**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-Q**

 

**ý****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934.**

 

**Forthe quarterly period ended June 30, 2003**

 

**OR**

 

**o****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**Forthe transition period from           to           **

 

**CommissionFile No:  0-17895**

 

**MESABA HOLDINGS, INC.**

 

Incorporated under the laws of Minnesota

 

| **41-1616499**                      |
|-------------------------------------|
| (I.R.S. Employer ID No.)            |
|                                |
| **Fifth Street Towers, Suite 1720** |
| **150 South Fifth Street**          |
| **Minneapolis, MN  55402**     |
| **(612) 333-0021**                  |

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15 (d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

Yes ý    Noo

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Act).

 

Yes o    Noý

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date.

 
| **Class**                              |   | **Outstanding  as of August 4, 2003** |
|----------------------------------------|--------|---------------------------------------|
| Common Stock Par value  $.01 per share |   | 20,323,141                            |

 

 

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CAUTIONARY STATEMENT UNDER THEPRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

 

Statements in this QuarterlyReport on Form 10-Q under the caption “Business” and   “Management’s Discussion and Analysis of  Financial Condition and Results ofOperations” as well as oral statements that may be made by the Company or itssubsidiaries or by officers, directors or employees of the Company or itssubsidiaries acting on the Company’s behalf, that are not historical fact mayconstitute “forward looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Such forward looking statementsinvolve factors that could cause the actual results of the Company to differmaterially from historical results or from any results expressed or implied bysuch forward-looking statements. The Company cautions the public not to placeundue reliance on forward-looking statements, which may be based on assumptionsand anticipated events that do not materialize. Factors which could cause theCompany’s actual results to differ from forward-looking statements includematerial changes in the relationship between the Company, its subsidiaries andNorthwest Airlines; changes in Northwest Airlines’ air service; reduced passengerand flight activity as a result of severe acute respiratory syndrome (“SARS”)and terrorist events; expenses associated with restructuring operations; acontinued slow-down in the overall United States economy; increased operatingcosts due to heightened security measures; the impact of United Statesgovernment programs on operations; changes in regulations affecting the airlineindustry, including those issued by the Department of Transportation (“DOT”),Transportation Security Administration (“TSA”), and Federal AviationAdministration (“FAA”); seasonal factors; labor relations, including laborshortages, slow downs and/or work stoppages; ongoing legal proceedings; andunanticipated costs resulting from the acquisition of Big Sky Transportation Co.

 

2

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Part I. FINANCIAL INFORMATION

 

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

 

MESABA HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share information)

(Unaudited)

 
|                                                                 |   | **June 30,  2003** |    | **March 31,  2003** |   |
|----------------------------------------------------------------------|--------|--------------------|---------|---------------------|--------|
| ASSETS                                                               |   |               |    |                |   |
|                                                                 |   |               |    |                |   |
| CURRENT ASSETS:                                                      |   |               |    |                |   |
| Cash and cash equivalents                                            |   | $                  | 60,066  |                | $      | 60,908 |   |
| Short term investments                                               |   | 58,592             |    | 40,464              |   |
| Accounts receivable, net of reserves of  $389 and $389, respectively |   | 35,070             |    | 40,682              |   |
| Inventories, net                                                     |   | 9,124              |    | 8,459               |   |
| Prepaid expenses and deposits                                        |   | 5,550              |    | 4,925               |   |
| Deferred income taxes and other                                      |   | 10,738             |    | 10,706              |   |
| Total current assets                                                 |   | 179,140            |    | 166,144             |   |
|                                                                 |   |               |    |                |   |
| PROPERTY AND EQUIPMENT:                                              |   |               |    |                |   |
| Flight equipment                                                     |   | 80,006             |    | 78,549              |   |
| Other property and equipment                                         |   | 38,900             |    | 37,916              |   |
| Less: Accumulated depreciation and  amortization                     |   | (76,662            | )       | (72,667             | )      |
| Net property and equipment                                           |   | 42,244             |    | 43,798              |   |
|                                                                 |   |               |    |                |   |
| LONG TERM INVESTMENTS                                                |   | 15,579             |    | 21,762              |   |
| OTHER ASSETS, net                                                    |   | 15,067             |    | 15,706              |   |
|                                                                 |   | $                  | 252,030 |                | $      | 247,410 |   |

 

The accompanying notes are an integral partof these unaudited consolidated financial statements.

 

3

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MESABA HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS (Continued)

(In thousands, except share information)

(Unaudited)

 
|                                                                                                  |   | **June 30,  2003** |    | **March 31,  2003** |   |
|-------------------------------------------------------------------------------------------------------|--------|--------------------|---------|---------------------|--------|
| LIABILITIES  AND SHAREHOLDERS’ EQUITY                                                            |   |               |    |                |   |
|                                                                                                  |   |               |    |                |   |
| CURRENT LIABILITIES:                                                                                  |   |               |    |                |   |
| Accounts payable                                                                                      |   | $                  | 12,921  |                | $      | 15,285 |   |
| Accrued liabilities:                                                                                  |   |               |    |                |   |
| Payroll                                                                                               |   | 12,966             |    | 14,295              |   |
| Maintenance                                                                                           |   | 16,291             |    | 16,031              |   |
| Deferred income                                                                                       |   | 2,548              |    | 2,619               |   |
| Other, primarily property and income taxes                                                            |   | 19,712             |    | 14,445              |   |
| Total current liabilities                                                                             |   | 64,438             |    | 62,675              |   |
|                                                                                                  |   |               |    |                |   |
| OTHER NONCURRENT LIABILITIES                                                                          |   | 6,141              |    | 6,790               |   |
| COMMITMENTS AND CONTINGENCIES 

SHAREHOLDERS’ EQUITY:                                            |   |               |    |                |   |
| Common stock, $.01 par value; 60,000,000  shares authorized, 20,320,641 shares issued and outstanding |   | 203                |    | 203                 |   |
| Paid-in capital                                                                                       |   | 50,615             |    | 50,615              |   |
| Warrants                                                                                              |   | 16,500             |    | 16,500              |   |
| Accumulated other comprehensive income                                                                |   | 116                |    | 116                 |   |
| Retained earnings                                                                                     |   | 114,017            |    | 110,511             |   |
| Total shareholders’ equity                                                                       |   | 181,451            |    | 177,945             |   |
|                                                                                                  |   | $                  | 252,030 |                | $      | 247,410 |   |

 

The accompanying notes are an integral part of these unauditedconsolidated financial statements.

