<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, 1999
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
$1,522,599,329 based on a closing price of $20.9375 on June 14, 1999. As of June
14, 1999, 96,047,688 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, 1999 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 1999 Annual Meeting of Shareholders are incorporated by reference in Parts
I, II and III as specified.
<PAGE> 2
COMAIR HOLDINGS, INC.
INDEX TO ANNUAL REPORT
ON FORM 10-K
<TABLE>
<CAPTION>
Part I Page
----
<S> <C>
Item 1 - Business 3
Item 2 - Properties 5
Item 3 - Legal Proceedings 6
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
7(A) - Quantitative and Qualitative Disclosures about Market Risk 7
Item 8 - Financial Statements and Supplementary Data 8
Item 9 - Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 8
Part III
Item 10 - Directors and Executive Officers of the Registrant 8
Item 11 - Executive Compensation 8
Item 12 - Security Ownership of Certain Beneficial Owners and Management 8
Item 13 - Certain Relationships and Related Transactions 8
Part IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 9
</TABLE>
2
<PAGE> 3
PART I
ITEM 1.
BUSINESS
--------
"Footnotes 1 and 7" on page 25 and 33 and the "Letter to the
Shareholders" of the Registrant's Annual Report to Shareholders for 1999 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 business segment.
COMAIR operates as a "Delta Connection" carrier under a ten-year
marketing agreement with Delta Air Lines, Inc. effective in October 1989. We
expect to extend our marketing agreement with Delta when it expires in October
1999. The current 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 1999 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 regional and major 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, 1999, the Company had 3,873 full-time and 509 part-time
employees consisting of 2,271 persons in aircraft operations, 1,560 in customer
service activities, 331 in its fixed base, charter and pilot training operations
and the remainder in office and sales capacities.
COMAIR has collective bargaining agreements with the Air Lines Pilots
Association (ALPA), representing COMAIR's pilots and the International
Association of Machinists and Aerospace Workers (IAM), representing COMAIR's
maintenance employees. COMAIR's collective bargaining agreement with the ALPA
became amendable on June 1, 1998 and the collective bargaining agreement with
the IAM became amendable on June 1, 1999. Renegotiations of the collective
bargaining agreements are currently underway. In September 1998, the
International Brotherhood of Teamsters (IBT) were certified as collective
bargaining representatives of the flight attendants of COMAIR. COMAIR is also in
negotiations with the IBT. At this time, the renogotiations and negotiations
have not progressed to the stage that would enable the Company to comment on any
possible effects of the negotiations. As a result, COMAIR cannot anticipate what
effect these renegotiations and negotiations will have on its financial
condition, results of operations or cash flow.
3
<PAGE> 4
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.
COMAIR holds a Certificate of Public Convenience and Necessity issued
by the Department of Transportation. The certificate authorizes COMAIR to
conduct air transportation between all points of the United States, its
territories and possessions and requires COMAIR to maintain prescribed minimum
levels of insurance, comply with all applicable statutes and regulations and
remain continuously "fit" to engage in air transportation. As an operator of
aircraft with less than 60 seats, COMAIR operates under a separate DOT
regulation which is also concerned with the same factors.
Based on conditions in the industry, as a result of Congressional
directives or statutes, the DOT from time to time proposes and adopts new
regulations or amends existing regulations which could impose additional
regulatory requirements and costs to the Company.
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.
In order to ensure the highest level of safety in air transportation,
the FAA has authority to issue maintenance directives and other mandatory
requirements relating to, but not limited to, inspection of aircraft, operating
specifications, aircraft certification and the mandatory removal and
replacements of parts that have failed or may fail in the future. In addition,
the FAA from time to time amends its regulations.
Currently, there are new regulations by the FAA relating to operating
specifications and aircraft certification. 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. The Company'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, The Company does provide
services to a few airports where noise regulations apply, however, these noise
regulations do not impact the Company's operations.
4
<PAGE> 5
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 1999 is incorporated herein by reference. Certain additional
information regarding the Properties of the Company is described below:
Flight Equipment
- ----------------
At March 31, 1999, COMAIR's fleet consisted of 75 jet aircraft and 25
turboprop aircraft. The following table summarizes the fleet:
<TABLE>
<CAPTION>
No. of Seating No. of No. of Average
Type of Aircraft Aircraft Capacity Aircraft Owned Aircraft Leased Age (Years)
---------------- -------- -------- -------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Canadair Jet 75 50 11 64 3
Embraer Brasilia 25 30 8 17 8
</TABLE>
Facilities
- ----------
COMAIR's principal passenger facilities are at the Greater
Cincinnati/Northern Kentucky International Airport and in Orlando at the Greater
Orlando Airport. Each of these facilities are leased and COMAIR is responsible
for maintenance, taxes, insurance and other facility related expenses and
service. At each of COMAIR's two hub cities, passenger and baggage handling
space is leased directly from the airport authorities on various terms dependent
on prevailing practices of each airport. COMAIR also leases ticket counter,
gate, ramp and office space at airports where COMAIR personnel are located.
COMAIR's primary maintenance facilities are at the Greater
Cincinnati/Northern Kentucky International Airport and Orlando. These
maintenance facilities are owned but are located on leased airport property.
COMAIR performs line maintenance, service and inspection of aircraft and engines
at these facilities using COMAIR personnel.
The Company's headquarters, which include its executive and
administrative offices, are located at the Greater Cincinnati/Northern Kentucky
International Airport. The Company owns its corporate headquarters building but
leases the land from the airport.
The Company has broken ground on approximately $40 million in new
construction and facility upgrades, which include a new corporate headquarters,
additional maintenance and training facilities, and improvements to passenger
facilities at the Greater Cincinnati/Northern Kentucky International Airport.
This construction is expected to be completed by the end of calendar year 2000.
The Company expects to finance the construction through a combination of
available cash and debt financing.
A wholly-owned subsidiary of Comair Holdings, Inc. operates a fixed
based operation at the Greater Cincinnati/Northern Kentucky International
Airport which provides mainly refueling 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
100 light, single and twin engine training aircraft.
Insurance
- ---------
The Company maintains usual and customary insurance coverage for its
properties and to cover potential claims in amounts it considers adequate with
deductible levels that would not result in a material adverse effect on the
Company's financial condition, results of operations or cash flows should
deductibles be fully utilized.
5
<PAGE> 6
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. Numerous lawsuits have been
filed against the Company seeking damages attributable to the deaths of those on
Flight 3272. The Company maintains substantial insurance coverage for such
claims, and to date these claims, expenses and litigation related to this
accident have not had a material adverse effect on the Company's financial
condition, cash flows or results of operations.
There are no other material legal proceedings pending involving the
Company, any of its subsidiaries or their property, except proceedings arising
in the ordinary course of business. The Company believes that all such 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 1999.
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 1999 are incorporated herein by reference. The Company
currently pays quarterly cash dividends (currently $0.027 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 1999 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 1999 is incorporated herein by reference.
6
<PAGE> 7
ITEM 7(A).
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company's principal market risks result from changes in the price
of fuel and interest rates. The sensitivity analyses discussed below do not
consider the effects that such adverse changes may have on overall economic
activity or any additional actions management may take to mitigate the Company's
exposure to such changes. Actual results may differ.
Aircraft Fuel
- -------------
The Company's earnings are affected by changes in the price and
availability of aircraft fuel. Market risk is estimated as a hypothetical 10
percent increase in March 31, 1999 and 1998 cost per gallon of fuel. Based on
projected fiscal 2000 fuel usage, such an increase to the cost per gallon of
fuel as of March 31, 1999 would result in an increase to aircraft fuel expense
of approximately $6.0 million in fiscal 2000. Comparatively , based on actual
fuel usage in fiscal 1999, such an increase to the cost per gallon of fuel as of
March 31, 1998 would have resulted in an increase to aircraft fuel expense of
approximately $6.4 million. The change in market risk is due primarily to an
overall 20% reduction in average fuel prices in fiscal 1999 when compared to
fiscal 1998. Currently, the Company plans on using cash generated by operating
activities to fund any adverse change in the price of fuel.
Interest Rates
- --------------
The Company's earnings are also affected by changes in interest rates
due to the impact those changes have on its interest expense from variable-rate
debt instruments and interest income from cash and short-term investments. The
impact of market risk is estimated as a hypothetical 10 percent average increase
in the interest rates of the Company's variable-rate debt instruments, cash and
short-term investments as of March 31, 1999 and 1998. The Company has
variable-rate debt instruments representing approximately 95% and 92%,
respectively, of its long-term debt. If fiscal 2000 average interest rates on
variable-rate debt instruments and short-term investments increased 10% over
March 31, 1999 interest rates, interest expense would increase approximately
$630,000 and interest income would increase $568,000. The Company estimated if
this increase over March 31, 1998 interest rates had been incurred in fiscal
1999, interest expense would have increased $763,000 and interest income would
have increased $513,000. Currently, the Company plans on using cash generated by
operating activities to fund any adverse change in interest rates of the
variable-rate debt instruments. Such a change would be partially offset by the
increase in interest income generated from higher interest rates on our cash and
short-term investments.
The Company does not have significant exposure to the changing interest
rates on its fixed-rate debt instruments, which represents 5% of our long-term
debt as of March 31, 1999 and 8% as of March 1998.
7
<PAGE> 8
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The following Financial Statements of the Registrant are found on pages
20 through 36 of its Annual Report to Shareholders for 1999, are incorporated
herein by reference:
Report of Independent Public Accountants.
Consolidated Balance Sheets as of March 31, 1999 and 1998.
Consolidated Statements of Income for the years ended March
31, 1999, 1998 and 1997.
Consolidated Statements of Shareholders' Equity for the years
ended March 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended
March 31, 1999, 1998 and 1997.
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, 1999, 1998 and 1997.
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 1999 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 1999 Annual Shareholders Meeting as
filed with the Commission pursuant to Regulation 14A.
8
<PAGE> 9
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.
9
<PAGE> 10
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Filing Status
------ ---------------------- -------------
<S> <C> <C>
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
10.4 * Comair Savings and Investment Plan e
10.5 * 1990 Stock Option Plan c
10.5.1 * Amendment to 1990 Stock Option Plan Filed herewith
10.6 * 1992 Directors' Stock Option Plan d
10.6.1 * Amendment to 1992 Directors' Stock Option Plan Filed herewith
10.7 * Deferred Incentive Compensation Plan f
10.7.1 * First Amendment to Deferred Incentive Filed herewith
Compensation Plan
10.7.2 * Second Amendment to Deferred Incentive Filed herewith
Compensation Plan
10.7.3 * Third Amendment to Deferred Incentive Filed herewith
Compensation Plan
10.8 * Restated Employment Agreement with g
Mr. David R. Mueller
10.8.1 * Amendment to Restated Employment Agreement Filed herewith
with Mr. David R. Mueller
10.9 * Restated Employment Agreement with g
Mr. David A. Siebenburgen
10.9.1 * Amendment to Restated Employment Agreement Filed herewith
with Mr. David A. Siebenburgen
10.10 * Performance Based Incentive Bonus Plan f
10.11 * Consulting Agreement with Mr. Raymond A. f
Mueller
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Filing Status
------ ---------------------- -------------
<S> <C> <C>
10.12 Bombardier Regional Aircraft Division Purchase h
Agreement between Bombardier Inc. and Comair, Inc.
dated November 24, 1997
10.13 Amendment to Bombardier Regional Aircraft Division i
Purchase Agreement between Bombardier Inc. and
Comair, Inc. dated November 24, 1997
10.14 Bombardier Aerospace Regional Aircraft Purchase i
Agreement Between Bombardier Inc. and Comair, Inc.
dated September 30, 1998
10.15 *1998 Stock Option Plan j
10.15.1 *Amendment to 1998 Stock Option Plan Filed herewith
13 Annual Report to Shareholders Filed herewith
for 1999
21 Subsidiaries of the Registrant Filed herewith
23 Consent of Arthur Andersen LLP Filed herewith
99 Safe Harbor - Risk Factors Filed herewith
</TABLE>
(*) Denotes exhibits of Management Contracts and Compensation Plans
11
<PAGE> 12
Filing
Status Description of Filing Status
------ ----------------------------
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.
g Filed as an exhibit to Form 10-Q for the quarter
ended December 31, 1997.
h Filed as an exhibit to Form 10-K for the fiscal year
ended March 31, 1998.
i Filed as an exhibit to Form 10-Q for the quarter
ended September 30, 1998.
j Filed as a Form S-8 dated October 15, 1998.
