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 December 31, 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 February 1, 2000
----- ----------------------------------
Common Stock
Par value $.01 per share 20,267,141
<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
slow downs and/or work stoppages associated with the outcome of contract
negotiations between the Company and the Association of Flight Attendants
and Transport Workers Union.
<PAGE>
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
MESABA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
ASSETS
December 31, March 31,
1999 1999
----------- ---------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 82,083 $ 83,152
Accounts receivable, net 35,215 15,905
Inventories 5,903 6,564
Prepaid expenses and deposits 4,915 3,719
Deferred tax asset 8,014 8,014
----------- ---------
Total current assets 136,130 117,354
PROPERTY AND EQUIPMENT:
Facilities under capital lease 9,147 9,147
Rotables and other spare parts 53,317 41,178
Other property and equipment 25,445 21,635
Accumulated depreciation and amortization (33,809) (24,765)
----------- ---------
Net property and equipment 54,100 47,195
OTHER ASSETS AND DEFERRED COSTS 13,253 14,674
----------- ---------
TOTAL ASSETS $ 203,483 $ 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
December 31, March 31,
1999 1999
----------- ---------
(Unaudited)
CURRENT LIABILITIES:
Current maturities of long-term obligations $ 419 $ 393
Accounts payable 19,198 20,857
Accrued liabilities
Payroll 7,048 8,786
Maintenance 13,786 10,415
Other 7,764 8,223
----------- ---------
Total current liabilities 48,215 48,674
LONG-TERM OBLIGATIONS, net of current 4,041 4,359
maturities
DEFERRED CREDITS AND OTHER LIABILITIES 15,221 16,951
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 60,000,000
shares authorized, 20,267,141 and 19,823,579 203 199
shares issued and outstanding, respectively
Paid-in capital 47,531 45,013
Warrants 16,500 16,500
Retained earnings 71,772 47,527
----------- ---------
Total shareholders' equity 136,006 109,239
----------- ---------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 203,483 $ 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 Nine Months Ended
December 31, December 31,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
OPERATING REVENUES:
Passenger $ 99,823 $ 88,977 $ 299,926 $ 239,202
Other 1,185 664 3,400 2,597
--------- --------- --------- ---------
Total operating revenues 101,008 89,641 303,326 241,799
OPERATING EXPENSES:
Wages and benefits 24,828 20,395 73,402 58,331
Aircraft fuel costs 6,694 6,622 20,288 19,128
Aircraft maintenance costs 18,309 15,823 51,291 40,781
Aircraft rents 22,015 18,734 65,421 51,297
Landing fees 1,850 1,771 5,652 5,026
Insurance and taxes 1,431 2,313 4,137 6,433
Depreciation and amortization 3,690 2,467 10,499 6,799
Administrative and other costs 10,598 11,274 35,791 31,492
--------- --------- --------- ---------
Total operating expenses 89,415 79,399 266,481 219,287
Operating income 11,593 10,242 36,845 22,512
NONOPERATING INCOME (EXPENSE):
Interest expense (99) (109) (306) (337)
Other, net 1,377 899 3,212 3,469
--------- --------- --------- ---------
Other income, net 1,278 790 2,906 3,132
Income before income taxes 12,871 11,032 39,751 25,644
PROVISION FOR INCOME TAXES 5,020 4,302 15,506 10,001
--------- --------- --------- ---------
NET INCOME BEFORE CHANGE IN
ACCOUNTING PRINCIPLE 7,851 6,730 24,245 15,643
PRE-OPERATING COST WRITE OFF, NET
OF TAX - - - 800
--------- --------- --------- ---------
NET INCOME $ 7,851 $ 6,730 $ 24,245 $ 14,843
========= ========= ========= =========
NET INCOME PER SHARE:
Earnings per share before
accounting change - Basic $ 0.39 $ 0.34 $ 1.20 $ 0.79
========= ========= ========= =========
Earnings per share - Basic $ 0.39 $ 0.34 $ 1.20 $ 0.75
========= ========= ========= =========
Earnings per share before
accounting change - Diluted $ 0.38 $ 0.32 $ 1.15 $ 0.73
========= ========= ========= =========
Earnings per share - Diluted $ 0.38 $ 0.32 $ 1.15 $ 0.69
========= ========= ========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic 20,252 19,838 20,147 19,758
========= ========= ========= =========
Diluted 20,913 21,230 21,099 21,541
========= ========= ========= =========
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)
Nine Months Ended
December 31,
