for
each board or committee meeting attended, plus reimbursement for all out-of-pocket expenses incurred on behalf of the company.
The following
table sets forth information concerning the compensation of our non-employee directors for fiscal year 2011:
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Fees Earned or
Paid in Cash
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All Other
Compensation
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Total
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Name
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($)
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($)
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($)
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A.L Maxson
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13,000
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25,250
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(a)
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38,250
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Vernon A. Mickelson
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18,000
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—
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18,000
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A.R. Moulton, III
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14,000
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—
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14,000
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Ivan L. Simpson
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14,000
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—
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14,000
|
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59
Mr. Mickelson received $8,000 and Messrs. Maxson, Moulton and Simpson received $4,000 in quarterly
retainer fees and each received $6,000 for six audit committee meetings, Messrs. Mickelson, Moulton and Simpson each received $1,000 for one compensation committee meeting. Messrs. Mickelson, Maxson, Moulton and Simpson each received $3,000 for
conferences.
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(a)
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Mr. Maxson received consulting fees of $25,250 during the 12 month period ending December 31, 2011.
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The following table sets forth information concerning the outstanding stock options held by our non-employee directors as of December 31, 2011:
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Option Awards
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Name
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Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
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Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
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Option
Exercise
Price
($)
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Option
Expiration
Date
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A. L. Maxson
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—
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—
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N/A
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N/A
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Vernon A. Mickelson
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—
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—
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N/A
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N/A
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A.R. Moulton, III
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—
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—
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N/A
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N/A
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Ivan L. Simpson
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5,000
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(a)
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—
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0.31
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5/16/2012
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(a)
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These options vested in their entirety on May 17, 2003.
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Item 12.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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The following table sets forth certain information known to us regarding beneficial ownership of the common stock as of March 20, 2012, by
(i) each person known to the Company to own beneficially 5% or more of the common stock, (ii) each director of the Company, (iii) each executive officer of the Company named in the summary compensation table, and (iv) all
directors and executive officers of the Company as a group. The percentage of beneficial ownership is based on 8,919,990 shares outstanding as of March 20, 2012. Any shares that are subject to an option or a warrant exercisable within 60 days
are reflected in the following table and are deemed to be outstanding for the purpose of computing the percentage of common stock owned by the option or warrant holder but are not deemed to be outstanding for the purpose of computing the percentage
of common stock owned by any other person. Unless otherwise indicated, each person in the table has sole voting and investment power as to the shares shown, and none of the listed shares has been pledged as security. Unless otherwise indicated, the
address for each listed shareholder is c/o Great Lakes Aviation, Ltd., 1022 Airport Parkway, Cheyenne, Wyoming 82001.
60
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Name and Address of
Beneficial Owner
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Amount and Nature of
Beneficial
Ownership (1)
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Percentage of
Common Stock
(1)
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Douglas G. Voss
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4,160,247 (2)
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46.6
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%
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Iowa Great Lakes Flyers, Inc.
10400 Milliron Road
Cheyenne, Wyoming 82009
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1,710,247 (3)
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19.2
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%
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Gayle R. Brandt
256 Emerald Meadows Drive
Arnolds Park, Iowa 51331
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1,278,090 (4)
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14.3
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%
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Charles R. Howell IV
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200,000 (5)
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2.2
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%
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Ivan L. Simpson
15239 215th Ave.
Spirit Lake, Iowa 51360
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15,450 (6)
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*
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Vernon A. Mickelson
1209 3rd Avenue West
Spencer, Iowa 51301
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17,000
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*
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A.L. Maxson
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2,000
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*
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Michael O. Matthews
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—
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—
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A.R. Moulton, III
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—
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—
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All directors and executive officers as a group
(8 persons)
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4,394,697 (7)
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49.3
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%
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*
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Represents less than 1%.
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61
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(1)
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The securities “beneficially owned” by a person are determined in accordance with the definition of “beneficial ownership” as set forth in the
regulations of the SEC and, accordingly, may include securities owned by or for, among others, the spouse, children, or certain other relatives of such person, as well as other securities as to which the person has or shares voting or investment
power or has the right to acquire within 60 days of March 30, 2012. The same shares may be beneficially owned by more than one person.
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(2)
|
Mr. Voss is the beneficial owner of 4,160,247 shares. The 1,710,247 shares owned by Iowa Great Lakes Flyers, Inc. are included in the shares reported by
Mr. Voss.
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(3)
|
Beneficial ownership of these shares of Common Stock is shared with Douglas G. Voss.
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(4)
|
According to Ms. Brandt’s Form 4 filed with the Securities and Exchange Commission on January 17, 2012.
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(5)
|
Represents 200,000 shares subject to currently exercisable options.
