10-K405 1 0001.txt 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, 2000 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 incorporation or organization) Identification No.) 7501 26th Avenue South Minneapolis, Minnesota 55450 (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. The aggregate market value of voting stock held by nonaffiliates of the registrant as of June 5, 2000 was approximately $248,291,000. As of June 5, 2000, there were 20,268,641 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 2000 Annual Meeting of Shareholders Part III 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 may 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 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. The Company cautions the public not to place undue reliance on forward-looking statements, which may be based on assumptions and anticipated events that do not materialize. Factors which could cause the Company's actual results to differ from forward-looking statements include material changes in the relationship between the Company and Northwest Airlines; reductions or interruptions in Northwest Airlines' air service; changes in regulations affecting the Company, including DOT and FAA regulations or directives affecting airworthiness of aircraft; the acquisition and phase-in of a new aircraft; downturns in economic activity; seasonal factors; and labor relationships, including labor shortages, slow downs and/or work stoppages associated with the outcome of contract negotiations between the Company and the Association of Flight Attendants. 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" or "Mesaba Airlines/Northwest Jet Airlink" to 103 cities and metropolitan areas in 27 states and 3 provinces of Canada. All flights currently operated by Mesaba are designated as Northwest Airlines flights under agreements with Northwest Airlines, Inc. ("Northwest"). Mesaba's flight schedules are coordinated with those of Northwest to facilitate interline connections at the Minneapolis/St. Paul International Airport, Detroit Metropolitan Airport and the Memphis International Airport. AGREEMENTS WITH NORTHWEST The Company operates as a regional air carrier providing scheduled jet-prop and air freight service as Mesaba Airlines/Northwest Airlink under an Airline Services Agreement (the "Airlink Agreement") with Northwest to 84 cities in the Upper Midwest and Canada from Northwest's hub airports in Minneapolis/St. Paul and Detroit. The Airlink Agreement provides for exclusive jet-prop rights to designated service areas and extends through June 30, 2007. Either Northwest or Mesaba has the right to terminate the Airlink Agreement without cause upon 365 days notice, such notice not to be given before July 1, 2000. Mesaba also operates regional jet aircraft under a separate Regional Jet Services Agreement (the "Jet Agreement"), under which Mesaba operates Avro RJ85 ("RJ85") regional jets for Northwest. As of June 2000, Mesaba had taken delivery of all 36 RJ85 aircraft which currently serve 46 cities. The aircraft are subleased from Northwest and are operated as Northwest Jet Airlink from the Minneapolis/St. Paul, Detroit and Memphis hubs. Northwest has the right to terminate the Jet Agreement without cause upon not less than 180 days nor more than 365 days notice, such notice not to be given before October 25, 2003. Under the agreements, 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/St. Paul International Airport, Detroit Metropolitan Airport and Memphis International Airport are integrated with Northwest's facilities in the main terminal buildings, rather than at the more remote commuter air terminals. The agreements with Northwest also permit 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 jet aircraft are painted in the colors of Northwest Airlines and the jet-prop aircraft are painted in a distinctive "Northwest Airlink" configuration, with a Northwest Airlines logo in addition to Mesaba's name. Mesaba, through the agreements, receives ticketing and certain check-in, baggage, freight and aircraft handling services from Northwest at certain airports. In addition, Mesaba receives its computerized reservations services from Northwest. Northwest also performs all marketing schedules, yield management and pricing services for Mesaba's flights. 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 or Jet Agreement for any reason would have a material adverse effect on the Company's operations and financial position. ROUTE SYSTEM The following sets forth certain information with respect to Mesaba's scheduled route system for June 2000. Cities served from Minneapolis/St. Paul: Grand Rapids, MN, Brainerd, MN, Pierre, SD, Sioux Falls, SD, Bemidji, MN, Thief River Falls, MN, Aberdeen, SD, Wausau, WI, Lincoln, NE, Grand Forks, ND, Watertown, SD, Fargo, ND, Omaha, NE, Moline, IL, Houghton/Hancock, MI, Marquette, MI, LaCrosse, WI, Bloomington, IL, Thunder Bay, Ontario, St. Cloud, MN, Escanaba, MI, Ely, MN, Bismarck, ND, Kalamazoo, MI, Rochester, MN, Kenora, Ontario, Green Bay, WI, Cincinnati, OH, Traverse City, MI, Waterloo, IA, Mason City, IA, Fort Dodge, IA, Sioux City, IA, Hibbing, MN, Duluth, MN, Rhinelander, WI, Eau Claire, WI, Dubuque, IA, Peoria, IL, Rockford, IL, Appleton, WI , International Falls, MN, Pellston, MI, Cedar Rapids, IA, Regina, Saskatchewan, Aspen, CO, White Plains, NY, Saginaw, MI, Madison, WI, Rapid City, SD, Flint, MI, Pittsburgh, PA, St. Louis, MO, Charlotte, NC, Columbus, OH, Dayton, OH. Cities served from Detroit: Erie, PA, Akron/Canton, OH, Dayton, OH, Flint, MI, Traverse City, MI, Pellston, MI, Wausau, WI, Houghton/Hancock, MI, Marquette, MI, Toledo, OH, Muskegon, MI, Columbus, OH, Kalamazoo, MI, Cincinnati, OH, Lansing, MI, Youngstown, OH, Fort Wayne, IN, Lexington, KY, Charleston, WV, London, Ontario, Binghamton, NY, Roanoke, VA, Lafayette, IN, Bloomington, IL, South Bend, IN, Louisville, KY, Escanaba, MI, Champaign, IL, Evansville, IN, Knoxville, TN, State College, PA, Saginaw, MI, Benton Harbor, MI, Harrisburg, PA, Ottawa, Ontario, Elmira, NY, Allentown, PA, Cleveland, OH, Rochester, NY, Appleton, WI, Rockford, IL, Pittsburgh, PA, Des Moines, IA, Green Bay, WI, Peoria, IL, Rhinelander, WI, Montreal, Quebec, White Plains, NY, Alpena, MI, Sault Ste. Marie, MI, Dubuque, IA, Duluth, MN, Greensboro, NC, Portland, ME, Winston-Salem, NC, St. Louis, MO Cities served from Memphis: Cincinnati, OH, St. Louis, MO, Knoxville, TN, Atlanta, GA, Huntsville, AL, Wichita, KS, Cleveland, OH, Fayetteville, AK, Dallas/Ft. Worth, TX, Baton Rouge, LA, Jackson MS, Biloxi/Gulfport, MS, Nashville, TN, Raleigh/Durham, NC, St. Louis, MO. 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 . Agreements with Northwest." AIRCRAFT The following table sets forth-certain information as to Mesaba's passenger aircraft fleet as of June 1, 2000: Approximate Approximate single Average flight Cruising Type of Number of Seating range Speed Aircraft Aircraft Capacity (miles) (M.P.H.) --------- --------- --------- ----------- ------------ Avro RJ85 36 69 1,400 410 Saab 340 73 30/34 500 300 Mesaba leases or sub-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 cabins, 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 17 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 jet- prop airplanes with galleys, standup headroom, lavatories, radar, global positioning, ground proximity warning, traffic collision avoidance and de- icing systems. All of Mesaba's aircraft comply fully with all current Federal Aviation Regulations issued by the Federal Aviation Administration ("FAA"). As of June 2000, Mesaba's existing fleet of Avro RJ85 and Saab 340 aircraft had remaining lease terms of nine months to 16 years. The current aggregate monthly lease payments for all aircraft is approximately $8,500,000. 