<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 Kentucky 31-1243613
(I.R.S. Employer ID No.)
P.O. Box 75021
Cincinnati, Ohio 45275
(606) 767-2550
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) or the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 11, 1998
----- ------------------------------
Common stock, no par value 66,408,119
PAGE 1
<PAGE> 2
COMAIR HOLDINGS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NOS.
<S> <C>
PART I. Financial Information -
Consolidated Balance Sheets as of June 30, 1998 and March 31, 1998 ...............3-4
Consolidated Statements of Income -
Three months ended June 30, 1998 and 1997 ......................................5
Consolidated Statements of Cash Flows -
Three months ended June 30, 1998 and 1997 ........................................6
Consolidated Statement of Shareholders' Equity ......................................7
Notes to Consolidated Financial Statements .......................................8-10
Management's Discussion and Analysis of Financial
Condition and Results of Operations ..........................................11-15
PART II. Other Information -
Item 1. Legal Proceedings .........................................................16
Item 5. Other Events .............................................................16
Item 6. Exhibits and Reports on Form 8-K.......................................16- 17
SIGNATURE...........................................................................18
</TABLE>
PAGE 2
<PAGE> 3
PART I. FINANCIAL INFORMATION
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF JUNE 30, 1998 AND MARCH 31, 1998(UNAUDITED)
-------------------------------------------------
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1998 MARCH 31, 1998
- ------ ------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $198,832,775 $156,214,247
Marketable securities
available-for-sale 72,434,699 61,423,198
Interest bearing deposits 30,000,000 30,000,000
------------ ------------
$301,267,474 $247,637,445
Accounts receivable 10,752,681 12,624,127
Inventory of expendable parts 20,468,332 19,478,981
Future tax benefits 13,450,944 13,436,538
Prepaid expenses 9,740,130 15,132,842
------------ ------------
Total current assets $355,679,561 $308,309,933
------------ ------------
Property and equipment, at cost:
Flight equipment $396,897,197 $403,487,347
Maintenance, operations and
office facilities 10,292,723 10,292,723
Other property and equipment 48,514,515 47,777,606
------------ ------------
$455,704,435 $461,557,676
Less accumulated depreciation and
amortization 121,804,422 117,685,617
Less reserve for engine overhauls and
purchase incentives 15,345,852 16,582,458
------------ ------------
$318,554,161 $327,289,601
Construction in progress 233,906 147,776
Advance payments and deposits
for aircraft 24,187,429 24,187,396
------------ ------------
Net property and equipment $342,975,496 $351,624,773
------------ ------------
Other assets and deferred costs $ 12,155,519 $ 9,802,095
------------ ------------
Total assets $710,810,576 $669,736,801
============ ============
</TABLE>
PAGE 3
<PAGE> 4
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF JUNE 30, 1998 AND MARCH 31, 1998 (UNAUDITED)
--------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY JUNE 30,1998 MARCH 31,1998
- ------------------------------------ ------------ -------------
<S> <C> <C>
Current liabilities:
Current installments of long-term
obligations $ 13,654,070 $ 13,435,345
Accounts payable 36,481,383 39,158,243
Interline payable and deferred revenue 6,233,334 6,322,647
Accrued lease expense 23,112,845 22,732,440
Accrued wages 7,469,042 6,953,710
Accrued expenses 15,613,230 15,604,000
Accrued taxes 26,573,839 15,645,510
------------ ------------
Total current liabilities $129,137,743 $119,851,895
Long-term obligations $109,840,829 $114,312,516
------------ ------------
Deferred income taxes $ 70,887,648 $ 63,598,648
------------ ------------
Other liabilities and deferred credits $ 10,996,735 $ 10,127,901
------------ ------------
