Attached files
| file | filename |
|---|---|
| EX-99.4 - REPUBLIC AIRWAYS HOLDINGS INC | v163009_ex99-4.htm |
| 8-K/A - REPUBLIC AIRWAYS HOLDINGS INC | v163009_8ka.htm |
| EX-23.1 - REPUBLIC AIRWAYS HOLDINGS INC | v163009_ex23-1.htm |
| EX-99.3 - REPUBLIC AIRWAYS HOLDINGS INC | v163009_ex99-3.htm |
| EX-99.2 - REPUBLIC AIRWAYS HOLDINGS INC | v163009_ex99-2.htm |
PART I.
FINANCIAL INFORMATION
Item
1: Financial Statements
MIDWEST
AIR GROUP, INC. AND SUBSIDIARIES
INTERIM
CONDENSED CONSOLIDATED BALANCE SHEETS
(In
thousands, except share and per share amounts)
|
Successor
|
||||||||
|
June 30,
|
December 31,
|
|||||||
|
2009
|
2008
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|||||||
|
|
(Unaudited)
|
|||||||
|
Assets
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 9,952 | $ | 10,769 | ||||
|
Accounts
receivable—net of allowance for doubtful accounts of $164 and $98,
respectively
|
6,521 | 1,907 | ||||||
|
Fair
value of fuel derivatives
|
175 | 1,400 | ||||||
|
Inventories—net
|
4,028 | 4,660 | ||||||
|
Prepaid
expenses
|
2,285 | 2,168 | ||||||
|
Assets
held for sale
|
8,340 | 21,958 | ||||||
|
Restricted
cash
|
39,830 | 38,406 | ||||||
|
Deferred
income taxes
|
2,645 | 2,645 | ||||||
|
Total
current assets
|
73,776 | 83,913 | ||||||
|
Property
and equipment—net
|
11,708 | 46,330 | ||||||
|
Goodwill
|
48,248 | 48,248 | ||||||
|
Intangible
and other assets—net
|
37,611 | 89,779 | ||||||
|
Total
assets
|
$ | 171,343 | $ | 268,270 | ||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY (DEFICIT)
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Accounts
payable
|
$ | 9,776 | $ | 6,224 | ||||
|
Current
debt
|
81,130 | 307,049 | ||||||
|
Air
traffic liability
|
56,835 | 49,932 | ||||||
|
Unearned
revenue
|
1,178 | 1,686 | ||||||
|
Accrued
liabilities:
|
||||||||
|
Vacation
pay
|
2,842 | 3,983 | ||||||
|
Other
|
66,491 | 59,946 | ||||||
|
Total
current liabilities
|
218,252 | 428,820 | ||||||
|
Deferred
income taxes
|
7,205 | 14,988 | ||||||
|
Accrued
pension and other postretirement benefits
|
9,853 | 9,077 | ||||||
|
Deferred
frequent flyer revenue
|
55,884 | 56,438 | ||||||
|
Other
non-current liabilities
|
4,650 | 12,376 | ||||||
|
Total
liabilities
|
295,844 | 521,699 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Shareholders'
Equity (Deficit):
|
||||||||
|
Common
stock, $0.01 par value; 1,000,000,000 shares authorized; 243,267,464
shares issued
|
2,433 | 2,433 | ||||||
|
Additional
paid-in capital
|
480,140 | 241,814 | ||||||
|
Accumulated
deficit
|
(610,693 | ) | (501,720 | ) | ||||
|
Accumulated
other comprehensive income
|
3,619 | 4,044 | ||||||
|
Total
shareholders' equity (deficit)
|
(124,501 | ) | (253,429 | ) | ||||
|
Total
liabilities and shareholders' equity (deficit)
|
$ | 171,343 | $ | 268,270 | ||||
See
accompanying notes to interim condensed consolidated financial statements
(unaudited).
