Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated filer x |
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Non-accelerated filer o |
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The aggregate market value of the voting stock held by non-affiliates as of September 30, 2007 was $67 million.
As of May 1, 2008, there were 15,083,049 shares of the registrant’s Common Stock outstanding.
Documents Incorporated by Reference
None.
MAIR HOLDINGS, INC.
Annual Report on Form 10-K
For the Fiscal Year Ended March 31, 2008
TABLE OF CONTENTS
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Annual Report on Form 10-K of MAIR Holdings, Inc. (“MAIR” or the “Company”) under the caption “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report are forward-looking and are based upon information currently available to the Company. The Company, through its officers, directors or employees, may also from time to time make oral forward-looking statements. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company is hereby identifying important factors that could cause actual results to differ materially from those contained in any forward-looking statement made by or on behalf of the Company. Many important factors that could cause such a difference are described in “Item 1A. Risk Factors” in this Annual Report on Form 10-K.
Undue reliance should not be placed on the Company’s forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond the Company’s control. The Company’s forward-looking statements are based on the information currently available and speak only as of the date on which this report was filed with the United States Securities and Exchange Commission (“SEC”). Over time, actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by the Company’s forward-looking statements, and such differences might be significant and materially adverse to the Company’s shareholders.
All subsequent written or oral forward-looking statements attributable to the Company or persons acting on the Company’s behalf are expressly qualified by the factors described above. The Company assumes no obligation, and disclaims any obligation, to update information contained in this Annual Report on Form 10-K, including forward-looking statements, as a result of facts, events or circumstances after the date of this report, except as required by law in the normal course of its public disclosure practices.
General
MAIR is the holding company for Big Sky Transportation Co. (“Big Sky”), a regional air carrier based in Billings, Montana. Until April 24, 2007, MAIR was also the holding company for Mesaba Aviation, Inc., (“Mesaba”), a regional air carrier based in Minneapolis, Minnesota. The Company’s consolidated financial statements include the accounts of MAIR and Big Sky. All intercompany transactions and balances have been eliminated in consolidation.
Mesaba filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Minnesota (“Bankruptcy Court”) on October 13, 2005 (the “Petition Date”), after which Mesaba operated its business as a debtor-in-possession pursuant to the Bankruptcy Code. On April 24, 2007 (the “Exit Date”), Mesaba’s bankruptcy plan of reorganization became effective and Mesaba exited bankruptcy as a wholly-owned subsidiary of Northwest Airlines, Inc. (“Northwest”), and, therefore, is no longer owned by MAIR.
Dissolution of the Company
Following Mesaba’s bankruptcy filing in October 2005, MAIR reviewed a number of potential acquisitions and other growth opportunities, the majority of which focused on opportunities within the airline industry. MAIR did not identify a business it believed would be in the best interests of MAIR to acquire. Additionally, the Company anticipated generating monthly profits from operations by December 2007. Because these profits did not materialize, and because the Company did not expect them to materialize in the foreseeable future, MAIR and Big Sky made the decision that Big Sky would cease its eastern United States operations and begin transferring its remaining western operations to another carrier. MAIR subsequently determined that it was uneconomical to continue funding Big Sky’s losses, and on March 8, 2008, Big Sky ceased all operations. MAIR’s Board of Directors then determined that the prudent course of action would be for MAIR to convert its assets into cash, pay its creditors and return remaining cash to the Company’s shareholders. To that end, the Company has filed a preliminary proxy statement for the purpose of holding a Special Meeting of Shareholders at which the Company’s shareholders will vote whether to approve the Company’s dissolution and proposed Plan of Liquidation.
Assuming the shareholders approve the Company’s proposed Plan of Liquidation, MAIR and Big Sky will begin taking actions to formally dissolve, including filing the required documents with the Minnesota and Montana Secretary of State offices. MAIR and Big Sky will then continue to convert their remaining non-cash assets into cash for the purpose of winding up their affairs, pay or contest liabilities and claims and distribute the remaining assets to the Company’s shareholders. Assets will be applied first to pay (or provide for the payment of) actual and contingent liabilities of the Company, including payment of expenses associated with the dissolution. The Company also expects that its stock will be delisted from the NASDAQ Stock Market within 20 days after the Special Meeting of Shareholders, and the Company intends to establish the final date of listing on NASDAQ as the record date for all liquidating distributions.