Shareholders' equity:
Common stock, no par value,
100,000,000 shares authorized,
66,534,944 and 66,658,127 issued
and outstanding, respectively $ 38,533,073 $ 42,072,045
Preferred stock, no par value,
1,000,000 shares authorized, none
issued or outstanding - -
Net unrealized gain on marketable
securities available-for-sale 236,821 263,576
Retained earnings 351,177,727 319,510,220
------------ ------------
Total shareholders' equity $389,947,621 $361,845,841
------------ ------------
Total liabilities and shareholders' equity $710,810,576 $669,736,801
============ ============
</TABLE>
PAGE 4
<PAGE> 5
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
-------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
OPERATING REVENUES:
Passenger $ 178,090,035 $ 152,084,199
Cargo and other 1,279,841 1,111,331
Non-airline operations 8,542,317 5,846,212
------------- -------------
Total operating revenues $ 187,912,193 $ 159,041,742
------------- -------------
OPERATING EXPENSES:
Salaries and related costs $ 33,004,713 $ 26,746,103
Aircraft fuel 12,595,345 13,705,454
Maintenance materials and repairs 13,737,084 11,572,116
Aircraft rent 19,990,275 18,107,620
Other rent and landing fees 6,982,558 5,564,061
Passenger commissions 13,044,261 12,210,359
Other operating expenses 22,562,689 19,952,345
Depreciation and amortization 7,514,956 7,214,273
Non-airline direct costs 5,599,621 3,861,535
------------- -------------
Total operating expenses $ 134,031,502 $ 118,933,866
------------- -------------
Operating income $ 53,880,691 $ 40,107,876
------------- -------------
NONOPERATING INCOME (EXPENSE):
Investment income $ 3,354,467 $ 2,317,407
Interest expense (1,839,532) (1,793,273)
------------- -------------
Total nonoperating income, net $ 1,514,935 $ 524,134
------------- -------------
Income before income taxes $ 55,395,626 $ 40,632,010
Income taxes 21,061,000 15,425,000
------------- -------------
Net income $ 34,334,626 $ 25,207,010
============= =============
Weighted average number
of shares outstanding - Basic (NOTE 3) 66,596,109 66,798,339
============= =============
Net income per share - Basic (NOTE 3) $ .52 $ .38
============= =============
Weighted average number
of shares outstanding - Diluted (NOTE 3) 67,557,224 67,514,232
============= =============
Net income per share - Diluted (NOTE 3) $ .51 $ .37
============= =============
Dividends paid per share $ 0.040 $ 0.040
============= =============
</TABLE>
PAGE 5
<PAGE> 6
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
-------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 34,334,626 $ 25,207,010
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 7,514,956 7,214,272
Amortization and accrual of overhaul expenses 3,494,519 3,414,958
Deferred income tax provision 7,274,594 2,544,597
Other, net (738,865) (317,589)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 1,871,446 16,321,255
Decrease (increase) in inventory of
expendable parts (989,350) (1,014,113)
Decrease (increase) in other current assets 5,392,712 4,499,578
Increase (decrease) in accounts payable (2,676,860) (685,563)
Increase (decrease) in other current
liabilities 11,743,983 11,918,147
------------- -------------
Net cash provided by operating activities $ 67,221,761 $ 69,102,552
------------- -------------
Cash Flows From Investing Activities:
Additions to property and equipment $ (1,416,203) $ (53,820,502)
Interest bearing investments - (30,000,000)
Purchases and maturities of marketable
securities, net (11,038,256) 6,469,804
Proceeds from sale of marketable securities - 720,483
Deferred costs (29,283) 130,845
Other, net (1,660,438) (2,048,688)
------------- -------------
Net cash used in investing activities $ (14,144,180) $ (78,548,058)
------------- -------------
Cash Flows From Financing Activities:
Issuance of common stock $ 68,511 $ 33,228
Repurchase of common stock (3,607,483) (986,250)
Payments of cash dividends and
repurchase of fractional shares (2,667,119) (2,672,734)
Repayments of long-term obligations (4,252,962) (4,080,499)
------------- -------------
