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, 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 August 8, 2000
------------------------ --------------------------------
Common Stock
par value $.01 per share 20,268,641
<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 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
June 30, March
31,
2000 2000
(Unaudited)
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 110,218 $ 100,172
Accounts receivable, net 19,467 20,090
Inventories 6,171 6,103
Prepaid expenses and deposits 4,250 4,371
Deferred tax asset 9,216 9,216
----------- -----------
Total current assets 149,322 139,952
PROPERTY AND EQUIPMENT:
Facilities under capital lease 9,147 9,147
Flight equipment 57,500 55,446
Other property and equipment 28,117 26,676
Accumulated depreciation and amortization (40,692) (37,160)
----------- -----------
Net property and equipment 54,072 54,109
OTHER ASSETS AND DEFERRED COSTS 13,104 13,663
----------- -----------
TOTAL ASSETS $ 216,498 $ 207,724
=========== ===========
The accompanying notes to 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,
2000 2000
----------- -----------
(Unaudited)
CURRENT LIABILITIES:
Current maturities of long-term
obligations $ 439 $ 429
Accounts payable 11,304 13,003
Accrued liabilities
Payroll 6,690 8,271
Maintenance 14,172 14,064
Other 14,233 8,919
----------- -----------
Total current liabilities 46,838 44,686
LONG-TERM OBLIGATIONS, net of current
maturities 3,753 3,866
OTHER NONCURRENT LIABILITIES 13,460 14,454
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 60,000,000
shares authorized, 20,268,641 and
20,176,141 shares issued and outstanding,
respectively 203 203
Paid-in capital 49,438 49,427
Warrants 16,500 16,500
Retained earnings 86,306 78,588
----------- -----------
Total shareholders' equity 152,447 144,718
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 216,498 $ 207,724
=========== ===========
The accompanying notes to 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,
2000 1999
----------- -----------
OPERATING REVENUES:
Passenger $ 106,117 $ 98,789
Other 1,709 1,026
----------- -----------
Total operating revenues 107,826 99,815
OPERATING EXPENSES:
Wages and benefits 25,822 23,408
Aircraft fuel costs 6,564 6,671
Aircraft maintenance costs 18,981 16,313
Aircraft rents 24,715 21,047
Landing fees 1,724 1,895
Insurance and taxes 1,526 1,332
Depreciation and amortization 4,091 3,267
Administrative and other costs 12,678 11,854
----------- -----------
Total operating expenses 96,101 85,787
Operating income 11,725 14,028
OTHER INCOME (EXPENSE):
Interest Income 1,551 942
Interest expense (95) (105)
Other, net - 15
----------- -----------
Other income, net 1,456 852
Income before provision for income taxes 13,181 14,880
PROVISION FOR INCOME TAXES 5,463 5,804
----------- -----------
NET INCOME $ 7,718 $ 9,076
NET INCOME PER SHARE:
Earnings Per Share - Basic $ 0.38 $ 0.45
=========== ===========
Weighted Average Number of Shares
Outstanding - Basic 20,269 19,968
=========== ===========
Earnings Per Share - Diluted $ 0.37 $ 0.43
=========== ===========
Weighted Average Number of Shares
Outstanding and Common Share Equivalents
Outstanding - Diluted 20,956 21,266
=========== ===========
The accompanying notes to 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,
2000 1999
----------- -----------
OPERATING ACTIVITIES:
Net income $ 7,718 $ 9,076
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,089 3,267
Amortization of deferred credits (994) (994)
Changes in current operating items:
Accounts receivable, net 623 (4,558)
Inventories (68) 1,127
Prepaid expenses and deposits 121 (597)
Accounts payable and accrued liabilities 2,142 3,685
----------- -----------
Net cash provided by operating activities 13,631 11,006
INVESTING ACTIVITIES:
Purchase of property and equipment (3,493) (9,220)
FINANCING ACTIVITIES:
Issuance of common stock 11 1,848
Repayment of long-term obligations (103) (96)
----------- -----------
Net cash provided by (used for) financing (92) 1,752
activities
NET INCREASE IN CASH AND CASH EQUIVALENTS 10,046 3,538
CASH AND CASH EQUIVALENTS:
Beginning of period 100,172 83,152
----------- -----------
End of period $ 110,218 86,690
=========== ===========
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during period for:
Interest $ 95 $ 105
=========== ===========
Income taxes $ 620 $ 1,391
=========== ===========
The accompanying notes to 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, 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, 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 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
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.
