<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended March 31, 1998
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 IRS Employer ID
The Commonwealth of Kentucky No. 31-1243613
P.O. Box 75021,Cincinnati/Northern Kentucky International Airport,
Cincinnati, Ohio 45275
Phone: (606) 767-2550
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates is
$1,360,911,821 based on a closing price of $26.625 on May 29, 1998. As of May
29, 1998, 66,554,944 shares of no par value Common Stock were issued and
outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended March 31, 1998 furnished to the Commission pursuant to Rule 14a-3(c) and
portions of the Registrant's Proxy Statement to be filed with the Commission for
its 1998 Annual Meeting of Shareholders are incorporated by reference in Parts
I, II and III as specified.
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COMAIR HOLDINGS, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
<CAPTION>
<S> <C>
Part I PAGE
Item 1 - Business .............................................. 3
Item 2 - Properties ............................................ 5
Item 3 - Legal Proceedings ..................................... 5
Item 4 - Submission of Matters to a Vote of Security Holders ... 6
Part II
Item 5 - Market for Registrant's Common Equity and Related
Shareholder Matters ................................. 6
Item 6 - Selected Financial Data ............................... 6
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 6
Item 8 - Financial Statements and Supplementary Data ........... 7
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ................. 7
Part III
Item 10 - Directors and Executive Officers of the Registrant ... 7
Item 11 - Executive Compensation ............................... 7
Item 12 - Security Ownership of Certain Beneficial Owners and
Management ......................................... 7
Item 13 - Certain Relationships and Related Transactions ....... 7
Part IV
Item 14 - Exhibits, Financial Statement Schedules and Reports
on Form 8-K ......................................... 8
</TABLE>
2
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PART I
ITEM 1.
BUSINESS
--------
"Footnotes 1 and 7" on page 25 and 33 of the Registrant's Annual Report to
Shareholders for 1998 are incorporated herein by reference. The Company
considers the air transportation of passengers and cargo in scheduled airline
service by its major subsidiary, COMAIR, Inc. (COMAIR) to be its predominant
industry segment.
COMAIR operates as a "Delta Connection" carrier under a ten-year marketing
agreement with Delta Air Lines, Inc. effective in October 1989. The agreement
may be terminated by either party on not less than 180 days' advance written
notice. COMAIR believes that the relationship between the two companies is
satisfactory. However, any material interruptions or modifications in this
arrangement may have a material adverse effect upon COMAIR.
COMAIR's operations are primarily dependent upon business-related travel
and are not subject to wide seasonal variations. However, some seasonal decline
does occur in holiday periods during which there are fewer scheduled flights and
during portions of the winter months due to unfavorable flying conditions. Since
initiation of the "Delta Connection" program in September 1984, COMAIR's
strategy has expanded to accommodate the leisure as well as the business
traveler seeking connections through Delta's hubs in Cincinnati and Orlando.
Approximately 45% of COMAIR's business in fiscal 1998 was provided through
"interlining" arrangements with Delta under the "Delta Connection" program.
Under "interlining" arrangements, COMAIR generally provides the short-haul
portions of a longer multi-carrier trip.
COMAIR participates in the Delta frequent flyer program. Mileage earned
under this program may be redeemed for free flights on COMAIR. Any costs
associated with passengers who redeem travel awards on COMAIR are minimal and
are accounted for at the time of travel.
COMAIR competes with other airlines and various forms of ground
transportation, and believes that the principal competitive factors affecting
decisions by travelers as to whether to fly COMAIR are customer service,
scheduling and flight connections, reliability, type of equipment and price.
EMPLOYEES
As of May 1, 1998, the Company had 3,313 full-time and 436 part-time
employees consisting of 1,951 persons in aircraft operations, 1,285 in customer
service activities, 336 in its fixed base, charter and pilot training operations
and the remainder in office and sales capacities. A collective bargaining
agreement between COMAIR and the Air Lines Pilots Association became effective
June 1, 1994, and became amendable in June 1998. A collective bargaining
agreement between COMAIR and the International Association of Machinists and
Aerospace Workers, representing COMAIR's maintenance employees, became effective
June 1, 1995, and becomes amendable in June 1999.
3
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GOVERNMENT REGULATION
All interstate air carriers are subject to regulation by the United States
Department of Transportation and the United States Department of Justice
(collectively "DOT") and the Federal Aviation Administration ("FAA") under the
Federal Aviation Act of 1958 and the Airline Deregulation Act of 1978
(collectively the "Act"). DOT's jurisdiction extends primarily to the economic
provisions of the Act, while the FAA is primarily concerned with air safety
provisions.
In 1986, COMAIR was granted a Certificate of Public Convenience and
Necessity pursuant to Section 401 of the Federal Aviation Act. However, the
Company is subject to DOT regulations which exempt air carriers operating
aircraft of sixty (60) passenger seats or less or having a payload capacity of
18,000 pounds or less from many of the economic restrictions of the Act.
The FAA requires that the Company have operating, airworthiness and other
certificates. The FAA also must give its approval to personnel who engage in
flight activities and to the Company's training and retraining programs. The FAA
conducts regular examinations to ensure compliance with its regulations.
The Company believes it and its employees are operating in accordance with
applicable FAA regulations and hold all necessary operating and airworthiness
certificates and licenses required by the FAA. The Company's flight operations,
maintenance programs, record keeping and training programs are conducted under
FAA approved procedures.
Currently, there are a number of new and proposed regulations by the FAA
relating to operating specifications and aircraft certification. Some of these
regulations have been published in their final format and some have not, but
modifications are expected to be made. Based on these regulations, the Company
does not believe the impact will be material to its financial condition, future
operating results, or cash flows.
All air carriers are subject to certain provisions of the Federal
Communications Act of 1934, as amended, because of their extensive use of radio
and other communication facilities. Management believes that the Company is in
compliance with these laws and regulations.
The Act requires that at least 75% of the voting rights of the Company and
other U.S. air carriers be owned by U.S. Citizens.
All air carriers are required to comply with federal law and regulations
pertaining to noise abatement and engine emissions. The FAA also requires
airlines to comply with certain noise restrictions. COMAIR's current aircraft as
well as all aircraft on order are in compliance with these regulations. In
addition, several state legislatures and other governmental administrative
bodies have, from time to time, considered noise reduction measures of various
sorts. At the present time, COMAIR does provide service to a few airports where
noise regulations apply, however, these noise regulations do not impact the
Company's operations.
4
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ITEM 2.
PROPERTIES
----------
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 13 of the Registrant's Annual Report to
Shareholders for 1998 is incorporated herein by reference. Certain additional
information regarding the Properties of the Company is described below:
At March 31, 1998, COMAIR's fleet consisted of 59 jet aircraft and 34
turboprop aircraft. The following table summarizes the fleet:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
No. of Seating No. of No. of
Type of Aircraft Aircraft Capacity Aircraft Owned Aircraft Leased
---------------- -------- -------- -------------- ---------------
Canadair Jet 59 50 11 48
Embraer Brasilia 34 30 8 26
</TABLE>
The Company occupies maintenance, operations and office facilities in
Cincinnati and Orlando, as well as terminal space at the airports it serves.
A wholly-owned subsidiary of Comair Holdings, Inc. operates a fixed based
operation at the Cincinnati/Northern Kentucky International Airport which
provides a full range of refueling, maintenance and avionics services for
commercial, private and corporate aircraft. This subsidiary also owns and
operates six aircraft in charter service.
Another wholly-owned subsidiary of Comair Holdings, Inc. operates a flight
training center located near Orlando, Florida. This subsidiary operates 76
light, single and twin engine training aircraft.
INSURANCE
The Company maintains insurance against property damage to its facilities
and aircraft which it considers adequate. The Company also maintains liability
insurance coverage which it believes is adequate.
ITEM 3.
LEGAL PROCEEDINGS
-----------------
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 (NTSB) 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. Numerous 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.
5
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On August 30, 1996 COMAIR filed suit challenging a decision of the National
Mediation Board. This matter involves the demand of the International
Brotherhood of Teamsters to represent COMAIR flight attendants and a finding by
the National Mediation Board that a majority of the employees of the flight
attendant craft had not cast ballots in favor of representation. Subsequently,
the National Mediation Board reopened the case, counted additional ballots and
changed its ruling by certifying the International Brotherhood of Teamsters as a
collective bargaining representative for the flight attendants of COMAIR. The
outcome of the litigation will determine whether the flight attendants of COMAIR
are represented by the International Brotherhood of Teamsters unless a new
election is ordered.
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 legal
proceedings are either adequately insured or will not have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1998.
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED SHAREHOLDER MATTERS
--------------------------------------
"Consolidated Ten Year Summary" on page 10, "Selected Quarterly Financial
Data" on page 12 and "Stock Transfer Agent & Registrar", and "Stock
Information", on the inside back cover of Registrant's Annual Report to
Shareholders for 1998 are incorporated herein by reference. The Company
currently pays quarterly cash dividends (currently $0.04 per share per quarter),
which it has paid continuously for each quarter since the third quarter of
fiscal 1988.
ITEM 6.
SELECTED FINANCIAL DATA
-----------------------
"Consolidated Ten Year Summary" on page 10 of the Registrant's Annual
Report to Shareholders for 1998 is incorporated herein by reference.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 13 of the Registrant's Annual Report to
Shareholders for 1998 is incorporated herein by reference.
6
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ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The following Financial Statements of the Registrant are found on page 9
and pages 20 through 35 of its Annual Report to Shareholders for 1998, are
incorporated herein by reference:
Report of Independent Public Accountants.
Consolidated Balance Sheets as of March 31, 1998 and 1997.
Consolidated Statements of Income for the years ended March 31, 1998,
1997 and 1996.
Consolidated Statements of Shareholders' Equity for the years ended
March 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended March 31,
1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
The following schedules are filed herewith:
Report of Independent Public Accountants.
Schedule II - Valuation and Qualifying Accounts and Reserves for the
three years ended March 31, 1998, 1997 and 1996.
All other supplemental schedules are omitted because of the absence of
conditions under which they are required or because the information is shown in
the Consolidated Financial Statements or Notes thereto.
UNAUDITED SUPPLEMENTARY DATA
"Selected Quarterly Financial Data" on page 12 of the Registrant's Annual
Report to Shareholders for 1998 is incorporated herein by reference.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------
None
PART III
Items 10., 11., 12., and 13. of Part III are incorporated by reference to
the Registrant's Proxy Statement for its 1998 Annual Shareholders Meeting as
filed with the Commission pursuant to Regulation 14A.
7
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PART IV
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) 1 and 2 - All financial statements and schedules required to be
filed by Item 8 of this Form and included in this report have been
listed previously beginning on page 7. No additional financial
statements or schedules are being filed since the requirements of
paragraph (d) under Item 14 are not applicable to the Company.
(b) 3 - Exhibits.
8
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<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit
Number Description of Exhibit Filing Status
------ ---------------------- -------------
3.1 Articles of Incorporation of a
Comair Holdings, Inc.
3.2 By-Laws of Comair Holdings, Inc. a
3.3 Articles of Amendment to Articles of
Incorporation of Comair Holdings, Inc. e
10.1 1989 Delta Connection Agreement c
10.2 1991 Canadair Purchase Agreement d
MANAGEMENT CONTRACTS AND COMPENSATION PLANS
-------------------------------------------
10.4 Comair Savings and Investment Plan e
10.5 1990 Stock Option Plan c
10.6 1992 Directors' Stock Option Plan d
10.7 Deferred Incentive Compensation Plan f
10.8 Amended Employment Agreement with Mr. David R. Filed herewith
Mueller
10.9 Amended Employment Agreement with Mr. David A. Filed herewith
Siebenburgen
10.10 Performance Based Incentive Bonus Plan f
10.11 Consulting Agreement with Mr. Raymond A. f
Mueller
13 Annual Report to Shareholders Filed herewith
for 1998
21 Subsidiaries of the Registrant Filed herewith
23 Consent of Arthur Andersen LLP Filed herewith
99 Safe Harbor - Risk Factors Filed herewith
</TABLE>
9
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<TABLE>
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<S> <C>
Exhibit
Number Description of Exhibit
- ------ ----------------------
a Incorporated by reference to Registration Statement
No. 33-22696 filed under the Securities Act of 1933.
b Incorporated by reference to Registration Statement
No. 2-87728 filed under the Securities Act of 1933.
c Filed as an exhibit to Form 10-K for the fiscal year
ended March 31, 1990.
d Filed as an exhibit to Form 10-K for the fiscal year
ended March 31, 1992.
e Filed as an exhibit to Form 10-K for the fiscal year
ended March 31, 1994.
f Filed as an exhibit to Form 10-K for the fiscal year
ended March 31, 1996.
</TABLE>
Note: No Exhibits are attached to this copy of Form 10-K, as permitted by Rule
14a-3(b) (10) of the Securities Exchange Act of 1934. Shareholders may obtain
copies of exhibits by writing to:
Investor Relations Department
Comair Holdings, Inc.
P.O. Box 75317
Cincinnati, OH 45275
Shareholders requesting copies will be required to pay a charge of $.25 per page
to cover the cost of copying such exhibits.
(b) Reports on Form 8-K. No reports on Form 8-K were
filed during the last quarter of the fiscal year.
10
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SIGNATURES
----------
Pursuant to the requirements of Section 13 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.