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.
12
<PAGE> 13
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 28, 1999 /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 28, 1999
- ------------------------- Chief Executive Officer
David R. Mueller and Director
/s/ David A. Siebenburgen President, June 28, 1999
- ------------------------- Chief Operating Officer
David A. Siebenburgen and Director
/s/ Randy D. Rademacher Sr. Vice President Finance June 28, 1999
- ------------------------- Chief Financial Officer
Randy D. Rademacher (Chief Accounting Officer)
/s/ Gerald L. Wolken Director June 28, 1999
- -------------------------
Gerald L. Wolken
/s/ Robert H. Castellini Director June 28, 1999
- -------------------------
Robert H. Castellini
/s/ John A. Haas Director June 28, 1999
- -------------------------
John A. Haas
</TABLE>
13
<PAGE> 14
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 1999 annual report to shareholders incorporated
by reference in this Form 10-K, and have issued our report thereon dated May 14,
1999. 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 14, 1999.
14
<PAGE> 15
COMAIR HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Three Years Ended March 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Additions
Balance at Charged to Deductions Balance at
Beginning Costs and From End of
Classification of Period Expenses Reserves Period
- ---------------------------- --------- --------- --------- ---------
<C> <S> <S> <S> <S>
Allowances and reserves
deducted from assets--
Year Ended March 31, 1999
- -------------------------
Inventory Reserve $3,493,000 $1,766,000 $ - $5,259,000
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
</TABLE>
15
<PAGE> 1
Exhibit 10.5.1
AMENDMENT
TO
COMAIR HOLDINGS, INC. 1990 STOCK OPTION PLAN
--------------------------------------------
The Comair Holdings, Inc. 1990 Stock Option Plan, as amended ("Plan"),
established as an incentive to the attraction and retention of dedicated loyal
employees of the Company, is amended in accordance with the following terms and
provisions.
1. All capitalized terms used herein shall have the meanings assigned
to them in the Plan unless the context hereof requires otherwise. Any
definitions as capitalized terms set forth herein shall be deemed incorporated
into the Plan as amended by these provisions.
2. Section 7.1 of the Plan shall be amended to delete written notice to
the Corporate Secretary provided therein and substitute written notice to the
Chief Financial Officer.
3. Section 8.2 of the Plan is deleted in its entirety, and Section 8.1
of the Plan is amended to read in its entirety as follows:
"8.1 In the sole discretion of the Committee, payment
of the Option Price and any withholding taxes calculated at
the applicable statutory rate may be made in cash, by the
tender of Shares which have been owned for six months, or
both. The value of each Share tendered shall be deemed to be
the Fair Market Value for a Share on the day the Shares are
tendered for payment."
4. Article 10 of the Plan is amended in its entirety to read as
follows:
"During the lifetime of an Eligible Employee to whom
an Option has been granted, such Option is not transferrable
voluntarily or by operation of law and may be exercised only
by such individual. Upon the death of an Eligible Employee to
whom an Option has been granted, the Option may be transferred
to the beneficiaries or heirs of the holder of the Option by
will or by the laws of descent and distribution.
Notwithstanding the above, the Committee may, with
respect to particular Nonqualified Stock Options, establish or
modify the terms of the Option to allow the Option to be
transferred at the request of the grantee of the Option to
trusts established by the grantee or as to which the grantee
is a grantor or to family members of the grantee or otherwise
for personal and tax planning purposes of the grantee. If the
Committee allows such transfer, such Options shall not be
exercisable for a period of six months following the action of
the Committee."
<PAGE> 2
2
5. Section 11.1 C. of the Plan is amended in its entirety to read as
follows:
"C. If the grantee of an Option dies or becomes
subject to a Permanent and Total Disability while employed by
the Company, or during the three month period following the
date such person ceases to be an Eligible Employee for any
reason other than termination for cause, an Option granted to
such Eligible Employee may be exercised by the holder of the
Option, or in the case of death, by the legal representative
of the estate of the deceased option holder or by the person
or persons to whom such Eligible Employee's rights under the
Option shall pass by will or the laws of descent and
distribution, at any time within one year after the date of
such termination of employment in the case of Incentive Stock
Options and, in the case of all other Options, at any time
during the remaining term of the Option not to exceed ten (10)
years from the day of the grant to the extent the option
holder becomes vested hereunder."
6. Section 11.2 of the Plan is amended in its entirety to read as
follows:
"11.2 Except as provided in Article 12 hereof, in no
event will the continuation of the term of an Incentive Stock
Option beyond the date of termination of employment or of
service as a director allow the Eligible Employee, or his
beneficiaries or heirs, to accrue additional rights under the
Plan, or to purchase more Shares through the exercise of an
Incentive Stock Option than could have been purchased on the
day that employment or service as a director was terminated."
7. Section 12.3 of the Plan is amended in its entirety to read as
follows:
"12.3 In the event of the dissolution or liquidation
of the Company or any merger, other than a merger for the
purpose of redomestication of Comair not involving a change of
control, consolidation, exchange or other transaction in which
the Company is not the surviving corporation or in which the
outstanding Shares of the Company are converted into cash,
other securities or other property, each outstanding Option
shall become fully vested and
<PAGE> 3
3
immediately exercisable in full, and shall terminate as of a
date fixed by the Committee provided that not less than twenty
(20) days' written notice of the date of expiration shall be
given to each holder of an Option and each such holder shall
have the right during such period following notice to exercise
all or any part of the outstanding Options."
8. Section 12.4 of the Plan is amended in its entirety to read as
follows:
"12.4 All outstanding Options shall become fully
vested and immediately exercisable in full, at any time during
the remaining term of the Option not to exceed ten (10) years
from the date of grant, if a change in control of the Company
occurs. For purposes of this Plan, a "change in control of the
Company" means the occurrence of any of the following:
a. When any "person," as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), other
than the Company or a subsidiary, or any Company or
subsidiary's employee benefit plan (including any
trustee of such plan acting as trustee) becomes the
"beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly of
securities of the Company representing 50% or more of
the combined voting power of the Company's then
outstanding securities;
b. Any transaction or event relating to the Company
or any subsidiary required to be described pursuant
to the requirements of Item 6(e) of Schedule 14A of
the Securities and Exchange Commission under the
Exchange Act (as in effect on the effective date of
this Plan), whether or not the Company or such
subsidiary is then subject to such reporting
requirement;
<PAGE> 4
4
c. When, during any period of 2 consecutive years
during the existence of the Plan, the individuals
who, at the beginning of such period, constitute the
Board, cease for any reason other than death to
constitute at least a two-thirds (2/3) majority
thereof; provided, however, that a director who was
not a director at the beginning of such period shall
be deemed to have satisfied the two-year requirement
if such director was elected by, or on the
recommendation of, at least two-thirds (2/3) of the
directors who were directors at the beginning of such
period (either actually or by prior operation of this
Subsection 12.4(c)); or
d. The occurrence of a transaction requiring
shareholder approval for the acquisition of the
Company by an entity other than any subsidiary
through purchase of assets, by merger, or otherwise."
9. All of the terms, conditions and provisions of the Plan not herein
modified are hereby ratified and confirmed and shall remain in full force and
effect. In the event a term, condition or provision of the Plan conflicts with a
term, condition or provision of these amendments, these amendments shall govern.
IN WITNESS WHEREOF, Comair Holdings, Inc. has caused this Amendment to
be executed this 18th day of May, 1999.
COMAIR HOLDINGS, INC.
By: /s/ David R. Mueller
---------------------------
<PAGE> 1
Exhibit 10.6.1
AMENDMENT
TO
COMAIR HOLDINGS, INC. 1992 DIRECTORS' STOCK OPTION PLAN
-------------------------------------------------------
The Comair Holdings, Inc. 1992 Directors' Stock Option Plan, as amended
("Plan"), established as an incentive to the attraction and retention of
qualified directors of the Company, is amended in accordance with the following
terms and provisions.
1. All capitalized terms used herein shall have the meanings assigned to
them in the Plan unless the context hereof requires otherwise. Any definitions
as capitalized terms set forth herein shall be deemed incorporated into the Plan
as amended by these provisions.
2. Section 4.3 of the Plan is amended in its entirety to read as follows:
"4.3 In the event of the dissolution or liquidation of the
Company or any merger, other than a merger for the purpose of
redomestication of the Company not involving a change of control,
consolidation, exchange or other transaction in which the Company is
not the surviving corporation or in which the outstanding shares of
the Company are converted into cash, other securities or other
property, each outstanding option issued hereunder shall terminate as
of a date fixed by the Committee provided that not less than 20 days'
written notice of the date of expiration shall be given to each holder
of an option and each such holder shall have the right during such
period following notice to exercise all or any part of the outstanding
options."
3. The first paragraph of Section 8 of the Plan is amended in its
entirety to read as follows:
"8. VESTING AND EXERCISE OF OPTIONS. The right to exercise
options shall vest on the date of granting thereof. An option may be
exercised by an Eligible Director as to all or part of the shares
covered thereby by giving written notice to the Company at its
principal office, directed to the attention of its Chief Financial
Officer. In the sole discretion of the Committee, payment of the
Option Price may be made in cash, by the tender of shares which have
been owned for six months, or both. The value of each share tendered
shall be deemed to be the fair market value for a share on the day the
shares are tendered for payment. The fair market value of shares of
Common Stock of the Company on any date shall be equal
<PAGE> 2
2
to the last sale price reported on any stock exchange or
over-the-counter trading system on which shares are trading on such
date. If no sale has been made on such date, then the last sale price
on the last preceding day on which any such sale shall have been made
shall be used in determining such fair market value. If the Common
Stock is not trading in a market reporting last sale prices, the
average of closing bid and ask prices shall be used in lieu of last
sale prices."
4. Section 9 of the Plan is amended in its entirety to read as follows:
"9. TRANSFERABILITY OF OPTIONS. During the lifetime of an
Eligible Director to whom an option has been granted, such option is
not transferrable voluntarily or by operation of law and may be
exercised only by such individual. Upon the death of an Eligible
Director to whom an option has been granted, the option may be
transferred to the beneficiaries or heirs of the holder of the option
by will or by the laws of descent and distribution.
