UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
Commission File Number: 0-20360
RENO AIR, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0259913
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
220 Edison Way
Reno, Nevada 89502
(Address of principal executive offices)
(702) 686-3835
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No
Number of shares of common stock, $.01 par value, of registrant outstanding
at June 30, 1996: 10,297,734
<PAGE>
RENO AIR, INC.
- ------------------------------------------------------------------------
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1996 and
December 31, 1995 3
Statements of Operations -
Six Months and Three Months Ended
June 30, 1996 and 1995 4
Statements of Cash Flows -
Six Months Ended
June 30, 1996 and 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RENO AIR, INC.
BALANCE SHEETS AT
JUNE 30, 1996 AND DECEMBER 31, 1995
<CAPTION>
June 30, December 31,
1996 1995
----------- -----------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ...............................$ 34,018,205 $ 34,985,808
Short-term investments .................................. -- 2,944,188
Accounts receivable, net ................................ 26,829,436 18,237,295
Inventories and operating supplies ...................... 2,187,905 1,298,894
Prepaid expenses and other .............................. 15,983,645 14,597,564
----------- -----------
Total current assets .......................... 79,019,191 72,063,749
----------- -----------
PROPERTY AND EQUIPMENT:
Flight equipment ........................................ 37,658,752 11,061,841
Ground property and equipment ........................... 4,573,482 4,839,542
Less - Accumulated depreciation ......................... (7,580,198) (5,212,862)
----------- -----------
34,652,036 10,688,521
----------- -----------
RESTRICTED CASH AND INVESTMENT ............................... 3,571,407 2,150,327
DEPOSITS AND OTHER ........................................... 17,925,336 14,581,326
----------- -----------
$ 135,167,970 $ 99,483,923
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................$ 16,787,550 $ 17,245,930
Accrued liabilities ..................................... 16,047,230 14,419,993
Fuel purchase agreement ................................. 205,838 1,841,226
Air traffic liability ................................... 32,718,900 18,924,676
Current maturities of long-term debt .................... 2,191,954 342,061
Current portion of deferred lease payable ............... 2,058,853 1,027,858
----------- -----------
Total current liabilities ..................... 70,010,325 53,801,744
----------- -----------
LONG-TERM DEBT ............................................... 39,849,206 28,755,019
----------- -----------
NON-CURRENT LIABILITIES ...................................... 11,769,976 8,024,021
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 30,000,000
shares authorized, 10,297,734 and 9,974,800
shares issued and outstanding at June 30,
1996 and December 31, 1995, respectively .............. 102,977 99,748
Additional paid - in capital ............................ 32,495,704 31,413,623
Accumulated deficit ..................................... (19,060,218) (22,610,232)
----------- -----------
Total shareholders' equity .................... 13,538,463 8,903,139
----------- -----------
$ 135,167,970 $ 99,483,923
=========== ===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
RENO AIR, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS AND
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<CAPTION>
Six months ended Three months ended
June 30, June 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger .................................$ 155,182,459 $ 110,086,246 $ 86,496,903 $ 58,247,829
Other ..................................... 8,553,304 6,329,766 4,418,999 3,187,110
------------- ------------- ------------- -------------
Total operating revenues ........ 163,735,763 116,416,012 90,915,902 61,434,939
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Salaries, wages and benefits .............. 25,041,827 19,640,100 13,566,229 10,127,138
Aircraft fuel and oil ..................... 29,374,864 20,430,134 16,593,053 10,675,771
Aircraft leases ........................... 28,479,879 23,983,600 15,560,498 12,108,560
Maintenance ............................... 12,130,503 6,710,739 6,311,736 2,720,271
Handling, landing and airport fees ........ 16,292,713 11,801,160 8,922,283 6,069,774
Advertising, sales and distribution ....... 14,683,175 8,651,649 7,911,286 4,419,453
Commissions ............................... 9,320,990 7,362,219 5,147,843 3,798,446
Facility leases ........................... 5,373,468 4,437,263 2,814,055 2,198,307
Insurance ................................. 3,952,842 3,154,632 2,031,174 1,621,072
Communications ............................ 2,017,206 1,628,505 1,022,559 788,016
Depreciation and amortization ............. 2,367,335 1,191,748 1,386,266 636,706
Other ..................................... 10,630,744 8,591,240 6,022,714 4,587,226
------------- ------------- ------------- -------------
Total operating expenses ........ 159,665,546 117,582,989 87,289,696 59,750,740
------------- ------------- ------------- -------------
OPERATING INCOME (LOSS) ........................ 4,070,217 (1,166,977) 3,626,206 1,684,199
NON-OPERATING INCOME (EXPENSE):
Interest expense .......................... (1,652,409) (770,695) (856,893) (337,425)
Interest income ........................... 1,452,386 825,362 728,679 528,767
Other, net ................................ (182,859) (1,746,695) (85,761) (1,543,766)
------------- ------------- ------------ -------------
NET INCOME (LOSS) BEFORE INCOME TAXES .......... 3,687,335 (2,859,005) 3,412,231 331,775
INCOME TAX PROVISION ........................... 137,321 -- 137,321 --
------------- ------------- ------------ -------------
NET INCOME (LOSS) .............................. 3,550,014 (2,859,005) 3,274,910 331,775
PREFERRED STOCK DIVIDEND ....................... -- 4,231 -- 4,231
------------- ------------- ------------ -------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK ...$ 3,550,014 $ (2,863,236) $ 3,274,910 $ 327,544
============= ============= ============ =============
NET INCOME (LOSS) PER COMMON SHARE AND
COMMON SHARE EQUIVALENT
PRIMARY .................$ 0.33 $ (0.33) $ 0.30 $ 0.03
============= ============= ============ =============
FULLY DILUTED ...........$ 0.32 $ (0.33) $ 0.28 $ 0.03
============= ============= ============ =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING
PRIMARY ................. 10,855,017 8,633,417 11,063,877 9,424,494
============= ============ ============ =============
FULLY DILUTED ........... 11,001,210 8,633,417 13,962,798 9,424,494
============= ============ ============ =============
The accompanying notes are an integral part of the financial statements
</TABLE>
<PAGE>
<TABLE>
RENO AIR, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<CAPTION>
Six Months
Ended
June 30,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) ............................................................$ 3,550,014 $ (2,863,236)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization ............................................. 2,367,336 1,191,748
Common stock issued or to be issued for 401(k) Plan ....................... 120,000 373,378
Fair value of incremental consideration on conversion of 7.25% notes ...... -- 1,391,692
Common stock issued as payment of interest on 7.25% notes ................. -- 101,970
Increase in accounts receivable ........................................... (8,592,141) (5,062,915)
Increase in inventories and operating supplies ............................ (889,011) (291,171)
( Increase) decrease in prepaid expenses and other ......................... (1,386,081) 3,466,346
Increase in restricted cash ............................................... (1,421,080) (354,884)
Increase in deposits and other ............................................ (3,344,010) (636,767)
Increase (Decrease) in accounts payable ................................... (458,380) 378,184
Increase in accrued liabilities ........................................... 1,507,237 1,627,281
Decrease in fuel purchase agreement ....................................... (1,635,388) (3,363,981)
Increase in deferred lease payable ........................................ 4,776,950 401,213
Increase in air traffic liability ......................................... 13,794,224 865,610
----------- -----------
Net cash provided by (used in) operating activities .................. 8,389,670 (2,775,532)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ......................................... (26,330,851) (1,408,884)
Sale of short-term investments ............................................. 2,944,188 --
----------- -----------
Net cash used in investing activities ................................. (23,386,663) (1,408,884)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants ....................... 1,085,310 249,505
Proceeds from issuance of common stock ..................................... -- 2,412,880
Proceeds from the issuance of preferred stock .............................. -- 2,412,875
Proceeds from notes payable ................................................ 13,520,000 465,511
Payments on notes payable .................................................. (575,920) (2,843,922)
----------- -----------
Net cash provided by financing activities ............................ 14,029,390 2,696,849
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................... (967,603) (1,487,567)
CASH AND CASH EQUIVALENTS, beginning of period ................................. 34,985,808 9,103,564
----------- -----------
CASH AND CASH EQUIVALENTS, end of period .......................................$ 34,018,205 $ 7,615,997
=========== ===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
RENO AIR, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. The results of
operations for the six month and three month periods ended June 30, 1996, are
not necessarily indicative of the results that will be realized for the full
year. Results for the six months and three months ended June 30, 1995, reflect
the restatement reported in the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1995. For further information, refer to the financial
statements and notes thereto contained in the Form 10-K for the year ended
December 31, 1995.
NOTE B - INCOME (LOSS) PER COMMON SHARE
Income (loss) per share is computed by dividing the net income (loss) available
for common stock by the weighted average number of shares of common stock and
common stock equivalents assumed outstanding during the period.
NOTE C - AIRCRAFT PURCHASES AND RELATED DEBT
In February 1996, the Company purchased an MD-87 aircraft that it previously
leased. The purchase was partially financed with approximately $10.4 million of
debt secured by the aircraft payable over seven years and bearing interest at
LIBOR plus 2%. On July 2, 1996, the Company purchased an MD-83 aircraft from
BWIA International Airways Limited ("BWIA"). The purchase was partially financed
with approximately $12.1 million of debt secured by the aircraft payable over
four years and bearing interest at LIBOR plus 2.6%. The aircraft was leased back
to BWIA until June 2, 1997, at which point the Company intends to add the
aircraft to its operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual
results could differ materially from those forward-looking statements.
In the first six months of 1996, the Company significantly expanded its
operations with the addition to its fleet of two MD-90 aircraft, two MD-83
aircraft and one MD-87 aircraft and an increase in aircraft utilization. As of
June 30, 1996, the Company operated 28 aircraft, as compared to 23 aircraft at
the close of 1995. The Company leased a third MD-90 aircraft commencing July 30,
1996.
On December 31, 1995, the 10% federal excise tax on airline tickets
expired. Reinstatement of the tax through December 31, 1996, has been approved
by Congress and is expected to become effective in August 1996. Although this
will likely result in a decrease in the Company's passenger revenues, the
Company cannot predict the amount of the impact on its earnings. Such impact
will depend on the extent the tax is passed on to passengers through increases
in gross fares and the extent any such increase causes a loss in traffic. This
depends in large part on whether other airlines increase their fares by the
amount of the tax. Extension of the tax beyond December 31, 1996, will require
further legislation. The Company cannot predict whether the tax will be
extended. Certain of the Company's larger competitors have lobbied for
imposition of a user fee in lieu of the federal excise tax. Management believes
that a user fee would likely have a greater impact to the Company than the
federal excise tax, because the Company has lower average fares and a shorter
average stage length (and thus more passengers and departures per day) than
industry average.
