<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-18653
COMAIR HOLDINGS, INC.
Incorporated under the laws of Kentucky 31-1243613
(I.R.S. Employer ID No.)
P.O. Box 75021
Cincinnati, Ohio 45275
(606) 767-2550
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) or the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at November 13, 1997
----- --------------------------------
<S> <C>
Common stock, no par value 67,098,874
</TABLE>
PAGE 1
<PAGE> 2
COMAIR HOLDINGS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NOS.
<S> <C>
PART I. Financial Information -
Consolidated Balance Sheets as of September 30, 1997
and March 31, 1997 .............................................. 3-4
Consolidated Statements of Income -
Three months ended September 30, 1997 and 1996 .................. 5
Consolidated Statements of Income -
Six months ended September 30, 1997 and 1996 .................... 6
Consolidated Statements of Cash Flows -
Six months ended September 30, 1997 and 1996 .................... 7
Notes to Consolidated Financial Statements ........................ 8-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................. 10-15
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders ...... 16
SIGNATURE .......................................................... 17
</TABLE>
PAGE 2
<PAGE> 3
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND MARCH 31, 1997(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, 1997 MARCH 31, 1997
- ------ ------------------ --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $147,676,385 $122,604,792
Marketable securities
available-for-sale 54,161,196 54,111,024
Interest bearing deposits 30,000,000 --
------------ ------------
$231,837,581 $176,715,816
Accounts receivable 13,906,296 20,289,523
Inventory of expendable parts 17,866,707 18,229,847
Future tax benefits 12,575,794 11,056,864
Prepaid expenses 9,475,335 14,458,955
------------ ------------
Total current assets $285,661,713 $240,751,005
------------ ------------
Property and equipment, at cost:
Flight equipment $385,277,827 $394,323,083
Maintenance, operations and
office facilities 10,292,723 10,292,723
Other property and equipment 44,473,062 42,490,273
------------ ------------
$440,043,612 $447,106,079
Less accumulated depreciation and
amortization 105,745,042 116,100,656
Less reserve for engine overhauls and
purchase incentives 15,067,040 12,633,839
------------ ------------
$319,231,530 $318,371,584
Construction in progress 178,150 14,580
Advance payments and deposits
for aircraft 22,451,175 21,086,563
------------ ------------
Net property and equipment $341,860,855 $339,472,727
Other assets and deferred costs $ 10,595,567 $ 8,362,213
------------ ------------
Total assets $638,118,135 $588,585,945
============ ============
</TABLE>
PAGE 3
<PAGE> 4
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY SEPTEMBER 30,1997 MARCH 31,1997
- ------------------------------------ ----------------- -------------
<S> <C> <C>
Current liabilities:
Current installments of long-term
obligations $ 13,118,084 $ 12,909,768
Accounts payable 41,472,216 47,933,952
Interline payable and deferred revenue 5,265,642 5,579,663
Accrued lease expense 23,191,714 22,015,215
Accrued wages 6,878,302 6,427,279
Accrued expenses 15,346,773 13,785,587
Accrued taxes 19,973,595 12,412,131
------------ -------------
Total current liabilities $125,246,326 $ 121,063,595
Long-term obligations $120,954,848 $ 127,747,861
------------ -------------
Deferred income taxes $ 59,150,105 $ 52,389,105
------------ -------------
Other liabilities and deferred credits $ 8,025,738 $ 7,086,055
------------ -------------
Shareholders' equity:
Common stock, no par value,
100,000,000 shares authorized,
66,877,212 and 44,532,815 issued
and outstanding, respectively $ 52,025,580 $ 52,302,390
Preferred stock, no par value,
1,000,000 shares authorized, none
issued or outstanding -- --
Net unrealized gain(loss) on marketable
securities available-for-sale 287,594 (25,543)
Retained earnings 272,427,944 228,022,482
------------ -------------
Total shareholders' equity $324,741,118 $ 280,299,329
------------ -------------
