FORM 10-Q
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 March 31, 2000
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.)
2801 Slater Road, Suite 200
Morrisville, NC 27560
(Address of principal executive offices)
(Zip Code)
919-595-6000
(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 May 11, 2000 there were 8,613,595 shares of Common Stock, $.01 par
value, of the registrant outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MIDWAY AIRLINES CORPORATION
Balance Sheets
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $23,826 $27,351
Restricted cash 18,121 10,668
Short-term investments - 545
Accounts Receivable:
Credit cards and travel agencies 7,659 4,311
Other (net) 1,344 2,719
Inventories 3,497 3,638
Deferred income tax asset 1,172 1,172
Prepaids and other 10,106 9,878
-------- --------
Total current assets 65,725 60,282
Equipment and property:
Flight 130,289 124,808
Other 12,169 11,485
Less accumulated depreciation and amortization (18,105) (15,888)
-------- --------
Total equipment and property, net 124,353 120,405
Other noncurrent assets:
Equipment and aircraft purchase deposits 78,278 61,824
Aircraft lease deposits and other 12,994 9,306
Deferred income tax asset 9,506 4,872
-------- --------
Total other noncurrent assets 100,778 76,002
-------- --------
Total assets $290,856 $256,689
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $12,873 $11,574
Accrued expenses 4,951 6,385
Accrued income and excise taxes 2,970 2,267
Advance ticket sales 35,244 25,486
Other current liabilities 7,488 2,686
Related party line of credit, current portion 5,000 -
Current maturities of long-term debt and capital lease obligations 6,575 7,470
-------- --------
Total current liabilities 75,101 55,868
Noncurrent liabilities:
Related party line of credit, long-term portion 10,000
Long-term debt and capital lease obligations 111,399 103,349
Deferred income tax liability 14,336 14,336
Other 4,400 -
-------- --------
Total noncurrent liabilities 140,135 117,685
------- -------
Total liabilities 215,236 173,553
Stockholders' equity:
Preferred stock, $0.01 par value; 12 million shares authorized; none issued and outstanding - -
Common stock, $0.01 par value; 25 million shares authorized; 8,602,395 and 8,613,595
shares issued and outstanding at December 31, 1999 and March 31, 2000 86 86
Additional paid-in capital 54,393 54,349
Retained earnings ($51.1 million of accumulated deficit eliminated
in the quasi-reorganization as of June 30, 1997) 21,141 28,701
-------- --------
Total stockholders' equity 75,620 83,136
-------- --------
Total liabilities and stockholders' equity $290,856 $256,689
======== ========
</TABLE>
<PAGE>
MIDWAY AIRLINES CORPORATION
Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
2000 1999 Favorable (Unfavorable)
---- ---- -----------------------------
Variance Variance %
-------- ----------
<S> <C> <C> <C> <C>
Operating revenues:
Passenger $59,063 $53,659 5,404 10%
Cargo 604 506 98 19%
Contract and other 677 821 (144) (18%)
------- ------ -------- --------
Total revenues 60,344 54,986 5,358 10%
Operating expenses:
Wages, salaries and related costs 11,511 8,939 (2,572) (29%)
Aircraft fuel 10,034 4,119 (5,915) (144%)
Aircraft and engine rentals 10,807 7,317 (3,490) (48%)
Commissions 3,797 3,642 (155) (4%)
Maintenance, materials and repairs 3,326 3,962 636 16%
Other rentals and landing fees 3,431 2,391 (1,040) (43%)
Depreciation and amortization 2,338 1,729 (609) (35%)
Other 17,282 14,639 (2,643) (18%)
Equipment retirement charges 9,163 927 (8,236) NMF
------- ------ -------- --------
Total operating expenses 71,689 47,665 (24,024) (50%)
Operating income (loss) (11,345) 7,321 (18,666) NMF
Other income (expense):
Interest income 336 658 (322) (49%)
Interest expense (1,185) (1,517) 332 22%
------- ------ -------- --------
Total other income (expense) (849) (859) 10 1%
Income (loss) before income taxes (12,194) 6,462 (18,656) NMF
Income tax expense (benefit) (4,634) 2,456 7,090 NMF
------- ------ --------
Net income (loss) ($7,560) $4,006 (11,566) NMF
======== ====== ========
Basic earnings (loss) per share:
Net income (loss) ($0.88) $0.47
======= =====
Weighted average shares used in
computing basic earnings (loss) per share 8,608,426 8,602,395
========== =========
Diluted earnings (loss) per share:
Net income (loss) ($0.88) $0.42
======= =====
Weighted average shares used in
computing diluted earnings (loss) per share 8,608,426 9,652,117
========== =========
</TABLE>
<PAGE>
MIDWAY AIRLINES CORPORATION
Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (7,560) $ 4,006
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization 2,338 1,729
Deferred income taxes (4,634) 2,456
Other non-cash items 160 -
Amortization of discount on debt 437 110
Changes in operating assets and liabilities:
