FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission file number 000-23447
MIDWAY AIRLINES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3915637
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 WEST MORGAN STREET, SUITE 1200
DURHAM, NORTH CAROLINA 27701
(Address of principal executive offices)
(Zip Code)
919-956-4800
(Registrant's telephone number, including area code)
Indicate by checkmark 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 |_|
As of November 12, 1998 there were 8,602,395 shares of Common Stock, $.01 par
value, of the registrant outstanding.
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
<PAGE>
Midway Airlines Corporation
BALANCE SHEETS
(Dollars in Thousands)
September 30 December 31
1998 1997
(unaudited)
----------- ----------
Assets
Current assets:
Cash and cash equivalents $ 28,381 $ 54,509
Restricted cash 10,770 2,811
Short-term investments 8,250 751
Accounts receivable:
Credit cards 6,392 1,937
Travel agencies 7,502 5,443
Other 2,208 674
Inventories 3,078 2,109
Deferred tax asset 352 --
Prepaids and other 15,335 6,723
--------- ---------
Total current assets 82,268 74,957
Equipment and property
Flight 105,671 45,214
Other 6,523 5,968
Less accumulated depreciation and
amortization (9,025) (4,608)
--------- ---------
Total equipment and property, net 103,169 46,574
Other noncurrent assets:
Equipment and aircraft purchase deposits 16,786 17,133
Aircraft lease deposits and other 5,038 3,448
--------- ---------
Total other noncurrent assets 21,824 20,581
Total assets $ 207,261 $ 142,112
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 7,503 $ 6,777
Accrued expenses 5,543 4,324
Accrued income and excise taxes 3,699 5,119
Advance ticket sales 28,461 21,859
Other current liabilities 4,216 5,709
Current maturities of long-term debt and
capital leases obligations 5,283 9,016
--------- ---------
Total current liabilities 54,705 52,804
Noncurrent liabilities:
Long-term debt & capital lease obligations 79,766 39,187
Deferred tax liabilities 5,403 --
Other 180 308
--------- ---------
Total noncurrent liabilities 85,349 39,495
--------- ---------
Total liabilities 140,054 92,299
Stockholders' equity:
Preferred Stock -- --
Common Stock 86 85
Additional paid-in-capital 51,229 45,364
Retained earnings ($49.8 million of
accumulated deficit eliminated in the
quasi-reorganization as of June 30, 1997) 15,892 4,364
--------- ---------
Total stockholders' equity 67,207 49,813
Total liabilities and stockholders' equity $ 207,261 $ 142,112
========= =========
See accompanying notes.
<PAGE>
Midway Airlines Corporation
Statements of Operations
(Dollars in Thousands)
For the Three Months Ended
September 30,
1998 1997 (1)
----------- -----------
(Unaudited)
Operating revenues:
Passenger $ 48,151 $ 41,211
Cargo 627 493
Contract and Other 693 1,418
----------- -----------
Total revenues 49,471 43,122
Operating expenses:
Wages, salaries and related costs 7,969 6,208
Aircraft fuel 4,734 4,907
Aircraft and engine rentals 7,355 7,335
Commissions 3,205 3,200
Maintenance, materials and repairs 3,875 3,832
Other rentals and landing fees 2,420 2,393
Depreciation and amortization 1,759 612
Other 14,192 11,828
Special recapitalization charges -- --
----------- -----------
Total operating expenses 45,509 40,315
----------- -----------
Operating income 3,962 2,807
Other income (expense)
Interest income 1,100 512
Interest expense (1,727) (448)
----------- -----------
Total other income (expense) (627) 64
----------- -----------
Income before income taxes and
extraordinary gain 3,335 2,871
Income tax expense (960) (1,149)
----------- -----------
Income before extraordinary gain 2,375 1,722
Extraordinary gain -- --
----------- -----------
Net income $ 2,375 $ 1,722
=========== ===========
Earnings per share ($)
Basic earnings per share:
Income before extraordinary gain $ 0.28 $ 0.29
Extraordinary gain -- --
----------- -----------
Net income $ 0.28 $ 0.29
Diluted earnings per share:
Income before extraordinary gain $ 0.24 $ 0.28
Extraordinary gain -- --
----------- -----------
Net income $ 0.24 $ 0.28
Weighted average shares used in
computing earnings per share
Basic 8,577,747 5,859,375
Diluted 9,727,215 6,249,858
(1) Certain September 30, 1997 amounts were reclassified to reflect
classifications in the December 31, 1997 audited financial statements and
September 30, 1998 unaudited interim financial statements.
See accompanying notes.
<PAGE>
Midway Airlines Corporation
Statements of Operations
(Dollars in Thousands)
For the Nine Months Ended
September 30,
1998 1997 (1)
----------- -----------
(Unaudited)
Operating revenues:
Passenger $ 151,429 $ 132,900
Cargo 1,592 1,493
Contract and Other 2,679 3,820
----------- -----------
Total revenues 155,700 138,213
Operating expenses:
Wages, salaries and related costs 23,600 18,597
Aircraft fuel 14,745 16,145
Aircraft and engine rentals 22,088 22,850
Commissions 11,368 10,321
Maintenance, materials and repairs 12,003 12,401
Other rentals and landing fees 7,200 7,406
Depreciation and amortization 4,293 1,379
Other 40,435 35,983
Special recapitalization charges -- 1,225
----------- -----------
Total operating expenses 135,732 126,307
----------- -----------
Operating income 19,968 11,906
Other income (expense)
Interest income 3,022 1,314
Interest expense (4,400) (1,225)
----------- -----------
Total other income (expense) (1,378) 89
----------- -----------
Income before income taxes
and extraordinary gain 18,590 11,995
Income tax expense (7,062) (5,015)
----------- -----------
Income before extraordinary gain 11,528 6,980
Extraordinary gain -- 15,272
----------- -----------
Net income $ 11,528 $ 22,252
=========== ===========
Earnings per share ($)
Basic earnings per share :
Income before extraordinary gain $ 1.35 $ 1.19
Extraordinary gain -- 2.61
----------- -----------
Net income $ 1.35 $ 3.80
Diluted earnings per share:
Income before extraordinary gain $ 1.18 $ 1.12
Extraordinary gain -- 2.44
----------- -----------
Net income $ 1.18 $ 3.56
Weighted average shares used in
computing earnings per share
Basic 8,566,408 5,859,375
Diluted 9,765,177 6,249,858
(1) Certain September 30, 1997 amounts were reclassified to reflect
classifications in the December 31, 1997 audited financial statements and
September 30, 1998 unaudited interim financial statements.
See accompanying notes.
<PAGE>
Midway Airlines Corporation
Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31
1998 1997 1997
----------------------- --------
(Unaudited)
<S> <C> <C> <C>
Operating Activities
Net income $ 11,528 $ 22,252 $ 24,894
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 4,293 1,379 1,999
Capitalized interest on purchase deposits (597) -- --
Special recapitalization charge -- 1,225 750
Extraordinary gain -- (15,272) (15,969)
Provision for deferred income taxes 5,052
Loss on disposition of assets 60 -- --
Changes in operating assets and liabilities
Restricted cash (7,959) (1,037) (811)
Accounts receivable (8,054) (9,380) (1,760)
Inventories (968) (337) (1,714)
Prepaid and other (2,461) (2,137) (226)
Aircraft lease deposits and other (660) (294) (462)
Accounts payable and accrued expenses 1,947 3,586 897
Accrued excise taxes and income taxes (1,914) 120 (1,505)
Advance ticket sales 6,603 7,464 2,708
Other current liabilities (1,486) (2,514) 243
Other noncurrent liabilities (131) (94) (279)
-------- -------- --------
Net cash provided by operating activities 5,253 4,961 8,765
======== ======== ========
Investing activities
Purchase of short-term investments (8,250) (73,758) (78,278)
Sale of short-term investments 751 60,826 77,527
Purchase of equipment and property (6,027) (7,096) (7,335)
Aircraft and equipment purchase deposits (975) (1,350) (17,133)
-------- -------- --------
Net (cash used) in investing activities (14,501) (21,378) (25,219)
======== ======== ========
Financing activities
Issuance of common and preferred stock 156 22,000 60,257
Proceeds from issuance of long-term debt 1,800 -- --
Repayment of long-term debt (19,025) (1,570) (1,481)
Accreted interest on long-term debt 441 1,114 1,518
Principal payments on capital lease obligations (252) (109) (136)
-------- -------- --------
Net cash (used in) provided by financing
activities (16,880) 21,435 60,158
======== ======== ========
Increase (decrease) in cash and cash equivalents (26,128) 5,018 43,704
-------- -------- --------
Cash and cash equivalents, beginning of period 54,509 10,805 10,805
Cash and cash equivalents, end of period $ 28,381 $ 15,823 $ 54,509
======== ======== ========
Supplemental cash flow information
Interest paid $ 2,447 $ 117 $ 125
======== ======== ========
Income taxes paid $ 6,204 $ 1,500 $ 2,600
======== ======== ========
Schedule of non-cash activities
Issuance of long-term debt for assets $ 51,425 $ 300 $ 34,531
Receivable offset against related
liabilities $ -- $ (59) $ (59)
</TABLE>
See accompanying notes.
