<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 1996
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No: 0-17895
Mesaba Holdings, Inc.
Incorporated under the laws of Minnesota
41-1616499
(I.R.S. Employer ID Number)
7501 26th Avenue South
Minneapolis, MN 55450
(612) 726-5151
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of February 11, 1997
----- -----------------------------------
Common Stock
par value $.01 per share 12,783,046
<PAGE>
PART I. FINANCIAL INFORMATION
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in the Quarterly Report on Form 10-Q under the caption
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" as well as oral statements that may be made by
the Company or by officers, directors or employees of the Company
acting on the Company's behalf, that are not historical fact
constitute "forward looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such forward looking
statements involve factors that could cause the actual results of the
Company to differ materially from historical results or from any
results expressed or implied by such forward-looking statements. The
Company cautions the public not to place undue reliance on forward-
looking statements, which may be based on assumptions and anticipated
events that do not materialize. Factors which could cause the
Company's actual results to differ from forward-looking statements
include the ability of the Company to secure an extended or expanded
Airlink Agreement with Northwest Airlines; the price of aviation fuel;
changes in regulations affecting the Company, including DOT and FAA
regulations; the acquisition and phase-in of a new fleet of aircraft;
downturns in economic activity; and seasonal factors.
<PAGE>
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
MESABA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
------------ ---------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments $ 45,942 $ 29,428
Accounts receivable, net 9,374 9,254
Inventories 3,392 1,666
Prepaid expenses and deposits 4,319 2,774
Deferred income taxes 1,390 1,343
-------- --------
Total current assets 64,417 44,465
-------- --------
PROPERTY AND EQUIPMENT:
Facilities under capital lease 9,147 9,147
Flight equipment 16,434 10,439
Other property and equipment 11,423 9,644
Accumulated depreciation and amortization (19,159) (16,842)
-------- --------
Net property and equipment 17,845 12,388
DEFERRED INCOME TAXES 295 312
OTHER ASSETS AND DEFERRED COSTS 15,133 1,039
-------- --------
$ 97,690 $ 58,204
======== ========
</TABLE>
The accompanying notes to interim consolidated financial statements
are an integral part of these balance sheets.
<PAGE>
MESABA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except share information)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
---------- ----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of capital lease
obligations $ 419 $ 399
Accounts payable 12,584 7,323
Accrued liabilities
Payroll 5,323 3,871
Maintenance 4,483 3,341
Other 4,493 2,389
Total current liabilities 27,302 17,323
-------- --------
LONG-TERM OBLIGATIONS, net of current 5,302 5,654
maturities
OTHER LIABILITIES AND DEFERRED CREDITS 17,495 812
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 15,000,000
shares authorized, 12,769,796 and
12,744,046 shares issued and outstanding 128 127
Paid-in capital 40,034 39,822
Warrants 3,100 -
Retained earnings (deficit) 4,329 (5,534)
-------- -------
Total shareholders' equity 47,591 34,415
-------- -------
$ 97,690 $ 58,204
======== ========
</TABLE>
The accompanying notes to interim consolidated financial
statements are an integral part of these balance sheets.
<PAGE>
MESABA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share information)
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
December 31, December 31,
1996 1995 1996 1995
------ ------ ------ ------
<S>
OPERATING REVENUES: <C> <C> <C> <C>
Passenger $47,404 $37,044 $135,564 $126,078
Other 643 510 1,579 3,103
------- ------- -------- --------
Total operating revenues 48,047 37,554 137,143 129,181
OPERATING EXPENSES:
Wages and benefits 12,489 11,195 37,010 35,701
Aircraft fuel 4,656 3,723 12,913 13,360
Aircraft maintenance 6,866 4,393 18,255 13,779
Aircraft rents 8,033 7,461 23,184 23,965
Landing fees 1,213 1,110 3,595 3,310
Insurance and taxes 1,386 1,250 3,879 4,734
Depreciation and 1,124 1,021 3,126 3,879
amortization
Administrative and other 7,379 4,581 18,711 20,665
------- ------- ------- -------
Total operating expenses 43,146 34,734 120,673 119,393
Operating income 4,901 2,820 16,470 9,788
NONOPERATING INCOME(EXPENSE):
Interest income 395 349 927 1,243
Other, net (128) (89) (378) 48,971
-------- -------- -------- -------
Other income, net 267 260 549 50,214
Income before income taxes 5,168 3,080 17,019 60,002
PROVISION FOR INCOME TAXES 2,167 1,439 7,157 5,096
------- ------- ------- -------
NET INCOME $ 3,001 $ 1,641 $ 9,862 $54,906
======= ======= ======= =======
NET INCOME PER SHARE $ 0.24 $ 0.13 $ 0.76 $ 4.87
======= ======= ======= =======
WEIGHTED AVERAGE SHARES
OUTSTANDING 12,770 12,765 12,903 11,267
======= ======= ======= =======
</TABLE>
The accompanying notes to interim consolidated financial statements
are an integral part of these financial statements.
