UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 0-17895
MESABA HOLDINGS, INC.
---------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1616499
------------------------------ -----------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7501 26th Avenue South
Minneapolis, Minnesota 55450
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 726-5151
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01
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, and
(2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.[X]
The aggregate market value of voting stock held by nonaffiliates of
the registrant as of June 6, 1997 was approximately $194,919,000.
As of June 6, 1997, there were 12,781,546 shares of Common Stock of
the registrant issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the documents listed below have been
incorporated by reference into the indicated part of this Form 10-K.
Document Incorporated Part of Form 10-K
- ------------------------------- ------------------
Proxy Statement for 1997 Annual
Meeting of Shareholders Part III
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CAUTIONARY STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this Annual Report on Form 10-K under the captions
"Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," as well as oral statements
that may be made by the Company or by officers, directors or
employees of the Company acting on the Company's behalf, that are
not historical fact constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.
Such forward looking statements involve risks, uncertainties and
other factors that could cause the actual results of the Company to
differ materially from historical results or from any results
expressed or implied by such forward- looking statements. Such
factors include the ability of the Company to secure an extended
Airlink Agreement with Northwest Airlines; changes in regulations
affecting the Company, including DOT and FAA regulations; the
acquisition and phase-in of a new fleet of aircraft; downturns in
economic activity; and seasonal factors.
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PART I
ITEM 1. BUSINESS
Mesaba Holdings, Inc. ("Mesaba Holdings" or the "Company") is
the holding company for Mesaba Aviation, Inc. ("Mesaba"). Mesaba is
a regional airline currently providing scheduled passenger service
under the name "Mesaba Airlines/Northwest Airlink" to 67 cities and
metropolitan areas in Minnesota, Iowa, Nebraska, New York, North
Dakota, South Dakota, Indiana, Wisconsin, Illinois, Michigan, Ohio,
Pennsylvania, Kentucky, Tennessee, West Virginia, Virginia and the
Province of Ontario, Canada. All flights currently operated by
Mesaba are designated as Northwest Airlines flights under the Airlink
Agreement with Northwest Airlines, Inc. ("Northwest"). Mesaba's
flight schedules are coordinated with those of Northwest to
facilitate interline connections at the Minneapolis/Saint Paul
International Airport and the Detroit Metropolitan Airport.
On October 25, 1996, Mesaba signed an agreement with Northwest
to fly 12 RJ85 regional jets under a new Regional Jet Services
Agreement ("Jet Agreement"). Mesaba will lease the aircraft from
Northwest, which ordered 12 aircraft from Aero International
(Regional) and obtained options for an additional 24 aircraft.
Northwest and Mesaba have no agreement that would allow any option
aircraft, if obtained by Northwest, to be operated by Mesaba. Mesaba
began taking delivery of the RJ85 aircraft in April 1997 at a rate of
approximately one aircraft per month. As additional consideration
for the regional jet opportunity, the Company issued a warrant to
Northwest that allows Northwest to purchase up to 615,000 shares of
the Company's common stock. The warrant will become exercisable with
respect to 1/12 of the shares with each delivery of the 12 RJ85
aircraft at an exercise price of $10.875, the closing price of
the Company's stock on October 25, 1996
On March 7, 1996, Mesaba entered into a preliminary agreement
with Saab Aircraft of America, Inc. ("Saab") for the acquisition of
30 new Saab 340BPlus aircraft and 20 used Saab 340A aircraft. As of
March 31, 1997, 13 Saab 340A and 11 Saab 340BPlus aircraft have been
delivered. The remaining aircraft are expected to be phased into
service over the next 1-1/2 years to replace Mesaba's remaining fleet
of 25 deHavilland Dash 8 and eight Fairchild Metro III aircraft. The
Company also entered into an option agreement for 10 additional new
Saab 340BPlus aircraft and 12 additional used Saab 340A aircraft.
NORTHWEST AIRLINK AGREEMENT
Effective December 1, 1984, Mesaba entered into a cooperative
marketing agreement with Northwest. The agreement was restated as
the Airline Services Agreement, dated as of September 15, 1988 and
made effective December 10, 1988, to include service to and from
Northwest's hub airport at Detroit, Michigan. Mesaba and Northwest
subsequently amended the Airline Services Agreement effective April
1, 1992 and January 1, 1996 (as amended, the "Airlink Agreement") to
provide, among other things, a five-year contract extension to March
31, 1997, exclusive rights to designated service areas and support in
acquiring new aircraft and equipment. During the year ended
March 31, 1997, approximately 72% of all of Mesaba's passengers
connected with Northwest flights, either at Minneapolis/Saint
Paul, Minnesota or Detroit, Michigan.
Under the Airlink Agreement, all flights that Mesaba currently
operates are designated as Northwest flights using Northwest's
designator code in all computer reservations systems, including the
Official Airline Guide, with an asterisk and a footnote indicating
that Mesaba is the carrier providing the service. In addition,
flight schedules of Mesaba and Northwest are closely coordinated to
facilitate interline connections, and Mesaba's passenger gate
facilities at the Minneapolis/Saint Paul International Airport and
Detroit Metropolitan Airport are integrated with Northwest's
facilities in the main terminal buildings, rather than at the more
remote commuter air terminals. Its agreement with Northwest also
permits Mesaba to offer its passengers fares between the cities
serviced by Mesaba and all of the destinations served by Northwest as
well as participation in Northwest's frequent flyer program.
Mesaba's aircraft are painted the colors of Northwest Airlines in a
distinctive "Northwest Airlink" configuration, with a Northwest
Airlines logo in addition to Mesaba's name.
Mesaba, through the Airlink Agreement and other agreements,
receives ticketing and certain check-in, baggage and freight
handling services from Northwest at certain airports. In
addition, Mesaba receives its computerized reservations services
from Northwest. Northwest also performs all marketing schedules
and yield management and pricing services for Mesaba's flights.
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The Airlink Agreement extended through March 31, 1997, and
continues indefinitely thereafter, subject to termination by
either party on eight months' notice given any time after July
31, 1996. The January 1, 1996 amendment to the Airlink Agreement
sets forth a revised compensation methodology for the period from
January 1, 1996 through March 31, 1997. The Airlink Agreement is
binding upon the successors and assigns of Northwest and Mesaba.
See "Agreement with Northwest Relating to Distribution of
Subsidiary" below.
On June 4, 1997 the Company signed a Memorandum of
Understanding ("MOU") with Northwest on a long-term contract for
Mesaba to continue operating as Northwest Airlink. The MOU grants
all Airlink turboprop flying out of Northwest's Minneapolis/St.
Paul and Detroit hubs to Mesaba effective August 1, 1997. As
consideration for the additional flying, the Company will issue a
warrant to Northwest for the purchase of 880,000 shares of the
Company's common stock at an exercise price of $14.125. The
warrant will have a term of ten years. The MOU continues the
existing compensation methodology set forth in the January 1, 1996
amendment to the Airlink Agreement. Additionally, the MOU continues
Northwest's current right to approve any new Chief Executive
Officer (see "Agreement with Northwest Relating to Distribution of
Subsidiary" below). Both the Company and Northwest anticipate the
terms of the MOU will be incorporated into the final, ten year
airline services agreement, which is expected to be executed on or
before June 30, 1997.
Mesaba believes that its competitive position is enhanced as a
result of its marketing and other agreements with Northwest,
particularly through the ability of Mesaba to offer its
passengers coordinated flight schedules to the destinations
served by Northwest. Loss of Mesaba's affiliation with Northwest
or Northwest's failure to materially perform under the Airlink
Agreement for any reason would have a material adverse effect on
the Company's operations and financial position.
AGREEMENT WITH NORTHWEST RELATING TO DISTRIBUTION OF SUBSIDIARY
- ---------------------------------------------------------------
The Company, Mesaba and Northwest are parties to an Agreement
dated May 18, 1995 (the "Distribution Agreement") relating to the
spin-off from the Company of its Airways Corporation subsidiary,
which occurred on September 7, 1996 (the "Spin-off"). The
Distribution Agreement requires Northwest and Mesaba to enter into
good faith negotiations to amend the Airlink Agreement to provide for
a term of not less than 10 years.
The Distribution Agreement gives Northwest the right to
determine, at its discretion, all schedules and aircraft routing
for Mesaba's flights departing on and after the Spin-off date.
In consideration for allowing Northwest control over scheduling
and routing, Northwest agreed to make quarterly payments to
Mesaba which, together with payments under the Airlink Agreement,
guaranteed that Mesaba's quarterly pre-tax income through March
31, 1997 would be not less than the following amounts:
Minimum
Quarter Ending Pre-Tax Income
-------------- --------------
September 30, 1995 $4,221,000
December 31, 1995 2,219,000
March 31, 1996 1,176,000
June 30, 1996 2,384,000
September 30, 1996 4,221,000
December 31, 1996 2,219,000
March 31, 1997 1,176,000
No quarterly guarantee payments were required to be made
through the year ended March 31, 1997. There is no minimum pre-tax
income guarantee in the MOU.
Pursuant to the Distribution Agreement, Northwest exercised
stock purchase warrants to purchase 1,499,078 shares of the
Company's Common Stock for an aggregate cash price of $4,477,563. In
lieu of receiving its pro rata distribution of 1,719,134 shares of
Airways Common Stock in the Spin-off, Northwest was issued additional
shares of Company Common Stock in a private placement transaction,
which resulted in ownership by Northwest of 29.7% of the Company's
Common Stock issued and outstanding immediately following the
Spin-off date.
Prior to the Spin-off date, the Company and Mesaba made
additional capital contributions to Airways and its subsidiary
consisting of cash, tax sharing payments, and other assets having
a total book value of $20.25 million. In addition, the Company made
capital contributions to AirTran Airways totaling $8.75 million. The
Distribution Agreement also provided for the designation by Northwest
of three members of the Boards of Directors of the Company and Mesaba
and for the resignation from the Company of certain of its executive
officers and directors. During the period that the income guarantee
described above remained in effect, Mesaba's Chief Executive Officer
was required to be reasonably acceptable to Northwest. Northwest's
right to approve Mesaba's Chief Executive officer has been extended
under the MOU.
The Distribution Agreement also resolved certain cost disputes
between Northwest and Mesaba relating to the sharing of Mesaba's
operating cost increases and payment of holding company costs,
resulting in net cash payments by Northwest to Mesaba of $443,595.
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Route System
The following tables set forth certain information with respect
to Mesaba's scheduled route system for June 1997.