 

4

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MESABA HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share information)

(Unaudited)

 
|                                     |   | **Three  Months Ended June 30,** |    |
|------------------------------------------|--------|----------------------------------|---------|
|                                     |   | **2003**                         |    | **2002** |   |
| OPERATING REVENUES:                      |   |                             |    |   |   |
| Passenger                                |   | $                                | 106,762 |   | $ | 109,030 |   |
| Freight and other                        |   | 7,271                            |    | 4,324 |   |
| Total operating revenues                 |   | 114,033                          |    | 113,354 |   |
|                                     |   |                             |    |   |   |
| OPERATING EXPENSES:                      |   |                             |    |   |   |
| Wages and benefits                       |   | 35,228                           |    | 31,789 |   |
| Aircraft fuel                            |   | 5,717                            |    | 5,707 |   |
| Aircraft maintenance                     |   | 18,380                           |    | 19,512 |   |
| Aircraft rents                           |   | 26,778                           |    | 26,502 |   |
| Landing fees                             |   | 1,765                            |    | 1,662 |   |
| Insurance and taxes                      |   | 2,827                            |    | 4,325 |   |
| Depreciation and amortization            |   | 4,499                            |    | 4,863 |   |
| Administrative and other                 |   | 14,096                           |    | 12,767 |   |
| Total operating expenses                 |   | 109,290                          |    | 107,127 |   |
|                                     |   |                             |    |   |   |
| Operating income                         |   | 4,743                            |    | 6,227 |   |
|                                     |   |                             |    |   |   |
| NONOPERATING INCOME (EXPENSE):           |   |                             |    |   |   |
| Interest income                          |   | 343                              |    | 788 |   |
| Writedown of investment                  |   | —                           |    | (2,751 | ) |
| Other, net                               |   | 2,636                            |    | 45 |   |
| Other nonoperating income (expense), net |   | 2,979                            |    | (1,918 | ) |
|                                     |   |                             |    |   |   |
| Income before provision for income taxes |   | 7,722                            |    | 4,309 |   |
|                                     |   |                             |    |   |   |
| PROVISION FOR INCOME TAXES               |   | 4,216                            |    | 2,733 |   |
| NET INCOME                               |   | $                                | 3,506   |   | $ | 1,576 |   |
|                                     |   |                             |    |   |   |
| NET INCOME PER SHARE:                    |   |                             |    |   |   |
| Earnings per common share – basic   |   | $                                | 0.17    |   | $ | 0.08 |   |
| Earnings per common share – diluted |   | $                                | 0.17    |   | $ | 0.08 |   |
|                                     |   |                             |    |   |   |
| WEIGHTED AVERAGE SHARES OUTSTANDING:     |   |                             |    |   |   |
| Basic                                    |   | 20,321                           |    | 20,298 |   |
| Diluted                                  |   | 20,322                           |    | 20,417 |   |

 

The accompanying notes are an integral partof these unaudited consolidated financial statements.

 

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MESABA HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 
|                                                                               |   | **Three  Months Ended June 30,** |   |
|------------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                               |   | **2003**                         |   | **2002** |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                              |   |                             |   |   |   |
| Net income                                                                         |   | $                                | 3,506  |   | $ | 1,576 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |   |                             |   |   |   |
| Depreciation and amortization                                                      |   | 4,499                            |   | 4,863 |   |
| Writedown of investment                                                            |   | —                           |   | 2,751 |   |
| Amortization of deferred credits                                                   |   | (605                             | )      | (699 | ) |
| Changes in current operating items:                                                |   |                             |   |   |   |
| Accounts receivable, net                                                           |   | 5,612                            |   | (1,828 | ) |
| Inventories, net                                                                   |   | (665                             | )      | 216 |   |
| Prepaid expenses and deposits                                                      |   | (625                             | )      | (1,848 | ) |
| Accounts payable and other                                                         |   | 1,581                            |   | 222 |   |
| Net cash provided by operating activities                                          |   | 13,303                           |   | 5,253 |   |
|                                                                               |   |                             |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                              |   |                             |   |   |   |
| Purchases of investments                                                           |   | (17,413                          | )      | (37,772 | ) |
| Sales of investments                                                               |   | 5,753                            |   | 25,224 |   |
| Purchases of property and equipment, net                                           |   | (2,441                           | )      | (3,269 | ) |
| Net cash used in investing activities                                              |   | (14,101                          | )      | (15,817 | ) |
|                                                                               |   |                             |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                               |   |                             |   |   |   |
| Repayment of other noncurrent liabilities                                          |   | (44                              | )      | — |   |
| Net cash used in financing activities                                              |   | (44                              | )      | — |   |
|                                                                               |   |                             |   |   |   |
| NET DECREASE IN CASH AND CASH EQUIVALENTS                                          |   | (842                             | )      | (10,564 | ) |
|                                                                               |   |                             |   |   |   |
| CASH AND CASH EQUIVALENTS:                                                         |   |                             |   |   |   |
| Beginning of period                                                                |   | 60,908                           |   | 31,250 |   |
| End of period                                                                      |   | $                                | 60,066 |   | $ | 20,686 |   |
| SUPPLEMENTARY CASH FLOW INFORMATION:                                               |   |                             |   |   |   |
| Cash paid during period for:                                                       |   |                             |   |   |   |
| Interest                                                                           |   | $                                | 25     |   | $ | — |   |
| Income taxes                                                                       |   | $                                | 132    |   | $ | 957 |   |

 

The accompanying notes are an integral partof these unaudited consolidated financial statements.

 

6

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MESABA HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, unless otherwise noted)

(Unaudited)

 

The consolidated financialstatements included herein have been prepared by Mesaba Holdings, Inc. (the“Company” or “Holdings”), without audit, pursuant to the rules and regulationsof the Securities and Exchange Commission. The information furnished in the consolidated financial statementsincludes normal recurring adjustments and reflects all adjustments, which are,in the opinion of management, necessary for a fair presentation of suchconsolidated financial statements.  TheCompany’s business is seasonal and, accordingly, interim results are notindicative of results for a full year. Certain information and footnote disclosures normally included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America (“GAAP”) have been condensedor omitted pursuant to such rules and regulations, although the Companybelieves that the disclosures are adequate to make the information presentednot misleading.  It is suggested thatthese consolidated financial statements be read in conjunction with theconsolidated financial statements for the year ended March 31, 2003, and thenotes thereto, included in the Company’s Annual Report on Form 10-K as filedwith the Securities and Exchange Commission.

 

1. Basis of Presentation

 

The consolidated financialstatements include the accounts of the Company and its wholly ownedsubsidiaries, Mesaba Aviation, Inc. (“Mesaba”) and Big Sky Transportation Co.(“Big Sky”).   All significantintercompany transactions and balances have been eliminated in consolidation.

 

The preparation of the consolidatedfinancial statements in conformity with GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent liabilities, as well as the reportedamounts of revenues and expenses.  Themost significant use of estimates relates to accrued maintenance expenses,aircraft property and equipment lives, and inventory obsolescencereserves.  Ultimate results could differfrom those estimates.

 

Certain balances in the fiscal 2003 consolidated financial statementshave been reclassified to conform with the fiscal 2004 presentation.  These reclassifications had no impact on netincome or shareholders’ equity as previously reported.

 

2. Agreements with Northwest

 

Mesaba operates as a regionalair carrier providing scheduled passenger service as MesabaAirlines/Northwest Airlink and Mesaba Airlines/Northwest Jet Airlink under twoseparate agreements with Northwest Airlines, Inc. (“Northwest”) to 106 citiesin the United States and Canada from Northwest’s hub airports, Minneapolis/St.Paul, Detroit, and Memphis.