1999 1998
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 24,245 $ 14,843
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 10,499 6,799
Amortization of deferred credits (1,730) 1,506
Gain on sale of inventory - (799)
Deferred income tax benefit - (2,356)
Changes in current operating items:
Accounts receivable, net (19,310) (733)
Inventories 661 (3,932)
Prepaid expenses and deposits (1,196) 1,317
Accounts payable and accrued liabilities 498 9,762
----------- ---------
Net cash provided by operating activities 12,671 26,407
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (15,949) (16,544)
Other 9 23
----------- ---------
Net cash used for investing activities (15,940) (16,521)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 2,518 2,457
Repayment of long-term obligations (318) (342)
----------- ---------
Net cash provided by financing activities 2,200 2,115
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,069) 12,001
CASH AND CASH EQUIVALENTS:
Beginning of period 83,152 66,554
----------- ---------
End of period $ 82,083 $ 78,555
=========== =========
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during period for:
Interest $ 306 $ 337
=========== =========
Income taxes $ 14,922 $ 10,984
=========== =========
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 a regional air carrier providing scheduled turbo-prop
passenger and air freight service as Mesaba Airlines/Northwest Airlink
under an Airline Services Agreement (the "Airlink Agreement") with
Northwest Airlines, Inc. ("Northwest") to 84 cities in the Upper Midwest
and Canada from Northwest's hub airports, 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
written 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
up to 36 Avro RJ85 ("RJ85") regional jets for Northwest and extends through
May 1, 2007. Northwest has the right to terminate the Jet Agreement without
cause upon 180 days written notice, such notice not to be given before May
1, 2003. As of December 31, 1999, Mesaba had taken delivery of 29 RJ85
aircraft and currently serves 45 cities. The aircraft are subleased from
Northwest and are operated as Northwest Jet Airlink currently 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 are painted in the colors of Northwest Airlines and the jet-prop
<PAGE>
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.
On August 29, 1998 the Company temporarily suspended operations as a result
of the pilot strike at Northwest Airlines. The Company resumed service on
September 16, 1998. The suspension of operations had a material adverse
effect on the results of operations for the prior year's reporting period.
It did not have a material adverse effect on the liquidity or capital
resources of the Company.
3. EARNINGS PER SHARE
The Company accounts for earnings per share in accordance with Statement of
Financial Accounting Standards No. 128.
The table below sets forth the computation of earnings per common share.
Quarter Ended Nine Months Ended
--------------- -----------------
December 31,
----------------------------------
1999 1998 1999 1998
------- ------- ------- -------
Net Income $ 7,851 $ 6,730 $24,245 $14,843
======= ======= ======= =======
For Earnings Per Common Share - 20,252 19,838 20,147 19,758
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 78 317 352 528
Computed shares outstanding under
warrants issued utilizing the
treasury stock method 583 1,075 600 1,255
------- ------- ------- -------
For earnings per Common Share - Diluted:
Weighted average common shares
and common share equivalents
outstanding 20,913 21,230 21,099 21,541
======= ======= ======= =======
Earnings Per Share - Basic $ 0.39 $ 0.34 $ 1.20 $ 0.75
======= ======= ======= =======
Earnings Per Share - Diluted $ 0.38 $ 0.32 $ 1.15 $ 0.69
======= ======= ======= =======
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
<PAGE>
98-5 resulted in an $800 charge (net of tax) to operations, or $0.03 per
basic and diluted 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 December 31, 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 $7,851 or $0.38
diluted earnings per share for the three months ended December 31, 1999,
compared to $6,730 or $0.32 diluted earnings per share in the same period
of fiscal 1999. Weighted average common shares and common share
equivalents outstanding decreased to 20,913 from 21,230.
