FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 1-13934
MIDWEST EXPRESS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1828757
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6744 South Howell Avenue
Oak Creek, Wisconsin 53154
(Address of Principal executive offices)
(Zip code)
414-570-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
As of July 31, 1996 there were 6,365,471 shares of Common Stock, $.01 par
value, of the Registrant outstanding.
<PAGE>
MIDWEST EXPRESS HOLDINGS, INC.
FORM 10-Q
For the period ended June 30, 1996
INDEX
PART I - FINANCIAL INFORMATION
Page No.
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Unaudited Notes to Consolidated Financial 6
Statements
Item 2. Management's Discussion and Analysis of 9
Results of Operations and Financial
Condition
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security 20
Holders
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
EXHIBIT INDEX 22
<PAGE>
PART I - Financial Statements
<TABLE>
MIDWEST EXPRESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating revenues:
Passenger service . . . . . . $ 70,209 $ 63,647 $131,124 $116,464
Cargo . . . . . . . . . . . . 2,843 2,645 5,441 5,314
Other . . . . . . . . . . . . 3,793 3,101 6,888 6,156
-------- -------- ------- -------
Total operating revenues . . 76,845 69,393 143,453 127,934
-------- -------- ------- -------
Operating expenses:
Salaries, wages and benefits . 19,098 15,616 36,966 30,784
Aircraft fuel and oil . . . . 11,277 8,712 21,579 17,450
Commissions . . . . . . . . 7,350 6,339 13,080 11,869
Dining services . . . . . . . 3,880 3,864 7,357 7,624
Station rental, landing and
other fees . . . . . . . . 5,193 4,735 10,537 9,871
Aircraft maintenance
materials and repairs . . . 4,769 4,185 10,042 8,661
Depreciation and amortization 1,862 1,833 3,751 3,670
Aircraft rentals . . . . . . 4,072 3,546 8,148 7,543
Other . . . . . . . . . . . . 8,749 7,750 16,982 14,988
------- -------- -------- -------
Total operating expenses . . 66,250 56,580 128,442 112,460
------- -------- -------- -------
Operating income . . . . . . . 10,595 12,813 15,011 15,474
------- -------- -------- -------
Other income (expense):
Interest expense . . . . . . (12) (32) (23) (36)
Interest income . . . . . . . 255 595 522 932
Other . . . . . . . . . . . . (141) - (141) -
------- ------- ------- -------
Total other income (expense). 102 563 358 896
------- ------- ------- -------
Income before income taxes . . 10,697 13,376 15,369 16,370
Provision for income taxes . . 4,107 5,305 5,943 6,466
------- ------- ------- -------
Net income . . . . . . . . . . $ 6,590 $ 8,071 $ 9,426 $ 9,904
======= ======= ======= =======
Net income per common share . . $ 1.03 $ 1.17(1) $ 1.47 $ 1.38(1)
======= ======= ======= =======
(1) Pro forma
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PART I - Financial Statements
MIDWEST EXPRESS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, December 31,
1996 1995
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . $ 10,083 $ 14,626
Accounts receivable:
Traffic, less allowance for doubtful
accounts of $363 and $307 at June
30, 1996 and December 31, 1995,
respectively . . . . . . . . . . . 3,948 5,229
Other receivables:
Kimberly-Clark Corporation and
affiliated companies . . . . . . - 61
Other . . . . . . . . . . . . . . 884 1,659
------- -------
Total accounts receivable . . 4,832 6,949
Inventories . . . . . . . . . . . . . 2,729 2,726
Prepaid expenses:
Commissions . . . . . . . . . . . 1,123 1,996
Other . . . . . . . . . . . . . . 1,927 1,536
------- -------
Total prepaid expenses . . . . 3,050 3,532
Deferred income taxes . . . . . . . . 3,900 3,253
Aircraft and modifications intended to
be financed by sale and leaseback
transactions . . . . . . . . . . . . 28,290 -
------- --------
Total current assets . . . . . 52,884 31,086
------- --------
Property and equipment, at cost . . . . . 110,807 107,830
Less accumulated depreciation and
amortization . . . . . . . . . . . 55,849 51,911
------- -------
Net property and equipment . . . . . . . 54,958 55,919
Landing slots and leasehold rights, net . 5,392 5,556
Other assets . . . . . . . . . . . . . . 453 272
------- -------
Total assets . . . . . . . . . . . . . . $113,687 $ 92,833
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . $ 2,792 $ 3,687
Income taxes payable . . . . . . . . . 2,160 1,381
Air traffic liability . . . . . . . . 19,513 17,250
Accrued liabilities:
Vacation pay . . . . . . . . . . . 2,653 2,628
Scheduled maintenance expense . . 5,617 4,253
Frequent flyer awards . . . . . . 2,532 2,064
Other . . . . . . . . . . . . . . 14,200 9,664
------- -------
Total current liabilities . . 49,467 40,927
------- -------
Deferred income taxes . . . . . . . . . . 13,609 13,731
Noncurrent scheduled maintenance expense 10,256 10,483
Accrued pension and other post retirement
benefits . . . . . . . . . . . . . . . 4,808 3,748
Other noncurrent liabilities . . . . . . 4,856 2,680
------- -------
Total liabilities . . . . . . . . . . . . 82,996 71,569
------- -------
Stockholders' equity:
Preferred stock, without par value,
5,000,000 shares authorized, no
shares issued or outstanding . . . - -
Common stock, $.01 par value,
25,000,000 shares authorized,
6,428,571 shares issued and
outstanding . . . . . . . . . . . . 64 64
Additional paid-in capital . . . . . . 9,546 9,546
Retained earnings . . . . . . . . . . 21,081 11,654
------- -------
Total stockholders' equity . . . . . . . 30,691 21,264
------- -------
Total liabilities and stockholders'
equity . . . . . . . . . . . . . . . . $113,687 $ 92,833
======= =======
See notes to consolidated financial statements.