 

Under the Airline ServicesAgreement (the “Airlink Agreement”), Mesaba operates Saab 340 jet-prop aircraftfor Northwest.  The Airlink agreementprovides for exclusive rights to designated service areas and extends throughJune 30, 2007. Under the Airlink Agreement, Mesaba recognizes revenue foreach completed available seat mile. Additionally, under the Airlink Agreement,Mesaba purchases fuel, ground handling, and other services from Northwest.  Mesaba paid to Northwest $6.9 million and$4.9 million for the three months ended June 30, 2003 and 2002, respectively,for these services. Either Northwest or Mesaba may terminate the Airlink Agreementon 365 days notice or may be terminated immediately by either party for certainprovisions provided for in the Airlink Agreement.

 

Under the Regional Jet ServicesAgreement (the “Jet Agreement”), Mesaba operates Avro RJ85 (“RJ85”) regionaljets for Northwest.  The Jet Agreementextends through October 25, 2006, unless terminated earlier in accordance withits provisions. Under the Jet Agreement, Mesaba recognizes revenue for eachblock hour flown. Northwest provides fuel and airport and passenger relatedservices at Northwest’s expense. The Jet Agreement may be terminatedimmediately by Mesaba or Northwest in accordance with certain provisionsprovided in the Jet

 

7

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Agreement. Northwest mayterminate the Jet Agreement on April 25, 2004 with at least 180 days or up to365 days prior notice.

 

Under the agreements, allMesaba flights appear in Northwest’s timetables and Mesaba receives ticketingand certain check-in, baggage and freight-handling services from Northwest atcertain airports.  Mesaba also benefitsfrom its relationship with Northwest through advertising and marketingprograms.  The Airlink and JetAgreements provide for certain incentive payments from Northwest to Mesababased on achievement of certain operational or financial goals.  Such incentives totaled $1.8 million and$2.0 million for the three months ended June 30, 2003 and 2002, respectively,and are included in passenger revenues in the accompanying consolidatedstatements of operations.  Approximately78% and 73% of the June 30, 2003 and March 31, 2003 accounts receivablebalances in the accompanying consolidated balance sheets are due fromNorthwest.

 

Loss of Mesaba’s affiliation with Northwest or Northwest’s failure tomake timely payment of amounts owed to Mesaba or to otherwise materiallyperform under the Airlink or Jet Agreements would have a material adverseeffect on Mesaba’s and the Company’s operations, financial position and cashflows.  Northwest and Mesaba reviewcontract compliance on a periodic basis.

 

Big Sky operates as a regional carrier based in Billings, Montana,primarily providing scheduled passenger, airfreight, express package andcharter services. Big Sky operates daily scheduled flights providing interlineand online connecting services and local market services.

 

Big Sky provides scheduled air service to 20 communities in Montana,North Dakota, Washington, Colorado, and Idaho via its Billings, Montanahub.  Big Sky has code-sharingagreements with Alaska Airlines/Horizon Airlines, America West Airlines andNorthwest Airlines, where its services are marketed jointly with those aircarriers for connecting flights. Big Sky participates in the Essential AirService (“EAS”) program with the U.S. Department of Transportation (“DOT”). TheEAS program subsidizes air carriers to provide air service to designated ruralcommunities throughout the country that could not otherwise economicallyjustify that service on the basis of its passenger traffic. The DOT pays EASsubsidies for each departure in a covered market.

 

3. Acquisition

 

On September 26, 2002, the Company executed a definitive mergeragreement providing for the acquisition of Big Sky, a regional air carrierbased in Billings, Montana, for $3.2 million, net of cash acquired of $0.3million. The transaction closed on December 1, 2002.

 

The Company funded the acquisition with cashfrom operations and accounted for the acquisition using the purchase method ofaccounting. Accordingly, the purchase price was allocated to the assetsacquired and liabilities assumed based on their estimated fair market values atthe date of acquisition. Certain of the assets and liabilities have beenrecorded based upon preliminary estimates as of the date of the acquisition andare subject to future adjustments.  Theexcess of the purchase price over the fair market value of the net assetsacquired was allocated to certain intangible assets and goodwill.  Results of Big Sky’s operations have beenincluded in the accompanying consolidated financial statements since the dateof acquisition.  Due to the lack ofmateriality of Big Sky’s operations, pro forma financial results are notpresented.

 

8

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4. Investments

 

Investments consist principallyof municipal securities and corporate bonds and are classified asavailable-for-sale as of June 30, 2003 and March 31, 2003.  Available-for-sale investments are reportedat fair value with unrealized gains and losses excluded from operations andreported as a separate component of shareholders’ equity, except forother-than-temporary impairments, which are reported as a charge to currentoperations and result in a new cost basis for the investment.  The Company recorded an other-than-temporaryimpairment loss of $3.0 million on its investment in a WorldCom bond in fiscalyear 2003, $2.8 million of which was recorded in the three months ended June30, 2002 in the unaudited consolidated statements of operations.  In March 2003, the Company sold itsinvestment in WorldCom for $0.8 million which resulted in a gain ofapproximately $0.4 million in fiscal year 2003.  The Company classifies investments that mature within one year asshort term.  Investments with maturitydates greater than one year are classified as long term.

 

As of June 30, 2003, the amortizedcost, gross unrealized gains and losses, and fair value of investments were asfollows (in thousands):

 
|                                      |   | **Amortized  Cost** |   | **Gross  Unrealized  Gain** |   | **Gross  Unrealized  Losses** |   | **Fair  Value** |   |
|-------------------------------------------|--------|---------------------|--------|-----------------------------|--------|-------------------------------|--------|-----------------|--------|
| Debt securities – available for sale |   | $                   | 73,889 |                        | $      | 287                           |   | $               | (5     | ) | $ | 74,171 |   |
|                                           |        |                     |        |                             |        |                               |        |                 |        |  |  |  |  |

 

During the three-month periodsended June 30, the Company recorded realized gains and losses on the sale ofinvestments as follows:

 
|                        |   | **Three  Months  Ended  June 30,** |   |
|-----------------------------|--------|------------------------------------|--------|
|                        |   | **2003**                           |   | **2002** |   |
| Gross realized gains        |   | $                                  | — |   | $ | 25 |   |
| Gross realized losses       |   | (2                                 | )      | (1 | ) |
| Net realized gains (losses) |   | $                                  | (2     | ) | $ | 24 |   |

 

5. Nonoperating Gain

 

On April 16, 2003, PresidentBush signed into law the Emergency Wartime Supplemental Appropriations Act(“Wartime Act”).  Among other items, thelegislation includes a $2.3 billion government grant for airlines.  In accordance with this Act, Mesabarecognized $2.3 million as “other nonoperating income” in the accompanyingconsolidated statements of operations and Big Sky recognized $0.3 million as “othernonoperating income” and $0.2 as a reduction of “administrative and otherexpense” in the accompanying consolidated statements of operations for thequarter ended June 30, 2003.

 

6. Stock Options

 

The Company accounts for itsstock-based compensation plans using the intrinsic value method prescribedunder Accounting Principles Board Opinion No. 25, “Accounting for Stock Issuedto Employees,” and related interpretations. The Company has approved stock option plans for key employees,directors, consultants and advisors to the Company.  As such, the Company records compensation expense for stockoptions and awards only if the exercise price is less than the fair marketvalue of the stock on the measurement date.

