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 September 30, 2000
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 November 10, 2000
--------------- -----------------------------------
Common Stock
Par value $.01 per share 20,288,141
<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 may 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 or directives affecting airworthiness of
aircraft; the acquisition and phase-in of a new aircraft; downturns in
economic activity; seasonal factors; and labor relationships, including
labor shortages, slow downs and/or work stoppages associated with the
outcome of contract negotiations between the Company and the Association
of Flight Attendants.
<PAGE>
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
MESABA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
ASSETS
------
September,30 March 31,
2000 2000
------------ ------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 112,263 $ 100,172
Accounts receivable, net 23,037 20,090
Inventories 5,794 6,103
Prepaid expenses and deposits 4,301 4,371
Deferred tax asset 9,216 9,216
------------ ------------
Total current assets 154,611 139,952
PROPERTY AND EQUIPMENT:
Facilities under capital lease 9,147 9,147
Rotables and other spare parts 61,347 55,446
Other property and equipment 29,011 26,676
Accumulated depreciation and amortization (44,419) (37,160)
------------ ------------
Net property and equipment 55,086 54,109
OTHER ASSETS AND DEFERRED COSTS 12,527 13,663
------------ ------------
TOTAL ASSETS $ 222,224 $ 207,724
============ ============
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
------------------------------------
September 30, March 31,
2000 2000
(Unaudited)
------------ ------------
CURRENT LIABILITIES:
Current maturities of long-term obligations $ 449 $ 429
Accounts payable 13,450 13,003
Accrued liabilities --
Payroll 7,049 8,271
Maintenance 14,371 14,064
Other 9,530 8,919
Total current liabilities 44,849 44,686
------------ ------------
LONG-TERM OBLIGATIONS, net of current
maturities 3,637 3,866
DEFERRED CREDITS AND OTHER LIABILITIES 12,417 14,454
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 60,000,000
shares authorized, 20,277,641 and 20,267,141
shares issued and outstanding, respectively 203 203
Paid-in capital 49,513 49,427
Warrants 16,500 16,500
Retained earnings 95,105 78,588
------------ ------------
Total shareholders' equity 161,321 144,718
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 222,224 $ 207,724
============ ============
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 Six Months Ended
September 30, September 30,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
OPERATING REVENUES:
Passenger $ 112,444 $ 101,314 $ 218,561 $ 200,103
Other 2,626 1,189 4,335 2,215
--------- --------- --------- ---------
Total operating revenues 115,070 102,503 222,896 202,318
OPERATING EXPENSES:
Wages and benefits 28,805 25,166 54,627 48,574
Aircraft fuel costs 6,635 6,923 13,199 13,594
Aircraft maintenance costs 19,310 16,669 38,291 32,982
Aircraft rents 25,192 22,359 49,907 43,406
Landing fees 1,756 1,907 3,480 3,802
Insurance and taxes 1,560 1,374 3,086 2,706
Depreciation and amortization 4,303 3,542 8,394 6,809
Administrative and other costs 14,098 13,339 26,776 25,193
--------- --------- --------- ---------
Total operating expenses 101,659 91,279 197,760 177,066
--------- --------- --------- ---------
Operating income 13,411 11,224 25,136 25,252
NONOPERATING INCOME
(EXPENSE):
Interest expense (93) (102) (189) (207)
Other, net 1,714 878 3,266 1,835
--------- ---------- --------- ---------
Other income, net 1,621 776 3,077 1,628
--------- ---------- --------- ---------
Income before income taxes 15,032 12,000 28,213 26,880
PROVISION FOR INCOME TAXES 6,232 4,682 11,695 10,486
--------- --------- --------- ---------
NET INCOME $ 8,800 $ 7,318 $ 16,518 $ 16,394
========= ========= ========== =========
NET INCOME PER SHARE:
Earnings per share - Basic $ 0.43 $ 0.36 $ 0.81 $ 0.82
========= ========= ========== =========
Earnings per share - Diluted $ 0.43 $ 0.35 $ 0.79 $ 0.77
========= ========= ========== =========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 20,278 20,221 20,273 20,095
========= ========= ========== =========
Diluted 20,692 21,119 20,824 21,193
========= ========= ========== =========
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)
Six Months Ended
September 30,
2000 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 16,518 $ 16,394
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,394 6,809
Amortization of deferred credits (2,037) (1,552)
Changes in current operating items:
Accounts receivable, net (2,947) (1,403)
Inventories 309 1,136
Prepaid expenses and deposits 70 (625)
Accounts payable and accrued liabilities 143 (1,899)
------------ ------------
Net cash provided by operating activities 20,450 18,860
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (8,236) (14,007)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 86 2,246
Repayment of long-term obligations (209) (193)
------------ ------------
Net cash provided by (used for) financing (123) 2,053
activities
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 12,091 6,906
CASH AND CASH EQUIVALENTS:
Beginning of period 100,172 83,152
------------ ------------
End of period $ 112,263 $ 90,058
============ ============
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during period for:
Interest $ 209 $ 193
============ ============
Income taxes $ 11,604 $ 9,997
============ ============
The accompanying notes to interim consolidated financial statements
are an integral part of these statements.