Restricted cash (7,453) (4,065)
Accounts receivable (3,137) (4,044)
Inventories 141 137
Prepaids and other (243) 325
Aircraft lease deposits and other (3,803) (3,671)
Accounts payable and accrued expenses (135) (966)
Accrued excise and income taxes 703 611
Advance ticket sales 9,758 7,987
Other current liabilities 4,802 (1,284)
Other noncurrent liabilities 4,400 (1,012)
-------- --------
Net cash (used in) provided by operating activities (4,226) 2,319
INVESTING ACTIVITIES:
Purchase of short-term investments - (7,275)
Sale of short-term investments 545 -
Purchase of equipment and property (4,603) (864)
Aircraft and equipment purchase deposits (8,438) (5,033)
Refund of aircraft and equipment purchase deposits 207 1,776
-------- --------
Net cash used in investing activities (12,289) (11,396)
FINANCING ACTIVITIES:
Issuance of common stock 44 -
Proceeds from line of credit-related party 15,000 -
Repayment of long-term debt and capital lease obligations (2,054) (1,771)
------- -------
Net cash provided by (used in) financing activities 12,990 (1,771)
Decrease in cash and cash equivalents (3,525) (10,848)
Cash and cash equivalents at beginning of period 27,351 48,736
-------- --------
Cash and cash equivalents at end of period $ 23,826 $ 37,888
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 3,391 $ 1,785
======== ========
Income taxes paid $ 11 $ 138
======== ========
SCHEDULE OF NON-CASH ACTIVITIES:
Issuance of debt and capital leases for equipment purchases $ 2,065 $ -
======== ========
Debt issued for aircraft purchase deposits $ 8,223 $ -
======== ========
Accounts receivable from lessor offset against long-term
note payable to lessor $ 1,313 $ -
======== ========
</TABLE>
<PAGE>
MIDWAY AIRLINES CORPORATION
Notes to Financial Statements
(Information as of March 31, 2000 and for the three months
ended March 31, 2000 and 1999 is unaudited)
1. BASIS OF PRESENTATION
The unaudited interim financial statements included herein have been prepared by
Midway Airlines Corporation ("Midway" or the "Company"), in accordance with
generally accepted accounting principles ("GAAP") for interim financial
reporting 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 financial
statements prepared in accordance with GAAP 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 interim 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, 1999.
Certain reclassifications have been made in the prior year's financial
statements to conform to the current year presentation.
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 at the date of the financial statements and the reported amounts of
revenues and expenses during those reporting periods. 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 March 31,
2000 and December 31, 1999, approximately $18.1 million and $10.7 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.
CAPITALIZED INTEREST
Interest on aircraft purchase deposits was capitalized at an amount
approximating the Company's incremental borrowing rate for similar type assets.
All capitalized amounts are amortized over the term of the respective service
life of the related equipment. Capitalized interest totaled $2.0 million and
$0.2 million for the three months ended March 31, 2000 and 1999, respectively.
<PAGE>
3. EARNINGS (LOSS) PER SHARE OF COMMON STOCK
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
2000 (1) 1999 (1)
---------------------- ------------------
<S> <C> <C>
Numerator:
Net income (loss) (2) $ (7,560,000) $ 4,006,000
Denominator:
Denominator for basic earnings (loss) per share - weighted average
shares 8,608,426 8,602,395
Effect of dilutive securities (3):
Employee stock options - 659,140
Warrants - 390,582
-----------------------------------------
Dilutive common shares - 1,049,722
Denominator for diluted earnings (loss) per share - adjusted weighted
average shares 8,608,426 9,652,117
=========================================
Basic earnings (loss) per share $ (0.88) $0.47
=========================================
Diluted earnings (loss) per share $ (0.88) $0.42
=========================================
</TABLE>
(1) Options and warrants to purchase 1,523,706 shares of common stock were
outstanding during the three months ended March 31, 2000, but were not
included in the computation of earnings per share because the Company
was in a net loss position, and, therefore, their effect would have
been anti-dilutive. Options to purchase 262,375 shares of common stock
at $15.50 per share were outstanding during the three months ended
1999, but were not included in the computation of diluted earnings per
share for the three months ended March 31, 2000 and 1999 because the
exercise price of the options was greater than the average market price
of the common shares and, therefore, the effect would be anti-dilutive.