DATE SIGNED: June 29, 1998 /S/ DAVID R. MUELLER
-----------------------------
BY: David R. Mueller,
Chairman of the Board
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/S/ DAVID R. MUELLER Chairman of the Board, June 29, 1998
- --------------------- Chief Executive Officer
David R. Mueller and Director
/S/ DAVID A. SIEBENBURGEN President, June 29, 1998
- ------------------------- Chief Operating Officer
David A. Siebenburgen and Director
/S/ RANDY D. RADEMACHER Sr. Vice President Finance June 29, 1998
- ----------------------- Chief Financial Officer
Randy D. Rademacher (Chief Accounting Officer)
/S/ GERALD L. WOLKEN Director June 29, 1998
- -----------------------
Gerald L. Wolken
/S/ ROBERT H. CASTELLINI Director June 29, 1998
- ------------------------
Robert H. Castellini
/S/ JOHN A. HAAS Director June 29, 1998
- ------------------------
John A. Haas
</TABLE>
11
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Comair Holdings, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in the Comair Holdings, Inc. and
subsidiaries 1998 annual report to shareholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated May 15, 1998. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The supplemental schedule listed under Item 8 beginning on page 7 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
May 15, 1998.
12
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COMAIR HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Three Years Ended March 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND FROM END OF
CLASSIFICATION OF PERIOD EXPENSES RESERVES PERIOD
-------------- --------- -------- -------- ------
<S> <C> <C> <C> <C>
Allowances and reserves
deducted from assets--
YEAR ENDED MARCH 31, 1998
- -------------------------
Inventory Reserve $3,260,000 $3,079,000 $(2,846,000) $3,493,000
YEAR ENDED MARCH 31, 1997
- -------------------------
Inventory Reserve $2,795,000 $ 465,000 $ - $3,260,000
YEAR ENDED MARCH 31, 1996
- -------------------------
Inventory Reserve $1,665,000 $1,130,000 $ - $2,795,000
</TABLE>
13
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EXHIBIT 10.8
RESTATED EMPLOYMENT AGREEMENT
THIS RESTATED EMPLOYMENT AGREEMENT ("Agreement") is dated as of April
1, 1998 by and between COMAIR HOLDINGS, INC. a Kentucky corporation ("Company")
and DAVID R. MUELLER ("Mueller").
W I T N E S S E T H:
WHEREAS, the Company and Mueller entered into an Employment Agreement
dated December 23, 1983 as restated by Restated Employment Agreement dated as of
June 1, 1988 which they desire to amend and restate; and
WHEREAS, Company desires to continue to employ Mueller as Chairman and
Chief Executive Officer, and Mueller desires to continue to perform such duties;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties agree as follows:
1. EMPLOYMENT. The Company does hereby continue to employ Mueller,
subject to the terms and conditions hereinafter set forth, as an executive
employee and officer of the Company with the title of Chairman of the Board and
Chief Executive Officer or such other executive title or titles as determined by
the Board of Directors of Company from time to time, and Mueller accepts such
employment upon the terms and conditions herein set forth.
2. TERM. The term of this Agreement shall be for three (3) years, which
shall commence on April 1, 1998, and shall terminate on March 3l, 2001, unless
sooner terminated in accordance with the provisions hereof; provided, however,
on March 31 of each year during the
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term commencing in 1999, this Agreement shall be extended for an additional year
unless either party shall give thirty (30) days prior written notice not to
automatically extend the term for an additional year.
3. DUTIES AND RESPONSIBILITIES.
(a) Mueller agrees during the term of his employment hereunder
to use his best efforts, skills and abilities to promote Company's business and
interests and to perform such duties consistent with his appointment as Chairman
of the Board and Chief Executive Officer as may be assigned to him by the Board
of Directors of Company or the Executive Committee of the Board of Directors.
Mueller shall maintain communication with the Board of Directors of Company
concerning his areas of responsibility and shall supply it with written reports,
business plans, budgets, forecasts and other studies concerning the business of
Company as he shall prepare from time to time during his employment by the
Company hereunder, which reports, plans, budgets, forecasts and other studies
shall be implemented only with the approval of the Board of Directors.
(b) Mueller agrees to abide by any and all rules and
regulations governing the transaction of business as the Board of Directors of
Company may from time to time adopt or approve.
4. ELECTION AS DIRECTOR AND OFFICER. It is contemplated that Mueller
will continue to be elected as a member of the Board of Directors, a member of
the Executive Committee of the Board of Directors and as Chief Executive Officer
of Company and shall be retained in such posts throughout his employment by
Company.
5. COMPENSATION. Company shall pay Mueller in full payment for any and
all services rendered by him hereunder, including, without limitation, all
services as an officer or
<PAGE> 3
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Director or both of Company, its subsidiaries or affiliates, at an annual rate
of Five Hundred Twenty-Five Thousand Dollars ($525,000), subject to increase at
the sole discretion of the Board of Directors and payable in accordance with the
customary payroll practices of Company (but not less often than monthly). If
Mueller's salary is increased by the Board of Directors, such increased salary
shall become the minimum amount of compensation payable to Mueller under this
Agreement, and will not be reduced thereafter. Mueller shall also remain a
participant in the Company's Management incentive Compensation Plan (the "Plan")
or any replacement or successor plan of the Company, and shall be eligible to
receive bonuses thereunder in accordance with the terms of the Plan.
6. ADDITIONAL EMPLOYMENT BENEFITS. Mueller shall be entitled to
participate in all benefits made generally available by Company to its Executive
Officers during the period covered by this Agreement, including, without
limitation, vacations, pension plans, profit sharing plans, hospitalization
insurance, health and accident insurance, disability insurance, group term life
insurance, automobile allowances, and all other fringe benefits which may be
provided by Company for any of its Executive Officers during the term of
employment pursuant to this Agreement.
7. INDEMNIFICATION. Company shall indemnify and hold Mueller harmless
for any actions taken or decisions made by him in good faith while performing
services in his capacity as Chairman, Chief Executive Officer or Director of
Company during the term of this Agreement. To the extent permitted by law,
Company shall pay, indemnify, and hold Mueller harmless from any liability, cost
or expense (including, without limitation, reasonable attorneys' fees) incurred
by him in the defense of any claim, proceeding or action arising out of his
performance of services for Company, or out of his status as an Officer or
Director of Company. Company will use its best
<PAGE> 4
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efforts to obtain coverage for Mueller under any insurance now in force or
hereafter obtained during the term of this Agreement covering any employee,
officer or director of Company. Notwithstanding the foregoing, Company does not
intend to and shall not indemnify Mueller for any act or omission by him
constituting fraud or willful misconduct.
8. TERMINATION. Mueller's rights under this Agreement shall continue
until expiration of the term under Section 2 hereof, unless prior thereto: (i)
Mueller dies; (ii) Mueller is dismissed without cause pursuant to Section 9
hereof; (iii) Mueller is dismissed for cause as defined in Section 10 hereof; or
(iv) Company determines that Mueller has become disabled, as provided in Section
11 hereof.
9. EARLY TERMINATION.
(a) Notwithstanding anything to the contrary herein, the
Company shall have the right at any time, at its sole option, to terminate
Mueller's employment hereunder without cause upon thirty (30) days' prior
written notice; provided, however, if the Company delivers notice that Mueller's
employment is terminated pursuant to this Section 9, Company shall pay Mueller,
and Mueller shall accept in full satisfaction of Company's obligations under
this Agreement, an amount equal to three (3) times the sum of (i) the base
salary in effect at the termination date, plus (ii) the average annual bonus
compensation payable to Mueller during the prior three (3) fiscal years, payable
in a lump sum payment within fifteen (15) days following termination; provided
further in the event of a "change of control" of the Company (as hereinafter
defined), (i) this Agreement shall be deemed terminated as of the date of the
change of control, and the Company shall pay to Mueller the payment required
under this Section; and (ii) all of Mueller's stock options shall automatically
vest without further action as of the date of the change of control and Mueller
shall be subject to exercise in accordance with the terms of the
<PAGE> 5
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applicable Stock Option Plan including without limitation for a period of not
less than ninety (90) days, provided, further, Mueller shall have the right to
waive the termination and payment due hereunder upon execution of a revised
Employment Agreement with the Company, in form and substance satisfactory to
Mueller. "Change in control" shall be deemed to occur if any person or
affiliated group acquires more than Twenty-Five Percent of the outstanding
common stock of the Company. Mueller hereby acknowledges that as a condition of
his right to receive the payments provided for in this Section he will be
required and hereby agrees to execute and deliver to Company a form of release
and any other documents reasonably requested by Company to acknowledge full
satisfaction by Mueller of Company's obligations under this Agreement.
(b) If Mueller's employment is terminated due to death or
disability, Company shall, thereafter, pay to Mueller or the estate or legal
representative of Mueller an amount equal to the payment due under Section 9(a)
hereof upon termination of this Agreement.
10. TERMINATION FOR CAUSE.
(a) Anything herein to the contrary notwithstanding, Company
shall have the right to terminate Mueller's employment hereunder for cause, as
such terms are defined in the following section.
(b) For the purpose of this Section 10, the term "cause" means
(i) fraud, misappropriation, embezzlement, intentional and material damage to
the property of Company; or (ii) material breach of any of the provisions of
this Agreement described in Section 12.
(c) Upon termination of Mueller's employment for cause
pursuant to this Section 10, Mueller shall not be entitled to receive any
further compensation other than accrued benefits under profit sharing or pension
plans, if any, and shall be completely relieved of his position as an officer
and director of Company, its subsidiaries and affiliates, and Mueller
<PAGE> 6
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covenants and agrees to deliver at the termination date all resignations
necessary to effect his termination as an employee, officer and director.
11. DISABILITY.
(a) If, during the term of this Agreement, Mueller contracts
an illness or other disability which prevents performance by him of his duties
as an Executive Officer for a consecutive period of six (6) months or more, then
Company at its option, may at any time thereafter terminate this Agreement by
serving thirty (30) days written notice thereof on Mueller and this Agreement
shall terminate and come to an end upon the date set forth in said notice as if
such date were the termination date of this Agreement. If prior to the date
specified in such notice, Mueller's illness or incapacity shall have been
terminated and he is physically and mentally able to perform his duties as an
Executive Officer and shall have taken up and is performing such duties on a
full time basis, he shall be entitled to resume employment hereunder as though
such notice had not been given.
(b) During any period of disability and prior to the
termination of this Agreement as in this Section provided, Mueller shall
continue to be paid in full by Company in accordance with the provisions of
Section 5, except that Company shall deduct from Mueller's compensation as
herein provided an amount equal to any disability insurance payments received by
Mueller for such period pursuant to disability insurance policies paid for and
maintained by Company for the benefit of Mueller.
(c) If there should be any dispute between the parties as to
Mueller's physical or mental disability at any time, such questions shall be
settled by the majority opinion of three impartial, reputable physicians, one of
whom shall be selected by Company, another by Mueller, and the third by the two
physicians selected by Company and Mueller. The certificate of two such
<PAGE> 7
- 7 -
physicians as to the matter in dispute shall be final and binding on the
parties.
12. CONFIDENTIALITY AND NON-COMPETITION.
(a) Mueller will not at any time during the term of this
Agreement or thereafter, except as authorized by Company, divulge, furnish or
make accessible to any person, firm, corporation or other entity, any such
confidential and sensitive information and any other information not otherwise
publicly available which he presently possesses or which he may obtain during
the course of his employment with respect to the business, customers and affairs
of Company or any subsidiary or affiliate of Company or trade secrets,
developments, know-how methods or other information and data pertaining to
practices, equipment, developments or any confidential or secret aspect of the
business of Company or any subsidiary or affiliate of Company, and that all such
matters and information shall be kept strictly and absolutely confidential.
Mueller, upon termination of his employment, irrespective of the time, manner or
cause of termination, will surrender and deliver to Company all lists, books,
records and data of every kind relating to or in connection with the business of
Company or any subsidiary or affiliate of Company, and all property belonging to
Company and any subsidiary or affiliate of Company.
(b) During the term of this Agreement and, in the event that
Mueller's employment with Company is terminated for any reason other than a
change in control as defined in Section 9 hereof, for a period of two (2) years
after such termination, Mueller shall not, directly or indirectly, engage in or
contract with others to engage in any business enterprise, line of work,
consulting contract, joint venture or other arrangement which conducts a
business or businesses substantially similar to the business conducted by
Company in any area in which Company or any of its affiliates or subsidiaries
provides or plans to provide air transportation to the public. Mueller
acknowledges that the geographic area covered hereby, and the period and nature
of the
<PAGE> 8
- 8 -
agreed restrictions are reasonable and necessary for the protection of
the business of Company. All provisions of this paragraph concerning
non-competition are severable; and while it is the intention of the parties that
all of said provisions shall be enforceable, if any one of the same shall be
held to be unenforceable in whole or in part, the remainder shall continue to be
in full force and effect.
13. IRREPARABLE INJURY. Mueller acknowledges that his compliance with
his duties and obligations under Section 12 is necessary to protect the goodwill
and other proprietary interests of Company and the purposes and essence of this
Agreement. Mueller acknowledges that a breach of his duties and obligations
under Section 12 will result in irreparable and continuing damage to Company for
which there will be no adequate remedy at law; and agrees that, in the event of
any breach of any of the aforesaid duties and obligations, Company and its
successors and assigns shall be entitled to injunctive or other equitable relief
and to such other and further relief as may be proper.
14. ASSIGNMENT AND SUCCESSORS IN INTEREST. To the extent that the
obligations provided for herein require the personal performance of Mueller,
Mueller's rights, interests and obligations as provided herein may not be
assigned. Except as otherwise provided in the immediately preceding section of
this sentence, all rights privileges and obligations of the parties hereto shall
inure to the benefit of and be binding upon their respective successors,
assigns, heirs, executors, administrators and estates.
15. NOTICE. Any notice required or permitted hereunder shall be given
in writing and delivered to the other party by U. S. registered or certified
mail; if to Company, at Post Office Box 75021, Greater Cincinnati International
Airport, Cincinnati, Ohio 45275; if to Mueller, at P. O. Box 18728, Erlanger,
Kentucky, 41018, or such other address as either party may specify in a
<PAGE> 9
- 9 -
written notice to the other party.
