<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 December 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 Kentucky 31-1243613
(I.R.S. Employer ID No.)
P.O. Box 75021
Cincinnati, Ohio 45275
(606) 767-2550
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) or the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at February 12, 1999
----- ----------------------- --------
<S> <C>
Common stock, no par value 64,920,459
</TABLE>
1
<PAGE> 2
COMAIR HOLDINGS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NOS.
---------
<S> <C>
PART I. Financial Information -
Consolidated Balance Sheets as of December 31, 1998 and March 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-4
Consolidated Statements of Income -
Three months ended December 31, 1998 and 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Income -
Nine months ended December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows -
Nine months ended December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Consolidated Statement of Shareholders' Equity
Nine months ended December 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-11
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-18
PART II. Other Information -
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND MARCH 31, 1998(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS DEC 31, 1998 MARCH 31, 1998
- ------ ------------ --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $172,939,802 $156,214,247
Marketable securities
available-for-sale 71,374,134 61,423,198
Interest bearing investment 30,000,000 30,000,000
------------ ------------
$274,313,936 $247,637,445
Accounts receivable 12,932,716 12,624,127
Inventory of expendable parts 18,366,939 19,478,981
Future tax benefits 14,871,336 13,436,538
Prepaid expenses 4,552,849 15,132,842
------------ ------------
Total current assets $325,037,776 $308,309,933
------------ ------------
Property and equipment, at cost:
Flight equipment $420,880,064 $403,487,347
Maintenance, operations and
office facilities 10,292,723 10,292,723
Other property and equipment 51,903,864 47,777,606
------------ ------------
$483,076,651 $461,557,676
Less accumulated depreciation and
amortization 132,288,469 117,685,617
Less reserve for engine overhauls and
purchase incentives 16,634,737 16,582,458
------------ ------------
$334,153,445 $327,289,601
Construction in progress 2,449,498 147,776
Advance payments and deposits
for aircraft 53,645,037 24,187,396
------------ ------------
Net property and equipment $390,247,980 $351,624,773
------------ ------------
Other assets and deferred costs $ 11,696,241 $ 9,802,095
------------ ------------
Total assets $726,981,997 $669,736,801
============ ============
</TABLE>
3
<PAGE> 4
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY DEC 31, 1998 MARCH 31,1998
- ------------------------------------ ------------ -------------
<S> <C> <C>
Current liabilities:
Current installments of long-term obligations $ 13,743,598 $ 13,435,345
Accounts payable 48,802,504 39,158,243
Interline payable and deferred revenue 7,462,792 6,322,647
Accrued lease expense 27,197,774 22,732,440
Accrued wages 10,257,967 6,953,710
Accrued expenses 18,000,943 15,604,000
Accrued taxes 12,346,189 15,645,510
------------ ------------
Total current liabilities $137,811,767 $119,851,895
Long-term obligations $103,821,936 $114,312,516
------------ ------------
Deferred income taxes $ 70,833,560 $ 63,598,648
------------ ------------
Other liabilities and deferred credits $ 12,252,536 $ 10,127,901
------------ ------------
Shareholders' equity:
Common stock, no par value,
200,000,000 shares authorized,
64,918,859 and 66,658,127 issued
and outstanding, respectively $ -- $ 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 570,119 263,576
Retained earnings 401,692,079 319,510,220
------------ ------------
Total shareholders' equity $402,262,198 $361,845,841
------------ ------------
Total liabilities and shareholders' equity $726,981,997 $669,736,801
============ ============
</TABLE>