(2) Numerator for basic and diluted earnings (loss) per share.
(3) Shares calculated using the "Treasury Stock" method under SFAS 128.
4. DEBT
The Company received a $30 million revolving credit facility on March 31, 2000,
provided by an entity owned by two shareholders, James H. Goodnight and John P.
Sall. As of March 31, 2000, the outstanding balance under the credit facility
was $15 million, of which $5 million is classified as related party line of
credit, current portion in the balance sheet as of March 31, 2000. The credit
facility carries a variable interest rate based on LIBOR plus 3% payable
monthly, and a commitment fee of 0.5% on the average daily unused balance
payable quarterly. Pursuant to the terms of this credit facility, the Company is
obligated to undertake a rights offering of common stock. Amounts borrowed and
outstanding under this credit facility in excess of $10 million, if any, must be
repaid and the remaining available loan commitment must be reduced to $10
million on the earlier of September 30, 2000 or the date on which the Company
completes the rights offering. The outstanding balance of all loans made under
this credit facility is due and payable on March 31, 2002.
<PAGE>
5. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS:
As of April 30, 2000, the Company has firm orders for four additional newly
manufactured CRJ aircraft, all of which are scheduled to be delivered by
December 2001. The Company also has options to acquire up to 14 additional CRJs
with delivery dates for the first seven of these aircraft extending over a one
year period beginning in 2002. The Company has firm orders to purchase fifteen
additional 737 aircraft with deliveries scheduled to begin in September 2000 and
end in October 2002, however, this delivery schedule could be impacted by a
recently ended strike of The Boeing Company's engineers. The Company has options
to acquire 10 additional 737 aircraft. To support its operations, the Company
intends to acquire up to four CFM 56-7B spare engines to support the operation
of the 737-700 fleet.
The Company currently leases eight F100s. In December 1999, the Company settled
a pending lawsuit with the lessor of four Fokker F100 aircraft previously
operated by the Company. As a result of this settlement, the Company recorded a
pre-tax charge of approximately $700,000 during the fourth quarter of 1999 and
obtained an option to terminate leases on four other F100s. On February 29,
2000, the Company exercised this option to terminate the leases on these four
F100s prior to their scheduled lease expirations in 2003 and 2004, resulting in
a revised scheduled return date of these aircraft in the first half of 2001. The
Company is required to pay the lessor $2.125 million upon the termination of
each of these four leases, of which $4.25 million is payable in each of the
first two quarters of 2001. In addition, the Company is required to perform
certain maintenance tasks on these aircraft prior to their return. During the
three months ended March 31, 2000, the Company recorded $9.2 million in
equipment retirement charges related to the exercise of this option. As of March
31, 2000, the Company has recorded liabilities of $8.8 million related to the
lease termination penalties and related expenses. The remaining $363,000 charge
relates to the write-down of leasehold improvements resulting from the shortened
lease terms.
Pursuant to a March 1995 purchase agreement, Midway is obligated to purchase
four Airbus A320 aircraft with deliveries in 2005 and 2006. To support the
operation of the four A320 aircraft, the Company also agreed to purchase one IAE
V2527-A5 spare engine scheduled for delivery in November 2005 from International
Aero Engines AG ("IAE"). The purchase of the A320s and the associated spare
engine no longer fit with the Company's current strategy. The Company is
considering several alternatives with respect to the A320s, including
restructuring its agreement with Airbus or selling its positions.
OTHER CONTINGENCIES:
The Company's pilots, fleet service (ramp) agents, and flight attendants are
represented by labor unions. The pilots' representative, the Air Line Pilots
Association ("ALPA"), was elected in December 1997, the ramp employees'
representative, International Association of Machinists and Aerospace Workers,
AFL-CIO ("IAM"), was elected in June 1998, and the flight attendants'
representative, the Association of Flight Attendants, AFL-CIO ("AFA") was
elected in December 1998. Prior to those dates, none of the Company's employees
were represented by a union. The Company's pilots recently ratified a collective
bargaining agreement with the Company which became effective on April 1, 2000.
With respect to the fleet service employees, a contract proposal was agreed upon
by the IAM and the Company, and such agreement was submitted to the employees
for ratification on October 28, 1999; it was rejected. The IAM filed an
application for mediation with the National Mediation Board ("NMB") on November
3, 1999, and the NMB appointed a mediator on November 8, 1999. In February 2000,
with the assistance of an NMB-appointed mediator, the Company reached agreement
with the IAM and members of the fleet service agent negotiating committee on a
collective bargaining agreement. The agreement was then submitted to the fleet
service agents for ratification. On March 20, 2000, the company was advised that
the fleet service agents voted not to approve the agreement. The Company
believes that a request for further mediation will be made in this matter, but
it has not yet received any information from either the IAM or the NMB in this
respect. Negotiations with the AFA have not yet concluded.