<PAGE>
Midway Airlines Corporation
Notes to Financial Statements
(Information as of September 30, 1998 and for the nine months
ended September 30, 1998 is unaudited.)
1. Basis of Presentation
The interim financial statements of Midway Airlines Corporation (the "Company")
included herein are unaudited and have been prepared in accordance with
generally accepted accounting principles ("GAAP") for interim financial
reporting and, pursuant to the rules and regulations of the Securities and
Exchange Commission. The information furnished in the interim financial
statements includes normal recurring adjustments and reflects all adjustments
which, in the opinion of management, are necessary for a fair presentation of
such financial statements. The results of operations for any interim period
presented are not necessarily indicative of the results to be expected for any
other period. Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission, although the Company
believes that the disclosures are adequate to make the information presented not
misleading. These condensed financial statements should be read in conjunction
with the financial statements, and the notes thereto, included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
2. Significant Accounting Policies and Other Matters
Use of Estimates and Assumptions
Preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during that reporting period. Actual results could differ from those estimates.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include investments with an original maturity of three
months or less or which may be redeemed without penalty at any time. These
investments are stated at cost, which approximates market value. As of September
30, 1998 and December 31, 1997, approximately $10.8 million and $2.8 million,
respectively, of cash and cash equivalents were restricted as to withdrawal;
these funds serve as collateral to support letters of credit and a credit card
holdback, and are classified as restricted cash in the balance sheets.
Short-term Investments
Short-term investments consist of government securities and corporate bonds
which mature between three months and one year of the original investment date.
These investments are carried at cost, which approximates market value.
Hedged Loan Obligations
During December 1997, the Company entered into four Treasury Lock transactions
with Bombardier, Inc. The amount paid totaled $1.2 million which is recorded as
a long-term debt cost and will be amortized over the life of the related loans.
Income Taxes
Net operating loss carry forward tax benefits which originated prior to the
quasi-reorganization are credited to additional paid-in capital, when utilized,
in accordance with the provisions of Statement of Financial Accounting Standards
No. 109.
<PAGE>
Earnings per Share
At the time of the Company's initial public offering, a stock split of
682.9108392 for one was adopted and the holders of the Company's outstanding
preferred stock converted those shares into an equivalent number of common
shares. The per share amounts for the nine months ended September 30, 1997 have
been restated to reflect the stock split and the conversion of the Company's
preferred stock. The per share amounts for the three months ended September 30,
1997 have been restated showing the effect of the stock split and conversion
of the preferred stock.
Impact of Recently Issued Accounting Standards
In February 1998, the staff of the Securities and Exchange Commission issued
Staff Accounting Bulletin 98 ("SAB 98"), which revised the guidance for certain
earnings per share calculations related to an initial public offering. As a
result of SAB 98, the Company restated its September 30, 1997 net income per
share of $3.19 as presented in its Form S-1 registration statement, by excluding
the effect of cheap stock and recalculating the potentially dilutive effect of
securities under the provisions of SAB 98.
3. Prepaids and Other
Prepaids and Other consist of the following (in thousands):
September 30 December 31
1998 1997
--------------------------
Prepaid income taxes $6,204 $ 0
Prepaid EETC costs 2,639 0
Prepaid commissions 1,667 1,597
Prepaid passenger booking costs 1,991 1,392
Other 2,834 3,734
--------------------------
$15,335 $6,723
==========================
4. Other Current Liabilities
Other current liabilities consist of the following (in thousands):
September 30 December 31
1998 1997
--------------------------
Maintenance $ 554 $1,992
Landing fees 370 561
Other 3,292 3,156
--------------------------
$4,216 $5,709
==========================
5. Long-Term Debt
In February 1998, the interim loans which financed the purchase of the first two
CRJ aircraft in December 1997 were refinanced. The third, fourth, and fifth
aircraft were received in March, April, and June 1998, respectively, with
permanent financing completed in March, April, and July 1998, respectively. All
five aircraft bear an effective interest rate of 7.2% for 16.5 years. The
Company's first five CRJ aircraft serve as collateral for its obligations under
the terms of each of these notes used to purchase the aircraft as well as the
other loans provided by the lender.
<PAGE>
In August 1998, the Company acquired a spare engine for the F-100 fleet. The
engine was financed over three years at 8.39%.
The aggregate principal maturities at September 30, 1998 are as follows (in
thousands):
Year Ended September 30,
- - ------------------------
1999 $ 5,139
2000 5,519
2001 5,947
2002 5,790
2003 6,287
Thereafter 56,084
-------
Principal Balance at September 30, 1998 $84,766
6. Capital and Operating Leases
In August 1998, the Company completed an offering of $109,722,000 of Pass
Through Certificates, also known as enhanced equipment trust certificates (the
"EETCs"). The EETCs are not direct obligations of, or guaranteed by, the Company
and therefore are not included in the Company's financial statements. The cash
proceeds from the EETCs are deposited with an escrow agent and enable the
Company to finance (through either leveraged leases or secured debt financings)
the debt portion of eight CRJ aircraft, the last of which is scheduled to be
delivered in June 1999. In connection with the EETCs, the Company intends to
seek certain owner participants which will commit lease equity financing to be
used in leveraged leases of such aircraft. The Company has arranged for equity
participation for the first three CRJ aircraft, two of which were delivered in
September 1998 and one in October 1998.
At September 30, 1998, the future minimum lease payments required under the
operating leases entered into since December 31, 1997, that have initial or
remaining noncancelable lease terms in excess of one year are as follows (in
thousands):
Operating
---------
Year ended September 30,:
1999 $ 3,844
2000 3,064
2001 3,064
2002 3,064
2003 3,064
Thereafter 29,856
-------
Total minimum lease payments $45,956
=======
7. Earnings per Share of Common Stock
The following table sets forth the computation of basic and diluted earnings per
share:
<PAGE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- -------------------------
1998 1997(1) 1998 1997(1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Net income(2) $ 2,375,000 $ 1,722,000 $11,528,000 $22,252,000
Denominator:
Denominator for basic earnings per share--
weighted average shares 8,577,747 5,859,375 8,566,408 5,859,375
Effect of dilutive securities:
Employee stock options 758,878 0 808,176 0
Warrants 390,590 390,483 390,593 390,483
Dilutive potential common shares 1,149,468 390,483 1,198,769 390,483
-----------------------------------------------------
Denominator for diluted earnings per share--
adjusted weighted average shares 9,727,215 6,249,858 9,765,177 6,249,858
=====================================================
Basic earnings per share $ 0.28 $ 0.29 $ 1.35 $ 3.80
Diluted earnings per share 0.24 0.28 1.18 3.56
</TABLE>
(1) Options to purchase 1,005,245 shares of common stock at $4.02 per share
were outstanding during 1997 but were not included in the computation of
diluted earnings per share for the three and nine months ended September
30, 1997 because the exercise price of the options was equal to the
average market price of the common shares and, therefore, the effect would
be nondilutive.
(2) Numerator for basic and diluted earnings per share.
8. Commitments and Contingencies
The Company has executed an aircraft purchase agreement with Bombardier, Inc.
for the acquisition of up to 30 newly manufactured CRJ-200ER Canadair Regional
Jet ("CRJs") aircraft. As of September 30, 1998, the Company has taken delivery
of seven CRJ aircraft, with an additional thirteen aircraft scheduled to be
delivered through December 1999. The Company has options to acquire up to 10
additional CRJ aircraft over a two year period with delivery dates beginning in
the fourth quarter of 1999. In September 1998 the Company affirmed its decision
to return four Fokker F100s and its one Airbus to their lessors when the leases
were scheduled to expire between October 1998 and June 1999.