<PAGE>
MESABA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months ended
December 31,
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 9,862 $ 54,906
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on distribution of Subsidiary - (49,303)
Depreciation and amortization 3,126 3,879
Accrued maintenance, long term (917) (199)
Deferred Income tax provision (30) (202)
Changes in current operating items:
Accounts receivable, net (120) (1,533)
Income tax payable 964 1,834
Inventories (1,726) (267)
Advance payments and deposits (1,545) (2,427)
Accounts payable 5,559 6,705
Other accrued liabilities 3,736 1,529
--------- ---------
Net cash provided by operating activities 18,909 14,922
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,271) (3,657)
Other, net (4) (12)
--------- ---------
Net cash used for investing activities (2,275) (3,669)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 213 8,124
Distribution of Subsidiary, (net) - (21,372)
Repayment of long-term obligations (333) (225)
Payment of cash dividend - (520)
--------- ---------
Net cash used for financing activities (120) (13,993)
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM
INVESTMENTS 16,514 (2,740)
CASH AND SHORT-TERM INVESTMENTS:
Beginning of period 29,428 30,616
--------- ---------
End of period $ 45,942 $ 27,876
========= =========
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 367 $ 389
========= =========
Income taxes $ 5,101 $ 3,360
========= =========
Noncash investing activities for the nine months ended
December 31, 1996 included the following:
Rotable and spare parts inventory acquired
with integration funds $ 5,841 $ -
========= =========
</TABLE>
The accompanying notes to interim consolidated financial statements
are an integral part of these statements.
<PAGE>
MESABA HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been
prepared by Mesaba Holdings, Inc. (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. The information furnished in the consolidated financial
statements includes normal recurring adjustments and reflects all
adjustments which are, in the opinion of management, necessary for a
fair presentation of such consolidated financial statements. The
Company's business is seasonal and, accordingly, interim results are
not indicative of results for a full year. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that
these consolidated financial statements be read in conjunction with
the financial statements for the year ended March 31, 1996, and the
notes thereto, included in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
1. BASIS OF PRESENTATION
The consolidated financial statements include the financial position
and results of operations of the Company and its subsidiary, Mesaba
Aviation, Inc. ("Mesaba"). The statements also include the results of
operations of Airways Corporation ("Airways") and its subsidiary
AirTran Airways, Inc. ("AirTran Airways") prior to the distribution
of 100% of the outstanding common stock of Airways to the Company's
shareholders in a spin-off approved by the shareholders on August 29,
1995 and occurring in early September 1995. Under the Distribution
Agreement between the Company, Mesaba, Airways and AirTran Airways
dated as of July 13, 1995, as amended September 8, 1995, such
distribution was deemed to have occurred on August 31, 1995 for
accounting purposes. All significant intercompany balances have been
eliminated in consolidation.
2. AGREEMENTS WITH NORTHWEST
Mesaba is a regional air carrier providing scheduled passenger and air
freight service to 64 cities in the Upper Midwest and Canada.