<PAGE>
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. Per Share Data
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 4,617 and
3,648 were excluded from the computation of diluted earnings per share for
the years ended June 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.
June 30,
2000 1999
----------- -----------
Net Income $ 7,718 $ 9,076
=========== ===========
For Earnings Per Share - Basic:
Weighted average number of issued shares
outstanding 20,269 19,968
Effect of dilutive securities -
Computed shares outstanding under the
Company's stock option plan utilizing the
treasury stock method 244 338
Computed shares outstanding under warrants
issued utilizing the treasury stock method 443 960
----------- -----------
For earnings per Share - Diluted:
Weighted average common shares and common
share equivalents outstanding 20,956 21,266
=========== ===========
Earnings Per Share - Basic $ 0.38 $ 0.45
=========== ===========
Earnings Per Share - Diluted $ 0.37 $ 0.43
=========== ===========
<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, 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 $7,718 or $0.37
earnings per diluted share for the three months ended June 30, 2000,
compared to $9,076 or $0.43 earnings per diluted share in the same period
of fiscal 1999.
OPERATING REVENUES. Total operating revenues increased 8.0% in the first
quarter of fiscal 2001 to $107,826 from $99,815 in the year earlier
quarter, and revenue passenger miles increased 21.2% to 440,087 from
363,062. Passenger revenue per available seat mile ("RASM") decreased to
$0.145 from $0.159 in the previous year's first quarter. During the first
quarter of fiscal 2001, Mesaba experienced a number of operational
challenges, including the collapse of its maintenance facility in Detroit
during a severe storm, pilot shortages and unseasonably severe weather in
Minneapolis and Detroit. Management estimates that these operational
issues negatively impacted operating revenues by approximately $3.0
million. Mesaba's average load factor was 60.1% in the current quarter
compared to 58.4% during the same period a year ago. The improvements in
traffic and load factor are attributable to the introduction of eight RJ85
aircraft as well as overall increases in passenger travel within the
industry.
OPERATING EXPENSES. Total operating expenses increased 12.0% to $96,101
from $85,787 in the prior year's first quarter. Mesaba's unit cost
decreased 5.1% to $0.131 from $0.138 as a result of a 17.7% increase in
available seat miles ("ASM") to 731,951 in the first quarter of fiscal
2001 from 621,794 in the first quarter of fiscal 2000. The increase in
ASMs was accomplished by the acquisition of eight RJ85 aircraft since June
30, 1999.
Operating Costs Per Three months ended June 30,
Available Seat Mile (Unit Cost) 2000 1999
---------------------------------- ------------ ------------
Wages and benefits 3.5 CENTS 3.8 CENTS
Aircraft fuel costs 0.9 1.1
Aircraft maintenance costs 2.6 2.6
Aircraft rents 3.4 3.4
Landing fees 0.2 0.3
Insurance and taxes 0.2 0.2
Depreciation and amortization 0.5 0.5
Administrative and other costs 1.7 1.9
------------ ------------
Total 13.1 CENTS 13.8 CENTS
<PAGE>
Three months ended June 30,
Operating statistics 2000 1999
---------------------------------- ------------ ------------
Revenue passengers carried 1,557,900 1,398,000
Revenue passenger miles (000) 440,087 363,062
Available seat miles (000) 731,951 621,794
Passenger load factor 60.1% 58.4%
Passenger revenue per available seat mile $0.145 $0.159
Departures 67,877 67,694
Aircraft in service 109 101
Wages and benefits increased 10.3% to $25,822 in the first quarter of
fiscal 2001 from $23,408 in the first quarter of fiscal 2000. The majority
of the increase is a result of the higher cost of flight crews due to a 7.5%
increase in total block hours and the addition of flight crews to support
the introduction of the additional RJ85. Mesaba also experienced an increase
in wage and benefits costs paid to support personnel due to the beginning of
ground handling operations for the RJ85 aircraft at the Minneapolis/St. Paul
airport. However, the increased capacity generated by the additional jets
has caused these costs to be reduced on a unit cost basis from 3.8 cents to
3.5 cents.