<PAGE>
PART I - Financial Statements
MIDWEST EXPRESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended June 30
1996 1995
Operating activities:
Net income. . . . . . . . . . . . . . . . . $ 9,426 $ 9,904
Items not involving the use of cash:
Depreciation and amortization. . . . . . . 3,751 3,670
Deferred income taxes. . . . . . . . . . . (769) 867
Other. . . . . . . . . . . . . . . . . . . 1,667 1,001
Changes in operating assets
and liabilities:
Accounts receivable. . . . . . . . . . . . 2,117 2,239
Inventories. . . . . . . . . . . . . . . . (3) (557)
Prepaid expenses . . . . . . . . . . . . . 482 (566)
Accounts payable . . . . . . . . . . . . . (895) 584
Income taxes payable . . . . . . . . . . . 779 238
Accrued liabilities. . . . . . . . . . . . 6,058 587
Air traffic liability. . . . . . . . . . . 2,263 2,150
------- -------
Net cash provided by operating
activities . . . . . . . . . . . . . . . . 24,876 20,117
------- -------
Investing activities:
Capital expenditures. . . . . . . . . . . . (4,297) (2,988)
Aircraft acquisitions and modifications
financed by or intended to be financed by
sale and leaseback transactions. . . . . . (71,410) (7,723)
Proceeds from sale of property and
equipment. . . . . . . . . . . . . . . . . 4 56
Other . . . . . . . . . . . . . . . . . . . (182) (257)
-------- -------
Net cash used in investing activities . . . (75,885) (10,912)
-------- -------
Financing activities:
Net increase in advances to Kimberly-Clark. - (17,539)
Proceeds from sale and leaseback
transactions . . . . . . . . . . . . . . . 45,785 7,723
Other . . . . . . . . . . . . . . . . . . . 681 611
-------- -------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . 46,466 (9,205)
-------- -------
Net decrease in cash and cash
equivalents . . . . . . . . . . . . . . . . (4,543) -
Cash and cash equivalents, beginning of
period . . . . . . . . . . . . . . . . . . 14,626 -
-------- --------
Cash and cash equivalents, end of period . . $ 10,083 $ -
======== ========
See notes to consolidated financial statements.
<PAGE>
Midwest Express Holdings, Inc.
Unaudited Notes to Consolidated Financial Statements
1. Business and Basis of Presentation
Organization
During the second quarter 1996, Kimberly-Clark Corporation ("Kimberly-
Clark") sold its remaining interest in the Company, consisting of
1,288,571 shares, or approximately 20% of all outstanding stock, in an
underwritten secondary public offering. The Company did not receive
any proceeds from this offering.
Basis of Presentation
The consolidated financial statements for the six month period ended
June 30, 1996 are unaudited and reflect all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial
position and operating results for the interim period. The
consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and
results of operations, contained in the Company's Annual Report to
Stockholders and incorporated by reference in the Company's Annual
Report on Form 10-K for the year ended December 31, 1995. The results
of operations for the six month period ended June 30, 1996 are not
necessarily indicative of the results for the entire fiscal year
ending December 31, 1996.
2. Pro Forma Condensed Income Statement
The following unaudited pro forma condensed income statements for the
three and six months periods ended June 30, 1995, respectively, give
effect to estimated changes in the Company's historical costs assuming
the Company's initial public offering (the "Offering") had occurred
January 1, 1995 and the Company had operated as an independent company
during the three and six month periods ended June 30, 1995. The pro
forma adjustments to reflect these changes in costs include (i) a
lease guarantee fee charged by Kimberly-Clark to continue to guarantee
certain aircraft leases, (ii) estimated incremental administrative and
management expense to reflect costs of obtaining, on an arm's length
basis as an independent company, certain services that Kimberly-Clark
had provided in the past, (iii) increased costs due to a new
management structure, (iv) costs associated with being a publicly-
owned entity, and (v) net changes in interest income and expense to
reflect the Company's financial position subsequent to the Offering.
Pro forma net income per common share was computed based on an assumed
weighted average 6,428,571 shares of common stock outstanding.
Management believes the assumptions used in preparing the pro forma
adjustments provide a reasonable basis on which to present the pro
forma condensed income statements. The following pro forma condensed
income statements are provided for informational purposes only, should
not be construed to be indicative of the Company's results of
operations had the Offering been consummated on the date assumed, and
are not intended to project the Company's results of operations for
any future periods.