16. ENTIRE AGREEMENT AND AMENDMENT. This Agreement embodies the entire
agreement between the parties and supersedes all prior agreements, whether
written or oral, relating to the object matter herein. Any amendment hereto
shall be in writing and executed by the duly authorized representatives of each
party.
17. CHOICE OF LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Kentucky.
18. SEVERABILITY. If any portion of this Agreement shall be held
unenforceable for any reason, the same shall not affect the validity or
enforceability of the remaining provisions contained herein.
19. HEADINGS. The section headings used in this Agreement are for
convenience only and shall not affect the construction or interpretation of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
WITNESS: COMAIR HOLDINGS, INC.
/s/ David A. Siebenburgen BY: /s/ Peter H. Forster
- ------------------------- ---------------------
/s/ Richard D. Siegel /s/ David R. Mueller
- --------------------- ---------------------------
DAVID R. MUELLER
<PAGE> 1
- 1 -
EXHIBIT 10.9
RESTATED EMPLOYMENT AGREEMENT
THIS RESTATED EMPLOYMENT AGREEMENT ("Agreement") is dated as of April
1, 1998 by and between COMAIR HOLDINGS, INC., a Kentucky corporation ("Company")
and DAVID A. SIEBENBURGEN ("Siebenburgen").
W I T N E S S E T H:
WHEREAS, the Company and Siebenburgen entered into an Employment
Agreement dated June 30, 1986 as restated by Restated Employment Agreement dated
as of June 1, 1988 which they desire to amend and restate; and
WHEREAS, Company desires to employ Siebenburgen as President and Chief
Operating Officer, and Siebenburgen desires to perform such duties;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. EMPLOYMENT. The Company does hereby employ Siebenburgen, subject to
the terms and conditions hereinafter contained, as an executive employee with
the title of President and Chief Operating Officer or such other executive title
or titles hereafter determined by the Board of Directors of Company, and
Siebenburgen accepts such employment upon the terms and conditions herein
contained.
2. TERM. The term of this Agreement shall be for three (3) years, which
shall commence on April 1, 1998, and shall terminate on March 31, 2001, unless
sooner terminated in accordance with the provisions hereof; provided, however,
on March 31 of each year during the
<PAGE> 2
- 2 -
term commencing in 1999, this Agreement shall be extended for an additional year
unless either party shall give thirty (30) days prior written notice not to
automatically extend the term for an additional year.
3. DUTIES AND RESPONSIBILITIES.
(a) Siebenburgen agrees during the term of his employment hereunder to
use his best efforts, skills and abilities to promote Company's business and
interests and to perform such duties consistent with his appointment as
President and Chief Operating Officer as may be assigned to him by the Chief
Executive Officer, Board of Directors or the Executive Committee of the Board of
Directors of the Company. Siebenburgen shall maintain communication with the
Chairman, Chief Executive Officer and the Board of Directors of Company
concerning his areas of responsibility and shall supply them with written
reports, business plans, budgets, forecasts and other studies concerning the
business of the Company as he shall prepare from time to time during his
employment by the Company hereunder, which reports, plans, budgets, forecasts
and other studies shall be implemented only with the approval of the Board of
Directors.
(b) Siebenburgen agrees to abide by any and all rules and regulations
governing the transaction of business as the Board of Directors of Company may
from time to time adopt or approve.
4. ELECTION AS DIRECTOR AND OFFICER. It is contemplated that
Siebenburgen will continue to be elected as a member of the Board of Directors
and appointed President and Chief Operating Officer of Company and will be
retained in such posts throughout his employment by Company.
5. COMPENSATION. Company shall pay Siebenburgen in full payment for any
and all
<PAGE> 3
- 3 -
services rendered by him hereunder, including, without limitation, all
services as an officer of Company, its subsidiaries or affiliates, a salary at
an annual rate of Four Hundred Twenty Thousand Dollars ($420,000), subject to
increase at the sole discretion of the Board of Directors and payable in
accordance with the customary payroll practices of Company (but not less often
than monthly). If Siebenburgen's salary is increased by the Board of Directors,
such increased salary shall become the minimum amount of compensation payable to
Siebenburgen under this Agreement, and will not be reduced thereafter.
Siebenburgen shall also remain a participant in the Company's Management
Incentive Compensation Plan (the "Plan"), or any replacement or successor Plan
of the Company, and shall be eligible to receive bonuses thereunder in
accordance with the terms of the Plan.
6. ADDITIONAL EMPLOYMENT BENEFITS. Siebenburgen shall be entitled to
participate in all benefits made generally available by Company to its Executive
Officers during the period covered by this Agreement, including, without
limitation, vacations, pension plans, profit sharing plans, hospitalization
insurance, health and accident insurance, disability insurance, group term life
insurance, automobile allowances and all other fringe benefits which may be
provided by Company for any of its Executive Officers during the term of
employment.
7. INDEMNIFICATION. Company shall indemnify and hold Siebenburgen
harmless for any actions taken or decisions made by him in good faith while
performing services in his capacity as President and Chief Operating Officer of
Company during the term of this Agreement. To the extent permitted by law,
Company shall pay, indemnify, and hold Siebenburgen harmless from any liability,
cost or expense (including, without limitation, reasonable attorneys' fees)
incurred by him in the defense of any claim, proceeding or action arising out of
his performance of services for
<PAGE> 4
- 4 -
Company, or out of his status as an Officer of Company. Company will use its
best efforts to obtain coverage for Siebenburgen under any insurance now in
force or hereafter obtained during the term of this Agreement covering any
employee or officer of Company. Notwithstanding the foregoing, Company does not
intend to and shall not indemnify Siebenburgen for any act or omission by him
constituting fraud or willful misconduct.
8. TERMINATION. Siebenburgen's rights under this Agreement shall
continue until expiration of the term under Section 2 hereof, unless prior
thereto: (i) Siebenburgen dies; (ii) Siebenburgen is dismissed without cause
pursuant to Section 9 hereof; (iii) Siebenburgen is dismissed for cause as
defined in Section 10 hereof; or (iv) Company determines that Siebenburgen has
become disabled, as provided in Section 11 hereof.
9. EARLY TERMINATION.
(a) Notwithstanding anything to the contrary herein, the Company shall
have the right at any time, at its sole option, to terminate Siebenburgen's
employment hereunder without cause upon thirty (30) days' prior written notice;
provided, however, if Siebenburgen's employment is terminated pursuant to this
Section 9, Company shall pay Siebenburgen, and Siebenburgen shall accept in full
satisfaction of Company's obligations under this Agreement, an amount equal to
three (3) times the sum of (i) the base salary in effect at the termination
date, plus (ii) the average annual bonus compensation payable to Siebenburgen
during the prior three (3) fiscal years, payable in a lump sum payment within
fifteen (15) days following termination; provided, further, in the event of a
"change in control" of the Company (as hereinafter defined), (i) this Agreement
shall be deemed terminated as of the date of the change of control, and the
Company shall pay to Siebenburgen the payments required under this Section; and
(ii) all of Siebenburgen's stock
<PAGE> 5
- 5 -
options shall automatically vest without further action as of the date of the
change of control and Siebenburgen shall be subject to exercise in accordance
with the terms of the applicable Stock Option Plan including without limitation
for a period of not less than ninety (90) days, provided, further, Siebenburgen
shall have the right to waive the termination and payments due hereunder upon
execution of a revised Employment Agreement with the Company, in form and
substance satisfactory to Siebenburgen. "Change in control" shall be deemed to
occur if any person or affiliated group acquires more than Twenty-Five Per Cent
(25%) of the outstanding common stock of the Company. Siebenburgen hereby
acknowledges that as a condition of his right to receive the payments provided
for in this Section 9, he will be required and hereby agrees to execute and
deliver to Company a form of release and any other documents reasonably
requested by Company to acknowledge full satisfaction by Siebenburgen of
Company's obligations under this Agreement.
(b) If Siebenburgen's employment is terminated due to death or
disability, Company shall, thereafter, pay to Siebenburgen or the estate or
legal representative of Siebenburgen an amount equal to the payment due under
Section 9(a) hereof upon termination of this Agreement.
10. TERMINATION FOR CAUSE.
(a) Anything herein to the contrary notwithstanding, Company shall have
the right to terminate Siebenburgen's employment hereunder for cause, as such
terms are defined in the following section.
(b) For the purpose of this Section 10, the term "cause" means (i)
fraud, misappropriation, embezzlement, intentional and material damage to the
property of Company; or (ii) material breach of any of the provisions of this
Agreement described in Section 12.
<PAGE> 6
- 6 -
(c) Upon termination of Siebenburgen's employment for cause pursuant to
this Section 10, Siebenburgen shall not be entitled to receive any further
compensation other than accrued benefits under profit sharing or pension plans,
if any, and shall be completely relieved of his position as an officer of
Company, its subsidiaries and affiliates, and Siebenburgen covenants and agrees
to deliver at the termination date all resignations necessary to effect the
foregoing.
11. DISABILITY.
(a) If, during the term of this Agreement, Siebenburgen contracts an
illness or other disability which prevents performance by him of his duties as
an Executive Officer for a consecutive period of six (6) months or more, then
Company at its option, may at any time thereafter terminate this Agreement by
serving thirty (30) days written notice thereof on Siebenburgen and this
Agreement shall terminate and come to an end upon the date set forth in said
notice as if such date were the termination date of this Agreement. If prior to
the date specified in such notice, Siebenburgen's illness or incapacity shall
have been terminated and he is physically and mentally able to perform his
duties as an Executive Officer and shall have taken up and is performing such
duties on a full time basis, he shall be entitled to resume employment hereunder
as though such notice had not been given.
(b) During any period of disability and prior to the termination of
this Agreement as in this Section provided, Siebenburgen shall continue to be
paid in full by Company in accordance with the provisions of Section 5, except
that Company shall deduct from Siebenburgen's compensation as herein provided an
amount equal to any disability insurance payments received by Siebenburgen for
such period pursuant to disability insurance policies paid for and maintained by
Company for the benefit of Siebenburgen.
<PAGE> 7
- 7 -
(c) If there should be any dispute between the parties as to
Siebenburgen's physical or mental disability at any time, such questions shall
be settled by the majority opinion of three impartial, reputable physicians, one
of whom shall be selected by Company, another by Siebenburgen, and the third by
the two physicians selected by Company and Siebenburgen. The certificate of two
such physicians as to the matter in dispute shall be final and binding on the
parties.
12. CONFIDENTIALITY AND NON-COMPETITION.
(a) Siebenburgen will not at any time during the term of this Agreement
or thereafter, except as authorized by Company, divulge, furnish or make
accessible to any person, firm, corporation or other entity, any such
confidential and sensitive information and any other information not otherwise
publicly available which he presently possesses or which he may obtain during
the course of his employment with respect to the business, customers and affairs
of Company or any subsidiary or affiliate of Company or trade secrets,
developments, know-how methods or other information and data pertaining to
practices, equipment, developments or any confidential or secret aspect of the
business of Company or any subsidiary or affiliate of Company, and that all such
matters and information shall be kept strictly and absolutely confidential.
Siebenburgen, upon termination of his employment, irrespective of the time,
manner or cause of termination, will surrender and deliver to Company all lists,
books, records and data of every kind relating to or in connection with the
business of Company or any subsidiary or affiliate of Company, and all property
belonging to Company and any subsidiary or affiliate of Company.
(b) During the term of this Agreement and, in the event that
Siebenburgen's employment with Company is terminated for any reason other than a
change in control as defined
<PAGE> 8
- 8 -
in Section 9 hereof, for a period of two (2) years after such termination,
Siebenburgen shall not, directly or indirectly, engage in or contract with
others to engage in any business enterprise, line of work, consulting contract,
joint venture or other arrangement which conducts a business or businesses
substantially similar to the business conducted by Company in any area in which
Company or any of its affiliates or subsidiaries provides or plans to provide
air transportation to the public. Siebenburgen acknowledges that the geographic
area covered hereby, and the period and nature of the agreed restrictions are
reasonable and necessary for the protection of the business of Company. All
provisions of this paragraph concerning non-competition are severable; and while
it is the intention of the parties that all of said provisions shall be
enforceable, if any one of the same shall be held to be unenforceable in whole
or in part, the remainder shall continue to be in full force and effect.
13. IRREPARABLE INJURY. Siebenburgen acknowledges that his compliance
with his duties and obligations under Section 12 is necessary to protect the
goodwill and other proprietary interests of Company and the purposes and essence
of this Agreement. Siebenburgen acknowledges that a breach of his duties and
obligations under Section 12 will result in irreparable and continuing damage to
Company for which there will be no adequate remedy at law; and agrees that, in
the event of any breach of any of the aforesaid duties and obligations, Company
and its successors and assigns shall be entitled to injunctive or other
equitable relief and to such other and further relief as may be proper.
14. ASSIGNMENT AND SUCCESSORS IN INTEREST. To the extent that the
obligations provided for herein require the personal performance of
Siebenburgen, Siebenburgen's rights, interests and obligations as provided
herein may not be assigned. Except as otherwise provided in
<PAGE> 9
- 9 -
the immediately preceding section of this sentence, all rights privileges and
obligations of the parties hereto shall inure to the benefit of and be binding
upon their respective successors, assigns, heirs, executors, administrators and
estates.
15. NOTICE. Any notice required or permitted hereunder shall be given
in writing and delivered to the other party by U. S. registered or certified
mail; if to Company, at Post Office Box 75021, Greater Cincinnati International
Airport, Cincinnati, Ohio 45275; if to Siebenburgen, at 7582 Squirrel Creek,
Cincinnati, Ohio 45247, or such other address as either party may specify in a
written notice to the other party.