<PAGE>
Selected Operating Statistics
<TABLE>
<CAPTION>
Quarter Quarter Quarter
Ended Ended Ended
June 30, June 30, Percent March 31, Percent
1996 1995 Change(1) 1996 Change(2)
---------- ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Revenue passengers ..................... 1,298,135 975,125 33% 1,098,653 18%
Revenue Passenger Miles (RPM) (000) .... 769,876 497,286 55% 645,205 19%
Available Seat Miles (ASM) (000) ....... 1,169,078 819,470 43% 947,346 23%
Passenger load factor (percent) ........ 65.9 60.7 9% 68.1 -3%
Breakeven load factor (percent) ........ 63.4 60.3 5% 67.8 -6%
Revenue per passenger mile (cents) (3).. 11.2 11.7 -4% 10.6 6%
Passenger revenues per ASM (cents) (3).. 7.4 7.1 4% 7.2 3%
Operating expenses per ASM (cents) (3).. 7.5 7.3 2% 7.6 -2%
Aircraft in service at end of period ... 28 23 22% 24 17%
Total block hours ...................... 25,254 18,488 37% 20,758 22%
Average aircraft length of haul (miles). 537 483 11% 550 -2%
Average passenger length of haul (miles) 593 510 16% 587 1%
Average cost of fuel (cents per gallon). $0.74 $0.60(4) 23% $0.69 7%
(1) Percent change from quarter ended June 30, 1995 to quarter ended June 30, 1996.
(2) Percent change from quarter ended March 31, 1996 to quarter ended June 30, 1996.
(3) Percentage change based on actual (not rounded) figures.
(4) Adjusted to exclude into-plane service fees in order to conform to current presentation.
</TABLE>
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30, Percent
1996 1995 Change(1)
---------- ---------- ---------
<S> <C> <C> <C>
Revenue passengers ..................... 2,396,788 1,852,000 29%
Revenue Passenger Miles (RPM) (000) .... 1,415,080 932,126 52%
Available Seat Miles (ASM) (000) ....... 2,116,423 1,576,221 34%
Passenger load factor (percent) ........ 66.9 59.1 13%
Breakeven load factor (percent) ........ 65.3 60.7 8%
Revenue per passenger mile (cents) (2).. 11.0 11.8 -7%
Passenger revenues per ASM (cents) (2).. 7.3 7.0 5%
Operating expenses per ASM (cents) (2).. 7.5 7.5 1%
Aircraft in service at end of period ... 28 23 22%
Total block hours ...................... 46,012 35,978 28%
Average aircraft length of haul (miles). 543 483 12%
Average passenger length of haul (miles) 590 503 17%
Average cost of fuel (cents per gallon). $0.72 $0.60(3) 20%
(1) Percent change from six months ended June 30, 1995 to six months ended June 30, 1996.
(2) Percentage change based on actual (not rounded) figures.
(3) Adjusted to exclude into-plane service fees in order to conform to current presentation.
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
The Company realized net income of $3,550,014, or $.33 per share of
common stock, for the six months ended June 30, 1996, as compared to a net loss
of $2,859,005, or ($.33) per share of common stock, for the six months ended
June 30, 1995. For the three months ended June 30, 1996, the Company realized
net income of $3,274,910, $.30 per share, as compared to $331,775, $.03 per
share, for the second quarter of 1995. The dramatic turnaround in financial
results is primarily attributable to year-over-year increases in revenue per
available seat mile. This resulted from year-over-year increases in load factor,
in part offset by year-over-year declines in yield (revenue per passenger mile).
In addition, the Company incurred a non-cash, non-operating charge of $1.4
million in the second quarter of 1995 related to the conversion of debt to
equity.
The Company's level of operations, as measured by available seat
miles, increased approximately 34% during the first six months of 1996 as
compared to the first six months of 1995, due to the addition of aircraft to the
Company's fleet, increased average aircraft length of haul and increased
aircraft utilization.
OPERATING REVENUES
The Company's operating revenues increased 41% in the first six months
of 1996 as compared to the same period in 1995, due to a 34% increase in the
scope of the Company's operations (as measured by available seat miles), and a
5% increase in passenger revenue per available seat mile ("RASM"). This trend
was most pronounced in the second quarter. The Company's operating revenues
increased 48% in the second quarter of 1996 as compared to the same period in
1995, due to a 43% increase in the scope of the Company's operations and a 4%
increase in RASM. (In both years, operations and RASM also increased from the
first quarter to the second quarter.)
The increase in RASM for the six month period is attributable to a 7.8
percentage point increase in load factor (a 13% increase), partly offset by a 7%
drop in yield. Management believes passenger loads increased year over year
primarily due to increased customer awareness of and preference for the
Company's product, a stimulation of passenger demand by fare discounting and a
general increase in passenger demand resulting from a stronger economy. The
Company's load factor decreased 3% in the second quarter of 1996 from the first
quarter of 1996 as a result of the 23% increase in capacity in the second
quarter.
The Company's yields declined year-over-year primarily because of a 17%
increase in the Company's average passenger length of haul, continued
competitive pressure and the Company's use of promotional fares in connection
with the significant expansion of its service. In July 1996, Southwest Airlines
initiated $25 fares for travel from August 19 through October 31, which the
Company matched on a highly restrictive basis. The Company does not believe the
introduction of these fares will have a significant impact on its third quarter
results, as the availability of these fares was highly restricted. However, the
Company cannot predict whether further fare reductions will occur, which may be
significant.