Notwithstanding the above, the Committee may, establish or modify
the terms of the option to allow the option to be transferred at the
request of the grantee of the option to trusts established by the
grantee or as to which the grantee is a grantor or to family members
of the grantee or otherwise for personal and tax planning purposes of
the grantee. If the Committee allows such transfer, such options shall
not be exercisable for a period of six months following the action of
the Committee."
5. Section 11 of the Plan shall be amended in its entirety to read as
follows:
"11. DEATH OR DISABILITY OF OPTIONEE. If an optionee shall cease
to be an Eligible Director on account of disability or death, or an
optionee dies or is disabled during the three month period following
the date such person ceases to be an Eligible Director, an option
theretofore granted to such Eligible Director may be exercised by the
optionee or, in the case of death, by the legal representative of the
estate of the deceased option holder or by the person or persons to
whom such Eligible Director's rights under the option shall pass by
will or the laws of descent and distribution, at any time during the
remaining term of the option not to exceed ten (10) years from the
date of grant. "Disability" shall mean any medically determinable
physical or mental impairment rendering an individual unable to
<PAGE> 3
3
perform such individual's responsibilities as determined by the
Compensation Committee."
6. Section 12 of the Plan shall be amended by changing the title of such
Section to "NO FURTHER RIGHTS".
7. All of the terms, conditions and provisions of the Plan not herein
modified are hereby ratified and confirmed and shall remain in full force and
effect. In the event a term, condition or provision of the Plan conflicts with a
term, condition or provision of these amendments, these amendments shall govern.
IN WITNESS WHEREOF, Comair Holdings, Inc. has caused this Amendment to be
executed this 18th day of May, 1999.
COMAIR HOLDINGS, INC.
By: /s/ David R. Mueller
-------------------------
<PAGE> 1
Exhibit 10.7.1
FIRST AMENDMENT
TO THE
COMAIR HOLDINGS, INC. DEFERRED INCENTIVE COMPENSATION PLAN
----------------------------------------------------------
Pursuant to the reserved power of amendment contained in Section 11.1
of the Comair Holdings, Inc. Deferred Incentive Compensation Plan (the "Plan"),
the Plan is hereby amended effective as of March 31, 1996 in the following
respects:
1. Paragraph (a) of Section 4.1 is amended in its entirety to read as
follows:
(a) The Participant's share of Comair's deferred incentive compensation
allocation determined by the Compensation Committee (if any). On a
year-to-year basis, the Compensation Committee shall determine which
Participants (if any) are eligible to receive deferred incentive
compensation and in what amounts (if any).
2. The first sentence of Section 11.1 is amended to read as follows:
Comair reserves the right to amend or terminate the Plan in any manner
that it deems advisable, by action of the Board or the Compensation
Committee of the Board.
3. Paragraph (e) of Section 2.1 is amended to read as follows:
(e) "BOARD" means the Board of Directors of Comair.
IN WITNESS WHEREOF, Comair Holdings, Inc. has caused this First
Amendment to be executed this 21st day of June, 1996.
Comair Holdings, Inc.
By: /s/ David R. Mueller
____________________________________
David R. Mueller,
Chairman and Chief Executive Officer
<PAGE> 1
Exhibit 10.7.2
SECOND AMENDMENT
TO THE
COMAIR HOLDINGS, INC. DEFERRED INCENTIVE COMPENSATION PLAN
----------------------------------------------------------
Pursuant to the reserved power of amendment contained in Section 11.1
of the Comair Holdings, Inc. Deferred Incentive Compensation Plan (the "Plan"),
the Plan is hereby amended effective as of March 31, 1998 in the following
respects:
1. The first sentence of Section 3.2(b) shall be amended in its
entirety as follows:
(b) SUBSEQUENT PLAN YEARS. For any Plan Year subsequent to the first
Plan Year for which an Eligible Employee wishes to defer Compensation
under the Plan, the Agreement shall be properly completed, executed and
delivered to the Administrator 30 days prior to the first day of such
Plan Year; provided however, for the Plan Year which begins April 1,
1998, the Agreement shall be properly completed, executed and delivered
to the Administrator no later than March 31, 1998.
2. Paragraph (a) of Section 5.1 shall be amended in its entirety as
follows:
(a) for amounts deferred pursuant to Section 4.1(a) (and earnings and
losses thereon) and, for Plan Years ending on or before March 31, 1998,
amounts deferred pursuant to Section 4.1(b) (and earnings and losses
thereon), the date elected by the Participant (but not before he
attains age 55); provided, the election was made at least 2 years in
advance. Notwithstanding the above provisions, the Compensation
Committee in its sole and absolute discretion can require that payments
commence earlier than the date elected by the Participant. Upon
distribution pursuant to this Section 5.1(a), the Participant shall no
longer receive an allocation of deferred incentive compensation under
Section 4.1(a) or defer compensation under Section 4.1(b).
3. A new paragraph (b) shall be added to Section 5.1. The remainder of
the paragraphs shall be renumbered accordingly. The new paragraph (b) shall read
as follows:
(b) for amounts deferred pursuant to Section 4.1(b) (and earnings and
losses thereon) for Plan Years beginning on or after April 1, 1998, the
date elected by the Participant in accordance with the provisions of
Article 5.
4. The first sentence of Section 5.2 shall be amended as follows:
5.2 PAYMENT. Except for distributions due to hardship, payment of the
Participant's Benefit shall commence within 45 days after the Valuation
Date immediately following the occurrence of the payment event pursuant
to Section 5.1(a) or 5.1(b).
<PAGE> 2
- 2 -
5. Section 5.3 shall be amended in its entirety as follows:
5.3 FORM OF BENEFIT PAYMENTS. The Participant may elect to have the
Benefit paid in any of the following forms:
(a) single lump sum payment;
(b) single life or joint life annuity;
(c) annual installments; or
(d) monthly installments.
All Benefits shall be paid in the form of cash. Elections with respect
to amounts deferred pursuant to Section 4.1(a) and amounts deferred
pursuant to Section 4.1(b) for Plan Years ending on or before March 31,
1998 must be made at the time a Participant becomes an Eligible
Employee and will be effective immediately. The election may be changed
at any time by the Participant, and any change will be effective 2
years after executed by the Participant. Notwithstanding the foregoing,
all distributions attributable to amounts deferred pursuant to Section
4.1(a) and amounts deferred pursuant to Section 4.1(b) for Plan Years
ending on or before March 31, 1998, prior to age 55, other than due to
the Participant's Disability, will be paid in a lump sum. Distributions
made pursuant to a Participant's Disability will be paid pursuant to
the Participant's election.
With respect to amounts deferred pursuant to Section 4.1(b) for each
Plan Year after March 31, 1998, at the time the participant elects to
defer Compensation as provided in Section 3.2(b), he shall also elect
the date on which benefit payments attributable to such deferrals (and
any earnings or losses thereon) for such Plan Year shall begin and the
form in which the benefits shall be paid. Such elections shall be
irrevocable after the Plan Year to which it relates has commenced.
If a Participant elects payment in a form other than a lump sum, the
Compensation Committee may provide a different rate of return for the
unpaid Account than under Section 4.2, comparable to a commercial
annuity product or other similar fixed term financial product.
* * *
<PAGE> 3
- 3 -
IN WITNESS WHEREOF, Comair Holdings, Inc. has caused this Second
Amendment to be executed this 18th day of May, 1998.
Comair Holdings, Inc.
By: /s/ David R. Mueller
-------------------------------
David R. Mueller,
Chairman of the Board and
Chief Executive Officer
<PAGE> 1
EXHIBIT 10.7.3
THIRD AMENDMENT
TO THE
COMAIR HOLDINGS, INC. DEFERRED INCENTIVE COMPENSATION PLAN
----------------------------------------------------------
Pursuant to the reserved power of amendment contained in Section 11.1
of the Comair Holdings, Inc. Deferred Incentive Compensation Plan (the "Plan"),
the Plan is hereby amended effective as of May 18, 1999 in the following
respects:
1. Section 5.1 shall be shall be amended by deleting the four (4)
sentences immediately following the Vesting Schedule and replacing them with the
following:
"Notwithstanding the foregoing, a Participant shall be fully vested if
the Participant dies or becomes Disabled or upon a Change in Control.
In addition, in the event of a dissolution or liquidation of Comair or
any merger, other than a merger for the purpose of the redomestication
of Comair not involving a change of control, consolidation, exchange or
other transaction in which Comair is not the surviving corporation or
in which the outstanding shares of Comair are converted into cash,
other securities or other property, a Participant shall be fully vested
as of such dissolution, liquidation, merger or other transaction.
The Compensation Committee shall determine a "Year of Service"
based upon a twelve-month period beginning on the Participant's
anniversary date of employment as modified by the Compensation
Committee in its sole discretion. Any amount not vested hereunder shall
be forfeited upon payment of the Participant's Benefit. Any amounts
forfeited shall be reallocated to Participants' Accounts proportionate
with the Compensation of Participants for the Plan Year."
2. All of the terms, conditions and provisions of the Plan not herein
modified are hereby ratified and confirmed and shall remain in full force and
effect. In the event a term, condition or provision of the Plan conflicts with a
term, condition or provision of this amendment, this amendment shall govern.
IN WITNESS WHEREOF, Comair Holdings, Inc. has caused this Third
Amendment to be executed this 18th day of May, 1999.
COMAIR HOLDINGS, INC.
By: /s/ David R. Mueller
---------------------------
<PAGE> 1
EXHIBIT 10.8.1
AMENDMENT
TO
RESTATED EMPLOYMENT AGREEMENT
THIS AMENDMENT ("Amendment") to Restated Employment Agreement entered
into this 18th day of May, 1999 by and between Comair Holdings, Inc., a Kentucky
corporation ("Company") and David R. Mueller ("Mueller").
WITNESSETH:
WHEREAS, Comair Holdings, Inc. and Mueller have entered into a Restated
Employment Agreement dated as of April 1, 1998 providing for the continued
employment of Mueller by the Company;
WHEREAS, Company and Mueller desire to amend the Restated Employment
Agreement in accordance with the provisions hereof;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and other good and valuable consideration receipt which is
hereby acknowledged, the parties hereto agree as follows:
1. Section 9 (a) of the Agreement is hereby amended in its
entirety to read as follows:
"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 applicable Stock Option Plan, including
without limitation for a period of not less than ninety (90)
days, PROVIDED, FURTHER,
<PAGE> 2
-2-
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. A Change in Control means the occurrence of any of
the following:
i. When any "person," as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), other
than Company or a subsidiary, or any Company or
subsidiary's employee benefit plan (including any
trustee of such plan acting as trustee) becomes the
"beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly of
securities of the Company representing 50% or more of
the combined voting power of Company's then
outstanding securities;
ii. Any transaction or event relating to the Company
or any subsidiary required to be described pursuant
to the requirements of Item 6(e) of Schedule 14A of
the Securities and Exchange Commission under the
Exchange Act (as in effect on the effective date of
this Plan), whether or not the Company or such
subsidiary is then subject to such reporting
requirement;
iii. When, during any period of 2 consecutive years
during the existence of the Plan, the individuals
who, at the beginning of such period, constitute the
Board, cease for any reason other than death to
constitute at least a two-thirds (2/3) majority
thereof; provided, however, that a director who was
not a director at the beginning of such period shall
be deemed to have satisfied the two-year requirement
if such director was elected by, or on the
recommendation of, at least two-thirds (2/3) of the
directors who were directors at the beginning of such
period (either actually or by prior operation of this
Subsection 9(a)(iii)); or
iv. The occurrence of a transaction requiring
shareholder approval for the acquisition of the
Company by an entity other than any subsidiary
through purchase of assets, by merger, or otherwise.
