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 June 30, 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 August 10, 2000 there were 15,174,755 shares of Common Stock, $.01
par value, of the registrant outstanding.
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
Midway Airlines Corporation
Balance Sheets
(Dollars in thousands)
June 30, December 31,
2000 1999
(Unaudited) (Audited)
----------- ---------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $23,125 $27,351
Restricted cash 16,703 10,668
Short-term investments - 545
Accounts receivable:
Credit cards and travel agencies 13,699 4,311
Other (net) 1,015 2,719
Inventories 3,708 3,638
Deferred income tax asset 1,172 1,172
Prepaids and other 6,780 9,878
----- -----
Total current assets 66,202 60,282
Equipment and property:
Flight 135,172 124,808
Other 12,766 11,485
Less accumulated depreciation and amortization (20,396) (15,888)
-------- --------
Total equipment and property, net 127,542 120,405
Other noncurrent assets:
Equipment and aircraft purchase deposits 92,916 61,824
Aircraft lease deposits and other 10,953 9,306
Deferred income tax asset 8,586 4,872
----- -----
Total other noncurrent assets 112,455 76,002
------- ------
Total assets $306,199 $256,689
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
<S> <C> <C>
Accounts payable $10,921 $11,574
Accrued expenses 6,139 6,385
Accrued income and excise taxes 3,338 2,267
Advance ticket sales 39,441 25,486
Other current liabilities 12,020 2,686
Related party line of credit, current portion 10,000 -
Current maturities of long-term debt and capital lease obligations 6,534 7,470
----- -----
Total current liabilities 88,393 55,868
Noncurrent liabilities:
Related party line of credit, long-term portion 10,000 -
Long-term debt and capital lease obligations 116,371 103,349
Deferred income tax liability 14,336 14,336
------ ------
Total noncurrent liabilities 140,707 117,685
------- -------
Total liabilities 229,100 173,553
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; 8,602,392 and
8,613,592 shares issued and outstanding at December 31, 1999 and June 30, 2000 86 86
Additional paid-in capital 54,372 54,349
Retained earnings ($51.1 million of accumulated deficit eliminated
in the quasi-reorganization as of June 30, 1997) 22,641 28,701
------ ------
Total stockholders' equity 77,099 83,136
------ ------
Total liabilities and stockholders' equity $306,199 $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 June 30,
-----------------------------------
2000 1999 Favorable (Unfavorable)
---- ---- --------- ------------
Variance Variance %
-------- ----------
Operating revenues:
<S> <C> <C> <C> <C>
Passenger $71,620 $54,387 $17,233 31.7%
Cargo 592 417 175 42.0
Contract and other 1,729 747 982 131.5
----- --------- ---------- -----
Total revenues 73,941 55,551 18,390 33.1
Operating expenses:
Wages, salaries and related costs 13,693 9,606 (4,087) (42.5)
Aircraft fuel 11,069 4,685 (6,384) (136.3)
Aircraft and engine rentals 11,737 7,397 (4,340) (58.7)
Commissions 3,755 3,654 (101) (2.8)
Maintenance, materials and repairs 4,273 3,073 (1,200) (39.0)
Other rentals and landing fees 3,369 2,538 (831) (32.7)
Depreciation and amortization 2,396 1,844 (552) (29.9)
Other 20,818 14,642 (6,176) (42.2)
Equipment retirement charges - 1,080 1,080 100.0
--------- -------- -------- -----
Total operating expenses 71,110 48,519 (22,591) (46.6)
Operating income 2,831 7,032 (4,201) (59.7)
Other income (expense):
Interest income 464 688 (224) (32.6)
Interest expense (875) (1,252) 377 30.1
-------- ------- -------- -----
Total other income (expense) (411) (564) 153 27.1
--------- -------- -------- -----
Income before provision for income taxes 2,420 6,468 (4,048) (62.6)
Provision for income taxes 920 2,458 1,538 62.6
--------- -------- -------- -----
Net income $1,500 $4,010 ($2,510) (62.6%)
========= ========== ======== ======
Basic earnings per share:
Net income $0.17 $0.47
========== ==========
Weighted average shares used in
computing basic earnings per share 8,613,592 8,602,392
========== ==========
Diluted earnings per share:
Net income $0.17 $0.42
===== =====
Weighted average shares used in
computing diluted earnings per share 8,831,395 9,563,381
========= ==========
</TABLE>
<PAGE>
Midway Airlines Corporation
Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
2000 1999 Favorable (Unfavorable)
---- ---- --------- -------------
Variance Variance %
-------- ----------
Operating revenues:
<S> <C> <C> <C> <C>
Passenger $130,683 $108,047 $22,636 21.0%
Cargo 1,196 923 273 29.6
Contract and other 2,406 1,568 838 53.4
--------- -------- -------- -----
Total revenues 134,285 110,538 23,747 21.5
Operating expenses:
Wages, salaries and related costs 25,204 18,545 (6,659) (35.9)