4
<PAGE> 5
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
OPERATING REVENUES:
Passenger $ 178,470,656 $ 156,134,284
Cargo and other 1,381,313 1,207,746
Non-airline operations 8,634,716 5,815,565
------------- -------------
Total operating revenues $ 188,486,685 $ 163,157,595
------------- -------------
OPERATING EXPENSES:
Salaries and related costs $ 36,187,196 $ 29,247,502
Aircraft fuel 13,452,923 13,997,363
Maintenance materials and repairs 14,263,792 13,834,223
Aircraft rent 20,846,176 18,852,642
Other rent and landing fees 6,007,931 5,171,146
Passenger commissions 11,198,037 12,988,318
Other operating expenses 24,857,751 20,203,957
Depreciation and amortization 7,575,448 7,374,812
Non-airline direct costs 5,789,347 3,568,399
------------- -------------
Total operating expenses $ 140,178,601 $ 125,238,362
------------- -------------
Operating income $ 48,308,084 $ 37,919,233
------------- -------------
NONOPERATING INCOME (EXPENSE):
Investment income $ 3,263,458 $ 3,106,304
Interest expense (1,227,879) (1,865,391)
------------- -------------
Total nonoperating income, net $ 2,035,579 $ 1,240,913
------------- -------------
Income before income taxes $ 50,343,663 $ 39,160,146
Income taxes 18,688,000 14,887,000
------------- -------------
Net income $ 31,655,663 $ 24,273,146
============= =============
Weighted average number
of shares outstanding - Basic (Note 3) 65,206,319 67,058,025
============= =============
Net income per share - Basic (Note 3) $ .49 $ .36
============= =============
Weighted average number
of shares outstanding - Diluted (Note 3) 66,212,408 67,784,126
============= =============
Net income per share - Diluted (Note 3) $ .48 $ .36
============= =============
Dividends paid per share $ 0.040 $ 0.040
============= =============
</TABLE>
5
<PAGE> 6
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
OPERATING REVENUES:
Passenger $ 542,282,729 $ 464,089,664
Cargo and other 4,063,494 3,638,719
Non-airline operations 25,064,847 17,341,692
------------- -------------
Total operating revenues $ 571,411,070 $ 485,070,075
------------- -------------
OPERATING EXPENSES:
Salaries and related costs $ 105,178,468 $ 84,781,850
Aircraft fuel 39,119,658 41,478,221
Maintenance materials and repairs 43,510,741 38,974,112
Aircraft rent 61,588,705 55,677,329
Other rent and landing fees 18,755,717 15,955,324
Passenger commissions 37,524,409 37,475,489
Other operating expenses 71,223,626 59,996,041
Depreciation and amortization 22,495,948 22,146,925
Non-airline direct costs 16,911,268 11,337,271
------------- -------------
Total operating expenses $ 416,308,540 $ 367,822,562
------------- -------------
Operating income $ 155,102,530 $ 117,247,513
------------- -------------
NONOPERATING INCOME (EXPENSE):
Investment income $ 10,609,753 $ 8,028,851
Interest expense (4,871,895) (5,887,683)
------------- -------------
Total nonoperating income, net $ 5,737,858 $ 2,141,168
------------- -------------
Income before income taxes $ 160,840,388 $ 119,388,681
Income taxes 60,259,000 45,363,000
------------- -------------
Net income $ 100,581,388 $ 74,025,681
============= =============
Weighted average number
of shares outstanding - Basic (Note 3) 65,991,028 66,888,663
============= =============
Net income per share - Basic (Note 3) $ 1.52 $ 1.11
============= =============
Weighted average number
of shares outstanding - Diluted (Note 3) 67,003,822 67,567,197
============= =============
Net income per share - Diluted (Note 3) $ 1.50 $ 1.10
============= =============
Dividends paid per share $ 0.120 $ 0.120
============= =============
</TABLE>
6
<PAGE> 7
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 100,581,388 $ 74,025,681
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 22,495,948 22,146,925
Amortization and accrual of overhaul expenses 11,975,970 9,594,698
Deferred income tax provision 5,800,114 8,553,145
Other, net (1,785,864) (1,105,842)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (308,589) 14,637,342
