Registration Statement No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------
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
(702) 686-3835
(Address, including ZIP code, and telephone number, including area code,
of registrant's principal executive offices)
Robert M. Rowen
General Counsel and Secretary
Reno Air, Inc.
220 Edison Way
Reno, Nevada 89502
(702) 686-3807
(Name, address, including ZIP code, and telephone number,
including area code, of agent for service)
----------------------------------
Copies to:
--------------------------------------------------------------
Gerald Adler Joel S. Klaperman
Shereff, Friedman, Hoffman & Goodman, LLP Shearman & Sterling
919 Third Avenue 599 Lexington Avenue
New York, New York 10022 New York, New York 10022
(212) 758-9500 (212) 848-4000
--------------------------------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check
the following box. / /
If any of the securities being registered on this Form are being
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ___________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / ___________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / / __________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
Common Stock, par value
$.01 per share 3,450,000 shares $12.1875 $42,046,875 $14,499
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) promulgated under the Securities Act of 1993, as
amended. Based on the average of the high and low sale prices of the Common
Stock as reported by the Nasdaq National Market on June 18, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
INFORMATION CONTAINED HEREIN IN SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 19, 1996
PROSPECTUS
3,000,000 Shares
RENO AIR, INC.
COMMON STOCK
All of the shares of common stock, $.01 par value per share
(the "Common Stock"), offered hereby are being sold by the Company. The Common
Stock is listed on the Nasdaq National Market under the symbol "RENO" and on the
Pacific Stock Exchange under the symbol "RNO." On July __, 1996, the last
reported sale price for the Common Stock on the Nasdaq National Market was $____
per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 HEREIN FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
- -------------------------------------------------------------------------------
Per Share ...... $ $ $
- -------------------------------------------------------------------------------
Total (3)....... $ $ $
===============================================================================
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $___________.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
450,000 additional shares of Common Stock on the same terms and
conditions as set forth above solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be
$_________________, $_______________ and $______________, respectively. See
"Underwriting."
--------------------------
The shares of Common Stock offered by this Prospectus are
offered by the Underwriters, subject to prior sale, to withdrawal, cancellation
or modification of the offer without notice, to delivery to and acceptance by
the Underwriters and to certain further conditions. It is expected that delivery
of the shares will be made at the offices of Lehman Brothers Inc., New York, New
York, on or about ,1996.
--------------------------
LEHMAN BROTHERS
ALEX. BROWN & SONS
INCORPORATED
DILLON, READ & CO. INC.
FIELDSTONE
, 1996 FPCG SERVICES, L.P.
<PAGE>
Reno Air Route Map as of June 1996
[GRAPHIC OMITTED]
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE
OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, ON
THE PACIFIC STOCK EXCHANGE, ON THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY
ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ
NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT
OF 1934. SEE "UNDERWRITING".
AVAILABLE INFORMATION
This Prospectus, which constitutes part of a Registration
Statement on Form S-3 (the "Registration Statement") filed by the Company with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "1933 Act"), does not contain all of the
information set forth in the Registration Statement and the exhibits thereto,
which the Company has filed with the Commission in Washington, D.C. Reference is
hereby made to the Registration Statement and to the exhibits thereto for
further information with respect to the Company and the Common Stock offered
hereby. Statements contained herein concerning the provisions of documents filed
as exhibits to the Registration Statement are summaries of such documents, and
each such statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission. Copies of the information and
exhibits are on file at the offices of the Commission and may be obtained upon
payment of the fee prescribed by the Commission, or may be examined without
charge at the offices of the Commission.
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and in
accordance therewith files reports, proxy statements and other information with
the Commission. Such reports and other information filed by the Company may be
inspected and copied at the public reference facilities maintained by the
Commission at the principal offices of the Commission, Room 1024, 450 Fifth
Street NW, Washington, D.C. 20549, at the Commission's regional offices located
at Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511 and at 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material may be obtained by mail from the Public Reference
Section of the Commission, at 450 Fifth Street NW, Washington, D.C. 20549, at
prescribed rates. This Registration Statement has been filed electronically
through the Commission's Electronic Data Gathering, Analysis, and Retrieval
System and may be obtained through the Commission's Web site
(http://www.sec.gov).
The Company's Common Stock is listed on the Nasdaq National
Market and the Pacific Stock Exchange. Reports, proxy statements and other
information concerning the Company can be inspected at the offices of the
National Association of Securities Dealers, Inc. at 1735 "K" Street, NW,
Washington, D.C. 20006 and at the offices of the Pacific Stock Exchange at 301
Pine Street, San Francisco, California 94104.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission pursuant
to the 1934 Act are incorporated herein by reference:
(i) The Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 (the
"Annual Report");
(ii) The Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1996; and
(iii) The Company's Proxy Statement, dated April 12, 1996,
for its annual meeting of stockholders held on May
23, 1996.
All documents subsequently filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the 1934 Act prior to the termination of
this offering shall be deemed to be incorporated by reference in this Prospectus
and to be a part of this Prospectus from the date of filing thereof. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom
a copy of this Prospectus is delivered, upon the written or verbal request of
any such person, a copy of any or all of the documents which have been
incorporated herein by reference, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference to such documents).
Requests for such documents should be directed to Reno Air, Inc., 220 Edison
Way, Reno, Nevada 89502, Attention: Secretary, Telephone: (702) 686-3807.
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS UNDER THE
CAPTIONS "PROSPECTUS SUMMARY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS", IN ADDITION TO
CERTAIN STATEMENTS CONTAINED ELSEWHERE IN THIS PROSPECTUS ARE "FORWARD LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 AND ARE THUS PROSPECTIVE. SUCH FORWARD LOOKING STATEMENTS REFLECT
MANAGEMENT'S CURRENT VIEWS, ARE BASED ON MANY ASSUMPTIONS AND ARE SUBJECT TO
RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD
LOOKING STATEMENTS. CERTAIN OF SUCH FACTORS ARE DISCUSSED UNDER THE HEADING
"RISK FACTORS," BEGINNING ON PAGE 9 OF THIS PROSPECTUS, AND PROSPECTIVE
INVESTORS ARE URGED TO CAREFULLY CONSIDER SUCH FACTORS.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information set forth
herein and in the documents incorporated by reference in this Prospectus. The
Company was incorporated on June 11, 1990 under the laws of the State of Nevada.
From the date of its incorporation through June 30, 1992, the Company was a
development stage company. The Company commenced commercial flight operations on
July 1, 1992. Except as otherwise noted, all information in this Prospectus
assumes that the Underwriters' over-allotment option is not exercised.
The Company
Reno Air, Inc. ("Reno Air" or the "Company") operates a full-service
scheduled airline at low cost, offering competitive low fares in business and
leisure markets primarily in the western United States. The Company operates a
modern fleet of 28 McDonnell Douglas MD-80 and MD-90 Stage III aircraft which
have an average age of less than six years. The Company offers over 190 daily
flights primarily to and from its two hubs in Reno/Tahoe and San Jose and its
three focus markets in Los Angeles, Las Vegas and Seattle. In addition to these
cities, the Company serves Albuquerque, Anchorage, Chicago O'Hare, Colorado
Springs, Denver, Fairbanks, Laughlin (Nevada), Orange County (California), Palm
Springs (seasonally), Portland, San Diego, Tucson and Vancouver (British
Columbia). The Company also conducts charter operations and operates a tour
program called QQuick Escapes(R), which offers vacation packages including
airfare, lodging and other services, primarily to Reno/Tahoe, Las Vegas,
Laughlin (Nevada), and Southern California. The Company participates in the
American Airlines AAdvantage(R) frequent flyer program.
The Company's key competitive strengths include:
* premium service at low fares,
* a young, standardized fleet of advanced Stage III
aircraft,
* low operating costs,
* a strategic marketing relationship with American
Airlines, and
* complementary hubs.
In 1994, the Company substantially changed its senior management team and
implemented a strategic repositioning designed to make the Company profitable.
The key components of the Company's strategic plan include: (i) focusing the
Company's route system by concentrating resources on the Company's hubs in
Reno/Tahoe and San Jose and focus markets in Los Angeles, Las Vegas and Seattle;
(ii) increasing utilization of the Company's fleet by decreasing turnaround
times and expanding nighttime operations; (iii) reducing unnecessary ticket
discounting through improved yield management, with a continued emphasis on
offering competitive fares; (iv) maintaining good relationships with travel
agencies, tour operators and hotel and casino properties; and (v) developing and
promoting lower-cost distribution methods, including ticketless travel, and
increasing internal reservations capacity and direct sales incentives. In part
as a result of the strategic repositioning, the Company achieved profitability
in 1995 and the first quarter of 1996.
Management has targeted for the Company a moderate rate of growth of
approximately 25% per year, which Management believes is achievable while
maintaining the Company's focus on existing markets and operations.
Reno Air's principal executive offices are located at 220 Edison Way, Reno,
Nevada 89502, and its telephone number is (702) 686-3835.
<PAGE>
The Offering
Common Stock Offered................... 3,000,000 shares*
Common Stock to be Outstanding
after the Offering.................. 13,294,834 shares*
Nasdaq National Market Symbol.......... RENO
Pacific Stock Exchange Symbol.......... RNO
Use of Proceeds........................ The net proceeds of the offering
will be added to general corporate
funds to increase the Company's
liquidity. The Company may use
general corporate funds for
capital expenditures, including to
fund downpayments or deposits on
aircraft or aircraft orders. See
"Use of Proceeds".
- -------------------
* Does not include 450,000 shares subject to an overallotment option. Common
Stock to be Outstanding after the Offering is based on 10,294,834 shares
outstanding on June 14, 1996.
<PAGE>
Summary Financial Data
The following selected financial data for the four years ended
December 31, 1995 are derived from the audited financial statements of the
Company. The financial data for the three month periods ended March 31, 1996 and
1995 are derived from unaudited financial statements. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
which the Company considers necessary for a fair presentation of the financial
position and the results of operations for these periods. Operating results for
the three months ended March 31, 1996 are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 1996. The
data should be read in conjunction with the financial statements, related notes,
and other financial information included or incorporated by reference herein.
<TABLE>
<CAPTION>
Three months ended
March 31, Year ended December 31,
--------------------- -----------------------------------------------
1996 1995 1995 1994 1993 1992(1)
--------- --------- --------- --------- --------- ---------
(unaudited)
(in thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues ................... $ 72,820 $ 54,981 $ 256,508 $ 195,519 $ 124,640 $ 27,092
Operating expenses ................... 72,376 57,832 252,899 209,371 131,974 29,219
--------- --------- --------- --------- --------- ---------
Operating income (loss) .............. 444 (2,851) 3,609 (13,852) (7,334) (2,127)
Non-operating expense, net ........... 169 340 1,658 141 10 58
--------- --------- --------- --------- --------- ---------
Net income (loss) .................... $ 275 $ (3,191) $ 1,951 $ (13,993) $ (7,344) $ (2,185)
========= ========= ========= ========= ========= =========
Net income (loss) per common
share and common share
equivalent ........................... $ 0.03 $ (0.39) $ 0.19 $ (1.73) $ (1.06) $ (0.39)
========= ========= ========= ========= ========= =========
Weighted average common
shares and common share
equivalents outstanding .............. 10,746 8,277 9,786 8,093 6,910 5,566
========= ========= ========= ========= ========= =========
BALANCE SHEET DATA:
Cash and cash equivalents ............ $ 33,206 $ 5,728 $ 34,986 $ 9,104 $ 6,543 $ 5,670
Current assets ....................... 75,434 29,259 72,064 32,935 24,787 10,382
Total assets ......................... 121,895 48,375 99,484 51,683 37,204 13,792
Current liabilities .................. 65,011 44,261 53,802 43,389 22,611 9,194
Total liabilities .................... 112,200 52,942 90,581 53,481 25,255 9,194
Stockholders' equity (deficit) ....... 9,695 (4,568) 8,903 (1,798) 11,948 4,598
Working capital (deficit) ............ 10,423 (15,002) 18,262 (10,455) 2,176 1,188
(1) Through June 30, 1992, the Company was a development stage company. The
Company commenced commercial flight operations on July 1, 1992.
</TABLE>
<PAGE>
<TABLE>
SUMMARY OPERATING DATA
<CAPTION>
Three months ended March 31, Year ended December 31,
--------------------------- ---------------------------------------------------------
1996 1995 1995 1994 1993 1992(1)
------------- ----------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue passengers(2) ................... 1,097,964 876,875 3,954,578 3,369,446 1,866,067 390,336
Revenue passenger miles (RPM)(000)(2).... 645,205 434,839 2,090,014 1,622,630 930,850 200,044
Available seat miles (ASM)(000)(2) ...... 947,347 756,752 3,322,475 2,678,144 1,619,737 332,138
Passenger load factor (percent) ......... 68.1 57.5 62.9 60.6 57.5 60.2
Break-even load factor (percent) ........ 67.8 61.0 62.4 65.2 61.1 61.2
Yield (cents) ........................... 10.6 11.9 11.6 11.2 12.6 13.1
Passenger revenues per ASM (cents) ...... 7.3 6.9 7.3 6.8 7.3 7.9
Operating expenses per ASM (cents) ...... 7.6 7.6 7.6 7.8 8.1 8.3
Aircraft in service at end of period .... 24 20 23 21 17 5
Average aircraft utilization (hours) .... 9.6 9.7 9.6 9.2 8.7 10.5
Average aircraft stage length (miles).... 562 483 494 449 445 446
Average cost of fuel (per gallon)(3) .... $0.72 $0.62 $0.66 $0.63 $0.70 $0.77
</TABLE>
(1) Through June 30, 1992, the Company was a development stage company. The
Company commenced commercial flight operations on July 1, 1992.
(2) Includes track charter operations.
(3) Includes into-plane service fees.
Glossary of Terms
Revenue passenger miles (RPM) - the number of paying passengers on a flight
multiplied by the route miles of that flight, aggregated for all passenger
flights.
Available seat miles (ASM) - aircraft miles flown multiplied by the number
of available seats on the aircraft; represents the total passenger
carrying capacity offered.
Passenger load factor - revenue passenger miles divided by available seat
miles; represents the percentage of available seat capacity occupied by
revenue passengers.
Yield - passenger revenues divided by revenue passenger miles; represents the
passenger revenue received for each mile a passenger is carried.
Passenger revenues per ASM - passenger revenues divided by available seat miles;
represents the passenger revenue received for each seat mile flown.
Operating expenses per ASM - operating expenses divided by available
seat miles; represents a measure of the Company's cost per unit of production.
Average aircraft utilization - average block hours each aircraft in the fleet is
operated per day; block hours exclude the time an aircraft is parked, including
at a gate.
Average aircraft stage length - average length of each aircraft
flight segment, weighted by the ASMs for each aircraft flight segment.
<PAGE>
RISK FACTORS
In addition to the other information included in, or incorporated by
reference into, this Prospectus, prospective investors should carefully consider
the following risks before making an investment in the Common Stock.
RISKS RELATED TO THE COMPANY
Short Operating History; Operating Losses
The Company commenced commercial flight operations on July 1, 1992.
Although the Company realized operating income of $3.6 million in 1995, the
Company experienced annual operating losses in 1992, 1993 and 1994 of $2.1
million, $7.3 million and $13.9 million, respectively. There can be no assurance
that the Company's operations will be profitable in the future.
Limited Liquidity
As compared to many of its competitors, the Company has limited liquidity.
At March 31, 1996, the Company had $33.2 million in cash and cash equivalents.
Although the Company's liquidity will initially increase significantly upon
completion of this offering, the Company's limited liquidity may make it more
vulnerable to prolonged fare wars and may limit the Company's ability to take
advantage of opportunities that may arise, such as to enter new markets, to
expand operations or to acquire equipment. The Company does not have a bank
credit facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Leverage
The Company is significantly leveraged. At March 31, 1996, the Company's
long-term debt was $39.2 million, as compared to $9.7 million of stockholders'
equity. See "Capitalization." In addition, at March 31, 1996, the Company had
$395.4 million of non-cancelable operating lease obligations (including with
respect to aircraft delivered in April and May 1996). The ability of the Company
to meet its obligations is largely dependent upon the future performance of the
Company, which is subject to financial, industry and other factors affecting it.
Many of these factors, such as economic conditions, competitive actions by other
airlines and other factors relating to the airline industry generally, are
beyond the Company's control. The Company's leverage could make it more
vulnerable to changes in general economic conditions and may impair the
Company's ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes.
In the third quarter of 1995, the Company sold an aggregate of $28,750,000
principal amount of 9% Senior Convertible Notes due 2002 (the "Senior Notes").
The Senior Notes are convertible into an aggregate of 2,875,000 shares of Common
Stock at a conversion price of $10 per share, subject to adjustment in certain
events. The Senior Notes must be redeemed (at least in part) by the Company upon
certain events, including upon a change in control of the Company (as defined in
the indenture under which the Senior Notes were issued (the "Senior Note
Indenture")) or upon the Company's Consolidated Net Worth (as defined) falling
below $4.5 million for two consecutive fiscal quarters. See "Description of
Securities -- Senior Notes." There can be no assurance that the Company can
generate sufficient cash flow to meet its obligations under the Senior Notes.
Limited Size
As of June 10, 1996, the Company operated a total of 28 aircraft. Any
interruption of service as a result of maintenance requirements or the loss of
aircraft could materially and adversely affect the Company's service, reputation
and profitability. Although Management believes that the Company's small size
gives it certain competitive advantages, the Company's ability to compete with
larger carriers may be materially and adversely affected by the fact that it is
substantially smaller than many of its competitors.
Limited Markets
The Company's results are largely dependent on traffic levels at its hubs
in San Jose and Reno/Tahoe and its focus markets in Los Angeles, Las Vegas and
Seattle. Traffic levels in San Jose are dependent in substantial part on the
state of the California economy. Traffic levels in Reno/Tahoe are based largely
on tourist and recreational travel and could be materially and adversely
affected, for instance, by declines in traffic to Reno as a gaming destination
or to Tahoe as a ski resort. Many factors can impact such levels of traffic,
including competition from gaming and ski resorts located in other areas or
adverse weather conditions in the Tahoe area.
Limitations on Airport Access
The availability of terminal gates and other facilities is highly
restricted at many airports served by the Company. At Chicago O'Hare and Orange
County, California, landing rights are strictly controlled. During 1994, the
Company obtained the use of slots at Orange County pursuant to an agreement with
Orange County and American Airlines. The Company currently operates fourteen
slots at Orange County, four of which may be recalled by American Airlines on
short notice and eight of which were part of an annual allocation that will be
subject to reallocation with the next slot period (which begins April 1, 1997).
The Company operates three daily flights to O'Hare from Reno using special
purpose slots available to new entrant carriers and awarded to it by the United
States Department of Transportation ("DOT"). There can be no assurance that the
Company will be able to obtain additional slots or to retain sufficient slots at
Orange County or O'Hare for its operations. The Company's slots at O'Hare may be
used only for service to Reno and will expire on issuance of final rules
regarding special slot allocations unless renewed by the DOT, however, no such
rules have been proposed.
Ability to Manage Growth
Since the Company commenced commercial flight operations in July 1992, the
Company has experienced rapid growth in its operations. Management intends to
continue to expand the Company's fleet and add new destinations and flights to
its schedule. Such expansion will require additional skilled personnel,
equipment and facilities. An inability to hire skilled personnel or to secure
the required equipment and facilities may adversely affect the Company's ability
to achieve its growth plans. The Company's failure to manage growth effectively
also could have a material adverse effect on the Company's operating results and
financial condition and on its ability to execute its expansion plans.
Possible Future Increases in Aircraft Costs
A majority of the Company's aircraft are leased pursuant to agreements with
remaining terms of less than five years. Accordingly, in order to maintain its
current size, the Company will need to renew certain of its leases or lease or
purchase additional aircraft. Although management believes it may be possible to
improve certain terms of its aircraft leases during the renewal process, there
could also be significant unfavorable changes in such terms. There can be no
assurance that lease renewals or additional aircraft will be available on terms
that allow the Company to maintain its size or expand at its current cost
levels.
Competition and Competitive Reaction
The airline industry is highly competitive. Airlines compete primarily with
respect to fare levels, schedule convenience, frequency of service and number of
markets served. The Company competes on many of its routes with Southwest
Airlines ("Southwest") and Alaska Airlines ("Alaska Air"), and, to a lesser
extent, with America West Airlines ("America West") and United Airlines
("United") (including its Shuttle by United(TM)), each of which is larger and
has greater name recognition and substantially greater resources than the
Company. The Company may at any time also face competition from other existing
airlines which may begin serving any of the markets the Company serves or from
new low-cost airlines. The Company's results are highly sensitive to changes in
fare levels. The Company cannot predict future fare levels.
In many areas, Southwest has achieved market dominance through its high
frequency service. In 1994, United inaugurated Shuttle by United(TM), a
low-cost, short-haul airline operation on the West Coast, principally to compete
with Southwest. Although management believes the Company is able to compete with
Alaska Air, Southwest and other airlines in terms of cost and quality of
service, these or other competing airlines have in the past and may at any time
undercut the Company's fares and/or increase capacity on routes beyond market
demand in order to increase their respective market shares. Although the Company
intends to compete vigorously and to assert its rights against any predatory
conduct, such activity by other airlines could reduce fares or passenger traffic
to levels where profitable operations could not be achieved. Due to its smaller
size and limited liquidity, the Company may be less able to withstand aggressive
marketing tactics or fare wars engaged in by its competitors.