OPERATING REVENUES. Total operating revenues increased 12.7% in the third
quarter of fiscal 2000 to $101,008 from $89,641 in the year earlier
quarter, and revenue passenger miles increased 27.9% to 387,638 from
303,153. Passenger revenue per available seat mile ("RASM") decreased to
$0.146 from $0.163 in the previous year's third quarter. Unit revenue is
decreasing, as expected, due to the introduction of additional RJ85
aircraft, for which Mesaba is not required to pay for all costs associated
with operating the aircraft, therefore, Mesaba is not compensated for such
costs. Mesaba's average load factor (percentage of seats filled on each
aircraft on average = ASMs / RPMs ) was 56.7% in the third quarter compared
to 55.7% during the same period a year ago. The improvement in traffic is
attributable to the introduction of seven RJ85 aircraft when compared to one
year ago as well as overall increases in passenger travel within the
industry.
Operating Costs Per Three months ended December 31,
Available Seat Mile (Unit Cost) 1999 1998
- --------------------------------------------------------------------
Wages and benefits 3.6 CENTS 3.8 CENTS
Aircraft fuel costs 1.0 1.2
Aircraft maintenance costs 2.7 2.9
Aircraft rents 3.2 3.4
Landing fees 0.3 0.3
Insurance and taxes 0.2 0.4
Depreciation and amortization 0.5 0.5
Administrative and other costs 1.6 2.1
------- -------
Total 13.1 CENTS 14.6 CENTS
Three months ended December 31,
Operating statistics 1999 1998
- --------------------------------------------------------------------
Revenue passengers carried 1,417,800 1,212,100
Revenue passenger miles (000) 387,638 303,153
Available seat miles (000) 683,408 544,407
Passenger load factor 56.7% 55.7%
Passenger revenue per available seat mile $0.146 $0.163
Departures 68,995 64,501
Aircraft in service 102 96
OPERATING EXPENSES. Total operating expenses increased 12.6% to $89,415
from $79,399 in the prior year's third quarter. Operating expenses
increased due to 13.6% more block hours flown. However, Mesaba's unit cost
decreased 10.3% to $0.131 from $0.146 as a result of a 25.5% increase in
available seat miles to 683,408 in the third quarter of fiscal 2000 from
544,407 in the year earlier quarter. The increase in ASMs was accomplished
by the acquisition of seven RJ85 since December 31, 1998.
Wages and benefits increased 21.7% to $24,828 in the third quarter of
fiscal 2000 from $20,395 in the third quarter of fiscal 1999. The
increased capacity generated by the additional jet equipment has caused
these costs to be reduced on a unit cost basis. The majority of the
increase is a result of higher costs of flight crews and ground support
personnel due to a 60.9% increase in block hours to support the RJ85
expansion program.
Fuel costs increased 1.1% to $6,694 in this year's third quarter compared
to $6,622 in last year's third quarter. The change is primarily
attributable to a increase in consumption as a result of 4.0% more block
hours flown by turbo-prop aircraft when compared to one year ago, offset
by increased utilization of the more fuel efficient Saab 340 aircraft.
Provisions of the Airlink Agreement with Northwest protect Mesaba from
changes in fuel prices. Mesaba's actual cost of fuel, including taxes and
pumping fees, was 83.5 cents per gallon both in the third quarter and a
year ago. Unit cost for fuel decreased 16.7% to 1.0 cents from 1.2
cents. Northwest provides fuel for the jet operation at its expense.
Direct maintenance expense, excluding wages and benefits, increased 15.7%
to $18,309 in the third quarter of fiscal 2000 from $15,823 in the third
quarter of fiscal 1999. This increase was primarily attributable to the
addition of seven RJ85 aircraft to the fleet. Unit cost for direct
maintenance decreased 6.9% to 2.7 cents from 2.9 cents.