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 larger 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 directly with other regional airlines on some routes it serves. Mesaba also faces competition from regional carriers offering service to alternative hubs for connecting flights. No assurance can be given that other carriers, including major carriers, will not institute competing service on routes served by Mesaba. 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 accounted for 7.5% of total operating costs for the year ended March 31, 2000, 8.5% the year ended March 31, 1999, and 10.1% for the year ended March 31, 1998. The Company has arrangements with Northwest and ten 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 Airlink Agreement protect Mesaba from fluctuations in aviation fuel prices and Northwest provides fuel for all of the jet operations. FARES Mesaba derives its passenger revenues by selling its capacity to Northwest at predetermined rates. Passenger fares vary primarily in relation to length of the flight and other factors and are established by Northwest. Under the agreements with Northwest, the Company has the ability to enter into arrangements with other air carriers for service to cities not served by Northwest, so long as the Company does not use the "NW" designator code, Avro RJ85 or Saab 340 aircraft with respect to such service. The Company would need to acquire additional aircraft if it entered into an arrangement for service to carriers other than Northwest. 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 Certificate" from the FAA, under Part 119 of the Federal Aviation Regulation, permitting it to conduct flight operations in compliance with Part 121 of the Federal Aviation Regulations. The Part 121 regulations are 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 REGUALTION. 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. Because Northwest maintains certain contracts with the Department of Defense (the "DOD"), Mesaba is subject to periodic inspections by the DOD. 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 perform substantially all routine maintenance to its aircraft and engines. Major overhauls on its airframes, engines, and other rotable parts on Saab 340 and RJ85 aircraft are performed internally or at FAA authorized facilities. AIRPORT AND TEMINAL FACILITIES Mesaba's ticket counter and baggage-handling space is leased from local airport authorities or other airlines at all of the airports served. In 47 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. Mesaba leases approximately 497,000 square feet of facilities, ramp, parking and unimproved land at the Cincinnati/Northern Kentucky Airport under separate ground and facilities leases. The facilities lease covers approximately 126,000 square feet of hangar and maintenance space and Mesaba pays monthly rentals of approximately $88,000 until January 29, 2029 as part of Special Facilities Bond financing provided by Cincinnati/Northern Kentucky Airport Authority. The ground lease has a 30-year term concurrent with the facilities lease, which expires January 29, 2029. Monthly lease payments of approximately $10,500 are required under the ground lease. EMPLOYEES As of June 2000, Mesaba employed 3,372 persons, of whom 935 were pilots, 338 were management, administrative and clerical personnel, 325 were aircraft maintenance personnel, 1,190 were station managers, station agents and line services personnel, and 584 were flight attendants. Approximately 840 of Mesaba's employees are part-time. The Air Line Pilots Association ("ALPA") represents Mesaba's pilots. 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, extended the term of the agreement to June 1, 2002. The Aircraft Mechanics Fraternal Association ("AMFA") represents Mesaba's mechanics. Mesaba concluded negotiations with AMFA and reached a new collective bargaining agreement effective August 22, 1999, with a term of four years. The Transportation Workers Union ("TWU") represents Mesaba's dispatchers. Mesaba concluded negotiations with TWU and reached a new collective bargaining agreement effective May 26, 2000, with a term of five years. The Association of Flight Attendants ("AFA") represents Mesaba's flight attendants. Formal negotiations between Mesaba and AFA are currently in progress. The Company has yet to achieve its first contract with AFA, since negotiations only began in May 2000. The Railway Labor Act precludes any job action without a formal declaration of an impasse by the NMB, which has not yet occurred. 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. CYCLICITY 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. 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. EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth certain information regarding the executive officers of the Company and its subsidiary, Mesaba Aviation, Inc. Name Age Position Officer since Carl R. Pohlad 84 Chairman of the Company and 1995 Mesaba Paul F. Foley 47 President and Chief Executive 1999 Officer of the Company and Mesaba John S. Fredericksen 51 Executive Vice President, 1992 Administration, General Counsel and Secretary of the Company and Mesaba Robert E. Weil 35 Vice President, Chief Financial 2000 Officer and Treasurer of the Company and Mesaba Scott L. Durgin 38 Vice President, Customer Service 1996 of Mesaba John G. Spanjers 45 Vice President, Flight Operations 1999 of Mesaba Scott R. Bussell 47 Vice President, Technical 2000 Operations of Mesaba 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. Paul F. Foley is a Class One director and President and Chief Executive Officer of the Company. Mr. Foley was appointed President and Chief Executive Officer of the Company in October 1999. Prior to joining the Company, Mr. Foley was Vice President of Operations Support at Atlas Air, Inc. In this position, he was responsible for Airline Flight Crew and Ground Operations in 66 cities and 33 countries. He was previously at LSG Lufthansa Service/Sky Chefs as Group Vice President of Operations, North America. He also served as President of Continental Airline's subsidiary, Chelsea Catering Corporation. Mr. Foley holds a Bachelor of Science degree from Cornell University and a Masters Degree from Southern Methodist University. 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 1999, 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. Robert E. Weil was named Vice President, Chief Financial Officer and Treasurer of the Company and Mesaba in January 2000. Mr. Weil was the Managing Director of Finance - Ground Operations for Northwest Airlines from December 1997 until joining the Company. He also held the position of Controller - Ground Operations and held various other finance positions at Northwest since 1991. Mr. Weil holds a Masters degree in Business from the Kellogg Graduate School of Management at Northwestern University. Scott L. 