Number of
Nonstop air roundtrips
mileage from Date from
Minneapolis/ airline Minneapolis/
Saint Paul service Saint Paul
City Airport commenced per week
- ----------------- --------- ----------------- -----------
Minneapolis/
Saint Paul, MN --- February 15, 1973 --
Grand Rapids, MN 161 February 15, 1973 21
Brainerd, MN 113 February 1, 1981 42
Pierre, SD 350 December 15, 1983 21
Sioux Falls, SD 197 December 15, 1983 20
Bemidji, MN 199 December 1, 1984 42
Thief River Falls, MN 261 May 15, 1985 21
Aberdeen, SD 257 December 15, 1985 28
Des Moines, IA 232 June 1, 1986 39
Wausau, WI 175 June 15, 1986 53
Lincoln, NE 332 October 1, 1986 27
Grand Forks, ND 284 October 1, 1986 26
Watertown, SD 193 October 1, 1986 27
Fargo, ND 223 January 15, 1987 14
Omaha, NE 282 June 1, 1987 7
Moline, IL 274 June 10, 1988 33
Houghton/Hancock, MI 277 February 22, 1989 27
Marquette, MI 296 February 22, 1989 27
LaCrosse, WI 120 January 31, 1991 47
Bloomington, IL 374 September 15, 1992 14
Champaign, IL 419 January 31, 1993 7
Thunder Bay, Ontario 304 March 16, 1993 20
St. Cloud, MN 67 July 1, 1993 37
Escanaba, MI 304 August 16, 1993 14
Ely, MN 213 May 26, 1995 8
Bismarck, ND 386 September 1, 1995 6
Kalamazoo, MI 426 November 1, 1995 13
Rochester, MN 76 April 1, 1996 27
Kenora, Ontario 343 May 22, 1997 8
Green Bay, WI 252 June 6, 1997 7
Cincinnati, OH 596 June 6, 1997 7
Traverse City, MI 375 June 6, 1997 14
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Number of
Nonstop air Date roundtrips
mileage from airline from
Detroit service Detroit
City Airport commenced per week
- ----------------- --------- ----------------- -----------
Detroit, MI --- December 10, 1988 ---
Erie, PA 163 December 10, 1988 34
Akron/Canton, OH 134 December 10, 1988 32
Dayton, OH 166 December 10, 1988 26
Flint, MI 56 January 8, 1989 39
Traverse City, MI 207 January 8, 1989 34
Pellston, MI 242 January 8, 1989 42
Wausau, WI 363 January 8, 1989 42
Houghton/Hancock, MI 425 February 22, 1989 21
Marquette, MI 364 February 22, 1989 21
Toledo, OH 49 April 2, 1989 46
Muskegon, MI 161 October 11, 1989 28
Columbus, OH 155 August 1, 1990 6
Kalamazoo, MI 113 September 6, 1990 26
Cincinnati, OH 229 September 6, 1990 33
Lansing, MI 74 November 14, 1990 20
Youngstown, OH 153 May 1, 1991 25
Fort Wayne, IN 128 June 1, 1991 27
Lexington, KY 296 June 10, 1991 33
Charleston, WV 281 July 8, 1991 32
London, ON 125 September 5, 1991 25
Binghamton, NY 378 July 1, 1992 25
Roanoke, VA 382 August 1, 1992 32
Lafayette, IN 224 September 9, 1992 26
Bloomington, IL 314 September 15, 1992 26
South Bend, IN 157 November 16, 1992 27
Louisville, KY 306 June 1, 1993 6
Escanaba, MI 305 August 16, 1993 21
Champaign, IL 298 September 9, 1993 26
Evansville, IN 364 October 1, 1993 26
Knoxville, TN 443 October 1, 1993 7
State College, PA 300 January 31, 1994 28
Saginaw, MI 98 June 1, 1995 6
Benton Harbor, MI 158 June 20, 1995 28
Harrisburgh, PA 370 December 1, 1994 7
Ottawa, Ontario 439 May 1, 1995 25
Elmira, NY 331 November 15, 1995 25
Allentown, PA 424 December 15, 1995 7
Cleveland, OH 95 December 15, 1995 13
Buffalo, NY 240 July 1, 1996 8
Rochester, NY 296 September 10, 1996 6
Appleton, WI 297 October 1, 1996 27
Rockford, IL 295 October 1, 1996 24
Pittsburgh, PA 201 December 18, 1996 6
Owensboro, KY 369 June 1, 1997 6
Des Moines, IA 534 June 6, 1997 7
From time to time Mesaba reviews the feasibility of expanding
the frequency of its service to airports currently being served, as
well as initiating passenger service to additional cities generally
within its service area. Mesaba works closely with Northwest to
coordinate flight schedules and to facilitate connections between
Mesaba and Northwest. See "Business - Northwest Airlink Agreement."
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AIRCRAFT
The following table sets forth certain information as to
Mesaba's passenger aircraft fleet as of June 1, 1997:
Approximate Approximate
single average
flight cruising
Type of Number of Seating range speed
aircraft aircraft capacity (miles) (M.P.H.)
- ------------------- --------- --------- ----------- -----------
Fairchild Metro III 5 19 650 300
deHavilland Dash 8 25 37 500 285
Saab 340 28 30/34 500 300
Avro RJ85 2 69 1,400 410
Mesaba leases its Avro RJ85 aircraft from Northwest under
operating leases with terms of up to 10 years. The Jet Agreement
allows Mesaba to return aircraft to Northwest upon the occurrence of
certain events. The Avro RJ85 aircraft are fast, pressurized jet
airplanes with galleys, dual class cabin, standup headroom,
lavatories, ACARS, radar, ground proximity warning, traffic
collision avoidance and de-icing systems.
Mesaba leases all of its Saab 340 aircraft, either directly
from aircraft leasing companies or through sub-leases with Northwest
under operating leases with terms of up to 16 years. The Airlink
Agreement allows Mesaba to return aircraft to Northwest upon the
occurrence of certain events. The Saab 340 aircraft are fast, fuel
efficient, pressurized turboprop airplanes with galleys, standup
headroom, lavatories, radar, global positioning, ground proximity
warning, traffic collision avoidance and de-icing systems.
Mesaba sub-leases its deHavilland Dash 8 aircraft from
Northwest under operating leases with terms of up to five years.
The Airlink Agreement allows Mesaba to return aircraft to Northwest
upon the occurrence of certain events. The Dash 8 aircraft are
pressurized turboprop airplanes with galleys, standup headroom,
lavatories, radar, ground proximity warning, traffic collision
avoidance and de-icing systems.
Mesaba leases all of its Fairchild Metro III aircraft, directly
from aircraft leasing companies. The Fairchild Metro III aircraft
are fast, fuel-efficient, pressurized turboprop airplanes with radar,
ground proximity warning, traffic collision avoidance and de-icing
systems.
Mesaba intends to replace its remaining fleet of Dash 8 and
Metro III aircraft with Saab 340 aircraft over the course of the
next 15 months.
All of Mesaba's aircraft comply fully with all Federal Aviation
Regulations ("FARs") issued by the Federal Aviation Administration
("FAA").
As of June 1997, Mesaba's existing fleet of Avro RJ85, Saab
340, Dash 8 and Metro III aircraft have remaining lease terms of
two months to 16 years and aggregate monthly lease payments of
approximately $3,600,000. As of June 1, 1997, Mesaba has removed
21 Metro III aircraft from revenue service and 14 of those
aircraft have been returned to lessors.
COMPETITION
- -----------
The airline industry is highly competitive as a result of the
Airline Deregulation Act of 1978 (the "Deregulation Act"). In
general, the Deregulation Act increased competition by eliminating
restrictions on fares and route selection. The Deregulation Act also
contributed to the withdrawal of national and major carriers from
short-haul markets by allowing them to more easily obtain additional
long-haul routes, which can be more efficiently and profitably served
by jet aircraft. Elimination of barriers to entry into new markets,
however, also creates greater potential for competing service by
other carriers operating small, fuel-efficient aircraft on short-haul
routes serving small and medium-sized cities. Mesaba currently
competes with other regional airlines in some of the cities it serves
and competition to alternative hubs for connecting flights exists out
of many of the markets Mesaba serves. However, due to the
consolidation of the airline industry and the development of the
"hub and spoke" network, Mesaba has experienced a reduction of
competition in its specific market segments. No assurance can be
given that other carriers, including major carriers, will not
institute competing service on routes served by Mesaba.
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Competitive factors in the airline industry generally include
fares, frequency and dependability of service, convenience of flight
schedules, type of aircraft flown, airports served, relationships
with travel agents, and efficiency and reliability of reservations
systems and ticketing services. The compatibility of flight
schedules with those of other airlines and the ability to offer
through fares and convenient inter-airline flight connections are
also important competitive factors. The Company believes that Mesaba
is competitive with respect to each of such factors because of its
established reputation, cost structure, aircraft fleet which is
properly suited for the small and medium-sized cities served, and
especially its relationship with Northwest.
FUEL
The cost of aviation fuel is one of the Company's largest
operating expenses, accounting for 10.7% of total operating costs
for the year ended March 31, 1997, 11.3% the year ended March 31,
1996, and 11.3% for the year ended March 31, 1995.
The Company has arrangements with Northwest and nine major fuel
suppliers for substantial portions of its fuel requirements. The
Company believes that such arrangements assure an adequate supply of
fuel for current and anticipated future operations. Both the cost
and availability of fuel, however, are subject to factors beyond
the control of the Company. Certain provisions of the amended
Airlink Agreement protect Mesaba from future increases in aviation
fuel prices.
FARES
Mesaba derives its passenger revenues by selling its seat
capacity to Northwest at predetermined rates. Under the Airlink
Agreement, Mesaba has the ability to enter into arrangements with
other air carriers for proration of fares for service to cities not
served by Northwest, so long as Mesaba does not use the "NW"
designator code or Dash 8, Saab 340 and RJ85 aircraft with respect to
such service. Fares vary primarily in relation to the length of the
flight and other factors.
REGULATION
Pursuant to the Federal Aviation Act of 1958, as amended (the
"Aviation Act"), the federal Department of Transportation ("DOT"),
principally through the FAA, has certain regulatory authority over
the operations of all air carriers. The jurisdiction of the FAA
extends primarily to the safety and operational provisions of the
Aviation Act, while the responsibility of the DOT involves
principally the regulation of certain economic aspects of airline
operations.
FAA REGULATION. Mesaba holds an "Air Carrier Operating
Certificate" from the FAA permitting it to conduct flight operations
in compliance with applicable FAA regulations. Effective March 29,
1997, Mesaba completed transition of its operations to the new Part
119 of the Federal Aviation Regulations, so that its entire operation
is now governed by the same regulatory requirements applied to major
airlines. The FAA regulations to which Mesaba is subject are
extensive and include, among other items, regulation of aircraft
maintenance and operations, equipment, ground facilities, dispatch,
communications, training, weather observation, flight personnel and
other matters affecting air safety. To ensure compliance with its
regulations, the FAA requires airlines to obtain operating,
airworthiness and other certificates that are subject to suspension
or revocation for cause. Mesaba holds all certificates necessary for
its operations.
DOT REGULATION. Prior to October, 1992, Mesaba was registered
under Part 298 of the economic regulations of the DOT. On October 26,
1992, the DOT granted Mesaba a Certificate of Public Convenience and
Necessity under Section 401 of the Aviation Act. As a certificated
carrier, Mesaba is required to file certain additional quarterly
reports with the DOT, including a report of aircraft operating
expenses and related statistics. The Certificate of Public
Convenience and Necessity is a prerequisite for operations with
aircraft larger than 60 seats.
OTHER REGULATION. Under the Noise Control Act of 1972 and the
Aviation Safety and Noise Abatement Act of 1979, the FAA has
authority to monitor and regulate aircraft engine noise. Management
of the Company believes that Mesaba's aircraft comply with or are
exempt from such regulations and that Mesaba complies with standards
for aircraft exhaust emissions and fuel storage facilities issued by
the Environmental Protection Agency. The Company is also required to
comply with the drug testing program adopted under Part 14 CFR by the
DOT. As a foreign carrier operating in Canada, the Company is
subject to regulation by the Canadian Department of Transport and has
been issued Foreign Air Carrier Operating Certificates by such
agency.
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INSURANCE
Mesaba carries the types of insurance customary in the airline
industry, including coverage for public liability, passenger
liability, property damage, aircraft loss or damage, baggage and
cargo liability, and workers' compensation. The Company believes
that this insurance is adequate as to amounts and risks covered.
There can be no assurance, however, that the insurance carried would
be sufficient to protect the Company adequately in the event of a
catastrophic accident.
AIRCRAFT MAINTENANCE
Mesaba employs its own aircraft, avionics and engine
maintenance staff that performs substantially all routine
maintenance to its aircraft and engines. Major overhauls on its
airframes, engines, and other rotable parts on Dash 8, Saab 340
and RJ85 aircraft are performed at FAA authorized facilities.
Major overhauls of the Metro III aircraft are performed internally.
Major overhauls on Saab 340 airframes are anticipated to be done
internally during fiscal 1998.
AIRPORT AND TERMINAL FACILITIES AND SERVICES
Mesaba's ticket counter and baggage handling space is leased
from local airport authorities or other airlines at all of the
airports served. In 30 of the cities it serves, Mesaba receives
support service under agreements with Northwest. The duration of the
leases and service agreements vary.
Mesaba pays local airport authorities for the use of landing
fields at rates that are based on the number of flights per day,
fixed fees, or on the number of aircraft landings and aircraft
weight.
PROPERTIES
The Company's principal executive offices are located at the
Minneapolis/Saint Paul International Airport. Mesaba leases
approximately 293,000 square feet of facilities, ramp, parking and
unimproved land at the Airport under separate ground and facilities
leases with the Metropolitan Airports Commission. The lease expires
on December 31, 2008 and provides that Mesaba will have a right of
first refusal on any new lease covering the premises. Mesaba's
primary facility contains approximately 83,000 square feet of office,
shop, and hangar space. Mesaba is obligated to make payments of
approximately $35,000 per month under the lease for the hangar,
office and maintenance facility, in addition to approximately $13,000
per month under the ground lease for the underlying land and access
ramp.
Mesaba leases approximately 394,000 square feet of facilities,
ramp, parking and unimproved land at the Detroit Metropolitan Airport
under separate ground and facilities leases. The facilities lease
covers approximately 45,000 square feet of hangar and maintenance
space and obligates Mesaba to pay monthly rentals ranging between
approximately $22,000 and $36,000 until August 1, 2002 as part of
Special Facilities Bond financing provided by Wayne County, Michigan.
The ground lease has a 20- year term concurrent with the facilities
lease which expires August 1, 2010. Monthly lease payments of
approximately $7,000 are currently required under the ground lease,
subject to an annual adjustment on January 1 each year based upon the
percentage change in an index published by the Bureau of Labor
Statistics of the U.S. Department of Commerce.