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(6)
|
Includes 5,000 shares subject to currently exercisable options.
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(7)
|
Includes an aggregate of 205,000 shares subject to currently exercisable options.
|
Equity Compensation Plan Information
The following table provides information as of
December 31, 2011 with respect to compensation plans under which the Company’s equity securities are authorized for issuance.
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Plan Category
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Number of securities
to be issued
upon
exercise of
outstanding options,
warrants, and
rights
|
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|
Weighted-average exercise
price of
outstanding options,
warrants, and rights
|
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|
Number of securities
remaining available
for
future issuance under equity
compensation plans (excluding
securities reflected in
column (a)
|
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|
Equity compensation plans approved by security holders
|
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|
205,000
|
|
|
$
|
0.40
|
|
|
|
—
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders
|
|
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—
|
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|
—
|
|
|
|
—
|
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|
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|
|
|
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|
|
|
|
|
|
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Total
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205,000
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|
|
$
|
0.40
|
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|
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—
|
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62
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Review and Approval or Ratification of Transactions with Related Persons
The audit committee of our board of directors is responsible for reviewing any proposed transaction with a related person. In May 2007, our board of
directors amended our audit committee charter to include a policy providing for the review and approval of related person transactions requiring disclosure under Rule 404(a) of Regulation S-K. This policy states that the audit committee is
responsible for reviewing and approving or disapproving all proposed interested transactions, which are defined as any transaction, arrangement or relationship in which (a) the amount involved may be expected to exceed $120,000 in any fiscal
year, (b) the Company will be a participant, and (c) a related person has a direct or indirect material interest. A related person is defined as an executive officer, director or nominee for director, or a greater than five percent
beneficial owner of the Company’s common stock, or an immediate family member of the foregoing. The policy deems certain interested transactions to be pre-approved, including the employment and compensation of executive officers and
compensation paid to directors. All future transactions between our company and its executive officers, directors and principal shareholders and their affiliates will be approved by the audit committee pursuant to the foregoing policy.
Transactions with Related Persons
Raytheon Aircraft Credit Corporation
. On November 16, 2011, the Company obtained $29.5 million of funding available under the new
Credit Agreement. $27 million of the proceeds was used to satisfy all the outstanding debt obligations with Raytheon Aircraft Credit Corporation (Raytheon), at a discount, and to repurchase the Company’s common stock owned by Raytheon
representing approximately 37.6% of the outstanding shares of common stock. On that day, the debt obligations with Raytheon were extinguished, 5,371,980 shares of the Company’s common stock were returned and Raytheon ceased to be a beneficial
owner of the Company. We issued the shares to Raytheon in December 2002 as partial consideration for a series of transactions that included restructured financing terms for aircraft promissory notes, termination of aircraft operating leases,
aircraft purchases, aircraft returns, modified aircraft operating leases and other debt restructuring. Raytheon was our principal creditor prior to November 16, 2011. In the twelve month period ending December 31, 2011, the Company made
principal repayments of debt to Raytheon in the amount of $33.2 million, including a one-time payment of $27.0 million on November 16, 2011 and a non-scheduled prepayment of debt on its Senior Note in the amount of $843,247 as a result of the
Company’s “Excess cash” position for the year ending December 31, 2010.
The Company operated seven Beechcraft 1900D
aircraft leased from Raytheon, four complete with engines and three without engines, which are accounted for under operating lease agreements. These aircraft were returned to Raytheon in the quarters ended September 30 and December 31,
2011 and the leases were terminated. During the years ended December 31, 2011, 2010 and 2009 lease payments made to Raytheon were $1.3 million, $1.7 million and $1.4 million, respectively. The lease agreements required the Company to pay taxes,
maintenance, insurance, and other operating expenses applicable to the leased property. In addition to scheduled minimum lease payments, the Company was required to make payments to cover the cost of components related to leased engines, attached to
four of the leased aircraft, as these components usable life cycle is consumed. During the years ended December 31, 2011, 2010 and 2009 engine consumption fees were $186,276, $313,997 and $314,462, respectively.
63
Director Independence
Our company’s board of directors is comprised of a majority of “independent” directors as defined in Rule 5605(a)(2) of the Marketplace Rules of the NASDAQ Stock Market. Our independent
directors are A.L. Maxson, Vernon A. Mickelson, A.R. Moulton, III and Ivan L. Simpson. Douglas G. Voss, our Chairman and President, is not an independent director. Our board of directors has an audit committee, compensation committee and
nominating committee. Our nominating committee consists of members who are independent as defined in the applicable Marketplace Rules of the NASDAQ Stock Market. Each member of the compensation committee is a non-employee director as defined in Rule
16b-3 of the Exchange Act and is an outside director as defined in Section 162(m) of the Internal Revenue Code, and each member of our audit committee is independent as defined in Exchange Rule 10A-3 except Mr. Maxson. (See Item 10,
Audit Committee Matters.)