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. John G. Spanjers was named Vice President, Flight Operations of the Company and Mesaba in November 1999. Mr. Spanjers joined the Company in November 1999. Mr. Spanjers was employed by Northwest Airlines from June 1988 to November 1999, serving most recently as Director Performance Engineering. Prior to that, Mr. Spanjers held various operational positions within the regional and charter airline industry. Scott R. Bussell was named Vice President, Technical Operations of the Company and Mesaba in May 2000. Mr. Bussell joined the Company in October 1995 as Director of Maintenance for Mesaba Airlines. Before coming to Mesaba in 1995, Mr. Bussell held the position of Director of Maintenance for Renown Aviation in Roswell, NM. From 1977 to 1994 Mr. Bussell held numerous positions in Technical operations while employed at Continental Airlines and Frontier Airlines in Denver, CO. Mr. Bussell graduated with honors from Colorado Aero Tech and holds a FAA Airframe and Powerplant License. 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, 2000. 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, 2000. Quotations for such periods are as reported by NASDAQ for National Market issues. All prices have been adjusted to reflect the Company's three-for-two stock split effective April 30, 1998. The Company has not issued cash dividends since September 1995. STOCK QUOTATIONS ($)High ($)Low ------- ------ Fiscal 1999 First quarter 24.25 20.00 Second quarter 28.75 13.00 Third quarter 21.00 9.75 Fourth quarter 21.00 12.13 Fiscal 2000 First quarter 17.00 12.00 Second quarter 14.75 10.75 Third quarter 14.13 8.88 Fourth quarter 12.56 10.00 On June 12, 2000, the number of holders of record of Common Stock was 863. 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: (651) 450-4064. 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. March 31, 2000 1999 1998 1997 1996 --------- -------- -------- -------- -------- Statement of Operations Data: (amounts in thousands, except per share data) Operating revenues $406,199 $331,753 $277,225 $185,701 $170,455 Operating expenses $359,364 $299,531 $246,856 $166,118 $158,148 --------- -------- -------- -------- -------- Operating income $ 46,835 $ 32,222 $ 30,369 $ 19,583 $ 12,307 ======== ======== ======== ======== ======== Net income $ 31,061 $ 21,271 $ 19,804 $ 11,986 $ 6,972* ======== ======== ======== ======== ======== Net income per share - Basic $ 1.54 $ 1.07 $ 1.03 $ 0.63 $ 0.41* ======== ======== ======== ======== ======== Weighted Average number of shares outstanding-Basic 20,177 19,793 19,270 19,143 16,857 ======== ======== ======== ======== ======== Net income per share-Diluted $ 1.48 $ 0.99 $ 0.95 $ 0.62 $ 0.40* ======== ======== ======== ======== ======== Weighted Average number of shares outstanding and common share equivalents-Diluted 21,043 21,512 20,846 19,310 17,43 ======== ======== ======== ======== ======== *Excludes non-taxable gain of $49,303 from distribution of subsidiary As of March 31, 2000 1999 1998 1997 1996 --------- -------- -------- -------- -------- Balance Sheet Data: (dollars in thousands) Current assets $139,952 $116,369 $ 89,499 $ 67,601 $ 43,212 Net property and equipment 54,109 47,195 32,097 19,772 12,388 Other noncurrent assets 13,663 15,659 15,595 17,193 2,604 --------- -------- -------- -------- -------- Total assets $207,724 $179,223 $137,191 $104,566 $ 58,204 ======== ======== ======== ======== ======== Current liabilities $ 44,686 $ 48,674 $ 42,509 $ 33,393 $ 17,323 Long-term liabilities 18,320 21,310 19,136 21,379 6,466 Shareholders' equity 144,718 109,239 75,546 49,794 34,415 --------- -------- -------- -------- -------- Total liabilities and shareholders' equity $207,724 $179,223 $137,191 $104,566 $ 58,204 ======== ======== ======== ======== ======== Mesaba Aviation, Inc. (1) Year ended March 31, 2000 1999 1998 1997 1996 --------- -------- -------- -------- -------- Selected Operating Data: Revenue passengers carried 5,667,600 4,342,200 3,324,146 1,959,632 1,572,401 Revenue passenger miles (000's)(2) 1,534,116 1,112,050 805,495 445,871 344,592 Available seat miles (000's) (3) 2,677,712 1,994,626 1,469,229 864,083 732,018 Passenger revenue per available seat mile $ .150 $ .165 $ .186 $ .212 $ .204 Cost per available seat mile $ .134 $ .150 $ .168 $ .192 $ .190 Passenger load factor (4) 57.3% 55.8% 54.8% 51.6% 47.1% Break-even load factor (5) 50.1% 49.8% 48.3% 46.3% 43.3% Yield per revenue passenger mile (6) $ .262 $ .295 $ .340 $ .416 $ .434 Departures 274,357 236,209 201,622 144,266 123,985 __________________________ (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. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (As used herein, "unit cost" means operating cost per available seat mile. Dollars and shares outstanding are expressed in thousands) EARNINGS SUMMARY The Company reported net income of $31.1 million or $1.48 per diluted share for the fiscal year ended March 31, 2000, compared to $21.3 million or $0.99 per diluted share in fiscal 1999 and $19.8 million or $0.95 per diluted share in fiscal 1998. Weighted average common shares and common share equivalents outstanding was 21.0 million, 21.5 million and 20.8 million in fiscal years 2000, 1999 and 1998 respectively. Earnings per share and weighted average shares outstanding for fiscal 1998 have been adjusted to reflect a three-for-two stock split in the form of a 50% stock dividend declared by the Board of Directors on April 6, 1998 for shares held of record on April 17, 1998. RSULTS OF OPERATIONS OPERATING REVENUES. Operating revenues rose 22.4% to $406.2 million in fiscal 2000 from $331.8 million in fiscal 1999 and $277.2 million in fiscal 1998. Passenger revenue per available seat mile ("RASM") decreased 9.1% to $0.150 from $0.165 in 1999 and 19.4% from $0.186 in 1998, primarily due to additional deliveries of the higher capacity RJ85 aircraft. Mesaba's revenue per available seat mile is lower on the RJ85 than the Saab 340 because Northwest provides more services related to the jet operation. Mesaba's average passenger load factor was 57.3% in 2000, up from 55.8% in 1999 and 54.8% in 1998. The improvements in traffic and load factor are attributable to the introduction of 11 RJ85 aircraft as well as overall increases in passenger demand within the industry. OPERATING EXPENSES. Due to additional aircraft, total operating expenses increased 20.0% to $359.4 million in 2000 from $299.5 million in 1999 and $246.9 million in 1998. Mesaba experienced a 10.7% decrease in the cost per available seat mile ("CASM") to 13.4 cents compared with 15.0 cents in 1999. Seat capacity (measured in available seat miles or "ASM") increased 34.2% in 2000 to 2.68 billion, primarily as a result of the introduction of 11 RJ85 aircraft. The following table compares components of Mesaba's operating cost per ASM for the years ended March 31, 2000, 1999 and 1998: 2000 1999 1998 ---- ---- ---- Wages and benefits 3.7 CENTS 4.0 CENTS 4.6 CENTS Fuel 1.0 1.3 1.7 Direct maintenance 2.6 2.8 2.9 Rents 3.3 3.5 3.9 Landing fees 0.3 0.4 0.4 Insurance and taxes 0.2 0.4 0.5 Depreciation and amortization 0.5 0.5 0.4 Other 1.8 2.1 2.4 ---- ---- ---- Total 13.4 15.0 16.8 Wages and benefits increased 23.4% to $99.1 million in fiscal 2000 compared to $80.3 million in fiscal 