2. Section 9 of the Agreement is hereby amended by adding an additional
subsection (c) to Section 9 to read as follows:
"9(c) In the event of a dissolution or liquidation of the
Company or any merger, other than a merger for the purpose of
<PAGE> 3
-3-
the re-domestication of Comair not involving a change of
control, consolidation, exchange or other transaction in which
the Company is not the surviving corporation or in which the
outstanding shares of the Company are converted into cash,
other securities or other property, Company shall pay to
Mueller or the estate or legal representative of Mueller, an
amount equal to the payment due under Section 9(a) hereof upon
such dissolution, liquidation, merger, consolidation, exchange
or other transaction."
3. The Company and Mueller hereby ratify the terms and provisions of
the Restated Employment Agreement which shall remain in full force and effect
except as herein modified.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
COMAIR HOLDINGS, INC.
/s/ Kathy Forman By: /s/ David A. Siebenburgen
- ------------------------------------ ----------------------------------
Witness
/s/ Sherry Free /s/ David R. Mueller
- ------------------------------------ ------------------------------------
Witness DAVID R. MUELLER
<PAGE> 1
EXHIBIT 10.9.1
AMENDMENT
TO
RESTATED EMPLOYMENT AGREEMENT
THIS AMENDMENT ("Amendment") to Restated Employment Agreement entered
into this 18th day of May, 1999 by and between Comair Holdings, Inc., a Kentucky
corporation ("Company") and David A. Siebenburgen ("Siebenburgen").
WITNESSETH:
WHEREAS, Comair Holdings, Inc. and Siebenburgen have entered into a
Restated Employment Agreement dated as of April 1, 1998 providing for the
continued employment of Siebenburgen by the Company;
WHEREAS, Company and Siebenburgen desire to amend the Restated Employment
Agreement in accordance with the provisions hereof;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and other good and valuable consideration receipt which is
hereby acknowledged, the parties hereto agree as follows:
1. Section 9(a) of the Agreement is hereby amended in its entirety to
read as follows:
"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 the Company
delivers notice that 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 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 Siebenburgen the payment required under this Section;
and (ii) all of Siebenburgen's stock 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
<PAGE> 2
-2-
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 payment due hereunder upon execution of a revised Employment
Agreement with the Company, in form and substance satisfactory to
Siebenburgen. A Change in Control means the occurrence of any of the
following:
(i) When any "person," as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), other
than Company or a subsidiary, or any Company or
subsidiary's employee benefit plan (including any
trustee of such plan acting as trustee) becomes the
"beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly of
securities of the Company representing 50% or more of
the combined voting power of the Company's then
outstanding securities;
(ii) Any transaction or event relating to the Company
or any subsidiary required to be described pursuant
to the requirements of Item 6(e) of Schedule 14A of
the Securities and Exchange Commission under the
Exchange Act (as in effect on the effective date of
this Plan), whether or not the Company or subsidiary
is then subject to such reporting requirement;
(iii) When, during any period of 2 consecutive years
during the existence of the Plan, the individuals
who, at the beginning of such period, constitute the
Board, cease for any reason other than death to
constitute at least a two-thirds (2/3) majority
thereof; provided, however, that a director who was
not a director at the beginning of such period shall
be deemed to have satisfied the two-year requirement
if such director was elected by, or on the
recommendation of, at least two-thirds (2/3) of the
directors who were directors at the beginning of such
period (either actually or by prior operation of this
Subsection 9(a)(iii)); or
(iv) The occurrence of a transaction requiring
shareholder approval for the acquisition of the
Company by an entity other than any subsidiary
through purchase of assets, by merger, or otherwise.
<PAGE> 3
-3-
2. Section 9 of the Agreement is hereby amended by adding an additional
subsection (c) to Section 9 to read as follows:
"9(c) In the event of a dissolution or liquidation of the
Company or any merger, other than a merger for the purpose of
the re-domestication of Comair not involving a change of
control, consolidation, exchange or other transaction in which
the Company is not the surviving corporation or in which the
outstanding shares of the Company are converted into cash,
other securities or other property, Company shall pay to
Siebenburgen or the estate or legal representative of
Siebenburgen, an amount equal to the payment due under Section
9(a) hereof upon such dissolution, liquidation, merger,
consolidation , exchange or other transaction."
3. The Company and Siebenburgen hereby ratify the terms and provisions
of the Restated Employment Agreement which shall remain in full force and effect
except as herein modified.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
COMAIR HOLDINGS, INC.
/s/ Kathy Forman By: /s/ David R. Mueller
- ------------------------------------ ----------------------------------
Witness
/s/ Sherry Free /s/ David A. Siebenburgen
- ------------------------------------ ------------------------------------
Witness David A. Siebenburgen
<PAGE> 1
EXHIBIT 10.15.10
AMENDMENT
TO
COMAIR HOLDINGS, INC. 1998 STOCK OPTION PLAN
--------------------------------------------
The Comair Holdings, Inc. 1998 Stock Option Plan, as amended ("Plan"),
established as an incentive to the attraction and retention of dedicated loyal
employees of the Company, is amended in accordance with the following terms and
provisions.
1. All capitalized terms used herein shall have the meanings assigned
to them in the Plan unless the context hereof requires otherwise. Any
definitions as capitalized terms set forth herein shall be deemed incorporated
into the Plan as amended by these provisions.
2. Section 6.2 of the Plan is amended in its entirety to read as
follows:
"If the grantee of an Option dies or becomes subject to a
Permanent and Total Disability while employed by Comair all
Options granted to such person shall become fully vested and
immediately exercisable in full as of the date of termination
of employment in accordance with Section 11.1.4 hereof."
3. Section 6.3 of the Plan is amended in its entirety to read as
follows:
"6.3 In the event of the dissolution or liquidation of Comair
or any merger, other than a merger for the purpose of
redomestication of Comair not involving a change of control,
consolidation, exchange or other transaction in which Comair
is not the surviving corporation or in which the outstanding
Shares of Comair are converted into cash, other securities or
other property, each outstanding Option shall become fully
vested and immediately exercisable in full, and shall
terminate as of a date fixed by the Committee provided that
not less than twenty (20) days= written notice of the date of
expiration shall be given to each holder of an Option and each
such holder shall have the right during such period following
notice to exercise all or any part of the outstanding
Options."
4. Section 6.4 of the Plan is amended in its entirety to read as
follows:
"6.4 All outstanding Options shall become fully vested and
immediately exercisable in full, at any time during the
remaining term of the Option not to exceed ten (10) years from
the date of grant, if a change in control of Comair occurs.
For purposes of this Plan, a
<PAGE> 2
2
"change in control of Comair" means the occurrence of any of
the following:"
6.4.1 When any "person," as such term is used in
Sections 13(d) and 14(d) of the Act, other than
Comair or a subsidiary, or any Comair or subsidiary's
employee benefit plan (including any trustee of such
plan acting as trustee) becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly of securities of Comair
representing 50% or more of the combined voting power
of Comair's then outstanding securities;
6.4.2 Any transaction or event relating to Comair or
any subsidiary required to be described pursuant to
the requirements of Item 6(e) of Schedule 14A of the
Securities and Exchange Commission under the Act (as
in effect on the effective date of this Plan),
whether or not Comair or such subsidiary is then
subject to such reporting requirement;
6.4.3 When, during any period of 2 consecutive years
during the existence of the Plan, the individuals
who, at the beginning of such period, constitute the
Board, cease for any reason other than death to
constitute at least a two-thirds (2/3) majority
thereof; provided, however, that a director who was
not a director at the beginning of such period shall
be deemed to have satisfied the two-year requirement
if such director was elected by, or on the
recommendation of, at least two-thirds (2/3) of the
directors who were directors at the beginning of such
period (either actually or by prior operation of this
Subsection 6.4(c)); or
6.4.4 The occurrence of a transaction requiring
shareholder approval for the acquisition of Comair by
an entity other than any subsidiary through purchase
of assets, by merger, or otherwise."
5. Section 8.2 of the Plan is deleted in its entirety, and Section 8.1
of the Plan is amended to read in its entirety as follows:
"8.1 In the sole discretion of the Committee, payment
of the Option Price and any withholding taxes calculated at
<PAGE> 3
3
the applicable statutory rate may be made in cash, by the
tender of Shares which have been owned for six months, or
both. The value of each Share tendered shall be deemed to be
the Fair Market Value for a Share on the day the Shares are
tendered for payment."
6. Section 11.1.1 of the Plan is amended in its entirety to read as
follows:
"11.1.1 Upon exercise or expiration by its terms,
including without limitation such terms contained in
Article 6 hereof."
7. Section 11.1.4 of the Plan is amended in its entirety to read as
follows:
"11.1.4 If the grantee of an Option dies or becomes
subject to a Permanent and Total Disability while
employed by Comair, or during the three month period
following the date such person ceases to be an
Eligible Employee for any reason other than
termination for cause, an Option granted to such
Eligible Employee may be exercised by the holder of
the Option, or in the case of death, by the legal
representative of the estate of the deceased option
holder or by the person or persons to whom such
Eligible Employee=s rights under the Option shall
pass by will or the laws of descent and distribution,
at any time within one year after the date of such
termination of employment in the case of Incentive
Stock Options and, in the case of all other Options,
at any time during the remaining term of the Option
not to exceed ten (10) years from the day of the
grant."
8. Section 11.3 of the Plan is amended in its entirety to read as
follows:
"11.3 Except as provided in Article 12 hereof, in no event
will the continuation of the term of an Incentive Stock Option
beyond the date of termination of employment allow the
grantee, his beneficiaries, heirs or assigns to accrue
additional rights under the Plan, or to purchase more Shares
through the exercise of an Incentive Stock Option than could
have been purchased on the day that employment was terminated.
In addition, notwithstanding anything contained herein, no
option may be exercised in any event after the expiration of
ten years from the date of grant of such option."
<PAGE> 4
4
9. All of the terms, conditions and provisions of the Plan not herein
modified are hereby ratified and confirmed and shall remain in full force and
effect. In the event a term, condition or provision of the Plan conflicts with a
term, condition or provision of these amendments, these amendments shall govern.
IN WITNESS WHEREOF, Comair Holdings, Inc. has caused this Amendment to
be executed this 18th day of May, 1999.
COMAIR HOLDINGS, INC.