Mesaba owns approximately 38,000 square feet of hangar and
office space located on approximately 102,000 square feet of land
and parking areas of which Mesaba is ground lessee, at the Central
Wisconsin Airport in Mosinee, Wisconsin. Mesaba pays approximately
$800 per month under the terms of the ground lease relating to such
facility, which expires on December 31, 2011, subject to two 10-year
renewal options.
EMPLOYEES
As of June, 1997, Mesaba employed 1,976 persons, of whom 555
were pilots, 245 were management, administrative and clerical
personnel, 261 were aircraft maintenance personnel, 696 were station
managers, station agents and line services personnel, and 219 were
flight attendants. Approximately 368 of Mesaba's employees are
part-time.
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Mesaba's pilots are represented by the Air Line Pilots
Association ("ALPA"). Mesaba concluded negotiations with ALPA and
reached a new collective bargaining agreement effective June 1, 1996,
with a term of four years. In October, 1996, Mesaba and ALPA reached
agreement on a modification of the collective bargaining agreement
which, in addition to other enhancements, increased the term to six
years.
On July 23, 1996, the National Mediation Board held an election
involving Mesaba's aircraft mechanics. In this election, the
mechanics voted in favor of union representation by the Aircraft
Mechanics Fraternal Association ("AMFA"). Formal negotiations have
not begun, although Mesaba has received indications from AMFA that
negotiations will begin on June 25, 1997. Any work stoppage,
whether from a failure to enter into a new collective bargaining
agreement or otherwise, could have a material adverse impact on the
Company.
Mesaba has had no work stoppages and management, in general,
believes that its relations with its employees are good.
CYCLICALITY AND SEASONALITY
The airline industry generally is subject to cyclical moves in
the economy. Because both personal discretionary travel and
business travel may be expected to decline during periods of
economic weakness, the airline industry tends to experience poorer
financial results during such periods. Further, because the Company
serves primarily the North Central region, its results may be
affected to a greater extent by regional economic variations than the
results of air carriers with national operations.
Seasonal factors, primarily weather conditions and passenger
demand, historically have affected Mesaba's monthly passenger
boardings. The first and second fiscal quarters have typically shown
a higher level of passenger boardings as compared with the third and
fourth quarters for many of the cities served by Mesaba. As a result
of such factors, the Company's revenues and earnings historically
have been higher during the first six months of the fiscal year.
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EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the
executive officers of Mesaba Holdings, Inc. and Mesaba Aviation,
Inc., a subsidiary of Mesaba Holdings, Inc.
Officer
Name Age Position since
- -------------- ---- ------------------------------- -------
Carl R. Pohlad 81 Chairman of Mesaba Holdings and 1995
Mesaba Aviation, Inc.
Bryan K. Bedford 35 President and Chief Executive 1995
Officer of Mesaba Holdings and
Mesaba Aviation, Inc.
John S. Fredericksen 48 Vice President, Administration, 1992
General Counsel and Secretary
of Mesaba Holdings and Mesaba
Aviation, Inc.
F. Darrell Richardson 51 Vice President and Chief 1995
Operating Officer of Mesaba
Aviation, Inc.
Scott R. Durgin 35 Vice President, Customer Service 1996
of Mesaba Aviation, Inc.
CARL R. POHLAD is a Class Two director and Chairman of the
Board of Directors. Mr. Pohlad has been President and a director
of Marquette Bancshares, Inc. since 1993. Prior to 1993, Mr.
Pohlad served as President and Chief Executive Officer of Marquette
Bank Minneapolis and Bank Shares Incorporated. Mr. Pohlad was
Chairman of the Board of MEI Corporation from 1972 to 1986, and
Chairman of the Board of MEI Diversified Inc. from 1986 to 1994.
Mr. Pohlad is also an owner, director and the President of CRP
Sports, Inc., the managing general partner of the Minnesota Twins
baseball club, and is a director of Genmar Holdings, Inc.
BRYAN K. BEDFORD is a Class One director and President and
Chief Executive Officer of the Company. Mr. Bedford was President
and Chief Executive Officer of Business Express, Inc. from February
1994 to August 1995. He served as Executive Vice President and Chief
Financial Officer of Phoenix Airline Services, Inc. from July 1992 to
January 1994, and as Vice President and Chief Financial Officer of
WestAir Holding, Inc. from January 1990 to July 1992. From June 1988
to January 1990, Mr. Bedford was Vice President of Finance of Aspen
Airway, Inc.
JOHN S. FREDERICKSEN joined the Company as Vice President,
General Counsel in July 1992. In August 1993, Mr. Fredericksen was
appointed Senior Vice President, Operations of the Company and
Mesaba. He was appointed Secretary of the Company and Mesaba in
November 1994. In October 1995, he was appointed to his current
positions with the Company and Mesaba. From March 1987 until joining
the Company, Mr. Fredericksen was employed by the Regional
Airline Association, Washington, D.C., serving most recently as its
President. From 1980 until 1987, Mr. Fredericksen was an attorney
with the Federal Aviation Administration.
F. DARRELL RICHARDSON joined the Company as Vice President and
Chief Operating Officer in September 1995. Mr. Richardson was
Senior Vice President, Operations of Phoenix Airline Services, Inc.
from November 1993 until joining the Company. He served as President
and Chief Executive Officer of United Aerodynamics Corporation from
July 1991 to October 1993, and as Vice President of Maintenance and
Engineering of Continental Express from June 1989 to June 1991. Prior
to June 1989, Mr. Richardson was employed in various positions in
the aviation industry, beginning in 1968.
SCOTT R. DURGIN joined the Company as Vice President, Customer
Service in December 1996. Mr. Durgin was Vice President, Customer
Service of Business Express Airlines from May 1995 until joining the
Company. He served as a Regional Director for Express I Airlines
from December 1991 to May 1995, and held various positions, the last
being Director of Stations, at Pilgrim Airlines from 1983 until
December 1991.
-11-
<PAGE>
Item 2. PROPERTIES
See information provided under the captions "Business -
Aircraft," "- Airport and Terminal Facilities and Services," and "-
Properties" in Item 1 herein.
Item 3. LEGAL PROCEEDINGS
The Company is not currently a party to any material
pending legal proceedings. From time to time the Company may
become involved in routine litigation incidental to its business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
DURING FOURTH QUARTER OF FISCAL YEAR
There were no matters submitted to a vote of the Company's
shareholders during the three-month period ended March 31, 1997.
-12-
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded under the symbol "MAIR" on
the NASDAQ National Market.
The following table sets forth the range of high and low sale
prices for the Company's Common Stock and the dividends per share for
each of the fiscal quarters of the two years ended March 31, 1997.
Quotations for such periods are as reported by NASDAQ for National
Market issues.
STOCK QUOTATIONS
Dividends
High Low per share
------ ------ ----------
Fiscal 1996
First quarter $ 11 $ 7-1/2 $.03
Second quarter 14 4-7/8 -
Third quarter 8-7/8 4-7/8 -
Fourth quarter 11-1/4 7 -
Fiscal 1997
First quarter 13 10 -
Second quarter 12 8-7/8 -
Third quarter 15-3/8 9-3/4 -
Fourth quarter 16-1/8 11-1/4 -
On November 10, 1995, the Company announced that it would
discontinue payment of quarterly dividends. The last dividend of
$.03 per share was paid for the quarter ended September 30, 1995.
The Company intends to retain earnings for use in the operation
of its business.
On June 6, 1997, the number of holders of record of Common
Stock was 981.
The transfer agent for the Company's Common Stock is Norwest
Bank Minnesota, National Association, 161 North Concord Exchange,
South St. Paul, Minnesota, 55075-0738, telephone: (612) 450-4064.
-13-
<PAGE>
Item 6. SELECTED FINANCIAL DATA AND STATISTICAL COMPARISON
The following table sets forth selected financial data with
respect to the Company as of the dates and for the periods
indicated. The selected financial data has been derived from the
audited financial statements. The financial data set forth below
should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations"
contained in Item 7.
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(amounts in thousand share and per share data)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Operating revenues $185,701 $170,455 $145,900 $129,582 $124,331
Operating expenses $166,118 $158,148 $141,541 $122,983 $112,028
-------- -------- -------- -------- --------
Operating income $ 19,583 $ 12,307 $ 4,359 $ 6,599 $ 12,303
======== ======== ======== ======== ========
Net income $ 11,986 $ 56,275* $ 2,606 $ 3,663 $ 6,740
======== ======== ======== ======== ========
Net income per share $ 0.93 $ 4.81* $ 0.29 $ 0.40 $ 0.75
======== ======== ======== ======== ========
Dividends per share - $ 0.03 $ 0.12 $ 0.12 $ 0.12
======== ======== ======== ======== ========
Weighted Average
number of shares
outstanding 12,873 11,689 9,113 9,069 8,990
======== ======== ======== ======== ========
</TABLE>
*Includes non-taxable gain of $49, 303 from distribution of
subsidiary
Year Ended March 31,
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(dollars in thousands)
Balance Sheet Data:
Current assets $ 71,201 $ 44,465 $ 46,154 $ 42,942 $ 25,724
Net property and
equipment 19,772 12,388 14,931 13,863 21,319
Other noncurrent assets 13,593 1,351 5,799 3,258 5,055
-------- -------- -------- -------- --------
Total assets $104,566 $ 58,204 $ 66,884 $ 60,063 $ 52,098
======== ======== ======== ======== ========
Current liabilities $ 33,393 $ 17,323 $ 17,052 $ 11,674 $ 16,695
Long-term liabilities 21,379 6,466 7,388 8,264 9,038
Shareholders' equity 49,794 34,415 42,444 40,125 26,365
-------- -------- -------- -------- --------
Total liabilities and
shareholders' equity $104,566 $ 58,204 $ 66,884 $ 60,063 $ 52,098
======== ======== ======== ======== ========
-14-
<PAGE>
<TABLE>
<CAPTION>
Mesaba Aviation, Inc. (1)
Year ended March 31,
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Revenue passengers carried 1,959,632 1,572,401 1,433,605 1,429,836 1,306,750
Revenue passenger
miles (000's)(2) 445,871 344,592 314,636 299,267 270,137
Available Seat
miles (000's)(3) 864,083 705,182 732,018 663,578 536,216
Passenger revenue per
available seat mile $ .215 $ .204 $ .191 $ .198 $ .232
Cost per available seat mile $ .192 $ .190 $ .178 $ .185 $ .208
Passenger load factor(4) 51.6% 47.1% 44.6% 45.1% 50.4%
Break-even load facot (5) 46.3% 43.3% 40.9% 42.8% 45.6%
Yield per revenue
passenger mile (6) $ .416 $ .434 $ .428 $ .427 $ .455
Departures 144,266 123,985 114,399 108,141 89,011
</TABLE>
__________________________
(1) Does not include the operations of AirTran Airways, Inc.
which was spun off from the Company on September 7, 1995.
(2) "Revenue passenger miles" are determined by multiplying the
number of fare paying passengers carried by the distance
flown.
(3) "Available seat miles" are determined by multiplying the
number of seats available for passengers by the number of
miles flown.
(4) "Passenger load factor" is determined by dividing revenue
passenger miles by available seat miles.
(5) "Break-even load factor" is computed by dividing the sum of
the airline operating expenses and net interest expense by
total airline operating revenues and multiplying the result
by the passenger load factor.
(6) "Yield per revenue passenger mile" is determined by dividing
passenger revenue by revenue passenger miles.
-15-
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
EARNINGS SUMMARY
Mesaba Holdings, Inc. (the "Company"), parent company of Mesaba
Aviation, Inc. ("Mesaba") reported net income of $12.0 million or
$.93 per share for the fiscal year ended March 31, 1997, compared to
$56.3 million or $4.81 per share in fiscal 1996 and $2.6 million or
$.29 per share in fiscal 1995. The fiscal 1996 net earnings included
a non-taxable $49.3 million gain resulting from the spin- off of
Airways Corporation ("Airways"). Fiscal 1996 net income per share
without the gain was $.60 including a $.02 contribution from AirTran
Airways. The $.29 per share earnings in fiscal 1995 included a $.38
per share loss from Airways. Weighted average shares outstanding
increased to 12.9 million in the current year from 11.7 million and
9.1 million respectively. The increase in the average number of
shares outstanding was due primarily to the issuance of shares to
Northwest Aircraft, Inc. in lieu of Airways shares, Northwest
exercising pre-existing warrants, and the exercise of stock options
by current and former employees.
RESULTS OF OPERATIONS
Operating Revenues. Operating revenues rose 8.9% to $185.7
million in fiscal 1997 from $170.5 million in fiscal 1996 and $145.9
million in fiscal 1995. Operating revenues for fiscal 1996 and 1995
included revenues from Airways of $18.7 million and $9.6 million,
respectively. Mesaba's revenues increased 22.3% in 1997 to $185.7
million from $151.8 million in 1996. Passenger revenue per available
seat mile ("RASM") increased 3.9% to $0.212 from $0.204 and $0.191
respectively. Mesaba's average passenger load factor was 51.6% in
1997, up from 47.1% in 1996 and 44.6% in 1995. The improvement in
traffic, load factor and RASM are attributable to the inclusion of
Mesaba's flights in Northwest pricing and promotional discount fare
programs, as well as overall increases in passenger demand within the
industry.