MIDWEST
AIR GROUP, INC. AND SUBSIDIARIES
INTERIM
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In
thousands)
|
Successor
|
Predecessor
|
|||||||||||
|
Six Months
|
Five Months
|
One Month Ended
|
||||||||||
|
Ended June 30,
|
January 31,
|
|||||||||||
|
2009
|
2008
|
2008
|
||||||||||
|
Operating
revenues:
|
||||||||||||
|
Passenger
service
|
$ | 169,554 | $ | 286,881 | $ | 49,751 | ||||||
|
Cargo
|
2,027 | 4,254 | 984 | |||||||||
|
Other
|
25,879 | 26,688 | 6,907 | |||||||||
|
Total
operating revenues
|
197,460 | 317,823 | 57,642 | |||||||||
|
Operating
expenses:
|
||||||||||||
|
Salaries,
wages, and benefits
|
38,385 | 69,708 | 17,802 | |||||||||
|
Aircraft
fuel and oil
|
50,140 | 162,687 | 28,481 | |||||||||
|
Losses
(gains) on fuel derivatives
|
1,246 | (2,632 | ) | 3,683 | ||||||||
|
Commissions
|
5,906 | 9,418 | 1,597 | |||||||||
|
Dining
services
|
1,813 | 3,218 | 725 | |||||||||
|
Station
rental, landing, and other fees
|
18,900 | 23,886 | 5,957 | |||||||||
|
Aircraft
maintenance, materials, and repair
|
6,844 | 19,743 | 5,629 | |||||||||
|
Depreciation
and amortization
|
6,327 | 9,974 | 1,306 | |||||||||
|
Aircraft
rentals
|
8,785 | 26,807 | 5,000 | |||||||||
|
Regional
carrier charges
|
50,965 | 31,796 | 5,105 | |||||||||
|
Restructuring
charges
|
(3,023 | ) | 10,931 | - | ||||||||
|
Other
impairment losses
|
93,352 | - | - | |||||||||
|
Other
|
21,761 | 27,185 | 25,240 | |||||||||
|
Total
operating expenses
|
301,401 | 392,721 | 100,525 | |||||||||
|
Operating
loss
|
(103,941 | ) | (74,898 | ) | (42,883 | ) | ||||||
|
Other
income/(expense):
|
||||||||||||
|
Interest
income
|
99 | 1,651 | 619 | |||||||||
|
Interest
and other expense
|
(12,914 | ) | (7,578 | ) | (93 | ) | ||||||
|
Total
other income/(expense)
|
(12,815 | ) | (5,927 | ) | 526 | |||||||
|
Loss
before income tax
|
(116,756 | ) | (80,825 | ) | (42,357 | ) | ||||||
|
Income
tax (benefit) provision
|
(7,783 | ) | - | 279 | ||||||||
|
Net
loss
|
$ | (108,973 | ) | $ | (80,825 | ) | $ | (42,636 | ) | |||
See
accompanying notes to interim condensed consolidated financial statements
(unaudited).
MIDWEST
AIR GROUP, INC. AND SUBSIDIARIES
INTERIM
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In
thousands)
|
Successor
|
Predecessor
|
|||||||||||
|
Six Months
|
Five Months
|
One Month
|
||||||||||
|
Ended June 30,
|
Ended January 31,
|
|||||||||||
|
2009
|
2008
|
2008
|
||||||||||
|
Net
cash from operating activities
|
$ | (12,122 | ) | $ | (136,908 | ) | $ | 2,193 | ||||
|
Investing
activities:
|
||||||||||||
|
Capital
expenditures
|
(356 | ) | (9,911 | ) | (492 | ) | ||||||
|
Proceeds
from sale of property and equipment
|
- | 13,231 | 746 | |||||||||
|
Net
cash from investing activities
|
(356 | ) | 3,320 | 254 | ||||||||
|
Financing
activities:
|
||||||||||||
|
Proceeds
from debt issuance
|
12,000 | - | - | |||||||||
|
Other,
net
|
(339 | ) | 675 | (62 | ) | |||||||
|
Net
cash from financing activities:
|
11,661 | 675 | (62 | ) | ||||||||
|
Net
change in cash and cash equivalents
|
(817 | ) | (132,913 | ) | 2,385 | |||||||
|
Cash and cash equivalents
—Beginning of period
|
10,769 | 142,335 | 139,950 | |||||||||
|
Cash and cash equivalents
—End of period
|
$ | 9,952 | $ | 9,422 | $ | 142,335 | ||||||
|
Supplemental cash
flow information:
|
||||||||||||
|
Cash
paid for:
|
||||||||||||
|
Interest
paid
|
$ | 1,353 | $ | 277 | $ | 93 | ||||||
|
Non-cash
transactions:
|
||||||||||||
|
Accrued
liability converted into promissory note
|
$ | 8,711 | $ | - | $ | - | ||||||
|
Conversion
of debt to equity
|
$ | 238,006 | $ | - | $ | - | ||||||
See
accompanying notes to interim condensed consolidated financial statements
(unaudited).