By: /s/ David R. Mueller
------------------------
<PAGE> 1
Exhibit 13
1999 FINANCIAL REVIEW
Comair Holdings, Inc. and Subsidiaries
TABLE OF CONTENTS
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
Report of Independent Public Accountants 36
Corporate Information 36
Directory Inside Back Cover
-9-
<PAGE> 2
CONSOLIDATED TEN YEAR SUMMARY
<TABLE>
<CAPTION>
Comair Holdings, Inc. and Subsidiaries for the Years Ended March 31,
- ---------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Operating revenues $763,291,180 $651,162,221 $563,815,043 $463,298,143
Operating income $204,089,070 $161,597,959 $116,117,400 $ 94,826,780
Pretax income $211,630,735 $164,855,210 $120,160,593 $ 96,771,473
Net income $132,934,735 $102,213,210 $ 75,424,593 $ 60,008,473
Net income per share - basic $ 1.35 $ 1.02 $ .75 $ .60
Weighted average shares
outstanding - basic 98,588,162 100,331,079 100,060,862 99,610,745
Net income per share - diluted $ 1.33 $ 1.01 $ .75 $ .60
Weighted average shares
outstanding - diluted 100,036,733 101,623,746 100,920,783 100,264,848
Dividends paid per share $ .108 $ .108 $ .095 $ .073
OTHER FINANCIAL DATA:
Working capital $213,356,262 $188,458,038 $119,687,410 $ 92,426,588
Total assets $750,753,890 $669,736,801 $588,585,945 $429,030,154
Long-term obligations, net of current
maturities $100,563,380 $114,312,516 $127,747,861 $ 70,745,129
Shareholders' equity $432,369,458 $361,845,841 $280,299,329 $213,129,204
Shareholders' equity per share $ 4.44 $ 3.62 $ 2.80 $ 2.13
Stock price (end of year) $ 23.63 $ 17.67 $ 9.67 $ 10.30
Return on beginning shareholders'
equity 36.7% 36.5% 35.4% 38.3%
AIRLINE STATISTICAL DATA:
Passengers carried 6,401,852 5,469,436 4,708,498 4,102,690
Revenue passenger miles (000) 2,172,807 1,823,664 1,551,093 1,281,308
Available seat miles (000) 3,451,230 3,002,378 2,774,926 2,366,269
Passenger load factor 63.0% 60.7% 55.9% 54.1%
Breakeven load factor 46.4% 46.3% 44.9% 42.9%
Yield per revenue passenger mile 33.3 34.0 34.7 34.7
Cost per available seat mile 15.3 15.7 15.5 15.0
Equivalent full-time employees
(end of year) 3,889 3,217 2,897 2,523
Number of aircraft (end of year) 100 93 94 89
</TABLE>
All weighted average share and per share information has been adjusted
retroactively for three-for-two stock splits effective March 1999, November
1997, May 1996, August 1995, April 1993 and February 1992.
10
<PAGE> 3
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$360,704,137 $296,635,551 $248,281,681 $217,203,892 $201,551,437 $157,666,352
$ 47,024,968 $ 47,300,280 $ 32,254,010 $ 21,152,042 $ 21,731,650 $ 20,157,621
$ 47,705,256 $ 49,210,415 $ 32,060,079 $ 20,652,322 $ 21,774,097 $ 21,629,471
$ 29,305,256 $ 28,528,415 $ 19,268,079 $ 12,412,322 $ 13,076,097 $ 13,014,471
$ .29 $ .26 $ .21 $ .13 $ .14 $ .14
102,529,133 108,660,864 94,521,902 92,539,170 92,483,006 92,701,535
$ .28 $ .26 $ .20 $ .13 $ .14 $ .14
103,175,820 109,579,377 95,141,811 93,059,865 93,444,723 93,534,320
$ .056 $ .047 $ .037 $ .036 $ .035 $ .030
$ 41,724,167 $ 77,146,245 $ 74,344,774 $ 14,667,083 $ 20,535,063 $ 19,785,209
$347,021,961 $284,559,219 $260,088,150 $180,601,757 $166,771,951 $128,241,223
$ 79,906,236 $ 27,115,862 $ 34,619,680 $ 41,597,285 $ 48,674,999 $ 33,005,786
$156,763,419 $169,277,604 $145,028,367 $ 79,478,537 $ 69,419,703 $ 60,015,389
$ 1.59 $ 1.55 $ 1.33 $ .85 $ .75 $ .65
$ 3.41 $ 4.25 $ 4.97 $ 2.47 $ 1.69 $ 1.33
17.3% 19.7% 24.2% 17.9% 21.8% 26.0%
3,399,948 2,735,468 2,394,871 2,055,077 1,904,221 1,601,690
1,015,177 696,443 545,459 446,712 393,868 305,647
2,041,887 1,477,198 1,182,124 1,031,408 927,240 683,934
49.7% 47.1% 46.1% 43.3% 42.5% 44.7%
42.9% 39.1% 39.7% 38.8% 37.8% 38.6%
34.0 40.6 42.9 45.3 47.6 49.2
14.8 16.1 17.3 17.7 18.1 19.2
2,447 2,145 1,936 1,936 1,841 1,622
84 79 68 71 69 63
</TABLE>
11
<PAGE> 4
SELECTED QUARTERLY FINANCIAL DATA
Comair Holdings, Inc. and Subsidiaries
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH YEAR
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FISCAL 1999
Operating revenues $187,912,194 $195,012,191 $188,486,685 $191,880,110 $763,291,180
Operating income $ 53,880,692 $ 52,913,754 $ 48,308,084 $ 48,986,540 $204,089,070
Pretax income $ 55,395,627 $ 55,101,099 $ 50,343,663 $ 50,790,346 $211,630,735
Net income $ 34,334,627 $ 34,591,099 $ 31,655,663 $ 32,353,346 $132,934,735
Net income per share -
basic $ .34 $ .35 $ .33 $ .33 $ 1.35
Weighted average shares
outstanding - basic 99,891,082 99,263,094 97,806,563 97,379,802 98,588,162
Net income per share -
diluted $ .34 $ .34 $ .32 $ .33 $ 1.33
Weighted average shares
outstanding - diluted 101,335,836 100,677,540 99,318,612 98,882,000 100,036,733
Dividends paid per share $ .027 $ .027 $ .027 $ .027 $ .108
Stock price data
High $ 21.50 $ 23.50 $ 22.83 $ 29.00 $ 29.00
Low $ 15.17 $ 16.25 $ 13.92 $ 21.67 $ 13.92
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 $ .25 $ .24 $ .24 $ .28 $ 1.02
Weighted average shares
outstanding - basic 100,197,509 100,213,841 100,587,038 100,325,228 100,331,079
Net income per share -
diluted $ .25 $ .24 $ .24 $ .28 $ 1.01
Weighted average shares
outstanding - diluted 101,271,348 101,699,397 101,535,909 101,221,862 101,623,746
Dividends paid per share $ .027 $ .027 $ .027 $ .027 $ .108
Stock price data
High $ 12.33 $ 13.05 $ 17.42 $ 20.25 $ 20.25
Low $ 8.81 $ 11.00 $ 11.95 $ 15.00 $ 8.81
</TABLE>
All weighted average share and per share information has been adjusted
retroactively for three-for-two stock splits effective March 1999 and November
1997.
12
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS
Comair Holdings, Inc. and Subsidiaries
INTRODUCTION
Comair Holdings, Inc. (the Company) was incorporated in 1988.
COMAIR, Inc. (COMAIR), the principal subsidiary of Comair Holdings,
Inc., was founded in 1977. COMAIR accounted for 95% of the operating
revenues and expenses in fiscal 1999, and is considered to be the
Company's major line of business. 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. We expect to extend our marketing agreement with
Delta when it expires in October 1999. The current 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 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.
FISCAL 1999 COMPARED WITH FISCAL 1998
Fiscal 1999 was highlighted by record operating revenues,
operating income, net income and passenger enplanements. Operating
revenues for the year increased to $763 million, up 17% from $651
million in fiscal 1998. Operating income for the year rose 26% to $204
million from $162 million. Net income increased 30% to $132.9 from
$102.2 million and net income per diluted share increased to $1.33
from $1.01.
Passenger enplanements grew 17% over fiscal 1998 levels as our
load factor exceeded last year's by more than two percentage points.
This growth in traffic clearly indicates our continuing success in
attracting passengers to our system by offering world class facilities
and more regional jet service than any other regional airline in the
United States.
With the increase in passengers, revenue passenger miles
(RPMs) climbed by 19%. Capacity, as measured by available seat miles
(ASMs), grew 15%. We continue to increase aircraft utilization by
replacing turboprop aircraft and adding supplemental service and new
long-haul service with our 50-passenger Canadair Jet aircraft.
Currently, almost 90% of our system-wide capacity is operated by the
Canadair Regional Jet equipment.
Yield per revenue passenger mile decreased 2% year over year.
Fare discounting, changes in competition and growing average
stage-lengths contributed to the decline in passenger yields.
13
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF
OPERATIONS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
The following tables show the major expense categories for COMAIR for
the years ended March 1999, 1998 and 1997:
<TABLE>
<CAPTION>
TOTAL EXPENSES 1999 1998 1997
<S> <C> <C> <C>
Salaries and related costs $140,972,958 $113,311,389 $ 99,879,467
Aircraft fuel 51,345,440 53,784,926 55,466,125
Maintenance materials and repairs 58,142,531 54,121,549 44,242,523
Aircraft rent 82,796,863 72,421,142 70,753,755
Other rent and landing fees 24,784,340 21,103,005 18,828,801
Passenger commissions 48,377,696 46,710,049 44,855,202
Other operating expenses 97,367,350 82,606,725 74,960,417
Depreciation and amortization 26,374,126 26,322,529 21,747,953
-----------------------------------------------------
$530,161,304 $470,381,314 $ 430,734,243
=====================================================
</TABLE>
<TABLE>
<CAPTION>
COST PER ASM (cents) 1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C>
Salaries and related costs 4.1 3.8 3.6
Aircraft fuel 1.5 1.8 2.0
Maintenance materials and repairs 1.7 1.8 1.6
Aircraft rent 2.4 2.4 2.5
Other rent and landing fees 0.7 0.7 0.7
Passenger commissions 1.4 1.5 1.6
Other operating expenses 2.8 2.8 2.7
Depreciation and amortization 0.7 0.9 0.8
--------------------------------------------------
15.3 15.7 15.5
==================================================
</TABLE>
Salaries and related costs have risen from last year. The Company hired
additional personnel to enhance operating effectiveness and service the growing
passenger base, increasing the number of employees 21% over last year's levels.
In the first quarter of fiscal 1999, the Company implemented wage increases
that impacted over 60% of the workforce in order to remain proactive in our
efforts to attract and retain the best people in our industry and to recognize
the service of our employees. Finally, expenses related to the Company's
incentive compensation plans were higher due to our 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, for fiscal
1999 decreased 20% to 54.8 cents from 68.4 cents a year ago. The benefit from
the lower fuel prices was partially offset by a 19% increase in consumption.
Maintenance material and repair costs increased in total but decreased
on a unit cost basis. The lower unit cost was generated by the increase in
capacity and aircraft utilization. Also, COMAIR incurred lower maintenance
costs related to the accelerated phase out of our older, turboprop aircraft. The
lower unit cost was partially offset by higher maintenance costs associated with
the expiration of warranty periods on certain jet aircraft.
Aircraft rent expense increased in total but remained unchanged on a
unit cost basis. The increase in aircraft rent expense was a result of COMAIR
acquiring sixteen new Canadair Jets through operating leases in fiscal 1999.
14
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
Other rent and landing fees increased in total as a result of
higher spending in this area for facilities rental, while landing
fees were higher from the addition of the larger Canadair Jets. Unit
cost was unchanged as the increased capacity and aircraft utilization
offset the additional spending.
Travel agency and credit card commissions have increased in
total, but decreased 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 helped lower travel agency commission unit costs.
Commissions as a percentage of passenger revenues were 6.7% this year
compared to 7.5% 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
but remained unchanged on a unit cost basis. The increase was due to
higher passenger related costs, training expense and property tax
associated with COMAIR acquiring sixteen new Canadair Jets during
fiscal 1999.