Aircraft fuel 21,103 8,804 (12,299) (139.7)
Aircraft and engine rentals 22,544 14,714 (7,830) (53.2)
Commissions 7,552 7,296 (256) (3.5)
Maintenance, materials and repairs 7,599 7,035 (564) (8.0)
Other rentals and landing fees 6,800 4,930 (1,870) (37.9)
Depreciation and amortization 4,734 3,572 (1,162) (32.5)
Other 38,100 29,279 (8,821) (30.1)
Equipment retirement charges 9,163 2,008 (7,155) (356.3)
--------- -------- -------- -----
Total operating expenses 142,799 96,183 (46,616) (48.5)
Operating income (loss) (8,514) 14,355 (22,869) (159.3)
Other income (expense):
Interest income 800 1,347 (547) (40.6)
Interest expense (2,060) (2,770) 710 25.6
--------- -------- -------- -----
Total other income (expense) (1,260) (1,423) 163 11.5
--------- -------- -------- -----
(Loss) income before (benefit) provision for
income taxes (9,774) 12,932 (22,706) (175.6)
(Benefit) provision for income taxes (3,714) 4,914 8,628 175.6
--------- -------- -------- -----
Net (loss) income ($6,060) $8,018 ($14,078) (175.6%)
========= ======== ======= ======
Basic (loss) earnings per share:
Net (loss) income ($0.70) $0.93
===== =====
Weighted average shares used in
computing basic earnings (loss) per share 8,611,007 8,602,392
========= =========
Diluted (loss) earnings per share:
Net (loss) income ($0.70) $0.83
===== =====
Weighted average shares used in
computing diluted earnings (loss) per share 8,611,007 9,607,747
========= ==========
</TABLE>
<PAGE>
Midway Airlines Corporation
Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
2000 1999
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income $(6,060) $8,018
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization 4,734 3,572
Deferred income taxes (3,714) -
Gain on disposal of assets - (28)
Other non-cash items 160 -
Amortization of discount on debt 549 222
Changes in operating assets and liabilities:
Restricted cash (6,035) (2,999)
Accounts receivable (8,848) (2,489)
Inventories (70) (46)
Prepaids and other 3,006 3,885
Aircraft lease deposits and other (1,845) (1,210)
Accounts payable and accrued expenses (899) 48
Accrued excise and income taxes 1,071 4,103
Advance ticket sales 13,955 5,265
Other current liabilities 9,334 77
Other noncurrent liabilities - (1,060)
------- -------
Net cash provided by operating activities 5,338 17,358
INVESTING ACTIVITIES:
Purchase of short-term investments - (7,275)
Sale of short-term investments 545 -
Purchase of equipment and property (10,048) (7,189)
Proceeds from sale of equipment 21 -
Aircraft and equipment purchase deposits (16,899) (15,354)
Refund of aircraft and equipment purchase deposits 207 3,563
------- -------
Net cash used in investing activities (26,174) (26,255)
FINANCING ACTIVITIES:
Issuance of common stock 22 -
Proceeds from line of credit-related party 30,000 -
Repayment of line of credit-related party (10,000) -
Repayment of long-term debt and capital lease obligations (3,412) (3,029)
------- -------
Net cash provided by (used in) financing activities 16,610 (3,029)
Decrease in cash and cash equivalents (4,226) (11,926)
Cash and cash equivalents at beginning of period 27,351 48,736
------- ------
Cash and cash equivalents at end of period $23,125 $36,810
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL CASH FLOW INFORMATION:
<S> <C> <C>
Interest paid $6,843 $3,069
====== ======
Income taxes paid $27 $1,957
=== ======
SCHEDULE OF NON-CASH ACTIVITIES:
Issuance of debt and capital leases for equipment purchases $2,065 $1,529
====== ======
Debt issued for aircraft purchase deposits $14,400 $ -
======= ======
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 June 30, 2000 and for the three months and six months
ended June 30, 2000 and 1999 are 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 June 30,
2000 and December 31, 1999, approximately $16.7 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 $4.2 million and
$0.6 million for the six months ended June 30, 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 June 30, Six months ended June 30,
2000 (1) 1999 (1) 2000 (1) 1999 (1)
------------------------------------------------------------------------
Numerator:
<S> <C> <C> <C> <C>
Net income (loss) (2) $1,500,000 $4,010,000 ($6,060,000) $8,018,000
Denominator:
Denominator for basic earnings (loss) per 8,613,592 8,602,392 8,611,007 8,602,392
share - weighted average shares
Effect of dilutive securities (3):
Employee stock options 217,918 570,420 - 614,779
Warrants 475 390,569 - 390,576
------------------------------------------------------------------------
Dilutive potential common shares (3) 218,393 960,989 - 1,005,355
Denominator for diluted earnings (loss) per
share - adjusted weighted average shares and 8,831,395 9,563,381 8,611,007 9,607,747
assumed conversions.