OPERATING EXPENSES. Total operating expenses increased 5.1% to
$166.1 million in 1997 from $158.1 million in 1996 and $141.5
million in 1995. Operating expenses for 1996 and 1995 included
expenses from Airways of $18.7 million and $16.0 million,
respectively. Mesaba's operating expenses increased 19.1% in 1997 to
$166.1 million from $139.4 million and 11.1% from $125.5 million in
1995. Mesaba experienced a 1.1% increase in the cost per available
seat mile (CASM) to 19.2 cents compared with 19.0 cents in 1996.
Seat capacity (measured in ASMs) increased 18.0% in 1997 to 864.0
million as a result of increased utilization of the existing Dash 8
aircraft and the replacement of Metro III aircraft with Saab 340A
and 340BPlus aircraft. In addition to the replacement aircraft,
Mesaba took delivery of five additional Saab 340 aircraft. Mesaba
has taken delivery of 13 Saab 340A and 11 340BPlus aircraft this
year, 22 of which were in revenue service at March 31, 1997. As of
June, 1997, 21 Metro III aircraft have been removed from revenue
service. The following table compares components of Mesaba's
operating cost per ASM for the years ended March 31, 1997, 1996 and
1995:
1997 1996 1995
-------- -------- --------
Wages and benefits 5.8CENTS 6.0CENTS 5.4CENTS
Fuel 2.1 2.0 2.0
Direct maintenance 2.9 2.4 1.3
Rents 3.6 4.1 4.4
Landing fees 0.6 0.5 0.6
Insurance and taxes 0.6 0.7 0.6
Depreciation and
amortization 0.5 0.6 0.8
Other 3.1 2.7 2.7
--------- -------- --------
Total 19.2CENTS 19.0CENTS 17.8CENTS
========= ======== ========
Wages and benefits increased to $49.9 million in fiscal 1997
compared to $47.0 million in fiscal 1996 and $41.0 million in 1995.
Wages and benefits for 1996 and 1995 included expenses of Airways of
$3.1 million and $2.8 million, respectively. Mesaba's wages and
benefits increased 13.6% to $49.9 million from $43.9 million in
fiscal 1996. The increase is a result of increased cost of flight
crews due to a 14.1% increase in block hours flown and the addition
of flight crews to support the Saab fleet transition program. Mesaba
also experienced an increase in wage and benefit cost of support
personnel due to an increase in scheduled operations. Overall,
personnel levels (measured on a full time equivalent basis at the
fiscal year end) increased 18.7% to approximately 1,731 from 1,458.
-16-
<PAGE>
Total fuel costs increased to $17.9 million in fiscal 1997 from
$17.7 million in fiscal 1996 and $16.0 million in fiscal 1995.
Airways total fuel expense was $2.9 million in 1996 and $2.2
million in 1995. Mesaba's fuel costs increased 20.6% to $17.9
million from $14.9 million in 1996. The increase is attributable
to a 17.4% increase in consumption and a 4.4% increase in fuel cost
per gallon. The average price per gallon, including taxes and into
plane fees, was 83.5 cents in fiscal 1997 compared to 80.3 cents in
fiscal 1996 and 77.9 cents in fiscal 1995. Until October 1995,
airlines were exempt from a 4.3 cents per gallon federal tax on
aviation fuel. The additional taxes increased Mesaba's fuel costs
by $0.4 million in fiscal 1996. Certain provisions of the Airlink
Agreement protect Mesaba from future increases in fuel prices.
Direct maintenance expense, excluding wages and benefits
costs, increased to $25.0 million in fiscal 1997 from $20.0 million
in fiscal 1996 and $11.5 million in fiscal 1995. Airways' direct
maintenance expense was $2.2 million in 1996 and $1.0 million in
1995. Mesaba's direct maintenance cost increased 40.8% to $25.0
million from $17.8 million. This increase was attributable to the
addition of 13 Saab 340A and 11 Saab 340BPlus aircraft to the fleet
and the transfer of all costs of major overhauls and repairs on the
Dash 8 fleet to Mesaba from Northwest. This increase was partially
offset by lower costs associated with the Metro III fleet due to 21
aircraft having been removed from service. Under the terms of the
amended Airlink Agreement effective January 1, 1996, Mesaba became
solely responsible for the direct maintenance costs of the Dash 8
aircraft. This cost was approximately $8.6 million in fiscal
1997. Prior to that date those expenses were paid by Northwest.
Aircraft rentals were $31.2 million in fiscal 1997, $31.3
million in fiscal 1996 and $32.3 million in fiscal 1995. Airways'
aircraft rentals were $1.5 million in fiscal 1996 and $1.0 million in
fiscal 1995. Mesaba's aircraft rentals increased 4.7% to $31.2
million from $29.8 million. Mesaba added 13 Saab 340A and 11 Saab
340BPlus aircraft during the period and returned 14 Metro III
aircraft to lessors.
Landing fees were $4.8 million in fiscal 1997, $4.5 million
in fiscal 1996 and $4.2 million in fiscal 1995. Airways' landing
fees were $0.5 million in fiscal 1996 and $0.3 million in fiscal
1995. Mesaba's landing fees increased $0.8 million or 18.9% to $4.8
million from $4.0 million in fiscal 1996. The increase is
attributable to a 16.4% increase in departures and an increase in
the average gross landing weight due to the changing mix of
aircraft. This increase was partially offset by a slight decrease in
the overall effective landing fee rate.
Insurance and taxes were $5.3 million in fiscal 1997, $5.9
million in fiscal 1996 and $4.5 million in fiscal 1995. Airways'
costs were $1.0 million in fiscal 1996 and $0.5 million in fiscal
1995. Mesaba's costs increased $0.4 million or 8.9% to $5.3 million
from $4.9 million in fiscal 1996. This is due primarily to an
increase in passenger liability insurance associated with increased
passenger volume and an increase in property taxes and hull insurance
caused by increasing fleet values associated with the Saab aircraft
replacing Metro III aircraft.
Depreciation and amortization totaled $4.3 million in fiscal
1997 compared to $4.9 million in fiscal 1996 and $6.1 million in
fiscal 1995. Airways' depreciation and amortization totaled $0.6
million in 1996 and $0.5 million in 1995. Mesaba's depreciation and
amortization increased 0.4% to $4.3 million. The increase in
Mesaba's depreciation and amortization resulted from the acquisition
of spare parts to support the Saab fleet offset by the elimination of
capitalized overhauls and rotable parts depreciation as a part of the
phase out of the Fokker F27 fleet. Generally, acquisition of spare
parts for the Saab fleet are non-cash expenditures funded by credits
issued by the aircraft manufacturer. In April 1992, the Company paid
a contract rights fee in the form of amended stock purchase warrants
to Northwest as part of the extension of the Airlink Agreement.
Contract rights are being amortized on a straight-line basis over the
extended term of the Airlink Agreement through March 31, 1997.
In October 1996, the Company paid a contract rights fee in the
form of stock purchase warrant to Northwest as a part of the Jet
Agreement. These contract rights are being amortized on a
straight-line basis over the minimum term of the agreement
through October 21, 2002.
Administrative and other costs totaled $27.8 million in fiscal
1997, $27.3 million in fiscal 1996 and $26.0 million in fiscal 1995.
Airways' administrative and other costs were $6.7 million in 1996 and
$7.0 million in 1995. Mesaba's administrative and other costs
increased 39.0% in 1997 to $27.8 million from $20.6 million. This
increase is primarily attributable to higher passenger and airport
related expenses due to increases in traffic and the number of cities
served, significantly higher expenses for deicing aircraft and
related interrupted trip expenses associated with inclement weather.
Additionally, crew related expenses were higher due to increased
flying and training to support the Saab fleet transition program.
-17-
<PAGE>
OPERATING INCOME. The Company's operating income was $19.6
million in fiscal 1997, $12.3 million in fiscal 1996 and $4.4
million in fiscal 1995. Mesaba's operating income increased 59.1% to
$19.6 million in 1997 from $12.4 million in 1996. Mesaba's
operating margins were 10.5% in 1997, 8.2% in 1996 and 7.9% in 1995.
NONOPERATING INCOME. Nonoperating income was $1.1 million in
fiscal 1997, $0.3 million in fiscal 1996 (not including the one-time
non taxable gain of $49.3 million on the spin-off of Airways) and
$0.8 million in fiscal 1995. Interest income decreased $0.2 million
to $1.6 million from $1.8 million. During the current year the
Company invested in tax-free securities which lowers overall
interest income but effectively maximizes the after-tax yield on
its cash investments.
PROVISION FOR INCOME TAXES. The provision for income taxes was
$8.7 million in fiscal 1997, $5.7 million in fiscal 1996 and $2.5
million in fiscal 1995. The effective tax rate decreased to 42.1% in
1997 from 44.8% in 1996 (not including the gain on distribution which
is not taxable) and 49.2% in 1995. This decrease is due primarily to
the lower level of nondeductible expenses as a percentage of taxable
income.
LIQUIDITY AND CAPTAL RESOURCES
The Company's working capital increased to $37.8 million
with a current ratio of 2.1 at March 31, 1997 compared to $27.1
million and 2.6 at March 31, 1996. Cash and cash equivalents
increased by $19.7 million to $49.1 million at March 31, 1997. Net
cash flows provided by operating activities totaled $23.4 million
in fiscal 1997 compared to $16.1 million in fiscal 1996. Net cash
flows used for financing activities amounted to $0.1 million in
fiscal 1997 and consisted of principal payments of $0.4 million
offset by $0.3 million in proceeds from the exercise of stock
options by current and former employees. For 1996, funds used for
the distribution of Airways Corporation totaled $21.4 million,
offset by a $3.8 million decrease of restricted cash related to
Airways' air traffic liability.
Mesaba has an approved $5.0 million unsecured revolving
line of credit. This credit line was not utilized during fiscal
1997. In addition, a letter of credit facility totaling $0.2
million which secures a lease commitment to the County of Wayne,
Michigan, for Mesaba's Detroit hangar.
Long term debt, net of current maturities, totaled $5.2
million at March 31, 1997 and $5.7 million at March 31, 1996. Long
term debt consists principally of capitalized lease financing for the
Minneapolis/St. Paul and Detroit hangar facilities. The ratio of
long term debt to stockholders' equity was .10 at March 31, 1997
compared to .16 at the end of fiscal 1996.
As of June 1997, Mesaba's fleet consisted of 60 aircraft
covered under operating leases with remaining terms of two months
to 16 years and aggregate monthly lease payments of approximately
$3.6 million. Operating leases have been Mesaba's primary
method for acquiring aircraft, and management expects to continue
relying on this method to meet most of its future aircraft financing
needs. Mesaba has negotiated a financing agreement with the
airframe manufacturer whereby operating lease financing for both used
and new Saab 340 aircraft are committed to Mesaba on competitive
rates and terms.
Approximately 72% of Mesaba's passengers connected with
Northwest in fiscal 1997, 71% in 1996 and 79% in 1995. Approximately
98% of the Company's accounts receivable balance at March 31, 1997 is
due from Northwest. Loss of the Mesaba's affiliation with Northwest
or Northwest's failure to make timely payment of amounts owed to
Mesaba or to otherwise materially perform under the Airlink
Agreement for any reason would have a material adverse effect on
Mesaba's operations and financial results.
The Company has historically relied upon cash reserves and
internally generated funds to support its working capital
requirements. Management believes that funds from operations and
existing cash balances will provide adequate resources for meeting
non-aircraft capital needs in fiscal 1998.
-18-
<PAGE>
OTHER INFORMATION
On June 4, 1997 the Company signed a Memorandum of
Understanding ("MOU") with Northwest on a long-term contract for
Mesaba to continue operating as Northwest Airlink. The MOU grants
all Airlink flying out of Northwest's Minneapolis/St. Paul hub to
Mesaba effective August 1, 1997. The MOU continues the existing
compensation methodology set forth in the January 1, 1996 amendment
to the Airlink Agreement. Additionally, the MOU continues
Northwest's current right to approve any new Chief Executive Officer.
As consideration for the additional flights, the Company will issue a
warrant to Northwest for the purchase of 880,000 shares of the
Company's common stock at an exercise price of $14.125 per share.
The term of the warrant will be ten years. Both the Company and
Northwest anticipate the terms of the MOU will be incorporated into
the final, ten year airline services agreement, which is expected to
be executed on or before June 30, 1997.