Net cash (used in) provided by
financing activities $ (10,459,053) $ 7,706,255
------------- -------------
Net increase(decrease)in cash and cash
equivalents $ 42,618,528 $ (17,151,761)
------------- -------------
Cash and cash equivalents at
beginning of period $ 156,214,247 $ 122,604,792
------------- -------------
Cash and cash equivalents at end of period $ 198,832,775 $ 105,453,031
============= =============
Cash paid during the period for interest $ 3,033,178 $ 3,130,230
============= =============
Cash paid during the period for income taxes $ 3,875,067 $ 427,443
============= =============
</TABLE>
PAGE 6
<PAGE> 7
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
----------------------------------------------
FOR THE THREE MONTHS ENDED JUNE 30, 1998
----------------------------------------
<TABLE>
<CAPTION>
Number of Accumulated
Shares Other
Issued and Comprehensive Common Comprehensive Retained
Outstanding Income Stock Income(Loss) Earnings Total
----------- ------ ----- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1998 66,658,127 - $ 42,072,045 $ 263,576 $ 319,510,220 $ 361,845,841
---------- ------------ ------------ ----------- ------------- -------------
Repurchase of common shares (130,000) - (3,607,483) - - (3,607,483)
Exercise of stock options
($6.74- $15.805 per share) 6,817 - 68,511 - - 68,511
Dividends (.040 per share) - - - (2,667,119) (2,667,119)
Comprehensive Income:
Net Income $ 34,334,626 - 34,334,626 34,334,626
------------
Other Comprehensive Income,
net of tax:
Net unrealized loss on
marketable securities
available-for-sale - (26,755) - (26,755) - (26,755)
------------
Comprehensive Income - $ 34,307,871 - -
---------- ============ ------------ ----------- ------------- -------------
Balance, June 30, 1998 66,534,944 $ 38,533,073 $ 236,821 $ 351,177,727 $ 389,947,621
========== ============ =========== ============= =============
</TABLE>
PAGE 7
<PAGE> 8
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. These statements reflect all adjustments which are, in
the opinion of management, necessary for a fair presentation of the results for
the interim periods presented. Certain information in footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles has been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the following
disclosures are adequate to make the information presented not misleading. It is
suggested that these consolidated financial statements be read in conjunction
with the financial statements and the notes thereto included in the Company's
latest annual report on Form 10-K.
NOTE 1: The accounts of Comair Holdings, Inc. and its wholly-owned
subsidiaries (the Company) have been consolidated in the accompanying
financial statements. Upon consolidation, all material intercompany
accounts, transactions and profits have been eliminated. The Company
considers the transportation of passengers and freight in scheduled
airline service by its major subsidiary, COMAIR, Inc., to be its
predominant industry segment. The Company's stock is traded in the
Nasdaq/National Market System under the symbol COMR.
NOTE 2: Results of operations for the interim periods are not necessarily
indicative of results to be expected for the year.
NOTE 3: In the third quarter of fiscal 1998, the Company adopted Financial
Accounting Standards Board Statement No. 128 (SFAS No. 128), "Earnings
Per Share", which replaces the presentation of primary earnings per
share with a presentation of basic earnings per share. It also requires
dual presentation of basic and diluted earnings per share on the face
of the income statement for all entities with complex capital
structures and requires a reconciliation of both the numerator and
denominator of the basic earnings per share computation for the same
components in the diluted earnings per share computation. The following
table shows the amounts used in computing earnings per share and the
effect on income and the weighted average number of shares for the
quarters ending June 30, 1998 and 1997 of dilutive potential common
stock.