Decrease (increase) in inventory of expendable parts 1,112,042 (1,644,735)
Decrease (increase) in other current assets 10,579,993 9,225,135
Increase (decrease) in accounts payable 9,644,261 (3,049,682)
Increase (decrease) in other current liabilities 8,007,358 8,190,842
------------- -------------
Net cash provided by operating activities $ 168,102,621 $ 140,573,509
------------- -------------
Cash Flows From Investing Activities:
Additions to property and equipment $ (40,850,861) $ (45,381,121)
Advance payments and deposits (30,000,000) (4,000,000)
Interest bearing investments -- (30,000,000)
Purchases and maturities of marketable securities, net (22,585,101) (18,264,581)
Proceeds from sale of marketable securities 12,940,708 10,354,574
Deferred costs (219,831) (202,918)
Other, net (8,080) (366,283)
------------- -------------
Net cash used in investing activities $ (80,723,165) $ (87,860,329)
------------- -------------
Cash Flows From Financing Activities:
Issuance of common stock $ 466,690 $ 2,294,130
Repurchase of common stock (52,990,930) (986,250)
Payments of cash dividends and
repurchase of fractional shares (7,947,334) (8,043,080)
Repayments of long-term obligations (10,182,327) (11,012,722)
------------- -------------
Net cash used in financing activities $ (70,653,901) $ (17,747,922)
------------- -------------
Net increase in cash and cash equivalents $ 16,725,555 $ 34,965,258
------------- -------------
Cash and cash equivalents at beginning of period $ 156,214,247 $ 122,604,792
------------- -------------
Cash and cash equivalents at end of period $ 172,939,802 $ 157,570,050
============= =============
Cash paid during the period for interest $ 6,995,844 $ 7,623,782
============= =============
Cash paid during the period for income taxes $ 59,456,039 $ 35,421,563
============= =============
</TABLE>
7
<PAGE> 8
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Common Comprehensive Retained
Income Stock Income(Loss) Earnings Total
------ ----- ------------ -------- -----
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1998 -- $ 42,072,045 $ 263,576 $ 319,510,220 $ 361,845,841
------------- ------------- ------------ ------------- -------------
Repurchase of common shares (42,538,735) -- (10,452,195) (52,990,930)
Exercise of stock options
($1.037-$15.805 per share) -- 466,690 -- -- 466,690
Dividends ($.040 per share -- -- (7,947,334) (7,947,334)
Comprehensive Income:
Net Income $ 100,581,388 -- 100,581,388 100,581,388
-------------
Other Comprehensive Income,
net of tax:
Net unrealized gain on
marketable securities
available-for-sale 306,543 -- 306,543 -- 306,543
-------------
Comprehensive Income $ 100,887,931
============= ------------- ------------ ------------- -------------
Balance, December 31, 1998 $ -- $ 570,119 $ 401,692,079 $ 402,262,198
============= ============ ============= =============
</TABLE>
8
<PAGE> 9
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
three and nine months ending December 31, 1998 and 1997 of dilutive
potential common stock.
9
<PAGE> 10
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
3rd Quarter 3rd Quarter Year-to-Date Year-to-Date
1999 1998 1999 1998
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Numerator:
Net Income $ 31,655,663 $ 24,273,146 $100,581,388 $ 74,025,681
------------ ------------ ------------ ------------
Denominator:
For Earnings Per Share - Basic:
Weighted Average Shares
Outstanding - Basic 65,206,319 67,058,025 65,991,028 66,888,663
Effect of Dilutive Securities:
Stock Options 1,006,089 726,101 1,012,794 678,534
For Earnings Per Share - Diluted:
Weighted Average Shares
Outstanding - Diluted 66,212,408 67,784,126 67,003,822 67,567,197
------------ ------------ ------------ ------------
Earnings Per Share - Basic $ .49 $ .36 $ 1.52 $ 1.11
------------ ------------ ------------ ------------
Earnings Per Share - Diluted $ .48 $ .36 $ 1.50 $ 1.10
------------ ------------ ------------ ------------
</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 nine month period ending December
31, 1997 is as follows.