16. ENTIRE AGREEMENT AND AMENDMENT. This Agreement embodies the entire
agreement between the parties and supersedes all prior agreements, whether
written or oral, relating to the object matter herein. Any amendment hereto
shall be in writing and executed by the duly authorized representatives of each
party.
17. CHOICE OF LAW. This Agreement shall be construed in accordance with
the laws of the Commonwealth of Kentucky.
18. SEVERABILITY. If any portion of this Agreement shall be held
unenforceable for any reason, the same shall not affect the validity or
enforceability of the remaining provisions contained herein.
19. HEADINGS. The section headings used in this Agreement are for
convenience only and shall not affect the construction or interpretation of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMAIR HOLDINGS, INC.
BY: /s/ PETER H. FORSTER
-------------------------
Peter H. Forster
/s/ DAVID A. SIEBENBURGEN
-------------------------
David A. Siebenburgen
<PAGE> 1
HIGHLIGHTS FISCAL 1998 Exhibit 13
Comair Holdings, Inc. and Subsidiaries for the Years Ended March 31,
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------------------------------------------------------------------------------------
FINANCIAL DATA 1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUMMARY OF OPERATIONS:
Operating revenues $ 651,162,221 $ 563,815,043 $ 463,298,143
Operating income $ 161,597,959 $ 116,117,400 $ 94,826,780
Pretax income $ 164,855,210 $ 120,160,593 $ 96,771,473
Net income $ 102,213,210 $ 75,424,593 $ 60,008,473
Net income per share-Basis $ 1.53 $ 1.13 $ .90
Net income per share-Diluted $ 1.51 $ 1.12 $ .90
Dividends paid per share $ .160 $ .142 $ .110
Market value per share
(end of year) $ 26.50 $ 14.50 $ 15.45
AIRLINE OPERATING DATA:
Passengers carried 5,469,436 4,708,498 4,102,690
Revenue passenger miles (000) 1,823,664 1,551,093 1,281,308
Available seat miles (000) 3,002,378 2,774,926 2,366,269
</TABLE>
<PAGE> 2
1998 FINANCIAL REVIEW
Comair Holdings, Inc. and Subsidiaries
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Public Accountants 9
Consolidated Ten Year Summary 10
Selected Quarterly Financial Data 12
Management's Discussion and Analysis 13
Consolidated Balance Sheets 20
Consolidated Statements of Income 22
Consolidated Statements of Shareholders' Equity 23
Consolidated Statements of Cash Flows 24
Notes to Consolidated Financial Statements 25
Directory 36
Corporate Information Inside Back Cover
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO COMAIR HOLDINGS, INC.:
We have audited the accompanying consolidated
balance sheets of Comair Holdings, Inc. (a Kentucky
corporation) and subsidiaries as of March 31, 1998 and 1997,
and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three
years in the period ended March 31, 1998. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Comair Holdings, Inc.
and subsidiaries as of March 31, 1998 and 1997, and the
results of their operations and their cash flows for each of
the three years in the period ended March 31, 1998 in
conformity with generally accepted accounting principles.
Cincinnati, Ohio Arthur Andersen LLP
May 15, 1998
<PAGE> 3
1998 Comair Holdings, Inc. Annual Report #
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS:
<S> <C> <C> <C> <C>
Operating revenues $ 651,162,221 $ 563,815,043 $ 463,298,143 $ 360,704,137
Operating income $ 161,597,959 $ 116,117,400 $ 94,826,780 $ 47,024,968
Pretax income $ 164,855,210 $ 120,160,593 $ 96,771,473 $ 47,705,256
Net income $ 102,213,210 $ 75,424,593 $ 60,008,473 $ 29,305,256
Net income per share - basic $ 1.53 $ 1.13 $ .90 $ .43
Weighted average shares
outstanding - basic 66,887,386 66,707,241 66,407,163 68,352,755
Net income per share - diluted $ 1.51 $ 1.12 $ .90 $ .43
Weighted average shares
outstanding - diluted 67,749,164 67,280,522 66,843,232 68,783,880
Dividends paid per share $ .160 $ .143 $ .110 $ .084
OTHER FINANCIAL DATA:
Working capital $ 188,458,038 $ 119,687,410 $ 92,426,588 $ 41,724,167
Total assets $ 669,736,801 $ 588,585,945 $ 429,030,154 $ 347,021,961
Long-term obligations, net of current
maturities $ 114,312,516 $ 127,747,861 $ 70,745,129 $ 79,906,236
Shareholders' equity $ 361,845,841 $ 280,299,329 $ 213,129,204 $ 156,763,419
Shareholders' equity per share $ 5.43 $ 4.20 $ 3.20 $ 2.38
Stock price (end of year) $ 26.50 $ 14.50 $ 15.45 $ 5.11
Return on beginning shareholders'
equity 36.5% 35.4% 38.3% 17.3%
AIRLINE STATISTICAL DATA:
Passengers carried 5,469,436 4,708,498 4,102,690 3,399,948
Revenue passenger miles (000) 1,823,664 1,551,093 1,281,308 1,015,177
Available seat miles (000) 3,002,378 2,774,926 2,366,269 2,041,887
Passenger load factor 60.7% 55.9% 54.1% 49.7%
Breakeven load factor 46.3% 44.9% 42.9% 42.9%
Yield per revenue passenger mile 34.0 cents 34.7 cents 34.7 cents 34.0 cents
Cost per available seat mile 15.7 cents 15.5 cents 15.0 cents 14.8 cents
Equivalent full-time employees
(end of year) 3,217 2,897 2,523 2,447
Number of aircraft (end of year) 93 94 89 84
</TABLE>
All weighted average share and per share information has been adjusted
retroactively for three-for-two stock splits effective November 1997, May 1996,
August 1995, April 1993 and February 1992.
10 1998 Comair Holdings, Inc. Annual Report
<PAGE> 4
CONSOLIDATED TEN YEAR SUMMARY
Comair Holdings, Inc. and Subsidiaries for the Years Ended March 31,
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 296,635,551 $ 248,281,681 $ 217,203,892 $ 201,551,437 $ 157,666,352 $ 118,307,669
$ 47,300,280 $ 32,254,010 $ 21,152,042 $ 21,731,650 $ 20,157,621 $ 10,774,705
$ 49,210,415 $ 32,060,079 $ 20,652,322 $ 21,774,097 $ 21,629,471 $ 11,515,849
$ 28,528,415 $ 19,268,079 $ 12,412,322 $ 13,076,097 $ 13,014,471 $ 7,030,849
$ .39 $ .31 $ .20 $ .21 $ .21 $ .11
72,440,576 63,014,601 61,692,780 61,655,337 61,801,023 64,635,861
$ .39 $ .30 $ .20 $ .21 $ .21 $ .11
73,052,918 63,427,874 62,039,910 62,296,482 62,356,213 64,894,297
$ .071 $ .056 $ .054 $ .053 $ .045 $ .041
$ 77,146,245 $ 74,344,774 $ 14,667,083 $ 20,535,063 $ 19,785,209 $ 24,330,841
$ 284,559,219 $ 260,088,150 $ 180,601,757 $ 166,771,951 $ 128,241,223 $ 84,163,598
$ 27,115,862 $ 34,619,680 $ 41,597,285 $ 48,674,999 $ 33,005,786 $ 14,231,755
$ 169,277,604 $ 145,028,367 $ 79,478,537 $ 69,419,703 $ 60,015,389 $ 50,012,291
$ 2.33 $ 2.00 $ 1.28 $ 1.13 $ .97 $ .81
$ 6.37 $ 7.46 $ 3.71 $ 2.53 $ 1.99 $ 1.37
19.7% 24.2% 17.9% 21.8% 26.0% 13.8%
2,735,468 2,394,871 2,055,077 1,904,221 1,601,690 1,250,162
696,443 545,459 446,712 393,868 305,647 232,096
1,477,198 1,182,124 1,031,408 927,240 683,934 548,152
47.1% 46.1% 43.3% 42.5% 44.7% 42.3%
39.1% 39.7% 38.8% 37.8% 38.6% 38.3%
40.6 cents 42.9 cents 45.3 cents 47.6 cents 49.2 cents 49.1 cents
16.1 cents 17.3 cents 17.7 cents 18.1 cents 19.2 cents 19.1 cents
2,145 1,936 1,936 1,841 1,622 1,354
79 68 71 69 63 54
</TABLE>
1998 Comair Holdings, Inc. Annual Report 11
<PAGE> 5
SELECTED QUARTERLY FINANCIAL DATA
Comair Holdings, Inc. and Subsidiaries
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH YEAR
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FISCAL 1998
Operating revenues $ 159,041,742 $ 162,870,471 $ 163,157,595 $ 166,092,413 $ 651,162,221
Operating income $ 40,107,876 $ 39,217,154 $ 37,922,483 $ 44,350,446 $ 161,597,959
Pretax income $ 40,632,010 $ 39,593,274 $ 39,163,396 $ 45,466,530 $ 164,855,210
Net income $ 25,207,010 $ 24,542,274 $ 24,276,396 $ 28,187,530 $ 102,213,210
Net income per share -
basic $ .38 $ .37 $ .36 $ .42 $ 1.53
Weighted average shares
outstanding - basic 66,798,339 66,809,227 67,058,025 66,883,485 66,887,386
Net income per share -
diluted $ .37 $ .36 $ .36 $ .42 $ 1.51
Weighted average shares
outstanding - diluted 67,514,232 67,481,241 67,799,598 67,690,606 67,749,164
Dividends paid per share $ .040 $ .040 $ .040 $ .040 $ .160
Stock price data
High $ 18.50 $ 19.58 $ 26.13 $ 30.38 $ 30.38
Low $ 13.21 $ 16.50 $ 17.92 $ 22.50 $ 13.21
FISCAL 1997
Operating revenues $ 139,025,159 $ 137,524,194 $ 138,272,352 $ 148,993,338 $ 563,815,043
Operating income $ 34,524,116 $ 28,847,706 $ 24,092,295 $ 28,653,283 $ 116,117,400
Pretax income $ 35,552,363 $ 29,782,420 $ 24,942,544 $ 29,883,266 $ 120,160,593
Net income $ 22,042,363 $ 18,487,420 $ 15,464,544 $ 19,430,266 $ 75,424,593
Net income per share - basic $ .33 $ .28 $ .23 $ .29 $ 1.13
Weighted average shares
outstanding - basic 66,660,681 66,670,430 66,706,975 66,792,224 66,707,241
Net income per share -
diluted $ .33 $ .27 $ .23 $ .29 $ 1.12
Weighted average shares
outstanding - diluted 67,360,701 67,258,893 67,272,319 67,292,175 67,280,522
Dividends paid per share $ .031 $ .031 $ .040 $ .040 $ .143
Stock price data
High $ 20.42 $ 18.17 $ 17.42 $ 17.25 $ 20.42
Low $ 13.92 $ 13.33 $ 12.09 $ 12.67 $ 12.09
</TABLE>
All weighted average share and per share information has been adjusted
retroactively for three-for-two stock splits effective November 1997 and May
1996.
12 1998 Comair Holdings, Inc. Annual Report
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Comair Holdings, Inc. and Subsidiaries
RESULTS OF OPERATIONS
COMAIR, INC. (COMAIR) is the principal subsidiary of Comair Holdings,
Inc. (with its subsidiaries, the Company), accounting for 96% of operating
revenues and expenses in fiscal 1998. 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 focus on
continuously improving operating performance have helped lessen the effect on
the Company of price competition and resulting low fares when compared to others
in the airline industry. However, changes in the pricing strategies and
increased competition from other airlines 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. (Delta) 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 handling
services. Approximately 45% of COMAIR's passengers in 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.
FISCAL 1998 COMPARED WITH FISCAL 1997
Fiscal 1998 was highlighted with the Company reporting record operating
revenues, operating income, net income and passenger enplanements. Operating
revenues for the year increased to $651 million, up 15% from $564 million in
fiscal 1997. Operating income for the year rose 39% to $161.6 million from
$116.1 million. Net income increased 36% to $102.2 from $75.4 million and net
income per diluted share increased to $1.51 from $1.12.
The increase in earnings is largely the result of increased passenger
enplanements which has translated into higher load factors. Passenger
enplanements grew 16% over last year's levels while load factors exceeded last
year by approximately five percentage points. This growth in traffic clearly
indicates our continuing success to attract passengers to our system, of which
the Cincinnati hub represents approximately 80% of our operations. The
combination of Cincinnati's location in the middle of the population, our world
class facilities and the passenger appeal of the Canadair Jets have made
Cincinnati one of the nation's preeminent connecting hubs. In early 1998, the
Greater Cincinnati/Northern Kentucky International Airport was voted the easiest
connecting airport in the United States, by the International Air Transport
Association.
Revenue passenger miles (RPMs) grew 18%. Capacity, available seat miles
(ASMs) grew 8% as we continue to replace turboprop aircraft with new
50-passenger Canadair Jet aircraft. Currently, more than 80% of our system-wide
seat capacity is operated by the Canadair Jet equipment.
1998 Comair Holdings, Inc. Annual Report 13
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
Yield per revenue passenger mile decreased 2% year over year. Passenger
yields vary based on certain factors including the expiration and reinstatement
of the federal taxes on airline tickets, fare discounting and changes in
competition.