MIDWEST
AIR GROUP, INC. AND SUBSIDIARIES
NOTES
TO INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
|
1.
|
Business
and Basis of Presentation
|
On
January 31, 2008 (the “Acquisition Date”), 100% of the issued and
outstanding publicly traded shares of Midwest Air Group, Inc.
(“Predecessor”) were acquired by an investment group composed of Northwest
Airlines Corp. (“Northwest”) and a syndicate of investment entities
arranged by TPG Capital, L.P. (the “TPG Entities”). The acquisition was
accomplished by the formation of Midwest Air Partners, LLC (“MAP”), a
Delaware limited liability company. Northwest held 48.7% and the TPG
Entities held 51.3% of MAP. MAP held a 97.7% interest in Midwest
Management Holdings, LLC, a Delaware limited liability company (“MMH”),
with management of Predecessor holding a 2.3% fully diluted interest in MMH. MMH
owned 100% of Midwest Acquisition Company, Inc. (“MAC”), which was
incorporated on August 13, 2007, in the state of Wisconsin. In
connection with the acquisition, Predecessor was merged into MAC, with Midwest
Air Group, Inc. being the surviving corporation (such surviving entity
being the “Company” or “Successor”). Following the merger, management
of Predecessor also held a diluted 4.3% interest in Successor in the form of
common stock and stock options.
The
acquisition of Predecessor by MAC was accounted for as a business combination in
accordance with the Financial Accounting Standards Board (“FASB”) Statement
No. 141, Business
Combinations. The assets and liabilities acquired were
adjusted to their fair values, effective January 31, 2008.
The
accompanying unaudited interim condensed consolidated financial statements for
the six month period ended June 30, 2009 (Successor) and the five months ended
June 30, 2008 (Successor) and the one month period ended January 31, 2008
(Predecessor), reflect all adjustments (consisting only of normal recurring
adjustments, except as noted herein) that are, in the opinion of management,
necessary for a fair presentation of the financial position and operating
results for the interim periods. The unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information, in accordance with Article 10 of Regulation S-X, and do not include
all of the information and notes required for complete, audited financial
statements. The unaudited interim condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and related notes thereto for the year ended December 31, 2008 of
Midwest Air Group, Inc. (the “Company” or “Midwest”). The results of
operations for the six month period ended June 30, 2009 is not necessarily
indicative of the results that may be expected for the entire year.
On
July 31, 2009, the Company was sold by the TPG Entities to Republic Airways
Holdings Inc. (“Republic”) for $62 million, which is comprised of $6 million in
cash, and $25 million in convertible debt, and $31 million in debt held by
Midwest and payable to Republic. As of July 31, 2009, the Company is
a wholly-owned subsidiary of Republic. During the six months ended June 30,
2009, the Company continued to restructure several leases, debt agreements and
other financial obligations to reduce costs in 2009 and future
periods.
|
2.
|
Derivative
Instruments and Hedging Activities
|
The
Company has utilized three types of derivative and hedging instruments to reduce
the risk of exposure to jet fuel price increases: call options, collars, and
fixed-fuel contracts. The Company accounted for certain of its fuel derivative
instruments as cash flow hedges, as defined in FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities (“FASB Statement
No. 133”), as amended. The Company accounts for the remainder of the fuel
derivative instruments as free-standing derivatives. The Company does not
purchase or hold any derivative financial instruments for trading or speculative
purposes. As of June 30, 2009 and December 31, 2008, the fair value
of collars outstanding was an asset of $0.2 million, and $1.4 million,
respectively. There were no outstanding call option contracts at June
30, 2009 and December 31, 2008.