<PAGE>
In August 1998, the Compliance and Enforcement Branch of the Drug Abatement
Division of the Federal Aviation Administration ("FAA") conducted an inspection
of the Company's compliance with certain regulations related to its alcohol and
drug testing programs. In September 1998, the FAA notified the Company that it
was investigating alleged violations discovered during the August 1998
inspection. The Company responded to these alleged violations in October 1998.
In May 1999, the FAA requested that the Company provide the FAA with an update
of certain matters raised during the investigation. The Company promptly
provided this information to the FAA. The Company is unable to determine whether
the FAA's investigation will result in the finding of violations of these
regulations and, if so, whether the FAA will pursue an assessment as a result of
any such findings or what the amount of any such assessment might be.
In September 1997, the Civil Aviation Security Division of the FAA conducted an
investigation of the Company's compliance with certain regulations requiring the
Company to verify the accuracy of the 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 a finding by the
FAA of violations of these regulations. The Company has received no
communications from the FAA in this respect since 1998.
The Company is involved in various legal proceedings that are incidental to the
conduct of its business. 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.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
FINANCIAL STATEMENTS, THE NOTES THERETO AND THE OTHER FINANCIAL DATA INCLUDED IN
THE COMPANY'S ANNUAL REPORT FILED ON FORM 10-K.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
OVERVIEW
RESULTS OF OPERATIONS
2000 began with fuel prices up significantly from the three months ended March
31, 1999 and a "hundred-year" snowstorm in January, which closed our hub at RDU
for three days and other storms which effectively closed the system another two
days. The Company exercised its option to terminate early four Fokker leases
which resulted in a pre-tax charge of $9.2 million. For the three months ended
March 31, 2000 the Company's net loss was $7.6 million. Revenue for the three
months ended March 31,2000 was up 9.7% over the three months ended March 31,
1999 to $60.3 million.
The following chart shows the results of the three months ended March 31, 2000
and 1999 with and without the equipment retirement charges.
<TABLE>
<CAPTION>
Dollars in millions except per With Equipment Retirement Without Equipment Retirement
share amounts Charges Charges
Three Months Ended March 31, Three Months Ended March 31,
---------------------------- ----------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating income (loss) $(11.3) $7.3 $(2.2) $8.2
Operating margin (18.8)% 13.3% (3.6)% 15.0%
Net income (loss) $(7.6) $4.0 $(1.9) $4.6
Diluted earnings (loss) per
share $(0.88) $0.42 $(0.19) $0.47
</TABLE>
<PAGE>
UNUSUAL ITEMS
Three months ended March 31, 2000
o $9.2 million ($5.7 million net of taxes) equipment retirement charges
related to the exercise of an option to return four leased F100 aircraft
prior to the scheduled return at the end of their leases.
o $0.3 million ($0.2 million net of taxes) interest expense for the decrease
in carrying value of debt discount proportionate to the $1.5 million
decrease in principal related to the option agreement.
Three months Ended March 31, 1999
o $0.9 million ($0.6 million after taxes) equipment retirement charges
related to the retirement of three aircraft during the first three months
of 1999.
<PAGE>
SELECTED OPERATING DATA
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
Favorable (Unfavorable)
-----------------------
2000 1999 Variance Variance %
---- ---- -------- ----------
<S> <C> <C> <C> <C>
ASMs (thousands) 464,127 375,649 88,478 23.6%
RPMs (thousands) 310,823 238,624 72,199 30.3%
Load Factor 67.0% 63.5% 3.4 pts 5.4%
Breakeven Pax Load Factor (Note 1) 70.4% 54.8% (15.6 pts) (28.5%)
Departures 14,491 10,482 4,009 38.2%
Block Hours 22,192 16,071 6,121 38.1%
Passenger Revenue per ASM (cents) 12.73 14.28 (1.6) (10.9%)
Passenger Yield (cents) 19.0 22.5 (3.5) (15.5%)
Average Fare $95 $114 ($19) (16.5%)
Operating Cost per ASM (cents) (Note 1) 13.47 12.44 (1.0) (8.3%)
Total Cost per ASM (cents) (Note 1) 13.65 12.67 (1.0) (7.8%)
Onboard Passengers 621,319 471,593 149,726 31.7%
Average Seats per departure 66 74 (8) (10.8%)
Average Stage Length (miles) 459 467 (8) (1.7%)
Aircraft (average during period) 29.0 21.5 7.5 34.9%
Aircraft Utilization (hours per day) 8.4 8.3 0.1 1.2%
Fuel Price per Gallon (cents) (Note 2) 80 36 (44) (122.2%)
</TABLE>
(1) Excludes equipment retirement charges
(2) Excludes taxes and into-plane fees
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
CAPACITY. In the three months ended March 31, 2000, the Company produced 464
million ASMs, an increase of 88 million or 23.6% from the three months ended
March 31, 1999. The increase in ASM production was attributable to 38.2% more
departures (to 14,491), offset somewhat by a 1.7% shorter average stage length
(to 459 miles) and 10.8% fewer seats per departure (to 66 seats). These changes
resulted from the change in the Company's fleet (see below). The ASM production
was 5% lower than what it otherwise would have been due to the severe January
weather.