PAGE 8
<PAGE> 9
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
1st Quarter 1st Quarter
1999 1998
----------- -----------
<S> <C> <C>
Numerator:
Net Income $34,334,626 $25,207,010
----------- -----------
Denominator:
For Earnings Per Share - Basic:
Weighted Average Shares
Outstanding - Basic 66,596,109 66,798,339
Effect of Dilutive Securities:
Stock Options 961,115 715,893
For Earnings Per Share - Diluted:
Weighted Average Shares
Outstanding - Diluted 67,557,224 67,514,232
----------- -----------
Earnings Per Share - Basic $ .52 $ .38
----------- -----------
Earnings Per Share - Diluted $ .51 $ .37
----------- -----------
</TABLE>
NOTE 4: In the first quarter of fiscal 1998 the Company adopted Financial
Accounting Standards Board 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 has chosen to disclose comprehensive income, which
encompasses net income and unrealized gains or losses of marketable
securities available for sale, in the Consolidated Statement of
Shareholders' Equity. Prior years have been restated to conform to SFAS
No. 130 requirements.
Total comprehensive income for the three month period ending June 30,
1997 is as follows.
<TABLE>
<S> <C>
Net Income $25,207,010
Other comprehensive income, net of tax:
Net unrealized gain on marketable
securities available-for-sale 163,687
-----------
Comprehensive income $25,370,697
===========
</TABLE>
PAGE 9
<PAGE> 10
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5: In July 1997, the Financial Accounting Standards Board issued
Statement No. 131 (SFAS No. 131), "Disclosures About Segments of an
Enterprise and Related Information" which requires disclosures for each
segment in which the chief operating decision maker organizes these
segments within a company for making operating decisions and assessing
performance. Reportable segments are based on products and services,
geography, legal structure, management structure and any manner in
which management disaggregates a company. The Company has adopted SFAS
No. 131 in fiscal 1999 and will comply with the disclosure requirements
in its fiscal 1999 annual report and all interim and annual reports
thereafter. 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.
PAGE 10
<PAGE> 11
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
COMAIR, Inc. (COMAIR) is the principal subsidiary of Comair Holdings,
Inc. (with its subsidiaries, the Company), accounting for 95% of the first
quarter operating revenues and expenses. Although the following discussion and
analysis entails various aspects of the Company's financial performance, many of
the factors that affect year to year comparisons relate solely to COMAIR.
Inflation and changing prices have not had a material adverse 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 many
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. dated and effective in October of
1989. The agreement may be terminated by either party on not less than one
hundred eighty (180) days' advance written notice. Delta owns approximately 21%
of the Company's outstanding common stock, leases reservation equipment and
terminal facilities to COMAIR, and provides certain services to COMAIR including
reservations and passenger and aircraft handling services. Approximately 45% of
COMAIR'S passengers in the first quarter of fiscal 1999 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.
For the first quarter of fiscal 1999, the Company reported all-time
record quarterly operating revenues, operating income, net income and passenger
enplanements. Operating revenues for the first quarter increased to $187.9
million, up 18% from the $159.0 million reported in the first quarter of fiscal
1998.
Operating income, net income and net income per diluted share for the
first quarter of fiscal 1999 all increased when compared with the results
reported in the first quarter of fiscal 1998. Operating income for the quarter
rose 34% to $53.9 million from $40.1 million. Net income increased 36% to $34.3
million from $25.2 million, while diluted earnings per share increased 38% to
$.51 per share from $.37 per share.
The increase in earnings is largely the result of increased passenger
enplanements which has translated into higher load factors. Passenger
enplanements grew 14% over last year's first quarter levels while load factors
exceeded last year's by approximately 4 percentage points. This traffic growth
clearly indicates our continuing success throughout our system, particularly in
our Cincinnati hub where 80% of COMAIR's operations exist. The combination of
Cincinnati's geographic location, our world class facilities and the passenger
appeal of the Canadair Jets have made Cincinnati one of the nation's preeminent
connecting hubs. As evidence of this, the International Air Transport
Association voted the Greater Cincinnati/Northern Kentucky International Airport
the easiest connecting airport in the United States for the second year in a row
and fourth most convenient airport of its size in the world.