-19-
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and the
related Report of Independent Public Accountants are included in
this Form 10-K on the pages indicated below.
Page
Report of Independent Public Accountants 21
Consolidated balance sheets as of March 31, 1997 and 1996 22
Consolidated statements of operations for the years
ended March 31, 1997, 1996 and 1995 23
Consolidated statements of shareholders' equity for the years
ended March 31, 1997, 1996 and 1995 24
Consolidated statements of cash flows for the years
ended March 31, 1997, 1996 and 1995 25
Notes to consolidated financial statements 26
-20-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mesaba Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of
Mesaba Holdings, Inc. (a Minnesota corporation) and Subsidiary as
of March 31, 1997 and 1996, and the related consolidated statements
of operations, shareholders' equity and cash flows for each of the
three years in the period ended March 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Mesaba
Holdings, Inc. and Subsidiary as of March 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the
three years in the period ended March 31, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
May 2, 1997
-21-
<PAGE>
MESABA HOLDINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(In Thousands, Except Share Information)
As of March 31,
------------------
1997 1996
ASSETS -------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 49,126 $ 29,428
Accounts receivable, net 13,344 9,254
Inventories 2,077 1,666
Prepaid expenses and deposits 3,054 2,774
Deferred income taxes 3,600 1,343
-------- --------
Total current assets 71,201 44,465
PROPERTY AND EQUIPMENT:
Facilities under capital lease 9,147 9,147
Flight equipment 18,655 10,439
Other property and equipment 12,008 9,644
Accumulated depreciation and amortization (20,038) (16,842)
-------- --------
Net property and equipment 19,772 12,388
DEFERRED INCOME TAXES 283 312
OTHER ASSETS, net 13,310 1,039
-------- --------
$104,566 $ 58,204
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligations $ 425 $ 399
Accounts payable 11,932 7,323
Accrued liabilities-
Payroll 6,589 3,871
Maintenance 7,469 3,341
Other 6,978 2,389
-------- --------
Total current liabilities 33,393 17,323
CAPITAL LEASE OBLIGATIONS, net of current 5,194 5,654
maturities
OTHER NONCURRENT LIABILITIES 16,185 812
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 15,000,000 shares
authorized; 12,784,046 and 12,736,046 shares 128 127
issued and outstanding, respectively
Paid-in capital 40,114 39,822
Warrants 3,100 -
Retained earnings (deficit) 6,452 (5,534)
Total shareholders' equity 49,794 34,415
-------- --------
$104,566 $ 58,204
======== ========
The accompanying notes are an integral part of these consolidated
balance sheets.
-22-
<PAGE>
MESABA HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(In Thousands, Except Share and Per Share Information)
For the Years Ended March 31,
1997 1996 1995
-------- -------- --------
OPERATING REVENUES:
Passenger $183,409 $166,900 $142,470
General aviation, freight and other 2,292 3,555 3,430
-------- -------- --------
Total operating revenues 185,701 170,455 145,900
OPERATING EXPENSES:
Wages and benefits 49,850 47,000 40,957
Aircraft fuel 17,850 17,795 15,993
Aircraft maintenance 25,012 19,518 11,539
Aircraft rents 31,242 31,330 32,293
Landing fees 4,770 4,474 4,200
Insurance and taxes 5,307 5,886 4,495
Depreciation and amortization 4,265 4,854 6,086
Other 27,822 27,291 25,978
-------- -------- --------
Total operating expenses 166,118 158,148 141,541
-------- -------- --------
Operating income 19,583 12,307 4,359
NONOPERATING (EXPENSE) INCOME:
Interest expense (511) (1,441) (562)
Interest income and other 1,625 1,761 1,332
Gain on distribution of subsidiary - 49,303 -
-------- -------- --------
Income before income taxes 20,713 61,930 5,129
PROVISION FOR INCOME TAXES 8,727 5,655 2,523
-------- -------- --------
Net income $ 11,986 $ 56,275 $ 2,606
======== ======== ========
NET INCOME PER SHARE $ .93 $ 4.81 $ .29
======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING 12,873 11,689 9,113
======== ======== ========
The accompanying notes are an integral part of these consolidated
statements.
-23-
<PAGE>
MESABA HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
For the Years Ended March 31
(In Thousands, Except Share and Per Share Information)
<TABLE>
<CAPTION>
Total
Common Stock Paid-In Warrants Retained Shareholders'
Shares Amount Capital Amount Earnings Equity Shares
---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1994 8,436,689 $ 84 $ 12,358 1,529,862 $ 5,194 $ 22,489 $ 40,125
Exercise of stock options, net of
related tax effects 157,900 2 647 - - - 649
Exercise of Warrants 30,784 - 194 (30,784) (105) - 89
Dividends paid on common stock ($.12
per common share) - - - - - (1,025) (1,025)
Net income - - - - - 2,606 2,606
---------- -------- -------- --------- ------- -------- --------
BALANCE, March 31, 1995 8,625,373 86 13,199 1,499,078 5,089 24,070 42,444
Stock Dividend 2,052,275 21 12,806 - - (12,827) -
Exercise of stock options,
net of related tax effects 559,320 5 4,265 - - - 4,270
Exercise of warrants 1,499,078 15 9,552 (1,499,078) (5,089) - 4,478
Distribution of Subsidiary - - - - - (72,531) (72,531)
Dividends paid on common stock
($.06 per common share) - - - - - (521) (521)
Net income - - - - - 56,275 56,275
---------- -------- -------- --------- ------- -------- --------
BALANCE, March 31, 1996 12,736,046 127 39,822 - - (5,534) 34,415
Issuance of warrants - - - 615,000 3,100 - 3,100
Exercise of stock options, net of
related tax effects 48,000 1 292 - - - 293
Net income - - - - - 11,986 11,986
---------- -------- -------- --------- ------- -------- --------
BALANCE, March 31, 1997 12,784,046 $ 128 $ 40,114 615,000 $ 3,100 $ 6,452 $ 49,794
========== ======== ======== ========= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
-24-
<PAGE>
MESABA HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
For the Years Ended March 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 11,986 $ 56,275 $ 2,606
Adjustments to reconcile net income to net
cash provided by operating activities-
Gain on distribution of subsidiary - (49,303) -
Depreciation and amortization 4,265 4,854 6,086
Accrued maintenance, long-term (2,227) (701) (531)
Deferred income taxes 2,228 293 (139)
Change in current operating items:
Accounts receivable, net (4,090) (1,310) (2,455)
Restricted cash - - (3,765)
Inventories (411) 164 (180)
Prepaid expenses and deposits (280) (4,174) (599)
Accounts payable and accrued liabilities 16,345 10,012 5,553
-------- -------- --------
Net cash flows provided by operating
activities 23,359 16,110 6,576
-------- -------- --------
INVESTING ACTIVITIES:
Acquisition of jet operation - - (2,500)
Purchases of property and equipment, net (3,301) (4,127) (3,564)
(Increase) decrease in other assets (215) - (1,266)
Decrease in other liabilities (4) (4) (17)
-------- -------- --------
Net cash flows used for investing activities(3,520) (4,131) (7,347)
-------- -------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of debt - 300 -
Distribution of subsidiary - (21,372) -
Distribution of restricted cash of
subsidiary - 3,765 -
Repayment of capital lease obligations (434) (322) (503)
Proceeds from issuance of common stock 293 8,748 738
Dividends paid - (521) (1,025)
-------- -------- --------
Net cash flows used for financing activities (141) (9,402) (790)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 19,698 2,577 (1,561)
CASH AND CASH EQUIVALENTS:
Beginning of year 29,428 26,851 28,412
-------- -------- --------
End of year $49,126 $29,428 $26,851
======== ======== ========
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 511 $ 555 $ 576
======== ======== ========
Income taxes $ 7,948 $ 5,296 $ 2,759
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
-25-
<PAGE>
MESABA HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except Share and Per Share Information)
1.Corporate Organization and Business:
CORPORATE ORGANIZATION
The consolidated financial statements include the accounts of Mesaba
Holdings, Inc. (the "Company") and its subsidiary, Mesaba Aviation,
Inc. ("Mesaba"). The statements also include the results of
operations of Airways Corporation ("Airways") and its subsidiary
Airtran Airways, Inc. ("Airtran Airways") prior to the distribution
of 100% of the outstanding common stock of Airways to the Company's
shareholders in September 1995 (see Note 7). All significant
intercompany balances have been eliminated in consolidation.
BUSINESS
The Company operates a regional air carrier providing scheduled
passenger and air freight service as Mesaba Airlines/Northwest
Airlink under an Airline Services Agreement (the Airlink Agreement)
with Northwest Airlines, Inc. (Northwest) to 67 cities in the Upper
Midwest from Northwest's hub airports, Minneapolis/Saint Paul and
Detroit. The Airlink Agreement provides for exclusive rights to
designated service areas and extended through March 31, 1997,
automatically renewing indefinitely thereafter. Either party may
terminate the Airlink Agreement on eight months notice any time after
July 31, 1996. Under the Airlink Agreement, all Mesaba flights
appear in Northwest's timetables and Mesaba receives ticketing and
certain check-in, baggage and freight-handling services from
Northwest at certain airports. In addition, at certain airports
Mesaba purchases fuel from Northwest. The Company paid $16,611 to
Northwest for fuel, reservation systems, ground handling and
other services in fiscal 1997, $7,526 in 1996 and $3,166 in 1995.
The Airlink Agreement provides for certain incentive payments
from Northwest to Mesaba based on achievement of certain
operational or financial goals, as defined. Such incentives
totaled $1,960 in 1997, $1,643 in 1996, and $1,192 in 1995.
Mesaba also benefits from its relationship with Northwest through
prorated fare arrangements and advertising and marketing
programs.
Mesaba and Northwest entered into a Regional Jet Services Agreement,
dated October 25, 1996 (the "Jet Agreement"), under which Mesaba will
operate 12 Avro/AI(R) RJ85 ("RJ85") regional jets for Northwest. The
aircraft will be subleased from Northwest and will be operated as
Northwest Jet Airlink from Minneapolis/St. Paul and Detroit hubs
according to routes and schedules determined by Northwest. Jet
service began in June, 1997.
Approximately 72% of Mesaba's passengers connected with Northwest in
fiscal 1997, 71% in 1996 and 79% in 1995. Approximately 98% of the
March 31, 1997 accounts receivable balances in the accompanying
consolidated balance sheet are due from Northwest.
The Company believes that Northwest's Minneapolis and Detroit hubs
will continue to serve as key air traffic centers. Although Mesaba
maintains an expanding air system serving those traffic centers,
loss of Mesaba's affiliation with Northwest or Northwest's failure
to make timely payment of amounts owed to the Company or to
otherwise materially perform under the Airlink Agreement would have
a material adverse effect on the Company's operations, financial
position and cash flows. Northwest and the Company review contract
compliance on a periodic basis.
-26-
<PAGE>
2.SUMMART OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash equivalents consist primarily of U.S. government securities and
interest-bearing deposits with maturities of less than 90 days and
are stated at cost, which approximates market. In 1995, restricted
cash represented amounts escrowed relating to the Company's air
traffic liability associated with Airtran Airways.
INVENTORIES
Inventories are stated at the lower of average cost or market and
consist of expendable aircraft service parts and fuel. Expendable
parts are charged to maintenance as used.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a
straight-line basis for financial reporting purposes over estimated
useful lives of 5-10 years for aircraft engines, flight equipment and
rotable parts; 3-10 years for all other equipment; 5-36 years for
buildings and improvements; and over the lease term for facilities
under capital lease. Leasehold improvements are amortized over the
shorter of the life of the lease or the life of the asset.
Accelerated cost recovery methods of depreciation are applied for tax
reporting purposes.
REGIONAL JET CONTRACT RIGHTS
In connection with the Jet Agreement, the Company paid a contract
rights fee in the form of a stock purchase warrant to Northwest.
Contract rights and related other assets totaled $3,100 and related
accumulated amortization totaled $172 at March 31, 1997. Contract
rights are amortized on a straight-line basis over six years to
coincide with the minimum term of the Jet Agreement.
REVENUE RECOGNITION
Passenger revenues are recorded as income when the respective
services are rendered.
FREQUENT FLYER AWARDS
As a Northwest Airlink carrier, Mesaba participates in Northwest's
frequent flyer program (WorldPerks), and passengers may use mileage
accumulated in that program to obtain discounted or free trips that
might include a flight segment on one of Mesaba's flights. However,
under the Airlink Agreement, Northwest is responsible for the
administration of WorldPerks, and Mesaba receives revenue from
Northwest for WorldPerks travel awards redeemed on Mesaba flight
segments.
INCOME TAXES
The Company accounts for income taxes under the liability method
whereby deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax
bases of assets and liabilities . These differences will result
in taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income.