The
Company also enters into fixed price fuel contracts. While the Company considers
these good economic hedges, the Company does not utilize hedge accounting for
these derivatives. The Company recorded $1.2 million of losses in the
statement of operations for the six months ended June 30, 2009. The
Company recorded $2.6 million of gains in the statement of operations for
the five-month period June 30, 2008 (Successor), for the fixed fuel
contracts. The Company recorded $3.7 million of losses in the
statement of operations for the one-month period ended January 31, 2008,
(Predecessor). Approximately 80% of fuel purchases in 2008 were
hedged using these three different fuel hedging strategies. As of
June 30, 2009 and December 31, 2008, there were no outstanding fixed-price fuel
contracts.
|
3.
|
Income
Taxes
|
A tax
benefit of $7.8 million was recorded for the six months ended June 30,
2009. The effective rate is lower than the statutory because of the
valuation allowance for deferred tax assets and a benefit for the reduction in
the deferred tax liability from the impairment of the Trademark during the six
months ended June 30, 2009. No provision was recorded for the five months
ended June 30, 2008 (“Successor”) due to accumulated tax losses. A
provision of $0.3 million was provided for the one month ended January 31, 2008
(“Predecessor”).
As of
June 30, 2009, the Company has tax-effected state net operating losses of $14.1
million that will expire beginning in 2009 through 2027. The Company has
recorded a valuation allowance for all state net operating losses as of June 30,
2009 and December 31, 2008. The Company has tax-effected federal net operating
losses of $46.4 million, which will begin to expire in 2023. The Company
has recorded a valuation allowance for all federal net operating losses as of
June 30, 2009. The Company has not recorded an income tax benefit on federal and
state net operating losses generated on the accumulated losses since
2004.
|
4.
|
Financing
Agreements
|
Credit Card Holdback
- The Company has agreements with organizations that process credit card
transactions arising from purchases of air travel tickets by customers of the
Company. Credit card processors have financial risk associated with
tickets purchased for travel because the processor generally forwards the cash
related to the purchase to the Company soon after the purchase is completed, the
air travel generally occurs after that time, and the processor would have
liability if the Company does not ultimately deliver the travel. The
organization that processes MasterCard/Visa transactions allows the credit card
processor to create and maintain a reserve account that is funded by retaining
cash that it otherwise would deliver to the Company (i.e., “restricted cash”).
During 2007, the Company and the processor entered into an amended agreement
that allows the processor to change the holdback percentage based on the
Company’s performance against certain financial criteria. During 2008, the
agreement was amended to extend the expiration date to July 2009 and incorporate
a letter of credit from Northwest Airlines that reduced the cash holdback by
$10 million. When considering the Northwest Airlines letter of credit, the
total holdback requirement as of June 30, 2009, was 100% of the processor’s risk
exposure. The letter of credit expired in July 2009 and increased to a 100%
holdback. The Company also has an agreement with American Express for processing
purchases made through the use of an American Express credit card. As of June
30, 2009, the credit card processor had 100% holdback under this
agreement.
Debt - On
June 8, 2009, the Company received additional debt financing of
$12 million, consisting of $6 million each from Republic and the TPG
Entities.
On
June 12, 2009, the senior promissory notes totaling approximately
$238 million with three TPG Capital, Inc. affiliates were assigned to
MAP. Concurrent with this transaction, MAP canceled all outstanding
senior and junior promissory notes resulting in a capital contribution in
exchange for all the outstanding common stock as held by Midwest Management
Holdings LLC and the minority shareholders.
|
5.
|
Retirement
and Benefit Plans
|
The
pension and other postretirement medical costs for the six month period ended
June 30, 2009 (Successor), the five month period ended June 30, 2008
(Successor), and one month period ended January 31, 2008 (Predecessor), were
$0.3 million, $0.6 million, and $0.2 million, respectively.