PAGE 11
<PAGE> 12
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Revenue passenger miles (RPMs) grew 13%. Capacity, available seat miles
(ASMs), grew 6% as we continue to replace turboprop aircraft with new
50-passenger Canadair Jet aircraft. Currently, more than 80% of COMAIR'S
capacity is generated by the jet aircraft.
CAPACITY AND TRAFFIC ANALYSIS
<TABLE>
<CAPTION>
QUARTER ENDED
6/30/98 6/30/97
------- -------
<S> <C> <C>
Passengers 1,563,351 1,367,119
ASMs (000s) 792,943 746,657
RPMs (000s) 518,536 458,995
Load factor 65.4% 61.5%
Breakeven load factor 47.1% 46.6%
Yield (cents) 34.3 33.1
Cost per ASM (cents) 16.0 15.3
</TABLE>
The following table shows the expense categories for COMAIR for the first
quarter of the last two fiscal years.
EXPENSE CATEGORIES
<TABLE>
<CAPTION>
QTR Ended Cents QTR Ended Cents
6/30/98 per ASM 6/30/97 Per ASM
------- ------- ------- -------
<S> <C> <C> <C> <C>
Salaries and Related Costs $ 33,004,713 4.2 $ 26,746,103 3.6
Aircraft Fuel 12,595,345 1.6 13,705,454 1.8
Maintenance Materials
and Repairs 13,737,084 1.7 11,572,116 1.6
Aircraft Rent 19,990,275 2.5 18,107,620 2.4
Other Rent and Landing
Fees 5,982,558 0.8 5,564,061 0.7
Passenger Commissions 13,044,261 1.6 12,210,359 1.6
Other Operating Expenses 22,562,689 2.8 19,916,923 2.7
Depreciation and
Amortization 6,580,218 0.8 6,431,062 0.9
------------ ---- ------------ ----
$127,497,143 16.0 $114,253,698 15.3
============ ==== ============ ====
</TABLE>
PAGE 12
<PAGE> 13
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Salaries and related costs have risen from the first quarter of last year.
This increase has three main components. The Company hired additional personnel
to enhance operating effectiveness and service the growing passenger base. The
average number of employees increased 14% over last year's first quarter levels.
Expenses relating to incentive compensation plans grew as a result of higher
pretax earnings. Finally, in the first quarter of fiscal 1999, the Company
implemented a wage increase that impacted approximately 60% of the workforce in
order to stay competitive within the airline industry, attract and retain the
best employees and recognize the service of our employees.
Aircraft fuel expense decreased in total and on a unit cost basis. Aircraft
fuel price per gallon, including taxes and into-plane fees, for the first
quarter of fiscal 1999 decreased 18% to 58.6 cents from 71.4 cents. The benefit
from the lower fuel prices was partially offset by a 12% increase in
consumption.
Maintenance material and repair costs increased in total and on a unit cost
basis. The increase is attributed to higher maintenance costs due to warranty
periods expiring on certain jet aircraft and higher costs of scheduled repairs
on certain components.
Aircraft rent expense increased in total and on a unit cost basis as we
continue to place new Canadair Jets on shorter turboprop routes. Since July
1997, COMAIR has acquired ten Canadair Jets through operating leases.
Other rent and landing fees increased in total and on a unit cost basis
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 17% increase in passenger revenues. This increase was offset in part by a
change in the 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 available seat mile) were higher in the
first quarter of fiscal 1999, commission cost per available seat mile (ASM)
remained the same as result of this new commission structure which lowered the
weighted average domestic commission rates. Commissions as a percentage of
passenger revenues were 7.3% this quarter and 8.0% last year.
Other operating expenses (the principle components of which include
passenger reservation fees, aircraft and passenger handling, crew training, crew
accommodations 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 rerouting costs associated with the severe
weather during the first quarter.
PAGE 13
<PAGE> 14
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Depreciation and amortization increased slightly in total and decreased
on a unit cost basis. The decrease in unit cost is due to the additional
capacity generated by the ten Canadair Jets acquired through operating leases
since July 1997.