The following tables show the major expense categories for COMAIR for
the year ended March 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
TOTAL EXPENSES 1998 1997 1996
-------------------------------------------------------
<S> <C> <C> <C>
Salaries and related costs $ 113,311,389 $ 99,879,467 $ 85,333,979
Aircraft fuel 53,784,926 55,466,125 38,703,967
Maintenance materials and repairs 54,121,549 44,242,523 40,895,807
Aircraft rent 72,421,142 70,753,755 57,805,169
Other rent and landing fees 21,103,005 18,828,801 15,932,585
Passenger commissions 46,710,049 44,855,202 38,329,529
Other operating expenses 82,606,725 74,960,417 59,454,915
Depreciation and amortization 26,322,529 21,747,953 19,072,163
-------------------------------------------------------
$ 470,381,314 $ 430,734,243 $ 355,528,114
=======================================================
COST PER ASM 1998 1997 1996
-------------------------------------------------------
Salaries and related costs 3.8 cents 3.6 cents 3.6 cents
Aircraft fuel 1.8 2.0 1.6
Maintenance materials and repairs 1.8 1.6 1.8
Aircraft rent 2.4 2.5 2.4
Other rent and landing fees 0.7 0.7 0.7
Passenger commissions 1.5 1.6 1.6
Other operating expenses 2.8 2.7 2.5
Depreciation and amortization 0.9 0.8 0.8
-------------------------------------------------------
15.7 cents 15.5 cents 15.0 cents
=======================================================
</TABLE>
Salaries and related costs have risen from last year as a result of the
additional personnel hired to enhance operating effectiveness and service the
growing passenger traffic. The average number of employees increased 5% over
fiscal 1997 levels. Expenses related to the incentive compensation plans were
also higher due to increased pretax earnings.
Aircraft fuel expense decreased in total and on a unit cost basis.
Aircraft fuel price per gallon, including taxes and into-plane fees, decreased
14% to 68.4 cents from 79.5 cents, but was partially offset by a 13% increase in
consumption.
Maintenance materials and repair costs increased in total and on a unit
cost basis. The increase in maintenance materials and repair costs is due to
higher maintenance costs related to the phasing out of our turboprop aircraft on
an accelerated basis.
Aircraft rent expense increased in total as a result of the delivery of
new Canadair Jets throughout fiscal 1998, offset by retirements of certain
turboprop aircraft.
14 1998 Comair Holdings, Inc. Annual Report
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
Other rent and landing fees increased during fiscal 1998 due to higher
facilities rental and landing fees resulting from the addition of the larger
Canadair Jets.
Travel agency and credit card commissions have increased as a result of
a 15% increase in passenger revenues. This increase was offset in part by a
change in COMAIR's commission structure beginning in September 1997, which
reduced commissions from 10% to 8% on tickets purchased in the U.S. and Canada.
Although unit revenues (revenue per ASM) were higher in fiscal 1998, cost per
ASM decreased as a result of the new commission structure which lowered the
weighted average commission rates. Commissions as a percentage of passenger
revenues were 7.5% in fiscal 1998 compared to 8.3% in fiscal 1997.
Other operating expenses (the principle components of which include
passenger reservation fees, aircraft and passenger handling, crew training, crew
accomodations and per diem expense, property taxes, advertising expenses and
insurance expense) increased in total and on a unit cost basis. The increase was
due primarily to higher passenger reservation fees associated with the 16%
growth in passenger enplanements.
Depreciation and amortization increased in total and on a unit cost
basis. The increase is due to the purchase of six Canadair Jets since October
1996 along with additional support equipment related to the Canadair Jet fleet.
Investment income for fiscal 1998 increased over the prior year due to
higher average cash balances available for investment and slightly higher rates
of returns.
The Company's effective tax rate, which includes federal, state and
local taxes, approximated the statutory rates in fiscal 1998 and 1997.
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 Company will adopt
SFAS No. 130 in the first quarter of fiscal 1999. The adoption of SFAS No. 130
will have no impact on the Company's results of operations.
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 fiscal 1999. Because this statement only impacts how
financial information is disclosed in interim and annual reports, the adoption
will have no impact on the Company's financial condition or results of
operations.
Recently, the American Institute Of Certified Public Accountants issued
a proposed statement of position on accounting for start-up costs, including
preoperating costs related to the introduction of new fleet types by airlines.
The proposed accounting guidelines would require companies to expense start-up
costs as incurred. The Financial Accounting Standards Board recently approved
the proposed guidelines, and they will take effect for fiscal years beginning
after December 15, 1998. The Company has deferred certain start-up costs related
to the introduction of the Canadair Jet fleet and is amortizing such costs to
expense over five years. The Company will be required to expense any unamortized
amounts remaining as of April 1, 1999. The Company's previously deferred
start-up costs will be fully amortized by March 31, 1999.
1998 Comair Holdings, Inc. Annual Report 15
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
FISCAL 1997 COMPARED WITH FISCAL 1996
In fiscal 1997, the Company reported record operating revenues,
operating income, net income and passenger enplanements. Operating revenues for
the year increased to $564 million, up 22% from $463 million in fiscal 1996.
Operating income for the year rose 22% to $116.1 million from $94.8
million. Net income increased 26% to $75.4 million from $60.0 million and net
income per share increased to $1.13 from $.91. The increase in earnings was
largely the result of a 15% increase in passenger enplanements. Passenger
enplanement increases were primarily due to the overall passenger appeal of the
Canadair Jet, Delta and COMAIR building up the Cincinnati hub through additional
flights and facilities, and Delta's increased promotion of the Cincinnati hub as
an easy, less congested alternative to the other major hubs in the region.
In fiscal 1997, revenue passenger miles increased 21%. Capacity,
available seat miles, grew 17% with the acquisition of eighteen 50-passenger
Canadair Jet aircraft. During fiscal 1997, nine 33-passenger SAAB and three
19-passenger Metro aircraft were retired from service. COMAIR has completely
transitioned out of the 19-passenger Metro aircraft and retired the remaining
33-passenger SAAB aircraft in June of 1997.
Yield per revenue passenger mile remained the same year over year,
while cost per ASM increased to 15.5 cents per ASM from 15.0 cents per ASM in
fiscal 1996. The higher unit cost was primarily the result of a 16% increase in
fuel prices, and an increase in transition costs associated with phasing out our
turboprop aircraft on an accelerated schedule. Flight schedules were also
reduced to enable COMAIR to prepare these aircraft for sale or their return to
lessors. This lower asset utilization reduced the growth in capacity.
Salaries and related costs rose from last year as a result of the
additional pilots, mechanics and customer service agents due to the increase in
Canadair Jet service. The average number of employees in these areas increased
6% over fiscal 1996 levels. Expenses related to the incentive compensation plans
were also higher due to the increased pretax earnings.
Aircraft fuel price per gallon increased 16% over fiscal 1996. This
increase was due primarily to higher crude oil prices and a full year effect of
the 4.3 cent fuel tax that was imposed on domestic commercial transportation in
October 1995. Fuel consumption increased 23% as COMAIR added eighteen new
Canadair Jet aircraft during fiscal 1997.
Maintenance materials and repair costs increased in total, but
decreased on a unit cost basis. The decrease in cost per ASM is related to lower
initial maintenance costs associated with the new jet aircraft.
Aircraft rent expense increased on a total and unit cost basis. During
fiscal 1997, COMAIR accepted delivery of eighteen Canadair Jets, thirteen of
which were financed with operating leases. The higher cost per ASM is associated
with phasing out our turboprop aircraft on an accelerated schedule. In order to
prepare these aircraft for sale or their return to lessors, flight schedules
were reduced, lowering utilization.
Other rent and landing fees increased on a total basis as a result of
the addition of the larger Canadair Jets. These costs remained the same on a
unit cost basis due to the additional capacity generated by the jet equipment.
Travel agency and credit card commissions increased as a result of a
21% increase in passenger revenues. Although unit revenues (revenue per
available seat miles) were higher in fiscal 1997, cost per ASM was lower due to
lower weighted average commission rates. Commissions as a percentage of
passenger revenues were 8.3% in fiscal 1997 and 8.6% in fiscal 1996.
16 1998 COMAIR HOLDINGS, INC. ANNUAL REPORT
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
Other operating expenses increased on a total and unit cost basis. The
increase was due mainly to the costs associated with the increase in Canadair
Jet service, additional training costs related to our accelerated fleet
transition and higher operating costs of our service in the Northeast. In April
1997, certain service in the Northeast was discontinued.
Depreciation and amortization increased in total due to the purchase of
five Canadair Jets during the third quarter of fiscal 1997. Unit cost remained
the same as a result of the additional capacity generated by the Canadair Jets
acquired during fiscal 1997.
Investment income for fiscal 1997 increased over the prior year 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 rates in fiscal 1997 and 1996.
During the first quarter of fiscal 1997, the Company adopted the
Financial Accounting Standards Board Statement No. 121 (SFAS No. 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", which required impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. SFAS No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of in the future. The effect
of adoption was not material.
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation",
which indicates companies may recognize expense for stock-based awards based on
their fair value on the date of grant or, at a minimum, requires pro forma
disclosures in the Company's fiscal 1997 financial statements. Rather than adopt
the expense recognition provision of this statement, the Company has elected to
follow Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting for
Stock Issued to Employees" and related interpretations and provide the
disclosures required by SFAS No. 123. Therefore, the application of this
standard did not impact the Company's financial position or results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operating activities of $156.6 million
in fiscal 1998, $122.5 million in fiscal 1997 and $119.6 million in fiscal 1996.
Total working capital increased to $188.5 million at March 31, 1998, from $119.7
million at March 31, 1997, while the current ratio increased to 2.57 at March
31, 1998 from 1.99 at March 31, 1997. During fiscal 1998, the Company repaid
long-term obligations of $12.9 million and paid cash dividends of $10.7 million.
The Company's long-term debt to equity position was 24% debt, 76% equity at
March 31, 1998, as opposed to 31% debt, 69% equity at March 31, 1997.
The Company had property and equipment additions of $49.9 million,
$146.6 million and $37.9 million in fiscal 1998, 1997 and 1996, respectively.
Major capital expenditures during fiscal 1998 included major engine inspections,
spare parts and support equipment. In addition, COMAIR invested $30 million in a
short-term interest bearing investment with an aircraft manufacturer. This
investment, with associated accrued interest, can be called and returned to
COMAIR within thirty (30) days of written notice by COMAIR or immediately if the
manufacturer's credit rating falls below certain thresholds.
1998 Comair Holdings, Inc. Annual Report 17
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
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. During fiscal 1998, the Company repurchased 545,000 shares
of common stock for an approximate cost of $14.7 million. As of March 31, 1998,
the Company had purchased 7.3 million shares of this authorization at a cost of
approximately $51.9 million.
COMAIR took delivery of eleven new generation, 50-passenger Canadair
Jet aircraft throughout fiscal 1998 bringing the total Canadair Jet fleet to 59.
For 20 of these aircraft, the lease financing includes 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 and one was acquired with working capital, The
other 28 aircraft were financed through operating leases with terms of up 16.5
years.
As of March 31, 1998, COMAIR had scheduled delivery positions for 21
Canadair Jets to be delivered through fiscal 2000. The aggregate cost of these
aircraft, including support equipment and estimated escalation, will approximate
$380 million. COMAIR also has options for 45 additional aircraft, valued at
approximately $875 million, including support equipment and estimated
escalation, These aircraft could be available in fiscal 2000 through 2002. Some
of these options can, at an additional cost, be converted to Canadair's
70-passenger jet 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 available.
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.
The Company has a $5 million bank line of credit at prime. The line of
credit has not been used since 1985.
Approximately 31% of the Company's workforce are members of the unions
representing the pilots and mechanics. Collective bargaining agreements for
these unions become amendable in 1998 and 1999, respectively. The Railways Labor
Act, which governs labor relations for these unions, contains provisions that
must be exhausted before work stoppages can occur once a collective bargaining
agreement becomes amendable.
The Company has implemented a Year 2000 compliance program designed to
ensure that its computer systems and applications will properly manage dates
beyond 1999. The Company believes that it will be able to allocate adequate
resources for this purpose and expects its year 2000 date conversion program to
be completed on a timely basis. However, the Company can not give any assurances
that the systems of other parties, upon which the Company must rely, will be
Year 2000 compliant on a timely basis. Examples of systems operated by others
that the Company may use or rely upon are: Federal Aviation Administration Air
Traffic Control, Computer Reservation Systems for travel agents and Delta,
airport authorities, and suppliers. The Company's business, financial condition,
or results of operations could be materially adversely affected by the failure
of its systems and applications or those operated by other parties to properly
operate or manage dates beyond 1999. The Company believes the costs of modifying
non-compliant systems and applications could be approximately $1 million to $3
million. The costs and the date on which the Company plans to complete the Year
2000 compliance program are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources and other factors. However, there can be no
guarantee that these estimates will be achieved, and actual results could differ
materially from these estimates.
18 1998 Comair Holdings, Inc. Annual Report
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
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. Numerous 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, results of operations or cash flows .
On August 30, 1996 COMAIR filed suit challenging a decision of the
National Mediation Board. This matter involves the demand of the International
Brotherhood of Teamsters to represent COMAIR flight attendants and a finding by
the National Mediation Board that a majority of the employees of the flight
attendant craft had not cast ballots in favor of representation. Subsequently,
the National Mediation Board reopened the case, counted additional ballots and
changed its ruling by certifying the International Brotherhood of Teamsters as a
collective bargaining representative for the flight attendants of COMAIR. The
outcome of the litigation will determine whether the flight attendants of COMAIR
are represented by the International Brotherhood of Teamsters unless a new
election is ordered.
There are no other material legal proceedings pending adverse to 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 either adequately insured or will not have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.
Several of the statements contained in this report are "forward-looking
statements" as that term is defined in federal securities laws. These statements
are based upon information available to the Company on the date of this report.
The Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise. These statements deal with our expectations about the future and
are subject to a number of factors that could cause actual results to differ
materially from our expectations. 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,
1998 and are also discussed in the second and third paragraphs under "Results of
Operations" and in the discussion of the Year 2000 matter above.
