Declaration of David M. Richards. Filed by Cabot C. Christianson on behalf of Peninsula Airways, Inc., dba PenAir.(Christianson, Cabot) (Entered: 08/06/2017)
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Cabot Christianson, Esq.
Alaska Bar No. 7811089
LAW OFFICE OF CABOT CHRISTIANSON, RC
911 W. 8th Avenue, Suite 201
Anchorage, Alaska 99501
(907) 258-6016
cabotcclawersnet
Attorney for Debtor
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ALASKA
In re:
PENINSULA AIRWAYS, INC., dba PENAIR,
CASE NO.: 17-00282
Debtor
DECLARATION OF DAVID M. RICHARDS
1. My name is David M. Richards. I am currently the Chief Operating Ofï¬Âcer at
Peninsula Airways, Inc., Debtor herein, doing business under the name PenAir. I started my
employment at PenAir in September 2016, as its Chief Financial Officer. As of June 2017, I
became PenAirâÂÂs Chief Operating Ofï¬Âcer.
2. My professional background is as follows. In 1988, I graduated from the
University of Montana with a Bachelor of Science degree in business administration. I becam
a certified public accountant in Montana in 1988, and in Alaska in 1990. I was a supervising
senior auditor at KPMG, LLP from 1988 to 1994. From 1994 to 2001, I was an assistant
controller at Anchorage Sand & Gravel Co., Inc. and a Controller at the Municipality of
Anchorage in 2006.
Page 1 Declaration of David M. Richards
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3. From May 2006, to May 2010, I was vice president at Era Aviation, Inc. Era
Aviation was, at the time, the largest airline operating exclusively in the state of Alaska. Era
had ï¬Âled Chapter 11 bankruptcy in December 2005, and successfully emerged from Chapter 11
when its plan of reorganization was conï¬Ârmed, less than a year later, in December 2006. After
leaving Era, I worked in ï¬Ânancial capacities for Sitnasuak Native Corporation, The Arc of
Anchorage, and Arctic Catering.
PenAir backgrounnd
4. Orin Seybert, then 19 years old and living in Pilot Point, founded Peninsula
Airways in 1955 with a single aircraft, a 1946 twoâÂÂseat Taylorcraft. He incorporated the
business in 1965. Over the following decades, the company grew, providing passenger and
freight services throughout the Aleutian Islands and the Alaska Peninsula, and elsewhere in
western and southwestern Alaska, out of its bases in King Salmon and Dillingham. In 1991 ,
Peninsula Airways, Inc. began doing business as PenAir, and become a codeshare and mileage
plan partner with Alaska Airlines. In 1998, a new hangar, located at 6100 Boeing Drive,
Anchorage, became home to PenAirâÂÂs ï¬Âeet and corporate ofï¬Âces.
5. PenAir remains a family owned business. The Seybert family owns more than
88% of the stock. The ofï¬Âcers, directors, and owners of the company are as follows:
Shareholders, Directors & Officers of Peninsula Airways,
Inc.
Name Ofï¬Âcer/Director Stock ownershi
J Alto 1.72%
Suzanne Evanoff Director 1.93%
Linda Seybert 1.46%
Cecelia Myers 1.93%
Daniel P. Seybert Chairman of Board 56.89%
Lloyd 0. Seybert 5.16%
Secretary/Treasurer;
Director
Page 2 Declaration of David M. Richards
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Page 3 Declaration of David M. Richards
Orin D. bert 17.66%
Victor Seybert 1.41%
George G. and/or Mary
Tibbetts 4.31%
Lawrence Tibbetts 2.15%
Marilyn Tolbert 2.15%
Scott Bloomquist President; Director 3.23%
100.00%
6. The Department of Transportation (DOT) runs a program known as the
Essential Air Service (EAS) program that is intended to ensure that small communities â in
Alaska, as well as in the lower 48 states - maintain a minimal level of scheduled air service.
Qualifying carriers that are awarded EAS contracts receive federal subsidies. EAS subsidized
carriers must give DOT ninety (90) day notice before terminating EAS services, and the DOT
can defer termination until it selects a replacement carrier. DOT will cover a carrierâÂÂs
operating losses incurred between the time of giving such notice of termination, and the
carrierâÂÂs termination or replacement.
7. The EAS program has been an important part of PenAirâÂÂs recent operations. In
2012, PenAir expanded its operations outside Alaska. In early 2012, PenAir was awarded EAS
contracts between Boston, Massachusetts and Plattsburgh, New York; and between Boston,
Massachusetts and Presque Isle, Maine. PenAir was also awarded a seasonal summer route
between Boston, Massachusetts and Bar Harbor, Maine. In 2015, PenAir was awarded an EAS
contract between Portland, Oregon, and Crescent City, California. In 2016, PenAir was
awarded EAS contracts for service out of a new hub in Denver, Colorado, for routes between
Denver and Nebraska cities Scottsbluff, Kearney, and North Platte; and between Denver and
Kansas cities Dodge City and Liberal.
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8. Currently, therefore, PenAir operates three hubs outside 0 A as a: oston,
Portland OR, and Denver. In Boston, separate and apart from its ï¬Âight operations, PenAir also
provides underwing ground handling for Alaska Airlines, Virgin Airlines, and Westjet Airlines.
9. PenAir currently employs approximately 700 employees, as follows:
Cateor [ emloee Number [ emloees
Anchorage â corporate/administrative 121
Anchorage hub â operations 255
Boston hub â operations 72
Boston â ground handling 72
Portland hub 94
Denver hub 85
Total 699
Financial information; business operations
10. PenAirâÂÂs ï¬Âscal year ends March 31. Attached hereto as Exhibit A are PenAirâÂÂs
ï¬Ânancial statements for the years ended 3/2015 and 3/2016, which are currently in the process
of being reviewed by KPMG. Attached hereto as Exhibit B is PenAirâÂÂs draft ï¬Ânancial
statement for the year ended 3/2017. Attached hereto as Exhibit C is PenAirâÂÂs in-house
ï¬Ânancial statement for YTD through 5/2017.