Agreements with American Airlines and Other Vendors
The Company has agreements with American Airlines for participation in the
AAdvantage(R) frequent flyer program, fuel purchasing, use of landing rights at
Orange County, ground handling and rental of terminal space in San Jose, among
other services. These agreements are subject to termination, in some cases on
short notice. The AAdvantage(R) agreement expires by its terms on December 31,
1997. The Company also has entered into agreements with contractors, including
American Airlines and other airlines, to provide certain facilities and services
required for its operations, including reservations and data processing,
aircraft maintenance, ground facilities and aircraft ground handling. Any
termination or significant interruption in such services could have a material
adverse effect on the Company. Although the subcontracting of many services is
intended to help the Company control costs, the Company's reliance upon others
to provide essential services may also result in a relative inability to control
the costs or quality of such services.
Reliance on Travel Agencies
Approximately 60% of the Company's tickets currently are sold by travel
agents. Travel agents generally have a choice between one or more airlines when
booking a customer's flight. Accordingly, any effort by travel agencies to favor
another airline or to disfavor the Company could adversely impact the Company.
The Company's relations with travel agencies could be affected, for instance, by
override commissions offered by other airlines, by the Company's promotion of
ticketless travel, by an increase in the Company's arrangements with other
distributors of its tickets (such as tour wholesalers) or by the introduction of
alternative methods of selling tickets. Although management intends to continue
to offer an attractive and competitive product to travel agencies and to
maintain favorable relations with travel agencies, there can be no assurance
that travel agencies will not disfavor the Company or favor other airlines in
the future.
Seasonality
The Company's results are sensitive to seasonal variations in traffic. The
highest levels of traffic and revenue are generally realized in the third
quarter and the lowest levels of traffic and revenue are generally realized in
the fourth quarter. Because the Company's costs do not vary significantly in
response to traffic levels, such seasonality substantially affects the Company's
profitability from quarter to quarter.
Employee Relations
The Company believes it operates with lower personnel costs than many
established airlines, principally due to lower base salaries, a more junior work
force and greater flexibility in the utilization of personnel. There can be no
assurance that these advantages will continue to exist. Many airline industry
employees are represented by labor unions. None of the Company's employees are
currently represented by labor unions or other collective bargaining units,
although labor unions have from time to time inquired of the Company's employees
as to their interest in joining a union. If unionization of the Company's
employees were to occur, the Company's flexibility in dealing with its employees
would be restricted, which could result in a material increase in its labor
costs.
Reliance on Executive Officers
The success of the Company depends in large part upon the efforts,
leadership and abilities of its senior management, including the Company's
executive officers. The loss of members of the Company's senior management could
have a material adverse effect on the Company.
Anti-Takeover Provisions
Certain provisions of Nevada law and of the Company's Articles of
Incorporation and By-laws could have the effect of making more difficult or
discouraging an acquisition of the Company or a change in control of the
Company. These provisions, among other things, authorize the issuance of up to
10,000,000 shares of preferred stock with such rights and preferences as may be
determined from time to time by the Board of Directors without shareholder
approval, eliminate the ability of the stockholders to call a special meeting or
act by written consent and require advance notice of proposals to be acted upon
at meetings of stockholders and to nominate directors. The issuance of preferred
stock could adversely affect the rights of the holders of the Common Stock.
Although the Company does not currently have commitments to issue any shares of
its preferred stock, there can be no assurance that the Company will not do so
in the future.
RISKS RELATED TO THE AIRLINE INDUSTRY
Fixed Costs
In the airline industry, revenues generally exhibit substantially more
volatility than costs. The costs of operating each flight do not vary
significantly with the number of passengers carried and, therefore, a relatively
small change in the number of passengers or in fare pricing or traffic mix can,
in the aggregate, have a significant effect on operating results. A shortfall
from expected revenue levels could have a material adverse effect on the
Company.
Reintroduction of Airline Ticket Excise Taxes or Industry User Fees
Until December 31, 1995, airline ticket sales were subject to a 10% federal
excise tax. Upon expiration of this tax, the Company left many of its advertised
(gross) fares in place, resulting in an increase in the revenues it received.
However, the Company's fare levels can vary significantly month-to-month in
response to pricing initiatives by the Company's competitors, and such
fluctuations are often more significant than 10%.
Congress has been considering reinstitution of the excise tax. The major
domestic airlines, however, are lobbying Congress to institute a user fee (based
on operating statistics such as number of passengers or number of departures) in
lieu of reinstituting the excise tax. Management believes that some charge is
likely to be reimposed this year, but cannot predict whether the charge will be
in the form of the 10% excise tax, a new user fee or some other form. The impact
of the charge will depend on its form, the competitive response from other
airlines (in particular, whether other airlines absorb the charge themselves or
pass it on through higher gross ticket prices) and whether any increase in
prices impacts traffic levels. Management believes that a user fee would likely
have a greater net cost to the Company than re-imposition of the 10% excise tax
on the price of tickets, because the Company has lower average fares and a
shorter average stage length (and thus more passengers and departures per day)
than the industry average. The overall impact may be materially adverse to the
Company.
Fuel
The cost of aircraft fuel is a major component of the Company's costs and
constituted approximately 17.7% of the Company's operating expenses in 1995. The
Company has not entered into long-term fuel purchases or hedging agreements
assuring the availability and price of fuel, as they are not available under
economically favorable terms. The Company's average cost of fuel (including
into-plane service fees) increased from 66 cents per gallon for the year ended
December 31, 1995 to 72 cents per gallon for the first quarter of 1996, and as
of June 10, 1996, is approximately 73 cents per gallon. Fuel prices continue to
be susceptible to, among other things, political events or additional
regulations, which are beyond the Company's control. A fuel supply shortage
resulting from a disruption of oil imports or otherwise could result in higher
fuel prices or curtailment of scheduled service. Consequently, the future cost
and availability of fuel to the Company cannot be predicted. Substantial price
increases or the unavailability of adequate supplies could have a material
adverse effect on the Company. On October 1, 1995, aviation fuel became subject
to an additional federal tax of 4.3 cents per gallon imposed on domestic fuel
when an exemption from the federal fuel tax expired. Although legislation has
been introduced in Congress that would reinstate the exemption for aviation fuel
from that tax, no assurance can be given that an exemption will become
available. Based on current levels of fuel consumption, each one cent increase
in the cost of fuel (by taxes or otherwise) adds approximately $875,000 per year
to the Company's operating costs.
Cyclical Nature of Airline Industry
The airline industry is highly sensitive to general economic conditions.
Because a substantial portion of airline travel (both business and leisure) is
discretionary, the industry tends to experience adverse financial results during
general economic downturns. Any general reduction in airline passenger traffic
may materially and adversely affect the Company, particularly since current
industry traffic patterns are based in part on substantial stimulation of
discretionary air travel.
Recent Developments in the Airline Industry - Suspension of Valujet
Operations
On June 17, 1996, Valujet Airlines, Inc. ("Valujet") temporarily suspended
its flight operations at the request of the FAA after an intensive inspection by
the FAA. As a result of events related to Valujet, the FAA has announced that it
will be increasing its scrutiny of airlines, particularly in the areas of
contract maintenance and contract training. As discussed under "Business -
Safety and Maintenance," the Company operates its own internal Training Center
and contracts most of its major overhauls to two established vendors: American
Airlines and AAR Corp. Additional operational or mainteance requirements
mandated by the FAA could have a material adverse impact on the Company.
Governmental Regulation
The Company has a Certificate of Public Convenience and Necessity from the
DOT and an operating certificate from the Federal Aviation Administration
("FAA"). Each such authority is subject to continued compliance with applicable
statutes, rules and regulations pertaining to the airline industry, including
any new rules and regulations that may be adopted in the future.
In the last several years, the FAA has issued a number of maintenance
directives and other regulations relating to, among other things, collision
avoidance systems, airborne windshear avoidance systems, noise abatement and
increased inspection requirements. The costs of compliance with applicable
statutes, rules and regulations may increase over time and no assurance can be
given with respect to such costs or its effect on the Company's profitability.
In addition, management believes that small and start-up airlines are often
subject to closer scrutiny by FAA officials, making them susceptible to
regulatory demands that can negatively impact their operations. Any prolonged
inspection activity by the FAA, whether arising from concerns general to the
industry or specific to the Company, could have a material adverse impact on the
Company's operations. The Company is subject to other federal, state and local
laws and regulations relating to protection of the environment, radio
communications, labor relations, equal employment opportunity and other matters.
Foreign Ownership
Pursuant to law and the regulation of the DOT, the Company must be
effectively controlled by United States citizens. In this regard, the Company's
President and at least two-thirds of the Company's Board of Directors must be
United States citizens and not more than 25% of the Company's voting stock can
be owned by foreign nationals (although subject to DOT approval the percent of
foreign economic ownership may be as high as 49%).
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the offering (assuming a public
offering price of $__ per share), after deducting the underwriting discount and
estimated expenses payable by the Company, are estimated to be approximately $__
million ($__ million if the Underwriters' over-allotment option is exercised in
full). The net proceeds will be used for working capital and added to general
corporate funds. The Company may use its general corporate funds for capital
expenditures, including to fund downpayments or deposits on aircraft or aircraft
orders. The Company intends to invest in ownership of aircraft to a larger
extent than it has done so in the past, and the increase in liquidity provided
by the offering is intended to facilitate aircraft acquisitions.
Pending the use of the net proceeds of the offering, the Company intends to
invest the proceeds in short-term, investment grade, interest bearing
instruments or money market funds. Returns on such investments may be less than
those that might otherwise result if the Company were able to use such funds
immediately in its operations.
MARKET PRICE OF COMMON STOCK AND DIVIDENDS
The following table sets forth the high and low sale prices of the Common
Stock for each quarter since January 1, 1994 as reported by the Nasdaq National
Market.
High Low
1994:
First Quarter $ 9 $ 5 1/2
Second Quarter 7 4
Third Quarter 7 5
Fourth Quarter 6 3 5/8
1995:
First Quarter 5 3/4 3 5/8
Second Quarter 8 4 1/2
Third Quarter 8 7/8 6 1/4
Fourth Quarter 9 9/16 6 1/16
1996:
First Quarter 12 5/8 7
Second Quarter (through June 18) 14 1/4 10 7/8
The last reported sale price of the Common Stock on July __, 1996, was $__
per share. As of June 14, 1996, there were 10,294,834 shares of Common Stock
outstanding and 515 holders of record of the Common Stock.
The Company intends to retain earnings to finance the development and
growth of its business. Accordingly, the Company has not paid dividends on the
Common Stock and does not anticipate that any dividends will be declared on the
Common Stock for the foreseeable future. Future payment of cash dividends, if
any, will depend on the Company's financial condition, results of operations,
business conditions, capital requirements, restrictions contained in agreements,
future prospects and other factors deemed relevant by the Company's Board of
Directors. The Company's ability to pay dividends on its Common Stock is limited
by the Senior Note Indenture. See "Description of Securities-Senior Notes."
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996 and as adjusted to give effect to the sale of Common Stock offered
hereby. The information presented below should be read in conjunction with the
Company's financial statements and related notes included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
March 31, 1996
Actual As Adjusted
-------- --------
(in thousands)
<S> <C> <C>
Cash and cash equivalents ...................................... $ 33,206 $
======== ========
Current maturities of long-term debt ........................... $ 924 $ 924
======== ========
Long-term debt, excluding current maturities:
9% Senior Convertible Notes due 2002 .................. $ 28,750 $ 28,750
Notes payable, other .................................. 9,573 9,573
-------- --------
Total long-term debt, excluding maturities ..................... 38,323 38,323
-------- --------
Stockholders' equity:
Preferred stock, $.001 par value, 10,000,000 shares
authorized, none issued ............................... -- --
Common stock, $.01 par value, 30,000,000 shares
authorized, 10,125,834 shares issued and outstanding
and 13,125,834 shares as adjusted(a) .................. 101 131
Additional paid-in capital ............................ 31,929
Accumulated deficit ................................... (22,335) (22,335)
-------- --------
Total stockholders' equity ..................................... 9,695
-------- --------
Total capitalization ........................................... $ 48,018 $
======== ========
</TABLE>
-----------------
(a) Does not include 488,031 shares issuable upon exercise of
outstanding and currently exercisable options and warrants, or 450,000
shares subject to an overallotment option.
<PAGE>
BUSINESS
Reno Air, Inc. operates a full-service scheduled airline at low cost,
offering competitive low fares in business and leisure markets primarily in the
western United States. The Company operates a modern fleet of 28 McDonnell
Douglas MD-80 and MD-90 Stage III aircraft which have an average age of less
than six years. The Company offers over 190 daily flights primarily to and from
its two hubs in Reno/Tahoe and San Jose and its three focus markets in Los
Angeles, Las Vegas and Seattle. In addition to these cities, the Company serves
Albuquerque, Anchorage, Chicago O'Hare, Colorado Springs, Denver, Fairbanks,
Laughlin (Nevada), Orange County (California), Palm Springs (seasonally),
Portland, San Diego, Tucson and Vancouver (British Columbia). The Company also
conducts charter operations and operates a tour program called QQuick
Escapes(R), which offers vacation packages including airfare, lodging and other
services, primarily to Reno/Tahoe, Las Vegas, Laughlin (Nevada), and Southern
California. The Company participates in the American Airlines AAdvantage(R)
frequent flyer program.
COMPETITIVE STRENGTHS
The Company's key competitive strengths include: premium service at low
fares, a young, standardized fleet of advanced Stage III aircraft, low operating
costs, a strategic marketing relationship with American Airlines and
complementary hubs.
* Premium Service at Low Fares. The Company
distinguishes itself from most other low-fare
airlines by offering a premium product that
includes: (i) affordable upgrades to first class
cabins with leather seating, (ii) modern, quiet,
Stage III aircraft, (iii) pre-assigned seating
and advance boarding passes, (iv) greater travel
agent affinity via participation in all major
computer reservations systems and (v) in-flight
meals on longer-haul flights. The Company offers
this level of service at fares competitive with
the fares offered by "no frills" airlines.
* A Young, Standardized Fleet of Advanced Stage
III Aircraft. The Company's fleet consists
entirely of new model Stage III aircraft
manufactured by McDonnell Douglas Corporation
("McDonnell Douglas"). As of June 10, 1996, the
average age of the Company's 28 aircraft was less
than six years. The fleet includes eight MD-82
aircraft, fourteen MD-83 aircraft, four MD-87
aircraft, and two MD-90 aircraft. These aircraft
are rated a single fleet type (for purposes of
training), have similar cockpits and share many
common parts, which allows for significant
operating efficiencies. As configured by the
Company, each aircraft has either 12 or 20 first
class seats and from 105 to 128 coach class
seats. The coach class cabin of each aircraft has
a customer-preferred three-and-two seating
arrangement, with more than 80% of the Company's
seats being either window or aisle seats.
* Low Operating Costs. The Company's operating
costs per seat mile were 7.6 cents in 1995.
Management believes this level of costs is among
the lowest in the industry, after taking into
account the Company's relatively short average
aircraft stage length (as compared to industry
average) and the fact that fuel prices, labor
costs and aircraft costs (due to restrictions on
fleet types at many airports served by the
Company) tend to be higher in many of the
Company's markets than domestic industry
averages. Although management expects certain of
the Company's costs to increase in the future,
management is committed to keeping the Company's
costs low in order to be competitive with other
airlines.
* Strategic Marketing Relationship with American
Airlines. In 1993, the Company entered into a
series of agreements with American Airlines,
including an agreement providing for the
Company's participation in the American Airlines
AAdvantage(R) frequent flyer program. The
AAdvantage(R) program allows Reno Air passengers
to earn AAdvantage(R) miles for travel on all
scheduled Reno Air flights and also allows
AAdvantage(R) members to redeem accumulated miles
on Reno Air. Management believes that the
Company's participation in the AAdvantage(R)
program is particularly important in attracting
higher yielding business traffic. Approximately
20% of the Company's passengers in 1995 were
AAdvantage(R) members.
* Complementary Hubs. The Company's flight
schedules take advantage of Reno Air's
complementary hubs at San Jose and Reno/Tahoe
which are only about 300 miles apart and which
serve many common origination and destination
city pairs -- but which have different traveler
demographics. The Company's San Jose hub carries
primarily business traffic while the Company's
Reno/Tahoe hub serves primarily leisure
passengers. This traffic mix enables Reno Air to
maximize aircraft utilization by concentrating
peak-hour weekday flying in business markets, and
scheduling aircraft to leisure destinations such
as Reno/Tahoe or Las Vegas during mid-day, late
evening and weekend hours more suited to leisure
travel.
STRATEGIC REPOSITIONING AND BUSINESS STRATEGY
In 1994, the Company substantially changed its senior management team and
implemented a strategic repositioning designed to make the Company profitable.
The key components of the Company's strategic plan include: (i) focusing the
Company's route system by concentrating resources on the Company's hubs in
Reno/Tahoe and San Jose and focus markets in Los Angeles, Las Vegas and Seattle;
(ii) increasing utilization of the Company's fleet by decreasing turnaround
times and expanding nighttime operations; (iii) reducing unnecessary ticket
discounting through improved yield management, with a continued emphasis on
offering competitive fares; (iv) maintaining good relationships with travel
agencies, tour operators and hotel and casino properties; and (v) developing and
promoting lower-cost distribution methods, including ticketless travel and
increasing internal reservations capacity and direct sales incentives. In part
as a result of its strategic repositioning, the Company achieved profitability
in 1995 and the first quarter of 1996.
* Focusing the Company's Route System. In 1994,
the Company refocused its route system by
increasing operations in markets where it had
established a competitive foothold, and by
canceling service in several markets in which the
Company had not achieved acceptable market
shares. The Company also began serving Orange
County and Chicago, two slot-controlled airports
which were important to strengthening the
Company's strategic positions at San Jose and
Reno/Tahoe, respectively. In 1995, the Company
added longer-haul service to Anchorage and
Vancouver, which diversified the Company's
competitive exposure away from Southwest
Airlines. In April 1996, the Company
significantly increased its capacity in the
Orange County - San Jose and Seattle - Anchorage
markets. By focusing its recent growth primarily
on cities already served, the Company has
leveraged its existing market identity and
realized efficiencies in advertising and related
sales expense. Management believes there is room
for significant growth in a number of its current
markets, and in nearby markets, including
California airports such as Burbank, Ontario and
San Francisco.
* Increasing Fleet Utilization. Because the
Company operates only newer aircraft, it has
relatively high aircraft ownership expense. To
reduce the impact of such expense, management has
sought to increase the Company's aircraft
utilization, thus spreading the fixed ownership
costs over a larger base of operations. Aircraft
utilization has been increased by expanding the
Company's late evening/early morning and
overnight operations. This included the
development of a late night departure bank from
Reno/Tahoe with flights to Seattle, Portland,
Denver, and Chicago all departing at 10 p.m. or
later. The Company has further increased its
overnight operations with long-haul
Seattle-Anchorage service operated throughout the
year (with four daily trips, including two
overnight flights, during the summer months). The
Company also operates aircraft charter trips when
aircraft and crews are available, which helps
to increase utilization.
* Improving Yield Management. When Reno Air's new
management team assumed responsibility in
mid-1994, it recognized the opportunity to
improve the Company's pricing and inventory
management systems. Management more
aggressively matched Southwest Airlines' low
fares while adopting a revenue management
strategy focused on increasing passenger revenues
by better controlling the mix and availability of
the lowest fares.
As part of its long-term revenue management
strategy, management contracted in February 1996
for a state-of-the-art quantitative yield
management system similar to the system used by
USAir. The system came on-line in June 1996, and
is designed to better predict passenger demand
and sell-up opportunities by providing higher
quality inventory and yield analysis than can be
obtained in a manual environment.
* Maintaining Good Relationships with Travel
Agencies. The Company recognizes that travel
agencies play an important role in the
distribution of airline tickets. Accordingly,
although the Company has strived to reduce its
CRS booking fees, the Company has not sought to
bypass travel agencies. In 1995 the Company
introduced a direct book program whereby travel
agencies can earn commission overrides by booking
through the Company's reservations facility
rather than through a CRS.
Because of the importance of leisure traffic to
the Company, Management considers it
important to maintain strong relationships with
hotels, resorts, casinos and tour operators. The
success of the Company's QQuick Escapes(R)
program depends on the Company's ability to
obtain dedicated blocks of hotel rooms at casinos
and resorts. Management has successfully
increased the variety and number of hotel rooms
available to QQuick Escapes(R), and continues to
expand the program.
* Developing and Promoting Innovative Distribution
Methods. Most tickets sold through travel
agencies are booked on the major CRS systems.
These systems charge flat fees which commonly
exceed 5% of the price of tickets sold by the
Company and can be a significantly greater
percentage of the ticket price. (Because the
Company offers low fares, the CRS fees are a
disproportionate percentage of the Company's
costs as compared to the longer-haul, higher fare
airlines.) Management has aggressively pursued
alternative ticket distribution methods to reduce
its CRS booking fees while preserving a good
relationship with travel agencies, in part by
offering financial incentives to travel agents to
book directly through Reno Air.