1998 Comair Holdings, Inc. Annual Report 19
<PAGE> 13
CONSOLIDATED BALANCE SHEETS
Comair Holdings, Inc. and Subsidiaries as of March 31, 1998 and 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
ASSETS 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents - Note 1 $ 156,214,247 $ 122,604,792
Marketable securities - Notes 1 & 9 61,423,198 54,111,024
Interest bearing investment - Note 1 30,000,000 --
--------------------------------------------
$ 247,637,445 $ 176,715,816
Accounts receivable - Notes 1 & 7 12,624,127 20,289,523
Inventory of expendable parts - Note 1 19,478,981 18,229,847
Future tax benefits - Note 4 13,436,538 11,056,864
Prepaid expenses 15,132,842 14,458,955
--------------------------------------------------------------------------------------------------------
Total current assets $ 308,309,933 $ 240,751,005
--------------------------------------------
PROPERTY AND EQUIPMENT, AT
COST - NOTE 2:
Flight equipment $ 403,487,347 $ 394,323,083
Maintenance, operations and
office facilities 10,292,723 10,292,723
Other property and equipment 47,777,606 42,490,273
--------------------------------------------
$ 461,557,676 $ 447,106,079
Less accumulated depreciation
and amortization 117,685,617 116,100,656
Less reserve for engine overhauls
and purchase incentives 16,582,458 12,633,839
--------------------------------------------
$ 327,289,601 $ 318,371,584
Construction in progress 147,776 14,580
Advance payments and deposits
for aircraft 24,187,396 21,086,563
--------------------------------------------------------------------------------------------------------
$ 351,624,773 $ 339,472,727
--------------------------------------------
OTHER ASSETS AND DEFERRED
COSTS - NOTE 1 $ 9,802,095 $ 8,362,213
--------------------------------------------
$ 669,736,801 $ 588,585,945
============================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
20 1998 Comair Holdings, Inc. Annual Report
<PAGE> 14
CONSOLIDATED BALANCE SHEETS
Comair Holdings, Inc. and Subsidiaries as of March 31, 1998 and 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES &SHAREHOLDERS' EQUITY 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current installments of long-term
obligations - Note 2 $ 13,435,345 $ 12,909,768
Accounts payable - Note 7 39,158,243 47,933,952
Interline payable and deferred revenue 6,322,647 5,579,663
Accrued lease expense 22,732,440 22,015,215
Accrued wages 6,953,710 6,427,279
Accrued expenses 15,604,000 13,785,587
Accrued taxes 15,645,510 12,412,131
------------------------------------------------------------------------------------------------------
Total current liabilities $ 119,851,895 $ 121,063,595
------------------------------------------
LONG-TERM OBLIGATIONS - NOTE 2 $ 114,312,516 $ 127,747,861
------------------------------------------
DEFERRED INCOME TAXES - NOTE 4 $ 63,598,648 $ 52,389,105
------------------------------------------
OTHER LIABILITIES AND DEFERRED
CREDITS - NOTE 1 $ 10,127,901 $ 7,086,055
------------------------------------------
COMMITMENTS AND CONTINGENCIES -
NOTES 3 AND 5
SHAREHOLDERS' EQUITY - NOTE 6:
Common stock, no par value, 100,000,000
shares authorized, 66,658,127 and
66,798,634 issued and outstanding,
respectively $ 42,072,045 $ 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 263,576 (25,543)
Retained earnings 319,510,220 228,022,482
------------------------------------------------------------------------------------------------------
Total shareholders' equity $ 361,845,841 $ 280,299,329
------------------------------------------
$ 669,736,801 $ 588,585,945
==========================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
1998 Comair Holdings, Inc. Annual Report 21
<PAGE> 15
CONSOLIDATED STATEMENTS OF INCOME
Comair Holdings, Inc. and Subsidiaries for the Years Ended March 31, 1998, 1997
and 1996
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
1998 1997 1996
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES:
Passenger $ 620,769,318 $ 537,872,614 $ 444,121,247
Cargo and other 4,643,111 4,644,159 4,751,011
Non-airline operation 25,749,792 21,298,270 14,425,885
--------------------------------------------------------------------------------------------------------
Total operating revenues $ 651,162,221 $ 563,815,043 $ 463,298,143
---------------------------------------------------
OPERATING EXPENSES - NOTE 7:
Salaries and related costs $ 113,311,389 $ 99,879,467 $ 85,333,979
Aircraft fuel 53,784,926 55,466,125 38,703,967
Maintenance materials and repairs 54,121,549 44,242,523 40,895,807
Aircraft rent 72,421,142 70,753,755 57,805,169
Other rent and landing fees 21,103,005 18,828,801 15,932,585
Passenger commissions 46,710,049 44,855,202 38,329,529
Other operating expenses 82,805,989 75,227,082 59,541,534
Depreciation and amortization 29,778,467 24,908,928 21,008,438
Non-airline direct costs 15,527,746 13,535,760 10,920,355
--------------------------------------------------------------------------------------------------------
Total operating expenses $ 489,564,262 $ 447,697,643 $ 368,471,363
---------------------------------------------------
Operating income $ 161,597,959 $ 116,117,400 $ 94,826,780
---------------------------------------------------
NONOPERATING INCOME
(EXPENSE) - NOTE 1:
Investment income $ 11,103,826 $ 8,897,144 $ 6,691,296
Interest expense (7,846,575) (4,853,951) (4,746,603)
--------------------------------------------------------------------------------------------------------
Total nonoperating income, net $ 3,257,251 $ 4,043,193 $ 1,944,693
---------------------------------------------------
Income before income taxes $ 164,855,210 $ 120,160,593 $ 96,771,473
INCOME TAXES - NOTE 4: 62,642,000 44,736,00 36,763,000
---------------------------------------------------
Net income $ 102,213,210 $ 75,424,593 $ 60,008,473
===================================================
Weighted average number of
shares outstanding - basic 66,887,386 66,707,241 66,407,163
===================================================
NET INCOME PER SHARE - BASIC -
NOTES 1 & 8 $ 1.53 $ 1.13 $ .90
===================================================
Weighted average number of
shares outstanding - diluted 67,749,164 67,280,522 66,843,232
===================================================
NET INCOME PER SHARE - DILUTED -
NOTES 1 & 8 $ 1.51 $ 1.12 $ .90
===================================================
Dividends paid per share $ .160 $ .143 $ .110
===================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
22 1998 Comair Holdings, Inc. Annual Report
<PAGE> 16
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Comair Holdings, Inc. and Subsidiaries for the Years Ended March 31, 1998, 1997
and 1996
<TABLE>
<CAPTION>
NUMBER OF COMMON RETAINED
SHARES STOCK OTHER EARNINGS TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1995 19,538,738 $ 47,166,553 $ 173,388 $ 109,423,478 $ 156,763,419
Repurchase of common shares (18,550) (383,063) -- -- (383,063)
Exercise of stock options 272,609 4,311,263 -- -- 4,311,263
3-for-2 stock split 9,833,105 -- -- (16,012) (16,012)
3-for-2 stock split 14,812,302 -- -- (15,095) (15,095)
Net unrealized loss on
marketable securities
available-for-sale -- -- (255,807) -- (255,807)
Dividends (.110 cents per share) -- -- -- (7,283,974) (7,283,974)
Net income -- -- -- 60,008,473 60,008,473
----------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1996 44,438,204 $ 51,094,753 $ (82,419) $ 162,116,870 $ 213,129,204
Exercise of stock options 94,611 1,207,637 1,207,637
Net unrealized gain on
marketable securities
available-for-sale -- -- 56,876 -- 56,876
Dividends (.143 cents per share) -- -- -- (9,518,981) (9,518,981)
Net income -- -- -- 75,424,593 75,424,593
----------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1997 44,532,815 $ 52,302,390 $ (25,543) $ 228,022,482 $ 280,299,329
Repurchase of common shares (525,000) (14,684,692) -- -- (14,684,692)
Exercise of stock options 284,413 4,454,347 -- -- 4,454,347
3-for-2 stock split 22,365,899 -- -- (14,523) (14,523)
Net unrealized gain on
marketable securities
available-for-sale -- -- 289,119 -- 289,119
Dividends (.160 cents per share) -- -- -- (10,710,949) (10,710,949)
Net income -- -- -- 102,213,210 102,213,210
----------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1998 66,658,127 $ 42,072,045 $ 263,576 $ 319,510,220 $ 361,845,841
============================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
1998 Comair Holdings, Inc. Annual Report 23
<PAGE> 17
CONSOLIDATED STATEMENTS OF CASH FLOWS
Comair Holdings, Inc. and Subsidiaries for the Years Ended March 31, 1998, 1997
and 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $102,213,210 $ 75,424,593 $ 60,008,473
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 29,778,467 24,908,928 21,008,438
Amortization and accrual of overhaul expenses 13,562,528 13,010,867 12,684,510
Deferred income taxes 8,829,869 14,142,029 4,981,665
Other, net (1,790,712) (1,577,594) (869,010)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 7,665,396 (4,646,645) (6,137,797)
Decrease (increase) in inventory of
expendable parts (1,249,134) (4,365,589) (605,075)
Decrease (increase) in other current assets (673,887) (7,275,456) 521,090
Increase (decrease) in accounts payable (8,775,709) 8,325,080 15,319,021
Increase (decrease) in other current liabilities 7,038,432 4,523,309 12,687,537
---------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities $156,598,460 $ 122,469,522 $ 119,598,852
--------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment $(49,898,504) $(146,595,228) $ (37,854,056)
Return of advance payments and deposits 1,000,000 -- --
Advance payments and deposits (4,000,000) (1,000,000) --
Interest bearing investment (30,000,000) -- --
Proceeds from sale of marketable securities 18,550,125 3,375,502 6,658,940
Purchases and maturities of
marketable securities, net (25,573,180) (17,569,303) (9,326,175)
Deferred costs (33,817) (2,896,652) (292,108)
Other, net 831,956 785,599 1,038,722
---------------------------------------------------------------------------------------------------------------
Net cash flows from investing activities $(89,123,420) $(163,900,082) $ (39,774,677)
--------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock $ 4,454,347 $ 1,207,637 $ 4,311,263
Payments of cash dividends and
repurchase of fractional shares (10,725,472) (9,518,981) (7,315,081)
Repurchase of common stock (14,684,692) -- (383,063)
Proceeds from long-term obligations -- 69,912,500 --
Repayments of long-term obligations (12,909,768) (9,167,087) (11,464,908)
---------------------------------------------------------------------------------------------------------------
Net cash flows from financing activities $(33,865,585) $ 52,434,069 $ (14,851,789)
--------------------------------------------
NET INCREASE IN CASH
AND CASH EQUIVALENTS: $ 33,609,455 $ 11,003,509 $ 64,972,386
Cash and cash equivalents at beginning of period 122,604,792 111,601,283 46,628,897
---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $156,214,247 $ 122,604,792 $ 111,601,283
============================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
24 1998 Comair Holdings, Inc. Annual Report
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comair Holdings, Inc. and Subsidiaries
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements reflect the
application of accounting policies described in this note.
A. BASIS OF CONSOLIDATION AND BUSINESS
The consolidated financial statements include the
accounts of Comair Holdings, Inc. (the Company) and its
wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated. COMAIR, Inc., the
Company's principal subsidiary, accounting for approximately
96 percent of its operating revenues and expenses, is a
large regional airline serving airports in the Midwestern,
Southeastern and Northeastern United States as well as
Canada and the Bahamas. Revenues are derived primarily
through the air transportation of passengers and cargo in
scheduled airline service under a marketing agreement with
Delta Air Lines, Inc. (See Note 7). Certain
reclassifications have been made in prior years'
consolidated financial statements to conform to the 1998
presentation.
B. USE OF ESTIMATES
The preparation of the financial statements in
conformity with generally accepted accounting principles
requires the Company to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
C. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments
with an initial maturity of three months or less to be cash
equivalents. This portfolio of investments has no
significant concentrations of credit risk by activity or
region.
D. MARKETABLE SECURITIES
The Company's investments in marketable securities
consist of United States Treasury and government agency
securities, municipal bonds, mutual funds and common stock.
These investments are classified as available-for-sale and
reported at fair market value as of March 31, 1998 and 1997,
with unrealized appreciation or depreciation, net of
applicable taxes, reflected as a separate component of
shareholders' equity.
E. INTEREST BEARING INVESTMENT
The interest bearing investment is with the Canadair
Jet aircraft manufacturer and can be called by COMAIR and
returned to COMAIR within thirty (30) days written notice or
immediately if the manufacturer's credit rating falls below
certain thresholds.
F. INVENTORY OF EXPENDABLE PARTS
Expendable parts are stated at cost, on a first-in,
first-out basis, less an obsolescence reserve of $3,493,000
and $3,260,000 at March 31, 1998 and 1997, respectively.
These parts are charged to maintenance expense as used.
G. DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment costs less
estimated residual values and the amortization of related
purchase incentives are computed on the straight-line method
over the estimated useful lives of the related assets as
follows:
<TABLE>
<CAPTION>
<S> <C>
Flight equipment, including rotable parts 5-16 years
Maintenance, operations and office facilities 30 years
Other property and equipment 2-20 years
</TABLE>
1998 COMAIR HOLDINGS, INC. ANNUAL REPORT 25
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
H. INTANGIBLE ASSETS
Costs incurred in connection with the introduction of
new aircraft types, primarily flight crew training costs,
have been deferred and are being amortized over five years,
beginning with the initial service dates. Financing costs
associated with long-term obligations and lease financings
are deferred and amortized over the term of the specific
indebtedness or lease. The costs of developing new or
extended routes and pre-operating costs, other than training
incurred in connection with the introduction of new aircraft
types, are charged to expense as incurred.
I. REVENUE RECOGNITION
Revenues are recognized when the respective services
are rendered. An allowance ($210,000 and $155,000 at March
31, 1998 and 1997, respectively) is maintained for doubtful
accounts. For scheduled airline service, tickets which are
sold but not used are recorded as deferred revenue. In
addition, with respect to student flight training, payments
made in advance of the training being provided are recorded
as deferred revenue.