As of March 31,
Aircraft 2000 1999
-------- ---- ----
F100 (98 seats) 8 10
A320 (148 seats) 0 1
CRJ (50 seats) 21 11
Boeing (128 seats) 2 0
-- --
31 22
OPERATING REVENUES. The Company's operating revenues increased 9.7% to $60.3
million for the three months ended March 31, 2000 from $55.0 million for the
three months ended March 31, 1999. The increase is attributable to a 31.7%
increase in the number of passengers boarded to 621 thousand from 472 thousand
partially offset by a 16.5% decrease in average fare to $95. Passenger revenue
per ASM decreased 10.9% to 12.73 cents per ASM due to a a 15.5% decrease in
passenger yield (revenue per RPM) to 19.0 cents, partially offset by 3.4
percentage point increase in load factor to 67.0%. Cargo
<PAGE>
revenue increased 19.4% to $0.6 million for the three months ended March 31,
2000 from $0.5 million for the three months ended March 31, 1999. The increase
is due to a 28.5% increase in mail and an 8.7% increase in freight carried
during the three months ended March 31, 2000. Other revenue decreased 17.5% to
$0.7 million for the three months ended March 31, 2000 from $0.8 million for the
three months ended March 31, 1999, due to an increase in revenue shared from the
revenue sharing agreement with the Company's commuter affiliate, decreases in
services to other airlines and other miscellaneous revenues, partially offset by
an increase in charters.
OPERATING EXPENSES. The Company's operating expenses increased 50.4% to $71.7
million for the three months ended March 31, 2000 from $47.7 million for the
three months ended March 31, 1999. Total expenses increased primarily due to
increases in number of employees, wages, fuel, aircraft, landing fees,
depreciation expense, and the recording of $9.2 million of equipment retirement
charges in the three months ended March 31, 2000 partially offset by reduction
in maintenance costs in the three months ended March 31, 2000. Total operating
expense per ASM increased 21.7% to 15.44 cents from 12.69 cents. Excluding the
one-time equipment retirement charges in 2000 and 1999, operating expense per
ASM increased 8.3% to 13.47 cents from 12.44 cents. This increase is
attributable to higher fuel prices, the costs from and decrease in ASMs from the
winter storms, and the shrinking of the average aircraft size.
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
---- ----
Percent of Cost per Percent of Cost per
Total Expenses ASM (Cents) Total Expenses ASM (Cents)
-------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Operating expenses:
Wages, salaries and related costs 15.9% 2.48 18.4% 2.38
Aircraft fuel 13.8 2.16 8.5 1.10
Aircraft and engine rentals 14.9 2.33 15.1 1.95
Commissions 5.3 0.82 7.5 0.97
Maintenance, materials and repairs 4.6 0.72 8.2 1.04
Other rentals and landing fees 4.7 0.74 4.9 0.64
Depreciation and amortization 3.2 0.50 3.6 0.46
Other 23.8 3.72 30.1 3.90
----- ---- ---- ----
Subtotal operating expenses before
equipment retirement charges 86.2 13.47 96.3 12.44
Equipment retirement charges 12.6 1.97 1.9 0.25
----- ---- --- ----
Total operating expenses 98.8 15.44 98.2 12.69
Other income (expenses) 1.2 0.18 1.8 0.23
---- ---- --- ----
Total expenses 100.0% 15.62 100.0% 12.92
====== ===== ====== =====
</TABLE>
<PAGE>
Wages, salaries and related costs increased $2.6 million or 28.8% to $11.5
million for the three months ended March 31, 2000 from $8.9 million for the
three months ended March 31, 1999. The increase is attributable to increased
staffing associated with the addition of new aircraft and stations throughout
the three months, annual wage increases for all personnel and general hiring to
fill specific needs within the Company. For the three months ended March 31,
2000 there was no expense recorded for discretionary bonuses versus $0.7 million
in 1999. Wages, salaries and related cost per ASM increased 0.10 cents or 4.2%
to 2.48 cents. The increase in unit costs is attributable to the items noted
above as well as the changes noted in "Capacity".