In August 1995, Reno Air initiated its
EZTrip(TM) paperless travel option. Today, about
50% of the tickets sold through the Company's
reservations office are booked as EZTrip(TM)
paperless travel. EZTrip(TM) travel accounted for
approximately 20% of all passenger travel in May
1996. EZTrip(TM) must be booked directly through
Reno Air, but travel agencies can receive a
commission on EZTrip(TM) bookings they generate.
In February 1996, Reno Air also began selling
tickets through Ticketmaster(R).
Reno Air has increased its percentage of direct
sales by 8 percentage points from 31.5% in the
first quarter of 1995 to 39.5% in the first
quarter of 1996. Management is seeking further
gains in this measure as it refines and develops
its direct book programs, and adds additional low
cost distribution channels such as the Internet.
Management has targeted for the Company a moderate rate of growth of
approximately 25% per year, pursuing the strategies discussed above. Management
believes this growth rate is preferable to a faster growth rate because it is
achievable while maintaining the Company's focus on existing markets and
operations.
ROUTE STRUCTURE
The Company currently operates approximately 190 daily flights, serving
Albuquerque, Anchorage, Chicago O'Hare, Colorado Springs, Denver, Fairbanks, Las
Vegas, Laughlin (Nevada), Los Angeles, Orange County (California), Portland,
Reno, San Diego, San Jose, Seattle, Tucson and Vancouver (British Columbia). The
Company operates hubs at Reno/Tahoe International Airport and at San Jose
International Airport, and operates focus markets in Los Angeles, Las Vegas and
Seattle, where it provides additional service to other non-hub cities.
As of June 10, 1996, the Company operated approximately 40 daily flights
from Reno, including 7 daily flights to Los Angeles, 5 to Las Vegas, and 7 to
Seattle. The Company also serves Chicago O'Hare three times a day, and serves
Vancouver two times a day, both from Reno.
In mid-1993, the Company began development of a second hub in San Jose,
California, using gates leased from American Airlines. As of June 10, 1996, the
Company operated approximately 43 daily flights from San Jose, including 11
daily flights to Los Angeles, 11 to Orange County and 8 to San Diego. Total
operations (arrivals and departures) at the above hub cities are double the
numbers indicated.
In addition to its scheduled operations, the Company operates special
purpose charters and, in 1995, commenced scheduled "track" charter operations
using from one to three dedicated aircraft. Special purpose charters are
conducted as opportunities arise to provide transportation for sports teams, the
United States government, university groups, and other organizations. The track
charter operations are conducted for tour wholesalers who generally package the
Company's flights with hotel accommodations or ship cruises. One of the
Company's track programs has operated from Chicago to various tourist
destinations, including Las Vegas, Mexico and the Caribbean, while another has
operated from Michigan to similar destinations. With respect to both special
purpose charters and track charter programs, the Company receives a fixed
revenue regardless of the number of seats actually sold (or occupied) on the
flight.
AIRCRAFT FLEET
As of June 10, 1996, the Company owned one MD-87 aircraft and leased
twenty-seven aircraft, including eight MD-82, fourteen MD-83, three MD-87 and
two MD-90 aircraft. The MD-82 and MD-83 aircraft are very similar, modern
twin-jet aircraft, which have quiet and fuel-efficient engines and which are
configured by the Company with 20 first-class and 120 coach-class seats. The
Company introduced the MD-87 aircraft to its fleet in 1995 to take advantage of
the aircraft's slightly smaller size and lower cost. The MD-87 aircraft have 12
first-class and 105 coach-class seats in the Company's configuration. The
Company introduced the MD-90 aircraft to its fleet in April 1996 in order to
expand operations at Orange County. The MD-90 aircraft are state-of-the-art,
quiet, fuel efficient and low emission aircraft which seat 128 coach passengers
and 20 first-class passengers in Reno Air's configuration. The MD-90 aircraft
are qualified to use slots at Orange County available only for the quietest jet
aircraft.
One of the Company's competitive strengths is its newer aircraft fleet
which had an average age of less than six years as of June 10, 1996. Many of the
Company's aircraft continue to be under manufacturer warranty. The terms for the
leased aircraft range from less than one year to eighteen years, with a majority
of the Company's leases expiring in less than five years.
The Company intends in the future to invest in ownership of aircraft to a
larger extent that it has done so in the past. See "Use of Proceeds".
SAFETY AND MAINTENANCE
The Company is committed to operating a safe, reliable airline. Its
commitment to safety begins in the areas of pilot training and aircraft
maintenance. The Company has developed, and since its inception has operated, an
internal Training Center, using the Company's experienced, senior pilots as
flight instructors. The Training Center is intended to ensure that all the
Company's flight crews learn uniform procedures, practice crew resource
management and meet a consistent, high standard in all areas. All pilots hired
by the Company are subject to an in-depth pre-employment evaluation including a
written test, interviews with flight operations management and a flight
evaluation in an MD-80 simulator. All pilots must have flown at least 5,000
hours prior to being hired and must successfully complete the Company's
eight-week training program, including check-rides and simulator time.
The Company also conducts flight attendant safety and service training at
the Training Center, also using its own employees as instructors.
The Company has developed, with the assistance of McDonnell Douglas, a
thorough maintenance program for its aircraft, which has been approved by the
FAA. Routine daily maintenance of the aircraft is performed at the Company's
facilities at Reno/Tahoe International Airport and San Jose International
Airport by the Company's employees and by contractors at the Company's other
spoke cities. The Company contracts major maintenance overhauls of its engines
and aircraft to established FAA-approved vendors. Generally one of the Company's
FAA-licensed mechanics is assigned to monitor each aircraft overhaul to ensure
compliance with the Company's procedures. During 1995, more than 80% of the
Company's engine overhauls were performed by American Airlines and almost all of
the Company's airframe overhauls were performed by AAR Corp. (a large aviation
services company founded in 1951 that provides maintenance services to the
United States military and many commercial airlines).
COMPETITION
The airline industry is highly competitive. Airlines compete primarily with
respect to fare levels, unit costs, schedule convenience, frequency of service,
product quality and number of markets served. Other competitive factors include
dependability of service, quality of facilities, name recognition,
frequent-flyer programs and other passenger amenities.
Many of the Company's competitors, including Southwest, Alaska Air, America
West and United, are larger and have substantially greater resources than the
Company. In many areas, Southwest has achieved market dominance through its high
frequency service. Southwest has historically been the Company's principal
competitor and currently competes head-to-head with Reno Air in approximately
60% of the Company's markets. Prior to 1995, this figure was almost 70%. While
management believes the Company can successfully compete against Southwest,
management has committed to further diversify the Company's competitive exposure
away from Southwest's historically aggressive marketing actions. (Actions by
Southwest have included one-way, advance purchase fares offered as low as $19 -
$29.) Alaska Air has become a more significant competitor to Reno Air following
Reno Air's expansion to Anchorage and Fairbanks markets where Alaska Air is the
dominant airline. Although management believes the Company is able to compete
with Southwest, Alaska Air and other airlines in terms of unit cost and quality
of service, these or other competing airlines have in the past undercut the
Company's fares and/or increased capacity on routes beyond market demand in
order to increase their market share and may do so in the future.
Management believes that the Company's operating performance is superior in
several respects to the service levels of its competitors. For the year ended
December 31, 1995, Reno Air canceled less than 1% of its flights, which is a
lower percentage than that achieved by the Company's competitors, and operated
with an approximately 94% on-time performance, which is significantly better
than any of its competitors reported to the DOT.
Management believes that the Company's low-fare structure with minimal
restrictions on travel, its relatively new fleet of aircraft and its full
services, such as advanced seating assignments, first-class service on all
scheduled flights and participation in the American Airlines AAdvantage(R)
Travel Awards Program, help distinguish the Company from its competition.
MARKETING
The Company participates in all major domestic travel agency CRS systems,
and a majority of the Company's tickets are sold through travel agencies. Travel
agencies can significantly impact the Company's business by directing passenger
traffic to or away from the Company. The Company offers travel agencies a
commission generally equal to 10% of the ticketed fare. Certain of the Company's
competitors have capped general travel agency commissions but may seek to
increase their respective market shares by paying additional override
commissions to travel agencies, which, in certain cases, may exceed 10% of the
ticketed fare. The Company seeks to maintain good relations with travel
agencies.
CRS systems charge a fee based on booking transactions and related
activity, rather than a percentage of ticket price. Such fees disproportionately
impact the Company's costs due to the Company's low average fares. Accordingly,
the Company is seeking to reduce its reliance on CRS systems. The Company
implemented its EZTrip(TM) paperless travel system in August 1995. EZTrip(TM)
can be booked by both passengers and travel agencies and currently accounts for
approximately 20% of the Company's tickets, including approximately 50% of all
sales made through the Company's reservations offices. The Company also has
direct booking arrangements with certain wholesalers and travel agencies,
designed to stimulate sales and reduce distribution costs.
The Company has interline agreements with most major carriers, which
facilitate the ability of passengers to fly itineraries that include segments
that connect between the Company's flights and the other airlines' flights, by
providing for single ticketing and an automatic transfer of checked baggage.
The Company participates in the American Airlines AAdvantage(R) Travel
Awards Program. Passengers can earn AAdvantage(R) mileage credit and can redeem
AAdvantage(R) flight awards on all scheduled Company flights as well as on
flights of American Airlines and other AAdvantage(R) program participants. The
above factors distinguish the Company from certain of its competitors, including
Southwest, although management believes such factors are less important in
selling tickets than price or schedule frequency.
As a participant in the American Airlines AAdvantage(R) program, Reno Air
makes a controlled number of its seats available for redemptions of
AAdvantage(R) awards, at no additional cost to the AAdvantage(R) member. Reno
Air manages the number of seats that are made available for such travel to
minimize the cost to the Company of such redemptions.
The Company advertises primarily in newspapers and magazines, with
billboards and by radio. The Company has advertised on television from time to
time, but generally the cost of television advertising has been considered
prohibitive. The Company has engaged in joint marketing with American Airlines
through, among other measures, involvement in the American Airlines
AAdvantage(R) Travel Awards Program monthly newsletter and joint newspaper
advertisements.
Reno Air has invested modestly to maintain a marketing presence on the
Internet. Efforts are on-going to link a reservations booking program to its Web
Page to provide for full on-line ticket sales capability via the Internet,
although management cannot predict when this service will be available.
EMPLOYEES
As of June 1, 1996, the Company had 1,927 employees, including 1,609
full-time and 318 part-time personnel as follows: 248 flight crew personnel, 461
flight attendants, 495 customer service agents, 390 reservation agents, 74
mechanics and maintenance personnel, 30 sales and marketing personnel, 147
general management personnel (including accounting), and 82 personnel performing
other miscellaneous functions. The Company considers its relations with its
employees to be good. The Company believes it operates with lower personnel
costs than many older airlines, principally due to lower base salaries, a more
junior work force and greater flexibility in the utilization of personnel. There
can be no assurance that these cost advantages will continue to exist. None of
the Company's employees are currently represented by labor unions or other
collective bargaining units. Airline labor groups from time to time seek to
represent the Company's employees. If unionization of the Company's employees
were to occur, the Company's flexibility in dealing with its employees would be
restricted, which could result in a material increase in costs.
FUEL
The cost of aircraft fuel is a major component of the Company's operating
expenses and accounted for 17.7% of all operating expenses in 1995. Both the
cost and availability of fuel are subject to many economic and political factors
and events occurring throughout the world and, therefore, fuel prices can
fluctuate substantially. Substantial increases in the price of fuel or the
unavailability of adequate fuel supplies could have a material adverse effect on
the Company's operations and profitability. On October 1, 1995, aviation fuel
became subject to an additional federal tax of 4.3 cents per gallon imposed on
domestic fuel when an exemption from the federal fuel tax expired. Although
legislation has been introduced in Congress that would reinstate the exemption
for aviation fuel from that tax, no assurance can be given that an exemption
will become available. Based on current levels of fuel consumption, each one
cent increase in the cost of fuel (by taxes or otherwise) adds $875,000 per year
to the Company's operating costs.
From March 1, 1994, the Company has purchased jet fuel from American
Airlines on a requirements basis at certain airports pursuant to a short-term
credit agreement. In order to take advantage of lower fuel prices direct from
suppliers, the Company notified American Airlines in March 1996 that, effective
May 1, 1996, its fuel purchases under the fuel purchase agreement will be
eliminated in certain cities. The Company and American Airlines have mutually
agreed to terminate the fuel credit facility as of September 30, 1996.
AIRPORT OPERATIONS AND LANDING RIGHTS
Because the Company conducts a substantial majority of its operations at
Reno/Tahoe International Airport and San Jose International Airport, events
impacting operations at such airports can significantly adversely affect the
Company. Such events can include severe weather, runway closures for maintenance
or construction and other causes.
The availability of terminal gates and other facilities is highly
restricted at many airports served by the Company. At Chicago O'Hare and Orange
County, California, landing rights are strictly controlled. During 1994, the
Company obtained the use of slots at Orange County pursuant to an agreement with
Orange County and American Airlines. The Company currently operates fourteen
slots at Orange County, four of which may be recalled by American Airlines on
short notice and eight of which were part of an annual allocation that will be
subject to reallcoation with the next slot period (which begins April 1, 1997).
The Company operates three daily flights to O'Hare from Reno using special
purpose slots available to new entrant carriers and awarded to it by the United
States Department of Transportation ("DOT"). There can be no assurance that the
Company will be able to obtain additional slots or to retain sufficient slots at
Orange County or O'Hare for its operations. The Company's slots at O'Hare may be
used only for service to Reno and will expire on issuance of final rules
regarding special slot allocations unless renewed by the DOT, however, no such
rules have been proposed.
GOVERNMENT REGULATION
All interstate air carriers are subject to regulation by the DOT and the
FAA under the Federal Aviation Act of 1958, as amended (the "Act"). The DOT's
jurisdiction extends primarily to the economic aspects of air transportation,
while the FAA's regulatory authority relates primarily to air safety, including
aircraft certification and operation, crew licensing and training and
maintenance standards.
The Company has a Certificate of Public Convenience and Necessity ("DOT
Certificate") issued by the DOT on July 1, 1992, which allows the Company to
engage in air transportation. Pursuant to law and DOT regulation, the Company
must be effectively controlled by United States citizens. In this regard, the
Company's President and at least two thirds of the Company's Board of Directors
must be United States citizens and not more than 25% of the Company's voting
stock can be owned by foreign nationals (although subject to DOT approval, the
percent of foreign economic ownership may be as high as 49%).
Authority to operate international routes is regulated by the DOT and by
the foreign governments involved, and may be subject to the approval of the
President of the United States for conformance with national defense and foreign
policy objectives. The Company holds international route authority to serve
Vancouver, British Columbia, from Reno and Puerto Vallarta and Cabo San Lucas,
Mexico, from San Jose. The Company pays overflight fees indirectly to the
Government of Cuba with regard to flights that overfly Cuba.
The FAA regulates flight operations, including the licensing of pilots and
maintenance personnel, and the establishment of minimum standards for training,
maintenance, flight operations, security, communications and ground equipment.
An FAA Operating Certificate was issued to the Company on June 29, 1992. The
Company's training and maintenance records, flight and emergency procedures, and
aircraft and maintenance facilities are subject to periodic inspections by the
FAA. The FAA inspected the Company in March 1995 under its National Aviation
Safety Inspection Program.
The Airport Noise and Capacity Act of 1990 ("ANCA") requires the phase-out
of Stage II aircraft (which meet less stringent noise emission standards than
later Stage III aircraft) in the contiguous 48 states by December 31, 1999. The
Company's fleet consists entirely of Stage III or later aircraft and, therefore,
the Company is in compliance with ANCA. Many airports served by the Company
including Orange County and San Jose impose more stringent noise restrictions,
including curfews and limitations on the type of aircraft that may be used. The
Company began operating two MD-90 aircraft in April 1996 to allow it to expand
operations at Orange County. The Company is subject to various other federal,
state and local laws and regulations regarding the protection of the
environment.
The Company is subject to various other governmental regulations. All air
carriers are subject to certain provisions of the Communications Act of 1934
because of their extensive use of radio and other communication facilities, and
are required to obtain an aeronautical radio license from the Federal
Communications Commission. The United States Postal Service has authority over
certain aspects of the transportation of mail. Tariffs and rates for the
carriage of domestic mail are determined through negotiations or competitive
bidding. The labor relations of all air carriers which have received a DOT
Certificate, including the Company, are covered under Title II of the Railway
Labor Act of 1926 and are subject to the jurisdiction of the National Mediation
Board. Furthermore, during a period of past fuel scarcity, air carriers' access
to jet fuel was subject to allocation regulations promulgated by the Department
of Energy and air carriers may in the future again be subject to such
regulations.
INSURANCE
The Company carries passenger liability and aircraft loss or damage
insurance and customary other insurance. Management believes such insurance is
similar in nature and levels of coverage to that maintained by other comparable
airlines and is adequate to protect the Company and its property and to comply
both with federal regulations and the Company's aircraft lease agreements.
PROPERTIES
Airport Facilities
Ticket counters, gates, and airport office facilities at each of the
airports the Company serves are leased from the airport or municipal agency, as
the case may be, and/or sub-leased under use agreements from other airlines.
Although the Company has, from time to time, experienced difficulty in obtaining
suitable gate space at certain congested airports, management believes the
Company will be able to obtain airport terminal space adequate for its needs.
At all airports to which it flies, Reno Air has entered into use agreements
which provide for the non-exclusive use of runways, taxiways and, in some
instances, other facilities. Landing fees under these agreements normally are
based on the number of landings and weight of aircraft. In addition, certain
airports require deposits and/or letters of credit in various amounts for
various periods.
The Company recently signed a 25 year land lease with the Reno/Tahoe
airport authority for a site on which the Company intends to construct a
maintenance hangar suitable for MD-80 and MD-90 series aircraft. The Company
expects the construction cost of the hangar will be less than $3.5 million.
Office Facilities
The Company leases approximately 61,000 square feet of office space at its
principal offices at 220 and 230 Edison Way, Reno, Nevada, for general corporate
use under leases which expire on November 30, 2000. The Company leases
approximately 14,000 square feet at 5450 Equity Avenue, Reno, Nevada for a
reservations facility under a lease which expires in 1998. Management believes
its office facilities are adequate for the foreseeable future. The Company
leases additional facilities in San Jose and Reno, and has committed in
principle to lease a second reservations facility, containing approximately
27,000 square feet, in Las Vegas, Nevada. Management believes its current and
planned office facilities are sufficient for its existing operations and for the
foreseeable future.
LEGAL PROCEEDINGS
The Company is subject to litigation arising in the normal course of
business. Management believes any liabilities arising from such litigation
either are covered by insurance or are not material.
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for the five years ended December 31,
1995 are derived from the audited financial statements of the Company. The
financial data for the three month periods ended March 31, 1996 and 1995 are
derived from unaudited financial statements. The unaudited financial statements
include all adjustments, consisting of normal recurring accruals, which the
Company considers necessary for a fair presentation of the financial position
and the results of operations for these periods. Operating results for the three
months ended March 31, 1996 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 1996. The data should be
read in conjunction with the financial statements, related notes, and other
financial information included or incorporated by reference herein.
<TABLE>
<CAPTION>
Three months ended
March 31, Year ended December 31,
--------------------- --------------------------------------------------------
1996 1995 1995 1994 1993 1992(1) 1991(1)
--------- --------- --------- --------- --------- --------- ---------
(unaudited)
(in thousands, except for shares)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues ......................... $ 72,820 $ 54,981 $ 256,508 $ 195,519 $ 124,640 $ 27,092 $ --
Operating expenses ......................... 72,376 57,832 252,899 209,371 131,974 29,219 688
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss) .................... 444 (2,851) 3,609 (13,852) (7,334) (2,127) (688)
Non-operating expense, net ................. 169 340 1,658 141 10 58 99
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) .......................... $ 275 $ (3,191)$ 1,951 $ (13,993)$ (7,344)$ (2,185)$ (787)
========= ========= ========= ========= ========= ========= =========
Net income (loss) per common shares
and common share equivalent ............. $ 0.03 (0.39) 0.19 (1.73) (1.06) (0.39) (0.11)
========= ========= ========= ========= ========= ========= =========
Weighted average common shares and
common share equivalents outstanding .... 10,746 8,277 9,786 8,093 6,910 5,566 2,622
========= ========= ========= ========= ========= ========= =========
BALANCE SHEET DATA:
Cash and cash equivalents .................. $ 33,206 $ 5,728 $ 34,986 $ 9,104 $ 6,543 $ 5,670 $ 1,037
Short-term investments ..................... -- -- 2,944 -- 5,174 -- --
Current assets ............................. 75,434 29,259 72,064 32,935 24,787 10,382 1,037
Total assets ............................... 121,895 48,375 99,484 51,683 37,204 13,792 1,058
Current liabilities ........................ 65,011 44,261 53,802 43,389 22,611 9,194 66
Long-term debt ............................. 38,323 4,603 28,755 4,788 -- -- --
Total liabilities .......................... 112,200 52,942 90,581 53,481 25,255 9,194 66
Stockholders' equity (deficit) ............. 9,695 (4,568) 8,903 (1,798) 11,948 4,598 992
Working capital (deficit) .................. 10,423 (15,002) 18,262 (10,454) 2,176 1,188 970
- -------------------
(1) For the year ended December 31, 1991 and the six months ended June 30, 1992, the Company was a development stage company.