J. FREQUENT FLYER AWARDS
As a Delta Connection carrier, COMAIR participates in
Delta Air Lines' frequent flyer program. COMAIR does not
defer any revenue or accrue for incremental costs for
mileage accumulation relating to this program, as the impact
would be immaterial.
K. MAINTENANCE
Maintenance and repairs are expensed when incurred
except for major inspections. The costs of major airframe
inspections on all aircraft and major engine inspections on
new aircraft are capitalized when incurred and amortized
over the periods benefited. Additionally, for used aircraft,
estimated major engine inspection costs are accrued whereby
the company charges maintenance expense on the basis of
hours and cycles flown.
L. DEFERRED GAINS ON SALE AND LEASEBACK TRANSACTIONS
Gains on the sale and leaseback of property and
equipment are deferred and amortized over the life of the
leases as a reduction in lease expense. Such deferred gains
are recorded in the other liabilities and deferred credits
section of the consolidated balance sheets.
M. INTEREST EXPENSE
The Company capitalizes interest costs incurred on
long-term construction projects and advance payments on
aircraft purchase contracts. Total interest costs incurred
were $8,702,255, $6,192,000 and $5,703,000 in fiscal 1998,
1997 and 1996, respectively. Costs capitalized in fiscal
1998, 1997 and 1996 totaled $1,383,000, $1,245,000 and
$1,327,000, respectively.
The Company receives the benefit of interest rate
subsidies through the Brazilian Export Financing program
which it uses to reduce payments under long-term obligations
and operating leases for its Embraer Brasilia aircraft (see
Notes 2 and 3). These subsidies are recorded ratably over
the life (10-16 years) of the long-term obligation or
operating lease. A portion of the interest rate subsidies
has been guaranteed by third parties. However, the Company
is exposed to credit risk in the event of default by the
guarantor/obligator. Substantially all subsidies due to the
Company through March 31, 1998 have been received.
N. ADVERTISING INSTRUMENTS
Costs related to advertising are expensed as incurred.
The Company's advertising expense was $2,100,000, $2,202,000
and $2,210,000 in fiscal 1998, 1997 and 1996 respectively.
26 1998 Comair Holdings, Inc. Annual Report
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
O. FINANCIAL INSTRUMENTS
Financial instruments in the form of interest rate swap
agreements are occasionally utilized by COMAIR to hedge its
exposure to interest rate fluctuations involved in aircraft
financing. COMAIR does not hold or issue derivative
financial instruments for trading purposes. Gains and losses
on interest rate swap agreements are deferred and amortized
as an adjustment to lease expense over the lease term. The
fair value of interest rate swap agreements is not
recognized on the consolidated financial statements since
they are accounted for as hedges. As of March 31, 1998,
COMAIR had no such agreements open or in place.
P. NET INCOME PER SHARE
Financial Accounting Standards Board Statement No. 128
(SFAS No. 128), "Earnings Per Share", which replaced the
presentation of primary earnings per share with a
presentation of basic earnings per share which excludes
dilutive effects of options, warrants and convertible
securities, if any, from the calculation. 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 adopted SFAS No.
128 in the third quarter of fiscal 1998. All weighted
average share and per share information has been adjusted
retroactively for the impact of this statement as well as
the three-for-two stock splits effective November 1997, May
1996 and August 1995. (See Note 8)
Q. RECENT PRONOUNCEMENTS
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
Company will adopt SFAS No. 130 in the first quarter of
fiscal 1999. The adoption of SFAS No. 130 will have no
impact on the Company's results of operations.
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 fiscal 1999. Because
this statement only impacts how financial information is
disclosed in interim and annual reports, the adoption will
have no impact to the Company's financial condition or
results of operations.
Recently, the American Institute Of Certified Public
Accountants issued a proposed statement of position on
accounting for start-up costs, including preoperating costs
related to the introduction of new fleet types by airlines.
The proposed accounting guidelines would require companies
to expense start-up costs as incurred. The Financial
Accounting Standards Board recently approved the proposed
guidelines, and they will take effect for fiscal years
beginning after December 15, 1998. The Company has deferred
certain start-up
1998 Comair Holdings, Inc. Annual Report 27
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
costs related to the introduction of the Canadair Jet fleet
and is amortizing such costs to expense over five years. The
Company will be required to expense any unamortized amounts
remaining as of April 1, 1999. The Company's previously
deferred start-up costs will be fully amortized by March 31,
1999.
NOTE 2 LONG-TERM OBLIGATIONS
The following is a summary of long-term obligations as
of March 31, 1998 and 1997:
<TABLE>
<CAPTION>
----------------------------------
1998 1997
----------------------------------
<S> <C> <C>
Secured obligations for the purchase of ten Canadair jets,
due in semi-annual installments through 2006 with
variable interest rates based on six month LIBOR.
Rates at March 31, 1998 were 6.344% to 6.725%. $ 117,529,451 $ 125,862,946
Secured obligations for the purchase of eight Embraer
Brasilia aircraft and related equipment, due in
semi-annual installments through 2001, with interest
at 4.25% to 4.875%, net of the benefits of interest
rate subsidies through the Brazilian Export
Financing program. 10,218,410 14,764,608
Other -- 30,075
----------------------------------
$ 127,747,861 $ 140,657,629
Less--Current Installments 13,435,345 12,909,768
----------------------------------
Total $ 114,312,516 $ 127,747,861
==================================
Maturities of long-term obligations are as follows:
2000 $ 13,743,598
2001 $ 11,556,385
2002 $ 10,838,531
2003 $ 11,595,010
2004 and thereafter $ 66,578,992
</TABLE>
The net book value of assets pledged as security under
the above obligations totaled $196,382,000 as of March 31,
1998.
The Company receives interest rate subsidies through
the Brazilian Export Financing program on the obligations
secured by Embraer Brasilia aircraft. Such subsidies are
recorded as an offset to interest expense and effectively
reduce the Company's interest cost on the obligations to the
rates indicated above. During fiscal 1998, 1997 and 1996,
the Company reduced its interest expense by $264,000,
$376,000 and $531,000, respectively, as a result of these
interest rate subsidies. The amount of net interest paid
totaled $8,788,000, $4,852,000 and $5,901,000 in fiscal
1998, 1997 and 1996, respectively.
The Company has an unused bank line of credit for up to
$5,000,000 at prime.
28 1998 COMAIR HOLDINGS, INC. ANNUAL REPORT
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
NOTE 3 LEASES
As of March 31, 1998, the Company operated 74
aircraft in airline operations which are accounted for under
operating leases with remaining terms of up to 16.5 years.
Most of these leases provide for renewal and/or fair market
value-based purchase options as well as early termination of
the leases under certain circumstances (primarily if the
equipment is obsolete or in excess of the Company's needs).
In some cases, in the event of an early termination, the
Company would be required to pay to the lessor the greater
of the proceeds from the sale of the aircraft or the
termination value as stated in the lease.
The Company also leases several light training
aircraft and airport, maintenance and sales office
facilities under operating lease agreements expiring at
various dates through fiscal 2016.
The Company receives the benefit of interest rate
subsidies through the Brazilian Export Financing program on
operating leases on 26 Embraer Brasilia aircraft. The
Company utilizes these subsidies to substantially fix its
net payments under these operating leases.
Total rental expense for fiscal 1998, 1997 and 1996
was $85,095,000, $84,022,000 and $69,620,000, respectively,
net of the impact of the interest rate subsidies, which were
$1,146,000, $1,375,000 and $1,480,000, respectively, for
fiscal 1998, 1997 and 1996.
At March 31, 1998, the future net minimum rental
payments under noncancellable operating leases had a present
value of approximately $546,661,000 and a gross amount
payable (including principal and interest) of $882,918,000
payable $89,042,000 in 1999, $85,553,000 in 2000,
$76,810,000 in 2001, $70,520,000 in 2002, $63,869,000 in
2003, and $497,122,000 through 2016.
Note 4 INCOME TAXES
The Company accounts for income taxes under the
liability method pursuant to the Financial Accounting
Standards Board Statement No.109 (SFAS No. 109) "Accounting
for Income Taxes". Under the liability method deferred tax
liabilities and assets are determined based on the
differences between the financial reporting and tax bases of
assets and liabilities using enacted tax rates.
The following is a summary of the provision for income
taxes:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $47,791,000 $26,800,000 $27,713,000
State 6,400,000 3,530,000 3,650,000
---------------------------------------
Total Current Provision $54,191,000 $30,330,000 $31,363,000
Deferred:
Federal $ 7,718,000 $12,791,000 $ 4,925,000
State 733,000 1,615,000 475,000
---------------------------------------
Total Provision $62,642,000 $44,736,000 $36,763,000
=======================================
</TABLE>
1998 COMAIR HOLDINGS, INC. ANNUAL REPORT 29
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
Deferred income taxes reflect the net effect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and amounts used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of March 31, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation $50,695,474 $40,420,735
Amounts expended for major engine
inspections, net 8,198,686 9,176,881
Other, net 4,704,488 2,791,489
-------------------------------
Deferred tax liabilities $63,598,648 $52,389,105
-------------------------------
Deferred tax assets:
Expenses not currently deductible $11,291,094 $ 9,079,063
Deferred gains on sale/leaseback
transactions 643,432 712,896
Other, net 1,502,012 1,264,905
-------------------------------
Deferred tax assets $13,436,538 $11,056,864
-------------------------------
Net deferred tax liabilities $50,162,110 $41,332,241
===============================
</TABLE>
No valuation allowance for deferred tax assets has been recorded.
The following is a reconciliation between the statutory federal income
tax rate and the effective rate:
YEARS ENDED MARCH 31, 1998 1997 1996
- ------------------------------------------------------------------------
Statutory federal income tax rate 35.0% 35.0% 35.0%
Increase in tax rate resulting from -
State income taxes, net of federal
income tax effect 2.8 2.8 2.8
Other, net 0.2 (0.6) .2
----------------------
Effective income tax rate 38.0% 37.2% 38.0%
======================
The Company made cash income tax payments of $47,237,000 in fiscal
1998, $31,456,000 in fiscal 1997 and $28,160,000 in fiscal 1996.
30 1998 Comair Holdings, Inc. Annual Report
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
NOTE 5 COMMITMENTS AND CONTINGENCIES
As of March 31, 1998, COMAIR had scheduled delivery
positions for 21 Canadair Jets to be delivered through
fiscal 2000. The aggregate cost of these aircraft, including
support equipment and estimated escalation, will be
approximately $380 million. Advance payments, deposits, and
capitalized interest of $24 million are included in the
March 31, 1998 consolidated balance sheets.
COMAIR has options for 45 additional Canadair Jets.
The 45 additional aircraft, valued at approximately $875
million, including support equipment and estimated
escalation, could be available for delivery in fiscal 2000
through fiscal 2002. Some of these options, at an additional
cost, can be converted to Canadair's 70-seat jet aircraft.
COMAIR occasionally enters into interest rate swap
contracts to effectively hedge its exposure to interest rate
fluctuations involved in aircraft financing. The swap
contracts involve COMAIR exchanging floating rate for fixed
payments over the life of the agreement without an exchange
of the notional amount upon which the payments are based. As
of March 31, 1998, COMAIR had no such agreements open or in
place.
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 the 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.
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 (NTSB) 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 affect on the
Company's financial condition, results of operations or cash
flows.
On August 30, 1996 COMAIR filed suit challenging a
decision of the National Mediation Board. This matter
involves the demand of the International Brotherhood of
Teamsters to represent COMAIR flight attendants and a
finding by the National Mediation Board that a majority of
the employees of the flight attendant craft had not cast
ballots in favor of representation. Subsequently, the
National Mediation Board reopened the case, counted
additional ballots and changed its ruling by certifying the
International Brotherhood of Teamsters as a collective
bargaining representative for the flight attendants of
COMAIR. The outcome of the litigation will determine whether
the flight attendants of COMAIR are represented by the
International Brotherhood of Teamsters unless a new election
is ordered.
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 either adequately insured or will not have a
material adverse effect on the Company's financial
condition, results of operations or cash flows.
1998 Comair Holdings, Inc. Annual Report 31
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
NOTE 6 BENEFIT PLANS
The Company has a stock plan for its officers and
key employees with 3,408,024 shares of common stock reserved
for issuance. Options are permitted to be granted at up to
110% of the market value of the underlying common stock on
the date of grant. The options become exercisable over
periods of four to nine years after the date of grant and
expire ten years after the date of grant as long as the
holder remains an employee of the Company.
The Company also has a stock option plan for
nonemployee directors with 493,635 shares of common stock
reserved for issuance. Each year each nonemployee director
of the Company receives an option to purchase 7,595 shares
of common stock at a purchase price equal to the last sale
price on the date of grant. These options become exercisable
six months after the date of grant and expire ten years
after the date of grant.
The issuance of SFAS No. 123 requires, at a
minimum, pro forma disclosures of expense for stock-based
awards based on their fair values. The fair value of each
option grant is estimated on the date of grant using the
Black-Scholes Option Pricing Model. The weighted average
fair value of options granted during fiscal 1998, 1997 and
1996 is $6.57, $8.51 and $2.40, respectively. The following
weighted average assumptions were used for grants in fiscal
1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
Dividend yield 1% 1% 1%
Expected volatility 45.2% 46.6% 46.6%
Risk-free interest 6.48% - 6.83% 6.36% - 6.80% 6.05%
Expected life 5.5 yrs 5.5 - 10 yrs 5.5 yrs
</TABLE>
If the Company had adopted the expense recognition
provision of SFAS No. 123, net income and net income per
share for the years ended March 31, 1998, 1997 and 1996
would have been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
Net Income
<S> <C> <C> <C>
As reported $102,213,210 $75,424,593 $60,008,473
Pro forma $100,827,238 $74,610,212 $59,795,444
--------------------------------------------
Net Income per share - basic
As reported $ 1.53 $ 1.13 $ .90
Pro forma $ 1.51 $ 1.12 $ .89
Net Income per share - diluted
As reported $ 1.51 $ 1.12 $ .90
Pro forma $ 1.49 $ 1.11 $ .89
</TABLE>
Since SFAS No. 123 has not been applied to options
granted prior to December 15, 1994, the resulting
compensation cost shown above may not be representative of
that expected in future years.