Aircraft fuel expense increased 143.6% to $10.0 million for the three months
ended March 31, 2000 from $4.1 million for the three months ended March 31,
1999. The increase was due to a 122.2% increase in the average liquid fuel price
per gallon to 80 cents from 36 cents and a 27.2% increase in gallons of fuel
consumed due to the increased number of flights. Aircraft fuel expense per ASM
increased 96.4% to 2.16 cents driven by the 91.7% increase in total fuel cost
per gallon (including taxes and into plane fees).
Aircraft and engine rental expense increased 47.7% to $10.8 million for the
three months ended March 31, 2000 from $7.3 million for the three months ended
March 31, 1999. The increase in expense is attributable to the rent expense on
10 additional leased CRJs and two Boeing 737-700s, offset by return of two
F-100s and the Airbus A320 in the first half of 1999, and the reduction in the
use of leased spare engines. Aircraft and engine rentals expense per ASM
increased 19.5% to 2.33 cents from 1.95 cents. The increase in cost per ASM
resulted primarily from the increase in the number of leased aircraft in 2000
and the higher CASM of the leased aircraft, partially offset by the return of
the two F100 and one A320 aircraft in the first half of 1999.
<PAGE>
Commission expense increased 4.3% to $3.8 million for the three months ended
March 31, 2000 from $3.6 million for the three months ended March 31, 1999. This
was due to a reduction in average commission paid partially offset by a 21.5%
increase in agency-generated revenues. Commission expense per ASM decreased
15.5% to 0.82 cents from 0.97 cents, primarily driven by the reduction in
commission rate paid and partially offset by an increase in travel agency
revenues as a percent of passenger revenue to 70.0%.
Maintenance, materials and repairs expense decreased 16.1% to $3.3 million for
the three months ended March 31, 2000 from $4.0 million in the three months
ended March 31, 1999. The expense decrease is largely attributable to the return
of the three leased, higher maintenance cost aircraft, partially offset by the
38.1% increase in block hours flown by new, lower maintenance cost aircraft.
Maintenance, materials and repairs expense per ASM decreased 30.8% to 0.72 cents
from 1.04 cents.
Other rentals and landing fees expense increased 43.5% to $3.4 million for the
three months ended March 31, 2000 from $2.4 million for the three months ended
March 31, 1999. Other rentals and landing fees expense per ASM increased 15.6%
to 0.74 cents from 0.64 cents, due to the use of more space and thus higher
rental costs at certain facilities, (mainly at RDU), increased slot costs, and a
27.2% increase in landed weight partially offset by a 17.4% decline in landing
fee rates at RDU.
Depreciation and amortization expense increased 35.2% to $2.3 million for the
three months ended March 31, 2000 from $1.7 million for the three months ended
March 31, 1999. Depreciation and amortization expense per ASM increased 8.7% to
0.50 cents from 0.46 cents in the three months ended March 31, 1999. During the
three months ended March 31, 2000 the Company increased its investment in fixed
assets including parts for the 737-700 fleet, F100 fleet, and CRJ fleet, ground
service equipment and computer equipment.
Other operating expense increased 18.1% to $17.3 million for the three months
ended March 31, 2000 from $14.6 million for the three months ended March 31,
1999. Other operating expenses consist primarily of reservations, ground
handling, advertising, general and administrative expense and insurance. The
increase in expense is attributable to the 38.2% increase in departures and to
the 31.7% increase in passengers, partially offset by savings in insurance and
efficiencies created by growth. Other operating expense per ASM decreased 4.6%
to 3.72 cents from 3.90 cents in 1999.
Interest income decreased $0.3 million to $0.3 million for three months ending
March 31, 2000 due to lower average cash balances due to predelivery deposits
for the CRJ and Boeing fleets. Interest expense decreased $0.3 million to $1.2
million due to the offset of interest expense by the capitalized interest on
aircraft deposits. Other income/expense per ASM for the three months ending
March 31, 2000 was 0.18 cents compared to interest expense per ASM of 0.23 cents
in the comparable prior period.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
The Company's working capital decreased during the three months ended March 31,
2000 compared to the three months ended March 31, 1999. As of March 31, 2000,
the Company had cash, restricted cash, and short-term investments of $41.9
million and working capital of $(9.4) million compared to $58.7 million and
$27.9 million, respectively, as of March 31, 1999. During the three months ended
March 31, 2000, cash, restricted cash, and short-term investments increased $3.4
million, reflecting net cash provided by operating activities of $3.2 million
(excluding changes in restricted cash), net cash used in investing activities of
$12.8 million (excluding purchases and sales of short-term investments), and net
cash provided by financing activities of $13.0 million. During the three months
ended March 31, 2000, net cash provided by operating activities was primarily
due to increases in liabilities, depreciation and amortization offset by the net
loss and increases in receivables; net cash used in investing activities was due
to purchases of equipment and property and equipment purchase deposits; and net
cash provided by financing activities was due to proceeds from issuance of
revolving debt.