1999 and $67.2 million in fiscal 1998. However, the increased capacity generated by the additional aircraft has caused these costs to be reduced on a unit cost basis 7.5% to 3.7 cents from 4.0 cents. The overall dollar increase is a result of increased cost of flight crews due to a 21.5% increase in block hours flown and the addition of flight crews to support the continued introduction of the RJ85 aircraft. Wage and benefit cost of support personnel also increased due to an increase in scheduled operations. Normal wage and benefit increases also contributed to the higher expenses. Overall, personnel levels (measured on a full time equivalent basis at the fiscal year end) increased to approximately 3,000 from 2,700. Total fuel costs increased 5.1% to $26.8 million in fiscal 2000 from $25.5 million in fiscal 1999 and $25.0 million in fiscal 1998. The change is attributable to increased consumption caused by an increase in block hours flown by the jet-prop operation. The average price per gallon, including taxes and into plane fees, was 83.5 cents in fiscal years 2000, 1999 and 1998. Certain provisions of the Airlink Agreement protect Mesaba from future fluctuations in fuel prices. Unit cost decreased 23.1% to 1.0 cents from 1.3 cents. Mesaba is not required to provide fuel for the jet operation. Direct maintenance expense, excluding wages and benefits costs, increased to $69.8 million in fiscal 2000 from $56.7 million in fiscal 1999 and $42.2 million in fiscal 1998. This increase was attributable to the addition of 11 RJ85 aircraft to the fleet during fiscal 2000. On a unit cost basis the cost decreased 7.1% from 2.8 to 2.6 cents Aircraft rentals were $88.9 million in fiscal 2000, $70.4 million in fiscal 1999 and $57.2 million in fiscal 1998. Mesaba added 11 RJ85 aircraft during the period. However, unit costs decreased 5.7% to 3.3 cents from 3.5 cents. Fiscal year 1998 costs include $7.7 million in wet leased aircraft expenses. Landing fees were $7.5 million in fiscal 2000, $6.9 million in fiscal 1999 and $6.3 million in fiscal 1998. The increase is attributable to a 6.2% increase in jet-prop departures, which caused an increase in the total gross landing weight. On a unit cost basis the cost decreased to 0.3 cents from 0.4 cents in fiscal 1999. Mesaba is not required to pay landing fees for the jet operation. Insurance and taxes were $5.7 million in fiscal 2000, $6.9 million in fiscal 1999 and $6.8 million in fiscal 1998. This is due primarily to a 40% reduction in passenger liability and hull insurance rates offset by increases in passenger volume and an increase in property taxes and hull insurance caused by increasing fleet values. Due to the additional capacity generated by the jet and jet-prop equipment, unit cost decreased 50.0% to 0.2 cents from 0.4 cents. Depreciation and amortization totaled $14.4 million in fiscal 2000 compared to $10.0 million in fiscal 1999 and $6.5 million in fiscal 1998. The increase in Mesaba's depreciation and amortization resulted primarily from the acquisition of spare parts to support the RJ85 and Saab 340 fleet and the amortization of the Northwest warrants. In April and June 1998, the Company paid a contract rights fee in the form of stock purchase warrants to Northwest as part of amendments to the Regional Jet Services Agreement allowing for the increase from 12 to 36 aircraft. Contract rights are being amortized on a straight-line basis over the minimum term of the Jet Agreement. Unit cost was unchanged at 0.5 cents. Administrative and other costs totaled $47.3 million in fiscal 2000, $42.8 million in fiscal 1999 and $35.7 million in fiscal 1998. This increase is primarily attributable to 11.3% higher crew related expenses due to increased flying and training to support the RJ85 and Saab 340 fleet. Additionally, higher passenger and airport related expenses were incurred due to increases in traffic and the number of cities served. Unit cost decreased 14.3% to 1.8 cents from 2.1 cents. Mesaba is generally not required to provide airport and passenger related services for the jet operation. OPERATING INCOME. The Company's operating income was $46.8 million in fiscal 2000, $32.2 million in fiscal 1999 and $30.4 million in fiscal 1998. Mesaba's operating margins were 11.5% in 2000, 9.7% in 1999 and 11.0% in 1998. Both operating income and operating margins were adversely impacted by the pilot's strike at Northwest Airlines, which resulted in an 18-day suspension of service, in fiscal 1999. NONOPERATING INCOME. Nonoperating income was $4.4 million in fiscal 2000, $4.0 million in fiscal 1999 and $2.6 million in fiscal 1998. Interest income increased $0.6 million to $4.3 million in 2000 from $3.7 million in 1999. PROVISION FOR INCOME TAXES. The provision for income taxes was $20.2 million in fiscal 2000, $14.1 million in fiscal 1999 and $13.1 million in fiscal 1998. The effective tax rate was 39.4% in 2000, 39.0% in 1999 and 39.9% (not including the gain on distribution which is not taxable) in 1998. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital increased to $95.3 million with a current ratio of 3.1 at March 31, 2000 compared to $67.7 million and 2.4 at March 31, 1999. Cash and cash equivalents increased by $17.0 million to $100.2 million at March 31, 2000. Net cash flows provided by operating activities totaled $31.5 million in fiscal 2000, $35.9 million in fiscal year 1999 and $30.0 million in fiscal 1998. The change from fiscal 1999 is primarily due to the decrease in payables. Net cash flows used for investing activities totaled $18.4 million in fiscal 2000, $22.7 million in fiscal 1999 and $13.2 million in fiscal 1998. The change from fiscal 1999 is primarily due to lower levels of capital expenditures. Net cash flows provided by financing activities amounted to $4.0 million in fiscal 2000 and consisted of $4.4 million in proceeds from the exercise of stock options by current and former employees offset by principal payments of $0.5 million. Long term debt, net of current maturities, totaled $3.9 million at March 31, 2000 and $4.4 million as of March 31, 1999. 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 3% at March 31, 2000, compared to 4% at the end of fiscal 1999. As of June 2000, Mesaba's fleet consisted of 109 aircraft covered under operating leases with remaining terms of nine months to 16 years and aggregate monthly lease payments of approximately $8.5 million. Operating leases have been the Company's primary method for acquiring aircraft, and management expects to continue relying on this method to meet most of its future aircraft financing needs. The three remaining undelivered aircraft will require additional monthly lease payments of $0.5 million per month and will be funded from operations. Continued funding of the monthly lease payments is ensured as long as the current operating contracts with Northwest are in effect. During fiscal 2000, Mesaba leased approximately 497,000 square feet of facilities, ramp, parking and unimproved land at the Cincinnati/Northern Kentucky Airport. The lease covers approximately 126,000 square feet of hangar and maintenance space and obligates Mesaba to pay monthly rentals of $77.0 until January 29, 2029 as part of Special Facilities Bond financing provided by Cincinnati/Northern Kentucky Airport Authority. The ground lease has a 30-year term concurrent with the facilities lease, which expires January 29, 2029. Monthly lease payments of approximately $10.5 are required under the ground lease. Mesaba intends to make these lease payments from operations. Approximately 80% of Mesaba's passengers connected with Northwest in fiscal 2000, 81% in 1999 and 79% in 1998. Approximately 84% of the Company's accounts receivable balance at March 31, 2000 are due from Northwest. Loss of the Company'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 or Jet Agreement for any reason would have a material adverse effect on the Company's operations and financial results. The Company has historically relied upon internally generated funds to support its working capital requirements. Management believes that funds from operations will provide adequate resources for meeting non-aircraft capital needs in fiscal 2001. 