The
Company was not required to contribute to its qualified pension plan during the
six months ended June 30, 2009.
|
6.
|
Comprehensive
Income
|
As of
June 30, 2009 and December 31, 2008, all of the accumulated other comprehensive
income relates to the pension and other postretirement liabilities for the
employee benefit plans.
|
7.
|
New
Accounting Pronouncements
|
In
March 2008, the Financial Accounting Standards Board (the “FASB”) issued
SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
Activities—an amendment to FASB Statement No. 133” (“SFAS 161”). SFAS 161
changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about
(1) how and why an entity uses derivative instruments, (2) how
derivative instruments and related hedged items are accounted for under SFAS
No. 133, “Accounting for Derivative Instruments and Hedging Activities”
(“SFAS 133”), and (3) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance and cash flows.
SFAS 161 is effective for fiscal years and interim periods. We adopted SFAS 161
on January 1, 2009 but did not include additional disclosures since the
Company’s derivatives are not material.
In
April 2009, the FASB issued FASB Staff Position (“FSP”) 107-1 and
Accounting Principles Board (“APB”) Opinion No. 28-1, “Interim Disclosures
about Fair Value of Financial Instruments” (“FSP 107-1 and APB 28-1”). FSP 107-1
and APB 28-1 amend FASB Statement No. 107, “Disclosures about Fair Values
of Financial Instruments,” to require disclosures about the fair value of
financial instruments in interim financial statements as well as in annual
financial statements. It also amends APB Opinion No. 28, “Interim Financial
Reporting,” to require those disclosures in all interim financial statements. We
adopted FSP 107-1 and APB 28-1 effective April 1, 2009 but did not include
additional disclosures as they are not material.
In May
2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS
165”). SFAS 165 provides guidance on events that occur after the
balance sheet date but prior to the issuance of the financial
statements. SFAS 165 distinguishes events requiring recognition in
the financial statements and those that may require disclosure in the financial
statements and requires disclosure of the date through which subsequent events
were evaluated. SFAS 165 is effective for interim and annual periods
after June 15, 2009. We have adopted SFAS 165 for the six month
period ended June 30, 2009.
New
Accounting Standards Not Yet Adopted
In June
2009, the FASB issued SFAS No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles (“SFAS 168”). SFAS 168 establishes the FASB
Accounting Standards Codification (“Codification”), which supersedes all
existing accounting standard documents and will become the single source of
authoritative non-governmental U.S. GAAP. All other accounting literature not
included in the Codification will be considered non-authoritative. The
Codification was implemented on July 1, 2009 and will be effective for interim
and annual periods ending after September 15, 2009. We expect to adopt SFAS 168
for the quarter ended September 30, 2009.
In
September 2009, the FASB ratified Emerging Issues Task Force (“EITF”) consensus
on EITF Issue No. 08-1, Revenue Arrangements with Multiple
Deliverables (“EITF 08-1”). EITF 08-1 supersedes EITF Issue No. 00-21,
Revenue Arrangements with Multiple
Deliverables (“EITF 00-21”). EITF 08-1 retains the criteria from EITF
00-21 for when delivered items in a multiple-deliverable arrangement should be
considered separate units of accounting, but removes the previous separation
criterion under EITF 00-21 that objective and reliable evidence of fair value of
any undelivered items must exist for the delivered items to be considered a
separate unit or separate units of accounting. EITF 08-1 is effective for fiscal
years beginning on or after June 15, 2010. The Company is currently evaluating
EITF 08-1 and the impact, if any, that it may have on its results of operations
or financial position.
|
8.
|
Restructuring
Charges
|
In 2008,
the Company made announcements to restructure the airline, which included
exiting the regional flight operations of its Skyway subsidiary as a result of a
strategic business review. Operations of Skyway ceased in April 2008 and the
Company’s operations were further restructured in June 2008, resulting in the
elimination of positions, compensation reductions, reduction of contractual
costs, and fleet changes. Total costs are expected to be $63.0 million to
$68.0 million. The final completion and satisfaction of the related
liabilities is anticipated to be completed by December 31, 2010.