-27-
<PAGE>
INCOME PER SHARE
Net income per share has been computed based upon the weighted
average number of common and dilutive common equivalent shares
outstanding during each year. In February 1997, the Financial
Accounting Standards Board issued a new accounting pronouncement
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share" and is effective for fiscal years ending after
December 15, 1997, and that, when adopted, will require restatement
of prior years' earnings per share. Application earlier than the
Company's quarter ending December 31, 1997 is not permitted. The
Company does not anticipate that the application of the new standard
will have a significant effect on earnings per share.
OTHER ASSETS
In order to assist the Company in integrating new aircraft into its
fleet, certain manufacturers provide the Company with spare parts or
other credits. The Company has deferred these amounts and amortizes
them over the terms of the related aircraft leases as a reduction of
rent expense. Amortization expense of $298 was recorded during
fiscal 1997.
The Company periodically evaluates whether events and circumstances
have occurred which may affect the estimated useful life or the
recoverability of the remaining balance of its long- lived assets.
If such events or circumstances were to indicate that the carrying
amount of these assets would not be recoverable, the Company would
estimate the future cash flows expected to result from the use of the
assets and their eventual disposition. If the sum of the expected
future cash flows (undiscounted and without interest charges) were
less than the carrying amount of the intangible assets, the Company
would recognize an impairment loss.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of
financial statements and the reported amounts of revenues and
expenses during the reporting period. Ultimate results could differ
from those estimates.
RECLASSIFICATIONS
Certain balances in the fiscal 1996 consolidated financial
statements have been reclassified to conform with the fiscal 1997
presentation. These reclassifications had no impact on net income or
shareholders' equity as previously reported.
3.FLIGHT EQUIPMENT
The Company's airline fleet consisted of the following aircraft held
under operating leases as of March 31, 1997:
Number
of Seating
Aircraft Type of Aircraft Capacity
---------- ------------------------------- ----------
24 Saab 340 30/34
25 de Havilland Dash 8 (Dash 8) 37
13 Fairchild Metro III (Metro III) 19
Under terms of the Airlink Agreement, the Company subleases its Dash
8 aircraft from Northwest under operating leases with original terms
of up to five years. The Airlink Agreement allows the Company to
return aircraft to Northwest upon the occurrence of certain events,
including termination or breach of the Airlink Agreement. These
leases require rental payments of approximately $863 per year for
each aircraft. Until January 1, 1996 the Airlink Agreement required
Northwest to provide for all major maintenance and overhauls for Dash
8 aircraft. Pursuant to an amendment to the Airlink Agreement, along
with revenue enhancements, the responsibility for certain Dash 8
maintenance costs up to a specified level were transferred to Mesaba
effective January 1, 1996.
Aircraft maintenance and repairs on Metro III aircraft are charged
to expense when incurred, except for the cost of major airframe and
engine overhauls, for which the estimated cost is accrued and charged
to maintenance expense based upon hours flown pursuant to the
specific lease agreements, thus providing for the overhaul cost when
it occurs.
-28-
<PAGE>
The aircraft operating leases require future minimum rental payments
as follows at March 31, 1997:
1998 $25,471
1999 13,596
2000 12,089
2001 12,089
2002 12,089
Thereafter $85,349
Mesaba has firm commitments for 26 additional Saab 340 aircraft.
The table above does not reflect any minimum lease payments for
those undelivered aircraft.
Rent expense under aircraft operating leases totaled approximately
$31,242 in 1997, $31,330 in 1996 and $32,293 in 1995 (including
$21,564, $21,564 and $21,626 paid to Northwest in 1997, 1996 and
1995, respectively).
On March 7, 1996, the Company entered into an agreement with Saab
Aircraft AB to acquire up to 72 Saab 340 aircraft (50 firm orders, 22
options). The thirty to thirty-four passenger Saab regional airliner
will replace Mesaba's existing fleet of Metro III and Dash 8 aircraft
within the next 18 months.
4.INCOME TAXES
The provision for income taxes for the three years ended March 31 is
comprised of the following elements:
1997 1996 1995
------ ------ ------
Current:
Federal $8,748 $4,130 $2,131
State 2,207 1,232 531
Deferred (2,228) 293 (139)
------ ------ ------
Total provision for income
taxes $8,727 $5,655 $2,523
====== ====== ======
The actual income tax expense differs from the expected tax expense
for 1997, 1996 and 1995 (computed by applying the U.S. federal
corporate tax rate of 35 percent to earnings before income taxes) as
follows:
1997 1996 1995
------- ------- -------
Computed tax expense at
statutory rate $ 7,250 $21,675 $ 1,795
Increase (decrease) in income
taxes resulting from:
Tax free distribution of - (17,256) -
subsidiary
State taxes, net of
federal tax benefit 1,654 933 343
Non-deductible flight crew
expenses 397 251 262
Other, net (574) 52 123
------- ------- -------
Total income tax expense $ 8,727 $ 5,655 $ 2,523
======= ======= =======
-29-
<PAGE>
Deferred tax assets and liabilities are comprised of the following as
of March 31:
1997 1996
------ ------
Deferred tax assets:
Maintenance $2,560 $1,660
Accrued vacation 1,081 594
Property taxes 398 236
Prepaid rent 248 166
Workers' compensation insurance 389 154
Other 53 26
------ ------
Gross deferred tax assets 4,729 2,836
Deferred tax liabilities:
Property and equipment 619 1,009
Preoperating costs 63 71
Integration funds 164 101
------ ------
Gross deferred tax liabilities 846 1,181
------ ------
Net deferred tax assets $3,883 $1,655
====== ======
5.SHAREHOLDERS' EQUITY
STOCK OPTION PLANS
The Company has stock option plans for key employees and directors
which authorize the issuance of shares of common stock for such
options. Under the plans, options are granted by the compensation
committee of the board of directors and vest over a period of four to
five years commencing one year after the date of grant. The purchase
price of the stock is 110% of the fair market value of the stock at
the date of grant for participants owning 10% or more of the
outstanding common stock and 100% of the fair market value for all
other participants. In connection with the spin-off outstanding
options were repriced in relation to the fair market value of the
Company, post-spin-off (see Note 7).
-30-
<PAGE>
Stock option transactions for the three years ended March 31 were
as follows:
Price Per
Shares Share
--------- -------------
Options outstanding, March 31, 1994 1,085,720 $ 2.13-$10.25
Granted 239,000 $ 6.76-$ 7.75
Exercised (157,900) $ 2.13-$ 6.75
Canceled (29,200) $ 9.50
---------
Options outstanding, March 31, 1995 1,137,620 $ 2.13-$10.25
Granted 461,000 $ 4.38-$ 7.88
Exercised (559,320) $ 2.13-$ 9.50
Canceled (411,800 $ 6.75-$10.25
---------
Options outstanding, March 31, 1996 627,500 $ 4.13-$ 7.88
Granted 304,000 $11.63-$13.38
Exercised (48,000) $ 4.75-$ 7.75
Canceled (10,000) $12.00
---------
Options outstanding, March 31, 1997 873,500 $ 4.13-$13.38
=========
Exercisable at March 31, 1997 226,150
=========
Available for grant at March 31, 1997 341,000
=========
As of March 31, 1997, of the total shares available for grant,
176,000 are available for non-employee directors and 165,000 are
available for certain management personnel.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations in accounting for its stock option plans.
Accordingly, no compensation cost has been recognized in the
accompanying consolidated statement of operations. Had compensation
cost been recognized based on the fair values of options at the grant
dates consistent with the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net income and net income
per common share would have been decreased to the following pro forma
amounts:
1997 1996
-------- --------
Net Income
As reported $11,986 $56,275
Pro Forma $11,462 $56,083
Income Per Share
As reported $ .93 $4.81
Pro Forma $ .89 $4.79
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years. The weighted average fair value of options granted in
1997 and 1996 was $6.28 and $2.10, respectively.
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used: risk-free interest
-31-
<PAGE>
rates of 6.08% to 6.11% for 1997 and 5.44% to 6.11% for 1996; no
expected dividends; expected lives of 6 years for 1997 and for 1996;
and expected volatility of 43.5% to 45.0% for 1997 grants and 44.0 %
to 49.8% for 1996 grants.
STOCK PURCHASE PLAN
The Company has an employee stock purchase plan which allows all
full-time personnel employed for more than six months the
opportunity to purchase shares of stock in the Company at current
market prices through payroll deductions. All administrative costs
of this plan are paid by the Company.
6.COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
In addition to the aircraft described in Note 3, the Company leases
land, office and hangar facilities and certain terminal facilities
under capitalized and operating leases which provide for approximate
future minimum rental payments as follows at March 31, 1997:
Capitalized Operating
Leases Leases
----------- ---------
1998 $ 890 $ 250
1999 861 250
2000 784 250
2001 785 250
2002 786 250
Thereafter 4,668 1,863
-------- --------
8,775 $ 3,113
Less- Amount representing interest 3,156 ========
--------
5,619
Less- Current maturities 425
--------
Total long-term capital lease
obligations $ 5,194
========
Rent expense under all facility operating leases totaled
approximately $2,857 in 1997, $2,405 in 1996 and $1,928 in 1995.
BENEFIT PLAN
The Company maintains a 401(k) benefit plan for eligible employees
whereby the Company will match 25% to 75% of employee contribution
to the plan, up to 8% of each employee's compensation, depending on
each employee's length of service. The Company's contribution to the
plan totaled $589 to the plan in 1997, $303 in 1996 and $291 in 1995.
LITIGATION
The Company is a party to ongoing legal and tax proceedings arising
in the ordinary course of business. In the opinion of management,
the resolution of these matters will not have a material adverse
effect on the Company's consolidated financial position, results of
operations, or its cash flows.
-32-
<PAGE>
7.SPIN-OFF:
In June 1994, the Company acquired the common stock of Conquest Sun
Airlines, Inc. ("Conquest") for $2,500. The acquisition was
recorded under the purchase method of accounting. Subsequent to
the transaction the acquired company's name was changed to
Airtran Airways.
In March 1996, the Company and Northwest entered into an agreement to
spin off Airtran Airways and Mesaba's fixed base operation (FBO) in
Grand Rapids, Minnesota. Under the terms of the spin-off, the
Company established a new subsidiary (Airways Corporation) and
consolidated Airtran Airways and the FBO, in order to facilitate the
distribution of Airways Corporation's common stock to the Company's
shareholders. In addition, The Company made a $20,250 contribution
in cash and certain assets to Airways Corporation prior to the
spin-off date.
Also in connection with the spin-off, Northwest waived its right to
receive a distribution of Airways Corporation common stock, in
exchange for 2,052,275 shares of Mesaba Holdings, Inc. common stock.
Northwest exercised its warrants to purchase 1,499,078 shares of the
Company's common stock at their stated exercise price. Subsequent
to these transactions, Northwest owned approximately 29.7% of the
outstanding shares of the Company's common stock. In addition,
Northwest assumed responsibility for setting Mesaba's flight
schedules and aircraft routings and management of Mesaba's segment
pricing and yield management functions. Northwest and Mesaba also
entered into a good faith agreement to extend the Airlink Agreement
for a minimum of ten years. Northwest agreed to make quarterly
payments to Mesaba which, together with payments under the Airlink
Agreement, guaranteed that Mesaba's pretax income would be not less
than $7.6 million for the last three quarters of fiscal 1996 and
$10.0 million for fiscal 1997. Revenues do not include any payments
made to Mesaba pursuant to the income guarantee as the Company's
internally generated profits exceeded the guarantee amount.
Concurrent with the spin-off date, outstanding Company stock options
were repriced (reduced by $2.00 per share) in relation to the fair
market value of the Company post-spin-off of Airways. Unexercised
options previously granted to certain directors and officers who
became affiliated with Airways were canceled. At a special meeting
held on August 29, 1995, the Company's shareholders ratified the
distribution of 100% of the outstanding common stock of its wholly
owned subsidiary, Airways, to the Company's shareholders. The
shareholders also approved a proposal to change the Company's name to
Mesaba Holdings, Inc. from Airtran Corporation. Following the
distribution of the Airways stock on September 7, 1995, the sole
business of the Company has consisted of the regional airline
operations of Mesaba.
The Company recorded a one-time gain of $49,303 in the second
quarter of fiscal 1996 as a result of the tax-free distribution of
Airways to the Company's shareholders. The gain reflects the
difference between the book value of the Airways stock distributed in
the spin-off and the actual market value of such stock on September
8, 1995.