1 l. PenAirâÂÂs ï¬Ânancial statements show its rapid deterioration during ï¬Âscal year
3/2013 3/2014 3/2015 3/201 6 3/201 7 4-5/1 7
81,299,644 78,491,876 79,671,679 86,917,370 99,280,653 18,045,235
Net
income
before
tax 2,036,849 (1,391,299) 1,860,803 (7,947,600) (577,420)
Net
income
qftertax (1,478,278) 1,854,364 2,374,219 (5,982,696) (577,420)
Revenue
3,349,826
1,978,323
age 4 Declaration of David M. Richards
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12. PenAir management is currently analyzing the reasons for this deterioration of
ï¬Ânancial performance. One such reason is that PenAirâÂÂs hubs in Portland and Denver have not
lived up to expectations. For this reason, PenAir has decided to wind down its operations at
those two hubs. All of the ï¬Âights out of the Denver hub are EAS routes, so those routes are
subject to the 90-day notice described above. With respect to the Portland hub, only one of the
ï¬Âve routes is an EAS route. On August 4, 2017, PenAir ceased taking reservations on its non-
EAS Portland routes (Eureka/Arcata CA, North Bend OR, Redding CA, and Klamath Falls OR)
. On August 7, 2017 Penair will give DOT the 90 day notice required under EAS.
13. To summarize PenAirâÂÂs anticipated discontinued operations:
Summary of PenAirâÂÂs discontinued operations
From Portland OR and Denver hubs:
North Bend, OR
Klamath Falls, OR
Route EAS routes NonâÂÂEAS routes
Eureka/Arcata, CA
PORTLAND,
OR Reddmg, CA
Crescent City, CA
Dodge City, KS
Liberal, KS
DENVER, CO Kearney, NE
North Platte, NE
Scottsbluff, NE
14. PenAirâÂÂs Boston hub operation has been very successful, and PenAir will
continue all operations at its Boston and East Coast locations.
15. PenAirâÂÂs discontinuance of the Portland and Denver hubs will reduce its need
for aircraft. As of now, PenAirâÂÂs ï¬Âeet consists of four Saab 2000 aircraft, and 15 Saab 340B
aircraft, as follows:
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N675PA
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N3 69PX
N679PA
N685PA
N403XJ
N404XJ
N424XJ
N665PA
N677PA
N406XJ
N410XJ
N422XJ
N681PA
PenAir aircraft, leased and owned
Serial
No.
340B-
206
340BâÂÂ
262
3408-
265
340B-
295
340BâÂÂ
345
340B-
212
340BâÂÂ
403
340B-
404
340B-
424
340B-
181
340B-
328
340B-
406
340BâÂÂ
410
340B-
430
340BâÂÂ
422
2000-
030
2000-
027
2000
020
2000âÂÂ
021
Mft date
1990
1991
1991
1992
1990
1990
1996
1996
1997
1990
1992
1996
1997
1997
1997
Status
Owned
Lessor/ lender
GSST (related party)
FNBA
Turbo Lease, LLC
Turbo Lease, LLC
Montrose Global
Montrose Global
Turbo Lease, LLC
Turbo Lease, LLC
Montrose Global
Montrose Global
Aero Century
N331AG
Saab
2000 N682PA
N680PA
N687PA
Pae 6 Declaration of David M. Richards
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Turbo Lease, LLC
Turbo Lease, LLC
Turbo Lease, LLC
J etstream
J etstream
J etstream
J etstream
J etstream
f ccr
91 l W. 8th Avenue, Suite 201
Anchorage, Alaska 99501
(907) 258-6016 Fax (907) 258-2026
PenAirâÂÂs cash management system
16. PenAir has a central bank account which receives depository amounts from a
variety of sources, and disburses amounts both electronically and by check.
17. Passenger ticket receipts are received through credit card settlements utilizing
First Data/First National Bank and the Airline Clearing House (ACH). Current availability of
credit card settlement is two days after credit card processing on a daily basis. Both First
Data/First National Bank and ACH settlements are received electronically. ACH settlements
are received weekly and are offset by adjustments due other airlines who are party to the ACH
agreement.
18. PenAir has a payroll disbursement account dedicated to manual payroll
disbursements. Regular payroll disbursements are performed by a third party payroll provider,
Inï¬Ânisource. Payroll disbursements are funded electronically from PenAirâÂÂs central account.
Dated August 6, 2017
David M. Richards
Chief Operating 0
CERTIFICATE OF SERVICE
The undersigned hereby certiï¬Âes that on August 6, 2017, a true and correct copy of this
application was served by electronic means through the ECF system as indicated on the Notice
of Electronic ï¬Âling.
By: /s/ Mararet Stroble
Margaret Stroble
Page 7 Declaration of David M. Richards
P age 8 Declaration of David M. Richard
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Final Editorial Review Not Completed NDPPS USE ONL Y
NDPPS ID: 508854
Contact Name:
Special Instructions
Version: 7
PENINSULA AIRWAYS, INC.
Financial Statements
March 31, 2016 and 2015
(With Independent Accountantsâ Review Report)
[(signed) KPMG LLP]
[(signed) KPMG LLP]
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PENINSULA AIRWAYS, INC.