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 19 Consolidated balance sheets as of March 31, 2000 and 1999 20 Consolidated statements of operations for the years ended March 31, 2000, 1999 and 1998 21 Consolidated statements of shareholders' equity for the years ended March 31, 2000, 1999 and 1998 22 Consolidated statements of cash flows for the years ended March 31, 2000, 1999 and 1998 23 Notes to consolidated financial statements 24 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, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended March 31, 2000. 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 auditing standards generally accepted in the United States. 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, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2000, in conformity with accounting principles generally accepted in the United States. As explained in Note 2 to the financial statements, effective April 1, 1998, the Company changed its method of accounting for start-up costs. Arthur Andersen LLP Minneapolis, Minnesota, May 5, 2000 MESABA HOLDINGS, INC. AND SUBSIDIARY Consolidated Balance Sheets (In Thousands, Except Share and Per Share Information) As of March 31, --------------------- 2000 1999 --------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents $100,172 $ 83,152 Accounts receivable, net 20,090 15,905 Inventories 6,103 6,564 Prepaid expenses and deposits 4,371 3,719 Deferred income taxes 9,216 7,029 --------- -------- Total current assets 139,952 116,369 PROPERTY AND EQUIPMENT: Facilities under capital lease 9,147 9,147 Flight equipment 55,446 41,178 Other property and equipment 26,676 21,635 Accumulated depreciation and amortization (37,160) (24,765) --------- -------- Net property and equipment 54,109 47,195 OTHER ASSETS, net 13,663 15,659 --------- -------- $207,724 $179,223 ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of capital lease obligations $ 429 $ 393 Accounts payable 13,003 20,857 Accrued liabilities- Payroll 8,271 8,786 Maintenance 14,064 10,415 Other 8,919 8,223 --------- --------- Total current liabilities 44,686 48,674 CAPITAL LEASE OBLIGATIONS, net of current maturities 3,866 4,359 OTHER NONCURRENT LIABILITIES 14,454 16,951 SHAREHOLDERS' EQUITY: Common stock, $.01 par value, 60,000,000 shares authorized; 20,267,141 and 19,863,829 shares issued and outstanding, respectively 203 199 Paid-in capital 49,427 45,013 Warrants 16,500 16,500 Retained earnings 78,588 47,527 --------- --------- Total shareholders' equity 144,718 109,239 --------- --------- $207,724 $179,223 ========= ========= The accompanying notes are an integral part of these consolidated balance sheets. MESABA HOLDINGS, INC. AND SUBSIDIARY Consolidated Statements of Operations (In Thousands, Except Per Share Information) For the Years Ended March 31, ----------------------------- 2000 1999 1998 -------- -------- --------- OPERATING REVENUES: Passenger $401,342 $328,244 $273,973 Freight and other 4,857 3,509 3,252 -------- -------- --------- Total operating revenues 406,199 331,753 277,225 OPERATING EXPENSES: Wages and benefits 99,070 80,297 67,194 Aircraft fuel 26,809 25,512 24,983 Aircraft maintenance 69,767 56,682 42,172 Aircraft rents 88,877 70,422 57,235 Landing fees 7,520 6,886 6,330 Insurance and taxes 5,677 6,894 6,761 Depreciation and amortization 14,354 10,027 6,500 Other 47,290 42,811 35,681 -------- -------- --------- Total operating expenses 359,364 299,531 246,856 -------- -------- --------- Operating income 46,835 32,222 30,369 NONOPERATING (EXPENSE) INCOME: Interest expense (404) (443) (458) Interest income and other 4,785 4,405 3,022 -------- -------- --------- Income before income taxes and change in accounting principle 51,216 36,184 32,933 PROVISION FOR INCOME TAXES 20,155 14,113 13,129 -------- -------- --------- Net income before change in accounting principle $ 31,061 $ 22,071 $ 19,804 PRE-OPERATING COST WRITE-OFF, net of tax - (800) - -------- -------- --------- Net income $ 31,061 $ 21,271 $ 19,804 ======== ======== ======== Earnings Per Common Share Before Accounting Change - Basic $ 1.54 $ 1.12 $ 1.03 ======== ======== ======== Earnings Per Common Share - Basic $ 1.54 $ 1.07 $ 1.03 ======== ======== ======== Weighted Average Number of Common Shares Outstanding - Basic 20,177 19,793 19,270 ======== ======== ======== Earnings Per Common Share Before Accounting Change - Diluted $ 1.48 $ 1.03 $ 0.95 ======== ======== ======== Earnings Per Common Share - Diluted $ 1.48 $ 0.99 $ 0.95 ======== ======== ======== Weighted Average Number of Common Shares Outstanding and Common Share Equivalents Outstanding - Diluted 21,043 21,512 20,846 ======== ======== ======== The accompanying notes are an integral part of these consolidated statements. BALANCE, March 31, 1997 19,176,069 $ 192 $ 40,050 922,500 $ 3,100 $ 6,452 $ 49,794 Issuance of warrants - - - 1,320,000 4,800 - 4,800 Exercise of stock options, net of related tax effects 221,184 2 1,146 - - - 1,148 Net income - - - - - 19,804 19,804 ---------- ------ --------- --------- --------- --------- ---------- BALANCE, March 31, 1998 19,397,253 194 1,196 2,242,500 7,900 26,256 75,546 Issuance of warrants - - - 1,909,422 8,600 - 8,600 Exercise of stock options, net of related tax effects 466,576 5 3,817 - - - 3,822 Net income - - - - - 21,271 21,271 ---------- ------ --------- --------- --------- --------- ---------- BALANCE, March 31, 1999 19,863,829 199 45,013 4,151,922 16,500 47,527 109,239 Exercise of stock options, net of related tax effects 403,312 4 4,414 - - - 4,418 Net income - - - - - 31,061 31,061 ---------- ------ --------- --------- --------- --------- ---------- BALANCE, March 31, 2000 20,267,141 $ 203 $49,427 4,151,922 $16,500 $78,588 $ 144,718 ========== ====== ========= ========= ========= ========= ==========
MESABA HOLDINGS, INC. AND SUBSIDIARY Consolidated Statements of Shareholders' Equity For the Years Ended March 31, (In Thousands, Except Share Information) Total Common Stock Paid-In Warrants Retained Shareholders' Shares Amount Capital Shares Amount Earnings Equity ---------- ------ --------- --------- --------- --------- --------------