 

For purposes of the pro formadisclosures of compensation expense under Statement of Financial AccountingStandards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” and SFASNo. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure,”the Company uses the Black-Scholes option model to estimate the fair value ofoptions not subject to variable plan accounting.

 

The following informationsummarizes the pro forma effects assuming compensation for such awards had beenrecorded based upon the estimated fair value:

 

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|                                 |   | **Three  Months Ended  June 30,** |   |
|--------------------------------------|--------|-----------------------------------|--------|
|                                 |   | **2003**                          |   | **2002** |   |
|                                 |   |                              |   |   |   |
| Net income as reported               |   | $                                 | 3,506  |   | $ | 1,576 |   |
| Stock-based compensation, net of tax |   | (304                              | )      | (295 | ) |
| Pro forma net income                 |   | $                                 | 3,202  |   | $ | 1,281 |   |
|                                 |   |                              |   |   |   |
| Earnings per share – basic:     |   |                              |   |   |   |
| As reported                          |   | $                                 | 0.17   |   | $ | 0.08 |   |
| Pro forma                            |   | $                                 | 0.16   |   | $ | 0.06 |   |
|                                 |   |                              |   |   |   |
| Earnings per share – diluted:   |   |                              |   |   |   |
| As reported                          |   | $                                 | 0.17   |   | $ | 0.08 |   |
| Pro forma                            |   | $                                 | 0.16   |   | $ | 0.06 |   |

 

In December 2002, the Company repriced stockoptions to purchase 745 shares of the Company’s common stock with exerciseprices ranging from $9.05 to $18.00 to an exercise price of $5.97 whichrepresented the fair market value on the date of the repricing. In accordancewith Financial Accounting Standards Board (“FASB”) Interpretation No. 44, “Accountingfor Certain Transactions Involving Stock Compensation,” the Company has adoptedvariable plan accounting for these options from the date of the repricing. Forthe three months ended June 30, 2003, the Company recorded no compensationexpense as a result of the repricing.

 

7. Earnings Per Share

 

Basic earnings per common shareis computed by dividing net income by the weighted average number of shares ofcommon stock outstanding during the period. Diluted earnings per share is computed by dividing net income by the sumof the weighted average number of shares of common stock outstanding plus alladditional common stock that would have been outstanding if potentiallydilutive common shares related to stock options and warrants had been issued.  Options and warrants totaling 5,219 and6,128 for the three months ended June 30, 2003 and 2002, respectively, wereexcluded from the computation of diluted earnings per share as the impact wouldhave been anti-dilutive.

 

The following tables reconcilethe number of shares utilized in the consolidated earnings per sharecalculations:

 
|                                                                                                        |   | **Three  Months Ended  June 30,** |   |
|-------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                                        |   | **2003**                          |   | **2002** |   |
|                                                                                                        |   |                              |   |   |   |
| Net income                                                                                                  |   | $                                 | 3,506  |   | $ | 1,576 |   |
| For earnings per common share - basic:                                                                      |   |                              |   |   |   |
| Weighted average number of issued shares  outstanding                                                       |   | 20,321                            |   | 20,298 |   |
| Effect of dilutive securities:                                                                              |   |                              |   |   |   |
| Computed shares outstanding under the  Company’s stock option plan utilizing the treasury stock method |   | 1                                 |   | 88 |   |
| Computed shares outstanding under warrants  issued utilizing the treasury stock method                      |   | —                            |   | 31 |   |
| For earnings per common share - diluted:                                                                    |   |                              |   |   |   |
| Weighted average common shares and common  share equivalents outstanding                                    |   | 20,322                            |   | 20,417 |   |
| Earnings per share – basic                                                                             |   | $                                 | 0.17   |   | $ | 0.08 |   |
| Earnings per share – diluted                                                                           |   | $                                 | 0.17   |   | $ | 0.08 |   |

 

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8.Consolidated Comprehensive Income

 

The following table presentsthe calculation of consolidated comprehensive income.  Comprehensive income has no impact on reported net income.  The components of comprehensive income areas follows:

 
|                                                                                   |   | **Three  Months Ended  June 30,** |   |
|----------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                   |   | **2003**                          |   | **2002** |   |
|                                                                                   |   |                              |   |   |   |
| Net income                                                                             |   | $                                 | 3,506  |   | $ | 1,576 |   |
| Unrealized gains (losses) on investments  classified as available for sale, net of tax |   | 116                               |   | (142 | ) |
| Comprehensive income                                                                   |   | $                                 | 3,622  |   | $ | 1,434 |   |

 

9. New AccountingPronouncements

 

In May 2003, the FASB issuedSFAS No. 150, “Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity.”  SFAS No. 150 establishes standards for how an issuer classifies andmeasures certain financial instruments with characteristics of both liabilitiesand equity.  SFAS No. 150 is effectivefor financial instruments entered into or modified after May 31, 2003, andotherwise is effective at the beginning of the first interim period beginningafter June 15, 2003.  The adoption ofSFAS No. 150 is not expected to have a material impact on the Company’sconsolidated results of operations, financial position, or cash flows.

 

10. Segment Information

 

The Company follows the provisionsof SFAS No. 131, “Disclosures about Segments of an Enterprise and RelatedInformation.” SFAS No. 131 establishes annual and interim reporting standardsfor an enterprise’s business segments and related disclosures about itsproducts, services, geographic areas and major customers. The method fordetermining what information to report is based upon the way managementorganizes the operating segments within the Company for making operatingdecisions and assessing financial performance. The Company’s chief operatingdecision-maker is considered to be the Chief Executive officer.

 

Prior to the acquisition of BigSky on December 1, 2002, the Company had one reportable segment: Mesaba. Afterthe acquisition of Big Sky, the Company has determined that it has tworeportable segments:  Mesaba and BigSky.

 

Operating Segment informationfor Mesaba, Big Sky (from the date of acquisition), and Holdings were asfollows:

 
|                                   |   | **Three Months Ended June 30,** |    |
|----------------------------------------|--------|---------------------------------|---------|
|                                   |   | **2003**                        |    | **2002** |   |
| Operating revenues:                    |   |                            |    |   |   |
| Mesaba                                 |   | $                               | 109,869 |   | $ | 113,354 |   |
| Big Sky                                |   | 4,164                           |    | N/A |   |
| Holdings                               |   | —                          |    | — |   |
| Consolidated                           |   | $                               | 114,033 |   | $ | 113,354 |   |
|                                   |   |                            |    |   |   |
| Depreciation and amortization expense: |   |                            |    |   |   |
| Mesaba                                 |   | $                               | 4,305   |   | $ | 4,863 |   |
| Big Sky                                |   | 191                             |    | N/A |   |
| Holdings                               |   | 3                               |    | — |   |
| Consolidated                           |   | $                               | 4,499   |   | $ | 4,863 |   |
|                                   |   |                            |    |   |   |
| Interest expense:                      |   |                            |    |   |   |
| Mesaba                                 |   | $                               | —  |   | $ | — |   |
| Big Sky                                |   | 26                              |    | N/A |   |
| Holdings                               |   | —                          |    | — |   |
| Consolidated                           |   | $                               | 26      |   | $ | — |   |
|                                   |   |                            |    |   |   |
| Income (loss) before income taxes:     |   |                            |    |   |   |
| Mesaba                                 |   | $                               | 7,771   |   | $ | 6,852 |   |
| Big Sky                                |   | (474                            | )       | N/A |   |
| Holdings                               |   | 425                             |    | (2,543 | ) |
| Consolidated                           |   | $                               | 7,722   |   | $ | 4,309 |   |
|                                   |   |                            |    |   |   |
| Capital expenditures, net:             |   |                            |    |   |   |
| Mesaba                                 |   | $                               | 2,434   |   | $ | 3,269 |   |
| Big Sky                                |   | 7                               |    | N/A |   |
| Holdings                               |   | —                          |    | — |   |
| Consolidated                           |   | $                               | 2,441   |   | $ | 3,269 |   |
|                                   |   |                            |    |   |   |
| Total assets at end of period:         |   |                            |    |   |   |
| Mesaba                                 |   | $                               | 117,194 |   | $ | 134,629 |   |
| Big Sky                                |   | 11,138                          |    | N/A |   |
| Holdings                               |   | 142,770                         |    | 101,630 |   |
| Elimination                            |   | (19,072                         | )       | (9,186 | ) |
| Consolidated                           |   | $                               | 252,030 |   | $ | 227,073 |   |