The factors contributing to a decline in yields were partly offset by
the expiration of the federal 10% excise tax on ticket sales. The Company
retained many of its advertised (gross) fares unchanged upon expiration of the
tax, resulting in an increase in its net fares. The impact of the expiration of
the tax increased over the course of the first six months, since the tax applied
to tickets sold before December 31, 1995, even though travel occurred after such
date.
During the first six months of 1996, the Company had as many as three
aircraft devoted to track charter programs. As of August 1, 1996, one aircraft
was devoted to such programs.
OPERATING EXPENSES
The Company's operating expenses increased 36% in the first six months
of 1996 as compared to the first six months of 1995, resulting in the Company's
average cost per available seat mile increasing very slightly from 7.48 cents in
the 1995 period to 7.54 cents in the first six months of 1996. This increase is
primarily attributable to an approximately 20% increase in the cost per gallon
of fuel and a 33% increase in maintenance expense per ASM attributable to both
(i) the impact in 1995 of a $1.6 million net reduction in operating expense
resulting from a credit to the Company's maintenance reserves with respect to
two leased aircraft and (ii) a smaller portion of the Company's fleet continuing
to be under warranty.
Advertising, sales and distribution expense also increased
year-over-year due to a greater use of third-party reservation services. The
Company is establishing a second reservation center in Las Vegas, which is
planned to be in operation by the second quarter of 1997.
The foregoing increases were offset in part by cost efficiencies
resulting primarily from a 12% increase in average aircraft length of haul and
an approximately 2% increase in average daily aircraft utilization. For the
three months ended June 30, 1996, the Company's operating expenses increased 46%
over the comparable period in 1995, resulting in the Company's average cost per
available seat mile increasing to 7.47 cents from 7.29 cents in the second
quarter periods, for the same reasons.
<PAGE>
The following chart lists the components of the Company's unit costs:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Operating expenses per Available Seat Mile (cents)
Salaries, wages and benefits 1.18 1.25
Aircraft fuel and oil 1.39 1.30
Aircraft leases 1.35 1.52
Maintenance 0.57 0.43
Handling, landing and airport fees 0.77 0.75
Advertising, sales and distribution 0.69 0.55
Commissions 0.44 0.47
Facility leases 0.25 0.28
Insurance 0.19 0.20
Communications 0.10 0.10
Depreciation and amortization 0.11 0.08
Other 0.50 0.55
-------- --------
7.54 7.48
======== ========
</TABLE>
The Company's break-even load factor increased to 65.3% in the first six
months of 1996 from 60.7% in the first six months of 1995 due primarily to the
decrease in yields.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company's cash, cash equivalents and
short-term investments totaled $34 million, which reflects a decrease of $3.9
million from December 31, 1995. Also, the Company's working capital declined to
$9.0 million at June 30, 1996, as compared to working capital of $18.3 million
at December 31, 1995. The decrease in cash is primarily due to the use of cash
to purchase assets, including the down payment on an MD-87 aircraft purchased by
the Company in the first quarter, two spare engines, MD-90 spare parts, and
lease deposits on two MD-90 aircraft that commenced service in April. The
increase in accounts receivable from December 31, 1995 to June 30, 1996 reflects
the increase in air traffic liability during the period, resulting from the
Company's larger scope of operation and increased advance ticket sales.
In the first six months of 1996, net cash provided by operating
activities totaled $8.4 million, compared to net cash used in operating
activities of $2.8 million for the same period in 1995. The difference is
primarily attributable to the increase in cash flow resulting from realization
of a net profit in the current year's period as compared to a net loss in the
prior year's period and the increase in air traffic liability.
Cash used in investing activities (to purchase property and equipment)
in the first six months of 1996, net of proceeds from the sale of short-term
investments, was $23.4 million, compared to $1.4 million used in investing
activities in the first six months of 1995. The difference between the periods
is primarily attributable to the purchase in 1996 of the MD-87 aircraft, two
spare engines and spare parts for MD-90 aircraft.
Cash provided by financing activities was $ 14 million in the first
six months of 1996, arising from the financing of the capital acquisitions
described above and the exercise of stock options, compared to cash provided by
financing activities of $2.7 million (resulting from sales of common and
preferred stock) for the comparable period in 1995.
The Company's leased aircraft are leased under operating leases with
remaining terms ranging from less than one to 18 years. In the first six months
of 1996, the Company purchased one MD-87 aircraft that was previously leased to
it, and leased one MD-87 aircraft, two MD-83 aircraft and two new MD-90 aircraft
under long term leases. The purchase of the MD-87 aircraft was partially
financed with $10.4 million of debt secured by the aircraft payable over seven
years and bearing interest at LIBOR plus 2%. In the second quarter of 1996, the
Company purchased two spare engines and associated rotable spare parts for an
aggregate purchase price of $4.3 million, of which $3 million was financed with
a three-year note bearing interest at LIBOR plus 2.85%.
On July 2, 1996, the Company purchased an MD-83 aircraft from British
West Indies Airways. The purchase was partially financed with approximately
$12.1 million of debt secured by the aircraft payable over four years and
bearing interest at LIBOR plus 2.6%. The aircraft was leased back to BWIA until
June 2, 1997, at which point the Company intends to add the aircraft to its
operations. On July 18, 1996, the Company purchased an additional spare engine
for $3.2 million, of which $1.9 million was financed with a five year note
bearing interest at LIBOR plus 3.15%. On July 30, 1996, the Company leased an
additional MD-90 aircraft under a long term lease. The Company may lease or
purchase more aircraft, in connection with the return of other aircraft in its
fleet or as additions to its fleet.