Depreciation and amortization decreased on a unit cost basis.
The decrease in unit cost is due to the additional capacity generated
by the sixteen new Canadair Jets acquired through operating leases in
fiscal 1999 and higher aircraft utilization.
Investment income for fiscal 1999 increased over the prior
year due to higher average cash balances available for investment.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 (SFAS No. 133),
"Accounting for Derivatives Instruments and Hedging Activities", which
requires an entity to recognize all derivatives as either an asset or
liability at fair value. Accounting for the fair value of a derivative
depends on the designation and effectiveness. Derivatives that are not
hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes
in the fair value of the derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive
income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. SFAS No. 133 is required to be
adopted in fiscal years beginning after June 15, 2000. SFAS No. 133
permits early adoption as of the beginning of any fiscal quarter after
its issuance. The Company does not currently hold any derivative
instruments and does not expect the adoption of SFAS No. 133 to have a
material impact on its financial condition, results of operation or
cash flows.
FISCAL 1998 COMPARED WITH FISCAL 1997
Fiscal 1998 was highlighted by 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 $1.01 from $.75.
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.
15
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
Revenue passenger miles (RPMs) grew 18%. Capacity, as measured
by 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.
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.
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.
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.
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 most
important measures.
In fiscal 1999, the Company generated cash from operating
activities of $197.4 million. Total working capital increased to
$213.4 million from $188.5 million at March 31, 1998, while the
current ratio increased to 2.58 from 2.57. The Company repurchased
2.7 million shares of common stock at a cost of $53.0 million, repaid
long-term obligations of $13.4 million and paid cash dividends of
$10.5 million. The Company's long-term debt to equity position was 19%
debt, 81% equity at March 31, 1999, as compared to 24% debt, 76%
equity at March 31, 1998. During fiscal 1999, the Company had net
property and equipment additions of $ 52.7 million. In addition, the
Company made advance payments for aircraft deposits to an aircraft
manufacturer of $30.0 million. These additions and advanced deposits
were financed with available cash. In fiscal 2000, additional capital
for repayment of long-term obligations, planned dividend payments and
other capital expenditures are expected to be provided by operations.
16
<PAGE> 9
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 20.8 million shares of common stock from time to
time as market conditions dictate. During fiscal 1999, the Company
repurchased 2.7 million shares of common stock at a cost of
approximately $53.0 million. Since March 31, 1999, the Company has
repurchased 1.3 million additional shares of common stock at a cost of
approximately $27.7 million. Under this authorization, the Company has
repurchased 15.1 million total shares at a cost of approximately
$132.6 million.
COMAIR took delivery of sixteen new generation, 50-passenger
Canadair Jet aircraft during fiscal 1999 bringing the total Canadair
Jet fleet to 75 aircraft. For 20 of the 75 aircraft, the 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. For the remaining 55
aircraft, 10 aircraft were financed with debt, one was acquired with
available cash, while the other 44 aircraft were financed through
operating leases with terms of up to 16.5 years.
As of March 31, 1999, COMAIR has scheduled delivery positions
for thirty-five 50-passenger Canadair Jets to be delivered through
fiscal 2002. The aggregate cost of these aircraft, including support
equipment and estimated escalation, will be approximately $642
million. Since March 31, 1999, COMAIR has taken delivery of four new
generation, 50-passenger Canadair Jet aircraft, all of which were
financed with operating leases. COMAIR also has 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 is
scheduled to 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 has broken ground on approximately $40 million in
new construction and facility upgrades, which include a new corporate
headquarters, additional maintenance and training facilities, and
improvements to passenger facilities at the Greater Cincinnati/
Northern Kentucky International Airport. This construction is expected
to be completed by the end of calendar year 2000.
COMAIR expects to finance the aircraft and construction
described above through a combination of available cash, lease, equity
and debt financing, 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.
COMAIR has collective bargaining agreements with the Air Lines
Pilots Association (ALPA), representing COMAIR's pilots and the
International Association of Machinists and Aerospace Workers (IAM),
representing COMAIR's maintenance employees. COMAIR's collective
bargaining agreement with the ALPA became amendable on June 1, 1998
and the collective bargaining agreement with the IAM became amendable
on June 1, 1999. Renegotiations of the collective bargaining
agreements are currently underway. In September 1998, the
International Brotherhood of Teamsters (IBT) was certified as
collective bargaining representatives of the flight attendants of
COMAIR. COMAIR is also in negotiations with the IBT. At this time, the
renegotiations and negotiations have not progressed to the stage that
would enable the Company to comment on any possible effects of the
negotiations. As a result, the Company cannot anticipate what effect
these renegotiations and negotiations will have on its financial
condition, results of operations or cash flow.
17
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
YEAR 2000 READINESS
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.
With the assistance of an experienced outside consultant specializing in the
aviation technology field, the Company has formulated a plan to address all
information technology requirements that could be impacted by any potential
Year 2000 issues. Our Year 2000 Readiness Program focuses on our internal
information technology and operating systems (IT Systems); non-information
technology systems (Non-IT Systems); and third party vendors and suppliers.
These areas specifically include, but are not limited to, those that are
critical and essential for the Company to continue operations without
interruption. The Company's Year 2000 Readiness Program consists of the
following five phases: (1) Identification & Awareness, (2) Assessment, (3)
Remediation, (4) Testing & Validation, and (5) Quality Assurance Review.
The Company has completed the first two phases of its Program for all
of its IT Systems. The Company has substantially completed the Remediation phase
and has entered into the Testing phase of its IT Systems, which include
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 Company expects to complete the remaining phases by
September 1999.
The Company has completed the first two phases of its Program for all
of its Non-IT Systems with embedded technology such as aircraft onboard support
systems. The Company expects to complete the remaining phases by September 1999.
As indicated, the Company has also assessed Year 2000 issues concerning
its relationships with third parties. The Company has identified vendors and
suppliers that were defined 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 Federal Aviation
Administration (FAA), the U.S. Department of Transportation (DOT), and 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 systems. The
Company has polled its critical third parties regarding their Year 2000 plans
and state of readiness. The Company has received responses from a majority of
its critical third party suppliers and vendors. Most of the respondees assured
the Company that their systems are or will be Year 2000 ready. We have also been
involved in industry efforts led by the Air Transport Association (ATA) and the
Regional Airline Association (RAA) in addressing Year 2000 issues concerning
third party relationships. 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. To the extent
practical, the Company intends to seek alternatives for third party vendors and
suppliers that have not responded to their Year 2000 Readiness by September
1999.
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 March
31, 1999, approximately $900,000, has been charged to other operating expense.
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
allow the Company to work around potential disruptions, could include carrying
additional inventories for fuel and flight essential components; performing
certain processes manually; changing suppliers; and reducing operations. The
Company believes that since the Year 2000 issues are so widespread in nature,
the contingency plans will be continually adjusted as new information becomes
available.
18
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
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, equipment or 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 of our Form 10-K
for the period ending March 31, 1999 and are also discussed in the
"INTRODUCTION" and "YEAR 2000 READINESS" sections of the "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
19
<PAGE> 12
CONSOLIDATED BALANCE SHEETS
Comair Holdings, Inc. and Subsidiaries as of March 31, 1999 and 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
ASSETS 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents - Note 1 $171,003,535 $156,214,247
Marketable securities - Notes 1 & 9 85,240,815 61,423,198
Interest bearing investment - Note 1 30,000,000 30,000,000
-----------------------------------
$286,244,350 $247,637,445
Accounts receivable - Notes 1 & 7 10,585,370 12,624,127
Inventory of expendable parts - Note 1 17,310,814 19,478,981
Future tax benefits - Note 4 15,756,205 13,436,538
Prepaid expenses 18,220,832 15,132,842
------------------------------------------------------------------------------------------
Total current assets $348,117,571 $308,309,933
-----------------------------------
PROPERTY AND EQUIPMENT, AT
COST - NOTE 2:
Flight equipment $423,626,267 $403,487,347
Maintenance, operations and
office facilities 10,292,723 10,292,723
Other property and equipment 53,061,509 47,777,606
-----------------------------------
$486,980,499 $461,557,676
Less accumulated depreciation
and amortization 138,659,486 117,685,617
Less reserve for engine overhauls
and purchase incentives 16,152,320 16,582,458
-----------------------------------
$332,168,693 $327,289,601
Construction in progress 3,706,593 147,776
Advance payments and deposits
for aircraft 55,114,024 24,187,396
------------------------------------------------------------------------------------------
$390,989,310 $351,624,773
-----------------------------------
OTHER ASSETS AND DEFERRED
COSTS - NOTE 1 $ 11,647,009 $ 9,802,095
-----------------------------------
$750,753,890 $669,736,801
===================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
20
<PAGE> 13
CONSOLIDATED BALANCE SHEETS
Comair Holdings, Inc. and Subsidiaries as of March31, 1999 and 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
LIABILITIES &SHAREHOLDERS' EQUITY 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current installments of long-term
obligations - Note 2 $ 13,743,598 $ 13,435,345
Accounts payable - Note 7 45,416,844 39,158,243
Interline payable and deferred revenue 10,130,333 6,322,647
Accrued lease expense 23,844,809 22,732,440
Accrued wages 10,192,948 6,953,710
Accrued expenses 18,845,984 15,604,000
Accrued taxes 12,586,793 15,645,510
-------------------------------------------------------------------------------------
Total current liabilities $134,761,309 $119,851,895
--------------------------------
LONG-TERM OBLIGATIONS - NOTE 2 $100,563,380 $114,312,516
--------------------------------
DEFERRED INCOME TAXES - NOTE 4 $ 70,732,267 $ 63,598,648
--------------------------------
OTHER LIABILITIES AND DEFERRED
CREDITS - NOTE 1 $ 12,327,476 $ 10,127,901
--------------------------------
COMMITMENTS AND CONTINGENCIES -
NOTES 3 AND 5
SHAREHOLDERS' EQUITY - NOTE 6:
Common stock, no par value, 200,000,000
shares authorized, 97,387,516 and
99,984,198 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 378,556 263,576
Retained earnings 431,990,902 319,510,220
-------------------------------------------------------------------------------------
Total shareholders' equity $432,369,458 $361,845,841
--------------------------------
$750,753,890 $669,736,801
================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
21
<PAGE> 14
CONSOLIDATED STATEMENTS OF INCOME
Comair Holdings, Inc. and Subsidiaries for the Years Ended March 31, 1999, 1998
and 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES:
Passenger $ 722,462,516 $ 620,769,318 $ 537,872,614
Cargo and other 5,479,556 4,643,111 4,644,159
Non-airline operation 35,349,108 25,749,792 21,298,270
- ----------------------------------------------------------------------------------------------