Mesaba Bankruptcy
Following Mesaba’s exit from bankruptcy on April 24, 2007, Mesaba’s estate has been administered via a liquidating trust. As the former equity owner of Mesaba, MAIR will receive all funds remaining in the liquidating trust after the unsecured creditors are paid and after the expenses of the trust are paid. Based on the amounts at which certain claims have settled and other information available to the Company, the Company currently estimates that MAIR will receive approximately $25 million for its equity interest in Mesaba. The ultimate amount MAIR receives for its equity distribution will be affected by the amounts at which the remaining unsecured claims are resolved. MAIR has not recorded the contingent residual equity interest in the trust due to the uncertainties of the amount to be received.
One such unresolved claim is the $35 million claim of Fairbrook Leasing, Inc., Lambert Leasing, Inc. and Swedish Aircraft Holdings AB (“Saab Leasing”), which originated from a lawsuit between Saab Leasing and Mesaba
regarding aircraft lease payments allegedly owed by Mesaba to Saab Leasing. In July 2006, the District Court for the District of Minnesota ruled that Saab Leasing was not eligible to receive damages for the majority of its claims. In March 2008, the Eighth Circuit Court of Appeals affirmed the ruling by the District Court, and on May 1, 2008, the Eighth Circuit denied Saab Leasing’s petition for a rehearing. Saab Leasing’s only remaining avenue is to request a hearing before the United States Supreme Court. The liquidating trustee will continue to hold funds in reserve for Saab Leasing’s claim until the claim is finally resolved.
Goldman Sachs Credit Partners, L.P. (“Goldman Credit”) also has a $58 million claim against the liquidating trust relating to aircraft and equipment leases Mesaba rejected in bankruptcy. Goldman Credit has asserted that the stipulated loss provisions of the applicable leases, under which liquidated damages are calculated, should apply to determine the total claim amount due to Goldman Credit. Mesaba’s bankruptcy estate filed for summary judgment with the Bankruptcy Court asserting that the liquidated damages constitute unenforceable penalties. Mesaba’s bankruptcy trustee instead believes that the claim allowed to Goldman Credit should reflect actual damages suffered. The Bankruptcy Court heard the motion in September 2007, but has not yet ruled on the motion. The liquidating trustee has been negotiating with Goldman Credit in an attempt to reach a settlement of the claim, and MAIR’s estimate of its equity distribution from the liquidating trust assumes that the claim will be settled.
Employees
As of March 31, 2008, MAIR had five full-time employees, and Big Sky had 18 full-time employees.
Available Information
The Company maintains a website at www.mairholdings.com. On its website, free of charge, the Company makes available its Annual Report on Form 10-K and links to the SEC website for other public filings. The Company’s Code of Ethics for its Chief Executive Officer and financial officer is also available on its website. All information is also available in print upon written request to the Company’s General Counsel at 150 South Fifth Street, Suite 1360, Minneapolis, Minnesota 55402. The Company is not including the information contained on or available through its website as a part of, or incorporating such information by reference into, this Annual Report on Form 10-K.
Item 1A. RISK FACTORS
The Company’s proposed dissolution and liquidation is subject to various risks and uncertainties, some of which are described below. The Company could also be adversely affected by additional risks and uncertainties not presently known or believed to be material.
Due to uncertainties surrounding the Company’s liabilities and whether the Company is able to realize the full value of its assets, the Company cannot make any assurances regarding the amount available for distribution to its shareholders.
The Company has made certain projections relating to the amount of cash the Company expects to have to distribute to its shareholders upon dissolution of the Company. These projections generally relate to three areas: the amount of liabilities of MAIR and of Big Sky which must be satisfied before the Company is dissolved, the amount MAIR and Big Sky expect to realize from their assets and the amount MAIR expects to receive for its equity interest in Mesaba’s liquidating trust. Most notably, the Company has estimated the price Big Sky will receive for the sale of its aircraft, and if the actual sale price differs materially from this estimate, the amount MAIR expects to realize from its investment in Big Sky will also be materially affected. Each of the above projections is subject to multiple variables, and a negative change in any of the above projections will reduce the amount of funds the Company expects to have available for distribution to its shareholders.
The Company may be unable to complete the dissolution and liquidation on as timely a basis as it would prefer.
Assuming the shareholders vote to approve the Company’s dissolution and proposed Plan of Liquidation, the Company intends to make necessary filings and wind up its business as promptly as possible. The Company expects to make a liquidating distribution of excess funds not required to satisfy existing liabilities as soon as is practicable. However, there are a number of factors that could delay the Company’s anticipated timetable, including the following:
· delays in the payment, or arrangement for payment or compromise, of remaining Company liabilities or obligations;
· delays in the liquidation of the Company’s assets, including Big Sky’s aircraft;
· lawsuits or other claims asserted by the Company or against the Company; and
· unanticipated legal, regulatory or administrative requirements.