Management believes the Company's cash position, together with cash
flow generated from operations, will be sufficient to meet the Company's
obligations and capital requirements for the next twelve months. Nevertheless,
airline results are highly sensitive to various factors, including the price of
fuel and the actions of competing airlines, either of which can materially and
adversely affect the Company's liquidity and cash flows. Management may seek to
raise additional funds through sales of equity or debt securities (on a secured
or unsecured basis).
<PAGE>
PART II. OTHER INFORMATION
Reference is made to the discussion of the Adelman lawsuit contained
in Item 3 of the Company's Report on Form 10-K for the year ended December 31,
1995, and the update to such discussion contained in Item 3 of the Company's
Report on Form 10-Q for the quarter ended March 31, 1996. On June 3, 1996, the
Adelman plaintiffs filed with the District Court a voluntary dismissal of their
appeal to the Ninth Circuit Court of Appeals. On July 3, 1996, the District
Court advised plaintiffs that the dismissal was filed in the wrong court. Reno
Air has no reason to believe the plaintiffs will continue prosecution of the
lawsuit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits Page
10.5 Reno Air, Inc. Stock Option Plan 15
11 Statement Re: Computation of Earnings Per Share for the
Six Months and Three Months ended June 30, 1996 25
B. Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RENO AIR, INC.
DATE: August 12, 1996 By: /s/ PAUL H. TATE
Paul H. Tate
as Chief Financial Officer
and on behalf of Registrant
RENO AIR
STOCK OPTION PLAN
AS RESTATED MAY 23, 1996
Reno Air, Inc., a Nevada corporation (the "Corporation"), hereby adopts
this Stock Option Plan.
ARTICLE I
PURPOSE
The purpose of this Plan is to permit the Corporation to grant to its
employees, directors and consultants options to purchase shares of its common
stock. The options will promote the growth and general prosperity of the
Corporation by making the Corporation better able to attract and retain the best
available persons for positions of substantial responsibility. The options will
provide an additional incentive to certain key employees, directors and
consultants of the Corporation to acquire a proprietary interest in the
Corporation, to continue in their positions with the Corporation, and to
increase their efforts on behalf of the Corporation. Nothing contained in this
Plan, or in any option granted pursuant to the Plan, shall confer upon any
Optionee any right to continue as an employee, director and/or consultant at any
time or to limit in any way the right of the Corporation to terminate the
optionee as an employee, director and/or consultant at any time. The options
granted pursuant to this Plan shall be non-statutory options.
ARTICLE II
ELIGIBILITY
Options shall be granted under this Plan only to (1) employees of the
Corporation who render those types of services which tend to contribute
materially to the success of the Corporation and (2) directors and consultants
of the Corporation who are not employees who perform services of special
importance to the management, operation, and development of the business of the
Corporation.
ARTICLE III
STOCK TO BE OPTIONED
The maximum number of shares which can be optioned and sold under this
Plan is Two Million Nine Hundred Thousand (2,900,000) shares of common stock of
the Corporation. Such shares may be unissued shares or shares purchased or to be
purchased by the Corporation. If any option granted under the Plan shall
terminate for any reason or expire before such option is exercised in full, the
securities which might otherwise have been issued on exercise of such option
shall again become available for purposes of this Plan.
ARTICLE IV
GRANTING OF OPTIONS
The Board of Directors may, from time to time and upon such terms and
conditions as they may determine, authorize the grant of options to eligible
employees, directors and consultants. Each such grant may be for any or all of
the stock subject to this Plan and shall be subject to the following:
A. Each option shall specify the number of shares of common stock of
the Corporation to which it pertains or a method for determining such number.
The option price for shares of stock of the Corporation to be issued under this
Plan shall be greater than or equal to the fair market value of such shares on
the date on which the option covering such shares is granted. The date of grant
of each option shall be the date of its authorization by the Board. The fair
market value of shares of stock for all purposes of this Plan shall be
determined by the Board in its sole discretion, exercised in good faith.
B. Successive grants may be made to the same eligible employee,
director and/or consultant whether or not any option or portions thereof
previously granted to such eligible employee, director, and/or consultant
remains unexercised.
C. No option shall be exercisable after the end of its term which shall
not be more than ten (10) years from the date the option is granted (hereafter
"Option Expiration Date") or, if earlier, more than thirty (30) days after the
termination of the Optionee as an employee, director and/or consultant of the
Corporation for any reason other than retirement or death; provided, however,
that the Board of Directors may extend such thirty (30) day period for a period
not to exceed two years following the date of termination but in no event beyond
the applicable Option Expiration Date. Any portion of an option that expires
hereunder shall be unexercisable and shall be of no effect whatsoever after such
expiration, notwithstanding that such Optionee may continue to be, or may again
be, an employee, consultant and/or member of the Board of Directors of the
Corporation.
D. Each option granted may be exercised in whole or in part any time
after it vests and prior to its expiration if it has a vesting requirement, and
any time after it is granted and prior to its expiration if it has no vesting
requirement. Each option shall be exercised by the Optionee by delivering to the
Secretary of the Corporation written notice of the exercise. On and as a
condition to the exercise of an option, (i) the option price shall be payable in
cash, certified or cashier's check, personal check if approved by the Chief
Financial Officer, shares of common stock issued by the Corporation owned by the
Optionee as provided in Article VII, or on such other terms or for such other
consideration as may be approved by the Board of Directors and (ii) any taxes
required to be withheld by the Company in connection with the exercise of such
options shall have been paid to the Company.