The Company commenced commercial flight operations on July 1, 1992.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED OPERATING DATA
Three months ended
March 31, Year ended December 31,
------------------------- -----------------------------------------------------------
1996 1995 1995 1994 1993 1992(1)
----------- ----------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue passengers(2) .................... 1,097,964 876,875 3,954,578 3,369,446 1,866,067 390,336
Revenue passenger miles (RPM)(000)(2) .... 645,205 434,839 2,090,014 1,622,630 930,850 200,044
Available seat miles (ASM)(000)(2) ....... 947,347 756,752 3,322,475 2,678,144 1,619,737 332,138
Passenger load factor (percent) .......... 68.1 57.5 62.9 60.6 57.5 60.2
Breakeven load factor (percent) .......... 67.8 61.0 62.4 65.2 61.1 61.2
Yield (cents) ............................ 10.6 11.9 11.6 11.2 12.6 13.1
Passenger revenues per ASM (cents) ....... 7.3 6.9 7.3 6.8 7.3 7.9
Operating expenses per ASM (cents) ....... 7.6 7.6 7.6 7.8 8.1 8.3
Aircraft in service at end of period ..... 24 20 23 21 17 5
Average aircraft utilization (hours) ..... 9.6 9.7 9.6 9.2 8.7 10.5
Average aircraft stage length (miles) .... 562 483 494 449 445 446
Average cost of fuel (per gallon)(3) ..... $0.72 $ 0.62 $0.66 $0.63 $0.70 $0.77
</TABLE>
- ----------------------------------------------
(1) The Company commenced commerical flight operations on July 1, 1992.
(2) Includes track charter operations.
(3) Includes into-plane service fees.
Glossary of Terms
Revenue passenger miles (RPM) - the number of paying passengers on a flight
multiplied by the route miles of that flight, aggregated for all passenger
flights.
Available seat miles (ASM) - aircraft miles flown multiplied by the number
of available seats on the aircraft; represents the total passenger
carrying capacity offered.
Passenger load factor - revenue passenger miles divided by available seat
miles; represents the percentage of available seat capacity occupied by
revenue passengers.
Yield - passenger revenues divided by revenue passenger miles; represents the
passenger revenue received for each mile a passenger is carried.
Passenger revenues per ASM - passenger revenues divided by available seat miles;
represents the passenger revenue received for each seat mile flown.
Operating expenses per ASM - operating expenses divided by available
seat miles; represents a measure of the Company's cost per unit of production.
Average aircraft utilization - average block hours each aircraft in the fleet is
operated per day; block hours exclude the time an aircraft is parked, including
at a gate.
Average aircraft stage length - average length of each aircraft
flight segment, weighted by the ASMs for each aircraft flight segment.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
In the first quarter of 1996, the Company added one MD-87 aircraft to its
fleet. In the second quarter of 1996, the Company significantly expanded its
operations with the addition of two MD-90 aircraft and two MD-83 aircraft to its
fleet and an increase in aircraft utilization. As of June 10, 1996, the Company
operated 28 aircraft, as compared to 23 aircraft at the close of 1995, 21
aircraft at the close of 1994 and 17 aircraft at the close of 1993.
In 1995, the Company continued its growth and achieved its first annual
profit since commencing operations in July 1992. The improvement over 1994 was
achieved by increases in the Company's load factor and yields, and decreases in
the Company's unit costs. Management believes these improvements are due to,
among other factors, stabilization of the Company's route system and
strengthening of the Company's market presence, improvement of the Company's
marketing and yield management (the process by which the Company manages its
fare levels), efficiencies from the expansion of operations, the Company's
successful entry into or expansion of certain profitable markets and generally
improved industry conditions.
The Company operates in highly competitive markets. Its primary competitors
are Southwest and Alaska Air and, to a lesser extent, America West Airlines and
United and its "Shuttle by United(TM)" operation. Management believes that the
Company can compete effectively with each of these carriers in terms of quality
of service and low unit costs. There can be no assurance, however, that the
Company can sustain profitable operations. Each of these carriers has
substantially greater resources than the Company and is competing vigorously to
maintain market share. Although the Company intends to compete vigorously (and
to assert its rights against any predatory conduct), competition in the airline
industry can reduce fares or passenger traffic to levels at which profitable
operations cannot be achieved.
Although strong passenger demand is generating year-over-year traffic
increases, yields continue to be lower in many of the Company's markets than
nationwide averages. In October 1995, Southwest initiated $19 and $29 fares and
aggressive marketing of many of its routes, including several routes also served
by the Company. The Company matched many of the fares on a highly-restricted
basis, which nevertheless adversely impacted the Company's yields in the fourth
quarter of 1995 and the first half of 1996. The Company expects that it will
continue to be subject to these types of competitive marketing conditions.
On December 31, 1995, the 10% federal excise tax on airline tickets
expired. The Company cannot predict if or when the 10% excise tax or an
alternative user fee will be reimposed, or whether such charges, when reimposed,
will be passed on to consumers by an increase in the Company's advertised
(gross) fares. Management believes that a user fee would likely have a greater
net cost to the Company than re-imposition of the 10% excise tax on the price of
the tickets, because the Company has lower average fares and a shorter average
stage length (and thus more passengers and departures per day) than the industry
average. Management believes that some charge is likely to be imposed this year,
but cannot predict whether the charge will be in the form of the 10% excise tax,
a new user fee, or some other form. To the extent a tax or user fee is imposed
and is not passed on to consumers, the Company will suffer a decrease in yield.
The Company's results are highly sensitive to changes in fare levels. The
Company cannot predict future fare levels, which depend largely on the actions
of its principal competitors. The Company's results are also sensitive to
seasonal variations in traffic, with the highest levels of traffic and revenue
generally realized in the third quarter and the lowest levels generally realized
in the fourth quarter. Because the Company's costs do not vary significantly in
response to traffic levels, such seasonality substantially affects the Company's
profitability. In 1995 the Company initiated programs intended to generate
revenues more evenly throughout the year, including the introduction of
year-round track charter programs.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1995
The Company realized net income of $275,000, or $.03 per share for the
three months ended March 31, 1996, as compared to a net loss of $3.2 million, or
($.39) per share, for the three months ended March 31, 1995. The turnaround in
financial results is primarily attributable to an approximately 5%
year-over-year increase in revenue per available seat mile.
The Company's level of operations, as measured by available seat miles,
increased approximately 25% during the first three months of 1996 as compared to
the first three months of 1995, due to the addition of aircraft to the Company's
fleet and increased average stage length. As of March 31, 1996, the Company
operated 24 aircraft (not including two MD-90 aircraft and two MD-83 aircraft
which commenced scheduled service on April 4, 1996 and June 6, 1996,
respectively), as compared to 20 aircraft as of March 31, 1995.
Operating Revenues
The Company's operating revenues increased 32% in the first three months of
1996 as compared to the same period in 1995, due to the 25% increased scope of
the Company's operations (as measured by available seat miles), and the
approximately 5% increase in revenue per available seat mile ("RASM"). The
increase in RASM is attributable to a 10.6% increase in load factor, partly
offset by an 11% 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 yields declined year-over-year primarily because
of an approximately 16% increase in the Company's average stage length and the
impact of discounted fares.
The factors contributing to a decline in yields were partly offset by the
expiration of the federal 10% excise tax on ticket sales. The impact of the
expiration of the ticket tax increased over the course of the quarter, since the
Company had paid the ticket tax with regard to tickets sold before December 31,
1995, even though travel occurred after such date. Management cannot predict if
or when the excise tax will be reimposed, or whether an alternative tax such as
a user fee may be imposed.
By the end of the 1996 first quarter, the Company had three aircraft
devoted to track charter programs, as compared to one aircraft in the first
quarter of 1995. The year over year increase in track charter flying contributed
to the increase in average passenger length of haul, the decline in yields, and
the increase in passenger load factor.
Operating Expenses
The Company's operating expenses increased approximately 25% in the first
three months of 1996 as compared to the first three months of 1995, resulting in
the Company's average cost per available seat mile remaining steady for the
first three months of 1996 (as compared to the prior year's quarter) at
approximately 7.6 cents. Increases in the cost of fuel (including, effective
October 1, 1995, a 4.3 cents per gallon federal excise tax), and year-over-year
increases in advertising and maintenance expense were offset by cost
efficiencies resulting primarily from an approximately 16% increase in average
aircraft stage length.
Three months ended March 31,
----------------------------
1996 1995
-------------- -------------
Operating expenses per available seat mile(cents)
Salaries, wages and benefits 1.21 1.26
Aircraft fuel and oil 1.35 1.29
Aircraft leases 1.36 1.57
Maintenance 0.61 0.53
Handling, landing and airport fees 0.78 0.76
Advertising, marketing and distribution 0.71 0.56
Commissions 0.44 0.47
Facility leases 0.27 0.30
Insurance 0.20 0.20
Communications 0.10 0.11
Depreciation and amortization 0.10 0.07
Other 0.49 0.53
============= ============
7.62 7.65
============= ============
The Company's break-even load factor increased to 67.8% in the first three
months of 1996 from 61.0% in the first three months of 1995 due to the decrease
in yields.
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
The Company realized net income of $1,951,000 or $.19 per share in 1995, as
compared to a net loss of $13,993,000 or $1.73 per share in 1994 and a net loss
of $7,344,000, or $1.06 per share in 1993. In 1995, the Company realized
operating income of $3,609,000, as compared to operating losses of $13,852,000
in 1994 and $7,334,000 in 1993.
The significant improvement in operating results from 1994 to 1995 reflects
a 7.4% increase in unit revenues (yield per ASM) and a 2.6% decrease in unit
expenses (costs per ASM) spread over a 24% increase in the Company's available
seat miles.
The Company's 1995 operating results included favorable adjustments
relating to earned passenger revenues and maintenance credits, offset by an
approximately $1.4 million non-cash, non-operating charge related to the
conversion of debt to equity. The earned passenger revenue adjustment occurred
in the fourth quarter when the Company recognized an approximate $5.0 million
benefit resulting from a change in estimate to more accurately reflect ticket
breakage. Breakage must be periodically estimated and recognized as revenue as
some tickets are never used, refunded or matched to lifted coupons. The
maintenance credit adjustments resulted in a net decrease in operating expense
of approximately $1.8 million in the second quarter and approximately $1.4
million in the fourth quarter, the periods when the Company obtained the consent
of certain aircraft lessors to adjustments in their respective reserves for
engine and airframe maintenance.
The Company's loss in 1994 reflected, among other factors: (i) a
significant decrease in traffic in the first quarter as a result of short-term
confusion with respect to the Company's route system created by frequent changes
in routes during 1993; (ii) price competition resulting from actions taken by
the Company's competitors, which depressed the Company's yields through the
third quarter of 1994; (iii) the Company's inability to gain access to Orange
County as planned in June of 1994, which created a need to re-deploy aircraft on
short notice; and (iv) start-up and development expenses for five new cities in
the fourth quarter of 1994.
The Company's loss in 1993 reflected, among other factors, uncertainty with
respect to the Company on the part of travel agencies and the Company's
passengers as a result of the substantial changes to the Company' route system
implemented during the course of 1993, and included an approximately $4.9
million loss attributable to routes operated and subsequently discontinued in
1993 (Minneapolis, Kansas City and San Francisco), as well as a general
reduction of fares in most of the Company's markets.
Operating Revenues
The Company's level of operations, as measured by available seat miles,
increased 24% in 1995 as compared to 1994 (and 105% as compared to 1993), due to
increases in fleet size, average daily aircraft utilization and average length
of flight. The Company's operating revenues increased 31% to $256,508,000 in
1995 as compared to $195,519,000 in 1994 due to a 29% increase in revenue
passenger miles (RPM's) and a 3.6% increase in yield per RPM. The increase in
traffic (revenue passenger miles) reflects a 24% increase in capacity (available
seat miles) combined with a 3.8% increase in passenger load factor. The
Company's yields increased year-over-year, despite a 9.8% increase in average
passenger stage length, as a result of better management of the Company's
discount fares and, in some markets, slightly higher fare levels. The Company's
yields in 1995 as compared to prior years reflect increases in the Company's
average passenger stage length and scheduled tour charter sales, which usually
have the effect of reducing average yields. The Company expects these effects to
continue in 1996.
The Company's operating revenues increased 57% from 1993 to 1994 due to a
65% increase in ASMs and a 5.4% increase in the Company's load factor, offset by
an 11% decline in yields. The decline in yields was largely attributable to the
introduction by competitors of unrestricted companion and other deeply
discounted fares that Reno Air matched in the first quarter of 1994.
Reno Air Express, a separately-owned airline, operated commuter flights
that provided connections to the Company's jet flights at San Jose from the
third quarter of 1994 through February 1995. Management believes that such
operations had a slight benefit to the Company's revenues during such period.
The Company's load factor increased 3.8% from 1994 to 1995 and increased
5.4% from 1993 to 1994. Management believes that the Company has been able to
maintain market share and increase its load factor, despite vigorous
competition, due to increased customer awareness of and preference for the
Company's product, resulting in part from the stabilization of the Company's
route system and improved marketing programs.
Other operating revenues, comprising 5.6% of total revenue in 1995,
increased 6.7% from 1994 to 1995, and 93.1% from 1993 to 1994. Other operating
revenues are derived primarily from the sale of tour packages, cargo and mail
operations and special purpose charters.
Operating Expenses
The Company's operating expenses have increased year over year (20.8% from
1994 to 1995 and 58.6% from 1993 to 1994) as a result of the Company's growth.
However, the Company's unit cost per ASM declined in 1995 to 7.6 cents from 7.8
cents in 1994, down from 8.1 cents in 1993.
The Company's unit costs declined from 1994 to 1995 as a result of, among
other factors, a 2.1% increase in aircraft utilization, a 9.8% increase in
average passenger stage length and efficiencies from the Company's increased
size, offset by a 4.8% increase in the average cost per gallon of fuel from $.63
to $.66. Part of the fuel cost increase was due to the expiration, effective
October 1, 1995, of the 4.3 cent per gallon aviation exemption from Federal
excise taxes on fuel. The Company cannot predict whether or when the aviation
fuel tax exemption may be renewed. In 1995, fuel comprised 17.7% of total
operating expenses.
The Company's unit costs declined from 1993 to 1994 as a result of, among
other factors, an 8% increase in aircraft utilization, a 10% reduction in the
average cost of fuel, and efficiencies from the Company's increased size.
Operating expenses in 1995 related to the Company's start-up of service to
Palm Springs, Albuquerque and Anchorage were not material. Operating expenses in
1994 included start-up expenses related to the Company's entry into five new
cities in 1994, including the cost of an unscheduled delay in commencing service
to Orange County. Operating expenses in 1993 included the cost of starting and
then ceasing service to Minneapolis, Kansas City and San Francisco.
The following chart shows the various components of operating expenses for
the years ended December 31, 1995, 1994, and 1993:
Percentage of Total Operating Expenses
Expense Category 1995 1994 1993
- --------------------------------------- ----------- ---------- -----------
Salaries, wages and benefits 16.6 % 16.1% 16.4 %
Aircraft fuel and oil 17.7 16.4 17.1
Aircraft leases 19.6 20.0 18.4
Maintenance 6.3 7.2 7.6
Handling, landing and airport fees 9.8 9.8 10.0
Advertising, sales and distribution 8.1 8.8 8.8
Commissions 6.5 6.3 6.2
Facility leases 3.8 3.8 2.9
Insurance 2.6 2.4 2.7
Communications 1.3 1.3 1.4
Depreciation and amortization 1.0 0.9 0.6
Other operating expenses 6.7 7.0 7.9
----------- ---------- -----------
100 % 100 % 100 %
=========== ========== ===========
Maintenance expense in 1995 reflects a reduction in expense from the
negotiated adjustment of certain maintenance reserves, discussed above under
"Results of Operations."
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company's cash, cash equivalents and short-term
investments totaled $33.2 million, which reflects a decrease of $4.7 million
from December 31, 1995. Also, the Company's working capital declined to $10.4
million at March 31, 1996, as compared to working capital of $18.3 million at
December 31, 1995. These decreases are primarily due to the use of cash to
purchase assets, including the down payment on the Company's purchase of an
MD-87 and lease deposits on two MD-90 aircraft that commenced service in April.
The increase in accounts receivable from December 31, 1995 to March 31, 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 three months of 1996, net cash provided by operating
activities totaled $629,000, compared to net cash used in operating activities
of $720,000 for the same period in 1995. Cash used in investing activities (to
purchase property and equipment) in the first three months of 1996, net of
proceeds from the sale of short-term investments, was $2.4 million, compared to
$495,000 used in investing activities in the first three months of 1995. The
difference between the periods is primarily attributable to the purchase of the
MD-87 aircraft in 1996.
In 1995, net cash provided by operating activities was $6.6 million
compared to cash used in operating activities in 1994 of $3.1 million. The
change in annual cash flow from operating activities is primarily due to the
Company's net income in 1995 as compared to a substantial net loss in 1994.
Cash provided by financing activities was $16,000 in the first three months
of 1996, arising from the exercise of options, compared to cash used in
financing activities of $2.2 million (resulting from payments on notes) for the
comparable period in 1995.
Cash used in investing activities in 1995 and 1994 was $6.8 million and
$1.5 million, respectively. The principal difference between 1995 and 1994 is
the sale in 1994 of $5.2 million of short term investments, as compared to a net
purchase of $2.9 million of short-term investments in 1995.
Cash flow from financing activities in 1995 was $26.1 million compared to
$7.1 million in 1994. During 1995, the Company raised nearly $30 million of
capital. In May 1995, the Company converted approximately $4.6 million principal
amount of (and accrued interest on) its 7.25% Convertible Subordinated
Promissory Notes due July 15, 1996, into shares of Common Stock at a conversion
rate of one share of Common Stock for each $5 principal amount of Notes or
accrued interest. (As originally issued, these notes were convertible at an
exercise price of approximately $7.03 per share. The induced conversion resulted
in an increase to stockholder's equity of approximately $4.4 million, and a
non-cash non-operating charge to earnings of approximately $1.4 million.) In
June 1995, the Company sold in a private placement 482,576 shares of Common
Stock (at an issue price of $5 per share) and $2.4 million liquidation
preference of a new issue of Series A 16% Redeemable Preferred Stock (the
"Series A Preferred"). In August and September 1995, the Company received net
proceeds of $27.1 million from the issuance of $28.8 million of 9% Senior
Convertible Notes due 2002. The Senior Notes are convertible into shares of
Common Stock at an exercise price of $10 per share, subject to adjustment in
certain events. After this sale, the Company redeemed $2.4 million of the Series
A Preferred for cash.
In April and May 1994, the Company issued approximately $4.6 million
principal amount of the 7.25% Convertible Subordinated Promissory Notes
discussed above. As of March 31, 1996, $51,000 principal amount of notes
remain outstanding, with the original conversion rights.
The Company's leased aircraft are leased under operating leases with
remaining terms ranging from less than one to 18 years. In the first quarter of
1996, the Company purchased one MD-87 aircraft that was previously leased to it,
and leased a new MD-90 aircraft. In the second quarter of 1996 (through June 10,
1996,) the Company leased a second MD-90 aircraft and two MD-83 aircraft, each
on a long-term basis. The Company has agreed to lease a third MD-90 aircraft for
delivery in the third quarter. The Company's annual rental payments for the
leased aircraft delivered in the second quarter are estimated to be
approximately $8.4 million.
In February 1996, the Company purchased an MD-87 aircraft that it
previously leased. This 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%. In the second quarter of 1996, the Company purchased
two spare engines and associated rotable spare parts for an aggregate purchase
price of approximately $4.3 million. The Company paid the purchase price in cash
and has a proposal from a lender, subject to conditions, to finance 70% of the
purchase price through a three-year note bearing interest at LIBOR plus 2.85%.
The Company has committed, subject to certain conditions, to purchase an
additional MD-83 aircraft for approximately $18 million (including the cost of
anticipated modifications). The aircraft would be purchased in the second
quarter of 1996, and leased back to the seller until April of 1997, at which
point it would be added to the Company's fleet. Management intends to finance
this acquisition, and is in discussion with certain potential lenders. The
Company has agreed to purchase an additional spare engine from Pratt & Whitney
for approximately $2.8 million for delivery in July 1996, with financing to be
provided by the seller. 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.
<PAGE>
MANAGEMENT
OFFICERS AND DIRECTORS
The officers and directors of the Company are set forth below:
Name Age Position
Lee M. Hydeman 67 Chairman of the Board
Director
Robert W. Reding 46 Director and President
Chief Executive Officer
David W. Asai 40 Controller and Chief Accounting
Officer
Jeffrey C. Buckio 50 Vice President - Maintenance
Jimmy W. Duke 57 Vice President - Flight Operations
Jeffrey T. Fisher 34 Vice President - Planning and
Corporate Development
Robert M. Rowen 39 Vice President and General Counsel
Steve Sarner 37 Vice President - Marketing and Sales
Bruce R. Sutherland 50 Vice President - Customer Service
Paul H. Tate 44 Vice President - Finance, Chief
Financial Officer and Treasurer
Donald L. Beck 69 Director
Barrie K. Brunet 71 Director
John R. Hardesty 56 Director
Joe M. Kilgore 77 Director
James T. Lloyd 55 Director
Wayne L. Stern, M.D. 53 Director
Agnieszka Winkler 50 Director
Lee M. Hydeman has been a director of the Company since September 1990 and
Chairman since December 1991. From April 1994 through September 1995, Mr.