Three Months Ended June 30, 1995
Pro Forma
Historical Adjustments Pro Forma
(in thousands, except per share
amount)
Operating revenues . . $ 69,393 $ - $ 69,393
Operating expenses . . 56,580 768 57,348
------- ------- -------
Operating income . . . 12,813 (768) 12,045
Interest income
(expense), net . . . . 563 (77) 486
------- ------ -------
Income before income
taxes . . . . . . . . 13,376 (845) 12,531
Provision for income
taxes . . . . . . . . 5,305 (330) 4,975
------- ------- -------
Net income . . . . . . $ 8,071 $ (515) $ 7,556
======= ====== =======
Net income per common
share . . . . . . . . $ 1.17
=======
Six Months Ended June 30, 1995
Pro Forma
Historical Adjustments Pro Forma
(in thousands, except per share
amount)
Operating revenues . . $127,934 $ - $127,934
Operating expenses . . 112,460 1,523 113,983
------- ------- -------
Operating income . . . 15,474 (1,523) 13,951
Interest income
(expense), net . . . . 896 (123) 773
------ ------ -------
Income before income
taxes . . . . . . . . 16,370 (1,646) 14,724
Provision for income
taxes . . . . . . . . 6,466 (642) 5,824
------- ------- -------
Net income . . . . . . $ 9,904 $ (1,004) $ 8,900
====== ======= =======
Net income per common
share . . . . . . . . $ 1.38
======
3. Leases
During the second quarter 1996, the Company refinanced ten of its
fifteen 19-seat aircraft by completing sale and leaseback
transactions. The leases, which require periodic lease payments
through 2008 for five of the aircraft and through 2001 for the other
five aircraft, increased the Company's commitments for operating
leases by $37.5 million. Subsequent to June 30, 1996, the Company
has entered into similar sale and leaseback transactions on three of
the remaining five 19-seat aircraft, requiring periodic lease
payments through January 2009 and increasing the Company's
commitments for operating leases by $15 million. The Company plans
to complete lease refinancing on the remaining two 19-seat aircraft
later in the third quarter 1996.
During the second quarter 1996, the Company finalized sale and
leaseback transactions on the two DC-9 aircraft acquired in December
1995. The leases on these aircraft, which require periodic lease
payments through 2006, increased the Company's commitments for
operating leases by $18 million.
4. Stock Option Plan
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 establishes a fair value
based method of accounting for stock options. Entities have the
option of either adopting the measurement criteria of the statement
for accounting purposes, thereby recognizing an amount in results of
operations on a prospective basis, or disclosing in the footnotes
the pro forma effects of the new measurement criteria. The Company
intends to adopt the pro forma disclosure features of SFAS No. 123,
which are effective for fiscal years beginning after December 15,
1995.
Part I Item 2.
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
Overview
The Company's 1996 second quarter operating income was $10.6 million, a
decrease of $2.2 million from the second quarter 1995. Net income
decreased by $1.5 million, or 18.3%, to $6.6 million. The quarter was the
second most profitable in the Company's history, trailing only the second
quarter 1995. For the first six months of 1996, operating income was
$15.0 million, a decrease of $.5 million from 1995. Year-to-date net
income decreased from $9.9 million to $9.4 million, or 4.8%. Year-to-date
earnings per share were $1.47, a $.09, or 6.5%, increase over pro forma
1995 results.
Although the Company's total revenue in the second quarter increased $7.5
million, or 10.7%, relative to the second quarter 1995, operating costs
increased by $9.7 million, or 17.1% The favorable change in revenue in
the quarter was primarily the result of improvements in passenger revenue
yield, improvements in Midwest Express' Omaha base of operations, and
revenue from the Midwest Express credit card program. The cost increase
was the result of higher fuel prices, increased labor rates, the cost
associated with Midwest Express' profit-sharing programs, added costs of
being a public company and pre-operating costs associated with aircraft
recently acquired.
Results in the second quarter were adversely affected by poor weather in
the Midwest, specifically two multi-day periods of dense fog in May and
June. Over 750 flights were cancelled because of weather in the quarter,
compared to 100 in the second quarter 1995. The Company estimates that
the weather-related flight cancellations impacted operating income
approximately $.6 million and net income per share by about 6.0 cents.
Midwest Express' Omaha base of operations generated approximately $1.0
million more in operating income in the second quarter of 1996 compared to
the second quarter 1995. Improvements were attained in both revenue yield
and load factor. For the second quarter 1996, the Omaha operations had a
passenger load factor of 63.7% and a revenue yield of 15.0 cents. This
compared favorably to the second quarter 1995, when the Omaha operations
had a load factor of 62.1% and revenue yield of 13.3 cents.
Two additional DC-9 aircraft were placed in service during the second
quarter. One aircraft is used exclusively in the charter business and the
second was used to expand scheduled service on May 1, 1996. The schedule
change included new flights between Milwaukee and Boston; Dallas;
Philadelphia; Kansas City; and New York. These new flights had an average
load factor of 52.0% in the quarter and, in most cases, exceeded Company
expectations.