<PAGE>
MESABA HOLDINGS, INC.
NOTES TO INTERIM THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
The interim 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 interim 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 interim 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 interim consolidated financial
statements be read in conjunction with the financial statements for the
year ended March 31, 2000, 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 jet-prop
and air freight service as Mesaba Airlines/Northwest Airlink under an
Airline Services Agreement (the "Airlink Agreement") with Northwest to 84
cities in the Upper Midwest and Canada from Northwest's hub airports in
Minneapolis/St. Paul and Detroit. The Airlink Agreement provides for
exclusive jet-prop rights to designated service areas and extends through
June 30, 2007. Either Northwest or Mesaba has the right to terminate the
Airlink Agreement without cause upon 365 days notice.
Mesaba also operates regional jet aircraft under a separate Regional Jet
Services Agreement (the "Jet Agreement"), under which Mesaba operates Avro
RJ85 ("RJ85") regional jets for Northwest. As of June 2000, Mesaba had
taken delivery of all 36 RJ85 aircraft which currently serve 46 cities.
The aircraft are subleased from Northwest and are operated as Northwest
Jet Airlink from the Minneapolis/St. Paul, Detroit and Memphis hubs.
Northwest has the right to terminate the Jet Agreement without cause upon
not less than 180 days nor more than 365 days notice, such notice not to
be given before October 25, 2003.
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 agreements with
Northwest also permit Mesaba to offer its passengers fares between the
cities serviced by Mesaba and all of the destinations served by Northwest as
<PAGE>
well as participation in Northwest's frequent flyer program. Mesaba's jet
aircraft 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, 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. Earnings Per Share
---------------------
Basic earnings per common share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
year. Diluted earnings per share is computed by dividing net income by the
sum of the weighted average number of shares of common stock outstanding
plus all additional common stock that would have been outstanding if
potentially dilutive common shares related to stock options and warrants
had been issued. Options and warrants totaling 4,762 and 3,864 were
excluded from the computation of diluted earnings per share for the years
ended September 30, 2000 and 1999, respectively. The following table
reconciles the number of shares utilized in the earnings per share
calculations:
The table below sets forth the computation of earnings per common share.
Three Months Ended Six Months Ended
September 30, September 30,
-------------------- ------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net Income $ 8,800 $ 7,318 $ 16,518 $ 16,394
======== ======== ======== ========
For Earnings Per Common Share - 20,278 20,221 20,273 20,095
Basic:
Weighted average number of
issued shares outstanding
Effect of dilutive securities
Computed shares outstanding
under the Company's stock
option plan utilizing the
treasury stock method 62 138 102 272
Computed shares outstanding
under warrants issued utilizing
the treasury stock method 352 760 449 826
-------- -------- -------- --------
For earnings per Common Share - Diluted:
Weighted average common shares
and common share equivalents
outstanding 20,692 21,119 20,824 21,193
======== ======== ======== ========
Earnings Per Share - Basic $ 0.43 $ 0.36 $ 0.81 $ 0.82
======== ======== ======== ========
Earnings Per Share - Diluted $ 0.43 $ 0.35 $ 0.79 $ 0.77
======== ======== ======== ========
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Item 2.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND
1999 (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 $8,800 or $0.43
earnings per diluted share for the three months ended September 30, 2000,
compared to $7,318 or $0.35 earnings per diluted share in the same period of
fiscal 1999. Weighted average common shares and common share equivalents
outstanding decreased to 20,692 from 21,119.