Effective December 1, 1984, Mesaba began operating as Mesaba/Northwest
Airlink ("Airlink") under a cooperative marketing agreement with
Northwest Airlines, Inc. ("Northwest"). On September 15, 1988, the
agreement was restated as the Airline Services Agreement and modified
effective December 10, 1988 to add Airlink service for Northwest's hub
airport in Detroit, Michigan. Mesaba and Northwest subsequently
amended the Airline Services Agreement effective April 1, 1992 and
January 1, 1996 (as amended, the "Airlink Agreement") to provide,
among other things, a five-year extension to March 31, 1997, exclusive
rights to designated service areas and support in acquiring new
aircraft and equipment. Either party may terminate the agreement on
eight months' notice any time after July 31, 1996.
Mesaba, through the Airlink Agreement and other agreements, receives
ticketing and certain check-in, baggage and freight handling services
from Northwest at certain airports. In addition, Mesaba receives its
computerized reservation services from Northwest. Northwest also
performs all marketing schedules and yield management and pricing
services for Mesaba's flights. Approximately 74% of Mesaba's
passengers connected with Northwest during the nine months ended
December 31, 1996. Substantially all accounts receivable balances in
the accompanying balance sheets are due from Northwest. Loss of
Mesaba's affiliation with Northwest or Northwest's failure to make
timely payments of amounts owed to Mesaba or to otherwise materially
perform under the Airlink Agreement for any reason would have a
material adverse effect on the Company's operations and financial
position.
The Company, Mesaba and Northwest entered into a Regional Jet Services
Agreement, dated October 25, 1996 (the "Jet Agreement"), under which
Mesaba expects to operate 12 Avro/AI(R) RJ85 ("RJ85") regional jets
for Northwest. The aircraft will be leased or subleased from
Northwest and will be operated as Northwest Airlink from the
Minneapolis/Saint Paul and Detroit hubs according to routes and
schedules determined by Northwest. Jet service is expected to begin
on June 1, 1997.
<PAGE>
3. EARNINGS PER SHARE
Net income per share has been computed based upon the weighted average
number of common and common equivalent shares outstanding during each
period. The equivalent shares include all shares issuable upon the
exercise of stock options.
4. AIRCRAFT ADDITIONS
On March 7, 1996, Mesaba entered into a preliminary agreement with
Saab Aircraft of America, Inc. ("Saab") for the acquisition of 30 new
Saab 340BPlus aircraft and 20 used Saab 340A aircraft. Twelve Saab
340A and six Saab 340BPlus aircraft have been delivered during the
nine months ended December 31, 1996 and the balance of these aircraft
are expected to be phased into service over the next eighteen months
to replace Mesaba's existing fleet of 25 deHavilland Dash 8 ("Dash 8")
and 15 Fairchild Metro III ("Metro III") aircraft. The Company also
entered into an option agreement for 10 additional new Saab 340BPlus
aircraft and 12 additional used Saab 340A aircraft.
The Jet Agreement provides for the delivery of 12 RJ85 regional jets
to Mesaba, at a rate of approximately one aircraft per month,
beginning in April 1997.
On January 29, 1997, Mesaba entered into a preliminary agreement with
Saab for the lease of four used Saab 340B aircraft. If approved by
the Board of Directors of Mesaba and Saab, the aircraft will be
delivered in May 1997 and financed with short term operating leases.
<PAGE>
5. DEFERRED CREDITS
In order to assist the Company in integrating new aircraft into its
fleet, certain manufacturers provide the Company with spare parts or
other credits. The Company has deferred these amounts and amortizes
them over the terms of the related aircraft leases as a reduction of
rent expense. Amortization expense of $162 was recorded during the
nine months ended December 31, 1996.
6. RECLASSIFICATIONS
Certain balances in the fiscal 1996 consolidated financial statements
have been reclassified to conform with the fiscal 1997 presentation.
These reclassifications had no impact on net income or shareholders'
equity as previously reported.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL
CONDITION
Item 2.
RESULTS OF OPERATIONS FOR THE THREE MONTH'S ENDED DECEMBER 31, 1996 AND
1995 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
EARNINGS SUMMARY. The Company reported net income of $3,001 or $0.24
per share for the three months ended December 31, 1996, compared to
net income of $1,641 or $0.13 per share in the same period of fiscal
1996. Weighted average shares outstanding increased to 12,770 from
12,765, primarily as a result of the exercise of stock options by
current and former employees.