Operating Statistics
The following table provides selected operating statistics for Midwest
Express and Skyway.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, % June 30, %
1996 1995 Change 1996 1995 Change
<S> <C> <C> <C> <C> <C> <C>
Midwest Express Operations
Origin & Destination Passengers 349,723 348,438 0.4 667,612 661,750 0.9
Revenue Passenger Miles (000's) 310,152 308,088 0.7 602,410 590,605 2.0
Scheduled Service Available Seat
Miles (000's) 470,675 451,142 4.3 932,308 925,867 0.7
Total Available Seat Miles (000's) 479,298 460,275 4.1 950,258 946,351 0.4
Load Factor (%) 65.9% 68.3% -2.4 64.6% 63.8% 0.8
Revenue Yield $0.195 $0.178 9.8 $0.187 $0.170 10.1
Cost per total ASM $0.123 $0.108 13.4 $0.119 $0.105 13.7
Average Passenger Trip Length 886.8 884.2 0.3 902.3 892.5 1.1
Number of Flights 8,480 8,320 1.9 16,758 16,828 -0.4
Into-plane Fuel Cost per Gallon $0.748 $0.601 24.5 $0.726 $0.597 21.6
Full-time equivalent Employees at
End of Period 1,507 1,387 8.7 1,507 1,387 8.7
Aircraft in Service at End of
Period 21 19 10.5 21 19 10.5
Skyway Airlines Operations
Origin & Destination Passengers 79,633 79,243 0.5 152,565 145,399 4.9
Revenue Passenger Miles (000's) 18,609 18,107 2.8 35,222 32,102 9.7
Scheduled Service Available Seat
Miles (000's) 39,594 39,903 -0.8 78,707 75,083 4.8
Total Available Seat Miles (000's) 39,675 39,903 -0.6 78,851 75,083 5.0
Load Factor (%) 47.0% 45.4% 1.6 44.8% 42.8% 2.0
Revenue Yield $0.524 $0.494 6.1 $0.523 $0.501 4.5
Cost per total ASM $0.211 $0.190 11.4 $0.213 $0.195 9.0
Average Passenger Trip Length 233.7 228.5 2.3 230.9 220.8 4.6
Number of Flights 10,168 11,032 -7.8 20,564 21,334 -3.6
Into-plane Fuel Cost per Gallon $0.803 $0.685 17.3 $0.789 $0.678 16.4
Full-time equivalent Employees at
End of Period 244 226 8.0 244 226 8.0
Aircraft in Service at End of
Period 15 15 - 15 15 -
</TABLE>
Note: With the exception of total available seat miles, cost per
total ASM, into-plane fuel cost, number of employees and
aircraft in service, statistics exclude charter operations.
Aircraft acquired but not yet placed into service are excluded
from the aircraft in service statistics.
The following table provides operating revenues and expenses for the
Company expressed as cents per total ASM, including charter operations,
and as a percentage of total revenues.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
Per Total % of Per Total % of Per Total % of Per Total % of
ASM Revenue ASM Revenue ASM Revenue ASM Revenue
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues:
Passenger service $0.135 91.4% $0.127 91.7% $0.127 91.4% $0.114 91.0%
Cargo 0.006 3.7% 0.006 3.8% 0.005 3.8% 0.005 4.2%
Other 0.007 4.9% 0.006 4.5% 0.007 4.8% 0.006 4.8%
------ ------ ------ ------ ------ ------ ------ ------
Total operating revenues 0.148 100.0% 0.139 100.0% 0.139 100.0% 0.125 100.0%
Operating expenses:
Salaries, wages and
benefits 0.037 24.8% 0.031 22.5% 0.036 25.8% 0.030 24.1%
Aircraft fuel and oil 0.022 14.7% 0.017 12.6% 0.021 15.0% 0.017 13.6%
Commissions 0.014 9.6% 0.013 9.1% 0.013 9.1% 0.012 9.3%
Dining services 0.007 5.0% 0.008 5.6% 0.007 5.1% 0.007 5.9%
Station rental, landing
and other fees 0.010 6.8% 0.009 6.8% 0.010 7.4% 0.010 7.7%
Aircraft maintenance
materials/repairs 0.009 6.2% 0.008 6.0% 0.010 7.0% 0.008 6.8%
Depreciation and
amortization 0.004 2.4% 0.004 2.6% 0.004 2.6% 0.004 2.9%
Aircraft rentals 0.008 5.3% 0.007 5.1% 0.008 5.7% 0.007 5.9%
Other 0.017 11.4% 0.016 11.2% 0.016 11.8% 0.015 11.7%
------ ------ ------ ------ ------- ------ ------ ------
Total operating expenses $0.128 86.2% $0.113 81.5% $0.125 89.5% $0.110 87.9%
====== ===== ====== ====== ====== ===== ====== ======
Total ASMs (000's) 518,974 500,178 1,029,109 1,021,434
</TABLE>
Note: Numbers in this table cannot be recalculated due to rounding.