========================================================================
Basic earnings (loss) per share $0.17 $0.47 ($0.70) $0.93
========================================================================
Diluted earnings (loss) per share $0.17 $0.42 ($0.70) $0.83
========================================================================
</TABLE>
(1) Options and warrants to purchase 1,301,770 shares of common stock were
outstanding during the six months ended June 30, 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 245,930 shares of common stock
at $15.50 per share were outstanding during the three and six months
ended June 30, 1999, but were not included in the computation of
diluted earnings per share for the three and six months ended June 30,
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 June 30, 2000, the outstanding balance under the credit facility was
$20 million, of which $10 million is classified as related party line of credit,
current portion in the balance sheet as of June 30, 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 was 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 rights offering was completed on July 26, 2000. As of
August 10, 2000, the outstanding balance under this credit facility is $0. The
outstanding balance of all loans made under this credit facility is due and
payable on March 31, 2002.
<PAGE>
5. Commitments and Contingencies
Aircraft Commitments:
As of July 31, 2000, the Company has firm orders for three 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. The Company has options to acquire 10 additional 737
aircraft. The Company has also executed a term sheet in connection with its
intention to lease three additional newly manufactured Boeing 737 aircraft
scheduled to be delivered in November 2000 and October and November 2001. 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
six months ended June 30, 2000, the Company recorded $9.2 million in equipment
retirement charges related to the exercise of this option. As of June 30, 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 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. Further mediation
of this matter has commenced and additional meetings will be held. Negotiations
with the AFA have not yet concluded.
In August 1998, the Compliance and Enforcement Branch of the Drug Abatement
<PAGE>
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.
6. Subsequent Events
On July 26, 2000, the Company completed a rights offering related to its common
stock which raised $34.1 million before expenses. An additional 6,561,163 shares
of common stock were issued at $5.20 per share. Common stock issued and
outstanding after the rights offering totals 15,174,755 shares. From the
proceeds of the offering, $5.0 million was used to prepay all amounts then
outstanding under a $30 million revolving credit facility provided by an entity
owned by two stockholders, James H. Goodnight, Ph.D. and John P. Sall. As of
August 11, 2000, the Company may draw up to $10 million under this revolving
credit facility. Messrs. Goodnight and Sall own approximately 66.1% of the
outstanding stock as of August 11, 2000.
On August 11, 2000 the Company closed a financing with a syndicate of banks who
have agreed to provide the Company with up to $37.5 million, in the aggregate,
to either reimburse the Company for cash pre-delivery deposits previously made
pursuant to its purchase agreement with The Boeing Company or to make
pre-delivery deposits that become due under such agreement.
<PAGE>
Item 2. 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 JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
OVERVIEW
Results of Operations
Fuel prices have continued to be up significantly in the three months ended June
30, 2000 from the three months ended June 30, 1999. Fuel expense increased $6.4
million, or 136.3% in the three months ended June 30, 2000, mainly due to the
86% increase in fuel price per gallon to $0.80 from $0.43 and a 40.6% increase
in gallons of fuel consumed due to increased number of flights. For the three
months ended June 30, 2000 the Company's net income was $1.5 million. Revenue
for the three months ended June 31, 2000 was up 33.1% over the three months
ended June 30, 1999 to $73.9 million.
The following chart shows the results of the three months ended June 30, 2000
and 1999 with and without the equipment retirement charges incurred in 1999
relating to the retirement of two aircraft, one of which left the fleet in May
and one in June.
<TABLE>
<CAPTION>
Dollars in millions except per With Equipment Retirement Without Equipment Retirement
share amounts Charges Charges
Three Months Ended June 30, Three Months Ended June 30.
--------------------------- ---------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating income $2.8 $7.0 $2.8 $8.1
Operating margin 3.8% 12.7% 3.8% 14.6%
Net income $1.5 $4.0 $1.5 $4.7
Diluted earnings per share $0.17 $0.42 $0.17 $0.49
</TABLE>
<PAGE>
Unusual Items
Three months ended June 30, 1999
o $1.1 million ($0.6 million after taxes) equipment retirement charges
related to the retirement of two aircraft during the three months
ended June 30, 1999.