Balance Sheets
March 31, 2016 and 2015
Assets 2016 2015
Current assets:
Cash and cash equivalents $ 198,713 166,958
Accounts receivable, less allowance for doubtful accounts of $1 ,294,750 and $829,191 for
2016 and 2015, respectively 4,891,143 4,256,621
Inventory 7,426,457 5,845,352
Other current assets 579,377 432,969
Total current assets 13,095,690 10,701,900
Property and equipment, net 7,824,534 6,436,890
Other assets:
Deposits 1,668,891 1,174,823
Cash surrender value of officerâÂÂs life insurance, net 159,214 102,883
Other noncurrent assets 1,186,091 1,151,976
Total assets $ 23,934,420 19,568,472
Liabilities and Stockholdersâ Equity
Current liabilities:
Accounts payable $ 7,358,129 7,986,392
Accrued liabilities 2,585,877 2,546,817
Air traffic liability 2,337,783 2,237,717
Income taxes payable 734,602 4,652
Current portion of capital lease obligations 15,321 347,705
Current portion of deferred gain on sale 332,628 332,628
Current portion of longâÂÂterm debt 434,424 362,618
Total current liabilities 13,798,764 13,818,529
Supplemental executive retirement plan payable 119,904 144,175
LongâÂÂterm portion of deferred gain on sale 194,038 526,666
Deferred income â 3,600
LongâÂÂterm debt, less current portion 1,141,938 619,019
Line of credit 1,982,048 1,793,968
Due to affiliate 1,674,614 âÂÂ
Capital lease obligations, less current portion 8,538 22,158
Total liabilities 18,919,844 16,928,115
Commitments and contingencies
Stockholdersâ equity:
Common stock, par value $1 per share. Authorized, 200,000 shares; issued and outstanding,
23,250 shares 23,250 23,250
Additional paidâÂÂin capital 80,582 80,582
Treasury stock, at cost, 1,528 shares (264,900) (264,900)
Retained earnings 5,175,644 2,801,425
Total stockholdersâ equity 5,014,576 2,640,357
Total liabilities and stockholdersâ equity $ 23,934,420 19,568,472
See accompanying notes to financial statements and accountantsâ review report.
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PENINSULA AIRWAYS, INC.
Statements of Operations
Years ended March 31, 2016 and 2015
Operating revenues:
Passenger
Mail
Essential air service
Freight
Charter
Other transport related revenues
Total operating revenues
Operating expenses:
Salaries, wages, and benefits
Aircraft maintenance and repairs
Fuel and oil
Personnel expenses
Aircraft rentals
Building and equipment rentals
Ground services and supplies
Passenger services
Depreciation and amortization
Landing fees and other aircraft expenses
Aircraft insurance
Advertising and promotion
Gain on disposal of assets
Other expenses
Total operating expenses
Operating income
Other (expenses) income:
Interest expense
Interest income
Net other expenses
Income before income taxes
Income tax expense
Net income
See accompanying notes to financial statements and accountantsâ review report.
$
Desc Main
2016 2015
80,010,074 57,428,881
7,533,813 7,177,021
9,372,348 7,428,991
5,385,310 4,729,758
885,710 725,792
3,730,315 2,183,238
88,917,370 79,871,879
28,749,590 23,044,702
18,191,789 15,700,341
11,182,288 14,185,798
5,283,202 4,420,914
3,935,427 4,784,588
2,992,547 2,535,348
2,898,855 2,498,078
2,446,830 2,224,703
1,431,425 1,200,440
1,330,343 1,111,000
1,173,185 1,318,901
888,838 755,780
(1,800) (129,257)
4,914,538 3,944,327
83,393,191 77,595,857
3,524,179 2,076,022
(178,583) (235,924)
2,210 20,705
(174,353) (215,219)
3,349,828 1,880,803
975,807 8,439
2,374,219 1,854,384
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PENINSULA AIRWAYS, INC.
Statements of Changes in Stockholdersâ Equity
Years ended March 31, 2016 and 2015
Common Additional Treasury Retained
stock paid-in capital stock earnings Total
Balance, April 1, 2014 $ 23,250 80,582 (254,750) 947,061 796,143
Purchase of treasury stock â â (10,150) â (10,150)
Net income â â â 1,854,364 1,854,364
Balance, March 31, 2015 23,250 80,582 (264,900) 2,801,425 2,640,357
Net income â â â 2,374,219 2,374,219
Balance, March 31, 2016 $ 23,250 80,582 (264,900) 5,175,644 5,014,576
See accompanying notes to financial statements and accountantsâ review report.
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PENINSULA AIRWAYS, INC.
Statements of Cash Flows
Years ended March 31, 2016 and 2015
Operating activities:
Net income
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization
Bad debt expense
Gain on disposal of assets
Payments for supplemental executive retirement plan
Amortization of deferred gain on sale
Changes in operating assets and liabilities that provided (used) cash:
Accounts receivable
Inventory
Deposits
Other current assets
Other noncurrent assets
Accounts payable
Air traffic liability
Accrued liabilities
Income taxes payable
Deferred gain on sale
Total adjustments
Net cash provided by operating activities
Investing activities:
Purchases of property and equipment
Cash surrender value of officerâÂÂs life insurance
Proceeds from sale of property and equipment
Net cash used in investing activities
Financing activities:
Borrowings on revolving line-of-credit
Repayments on revolving line-of-credit
Principal payments on long-term debt
Proceeds from affiliate
Purchase of treasury stock
Principal payments on capital lease obligations
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents:
Beginning of year
End of year
Supplemental disclosure of cash flow information:
Cash paid for interest
Cash paid for income taxes
Supplemental schedule of noncash investing and financing activities:
Property and equipment acquired through long-term debt assumption
See accompanying notes to financial statements and accountantsâ review report.
