UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1999
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 No.)
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 August 4, 1999
Common Stock
par value $.01 per share 20,220,641
<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 material changes in the relationship between the
Company and Northwest Airlines; reductions or interruptions in Northwest
Airlines' air service; changes in regulations affecting the Company,
including DOT and FAA regulations; the acquisition and phase-in of a new
aircraft; downturns in economic activity; seasonal factors; and labor
relationships, including slow downs or work stoppages, and the outcome of
ongoing contract negotiations between the Company and the Aircraft
Mechanics Fraternal Association, the mechanics union.
<PAGE>
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
MESABA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
ASSETS
June 30, March 31,
1999 1999
----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 86,690 $ 83,152
Accounts receivable, net 20,463 15,905
Inventories 5,437 6,564
Prepaid expenses and deposits 4,316 3,719
Deferred tax asset 8,014 8,014
----------- -----------
Total current assets 124,920 117,354
PROPERTY AND EQUIPMENT:
Facilities under capital lease 9,147 9,147
Flight equipment 48,281 41,178
Other property and equipment 23,752 21,635
Accumulated depreciation and amortization (27,576) (24,765)
----------- -----------
Net property and equipment 53,604 47,195
OTHER ASSETS AND DEFERRED COSTS 14,220 14,674
----------- -----------
TOTAL ASSETS $ 192,744 $ 179,223
=========== ===========
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
June 30, March 31,
1999 1999
----------- -----------
(Unaudited)
CURRENT LIABILITIES:
Current maturities of long-term obligations
$ 401 $ 393
Accounts payable 18,537 20,857
Accrued liabilities
Payroll 8,877 8,786
Maintenance 11,189 10,415
Other 13,361 8,223
----------- -----------
Total current liabilities 52,365 48,674
LONG-TERM OBLIGATIONS, net of current
maturities 4,255 4,359
OTHER NONCURRENT LIABILITIES 15,958 16,951
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 60,000,000
shares authorized, 20,176,141 and 19,863,829
shares issued and outstanding, respectively 202 199
Paid-in capital 46,861 45,013
Warrants 16,500 16,500
Retained earnings 56,603 47,527
----------- -----------
Total shareholders' equity 120,166 109,239
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 192,744 $ 179,223
=========== ===========
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)
Three Months Ended
June 30,
------------------------
1999 1998
----------- -----------
OPERATING REVENUES:
Passenger $ 98,789 $ 79,764
Other 1,026 705
----------- -----------
Total operating revenues 99,815 80,469
OPERATING EXPENSES:
Wages and benefits 23,408 19,227
Aircraft fuel costs 6,671 6,938
Aircraft maintenance costs 16,313 12,540
Aircraft rents 21,047 15,824
Landing fees 1,895 1,816
Insurance and taxes 1,332 2,043
Depreciation and amortization 3,267 1,974
Administrative and other costs 11,854 9,643
----------- -----------
Total operating expenses 85,787 70,005
----------- -----------
Operating income 14,028 10,464
NONOPERATING INCOME (EXPENSE):
Interest Income 942 844
Interest expense (105) (112)
Other, net 15 6
----------- -----------
Other income, net 852 738
----------- -----------
Income before income taxes 14,880 11,202
PROVISION FOR INCOME TAXES 5,804 4,369
----------- -----------
NET INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 9,076 6,833
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE - 800
----------- -----------
NET INCOME $ 9,076 $ 6,033
=========== ===========
NET INCOME PER COMMON SHARE:
Earnings Per Common Share Before Accounting
Change - Basic $ 0.45 $ 0.35
=========== ===========
Earnings Per Common Share - Basic $ 0.45 $ 0.31
=========== ===========
Weighted Average Number of Common Shares
Outstanding - Basic 19,968 19,617
=========== ===========
Earnings Per Common Share Before Accounting
Change - Diluted $ 0.43 $ 0.31
=========== ===========
Earnings Per Common Share - Diluted $ 0.43 $ 0.28
=========== ===========
Weighted Average Number of Common Shares
Outstanding and Common Share Equivalents
Outstanding - Diluted 21,266 21,755
=========== ===========
The accompanying notes to interim consolidated financial statements
are an integral part of these statements.