-33-
<PAGE>
8.QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
Quarters of Fiscal Year Ended March 31, 1997
-------------------------------------------------------------------------
June 30, September 30, December 31, March 31, Fiscal Year
1996 1996 1996 1997 1997
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Total operating
revenues $42,421 $46,675 $48,047 $48,558 $185,701
Operating income 5,069 6,500 4,901 3,113 19,583
Net income 3,001 3,860 3,001 2,124 11,986
Net income per share $ .23 $ .30 $ .24 $ .17 $ .93
Weighted average
shares outstanding
(000) 12,977 12,962 12,770 12,783 12,873
<CAPTION>
Quarters of Fiscal Year Ended March 31, 1996
-------------------------------------------------------------------------
June 30, September 30, December 31, March 31, Fiscal Year
1995 1995 1995 1996 1996
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Total operating
revenues $44,647 $46,980 $37,554 $41,274 $170,455
Operating income 2,375 4,593 2,820 2,519 12,307
Net income 1,408 51,857 1,641 1,369 56,275
Net income per share $ .14 $ 4.71 $ .13 $ .11 $ 4.81
Dividends per share $ .03 - - - $ .03
Weighted average
shares outstanding
(000) 10,021 11,016 12,765 12,953 11,689
</TABLE>
9.SUBSEQUENT EVENT (UNAUDITED)
On June 4, 1997 the Company reached a Memorandum of Understanding
("MOU") with Northwest on a long-term contract for Mesaba to
continue operating as Northwest Airlink. The MOU grants all Airlink
flying out of Northwest's Minneapolis/St. Paul hub to Mesaba
effective August 1, 1997. As consideration for the additional
flights, the Comapny will issue a warrant to Northwest to allow
Northwest purchase 880,000 shares of the Company's common stock at
an exercise price of $14.125 per share. Both the Company and
Northwest anticipate the terms of the MOU will be incorporated into
the final, ten year airline services agreement, which is expected
to be executed on or before June 30, 1997.
-34-
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the Company is
incorporated herein by reference to the descriptions set forth under
the caption "Election of Directors" in the Proxy Statement for the
1997 Annual Meeting of Shareholders (the "1997 Proxy Statement").
Information regarding executive officers of the Company is
incorporated herein by reference to Item 1 of this Form 10-K under
the caption "Executive Officers of the Company" on page 11.
Item 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated
herein by reference to the information set forth under the caption
"Compensation of Executive Officers" in the 1997 Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding security ownership of certain
beneficial owners and management of the Company is incorporated
herein by reference to the information set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in
the 1997 Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related
transactions with the Company is incorporated herein by reference
to the information set forth under the caption "Certain
Transactions" in the 1997 Proxy Statement.
-35-
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Documents filed with this report.
(1) Financial Statements of Mesaba Holdings, Inc.
Page of this
Form 10-K
------------
Report of Independent Public Accountants 21
Consolidated balance sheets as of March 31,
1997 and 1996 22
Consolidated statements of operations for
the years ended March 31, 1997, 1996 and
1995 23
Consolidated statements of shareholders'
equity for the years ended March 31, 1997,
1996 and 1995 24
Consolidated statements of cash flows for
the years ended March 31, 1997, 1996 and
1995 25
Notes to consolidated financial statements 26
(2) Not applicable
-36-
<PAGE>
(3) Exhibits
3A.Restated Articles of Incorporation. Incorporated by
reference to Exhibit 3.1 to the Company's Form 10-Q for
the quarter ended September 31, 1995.
3B.Bylaws. Incorporated by reference to
Exhibit 3.2 to the Form S-4.
4A.Specimen certificate for shares of the Common Stock
of the Company. Incorporated by reference to Exhibit
4A to the Company's Form 10-K for the year ended March
31, 1989.
9A.Shareholder's Agreement regarding election of
representative of Northwest Aircraft Inc. to Board of
Directors. Incorporated by reference to Exhibit 9A to
Mesaba's Registration Statement on Form S-1,
Registration No. 33-820.
10A.FAA Air Carrier Operating Certificate.
Incorporated by reference to Exhibit 10A to the
Company's Form 10-K for the year ended March 31, 1989.
10B.1986 Stock Option Plan (as Amended). Incorporated
by reference to Exhibit 10D to the Company's Form 10-K
for the year ended March 31, 1990.
10C.1991 Director Stock Option Plan. Incorporated by
reference to Exhibit 10(i) to the Company's
Registration Statement on Form S-8, Registration No. 33-
62386.
10D.CAB Part 298 Registration. Incorporated by
reference to Exhibit 10G to Mesaba's Form 10-K for the
year ended March 31, 1987.
10E.Revolving Credit and Term Loan Agreement Dated as
of November 7, 1988 between Norwest Bank Minnesota,
N.A. and Mesaba, Inc. Incorporated by reference to
Exhibit 10F to the Company's Form 10-K for the year
ended March 31, 1989.
10F.Airline Services Agreement between Northwest
Airlines, Inc. and Mesaba, Inc. (certain portions of
this agreement are subject to an order granting
confidential treatment pursuant to Rule 24b-2).
Incorporated by reference to Exhibit 10V to the
Company's Form 10-Q for the quarter ended September 30,
1988.
10G.Amendment No. 3 to Airline Services
Agreement between Northwest Airlines, Inc. and Mesaba,
Inc. dated as of April 1, 1992 (certain portions of
this amendment are subject to an order granting
confidential treatment under Rule 24b-2). Incorporated
by reference to Exhibit 10H to the Company's Form 10-K
for the year ended March 31, 1992.
10H.Foreign Air Carrier Operating Certificates issued
May 6, 1991 by the Canadian Department of Transport.
Incorporated by reference to Exhibit 10H to the
Company's Form 10-K for the year ended March 31, 1991.
10I.Facility Lease and Operating Agreement dated April
18, 1988, between the Metropolitan Airport Commission
and Mesaba, Inc. Incorporated by reference to Exhibit
10K to the Company's Form 10-K for the year ended
March 31, 1989.
10J.Ninth Amendment to Revolving Credit and Term Loan
Agreement and Amendment to Revolving Note between
Mesaba, Inc. and Norwest Bank Minnesota, National
Association.
10K.Letter of Credit and Reimbursement Agreement dated
as of August 1, 1990 between Mesaba, Inc. and Norwest
Bank Minnesota, National Association. Incorporated by
reference to Exhibit 10A to the Company's Form 10-Q for
the quarter ended September 30, 1990.
10L.Special Facilities Lease dated as of August 1, 1990
between Charter County of Wayne, State of Michigan and
Mesaba, Inc. Incorporated by reference to Exhibit 10B
to the Company's Form 10-Q for the quarter ended
September 30, 1990.
10M.Ground Lease dated August 1, 1990 between Charter
County of Wayne, State of Michigan and Mesaba, Inc.
Incorporated by reference to Exhibit 10C to the
Company's Form 10-Q for the quarter ended September 30,
1990.
10N.Combination Leasehold Mortgage, Assignment of
Rents, Security Agreement and Fixture Financing
Statement dated as of August 1, 1990 between Mesaba,
Inc. and Norwest Bank Minnesota, National Association.
Incorporated by reference to Exhibit 10D to the
Company's Form 10-Q for the quarter ended September 30,
1990.
-37-
<PAGE>
10O.Letter Agreement dated December 24, 1992 relating
to the repurchase of shares of Common Stock from
Northwest Aircraft, Inc. Incorporated by reference to
Exhibit 10EE to the Company's Form 10-K for the year
ended March 31, 1993.
10P.DOT Certificate of Public Convenience and Necessity
dated October 26, 1992. Incorporated by reference to
Exhibit 10FF of the Company's Form 10-K for the year
ended March 31, 1993.
10Q.Stock Purchase Agreement between AirTran
Corporation and Carl R. Pohlad dated as of October 18,
1993. Incorporated by reference to Exhibit 10 of the
Company's Form 8-K dated October 19, 1993.
10R.AirTran Corporation 1994 Stock Option Plan.
Incorporated by reference to Exhibit 10 of the
Company's Form S-8 Registration Statement as filed
March 2, 1995 (Registration No. 33-89930).
10S.Agreement between AirTran Corporation, Mesaba,
Inc., Northwest Aircraft, Inc., and Northwest Airlines,
Inc. dated May 18, 1995. Incorporated by reference to
Exhibit 10A of the Company's Form 8-K as filed May 18,
1995.
10T.Preliminary Agreement between AirTran Corporation,
Mesaba, Inc. and Northwest Airlines, Inc. dated March
8, 1995. Incorporated by reference to Exhibit 10 of
the Company's Form 8-K as filed March 8, 1995.
10U.Term Sheet Proposal for the Acquisition of Saab 340
Aircraft by Mesaba Aviation, Inc. dated March 7, 1996
(certain portions of this document have been deleted
pursuant to an application for confidential treatment
under Rule 24b-2). Incorporated by reference to
Exhibit 10U to the Company's Form 10-K/A for the year
ended March 31, 1996.
10V.Letter Agreement regarding Saab 340B Plus
Acquisition Financing dated March 7, 1996 (certain
portions of this document have been deleted pursuant to
an application for confidential treatment under Rule
24b-2). Incorporated by reference to Exhibit 10V to the
Company's Form 10-K/A for the year ended March 31,
1996.
10W.Letter Agreement of April 26, 1996 relating to
Airline Services Agreement between Mesaba Aviation,
Inc. and Northwest Airlines, Inc. (certain portions of
this document have been deleted pursuant to an
application for confidential treatment under Rule 24b-
2). Incorporated by reference to Exhibit 10W to the
Company's Form 10-K/A for the year ended March 31,
1996.
10X.Letter Agreement of October 25, 1996 relating to
Regional Jet Services Agreement between Mesaba
Aviation, Inc. and Northwest Airlines, Inc. (certain
portions of this document have been deleted pursuant to
an application for confidential treatment under Rule
24b-2). Incorporated by reference to Exhibit 10A to the
Company's Form 10-Q/A for the quarter ended September
30, 1996.
11.Statement regarding computation of per share
earnings.
21.Subsidiaries.
23.Consent of independent public accountants.
24.Powers of Attorney.
(b) Reports on Form 8-K. The Company filed an 8-K dated June
4, 1997 to report a preliminary agreement regarding
expanded Minneapolis service.
-38-
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MESABA HOLDINGS, INC.
Dated: June 20, 1997 By /s/ Bryan K. Bedford
----------------------
Bryan K. Bedford
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Bryan K. Bedford President and Chief June 30, 1997
- ---------------------
Bryan K. Bedford Executive Officer
(Principal Executive Officer) and Director
/s/ Robert H. Cooper Director of Finance June 30, 1997
- ---------------------
Robert H. Cooper (Principal Financial Officer)
/s/ Jon R. Meyer Controller June 30, 1997
- -----------------------
Jon R. Meyer (Principal Accounting Officer)
* Director June 30, 1997
- -----------------------
Donald E. Benson
* Director June 30, 1997
- -----------------------
Christopher E. Clouser
* Director June 30, 1997
- -----------------------
Richard B. Hirst
______________________ Director June 30, 1997
Carl R. Pohlad
* Director June 30, 1997
- -----------------------
Robert C. Pohlad
* Director June 30, 1997
- -----------------------
Donald A. Washburn
* Director June 30, 1997
- -----------------------
Raymond W. Zehr, Jr.
*By /s/ Bryan K. Bedford Attorney-in-fact June 30, 1997
--------------------
Bryan K. Bedford
<PAGE>
EXHIBIT INDEX
Manually
Numbered
Exhibit Exhibit Page
No. References
- ----------- ----------------------------------- ------------
3A. Restated Articles of Incorporation.
Incorporated by reference to
Exhibit 3.1 to the Company's Form
10-Q for the quarter ended
September 31, 1995.
3B. Bylaws. Incorporated by reference
to Exhibit 3.2 to the Form S-4.
4A. Specimen certificate for shares of
the Common Stock of the Company.
Incorporated by reference to
Exhibit 4A to the Company's Form
10-K for the year ended March 31,
1989.
9A. Shareholder's Agreement regarding
election of representative of
Northwest Aircraft Inc. to Board of
Directors. Incorporated by
reference to Exhibit 9A to Mesaba's
Registration Statement on Form S-1,
Registration No. 33-820.
10A. FAA Air Carrier Operating
Certificate. Incorporated by
reference to Exhibit 10A to the
Company's Form 10-K for the year
ended March 31, 1989.
10B. 1986 Stock Option Plan (as
Amended). Incorporated by
reference to Exhibit 10D to the
Company's Form 10-K for the year
ended March 31, 1990.
10C. 1991 Director Stock Option Plan.
Incorporated by reference to
Exhibit 10(i) to the Company's
Registration Statement on Form S-8,
Registration No. 33-62386.
10D. CAB Part 298 Registration.
Incorporated by reference to
Exhibit 10G to Mesaba's Form 10-K
for the year ended March 31, 1987.
10E. Revolving Credit and Term Loan
Agreement Dated as of November 7,
1988 between Norwest Bank
Minnesota, N.A. and Mesaba, Inc.