E. Each grant of an option shall be evidenced by a written agreement
executed on behalf of the Corporation by the President, Chief Financial Officer,
or General Counsel or any other officer designated by the Board of Directors and
delivered to and accepted by the Optionee. Each grant shall contain such terms
and provisions, consistent with this Plan, as are designated by the
disinterested directors who vote to grant the option.
F. No Optionee shall have any rights or privileges of a shareholder of
the Corporation with respect to any of the shares optioned unless and until such
option is exercised and certificates representing such shares have been issued
and delivered to the Optionee.
ARTICLE V
ADMINISTRATION OF PLAN
A. The Plan shall be administered by the Board of Directors unless the
Board delegates administration to a Committee as provided in paragraph C. of
this Article V. The Board shall take action with respect to options granted to a
director, by a vote of the majority of the directors present without counting
the vote of the affected director, provided, that such directors may be counted
in determining the presence of a quorum at the meeting of the Board of
Directors.
B. Subject to the express provisions and restrictions of this Plan, the
Board shall have sole authority, in its absolute discretion, (1) to determine
which of the employees, directors and/or consultants shall receive options, the
time when options shall be granted, the terms and conditions of an option other
than those terms and conditions fixed under this Plan, and the number of shares
which may be issued on exercise of an option; (2) to prescribe the form or forms
of the stock options agreements evidencing any options; (3) to adopt, amend, and
rescind such rules and regulations as, in its opinion, may be advisable in the
administration of the Plan; and (4) to construe and interpret the Plan, the
rules and regulations and the instruments and agreements utilized under the Plan
and to make all other determinations deemed necessary or advisable for the
administration of the Plan. The Board's interpretation and construction of any
provision of the Plan or any instrument or agreement utilized thereunder and any
determination by the Board pursuant to any provision of the Plan or any such
instrument or agreement shall be final and conclusive.
C. The Board shall have the authority to delegate some or all of the
powers granted to it pursuant to this Article V to the Corporation's
Compensation Committee or to a Stock Option Committee (the "Committee")
appointed by the Board and consisting of not less than three (3) persons. If
administration is delegated to a Committee, the Committee shall have all power
and authority theretofore possessed by the Board in connection with the
administration of this Plan and shall be authorized to take any action or give
any approval herein specified to be taken or given by the Board, in each case,
subject to any resolutions adopted by the Board from time to time which are not
inconsistent with the provisions of this Plan. Administration of the Plan with
respect to members of the Committee shall not be delegated but shall at all
times remain vested in the Board of Directors. The Committee shall hold meetings
at such times and places as it may determine. The Committee may request advice
or assistance of, or employ, such other persons as is necessary for proper
administration of the Plan. A quorum of the Committee shall consist of a
majority of its members and a Committee may act by a vote of a majority of its
members at a meeting at which a quorum is present, or without a meeting by
written consent to the action taken signed by all members of the Committee. The
Committee shall report to the Board of Directors the name of each Optionee, the
number of shares covered by each option, and the terms and conditions of each
such option. The Board may, from time to time, remove members from, or add
members to the Committee and vacancies on the Committee shall be filled by the
Board. Furthermore, the Board can resolve to abolish the Committee at any time
and revest in the Board the administration of the Plan. All decisions,
determinations and interpretations of the Committee shall be final and binding
on all Optionees unless otherwise determined by the Board.
ARTICLE VI
AUTHORIZATION TO ISSUE OPTIONS
Options granted under the Plan shall be conditioned on the Corporation
obtaining any required regulatory approval, free of any conditions not
acceptable to the Board, authorizing the Corporation to issue such options.
ARTICLE VII
PURCHASE OF STOCK WITH STOCK ISSUED BY CORPORATION
Subject to approval of the Board of Directors, each Optionee shall be
permitted to pay for some or all of the shares of common stock subject to an
option issued to the Optionee under this Plan with shares of common stock issued
by the Corporation. This right is conditioned on the Optionee providing to the
Corporation such representations and warranties as are satisfactory to the
Corporation regarding the Optionee's title to the shares he or she will use to
exercise the option, including, but not limited to, representations and
warranties that the Optionee has good and marketable title to such shares, free
and clear of all liens, encumbrances, charges, equities, claims, security
interest, warrants, options, or restrictions, and has full power to deliver such
shares without obtaining the consent or approval of any person or governmental
authority other than those which have already given consent or approval in a
form satisfactory to the Corporation. The equivalent dollar value of the shares
used to purchase optioned stock shall be the fair market value of the shares
determined by the Board of Directors in its discretion.
ARTICLE VIII
TAXES, FEES AND EXPENSES
The Corporation shall pay all original issue and transfer taxes, if
any, with respect to the grant of options under this Plan and the issue and
transfer of shares on the exercise of such options, and any other fees and
expenses necessarily incurred by the Corporation in connection therewith, and
the Corporation will use its best efforts to comply with all laws and
regulations which, in the opinion of counsel for the Corporation, shall be
applicable thereto. The Corporation will not be responsible for any income taxes
assessed against an Optionee as a result of grant of an option to the Optionee
or of the Optionee's exercise of an option.