The Company expects to arrange a combination of third party debt and leveraged
lease financing for the additional CRJs now on order. In August 1998, the
Company completed an offering of $109,722,000 of EETCS financing a portion of
the purchase price of eight CRJ aircraft to be owned or leased by the Company.
In September 1998, leveraged lease transactions were closed for two of these
eight aircraft, and in November 1998 another leveraged lease transaction was
colded for the third of the eight aircraft. Lease payments are due semi-annually
in January and July.
For each aircraft that is purchased (as opposed to leased), the Company
anticipates an initial cash outlay of approximately $4 million. Standby lease
financing, on terms reasonably acceptable to management, has been arranged for
the CRJs to be delivered in 1999 and, if the options are exercised, to be
delivered in 2000.
Pursuant to an agreement with GE Aircraft Engines, a division of General
Electric International, Inc., the Company has agreed to purchase two CF34-3B1
spare engines to support the operation of the first ten CRJ aircraft. This
agreement also provides for the purchase of an additional spare engine for each
five CRJ aircraft Midway acquires. The Company expects to arrange financing for
the two spare CRJ engines the Company has agreed to acquire to date.
In September 1997, the Civil Aviation Security Division of the Federal Aviation
Administration ("FAA") conducted an investigation of the Company's compliance
with certain regulations requiring the Company to verify the accuracy of
background information provided by its employees who have access to secure
airport areas. The Company revised its background check procedures during the
course of the FAA's investigation and then obtained and verified the necessary
background information of those employees who had been identified by the FAA as
having insufficient background check documentation. This investigation will
likely result in the finding of violations of these regulations. While the
Company is unable to determine whether the FAA will pursue an assessment as a
result
<PAGE>
of the findings of this investigation, if such an assessment were sought, the
Company does not believe that such an assessment would have a material effect on
the Company.
The Company has been named as a defendant in certain pending litigation. The
outcome of these matters cannot be predicted, but it is management's belief that
whatever the outcome, the results will not, either individually or in the
aggregate have a material adverse effect on the Company's financial position,
results of operations or cash flows.
In March 1995, Midway reached an agreement with Airbus for the acquisition of
four firm Airbus A320 and four option A319 or A320 aircraft with deliveries
beginning in 1998. Pursuant to a renegotiation of the agreement in 1997, the
delivery dates of these aircraft have been moved to 2005 and later. The Company
is required to make deposits on the four firm aircraft in amounts to be
determined beginning in 2003. The Company is considering several alternatives
with respect to the A320s, including restructuring its agreement with Airbus or
selling its position.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Selected Operating Data
For the three months
ended September 30,
----------------------
1998 1997(1)
----------------------
Available seat miles (000s) 389,544 331,190
Revenue passenger miles (000s) 256,411 212,443
Load factor 65.8% 64.1%
Break-even load factor 61.3% 59.7%
Departures 9,329 6,516
Block hours 14,160 10,264
Total revenue per available seat mile (cents) 12.70 13.02
Yield (cents) 18.78 19.40
Average fare $93 $102
Cost per available seat mile (cents) 11.84 12.15
Onboard passengers 515,519 405,633
Average seats per departure 87 101
Average stage length 460 516
Aircraft (average during period) 18.5 13.0
Aircraft utilization (hours per day) 8.3 8.6
Fuel price per gallon (cents) 54.4 69.2
(1) Certain September 30, 1997 amounts were reclassified to reflect
classifications in the December 31, 1997 audited financial statements and
September 30, 1998 unaudited interim financial statements.
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
Capacity. In the three months ended September 30, 1998, the company
produced 390 million ASMs, an increase of 58 million or 17.6% over the three
months ended September 30, 1997. The increase in ASM production is attributable
to 43.2% more departures (to 9,329), offset by a 10.9% shorter average stage
length (to 460 miles) and 13.9% fewer seats per departure (to 87 seats). These
changes resulted from the addition over the past nine months of seven 50-seat
CRJs which added frequency to shorter routes and from the fact that the Company
began flying new shorter haul routes.
Operating Revenues. The Company's operating revenues increased 14.7% to
$49.5 million for the three months ended September 30, 1998 from $43.1 million
for the three months ended September 30, 1997. The increase is attributable to a
20.7% increase in revenue passenger miles to 256 million offset slightly by a
3.2% decrease in passenger yield (revenue per RPM) to 18.8 cents. Total revenue
per ASM decreased 2.5% to 12.70 cents per ASM due to the 1.7 percentage point
increase in load factor to 65.8% offset by the 3.2% decrease in yield. Cargo
revenue increased 27.2% to $0.6 million for the three months ended September 30,
1998 from $0.5 million for the three months ended September 30, 1997. The
increase is due to increased mail , baggage, and other cargo carried in the
three months ended September 30, 1998. Other revenue decreased 51.1% to $0.7
million for the three months ended September 30, 1998 from $1.4 million for the
three months ended September 30, 1997, due primarily to the revenue sharing
agreement with our commuter affiliate.
Operating Expenses. The Company's operating expenses increased 12.9% to
$45.5 million for the three months ended September 30, 1998 from $40.3 million
for the three months ended September 30, 1997. Total expenses increased
primarily due to the increases in number of employees, wages, commissions, and
depreciation expenses partially offset by reduction in fuel prices. Total
operating expense per ASM decreased 4.0% to 11.68 cents from 12.17 cents. This
decrease is attributable to the reduction in fuel prices and the spreading of
the company's fixed costs over the larger ASM base discussed above in
"Capacity", partially offset by increases in wages and salaries, and related
costs, including profit sharing, and depreciation expenses.
<TABLE>
<CAPTION>
Three months ended Three months ended
September 30 September 30
1998 1997 (1)
-------------------------- -------------------------
Percent Cost Percent Cost
of per ASM of per ASM
Total Expenses (cents) Total Expenses (cents)
-------------- ------- -------------- -------
<S> <C> <C> <C> <C>
Wages, salaries and related costs 17.3% 2.05 15.4% 1.87
Aircraft fuel 10.3 1.22 12.2 1.48
Aircraft and engine rentals 15.9 1.89 18.2 2.21
Commissions 6.9 0.82 8.0 0.97
Maintenance, materials and repairs 8.4 0.99 9.5 1.16
Other rentals and landing fees 5.2 0.62 6.0 0.72
Depreciation and amortization 3.8 0.45 1.5 0.19
Other operating expenses 30.8 3.64 29.4 3.57
----- ----- ----- -----
Sub-total operating expenses
before recapitalization 98.6% 11.68 100.2% 12.17
Recapitalization charge 0.0 -- 0.0 --
----- ----- ----- -----
Total operating expenses 98.6% 11.68 100.2% 12.17
Other (income) expense 1.4 0.16 -0.2 (0.02)
----- ----- ----- -----
Total expenses 100.0% 11.84 100.0% 12.15
===== ===== ===== =====
</TABLE>
(1) Certain September 30, 1997 amounts were reclassified to reflect
classifications in the December 31, 1997 audited financial statements and
September 30, 1998 unaudited interim financial statements.
Wages, salaries and related costs increased $1.8 million or 28.4% to $8.0
million for the three months ended September 30, 1998 from $6.2 million for the
three months ended September 30, 1997. The increase is attributable to 137
additional full time equivalent employees on average for the three months ended
September 30, 1998 from the three months ended September 30, 1997 due to
increased staffing associated with the addition of the CRJs both in flight crews
and staffing at the RDU hub, and increased staffing in reservations due to the
cancellation of a third
<PAGE>
party service contract in May 1997 and the work being brought in-house. Wages,
salaries and related cost per ASM increased 0.18 cents or 9.6% to 2.05 cents.
The increase in unit costs is attributable to the items noted above as well as
the changes noted in "Capacity".
Aircraft fuel expense decreased 3.5% to $4.7 million for the three months
ended September 30, 1998 from $4.9 million for the three months ended September
30, 1997. The decrease was due to a 21.4% decrease in the average fuel price per
gallon to 54.4 cents from 69.2 cents, and the flying of the lower fuel burn CRJ
aircraft, partially offset by the 38.0% increase in block hours. Aircraft fuel
expense per ASM decreased 17.6% to 1.22 cents from 1.48 cents.