Hydeman also served as Chief Executive Officer of the Company. Mr. Hydeman has
30 years experience in the airline industry, including 13 years as Washington,
D.C. counsel to and an officer of Continental Air Lines (prior to its
restructuring in 1982).
Robert W. Reding has been President, Chief Executive Officer and a director
of the Company since September 1995. From April 1994 until September 1995, Mr.
Reding was President and Chief Operating Officer and a director of the Company.
From January 1992 through March 1994, Mr. Reding was Vice President - Operations
of the Company and Mr. Reding was a consultant to the Company during 1991. From
August 1990 through November 1991, he was a Captain and Check Airman with Midway
Airlines and provided consulting services to various aviation enterprises. From
March 1984 to August 1990, he was Vice President - Flight Operations for Air
Florida and its successors, Midway Express and Midway Airlines. He is also a
director of Clean Energy Technologies, Inc., based in Dallas, Texas.
David W. Asai has been Controller and Chief Accounting Officer of the
Company since December 1994. From July 1992 to November 1994, Mr. Asai was Vice
President - Finance and Chief Financial Officer of Spirit Airlines, Inc. From
1981 to June 1992, Mr. Asai was employed by Midway Airlines, Inc. in various
capacities, most recently as Director of Financial Planning and Analysis. Mr.
Asai is a Certified Public Accountant.
Jeffrey C. Buckio has been the Vice President - Maintenance since January
1996. From January 1992 until January 1996, Mr. Buckio was Director of Quality
Assurance and Maintenance/Engineering. Prior to joining the Company, Mr. Buckio
was the Director of Technical Services and the Director of Quality Assurance of
Midway Airlines for over 12 years. Previously, Mr. Buckio held various
management positions with Air International, Inc. (a commercial aircraft repair
facility).
Jimmy W. Duke has been Vice President - Flight Operations since February
1996. From April 1992 until February 1996, Mr. Duke was Vice President of
Operations of Ryan International Airlines, Inc. Prior to 1992, Mr. Duke was
employed by Midway Airlines since 1987, most recently as Director of Flight
Operations.
Jeffrey T. Fisher has been Vice President - Planning and Corporate
Development since June 1995. From November 1994 to June 1995, he was Director of
Planning for the Company. From August 1989 to October 1994, Mr. Fisher was in
the Corporate Strategic Planning group at American Airlines, with responsibility
for various agreements between American and the Company. From 1985 through 1989,
Mr. Fisher was a financial analyst with McDonnell Douglas Corporation.
Robert M. Rowen has been Vice President and General Counsel since April
1994. Prior to joining the Company, Mr. Rowen was in the Legal Department of and
counsel to Continental Airlines for more than ten years, most recently as Deputy
General Counsel.
Steve Sarner has been Vice President - Marketing and Sales since April
1996. From July 1994 to April 1996, Mr. Sarner was Director of Sales for the
Company. Prior to joining the Company, Mr. Sarner was Director of Sales -
Western Region for Rosenbluth International Travel, one of the nation's largest
travel agencies. From 1985 through June 1992, Mr. Sarner held various sales
management positions with USAir.
Bruce R. Sutherland has been Vice President - Customer Service since April
1996. From June 1992 to April 1996, Mr. Sutherland was Director of Tour
Marketing for the Company. Mr. Sutherland has held various positions in the
travel industry since 1970.
Paul H. Tate has been Vice President - Finance and Chief Financial Officer
since April 1994. From September 1993 through March 1994, Mr. Tate was Vice
President - Administration and Corporate Services of the Company. From April
1992 through August 1993, Mr. Tate was employed by a Chicago-based public
accounting firm. Previously, Mr. Tate was employed by Midway Airlines for more
than 12 years, most recently as Vice President - Controller and Vice President
of Information Systems. Mr. Tate is a Certified Public Accountant.
Donald L. Beck has been a director of the Company since October 1990. He is
and has been since 1988 the Chairman of the Board of The Pacific Group, an
airline consulting firm located in Manhattan Beach, California, and, since 1995,
a Director of Vision Expeditions (airline ticket consolidator). From 1988 until
1993, Mr. Beck was Chairman of Pacific Rim Development Corp., a land development
company, also located in Manhattan Beach, California. Mr. Beck has 30 years
experience in the airline industry, including 28 years as a senior officer of
Continental Air Lines, Western Airlines and World Airways.
Barrie K. Brunet has been a director of the Company since April 1992. He is
and has been since September 1991, a director of Bally Entertainment Company
which is engaged in development and operation of hotels and casinos. From April
1986 until March 1990 (when he retired) he was employed by Bally as the
President and Chief Operating Officer of Bally's Casino Resort-Reno and as the
Vice President and Director of Bally Grand, Inc., a subsidiary of Bally
Manufacturing Company. On October 3, 1991, an involuntary petition under Chapter
11 of the Bankruptcy Code was filed against Bally Grand, Inc. Bally Grand, Inc.,
reorganized under Chapter 11 in August 1993.
John R. Hardesty has been a director of the Company since March 1995. He is
and has been since 1986 the Chairman of Thermo Dynamics, Inc., located in Grand
Junction, Colorado and Electro-Dynamics Crystal Corporation, located in Overland
Park, Kansas. He is also a director of American Wireless Systems, Inc. and La
Teko Resources, Ltd.
Joe M. Kilgore has been a director of the Company since September 1992.
From October 1990 to September 1992, he acted as an advisor to the Board of
Directors. Since 1965, Mr. Kilgore has been a partner in the law firm of
McGinnis, Lochridge & Kilgore in Austin, Texas. He is also director of Texas
Regional Bancshares, Inc. and its subsidiary, Texas State Bank, both in McAllen,
Texas, and a director of Photo Control Corporation in Minneapolis. Mr. Kilgore
also has 10 years' experience as a director of Continental Air Lines (prior to
its restructuring in 1982).
James T. Lloyd has been a director of the Company since April 1996. From
February 1987 through February 1996, Mr. Lloyd was an officer of USAir Group,
Inc., most recently Executive Vice President, General Counsel and Secretary. Mr.
Lloyd served as Chairman of the Law Council of the Air Transport Association in
Washington, D.C. in 1991 and 1992 and as a member of the Air Transport
Association's Audit Committee from 1992 to 1996. Prior to joining USAir, Mr.
Lloyd was engaged in the private practice of law.
Wayne L. Stern, M.D. has been a director of the Company since its
inception. Since 1974, Dr. Stern has been the President of, and conducts his
medical practice as a specialist in pulmonary medicine through Minnesota Lung
Center, Ltd., located in Minneapolis, Minnesota. Since 1984 he has been a
director of Special Medical Services, Inc., a home health care company in
Minneapolis, Minnesota. Since 1989, Dr. Stern has been the director of
respiratory care at Abbott-Northwestern Hospital in Minneapolis.
Agnieszka Winkler has been a director of the Company since January 1994.
She is a principal of, and the founder (in 1984) of Winkler McManus, an
advertising agency based in San Francisco. Ms. Winkler is a member of the Board
of Directors of SuperCuts, Inc. and is a member of the Board of Trustees of
Santa Clara University.
MANAGEMENT COMPENSATION
Management of the Company recognizes that, in order to keep the salaries of
the Company's line employees at levels consistent with a low cost airline, it
must also keep its executive salaries tightly controlled. To this end, the
Company utilizes employee stock options as a significant component of its
executive compensation. The cash salaries of the Company's Chief Executive
Officer and its eight other officers currently aggregate less than $1 million
per year.
The Company's incentive bonus/profit sharing plan (the "Bonus Plan")
provides that eligible employees may participate in profit sharing based upon
the Company's income before income taxes measured on both a quarterly and annual
basis ("Pretax Income"). On a quarterly basis, eligible employees receive up to
the lesser of $150 or an allocation of 10% of the Company's Pretax Income. On an
annual basis, eligible employees receive an allocation of 10% of the Company's
Pretax Income, less the quarterly bonuses paid during the plan year.
The Company's 1992 Stock Option Plan, as amended, provides for the grant to
officers, directors and key employees of the Company of options to purchase up
to 2,900,000 shares of Common Stock. As of June 14, 1996, options to purchase
946,000 shares had been exercised, options to purchase 1,628,300 shares were
outstanding and options to purchase 325,700 shares remained available for grant.
Of the options outstanding, as of June 14, 1996, 282,600 are currently
exercisable and the remainder are subject to vesting. As of June 14, 1996,
approximately 100 employees had received option grants.
The Reno Air 401(k) Plan (the "401(k) Plan") is intended to qualify under
Section 401(k) of the Internal Revenue Code. All full-time employees who meet
the eligibility requirements are covered under the 401(k) Plan. Participants can
contribute as much as 15% of their annual gross income on a before-tax basis.
The Company makes a 100% matching contribution in shares of Common Stock for the
first $300 of an employee's annual contribution to the 401(k) Plan. The
Company's matching contribution vests over four years from date of hire.
The Company does not have a defined benefit retirement plan. The Company
may amend the foregoing plans from time to time or adopt new plans.
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The following description of the capital stock of the Company is qualified
in its entirety by and subject to the Nevada General Corporation Law and the
Company's Articles of Incorporation and Bylaws. Copies of the Company's Articles
of Incorporation and Bylaws have been filed or incorporated by reference as
exhibits to the Registration Statement of which this Prospectus is a part.
The authorized capital stock of the Company consists of 30 million shares
of Common Stock and ten million shares of preferred stock, $0.001 par value
("Preferred Stock"), with the Preferred Stock to be issued upon such terms and
conditions as the Board of Directors of the Company shall determine, without any
further action by the stockholders. As of June 14, 1996, 10,288,834 shares of
Common Stock and no shares of Preferred Stock were outstanding.
PREFERRED STOCK
The Company is authorized to issue ten million shares of Preferred Stock.
The Board of Directors has the power to fix by resolution, without shareholder
consent, any designation, power, preference, right, qualification, limitation or
restriction with respect to such shares. Any such shares may be senior to the
Common Stock with respect to any dividend or distribution or in the event of a
liquidation or dissolution of the Company if so designated by the Board of
Directors. The issuance of any Preferred Stock would adversely affect the rights
of the holders of the Common Stock. See "Risk Factors."
COMMON STOCK
The holders of the Common Stock are entitled to receive dividends when and
as directed by the Board of Directors, out of funds legally available therefor,
subject to the rights, if any, of the holders of shares of Preferred Stock. The
Company has not paid cash dividends in the past and does not expect to pay any
dividends within the foreseeable future since earnings are expected to be
reinvested in the Company.
Each outstanding share of the Common Stock is entitled to equal voting
rights, consisting of one vote per share. The Company's By-laws provide for a
Board of Directors consisting of not less than three nor more than eleven
members. The Company's Board currently consists of nine members. The
shareholders are not entitled to cumulative voting in the election of directors.
Accordingly, the holders of more than 50% of the shares voting in the election
of directors can elect 100% of the directors if they choose to do so; and, in
such event, the holders of the remaining shares voting for the election of
directors will be unable to elect any person(s) to the Board of Directors. In
the event of liquidation, dissolution or winding up of the Company, either
voluntarily or involuntarily, each outstanding share of the Common Stock is
entitled to share equally, subject to any preferential liquidation rights of any
shares of the Preferred Stock. No share of the Common Stock of the Company is
liable to calls or assessment by the Company. There are no preemptive rights to
acquire or subscribe for any Common Stock or other securities of the Company.
See "Risk Factors" for a discussion of provisions in the Company's Articles of
Incorporation and By-laws that may discourage a change in control of the
Company.
SENIOR NOTES
The Senior Notes were issued under the Senior Note Indenture dated as of
August 15, 1995 between the Company and Fleet Bank, National Association, as
trustee.
The Senior Notes are senior unsecured obligations of the Company in an
aggregate principal amount of $28,750,000 and will mature on August 15, 2002.
The Senior Notes bear interest at the rate per annum of 9%, payable
semi-annually on March 31 and September 30 of each year to the holders of record
of Senior Notes on the March 15 and September 15 next preceding such date. The
Senior Notes are convertible into an aggregate of 2,875,000 shares of Common
Stock at any time prior to redemption or maturity at the then effective
conversion rate (currently $10.00 per share of Common Stock).
From and after September 30, 1998, the Senior Notes are redeemable at the
option of the Company, at the redemption prices (expressed as percentages of
principal amount) set forth below, if redeemed during the 12-month period
beginning on September 30 of the years indicated:
Year Redemption Price
1998 105.00%
1999 103.33%
2000 101.67%
2001 and thereafter 100.00%
Under certain circumstances, from and after September 30, 1997 to September
29, 1998, the Senior Notes are redeemable at the option of the Company at 105%
of the principal amount of such Senior Notes to be redeemed.
The Senior Note Indenture provides that, if a Change of Control (as defined
in the Senior Note Indenture) occurs, each holder of Senior Notes shall have the
right, at the holder's option, to require the Company to redeem all or a portion
of such holder's Senior Notes on the date for cash at a price equal to 100% of
the principal amount of such Senior Notes to be redeemed, together with
liquidated damages, if any, and accrued interest to the date of redemption.
If, at any time or from time to time, the Company's Consolidated Net Worth
(as defined in the Senior Note Indenture) at the end of each of any two
consecutive fiscal quarters is less than $4.5 million, then the holders of
Senior Notes shall have the right to require the Company to redeem 12.5% of the
aggregate principal amount of Senior Notes originally issued (or such lesser
amount as may be outstanding at the time of the deficiency notice) for cash at a
purchase price equal to 100% of the principal amount of such Senior Notes to be
redeemed, together with liquidated damages, if any, and accrued interest to the
date of repurchase.
The Senior Note Indenture contains certain restrictive covenants which
impose limitations on the Company's ability to, among other things (i) declare
or pay any dividends or make any distributions to shareholders; and (ii)
purchase, redeem or otherwise acquire or retire for value any equity interests
of the Company.
CONTROL SHARE ACQUISITIONS
Section 78.3791 of the Nevada Revised Statutes applies to any acquisition
of outstanding voting securities of a Nevada corporation which has 200
shareholders, at least 100 of which are Nevada residents, and conducts business
in Nevada (an "Issuing Corporation") (other than pursuant to the laws of descent
and distribution, the enforcement of a judgment, the satisfaction of a security
interest or in connection with certain mergers or reorganizations) resulting in
ownership of one of the following categories of an Issuing Corporation's then
outstanding voting securities: (i) 20% or more but less than 33%; (ii) 33% or
more but less than 50%; or (iii) 50% or more. The securities acquired in such
acquisition are denied voting rights unless a majority of the security holders
approve the granting of such voting rights. Unless an Issuing Corporation's
Articles of Incorporation or Bylaws then in effect provide otherwise, (i) voting
securities acquired are also redeemable in whole or in part by an Issuing
Corporation at the average price paid for the securities within 30 days if the
acquiring person has not given a timely information statement to an Issuing
Corporation or if the shareholders voted not to grant voting rights to the
acquiring person's securities, and (ii) if the acquiring person acquired
securities with 50% or more of the voting power of an Issuing Corporation's
outstanding securities and the security holders granted voting rights to such
acquiring person, they any security holder who voted against granting voting
rights to the acquiring person may demand the purchase from an Issuing
Corporation, for fair value, all or any portion of his or her securities.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The Trust Company
of New Jersey, 35 Journal Square, Jersey City, New Jersey 07306.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS
The right of the shareholders to sue any director for misconduct in
conducting the affairs of the Company is limited by Article VII of the Company's
Articles of Incorporation and Nevada statutory law to cases for damages
resulting from breaches of fiduciary duties involving acts or omissions
involving intentional misconduct, fraud, knowing violations of the law or the
unlawful payment of dividends. Ordinary negligence is not a ground for such a
suit. The statute does not limit the liability of directors or officers for
monetary damages under the Federal securities laws.
The Company also has the obligation, pursuant to Article VIII of the
Company's Articles of Incorporation and Article VII of the Company's By-laws, to
indemnify any director or officer of the Company for all expenses incurred by
them in connection with any legal action brought or threatened against such
person for or on account of any action or omission alleged to have been
committed while acting in the course and scope of the person's duties, if the
person acted in good faith and in a manner which the person reasonably believed
to be in or not opposed to be best interests of the Company, and with respect to
criminal actions, had no reasonable cause to believe the person's conduct was
unlawful, provided that such indemnification is made pursuant to then existing
provisions of Nevada Corporation Law at the time of any such indemnification.
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, dated , 1996 (the "Underwriting Agreement"), between the Company and
the underwriters named below (the "Underwriters"), for whom Lehman Brothers
Inc., Alex. Brown & Sons Incorporated, Dillon, Read & Co. Inc., and Fieldstone
FPCG Services, L.P. are acting as representatives (the "Representatives"), the
Underwriters have severally agreed to purchase from the Company, and the Company
has agreed to sell to each Underwriter, the aggregate number of shares of Common
Stock set forth opposite the name of each such Underwriter below:
Underwriter Number of Shares
----------- ----------------
Lehman Brothers Inc.........................
Alex. Brown & Sons Incorporated.............
Dillon, Read & Co. Inc. ....................
Fieldstone FPCG Services, L.P. ............
----------------
3,000,000
----------------
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the offering price
set forth on the cover page hereof, and to certain dealers at such public
offering price less a selling concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain other Underwriters or to certain other brokers or
dealers.
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions, including the condition that no stop order
suspending the effectiveness of the Registration Statement is in effect and no
proceedings for such purpose are pending or threatened by the Commission and
that there has been no material adverse change or development involving a
prospective material adverse change in the condition of the Company from that
set forth in the Registration Statement otherwise than as set forth or
contemplated in this Prospectus, and that certain certificates, opinions and
letters have been received from the Company and its counsel and independent
auditors. The Underwriters are obligated to take and pay for all of the above
shares of Common Stock if any such shares are taken.
The Company and the Underwriters have agreed in the Underwriting Agreement
to indemnify each other against certain liabilities, including liabilities under
the 1933 Act.
The Company has granted to the Underwriters an option to purchase up to an
additional 450,000 shares of Common Stock, exercisable solely to cover
over-allotments, at the initial public offering price, less the underwriting
discounts and commissions shown on the cover page of this Prospectus. Such
option may be exercised at any time until 30 days after the date of the
Underwriting Agreement. To the extent that the option is exercised, each
Underwriter will be committed to purchase a number of the additional shares of
Common Stock proportionate to such Underwriter's initial commitment as indicated
in the preceding table.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.
The Company's directors and officers (who beneficially own an aggregate of
_____ shares of Common Stock) have agreed not to offer for sale, sell or
otherwise dispose of (or enter into any transaction which is designed to, or
could be expected to, result in the disposition by any person of), directly or
indirectly, any shares of Common Stock, with certain limited exceptions, for a
period beginning seven days before and ending 90 days after the effective date
of this Registration Statement without the prior written consent of Lehman
Brothers Inc. Except for the Common Stock to be sold in the offering the Company
has agreed not to offer, sell, contract to sell or otherwise issue any Common
Stock or other capital stock or any securities convertible into or exchangeable
for, or any rights to acquire, Common stock or other capital stock, with certain
exceptions, for a period of 90 days after the effective date of the Registration
Statement without the prior written consent of Lehman Brothers Inc.
The rules of the Commission generally prohibit the Underwriters from making
a market in the Common Stock during the two business day period prior to
commencement of sales in the offering (the "Cooling Off Period"). The Commission
has, however, adopted Rule 10b-6A under the 1934 Act ("Rule 10b-6A") which
provides an exemption from such prohibition for certain passive market making
transactions. Such passive market making transactions must comply with
applicable price and volume limits and must be identified as passive market
making transactions. In general, pursuant to Rule 10b-6A, a passive market maker
may display its bid for a security at a price not in excess of the highest
independent bid for the security. If all independent bids are lowered below the
passive market maker's bid, however, such bid must then be lowered when certain
purchase limits are exceeded. Further, net purchases by a passive market maker
on each day are generally limited to a specified percentage of the passive
market maker's average daily trading volume in a security during a specified
prior period and must be discontinued when such limit is reached. Pursuant to
the exemption provided by Rule 10b-6A, the Underwriters may engage in passive
market making in the Common Stock during the Cooling Off Period. Passive market
making may stabilize the market price of the Common Stock at a level above that
which might otherwise prevail and, if commenced, may be discontinued at any
time.
The Common Stock is listed on the Nasdaq National Market under the symbol
"RENO" and on the Pacific Stock Exchange under the symbol "RNO".
Fieldstone FPCG Services, L.P., one of the Representatives, and its
affiliates have provided investment banking services to the Company from time to
time, for which it has received customary fees, and acted as Placement Agent for
the Company's private offering of Senior Notes.