<TABLE>
<CAPTION>
Selected Operating Data
For the Three Months Ended June 30,
Favorable (Unfavorable)
2000 1999 Variance Variance %
--------- --------- -------- ----------
<S> <C> <C> <C> <C>
ASMs (thousands) 517,880 375,476 142,404 37.9%
RPMs (thousands) 371,778 251,939 119,839 47.6%
Load Factor 71.8% 67.1% 4.7 pts 7.0%
Breakeven Passenger Load Factor (1) 69.4% 57.7% (11.7) pts (20.3%)
Departures 16,392 10,786 5,606 52.0%
Block Hours 24,844 16,721 8,123 48.6%
Passenger Revenue per ASM (cents) 13.8 14.5 (0.7) (4.5%)
Passenger Yield (cents) 19.3 21.6 (2.3) (10.8%)
Average Fare $94 $108 ($14) (12.8%)
Operating Cost per ASM (cents) (1) (13.7) (12.6) (1.1) (8.7%)
Total Cost per ASM (cents) (1) (13.8) (12.8) (1.0) (8.0%)
Onboard Passengers 760,660 503,353 257,307 51.1%
Average Seats per departure 66 71 (5) (7.0%)
Average Stage Length (miles) 451 473 (22) (4.7%)
Aircraft (average during period) 31.9 20.9 11.0 52.6%
Aircraft Utilization (hours per day) 8.6 8.8 (0.2) (2.7%)
Fuel Price per Gallon (cents) (2) 80 43 (37) (86.0%)
</TABLE>
(1) Excludes equipment retirement charges
(2) Excludes taxes and into-plane fees
<PAGE>
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Capacity. In the three months ended June 30, 2000, the Company produced 518
million ASMs, an increase of 142 million or 37.9% from the three months ended
June 30, 1999. The increase in ASM production was attributable to 52% more
departures (to 16,392), offset somewhat by a 4.7% shorter average stage length
(to 451 miles) and 7% fewer seats per departure (to 66 seats). These changes
resulted from the change in the Company's fleet (see below).
As of June 30,
Aircraft 2000 1999
-------- ---- ----
F100 (98 seats) 8 8
CRJ (50 seats) 22 12
Boeing (128 seats) 2 0
--- ---
32 20
Operating Revenues. The Company's operating revenues increased 33.1% to $73.9
million for the three months ended June 30, 2000 from $55.6 million for the
three months ended June 30, 1999. The increase is attributable to a 51.1%
increase in the number of passengers boarded to 761 thousand from 503 thousand
partially offset by a 12.8% decrease in average fare to $94. Passenger revenue
per ASM decreased 4.5% to 13.8 cents per ASM due to a 10.8% decrease in
passenger yield (revenue per RPM) to 19.3 cents, partially offset by 4.7
percentage point increase in load factor to 71.8%. Cargo revenue increased 42%
to $0.6 million for the three months ended June 30, 2000 from $0.4 million for
the three months ended June 30, 1999. The increase is due to a 49.8% increase in
mail pounds carried and a 41.4% increase in freight pounds carried during the
three months ended June 30, 2000. Other revenue increased 131.5% to $1.7 million
for the three months ended June 30, 2000 from $0.7 million for the three months
ended June 30, 1999, due to a change in the revenue sharing arrangement with the
Company's commuter affiliate and increases in administrative fee revenue and
charters.
Operating Expenses. The Company's operating expenses increased 46.6% to $71.1
million for the three months ended June 30, 2000 from $48.5 million for the
three months ended June 30, 1999. Total expenses increased due to overall
increase in the size, capacity, and passengers served in the three months ended
June 30, 2000. Total operating expense per ASM increased 6.3% to 13.73 cents
from 12.92 cents. Excluding the one-time equipment retirement charges in 1999,
operating expense per ASM increased 8.7% to 13.73 cents from 12.63 cents. This
increase is attributable primarily to higher fuel prices, the increase in the
fleet size shown above, and the 7% decrease in seats per departure, partially
offset by savings in commissions.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30,
2000 1999
---- ----
Percent of Cost per Percent of Cost per
Total Expenses ASM (Cents) Total Expenses ASM (Cents)
-------------- ----------- -------------- -----------
Operating expenses:
<S> <C> <C> <C> <C>
Wages, salaries and related costs 19.1% 2.64 19.6% 2.56
Aircraft fuel 15.5 2.14 9.5 1.25
Aircraft and engine rentals 16.4 2.27 15.1 1.97
Commissions 5.3 0.72 7.4 0.97
Maintenance, materials and repairs 6.0 0.83 6.3 0.81
Other rentals and landing fees 4.7 0.65 5.2 0.68
Depreciation and amortization 3.3 0.46 3.8 0.49
Other 29.1 4.02 29.8 3.90
---- ---- ---- ----
Subtotal operating expenses before
Equipment retirement charges 99.4 13.73 96.7 12.63
Equipment retirement charges 0.0 0.00 2.2 0.29
---- ---- ---- ----
Total operating expenses 99.4 13.73 98.9 12.92
Other (income) expenses 0.6 0.08 1.1 0.15
---- ----- ----- ----
Total expenses 100.0% 13.81 100.0% 13.07
====== ===== ====== =====
</TABLE>
Wages, salaries and related costs increased $4.1 million or 42.5% to $13.7
million for the three months ended June 30, 2000 from $9.6 million for the three
months ended June 30, 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 June 30, 2000
there was no expense recorded for discretionary bonuses versus $0.6 million in
1999. Wages, salaries and related cost per ASM increased 0.08 cents or 3.1% to
2.64 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 136.3% to $11.1 million for the three months
ended June 30, 2000 from $4.7 million for the three months ended June 30, 1999.