Aircraft and engine rental expense remained stable at $7.4 and $7.3
million for the three months ended September 30, 1998 and 1997, respectively.
Aircraft and engine rentals expense per ASM decreased 14.5% to 1.89 cents from
2.21 cents. The decrease in cost per ASM resulted from a combination of the
17.6% increase in ASMs discussed above in "Capacity" and no rental expense from
the five owned CRJs added beginning in December 1997.
Commission expense remained stable at $3.2 million for the three months
ended September 30, 1998 and 1997. This was due to the 16.8% increase in
passenger revenues partially offset by a decrease of travel agency revenues as a
percent of passenger revenue to 63.4% from 68.1% and a decrease in the
commission rate. Commissions expense per ASM decreased 15.5% to 0.82 cents from
0.97 cents, primarily driven by the 2.5% decrease in revenue per available seat
mile to 12.70 cents from 13.02 cents and the items noted above.
Maintenance, materials and repairs expense increased slightly to $3.9
million for the three months ended September 30, 1998 from $3.8 million for the
three months ended September 30, 1997. While the expense was relatively stable,
the cost per aircraft decreased, which is largely attributable to the new
maintenance contracts on most of the Company's Fokker aircraft and the addition
of the new CRJ aircraft, offset somewhat by increases driven by the growth in
block hours. Maintenance, materials and repairs expense per ASM decreased 14.7%
to 0.99 cents from 1.16 cents due to the changes noted above.
Other rentals and landing fees expense remained stable at $2.4 million for
the three months ended September 30, 1998 and 1997. Other rentals and landing
fees expense per ASM decreased 13.9% to 0.62 cents from 0.72 cents due to
decreased facility rent at the Orlando hangar beginning in the second quarter,
lower landing fees for the relatively lighter CRJ aircraft, lower landing fees
at RDU, and increased departures and ASMs.
Depreciation and amortization expense increased 187.4% to $1.8 million for
the three months ended September 30, 1998 from $0.6 million for the three months
ended September 30, 1997. Depreciation and amortization expense per ASM
increased 136.8% to 0.45 cents from 0.19 cents in the three months ended
September 30, 1997. The increase is attributable to the purchase of the five
CRJs and approximately $10.9 million in other fixed assets (mostly spare parts)
since July 1, 1997.
Other operating expense increased 20.0% to $14.2 million for the three
months ended September 30, 1998 from $11.8 million for the three months ended
September 30, 1997. Other operating expenses consist primarily of reservations,
ground handling, advertising, general and administrative expense and insurance.
The expense increase is attributable to the 43.2% increase in departures and
27.1% increase in passengers, partially offset by savings in insurance,
marketing and administrative expenses. Other operating expense per ASM increased
2.0% to 3.64 cents from 3.57 cents in the three months ended September 30, 1997.
Net interest expense increased $0.7 million for the three months ended
September 30, 1998. The expense increase is attributable to the debt service for
the loans incurred to finance the purchase of the five CRJs and Fokker spare
engine financing.
For the nine months
ended September 30,
--------------------------
1998 1997(1)
--------- ---------
Available seat miles (000s) 1,150,462 1,042,067
Revenue passenger miles (000s) 749,952 652,955
Load factor 65.2% 62.7%
Break-even load factor(2) 57.2% 56.4%
Departures 25,888 19,930
Block hours 40,469 32,088
Total revenue per available seat mile (cents) 13.53 13.26
Yield (cents) 20.19 20.35
Average fare $103 $109
Cost per available seat mile (cents) 11.92 12.11
Onboard passengers 1,473,240 1,223,838
Average seats per departure 90 101
Average stage length 479 531
Aircraft (average during period) 16.9 13.0
Aircraft utilization (hours per day) 8.8 9.0
Fuel price per gallon (cents) 58.1 73.2
(1) Certain September 30, 1997 amounts were reclassified to reflect
classifications in the December 31, 1997 audited financial statements and
September 30, 1998 unaudited interim financial statements.
(2) Excludes restructuring and recapitalization expenses.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
Capacity. In the nine months ended September 30, 1998, the company
produced 1,150 million ASMs, an increase of 108 million or 10.4% over the nine
months ended September 30, 1997. The increase in ASM production is attributable
to 29.9% more departures (to 25,888), offset by a 9.8% shorter average stage
length (to 479 miles) and 10.9% fewer seats per departure (to 90 seats). These
changes resulted from the addition over the nine months ended
<PAGE>
September 30, 1998 of seven 50 seat CRJs which added frequency to shorter routes
and began flying new shorter haul routes, as well as the Company's cancellation
of service on certain longer haul routes.
Operating Revenues. The Company's operating revenues increased 12.7% to
$155.7 million for the nine months ended September 30, 1998 from $138.2 million
for the nine months ended September 30, 1997. The increase is attributable to a
14.9% increase in revenue passenger miles to 750 million and a 0.8% decrease in
passenger yield (revenue per RPM) to 20.19 cents. Total revenue per ASM
increased 2.0% to 13.53 cents per ASM due to the 0.8% decrease in yield combined
with a 2.5 percentage point increase in load factor to 65.2%. Cargo revenue
increased 6.6% to $1.6 million for the nine months ended September 30, 1998 from
$1.5 million for the nine months ended September 30, 1997. The increase is due
to increased mail and other cargo carried in the nine months ended September 30,
1998. Other revenue decreased 29.9% to $2.7 million for the nine months ended
September 30, 1998 from $3.8 million for the nine months ended September 30,
1997, due primarily to the revenue sharing agreement with our commuter
affiliate.
Operating Expenses. The Company's operating expenses increased 7.5% to
$135.7 million for the nine months ended September 30, 1998 from $126.3 million
for the nine months ended September 30, 1997. Total expenses increased primarily
due to the increases in number of employees, wages, commissions, and
depreciation expenses partially offset by reduction in fuel prices, and the
absence in the first nine months of 1998 of the special recapitalization charge
which was reflected in the first nine months of 1997. Total operating expense
per ASM decreased 2.6% to 11.80 cents from 12.12 cents. Excluding the one-time
charges for the Recapitalization in 1997, operating expense per ASM decreased
1.7% to 11.80 cents from 12.00 cents. This decrease is attributable to the
reduction in fuel prices and the spreading of the Company's fixed costs over the
larger ASM base discussed above in "Capacity", offset by increases in wages and
salaries and related costs, including profit sharing, and depreciation expenses.
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30 September 30
1998 1997 (1)
-------------------------- -------------------------
Percent Cost Percent Cost
of per ASM of per ASM
Total Expenses (cents) Total Expenses (cents)
-------------- ------- -------------- -------
<S> <C> <C> <C> <C>
Wages, salaries and related costs 17.2% 2.05 14.7% 1.79
Aircraft fuel 10.7 1.28 12.8 1.55
Aircraft and engine rentals 16.1 1.92 18.1 2.19
Commissions 8.3 0.99 8.2 0.99
Maintenance, materials and repairs 8.8 1.04 9.8 1.19
Other rentals and landing fees 5.3 0.63 5.9 0.71
Depreciation and amortization 3.1 0.37 1.1 0.13
Other operating expenses 29.5 3.52 28.5 3.45
----- ----- ----- -----
Sub-total operating expenses
before recapitalization 99.0% 11.80 99.1% 12.00
Recapitalization charge 0.0 -- 1.0 0.12
----- ----- ----- -----
Total operating expenses 99.0% 11.80 100.1% 12.12
Other (income) expense 1.0% 0.12 -0.1% (0.01)
----- ----- ----- -----
Total expenses 100.0% 11.92 100.0% 12.11
===== ===== ===== =====
</TABLE>
(1) Certain September 30, 1997 amounts were reclassified to reflect
classifications in the December 31, 1997 audited financial statements and
September 30, 1998 unaudited interim financial statements.
Wages, salaries and related costs increased $5.0 million or 26.9% to $23.6
million for the nine months ended September 30, 1998 from $18.6 million for the
nine months ended September 30, 1997. The increase is attributable to 106
additional full time equivalent employees on average for the nine months ended
September 30, 1998 from the nine months ended September 30, 1997 due to
increased staffing associated with the addition of the CRJs both in flight crews
and at the RDU hub, increased staffing in reservations due to the cancellation
in May 1997 of a third party service contract and the work being brought
in-house, and the Company's Profit Sharing Plan ($1.8 million in the first nine
months of 1998) implemented in 1998. Wages, salaries and related cost per ASM
increased 0.26 cents or 14.5% to 2.05 cents from 1.79 cents. The increase in
unit costs is attributable to the items noted above as well as the changes noted
in "Capacity".