LEGAL MATTERS
The law firm of Walther, Key, Maupin, Oats, Cox, Klaich & LeGoy, Reno,
Nevada, has passed upon certain legal matters on behalf of the Company. Certain
other legal matters in connection with the offering will be passed upon for the
Company by Shereff, Friedman, Hoffman & Goodman, LLP. Certain legal matters in
connection with this offering will be passed upon for the Underwriters by
Shearman & Sterling.
EXPERTS
The financial statements of Reno Air, Inc. at December 31, 1995 and for the
year then ended, included and incorporated by reference in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, and at December 31, 1994, and for each of the two years in the period
ended December 31, 1994, by Arthur Andersen LLP, independent public accountants,
as set forth in their respective reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such
firms as experts in accounting and auditing.
<PAGE>
RENO AIR, INC.
INDEX TO FINANCIAL STATEMENTS
Page No.
Report of Ernst & Young LLP, Independent Auditors F-2
Report of Arthur Andersen LLP, Independent Public Accountants F-3
Balance Sheet at December 31, 1995 and 1994 F-4
Statement of Operations for the years ended
December 31, 1995, 1994 and 1993 F-5
Statement of Changes in Shareholders' Equity (Deficit) for the
years ended December 31, 1995, 1994 and 1993 F-6
Statement of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 F-7
Notes to Financial Statements F-8
Balance Sheets March 31, 1996 (unaudited) and December 31, 1995 F-16
Statement of Operations - Three Months Ended March 31, 1996
and 1995 (unaudited) F-17
Statements of Cash Flow - Three Months Ended March 31, 1996
and 1995 (unaudited) F-18
Notes to Financial Statements (unaudited) F-19
<PAGE>
Report of Independent Auditors
The Board of Directors
Reno Air, Inc.
We have audited the accompanying balance sheet of Reno Air, Inc. (the "Company")
as of December 31, 1995, and the related statements of operations, shareholders'
equity (deficit) and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1995 financial statements referred to above present fairly,
in all material respects, the financial position of Reno Air, Inc. at December
31, 1995, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Reno, Nevada
February 14, 1996
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Reno Air, Inc.:
We have audited the accompanying balance sheets of RENO AIR, INC. (a Nevada
corporation) as of December 31, 1994 and 1993, and the related statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1994. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Reno Air, Inc. as of December
31, 1994 and 1993, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
March 28, 1995.
<PAGE>
<TABLE>
Reno Air, Inc.
Balance Sheet
December 31, 1995 and 1994
<CAPTION>
December 31
1995 1994
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents .................... $ 34,985,808 $ 9,103,564
Short-term investments ....................... 2,944,188 --
Accounts receivable .......................... 18,237,295 15,243,168
Inventories and operating supplies ........... 1,298,894 857,034
Prepaid expenses and other ................... 14,597,564 7,730,873
------------ ------------
Total current assets ............................ 72,063,749 32,934,639
Property and equipment, at cost:
Flight equipment ............................. 11,061,841 9,298,693
Ground property, equipment and improvements .. 4,839,542 2,789,215
Accumulated depreciation ..................... (5,212,862) (2,636,294)
------------ ------------
10,688,521 9,451,614
Restricted cash and investment .................. 2,150,327 1,631,651
Deposits and other .............................. 14,581,326 7,665,290
------------ ------------
$ 99,483,923 $ 51,683,194
============ ============
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Liabilities and shareholders' equity (deficit)
Current liabilities:
Accounts payable ............................. $ 17,245,930 $ 9,885,647
Accrued liabilities .......................... 14,419,993 6,427,604
Fuel purchase agreement ...................... 1,841,226 11,139,267
Air traffic liability ........................ 18,924,676 11,315,918
Current maturities of long-term debt ......... 342,061 3,753,313
Current portion of deferred lease payable .... 1,027,858 867,667
------------ ------------
Total current liabilities ....................... 53,801,744 43,389,416
Long-term debt .................................. 28,755,019 4,787,755
Non-current liabilities ......................... 8,024,021 5,303,878
Commitments and contingencies
Shareholders' equity (deficit) : Preferred stock,
$.001 par value:
Authorized shares - 10,000,000
Issued and outstanding shares - zero in
1995 and 1994 Common stock, $.01 par value:
Authorized shares - 30,000,000
Issued and outstanding shares - 9,974,800
in 1995 and 8,212,788 in 1994 .............. 99,748 82,128
Additional paid-in capital ................... 31,413,623 22,681,219
Accumulated deficit .......................... (22,610,232) (24,561,202)
------------ ------------
Total shareholders' equity (deficit) ............ 8,903,139 (1,797,855)
------------ ------------
$ 99,483,923 $ 51,683,194
============ ============
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
Reno Air, Inc.
Statement of Operations
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
Year ended December 31
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Operating revenues:
Passenger .................................. $ 242,134,351 $ 182,048,708 $ 117,664,999
Other ...................................... 14,373,408 13,470,130 6,975,187
------------- ------------- -------------
256,507,759 195,518,838 124,640,186
Operating expenses:
Salaries, wages and benefits ............... 41,995,391 33,614,751 21,663,214
Aircraft fuel and oil ...................... 44,872,145 34,334,117 22,547,651
Aircraft leases ............................ 49,673,789 41,983,147 24,247,216
Maintenance ................................ 15,807,634 15,139,921 10,046,946
Handling, landing and airport fees ......... 24,893,657 20,592,650 13,261,516
Advertising, sales and distribution ........ 20,379,733 18,312,362 11,661,744
Commissions ................................ 16,381,842 13,145,391 8,123,810
Facility leases ............................ 9,599,725 7,988,365 3,792,815
Insurance .................................. 6,579,587 5,018,991 3,632,086
Communications ............................. 3,354,545 2,735,582 1,802,219
Depreciation and amortization .............. 2,595,188 1,826,784 767,707
Other operating expenses ................... 16,765,630 14,678,601 10,426,867
------------- ------------- -------------
252,898,866 209,370,662 131,973,791
------------- ------------- -------------
Operating income (loss) ....................... 3,608,893 (13,851,824) (7,333,605)
Non-operating (expense) income:
Interest expense ........................... (2,141,616) (928,822) (139,697)
Interest income ............................ 2,307,689 1,043,493 431,000
Other, net ................................. (1,823,996) (255,783) (301,377)
------------- ------------- -------------
(1,657,923) (141,112) (10,074)
------------- ------------- -------------
Net income (loss) ............................. $ 1,950,970 $ (13,992,936) $ (7,343,679)
============= ============= =============
Net income (loss) applicable to common
stock ...................................... $ 1,817,543 $ (13,992,936) $ (7,343,679)
============= ============= =============
Net income (loss) per common share and
common share equivalent .................... $ .19 $ (1.73) $ (1.06)
============= ============= =============
Weighted average number of common shares
and common share equivalents outstanding
9,786,288 8,093,356 6,910,107
============= ============= =============
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
Reno Air, Inc.
Statement of Changes in Shareholders' Equity (Deficit)
Years ended December 31, 1995, 1994, and 1993
<CAPTION>
Preferred Additional
Common Stock Stock Paid-In Accumulated
Shares Amount Amount Capital Deficit Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992
6,022,612 $ 60,226 $ -- $ 7,762,022 $ (3,224,587) $ 4,597,661
Conversion of 6.625%
convertible subordinated
notes ....................... 600,000 6,000 -- 4,791,585 -- 4,797,585
Exercise of warrants .......... 1,234,676 12,347 -- 9,726,899 -- 9,739,246
Redemption of warrants ........ -- -- -- (657) -- (657)
Exercise of stock options ..... 127,000 1,270 -- 157,020 -- 158,290
Net loss ...................... -- -- -- -- (7,343,679) (7,343,679)
---------- ---------- ---------- ------------ ------------ ------------
Balance at December 31, 1993
7,984,288 79,843 -- 22,436,869 (10,568,266) 11,948,446
Exercise of stock options ..... 228,500 2,285 -- 244,350 -- 246,635
Net loss ...................... -- -- -- -- (13,992,936)
---------- ---------- ---------- ------------ ------------ ------------
Balance at December 31, 1994
Exercise of stock options ..... 8,212,788 82,128 -- 22,681,219 (24,561,202) (1,797,855)
279,500 2,795 -- 334,070 -- 336,865
Conversion of 7.25%
convertible subordinated
notes ....................... 930,744 9,307 -- 5,779,511 -- 5,788,818
Issuance of common stock
under the 401(k) Plan ....... 69,192 692 -- 380,313 -- 381,005
Issuance of common stock
under private placement ..... 482,576 4,826 -- 2,371,937 -- 2,376,763
Issuance of 96,515 shares
of preferred stock .......... -- -- 2,412,875 -- -- 2,412,875
Dividend and issuance costs
on preferred stock .......... -- -- -- (133,427) -- (133,427)
Redemption of 96,515 shares
of preferred stock .......... -- -- (2,412,875) -- -- (2,412,875)
Net income .................... -- -- -- -- 1,950,970 1,950,970
---------- --------- ----------- ------------ ------------ ------------
Balance at December 31, 1995 ..... 9,974,800 $ 99,748 $ -- $ 31,413,623 $(22,610,232) $ 8,903,139
========== ========= =========== ============ ============ ============
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
Reno Air, Inc.
Statement of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
Year ended December 31
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities
Net income (loss) ...................................... $ 1,950,970 $(13,992,936) $ (7,343,679)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization ...................... 2,595,188 1,826,784 767,707
Common stock issued under 401(k) Plan .............. 194,411 186,594 --
Fair value of inducement on conversion of 7.25%
Notes ............................................. 1,391,692 -- --
Accounts receivable ................................ (2,994,127) (6,199,466) (6,189,920)
Inventories and operating supplies ................. (441,860) (546,946) (218,463)
Prepaid expenses and other ......................... (7,123,285) (4,014,618) (1,990,684)
Restricted cash and investment ..................... (518,676) (726,708) --
Deposits and other assets .......................... (5,288,811) (308,687) (4,548,090)
Accounts payable ................................... 7,546,877 2,843,495 4,162,039
Accrued liabilities ................................ (9,298,041) (2,005,376) 5,653,221
Fuel purchase agreement ............................ 8,094,359 11,139,267 --
Air traffic liability .............................. 7,608,758 5,849,453 2,231,101
Deferred lease payable ............................. (109,015) 2,895,537 2,790,605
Non-current liabilities ............................ 2,989,349 -- --
------------ ------------ ------------
Net cash provided by (used in) operating activities .... 6,597,789 (3,053,607) (4,686,163)
Investing activities
Purchases of property and equipment .................... (3,873,580) (5,942,803) (5,185,101)
Proceeds from sale of equipment ........................ 41,485 185,368 --
Purchases of short-term investments .................... (7,472,483) -- (5,174,250)
Proceeds from sale of short-term investments ........... 4,528,295 5,174,250
Purchase of long-term investment ....................... -- (900,041) --
------------ ------------ ------------
Net cash used in investing activities .................. (6,776,283) (1,483,226) (10,359,351)
Financing activities
Proceeds from notes payable ............................ 472,877 8,129,816 3,518,022
Payments on notes payable .............................. (4,115,115) (5,415,638) (2,293,882)
Proceeds from issuance of convertible notes, net of
issuance costs ........................................ 27,122,775 4,136,983 4,797,585
Proceeds from issuance of common stock under
private placement, net of issuance costs ........... 2,376,763 -- --
Proceeds from issuance of preferred stock .............. 2,412,875 -- --
Redemption of preferred stock .......................... (2,412,875) -- --
Dividend and issuance costs on preferred stock ......... (133,427)
Proceeds from issuance of options and warrants ......... 336,865 246,635 9,896,879
------------ ------------ ------------
Net cash provided by financing activities .............. 26,060,738 7,097,796 15,918,604
------------ ------------ ------------
Increase in cash and cash equivalents .................. 25,882,244 2,560,963 873,090
Cash and cash equivalents at beginning of year ......... 9,103,564 6,542,601 5,669,511
------------ ------------ ------------
Cash and cash equivalents at end of year ............... $ 34,985,808 $ 9,103,564 $ 6,542,601
============ ============ ============
Supplemental cash flow information:
Cash paid for interest ................................ $ 1,089,156 $ 342,878 $ 139,697
See accompanying notes.
</TABLE>
<PAGE>
Reno Air, Inc.
Notes to Financial Statements
Years ended December 31, 1995, 1994, and 1993
Organization and Operations
Reno Air, Inc. (the "Company"), was incorporated in Nevada in June 1990 and
commenced operations in July 1992. The Company provides full-service, scheduled
air transportation for passengers primarily through hubs in Reno, Nevada and San
Jose, California. The Company also operates both track and ad-hoc charter
flights and an in-house tour program ("QQuick Escapes") that provides vacation
packages which generally include air transportation, lodging accommodations and
ground transportation. The Company's primary strategy is to provide
full-service, low-cost and low-fare scheduled airline service to primarily the
Western part of the United States.
Use of Estimates
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which require the Company's management
to make estimates and assumptions that affect the amounts reported therein.
Actual results could vary from such estimates.
1. Accounting Policies
Passenger Revenues and Air Traffic Liability
Passenger ticket sales are initially recorded in the air traffic liability
account. Revenue derived from ticket sales is recognized at the time
transportation is provided. Some tickets, for various reasons, are never
relieved from the air traffic liability account and become "breakage", which is
periodically estimated and recognized as revenue. Net income for the fourth
quarter of 1995 includes an approximate $5 million benefit resulting from a
change in estimate relating to earned passenger revenues to more accurately
reflect ticket breakage. Passenger revenues include revenue from track charter
programs.
Other Revenue
Other revenue, which consists primarily of cargo, mail, ad-hoc charter and
QQuick Escapes, is recognized when the related service is provided.
Advertising
Advertising costs are charged to expense in the period the costs are incurred.
Advertising expense for the years ended December 31, 1995, 1994 and 1993 was
approximately $3,704,000, $5,197,000 and $2,682,000, respectively.
Frequent Flyer Program
On July 1, 1993, the Company and American Airlines, Inc. ("American") entered
into an agreement pursuant to which the Company participates in the
AAdvantage(R) frequent flyer program of American. The agreement has an initial
term of four and one-half years, with provisions for extensions. The Company
expenses the costs related to this program as the passenger miles are flown. The
Company does not accrue any liability for award travel it may be required to
provide because the incremental cost of redemptions have not been, and are not
expected to be, material.
Cash and Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Cash equivalents consist
primarily of commercial paper and money market investments while short-term
investments consist of commercial paper.
Restricted Cash and Investment
Restricted cash and investment consists of cash and a United States government
obligation securing letters of credit required by various airport authorities
and other entities.
Inventories and Operating Supplies
Expendable parts, materials and supplies relating to flight equipment are stated
at average cost. These items are charged to expense when issued for use.
Depreciation and Amortization
Depreciation and amortization of property, equipment and improvements are
computed using the straight-line method over the estimated useful lives of the
related assets or related leases. The estimated useful lives are three to seven
years for ground property, equipment and improvements and five to ten years for
flight equipment and rotable parts.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which requires the
use of an asset and liability approach in accounting for income taxes. Deferred
tax assets and liabilities are recorded based on the differences between the
financial statement and tax bases of assets and liabilities.
Stock Based Compensation
The Company accounts for stock-based compensation in accordance with the
intrinsic value method prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees". Under the intrinsic value method, compensation cost is the
excess, if any, of the quoted market price or fair value of the stock at the
grant date or other measurement date over the amount an employee must pay to
acquire the stock. Because it is the Company's policy to grant stock options at
market price on the date of the grant, the intrinsic value is zero and therefore
no compensation expense is recorded.
Per Share Data
Net income (loss) per share of common stock is computed based on the weighted
average number of shares of common stock and dilutive common stock equivalents
(stock options and warrants) outstanding during the period. The Company's
convertible debt securities (Note 3) are not considered common stock
equivalents.
Maintenance
Routine maintenance and repairs are expensed when incurred.
Under the terms of certain of its aircraft lease agreements, the Company is
required to make monthly maintenance deposits based on usage; such deposits are
applied against the cost of major airframe maintenance checks and engine
overhauls. Prior to 1995, these deposits were expensed as paid because deposit
balances remaining at lease termination (after satisfying return conditions)
either remained with the lessor or their ultimate disposition was uncertain, and
the Company did not have sufficient historical experience to estimate the future
cost of such maintenance checks and overhauls. During 1995, the Company
renegotiated certain lease agreements, clarified the disposition of any
remaining deposits in other lease agreements, and developed sufficient
experience to estimate the future cost of maintenance checks and overhauls.
Accordingly, the Company accrues the estimated costs relating to major airframe
and engine overhauls over the flight hours or cycles remaining before such
periodic maintenance must be performed.
In connection with the scheduled termination of two of the Company's aircraft
leases in mid 1995, the Company received $1.8 million from the lessor,
representing the excess of the maintenance deposit over the amount required,
based on the condition of the aircraft. Accordingly, a credit of $1.8 million
was recognized as a reduction of maintenance expense in the second quarter.
During the fourth quarter of 1995, the Company renegotiated the maintenance
reserve provisions on five of its aircraft leases and as a result, recorded an
additional $1.4 million reduction of maintenance expense.
At December 31, 1995, after reflecting the above adjustments, the Company had
current and long-term maintenance reserves of approximately $5,337,000 (included
in accrued liabilities) and $2,989,000 (included in non-current liabilities),
respectively; and current and long-term prepaid maintenance deposits of
approximately $6,909,000 (included in prepaid expenses and other) and $4,293,000
(included in deposits and other), respectively, at December 31, 1995.
Reclassifications
Certain reclassifications have been made to prior years' financial statements to
conform to the 1995 presentation.
2. Commitments
Aircraft Leases
At December 31, 1995, the Company operated 23 aircraft which are accounted for
under operating leases with initial terms ranging from one to eighteen years.
With respect to some leases, the expense recognized has exceeded the cash
payments, with the excess having been recorded as a deferred lease payable on
the accompanying balance sheet. Included in non-current liabilities are related
deferred lease payables of approximately $5,035,000 and $5,304,000 at December
31, 1995 and 1994, respectively. Security deposits related to aircraft leased at
December 31, 1995 and 1994 totaled approximately $7,765,000 and $6,063,000,
respectively, and are included in deposits and other on the accompanying balance
sheet.
The Company has entered into an agreement to lease two MD-90 aircraft for a
period of eighteen years, to be delivered in March and April 1996. The Company
has an agreement in principle to lease two MD-83 aircraft for a period of five
years, to be delivered in April 1996. The monthly lease payments for these
aircraft have been included in the minimum payment schedule below.
Gates and Facilities Leases
The Company subleases several gates and related space from American at San Jose
International Airport and leases administrative, airport, maintenance and
reservation facilities at various locations under operating lease agreements
expiring at various dates through November 30, 2007. Amounts charged to rental
expense for these facility operating leases were approximately $9.6 million,
$8.6 million and $4.1 million in 1995, 1994, and 1993, respectively.
At December 31, 1995, the Company's minimum rental payments under non-cancelable
operating leases with remaining terms of more than one year were as follows:
Year ending
December 31 Aircraft Leases Other Total
- ----------------------------------------------------------------
1996 $ 61,220,000 $ 4,149,000 $ 65,369,000
1997 60,700,000 3,401,000 64,101,000
1998 52,815,000 3,158,000 55,973,000
1999 36,570,000 2,725,000 39,295,000
2000 27,640,000 2,306,000 29,946,000
Thereafter 142,680,000 15,950,000 158,630,000
----------------------------------------------------
====================================================
$ 381,625,000 $ 31,689,000 $ 413,314,000
====================================================
Aircraft and Engine Purchases
The Company has agreements to purchase a spare engine and a previously leased
MD-87 aircraft for an aggregate amount of approximately $16.7 million, of which
approximately $4.3 million is to be paid in cash and the remainder is to be
financed over five to seven years.
3. Long-Term Debt
The components of long-term debt are as follows at December 31:
1995 1994
----------------------------
9% Senior Convertible Notes due September 30,
2002, interest payable semi-annually $ 28,750,000 $ -
7.25% Convertible Subordinated Notes due
July 15, 1996, convertible into common
stock at $7.03 per share (7,255 and
654,730 shares at December 31, 1995
and 1994, respectively) 51,000 4,602,750
Note payable, secured by an aircraft engine,
monthly payments through January 1996,
including interest at 9%
75,830 985,790
Note payable, secured by aircraft parts,
monthly payments through February 1996,
including interest at 7.5%
108,150 516,260
Other notes payable at interest rates
from 2.6% to 8.55%.
112,100 2,436,268
----------------------------
Total long-term debt 29,097,080 8,541,068
Less: current maturities (342,061) (3,753,313)
----------------------------
$ 28,755,019 $ 4,787,755
============================
The 9% Senior Convertible Notes (the "Senior Notes") are convertible into the
Company's common stock, at the holder's option, at a defined conversion rate of
100 shares per $1,000 principal amount of Senior Notes, subject to adjustment
under certain circumstances, or the equivalent of $10.00 per share of common
stock. The Senior Notes are not redeemable prior to September 30, 1998, unless
certain events, as defined, occur.
The Senior Notes are unsecured obligations of the Company and rank senior in
right of payment to all indebtedness of the Company which is by its terms
expressly subordinated in right of payment to the Senior Notes and will rank
pari passu with all other existing or future indebtedness of the Company. The
Senior Notes contain certain covenants, including, among others, covenants
limiting payment of dividends, lines of business, transactions with affiliates,
certain mergers and consolidations and the maintenance of a consolidated net
worth, as defined.