The accompanying notes are an integral part of these consolidated statements. MESABA HOLDINGS, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows (In Thousands) For the Years Ended March 31, ----------------------------- 2000 1999 1998 --------- -------- --------- OPERATING ACTIVITIES: Net income $ 31,061 $ 21,271 $ 19,804 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 14,354 10,027 6,500 Gain on sale of equipment (125) - - Deferred income taxes (2,889) (2,581) (819) Change in current operating items: Accounts receivable, net (4,185) (1,018) (266) Inventories 461 (443) (1,835) Prepaid expenses and deposits (652) 69 (734) Accounts payable and other (6,521) 8,557 7,305 --------- -------- --------- Net cash flows provided by operating activities 31,504 35,882 29,955 INVESTING ACTIVITIES: Purchases of property and equipment, net (19,343) (22,669) (13,418) Proceeds from sale of equipment 898 - 175 --------- -------- --------- Net cash flows used for investing activities (18,445) (22,669) (13,243) FINANCING ACTIVITIES: Repayment of capital lease obligations (457) (437) (432) Proceeds from issuance of common stock 4,418 3,822 1,148 --------- -------- --------- Net cash flows provided by financing activities 3,961 3,385 716 --------- -------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 17,020 16,598 17,428 CASH AND CASH EQUIVALENTS: Beginning of year 83,152 66,554 49,126 --------- -------- --------- End of year $100,172 $ 83,152 $ 66,554 ========= ======== ========= SUPPLEMENTARY CASH FLOW INFORMATION: Cash paid during the year for- Interest $ 404 $ 443 $ 458 ========= ======== ========= Income taxes $ 19,636 $ 14,569 $ 15,169 ========= ======== ========= The accompanying notes are an integral part of these consolidated statements. MESABA HOLDINGS, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Dollars in Thousands, Except Share and Per Share Information) 1. Corporate Organization and Business: COPORATE ORGANIZATION The consolidated financial statements include the accounts of Mesaba Holdings, Inc. (the "Company") and its subsidiary, Mesaba Aviation, Inc. ("Mesaba"). 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 and Mesaba Airlines/Northwest Jet Airlink under two separate agreements with Northwest Airlines, Inc. ("Northwest") to 103 cities from Northwest's hub airports, Minneapolis/St. Paul, Detroit and Memphis. Under the Airline Services Agreement (the "Airlink Agreement") the Company operates SAAB 340 jet-prop aircraft for Northwest. This agreement provides for exclusive rights to designated service areas and extends through June 30, 2007, automatically renewing indefinitely thereafter. Either Northwest or the Company may terminate the Airlink Agreement on 365 days notice any time after June 30, 2000. In addition, Mesaba purchases fuel, reservation systems, ground handling and other services from Northwest. The Company paid $20,645 to Northwest in fiscal 2000, $16,440 in 1999 and $17,963 in 1998 for these services. Under the Regional Jet Services Agreement (the "Jet Agreement") the Company operates Avro RJ85 ("RJ85") regional jets for Northwest. This agreement extends through April 30, 2007, automatically renewing indefinitely thereafter. Northwest may terminate the Jet Agreement on not less than 180 days nor more than 365 days notice any time after October 25, 2003. Under the Jet Agreement, Mesaba is not required to provide fuel and airport and passenger related services. Under the agreements, 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. Mesaba also benefits from its relationship with Northwest through advertising and marketing programs. The Airlink Agreement and Jet Agreement provides for certain incentive payments from Northwest to Mesaba based on achievement of certain operational or financial goals, as defined. Such incentives totaled $5,159 in 2000, $4,830 in 1999 and $4,297 in 1998 and are included in passenger revenues in the accompanying consolidated statements of operations. Approximately 80% of Mesaba's passengers connected with Northwest in fiscal 2000, 81% in 1999 and 79% in 1998. Approximately 84% of the March 31, 2000 accounts receivable balances in the accompanying consolidated balance sheets are due from Northwest. Although Mesaba maintains an expanding air system serving those different markets, 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 or Jet 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. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: CASH AND CASH EQUIVALENTS Cash equivalents consist primarily of U.S. government securities and interest-bearing deposits with average maturities of less than 90 days and are stated at cost, which approximates market. 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. OTHER ASSETS In connection with the Jet Agreement as amended, the Company paid a contract rights fee in the form of stock purchase warrants to Northwest. Contract rights totaled $11,700 and related accumulated amortization totaled $3,204 and $1,759 at March 31, 2000 and 1999, respectively. Contract rights are amortized on a straight-line basis over six years to coincide with the minimum term of the Jet Agreement. In connection with the Airlink Agreement, the Company paid a contract rights fee in the form of a stock purchase warrant to Northwest. Contract rights totaled $4,800 and related accumulated amortization totaled $1,320 and $840 at March 31, 2000 and 1999, respectively. Contract rights are amortized on a straight-line basis over ten years to coincide with the term of the Airlink Agreement. 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. 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 and Jet 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. OTHER NONCURRENT LIABILITIES 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 Airlink agreement as a reduction of rent expense. Amortization of $2,497, $1,822 and $1,071 was recorded during the years ended March 31, 2000, 1999 and 1998, respectively. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles in the United States 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. START UP COSTS In April of 1998, the Company adopted AICPA Statement of Position (SOP) 98- 5 "Reporting on the Costs of Start-Up Activities" which requires all start- up costs to be charged to expense as incurred. The adoption of SOP 98-5 resulted in an $800 charge (net of tax) to operations, or $0.04 per basic and diluted share for previously capitalized start-up costs and was recorded as a cumulative effect of change in accounting principle. COMPREHENSIVE INCOME The Company has adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income". SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity (net assets) during a period from nonowner sources. To date, the Company has not had any transactions that are required to be reported as comprehensive income. SEGMENT REPORTING The Company has reviewed SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" and determined that the aggregation criteria outlined in SFAS No. 131 has been achieved and therefore the Company's two operating divisions are reported as a single reportable segment. DERIVATIVES In June of 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Company is not required to adopt SFAS No. 133 until January 1, 2001, since SFAS No. 137 amended the effective date of SFAS No. 133 to apply for all fiscal quarters of all fiscal years beginning after June 15, 2000. As the Company does not currently engage or plan to engage in derivative or hedging activities, management does not expect any impact to the Company's results of operations, financial position or cash flows upon adoption of this standard. 