The increase was due to an 86% increase in the average liquid fuel price per
gallon to 80 cents from 43 cents and a 40.6% increase in gallons of fuel
consumed due to the increased number of flights. Aircraft fuel expense per ASM
increased 71.2% to 2.14 cents driven by the 68% increase in total fuel cost per
gallon (including taxes and into plane fees).
Aircraft and engine rental expense increased 58.7% to $11.7 million for the
three months ended June 30, 2000 from $7.4 million for the three months ended
June 30, 1999. The increase in expense is attributable to the rent expense on
additional leased CRJs and two Boeing 737-700s, partially offset by return of
one F-100 and the Airbus A320, and the reduction in the use of leased spare
engines. Aircraft and engine rentals expense per ASM increased 15.2% to 2.27
cents from 1.97 cents. The increase in aircraft and engine rental expense per
ASM resulted primarily from the increase in the number of leased aircraft in
2000 and the higher cost per ASM of the leased aircraft, partially offset by the
return of the one F100 and one A320 aircraft in the second quarter of 1999.
Commission expense increased 2.8% to $3.8 million for the three months ended
June 30, 2000 from $3.7 million for the three months ended June 30, 1999. This
was due to a 46.9% increase in agency-generated revenues partially offset by
reduction in average commission paid. Commission expense per ASM decreased 25.8%
to 0.72 cents from 0.97 cents, primarily driven by the reduction in commission
<PAGE>
rate paid and partially offset by an increase in travel agency revenues as a
percent of passenger revenue to 73.2%.
Maintenance, materials and repairs expense increased 39.0% to $4.3 million for
the three months ended June 30, 2000 from $3.1 million in the three months ended
June 30, 1999. The expense increase is largely attributable to the 48.6%
increase in block hours. Maintenance, materials and repairs expense per ASM
increased 2.5% to 0.83 cents from 0.81 cents.
Other rentals and landing fees expense increased 32.7% to $3.4 million for the
three months ended June 30, 2000 from $2.5 million for the three months ended
June 30, 1999 driven by the 52% increase in departures. Other rentals and
landing fees expense per ASM decreased 4.4% to 0.65 cents from 0.68 cents.
Depreciation and amortization expense increased 29.9% to $2.4 million for the
three months ended June 30, 2000 from $1.8 million for the three months ended
June 30, 1999. Depreciation and amortization expense per ASM decreased 6.1% to
0.46 cents from 0.49 cents in the three months ended June 30, 1999. During the
three months ended June 30, 2000 the Company increased its investment in fixed
assets including capitalized interest for the 737-700 fleet, and purchases
primarily for the 737-700 and CRJ fleet.
Other operating expense increased 42.2% to $20.8 million for the three months
ended June 30, 2000 from $14.6 million for the three months ended June 30, 1999.
Other operating expenses consist primarily of reservations, ground handling,
advertising, general and administrative expense, training, and insurance. The
increase in expense is attributable to the 52% increase in departures and to the
51.1% increase in passengers. Other operating expense per ASM increased 3.1% to
4.02 cents from 3.90 cents in 1999.
Interest income decreased 32.6% to $0.5 million for three months ending June 30,
2000 due to lower average cash balances due to payment of pre-delivery deposits
for the CRJ and Boeing fleets. Interest expense decreased 30.1% to $0.9 million
due to the offset of interest expense by the capitalized interest on aircraft
purchase deposits. Net interest expense per ASM for the three months ending June
30, 2000 was 0.08 cents compared to net interest expense per ASM of 0.15 cents
in the comparable prior period.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
OVERVIEW
Results of Operations
Fuel prices have continued to be up significantly from the six months ended June
30, 1999. Fuel expense increased $12.3 million, or 139.7% in the six months
ended June 30, 2000. Results were also impacted by 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 six months ended June 30, 2000 the Company's net loss was $6.1
million. Revenue for the six months ended June 30, 2000 was up 21.5% over the
six months ended June 30, 1999 to $134.3 million.
The following chart shows the results of the six months ended June 30, 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
Six months Ended June 30, Six months Ended June 30,
------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating income (loss) $(8.5) $14.4 $0.6 $16.3
Operating margin (6.3)% 13.0% 0.5% 14.8%
Net income (loss) $(6.1) $8.0 $(0.4) $9.3
Diluted earnings (loss) per
share $(0.70) $0.83 $(0.04) $0.96
</TABLE>
<PAGE>
Unusual Items
Six months ended June 30, 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.