CAPITAL RESOURCES
The Company's aircraft purchase obligations amount to approximately $610.0
million as of March 31, 2000. The Company's remaining pre-delivery deposit
obligations amount to approximately $26.3 million. The Company's anticipated
near-term, non-aircraft capital expenditures amount to approximately $19.4
million. Together, these obligations exceed the Company's internal capital
resources and accordingly, the Company will be required to obtain capital from
external sources. A substantial portion of the required external capital has
been committed to the Company by the aircraft and engine manufacturers, subject
to satisfaction of certain conditions. Additionally, the Company obtained a $30
million revolving credit facility provided by an entity owned by two
stockholders, James H. Goodnight, Ph.D. and John P. Sall. Pursuant to this
credit facility, the Company is obligated to undertake a rights offering of
common stock. Messrs. Goodnight and Sall have agreed to exercise their rights to
purchase shares of common stock in the Company and to purchase additional shares
of common stock related to otherwise unexercised rights in the offering.
Accordingly, the rights offering is expected to raise a minimum of approximately
$32.4 million. The Company has obtained an indication of interest from certain
banks to finance the remaining unfinanced obligations of the pre-delivery
deposits, and continues to pursue external financing for aircraft purchase
obligations and anticipated capital expenditures. No assurances can be given
that the rights offering can be completed or that the pre-delivery deposit
financings will be available on a timely basis.
CAPITAL EXPENDITURES
The Company's cash outflows for capital expenditures in the three months ended
March 31, 2000 and 1999 were $4.6 million and $0.9 million, respectively,
excluding financed purchases. Debt financed purchases in the three months ended
March 31, 2000 and 1999 were $2.1 million and $0, respectively. The Company paid
$8.4 million and $4.5 million in aircraft pre-delivery deposits in the three
months ended March 31, 2000 and 1999, respectively. During the first quarter of
2000, $8.2 million for pre-delivery deposits for aircraft purchases was paid
directly by the lender to the aircraft manufacturer.
As of April 30, 2000, the Company has in place firm orders to purchase four
additional newly manufactured CRJ-200ER Canadair Regional Jet aircraft, all of
which are scheduled to be delivered by December 2001. The Company also has
options to acquire up to fourteen additional CRJs. The Company expects to
arrange a combination of third party debt and leveraged lease financing, but
will use available standby lease financing in the event that it is unable to
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.
<PAGE>
The Company has placed firm orders to purchase fifteen 737 aircraft, and has
leased two additional 737s. Deliveries of the two leased 737 aircraft occurred
in December 1999 and January 2000, and delivery for the other fifteen 737
aircraft are scheduled to begin in September 2000 and end in October 2002. The
Company has options to acquire ten additional 737s. The Company expects to
arrange a combination of third party debt and leveraged lease financing, but
will use available standby lease financing in the event that it is unable to
arrange more attractive financing from third party sources. The Company intends
to purchase up to four CFM 56-7B spare engines to support the operation of its
737 aircraft.
OTHER FINANCING
The Company has significant lease obligations for aircraft that are classified
as operating leases and therefore are not reflected as liabilities on the
Company's balance sheet. The remaining terms of such leases range from less than
one year to approximately seventeen years. The Company's total rent expense for
the three months ended March 31, 2000 and 1999 under all non-cancelable aircraft
operating leases was approximately $10.8 million and $7.3 million, respectively.
CONTINGENCIES
Proceeds from the $30 million credit facility described above have been and will
in the future be used to fund the payment of certain pre-aircraft delivery
deposit obligations, for capital expenditures and for general working capital
purposes. Amounts borrowed and outstanding under this credit facility in excess
of $10 million, if any, must be repaid and the remaining available loan
commitment must be reduced to not more than $10 million on the earlier of
September 30, 2000 and the date on which the Company completes the rights
offering of securities described below. The outstanding balance of all loans
made under this credit facility is due and payable in full on March 31, 2002.