 

11

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11. Subsequent Event

 

As previously reported in theCompany’s Form 10-K for the year ended March 31, 2003, Mesaba brought suit inthe United States District Court for the District of Minnesota against FederalInsurance Company (“Federal”), a subsidiary of The Chubb Corporation, forcoverage of the business interruption, extra expense and construction costs forthe Detroit hangar that was destroyed due to a severe storm in May 2000.  On July 21, 2003, Federal agreed to pay$3.25 million to Mesaba in settlement of all claims.  Mesaba had previously received $4.7 million under its insurancecontract with Federal.  As a consequenceof the settlement, the lawsuit has been dismissed.

 

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Item 2.  MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Results of Operations

(Dollars and shares outstanding are expressed in thousands unlessotherwise noted.)

 

Three Months Ended June 30, 2003 and 2002

The Company’s consolidated net income for the quarter ended June 30,2003 was $3.5 million, or $0.17 per diluted share, compared with net income of$1.6 million, or $0.08 per diluted share, for the quarter ended June 30, 2002.On December 1, 2002, the Company acquired all the outstanding shares of Big Skyand accounted for the transaction using the purchase method of accounting. Assuch, the Company has consolidated Big Sky’s results of operations from theacquisition date, December 1, 2002. For the three months ended June 30, 2003,Big Sky generated operating revenues of $4.2 million and operating expenses of$4.8 million. Due to the fact that quarter-over-quarter information for Big Skyis not included, a detailed discussion of Big Sky’s operating results andstatistics is not presented.

 
|                                 |   | **Three  months ended June 30,** |   |
|--------------------------------------|--------|----------------------------------|--------|
| **Mesaba Operating Statistics**      |   | **2003**                         |   | **2002** |   |
| Passengers                           |   | 1,452,960                        |   | 1,426,522 |   |
| Available seat miles (000’s)    |   | 714,550                          |   | 695,487 |   |
| Revenue passenger miles (000’s) |   | 421,032                          |   | 409,742 |   |
| Load factor                          |   | 58.9                             | %      | 58.9 | % |
| Departures                           |   | 56,015                           |   | 58,669 |   |
| Revenue per available seat mile      |   | $                                | 0.154  |   | $ | 0.163 |   |
| Cost per available seat mile         |   | $                                | 0.146  |   | $ | 0.154 |   |
| Aircraft in service                  |   | 106                              |   | 116 |   |

 
|                                 |   | **Three  months ended June 30,** |   |
|--------------------------------------|--------|----------------------------------|--------|
| **Big Sky Operating Statistics**     |   | **2003**                         |   | **2002** |   |
| Passengers                           |   | 27,877                           |   | n/a |   |
| Available seat miles (000’s)    |   | 21,582                           |   | n/a |   |
| Revenue passenger miles (000’s) |   | 7,319                            |   | n/a |   |
| Load factor                          |   | 33.9                             | %      | n/a |   |
| Departures                           |   | 6,804                            |   | n/a |   |
| Revenue per available seat mile      |   | $                                | 0.193  |   | n/a |   |
| Cost per available seat mile         |   | $                                | 0.224  |   | n/a |   |
| Aircraft in service                  |   | 15                               |   | n/a |   |

 

Operating Revenues  Total operating revenues decreased 3.1% in the first quarter offiscal 2004 to $109,869 from $113,354 in the prior year’s first fiscal quarterdue primarily to a decrease of 8.4% in completed available seat miles under theAirlink Agreement offset slightly by an increase of 7.2% in block hours flownunder the Jet Agreement and an increase in ground handling activities.

 

Operating Expenses  Total operating expenses decreased 1.6% in the first quarter offiscal 2004 to $105,391 from $107,127 in the prior year’s first fiscal quarterdue primarily to a reduction in aircraft fuel attributed to a reduction in the number of Saab blockhours flown, a decrease in aircraft maintenance also associated with areduction in total block hours flown and a decrease in aircraft rentsassociated with the return of 10 Saab aircraft following the first quarter offiscal 2003.

 

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The operating costs per available seat mile (“CASM”) were as follows:

 
|                          |   | **Three  months ended June 30,** |   |
|-------------------------------|--------|----------------------------------|--------|
|                          |   | **2003**                         |   | **2002** |   |
| Wages and benefits            |   | 4.7                              | ¢ | 4.6 | ¢ |
| Aircraft fuel                 |   | 0.7                              |   | 0.8 |   |
| Aircraft maintenance          |   | 2.5                              |   | 2.8 |   |
| Aircraft rents                |   | 3.6                              |   | 3.8 |   |
| Landing fees                  |   | 0.2                              |   | 0.3 |   |
| Insurance and taxes           |   | 0.4                              |   | 0.6 |   |
| Depreciation and amortization |   | 0.6                              |   | 0.7 |   |
| Administrative and other      |   | 2.0                              |   | 1.8 |   |
| Total                         |   | 14.7                             | ¢ | 15.4 | ¢ |

 

Wages and benefits increased 5.6% to $33,560 in the first quarter offiscal 2004 from $31,789 in the first quarter of fiscal 2003 due primarily toincreased health and dental insurance costs and ground handling activities.

 

Aircraft fuel decreased 10.4% to $5,115 in the first quarter of fiscal2004 from $5,707 in the first quarter of fiscal 2003 due primarily to acorresponding decrease of 10.8% in the number of Saab block hours flown.  Provisions of the Airlink Agreement with Northwestprotect Mesaba from changes in fuel prices. Mesaba’s actual cost of fuel, including taxes and pumping fees, was 83.5cents per gallon for both periods. Northwest is responsible for fuel for the jet operation.

 

Aircraft maintenance, excluding wages and benefits, decreased 9.3% to$17,696 in the first quarter of fiscal 2004 from $19,512 in the first quarterof fiscal 2003 due primarily to a 5.3% reduction in total block hours flown andless aircraft damage costs in the first quarter of fiscal 2004 versus the firstquarter of fiscal 2003.