Investment income in the first quarter of fiscal 1999 was higher than first
quarter of fiscal 1998 due to higher average cash balances available for
investment.
The Company's effective tax rate, which includes federal, state and
local taxes, approximated the statutory rate in the first quarter of fiscal 1999
and 1998.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
In the first three months of fiscal 1999, the Company generated cash from
operating activities of $67.2 million. Total working capital increased to $226.5
million from $188.5 million at March 31, 1998, while the current ratio increased
to 2.75 from 2.57. The Company repaid long-term obligations of $4.3 million and
paid cash dividends of $2.7 million. The Company's long-term debt to equity
position was 22% debt, 78% equity at June 30, 1998, as compared to 24% debt, 76%
equity at March 31, 1998. During the first three months, the Company had net
property and equipment additions of $1.4 million. These additions were financed
with working capital.
In fiscal 1995, the Board of Directors authorized the Company to
repurchase up to 13.8 million shares of common stock from time to time as market
conditions dictate. As of June 30, 1998, the Company had repurchased 7.5 million
shares of this authorization at a cost of $55.5 million. The Company has
repurchased an additional 150,000 shares at a cost of approximately $4.8 million
from July 1 to August 11, 1998.
COMAIR has taken delivery of four new generation, 50-passenger Canadair
Jet aircraft during the first three months of fiscal 1999 bringing the total
Canadair Jet fleet to 63. For 20 of these aircraft, the manufacturer agreed to
arrange the lease financing, including the right to return the aircraft after
seven years with no cost to COMAIR other than normal and customary return
provisions related to the condition of the aircraft. Ten aircraft were financed
with debt, one was acquired with working capital, while the other 32 aircraft
were financed through operating leases with terms of up to 16.5 years.
As of June 30, 1998, COMAIR had scheduled delivery positions for 17
Canadair Jets to be delivered through fiscal 2000, all of which are firm orders.
The aggregate cost of these aircraft, including support equipment and estimated
escalation, will be approximately $308 million. COMAIR also has options for 45
additional jet aircraft, valued at approximately $875 million, including support
equipment and estimated escalation, which could be available for delivery in
fiscal 2000 through fiscal 2002. Some of the options can, at an additional cost,
be converted to Canadair's 70-seat aircraft, subject to availability.
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.
PAGE 14
<PAGE> 15
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
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 agent sales and Delta
and various systems used by 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 its 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.
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, cash flows or results of operations.
In fiscal 1998, additional capital for repayment of long-term
obligations, planned dividend payments and other capital expenditures are
expected to be provided by operations.
The Company has a $5 million bank line of credit at prime. The line of
credit has not been used since 1985.
Several of the statements contained in this report are "forward-looking
statements" as that term is defined in federal securities laws. The actual
results could vary materially from those described in those statements. Factors
that could cause actual results to vary are described in detail in our reports
to the Securities and Exchange Commission including Exhibit 99 and are also
discussed in the second and third paragraphs under "Results of Operations."
PAGE 15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
ITEM 5. OTHER EVENTS
The form of Proxy for the Company's Annual Meeting of Shareholders
grants authority to designated proxies named on the proxy card to vote in their
discretion on any matters that come before the meeting except those set forth in
the Company's Proxy Statement and except for matters as to which adequate notice
is received. In order for a notice to be deemed adequate for the 1999 Annual
Shareholder's Meeting, it must be received prior to May 10, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 99 - Forward looking statements
---------------------------------------
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter
for which this report is filed
PAGE 16
<PAGE> 17
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.
PAGE 17
<PAGE> 18
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
SIGNATURE
- ---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMAIR HOLDINGS, INC.
August 13, 1998 BY: /s/ Randy D. Rademacher
-------------------------------
Randy D. Rademacher
Senior Vice President Finance
Chief Financial Officer
PAGE 18
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