Three Months Ended June 30, 1996 Compared to
Three Months Ended June 30, 1995
Operating Revenues
Company operating revenues totalled $76.8 million in the second quarter
1996, a $7.5 million, or 10.7%, increase over revenues for the second
quarter 1995. Passenger revenues accounted for 91.4% of total revenues and
increased $6.6 million, or 10.3%, from 1995 to $70.2 million. The
increase is attributable to an .8% increase in passenger volume, as
measured by revenue passenger miles, and a 9.4% increase in revenue yield.
Midwest Express passenger revenue increased by $5.8 million, or 10.5%,
from 1995 to $60.4 million. This increase was caused by a .4% increase in
origin and destination passengers, a 9.8% increase in revenue yield and a
.3% increase in average passenger trip length. Total capacity, as
measured by scheduled service ASMs, increased 4.3% because of the addition
of one aircraft on May 1 and several schedule changes that increased
aircraft utilization in the second quarter. This capacity increase was
partly offset by the high number of weather-related cancellations in the
second quarter. Load factor decreased from 68.3% in 1995 to 65.9% in
1996. Part of the decrease was caused by the lower load factor on the new
flights added on May 1, which averaged a load factor of 52%. The yield
improvement was generally the result of an improved pricing environment in
the industry. Through the first part of the second quarter 1995, yields
were still depressed due to the influence of Continental Airlines "Lite"
program that competed directly with Midwest Express in several markets and
indirectly in most others.
Skyway passenger revenue increased by $.8 million, or 9.0%, from 1995 to
$9.8 million. This increase was caused by a .5% increase in origin and
destination passengers, a 6.1% increase in revenue yield and a 2.3%
increase in average passenger trip length. Total capacity decreased by
.8%, the result of over 450 cancellations due to bad weather. Load factor
increased from 45.4% in 1995 to 47.0% in 1996. The increase in average
trip length was caused by several schedule changes that eliminated several
short flights and added Skyway's longest flight, Milwaukee - Nashville.
Revenue from cargo, charter and other services increased $.9 million in
the second quarter 1996. The $1.0 million in revenue generated from the
Midwest Express MasterCard program, which was initiated in October 1995,
was partially offset by lower revenue from maintenance contract services.
In 1995, Midwest Express completed aircraft maintenance for several other
airlines, while in 1996 the maintenance function was fully utilized for
major maintenance and aircraft refurbishment on the Midwest Express fleet.
Charter revenue decreased $.1 million because in 1995 Midwest Express had
one aircraft dedicated to charter operations for the entire second quarter
and in 1996 for only one month in the quarter. Revenue from cargo, mail
and small parcel services increased $.2 million, or 7.5%, due to the
flight schedule change on May 1, 1996.
Operating Expenses
1996 operating expenses increased by $9.7 million, or 17.1%, from 1995.
The increase was primarily the result of higher fuel prices, higher labor
costs, a new profit sharing plan at Midwest Express, added costs
associated with being a public company, the cost impact of the bad weather
and pre-operating costs associated with recently acquired aircraft. Cost
per total ASM increased 12.9%, from 11.3 cents in 1995 to 12.8 cents in
1996.
Salaries, wages and benefits increased by $3.5 million, or 22.3%. On a
cost per total ASM basis, these costs increased 17.9%, from 3.1 cents in
1995 to 3.7 cents in 1996. Approximately $1.4 million of the labor cost
change is due to increased labor rates. Most of this change was due to an
adjustment in pay scales for pilots and other operations employees at
Midwest Express effective January 1, 1996. These rate adjustments were
implemented based upon industry salary surveys and management's desire to
increase pay scales to maintain a competitive position within the
industry. Labor costs increased $1.6 million because of accruals for
Midwest Express' profit sharing and management incentive programs that
were implemented on January 1, 1996. The profit sharing and incentive
plans, which benefit substantially all Midwest Express employees, are
based entirely on achieving certain levels of profitability, are payable
annually and are accrued monthly based upon earnings to-date and projected
results for the remainder of the year. The labor cost increase also
reflects the addition of approximately 138 full-time equivalent employees
since June 30, 1995; 120 at Midwest Express and 18 at Skyway. Midwest
Express added approximately 83 employees throughout the organization to
support the two aircraft placed in service in the second quarter 1996.
Midwest Express also added 12 employees as a result of the increased
responsibilities of being a separate stand-alone company and approximately
25 employees in other functions due to increased passenger volumes,
regulatory requirements and administrative needs. Skyway added employees
primarily in the operations function due to changes in regulatory
requirements and to support flight schedule changes.
Aircraft fuel and oil and associated taxes increased $2.6 million, or
29.4%, in 1996. Into-plane fuel prices increased 23.7% in 1996, averaging
75.3 cents per gallon in 1996 and 60.8 cents per gallon in 1995. A
portion of the increase in fuel prices, specifically 4.3 cents, is
attributable to the federal fuel excise tax surcharge that applied to
airlines effective October 1, 1995. Fuel consumption increased by 4.8% in
the quarter because Midwest Express operated 5.0% more aircraft flight
hours.
Commissions increased by $1.0 million, or 15.9%, primarily due to the
increase in passenger revenue.
Maintenance costs increased by $.6 million, or 14.0%, from 1995. The
increase was attributable to more flight hours at Midwest Express, higher
aircraft component repair costs and an increase in airframe overhaul
accruals. The latter cost increase is the result of plans to complete
several major airframe overhauls (D Checks) sooner than previously planned
to facilitate aircraft maintenance and refurbishment scheduling.