4. Shareholders' Equity (Deficit)
On February 3, 1993, the Company completed a private placement of $5.1 million
of 6.625% Convertible Subordinated Notes due July 15, 1995. The net proceeds to
the Company were approximately $4.8 million. The Notes were convertible at the
option of the holder at a conversion price of $8.50 per share or automatically
if the closing price of the Company's common stock equaled or exceeded $11.90
per share for twenty consecutive trading sessions. In April 1993, the Notes
automatically converted into 600,000 shares of the Company's common stock.
In April and May 1994, the Company issued approximately $4.6 million principal
amount of 7.25% Convertible Subordinated Promissory Notes due July 15, 1996 (the
"Subordinated Notes"). The Notes were originally convertible into common stock
at a price of approximately $7.03 per share. Commencing April 10, 1995, the
Company offered holders of the Subordinated Notes the opportunity to convert the
Notes into shares of common stock at a conversion price of $5.00 per share. On
May 8, 1995, $4,551,750 principal amount of Notes plus accrued interest were
accepted for conversion. The Company accounted for the conversion as an
inducement to noteholders to convert below the originally scheduled conversion
price and accordingly, recognized a charge of approximately $1.4 million, which
is included in other non-operating expense in the accompanying statement of
operations. This charge does not impact total shareholders' equity, as there was
an offsetting increase to paid-in capital.
During 1995, the Company issued in a private placement 482,576 shares of common
stock (at an issue price of $5 per share) and $2,412,875 (96,515 shares)
liquidation preference of a new issue of Series A 16% Redeemable Preferred Stock
(the "Series A Preferred"). The Series A Preferred was redeemed for cash on
September 25, 1995.
During 1992, warrants for the purchase of 50,000 shares of the Company's common
stock at $3.00 per share were issued to one of the Company's aircraft lessors.
These warrants are exercisable through July 1997, and were all outstanding at
December 31, 1995.
In November 1993, the Company issued to its financial advisor warrants to
purchase 100,000 shares of common stock at an exercise price of $8.63,
exercisable through November 29, 1997. All of these warrants were outstanding at
December 31, 1995.
In connection with the placement of the 7.25% Convertible Subordinated Notes
issued in 1994 (Note 3), the Company issued to the placement agent warrants to
purchase 65,431 shares of common stock at an exercise price of $8.44,
exercisable through April 28, 1999. All of these warrants were outstanding at
December 31, 1995.
5. Stock Option Plan
In February 1992, the Board of Directors of the Company adopted a Stock Option
Plan (the "Plan"), providing for the grant to officers, directors, consultants
and key employees of options to purchase up to 1,200,000 shares of common stock.
Since adoption, the Plan was amended to increase the number of options that may
be granted to 2,400,000.
Options may be granted under the Plan under such terms and conditions as the
Board of Directors may determine provided that options must be exercised within
a period of not more than ten years after the date of grant. An optionee must
remain either an employee, a director, or a consultant of the Company to retain
his or her options. If such status terminates, other than by reason of the death
of the optionee, the options will expire generally within thirty days, subject
to extension by the Company.
The exercise price of the options granted under the Plan cannot be less than the
fair market value of the common stock on the date the option is granted. Options
granted under the Plan vest over periods up to six years.
On May 19, 1995, the Company canceled substantially all outstanding options
granted to employees or directors with an exercise price in excess of $5.07 per
share and regranted the same number of options to the same persons at an
exercise price of $5.07 per share, the closing market price on date of grant.
All other terms of the options remained the same, except that none of the
regranted options were exercisable until November 10, 1995.
The following summarizes stock option activity during the year ended December
31, 1995:
Option
Number of Shares Price
---------------- -----------------
Options outstanding at beginning of year 1,560,500 $ .83-$12.63
Granted 1,209,500 $4.25-$ 7.82
Exercised (279,500) $ .83-$ 2.55
Canceled (956,500)
----------------
Options outstanding at end of year 1,534,000 $ .83-$ 7.82
================
Options available for grant 231,000
================
Options exercisable at end of year 454,000 $ .83-$ 6.25
================
6. Income Taxes
The difference between the Company's provision (benefit) for income taxes and a
provision (benefit) for income taxes computed at the federal statutory rate is
comprised of the items shown in the following table:
December 31
----------------------------------------------
1995 1994 1993
------------ ------------- -------------
Income tax provision (benefit)
at the statutory rate $ 663,000 $ (4,758,000) $ (2,497,000)
Net operating loss producing no
current benefit - 4,758,000 2,497,000
Benefit of net operating loss
carryforward (663,000) - -
----------------------------------------------
==============================================
Income tax provision (benefit) $ - $ - $ -
==============================================
The significant components of the deferred income tax assets and liabilities are
as follows at December 31:
1995 1994
---------------------------------------
Deferred tax assets:
Start up costs $ 192,000 $ 311,000
Depreciation 1,374,000 649,000
Vacation and other reserves 281,000 632,000
Rent expense 2,306,000 2,039,000
Tax effect of net operating loss 4,372,000 5,817,000
---------------------------------------
8,525,000 9,448,000
Valuation allowance (8,525,000) (9,448,000)
---------------------------------------
$ - $ -
=======================================
The valuation allowance was provided since it is uncertain that the deferred tax
asset will be realized. The Company established the valuation allowance due to
the operating history of the Company.
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $12,860,000 expiring at various times from 2000 through 2004.
7. Fuel Purchase Agreement
The Company has entered into an agreement (the "Fuel Purchase Agreement") with
American for the purchase of aviation fuel on a requirements basis at specified
airports at market price plus a fee. As amended in March 1995, the revised
agreement provides short-term credit for such purchases to a maximum of $12
million, and accrues interest at the thirteen week United States Treasury Bill
rate plus a range of 4.5% to 6%, as defined, dependent upon the outstanding
balance, unless the balance exceeds $12 million, at which point the interest
rate increases to 18% on the excess over $12 million. The Fuel Purchase
Agreement may be terminated by American without cause on 45 days' prior notice,
but the effective date of such termination may not be prior to September 30,
1996. In connection with the Fuel Purchase Agreement, the Company also entered
into a security agreement with American under which the Company's obligations
under all agreements with American are secured by substantially all of the
Company's assets excluding aircraft and aircraft engines. During 1995, the
Company paid interest at rates ranging from 8.5% to 18% (7.9% to 9.9% during
1994), respectively, on the outstanding balance.
8. Employee Benefit Plans
401(k) Plan
In 1994, the Company adopted the Reno Air 401(k) Plan (the "401(k) Plan") which
is intended to qualify under Section 401(k) of the Internal Revenue Code. All
full-time employees who meet the eligibility requirements are covered under the
401(k) Plan. Participants can contribute as much as 15% of their annual gross
income on a before-tax basis. The Company makes a 100% matching contribution in
shares of the Company's Common Stock for the first $300 of an employee's annual
contribution to the 401(k) Plan. The Company's matching contribution vests over
four years from date of hire. During 1995 and 1994, the Company expensed
$194,000 and $187,000 in matching contributions to the 401(k) Plan. The Company
may amend the 401(k) Plan from time to time.
Incentive Bonus Plan
In 1993, the Company adopted an incentive bonus/profit sharing plan (the "Bonus
Plan"). The Bonus Plan provides that eligible employees may participate in
profit sharing based upon the Company's income before income taxes measured on
both a quarterly and annual basis ("Pretax Income"). On a quarterly basis,
eligible employees receive up to the lesser of $150 or an allocation of 10% of
the Company's Pretax Income. On an annual basis, eligible employees receive an
allocation of 10% of the Company's Pretax Income, less the quarterly bonuses
paid during the Plan year. During 1995, 1994 and 1993, the Company paid
approximately $364,000, $62,000 and $102,000, respectively, pursuant to the
Bonus Plan. The Company may amend the Bonus Plan from time to time.
9. Fair Value of Financial Instruments
The fair value of the Company's financial instruments approximate their recorded
book values at December 31, 1995. The fair values are based on quoted market
prices and discounted cash flow using the Company's current incremental
borrowing rate.
<PAGE>
10. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
1995
----------------------------------------------------------------------------
Three Months Ended
March 31 June 30 (a) September 30 December 31 (b)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 54,981,073 $ 61,434,939 $ 74,282,752 $ 65,808,995
Operating income (loss) (2,851,176) 1,684,199 4,537,874 237,996
Net income (loss) (3,190,780) 331,775 4,586,255 223,720
Net income (loss) per common
share and common equivalent
share:
Primary $ (0.39) $ 0.03 $ 0.42 $ 0.02
Fully Diluted $ (0.39) $ 0.03 $ 0.40 $ 0.02
</TABLE>
<TABLE>
<CAPTION>
1994
----------------------------------------------------------------------------
Three Months Ended
March 31 June 30 September 30 December 31
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 42,444,181 $ 47,745,924 $ 52,065,012 $ 53,263,721
Operating income (loss) (6,215,969) (2,524,080) 505,824 (5,617,599)
Net income (loss) (6,147,893) (2,496,635) 564,479 (5,912,887)
Net income (loss) per common
share and common equivalent
share $ (0.77) $ (0.31) $ 0.07 $ (0.72)
</TABLE>
(a) As described in footnotes 1 and 4, the Company recorded a maintenance
credit of approximately $1.8 million and a charge to non-operating
expenses of approximately $1.4 million, respectively.
(b) As described in footnote 1, the Company recorded an adjustment to increase
passenger revenues resulting in an approximate $5 million benefit, and
recorded a maintenance credit of approximately $1.4 million.
<PAGE>
<TABLE>
Reno Air, Inc.
Balance Sheet
March 31, 1996 and December 31, 1995
<CAPTION>
March 31, December 31,
1996 1995
(unaudited)
------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 33,206,346 $ 34,985,808
Short-term investments .................................... -- 2,944,188
Accounts receivable, net .................................. 25,587,463 18,237,295
Inventories and operating supplies ........................ 1,794,975 1,298,894
Prepaid expenses and other ................................ 14,845,147 14,597,564
------------- -------------
Total current assets ............................ 75,433,931 72,063,749
------------- -------------
PROPERTY AND EQUIPMENT:
Flight equipment .......................................... 27,974,640 11,061,841
Ground property and equipment ............................. 4,759,183 4,839,542
Less - Accumulated depreciation ........................... (6,193,932) (5,212,862)
------------- -------------
26,539,891 10,688,521
RESTRICTED CASH AND INVESTMENT ................................. 3,589,402 2,150,327
DEPOSITS AND OTHER ............................................. 16,331,708 14,581,326
------------- -------------
$ 121,894,932 $ 99,483,923
============= =============
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable .......................................... $ 18,179,907 $ 17,245,930
Accrued liabilities ....................................... 13,946,062 14,419,993
Fuel purchase agreement ................................... 1,141,761 1,841,226
Air traffic liability ..................................... 29,082,276 18,924,676
Current maturities of long-term debt ...................... 923,647 342,061
Current portion of deferred lease payable ................. 1,737,533 1,027,858
------------- -------------
Total current liabilities ....................... 65,011,186 53,801,744
------------- -------------
Long-term debt ................................................. 38,322,901 28,755,019
------------- -------------
Non-current liabilities ........................................ 8,865,660 8,024,021
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 30,000,000 shares authorized,
10,125,834 and 9,974,800 shares issued and outstanding at
March 31, 1996 and December 31, 1995, respectively ........ 101,258 99,748
Additional paid - in capital .............................. 31,929,055 31,413,623
Accumulated deficit ....................................... (22,335,128) (22,610,232)
------------- -------------
Total stockholders' equity ...................... 9,695,185 8,903,139
------------- -------------
$ 121,894,932 $ 99,483,923
============= =============
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
Reno Air, Inc.
Statement of Operations
Three Months Ended March 31, 1996 and 1995
(unaudited)
<CAPTION>
Three months ended
March 31
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING REVENUES:
Passenger ......................................... $ 68,685,556 $ 51,838,417
Other ............................................. 4,134,305 3,142,656
------------ ------------
Total operating revenues ................ 72,819,861 54,981,073
------------ ------------
OPERATING EXPENSES:
Salaries, wages and benefits ...................... 11,475,598 9,512,962
Aircraft fuel and oil ............................. 12,781,811 9,754,363
Aircraft leases ................................... 12,919,381 11,875,040
Maintenance ....................................... 5,818,767 3,990,468
Handling, landing and airport fees ................ 7,370,430 5,731,386
Advertising, marketing and sales .................. 6,771,889 4,232,196
Commissions ....................................... 4,173,147 3,563,773
Facility leases ................................... 2,559,413 2,238,956
Insurance ......................................... 1,921,668 1,533,560
Communications .................................... 994,647 840,489
Depreciation and amortization ..................... 981,069 555,042
Other ............................................. 4,608,030 4,004,014
------------ ------------
Total operating expenses ................ 72,375,850 57,832,249
------------ ------------
OPERATING INCOME (LOSS) ................................ 444,011 (2,851,176)
NON-OPERATING INCOME (EXPENSE):
Interest expense .................................. (795,516) (433,270)
Interest income ................................... 723,707 296,595
Other, net ........................................ (97,098) (202,929)
------------ ------------
NET INCOME (LOSS) ...................................... $ 275,104 $ (3,190,780)
============ ============
NET INCOME (LOSS) PER COMMON SHARE AND
COMMON SHARE EQUIVALENT
PRIMARY ......................... $ 0.03 $ (0.39)
============ ============
FULLY DILUTED .................... $ 0.02 $ (0.39)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING
PRIMARY ............................ 10,745,854 8,277,006
============ ============
FULLY DILUTED ....................... 11,123,058 8,277,006
============ ============
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
Reno Air, Inc.
Statement of Cash Flows
Three Months Ended March 31, 1995 and 1994
(unaudited)
<CAPTION>
Three Months
Ended
March 31
----------------------------
1996 1995
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................................... $ 275,104 $(3,190,780)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization ........................ 981,070 555,042
Common stock issued under 401(k) Plan ................ 210,000 240,904
Accounts receivable .................................. (7,350,168) (647,736)
Inventories and operating supplies ................... (496,081) (208,455)
Prepaid expenses and other ........................... (247,583) 1,156,301
Restricted cash and investment ....................... (1,439,075) 100,000
Deposits and other ................................... (1,750,382) (526,890)
Accounts payable ..................................... 933,977 (1,052,700)
Accrued liabilities .................................. (473,931) 923,639
Fuel purchase agreement .............................. (699,465) 662,050
Air traffic liability ................................ 10,157,600 1,199,090
Deferred lease and non-current liabilities ........... 527,539 69,108
------------ -------------
Net cash provided by (used in) operating activities 628,605 (720,427)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ..................... (5,368,665) (494,857)
Proceeds from sale of short-term investments ............ 2,944,188 --
------------ -------------
Net cash used in investing activities .............. (2,424,477) (494,857)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options .......... 306,942 179,880
Payments on notes payable ............................... (290,532) (2,339,866)
------------ -------------
Net cash provided by (used in) financing activities 16,410 (2,159,986)
------------ -------------
DECREASE IN CASH AND CASH EQUIVALENTS ....................... (1,779,462) (3,375,270)
CASH AND CASH EQUIVALENTS, beginning of period .............. 34,985,808 9,103,564
------------ -------------
CASH AND CASH EQUIVALENTS, end of period .................... $ 33,206,346 $ 5,728,294
============ =============
See accompanying notes.
</TABLE>
<PAGE>
RENO AIR, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
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 three month period ended March 31, 1996, are not necessarily
indicative of the results that will be realized for the full year. 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 - EARNINGS (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 PURCHASE AND RELATED DEBT
In February 1996, the Company purchased an MD-87 aircraft that it previously
leased. This 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%.
<PAGE>
<TABLE>
=====================================================================================================================
<S> <C>
No dealer, salesman or other person has been authorized to
give any information or to make any representations not contained
or incorporated by reference in this Prospectus, and, if given or RENO AIR, INC.
made, such information or representation not contained or
incorporated herein must not be relied upon as having been
authorized by the Company or any of the Underwriters. This
Prospectus does not constitute an offer of any securities other
than those to which it relates or an offer to sell, or a
solicitation of an offer to buy by any person in any 3,000,000 Shares of Common Stock
jurisdiction where it is unlawful to make such an offer or
solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, imply that
the information herein is correct as of any time subsequent to _____________
the date hereof.
PROSPECTUS
_____________
TABLE OF CONTENTS
Page
Available Information......................................3 ____________, 1996
Incorporation of Certain Documents by
Reference..........................................3
Prospectus Summary.........................................5
Risk Factors...............................................9
Use of Proceeds...........................................14
Market Price of Common Stock and Dividends................14
Capitalization............................................15
Business..................................................16
Selected Financial Data...................................25
Selected Operating Data...................................26 LEHMAN BROTHERS
Management's Discussion and Analysis of Financial
Condition and Results of Operations...............27 ALEX. BROWN & SONS
Management ...............................................33 INCORPORATED
Description of Securities.................................37
Underwriting..............................................40 DILLON, READ & CO. INC.
Legal Matters.............................................41
Experts...................................................41 FIELDSTONE
Index to Financial Statements............................F-1 FPCG SERVICES, L.P.
=====================================================================================================================
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred in
connection with the offering, other than underwriting discounts, commissions and
non-accountable allowances:
SEC Registration Fee $ 14,499
NASD Filing Fee *
Nasdaq National Market Additional Listing Fee *
Transfer Agent and Registrar *
Legal Fees and Expenses *
Accounting Fees and Expenses *
Blue Sky Fees and Expenses *
Printing Expenses *
Miscellaneous *
-------------------
Total $
===================
- ----------------------
* To be filed by amendment.
Item 15. Indemnification of Directors and Officers
The right of the shareholders to sue any director for breaches of fiduciary
duty in conducting the affairs of the Company is limited by Article VII of the
Company's Articles of Incorporation to cases involving acts or omissions
involving intentional misconduct, fraud, knowing violations of the law or the
unlawful payment of dividends. Ordinary negligence is not a ground for such a
suit.
The Company has the obligation, pursuant to Article VIII of the Company's
Articles of Incorporation and Article VII of the Company's Code of Bylaws, to
indemnify any director or officer of the Company for all expenses incurred by
them in connection with any legal action brought or threatened against such
person for or on account of any action or omission alleged to have been
committed while acting in the course and scope of the person's duties, if the
person acted in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interests of the Company and, with respect
to criminal actions, had no reasonable cause to believe the person's conduct was
unlawful.
The Company has also obtained directors' and officers' liability insurance.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Commission such indemnification is against public policy as expressed in
the 1933 Act and is therefore unenforceable.
Item 16. Exhibits
Exhibit
Number Description
1.1* Form of Underwriting Agreement
3.1 Seventh Amended and Restated Code of Bylaws of Reno Air, Inc.
4.1 Specimen Certificate of Stock (incorporated by reference
to Exhibit 4.1 to the Registration Statement on Form S-2
(No. 33-97990) filed with the Commission on October 6, 1995)
5.1* Opinion of Walther, Key, Maupin, Oats, Cox, Klaich & LeGoy
with respect to the legality of the securities being registered
23.1 Consent of Ernst & Young LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Walther, Key, Maupin, Oats, Cox, Klaich & LeGoy
(included in Exhibit 5.1)
24 Power of Attorney (see Signature Page, II-3)
- ----------------------
* To be filed by amendment.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under "Item 15 - Indemnification
of Directors and Officers" above, or otherwise, the registrant has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person who the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under
the Securities Act of 1933, the information omitted form the
form of prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933
shall be deemed to be part of this Registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability
under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof.
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirement of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Reno, State of Nevada, on June 19, 1996.
RENO AIR, INC.
By: /s/ PAUL H. TATE
----------------
Paul H. Tate
Vice President - Finance and
Chief Financial Officer
On behalf of the Registrant, and
As Principal Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned whose signature
appears below constitutes and appoints Lee M. Hydeman, Robert W. Reding and
Robert M. Rowen, and each of them (with full power of each of them to act
alone), his true and lawful attorney-in-fact and agents, with full power of
substitution and resubstitution for him and on his behalf, and in his name,
place and stead, in any and all capacities to execute and sign any and all
amendments or post-effective amendments to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof and the Registrant hereby confers like
authority on its behalf.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Position Date
/s/ DONALD L. BECK Director June 19, 1996
- ------------------
Donald L. Beck
/s/ BARRIE K. BRUNET Director June 19, 1996
- --------------------
Barrie K. Brunet
/s/ JOHN R. HARDESTY Director June 19, 1996
- --------------------
John R. Hardesty
/s/ LEE M. HYDEMAN Director June 19, 1996
- ------------------
Lee M. Hydeman
/s/ JOE M. KILGORE Director June 19, 1996
- ------------------
Joe M. Kilgore
/s/ JAMES T. LLOYD Director June 19, 1996
- ------------------
James T. Lloyd
/s/ ROBERT W. REDING Director & June 19, 1996
- -------------------- Principal Executive Officer
Robert W. Reding
/s/ WAYNE L. STERN Director June 19, 1996
- ------------------
Dr. Wayne L. Stern
/s/ AGNIESZKA WINKLER Director June 19, 1996
- ---------------------
Agnieszka Winkler
/s/ DAVID W. ASAI Principal Accounting June 19, 1996
- ----------------- Officer
David W. Asai
SEVENTH AMENDED AND RESTATED
CODE OF BYLAWS
OF
RENO AIR, INC.