Aircraft rents increased 17.5% to $22,015 in the third quarter of fiscal
2000 from $18,734 in the third quarter of fiscal 1999. This increase is
primarily attributable to the addition of seven RJ85 aircraft when
compared to one year ago. Mesaba has taken delivery one RJ85 aircraft
during the third quarter. Unit cost for aircraft rents decreased 5.9% to
3.2 cents from 3.4 cents.
Total landing fees increased 4.5% to $1,850 in the third quarter of fiscal
2000 compared to $1,771 for the third quarter of fiscal 1999. The increase
is attributable to an increase in the overall effective landing fee rate.
Unit cost for landing fees were 0.3 cents for both periods. Northwest pays
for landing fees for the jet operation at its expense.
Insurance and taxes decreased 38.1% to $1,431 in the third quarter of
fiscal 2000 compared to $2,313 for the third quarter of fiscal 1999. This
is due primarily to a reduction in passenger liability insurance rates.
This reduction was offset by increased passenger volume and increased hull
values associated with the number of aircraft in the fleet. Due to the
additional capacity generated by the jet and turboprop equipment, unit cost
for insurance and taxes decreased 50.0% to 0.2 cents from 0.4 cents.
Depreciation and amortization increased 49.6% to $3,690 in the third
quarter of fiscal 2000 compared to $2,467 in the third quarter of fiscal
1999. The higher level of depreciation and amortization resulted from the
acquisition of spare parts to support the Saab 340 and RJ fleet. 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
36. These fees are being amortized on a straight- line basis over the
<PAGE>
remaining term of the Jet Agreement. Unit cost for depreciation and
amortization were 0.5 cents for both periods.
Administrative and other costs decreased 6.0% to $10,598 in the third
quarter of fiscal 2000 compared to $11,274 in the third quarter of fiscal
1999. This decrease is primarily attributable to lower pilot training and
crew-related expenses, excluding wages and benefits, associated with
increased flying. Unit cost for administrative and other costs decreased
23.8% to 1.6 cents from 2.1 cents. Mesaba is generally not required to
provide airport and passenger related expenses for the jet operation.
OPERATING INCOME. Operating income totaled $11,593 in the third quarter,
an increase of 13.2% from $10,242 a year ago. Mesaba's operating margin
increased to 11.5% from 11.4% in the prior year's third quarter.
NONOPERATING INCOME. Nonoperating income increased to $1,278 in the third
quarter from $790 in the prior year's third quarter as a result of
additional interest income due to higher average levels of cash and cash
equivalents.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 39.0% in
the third quarter of fiscal 2000 and fiscal 1999.
<PAGE>
Results of Operations for the Nine Months Ended December 31, 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 $24,245 or $1.15 per
diluted share for the nine months ended December 31, 1999, compared to
$14,843 or $0.69 per share in the same period of fiscal 1999. Weighted
average shares outstanding decreased to 21,099 from 21,541. On August 29,
1998 the Company temporarily suspended operations as a result of the pilot
strike at Northwest Airlines. The Company resumed service on September 16,
1998. The suspension of operations had a material adverse affect on the
results of operations for the previous fiscal year.
OPERATING REVENUES. Total operating revenues increased 25.4% in the first
nine months of fiscal 2000 to $303,326 from $241,799 in the year earlier
period, and revenue passenger miles increased 41.6% to 1,160,259 from
819,130. Passenger revenue per available seat mile ("RASM") decreased to
$0.151 from $0.165 in the year earlier period. Unit revenue is decreasing,
as expected, due to the introduction of additional RJ85 aircraft, for which
Mesaba is not required to pay for all costs associated with operating the
aircraft, therefore, Mesaba is not compensated for such costs. Mesaba's
average load factor was 58.5% in the nine-month period compared to 56.5%
during the same period a year ago. The improvement in traffic is
attributable to the introduction of seven RJ85 aircraft as well as overall
increases in passenger travel within the industry.