 

Aircraft rents decreased 1.3% to $26,166 in the first quarter of fiscal2004 from $26,502 in the first quarter of fiscal 2003 due to the return of 10Saab 340 model aircraft following the first quarter of fiscal 2003.

 

Landing fees of $1,658 in the first quarter of fiscal 2004 were flatwhen compared with $1,662 in the first quarter of fiscal 2003 which isattributed to offsetting changes associated with decreased Saab departures andincrease landing rates charged by airports. Northwest provides landing fees for the jet operation at their expense.

 

Insurance and taxes decreased 37.5% to $2,705 in the first quarter offiscal 2004 from $4,325 in the first quarter of fiscal 2003 due primarily to areduction in the rates charged for war risk insurance.

 

Depreciation and amortization decreased 11.4% to $4,308 in the firstquarter of fiscal 2004 compared to $4,863 in the first quarter of fiscal 2003due primarily to reduced capital expenditures.

 

Administrative and other increased 11.1% to $14,183 in the firstquarter of fiscal 2004 from $12,767 in the first quarter of fiscal 2003 dueprimarily to increased flight crew training costs, increased flight crew hotelcosts, increased outside professional services, and the recognition ofseverance costs associated with labor force reductions in the first quarter offiscal 2004 versus the first quarter of fiscal 2003.

 

Consolidated Nonoperating Income (Expense)  Non-operating income increased to $2,979 inthe first quarter of fiscal 2004 from an expense of $1,918 for the firstquarter of fiscal 2003 due primarily to the recognition of $2.6 million infederal grant proceeds recorded in the first quarter of fiscal 2004 for thereimbursement of security fees remitted to the Transportation SecurityAdministration versus the Company’s recognition of a $2.8 millionother-than-temporary impairment loss on its investment in a WorldCom bond inthe first quarter of fiscal 2003.

 

Consolidated Provision for Income Taxes: TheCompany’s effective tax rate was 54.6% for the first quarter of fiscal 2004 ascompared to 63.4% in the year earlier quarter. The Company adjusts its effective tax rate quarterly based on forecastedoperating results for the fiscal year. The rate is affectedprincipally by the level of nondeductible expenses relative to projectedtaxable income.

 

14

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Liquidity and Capital Resources

 

The Company’s working capitalincreased to $114.7 million with a current ratio of 2.8 at June 30, 2003 ascompared to working capital of $103.5 million and a current ratio of 2.7 atMarch 31, 2003. Cash and cash equivalents decreased by $0.8 million to $60.1million at June 30, 2003 due primarily to cash from operations of $13.3million, a net increase in the Company’s investments of $11.6 million, propertyand equipment additions of $2.4 million and the repayment of debt of $0.1million.  Long and short-terminvestments increased $11.9 million to $74.1 million at June 30, 2003 comparedto $62.2 million at March 31, 2003.

 

Investments consist principallyof municipal securities and corporate bonds and are classified asavailable-for-sale as of June 30, 2003 and March 31, 2003.  Available-for-sale investments are reportedat fair value with unrealized gains and losses excluded from operations andreported as a separate component of shareholders’ equity, except forother-than-temporary impairments, which are reported as a charge to currentoperations and result in a new cost basis for the investment.  The Company classifies investments thatmature within one year as short term. Investments with maturities greater than one year are classified as longterm.

 

Because of the uncertaintysurrounding the WorldCom bankruptcy proceedings and market valuation of WorldCombonds, the Company recorded an other-than-temporary impairment loss of $3.0million on its investment in a WorldCom bond in the previous fiscal year, $2.8million of which was recorded in the three months ended June 30, 2002 in theunaudited consolidated statements of operations. In March 2003, the Companysold its investments in WorldCom for $0.8 million which resulted in a gain ofapproximately $0.4 million, which was recorded in interest income and other inthe consolidated statements of operations for the fiscal year ended March 31,2003.

 

As of June 30, 2003, Mesaba’s fleet consisted of 106 aircraft coveredunder operating leases with remaining terms of less than a month to 13 yearsand aggregate monthly lease payments of approximately $9.1 million.  Mesaba has the ability to return to thelessor up to 10****turbo-prop aircraft which, if all were returned, would reducethe Mesaba’s aggregate monthly lease payment by a total of $0.3 million.  Mesaba leases all of its Saab 340 aircraft,either directly from aircraft leasing companies or through subleases withNorthwest under operating leases with original terms up to 17 years.  Mesaba leases its RJ85 aircraft fromNorthwest under operating leases with terms of up to 10 years.  The Company believes that Mesaba will havesufficient revenues to make lease payments on its aircraft as long as thecurrent Airlink and Jet Agreements remain in effect.

 

As of June 30, 2003, Big Sky’sfleet consisted of 15 aircraft covered under operating leases with remainingterms of six months to 54 months and aggregate monthly lease payments ofapproximately $0.2 million. Big Sky leases 14 of its aircraft from leasingcompanies and an aircraft from a municipality under operating leases withinitial terms of up to six years. Two of the leases allow Big Sky to return theaircraft to the lessor upon the occurrence of certain events, and five of theleases contain purchase options.  BigSky will depend on maintaining or increasing passenger boardings to generatesufficient cash flow to pay its aircraft lease obligations.  A material reduction in Big Sky’s passengerrevenues could jeopardize its ability to make lease payments.

 

Approximately 78% of the Company’s accounts receivablebalance as of June 30, 2003 was due from Northwest.  Lossof Mesaba’s affiliation with Northwest or Northwest’s failure to make timelypayment of amounts owed to Mesaba or to otherwise materially perform under theAirlink or Jet Agreement for any reason would have a material adverse effect onthe Company’s results of operations, financial position, or cash flows.

 

The Company has historically relied upon cash and cash equivalents,investments and internally generated funds to support its working capitalrequirements.  Management believes thatfunds from operations will provide adequate resources for meeting non-aircraftcapital needs for the remainder of fiscal 2004.

 

Critical Accounting Policies and Estimates

 

The preparation of the Company’s consolidated financial statements inconformity with GAAP requires the use of estimates, judgments and assumptionsthat affect the reported amounts of assets and liabilities as of the date ofthe consolidated financial statements, revenues and expenses during thereporting period and related disclosures of contingent assets and liabilitiesin the consolidated financial statements and the accompanying notes.  The U.S. Securities and Exchange Commission(“SEC”) has defined a company’s most critical accounting policies as the ones

 

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that are most important to the portrayal of the company’s financialcondition and results of operations, and which require the company to make itsmost difficult and subjective judgments, often as a result of the need to makeestimates of matters that are inherently uncertain.  Based on this definition, the Company has identified its criticalaccounting policies to include those discussed in the followingparagraphs.  The Company also has otherkey accounting policies, which involve the use of estimates, judgments andassumptions.  See Note 2 “Summary ofSignificant Accounting Policies” in the Notes to the Consolidated FinancialStatements included in the Company’s Annual Report on Form 10-K filed with theSEC, for additional discussion of these items.

 

Management believes that its estimates and assumptions are reasonable,based on information presently available; however, changes in these estimates,judgments and assumptions will occur as a result of future events, andaccordingly actual results could differ from amounts estimated.