3. FLIGHT EQUIPMENT The Company's airline fleet consisted of the following aircraft held under operating leases as of March 31, 2000: Number of Seating Aircraft Type of Aircraft Capacity -------- ----------------- ---------- 73 Saab 340 30/34 33 Avro RJ85 69 Under terms of the Jet Agreement, the Company subleases its RJ85 aircraft from Northwest under operating leases with original terms of up to ten years. The Jet Agreement allows the Company to return aircraft to Northwest upon the occurrence of certain events, including termination or breach of the Jet Agreement. The Company leases all of its Saab 340 aircraft, either directly from aircraft leasing companies or through subleases with Northwest under operating leases with terms of up to 17 years. The Airlink Agreement allows Mesaba to return aircraft to Northwest upon the occurrence of certain events. Aircraft maintenance and repairs on Saab 340 and RJ85 aircraft are charged to expense when incurred, except for the cost of major airframe inspections, for which the estimated cost is accrued and charged to maintenance expense based upon hours flown, thus providing for the inspection cost when it occurs. The aircraft operating leases require future minimum rental payments as follows at March 31, 2000: 2001 $106,438 2002 $106,242 2003 $105,535 2004 $102,457 2005 $ 99,617 Thereafter $347,696 Mesaba has firm lease commitments for the remaining 3 undelivered RJ85 aircraft. The table above does not reflect any minimum lease payments for those undelivered aircraft. Rent expense under aircraft operating leases totaled approximately $88,877 in 2000, $70,422 in 1999 and $49,500 (not including wet lease expense) in 1998 (including $48,422, $32,472 and $27,172 paid to Northwest in 2000, 1999 and 1998, respectively). 4. INCOME TAXES: The provision for income taxes for the three years ended March 31 is comprised of the following elements: 2000 1999 1998 ------- ------- ------- Current: Federal $19,213 $11,657 $11,053 State 3,831 2,973 2,895 Deferred (2,889) (517) (819) ------- ------- ------- Total provision for income taxes $20,155 $14,113 $13,129 ======= ======= ======= The actual income tax expense differs from the expected tax expense for 2000, 1999 and 1998 (computed by applying the U.S. federal corporate tax rate of 35 percent to earnings before income taxes) as follows: 2000 1999 1998 -------- -------- -------- Computed tax expense at statutory rate $ 17,926 $ 12,664 $ 11,527 Increase (decrease) in income taxes resulting from: State taxes, net of federal tax benefit 2,490 1,932 1,672 Non-deductible flight crew expenses 877 754 552 Other, net (1,138) (1,237) (622) -------- -------- -------- Total income tax expense $ 20,155 $ 14,113 $ 13,129 Deferred tax assets and liabilities are comprised of the following as of March 31: 2000 1999 1998 -------- -------- -------- Deferred tax assets: Maintenance $ 4,064 $ 3,456 $ 2,126 Prepaids 1,938 1,288 229 Warrants 3,069 411 489 Leases 3,181 1,320 1,887 Inventories 678 892 1,344 Other Accruals 2,536 1,460 219 Gross deferred tax assets 15,466 8,827 6,294 Deferred tax liabilities: Property and equipment 4,563 746 1,042 Preoperating costs - 67 457 Integration funds - - 93 Gross deferred tax liabilities 4,563 813 1,592 -------- -------- -------- Net deferred tax assets $10,903 $ 8,014 $ 4,702 ======== ======== ======== 5. SHAREHOLDERS' EQUITY: STOCK SPLIT On April 6, 1998 the Company's board of directors declared a three-for-two stock split of the Company's common stock for shares held of record on April 17, 1998. The par value per common share remained at $0.01. This stock split has been retroactively reflected in these financial statements. 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. Stock option transactions for the three years ended March 31 were as follows: Shares Price Per Share ---------- ---------------- Options outstanding, March 31, 1997 1,310,250 $2.75-$8.92 Granted 217,500 $8.25-$14.25 Exercised (221,184) $2.75-$8.92 ---------- Options outstanding, March 31, 1998 1,306,566 $2.92-$14.25 Granted 190,000 $18.00-$23.00 Exercised (470,779) $2.92-$12.42 ---------- Options outstanding, March 31, 1999 1,025,787 $3.50-$23.00 Granted 420,000 $9.63-$13.81 Exercised (403,312) $3.50-$9.50 Cancelled (265,475) $4.75-$23.00 ========== Options outstanding, March 31, 2000 777,000 $3.50-$23.00 ========== Exercisable at March 31, 2000 205,000 ========== Available for grant at March 31, 2000 399,475 ========== As of March 31, 2000, of the total shares available for grant, 54,000 are available for non-employee directors and 345,475 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 statements 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: 2000 1999 1998 ------- ------- ------- Net Income As reported $31,061 $21,271 $19,804 Pro forma $30,191 $19,904 $18,873 Basic Earnings Per Share As reported $ 1.54 $ 1.07 $ 1.03 Pro forma $ 1.50 $ 1.01 $ 0.98 Diluted Earnings Per Share As reported $ 1.48 $ 0.99 $ 0.95 Pro forma $ 1.43 $ 0.93 $ 0.91 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 summarized below: 2000 1999 1998 ------------- ------------- ------------ Risk free interest rate 5.26% - 6.23% 5.56% - 5.59% 5.66% - 5.68% Expected life of option grants 6 yrs. 6 yrs. 6 yrs. Expected volatility of option grants 51.08% 54.91% 36.63% Expected dividend yield $0 $0 $0 Weighted average fair value of options $6.28 $11.90 $13.98 6. COMMITMENT 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, 2000: Capitalized Operating Leases Leases ----------- --------- 2001 $ 785 $ 2,701 2002 786 1,680 2003 643 1,399 2004 643 1,350 2005 643 1,334 Thereafter 2,881 25,351 ------- ------- 6,381 $33,815 Less- Amount representing interest 2,086 ======= ------- 4,295 Less- Current maturities 429 ------- Total long-term capital lease obligations 3,866 ======= Rent expense under all facility operating leases totaled approximately $3,850 in 2000, $3,421 in 1999 and $3,410 in 1998. BENEFIT PALN The Company maintains a 401(k) benefit plan for eligible employees whereby the Company will match 25% to 75% of employee contributions 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 $1,086 in 2000, $882 in 1999 and $701 in 1998. 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. 7. EARNINGS PER SHARE Basic earnings per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share is computed by dividing net income by the sum of the weighted average number of shares of common stock outstanding plus all additional common stock that would have been outstanding if potentially dilutive common shares related to stock options and warrants had been issued. Options and warrants totaling 4,063, 3,459 and 1,973 were excluded from the computation of diluted earnings per share for the years ended March 31, 2000, 1999 and 1998, respectively. The following table reconciles the number of shares utilized in the earnings per share calculations: 2000 1999 1998 -------- -------- -------- Numerator: Net Income $ 31,061 $ 21,271 $ 19,804 Denominator: For Earnings per Common Share - Basic: Weighted average number of issued shares outstanding 20,177 19,793 19,270 Effect of dilutive Securities: Computed shares outstanding under the Company's stock option plan utilizing the treasury stock method 230 486 711 Computed shares outstanding under warrants issued utilizing the treasury stock method 636 1,233 865 -------- -------- -------- For