Total liabilities and shareholders' equity $638,118,135 $ 588,585,945
============ =============
</TABLE>
PAGE 4
<PAGE> 5
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
OPERATING REVENUES:
Passenger $ 155,871,181 $ 131,071,277
Cargo and other 1,319,633 1,100,444
Non-airline operations 5,679,657 5,352,473
------------- -------------
Total operating revenues $ 162,870,471 $ 137,524,194
------------- -------------
OPERATING EXPENSES:
Salaries and related costs $ 28,788,245 $ 24,307,028
Aircraft fuel 13,775,404 13,018,226
Maintenance materials and repairs 13,569,982 10,636,477
Aircraft rent 18,717,067 17,791,653
Other rent and landing fees 5,220,117 4,832,706
Passenger commissions 12,276,812 11,135,098
Other operating expenses 19,840,487 17,598,679
Depreciation and amortization 7,557,841 6,065,709
Non-airline direct costs 3,907,362 3,290,912
------------- -------------
Total operating expenses $ 123,653,317 $ 108,676,488
------------- -------------
Operating income $ 39,217,154 $ 28,847,706
------------- -------------
NONOPERATING INCOME (EXPENSE):
Investment income $ 2,605,139 $ 1,946,297
Interest expense (2,229,019) (1,011,583)
------------- -------------
Total nonoperating income, net $ 376,120 $ 934,714
------------- -------------
Income before income taxes $ 39,593,274 $ 29,782,420
Income taxes 15,051,000 11,295,000
------------- -------------
Net income $ 24,542,274 $ 18,487,420
============= =============
Weighted average number
of shares outstanding 66,809,227 66,670,430
============= =============
Net income per share $ 0.37 $ 0.28
============= =============
Dividends paid per share $ 0.040 $ 0.031
============= =============
</TABLE>
PAGE 5
<PAGE> 6
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
OPERATING REVENUES:
Passenger $ 307,955,380 $ 263,596,394
Cargo and other 2,430,964 2,486,164
Non-airline operations 11,525,869 10,466,794
------------- -------------
Total operating revenues $ 321,912,213 $ 276,549,352
------------- -------------
OPERATING EXPENSES:
Salaries and related costs $ 55,534,348 $ 48,326,350
Aircraft fuel 27,480,858 25,229,181
Maintenance materials and repairs 25,142,098 20,161,215
Aircraft rent 36,824,688 34,179,664
Other rent and landing fees 10,784,178 9,468,459
Passenger commissions 24,487,171 22,437,608
Other operating expenses 39,792,832 34,792,607
Depreciation and amortization 14,772,114 11,877,792
Non-airline direct costs 7,768,896 6,704,653
------------- -------------
Total operating expenses $ 242,587,183 $ 213,177,529
------------- -------------
Operating income $ 79,325,030 $ 63,371,823
------------- -------------
NONOPERATING INCOME (EXPENSE):
Investment income $ 4,922,546 $ 3,999,058
Interest expense (4,022,292) (2,036,098)
------------- -------------
Total nonoperating income, net $ 900,254 $ 1,962,960
------------- -------------
Income before income taxes $ 80,225,284 $ 65,334,783
Income taxes 30,476,000 24,805,000
------------- -------------
Net income $ 49,749,284 $ 40,529,783
============= =============
Weighted average number
of shares outstanding 66,803,520 66,665,582
============= =============
Net income per share $ .74 $ .61
============= =============
Dividends paid per share $ 0.080 $ 0.063
============= =============
</TABLE>
PAGE 6
<PAGE> 7
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 49,749,284 $ 40,529,783
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 14,772,114 11,877,792
Amortization and accrual of overhaul expenses 6,958,086 5,095,233
Deferred income tax provision 5,242,070 5,294,768
Other, net (691,758) (776,167)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 6,383,227 6,556,932
Decrease (increase) in inventory of
expendable parts 363,140 (567,602)
Decrease (increase) in other current assets 4,983,620 561,200
Increase (decrease) in accounts payable (6,461,736) (2,387,127)
Increase (decrease) in other current
liabilities 10,436,151 (502,712)
------------- -------------
Net cash provided by operating activities $ 91,734,198 $ 65,682,100
------------- -------------
Cash Flows From Investing Activities:
Additions to property and equipment $ (23,027,141) $ (34,034,551)
Interest bearing deposits (30,000,000) (30,000,000)