OPERATING REVENUES. Total operating revenues increased 27.9% to
$48,047 from $37,554 in the third quarter of fiscal 1997, and revenue
passenger miles increased 28.8% to 112,403 from 87,249. Passenger
revenue per available seat mile ("RASM") increased 6.0% to $0.212 from
$0.200 in the previous years third quarter. Mesaba's average load
factor increased 3.1 points to 50.2% in the current quarter compared
to 47.1% during the same period a year ago. The improvement in
traffic, load factor and RASM are attributable to the inclusion of
Mesaba's fares in Northwest Airlines discount fare programs as well as
overall increases in passenger demand within the industry.
OPERATING EXPENSES. Total operating expenses increased 24.2% to
$43,146 in the third quarter of fiscal 1997, compared to $34,734 in
the prior year's third quarter. Mesaba's available seat miles
("ASMs") flown increased 20.8% to 223,707 in the third quarter of
fiscal 1997 from 185,165 in the prior year's third quarter. The
increase in ASMs was primarily accomplished by increasing utilization
of the existing Dash 8 and Metro III aircraft and the addition of the
Saab 340A and 340BPlus aircraft. Mesaba has taken delivery of 12 Saab
340A and six 340BPlus aircraft this year (eight in the current
quarter), 17 of which were in revenue service at December 31, 1996.
Eleven Metro III aircraft have been returned to lessors (seven in
current quarter). A discussion of the changes in Mesaba's operating
expense line items follows:
Wages and benefits increased 11.6% to $12,489 in the third quarter of
fiscal 1997 from $11,195 in the third quarter of fiscal 1996. The
majority of the increase is a result of higher cost of flight crews
due to a 14.8% increase in block hours and the addition of flight
crews to support the Saab fleet transition program. Mesaba also
experienced an increase in wage and benefit costs paid to support
personnel due to a 12% increase in scheduled operations. The
remaining increase was due to normal escalation in base wage and
benefit levels.
Fuel costs increased $933, or 25.1% to $4,656 in this year's third
quarter, compared to $3,723 in last year's third quarter. The
increase is attributable to a 20.5% increase in consumption and a 4.4%
increase in fuel costs. The cost of fuel, including pumping fees, was
83.5 cents per gallon in the current quarter compared to 80.0 cents a
year ago. Certain provisions of the Airlink Agreement with Northwest
protects Mesaba from future increases in fuel prices.
Direct maintenance expense, excluding wages and benefits, increased
$2,473 or 56.3% to $6,866 from $4,393 in the third quarter of fiscal
1997. This increase was primarily attributable to the addition of 12
Saab 340A and six Saab 340BPlus aircraft to the fleet and the transfer
of all costs of major overhauls and repairs on the Dash 8 fleet to
Mesaba from Northwest. Under the terms of the amended Airlink
Agreement, effective January 1, 1996, Mesaba became solely responsible
for these direct maintenance costs. Prior to that date, those
expenses were paid directly by Northwest. The additional maintenance
costs for the Saab 340 and Dash 8 aircraft were partially offset by
lower operating costs related to Metro III aircraft resulting from the
return of 11 aircraft to lessors.
<PAGE>
Aircraft rents increased $572 or 7.7% to $8,033 in this year's third
quarter compared to $7,461 a year ago. Mesaba added six Saab
340BPlus and two Saab 340A aircraft during the quarter increasing the
fleet of Saab aircraft to 18. Eleven Metro III aircraft have been
returned to lessors (seven in current quarter).
Total landing fees increased $103 or 9.3% to $1,213 from $1,110 in the
third quarter of fiscal 1997. The increase is attributable to an
increase in departures, an increase in the average gross landing
weight due to changing mix of aircraft in the fleet, offset by a
slight decrease in the overall effective landing fee rate.
Insurance and taxes increased $136 or 10.9% to $1,386 from $1,250 for
the third quarter of fiscal 1997. This is due to an increase in
passenger liability insurance associated with increased passenger
volume and an increase in hull liability insurance and property taxes
caused by increasing fleet values associated with the Saab aircraft
replacing the Metro III aircraft.