earnings per Common Share - Diluted: Weighted Average Common Shares and Share Equivalents Outstanding 21,043 21,512 20,846 ======== ======== ======== Earnings per share - Basic $ 1.54 $ 1.07 $ 1.03 ======== ======== ======== Earnings per share - Diluted $ 1.48 $ 0.99 $ 0.95 ======== ======== ======== 8. QUARTERLY FINANCIAL DATA (Unaudited) (in thousands except share and per share data) Quarters of Fiscal Year Ended March 31, 2000 ---------------------------------------------------- June 30, September December March 31, Fiscal 1999 30, 1999 31, 1999 2000 Year 2000 ------------------------------------------------------------------------------- Total operating revenues $ 99,815 $102,503 $101,008 $102,873 $ 406,199 Operating income 14,028 11,224 11,593 9,990 46,835 Net income 9,076 7,318 7,851 6,816 31,061 Earnings per Common Share - Basic $ 0.45 $ 0.36 $ 0.39 $ 0.34 $ 1.54 Weighted average Common shares outstanding - Basic 19,968 20,221 20,252 20,267 20,177 Earnings per Common Share - Diluted $ 0.43 $ 0.35 $ 0.38 $ 0.33 $ 1.48 Weighted average Common shares and Share Equivalents outstanding - Diluted 21,266 21,119 20,913 20,875 21,043 Quarters of Fiscal Year Ended March 31,1999 ---------------------------------------------------- June 30, September December March 31, Fiscal 1998 30, 1998 31, 1998 1999 Year 1999 ------------------------------------------------------------------------------- Total operating revenues $80,469 $71,689 $89,641 $89,954 $331,753 Operating income 10,464 1,806 10,242 9,710 32,222 Net income 6,033 2,080 6,730 6,428 21,271 Earnings per Common Share - Basic $ 0.31 $ 0.10 $ 0.34 $ 0.32 $ 1.07 Weighted average Common shares outstanding - Basic 19,616 19,824 19,838 19,864 19,793 Earnings per Common Share - Diluted $ 0.28 $ 0.10 $ 0.32 $ 0.30 $ 0.99 Weighted average Common shares and Share Equivalents outstanding - Diluted 21,755 21,638 21,230 21,246 21,512 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, June 26, 2000 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 2000 Annual Meeting of Shareholders (the "2000 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 9. 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 2000 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 2000 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 2000 Proxy Statement. 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 19 Consolidated balance sheets as of March 31, 20 2000 and 1999 Consolidated statements of operations for the 21 years ended March 31, 2000, 1999 and 1998 Consolidated statements of shareholders' 22 equity for the years ended March 31, 2000, 1999 and 1998 Consolidated statements of cash flows for the 23 years ended March 31, 2000, 1999 and 1998 Notes to consolidated financial statements 24 (2) Not applicable (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. Articles of Amendment to the Company's Articles of Incorporation. Incorporated by reference to exhibit 3A to the Company's 10-Q for the quarter ended September 30, 1997. 3C. 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. 4B. Common Stock Purchase Warrant dated October 25, 1996 issued to Northwest Airlines, Inc. Incorporated by reference to Exhibit 4A to the Company's 10-Q for the quarter ended September 30, 1996. 4C. Common Stock Purchase Warrant dated October 17, 1997 issued to Northwest Airlines, Inc. Incorporated by reference to Exhibit 4A to the Company's 10-Q for the quarter ended September 30, 1997. 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 Aviation, 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 Mesaba Aviation, Mesaba Holdings, Inc. and Northwest Airlines, Inc. dated July 1, 1997 (certain portions of this agreement are subject to an order granting confidential treatment pursuant to Rule 24b-2). Incorporated by reference to Exhibit 10A to the Company's Form 10-Q for the quarter ended September 30, 1997. 10G.Regional Jet Services Agreement between Mesaba Holdings, Inc., Mesaba Aviation, Inc. and Northwest Airlines, Inc., dated October 25, 1996 (certain provisions of this agreement are subject to an order granting confidential treatment pursuant to Rule 24b-2). Incorporated by reference to Exhibit 10A to the Company's Form 10- Q for the quarter ended September 30, 1996. 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 Aviation, Inc. Incorporated by reference to Exhibit 10K to the Company's Form 10-K for the year ended March 31, 1989. Incorporated by reference to Exhibit 10J to the Company's Form 10-K for the year ended March 31, 1997. 10J.Ninth Amendment to Revolving Credit and Term Loan Agreement and Amendment to Revolving Note between Mesaba Aviation, Inc. and Norwest Bank Minnesota, National Association. 10K.Letter of Credit and Reimbursement Agreement dated as of August 1, 1990 between Mesaba Aviation, 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 Aviation, 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 Aviation, 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 Aviation, 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.1994 Stock Option Plan (as amended July 1, 1997). Incorporated by reference to Exhibit 10B to the Company's Form 10-Q for the quarter ended September 30, 1997. 10S.Agreement between AirTran Corporation, Mesaba Aviation, 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 Aviation, 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. 10Y.Amendment No. 1 to Regional Jet Services Agreement dated April 1, 1998 between Mesaba Holdings, Inc., 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 for the quarter ended June 30, 1998 10Z.Amendment No. 2 to Regional Jet Services Agreement dated June 2, 1998 between Mesaba Holdings, Inc., 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 10B to the Company's Form 10-Q for the quarter ended June 30, 1998 10AA.Lease Agreement, dated as of July 1, 1999, between Kenton County Airport Board and Mesaba Aviation, Inc. 10BB.Ground Lease, dated as of September 1, 1999, between Kenton County Airport Board and Mesaba Aviation, Inc. 21. Subsidiaries. Incorporated by reference to Exhibit 21 to the Company's Form 10-K for the year ended March 31, 1997. 23. Consent of independent public accountants. 24. Powers of Attorney. 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 29, 2000 By /S/ Paul F. Foley ------------------------ Paul F. Foley 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/ Paul F. Foley -------------------- Paul F. Foley President and Chief Executive Officer Principal Executive Officer) and Director June 29, 2000 /s/ Robert E. Weil -------------------- Robert E. Weil Vice President and Chief Financial Officer (Principal Financial Officer) June 29, 2000 /s/ Jon R. Meyer -------------------- Jon R. Meyer Director of Accounting and Controller (Principal Accounting Officer) June 29, 2000 * -------------------- Donald E. Benson Director June 29, 2000 * -------------------- Richard H. Andersen Director June 29, 2000 * -------------------- Douglas M. Steenland Director June 29, 2000 * -------------------- Carl R. Pohlad Director June 29, 2000 * -------------------- Robert C. Pohlad Director June 29, 2000 * -------------------- Pierson M. Grieve Director June 29, 2000 * -------------------- Raymond W. Zehr, Jr. Director June 29, 2000 *By /s/Paul F. Foley -------------------- Paul F. Foley Attorney-in-fact June 29, 2000