 

*Aircraft Propertyand Equipment –*Estimated lives are used to recorddepreciation on aircraft property and equipment.  Aircraft utilization, technology, and changes in the businessstrategy may affect the economic lives used to record depreciation by Mesaba orBig Sky.  The foregoing may also impactdepreciation rates, impairment, or both. Management of Mesaba and Big Sky regularly review the estimated usefullives and salvage values for aircraft property and equipment.

 

*Excess and ObsoleteInventories –*Estimated recovery percentages are usedto record obsolescence reserves for parts inventories.  Aircraft utilization, parts availability,and changes in the cost of parts may affect the valuation of parts inventoriesand obsolescence reserve levels. Management of Mesaba and Big Sky regularly review recovery percentages,reserve levels and inventory valuations for parts inventories.

 

*Aircraft Maintenance–*Estimated maintenance costs and anticipated aircraftactivity are used to determine maintenance reserves.  Changes in maintenance contracts, parts and labor costs andaircraft activity may affect the maintenance reserves.  Management of Mesaba and Big Sky regularlyreview airplane activity, expected aircraft return dates, changes in itsmaintenance contracts and parts and labor costs for maintenance reserves.

 

New AccountingPronouncements

 

In May 2003, the FASB issuedSFAS No. 150, “Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity.”  SFAS No. 150 establishes standards for how an issuer classifiesand measures certain financial instruments with characteristics of bothliabilities and equity.  SFAS No. 150 iseffective for financial instruments entered into or modified after May 31,2003, and otherwise is effective at the beginning of the first interim periodbeginning after June 15, 2003.  Theadoption of SFAS No. 150 is not expected to have a material impact on theCompany’s consolidated results of operations, financial position, or cashflows.

 

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Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK

 

The Company’s principal marketrisks are the availability and price of jet fuel and changes in interest rates.

 

Mesaba and Big Sky have notexperienced difficulties with fuel availability. As a part of the AirlinkAgreement, Northwest bears the economic risk of fuel price fluctuations forMesaba’s fuel requirements. As part of the Jet Agreement, Northwest providesall fuel at its expense to support Mesaba’s jet operations. Big Sky is subjectto fluctuations in fuel prices, but currently fuel expense is not a materialcost in relation to the Company’s total operating expenses.  The Company expects that its results of operationswill not be materially affected by fuel price volatility.

 

The Company’s investment policyrequires purchasing investments with high credit quality issuers and limits theamount of credit exposure to any one issuer. The Company’s investments principally consist of municipal securitiesand corporate bonds with varying maturity dates, all of which are two years orless.  Because of the credit criteria ofthe Company’s investment policies, the primary market risk associated withthese investments is interest rate risk. The Company does not use derivative financial instruments to manageinterest rate risk or to speculate on future changes in interest rates.

 

Item 4.  CONTROLS AND PROCEDURES

 

Based on an evaluation of theCompany’s disclosure controls and procedures as of the end of the periodcovered by this Quarterly Report on Form 10-Q, Paul F. Foley, President andChief Executive Officer of the Company, and Robert E. Weil, Vice President,Chief Financial Officer and Treasurer of the Company, have concluded that theCompany’s disclosure controls and procedures are effective in ensuring thatinformation required to be disclosed by the Company in the reports that itfiles or submits under the Securities Exchange Act of 1934, as amended, isrecorded, processed, summarized and reported within the time periods specifiedby the Securities and Exchange Commission’s rules and forms.  There were no significant changes in theCompany’s internal controls or in other factors that could significantly affectthese controls subsequent to the date of the evaluation, including anycorrective actions with regard to significant deficiencies and materialweaknesses.

 

Part II.

 

Item 1.  LEGAL PROCEEDINGS

 

As previously reported in theCompany’s Form 10-K for the year ended March 31, 2003, Mesaba brought suit inthe United States District Court for the District of Minnesota against FederalInsurance Company (“Federal”), a subsidiary of The Chubb Corporation, forcoverage of the business interruption, extra expense and construction costs forthe Detroit hangar that was destroyed due to a severe storm in May 2000.  On July 21, 2003, Federal agreed to pay$3.25 million to Mesaba in settlement of all claims.  Mesaba had previously received $4.7 million under its insurancecontract with Federal.  As a consequenceof the settlement, the lawsuit has been dismissed.

 

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

 

There were no matters submittedto a vote of the Company’s shareholders during the three month period ended June30, 2003.

 

3A. Restated Articles ofIncorporation.  Incorporated byreference to Exhibit 3.1 to the Company’s Form 10-Q for the quarter endedSeptember 31, 1995.

 

3B. Articles of Amendment tothe Company’s Article of Incorporation. Incorporated by reference to exhibit 3A to the Company’s 10-Q for thequarter ended September 30, 1997.

 

3C. Bylaws.  Incorporated by reference to Exhibit 3.2 tothe Form S-4, Registration No. 333-22977.

 

4A. Specimen certificate forshares of the Common Stock of the Company.  Incorporated by reference to Exhibit 4A to the Company’s Form 10-Kfor the year ended March 31, 1989.

 

4B. Common Stock PurchaseWarrant dated October 25, 1996 issued to Northwest Airlines, Inc. Incorporatedby reference to Exhibit 4A to the Company’s 10-Q for the quarter endedSeptember 30, 1996.

 

4C. Common Stock PurchaseWarrant dated October 17, 1997 issued to Northwest Airlines, Inc. Incorporatedby reference to Exhibit 4A to the Company’s 10-Q for the quarter endedSeptember 30, 1997.

 

9A. Shareholder’s Agreementregarding election of representative of Northwest Aircraft Inc. to Board ofDirectors.  Incorporated by reference toExhibit 9A to Mesaba’s Registration Statement on Form S-1, Registration No.33-820.

 

10A. FAA Air Carrier OperatingCertificate.  Incorporated by referenceExhibit 10A to Mesaba’s Form 10-K for the year ended March 31, 1989.

 

10B. CAB Part 298Registration.  Incorporated by referenceto Exhibit 10G to Mesaba’s Form 10-K for the year ended March 31, 1987.

 

10C. Airline Services Agreementbetween Mesaba Aviation, Mesaba Holdings, Inc. and Northwest Airlines, Inc.dated July 1, 1997 (certain potions of this agreement are subject to an ordergranting confidential treatment pursuant to Rule 24b-2).  Incorporated by reference to Exhibit 10A tothe Company’s Form 10-Q for the quarter ended September 30, 1997.

 

10D. Regional Jet ServicesAgreement between Mesaba Holdings, Inc., Mesaba Aviation, Inc. and NorthwestAirlines, Inc., dated October 25, 1996 (certain provisions of this agreementare subject to an order granting confidential treatment pursuant to Rule24b-2).  Incorporated by reference toExhibit 10A to the Company’s Form 10-Q for the quarter ended September 30,1996.

 

10E. Foreign Air CarrierOperating Certificates issued May 6, 1991 by the Canadian Department ofTransport.  Incorporated by reference toExhibit 10H to the Company’s Form 10-K for the year ended March 31, 1991.