Six months ended June 30, 1999
o $2.0 million ($1.2 million after taxes) equipment retirement charges
related to the retirement of three aircraft during the first six months of
1999.
<TABLE>
<CAPTION>
Selected Operating Data
For the Six Months Ended June 30,
Favorable (Unfavorable)
2000 1999 Variance Variance %
------- ------- -------- ----------
<S> <C> <C> <C> <C>
ASMs (thousands) 982,007 751,125 230,882 30.7%
RPMs (thousands) 682,869 490,299 192,570 39.3%
Load Factor 69.5% 65.3% 4.2 pts 6.4%
Breakeven Passenger Load Factor (1) 69.9% 56.2% (13.7) pts (24.4%)
Departures 30,883 21,268 9,615 45.2%
Block Hours 47,036 32,792 14,244 43.4%
Passenger Revenue per ASM (cents) 13.3 14.4 (1.1) (7.5%)
Passenger Yield (cents) 19.1 22.0 (2.9) (13.1%)
Average Fare $95 $111 ($16) (14.7%)
Operating Cost per ASM (cents) (1) (13.6) (12.5) (1.1) (8.5%)
Total Cost per ASM (cents) (1) (13.7) (12.7) (1.0) (7.9%)
Onboard Passengers 1,382,578 974,946 407,632 41.8%
Average Seats per departure 66 72 (6) (8.6%)
Average Stage Length (miles) 454 470 (16) (3.3%)
Aircraft (average during period) 30.4 21.2 9.2 43.4%
Aircraft Utilization (hours per day) 8.5 8.5 (0.0) (0.0%)
Fuel Price per Gallon (cents) (2) 80 40 (40) (100.0%)
</TABLE>
(1) Excludes equipment retirement charges
(2) Excludes taxes and into-plane fees
<PAGE>
Six months Ended June 30, 2000 Compared to Six months Ended June 30, 1999
Capacity. In the six months ended June 30, 2000, the Company produced 982
million ASMs, an increase of 231 million or 30.7% from the six months ended June
30, 1999. The increase in ASM production was attributable to 45.2% more
departures (to 30,883), offset somewhat by a 3.3% shorter average stage length
(to 454 miles) and 8.6% fewer seats per departure (to 66 seats). These changes
resulted from the change in the Company's fleet (see below). The ASM production
was lower than what it otherwise would have been due to the severe January
weather.
As of June 30,
Aircraft 2000 1999
-------- ---- ----
F100 (98 seats) 8 8
CRJ (50 seats) 22 12
Boeing (128 seats) 2 0
--- ---
32 20
Operating Revenues. The Company's operating revenues increased 21.5% to $134.3
million for the six months ended June 30, 2000 from $110.5 million for the six
months ended June 30, 1999. The increase is attributable to a 41.8% increase in
the number of passengers boarded to 1.4 million from 1.0 million partially
offset by a 14.7% decrease in average fare to $95. Passenger revenue per ASM
decreased 7.5% to 13.3 cents per ASM due to a 13.1% decrease in passenger yield
(revenue per RPM) to 19.1 cents, partially offset by 4.2 percentage point
increase in load factor to 69.5%. Cargo revenue increased 29.6% to $1.2 million
for the six months ended June 30, 2000 from $0.9 million for the six months
ended June 30, 1999. The increase is due to a 37.9% increase in mail pounds
carried and a 23.7% increase in freight pounds carried during the six months
ended June 30, 2000. Other revenue increased 53.4% to $2.4 million for the six
months ended June 30, 2000 from $1.6 million for the six months ended June 30,
1999, due to a change in the revenue sharing arrangement with the Company's
commuter affiliate and increases in administrative fee revenue and charters.
Operating Expenses. The Company's operating expenses increased 48.5% to $142.8
million for the six months ended June 30, 2000 from $96.2 million for the six
months ended June 30, 1999. Total expenses increased due to overall increase in
the size, capacity, and passengers served in the six months ended June 30, 2000.
Total operating expense per ASM increased 13.6% to 14.54 cents from 12.80 cents.
Excluding the one-time equipment retirement charges in 2000 and 1999, operating
expense per ASM increased 8.6% to 13.61 cents from 12.53 cents. This increase is
attributable primarily to higher fuel prices, the winter storms, the increase in
the fleet size shown above, and the 8.6% decrease in seats per departure,
partially offset by savings in commissions.