<PAGE>
MESABA HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
June 30,
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,076 $ 6,033
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,267 1,974
Amortization of deferred credits (994) 339
Change in accounting method - 1,311
Changes in current operating items:
Accounts receivable, net (4,558) (2,090)
Inventories 1,127 (1,224)
Prepaid expenses and deposits (597) 935
Accounts payable and accrued
liabilities 3,685 6,014
----------- -----------
Net cash provided by operating activities 11,006 13,292
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (9,220) (6,725)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1,848 1,389
Repayment of long-term obligations (96) (112)
----------- -----------
Net cash provided by financing activities 1,752 1,277
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,538 7,844
CASH AND CASH EQUIVALENTS:
Beginning of period 83,152 66,554
----------- -----------
End of period $ 86,690 $ 74,398
=========== ===========
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during period for:
Interest $ 105 $ 112
=========== ===========
Income taxes $ 1,391 $ 1,550
=========== ===========
Noncash investing activities included the following:
Rotable and spare parts inventory acquired
with integration funds - $ 2,231
=========== ===========
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, 1999, and the notes thereto, included in the Company's Annual
Report or Form 10- K filed with the Securities and Exchange Commission.
1. Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiary, Mesaba Aviation, Inc. ("Mesaba"). All
significant intercompany balances have been eliminated in consolidation.
2. Agreements with Northwest
The Company operates as a regional air carrier providing scheduled
turbo- prop and air freight service as Mesaba Airlines/Northwest Airlink
under an Airline Services Agreement (the "Airlink Agreement") with
Northwest to 78 cities in the Upper Midwest and Canada from Northwest's
hub airports in Minneapolis/St. Paul and Detroit. The Airlink Agreement
provides for exclusive turbo-prop rights to designated service areas and
extends through June 30, 2007. Northwest has the right to terminate the
Airlink Agreement without cause upon 365 days notice, such notice not to
be given before July 1, 2000.
Mesaba also operates regional jet aircraft under a separate Regional
Jet Services Agreement (the "Jet Agreement"), under which Mesaba will
operate 36 Avro RJ85 ("RJ85") regional jets for Northwest. As of August
1999, Mesaba had taken delivery of 28 RJ85 aircraft and currently serve 40
cities. The aircraft are subleased from Northwest and are operated as
Northwest Jet Airlink from the Minneapolis/St. Paul, Detroit and Memphis
hubs.
Under the agreements, all flights that Mesaba currently operates are
designated as Northwest flights using Northwest's designator code in all
computer reservations systems, including the Official Airline Guide, with an
asterisk and a footnote indicating that Mesaba is the carrier providing the
service. In addition, flight schedules of Mesaba and Northwest are closely
coordinated to facilitate interline connections, and Mesaba's passenger gate
facilities at the Minneapolis/St. Paul International Airport, Detroit
Metropolitan Airport and Memphis International Airport are integrated with
Northwest's facilities in the main terminal buildings, rather than at the
more remote commuter air terminals. The agreement with Northwest also
permits Mesaba to offer its passengers fares between the cities serviced by
Mesaba and all of the destinations served by Northwest as well as
participation in Northwest's frequent flyer program. Mesaba's jet aircraft
<PAGE>
are painted in the colors of Northwest Airlines and the jet-prop aircraft
are painted in a distinctive "Northwest Airlink" configuration, with a
Northwest Airlines logo in addition to Mesaba's name.
Mesaba, through the agreements, receives ticketing and certain
check-in, baggage, freight and aircraft handling services from Northwest
at certain airports. In addition, Mesaba receives its computerized
reservations services from Northwest. Northwest also performs all
marketing schedules and yield management and pricing services for Mesaba's
flights.
Mesaba believes that its competitive position is enhanced as a result
of its marketing and other agreements with Northwest, particularly through
the ability of Mesaba to offer its passengers coordinated flight schedules
to the destinations served by Northwest. Loss of Mesaba's affiliation with
Northwest or Northwest's failure to materially perform under the Airlink or
Jet Agreement for any reason would have a material adverse effect on the
Company's operations and financial position.
3. Per Share Data
Statement of Financial Accounting Standards No. 128, "Earnings per
Share," requires presentation of "Basic" and "Diluted" earnings per share
amounts, as defined. "Basic" earnings per share replaces primary earnings
per share under APB Opinion No. 15, and excludes the dilutive effects of
options, warrants and convertible securities, if any, from the calculation.
Fully diluted earnings per share has not changed significantly but has been
named "Dilutive" earnings per share. Statement No. 128 became effective
for fiscal 1999. All earnings per share prior to fiscal 1999 have been
restated to comply with this Statement.
The table below sets forth the computation of earnings per common share.