Depreciation and amortization increased $103 or 10.1% to $1,124 to
$1,021 in the third quarter of fiscal 1997. The higher levels of
depreciation and amortization resulted from the acquisition of spare
parts to support the Saab fleet. Generally, acquisition of spare
parts for the Saab fleet are non-cash expenditures funded by credits
issued by the aircraft manufacturer. Mesaba also increased capital
spending to improve or replace aging ground service equipment and
computer hardware. In April 1992, Mesaba paid a contract rights fee
in the form of amended stock purchase warrants to Northwest as part of
the extension of the Airlink Agreement. These contract rights are
being amortized on a straight-line basis over the extended term of the
Airlink Agreement through March 31, 1997. In October 1996, Mesaba paid
a contract rights fee in the form of a stock purchase warrant to
Northwest as part of the Jet Agreement. These contract rights are
being amortized on a straight-line basis over the minimum term of the
agreement through October 31, 2002.
Administrative and other costs increased $2,798 or 61.1% to $7,379
from $4,581 in the third quarter of fiscal 1997. This increase is
primarily attributable to higher passenger and airport related
expenses due to increases in traffic and the number of cities served
and substantially higher expenses for deicing aircraft and related
passenger interrupted trip expenses associated with inclement weather.
Additionally, crew related expenses were higher due to increased
flying and training to support the Saab fleet transition program.
OPERATING INCOME. Operating income totaled $4,901 in the current
period compared to $2,820 a year ago. The Company's operating margin
increased to 10.2% from 7.5% in the prior year's third quarter.
NONOPERATING INCOME. Nonoperating income increased to $267 in the
current quarter from $260 in the prior year's third quarter. The
increase reflects additional interest income due to higher levels of
invested cash.
<PAGE>
PROVISION FOR INCOME TAXES. The Company's effective tax rate was
41.9% in the third quarter of fiscal 1997 and 46.7% in 1996 reflecting
lower levels of nondeductible expenses in the current period.
A quarter-to-quarter comparison of operating costs per available seat
mile for the three months ended December 31, 1996 and 1995 is shown in
the following tables.
<TABLE>
<CAPTION>
Three months ended December 31,
Operating Costs Per Available Seat Mile 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Wages and benefits 5.6 CENTS 6.1 CENTS
Aircraft fuel 2.1 2.0
Aircraft maintenance 3.1 2.4
Aircraft rents 3.6 4.0
Landing fees .5 .6
Insurance and taxes .6 .7
Depreciation and amortization .5 .5
Administrative and other 3.3 2.5
------- -------
Total 19.3 CENTS 18.8 CENTS
<CAPTION>
Three months ended December 31,
Operating statistics 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Revenue passengers carried 487,000 397,000
Revenue passenger miles (000) 112,403 87,249
Available seat miles (000) 223,707 185,165
Passenger load factor 50.2% 47.1%
Passenger revenue per available seat mile $0.212 $0.200
Departures 36,819 31,466
Aircraft in service (at December 31,1996) 58 53
</TABLE>
<PAGE>
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND
1995 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
EARNINGS SUMMARY. The Company reported net income of $9,862 or $.76
per share for the nine months ended December 31, 1996, compared to
$54,906 or $4.87 per share for the same period of fiscal 1996.
Earnings in the prior year included a one-time $49,303 nonoperating
gain from the spin-off of Airways. Earnings per share without the
gain were $.50 including a $.03 per share contribution from Airways.
Weighted average shares outstanding increased from 11,267 to 12,903,
due primarily to the issuance of shares to Northwest Aircraft Inc. in
lieu of shares of Airways granted as a result of the spin-off of
Airways Corporation, Northwest exercising pre-existing warrants, and
the exercise of stock options by current and former employees.
OPERATING REVENUES. Total operating revenues rose 6.2% to $137,143 in
the first nine months of fiscal 1997 from $129,181 in the year earlier
period which included revenues of AirTran Airways. Mesaba's operating
revenue increased 24.0% from $110,570, and revenue passenger miles
increased 31.9% to 335,329 from 254,208. RASM increased 6.9% to
$0.213 from $0.199 in the same period in fiscal 1996. Mesaba's
average load factor was 52.6% for the nine months ended December 31,
1996 compared to 46.6% in the same period a year ago. The improvement
in traffic, load factor and RASM are attributable to the inclusion of
Mesaba's fares in Northwest discount fare programs as well as overall
increases in passenger demand within the industry.