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
---- ----
Percent of Cost per Percent of Cost per
Total Expenses ASM (Cents) Total Expenses ASM (Cents)
-------------- ----------- -------------- -----------
Operating expenses:
<S> <C> <C> <C> <C>
Wages, salaries and related costs 17.5% 2.57 18.9% 2.46
Aircraft fuel 14.6 2.15 9.0 1.17
Aircraft and engine rentals 15.7 2.30 15.1 1.96
Commissions 5.2 0.77 7.5 0.97
Maintenance, materials and repairs 5.3 0.77 7.2 0.94
Other rentals and landing fees 4.7 0.69 5.1 0.66
Depreciation and amortization 3.3 0.48 3.7 0.47
Other 26.4 3.88 30.0 3.90
---- ---- ---- ----
Subtotal operating expenses before
equipment retirement charges 92.7 13.61 96.5 12.53
Equipment retirement charges 6.4 0.93 2.1 0.27
---- ----- ---- -----
Total operating expenses 99.1 14.54 98.5 12.80
Other (income) expenses 0.9 0.13 1.5 0.19
---- ----- ---- -----
Total expenses 100.0% 14.67 100.0% 12.99
====== ===== ====== =====
</TABLE>
Wages, salaries and related costs increased $6.7 million or 35.9 % to $25.2
million for the six months ended June 30, 2000 from $18.5 million for the six
months ended June 30, 1999. The increase is attributable to increased staffing
associated with the addition of new aircraft and stations throughout the six
months, annual wage increases for all personnel and general hiring to fill
specific needs within the Company. For the six months ended June 30, 2000 there
was no expense recorded for discretionary bonuses versus $1.3 million in 1999.
Wages, salaries and related cost per ASM increased 0.11 cents or 4.5% to 2.57
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 139.7% to $21.1 million for the six months ended
June 30, 2000 from $8.8 million for the six months ended June 30, 1999. The
increase was due to a 100% increase in the average liquid fuel price per gallon
to 80 cents from 40 cents and a 33.9% increase in gallons of fuel consumed due
to the increased number of flights. Aircraft fuel expense per ASM increased
83.8% to 2.15 cents driven by the 79% increase in total fuel cost per gallon
(including taxes and into plane fees).
Aircraft and engine rental expense increased 53.2% to $22.5 million for the six
months ended June 30, 2000 from $14.7 million for the six months ended June 30,
1999. The increase in expense is attributable to the rent expense on additional
leased CRJs and two Boeing 737-700s, partially offset by the 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 17.3% to 2.30 cents from 1.96 cents. The increase in aircraft and
engine rental expense per ASM resulted primarily from the increase in the number
of leased aircraft in 2000 and the higher cost per ASM of the leased aircraft,
partially offset by the return of the two F100 and one A320 aircraft in the
first half of 1999.
Commission expense increased 3.5% to $7.6 million for the six months ended June
30, 2000 from $7.3 million for the six months ended June 30, 1999. This was due
to a 34.5% increase in agency-generated revenues, partially offset by reduction
in average commission paid. Commission expense per ASM decreased 20.6% to 0.77
cents from 0.97 cents, driven by the reduction in commission rate paid and
partially offset by an increase in travel agency revenues as a percent of
<PAGE>
passenger revenue to 71.8%.
Maintenance, materials and repairs expense increased 8.0% to $7.6 million for
the six months ended June 30, 2000 from $7.0 million in the six months ended
June 30, 1999. The expense increase is largely attributable to the 43.4%
increase in block hours. Maintenance, materials and repairs expense per ASM
decreased 18.1% to 0.77 cents from 0.94 cents.
Other rentals and landing fees expense increased 37.9% to $6.8 million for the
six months ended June 30, 2000 from $4.9 million for the six months ended June
30, 1999 primarily due to the 45.2% increase in departures. Other rentals and
landing fees expense per ASM increased 4.5% to 0.69 cents from 0.66 cents, due
to the use of more space and thus higher rental costs at certain facilities
(mainly at RDU) and increased slot costs.
Depreciation and amortization expense increased 32.5% to $4.7 million for the
six months ended June 30, 2000 from $3.6 million for the six months ended June
30, 1999. Depreciation and amortization expense per ASM increased 2.1% to 0.48
cents from 0.47 cents in the six months ended June 30, 1999. During the six
months ended June 30, 2000 the Company increased its investment in fixed assets
including capitalized interest for the 737-700 fleet, purchases primarily for
the 737-700 and CRJ fleet, and ground service equipment.
Other operating expense increased 30.1% to $38.1 million for the six months
ended June 30, 2000 from $29.3 million for the six months ended June 30, 1999.
Other operating expenses consist primarily of reservations, ground handling,
advertising, general and administrative expense, training and insurance. The
increase in expense is attributable to the 45.2% increase in departures and to
the 41.8% increase in passengers. Other operating expense per ASM decreased 0.5%
to 3.88 cents from 3.90 cents in 1999.