Pursuant to the terms of this credit facility, the Company is obligated to
undertake a rights offering of securities on the following terms:
o a right ("Right") to purchase a share of common stock in the
Company will be issued to each holder of common stock in the
Company on a share for share basis. The Rights will be issued to
holders of common stock on the date which is 10 days after the
filing of the registration statement covering such Rights (the
"Record Date"). The Record Date may be postponed pending the
effectiveness of the registration statement covering such Rights.
The Rights will be issued immediately following the effectiveness
of the registration statement covering such Rights (the "Issuance
Date").
o each Right shall entitle the holder thereof to purchase one share
of common stock in the Company for $5.20 per common share (the
"Subscription Price").
o Rights to purchase shares of common stock in the Company will not
be listed on NASDAQ or any other exchange and will not be
transferable or assignable.
o Rights will be exercisable for 30 days from the Issuance Date.
o Messrs. Goodnight and Sall have each agreed to exercise their
respective Rights.
o Messrs. Goodnight and Sall have also each agreed to purchase, and
all other holders of common stock on the Record Date who have
timely exercised all of their Rights will also have the right to
purchase, at the Subscription Price, such shares of common stock
subject to Rights issued on the Issuance Date which have not been
timely exercised, multiplied by their percentage ownership
interests in the Company's common stock on the Record Date.
<PAGE>
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.
SOME OF THE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
ESTIMATES CONTAINED IN THE COMPANY'S FORWARD-LOOKING STATEMENTS INCLUDE THE
FOLLOWING:
The ability to generate sufficient cash flows and/or to obtain sufficient
financing to support capital expansion plans and general operating activities.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Seasonality and Quarterly Results of Operations, Liquidity and
Capital Resources" in the Company's annual report on Form 10K for the fiscal
year ended December 31, 1999.
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.
Fluctuations in the cost and availability of materials, fuel, equipment and
labor including the continued availability of landing slots at New
York/LaGuardia and Ronald Reagan Washington National airports. See "Business -
Maintenance and Support, Slots, Fuel, Flight Equipment, Employees and Labor
Relations" in the Company's annual report on Form 10K for the fiscal year ended
December 31, 1999.
Unexpected delays in the delivery of new aircraft now scheduled for delivery in
2000, 2001, and 2002. See "Properties - Flight Equipment" in the Company's
annual report on Form 10K for the fiscal year ended December 31, 1999.
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.
Interest rate fluctuations and other capital market conditions.
The reliance on a limited number of markets and the ability to enter and develop
new markets. See "Business - Growth Strategy" in the Company's annual report on
Form 10K for the fiscal year ended December 31, 1999.
The effectiveness of and availability of resources to support advertising,
marketing and promotional programs. See "Business - American Relationship" in
the Company's annual report on Form 10K for the fiscal year ended December 31,
1999.
The uncertainties of litigation and/or administrative proceedings. See "Business
- - Government Regulation, Employees and Labor Relations" and "Legal Proceedings"
in the Company's annual report on Form 10K for the fiscal year ended December
31, 1999.
Adverse weather conditions, which could effect the Company's ability to operate.
See "Business - Raleigh-Durham Market" in the Company's annual report on Form
10K for the fiscal year ended December 31, 1999.
The Company's significant dependence on the Raleigh-Durham Market. See "Business
- - Raleigh-Durham Market" in the Company's annual report on Form 10K for the
fiscal year ended December 31, 1999.
Control by existing stockholders. See "Business - Control by Existing
Shareholders" in the Company's annual report on Form 10K for the fiscal year
ended December 31, 1999.
<PAGE>
The Company's indebtedness (including capital lease obligations). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" in the Company's annual report on
Form 10K for the fiscal year ended December 31, 1999.
<PAGE>
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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:
See Item 7A. Quantitative and Qualitative Disclosures about Market Risk
in Midway Airlines' 1999 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None to report.
ITEM 5. OTHER INFORMATION.
None to report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Reports on Form 8-K:
Date Subject
---- -------
April 14, 2000 Item 5: Announcement of $30 million revolving loan with
Reedy Creek Investments, LLC.
b) Exhibits
Financial Data Schedule
(see Edgar filing)
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
May 11, 2000 By /s/ STEVEN WESTBERG
Steven Westberg
Executive Vice President and General Manager
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
**Values represent the interim year-to-date figures. All Division of Corporation
Finance Schedules will consist of a SINGLE COLUMN of numbers unless a
registration statement containing information for a complete fiscal year as well
as for an interim period is the first filing submitted with new financials
during that year. In that case, the filer will use two columns--one for the year
period and a second for the interim period. Financial Data Schedules for
Investment Management companies will have one column of numbers. Each schedule
may contain up to five columns of numbers; however, most will contain ONLY ONE.
</LEGEND>
<S> <C>
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0
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