On
May 21, 2009, the Company expanded the airline services agreement with
Republic to include two Embraer E190 jets which began service in the third
quarter of 2009. The Company also expanded the airline services
agreement to include twelve 37 to 50-seat Embraer E135 jets to serve a number of
its routes.
On
June 3, 2009, the Company entered into an agreement for the early
termination of the SkyWest ASA. As part of the restructured transaction, two of
the 12 aircraft being operated by SkyWest under the ASA were removed from the
fleet without further consideration. Thereafter, the Company is obligated to pay
SkyWest $0.4 million for each of the aircraft at the time of removal from the
ASA. The last aircraft is expected to be returned in early
2010. Republic guaranteed payment of the $0.4 million per
aircraft. The loss of capacity from SkyWest will be replaced by
additional Embraer aircraft, provided by the expanded agreement with
Republic. As of June 30, 2009 the Company recorded a $4.0 million
liability for 10 aircraft at $0.4 million per aircraft. As of
December 31, 2008, the Company had $9.3 million of debt owed to SkyWest and this
debt was forgiven as part of this settlement. Therefore, this
settlement resulted in a $5.3 million settlement gain recorded in restructuring
expenses for the six months ended June 30, 2009.
As of
December 31, 2008, Midwest owned (and had related debt) 3 Fairchild 328 jets
(“FRJs”) and leased 5 FRJs with a third party. All of these aircraft
financing agreements were in default and a liability of $29.8 million was
recorded as of December 31, 2008. On June 12, 2009, the Company
reached an agreement with the lessor of the FRJs to settle the lease and debt
default obligations associated with eight aircraft on July 17, 2009. The
Company made an up-front payment of $3.1 million and issued a
$15 million note secured by the aircraft plus one additional FRJ aircraft
contributed to the collateral pool by the Company. The secured note
is to be repaid from the net proceeds of sale of the aircraft. The
lessor is guaranteed by Republic to receive $15 million by
December 31, 2010. Interest began accruing on June 1, 2009, at 5%
payable quarterly in arrears on the last day of each quarter until
December 31, 2010. As a result of this settlement, the Company
recorded an $10.3 million settlement gain in restructuring expenses for the six
months ended June 30, 2009. As of June 30, 2009, the Company recorded
a $19.5 million liability related to this settlement.
On
May 26, 2009, the Company negotiated an additional forbearance agreement
with its aircraft lessor. As a result, the Company will return the
remaining 9 Boeing 717 aircraft by early 2010. In addition, the Company will pay
the lessor $5.4 million in installments of $600,000 at the time each
aircraft is returned and contribute two Rolls Royce Jet engines, valued at
approximately $6.4 million. Republic is the guarantor of the
$5.4 million cash payment and the $6.4 million engine
contribution. As of December 31, 2008, the Company had a liability of
$15.4 million associated with a negotiated forbearance agreement with the
lessor. As a result of this settlement that will require cash and
engine contributions of $11.8 million, the Company will record as a reduction of
lease expense of $3.6 million over the remaining term of the lease
agreements..
On
May 4, 2009, another aircraft lessor received a judgment against the
Company for failure to pay lease payments for two MD80s. The Company agreed to
settle this judgment for $1.8 million. The lessor assigned the claim and
judgment to Republic at a discounted price and other consideration. At June 30,
2009, the Company remained obligated on the judgment being held by
Republic. As of December 31, 2008 and June 30, 2009, $1.8 million was
accrued for this judgment.
On
June 3, 2009, the Company entered into agreements with two other lessors
for the early termination of two MD80 leases in exchange for settlement payments
totaling $1.5 million. As of December 31, 2008, $1.5 million was
accrued and this amount was paid during the six months ended June 30,
2009.
The restructuring charges for the six months ended June 30, 2009
consists primarily of the gains from the settlement with SkyWest of $5.3
million, gain from the settlements from the FRJs of $10.3 million, primarily
offset by restructuring professional fees, severance, and legal fees of
approximately $12.6 million.
|
9.
|
Commitments
and Contingencies
|
In
February 1997, Midwest agreed to pay $9.25 million over 15 years for
the naming rights to the Midwest Airlines Center, an 800,000-square-foot
convention center in Milwaukee that opened in July 1998. As of
June 30, 2009, the Company had remaining payments on this commitment of
$3.1 million.