OPERATING REVENUES. Total operating revenues increased 12.3% in the second
quarter of fiscal 2001 to $115,070 from $102,503 in the year earlier
quarter, and revenue passenger miles increased 16.2% to 475,983 from
409,559. Passenger revenue per available seat mile ("RASM") decreased to
$0.148 from $0.149 in the previous year's second quarter primarily due to
the mix in operations between the turbo-prop and jet aircraft. Mesaba's
average load factor was 62.6% in the current quarter compared to 60.3%
during the same period a year ago. The improvement in traffic is
attributable to the introduction of eight RJ85 aircraft as well as overall
increases in passenger travel throughout the industry.
Three months ended
Operating Costs Per September 30,
Available Seat Mile (Unit Cost) 2000 1999
-----------------------------------------------------------------
Wages and benefits 3.8 CENTS 3.7 CENTS
Aircraft fuel costs 0.9 1.0
Aircraft maintenance costs 2.5 2.5
Aircraft rents 3.3 3.3
Landing fees 0.2 0.3
Insurance and taxes 0.2 0.2
Depreciation and amortization 0.6 0.5
Administrative and other costs 1.9 1.9
-------- --------
Total 13.4 CENTS 13.4 CENTS
Three months ended
September 30,
Operating statistics 2000 1999
--------------------------------------------------------------
Revenue passengers carried 1,691,545 1,508,900
Revenue passenger miles (000) 475,983 409,559
Available seat miles (000) 760,950 679,277
Passenger load factor 62.6% 60.3%
Passenger revenue per available seat
mile $0.148 $0.159
Departures 69,409 70,142
Aircraft in service 109 101
<PAGE>
OPERATING EXPENSES. Total operating expenses increased 11.4% to $101,659
from $91,279 in the prior year's second quarter. Mesaba's unit cost
remained constant at $0.134 as a result of a 12% increase in ASMs to 760,950
from 679,277 in the year earlier period. The increase in ASMs was
accomplished by the acquisition of eight RJ85's since September 30, 1999.
Wages and benefits increased 14.5% to $28,805 in the second quarter of
fiscal 2001 from $25,166 in the second quarter of fiscal 2000. The
majority of the increase is a result of higher costs of flight crews due
to a 30.5% increase in RJ85 block hours as well as significant increases
in support personnel to facilitate the RJ85 ground handling expansion
program in Minneapolis. Unit cost for wages and benefits increased 2.7%
to 3.8 cents from 3.7 cents.
Fuel costs decreased 4.2% to $6,635 in this year's second quarter compared
to $6,923 in last year's second quarter. The change is primarily
attributable to a decrease in consumption as a result of fewer turbo-prop
block hours flown when compared to one year ago. Provisions of the
Airlink Agreement with Northwest protect Mesaba from changes in fuel
prices. 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 for fuel decreased 10.0% to 0.9 cents from 1.0 cents. Mesaba is not
required to provide fuel for the jet operation.
Direct maintenance expense, excluding wages and benefits, increased 15.8%
to $19,310 in the second quarter of fiscal 2001 from $16,669 in the second
quarter of fiscal 2000. This increase was primarily attributable to the
addition of eight RJ85 aircraft to the fleet. However, unit cost for
direct maintenance remained constant at 2.5 cents.
Aircraft rents increased 12.7% to $25,192 in the second quarter of fiscal
2001 from $22,359 in the second quarter of fiscal 2000. This increase is
primarily attributable to the addition of eight RJ85 aircraft. Unit cost
for aircraft rents remained constant at 3.3 cents.
Total landing fees decreased 7.9% to $1,756 in the second quarter of fiscal
2001 compared to $1,907 for the second quarter of fiscal 2000. The
decrease is attributable to a 9.3% decrease in departures. Mesaba also
experienced a 1.4% increase in the overall effective landing fee rate.
Unit cost for landing fees decreased 33.3% to 0.2 cents from 0.3 cents in
the previous year. Provisions of the Jet Agreement provide that Mesaba is
not required to pay for landing fees for the jet operation.
Insurance and taxes increased 13.5% to $1,560 in the second quarter of
fiscal 2001 compared to $1,374 for the second quarter of fiscal 2000.