 

10F. Facility Lease andOperating Agreement dated April 18, 1988, between the Metropolitan AirportCommission and Mesaba Aviation, Inc. Incorporated by reference to Exhibit 10Kto the Company’s Form 10-K for the year ended March 31, 1989.  Incorporated by reference to Exhibit 10J tothe Company’s Form 10-K for the year ended March 31, 1997.

 

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10G.  Special Facilities Lease dated as of August 1, 1990 betweenCharter County of Wayne, State of Michigan and Mesaba Aviation, Inc.Incorporated by reference to Exhibit 10B to the Company’s Form 10-Q for thequarter ended September 30, 1990.

 

10H. Ground Lease dated August1, 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 forthe quarter ended September 30,1990.

 

10I. Letter Agreement datedDecember 24, 1992 relating to the repurchase of shares of Common Stock fromNorthwest Aircraft, Inc. Incorporated by reference to Exhibit 10EE to theCompany’s Form 10-K for the year ended March 31, 1993.

 

10J. DOT Certificate of PublicConvenience and Necessity dated October 26, 1992.   Incorporated by reference to Exhibit 10FF of the Company’s Form10-K for the year ended March 31, 1993.

 

10K. Stock Purchase Agreementbetween AirTran Corporation and Carl R. Pohlad dated as of October 18,1993.  Incorporated by reference toExhibit 10 of the Company’s Form 8-K dated October 19, 1993.

 

10L. Agreement between AirTranCorporation, Mesaba Aviation, Inc., Northwest Aircraft, Inc., and NorthwestAirlines, Inc. dated May 18, 1995. Incorporated by reference to Exhibit 10A ofthe Company’s Form 8-K as filed May 18, 1995.

 

10M. Preliminary Agreementbetween AirTran Corporation, Mesaba Aviation Inc. and Northwest Airlines, Inc.dated March 8, 1995.  Incorporated byreference to Exhibit 10 of the Company’s Form 8-K as filed March 8, 1995.

 

10N. Term Sheet Proposal forthe Acquisition of Saab 340 Aircraft by Mesaba Aviation, Inc. dated March 7,1996 (certain portions of this document have been deleted pursuant to anapplication for confidential treatment under Rule 24b-2).  Incorporated by reference to Exhibit 10U tothe Company’s Form 10-K/A for the year ended March 31, 1996.

 

10O. Letter Agreement regardingSaab 340B Plus Acquisition Financing dated March 7, 1996 (certain portions ofthis document have been deleted pursuant to an application for confidentialtreatment under Rule 24b-2). Incorporated by reference to Exhibit 10V to the Company’s Form 10-K/Afor the year ended March 31, 1996.

 

10P. Letter Agreement of April26, 1996 relating to Airline Services Agreement between Mesaba Aviation, Inc.and Northwest Airlines, Inc. (certain portions of this document have beendeleted pursuant to an application for confidential treatment under Rule24b-2).  Incorporated by reference toExhibit 10W to the Company’s Form 10-K/A for the year ended March 31, 1996.

 

10Q. Letter Agreement ofOctober 25, 1996 relating to Regional Jet Services Agreement between MesabaAviation, Inc. and Northwest Airlines, Inc. (certain portions of this documenthave been deleted pursuant to an application for confidential treatment underRule 24b-2).  Incorporated by referenceto Exhibit 10A to the Company’s Form 10-Q/A for the quarter ended September 30,1996.

 

10R. Amendment No. 1 toRegional Jet Services Agreement dated April 1, 1998 between Mesaba Holdings,Inc., Mesaba Aviation, Inc., and Northwest Airlines, Inc. (certain portions ofthis document have been deleted pursuant to an application for confidentialtreatment under rule 24b-2). Incorporated by reference to Exhibit 10A to the Company’s Form 10-Q forthe quarter ended June 30, 1998.

 

10S. Amendment No. 2 toRegional Jet Services Agreement dated June 2, 1998 between Mesaba Holdings,Inc., Mesaba Aviation, Inc. and Northwest Airlines, Inc. (certain portions ofthis document have been deleted pursuant to an application for confidentialtreatment under rule 24b-2). Incorporated by reference to Exhibit 10B to the Company’s Form 10-Q forthe quarter ended June 30, 1998.

 

10T. Lease Agreement, dated asof July 1, 1999, between Kenton County Airport Board and Mesaba Aviation, Inc.Incorporated by reference to Exhibit 10AA to the Company’s Form 10-K for theyear ended March 31, 2000.

 

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10U. Ground Lease, dated as ofSeptember 1, 1999, between Kenton County Airport Board and Mesaba Aviation,Inc. Incorporated by reference to Exhibit 10BB to the Company’s Form 10-K forthe year ended March 31, 2000.

 

10V. Letter Agreement, datedNovember 20, 2001, between Mesaba Holdings, Inc., Mesaba Aviation, Inc. andNorthwest Airlines, Inc. relating to service expansion and ratereductions.  Incorporated by referenceto the Company’s Form 8-K filed November 23, 2001.

 

10W. Agreement and Plan ofMerger among Mesaba Holdings, Inc. Ranger Acquisition Corp. and Big SkyTransportation Co. dated September 26, 2002. Incorporated by reference to the Company’s Form 8-K filed September 27,2002.

 

10X. Employment Agreementbetween Big Sky Transportation Co. and Kim B. Champney, dated April 3,1998.  Incorporated by reference to BigSky’s Form 10-KSB dated September 28, 1999.

 

10Y. Aircraft Hangar FacilityLease Agreement between Metropolitan Airports Commission Minneapolis - St. Pauland Mesaba Aviation, Inc. dated September 2002.  Filed herewith.

 

10Z. Lease between SpectrumInvestment Group, L.L.C. and Mesaba Aviation, Inc. entered into as of April 25,2003.  Filed herewith. 

 

21. Subsidiaries.  Incorporated by reference to Exhibit 21 tothe Company’s Form 10-Q for the quarter ended December 31, 2002.

 

31.1 Certification Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

 

31.2 Certification Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

 

32. Certification Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

 

 

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SIGNATURES

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf of the undersigned, thereunto duly authorized.

 
|                    | Mesaba  Holdings, Inc.                                                                                            |                      |
|-------------------------|-------------------------------------------------------------------------------------------------------------------|---------------------------|
|                    |                                                                                                              |                      |
| Dated:  August 14, 2003 | By:                                                                                                               |  /s/  Robert E. Weil |   |
|                    | Vice  President, Chief Financial Officer and Treasurer  (principal financial officer and an authorized signatory) |
|                         |                                                                                                                   |                           |  |  |

 

 

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

 

Exhibits Filed Herewith

 

10Y. Aircraft Hangar FacilityLease Agreement between Metropolitan Airports Commission Minneapolis - St. Pauland Mesaba Aviation, Inc. dated September 2002.  Filed herewith.

 

10Z. Lease between SpectrumInvestment Group, L.L.C. and Mesaba Aviation, Inc. entered into as of April 25,2003.  Filed herewith. 

 

21. Subsidiaries.  Incorporated by reference to Exhibit 21 tothe Company’s Form 10-Q for the quarter ended December 31, 2002.

 

31.1 Certification Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

 

31.2 Certification Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.

 

32. Certification Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

 

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