32 1998 Comair Holdings, Inc. Annual Report
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
Transactions involving the stock option plans for
the years ended March 31, 1998, 1997 and 1996 are shown in
the table below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
Wtd Avg Wtd Avg Wtd Avg
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,887,915 $ 8.39 1,520,786 $ 5.46 1,948,206 $4.27
Granted 678,567 $13.83 509,046 $15.81 411,582 $5.11
Exercised (404,493) $ 5.38 (141,917) $ 3.61 (778,719) $2.27
Expired (7,595) $15.81 -- -- (60,283) $5.82
Outstanding at end of year 2,154,581 $10.65 1,887,915 $ 8.39 1,520,786 $5.46
Exercisable at end of year 691,683 $ 8.23 758,105 $ 6.17 557,142 $5.03
</TABLE>
The Company has a 401(k) plan which is available to
all employees. This plan offers several investment
alternatives, including the Company's stock which is
purchased in the open market at market value. The Company
matches contributions (up to ten percent of the
participant's compensation) at a rate of twenty-five
percent of such contributions. The Company has an
Incentive Bonus Plan which is available to all eligible
employees after one year of service. The Company also has
a Performance Based Incentive Bonus Plan and a Deferred
Incentive Compensation Plan for certain employees, as
designated by a committee of the Board of Directors.
In fiscal 1998, 1997 and 1996, the Company expensed
$10,947,000, $8,581,000 and $6,886,000, respectively,
related to these plans.
NOTE 7 RELATED PARTY TRANSACTIONS
Delta Air Lines, Inc. (Delta) owns approximately
21% of the Company's common stock. COMAIR is a designated
"Delta Connection" carrier, operating all flights under
the DL code. Under this marketing agreement, which expires
in 1999, COMAIR is able to offer passengers joint fares,
coordinated schedules for timely connections and Delta
frequent flyer mileage. In return for set fees, Delta also
handles COMAIR's reservations and flights at some airport
locations. Costs of these various services in fiscal 1998,
1997 and 1996 were approximately $26,184,000, $24,761,000
and $20,790,000, respectively. Accounts payable at March
31, 1998 and 1997 included approximately $9,461,000 and
$9,835,000 due Delta for these services.
Trade receivables in the accompanying consolidated
balance sheets include amounts due from Delta of
$1,050,000 and $7,822,000 as of March 31, 1998 and 1997,
respectively. Approximately 45% of COMAIR's passengers in
fiscal 1998, 1997 and 1996 connected with Delta.
The Company has historically benefited from its
relationship with Delta. However, the Company's results of
operations and financial condition may be adversely
impacted by Delta's decisions regarding routes and other
operational matters, as well as any material interruption
or modifications to the "Delta Connection" marketing
agreement.
1998 Comair Holdings, Inc. Annual Report 33
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
COMAIR has an interest bearing investment with the
Canadair Jet aircraft manufacturer which can be called and
returned to COMAIR within thirty (30) days written notice
or immediately if the manufacturer's credit rating falls
below certain thresholds.
NOTE 8 NET INCOME PER SHARE
The Company has computed net income per share in
accordance with SFAS No. 128 (See Note 1). The following
table shows the amounts used in computing net income per
share and the effect on income and the weighted average
number of shares for the years ending March 31, 1998, 1997
and 1996 of dilutive potential common stock (all prior
periods have been restated):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Numerator: 1998 1997 1996
----------------------------------------------------------------
Net Income $102,213,210 $75,424,593 $60,008,473
----------------------------------------------------------------
Denominator:
For Net Income per share - basic:
Weighted average shares
outstanding - basic 66,887,386 66,707,241 66,407,163
Effect of dilutive securities:
Stock options 861,778 573,281 436,069
For Net Income per share - diluted:
Weighted average shares
outstanding - diluted 67,749,164 67,280,522 66,843,232
----------------------------------------------------------------
Net Income per share - basic $1.53 $1.13 $.91
----------------------------------------------------------------
Net Income per share - diluted $1.51 $1.12 $.90
----------------------------------------------------------------
</TABLE>
As of March 31, 1998, 1997, and 1996, there were no
anti-dilutive potential common stock.
In April 1998, the Company granted an additional
747,570 stock options to its officers, key employees and
nonemployee directors at a weighted average exercise price
of $24.77. Since March 31, 1998, the Company has also
repurchased 100,000 shares of common stock at an approximate
cost of $2.7 million.
NOTE 9 FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by
the Company in estimating its fair value disclosures for
financial instruments:
Cash, cash equivalents and marketable securities:
The carrying amount reported in the consolidated balance
sheets for cash, cash equivalents and marketable securities
approximates fair value. Fair value of marketable securities
are based on quoted market prices as of March 31, 1998 and
1997.
Long-term obligations: The fair values of the
Company's long-term obligations are estimated by discounting
the future cash flows based on the Company's estimate of
current borrowing rates for debt with similar remaining
maturities.
Interest rate subsidies on long-term obligations:
The Company receives interest rate subsidies on certain
long-term obligations (see Note 2). The fair values of
interest rate subsidies on long-term obligations are
estimated by discounting the estimated future cash flows
based upon the Company's estimate of current borrowing rates
with similar remaining maturities.
34 1998 Comair Holdings, Inc. Annual Report
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
The cost and estimated fair values of the Company's
financial instruments at March 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
ASSET LIABILITY
-------------------------------------------------------------------
Cost Estimated Fair Value
1998 1997 1998 1997
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 156,214,247 $ 122,604,792 $ 156,214,247 $ 122,604,792
Marketable securities $ 61,017,698 $ 54,185,913 $ 61,423,198 $ 54,111,024
Interest bearing investment $ 30,000,000 $ -- $ 30,000,000 $ --
Total long-term obligations
(before interest rate subsidies) $(127,747,861) $(140,657,629) $(127,747,861) $(140,657,629)
Interest rate subsidies on
long-term obligations $ -- $ -- $ 549,000 $ 1,149,000
</TABLE>
The following tables summarizes the unrealized
gains and losses for available-for-sale securities at March
31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1998
Amortized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds and Mutual Funds $60,207,743 $405,441 $136,348 $60,476,836
Common Stock 809,955 136,407 -- 946,362
-----------------------------------------------------------------
Total $61,017,698 $541,848 $136,348 $61,423,198
=================================================================
</TABLE>
<TABLE>
<CAPTION>
1997 1997
Amortized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------------------
<S> <C> <C> <C> <C>
US Treasury and Government
Agency Securities $ 1,000,000 $ 590 $ -- $ 1,000,590
Municipal Bonds and Mutual Funds 52,491,116 117,357 168,837 52,439,636
Common Stock 694,797 -- 23,999 670,798
------------------------------------------------------------------
Total $54,185,913 $ 117,947 $192,836 $54,111,024
==================================================================
</TABLE>
The following table presents the amortized cost and
fair value of debt securities available-for-sale at March
31, 1998 and 1997:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Amortized Cost Fair Value
1998 1997 1998 1997
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than one year $14,528,086 $14,997,052 $14,576,066 $15,042,358
After one year through five years 45,679,657 38,494,064 45,900,770 38,397,868
--------------------------------------------------------------------
Total $60,207,743 $53,491,116 $60,476,836 $53,440,226
====================================================================
</TABLE>
The Company realized gains from the sale of
marketable securities of $192,000 and $711,000 in fiscal
1998 and 1997, respectively.
1998 Comair Holdings, Inc. Annual Report 35
<PAGE> 29
DIRECTORY
Comair Holdings, Inc. and Subsidiaries
<TABLE>
<CAPTION>
<S> <C>
BOARD OF DIRECTORS OFFICERS OF COMAIR HOLDINGS, INC.
David R. Mueller 1 David R. Mueller
Chairman of the Board Chairman of the Board
Chief Executive Officer Chief Executive Officer
Comair Holdings, Inc.
David A. Siebenburgen
David A. Siebenburgen President
President Chief Operating Officer
Chief Operating Officer Chief Executive Officer - COMAIR, INC.
Comair Holdings, Inc.
Randy D. Rademacher
Robert H. Castellini Senior Vice President Finance
Chairman Chief Financial Officer
Castellini Company
(Produce Distribution/Processor) Brian L. McDonald
Vice President
Peter H. Forster 2 Controller
Chairman of the Board
DPL, Inc. Richard D. Siegel
(Utility) Secretary
Partner, Keating, Muething & Klekamp, P.L.L.
John A. Haas
Retired President OTHER OFFICERS OF COMAIR, INC.
Chief Executive Officer
Ball Glass Container Corporation Charles E. Curran III
(Manufacturer) Senior Vice President
Marketing
Raymond A. Mueller 3
Retired Chairman of the Board K. Michael Stuart
Comair Holdings. Inc. Senior Vice President
Aircraft Operations
Christopher J. Murphy III 4
Chairman of the Board Linda E. Noble
President, Chief Executive Officer Senior Vice President
1st Source Corporation Human Resources
(Financial Institution)
Linda D. Landers
Gerald L. Wolken Vice President
Managing Partner Customer Services
MLE Enterprises Inc.
(Management Consulting) Kenneth W. Marshall
Vice President
1 Chairman of Finance Committee Inflight Service and Corporate Safety
2 Chairman of Compensation Committee
3 Chairman of Executive Committee Ralph E. Martin
4 Chairman of Audit Committee Vice President
Maintenance
C. Michael Willis
Vice President
Customer Services-Cincinnati
Donald J. Osmundson
Vice President
Flight Operations
</TABLE>
36 1998 Comair Holdings, Inc. Annual Report
<PAGE> 30
CORPORATE INFORMATION
Comair Holdings, Inc. and Subsidiaries
INVESTOR RELATIONS
Shareholders may obtain the fiscal 1998 annual report on
form 10-K filed with the Securities and Exchange Commission
without charge by writing to:
Investor Relations Department
Comair Holdings, Inc.
P.O. Box 75021
Cincinnati, Ohio 45275
STOCK INFORMATION
The Company's common stock, traded in the Nasdaq Market tier
of the Nasdaq Stock Market under the symbol COMR, was held
by approximately 2,400 holders of record as of March 31,
1998, which the Company believes represents approximately
20,000 beneficial owners
STOCK TRANSFER AGENT & REGISTRAR
To report a lost stock certificate, change of address, or
transfer your existing shares of Comair stock, please
contact our transfer agent:
ChaseMellon Shareholder Services, L.L.C.
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 756-3353
Website address - www.chasemellon.com
LEGAL COUNSEL
Keating, Muething & Klekamp, P.L.L., Cincinnati, Ohio
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, Cincinnati, Ohio
WORLD-WIDE WEBSITE
http://fly-comair.com
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF COMAIR HOLDINGS, INC.
COMAIR, INC., an Ohio corporation.
COMAIR SERVICES, INC., a Kentucky corporation.
COMAIR AVIATION ACADEMY, INC., a Florida corporation.
CVG AVIATION, INC., a Kentucky corporation.
COMAIR INVESTMENT COMPANY, a Delaware corporation.
COMAIR ACQUISITION, INC., a Delaware corporation.
14
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in and incorporated by reference in this Form 10-K, into
the Company's previously filed Registration Statements. File Nos. 2-78766,
2-87728, 33-23415 and 33-57548.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio,
June 29, 1998.
15
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000835344
<NAME> COMAIR HOLDINGS, INC
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 156,214,247
<SECURITIES> 61,423,198
<RECEIVABLES> 12,624,127
<ALLOWANCES> 0
<INVENTORY> 19,478,981
<CURRENT-ASSETS> 308,309,933
<PP&E> 461,557,676
<DEPRECIATION> 134,268,075
<TOTAL-ASSETS> 669,736,801
<CURRENT-LIABILITIES> 119,851,895
<BONDS> 114,312,516
0
0
<COMMON> 42,072,045
<OTHER-SE> 319,773,796
<TOTAL-LIABILITY-AND-EQUITY> 669,736,801
<SALES> 0
<TOTAL-REVENUES> 651,162,221
<CGS> 0
<TOTAL-COSTS> 489,564,262
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,846,575
<INCOME-PRETAX> 164,855,210
<INCOME-TAX> 62,642,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102,213,210
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.51
</TABLE>
<PAGE> 1
EXHIBIT 99
SAFE HARBOR
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
from civil litigation in many instances for forward-looking statements. Such
statements must be accompanied by meaningful cautionary statements that identify
important factors that could cause actual results to differ materially from
those that might be projected. This exhibit to the Registrant's Form 10-K is
being filed in order to adhere to the provisions of this Act by providing the
following cautionary statements:
RISK FACTORS AFFECTING COMAIR HOLDINGS, INC.
- ----------------------------------------------
The Company's business operations and strategy are subject to a number of
uncertainties and risks which could cause the actual results to differ
materially from projected results. It is not possible to list all of the many
factors and events that could cause the actual results to differ materially from
the projected results. Such factors may include, but are not limited to:
competitive factors such as the airline pricing environment, the capacity
decisions of other airlines, and the presence of low-cost, low-fare carriers;
the willingness of customers to travel; general economic conditions; changes in
jet fuel prices; availability of aircraft; unplanned increases in financing or
other costs; and actions by the United States and foreign governments.
16