Purchases and maturities of marketable
securities,net (457,518) (11,526,605)
Proceeds from sale of available-for-sale
marketable securities 720,483 1,690,000
Other, net (1,693,100) (352,891)
------------- -------------
Net cash used in investing activities $ (54,457,276) $ (74,224,047)
------------- -------------
Cash Flows From Financing Activities:
Issuance of common stock $ 709,440 $ 51,040
Repurchase of common stock (986,250) --
Payments of cash dividends and
repurchase of fractional shares (5,343,822) (4,178,896)
Repayments of long-term obligations (6,584,697) (4,547,308)
------------- -------------
Net cash used in financing activities $ (12,205,329) $ (8,675,164)
------------- -------------
Net increase(decrease)in cash and cash
equivalents $ 25,071,593 $ (17,217,111)
------------- -------------
Cash and cash equivalents at
beginning of period $ 122,604,792 $ 111,601,283
------------- -------------
Cash and cash equivalents at end of period $ 147,676,385 $ 94,384,172
============= =============
Cash paid during the period for interest $ 4,348,002 $ 2,462,198
============= =============
Cash paid during the period for income taxes $ 19,220,418 $ 24,550,731
============= =============
</TABLE>
PAGE 7
<PAGE> 8
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. These statements reflect all adjustments which are, in
the opinion of management, necessary for a fair presentation of the results for
the interim periods presented. Certain information in footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles has been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the following
disclosures are adequate to make the information presented not misleading. It is
suggested that these consolidated financial statements be read in conjunction
with the financial statements and the notes thereto included in the Company's
latest annual report on Form 10-K.
NOTE 1: The accounts of Comair Holdings, Inc. and its wholly-owned
subsidiaries (the Company) have been consolidated in the
accompanying financial statements. Upon consolidation, all material
intercompany accounts, transactions and profits have been
eliminated. The Company considers the transportation of passengers
and freight in scheduled airline service by its major subsidiary,
COMAIR, Inc., to be its predominant industry segment. The Company's
stock is traded in the Nasdaq/National Market System under the
symbol COMR.
NOTE 2: Results of operations for the interim periods are not necessarily
indicative of results to be expected for the year.
NOTE 3: In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 (SFAS No. 128), "Earnings Per Share", which
replaces the presentation of primary earnings per share with a
presentation of basic earnings per share. It also requires dual
presentation of basic and diluted earnings per share on the face of
the income statement for all entities with complex capital
structures and requires a reconciliation of both the numerator and
denominator of the basic earnings per share computation for the same
components in the diluted earnings per share computation. The
Company is required to adopt SFAS No. 128 in the third quarter of
fiscal 1998. The Company anticipates the impact of the adoption to
be immaterial.
NOTE 4: In July 1997, the Financial Accounting Standards Board issued
Statement No. 130 (SFAS No. 130), "Reporting Comprehensive Income",
which requires that comprehensive income and the associated income
tax expense or benefit be reported in a financial statement with the
same prominence as other financial statements with an aggregate
amount of comprehensive income reported in that same financial
statement. SFAS No. 130 permits a statement of financial position, a
statement of changes in shareholders' equity, or notes to the
financial statements to be used to meet this requirement. "Other
Comprehensive Income" refers to revenues, expenses, gains and losses
that under GAAP are included in comprehensive income but bypass net
income. The
PAGE 8
<PAGE> 9
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Company will adopt SFAS No. 130 in the first quarter of fiscal 1999.