OPERATING EXPENSES. Total operating expenses increased 1.1% to
$120,673 from $119,393 in the first nine months of fiscal 1997.
Mesaba's operating expenses rose 19.5% for the nine months ended
December 31, 1996 from $100,973 for the same period in fiscal 1996.
Available seat miles increased 16.8% to 637,197 from 545,347. The
increase in ASMs was primarily accomplished by increasing utilization
of the existing Dash 8 and Metro III aircraft and the addition of the
Saab 340A and 340BPlus aircraft. Mesaba has taken delivery of 12 Saab
340A and six 340BPlus aircraft this year, 17 of which were in revenue
service at December 31, 1996. Eleven Metro III aircraft have been
returned to lessors. A discussion of the changes in Mesaba's
operating expense line items follows:
Wages and benefits increased to $37,010 in the first nine months of
fiscal 1997 from $35,701 in the first nine months of fiscal 1996.
Mesaba's labor costs increased $4,358 or 13.3% from $32,652 during the
same period last year. The majority of the increase is a result of
the higher cost of flight crews due to a 15.2% increase in block hours
flown and the addition of flight crews to support the Saab fleet
transition program. Mesaba also experienced an increase in wage and
benefit costs of support personnel due to increased scheduled
operations. The remaining increase was due to normal escalation in
base wage and benefit levels.
Fuel costs decreased 3.3% to $12,913 in this year's first nine months
compared to $13,360 in the same period last year. Mesaba's cost of
fuel increased $2,454 or 23.5%, from $10,459 over the same period last
year. The increase is attributable to a 15.9% increase in consumption
and a 9.3% increase in fuel cost per gallon. The cost of fuel,
including taxes and pumping fees, was 83.5 cents per gallon in the
first nine months of fiscal 1997 compared to 76.4 cents per gallon in
fiscal 1996. Until October 1995, airlines were exempt from a 4.3
cents per gallon federal tax on aviation fuel. Certain provisions of
the Airlink Agreement with Northwest protect Mesaba from future
increases in fuel prices.
<PAGE>
Direct maintenance expense, excluding labor and related costs,
increased to $18,255 in the first nine months of fiscal 1997 from
$13,779 in the first nine months of fiscal 1996. Mesaba's direct
maintenance costs increased $6,671 or 57.6% from $11,584. This
increase was primarily attributable to the addition of 12 Saab 340A
and six Saab 340BPlus aircraft to the fleet and the transfer of all
costs of major overhauls and repairs on the Dash 8 fleet to Mesaba
from Northwest. Under the terms of the amended Airlink Agreement
effective January 1, 1996, Mesaba became solely responsible for these
direct maintenance costs. Prior to that date those expenses were paid
directly by Northwest.
Aircraft rents decreased to $23,184 in the first nine months of fiscal
1997 from $23,965 for the same period last year. Mesaba's rents
increased $722 or 3.2% from $22,462 for the first nine months of
fiscal 1997. Mesaba added 12 Saab 340A and six Saab 340BPlus aircraft
during the period and returned 11 Metro III aircraft to lessors.
Total landing fees increased $285 or 8.6% in the first nine months of
fiscal 1997 to $3,595 from $3,310. Mesaba's landing fees increased
$742 or 26.0% to $3,595 from $2,853 in fiscal 1996. The increase is
attributable to a 18.6% increase in departures and an increase in the
average gross landing weight due to the changing mix of aircraft.
This increase was partially offset by a slight decrease in the overall
effective landing fee rate.
Insurance and taxes decreased $855 or 18.1% to $3,879 from $4,734 in
the first nine months of fiscal 1997. Mesaba's costs increased $154
or 4.1% from $3,725 in the current period. This is due primarily to
an increase in passenger liability insurance associated with increased
passenger volume and an increase in property taxes caused by
increasing fleet values associated with the Saab aircraft replacing
the Metro III aircraft, offset by lower expenses for hull insurance
caused by lower overall effective rates and the normal decline in
hull values.