ARTICLE IX
WITHHOLDING OF TAXES
The grant of options hereunder and the issuance of stock pursuant to
the exercise of such options is conditioned on the Corporation's right and
ability to withhold, in accordance with any applicable law, from any
compensation payable to the Optionee, or the Corporation's receipt of prior
payment from an Optionee of, the amount of any withholding taxes or other sums
required by law to be deducted as a result of the grant or exercise of any
options under this Plan. Apart from any amounts withheld by the Corporation or
paid to the Corporation by an Optionee, the Optionee shall be responsible and
liable for all such income taxes and other taxes and expense.
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors may modify, suspend, discontinue, amend,
terminate, revise, or change the Plan at any time, provided that, except as
provided in Article XIII below, the Board shall not amend the Plan as follows
without shareholder approval:
A. To increase the maximum number of shares subject to the Plan.
B. To change the designation of class of person eligible to
receive options under the Plan.
C. To extend the maximum option exercise period.
ARTICLE XI
OPTIONS NOT TRANSFERABLE
Options granted under this Plan may not be sold, pledged, hypothecated,
assigned, encumbered, gifted, or otherwise transferred or alienated in any
manner, whether voluntarily or involuntarily by operation of law, except as a
result of the death of an Optionee or on prior written consent of the
Corporation, which will be granted or withheld by the Board of Directors in its
discretion.
ARTICLE XII
RESTRICTIONS ON ISSUANCE OF SHARES
During the term of this Plan, the Corporation will use its best efforts
to obtain from the appropriate regulatory agencies and authorities any requisite
authorization to issue and sell the shares of its stock as are necessary to
satisfy the requirements of the Plan. The inability of the Corporation to obtain
from any such regulatory agency the authorization deemed by the Corporation's
counsel to be necessary to the issuance and sale of any shares of its stock
under this Plan shall relieve the Corporation of any liability with respect to
the non-issuance or sale of such stock.
ARTICLE XIII
ADJUSTMENTS TO OPTIONS
If the outstanding shares of stock of the Corporation are increased,
decreased, changed into, or exchanged for a different number or kind or class of
shares through merger, reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split, then the number, class and price
of such shares to be issued pursuant to this Plan, or the type of security or
amount of cash or other consideration to be received upon exercise of options
shall be appropriately and proportionately adjusted on authorization of the
Board; provided that no such adjustment may be made without the consent of the
affected Optionee if, on advice of counsel, the Board determines that such
adjustment might result in the receipt of taxable income to holders of options
granted under this Plan.
ARTICLE XIV
REPRESENTATIONS AND WARRANTIES
As a condition to the exercise of any portion of an option, the
Corporation may require the person exercising such option to make any
representations and warranties to the Corporation as may, in the judgment of
legal counsel to the Corporation, be required under any applicable law or
regulation.
ARTICLE XV
RESTRICTIONS ON STOCK AND
LEGENDS ON STOCK CERTIFICATES
Each certificate representing stock of the Corporation issued
pursuant to an option under this Plan shall contain any legends required by any
regulatory agency or the legal counsel for the Corporation.
ARTICLE XVI
SPECIFIC PERFORMANCE
The Corporation and its shareholders will be irreparably damaged if
this Plan is not specifically enforced. If any dispute arises concerning the
sale or other disposition of an option or optioned stock, an injunction may be
issued restraining such sale or other disposition of such option or stock
pending the determination of such controversy. In the event of any controversy
concerning the right or obligation of purchase or sale of any such option or
option stock, such right or obligation shall be enforceable in a court of equity
by a decree of specific performance. Such remedy shall, however, be cumulative
and not exclusive and shall be in addition to any other remedy the parties might
have.
ARTICLE XVII
NOTICES AND ACCESS TO PLAN
Any notice to be given to the Corporation pursuant to the provisions of
this Plan shall be addressed to the Corporation in care of its President at its
principal office, and any notice to be given to an employee and/or director to
whom an option is granted hereunder shall be addressed to such Optionee at the
address given beneath his signature on his or her stock option agreement, or at
such other address as such employee, consultant and/or director or his legacy
may hereafter designate in writing to the Corporation. Any such notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as provided above, registered or certified, and deposited, postage and
registry or certification fee prepaid, in a Post Office or branch Post Office
regularly maintained by the United States Postal Service. It shall be the
obligation of each Optionee and legacy of an Optionee to provide the President
of the Corporation, by letter mailed as provided above, with written notice of
his or her correct mailing address.
ARTICLE XVIII
INVALID PROVISIONS
In the event any provision of this Plan document is found to be invalid
or otherwise unenforceable under any applicable law, such invalidity or
unenforceability shall not be construed as rendering any other provisions
contained herein invalid or unenforceable, and all such other provisions shall
be given full force and effect to the same extent as though the invalid or
unenforceable provision were not contained herein.
ARTICLE XIX
APPLICABLE LAW
This Plan shall be governed by and construed in accordance with the
laws, rule and regulations of the United States and the State of Nevada.
ARTICLE XX
SUCCESSORS AND ASSIGNS
This Plan shall be binding on and inure to the benefit of the
Corporation and the persons to whom an option is granted hereunder, and such
person's heirs, executors, administrators, legatees, personal representatives,
assignees and transferees.
ARTICLE XXI
CHANGE IN CONTROL
A. In the event of a Change of Control, unless otherwise determined by
the Board of Directors at the time of grant or by amendment (with the holder's
consent) of such grant all outstanding options shall become fully exercisable
and vested.