Operating Costs Per Nine months ended December 31
Available Seat Mile (Unit Cost) 1999 1998
- --------------------------------------------------------------------
Wages and benefits 3.7 CENTS 4.0 CENTS
Aircraft fuel costs 1.0 1.3
Aircraft maintenance costs 2.6 2.8
Aircraft rents 3.3 3.5
Landing fees 0.3 0.4
Insurance and taxes 0.2 0.4
Depreciation and amortization 0.5 0.5
Administrative and other costs 1.8 2.2
------- -------
Total 13.4 CENTS 15.1 CENTS
Nine months ended December 31,
Operating statistics 1999 1998
- --------------------------------------------------------------------
Revenue passengers carried 4,324,700 3,214,900
Revenue passenger miles (000) 1,160,259 819,130
Available seat miles (000) 1,984,479 1,449,567
Passenger load factor 58.5% 56.5%
Passenger revenue per available seat mile $0.151 $0.165
Departures 206,831 174,555
Aircraft in service 102 96
<PAGE>
OPERATING EXPENSES. Total operating expenses increased 21.5% to $266,481
from $219,287 in the prior year's first nine months. Mesaba's unit cost
decreased 11.3% to $0.134 from $0.151 as a result of a 36.9% increase in
available seat miles to 1,984,479 in the first nine months of fiscal 2000
from 1,449,567 in the year earlier period. The increase in ASMs was
primarily accomplished by the acquisition of seven RJ85s when compared to
one year ago.
Wages and benefits increased 25.8% to $73,402 in the first nine months of
fiscal 2000 from $58,331 in the first nine months of fiscal 1999. The
majority of the increase is a result of higher cost of flight crews and
ground support personnel due to a 23.8% increase in block hours and the
addition of flight crews to support the introduction of the RJ85. The
increased capacity generated by the additional jet equipment has caused
these costs to be reduced on a unit cost basis 7.5% to 3.7 cents from 4.0
cents.
Fuel costs increased 6.1% to $20,288 in this year's first nine months
compared to $19,128 in last year's first nine months. The increase is
primarily attributable to an increased consumption due to a 12.4%
additional block hours flown offset by higher utilization of the more
fuel-efficient Saab 340 aircraft. Provisions of the Airlink Agreement with
Northwest protect Mesaba from fluctuations in fuel prices. Mesaba's cost of
fuel, including taxes and pumping fees, was 83.5 cents per gallon both in
the current nine-month period and a year ago. Unit cost for fuel
decreased 23.1% to 1.0 cents from 1.3 cents. Northwest provides fuel for
the jet operation at its expense.
Direct maintenance expense, excluding wages and benefits, increased 25.8%
to $51,291 in the first nine months of fiscal 2000 from $40,781 in the
first nine months of fiscal 1999. This increase was primarily attributable
to the addition of seven RJ85 aircraft to the fleet and increased
utilization of the Saab 340 fleet. Unit costs for direct maintenance
decreased 7.1% to 2.6 cents from 2.8 cents.
Aircraft rents increased 27.5% to $65,421 in the first nine months of
fiscal 2000 from $51,297 in the first nine months of fiscal 1999. This
increase is primarily attributable to the addition of seven RJ85
aircraft. Mesaba has taken delivery of seven RJ85 aircraft during the
current nine-month period. Unit cost for aircraft rents decreased 5.7%
to 3.3 cents from 3.5 cents.
Total landing fees increased 12.5% to $5,652 in the first nine months of
fiscal 2000 compared to $5,026 for the first nine months of fiscal 1999.
The increase is attributable to an 8.1% increase in the total gross landed
weight due to increased turbo-prop activity and a 2.4% increase in the
overall effective landing fee rate. Unit cost for landing fees decreased
25.0% to 0.3 cents from 0.4 cents. Northwest provides landing fees for
the jet operation at its expense.