Depreciation and amortization totaled $3,126 in the first nine months
of fiscal 1997, down from $3,879 in the first nine months of fiscal
1996. Mesaba's depreciation expense decreased $145 or 4.4% in the
current nine month period compared to $3,271 for the same period in
fiscal 1996. The lower level of depreciation and amortization
resulted from the elimination of capitalized overhauls and rotable
parts depreciation as a part of the phase out of the Fokker F27 fleet.
This decrease was partially offset by higher levels of depreciation
and amortization resulting from the acquisition of spare parts to
support the Saab fleet. Generally, acquisition of spare parts for the
Saab fleet are non-cash expenditures funded by credits issued by the
aircraft manufacturer. Mesaba also increased capital spending to
improve or replace aging ground service equipment and computer
hardware. In April 1992, Mesaba paid a contract rights fee in the
form of amended stock purchase warrants to Northwest as part of the
extension of the Airlink Agreement. These contract rights are being
amortized on a straight-line basis over the extended term of the
Airlink Agreement through March 31, 1997. In October 1996, Mesaba
paid a contract rights fee in the form of a stock purchase warrant to
Northwest as part of the Jet Agreement. These contract rights are
being amortized on a straight-line basis over the minimum term of the
agreement through October 31, 2002.
Administrative and other costs decreased 9.5% to $18,711 in the first
nine months of fiscal 1997 from $20,665 in the first nine months of
fiscal 1996. Mesaba's administrative costs increased $4,742 or 33.9%
from $13,969 for the first nine months of fiscal 1997. This increase
is primarily attributable to higher passenger and airport related
expenses due to increases in traffic and the number of cities served,
significantly higher expenses for deicing aircraft and related
interrupted trip expenses associated with inclement weather.
<PAGE>
Additionally, crew related expenses were higher due to increased
flying and training to support the Saab fleet transition program.
Operating Income. Operating income totaled $16,470 in the current
period, an increase of 68.3% from $9,788 a year ago. Mesaba's
operating income increased $6,873 or 71.6% from $9,597. Mesaba's
operating margin increased to 12.0% from 8.7% in the prior years
period
NONOPERATING INCOME. Nonoperating income decreased to $549 in the
first nine months of fiscal 1997 from $911 (excluding the one-time
nontaxable gain of $49,303 on the spin-off of Airways). Interest
income decreased $316 or 25.4% from $1,243. During the current year
the Company began investing in tax-free securities which lowers
overall interest income but effectively maximizes the after-tax yield
on its idle cash.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was
42.1% for the nine months ended December 31, 1996 and 48.1% in 1995
(not including the gain on distribution which is not taxable),
reflecting lower levels of nondeductible expenses in the current
period.
A comparison of operating costs per available seat mile for the nine
months ended December 31, 1996 and 1995 is shown in the following
table. These figures do not include the prior period activity of
AirTran Airways.
<TABLE>
Nine months ended December, 31
Operating Costs Per Available Seat Mile 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Wages and benefits 5.8 CENTS 6.0 CENTS
Aircraft fuel 2.0 1.9
Aircraft maintenance 2.9 2.1
Aircraft rents 3.6 4.1
Landing fees .6 .5
Insurance and taxes .6 .7
Depreciation and amortization .5 .6
Administrative and other 2.9 2.5
----------- -----------
Total 18.9 CENTS 18.4 CENTS
=========== ===========
<CAPTION>
Nine months ended December 31.
Operating statistics 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Revenue passengers carried 1,483,000 1,161,000
Revenue passenger miles (000) 335,329 254,208
Available seat miles (000) 637,197 545,347
Passenger load factor 52.6% 46.6%
Passenger revenue per available seat mile $0.213 $0.199
Departures 108,962 91,847
Aircraft in service (at December 31, 1996) 58 53
</TABLE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased to $37,115 with a current
ratio of 2.37 at December 31, 1996, compared to $27,142 and 2.57 at
March 31, 1996. Cash and short-term investments increased by $16,514
to $45,942 at December 31, 1996. Net cash flows provided by operating
activities totaled $18,909 in the first nine months of fiscal 1997
compared to $14,922 in the same period of fiscal 1996. Net cash flows
used for investing activities amounted to $2,275 during the nine
months ended December 31, 1996, primarily for the purchase of
property, equipment and other assets. Net cash flows used for
financing activities through December 31, 1996 totaled $120.