B. A "Change of Control" shall be deemed to occur in the event:
(a) individuals who, as of July 1, 1994, constitute the entire
Board of Directors of the Corporation ("Incumbent Directors") cease for any
reason to constitute at least a majority of the Board; provided, however, that
any individual becoming a director subsequent to such date whose election, or
nomination for election by the Corporation's stockholders, was approved by a
vote of at least a majority of the then Incumbent Directors also shall be an
Incumbent Director;
(b) the stockholders of the Corporation shall approve (i) any
merger, consolidation or recapitalization of the Corporation of all or
substantially all of the assets of the Corporation (each of the foregoing being
an "Acquisition Transaction") where (1) the stockholders of the Corporation
immediately prior to such Acquisition Transaction would not immediately after
such Acquisition Transaction beneficially own, directly or indirectly, shares
representing in the aggregate more than 50% of (A) the then outstanding common
stock of the Corporation surviving or resulting from such merger, consolidation
or recapitalization or acquiring such assets of the Corporation, as the case may
be (the "Surviving Corporation"), (or of its ultimate parent corporation, if
any) and (B) the Combined Voting Power (as defined below) of the then
outstanding Voting Securities (as defined below) of the Surviving Corporation
(or of its ultimate parent corporation, if any) or (2) the Incumbent Directors
at the time of the initial approval of such Acquisition Transaction would not
immediately after such Acquisition Transaction constitute a majority of the
Board of Directors of the Surviving Corporation (or of its ultimate parent
corporation, if any) or (ii) any plan or proposal for the liquidation or
dissolution of the Company; or
(c) any Person (as defined below) shall become the beneficial owner (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing in the aggregate 40%
or more of either (i) the then outstanding shares of Corporation Common Stock or
(ii) the Combined Voting Power of all then outstanding Voting Securities of the
Corporation; [provided, however, that notwithstanding the foregoing, a Change of
Control of the Corporation shall not be deemed to have occurred for purposes of
this clause (c) solely as the result of an acquisition of securities directly
from the Corporation (not including any conversion of a security that was not
acquired directly from the Corporation).]
C. For purposes of this Article XXI:
(i) "Person" shall mean any individual, entity (including,
without limitation, any corporation, partnership, trust, joint venture,
association or governmental body) or group (as defined in Sections 13(d)(3) or
14(d)(2) of the Exchange Act and the rule and regulations thereunder); provided,
however, that Person shall not include the Corporation or any employee benefit
plan of the Corporation.
(ii) "Voting Securities" shall mean all securities of a
corporation having the right under ordinary circumstances to vote in an election
of the Board of Directors of such corporation.
(iii) "Combined Voting Power" shall mean the aggregate votes
entitled to be cast generally in the election of directors of a corporation by
holders of then outstanding Voting Securities of such corporation.
ARTICLE XXII
DEATH OR DISABILITY OF OPTIONEE
Upon the death or permanent disability of an Optionee, all options granted
to such Optionee shall become immediately vested.
Robert M. Rowen, the duly elected Secretary of Reno Air, Inc., a Nevada
corporation, certifies that the foregoing Stock Option Plan was duly adopted by
the Board of Directors of the Corporation on May 23, 1996.
Dated this 23rd day of May, 1996.
------------------------------------
Robert M. Rowen, Secretary
Exhibit 11
Statement Re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, 1996 June 30, 1996
----------------------- ---------------------------
Fully Fully
Primary Diluted Primary Diluted
<S> <C> <C> <C> <C>
Weighted Average Shares Outstanding ..................... 10,154,773 10,154,773 10,239,957 10,239,957
Common Stock Equivalents:
Options .................................... 633,005 763,767 736,024 752,690
Warrants ................................... 67,239 75,415 87,896 87,896
Other Dilutive Securities:
7.25% notes ............................................. 7,255 7,255
9% Senior convertible notes ............................. anti-dilutive 2,875,000
----------- ----------- ----------- --------------
10,855,017 11,001,210 11,063,877 13,962,798
=========== =========== =========== ==============
Net Income Applicable to Common Stock ................... $ 3,550,014 $ 3,550,014 $ 3,274,910 $ 3,274,910
Interest expense addback 7.25% notes .................... 1,844 922
Interest expense addback 9% senior convertible notes .... anti-dilutive 645,103
----------- ----------- ----------- --------------
$ 3,550,014 $ 3,551,858 $ 3,274,910 $ 3,920,935
=========== =========== =========== ==============
Per Share Earnings ...................................... $ 0.33 $ 0.32 $ 0.30 $ 0.28
=========== =========== =========== ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Jun-30-1996
<CASH> 34,018,205
<SECURITIES> 0
<RECEIVABLES> 26,829,436
<ALLOWANCES> 0
<INVENTORY> 2,187,905
<CURRENT-ASSETS> 79,019,191
<PP&E> 42,232,234
<DEPRECIATION> 7,580,198
<TOTAL-ASSETS> 135,167,970
<CURRENT-LIABILITIES> 70,010,325
<BONDS> 39,849,206
0
0
<COMMON> 102,977
<OTHER-SE> 13,435,486
<TOTAL-LIABILITY-AND-EQUITY> 135,167,970
<SALES> 163,735,763
<TOTAL-REVENUES> 163,735,763
<CGS> 159,665,546
<TOTAL-COSTS> 159,665,546
<OTHER-EXPENSES> 182,859
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,652,409
<INCOME-PRETAX> 3,687,335
<INCOME-TAX> 137,321
<INCOME-CONTINUING> 3,687,335
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,550,014
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.32
</TABLE>