The Company anticipates the impact of this adoption to be
immaterial.
NOTE 5: In July 1997, the Financial Accounting Standards Board issued
Statement No. 131 (SFAS No. 131), "Disclosures About Segments of an
Enterprise and Related Information" which requires disclosures for
each segment in which the chief operating decision maker organizes
these segments within a company for making operating decisions and
assessing performance. Reportable segments are based on products and
services, geography, legal structure, management structure and any
manner in which management disaggregates a company. The Company will
adopt SFAS No. 131 in the first quarter of fiscal 1999. The Company
anticipates the impact of this adoption to be immaterial.
NOTE 6: On October 23, 1997, the Board of Directors of Comair Holdings, Inc.
approved a 3-for-2 split in the stock of Comair Holdings, Inc.,
pursuant to which shareholders of record will receive one share of
newly issued stock for each two shares of stock currently held. The
common stock split is payable on November 13, 1997 to shareholders
of record at the close of business on November 3, 1997. The share
and per share financial information contained in the accompanying
financial statements does give effect to the stock split. The cash
dividend of $.06 per share, declared by the Board of Directors of
Comair Holdings, Inc. on October 14, 1997, for shareholders of
record on November 3, 1997, payable on November 13, 1997, will be
paid on a pre-split basis.
The following table gives relevant share and per share data prior to
giving effect to 3-for-2 stock split:
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
September 30 September 30
------------ ------------
1997 1996 1997 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Weighted Average
Number of Shares 44,539,879 44,446,953 44,536,073 44,443,721
--------------- --------------- --------------- ---------------
Net Income Per Share $ .55 $ .42 $ 1.12 $ .91
--------------- --------------- --------------- ---------------
Cash Dividends Per Share $ .060 $ .047 $ .120 $ .094
--------------- --------------- --------------- ---------------
</TABLE>
PAGE 9
<PAGE> 10
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMAIR, Inc. (COMAIR) is the principal subsidiary of Comair Holdings, Inc.
(with its subsidiaries, the Company), accounting for 96% of the second quarter
operating revenues and expenses. Although the following discussion and analysis
entails various aspects of the Company's financial performance, many of the
factors that affect year to year comparisons relate solely to COMAIR.
Inflation and changing prices have not had a material effect on COMAIR's
operations because revenues and expenses generally reflect current price levels.
COMAIR's market area, strong financial position and strong cost control efforts
have helped lessen the effect on the Company of price competition and resulting
low fares when compared to many others in the airline industry. However, changes
in the pricing strategies of other airlines and increased competition of low
fare carriers could impact COMAIR's ability to recoup future cost increases
through higher fares.
COMAIR operates as a "Delta Connection" carrier under a ten-year marketing
agreement with Delta Air Lines, Inc. dated and effective in October of 1989. The
agreement may be terminated by either party on not less than one hundred eighty
(180) days' advance written notice. Delta owns approximately 21% of the
Company's outstanding common stock, leases reservation equipment and terminal
facilities to COMAIR, and provides certain services to COMAIR including
reservations and passenger and aircraft handling services. Approximately 45% of
COMAIR'S passengers in the second quarter of fiscal 1998 connected to Delta. The
Company has historically benefited from its relationship with Delta. However,
the Company's results of operations and financial condition could be adversely
impacted by Delta's decisions regarding routes and other operational matters, as
well as, any material interruption or modifications in this arrangement.
In June 1997, COMAIR signed a code sharing agreement with Air Tran
Airways. Passengers are able to connect through Orlando to 22 cities served by
Air Tran Airways and nine cities served by COMAIR throughout Florida and Nassau,
Bahamas.
For the second quarter of fiscal 1998, the Company reported record
operating revenues and passenger enplanements. Operating revenues for the second
quarter increased to $162.9 million, up 18% from the $137.5 million reported in
the second quarter of fiscal 1997.