This is due primarily to an increase in passenger liability insurance
associated with increased passenger volume and increased hull values
associated with the increase in the number of aircraft in the fleet
partially offset by a reduction in passenger liability insurance rates and
reduced amounts paid for hull insurance caused by the normal decline in
fleet values. Unit cost for insurance and taxes remained unchanged at 0.2
cents.
Depreciation and amortization increased 21.5% to $4,303 in the second
quarter of fiscal 2001 compared to $3,542 in the second quarter of fiscal
2000. The higher level of depreciation and amortization resulted from the
acquisition of spare parts to support the Saab 340 and RJ85 fleet and from
increased expenditures associated with ground support equipment to support
the startup of ground handling activities in the Minneapolis/St. Paul hub.
The Company paid contract rights 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
<PAGE>
36. These fees are being amortized on a straight- line basis over the
remaining term of the Jet Agreement at a cost of approximately $600 per
quarter. Unit cost for depreciation and amortization increased 20% to 0.6
cents from 0.5 cents.
Administrative and other costs increased 5.7% to $14,098 in the second
quarter of fiscal 2001 compared to $13,339 in the second quarter of fiscal
2000. This increase is primarily attributable to higher pilot training
and crew-related expenses excluding wages and benefits. Unit cost for
administrative and other costs remained unchanged at 1.9 cents. Mesaba is
generally not required to provide airport and passenger related expenses
for the jet operation.
OPERATING INCOME. Operating income totaled $13,411 in the current period,
an increase of 19.5% from 11,224 a year ago. Mesaba's operating margin
increased to 11.7% from 10.9% in the prior year's second quarter.
NONOPERATING INCOME. Nonoperating income increased to $1,621 in the
current quarter from $776 in the prior year's second quarter as a result of
higher levels of interest income.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 41.5% in
the second quarter of fiscal 2001 up from 39.0% in fiscal 2000, as a result
of higher levels of nondeductible expenses.
<PAGE>
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
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 $16,518 or $0.79 per
diluted share for the six months ended September 30, 2000, compared to
$16,394 or $0.77 per diluted share in the same period of fiscal 2000.
Weighted average shares outstanding decreased to 20,824 from 21,193.
OPERATING REVENUES. Total operating revenues increased 10.2% in the first
half of fiscal 2001 to $222,896 from $202,318 in the year earlier period,
and revenue passenger miles increased 18.6% to 916,070 from 772,621.
Passenger revenue per available seat mile ("RASM") decreased to $0.146 from
$0.154 in the year earlier period primarily due to the mix in operations
between the turbo-prop and jet aircraft. Mesaba's average load factor was
61.4% in the current period compared to 59.4% during the same period a year
ago. The improvement in traffic is attributable to the introduction of
eight RJ85 aircraft as well as increases in passenger travel throughout the
industry.
Operating Costs Per Six months ended September 30,
Available Seat Mile (Unit Cost) 2000 1999
-------------------------------------------------------------------
Wages and benefits 3.7 CENTS 3.7 CENTS
Aircraft fuel costs 0.9 1.1
Aircraft maintenance costs 2.5 2.5
Aircraft rents 3.3 3.3
Landing fees 0.2 0.3
Insurance and taxes 0.2 0.2
Depreciation and amortization 0.6 0.5
Administrative and other costs 1.8 2.0
-------- --------
Total 13.2 CENTS 13.6 CENTS
Six months ended September
30,
Operating statistics 2000 1999
-------------------------------------------------------------------
Revenue passengers carried 3,249,046 2,906,900
Revenue passenger miles (000) 916,070 772,621
Available seat miles (000) 1,492,901 1,301,071
Passenger load factor 61.4% 59.4%
Passenger revenue per available seat mile $ 0.146 $0.154
Departures 137,286 137,836
Aircraft in service 109 101
OPERATING EXPENSES. Total operating expenses increased 11.7% to $197,760
from $177,066 in the prior year's first half. Mesaba's unit cost decreased
2.9% to $0.132 from $0.136 as a result of a 14.7% increase in available seat
miles to 1,492,901 in the first half of fiscal 2001 from 1,301,071 in the
year earlier period. The increase in ASMs was primarily accomplished by the
acquisition of eight RJ85's.
Wages and benefits increased 12.5% to $54,627 in the first half of fiscal
2001 from $48,574 in the first half of fiscal 2000. The majority of the
increase is a result of higher cost of flight crews due to a 36.0%
increase in RJ85 block hours and the addition of flight crews to support
the introduction of the RJ85 as well as significant increases in support
<PAGE>
personnel to satisfy the expansion of the Minneapolis RJ85 ground
handling. Unit cost remained unchanged at 3.7 cents.