5
2016 2015
2,374,219 1,854,364
1,431,425 1,200,440
497,636 552,292
(1 ,600) (129,257)
(24,271) (24,271)
(332,628) (332,628)
(1,132,158) 407,119
(1,581,105) 87,847
(494,068) (73,759)
(146,408) 29,000
(34,115) (994,640)
(628,263) (1,718,291)
100,066 308,276
39,060 (792,799)
729,950 2,327
(3,600) âÂÂ
(1,580,079) (1,478,344)
794,140 376,020
(1,719,069) (759,309)
(56,331) (12,221)
1,600 155,171
(1,773,800) (616,359)
29,941,860 46,980,610
(29,753,780) (45,850,663)
(505,275) (516,584)
1,674,614 (34,750)
â (10,150)
(346,004) (337,316)
1,011,415 231,147
31,755 (9,192)
166,958 176,150
198,713 166,958
(176,563) (235,924)
(245,657) (4,487)
1,100,000 âÂÂ
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PENINSULA AIRWAYS, INC.
Notes to Financial Statements
March 31, 2016 and 2015
(1) Summary of Significant Accounting Policies
(8)
(b)
(C)
( d)
(e)
(1')
Organization
Peninsula AinNays, Inc. (the Company), founded in 1955, is a commercial airline serving passenger,
mail, and freight traffic primarily in Southwest Alaska. The Company is based in Anchorage, Alaska.
Use of Accounting Estimates
The preparation of financial statements in conformity with US. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and 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.
Cash
Cash equivalents consist of highly liquid investments with original maturities of three months or less at
the time of purchase. They are carried at cost, which approximates market.
Accounts Receivable
Receivables consist primarily of airline traffic receivables, amounts from customers, airline partners,
and government authorities, in addition to credit granted to customers throughout the State of Alaska
predominantly on an unsecured basis. Receivables are net of an allowance for doubtful accounts.
Management determines the allowance for doubtful accounts based on potential problem accounts,
and historical experiences, as well as the level of aged accounts.
Inventory
Inventories (including fuel) are stated at the lower of cost or market, where cost is based on a first-in,
first-out usage pattern. The cost of aircraft parts is determined by part type. Disposable parts (disposed
of after one use) are valued at direct cost while reusable parts are valued at lower of cost or market
determined by serviceable condition of the part.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over the
shorter of lease term or estimated useful life, which are as follows:
Aircraft and related flight equipment 3âÂÂ1 5 years
Buildings and improvements 7âÂÂ30 years
Furniture and equipment 5âÂÂ7 years
Major modifications that extend the life or improve the usefulness of aircraft are capitalized and
depreciated over their estimated period of use. Engine overhaul costs are capitalized as they occur and
are amortized based on flight hours to the next overhaul. Maintenance and repairs are expensed when
incurred.
6 (Continued)
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(g)
(h)
(i)
(i)
PENINSULA AIRWAYS, INC.
Notes to Financial Statements
March 31,2016 and 2015
Impairment of Long-Lived Assets
Long-lived assets and intangibles 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 the assets to the
future net cash flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less the cost to sell.
Deferred Gain on Sale
Gains or losses attributed to the sale of property and equipment in a sale-leaseback transaction are
deferred in accordance with Financial Accounting Standards Board (FASB), Accounting Standards
Codification ASC Subtopic 840-40, Leases â Sale-Leaseback Transactions, and amortized in
proportion to the related gross rental expense over the lease term.
Revenue Recognition
Passenger revenue is recognized when the passenger travels. Mail, charter, and freight sales are
recognized when service is provided. Air traffic liability consists of tickets sold by the Company that
have either not yet been used, or have only been partially used at year-end. This amount represents
the CompanyâÂÂs liability to provide air transportation to the passenger and its liability to other air carriers
for any leg of the ticket flown by the other carriers.
For the years ended March 31, 2016 and 2015, 8.7% and 9.0%, respectively, of the CompanyâÂÂs
revenue was received from the US. Postal Service.
Income Taxes
Income taxes are accounted for under the asset-and-liability method. Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the year in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment date. The Company
recognizes the effect of income tax positions only if those positions are more likely than not of being
sustained. Recognized income tax positions are measured at the largest amount that is greater than
50% likely of being realized. Changes in recognition or measurement are reflected in the period in
which the change in judgment occurs. As of March 31, 2016, the Company had no unrecognized tax
benefits.
7 (Continued)
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PENINSULA AIRWAYS, INC.
Notes to Financial Statements
March 31,2016 and 2015
(k) Recently Issued Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts
with Customers, which requires an entity to recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. An entity also should disclose sufficient quantitative
and qualitative information to enable users of financial statements to understand the nature, amount,
timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new
standard is effective for the Company for annual periods in fiscal years beginning after December 31,
2018 (as amended in August 2015 by ASU 2015-14, Deferral of the Effective Date). The Company has
not yet determined the effect of the new standard on its current policies for revenue recognition.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes
FASB ASC Topic 840, Leases, and makes other conforming amendments to US. GAAP. ASU 2016-02
requires, among other changes to the lease accounting guidance, lessees to recognize most leases
on-balance sheet via a right of use asset and lease liability, and additional qualitative and quantitative
disclosures. ASU 2016-02 is effective for the Company for annual periods in fiscal years beginning
after December 15, 2019, permits early adoption, and mandates a modified retrospective transition
method. While the Company expects ASU 2016-02 to add significant right-of-use assets and lease
liabilities to the balance sheets, it is evaluating other effects that the new standard will have on the
financial statements.