<TABLE>
<CAPTION>
<S> <C>
Net Income $74,025,681
Other comprehensive income, net of tax:
Net unrealized gain on marketable
securities available-for-sale 406,133
-----------
Comprehensive income $74,431,814
===========
</TABLE>
10
<PAGE> 11
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.
NOTE 6: In March 1998, the Accounting Standards Executive Board issued
Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". This
Statement of Position (SOP) applies to all non-governmental entities
and is effective for financial statements for fiscal years beginning
after December 15, 1998. This SOP provides guidance on accounting for
the costs of computer software developed or obtained for internal use.
This SOP separates computer software development or the obtainment of
computer software into the following three stages: (1) Preliminary
Project Stage, (2) Application Development Stage and (3)
Post-Implementation/Operation Stage. The statement also provides
definitions and criteria of costs associated with software development
or the obtainment of software for internal use as whether these costs
should be expensed as incurred or capitalized. The Company has adopted
SOP 98-1 early as recommended by the Accounting Standards Executive
Board in fiscal 1999. The adoption did not have a material effect on
its financial condition, cash flows or results of operations. The
Company is in the process of developing or obtaining computer software
for internal use and will account for such costs in accordance with
this statement.
11
<PAGE> 12
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
COMAIR, Inc. (COMAIR) is the principal subsidiary of Comair Holdings,
Inc. (with its subsidiaries, the Company), accounting for 95% of the third
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. effective in October of 1989. The
agreement may be terminated by either party on not less than one hundred eighty
days' advance written notice. Delta owns approximately 22% 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 third 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 interruptions or modifications in this arrangement.
RESULTS OF OPERATIONS
For the third quarter of fiscal 1999, operating revenues increased to
$188.5 million, up 16% from the $163.2 million reported in the third quarter of
fiscal 1998. Operating income, net income and net income per diluted share for
the third quarter of fiscal 1999 all increased when compared with the results
reported in the third quarter of fiscal 1998. Operating income for the quarter
rose 27% to $48.3 million from $37.9 million. Net income increased 30% to $31.7
million from $24.3 million, while diluted earnings per share increased 33% to
$.48 per share from $.36 per share.
Passenger enplanements grew 18% over last year's third quarter levels.
Load factors increased approximately one percentage point as revenue passenger
miles (RPMs) grew 21%, while capacity, available seat miles (ASMs), increased
20%. The growth in capacity was generated by increases in aircraft utilization
through the addition of new long-haul jet service and operating a more complete
schedule during the holiday period as compared to last year. Currently, more
than 87% of COMAIR's capacity is generated by jet aircraft. Although load
factors were higher than last year, yield (revenue per passenger mile) declined
5.3% causing unit revenues (revenue per ASM) to decrease by 4.3%. The decrease
in yield was the result of a combination of the percentage growth in discount
passengers exceeding the growth in full fare passengers and expanding passenger
stage-lengths.
12
<PAGE> 13
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
CAPACITY AND TRAFFIC ANALYSIS
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
12/31/98 12/31/97 12/31/98 12/31/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Passengers 1,637,784 1,385,683 4,855,805 4,149,946
ASMs (000s) 900,292 752,686 2,549,757 2,254,309
RPMs (000s) 558,231 461,333 1,639,384 1,391,496
Load factor 62.0% 61.3% 64.3% 61.7%
Breakeven load factor 46.3% 47.7% 47.2% 47.4%
Yield (cents) 32.0 33.8 33.1 33.4
Revenue per ASM(cents) 19.8 20.7 21.3 20.6
Cost per ASM (cents) 14.8 16.1 15.5 15.7
</TABLE>
The following tables show the expense categories for COMAIR for the third
quarter and nine months of the last two fiscal years.