Fuel costs decreased 2.9% to $13,199 in this year's first half-compared to
$13,594 in last year's first half. The decrease is primarily attributable
to a decreased consumption due to fewer turbo-prop block hours flown.
Provisions of the Airlink Agreement with Northwest protect Mesaba from
fluctuations in fuel prices. The actual cost of fuel, including taxes and
pumping fees, was 83.5 cents per gallon both in the current period and a
year ago. Unit cost for fuel decreased 18.2% to 0.9 cents from 1.1 cents.
Mesaba is not required to provide fuel for the jet operation.
Direct maintenance expense, excluding wages and benefits, increased 16.1%
to $38,291 in the first half of fiscal 2001 from $32,982 in the first half
of fiscal 2000. This increase was primarily attributable to the addition
of eight RJ85 aircraft to the fleet. Unit costs for direct maintenance
remained unchanged at 2.5 cents.
Aircraft rents increased 15.0% to $49,907 in the first half of fiscal 2001
from $43,406 in the first half of fiscal 2000. This increase is primarily
attributable to the addition of eight RJ85 aircraft when compared to one
year ago. Mesaba has taken delivery of three RJ85 aircraft during the
current six- month period. Unit cost for aircraft rents remained unchanged
at 3.3 cents.
Total landing fees decreased 8.5% to $3,480 in the first half of fiscal
2001 compared to $3,802 for the first half of fiscal 2000. The decrease
is attributable to an 8.8% decrease in the average gross landing weight
due to decreased turbo-prop activity. Unit cost for landing fees
decreased 33.3% to 0.2 cents from 0.3 cents. Provisions of the Jet
Agreement with Northwest provide that Mesaba is not required to pay
landing fees for the jet operation.
Insurance and taxes increased 14.0% to $3,086 in the first half of fiscal
2001 compared to $2,706 for the first half of fiscal 2000. This is due
primarily to an increase in passenger liability insurance associated with
increased passenger volume and increased hull values associated with the
Saab 340 and RJ85 aircraft partially offset by a reduction in passenger
liability insurance rates and reduced amounts paid for hull insurance
caused by the normal decline in fleet values. Unit cost for insurance and
taxes remained unchanged at 0.2 cents.
Depreciation and amortization increased 23.3% to $8,394 in the first half
of fiscal 2001 compared to $6,809 in the first half of fiscal 2000. The
higher level of depreciation and amortization resulted from the acquisition
of spare parts to support the Saab 340 and RJ85 fleets and increased
expenditures associated with ground support equipment to support the
startup of ground handling activities out of the Minneapolis/St. Paul hub.
Unit cost for depreciation and amortization increased 20% to 0.6 cents from
0.5 cents.
Administrative and other costs increased 6.3% to $26,776 in the first half
of fiscal 2001 compared to $25,193 in the first half of fiscal 2000. This
increase is primarily attributable to higher pilot training and crew
related expenses, excluding wages and benefits, associated with increases in
flying and increases in airport and passenger related expenses resulting
from increases in traffic and the number of cities served. Due to the
additional capacity generated by the larger jet equipment, unit cost for
administrative and other costs decreased 10.0% to 1.8 cents from 2.0 cents.
<PAGE>
OPERATING INCOME. Operating income totaled $25,136 in the current period,
a decrease of 0.5% from $25,252 a year ago. Mesaba's operating margin
decreased to 11.3% from 12.5% in the prior year's first half.
NONOPERATING INCOME. Nonoperating income increased to $3,077 in the
current period from $1,628 in the prior year's first half as a result of
higher levels of interest income.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 41.5% in
the first half of fiscal 2001 and 39.0% in fiscal 2000 due to higher levels
of non- deductible expenses.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased to $109,762 with a current ratio of
3.4 at September 30, 2000 compared to $95,266 and 3.1 at March 31, 2000.
Cash and cash equivalents increased by $12,091 to $112,263 at September 30,
2000. Net cash flows provided by operating activities totaled $20,450 in
the first half of 2001 compared to $18,860 in the first half of fiscal 2000.