Aircraft fuel expense decreased 8.7% to $14.8 million for the nine months
ended September 30, 1998 from $16.1 million for the nine months ended September
30, 1997. The decrease was due to a 20.6% decrease in the average fuel price per
gallon to 58.1 cents from 73.2 cents, and the flying of the lower fuel burn CRJ
aircraft, partially offset by the 26.1% increase in block hours. Aircraft fuel
expense per ASM decreased 17.4% to 1.28 cents from 1.55 cents.
Aircraft and engine rental expense decreased 3.3% to $22.1 million for the
nine months ended September 30, 1998 from $22.9 million for the nine months
ended September 30, 1997. The decrease in expense is attributable to the 1ower
lease rates for the F100s after the Recapitalization in February 1997 partially
offset by the rental of spare engines in 1998 while awaiting delivery of the two
spare engines being purchased by the Company. Aircraft and engine rentals
expense per ASM decreased 12.3% to 1.92 cents from 2.19 cents. The decrease in
cost per ASM resulted from a combination of the 10.4% increase in ASMs discussed
above in "Capacity" and no rental expense from the five owned CRJs, supplemented
by the overall decrease in lease rates for the Fokker aircraft.
Commission expense increased 10.1% to $11.4 million for the nine months
ended September 30, 1998 from $10.3 million for the nine months ended September
30, 1997. This was due to the 13.9% increase in passenger revenues partially
offset by a decrease of travel agency revenues as a percent of passenger revenue
to 66.5% from 69.9% and a decrease in the commission rate. Commissions expense
per ASM remained stable at 0.99 cents.
<PAGE>
Maintenance, materials and repairs expense decreased 3.2% to $12.0 million
for the nine months ended September 30, 1998 from $12.4 million for the nine
months ended September 30, 1997. The expense decrease is largely attributable to
the new maintenance contracts on most of the Company's Fokker aircraft and the
addition of the new CRJ aircraft, offset somewhat by increases driven by the
growth in block hours. Maintenance, materials and repairs expense per ASM
decreased 12.6% to 1.04 cents from 1.19 cents due to the changes noted above.
Other rentals and landing fees expense decreased 2.8% to $7.2 million for
the nine months ended September 30, 1998 from $7.4 million for the nine months
ended September 30, 1997. Other rentals and landing fees expense per ASM
decreased 11.3% to 0.63 cents from 0.71 cents, due to decreased facility rent at
the Orlando hangar beginning in the second quarter, lower landing fees for the
relatively lighter CRJ aircraft and lower landing fees at RDU, and increased
departures.
Depreciation and amortization expense increased 211.3% to $4.3 million for
the nine months ended September 30, 1998 from $1.4 million for the nine months
ended September 30, 1997. Depreciation and amortization expense per ASM
increased 184.6% to 0.37 cents from 0.13 cents in the nine months ended
September 30, 1997. The increase is attributable to the purchase of the five
CRJs and approximately $10.9 million in other fixed assets (mostly spare parts)
since July 1, 1997.
Other operating expense increased 12.4% to $40.4 million for the nine
months ended September 30, 1998 from $36.0 million for the nine months ended
September 30, 1997. Other operating expenses consist primarily of reservations,
ground handling, advertising, general and administrative expense and insurance.
The expense increase is attributable to the 29.9% increase in departures and
20.4% increase in passengers, partially offset by savings in insurance, and
marketing expenses. Other operating expense per ASM increased 2.0% to 3.52 cents
from 3.45 cents in 1997.
Net interest expense increased $1.5 million for the nine months ended September
30, 1998 due to the debt service for the CRJ and Fokker spare engine loans. Net
interest expense per ASM for the nine months ended September 30, 1998 was 0.12
cents compared to net interest income per ASM of 0.01 cents in the comparable
prior period.
Liquidity and Capital Resources
Liquidity
The Company's working capital improved during the first nine months of
1998 compared to the first nine months of 1997. As of September 30, 1998, the
Company had cash, restricted cash, and short-term investments of $47.4 million
and working capital of $19.8 million compared to $31.8 million and $5.4 million
respectively as of September 30, 1997. During the nine months ended September
30, 1998, cash, restricted cash and short-term investments decreased $10.7
million from December 31, 1997, reflecting net cash provided by operating
activities of $13.2 million (excluding changes in restricted cash), net cash
used in investing activities of $7.0 million (excluding purchases and sales of
short-term investments), and net cash used in financing activities of $16.9
million. During the nine months ended September 30, 1998, net cash used in
operating activities was primarily due to increases in operating assets, net
cash used in investing activities was due to purchases of equipment and property
and equipment purchase deposits, and net cash used in financing activities
reflects repayment of long-term debt. During the nine months ended September 30,
1997, cash, restricted cash and short-term investments increased $19.0 million,
reflecting net cash provided by operating activities of $6.0 million (net of
changes in restricted cash), net cash used in investing activities of $8.4
million (excluding purchases and sales of short-term investments), and net cash
provided by financing activities of $21.4 million. During the nine months ended
September 30, 1997, net cash provided by operating activities was primarily due
to increases in operating liabilities, net cash used in investing activities was
due to purchases of equipment and aircraft purchase deposits, and net cash
provided by financing activities was due to the proceeds of the
Recapitalization.
Capital Resources
<PAGE>
Since the February 1997 Recapitalization, the Company has been able to
generate sufficient funds from operations to meet its working capital
requirements and does not currently have any lines of credit. The Company
believes that the working capital available from ongoing operations, combined
with financing for the purchase of the spare engines for the CRJ fleet and the
standby financing for the last seven CRJ aircraft to be delivered in 1999, will
be sufficient to meet its anticipated requirements for capital expenditures and
other cash requirements for the foreseeable future.
In August 1998, the Company completed an offering of $109,722,000 of Pass
Through Certificates, also known as enhanced equipment trust certificates (the
"EETCs"). The EETCs are not direct obligations of, or guaranteed by, the Company
and therefore are not included in the Company's financial statements. The cash
proceeds from the EETCs are deposited with an escrow agent and enable the
Company to finance (through either leveraged leases or secured debt financings)
the debt portion of eight CRJ aircraft, the last of which is scheduled to be
delivered in June 1999. In connection with the EETCs, the Company intends to
seek certain owner participants which will commit lease equity financing to be
used in leveraged leases of such aircraft. The Company has arranged for equity
participation for the first three CRJ aircraft, two of which were delivered in
September 1998 and one in October 1998. The Company has obtained commitments for
equity participation for the remaining five CRJs to be financed through the
EETCs, although there can be no assurance that such commitments will close. As
of November 12, 1998, approximately $67.5 of proceeds remain on deposit. If any
funds remain as deposits at September 30, 1999 (or earlier under certain
circumstances), such funds will be distributed back to the certificateholders.
Capital Expenditures
The Company's cash outflows for capital expenditures in the nine months
ended September 30, 1998 and 1997 were $6.0 million and $7.1 million,
respectively. Debt financed purchases in the nine months ended September 30,
1998 and 1997 were $51.4 million and $0.3 million, respectively.
In September 1997 the Company agreed to acquire 10 Canadair CRJ aircraft
between December 1997 and December 1998, and took options on 20 more aircraft
which would be delivered 10 each in 1999 and 2000. Of the 20 options, the first
three were exercised in April 1998 and seven were exercised in September 1998,
all to be delivered by the end of 1999. Seven aircraft have been received and
placed in service as of September 30, 1998. Several financing alternatives have
been arranged for the firm orders, including standby or long-term lease
financing, and short-term bridge financing. The Company expects to arrange a
combination of third party debt and leveraged lease financing for the remaining
CRJs, but will use the standby lease financing in the event that it cannot
arrange more attractive financing from third party sources. For each aircraft
that is purchased (as opposed to leased), the Company anticipates an initial
cash outlay of approximately $4 million. Leveraged leases were finalized in
September for the sixth and seventh CRJ aircraft which were delivered in
September, and in November 1998 for the eighth CRJ aircraft which was received
in October 1998.