(I) Subsequent Events
Subsequent to March 31, 2016, the Company entered into an agreement to sell property located in
King Salmon, Alaska, for a purchase price of $835,000, prior to closing costs, onsite fuel, and other
transaction costs. In association with this agreement, the Company accepted a $1,300,000 note
receivable to settle amounts owed to the Company as of May 31, 2016. Amounts owed to the
Company in excess of the $1,300,000 as of March 31, 2016 will be written off and were appropriately
recognized in the allowance for doubtful accounts as of March 31, 2016. In connection with the
preparation of the financial statements, the Company evaluated subsequent events after the balance
sheet date of March 31, 2016 through June _, 2017, which is the date the financial statements were
available to be issued.
(2) Concentration of Credit Risk
The Company maintains accounts at several financial institutions, where amounts on deposit are insured
by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per institution. As of
December 31, 2016 and 2015, the CompanyâÂÂs bank balances were fully insured.
The CompanyâÂÂs cash and cash equivalents balance include a repurchase agreement account with a
financial institution. The repurchase agreement account was collateralized by Federal Home Loan Bank
(FHLB) securities, and was therefore not federally insured by the FDIC. Cash balances under the
repurchase agreement are not deposits of the financial institutions and are not guaranteed by the financial
institution; they are subject to investment risks, including possible loss of principal invested. At March 31,
2016 and 2015, the CompanyâÂÂs repurchase account was fully collateralized by FHLB securities.
8 (Continued)
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Document Page 18 of 26
(3)
(4)
PENINSULA AIRWAYS, INC.
Notes to Financial Statements
March 31,2016 and 2015
During fiscal year 2012, the company discontinued service to several rural locals. These routes began to
be serviced by Grant Aviation, Inc. (Grant). The Company provided hanger space, fuel and ground service
operations through the transition of these routes to Grant. The Company billed a total of $3.3 million to
Grant for these services. As of March 31, 2016 and 2015, GrantâÂÂs outstanding balance was $2.2 million and
$1.8 million, respectively.
Property and Equipment
Property and equipment consists of the following at March 31:
2016 2015
Land $ 64,581 64,581
Buildings and improvements 6,229,221 4,793,869
Aircraft 8,668,128 8,087,798
Equipment 4,934,350 4,220,772
19,896,280 17,167,020
Less accumulated depreciation (12,071,746) (10,730,130)
$ 7,824,534 6,436,890
Total depreciation for the years ended March 31, 2016 and 2015 was $1,431,425 and $1,200,440.
Leases
The Company leases land, buildings, aircraft, and equipment. Certain aircraft leases provide for contingent
payments based on flight hours, flight cycles, and days. The flight hour rates ranged from $38 to $79 per
hour during the year ended March 31, 2016. These payments are held in escrow by the lessor or his
designee and are used to cover major overhaul and maintenance expenses. The Company charged to
operations $4,392,490 and $5,265,371 of these payments for the years ended March 31, 2016 and 2015.
Property acquired through capital leases for the years ended March 31, 2016 and 2015, was $0 and
$55,111, respectively, with an accumulated amortization of $0 and $11,870 at March 31, 2016.
Accumulated
Value amortization
Aircraft equipment:
2016 $ _ _
2015 55,111 11,870
(Continued)
Case 17-00282 DOC 4 Filed 08/06/17 Entered 08/06/17 20:16:48
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Desc Main
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(5)
PENINSULA AIRWAYS, INC.
Notes to Financial Statements
March 31,2016 and 2015
Future minimum payments, by year and in the aggregate, under capital leases with initial or remaining
terms of one year or more, consist of the following:
Year ending March 31 Amounts
2017 $ 15,321
2018 8,538
$ ï¬Â
Future minimum payments, by year and in the aggregate, under the noncancelable operating leases with
initial or remaining terms of one year or more, consist of the following:
Operating leases
Land and
Land and buildings
Aircraft buildings from
Aircraft leases from from third
Year ending March 31 leases related party related party parties
2015 3,135,000 30,000 870,072 456,008
2016 2,554,000 â 797,566 258,073
2017 1,411,500 â â 186,597
2018 352,000 â â 31,727
Thereafter â â â âÂÂ
$ 7,452,500 30,000 1,667,638 932,405
Rental expense for operating leases was $7,160,436 and $7,131,816 for the years ended March 31, 2016
and 2015, respectively.
Notes Payable and Long-Term Debt
The Company has a $2,250,000 operating line of credit with a financial institution. There was $1,982,048
and $1,793,968 outstanding at March 31, 2016 and 2015, respectively. The line of credit expires on
June 12, 2017, and provides for interest payable monthly with a variable interest rate, which is adjusted
monthly at the Prime Rate plus 2.00% and at a minimum rate of 7.25% on principal advanced. At March 31,
2016 and 2015, the interest rate on the line of credit was 7.25%. The line of credit is secured by accounts
receivable and is personally guaranteed by the major stockholders and an agency of the federal
government.
10 (Continued)
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PENINSULA AIRWAYS, INC.
Notes to Financial Statements
March 31, 2016 and 2015
Long-term debt consists of the following as of March 31, 2016 and 2015:
2016 2015
Note payable to individual, no stated interest rate, collateralized
by Peninsula AinNays stock, maturing 2016 $ â 34,750
Note payable to bank, interest rate at 7.5%, collateralized
by real estate and aircraft, maturing 2018 619,289 922,617
Note payable to financing company, interest rate at 5%,
collateralized by a building, maturing 2025 932,802 âÂÂ
1,552,091 957,367
Less current portion 410,153 338,348
$ 1,141,938 619,019
The aggregate long-term debt maturities for each of the next five years are as follows:
Year ending March 31:
2017 $ 410,153
2018 379,112
2019 91,564
2020 96,169
2021 101,169
Thereafter 473,924
$ 1,552,091
(6) Income Taxes
Components of income tax expense (benefit) for the years ended March 31 are as follows:
2016 Current Deferred Total
Federal $ 769,625 â 769,625
State 205,982 â 205,982
$ 975,607 â 975,607
2015 Current Deferred Total
Federal $ â â âÂÂ
State 6,439 â 6,439
$ 6,439 â 6,439
11 (Continued)
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PENINSULA AIRWAYS, INC.