Incorporated by reference to
Exhibit 10F to the Company's Form
10-K for the year ended March 31,
1989.
10F. Airline Services Agreement between
Northwest Airlines, Inc. and
Mesaba, Inc. (certain portions of
this agreement are subject to an
order granting confidential
treatment pursuant to Rule 24b-2).
Incorporated by reference to
Exhibit 10V to the Company's Form
10-Q for the quarter ended
September 30, 1988.
10G. Amendment No. 3 to Airline Services
Agreement between Northwest
Airlines, Inc. and Mesaba, Inc.
dated as of April 1, 1992 (certain
portions of this amendment are
subject to an order granting
confidential treatment under Rule
24b-2). Incorporated by reference
to Exhibit 10H to the Company's
Form 10-K for the year ended March
31, 1992.
10H. Foreign Air Carrier Operating
Certificates issued May 6, 1991 by
the Canadian Department of
Transport. Incorporated by
reference to Exhibit 10H to the
Company's Form 10-K for the year
ended March 31, 1991.
10I. Facility Lease and Operating
Agreement dated April 18, 1988,
between the Metropolitan Airport
Commission and Mesaba, Inc.
Incorporated by reference to
Exhibit 10K to the Company's Form
10-K for the year ended March 31,
1989.
10J. Ninth Amendment to Revolving Credit
and Term Loan Agreement and
Amendment to Revolving Note between
Mesaba, Inc. and Norwest Bank
Minnesota, National Association.
10K. Letter of Credit and Reimbursement
Agreement dated as of August 1,
1990 between Mesaba, Inc. and
Norwest Bank Minnesota, National
Association. Incorporated by
reference to Exhibit 10A to the
Company's Form 10-Q for the quarter
ended September 30, 1990.
10L. Special Facilities Lease dated as
of August 1, 1990 between Charter
County of Wayne, State of Michigan
and Mesaba, Inc. Incorporated by
reference to Exhibit 10B to the
Company's Form 10-Q for the quarter
ended September 30, 1990.
10M. Ground Lease dated August 1, 1990
between Charter County of Wayne,
State of Michigan and Mesaba, Inc.
Incorporated by reference to
Exhibit 10C to the Company's Form
10-Q for the quarter ended
September 30, 1990.
10N. Combination Leasehold Mortgage,
Assignment of Rents, Security
Agreement and Fixture Financing
Statement dated as of August 1,
1990 between Mesaba, Inc. and
Norwest Bank Minnesota, National
Association. Incorporated by
reference to Exhibit 10D to the
Company's Form 10-Q for the quarter
ended September 30, 1990.
10O. Letter Agreement dated December 24,
1992 relating to the repurchase of
shares of Common Stock from
Northwest Aircraft, Inc.
Incorporated by reference to
Exhibit 10EE to the Company's Form
10-K for the year ended March 31,
1993.
10P. DOT Certificate of Public
Convenience and Necessity dated
October 26, 1992. Incorporated by
reference to Exhibit 10FF of the
Company's Form 10-K for the year
ended March 31, 1993.
10Q. Stock Purchase Agreement between
AirTran Corporation and Carl R.
Pohlad dated as of October 18,
1993. Incorporated by reference to
Exhibit 10 of the Company's Form 8-
K dated October 19, 1993.
10R. AirTran Corporation 1994 Stock
Option Plan. Incorporated by
reference to Exhibit 10 of the
Company's Form S-8 Registration
Statement as filed March 2, 1995
(Registration No. 33-89930).
10S. Agreement between AirTran
Corporation, Mesaba, Inc.,
Northwest Aircraft, Inc., and
Northwest Airlines, Inc. dated May
18, 1995. Incorporated by
reference to Exhibit 10A of the
Company's Form 8-K as filed May 18,
1995.
10T. Preliminary Agreement between
AirTran Corporation, Mesaba, Inc.
and Northwest Airlines, Inc. dated
March 8, 1995. Incorporated by
reference to Exhibit 10 of the
Company's Form 8-K as filed March
8, 1995.
10U. Term Sheet Proposal for the
Acquisition of Saab 340 Aircraft by
Mesaba Aviation, Inc. dated March
7, 1996 (certain portions of this
document have been deleted pursuant
to an application for confidential
treatment under Rule 24b-2).
Incorporated by reference to
Exhibit 10U on the Company's Form
10-K/A for the year ended March 31,
1996.
10V. Letter Agreement regarding Saab
340B Plus Acquisition Financing
dated March 7, 1996 (certain
portions of this document have been
deleted pursuant to an application
for confidential treatment under
Rule 24b-2). Incorporated by
reference to Exhibit 10V on the
Company's Form 10-K/A for the year
ended March 31, 1996.
10W. Letter Agreement of April 26, 1996
relating to Airline Services
Agreement between Mesaba Aviation,
Inc. and Northwest Airlines, Inc.
(certain portions of this document
have been deleted pursuant to an
application for confidential
treatment under Rule 24b-2).
Incorporated by reference to
Exhibit 10W on the Company's Form
10-K/A for the year ended March 31,
1996.
10X. Letter Agreement of October 25,
1996 relating to Regional Jet
Services Agreement between Mesaba
Aviation, Inc. and Northwest
Airlines, Inc. (certain portions of
this document have been deleted
pursuant to an application for
confidential treatment under Rule
24b-2). Incorporated by reference
to Exhibit 10W on the Company's
Form 10-Q/A for the quarter ended
September 30, 1996.
11. Statement regarding computation of
per share earnings.
21. Subsidiaries.
23. Consent of independent public
accountants.
24. Powers of Attorney.
EXHIBIT 11
MESABA HOLDINGS, INC. AND SUBSIDIARY
Statement Regarding Computation of Per Share Earnings
For the Years Ended March 31
(In Thousands, Expect Per Share Amounts)
<TABLE>
<CAPTION>
1997 1996 1994
------ ------ ------
<S> <C> <C> <C>
Primary earnings per share:
Weighted average number of issued shares 12,783 11,333 8,509
outstanding
Computed shares outstanding under the
Company's stock option plan utilizing the 90 321 80
treasury stock method
Computed shares outstanding under warrants
issued utilizing the treasury stock method - - 524
------- ------- -------
Shares outstanding used to compute primary
earnings per share 12,873 11,654 9,113
======= ======= =======
Net income $11,986 $56,275 $2,606
======= ======= =======
Primary earnings per share $ .93 $ 4.83 $ .29
======= ======= =======
Fully diluted earnings per share:
Weighted average number of shares used for
primary earnings per share 12,873 11,654 9,113
Additional shares outstanding utilizing period
end market value under the treasury stock - 35 -
method
------- ------- -------
Shares outstanding used to compute fully
diluted earnings per share 12,873 11,689 9,113
Net income $11,986 $56,275 $ 2,606
======= ======= =======
Fully diluted earnings per share $ .93 $ 4.81 $ .29
======= ======= =======
</TABLE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Mesaba Aviation, Inc.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K into the
Company's previously filed Registration Statements File Nos. 33-
89930, 33-62386, 33-42757, 33-42759, 33-19528 and 2-93739.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
May 27, 1997
<PAGE>
POWER OF ATTORNEY
The undersigned officer and/or director of Mesaba Holdings,
Inc. hereby constitutes and appoints Bryan K. Bedford and John S.
fredericksen, or either of them, with power to act without the
other, his true and lawful attorney-in-fact and agent, with full
power of substituition and resubstituition, for him and in his
stead, in any and all capacities to sign Form 10-K of Mesaba
Holdings, Inc. for the year ended March 31, 1997, pursuant to the
requirements of Section 13 of the Securities Exchange Act of 1934,
as amended, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every
act and thing necessary or advisable to be done in connection
therewith, as fully to all intents and purposes as he might or
could do in person, herby ratifying and confiming all that said
attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue herof.
Dated: June 19, 1997
Signed: /s/ Christopher E. Clouser
---------------------------
Christopher E. Clouser
<PAGE>
POWER OF ATTORNEY
The undersigned officer and/or director of Mesaba Holdings,
Inc. hereby constitutes and appoints Bryan K. Bedford and John S.
fredericksen, or either of them, with power to act without the
other, his true and lawful attorney-in-fact and agent, with full
power of substituition and resubstituition, for him and in his
stead, in any and all capacities to sign Form 10-K of Mesaba
Holdings, Inc. for the year ended March 31, 1997, pursuant to the
requirements of Section 13 of the Securities Exchange Act of 1934,
as amended, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every
act and thing necessary or advisable to be done in connection
therewith, as fully to all intents and purposes as he might or
could do in person, herby ratifying and confiming all that said
attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue herof.
Dated: June 30, 1997
Signed: /s/ Donald E. Benson
---------------------------
Donald E. Benson
<PAGE>
POWER OF ATTORNEY
The undersigned officer and/or director of Mesaba Holdings,
Inc. hereby constitutes and appoints Bryan K. Bedford and John S.
fredericksen, or either of them, with power to act without the
other, his true and lawful attorney-in-fact and agent, with full
power of substituition and resubstituition, for him and in his
stead, in any and all capacities to sign Form 10-K of Mesaba
Holdings, Inc. for the year ended March 31, 1997, pursuant to the
requirements of Section 13 of the Securities Exchange Act of 1934,
as amended, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every
act and thing necessary or advisable to be done in connection
therewith, as fully to all intents and purposes as he might or
could do in person, herby ratifying and confiming all that said
attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue herof.
Dated: June 19, 1996
Signed: /s/ Richard B. Hirst
---------------------------
Richard B. Hirst
<PAGE>
POWER OF ATTORNEY
The undersigned officer and/or director of Mesaba Holdings,
Inc. hereby constitutes and appoints Bryan K. Bedford and John S.
fredericksen, or either of them, with power to act without the
other, his true and lawful attorney-in-fact and agent, with full
power of substituition and resubstituition, for him and in his
stead, in any and all capacities to sign Form 10-K of Mesaba
Holdings, Inc. for the year ended March 31, 1997, pursuant to the
requirements of Section 13 of the Securities Exchange Act of 1934,
as amended, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every
act and thing necessary or advisable to be done in connection
therewith, as fully to all intents and purposes as he might or
could do in person, herby ratifying and confiming all that said
attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue herof.
Dated: June 30, 1997
Signed: /s/ Robert C. Pohlad
---------------------------
Robert C. Pohlad
<PAGE>
POWER OF ATTORNEY
The undersigned officer and/or director of Mesaba Holdings,
Inc. hereby constitutes and appoints Bryan K. Bedford and John S.
fredericksen, or either of them, with power to act without the
other, his true and lawful attorney-in-fact and agent, with full
power of substituition and resubstituition, for him and in his
stead, in any and all capacities to sign Form 10-K of Mesaba
Holdings, Inc. for the year ended March 31, 1997, pursuant to the
requirements of Section 13 of the Securities Exchange Act of 1934,
as amended, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every
act and thing necessary or advisable to be done in connection
therewith, as fully to all intents and purposes as he might or
could do in person, herby ratifying and confiming all that said
attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue herof.
Dated: June 20, 1997
Signed: /s/ Donald A. Washburn
---------------------------
Donald A. Washburn
<PAGE>
POWER OF ATTORNEY
The undersigned officer and/or director of Mesaba Holdings,
Inc. hereby constitutes and appoints Bryan K. Bedford and John S.
fredericksen, or either of them, with power to act without the
other, his true and lawful attorney-in-fact and agent, with full
power of substituition and resubstituition, for him and in his
stead, in any and all capacities to sign Form 10-K of Mesaba
Holdings, Inc. for the year ended March 31, 1997, pursuant to the
requirements of Section 13 of the Securities Exchange Act of 1934,
as amended, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every
act and thing necessary or advisable to be done in connection
therewith, as fully to all intents and purposes as he might or
could do in person, herby ratifying and confiming all that said
attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue herof.
Dated: June 30, 1997
Signed: /s/ Raymond W. Zehr, Jr.
---------------------------
Raymond W. Zehr, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 49126
<SECURITIES> 0
<RECEIVABLES> 13344
<ALLOWANCES> 0
<INVENTORY> 2077
<CURRENT-ASSETS> 67601
<PP&E> 39810
<DEPRECIATION> 20038
<TOTAL-ASSETS> 102369
<CURRENT-LIABILITIES> 31195
<BONDS> 0
0
0
<COMMON> 128
<OTHER-SE> 49667
<TOTAL-LIABILITY-AND-EQUITY> 102369
<SALES> 185701
<TOTAL-REVENUES> 185701
<CGS> 166118
<TOTAL-COSTS> 166118
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 511
<INCOME-PRETAX> 20713
<INCOME-TAX> 8727
<INCOME-CONTINUING> 11986
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11986
<EPS-PRIMARY> .93
<EPS-DILUTED> .93
</TABLE>