Midway expects to arrange financing for two spare CRJ engines the Company
has agreed to acquire. To support its operation of F-100 aircraft, the Company
recently purchased a refurbished Rolls Royce Tay 650-15 Engine which was funded
from working capital plus certain bank debt and a new spare Rolls Royce Tay
650-15 engine which financed through a lease purchase obligation over seven
years with a nominal payment purchase option at the end of the term (See Note 6
of the financial statements).
The Company's fixed costs will increase significantly with the induction
of the CRJs. Based on the current interest rate environment, the Company
estimates that its fixed charges will increase by approximately $19.5 to $21
million per year as a result of its debt-financed purchase or leveraged lease
financing of the thirteen remaining CRJs. However, depending upon the financing
method ultimately chosen, the Company's balance sheet liabilities may or may not
increase.
Other Financing
The Company has significant lease obligations for aircraft that are
classified as operating leases and therefore not reflected as liabilities on the
Company's balance sheet. The remaining terms of such leases range from less than
one month to approximately seventeen years. The Company's total rent expense for
the nine months ended September 30, 1998 and 1997 under all non-cancelable
aircraft operating leases was approximately $21.4 million and $21.8 million,
respectively.
<PAGE>
Year 2000
State of Readiness:
The Company's Year 2000 Project is designed to ensure that the Company's
computer systems and embedded operating systems will function properly beyond
1999. The Project which the Company has developed involves five phases:
Inventory, Assessment, Remediation, Contingency Planning and Testing. The
Awareness phase is ongoing thoughout the project. The Inventory phase is largely
completed and the Assessment phase has begun. The Company intends to complete
the Assessment phase in a manner which will allow it to timely modify or replace
non-compliant systems. To date, the Company has identified four critical systems
that will require modification or replacement and a review of those systems and
available remediation alternatives has commenced. One system was replaced in
July 1998, one will be remedied by the end of 1998, one will be replaced by the
end of the second quarter of 1999, and the other will be replaced as a part of
the Company's planned relocation to a new headquarters facility by the end of
the first quarter of 1999. These replacements have not been accelerated due to
Year 2000 non-compliance.
Because the Company utilizes a number of critical computer systems operated and
maintained by American Airlines, Inc. and its affiliates (including The SABRE
Group), the Company has been closely monitoring the progress of Year 2000
projects implemented by these companies. Statements and disclosures made by
these key vendors estimate the substantial completion of their Year 2000
projects in the first quarter of 1999. In the case of The SABRE Group, it has
stated that substantially all of its core systems are either completed or in the
final testing phases of its Year 2000 Project. Importantly, The SABRE Group has
stated that its computer reservations system, which the Company uses, is now
Year 2000 compliant, with only testing of minor sub-systems remaining to be
completed.
The Company also has begun evaluating non-information technology systems that
include embedded technology such as aircraft parts, airport equipment and
facility infrastructures. In that regard, as part of the relocation of the
Company's headquarters now scheduled for first quarter 1999, the Company is
taking steps to ensure that all new technology installed in that facility is
Year 2000 compliant. The Company has also received assurances from both
operating manufacturers of aircraft in its fleet, as well as from nearly all
suppliers and manufacturers of aircraft parts installed in its aircraft, that
the embedded technology in the subject aircraft and parts is Year 2000
compliant. The Company continues to receive updates and clarifications on these
statements from the suppliers and manufacturers on a regular basis, as their
Year 2000 projects mature. Because the Company has no material facilities at any
location other than RDU, the Company believes that the airport facilities in the
cities it serves will be or are already part of the Year 2000 program of the
contract vendors providing services to the Company in those cities or of the
airport authorities in those cities. The Company's business is also dependent
upon certain governmental organizations or entities such as the Federal Aviation
Administration ("FAA") that provide essential aviation industry infrastructure
and the computer systems operated by those entities. The Company is reviewing
and will continue to review the Year 2000 information and readiness reports
issued by these entities.
Costs of Compliance:
The total costs of the Company's Year 2000 Project are expected to be immaterial
and will be funded through cash from operations. To date, the Company has
incurred less than $100,000 in connection with the Project all of which has been
expensed as incurred. The cost of the Company's Year 2000 Project is limited by
the substantial outsourcing of its systems and the relative youth of the Company
and its operating systems. The costs of the Company's Year 2000 Project and the
date on which the Company believes it will be completed are based on
management's best estimates and include assumptions regarding third-party
modification plans. Accordingly, there can be no assurance that these estimates
will be achieved and actual results could differ materially from those
anticipated.
Risks of Non-Compliance:
The Company believes that its Year 2000 Project will be completed prior to there
being any material impact on the operations of the Company, and that, with
modifications to its existing software and systems and/or conversions to new
software, the Year 2000 issue will not pose significant operational problems for
its computer systems. However, there can be no assurance that the systems of
third parties on which the Company's business relies (including those of its
customers, its suppliers or the FAA) will be modified on a timely basis. The
Company's
<PAGE>
business, financial condition or results of operations could be materially
adversely affected by the failure of its systems or those operated by other
parties to operate properly beyond 1999. To the extent possible, the Company
will be developing and executing contingency plans designed to allow continued
operation in the event of failure of the Company's or third parties' systems.
These contingency plans have not yet been established and the Company has not
yet determined the reasonably estimated worst case scenario. The Company intends
to analyze these issues as part of its ongoing Year 2000 Project.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the Act) provides a
safe harbor for forward-looking statements made by or on behalf of the Company.
The Company and its representatives may from time to time make written or verbal
forward-looking statements, including statements contained in the Company's
filings with the Securities and Exchange Commission and in reports to share
owners. All statements which address operational performance, events or
developments which are anticipated to occur in the future, including statements
relating to revenue growth, cost reductions and earnings growth or statements
expressing general optimism about future operating results, are forward-looking
statements within the meaning of the Act. The forward-looking statements are and
will be based on management's then current views and assumptions regarding
future events and operating performance.
The following are some of the factors that could cause actual results to
differ materially from estimates contained in the Company's forward-looking
statements:
o The ability to generate sufficient cash flows to support capital expansion
plans and general operating activities.
o Competitive product and pricing pressures and the ability to gain or
maintain market share as a result of actions by competitors.
o Change in laws and regulations, including changes in accounting standards,
taxation requirements (including tax rate changes, new tax laws and
revised tax law interpretations) and environmental laws.
o Fluctuations in the cost and availability of materials, fuel and labor,
including the continued availability of landing slots at New York's
LaGuardia Airport and Washington, D.C.'s National Airport.
o The ability to achieve earnings forecasts, which are based on projected
traffic and fares in the different markets the Company serves, some of
which are more profitable than others.
o Interest rate fluctuations and other capital market conditions.
o The ability to enter and develop new markets.
o The effectiveness of advertising, marketing and promotional programs.
o The uncertainties of litigation, as well as other risks and uncertainties
detailed from time to time in the Company's Securities and Exchange
Commission filings.
o Adverse weather conditions, which could effect the Company's ability to
operate.
PART II. Other Information
Item 1. Legal Proceedings.
The Company is a party to routine litigation incidental to its business.
Management believes that none of this litigation is likely to have a material
adverse effect on the Company's financial position or results of operations.
Item 2. Changes in Securities and Use of Proceeds.
During the three months ended September 30, 1998, 33,100 shares were
issued as a result of the exercise of purchase options. Stock options for the
purchase of 10,605 shares were forfeited due to the resignation or termination
of employment of certain employees.
Through September 30, 1998, net proceeds from the Company's initial public
offering were used as follows:
1. $1.2 million paid in settlement of the Treasury Lock,
2. $7.0 million to secure the Company's performance of its obligations
under a credit card processing agreement,
<PAGE>
3. $1.0 million for aircraft purchase deposits,
4. $17.9 million for down payments and other costs on debt-financed
aircraft, and
5. $10.6 million was invested in cash equivalents and marketable
securities pending future use.
Item 3. Defaults Upon Senior Securities.
None to report.
Item 4. Submission of Matters to a Vote of Security Holders.
None to report.
Item 5. Other Information.
The Company's sublease for a hangar facility in Orlando, Florida expired in
April 1998. The Company continues to occupy a portion of an adjacent facility
with the lessor's consent and other temporary facilities while a new lease is
being negotiated for a portion of the originally subleased space.