EXPENSE CATEGORIES
<TABLE>
<CAPTION>
QTR Ended Cents QTR Ended Cents
12/31/98 per ASM 12/31/97 Per ASM
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Salaries and Related Costs $ 36,187,196 4.0 $ 29,247,502 3.9
Aircraft Fuel 13,452,923 1.5 13,997,363 1.9
Maintenance Materials
and Repairs 14,263,792 1.6 13,834,223 1.8
Aircraft Rent 20,846,176 2.3 18,852,642 2.5
Other Rent and Landing
Fees 6,007,931 0.7 5,171,146 0.7
Passenger Commissions 11,198,037 1.2 12,988,318 1.7
Other Operating Expenses 24,799,732 2.8 20,159,712 2.7
Depreciation and
Amortization 6,376,100 0.7 6,568,053 0.9
------------ ---- ------------ ----
$133,131,887 14.8 $120,818,959 16.1
============ ==== ============ ====
</TABLE>
13
<PAGE> 14
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
EXPENSE CATEGORIES
<TABLE>
<CAPTION>
9 Mo. Ended Cents 9 Mo. Ended Cents
12/31/98 per ASM 12/31/97 Per ASM
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Salaries and Related Costs $105,178,468 4.1 $ 84,781,850 3.8
Aircraft Fuel 39,119,658 1.5 41,478,221 1.8
Maintenance Materials
and Repairs 43,510,741 1.7 38,974,112 1.7
Aircraft Rent 61,588,705 2.4 55,677,329 2.5
Other Rent and Landing
Fees 18,755,717 0.7 15,955,324 0.7
Passenger Commissions 37,524,409 1.5 37,475,489 1.7
Other Operating Expenses 71,045,722 2.8 59,858,254 2.6
Depreciation and
Amortization 19,368,936 0.8 19,630,536 0.9
------------ ---- ------------ ----
$396,092,356 15.5 $353,831,115 15.7
============ ==== ============ ====
</TABLE>
Salaries and related costs have risen from the third quarter of last year.
This increase has two main components. The Company hired additional personnel to
enhance operating effectiveness and service the growing passenger base. The
average number of employees increased 20% over last year's third quarter levels.
Finally, in the first quarter of fiscal 1999, the Company implemented a wage
increase that impacted over 60% of the workforce in order to keep us proactive
in our efforts to attract and retain the best people in our industry and to
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 third
quarter of fiscal 1999 decreased 23% to 54.5 cents from 70.5 cents a year ago.
The benefit from the lower fuel prices was partially offset by a 23% increase in
consumption caused by the additional jet aircraft.
Maintenance material and repair costs increased slightly in total but
decreased on a unit cost basis. The lower unit cost was the result of increases
in capacity and aircraft utilization only being partially offset by the higher
maintenance costs associated with the expiration of warranty periods on certain
jet aircraft.
Aircraft rent expense increased in total but decreased on a unit cost
basis. The decrease in unit cost was generated by a year over year increase in
aircraft utilization through the addition of new long-haul jet service and
operating a more complete schedule during the holiday period as compared to last
year. Since December 1997, COMAIR has acquired sixteen Canadair Jets through
operating leases.
14
<PAGE> 15
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Other rent and landing fees increased in total as a result of higher
landing fees generated by the addition of the larger Canadair Jets. Unit cost
remained the same as the increased capacity and aircraft utilization offset the
additional expense.
Travel agency and credit card commissions have decreased in total and
on a unit cost basis as a result of a change in the industry's commission
structure beginning in September 1997 which reduced commissions from 10% to 8%
on tickets purchased in the U.S. and Canada. In addition, a slight decrease in
tickets sold through travel agencies and lower unit revenues produced lower
travel agency and credit card commission expense.
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. Most of the
increase was due to higher passenger reservation fees associated with the
increase in passenger enplanements.
Depreciation and amortization decreased on a unit cost basis. The
decrease in unit cost is due to the additional capacity generated by the sixteen
Canadair Jets acquired through operating leases since December 1997 and higher
aircraft utilization.
Investment income in the third quarter of fiscal 1999 was slightly
higher than third 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 third quarter of fiscal 1999
and 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company considers its level of cash on hand, its current ratio and
working capital levels to be its most important measures of short-term
liquidity. In terms of long-term liquidity indicators, the Company believes its
ratio of long-term debt to equity and its historical levels of cash generated
from operations to be the important measures.