On September 3, 2008, the Company
entered into a 10-year Airline Service Agreement with Republic to operate 12
Embraer E170 jets. Under this agreement, Republic provides commercial regional
air transportation services, along with all crew (flight and cabin), doing
business as Midwest Connect. Midwest remains responsible for the scheduling of
flight routes, marketing, establishing all passenger fares, and providing the
fuel and in-flight food and supplies. Total regional carrier charges related to
Republic for the six months ended June 30, 2009, the five months ended June 30,
2008 (Successor) and the one month ended January 31, 2008 (Predecessor) were
$29.9 million, $0 and $0, respectively and include various pass-through charges
including fuel and oil, catering, landing fees, deicing, security, and other
maintenance and property costs. In addition, at June 30,
2009 the Company has issued to Republic secured notes totaling
$31.0 million.
The
Company is party to routine litigation incidental to its business. Management
believes that none of this litigation is likely to have a material adverse
effect on the Company’s consolidated financial statements.
|
10.
|
Asset Impairments, Goodwill,
and Other Intangible Assets
|
Other Intangible Assets —
As a result of the continued deterioration of the Company’s business and the
significant restructuring of the Company’s financing agreements, an impairment
assessment of the Company’s intangible assets was performed as of June 30,
2009. In the Company’s impairment assessment of other intangible
assets, the fair value of the trade name was assessed using the relief from
royalty method, a variation of the income approach. The cargo contracts,
business passenger contracts, and customer loyalty program fair values were
assessed using the income approach. These assessments resulted in an impairment
charge of $47.8 million for the six month period ended June 30, 2009, for
intangible assets.
The other
intangible assets as of December 31, 2008 and June 30, 2009, are as follows
(in thousands):
|
Balance at
|
Six
Months Ended
|
Balance at
|
||||||||||||||||||
|
Amortization
|
December 31,
|
June 30, 2009
|
June 30,
|
|||||||||||||||||
|
Period
|
2008
|
Amortization
|
Impairment
|
2009
|
||||||||||||||||
|
Trade
name
|
- | $ | 30,857 | $ | - | $ | (19,457 | ) | $ | 11,400 | ||||||||||
|
Customer
loyalty program
|
6
years
|
7,294 | (717 | ) | (6,457 | ) | 120 | |||||||||||||
|
Cargo
contracts
|
9
years
|
22,501 | (1,392 | ) | (17,977 | ) | 3,132 | |||||||||||||
|
Business
passenger contracts
|
9
years
|
4,173 | (258 | ) | (3,872 | ) | 43 | |||||||||||||
| $ | 64,825 | $ | (2,367 | ) | $ | (47,763 | ) | $ | 14,695 | |||||||||||
Management
assessed the fair value of landing slots in accordance with FASB Statement
No. 144 as of June 30, 2009 and determined no impairment had
occurred.
Other Long-Lived Assets —
For purposes of testing impairment of other long-lived assets as of June 30,
2009, asset appraisals, published aircraft pricing guides, and recent
transactions for similar aircraft were considered by the Company in its market
value determination. Based on the results of these tests as of June 30, 2009,
the Company recorded an impairment of $45.6 million that was attributable
to the Company’s long-lived assets.
Goodwill — During 2009, the Company performed
step one of the two-step impairment test and compared the estimated fair value
of its single reporting unit to its carrying value, including goodwill. The
Company determined that the fair value of the Company was greater than the
carrying value of the net assets of the reporting unit and passed Step
1. As a result of this assessment, no impairment was
recognized.
The
carrying value of the Company’s intangible assets or tangible long-lived assets
as of June 30, 2009, may be impaired further in future periods as a result
of factors, such as decreased demand for aircraft, decreases in revenues, fuel
price volatility, and adverse economic conditions, among others.
|
11.
|
Subsequent
Events
|
The
Company has evaluated subsequent events through October 16, 2009, the date the
interim financial statements were issued.