On November 2, 1998, the Company was notified that the National Mediation Board
had authorized a rerun election in the matter of the application of the
Association of Flight Attendants to represent the Company's flight attendants.
The ballots for this rerun election were sent out on November 9, 1998, and will
be counted on December 18, 1998.
Item 6. Exhibits and Reports on Form 8-K.
<PAGE>
(a.) EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- - ------- -----------
4.1+ Pass Through Trust Agreement, (1A-S), dated as of August 13, 1998, between
Midway Airlines Corporation and The First National Bank of Maryland, as
Trustee, made with respect to the formation of Midway Airlines Pass
Through Trust, Series 1998-1 (1A-S) and the issuance of 7.14% Midway
Airlines Corporation Pass Through Trust, Series 1998-1 (1A-S) Pass Through
Certificate representing fractional undivided interests in the Trust
(including form of Class A Certificate).
4.2+ Pass Through Trust Agreement, (1A-O), dated as of August 13, 1998, between
Midway Airlines Corporation and The First National Bank of Maryland, as
Trustee, made with respect to the formation of Midway Airlines Pass
Through Trust, Series 1998-1 (1A-O) and the issuance of 7.14% Midway
Airlines Corporation Pass Through Trust, Series 1998-1 (1A-O) Pass Through
Certificate representing fractional undivided interests in the Trust
(including form of Class A Certificate).
4.3+ Pass Through Trust Agreement, (1B-S), dated as of August 13, 1998, between
Midway Airlines Corporation and The First National Bank of Maryland, as
Trustee, made with respect to the formation of Midway Airlines Pass
Through Trust, Series 1998-1 (1B-S) and the issuance of 8.14% Midway
Airlines Corporation Pass Through Trust, Series 1998-1 (1B-S) Pass Through
Certificate representing fractional undivided interests in the Trust
(including form of Class B Certificate).
4.4+ Pass Through Trust Agreement, (1B-O), dated as of August 13, 1998, between
Midway Airlines Corporation and The First National Bank of Maryland, as
Trustee, made with respect to the formation of Midway Airlines Pass
Through Trust, Series 1998-1 (1B-O) and the issuance of 8.14% Midway
Airlines Corporation Pass Through Trust, Series 1998-1 (1B-O) Pass Through
Certificate representing fractional undivided interests in the Trust
(including form of Class B Certificate).
<PAGE>
4.5+ Pass Through Trust Agreement, (1C-S), dated as of August 13, 1998, between
Midway Airlines Corporation and The First National Bank of Maryland, as
Trustee, made with respect to the formation of Midway Airlines Pass
Through Trust, Series 1998-1 (1C-S) and the issuance of 8.92% Midway
Airlines Corporation Pass Through Trust, Series 1998-1 (1C-S) Pass Through
Certificate representing fractional undivided interest in the Trust
(including form of Class C Certificate).
4.6 [Intentionally omitted]
4.7+ Pass Through Trust Agreement, (1C-O), dated as of August 13, 1998, between
Midway Airlines Corporation and The First National Bank of Maryland, as
Trustee, made with respect to the formation of Midway Airlines Pass
Through Trust, Series 1998-1 (1C-O) and the issuance of 8.92% Midway
Airlines Corporation Pass Through Trust, Series 1998-1 (1C-O) Pass Through
Certificate representing fractional undivided interest in the Trust
(including form of Class C Certificate).
4.8+ Pass Through Trust Agreement, (1D-S), dated as of August 13, 1998, between
Midway Airlines Corporation and The First National Bank of Maryland, as
Trustee, made with respect to the formation of Midway Airlines Pass
Through Trust, Series 1998-1 (1D-S) and the issuance of 8.86% Midway
Airlines Corporation Pass Through Trust, Series 1998-1 (1D-S) Pass Through
Certificate representing fractional undivided interest in the Trust
(including form of Class D Certificate).
4.9+ Pass Through Trust Agreement, (1D-O), dated as of August 13, 1998, between
Midway Airlines Corporation and The First National Bank of Maryland, as
Trustee, made with respect to the formation of Midway Airlines Pass
Through Trust, Series 1998-1 (1D-O) and the issuance of 8.86% Midway
Airlines Corporation Pass Through Trust, Series 1998-1 (1D-O) Pass Through
Certificate representing fractional undivided interest in the Trust
(including form of Class D Certificate).
4.10+ Note Purchase Agreement, dated as of August 13, 1998, between Midway
Airlines Corporation and The First Bank of Maryland, as Trustee, The First
National Bank of Maryland, as Pass Through Trustee under each of the Pass
Through Trust Agreements, The First National Bank of Maryland, as
Subordination Agent, First Union Trust Company, National Association, as
Escrow Agent and The First National Bank of Maryland, as Paying Agent.
2
<PAGE>
4.11+ Deposit Agreement, (Class A), dated as of August 13,1998, between First
Union Trust Company, National Association as Escrow Agent and First Union
National Bank as Depositary.
4.12+ Deposit Agreement, (Class B), dated as of August 13,1998, between First
Union Trust Company, National Association as Escrow Agent and First Union
National Bank as Depositary.
4.13+ Deposit Agreement, (Class C), dated as of August 13,1998, between First
Union Trust Company, National Association as Escrow Agent and First Union
National Bank as Depositary.
4.14+ Deposit Agreement, (Class D), dated as of August 13,1998, between First
Union Trust Company, National Association as Escrow Agent and First Union
National Bank as Depositary.
4.15+ Irrevocable Revolving Credit Agreement, (Class-A Certificates), dated as
of August 13,1998, between The First National Bank of Maryland, not in its
individuality capacity but solely as Subordination Agent, as agent and
trustee for the Midway Airlines 1998-1A Pass Through Trust, as Borrower
and ABN AMRO Bank N.V., Chicago Branch as Liquidity Provider.
4.16+ Irrevocable Revolving Credit Agreement, (Class-B Certificates), dated as
of August 13,1998, between The First National Bank of Maryland, not in its
individuality capacity but solely as Subordination Agent, as agent and
trustee for the Midway Airlines 1998-1B Pass Through Trust, as Borrower
and ABN AMRO Bank N.V., Chicago Branch as Liquidity Provider
4.17+ Irrevocable Revolving Credit Agreement, (Class-C Certificates), dated as
of August 13,1998, between The First National Bank of Maryland, not in its
individuality capacity but solely as Subordination Agent, as agent and
trustee for the Midway Airlines 1998-1C Pass Through Trust, as Borrower
and ABN AMRO Bank N.V., Chicago Branch as Liquidity Provider.
3
<PAGE>
4.18+ Intercreditor Agreement, dated as of August 13, 1998 among The First
National Bank of Maryland, not in its individual capacity but solely as
Trustee under the Midway Airlines Pass Through Trust 1998-1A, Midway
Airlines Pass Through Trust 1998-1B, Midway Airlines Pass Through 1998-1C
and Midway Airlines Pass Through Trust 1998-1D, ABN AMRO BANK, N.V.
Chicago Branch as Class A Liquidity Provider, Class B Liquidity Provider
and Class C Liquidity Provider and The First National Bank of Maryland not
in its individual capacity except as expressly set forth herein but solely
as Subordination Agent and trustee hereunder.
4.19+ Escrow and Paying Agent Agreement, (Class A), dated as of August 13, 1998
among First Union Trust Company, National Association as Escrow Agent,
Morgan Stanley & Co. Incorporated and Credit Suisse First Boston
Corporation as Initial Purchasers, The First National Bank of Maryland not
in its individual capacity, but solely as Pass Through Trustee for and on
behalf of Midway Airlines Pass Through Trust 1998-1A-O as Pass Through
Trustee and The First National Bank of Maryland as Paying Agent.
4.20+ Escrow and Paying Agent Agreement, (Class B), dated as of August 13, 1998
among First Union Trust Company, National Association as Escrow Agent,
Morgan Stanley & Co. Incorporated and Credit Suisse First Boston
Corporation as Initial Purchasers, The First National Bank of Maryland not
in its individual capacity, but solely as Pass Through Trustee for and on
behalf of Midway Airlines Pass Through Trust 1998-1B-O as Pass Through
Trustee and The First National Bank of Maryland as Paying Agent.