In the first nine months of fiscal 1999, the Company generated cash
from operating activities of $168.1 million. Total working capital decreased to
$187.2 million from $188.5 million at March 31, 1998, while the current ratio
decreased to 2.36 from 2.57. The Company repurchased 1.8 million shares of
common stock at a cost of $53.0 million, repaid long-term obligations of $10.2
million and paid cash dividends of $7.9 million. The Company's long-term debt to
equity position was 21% debt, 79% equity at December 31, 1998, as compared to
24% debt, 76% equity at March 31, 1998. During the first nine months, the
Company had net property and equipment additions of $40.9 million. In addition,
during the third quarter, the Company made advance payments for aircraft
deposits to an aircraft manufacturer of $30.0 million. These additions were
financed with available cash. In fiscal 1999, additional capital for repayment
of long-term obligations, planned dividend payments and other capital
expenditures are expected to be provided by operations.
15
<PAGE> 16
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
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 December 31, 1998, the Company had repurchased 9.2
million shares of this authorization at a cost of $104.8 million.
COMAIR has taken delivery of twelve new generation, 50-passenger
Canadair Jet aircraft during the first nine months of fiscal 1999 bringing the
total Canadair Jet fleet to 71. 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 available cash, while
the other 40 aircraft were financed through operating leases with terms of up to
16.5 years.
As of December 31, 1998, COMAIR had scheduled delivery positions for
thirty-nine 50-passenger Canadair Jets to be delivered through fiscal 2002, at
an aggregate cost, including support equipment and estimated escalation, of
approximately $712 million. COMAIR also had delivery positions for twenty
70-passenger Canadair Jets. The aggregate cost of the 70-passenger aircraft,
including support equipment and estimated escalation, is expected to be
approximately $500 million. COMAIR will take delivery of its first 70-passenger
jet at the end of calendar 2001. In addition to this outstanding firm order,
COMAIR has options for 115 additional aircraft, valued at approximately $2.8
billion, including support equipment and estimated escalation, which could be
available for delivery in 2001 through 2007.
The Company is finalizing plans to expand its corporate headquarters.
The new headquarters will include a new general office building and maintenance
and training facilities. This expansion is estimated to cost $25 - $30 million
and should be completed in mid-2000.
COMAIR expects to finance the aircraft and expansion described above
through a combination of working capital and lease, equity and debt financing
and utilizing manufacturers' assistance 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 aircraft
acquisition and expansion plans.
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. On
September 23, 1998, the court ruled in favor of the National Mediation Board's
certification of the International Brotherhood of Teamsters as a collective
bargaining representative for the flight attendants of COMAIR. Negotiations with
the International Brotherhood of Teamsters are currently underway . At this
time, the Company cannot anticipate what effect, if any, negotiations with the
International Brotherhood of Teamsters will have on its financial condition,
results of operations or cash flow.
On June 1, 1998, the collective bargaining agreement between COMAIR and
the Air Lines Pilots Association became amendable. At this time, the
renegotiation of this collective bargaining agreement has not
16
<PAGE> 17
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
progressed to the stage that would enable the Company to comment on any possible
effects of the renegotiation. As a result, the Company cannot anticipate what
effect the renegotiations will have on its financial condition, results of
operations or cash flow.
YEAR 2000 COMPLIANCE
The Company depends on many internal and external information
technology systems that were not originally designed to process dates beyond
1999. The Company has developed a Year 2000 Readiness Program (Program) to
ensure that its systems will function properly in the Year 2000 and thereafter.
The Company expects this Program to be completed in September 1999. With the
assistance of an experienced outside consultant specializing in the aviation
technology field, we have formulated a plan to address all of the Company's
information technology requirements that could be impacted by any potential Year
2000 issues. One facet of our Program focuses on our internal information
technology. This includes software applications, hardware and infrastructure
that are essential for aircraft maintenance; flight operation management;
revenue management; finance systems, which includes revenue accounting; internal
communication systems and facility management.