Operating income, net income and net income per share for the second
quarter of fiscal 1998 all increased when compared with the results reported in
the second quarter of fiscal 1997. Operating income for the quarter rose 36% to
$39.2 million from $28.8 million. Net income increased 33% to $24.5 million from
$18.5 million, while earnings per share increased 32% to $.37 per share from
$.28 per share.
PAGE 10
<PAGE> 11
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The increase in earnings is largely the result of increased passenger
enplanements, especially at our Cincinnati hub. We continue to gain momentum in
attracting passengers to the COMAIR brand of service. The combination of
Cincinnati's location in the middle of the population, the finest facilities,
the increasing Delta presence and the passenger appeal of the Canadair Jets,
have made Cincinnati one of the nation's preeminent connecting hubs. In the
second quarter of fiscal 1998, revenue passenger miles (RPMs) increased 20% when
compared with last year's second quarter. The second quarter load factor
increased approximately five percentage points over last year.
Capacity, available seat miles (ASMs), grew 10% as we continue to replace
turboprop aircraft with new 50-passenger Canadair Jet aircraft. Currently,
approximately 80% of COMAIR'S capacity is generated by the jet aircraft.
CAPACITY AND TRAFFIC ANALYSIS
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
09/30/97 09/30/96 09/30/97 09/30/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Passengers 1,397,144 1,194,853 2,764,263 2,396,894
ASMs (000s) 754,966 685,484 1,501,623 1,358,025
RPMs (000s) 471,169 393,123 930,164 785,416
Load factor 62.4% 57.3% 61.9% 57.8%
Breakeven load factor 48.1% 45.3% 47.3% 44.6%
Yield (cents) 33.1 33.3 33.1 33.6
Cost per ASM (cents) 15.7 15.2 15.5 15.1
</TABLE>
PAGE 11
<PAGE> 12
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The following tables shows the expense categories for COMAIR for the
second quarter of the last two fiscal years.
EXPENSE CATEGORIES
<TABLE>
<CAPTION>
QTR Ended Cents QTR Ended Cents
09/30/97 per ASM 09/30/96 per ASM
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Salaries and Related Costs $ 28,816,294 3.8 $ 24,307,028 3.5
Aircraft Fuel 13,775,404 1.8 13,018,226 1.9
Maintenance Materials
and Repairs 13,569,982 1.8 10,636,477 1.6
Aircraft Rent 18,717,067 2.5 17,791,653 2.6
Other Rent and Landing
Fees 5,220,117 0.7 4,832,706 0.7
Passenger Commissions 12,276,812 1.6 11,135,098 1.6
Other Operating Expenses 19,782,364 2.6 17,515,698 2.6
Depreciation and
Amortization 6,631,421 0.9 5,146,972 0.7
------------ ---- ------------ ----
$118,789,461 15.7 $104,383,858 15.2
============ ==== ============ ====
</TABLE>
<TABLE>
<CAPTION>
6 Mo. Ended Cents 6 Mo. Ended Cents
09/30/97 per ASM 09/30/96 per ASM
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Salaries and Related Costs $ 55,562,397 3.7 $ 48,326,350 3.5
Aircraft Fuel 27,480,858 1.8 25,229,181 1.8
Maintenance Materials
and Repairs 25,142,098 1.7 20,161,216 1.5
Aircraft Rent 36,824,687 2.5 34,179,663 2.5
Other Rent and Landing
Fees 10,784,178 0.7 9,468,459 0.7
Passenger Commissions 24,487,171 1.6 22,437,608 1.7
Other Operating Expenses 39,662,858 2.6 34,657,877 2.6
Depreciation and
Amortization 13,007,291 0.9 10,286,449 0.8
------------ ---- ------------ ----
$232,951,538 15.5 $204,746,803 15.1
============ ==== ============ ====
</TABLE>
PAGE 12
<PAGE> 13
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Salaries and related costs have risen in total and on a unit cost basis
from the second quarter of last year. The increase is a result of the additional
personnel hired to enhance operating effectiveness and the continuous growth in
passenger enplanements and additional jet equipment acquired over the past year.