June 30,
---------------
1999 1998
----------- -----------
Net Income $ 9,076 $ 6,033
For Earnings Per Common Share - Basic:
Weighted average number of issued shares
outstanding 19,968 19,614
Effect of dilutive securities
Computed shares outstanding under the
Company's stock option plan utilizing the
treasury stock method 338 732
Computed shares outstanding under warrants
issued utilizing the treasury stock method 960 1,409
----------- -----------
For earnings per Common Share - Diluted:
Weighted average common shares and common
share equivalents outstanding 21,266 21,755
=========== ===========
Earnings Per Share _ Basic $ 0.45 $ 0.31
=========== ===========
Earnings Per Share - Diluted $ 0.43 $ 0.28
=========== ===========
<PAGE>
In April of 1998, the Company adopted AICPA Statement of Position
(SOP) 98-5 "Reporting on the Costs of Start-Up Activities" which requires
all start-up costs to be charged to expense as incurred. The adoption of
SOP 98-5 resulted in an $800 charge (net of tax) to operations, or $0.04
per basic and $0.03 diluted per share for previously capitalized start-up
costs and was recorded as a cumulative effect of change in accounting
principle.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Item 2.
Results of Operations for the Three Months Ended June 30, 1999 and 1998
- -----------------------------------------------------------------------
(As used herein, "unit cost" means operating cost per available seat mile.
Dollars and shares outstanding are expressed in thousands.)
EARNINGS SUMMARY. The Company reported net income of $9,076 or $0.43
diluted earnings per share for the three months ended June 30, 1999,
compared to $6,033 or $0.28 diluted earnings per share in the same period
of fiscal 1998. The results for the three months ended June 30, 1998
include a one-time non- recurring charge of $800 (net of tax) or $0.04 per
basic and $0.03 per diluted share for the cumulative effect of a change in
accounting principle.
OPERATING REVENUES. Total operating revenues increased 24.0% in the first
quarter of fiscal 2000 to $99,815 from $80,469 in the year earlier quarter,
and revenue passenger miles increased 36.1% to 363,062 from 266,768.
Passenger revenue per available seat mile ("RASM") decreased to $0.159 from
$0.169 in the previous year's first quarter. Mesaba's average load factor
was 58.4% in the current quarter compared to 56.4% during the same period a
year ago. The improvement in traffic and load factor are attributable to
the introduction of 14 RJ85 aircraft as well as overall increases in
passenger travel within the industry.
Operating Costs Per Three months ended June 30,
Available Seat Mile (Unit Cost) 1999 1998
- -----------------------------------------------------------------------
Wages and benefits 3.8 CENTS 4.1 CENTS
Aircraft fuel costs 1.1 1.5
Aircraft maintenance costs 2.6 2.7
Aircraft rents 3.4 3.3
Landing fees 0.3 0.4
Insurance and taxes 0.2 0.4
Depreciation and amortization 0.5 0.4
Administrative and other costs 1.9 2.0
----------- -----------
Total 13.8 CENTS 14.8 CENTS
Three months ended June 30,
Operating statistics 1999 1998
- -----------------------------------------------------------------------
Revenue passengers carried 1,398,000 1,040,000
Revenue passenger miles (000) 363,062 266,768
Available seat miles (000) 621,794 472,944
Passenger load factor 58.4% 56.4%
Passenger revenue per available seat mile $0.159 $0.169
Departures 67,694 58,349
Aircraft in service 101 90
<PAGE>
OPERATING EXPENSES. Total operating expenses increased 22.5% to $85,787
from $70,005 in the prior year's first quarter. Mesaba's unit cost
decreased 6.8% to $0.138 from $0.148 as a result of a 31.5% increase in
available seat miles ("ASM") to 621,794 in the first quarter of fiscal 2000
from 472,944 in the year earlier quarter. The increase in ASMs was
accomplished by the acquisition of 14 RJ85 and seven Saab 340 aircraft
offset by the retirement of 10 Dash 8 aircraft since June 30, 1998.
Wages and benefits increased 21.7% to $23,408 in the first quarter of
fiscal 2000 from $19,227 in the first quarter of fiscal 1999. The majority
of the increase is a result of the higher cost of flight crews due to a
19.2% increase in block hours and the addition of flight crews to support
the introduction of the RJ85 as well as the continuing Saab fleet
transition program. Mesaba also experienced an increase in wage and
benefit costs paid to support personnel due to a 4.9% increase in
scheduled turboprop operations. However the increased capacity generated
by the additional jet and turboprop equipment has caused these costs to be
reduced on a unit cost basis.