Aircraft rental costs increased by $.5 million in 1996. The increase is
primarily attributable to two Midwest Express aircraft that were placed in
service in the second quarter.
Other operating expenses increased by $1.0 million, or 12.9%, from 1995.
The largest component of the increase was the added costs associated with
being a public company. These costs included expenditures for the annual
report, external audit fees, investor relations, regulatory reporting and
legal fees. Other cost increases included higher insurance costs because
of more aircraft, additional overnight costs for flight crews associated
with the May 1 schedule change, and aircraft acquisition and
transportation costs for aircraft that were acquired in Asia.
The Company's cost per total ASM in the second quarter was impacted by the
bad weather experienced in May and June 1996. Over 750 flights were
cancelled during the quarter because of weather. This reduced total ASMs
by about 3.5%. In addition, costs were incurred for unused meals and
passenger accommodations. The Company estimates that the bad weather
increased the cost per total ASM in the quarter by approximately .2 cents.
Interest Income
Interest income for the second quarter 1995 relates to an intercompany
cash management program the Company had with Kimberly-Clark prior to the
Company's initial public offering (the "Offering"). Market rates of
interest were earned on the amount of cash the Company had advanced to
Kimberly-Clark. Interest income in the second quarter 1996 reflects
interest income the Company earned on cash and cash equivalents during the
quarter.
Other Income and Expense
Other expense reflects the costs of the secondary public offering
completed in the second quarter.
Provision for Income Taxes
Income tax expense for the second quarter 1996 was $4.1 million, a $1.2
million decrease from 1995. The effective tax rates for the second
quarter of 1996 and 1995 were 38.4% and 39.7%, respectively. For purposes
of calculating the Company's income tax expense and effective tax rate for
periods after the Offering, the Company treats amounts payable to an
affiliate of Kimberly-Clark under a tax allocation and separation
agreement entered into in connection with the Offering as if they were
payable to taxing authorities.
Net Income
Net income for the second quarter decreased $1.5 million from 1995. The
net income margin changed from 11.6% in 1995 to 8.6% in 1996.
Six Months Ended June 30, 1996 compared to
Six Months Ended June 30, 1995
Operating Revenues
Company operating revenues totaled $143.5 million for the six months ended
June 30, 1996, a $15.5 million, or 12.1%, increase over 1995. Passenger
revenues accounted for 91.4% of total revenues and increased $14.7
million, or 12.6%, from 1995 to $131.1 million. The increase is
attributable to a 2.4% increase in passenger volume, as measured by
revenue passenger miles, and a 10.0% increase in revenue yield.
Midwest Express passenger revenue increased by $12.3 million, or 12.3%,
from 1995 to $112.7 million. This increase was caused by a .9% increase
in passengers, a 10.1% increase in revenue yield and a 1.1% increase in
average passenger trip length. Total Midwest Express capacity, as
measured by scheduled service ASMs, increased .7%. Although one aircraft
was added to scheduled service on May 1, 1996, this capacity increase was
partly offset by flight cancellations caused by poor weather and lower
aircraft utilization in the first quarter. Load factor increased from
63.8% in 1995 to 64.6% in 1996. Revenue yield increased primarily because
of an improved competitive environment, most significantly the
discontinuation by Continental Airlines of their "Lite" product in the
second quarter 1995. Yield gains were broad-based, with almost every
market realizing improvement.
Skyway passenger revenue increased by $2.4 million, or 14.6%, from 1995 to
$18.4 million. This increase was caused by a 4.9% increase in passengers,
a 4.5% increase in revenue yield and a 4.6% in average passenger trip
length. The volume increase was attributable to two aircraft that were
placed in service in the second quarter of 1995 and to an increase in load
factor, from 42.8% in 1995 to 44.8% in 1996. The improvement in load
factor and yield resulted in an overall increase in passenger revenue per
available seat mile of 9.1%.
Revenue from other services increased $.9 million, or 7.5%, in 1996. The
Midwest Express Mastercard program, initiated in October 1995, generated
$1.8 million in revenue during the six months ended June 30, 1996. This
was offset by $1.0 million less revenue from maintenance contract
services, as the maintenance function was fully utilized to maintain
Midwest Express aircraft in 1996, and $.5 million less in charter revenue,
caused by the unavailability of an aircraft dedicated to providing charter
service for most of the first six months of 1996. Revenue from cargo,
mail and small parcel services increased $.1 million, or 2.4%.
Operating Expenses
1996 operating expenses increased $16.0 million, or 14.2%, from 1995,
primarily due to higher fuel prices, higher labor rates, a new profit
sharing plan at Midwest Express, added costs of being a public company and
pre-operating costs associated with recently acquired aircraft. Cost per
total ASM increased 13.4%, from 11.0 cents in 1995 to 12.5 cents in 1996.
Salaries, wages and benefits increased $6.2 million, or 20.1%, from 1995.