The Program also encompasses non-information technology equipment,
aircraft and onboard support systems, our third party suppliers and facilities.
We have also been involved in industry efforts led by the Air Transport
Association and the Regional Airline Association (RAA) in addressing Year 2000
issues concerning third party relationships that include the Federal Aviation
Administration (FAA), the U.S. Department of Transportation (DOT), and airport
authorities.
The Company has taken a phased approach to this Program that includes:
Identification & Awareness, Assessment, Remediation and Testing. Based on this
approach, the Identification & Awareness and Assessment phases of all the
Company's critical internal information technology systems, non-information
technology equipment and aircraft and onboard support systems are complete.
These systems specifically include, but are not limited to, those that are
critical and essential for the Company to continue operations without
interruption. The Company is continuing to work through the remaining phases and
expects the Testing phase to be completed by September 1999.
As indicated, the Company has also assessed Year 2000 issues concerning
its relationships with third parties. We identified vendors and suppliers that
we define as critical to our business, and have initiated formal communications
with those suppliers and vendors. These third parties include the suppliers of
infrastructure critical to the airline industry, such as the air traffic control
and related systems of the FAA, DOT and local airport authorities. Other
critical third parties on which the Company rely include other airlines,
suppliers of aircraft fuel, utilities, communications services, aircraft
maintenance parts suppliers and other airline reservation
17
<PAGE> 18
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
systems. The progress of each of their Year 2000 Programs is being monitored
based on information provided to us by them and information available through
industry sources. The failure of third parties to remediate their respective
systems could have a material adverse effect on the Company's financial
condition, cash flows and results of operations.
The Company estimates that the overall cost of the Year 2000 readiness
activities could approximate $3 million. This cost includes hardware and
software upgrades, consultant fees, and internal staffing salaries for our
employees involved in the Program. The total cost of the Program through
December 31, 1998, was approximately $900,000 all of which has been expensed.
The Company is revising and developing business continuity plans for
its most critical processes to address internal and external issues related to
the Year 2000 problem to the extent practicable. Revisions to these plans are
expected to be completed by September 1999. These plans, which are intended to
enable the Company to operate to the extent possible, could include carrying
additional inventories for fuel and flight essential components; performing
certain processes manually; repairing existing systems; changing suppliers; and
reducing or suspending operations. The Company believes that since the Year 2000
issues are so widespread in nature, the contingency plans will require further
modifications as additional information becomes available regarding results of
the Company's Program and the status of third party Year 2000 readiness.
The Company is currently of the opinion that its material processes and
systems, to the extent within its control, will be in compliance with Year 2000
requirements in the time frame mentioned. However, there can be no assurance
that the Company's internal systems or equipment or those of third parties on
which the Company relies will be Year 2000 compliant in a timely manner or the
Company's or third parties' contingency plans will mitigate the effects of any
noncompliance. The failure of the systems or equipment of the Company or third
parties (which the Company believes is the most reasonably likely worst case
scenario) could result in the reduction or suspension of the Company's
operations and could have a material adverse effect on the Company's financial
condition, cash flows and results of operations.
FORWARD - LOOKING STATEMENTS
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 "INTRODUCTION" and "YEAR 2000 COMPLIANCE" sections of the
"MANAGEMENT'S DISCUSSION AND ANALYSIS ON FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
18
<PAGE> 19
PART II. OTHER INFORMATION
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
19
<PAGE> 20
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to this report to be signed on its
behalf by the undersigned thereunto duly authorized.
COMAIR HOLDINGS, INC.
February 16, 1999 BY: /s/ Randy D. Rademacher
-----------------------------
Randy D. Rademacher
Senior Vice President Finance
Chief Financial Officer
20
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<NAME> COMAIR HOLDINGS, INC.
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
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<CASH> 172,939,802
<SECURITIES> 71,374,134
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<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-Q
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; higher employment costs resulting from the amendment of collective
bargaining agreements; and actions by the United States and foreign governments.