Notes to Financial Statements
March 31,2016 and 2015
The actual income tax expense for 2016 and 2015 differs from the âÂÂexpectedâ tax expense (computed by
applying the US. federal corporate tax rate of 34% to income before income taxes) as follows:
2016 2015
Computed âÂÂexpectedâ income tax (beneï¬Ât) expense $ 1,153,296 632,673
Change in valuation allowance (505,082) (548,500)
State income tax (benefit) expense, net of federal
income tax effect 76,468 138,188
Penalty payments 1,606 402
Meals and entertainment 76,176 63,819
Ofï¬Âcer life insurance, net 9,249 29,802
Other 163,894 (309, 945)
$ 975,607 6,439
The sources of temporary differences that comprise the gross deferred tax assets and gross deferred tax
liabilities balances are as follows:
As of Deferred As of Deferred As of
March 31, (expense) March 31, (expense) March 31,
2014 benefit 2015 benefit 2016
Deferred tax assets:
Supplemental executive retirement plan $ 77,472 (9,757) 67,715 (9,757) 57,958
Reserve for bad debts 121,919 211,416 333,335 187,155 520,490
Engine reserve â 52,949 52,949 322,675 375,624
Net operating loss 1,044,040 (261,890) 782,150 (782,150) âÂÂ
Contribution carryforward â 8,040 8,040 (4,618) 3,422
Employee deferred compensation 5,122 715 5,837 (2,487) 3,350
Deferred gains for financial statement
purposes in excess of tax gains 479,153 (133,716) 345,437 (133,716) 211,721
Deferred deductions for tax purpose 50,014 (59,099) (9,085) 42,841 33,756
Alternative minimum tax credit 84,281 â 84,281 (84,281) âÂÂ
Gross deferred tax assets 1,862,001 (191,342) 1,670,659 (464,338) 1,206,321
Less valuation allowance (1,187,325) 548,500 (638,825) 505,082 (133,743)
Net deferred tax assets 674,676 357,158 1,031,834 40,744 1,072,578
Deferred tax liabilities:
Deferred gains for tax purposes in
excess of financial statement gains (220,197) â (220,197) â (220,197)
Property and equipment (422,008) (316,972) (738,980) (129,287) (868,267)
Prepaid insurance (33,261) (37,707) (70,968) 17,429 (53,539)
State income tax receivable 790 (2,479) (1,689) 71,114 69,425
Gross deferred liabilities (674,676) (357,158) (1 ,031,834) (40,744) (1 ,072,578)
Net deferred tax assets $ â _ _
12
(Continued)
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Document Page 22 of 26
(7)
(8)
PENINSULA AIRWAYS, INC.
Notes to Financial Statements
March 31,2016 and 2015
In assessing the realizability of deferred tax assets, management considers whether it is more likely than
not that some portion or all of the 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. Management considers the scheduled reversal of deferred
tax liabilities (including the impact of available carryback and carryfonNard periods), projected future taxable
income, and tax planning strategies in making this assessment. Based upon the level of taxable losses in
recent years, management believes it is more likely than not that the Company will not realize the benefits
of these deductible differences, and has, therefore, set up a full valuation allowance at March 31, 2016 and
2015 for net deferred tax assets. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term as the Company generates taxable income.
The net operating losses expire on March 31, 2034. With the exception of the CompanyâÂÂs 2010 tax return,
the CompanyâÂÂs tax returns for March 31, 2009 through March 31, 2016 remain subject to examination. In
2013 the IRS completed its exam of the CompanyâÂÂs 2010 tax return, which resulted in no significant
adjustments to the financial statements.
Employee Benefit Plans
(a) 401(k) Profit Sharing Plan and Trust
The Company has a 401 (k) and profit sharing retirement plan covering eligible full-time employees.
Effective October 1, 2008 eligibility was amended from one year to six months of continuous full-time
service and from 21 to 18 years of age. Eligible participants may receive a discretionary matching
contribution from the Company. Matching contributions of $154,660 and $147,956 were made for the
years ended March 31, 2016 and 2015, respectively. Profit sharing contributions are discretionary. No
profit sharing contributions were made in 2016 and 2015.
(b) Supplemental Executive Compensation Plan
On January 16, 1997, the Company established for two key employees a nonqualified, unfunded
supplemental executive payments plan providing for payment upon retirement, death, or disability. Both
employees were fully vested on January 16, 1997. Both participants declared retirement dates as of
March 31, 2013. One employee began receiving payments in 2008 and the other employee in 2013.
Total payments in 2016 and 2015 were $24,271 and $24,271, respectively.
Related-Party Transactions
The Company leases certain aircraft and operating facilities from PenAir Realty Holdings, LLC (Realty),
which is owned by two of its stockholders. Rent expenses associated with these leases was $1,024,177
and $1,230,072 for the years ended March 31, 2016 and 2015, respectively. In addition, the Company has
guaranteed a portion of RealtyâÂÂs debt (see note 9).
The Company has a note receivable from one of the owners in the amount of $168,500. The Company also
has a note receivable from Realty in the amount of $40,000. As these notes do not have due dates, they
are classified as noncurrent assets.
The Company borrowed $2,002,480 from Realty in 2016 and repaid $327,866 leaving $1,674,614
outstanding at March 31, 2016. The borrowing bears interest at 6.5%. This note does not have any due
date and is currently classified as a long-term liability.