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The firm of KPMG LLP has been our independent auditors since 1998. Fees paid to KPMG LLP during the last two fiscal years were as follows:
Audit Fees
. Fees for audit services rendered by KPMG LLP for the years ended December 31, 2011 and 2010 were $340,278 and $303,590,
respectively. Audit services consisted primarily of the audit and quarterly reviews of our financial statements, consents, assistance with and review of documents filed with the SEC, work performed by tax professionals in connection with the audit
and quarterly reviews, accounting and financial reporting consultations, and research work necessary to comply with generally accepted accounting principles.
Audit-Related Fees
. Fees for audit-related services provided during the years ended December 31, 2011 and 2010 were $51,300 and $50,800, respectively. Audit-related services consisted
primarily of professional services provided with respect to yearly audits of our 401(k) employee savings plan and Passenger Facility Charge audits.
Tax Fees
. Fees for tax services billed during the years ended December 31, 2011 and 2010 were $0 and $0, respectively.
All Other Fees
. During the fiscal year 2011 were $20,215 for review of amendments to a resale registration statement in fiscal year 2010, no other services were provided by KPMG LLP to the Company.
Audit Committee Pre-Approval Policies and Procedures
The charter of our audit committee provides that the audit committee is responsible for the pre-approval of all auditing services and permitted non-audit services to be performed for our company by the
independent auditors, subject to the requirements of applicable law. The procedures for pre-approving all audit and non-audit services provided by the independent auditors include the committee reviewing a budget for audit services, audit-related
services, tax services, and other services. The budget includes a description of, and a budgeted amount for, particular categories of non-audit services that are anticipated at the time the budget is submitted. Committee approval would be required
to exceed the budgeted amount for a particular category of services or to engage the independent auditors for any services not included in the budget. Budgeted amounts were not exceeded in 2011. The audit committee periodically monitors the services
rendered by, and actual fees paid to, the independent auditors to ensure that such services are within the parameters approved by the committee. The text of the audit committee charter is posted on our web site at
www.flygreatlakes.com
. The
audit committee pre-approved all of the services we received from KPMG LLP during fiscal year 2011.
64
PART I
V
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
(a)
|
The following documents are filed as a part of this report:
|
|
|
(1)
|
Financial statements of the Company included in Item 8, “Financial Statements and Supplementary Data”:
|
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(i)
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Report of Independent Registered Public Accounting Firm
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(ii)
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Balance Sheets as of December 31, 2011 and 2010
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(iii)
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Statements of Income for the Years Ended December 31, 2011, 2010 and 2009
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(iv)
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Statements of Stockholders’ Equity for the Years Ended December 31, 2011, 2010 and 2009
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(v)
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Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009
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(vi)
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Notes to Financial Statements
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Supporting
schedules are omitted because they are inapplicable, not required, or the information is presented in the financial statements or notes thereto.
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(2)
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The exhibits filed as part of this report and exhibits incorporated herein by reference to other documents are listed in the Exhibit Index to this Annual Report on Form
10-K (pages E-1 through E-3).
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(b)
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An Exhibit Index is contained on page E-1.
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65
SI
GNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
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GREAT LAKES AVIATION, LTD.