If the Company fails to make adequate payments to creditors prior to dissolution, or if a creditor makes a claim against the Company following dissolution, the Company’s shareholders could be liable to such creditors.
Section 727 of the Minnesota Business Corporation Act requires that MAIR publish notice of its dissolution to allow creditors time to present claims against the Company. As a general rule, if a creditor fails to present its claim within the statutory time period, the creditor is barred from suing on that claim or otherwise realizing upon or enforcing the claim. However, under limited circumstances, within one year after a company’s articles of dissolution have been filed, a creditor may, upon showing good cause for not having previously filed a claim, apply to a court to allow a claim against a dissolved company. Such a claim may only be made against the corporation’s undistributed assets or, if the undistributed assets are not sufficient to satisfy the claim, against a shareholder. However, in such event, a shareholder’s liability is limited to a portion of the claim that is equal to the portion of the distributions the shareholder received in dissolution, and in no event can a shareholder’s liability exceed the amount which the shareholder actually received in the dissolution.
The Company may continue to incur the expenses of complying with public company reporting requirements.
The Company expects to apply to the SEC for relief from the reporting obligations under the Securities Exchange Act of 1934, as amended, for a period beginning after the Special Meeting of Shareholders. The Company cannot guarantee that the SEC will grant the requested relief. If such relief is not granted, the Company will have an obligation to continue to comply with the applicable reporting requirements of the Securities Exchange Act of 1934, even though compliance with such reporting requirements is economically burdensome.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
Aircraft
Big Sky
The following table sets forth certain information as to Big Sky’s passenger aircraft fleet as of March 31, 2008.
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Type of Aircraft |
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Number of |
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Seating |
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Approximate |
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Approximate |
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Nonoperating: |
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Beechcraft 1900D |
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On May 14, 2008, MAIR, Big Sky and Mesa Air Group (“Mesa”) executed a Settlement Agreement and Mutual Release (the “Settlement Agreement”) under which Big Sky agreed to make a one-time payment of $1.5 million to Mesa in satisfaction of all future lease liabilities for the ten aircraft Big Sky leased from Mesa. All ten aircraft were returned to Mesa on or before May 14, 2008. The Settlement Agreement provided that Mesa would retain $160,000 in lease deposits previously paid by Big Sky and also provided for Mesa to retain amounts prepaid by Big Sky to satisfy return conditions related to the aircraft. Finally, following execution of the Settlement Agreement, Mesa agreed to cancel the $1.9 million letter of credit MAIR had established for Mesa’s benefit.
Big Sky is in the process of selling its seven owned B1900D aircraft and has engaged the services of a broker to assist in the sales process.
Facilities
MAIR
MAIR’s executive offices are located in downtown Minneapolis, Minnesota. MAIR leases approximately 3,370 square feet of office space with lease payments of approximately $6,000 per month. The lease expires on September 30, 2010. MAIR is seeking to sublease this space through the remaining term of the lease. If a subtenant is not found, MAIR will negotiate an early release from its lease obligations.
Big Sky
Big Sky’s main hangar and operations offices are located at the Billings Logan International Airport in Billings, Montana. The main facility consists of a 12,000 square foot building that can hold three aircraft for maintenance, a parts warehouse, shop area and two floors of offices. A two-story building adjacent to the hangar houses Big Sky’s operations center and flight administration offices. These buildings are situated on approximately 83,000 square feet of land owned by the City of Billings and leased to Big Sky on long-term facility and ground leases. The facility lease has an 11-year term, and the ground lease has a 12-year term. Big Sky is in the process of negotiating an early exit from this lease.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Paul F. Foley, age 55, has been the President and Chief Executive Officer of MAIR since October 1999 and was President and Chief Executive Officer of Mesaba from October 1999 to September 2002. He is also a director of MAIR. He was Vice President at Atlas Air, Inc. from December 1996 to September 1999. Mr. Foley graduated with a bachelor of science degree from Cornell University and a masters of business administration degree from Southern Methodist University in Dallas, Texas.