I
IDENTIFICATION
A. Name. The name of the corporation is Reno Air, Inc., hereafter referred
to as the "Corporation."
B. Principal Office and Resident Agent. The address of the principal office
of the Corporation is 220 Edison Way, Reno Nevada 89502; and the name of the
Resident Agent for the Corporation in Nevada is Walther, Key, Maupin, Oats, Cox,
Lee & Klaich, A Professional Corporation, 3500 Lakeside Court, Reno, Nevada.
C. Seal. The seal of the Corporation shall be circular in such form as is
adopted by the Secretary from time to time, containing the name "Reno Air,
Inc.", the state of incorporation, "Nevada", and the date of incorporation,
"1990".
D. Fiscal Year. The fiscal year of the Corporation shall be the calendar
year.
II
CAPITAL STOCK
A. Classes of Stock. The authorized capital stock of the Corporation is as
set forth in its Articles of Incorporation, as amended from time to time.
B. Consideration for Shares. The capital stock may be issued for such
consideration as shall be determined by the Board of Directors. When the
consideration for which shares are to be issued has been received by the
Corporation, the shares shall fully paid and nonassessable. In the absence of
fraud in the transaction, the judgment of the Board of Directors as to the value
of the consideration received for shares shall be conclusive.
C. Certificates Representing Shares. Each holder of the capital stock of
the Corporation shall be entitled to a certificate evidencing the number of
shares owned by the shareholder. Signatures on certificates may be facsimile.
The validity of certificates shall not be affected by the fact that any officer
whose signature appears thereon ceases to be an officer of the Corporation.
D. Transfer of Stock. The Corporation shall register the transfer of any
stock certificate presented to it for transfer if the following conditions have
been fulfilled:
1. Endorsement. The certificate is properly endorsed by the registered
holder or by his duly authorized attorney-in-fact;
2. Witnessing. The endorsement or endorsements are witnessed by one witness
unless this requirement is waived by the Secretary of the Corporation;
3. Adverse Claims. The Corporation has no notice of any adverse claims or
has discharged any duty to inquire into any such claims; and
4. Collection of Taxes. There has been compliance with any applicable law
relating to the collection of taxes.
III
SHAREHOLDERS
A. Place of Meetings. Meetings of the shareholders of the Corporation shall
be held at the principal office of the Corporation, in Reno, Nevada, or at such
other place as may be designated by the Chairman of the Board of Directors or
President of the Corporation.
B. Annual Meeting. The annual meeting of the shareholders shall be held at
such time and date as may be designated by the Chairman of the Board of
Directors or the President of the Corporation. Failure to hold the annual
meeting at the designated time shall not cause a forfeiture or dissolution of
the Corporation.
C. Special Meetings. Special meetings of the shareholders may be called by
a majority of the Board of Directors, the Chairman of the Board of Directors or
the President.
D. Notice of Meetings -- Waiver. Written notice stating the place, day,
hour, and purpose of the meeting shall be delivered not less than ten (10) nor
more than sixty (60) days before the date of the meeting, either personally or
by mail, by or at the direction of the Chairman of the Board of Directors, the
President, the Secretary, or the Officer or persons calling the meeting, to each
registered shareholder entitled to vote at such meeting. If mailed, the notice
shall be considered to be delivered when deposited in the United States mail
addressed to the registered shareholder at the shareholder's address as it
appears on the stock transfer books of the Corporation, with postage prepaid.
Waiver by a shareholder in writing of notice of a shareholders' meeting shall be
equivalent to notice. Attendance by a shareholder, without objection to the
notice, whether in person or by proxy, at a shareholders meeting shall
constitute a waiver of notice of the meeting.
E. Quorum. A majority of the shares entitled to vote, represented in person
or by proxy, shall constitute a quorum at a meeting of the shareholders. The
shareholders present at a duly organized meeting may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum. Unless the Articles of Incorporation or these by-laws
provide for different proportions, the vote of stockholders who hold at least a
majority of the voting power present at a meeting at which a quorum is present
shall be the act of the stockholders. Shares which are present at a meeting, in
person or by proxy, but that are not voted on a matter and that do not indicate
an abstention on such matter shall not be considered shares present for purposes
of determining the voting power present on any such matter.
F. Proxies. A shareholder may vote either in person or by proxy executed in
writing by the shareholder or by his duly authorized attorney-in-fact. No proxy
shall be valid after six (6) months from the date of its execution, unless
otherwise provided in the proxy, and in no event shall a proxy be valid more
than seven (7) years after its execution unless it is coupled with an interest.
G. No Action By Written Consent. Shareholders may not take action by
written consent.
H. Nomination of Directors. Only persons who are nominated in accordance
with the procedures set forth in this paragraph H. shall be eligible to serve as
directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at an annual meeting of shareholders (a) by or at the
direction of the Board of Directors, or (b) by any shareholder of the
Corporation who is a shareholder of record at the time of giving the notice
provided for in this paragraph H. who shall be entitled to vote for the election
of directors at the meeting and who complies with the procedures set forth
below. Any such nominations (other than those made by or at the direction of the
Board of Directors) must be made pursuant to timely notice in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the anniversary date of the immediately preceding annual meeting; provided,
however, that in the event that the annual meeting with respect to which such
notice is to be tendered is not held within thirty (30) days before or after
such anniversary date, to be timely, notice by the shareholder must be received
no later than the close of business on the tenth (10th) day following the day on
which notice of the meeting or public disclosure thereof was given or made. Such
shareholder's notice shall set forth (a) as to each person whom the shareholder
proposes to nominate for election or re-election as a director, all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(including such person's written consent to being named as a nominee and to
serving as a director if elected), and (b) as to the shareholder giving the
notice (i) the name and address, as they appear on the Corporation's books, of
such shareholder, (ii) the class and number of shares of stock of the
Corporation that are beneficially owned by such shareholder, and (iii) a
description of all arrangements or understandings between such shareholder and
any other person or persons (including their names) in connection with such
nomination and any material interest of such shareholder in such nomination. At
the request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary of the
Corporation that information required to be set forth in a shareholder's notice
of nomination that pertains to the nominee. Notwithstanding anything in these
Bylaws to the contrary, no person shall be eligible to serve as a director of
the Corporation unless nominated in accordance with the procedures set forth in
this paragraph H. If the Board of Directors shall determine, based on the facts,
that a nomination was not made in accordance with the procedures set forth in
this paragraph H., the Chairman shall so declare to the meeting, and the
defective nomination shall be disregarded. Notwithstanding the foregoing
provisions of this paragraph H., a shareholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set forth in
this paragraph H.
I. Notice of Business. At any annual meeting of the shareholders, only such
business shall be conducted as shall have been brought before the meeting (a) by
or at the direction of the Board of Directors, or (b) by any shareholder of the
Corporation who is a shareholder of record at the time of giving the notice
provided for in this paragraph I., who shall be entitled to vote at such meeting
and who complies with the procedures set forth below. For business to be
properly brought before a shareholder annual meeting by a shareholder, the
shareholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a shareholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than sixty (60) days nor more than ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting; provided, however,
that in the event that the annual meeting with respect to which such notice is
to be tendered is not held within thirty (30) days before or after such
anniversary date, to be time on the Corporation's books, of the shareholder
proposing such business, (c) the class and the number of shares of stock of the
Corporation that are beneficially owned by the shareholder, and (d) a
description of all arrangements and understandings between such shareholder and
any other person or persons (including their names) in connection with such
business and any material interest of the shareholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at a shareholder meeting except in accordance with the procedures set
forth in this paragraph I. If the Board of Directors of the meeting shall
determine, based on the facts, that business was not properly brought before the
meeting in accordance with the procedures set forth in this paragraph I., the
Chairman shall so declare to the meeting, and any such business not properly
brought before the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this paragraph I., a shareholder shall also comply with
all applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder with respect to the matters set forth
in this paragraph I.
IV
BOARD OF DIRECTORS
A. Number of Directors. The Board of Directors of the Corporation shall
consist of such number of members, not less than three (3) and not more than
eleven (11), as shall be determined from time to time by the Board of Directors.
The members of the Board of Directors need not be shareholders. This paragraph
may be amended only by the affirmative vote of the majority of the issued and
outstanding shares of voting stock of the Corporation.
B. Vacancies. Except as otherwise provided in paragraph D. below, any
vacancy occurring in the Board of Directors may be filled by the unanimous vote
of the remaining Directors though less than a quorum of the Board of Directors.
If the vacancy is not filled in this manner, a special meeting of the
shareholders shall be called to fill the vacancy. A Director elected to fill a
vacancy shall be elected for the unexpired term of his predecessor in office.
C. Removal of Directors. Any member of the Board of Directors may be
removed and replaced by the affirmative vote of not less than seventy-five (75%)
of the issued and outstanding shares of voting stock of the Corporation. Any
Director elected to replace a Director who is removed pursuant to this
paragraph, shall be elected for the unexpired term of his predecessor in office.
D. Place of Meetings. Meetings of the Board of Directors, annual, regular,
or special, may be held within or without the State of Nevada.
E. Annual Meetings. Unless otherwise determined by the President and
noticed to the Board, the Board of Directors shall meet each year immediately
after the annual meeting of the shareholders, at the same place as the meeting
of the shareholders for the purpose of organization, election of officers, and
consideration of any other business that may properly be brought before the
meeting. No notice of any kind to either old or new members of the Board of
Directors for this annual meeting shall be necessary.
F. Other Meetings; Notice; Waiver. Other meetings of the Board of Directors
may be called at the direction of the President or the Chairman of the Board
upon notice by letter, facsimile, telegram, cable, or radiogram, delivered for
transmission not less than the third day immediately preceding the day for the
meeting, or by word of mouth, telephone, facsimile, or radiophone received not
less than the second day immediately preceding the day for the meeting.
G. Quorum. A majority of the number of Directors fixed by the Code of
Bylaws shall constitute a quorum for the transaction of business. The act of the
majority of the Directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors unless the action of a greater number
is required by law, the Articles of Incorporation, or the Code of Bylaws.
H. Action or Ratification of Action Without a Meeting. Any action that may
be taken or ratified at a meeting of the Directors or of a committee may be
taken or ratified without a meeting if a consent in writing, setting forth the
action to be taken or to be ratified, is signed by all of the Directors or all
of the members of the committee, as the case may be.
I. Loans. The Corporation shall have the following power with respect to
loans:
1. Loans of Funds, Generally. To loan money in furtherance of any of the
purposes of the Corporation, to invest the funds of the Corporation from time to
time, and to take and hold any property as security for the payment of funds so
loaned or invested.
2. Loans to Employees. To loan money to employees, officers, and Directors,
and to otherwise assist employees, officers, and Directors. Loans to members of
the Board of Directors shall be made only upon the approval of a majority of the
Board of Directors, excluding the Director to whom the loan is to be made.
J. Officers of the Board. The Board of Directors of the Corporation may, by
resolution adopted by a majority of the whole Board, designate one of its
members to serve as Chairman of the Board. The Chairman of the Board shall
preside over all meetings of the Board of Directors, and shall perform such
other duties as are prescribed from time to time by resolution of the Board. In
addition, the Board of Directors may designate a Secretary who shall be elected
or appointed by the Board from time to time and who may or may not serve as a
member of the Board of Directors. The Secretary of the Board shall maintain
formal minutes of all meetings and actions of the Board. The Secretary of the
Board shall, in addition, perform such other duties as are prescribed from time
to time by resolution of the Board.
K. Executive Committee. The Board of Directors may, in its discretion, by
resolution adopted by a majority of the whole Board, constitute a general
executive committee for the Board, appoint the members thereof, and specify its
authority and responsibility. The executive committee shall have such powers and
shall perform such duties as the Board may delegate to it in writing from time
to time, including the immediate oversight and management of the business
affairs of the Corporation, except that the executive committee shall have no
power to declare dividends or to adopt, amend, or repeal the bylaws of the
corporation.
The executive committee shall be organized and shall perform its functions
as directed by the Board and shall report periodically to the Board. The
committee shall act by a majority of the members thereof, and any action duly
taken by the executive committee within the course and scope of its authority
shall be binding on the Corporation.
The executive committee may be abolished at any time by the vote of a
majority of the whole Board of Directors, and during the course of the
committee's existence, the membership thereof may be increased or decreased and
the authority and duties of the committee changed by the Board of Directors as
it may deem appropriate.
L. Other Committees. The Board of Directors, at its discretion, may
constitute and appoint special committees of its members, in addition to the
executive committee, to assist in the supervision, management, and control of
the affairs of the Corporation, with responsibilities and powers appropriate to
the nature of the several committees and as provided by the Board of Directors
in the resolution of appointment or in subsequent resolutions and directives.
Such committees may include, but are not limited to, the following:
nominating/compensation committee, audit committee, finance committee, advisory
committee, membership or stockholders' committee, complaint committee, public
relations committee, public and/or governmental affairs committee, and employee
relations committee. Each committee so constituted and appointed by the Board
shall serve at the pleasure of the Board.
In addition to such obligations and functions as may be expressly provided
for by the Board of Directors, each committee so constituted and appointed by
the Board shall from time to time report to and advise the Board on corporate
affairs within its particular area of responsibility and interest.
The Board of Directors may provide by general resolution applicable to all
such special committees for the organization and conduct of the business of the
committees.
M. Ex-officio Committee Members. The Board of Directors may appoint any
person, whether or not he is a director, as an ex-officio member of any
committee. Any ex-officio member shall not be entitled to vote, and may be
removed by the vote of a majority of the Board of Directors.
N. Director-Emeritus. The Board of Directors may appoint as
Director-Emeritus any person who had served the Company as a Director. Any
Director Emeritus shall enjoy all rights and privileges of a Director, except he
shall not be entitled to vote on any matter and shall not receive compensation
as a Director except for attendance at meetings which he is requested to attend.
V
OFFICERS
A. Officers. The officers of the Corporation shall consist of a Chairman of
the Board, President, one or more Vice-Presidents, Secretary, Treasurer, and
such other officers and assistant officers and agents as may be considered
necessary by the Board of Directors, each of whom shall be elected by the Board
of Directors at its annual meeting. Any two (2) or more offices may be held by
the same person. Except for the Chairman of the Board of Directors, officers
need not be Directors of the Corporation. In the absence of contrary direction
by the Board of Directors, officers other than the President or the Chairman of
the Board may also be appointed by the President of the Corporation, to hold
office until the next annual meeting of the Board of Directors. The officers
shall each perform such duties as the Board of Directors (or the President)
shall prescribe.
B. Vacancies. Whenever any vacancy shall occur in any office by death,
resignation, removal, increase in the number of offices of the Corporation, or
otherwise, the vacancy may be filled by the President (as permitted under
subsection A) or by the Board of Directors, and the officer so elected shall
hold office until his successor is duly elected and qualified.
C. The Chairman of the Board. The Chairman of the Board shall have general
supervisory duties over the entire Corporation, including the Board of Directors
and the officers of the Corporation. The Chairman of the Board or his designee
shall preside at all meetings of shareholders of the Corporation and all
meetings of the Board of Directors.
D. The President. The President shall have active management of the
operations of the Corporation, subject to the direction of the Board of
Directors and the Chairman of the Board. In the absence of the Chairman of the
Board or his designee, the President shall preside at all meetings of
shareholders and Directors. The President shall supervise and direct the
day-to-day business and affairs of the Corporation.
E. Vice-Presidents. Each Vice-President shall have such authority and
responsibility as the Board of Directors may from time to time prescribe
F. The Secretary. The Secretary shall maintain a record of the proceedings
of the shareholders and of the Board of Directors. The Secretary shall be the
custodian of the records of the Corporation.
G. The Treasurer. The Treasurer shall keep the financial accounts of the
Corporation. The Treasurer shall safeguard all moneys, notes, securities, and
other valuables in the possession of the Corporation.
H. Corporate Bank Accounts. The President and Chief Financial Officer of
the Corporation, acting either individually or jointly, and any employee or
employees designated in writing by either of them are each individually
empowered, to act in the name and on behalf of the Corporation, to open accounts
and deposit and transfer funds of the Corporation and take any further action
and execute any documentation necessary or appropriate to open and continue any
of the foregoing accounts and to accomplish the foregoing.
VI
SPECIAL CORPORATE ACTS
(NEGOTIABLE INSTRUMENTS, DEEDS, CONTRACTS AND VOTING OF SHARES)
All checks, drafts, notes, bonds, bills of exchange, and orders for the
payment of money of the Corporation (together, "Checks"), all deeds, mortgages,
and other written contracts and agreements to which the Corporation shall be a
party, and all assignments or endorsements of stock certificates, registered
bonds, or other securities owned by the Corporation shall, unless otherwise
required by law, be signed only by the Chairman of the Board, the President or
by any Vice-President of the Company or the Chief Accounting Officer. Checks on
any of the accounts of any depository approved by the President or Chief
Financial Officer of the Corporation may be signed by any one or more officers
of the Corporation or by any other persons and who are so designated by either
the President of Chief Financial Officer of the Corporation. Any check for the
payment of money in excess of $25,000.00 shall require separate signatures from
two persons authorized above. Any signature on a Check may be a facsimile
signature, provided that any Check for the payment of money in excess of
$25,000.00 shall require at least one manual signature.
Any shares of stock issued by any other corporation and owned or controlled
by the Corporation may be voted by the Chairman of the Board, the President, or
any Vice President of the Corporation.
VII
INDEMNIFICATION OF OFFICERS, DIRECTORS,
EMPLOYEES, AND AGENTS
A. Actions Brought by Third Persons. The Corporation shall indemnify any
officer or Director and may indemnify any employee, or agent of the Corporation
who is a party or who is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or on behalf of the
Corporation, resulting from any alleged acts or omissions of the officer,
Director, employee, or agent while acting in the course and scope of the
person's duties, or while serving at the request of the Corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, from all liabilities and expenses,
including attorneys' fees, judgments, fines, and amounts paid in settlement
actually and reasonably incurred in connection with the action, suit, or
proceeding, if the person acted in good faith and in a manner which the person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the person's conduct was unlawful.
B. Actions Brought By Corporation. The Corporation shall also indemnify any
officer or Director and may indemnify any employee, or agent of the Corporation
who is a party or is threatened to be made a party to any threatened, pending,
or completed action, suit, or proceeding by or on behalf of the Corporation to
procure a judgment in favor of the Corporation as a result of any alleged acts
or omissions of the officer, Director, employee, or agent of the Corporation
while acting within the course and scope of the person's duties, or while
serving at the request of the Corporation as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust, or other
enterprise, from all expenses, including attorneys' fees, actually and
reasonably incurred by the person in connection with the defense or settlement
of the action, suit, or proceeding if the person acted in good faith and in a
manner which the person reasonably believed to be in or not opposed to the best
interests of the Corporation; provided, however, that no indemnification shall
be made with respect to any claim, issue, or matter as to which the person has
been adjudged to be liable for negligence or misconduct in the performance of
the person's duties to the Corporation unless and only to the extent that the
court in which the action, suit, or proceeding was brought determines upon
application that, despite the adjudication of liability, but in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for the expenses as the court deems proper.
C. Determination of Liability. The determination of the liability of the
Corporation for indemnification of any officer, Director, employee, or agent
pursuant to paragraph A. or B. above shall be made pursuant to the then existing
provisions of Nevada law.
D. Insurance. The Corporation may, but shall not be required to, purchase
and maintain insurance on behalf of any officer, Director, employee, or agent
against any liability asserted against the person as a result of any alleged
acts or omissions of the person within the course and scope of the person's
duties as an officer, Director, employee, or agent of the Corporation, including
attorneys' fees and costs. The determination of whether or not the Corporation
should maintain any such insurance shall be made by the Board of Directors.
VIII
AMENDMENTS
Except as otherwise specifically provided in this Code of Bylaws, the power
to alter, amend, or repeal this Code of Bylaws, or adopt a new Code of Bylaws,
is vested in the Board of Directors.
IX
EFFECTIVE DATE
The effective date of this Seventh Amended And Restated Code of Bylaws of
Reno Air, Inc., a Nevada corporation, shall be May 23, 1996.
CERTIFICATE OF SECRETARY
The undersigned the duly elected and acting Secretary of Reno Air, Inc., a
Nevada corporation, hereby certifies that the foregoing Seventh Amended And
Restated Code of Bylaws was duly adopted by the Board of Directors.
-----------------------------------
Robert M. Rowen, Secretary
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Reno Air, Inc. for
the registration of its common stock and to the incorporation by reference
therein of our report dated February 14, 1996, with respect to the financial
statements of Reno Air, Inc. included in its Annual Report (Form 10-K) for the
year ended December 31, 1995, filed with the Securities and Exchange Commission.
Ernst & Young LLP
June 14, 1996
Reno, Nevada
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated March 28, 1995
included in Reno Air, Inc.'s Form 10-K for the year ended December 31, 1995, and
to all references to our firm included in this registration statement.
Arthur Andersen LLP
Phoenix, Arizona,
June 17, 1996.