Fuel costs decreased 1.6% to $6,564 in this year's first quarter
compared to $6,671 in last year's first quarter. The decrease is
attributable to decreased consumption due to fewer block hours flown by
turbo-prop aircraft. 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 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
16.4% to $18,981 in the first quarter of fiscal 2001 from $16,313 in the
first quarter of fiscal 2000. This increase was primarily attributable to
the addition of eight additional RJ85 aircraft in the fleet when compared
to a year ago. Unit cost however remained unchanged at 2.6 cents.
Aircraft rents increased 17.4% to $24,715 in the first quarter of
fiscal 2001 from $21,047 in the first quarter of fiscal 2000. This
increase is primarily attributable to the addition of eight RJ85
aircraft. Mesaba has taken delivery of three RJ85 aircraft during the
current period. Unit cost remained unchanged at 3.4 cents.
Total landing fees decreased 9.0% to $1,724 in the first quarter of
fiscal 2001 compared to $1,895 for the first quarter of fiscal 2000. The
decrease is attributable to an 8.3% decrease in turbo-prop departures as
well as a slight decrease in the overall effective landing fee rate. Unit
cost decreased 33.3% to 0.2 cents from 0.3 cents. Mesaba is not required
to pay for landing fees for the jet aircraft.
Insurance and taxes increased 14.6% to $1,526 in the first quarter of
fiscal 2001 compared to $1,332 for the first 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
lower overall average fleet age when compared to one year ago. Unit cost
remained unchanged at 0.2 cents.
Depreciation and amortization increased 25.2% to $4,091 in the first
quarter of fiscal 2001 compared to $3,267 in the first quarter of fiscal
2000. 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
<PAGE>
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 rights fee 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 remained unchanged at 0.5 cents.
Administrative and other costs increased 7.0% to $12,678 in the first
quarter of fiscal 2001 compared to $11,854 in the first quarter of fiscal
2000. 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, unit cost decreased 10.5% to 1.7 cents from 1.9
cents. Mesaba is generally not required to provide airport and passenger
related expenses for the jet operation.
OPERATING INCOME. Operating income totaled $11,725 in the current period, a
decrease of 16.4% from $14,028 a year ago. Mesaba's operating margin
decreased to 10.9% from 14.0% in the prior year's first quarter.
NONOPERATING INCOME. Nonoperating income increased to $1,456 in the
current quarter from $852 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 41.5% in
the first quarter of fiscal 2001 and 39.0% in fiscal 1999.
<PAGE>
Liquidity and Capital Resources
The Company's working capital increased to $102,487 with a current
ratio of 3.2 at June 30, 2000 compared to $95,266 and 3.1 at March 31,
2000. Cash and cash equivalents increased by $10,046 to $110,218 at June
30, 2000. Net cash flows provided by operating activities totaled $13,630
in the first three months of fiscal 2001 compared to $11,006 in the first
three months of fiscal 2000. Net cash flows used for investing activities
amounted to $3,493 during the three months ended June 30, 2000 compared to
$9,220 in the same period last year. Net cash flows used for financing
activities through June 30, 2000 totaled $91 compared to $1,752 provided
by financing activities in the same period last year.
Long-term obligations, net of current maturities, totaled $3,753 at
June 30, 2000 compared to $3,866 at March 31, 2000. Long-term debt
consists principally of capitalized lease financing for the
Minneapolis/St. Paul and Detroit hangar facilities. The ratio of
long-term debt to stockholders' equity was 2% at June 30, 2000 and 3% at
March 31, 2000.
As of August 1, 2000, Mesaba's fleet consisted of 109 aircraft covered
under operating leases with remaining terms of nine months to 16 years with
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 terms up to 17.5 years. Mesaba leases its RJ85
aircraft from Northwest under operating leases with terms of up to 10 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 June
30, 2000 are 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 and existing
cash balances will provide adequate resources for meeting non-aircraft
capital needs in fiscal 2001.
<PAGE>
Part II.
Item 6. Exhibits and Reports on Form 8-K
a) The following exhibits are filed with this report:
None
<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, 2000 BY:/s/ Robert E. Weil
-------------------------
Robert H. Weil
Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Jon R. Meyer
-------------------------
Jon R. Meyer
Director of Accounting/Controller
(Principal Accounting Officer)