13 (Continued)
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PENINSULA AIRWAYS, INC.
Notes to Financial Statements
March 31,2016 and 2015
(9) Commitments and Contingencies
The Company guarantees the debt of Realty totaling approximately $3,500,000.
In addition, the Company had an outstanding irrevocable stand by letter of credit of $86,000 on deposit in a
segregated account at a financial institution at March 31, 2016 and 2015, respectively, with Airline
Reporting Corporation named as the beneficiary.
In the normal course of business, the Company may be a participant in legal proceedings related to the
conduct of its businesses that will result in contingent liabilities or contingent assets that are not reflected in
the accompanying financial statements. In the opinion of management, after consideration of insurance
policies in place, the financial position or results of operations of the Company will not be materially
affected by any current legal proceedings.
14
$5,000
$3.451. â . 0.233.500
$2 .655 ã62.10!) (51. .555)
$1 962
$3,532 sou
Income Statement - Unaudited Draft
For the Twelve Months Ending March 31, 2017
Actual
YTD
Draft Unaudited Statement
REVENUE
Passenger Revenue
Passenger CPA Revenue
EAS Subsidy Revenue
Excess Baggage Revenue
Charter Revenue
Mail Revenue
Freight Revenue
Ground Services Revenue
Rental Revenues
Other Misc Revenue
TOTAL REVENUE
DEPARTMENTAL EXPENSE
Flight Operations
Aircraft MX
Passenger Service
Reservations
Marketing
General Admin
Transport Related
TOTAL OPERATING EXPENSE
TOTAL OPERATING |NCOME(LOSS)
NON OPERATING EXP(INC)
Interest/Dividend Income
Interest Exp
Depreciation 8. Amort Exp
Loss(Gain) on Sale/Disposal
Misc Fuel Sales
Penalties 8. Fines
Loss(Gain) Foreign Exchange
Misc Other Income
TOTAL NON OPERATING EXP(|NC)
INCOME(LOSS) BEFORE INCOME TAX
Income Tax Provision
NET INCOME LOSS)
3/31/17
Actual
MTD
$3,358,281
$1,223,073
$1,878,115
$125,477
$123,250
$556,278
$322,699
$369,698
$21,104
$89,740
$8 067.717
$3,331,517
$3,106,733
$2,012,317
$264,977
$132,212
$877,806
$160,392
$9,885,955
($1,818,238)
($8,183)
$150,288
$180,573
($10,008)
$4,192
$7
$88,275
$230,571
$2,048,810
($2,015,000)
($33,810)
3/31/17
Budget
$5,109,300
$1,723,300
$1,006,300
$168,100
$49,500
$578,500
$376,000
$415,400
$29,700
$4,095,500
$2,965,500
$2,058,500
$302,100
$134,500
$790,100
$167,000
$10,513,200
($1,052,100)
$187
($3,900)
$16,300
$217
$1,270,000
($1,270,000)
MTD Variance
($1,751,019)
($500,227)
$871,815
($42,623)
$73,750
($22,222)
($53,301)
($45,702)
($8,596)
$84,740
($1 393 383)
$783,983
($141,233)
$46,183
$37,123
$2,288
($87,706)
$8,808
($788,138)
($8,183)
$132,568
($7,227)
$0
($8,108)
$4,192
$7
$102,575
$12,671
$778,810
($2,015,000)
$1,236,190
-34.27%
ë29 03%
86 64%
-25 36%
148 99%
-3 84%
-14 18%
-11 00%
-28 94%
1694.80%
âÂÂ14 73%
18 65%
-4.76%
2 24%
12 29%
1 70%
âÂÂ11 10%
3 96%
72 82%
748 96%
-3 85%
156.62%
âÂÂ629.29%
5 82%
61 32%
-97.34%
moom>
L-I'l'l
3131/17
$45,962,753
$19,649,582
$15,981,123
$1,854,442
$423,143
$6,380,628
$3,786,551
$4,363,960
$419,582
$458,890
$99,280,653
$39,312,058
$32,033,477
$19,664,585
$2,665,284
$1,324,630
$8,158,455
731
$105,890,144
($8,809,491)
($8,210)
$283,483
$1,850,543
($770,751)
($128,108)
$93,945
$969
238
$1,338,109
$7,947,600
($1,984,905)
($5,982,696)
3/31/17
Budget
$59,584,100
$20,096,500
$11,736,000
$1,961,300
$577,000
$6,746,100
$4,383,500
$4,844,700
$346,300
$58,000
$11
$40,818,200
$29,524,400
$20,482,700
$3,008,800
$1,341,300
$7,860,500
$1
$104,698,000
$5,635,500
$175,700
$1,870,100
($105,100)
$162
$2,102,900
$3,532,600
YTD Variance
($13,821,347)
($446,919)
$4,245,123
($108,858)
($153,857)
($385,472)
($596,949)
($480,740)
$73,282
$400,890
($11,052,847)
$1,508,142
($2,509,077)
$818,115
$343,518
$18,670
($297,955)
069
($1,192,144)
($12,244,991)
($8,210)
$107,783
($19,557)
($770,751)
($23,008)
$93,945
$989
145
($764,791)
($1,984,905)
($9,515 296)
-22 86%
âÂÂ2,22%
36 17%
âÂÂ5 45%
âÂÂ26 67%
-5 42%
-13 62%
âÂÂ9 92%
21 16%
691 19%
ë10 02%
3 69%
-8 50%
3 99%
11 42%
1 24%
âÂÂ3 79%
-64 35%
âÂÂ1 14%
âÂÂ21 7 28%
61 34%
-1 05%
21.89%
âÂÂ89 99%
ë36 37%