Fuel costs decreased 3.8% to $6,671 in this year's first quarter
compared to $6,938 in last year's first quarter. The decrease is
attributable to decreased consumption due to increased use of the more
fuel efficient Saab 340. Provisions of the Airlink Agreement with
Northwest provide Mesaba with a fixed price per gallon for fuel. The
actual cost of fuel, including taxes and pumping fees, was 83.5 cents per
gallon both in the current quarter and a year ago. Unit cost however
decreased 26.7% to 1.1 cents from 1.5 cents. Mesaba is not required to
provide fuel for the jet operation.
Direct maintenance expense, excluding wages and benefits, increased
30.1% to $16,313 in the first quarter of fiscal 2000 from $12,540 in the
first quarter of fiscal 1999. This increase was primarily attributable to
the addition of seven Saab 340 and 14 RJ85 aircraft to the fleet when
compared to a year ago. The additional maintenance costs for the Saab 340
and RJ85 aircraft were partially offset by lower maintenance costs related
to the phase-out of the Dash 8 fleet resulting from the return of ten
aircraft to lessors. Unit cost however, decreased 3.7% to 2.6 cents from
2.7 cents.
Aircraft rents increased 33.0% to $21,047 in the first quarter of
fiscal 2000 from $15,824 in the first quarter of fiscal 1999. This
increase is primarily attributable to the addition of seven Saab 340 and
14 RJ85 aircraft while retiring ten Dash 8 aircraft to lessors. Mesaba
has taken delivery of six RJ85 aircraft during the current period. Unit
cost increased 3.0% to 3.4 cents from 3.3 cents.
Total landing fees increased 4.4% to $1,895 in the first quarter of
fiscal 2000 compared to $1,816 for the first quarter of fiscal 1999. The
increase is attributable to a 4.9% increase in turbo-prop departures
offset by a slight decrease in the overall effective landing fee rate.
Unit cost however, decreased 25.0% to 0.3 cents from 0.4 cents. Mesaba is
not required to pay for landing fees for the jet aircraft.
Insurance and taxes decreased 34.8% to $1,332 in the first quarter of
fiscal 2000 compared to $2,043 for the first quarter of fiscal 1999. This is
due primarily to an increase in passenger liability insurance associated with
increased passenger volume and increased hull values associated with lower
overall average fleet age when compared to one year ago offset by a
significant reduction in passenger liability insurance rates. Unit cost
decreased 50.0% to 0.2 cents from 0.4 cents.
<PAGE>
Depreciation and amortization increased 65.5% to $3,267 in the first
quarter of fiscal 2000 compared to $1,974 in the first quarter of fiscal
1999. The higher level of depreciation resulted from the acquisition of
spare parts to support the Saab and RJ85 fleets, as well as higher levels
of amortization associated with stock purchase warrants issued to
Northwest. In July 1997 the Company paid a contract rights fee in the
form of a stock purchase warrant issued to Northwest as a part of the new
Airlink Agreement. These contract rights are being amortized on a
straight-line basis over the term of the Airlink Agreement through June
2007. The Company also paid a contract right fees in the form of stock
purchase warrants issued to Northwest in connection with amendments to the
Jet Agreement which increased the number of aircraft to be flown by Mesaba
from 12 to 36. These contract rights are being amortized on a
straight-line basis over the remaining term of the Jet Agreement. Unit
cost increased 25.0% to 0.5 cents from 0.4 cents.
Administrative and other costs increased 22.9% to $11,854 in the first
quarter of fiscal 2000 compared to $9,643 in the first quarter of fiscal
1999. This increase is primarily attributable to higher crew related
expenses, excluding wages and benefits, associated with increased flying and
increased airport and passenger related expenses due to an increase in
traffic and the number of cities served. Due to the additional capacity
generated by the jet and larger turboprop equipment, unit cost decreased
5.0% to 1.9 cents from 2.0 cents. Mesaba is generally not required to
provide airport and passenger related expenses for the jet operation.
OPERATING INCOME. Operating income totaled $14,028 in the current period,
an increase of 34.1% from $10,464 a year ago. Mesaba's operating margin
increased to 14.1% from 13.0% in the prior year's first quarter.
NONOPERATING INCOME. Nonoperating income increased to $852 in the current
quarter from $738 in the prior year's first quarter as a result of higher
levels of interest income.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 39.0% in
the first quarter of fiscal 2000 and fiscal 1999.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's working capital increased to $72,555 with a current
ratio of 2.4 at June 30, 1999 compared to $68,680 and 2.4 at March 31,
1999. Cash and cash equivalents increased by $3,538 to $86,690 at June
30, 1999. Net cash flows provided by operating activities totaled $11,006
in the first three months of fiscal 2000 compared to $13,292 in the first
three months of fiscal 1999. Net cash flows used for investing activities
amounted to $9,220 during the three months ended June 30, 1999 compared to
$6,725 in the same period last year. Net cash flows provided by financing
activities through June 30, 1999 totaled $1,752 compared to $1,277 in the
same period last year.