Insurance and taxes decreased 35.7% to $4,137 in the first nine months of
fiscal 2000 compared to $6,433 for the first nine months of fiscal 1999.
This is due primarily to reduction in passenger liability insurance rates
offset by an increase in passenger liability insurance associated with
increased passenger volume. Due to the additional capacity generated by
the larger jet and turboprop equipment, unit cost for insurance and taxes
decreased 50.0 % to 0.2 cents from 0.4 cents.
Depreciation and amortization increased 54.4% to $10,499 in the first nine
months of fiscal 2000 compared to $6,799 in the first nine month of fiscal
1999. The higher level of depreciation and amortization resulted from
increased expenditures associated with ground support equipment to support
the additional cities served as a part of the expanded flights out of the
<PAGE>
Minneapolis/St. Paul hub and the acquisition of spare parts to support the
Saab fleet. Unit cost for depreciation and amortization remained unchanged
at 0.5 cents.
Administrative and other costs increased 13.7% to $35,791 in the first nine
months of fiscal 2000 compared to $31,492 in the first nine months of
fiscal 1999. This increase is primarily attributable to higher crew and
ground operations related expenses, excluding wages and benefits,
associated with increased flying. Due to the additional capacity
generated by the larger jet and turboprop equipment, unit cost for
administrative and other costs decreased 18.2% to 1.8 cents from 2.2
cents.
OPERATING INCOME. Operating income totaled $36,845 in the current nine-month
period, an increase of 63.7% from $22,512 a year ago. Mesaba's operating margin
increased to 12.1% from 9.3% in the prior year's first nine months.
NONOPERATING INCOME. Nonoperating income decreased to $2,906 in the current
nine-month period from $3,132 in the prior year's first nine months as a
result of a $0.8 million one-time gain on the sale of surplus aircraft parts
in fiscal 1999 offset by higher levels of interest income due to higher
average cash balances.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 39.0% in
the first nine months of fiscal 2000 and in fiscal 1999.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company's working capital increased to $87,915 with a current ratio of
2.8 at December 31, 1999 compared to $68,680 and 2.4 at March 31, 1999.
Cash and cash equivalents decreased by $1,069 to $82,083 at December 31,
1999. Net cash flows provided by operating activities totaled $12,671 in
the first nine months of fiscal 2000 compared to $26,407 in the first nine
months of fiscal 1999. Net cash flows used for investing activities
amounted to $15,940 during the nine months ended December 31, 1999 compared
to $16,521 in the same period last year. Net cash flows provided by
financing activities through December 31, 1999 totaled $2,200 compared to
$2,115 in the same period last year.
Long-term obligations, net of current maturities, totaled $4,041 at
December 31, 1999 compared to $4,359 at March 31, 1999. The ratio of
long-term debt to stockholders' equity decreased to .03 at December 31,
1999 from .04 at March 31, 1999.
As of January, 2000, Mesaba's fleet consisted of 103 aircraft covered under
operating leases with remaining terms of two months to 16.5 years and an
aggregate monthly lease payments of approximately $8.6 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 10 years. Northwest has agreed to lease a total of 36 RJ85
aircraft to Mesaba under similar terms. The remaining seven undelivered
aircraft will require additional monthly lease payments of approximately
1.0 million per month and will be funded from operations. Continued
funding of the monthly minimum lease payments is ensured as long as the
current operating contracts with Northwest are in effect.
During September 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 of $92 until January 29, 2029 as part of Special
Facilities Bond financing provided by Cincinnati/Northern Kentucky Airport
Authority. A separate ground lease has a 30-year term concurrent with the
facilities lease, which expires January 29, 2029. Monthly lease payments
of $10.4 are required under the ground lease. Mesaba intends to make these
lease payments from operations.
The Company has historically relied upon cash balances and internally
generated funds to support its working capital requirements. Management
believes that funds from operations will provide adequate resources for
meeting non-aircraft capital needs in fiscal 2000.
<PAGE>
Part II.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b)Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended December 31, 1999
<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 14, 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)
<PAGE>
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