âÂÂ324 98%
-269 36%
5.97%
PENAIR
Balance Sheet - udited Draft
As of Marc 31, 2017
3/31/17
Current Assets
Cash and cash equivalents ($263,783.99)
Accounts receivable, less allowance 5,785,865.59
Notes receivable 1.292.693.77
Notes receivable - Related Party 65,624.00
Inventory 8,831,517.36
Prepaid assets 1,153,486.89
Other current assets 114,035.78
Total Current Assets
Land
Aircraft and ï¬Âight equipment
Buildings Improvements
Vehicles and Ground Service Equipment
Furniture and Leasehold Improvements
Construction in Progress
Total
Less Accumulated Depr/Amort
Net Property and Equipment 8,332,415.78
Notes receivable LT - Related Party
Deposits
Other nonâÂÂcurrent assets
Current Liabilities
Accounts Payable
Accrued Interest Payable
Other Accrued Payables
Wages Payable
Payroll Tax Payables
Current Portion of LT Debt
Other Tax Payables
Air Traffic Liability
Income Tax Payable
Total Current Liabilities (22.696.440.46)
Notes Payable
Line of Credit
Related Party Payable
Other Long Term Liabilities
Total Liabilities
16.979.439.40
64,581.42
8,716,492.78
4,501,528.64
4,784,973.88
2,336,357.87
352,859.13
20.756.793.72
(12,424.37794)
196,876.00
2,221,964 88
837.39
OTAL ASSETS 28.019.533.45
(16.096.215.72)
(182,555.82)
(2,549,293.46)
(1,743,501.16)
(123,824.69)
(449,745.02)
(218,481.27)
(2,633,221.32)
1,300,395.00
(916.271.44)
(1,650,405.06)
(2,074,614.44)
1,3 7,424.35
(28.725.155.75
Stockholders Equity
Common Stock (23,250.00)
Additional Paid in Capital (83,041.75)
Treasury Stock 4,860.00
Retained Earnings PY (5,175,641.72)
Retained Earnings CY 5,982,695.61
Total Stockholders Equity 705,622.14
TOTAL LIABILITIES & EQUITY 28.019.533.51
Draft Unaudited Statement
Amual Budge!
m: m)
For the Two Months Ending May 31, 2017
05/31/17 05/31/17
Actual Budget
MTD MTD MTD Variance Variance
REVENUE
Passenger Revenue 4,301,150 152,145
Passenger CPA Revenue 1,734,530 (391,451)
EAS Subsidy Revenue 1,915,080 (159,851)
Excess Baggage Revenue 174.760 (535)
Charter Revenue 45,830 (35,410)
Mail Revenue 226,940 100,584
Freight Revenue 163,770 90,966
Ground Services Revenue 482,050 (57,642)
Rental Revenues 35,420 (13,011)
Other Misc Revenue 29.160 (11,686)
TOTAL REVENUE
TOTAL OPERATING EXPENSE
TOTAL EBITDA (160,289) 1,375,200 (1,538,489
NON OPERATING EXP(INC)
Interest/Dividend Income (1,180) (2.360)
Interest Exp 25,800 48,200
Depreciation & Amort Exp 152,420 304,840
Loss(Gain) Misc Fuel Sales (14,220) (34,550)
Penalties 8. Fines 7.080 14,160
Loss(Gain) Foreign Exchange
Misc Other Income
TOTAL NON OPERATING EXP(INC) 194,542
INCOME(LOSS) BEFORE INCOME TAX
NET INCOME(LOSS)
DEPARTMENTAL EXPENSE
Flight Operations
Direct Aircraft MX
MX Support
Passenger Sen/ice
Reservations
Marketing
General Admin
Transport Related
4,453,295
1,343,079
1,755,229
174,225
10,420
327,524
254,736
424,408
22,409
17,474
8,782,800
3,357,728
2,709,170
253,271
1,900,143
106,442
636,576
260,496
9,481,734
(698,934)
(8,033)
17,620
186,722
(3,128)
1,779
1
(419)
(893,476)
(893,476)
9,108,690
3,129,020
2,161,870
222,030
1,665,240
248,430
113,450
687,860
290,410
8,518,310
590,380
169,900
420,480
420,480
(325,890)
228,708
547,300
31,241
234,903
_ 9,478
(7,008)
(51,284)
(29,914)
963,424
(1,289,314)
(8,853)
(8,180)
34,302
11,092
(5,301)
1
(419)
24,642
(1,313,956)
(1,313,956)
8,873,154
3,417,701
3,469,637
309,994
49,232
643,561
505,027
873,536
42,981
60,411
18,045,235
6,801,614
4,814,758
598,150
3,439,462
552,658
213,771
1,330,921
454,191
18,205,524
(16,113)
40,120
373,441
(7,262)
27,695
8
(759)
417.131
(577,420)
(577,420)
7,376,230
3,921,210
3,830,160
299,690
91,660
493,800
307,570
913,460
70,840
58,320
17,362,940
5,837,890
4,284,230
440,010
2,855,650
426,060
226,900
1,375,720
538,280
15,984,740
330,290
1,047,910
1,047,910
342,700 JSSI ECMP
269,997 808 GROUND
200,000 410 INSUR
250,000 MX RESERVE
62,800 HOTEL
12,300 HOTEL
(577,420)
1,296,924
(503,510)
(360,523)
10,304
(42,428)
149,761
197,457
(39,924)
(27,859)
2,091
682,295
963,724
530,528
158,140
583,812
126,598
(13,129)
(44,799)
(84,089)
2,220,784
(13,753)
(8,080)
68,601
27,288
13,535
8
(759)
86,841
(1,625,330)
(1,625,330)