Long-term obligations, net of current maturities, totaled $4,255 at
June 30, 1999 compared to $4,359 at March 31, 1999. The ratio of
long-term debt to stockholders' equity was .04 at June 30, 1999 and March
31, 1999 respectively.
As of August 1, 1999, Mesaba's fleet consisted of 101 aircraft covered
under operating leases with remaining terms of two months to 17.5 years with
aggregate monthly lease payments of approximately $7.8 million. Operating
leases have been Mesaba's primary method of acquiring aircraft, and
management expects to continue relying on this method to meet most of its
future aircraft needs. Mesaba leases all of its Saab 340 aircraft, either
directly from aircraft leasing companies or through subleases with Northwest
under operating leases with terms up to 17.5 years. Mesaba leases its RJ85
aircraft from Northwest under operating leases with terms of up to 10 years.
Mesaba currently plans to continue leasing the additional RJ85 aircraft
under firm contract from Northwest.
During the fourth quarter of fiscal 1999, Mesaba committed to lease
approximately 497,000 square feet of facilities, ramp, parking and unimproved
land at the Cincinnati/Northern Kentucky Airport. The commitment covers
approximately 126,000 square feet of hangar and maintenance space and
obligates Mesaba to pay monthly rentals expected to range between
approximately $95 and $105 until January 29, 2029 as part of Special
Facilities Bond financing provided by Cincinnati/Northern Kentucky Airport
Authority. The ground lease is expected to have a 30-year term concurrent
with the facilities lease, which is expected to expire January 29, 2029.
Monthly lease payments of approximately $10.5 are anticipated to be
required under the ground lease.
The Company has historically relied upon cash reserves, internally
generated funds and borrowings to support its working capital requirements.
Management believes that funds from operations and existing cash balances
will provide adequate resources for meeting non-aircraft and non-facility
capital needs in fiscal 1999.
The Company has implemented a Year 2000 compliance program designed to
ensure that the Company's internal information technology will function
properly beyond 1999. This includes software applications, hardware and
infrastructure which are essential for flight scheduling; aircraft
maintenance; finance systems; internal communication and facilities
management. The Company estimates that the overall cost of the Year 2000
compliance program will not exceed $500 and expects its Year 2000 date
conversion program to be completed on a timely basis. Any expenditure
will be funded through operating cash flows while any costs for new software
will be capitalized and amortized over the software's useful life.
<PAGE>
The Company is working cooperatively with third parties having systems upon
which the Company must rely. The Company can not give any assurance that
the systems of other parties will be year 2000 compliant on a timely basis
or the Company's or third parties contingency plans will mitigate the
effects of noncompliance. Third parties with systems the Company uses or
relies upon include: Federal Aviation Administration Air Traffic Control,
Saab Aircraft, British Aerospace and Northwest Airlines. The Company's
business, financial condition and results of operations could be materially
affected by the failure of its systems or those operated by others (which
the Company believes is the most reasonable worst case scenario) and could
result in the reduction or suspension of the Company's operation.
The Company is reviewing and revising its business interruption
contingency plans to address internal and external issues to the extent
practicable. The review, together with any necessary revisions, will be
completed by September 1999. The review of these plans will include how
to maintain safety, increase inventory of essential components, change
suppliers, perform certain functions and processes manually and reduce or
suspend operations. Due to the uncertainty related to year 2000 issues,
the Company's contingency plan will be ongoing in nature and may require
further modifications to existing systems as new information is made
available and the Company further assesses the readiness of third parties
upon which the Company relies.
<PAGE>
Part II.
Item 6.
Exhibits and Reports on Form 8-K
a)
The following exhibits are filed with this report:
None
b)
The Registrant filed a Form 8-K dated June 30, 1999 during the
quarter ended June 30, 1999, relating to the resignation of
President and Chief Executive Officer, Bryan K. Bedford.
<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: August 14, 1999 BY: /s/ Robert H. Cooper
----------------------------
Robert H. Cooper
Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Jon R. Meyer
--------------------------
Jon R. Meyer
Director of Accounting/Controller
(Principal Accounting Officer)
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<PERIOD-END> JUN-30-1999
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<ALLOWANCES> 0
<INVENTORY> 5437
<CURRENT-ASSETS> 124920
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0
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<COMMON> 202
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<SALES> 99815
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