Expenses relating to incentive compensation plans were also higher as a result
of higher pretax earnings.
Aircraft fuel price per gallon for the second quarter of fiscal 1998 was
six cents lower than in the second quarter of last year. Total aircraft fuel
costs increased as the result of a 15% increase in fuel consumption as COMAIR
has added Canadair Jet aircraft. Cost per ASM was lower as the impact of the
increased fuel consumption was more than offset by lower fuel prices.
Maintenance material and repair costs increased on a total and unit cost
basis. The increase is attributed to higher maintenance costs due to warranty
periods expiring on certain jet aircraft, an increase in the volume of scheduled
inspections being performed on the Canadair Jets and maintenance reserve costs
associated with the transition out of the turboprop aircraft on an accelerated
schedule.
Aircraft rent expense increased in total as a result of COMAIR accepting
delivery of additional Canadair Jets, seven of which were financed with
operating leases since the second quarter of fiscal 1997.
Other rent and landing fees increased on a total basis as a result of the
addition of the larger Canadair Jets. Due to the additional capacity generated
by the jet equipment, these costs remained the same on a unit cost basis.
Although unit revenues (revenue per ASM) were higher than second quarter
of fiscal 1997, travel agency and credit card commissions have remained the same
on a unit cost basis as a result of lower weighted average commission rates.
Commissions as a percentage of passenger revenues were 7.9% this quarter
compared to 8.5% last year.
Other operating expenses increased in total. The increase was due mainly
to higher station costs associated with the increased Canadair Jet service and
higher passenger related costs associated with the growth in passenger
enplanements.
Depreciation and amortization increased on a total basis due to the
purchase of six Canadair Jets since the third quarter of fiscal 1997. Unit cost
increased as a result of the placement of new jet equipment on shorter turboprop
stage lengths, which in turn lowers utilization.
Investment income in the second quarter of fiscal 1998 was higher than
second quarter of fiscal 1997 due to higher average cash balances available for
investment coupled with higher interest rates on our investments.
The Company's effective tax rate, which includes federal, state and local
taxes, approximated the statutory rate in the second quarter of fiscal 1998.
PAGE 13
<PAGE> 14
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES
In the first six months of fiscal 1998, the Company generated cash from
operating activities of $91.7 million. During the first quarter, the Company
invested $30.0 million in a short-term interest bearing deposit with an aircraft
manufacturer. During the first six months, the Company had acquisitions of $23.0
million, predominantly for aircraft and related support equipment. These
acquisitions were financed with working capital. The Company repaid long-term
obligations of $6.6 million and paid cash dividends of $5.3 million. Total
working capital increased to $160.4 million from $119.7 million at March 31,
1997, while the current ratio increased to 2.28 from 1.99. The Company's
long-term debt to equity position was 27% debt, 73% equity at September 30,
1997, as compared to 31% debt, 69% equity at March 31, 1997.
In fiscal 1995, the Board of Directors authorized the Company to
repurchase up to 13.8 million shares of common stock from time to time as market
conditions dictate. As of March 31, 1997, the Company had purchased 6.8 million
shares of this authorization at a cost of $37.2 million. During the first six
months of fiscal 1998 an additional 60,000 shares were repurchased at a cost of
approximately $986,000.
COMAIR has taken delivery of five new generation, 50-passenger Canadair
Jet aircraft during the first six months of fiscal 1998 bringing the total
Canadair Jet fleet to 53. For 20 of these aircraft, the manufacturer agreed to
arrange the lease financing, including the right to return the aircraft after
seven years with no cost to COMAIR other than normal and customary return
provisions related to the condition of the aircraft. Ten aircraft were financed
with debt, one was acquired with working capital, while the other 22 aircraft
were financed through operating leases with terms of up to 16.5 years.