Net cash flows used for investing activities amounted to $8,236 during the
six months ended September 30, 2000 compared to $14,007 in the same period
last year. Net cash flows used for financing activities through September
30, 2000 totaled $123 compared to $2,053 provided by financing activities in
the same period last year.
Long-term obligations, net of current maturities, totaled $3,637 at
September 30, 2000 compared to $3,866 at March 31, 2000. The ratio of
long-term debt to stockholders' equity decreased to .02 at September 30,
2000 from .03 at March 31, 2000.
As of October, 2000, Mesaba's fleet consisted of 109 aircraft covered under
operating leases with remaining terms of six months to 16.5 years and an
aggregate monthly lease payments of approximately $8.9 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 original terms up to 17.5 years.
Mesaba leases its RJ85 aircraft from Northwest under operating leases with
terms of up to ten years. Continued funding of the monthly lease payments
is ensured as long as the current operating contracts with Northwest are
in effect.
During fiscal 2000, Mesaba leased approximately 497,000 square feet of
facilities, ramp, parking and unimproved land at the Cincinnati/Northern
Kentucky Airport. The lease covers approximately 126,000 square feet of
hangar and maintenance space and obligates Mesaba to pay monthly rentals
of $77.0 until January 29, 2029 as part of Special Facilities Bond
financing provided by Cincinnati/Northern Kentucky Airport Authority. The
ground lease has a 30-year term concurrent with the facilities lease,
which expires January 29, 2029. Monthly lease payments of approximately
$10.5 are required under the ground lease. Mesaba intends to make these
lease payments from operations.
Approximately 81% of the Company's accounts receivable balance at September
30, 2000 is due from Northwest. Loss of the Company's affiliation with
Northwest or Northwest's failure to make timely payment of amounts owed to
the Company or to otherwise materially perform under the Airlink or Jet
Agreement for any reason would have a material adverse effect on the
Company's operations and financial results.
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 will
provide adequate resources for meeting non-aircraft capital needs in
fiscal 2001.
<PAGE>
Part II.
Item 1. LEGAL PROCEEDINGS
The Company has been served with four lawsuits in Hennepin County District
Court and one lawsuit in Dakota County District Court. The lawsuits have been
prepared as purported class actions on behalf of the Company's shareholders.
Also named as defendants in the lawsuits are each of the Company's current
directors and Northwest Airlines Corporation.
The lawsuits arise out of the proposal by Northwest Airlines Corporation to
acquire all of the outstanding shares of the Company's common stock which
Northwest does not presently own. The lawsuits allege that the defendants have
breached their fiduciary duties to the Company's shareholders in connection with
the proposed transaction. Each of the lawsuits seeks to enjoin the defendants
from proceeding with the proposed transaction and, if the transaction is
completed, to rescind the transaction or to compensate the Company's
shareholders for alleged damages. The complaints also seek legal fees and other
expenses on behalf of the plaintiffs.
The Company believes the lawsuits are without merit, and intends to defend
them vigorously. The ultimate outcome of these lawsuits cannot be predicted
with certainty.
Item 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company filed with the Securities and Exchange Commission a definitive
proxy statement dated July 24, 2000 in connection with its annual meeting of
shareholders held on August 21, 2000. All persons nominated by management
for election as Class One, Class Two and Class Three directors, as discussed
in the definitive proxy statement, were elected. The Company's proposed
2000 stock option plan was approved by the shareholders casting 14,288,046
votes in favor of the ratification, 5,088,460 votes against the ratification
and 39,453 abstentions. In addition, shareholders ratified the appointment
of Arthur Andersen LLP as the Company's independent auditors for the fiscal
year ending March 31, 2001, casting 18,867,217 votes in favor of the
ratification, 455,167 votes against the ratification and 33,572 abstentions.
There were no broker non-votes.
Item 5. OTHER INFORMATION
On November 1, 2000, Northwest Airlines presented to the Company an offer
to purchase all outstanding shares not currently owned by Northwest at a
price of $13.00 per share. The Board of Directors appointed a special
committee of independent directors to consider and act upon Northwest's
offer and other alternatives on behalf of Mesaba and its public
shareholders.
<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: November 13, 2000 BY: /s/ Robert E. Weil
-----------------------
Robert E. Weil
Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Jon R. Meyer
------------------------
Jon R. Meyer
Director of Accounting/Controller
(Principal Accounting Officer)