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Dated: March 29, 2012
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By:
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/s/ Charles R. Howell IV
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Charles R. Howell IV
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Chief Executive Officer
(Principal Executive Officer)
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By:
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/s/ Michael O. Matthews
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Michael O. Matthews
Vice
President and Chief Financial Officer
(Principal Accounting and Financial Officer)
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66
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below hereby constitutes and appoints Douglas G. Voss, Charles R. Howell IV, and Michael O. Matthews, and each of them
individually, as his or her true and lawful agent, proxy, and attorney-in-fact, with full power of substitution and resubstitution for such individual and in such individual’s name, place, and stead, in any and all capacities, to act on, sign,
and file with the Securities and Exchange Commission any and all amendments to this report together with all schedules and exhibits thereto and to take any and all actions that may be necessary or appropriate in connection therewith, and each such
individual hereby approves, ratifies, and confirms all that such agents, proxies, and attorneys-in-fact, any of them, or any of his or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/ Douglas G. Voss
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Chairman of the Board and President
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March 29, 2012
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Douglas G. Voss
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/s/ Charles R. Howell IV
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Chief Executive Officer
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March 29, 2012
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Charles R. Howell IV
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(Principal Executive Officer)
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/s/ Michael O. Matthews
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Vice President and
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March 29, 2012
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Michael O. Matthews
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Chief Financial Officer
(Principal Accounting and Financial Officer)
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/s/ Vernon A. Mickelson
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Director
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March 29, 2012
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Vernon A. Mickelson
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/s/ Ivan L. Simpson
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Director
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March 29, 2012
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Ivan L. Simpson
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/s/ A. L. Maxson
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Director
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March 29, 2012
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A. L. Maxson
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/s/ Allan R. Moulton III
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Director
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March 29, 2012
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Allan R. Moulton III
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67
EXHIBIT INDEX
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3.1
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Amended and Restated Articles of Incorporation. (1)
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3.2
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Amended and Restated Bylaws. (1)
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4.1
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Specimen Common Stock Certificate. (2)
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10.1
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Great Lakes Aviation, Ltd. 1993 Stock Option Plan. (2)
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10.2
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Great Lakes Aviation, Ltd. 1993 Director Stock Option Plan. (2)
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10.3
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Employment Agreement, dated December 31, 2002, by and between Douglas G. Voss and the Company. (3)
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10.4
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Code Share Agreement, dated May 3, 2001, by and between Frontier Airlines, Inc. and the Company, as amended on February 8, 2002. Portions of this Exhibit have been excluded from the
publicly available document, and the SEC has granted the Company’s application for confidential treatment of the excluded material. (4)
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10.5
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Amendment No. 2 to Code Share Agreement, dated July 1, 2009 by and between Frontier Airlines, Inc. and the Company. Portions of this Exhibit have been excluded from the publicly
available document, and the SEC has granted the Company’s application for confidential treatment of the excluded material. (5)
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10.6
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Agreement between the Company and Raytheon Aircraft Credit Corporation, dated June 10, 2011. (6)
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10.7
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Amendment to Agreement between the Company and Raytheon Aircraft Credit Corporation, dated August 31, 2011. (7)
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10.8
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Amendment to Agreement between the Company and Raytheon Aircraft Credit Corporation, dated October 14, 2011. (8)
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10.9
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Codeshare Agreement between the Company and United Air Lines, dated September 1, 2011. Portions of this Exhibit have been excluded from the publicly available document pursuant to a
grant of confidential treatment. (9)
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10.10
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Credit Agreement by and among the registrant, GB Merchant Partners, LLC, Crystal Financial LLC, and the other financial institutions and entities party thereto, dated November 16,
2011. (10)
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10.11
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Pledge and Security Agreement by and among the registrant and the Pledgors, dated November 16, 2011. (10)
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10.12
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Aircraft, Engines, Spare Engines, Propellers, Spare Propellers and Spare Parts Mortgage and Security Agreement, dated November 16, 2011. (10)
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10.13
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Payoff Letter Agreement dated November 16, 2011 between the Company and Raytheon Aircraft Credit Corporation. (10)
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10.14
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First Amendment to Credit Agreement by and among the registrant, GB Merchant Partners, LLC, Crystal Financial LLC, and the other financial institutions and entities party thereto,
dated Jan. 16, 2012.
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14
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Code of Ethics. Available on the Company’s web site.
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23
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Consent of KPMG LLP.
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24
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Powers of Attorney. (included in signature page)
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31.1
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Certification pursuant to Rule 13a-14(a) of Chief Executive Officer.
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31.2
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Certification pursuant to Rule 13a-14(a) of Chief Financial Officer (Principal Accounting and Financial Officer).
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32.1
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Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Executive Officer.
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32.2
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Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Chief Financial Officer.
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101
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Financial Statements in XBRL format.
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(1)
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Incorporated by reference to the Company’s Registration Statement on Form S-1/A, Registration No. 333-159256, as filed September 3, 2009.
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E-1
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(2)
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Incorporated by reference to the Company’s Registration Statement on Form S-1, Registration No. 033-71180.
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(3)
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Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. (File No. 000-23224)
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(4)
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Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003. (File No. 000-23224)
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(5)
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Incorporated by reference to the Company’s Registration Statement on Form S-1/A, Registration No. 333-159256, as filed September 30, 2009.
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(6)
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Incorporated by reference to the Company’s Current Report on Form 8-K filed on June 10, 2011. (File No. 000-23224)
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(7)
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Incorporated by reference to the Company’s Current Report on Form 8-K filed on September 2, 2011. (File No. 000-23224)
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(8)
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Incorporated by reference to the Company’s Current Report on Form 8-K filed on October 17, 2011. (File No. 000-23224)
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(9)
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Incorporated by reference to the Company’s Amendment No. 1 to Current Report on Form 8-K filed on October 25, 2011. (File No. 000-23224)
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(10)
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Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011. (File No. 000-23224)
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E-2
Great Lakes Aviation (CE) (USOTC:GLUX)
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