4.21+ Escrow and Paying Agent Agreement, (Class C), dated as of August 13, 1998
among First Union Trust Company, National Association as Escrow Agent,
Morgan Stanley & Co. Incorporated and Credit Suisse First Boston
Corporation as Initial Purchasers, The First National Bank of Maryland not
in its individual capacity, but solely as Pass Through Trustee for and on
behalf of Midway Airlines Pass Through Trust 1998-1C-O as Pass Through
Trustee and The First National Bank of Maryland as Paying Agent.
4
<PAGE>
4.22+ Escrow and Paying Agent Agreement, (Class D), dated as of August 13, 1998
among First Union Trust Company, National Association as Escrow Agent,
Morgan Stanley & Co. Incorporated and Credit Suisse First Boston
Corporation as Initial Purchasers, The First National Bank of Maryland not
in its individual capacity, but solely as Pass Through Trustee for and on
behalf of Midway Airlines Pass Through Trust 1998-1D-O as Pass Through
Trustee and The First National Bank of Maryland as Paying Agent.
4.23+ Registration Rights Agreement, dated as of August 13, 1998, among Midway
Airlines Corporation, a Delaware Corporation (the "Company"), The First
National Bank of Maryland, as Trustee under each of the Trust Agreements,
Morgan Stanley & Co. Incorporated and Credit Suisse First Boston
Corporation (the "Placement Agents").
10.1+ Purchase Agreement, dated as of August 6,1998, by and among Midway
Airlines Corporation, Morgan Stanley & Co. Incorporated and Credit Suisse
First Boston.
10.2+ Participation Agreement dated as of September 10, 1998 among Midway
Airlines Corporation as Lessee, NCC Charlie Company as Owner Participant,
First Union Trust Company, National Association not in its individual
capacity (except as otherwise expressly set forth herein) but solely as
Owner Trustee, The First National Bank of Maryland as Indenture Trustee,
The First National Bank of Maryland as Pass-Through Trustee and The First
National Bank of Maryland as Subordination Agent. Midway Airlines
Corporation is a party to two additional Participation Agreements which
are substantially identical in all material respects except as indicated
on the exhibit.
10.3+ Trust Agreement dated as of September 10, 1998 between NCC Charlie Company
as Owner Participant and First Union Trust Company, National Association
as Owner Trustee. There are two additional Trust Agreements which are
substantially identical in all material respects except as indicated on
the exhibit.
10.4+ Trust Indenture and Security Agreement dated as of September10, 1998
between First Union Trust Company, National Association not in its
individual capacity except as expressly provided herein but solely as
Owner Trustee and The First National Bank of Maryland as Indenture
Trustee. There are two additional Trust Indenture and Security Agreements
which are substantially identical in all material respects except as
indicated on the exhibit.
10.5+ Indenture Supplement No. 1 dated as of September 30, 1998 of First Union
Trust Company, National Association, a national banking association, not
in its individual capacity but solely as Owner Trustee. There are two
additional Indenture Supplements No. 1 which are substantially identical
in all material respects except as indicated on the exhibit.
10.6*+Lease Agreement dated as of September 10, 1998 between First Union Trust
Company, National Association as Owner Trustee and Lessor and Midway
Airlines Corporation as Lessee. Midway Airlines Corporation is a party to
two additional Leases which are substantially identical in all material
respects except as indicated on the exhibit.
10.7+ Lease Supplement No. 1 Dated as of September 10, 1998 between First Union
Trust Company, National Association not in its individual capacity but
solely as Owner Trustee except as otherwise provided herein, the Lessor
and Midway Airlines Corporation, as Lessee. Midway Airlines Corporation is
a party to two additional Lease Supplements No. 1 which are substantially
identical in all material respects except as indicated on the exhibit.
10.8+ Purchase Agreement Assignment and Aircraft Manufacturer's Consent dated as
of September 10, 1998 between Midway Airlines Corporation as Assignor and
First Union Trust Company, National Association as Assignee. Midway
Airlines Corporation is a party to two additional Purchase Agreement
Assignment and Aircraft Manufacturer's Consents which are substantially
identical in all material respects except as indicated on the exhibit.
10.9+ Engine Warranty Assignment and Engine Manufacturer's Consent dated as of
September 10, 1998 between Midway Airlines Corporation, First Union Trust
Company, National Association not in its individual capacity but solely as
Owner Trustee and General Electric Company. Midway Airlines Corporation is
a party to two additional Engine Warranty Assignment and Engine
Manufacturer's Consents which are substantially identical in all material
respects except as indicated on the exhibit.
10.10+General Terms Agreement between General Electric Company and Midway
Airlines Corporation.
10.11+Concourse Lakeside Lease Agreement by and between Concourse Lakeside I,
LLC, as Landlord, and Midway Airlines Corporation, as Tenant.
24.1 Powers of Attorney of Certain Officers and Directors of the Company.
27 Financial Data Schedule
- - ----------
* Confidential treatment requested for omitted portions of exhibit. Omitted
portion has been filed separately with the Commission.
+ Filed as Exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998.
5
<PAGE>
(b.) Reports on Form 8-K
On September 11, 1998, the Company filed a Form 8-K reporting that on September
3, 1998, the Company exercised options to purchase seven new Canadair Regional
Jet Aircraft with scheduled delivery dates in 1999. In a related flight
equipment matter, the Company suspended lease extension negotiations with the
lessor regarding four Fokker 100 aircraft leases expiring during the October
1998 through May 1999 timeframe.
On August 20, 1998, the Company filed a Form 8-K reporting that on August 14,
1998, the Company completed the placement of $109.7 million aggregate principal
amount of enhanced equipment pass through certificates under Rule 144A of the
Securities Act of 1933. The proceeds from the placement of these certificates
will be used to finance the Company's purchase or leveraged lease of eight new
Canadair Regional Jet Aircraft.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Midway Airlines
Corporation
Registrant
February 24, 1999 By /s/ STEVEN WESTBERG
Steven Westberg
Sr. Vice President and CFO
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on February 24, 1999.
Signature Capacity
/s/ ROBERT R. FERGUSON, III* Chairman of the Board of Directors,
- - ---------------------------- President and Chief Executive Officer
Robert R. Ferguson, III (Principal Executive Officer)
/s/ STEVEN WESTBERG* Senior Vice President and Chief
- - ---------------------------- Financial Officer (Principal Financial
Steven Westberg and Accounting Officer)
/s/ GREGORY HARDING-BROWN* Director
- - ----------------------------
Gregory Harding-Brown
/s/ W. GREYSON QUARLES* Director
- - ----------------------------
W. Greyson Quarles
/s/ GREGORY J. ROBITAILLE* Director
- - ----------------------------
Gregory J. Robitaille
/s/ HOWARD WOLF* Director
- - ----------------------------
Howard Wolf
* Steven Westberg hereby signs on behalf of each of the indicated persons for
whom he is attorney-in-fact pursuant to a Power of Attorney filed herewith.
Exhibit 24.1
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934, the
undersigned officers and/or directors of Midway Airlines Corporation (the
"Company"), hereby appoint each of Jonathan S. Waller and Steven Westberg as
attorney-in-fact with full power of substitution and resubstitution to sign for
the undersigned and in the name of the undersigned in any and all capacities
with respect to the filing on Form 10-Q/A of the Company's Quarterly Report for
the quarterly period ended September 30, 1998 (the "Quarterly Report") with the
Securities and Exchange Commission (the "Commission"), and to sign any and all
amendments thereto and any and all applications or other documents to be filed
with the Commission pertaining to the Quarterly Report, and to grant unto the
attorney-in-fact and agent the full power and authority to do and perform each
and every act and this required to be done, as fully to all intents and purposes
as the undersigned could do if personally present. The undersigned hereby
ratifies and confirms all that the attorney-in-fact and agent or its substitutes
may lawfully do or cause to be done by virtue hereof.
Signature Title Date
/s/ROBERT R. FERGUSON, III Chairman of the Board, February 24, 1999
Robert R. Ferguson, III President and
Chief Executive Officer
(Principal Executive Officer)
/s/W. GREYSON QUARLES Director February 24, 1999
W. Greyson Quarles
/s/GREGORY J. ROBITAILLE Director February 24, 1999
Gregory J. Robitaille
/s/HOWARD WOLF Director February 24, 1999
Howard Wolf
/s/GREGORY HARDING-BROWN DIRECTOR February 24, 1999
Gregory Harding-Brown
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
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