Interest income decreased 40.6% to $0.8 million for six months ending June 30,
2000 due to lower average cash balances due to pre-delivery deposits for the CRJ
and Boeing fleets. Interest expense decreased 25.6% to $2.1 million due to the
offset of interest expense by the capitalized interest on aircraft purchase
deposits. Net interest expense per ASM for the six months ending June 30, 2000
was 0.13 cents compared to net interest expense per ASM of 0.19 cents in the
comparable prior period.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
The Company's working capital decreased during the six months ended June 30,
2000 compared to the year ended December 31, 1999. As of June 30, 2000, the
Company had cash, restricted cash, and short-term investments of $39.8 million
and a working capital deficit of $22.2 million compared to cash, restricted
cash, and short-term investments of $38.6 million and working capital of $4.4
million respectively as of December 31, 1999. During the six months ended June
30, 2000, cash, restricted cash, and short-term investments increased $1.3
million, reflecting net cash provided by operating activities of $11.4 million
(excluding changes in restricted cash), net cash used in investing activities of
$26.7 million (excluding purchases and sales of short-term investments), and net
cash provided by financing activities of $16.6 million. During the six months
ended June 30, 2000, net cash provided by operating activities was primarily due
to increases in liabilities, advance ticket sales, 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 $593 million
as of June 30, 2000. The Company's remaining pre-delivery deposit obligations
amount to approximately $7.2 million. The Company's anticipated near-term,
non-aircraft capital expenditures amount to approximately $15.0 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 raised
approximately $34.1 million before expenses as a result of its issuance of
6,561,163 new shares of common stock pursuant to a rights offering which expired
on July 26, 2000. Approximately $5.0 million of the proceeds of the offering
were used to repay amounts outstanding under a $30 million revolving credit
facility provided by an entity owned by two stockholders, James H. Goodnight,
Ph.D. and John P. Sall. As a result of the completion of the rights offering,
the commitment under this facility reduced to $10 million, all of which is
available. On August 11, 2000 the Company closed a financing with a syndicate of
banks who have agreed to provide the Company with up to $37.5 million, in the
aggregate, to either reimburse the Company for cash pre-delivery deposits
previously made pursuant to its purchase agreement with The Boeing Company or to
make pre-delivery deposits that become due under such agreement. The Company
continues to pursue external financing for aircraft purchase obligations and
anticipated capital expenditures.
<PAGE>
CAPITAL EXPENDITURES
The Company's cash outflows for capital expenditures in the six months ended
June 30, 2000 and 1999 were $10.0 million and $7.2 million, respectively,
excluding financed purchases. Debt financed purchases in the six months ended
June 30, 2000 and 1999 were $2.1 million and $0, respectively. The Company paid
$16.9 million and $14.8 million in aircraft pre-delivery deposits in the six
months ended June 30, 2000 and 1999, respectively. During the second 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 three
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.
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 has also
executed a term sheet in connection with its intention to lease three additional
newly manufactured Boeing 737 aircraft scheduled to be delivered in November
2000 and October and November 2001. 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 six months ended June 30, 2000 and 1999 under all non-cancelable aircraft
operating leases was approximately $22.5 million and $14.0 million,
respectively.
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.
<PAGE>
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 impact 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.
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 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of shareholders on May 25, 2000.
The only matter voted upon at the meeting included the election of one
Class III Director to hold office until the annual meeting of
shareholders to be held in 2003. Voting results with respect to this
matter was as follows:
<TABLE>
<CAPTION>
Matter/Description Votes For Votes Against Broker Non- Votes Abstentions
votes Withheld
1.Election of Director:
<S> <C> <C> <C> <C> <C>
Gregory Harding-Brown 7,063,765 -- -- 60,895 --
</TABLE>
Item 5. Other Information.
On July 26, 2000, the Company completed its previously announced
rights offering. The Company issued 6,561,163 shares of the Company's
common stock in the rights offering at a price per share of $5.20,
raising the number of issued and outstanding shares of common stock
in the Company to 15,174,755. The Company raised approximately $34
million from shareholders exercising their rights to purchase stock,
prior to the payment of expenses related to the offering. As a result
of the offering, Messrs. Goodnight and Sall, who together beneficially
owned approximately 47.4% of the Company's outstanding common stock
prior to the rights offering, now own approximately 66.1% of the
Company's stock.
Item 6. Exhibits and Reports on Form 8-K.
<TABLE>
<CAPTION>
<S> <C> <C>
a) Reports on Form 8-K:
Date Subject
---- -------
June 8, 2000 Item 5: Announcement of the record date of June 15, 2000 for determining the
stockholders entitled to receive a subscription right.
July 19, 2000 Item 5: Announcement for the lease of (3) additional newly manufactured
Boeing 737-700 aircraft.
August 2, 2000 Item 5: Announcement that the period during which shareholders of record could
exercise rights expired on July 26, 2000.
b) Exhibits
Financial Data Schedule
(see Edgar filing)
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<PAGE>
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
August 14, 2000 By /s/ STEVEN WESTBERG
Steven Westberg
Executive Vice President and General Manager