Total operating revenues $ 763,291,180 $ 651,162,221 $ 563,815,043
OPERATING EXPENSES - NOTE 7:
Salaries and related costs $ 140,972,958 $ 113,311,389 $ 99,879,467
Aircraft fuel 51,345,440 53,784,926 55,466,125
Maintenance materials and repairs 58,142,531 54,121,549 44,242,523
Aircraft rent 82,796,863 72,421,142 70,753,755
Other rent and landing fees 24,784,340 21,103,005 18,828,801
Passenger commissions 48,377,696 46,710,049 44,855,202
Other operating expenses 97,645,723 82,805,989 75,227,082
Depreciation and amortization 30,769,773 29,778,467 24,908,928
Non-airline direct costs 24,366,786 15,527,746 13,535,760
- ----------------------------------------------------------------------------------------------
Total operating expenses $ 559,202,110 $ 489,564,262 $ 447,697,643
-----------------------------------------------------
Operating income $ 204,089,070 $ 161,597,959 $ 116,117,400
-----------------------------------------------------
NONOPERATING INCOME
(EXPENSE) - NOTE 1:
Investment income $ 13,442,148 $ 11,103,826 $ 8,897,144
Interest expense (5,900,483) (7,846,575) (4,853,951)
- ----------------------------------------------------------------------------------------------
Total nonoperating income, net $ 7,541,665 $ 3,257,251 $ 4,043,193
-----------------------------------------------------
Income before income taxes $ 211,630,735 $ 164,855,210 $ 120,160,593
INCOME TAXES - NOTE 4 78,696,000 62,642,000 44,736,000
-----------------------------------------------------
NET INCOME $ 132,934,735 $ 102,213,210 $ 75,424,593
=====================================================
Weighted average number of
shares outstanding - basic 98,588,162 100,331,079 100,060,862
NET INCOME PER SHARE - BASIC -
NOTES 1 & 8 $ 1.35 $ 1.02 $ .75
=====================================================
Weighted average number of
shares outstanding - diluted 100,036,733 101,623,746 100,920,783
=====================================================
NET INCOME PER SHARE - DILUTED -
NOTES 1 & 8 $ 1.33 $ 1.01 $ .75
=====================================================
Dividends paid per share $ .108 $ .108 $ .095
=====================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
22
<PAGE> 15
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Comair Holdings, Inc. and Subsidiaries for the Years Ended March 31, 1999, 1998
and 1997
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE COMMON COMPREHENSIVE RETAINED
INCOME STOCK INCOME (LOSS) EARNINGS TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1996 $ 51,094,753 $ (82,419) $ 162,116,870 $ 213,129,204
Exercise of stock options -- 1,207,637 -- -- 1,207,637
Dividends (.095 cents per share) -- -- -- (9,518,981) (9,518,981)
Comprehensive Income:
Net income $ 75,424,593 -- -- 75,424,593 75,424,593
Net unrealized gains on
marketable securities
available-for-sale 56,876 -- 56,876 -- 56,876
-------------
Comprehensive Income $ 75,481,469
=============
------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1997 $ 52,302,390 $ (25,543) $ 228,022,482 $ 280,299,329
Repurchase of common shares -- (14,684,692) -- -- (14,684,692)
Exercise of stock options -- 4,454,347 -- -- 4,454,347
3-for-2 stock split - repurchase of
fractional shares -- -- -- (14,523) (14,523)
Dividends (.108 cents per share) -- -- -- (10,710,949) (10,710,949)
Comprehensive Income:
Net Income $ 102,213,210 -- -- 102,213,210 102,213,210
Net unrealized gains on
marketable securities
available-for-sale 289,119 -- 289,119 -- 289,119
-------------
Comprehensive Income $ 102,502,329
=============
------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1998 $ 42,072,045 $ 263,576 $ 319,510,220 $ 361,845,841
Repurchase of common shares -- (43,165,436) -- (9,825,494) (52,990,930)
Exercise of stock options -- 1,093,391 -- -- 1,093,391
3-for-2 stock split - repurchase of
fractional shares -- -- -- (83,579) (83,579)
Dividends (.108 cents per share) -- -- -- (10,544,980) (10,544,980)
Comprehensive Income:
Net Income $ 132,934,735 -- -- 132,934,735 132,934,735
Net unrealized gains on
marketable securities
available-for-sale 114,980 -- 114,980 -- 114,980
-------------
Comprehensive Income $ 133,049,715
=============
------------------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1999 $ -- $ 378,556 $ 431,990,902 $ 432,369,458
====================================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
23
<PAGE> 16
CONSOLIDATED STATEMENTS OF CASH FLOWS
Comair Holdings, Inc. and Subsidiaries for the Years Ended March 31, 1999, 1998
and 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 132,934,735 $ 102,213,210 $ 75,424,593
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 30,769,773 29,778,467 24,908,928
Amortization and accrual of overhaul expenses 15,635,174 13,562,528 13,010,867
Deferred income taxes 4,813,952 8,829,869 14,142,029
Other, net (2,432,107) (1,790,712) (1,577,594)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 2,038,757 7,665,396 (4,646,645)
Decrease (increase) in inventory of
expendable parts 2,168,167 (1,249,134) (4,365,589)
Decrease (increase) in other current assets (3,087,990) (673,887) (7,275,456)
Increase (decrease) in accounts payable 6,258,601 (8,775,709) 8,325,080
Increase (decrease) in other current liabilities 8,342,560 7,038,432 4,523,309
-----------------------------------------------------------------------------------------------------------
Net cash flows from operating activities $ 197,441,622 $ 156,598,460 $ 122,469,522
-----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment $ (52,673,943) $ (49,898,504) $(146,595,228)
Return of advance payments and deposits -- 1,000,000 --
Advance payments and deposits (30,000,000) (4,000,000) (1,000,000)
Interest bearing investment -- (30,000,000) --
Proceeds from sale of marketable securities 6,309,366 18,550,125 3,375,502
Purchases and maturities of
marketable securities, net (30,012,003) (25,573,180) (17,569,303)
Deferred costs (300,846) (33,817) (2,896,652)
Other, net (7,927) 831,956 785,599
-----------------------------------------------------------------------------------------------------------
Net cash flows from investing activities $(106,685,353) $ (89,123,420) $(163,900,082)
-----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock $ 1,093,391 $ 4,454,347 $ 1,207,637
Payments of cash dividends and
repurchase of fractional shares (10,628,559) (10,725,472) (9,518,981)
Repurchase of common stock (52,990,930) (14,684,692) --
Proceeds from long-term obligations -- -- 69,912,500
Repayments of long-term obligations (13,440,883) (12,909,768) (9,167,087)
-----------------------------------------------------------------------------------------------------------
Net cash flows from financing activities $ (75,966,981) $ (33,865,585) $ 52,434,069
-----------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS: $ 14,789,288 $ 33,609,455 $ 11,003,509
Cash and cash equivalents at beginning of period 156,214,247 122,604,792 111,601,283
-----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 171,003,535 $ 156,214,247 $ 122,604,792
=====================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
24
<PAGE> 17
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 95 percent of its operating revenues and
expenses, is a large regional airline serving airports in
the United States, 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
1999 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, 1999 and
1998, 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 of
written notice or immediately if the manufacturer's credit
rating falls below certain thresholds as defined.
F. INVENTORY OF EXPENDABLE PARTS
Expendable parts are stated at cost, on a
first-in, first-out basis, less an obsolescence reserve of
$5,259,000 and $3,493,000 at March 31, 1999 and 1998,
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>
<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>
25
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
H. INTANGIBLE ASSETS
Financing costs associated with long-term
obligations and lease financings are deferred and amortized
over the term of the specific indebtedness or lease.
I. REVENUE RECOGNITION
Revenues are recognized when the respective
services are rendered. An allowance ($215,000 and $210,000
at March 31, 1999 and 1998, 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 engine inspections. The costs of 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.
All other maintenance costs are expensed as incurred.
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 $7,509,000, $8,702,000 and $6,192,000 in fiscal 1999,
1998 and 1997, respectively. Costs capitalized in fiscal
1999, 1998 and 1997 totaled $2,204,000, $1,383,000 and
$1,245,000, 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, 1999 have
been received.
N. ADVERTISING INSTRUMENTS
Costs related to advertising are expensed as
incurred. The Company's advertising expense was $2,655,000,
$2,100,000 and $2,202,000 in fiscal 1999, 1998 and 1997
respectively.
O. FINANCIAL INSTRUMENTS
Financial instruments in the form of interest rate
swap agreements have occasionally been 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
26
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
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,
1999, 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", replaces 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 March
1999, November 1997 and May 1996. (See Note 8)
Q. SEGMENT INFORMATION
In fiscal 1999, the Company adopted the Financial
Accounting Standards Board Statement No. 131 (SFAS No.
131), "Disclosures About Segments of an Enterprise and
Related Information". SFAS No. 131, which is based on the
management approach to segment reporting, established
standards for reporting information about operating
segments and related disclosures about products and
services. Operating segments are defined as components of
an enterprise about which separate financial information is
available that is regularly evaluated by the chief
operating decision maker or decision making group in
deciding how to allocate resources or in assessing
performance.
The Company operates predominantly in one business
segment (air transportation). Substantially all revenues
are derived from the air transportation of passengers and
cargo in scheduled airline service. The Company's chief
operating decision maker or decision making group assesses
the operating effectiveness and financial performance of
the Company based on the results of this business segment.
Additionally, the Company does not engage in material
operations in foreign countries and no material portion of
its revenues are derived from customers in foreign
countries.
R. RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 133 (SFAS No. 133), "Accounting for Derivatives
Instruments and Hedging Activities", which requires an
entity to recognize all derivatives as either an asset or
liability at fair value. Accounting for the fair value of a
derivative depends on its designation and effectiveness.
Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair
value of the derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings.
SFAS No. 133 is required to be adopted in fiscal years
beginning after June 15, 2000. SFAS No. 133 permits early
adoption as of the beginning of any fiscal quarter after
its issuance. The Company does not currently hold any
derivative instruments and does not expect the adoption of
SFAS No. 133 to have a material impact on its financial
condition, results of operations, or cash flows.
27
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
NOTE 2: LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
The following is a summary of long-term obligations as of March 31, 1999 and 1998:
--------------------------------
1999 1998
--------------------------------
<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, 1999 were 5.614% to 6.041%. $108,640,307 $117,529,451
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. 5,666,671 10,218,410
--------------------------------
$114,306,978 $127,747,861
Less--Current Installments 13,743,598 13,435,345
--------------------------------
Total $100,563,380 $114,312,516
================================
Maturities of long-term obligations are as follows:
2001 $11,556,385
2002 $10,838,531
2003 $11,595,010
2004 $12,412,106
2005 and thereafter $54,161,348
</TABLE>
The net book value of assets pledged as security
under the above obligations totaled $186,077,000 as of
March 31, 1999.
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
1999, 1998 and 1997, the Company reduced its interest
expense by $166,000, $264,000 and $376,000, respectively,
as a result of these interest rate subsidies. The amount of
net interest paid totaled $7,982,000, $8,788,000 and
$4,852,000 in fiscal 1999, 1998 and 1997, respectively.
The Company has an unused bank line of credit for
up to $5,000,000 at prime.
28
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
NOTE 3: LEASES
As of March 31, 1999, the Company operated 81
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 17 Embraer Brasilia aircraft. The
Company utilizes these subsidies to substantially fix its
net payments under these operating leases.
Total rental expense for fiscal 1999, 1998 and
1997 was $98,790,000, $85,095,000 and $84,022,000,
respectively, net of the impact of the interest rate
subsidies, which were $833,000, $1,146,000 and $1,375,000,
respectively, for fiscal 1999, 1998 and 1997.