As of September 30, 1997, COMAIR had scheduled delivery positions for 27
Canadair Jets to be delivered through fiscal 2000. Fifteen of these aircraft are
firm orders, while twelve are subject to certain conditions. The aggregate cost
of these aircraft, including support equipment and estimated escalation, will be
approximately $486 million. COMAIR also has options for 45 additional jet
aircraft, valued at approximately $875 million, including support equipment and
estimated escalation, which could be available for delivery in fiscal 2000
through fiscal 2002. Some of the options can be converted to Canadair's 70-seat
aircraft.
COMAIR expects to finance the aircraft described above through a
combination of working capital and lease, equity and debt financing, utilizing
manufacturers' assistance and government guarantees to the extent possible.
COMAIR believes that financing will be available at acceptable rates. If COMAIR
is unable to obtain acceptable financing terms, it could be required to modify
its expansion plans.
PAGE 14
<PAGE> 15
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
On January 9, 1997, Flight 3272 crashed near Detroit, Michigan. There were
no survivors among the 29 passengers and crew members aboard the turboprop
aircraft. The Company is cooperating fully with the National Transportation
Safety Board and all other federal, state and local regulatory and investigatory
agencies in connection with the crash. In May 1997, the NTSB released the
factual data obtained to date related to Flight 3272. The findings to date are
inconclusive. Several lawsuits have been filed against the Company seeking
damages attributable to the deaths of those on Flight 3272, and additional
lawsuits are expected. The Company maintains substantial insurance coverage for
such claims and, at this time, believes that the claims, expenses and litigation
related to this accident will not have a material adverse effect on the
Company's financial condition, cash flows or results of operations.
There are no other material legal proceedings pending involving the
Company, any of its subsidiaries or their property, except proceedings arising
in the ordinary course of business. The Company believes that all such
proceedings are adequately insured.
In fiscal 1998, additional capital for repayment of long-term obligations,
planned dividend payments and other capital expenditures are expected to be
provided by operations.
The Company has a $5 million bank line of credit at prime. The line of
credit has not been used since 1985.
Several of the statements contained in this report are "forward-looking
statements" as that term is defined in federal securities laws. The actual
results could vary materially from those described in those statements. Factors
that could cause actual results to vary are described in detail in our reports
to the Securities and Exchange Commission including Exhibit 99 to our form 10-K
for the period ending March 31, 1997 and are also discussed in the second and
third paragraphs under "Results of Operations."
PAGE 15
<PAGE> 16
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
PART II
Item 4. Submission of Matters to a Vote of Security Holders. At the
Company's Annual Meeting of Shareholders held on August 12, 1997, the following
actions were taken by shareholders:
4.1. All persons nominated as Class A Directors were elected with the
votes for each person being:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Shares Against
Name Shares For or Withheld
- ------------------------------------------------------------------------
<S> <C> <C>
David R. Mueller 39,782,132 341,931
- ------------------------------------------------------------------------
David A. Siebenburgen 39,812,851 311,212
- ------------------------------------------------------------------------
Raymond A. Mueller 39,806,447 317,616
- ------------------------------------------------------------------------
</TABLE>
4.2 Amendments to the 1990 Stock Option Plan were approved by the
following vote:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Shares For Shares Against Shares Abstained Broker Non-Votes
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
39,091,895 519,657 512,511 0
- ---------------------------------------------------------------------------
</TABLE>
4.3 The selection of Arthur Andersen LLP as independent public accountants
for fiscal year 1998 was ratified by the following vote:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Shares For Shares Against Shares Abstained
- ------------------------------------------------------------
<S> <C> <C>
40,014,895 49,109 60,059
- ------------------------------------------------------------
</TABLE>
PAGE 16
<PAGE> 17
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMAIR HOLDINGS, INC.
November 14, 1997 BY: /s/ Randy D. Rademacher
------------------------
Randy D. Rademacher
Senior Vice President Finance
Chief Financial Officer
PAGE 17
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<NAME> COMAIR HOLDINGS, INC.
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<S> <C>
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