On a cost per total ASM basis these costs increased 19.2%, from 3.0 cents
in 1995 to 3.6 cents in 1996. Approximately 2.6 million of the labor cost
change was due to increased labor rates. Most of this change was due to
an adjustment in pay scales for pilots and other operations employees as
previously explained. Labor costs increased $2.2 million because of
accruals for Midwest Express' profit sharing and management incentive
programs that were implemented on January 1, 1996.
Aircraft fuel and oil and associated taxes increased $4.1 million, or
23.7%, from 1995. Into-plane fuel prices increased 21.2% in 1996,
averaging 73.1 cents per gallon in 1996 and 60.3 cents in 1995. Of the
12.8 cent increase, 4.3 cents is attributable to the federal fuel excise
tax surcharge that airlines were subject to beginning October 1, 1995.
Fuel consumption increased 2.1% because of a 2.3% increase in total
aircraft flight hours.
Commissions increased by $1.2 million, or 10.2%, due to increased
passenger revenue. Of the increase, $1.0 million related to increased
travel agency commissions and $.2 million to increased credit card fees.
Dining services costs decreased $.3 million, or 3.5%, in 1996. Total
dining services costs (including food, beverages, linen, catering
equipment and supplies) decreased from $11.52 per Midwest Express
passenger in 1995 to $11.02 in 1996. The decrease was primarily due to a
reduction in costs following the negotiation of a long term contract with
the primary food caterer for Midwest Express. Reduced pricing was
effective January 1, 1996.
Maintenance costs increased by $1.4 million, or 15.9%, from 1995. Midwest
Express maintenance costs increased by $1.1 million, or 14.9%, and Skyway
maintenance costs increased $.3 million, or 18.8%. The cost increase was
caused by more total aircraft flight hours, 1.5% at Midwest Express and
3.7% at Skyway, and an increase in aircraft component repair costs at
Midwest Express. In addition, Midwest Express plans to complete major
airframe maintenance (D Checks) on several aircraft sooner than previously
planned to facilitate aircraft maintenance and refurbishment scheduling.
Maintenance accruals were increased to reflect this change.
Aircraft rental costs increased $.6 million, or 8.0%, in 1996. Decreased
lease costs associated with Midwest Express' two MD-88 aircraft were
offset by the lease costs for two Midwest Express aircraft acquired in
December 1995, two Skyway aircraft acquired in May 1995 and lease
guarantee fees for five Midwest Express aircraft and all Skyway aircraft.
The Skyway aircraft were refinanced in June 1996, eliminating the
guarantee fees and resulting in slightly lower lease payments in
subsequent periods.
Other operating expenses increased by $2.0 million, or 13.3%, from 1995.
The increase includes approximately $.3 million of costs associated with
acquiring and transporting recently acquired Midwest Express aircraft from
Asia to Milwaukee and $.1 million in relocation costs for the new
headquarters office facility. Other significant cost increases included
an increase in the frequent flyer liability resulting from promotions
associated with the credit card program, insurance for additional
aircraft, crew rooms due to flight schedule changes and higher costs
associated with being a public company. The public company costs included
expenditures for the annual report, external audit fees, investor
relations, regulatory reporting and legal fees.
Interest Income
Interest income in 1995 relates to an intercompany cash management program
the Company had with Kimberly-Clark prior to the Company's initial public
offering in September 1995. Market rates of interest were earned on the
amount of cash the Company had advanced to Kimberly-Clark. Interest
income in 1996 reflects interest income on the Company's cash and cash
equivalents during the first six months.
Other Income and Expense
Other expense primarily reflects the costs of the secondary public
offering completed in the second quarter.
Provision for Income Taxes
Income tax expense for the first six months 1996 was $5.9 million, a
decrease of $.5 million from 1995. The effective tax rates for the first
six months 1996 and 1995 were 38.7% and 39.5%, respectively. For purposes
of calculating the Company's income tax expense and effective tax rate for
periods after the Offering, the Company treats amounts payable to an
affiliate of Kimberly-Clark under a tax allocation and separation
agreement entered into in connection with the Offering as if they were
payable to taxing authorities.
Net Income
Net income for the first six months decreased $.5 million from 1995. The
net income margin decreased to 6.6% in 1996 from 7.7% in 1995.
Liquidity and Capital Resources
The Company's cash and cash equivalents totalled $10.1 million at June 30,
1996 compared to $14.6 million at December 31, 1995. Net cash flows
provided by operating activities totalled $24.9 million for the six
months ended June 30, 1996. The offsetting decrease in cash and cash
equivalents was due primarily to aircraft acquisitions and related
modifications in 1996 totalling $28.2 million as of June 30, 1996 to be
financed under sale and leaseback transactions in subsequent periods.
As of June 30, 1996, the Company operated in a positive working capital
position at $3.4 million compared to a working capital deficit of $9.8
million at December 31, 1995, reflecting increased working capital
provided by operations. Historically, the Company has operated with a
working capital deficit and may do so in the future.
The Company has no debt, other than its lease commitments. As of June 30,
1996, the Company's two credit facilities, a $35.0 million revolving bank
credit facility and a $20.0 million secondary revolving credit facility
with Kimberly-Clark, have not been used except for letters of credit
totalling approximately $2.7 million that reduce the amount of available
credit.