At March 31, 1999, the future net minimum rental
payments under noncancellable operating leases had a
present value of approximately $662,514,000, and a gross
amount payable (including principal and interest) of
$1,087,473,000 payable $103,193,000 in 2000, $97,599,000 in
2001, $84,563,000 in 2002, $79,802,000 in 2003, and
$76,679,000 in 2004, and $645,637,000 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, 1999 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $64,872,000 $47,791,000 $26,800,000
State 9,335,000 6,400,000 3,530,000
---------------------------------------------
Total Current Provision $74,207,000 $54,191,000 $30,330,000
Deferred:
Federal $ 4,219,000 $ 7,718,000 $12,791,000
State 270,000 733,000 1,615,000
---------------------------------------------
Total Provision $78,696,000 $62,642,000 $44,736,000
=============================================
</TABLE>
29
<PAGE> 22
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, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, 1999 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation $59,419,380 $50,695,474
Amounts expended for major engine
inspections, net 6,365,405 8,198,686
Other, net 4,947,482 4,704,488
----------------------------------
Deferred tax liabilities $70,732,267 $63,598,648
----------------------------------
Deferred tax assets:
Expenses not currently deductible $13,640,044 $11,291,094
Deferred gains on sale/leaseback
transactions 573,968 643,432
Other, net 1,542,193 1,502,012
----------------------------------
Deferred tax assets $15,756,205 $13,436,538
----------------------------------
Net deferred tax liabilities $54,976,062 $50,162,110
==================================
</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:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 2.9 2.8 2.8
Other, net (0.7) 0.2 (0.6)
--------------------------------------------
Effective income tax rate 37.2% 38.0% 37.2%
============================================
</TABLE>
The Company made cash income tax payments of $77,619,000 in fiscal 1999,
$47,237,000 in fiscal 1998 and $31,456,000 in fiscal 1997.
30
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
NOTE 5: COMMITMENTS AND CONTINGENCIES
As of March 31, 1999, COMAIR has scheduled
delivery positions for thirty-five 50-passenger Canadair
Jets to be delivered through fiscal 2002. The aggregate
cost of these aircraft, including support equipment and
estimated escalation, will be approximately $642 million.
Advance payments, deposits, and capitalized interest of $50
million are included in the March 31, 1999 consolidated
balance sheets.
COMAIR also has 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 is scheduled to 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 has broken ground on approximately $40
million in new construction and facility upgrades, which
include a new corporate headquarters, additional
maintenance and training facilities and improvements to
passenger facilities at the Greater Cincinnati/ Northern
Kentucky International Airport. This construction is
expected to be completed by the end of calendar year 2000.
COMAIR expects to finance the aircraft and
construction described above through a combination of
available cash, lease, equity and debt financing, 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.
COMAIR has collective bargaining agreements with the
Air Lines Pilots Association (ALPA), representing COMAIR's
pilots and the International Association of Machinistsand
Aerospace Workers (IAM), representing COMAIR's maintenance
employees. COMAIR's collective bargaining agreement with
the ALPA became amendable on June 1, 1998 and the
collective bargaining agreement with the IAM became
amendable on June 1, 1999. Renegotiations of the collective
bargaining agreements are currently underway. In September
1998, the International Brotherhood of Teamsters (IBT) was
certified as collective bargaining representatives of the
flight attendants of COMAIR. COMAIR is also in negotiations
with the IBT. At this time, the renegotiations and
negotiations have not progressed to the stage that would
enable the Company to comment on any possible effects of
the negotiations. As a result, the Company cannot
anticipate what effect these renegotiations and
negotiations will have on its financial condition, results
of operations or cash flow.
There are no 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 insuredor will not have a material
adverse effect on the Company's financial condition,
results of operations or cash flows.
31
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
NOTE 6: BENEFIT PLANS
The Company has a stock option plan for its
officers and key employees with 5,695,312 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 797,344 shares of common stock
reserved for issuance. Each year each nonemployee director
of the Company receives an option to purchase 11,392 shares
of common stock at a purchase price equal to the last sale
price on the date of grant. These options become
exercisable at 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 disclosure of expenses 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 1999, 1998 and
1997 is $7.40, $6.57 and $8.51, respectively. The following
weighted average assumptions were used for grants in fiscal
1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------
<S> <C> <C> <C>
Dividend yield 1% 1% 1%
Expected volatility 44.23% 45.2% 46.6%
Risk-free interest 5.66% 6.48% - 6.83% 6.36% - 6.80%
Expected life 5.5 yrs 5.5 yrs 5.5 - 10 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, 1999, 1998 and 1997
would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net Income
As reported $ 132,934,735 $ 102,213,210 $ 75,424,593
Pro forma $ 130,109,833 $ 100,827,238 $ 74,610,212
----------------------------------------------------------
Net Income per share - basic
As reported $ 1.35 $ 1.53 $ 1.13
Pro forma $ 1.32 $ 1.51 $ 1.12
Net Income per share - diluted
As reported $ 1.33 $ 1.51 $ 1.12
Pro forma $ 1.30 $ 1.49 $ 1.11
</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
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
Transactions involving the stock option plans for
the years ended March 31, 1999, 1998 and 1997 are shown in
the table below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
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 3,231,872 $ 7.10 2,832,154 $ 5.59 2,281,461 $ 3.64
Granted 1,181,352 $ 16.51 1,017,851 $ 9.22 763,569 $ 10.54
Exercised (94,241) $ 5.67 (606,740) $ 3.59 (212,876) $ 2.41
Expired (6,375) $ 12.65 (11,393) $ 10.54 -- --
Outstanding at end of year 4,312,608 $ 9.70 3,231,872 $ 7.10 2,832,154 $ 5.59
Exercisable at end of year 1,618,648 $ 6.64 1,037,525 $ 5.49 1,137,158 $ 4.11
</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 1999, 1998 and 1997, the Company
expensed $14,300,000, $10,947,000 and $8,581,000,
respectively, related to these plans.
NOTE 7: RELATED PARTY TRANSACTIONS
Delta Air Lines, Inc. (Delta) owns approximately
22% of the Company's outstanding 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 1999, 1998 and 1997 were approximately $30,416,000,
$26,184,000 and $24,761,000, respectively. Accounts payable
at March 31, 1999 and 1998 included approximately
$11,272,000 and $9,461,000 due Delta for these services.
Trade receivables in the accompanying consolidated
balance sheets include amounts due from Delta of $0 and
$1,050,000 as of March 31, 1999 and 1998, respectively.
Approximately 45% of COMAIR's passengers in fiscal 1999,
1998 and 1997 connected with 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 to the "Delta Connection" marketing
agreement.
COMAIR has an interest bearing investment with the
Canadair Jet aircraft manufacturer which can be called and
returned to COMAIR within thirty (30) days of written
notice or immediately if the manufacturer's credit rating
falls below certain thresholds as defined.
33
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Comair Holdings, Inc. and Subsidiaries
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 ended March 31, 1999, 1998
and 1997 of dilutive potential common stock (all prior
periods have been restated):
<TABLE>
<CAPTION>
Numerator: 1999 1998 1997
--------------------------------------------------
<S> <C> <C> <C>
Net Income $132,934,735 $102,213,210 $ 75,424,593
--------------------------------------------------
Denominator:
For Net Income per share - basic:
Weighted average shares
outstanding - basic 98,588,162 100,331,079 100,060,862
Effect of dilutive securities:
Stock options 1,448,571 1,292,667 859,921
For Net Income per share - diluted:
Weighted average shares
outstanding - diluted 100,036,733 101,623,746 100,920,783
--------------------------------------------------
Net Income per share - basic $ 1.35 $ 1.02 $ .75
--------------------------------------------------
Net Income per share - diluted $ 1.33 $ 1.01 $ .75
--------------------------------------------------
</TABLE>
In April 1999, the Company granted an additional
1,329,000 stock options to its officers, key employees and
nonemployee directors at a weighted average exercise
priceof $23.38. Since March 31, 1999, the Company has also
repurchased 1.3 million sharesof common stock at an
approximate cost of $27.7 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, 1999 and 1998.
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
<PAGE> 27
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, 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
ASSET (LIABILITY)
----------------------------------------------------------------------------
COST ESTIMATED FAIR VALUE
1999 1998 1999 1998
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 171,003,535 $ 156,214,247 $ 171,003,535 $ 156,214,247
Marketable securities $ 84,657,905 $ 61,017,698 $ 85,240,815 $ 61,423,198
Interest bearing investment $ 30,000,000 $ 30,000,000 $ 30,000,000 $ 30,000,000
Total long-term obligations
(before interest rate subsidies) $ (114,306,978) $ (127,747,861) $ (114,306,978) $ (127,747,861)
Interest rate subsidies on
long-term obligations $ -- $ -- $ 199,000 $ 549,000
</TABLE>
The following tables summarizes the unrealized
gains and losses for available-for-sale securities at March
31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 UNREALIZED 1999
AMORTIZED ------------------------------ FAIR
COST GAINS LOSSES VALUE
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds and Mutual Funds $84,657,905 $599,227 $ 16,317 $85,240,815
Common Stock -- -- -- --
-------------------------------------------------------------------------
Total $84,657,905 $599,227 $ 16,317 $85,240,815
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
1998 UNREALIZED 1998
AMORTIZED ------------------------------ 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>
The following table presents the amortized cost
and fair value of debt securitiesavailable-for-sale at
March 31, 1999 and 1998:
<TABLE>
<CAPTION>
AMORTIZED COST FAIR VALUE
--------------------------------------------------------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Less than one year $20,319,384 $14,528,086 $20,377,366 $14,576,066
After one year through five years 64,338,521 45,679,657 64,863,449 45,900,770
--------------------------------------------------------------------------
Total $84,657,905 $60,207,743 $85,240,815 $60,476,836
==========================================================================
</TABLE>
The Company realized gains from the sale of
marketable securities of $31,000 and $192,000 in fiscal
1999 and 1998, respectively.
35
<PAGE> 28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Comair Holdings, Inc. and Subsidiaries
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, 1999
and 1998, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended March 31,
1999. 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, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended March 31, 1999 in conformity with generally accepted accounting
principles.
Cincinnati, Ohio Arthur Andersen LLP
May 14, 1999
CORPORATE INFORMATION
INVESTOR RELATIONS
Shareholders may obtain the fiscal 1999 annual report or 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 3,100 holders of record
as of March 31, 1999.
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://www.comair.com
36
<PAGE> 1
EXHIBIT 21
SIGNIFICANT SUBSIDIARIES OF COMAIR HOLDINGS, INC.
COMAIR, INC., an Ohio corporation.
<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 28, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000835344
<NAME> COMAIR HOLDING, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 171,003,535
<SECURITIES> 85,240,815
<RECEIVABLES> 10,585,370
<ALLOWANCES> 0
<INVENTORY> 17,310,814
<CURRENT-ASSETS> 348,117,571
<PP&E> 486,980,499
<DEPRECIATION> 154,811,806
<TOTAL-ASSETS> 750,753,890
<CURRENT-LIABILITIES> 134,761,309
<BONDS> 100,536,380
0
0
<COMMON> 0
<OTHER-SE> 432,369,458
<TOTAL-LIABILITY-AND-EQUITY> 750,753,890
<SALES> 0
<TOTAL-REVENUES> 763,291,180
<CGS> 0
<TOTAL-COSTS> 559,202,110
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,900,483
<INCOME-PRETAX> 211,630,735
<INCOME-TAX> 78,696,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,934,735
<EPS-BASIC> 1.35
<EPS-DILUTED> 1.33
</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:
modifications to COMAIR's marketing agreement with Delta Air Lines, 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.