Ruth M. Timm, age 38, joined the Company in April 2005 as its Vice President, General Counsel. Ms. Timm was General Counsel at Integris Metals, Inc. from October 2004 until February 2005, when the company was sold to a competitor. Ms. Timm was an associate in the corporate department of Leonard, Street and Deinard Professional Association from October 2000 until September 2004, and an associate at Maun & Simon, PLC from September 1999 to October 2000. Ms. Timm served as a judicial law clerk for the Honorable Paul A. Magnuson, Chief Judge, U.S. District Court for the District of Minnesota from 1997 to 1999. She received her law degree from Valparaiso University School of Law in 1997.
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock is traded under the symbol “MAIR” on the NASDAQ Stock Market.
The following table sets forth, for the periods indicated, the high and low price per share for the Company’s common stock for the two most recent fiscal years. Quotations for such periods are as reported by NASDAQ for National Market issues. The Company has not paid cash dividends since September 1995. However, in
connection with the Company’s dissolution, the Company expects to issue one or more liquidating distributions to its shareholders.
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Fiscal 2008 |
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Fiscal 2007 |
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Quarter |
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High |
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Low |
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High |
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Low |
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First |
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$ |
7.45 |
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$ |
6.20 |
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$ |
6.21 |
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$ |
4.67 |
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Second |
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$ |
6.70 |
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$ |
5.87 |
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$ |
6.07 |
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$ |
5.03 |
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Third |
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$ |
6.10 |
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$ |
4.24 |
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$ |
7.17 |
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$ |
5.25 |
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Fourth |
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$ |
4.90 |
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$ |
3.80 |
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$ |
7.70 |
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$ |
6.51 |
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On May 1, 2008, the number of holders of record of common stock was 506.
The transfer agent for the Company’s common stock is Wells Fargo Shareowner Services, 161 North Concord Exchange, South St. Paul, Minnesota, 55075-0738, telephone: (651) 450-4064.
Equity Compensation Plan Information
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Plan Category |
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Number of securities to be |
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Weighted-average |
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Number of securities remaining |
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Plans approved by security holders |
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835,000 |
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$ |
6.78 |
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2,385,098 |
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The equity compensation plans approved by the Company’s shareholders are the 1994 Stock Option Plan, the 1996 Director Stock Option Plan and the 2000 Stock Incentive Plan. The 2000 Stock Incentive Plan contains a provision that automatically increases the authorized shares available for grant on September 1 of each year by the lesser of 300,000 or 1% of the then outstanding common shares. See “Item 8. Financial Statements and Supplementary Data, Note 11 – Shareholders’ Equity” for additional information regarding the Company’s equity compensation plans.
Company Stock Performance
The following graph provides a five-year comparison of the total cumulative returns for the Company’s Common Stock, the CRSP Index for the NASDAQ Stock Market (U.S. companies), and the CRSP Index for air carriers traded on NYSE, AMEX and NASDAQ. The CRSP Indexes are prepared by the Center for Research in Security Prices of the University of Chicago. The total cumulative return for each period is based on the investment of $100 on March 31, 2003, assuming compounded daily returns and the reinvestment of all dividends.
Comparison of Five-Year Cumulative Total Returns
¨ Company Common Stock ¡ NASDAQ Stock Index Air Carrier Index
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March 31 |
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March 31 |
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March 31 |
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March 30 |
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March 31 |
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MAIR Holdings, Inc. |
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167.83 |
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160.22 |
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84.64 |
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118.83 |
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68.72 |
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NASDAQ Stock Market (US Companies) |
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142.55 |
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154.88 |
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183.74 |
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203.49 |
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188.82 |
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NYSE/AMEX/NASDAQ Stocks (1) |
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110.34 |
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134.36 |
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168.00 |
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192.29 |
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142.69 |
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(1) Consists of U.S. Companies in Air Transportation, Scheduled and Air Courier Services
Item 6. SELECTED FINANCIAL DATA
The following tables set 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 Company’s audited consolidated financial statements. As of the Petition Date, the accounts of Mesaba were deconsolidated from the Company’s consolidated financial statements. Therefore, the financial data below excludes Mesaba from the Petition Date forward. The financial data set forth below should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
The information regarding changes to the Company’s net assets since the Company’s adoption of the liquidation basis of accounting on March 9, 2008 is presented in the table below in a format consistent with our consolidated financial statements under Item 15 of this Annual Report on Form 10-K. The net asset value per share does not take into account the remaining $4.1 million MAIR expects to receive for its claim in Mesaba’s bankruptcy or the estimated $25 million MAIR expects to receive for its equity interest in Mesaba.
Liquidation Basis