Capital expenditures totalled $4.3 million for the six months ended June
30, 1996, not including aircraft acquisitions. Aircraft acquisitions and
modifications financed by or intended to be financed by sale and leaseback
transactions totalled $71.4 million during the six months ended June 30,
1996. During the six months ended June 30, 1996, the Company secured
financing on modifications to the two DC-9-30 aircraft acquired in
December 1995 and refinanced ten of the 19-seat aircraft under sale and
leaseback transactions totalling $45.8 million. Subsequent to June 30,
the Company has entered into sale and leaseback transactions on the
remaining five 19-seat aircraft, recognizing proceeds of $20.3 million.
During the remainder of 1996, the Company intends to finalize sale and
leaseback transactions on two DC-9-30 aircraft acquired in February and
April 1996, in which case the Company would be reimbursed for $9.9 million
of related aircraft acquisition and modification costs incurred to June
30, 1996.
As of June 30, 1996, leases relating to five of Midwest Express' jet
aircraft are guaranteed by Kimberly-Clark in return for a guarantee fee
paid by the Company. Midwest Express recently exercised a right of first
refusal purchase option for two DC-9-30 aircraft currently under lease,
and Midwest Express anticipates either securing lease financing or
purchasing these two aircraft during the third quarter 1996. After
exercising the right of first refusal purchase option, only three aircraft
will remain subject to leases that Kimberly-Clark has guaranteed.
Kimberly-Clark will continue to guarantee these leases until the end of
the current lease terms.
The Company believes its cash flow from operations, funds available from
credit facilities and available long-term financing for the acquisition of
jet aircraft and turboprop aircraft will be adequate to provide for
working capital needs and capital expenditures through 1997.
Pending Developments
New Aircraft - On September 9, 1996, Midwest Express will place an
additional jet aircraft into scheduled service, resulting in new nonstop
service between Kansas City and Boston, and between Kansas City and Omaha.
Midwest Express has not announced plans for its 23rd jet, which was
acquired in April and will enter service late this year. Initially, that
aircraft will be used in place of the carrier's two MD-88 aircraft during
January and February 1997, when one and then the other will be off-line
for routine heavy maintenance.
On July 24, 1996, the Company announced agreements to acquire three
additional DC-9 aircraft, bringing its jet fleet to 26. These aircraft
will be modified to Midwest Express specifications and undergo extensive
maintenance inspection checks prior to entering service in the second,
third and fourth quarters of 1997. The Company has not announced how it
will utilize these aircraft and is currently evaluating financing
alternatives.
Labor Relations - In July 1995, the Skyway pilots elected the Air Line
Pilots Association ("ALPA") as the labor union representing them for
collective bargaining purposes. The Company began negotiations with ALPA
in February 1996.
Other Issues - The Company's Form 10-Q for the first quarter ended March
31, 1996, disclosed certain issues relating to sales and income tax
exposures. These issues remain pending.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on April 19, 1996,
the following individuals were elected to the Board of Directors:
Authority Authority
Granted Withheld
Timothy E. Hoeksema 5,834,703 74,700
Albert J. DiUlio, S.J. 5,827,756 81,647
James G. Grosklaus 5,832,234 77,169
David H. Treitel 5,832,709 76,694
The following proposals were approved at the Company's Annual Meeting:
Affirmative Negative Votes Broker
Votes Votes Abstained Non Vote
1. Approve the Midwest
Express Holdings, Inc.
1995 Stock Option Plan 5,837,162 59,871 12,370 N/A
2. Approve the Midwest
Express Holdings, Inc.
1995 Stock Plan for 5,806,155 87,933 15,315 N/A
Outside Directors
3. Approve a change in the
Company's state of
incorporation to
Wisconsin from Delaware 4,857,282 355,147 7,046 689,928
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits filed herewith or incorporated by reference
are set forth on the attached Exhibit Index.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated April
30, 1996 with the Securities and Exchange Commission during
the quarter ended June 30, 1996 to report under Item 5 the
Company's reincorporation from Delaware to Wisconsin. No
financial statements were required by Item 7 of Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Midwest Express Holdings, Inc.
Date: August 5, 1996 By /s/ Roland E. Breunig
Roland E. Breunig
Vice President, Chief Financial
Officer and Treasurer
<PAGE>
EXHIBIT INDEX
Number Description
(27) Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF MIDWEST EXPRESS HOLDINGS, INC. AS OF AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 10,083
<SECURITIES> 0
<RECEIVABLES> 3,948
<ALLOWANCES> 363
<INVENTORY> 2,729
<CURRENT-ASSETS> 52,884
<PP&E> 110,807
<DEPRECIATION> 55,849
<TOTAL-ASSETS> 113,687
<CURRENT-LIABILITIES> 49,467
<BONDS> 0
0
0
<COMMON> 64
<OTHER-SE> 30,627
<TOTAL-LIABILITY-AND-EQUITY> 113,687
<SALES> 0
<TOTAL-REVENUES> 143,453
<CGS> 0
<TOTAL-COSTS> 128,442
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 113
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> 15,369
<INCOME-TAX> 5,943
<INCOME-CONTINUING> 9,426
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,426
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.47
</TABLE>