Long-term obligations, net of current maturities, totaled $5,302 at
December 31, 1996, compared to $5,654 at March 31, 1996. The ratio of
long-term debt to stockholders' equity decreased to .11 at December
31, 1996 from .16 at March 31, 1996.
Mesaba took delivery of 12 used Saab 340A and six new Saab 340BPlus
aircraft during the nine month period ended December 31, 1996. Mesaba
has agreed to acquire a total of 30 new Saab 340BPlus and 20 used Saab
340A aircraft. These aircraft are scheduled for delivery at a rate of
approximately two per month over the next 18 months. Mesaba also has
options to acquire an additional 12 used Saab 340A and 10 new Saab
340BPlus aircraft. Mesaba has negotiated a financing agreement with
the airframe manufacturer whereby operating lease financing for both
the new and used aircraft are committed to Mesaba on competitive rates
and terms. Mesaba has assigned its rights to the Saab financing
agreement to Northwest, and all currently operated Saab 340BPlus
aircraft are subleased from Northwest. Mesaba expects to sublease a
substantial number of the future Saab 340 aircraft from Northwest.
On October 25, 1996, Mesaba signed an agreement with Northwest to fly
12 RJ85 regional jets under the new Jet Agreement. Mesaba will lease
the aircraft from Northwest, which ordered 12 aircraft from Aero
International (Regional) along with options for an additional 24
aircraft. Mesaba will begin taking delivery of the RJ85 aircraft in
April 1997 at a rate of approximately one per month. As additional
consideration for the regional jet opportunity, the Company issued a
warrant to Northwest that allows Northwest to purchase up to 615,000
shares of the Company's common stock. The warrant will become
exercisable with respect to an additional 1/12 of the shares with each
delivery of the 12 RJ85 aircraft at an exercise price of $10.875, the
closing price of the Company's stock on October 25, 1996. The Company
obtained an independent appraisal of the warrant that placed its value
at approximately $3.1 million. Contract rights are being amortized on
a straight-line basis over minimum term of the Jet Agreement through
October 31, 2002.
On January 29, 1997, Mesaba entered into a preliminary agreement with
Saab for the lease of four used Saab 340B aircraft. If approved by
the Board of Directors of Mesaba and Saab, the aircraft will be
delivered in May 1997 and financed with short term operating leases.
The Company has historically relied upon cash reserves, internally
generated funds and borrowings to support its working capital
requirements. The Company has an unsecured credit agreement with a
bank that provides for borrowings up to $5,000 under a revolving line
of credit. No amounts were outstanding at December 31, 1996 under the
agreement. Management believes that funds from operations and
existing credit lines will provide adequate resources for meeting non-
aircraft capital needs in fiscal 1997.
<PAGE>
Part II.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) No exhibits are filed herewith
b) Registrant did not file any reports on Form 8-K during
the quarter ended December 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MESABA HOLDINGS, INC.
Date: February 12, 1997 BY:/s/ Robert Cooper
---------------------------
Robert Cooper
Director of Finance
Principal Financial Officer)
/s/ Jon Meyer
---------------------------
Jon Meyer
Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 45942
<SECURITIES> 0
<RECEIVABLES> 9374
<ALLOWANCES> 0
<INVENTORY> 3392
<CURRENT-ASSETS> 64417
<PP&E> 37004
<DEPRECIATION> 19159
<TOTAL-ASSETS> 97690
<CURRENT-LIABILITIES> 27302
<BONDS> 0
0
0
<COMMON> 128
<OTHER-SE> 47463
<TOTAL-LIABILITY-AND-EQUITY> 97690
<SALES> 137143
<TOTAL-REVENUES> 137143
<CGS> 120673
<TOTAL-COSTS> 120673
<OTHER-EXPENSES> 378
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17019
<INCOME-TAX> 7157
<INCOME-CONTINUING> 9862
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9862
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
</TABLE>
