UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
Commission File Number: 0-20360
RENO AIR, INC.
(Exact name of registrant as specified in its charter)
Nevada 88-0259913
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
220 Edison Way
Reno, Nevada 89502
(Address of principal executive offices)
(702) 686-3835
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /x/ No
Number of shares of common stock, $.01 par value, of registrant outstanding
at September 30, 1996: 10,326,646
<PAGE>
RENO AIR, INC.
------------------------------------------------------------------------
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1996 and
December 31, 1995 3
Statements of Operations -
Nine Months and Three Months Ended
September 30, 1996 and 1995 4
Statements of Cash Flows -
Nine Months Ended
September 30, 1996 and 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RENO AIR, INC.
BALANCE SHEET AT
September 30, 1996 AND DECEMBER 31, 1995
<CAPTION>
September 30, December 31,
1996 1995
----------- -----------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................ $ 26,612,298 $ 34,985,808
Short-term investments ................................... 1,973,793 2,944,188
Accounts receivable, net ................................. 29,179,758 18,237,295
Inventories and operating supplies ....................... 1,831,084 1,298,894
Prepaid expenses and other ............................... 17,339,038 14,597,564
----------- -----------
Total current assets ........................... 76,935,971 72,063,749
----------- -----------
PROPERTY AND EQUIPMENT:
Flight equipment ......................................... 60,721,028 11,061,841
Ground property and equipment ............................ 5,521,145 4,839,542
Less - Accumulated depreciation .......................... (9,167,581) (5,212,862)
----------- -----------
57,074,592 10,688,521
----------- -----------
RESTRICTED CASH AND INVESTMENT ................................ 7,576,126 2,150,327
DEPOSITS AND OTHER ............................................ 18,993,674 14,581,326
----------- -----------
$ 160,580,363 $ 99,483,923
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ......................................... $ 20,434,394 $ 17,245,930
Accrued liabilities ...................................... 23,166,248 14,419,993
Fuel purchase agreement .................................. -- 1,841,226
Air traffic liability .................................... 29,674,362 18,924,676
Current maturities of long-term debt ..................... 4,935,293 342,061
Current portion of deferred lease payable ................ 1,670,931 1,027,858
----------- -----------
Total current liabilities ...................... 79,881,228 53,801,744
----------- -----------
LONG-TERM DEBT ................................................ 50,486,652 28,755,019
----------- -----------
NON-CURRENT LIABILITIES ....................................... 11,822,126 8,024,021
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 30,000,000 shares
authorized, 10,326,646 and 9,974,800 shares
issued and outstanding at September 30, 1996
and December 31, 1995, respectively .................. 103,267 99,748
Additional paid - in capital ............................. 32,599,480 31,413,623
Accumulated deficit ...................................... (14,312,390) (22,610,232)
----------- -----------
Total shareholders' equity ..................... 18,390,357 8,903,139
----------- -----------
$ 160,580,363 $ 99,483,923
=========== ===========
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
RENO AIR, INC.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS AND
THREE MONTHS ENDED September 30, 1996 AND 1995
(unaudited)
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
1996 1995 1996 1995
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger .............................. $ 251,856,374 $ 180,275,133 $ 96,673,915 $ 70,188,887 $
Other .................................. 12,600,027 10,423,631 4,046,723 4,093,865
------------- ------------- ------------- -------------
Total operating revenues ..... 264,456,401 190,698,764 100,720,638 74,282,752
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Salaries, wages and benefits ........... 40,586,441 30,687,095 15,544,614 11,046,995
Aircraft fuel and oil .................. 48,269,372 32,516,175 18,894,508 12,086,041
Aircraft leases ........................ 44,713,350 36,745,832 16,233,471 12,762,232
Maintenance ............................ 19,705,815 12,478,398 7,575,312 5,767,659
Handling, landing and airport fees ..... 25,633,437 18,597,212 9,340,724 6,796,052
Advertising, sales and distribution .... 23,346,141 14,477,064 8,662,966 5,825,415
Commissions ............................ 14,881,212 12,537,524 5,560,222 5,175,305
Facility leases ........................ 8,320,222 6,672,370 2,946,754 2,235,107
Insurance .............................. 5,858,525 4,971,294 1,905,683 1,816,662
Communications ......................... 3,245,184 2,551,311 1,227,978 922,806
Depreciation and amortization .......... 3,976,289 1,869,916 1,608,953 678,168
Other .................................. 17,571,256 13,223,676 6,940,512 4,632,436
------------- ------------- ------------- -------------
Total operating expenses ..... 256,107,244 187,327,867 96,441,697 69,744,878
------------- ------------- ------------- -------------
OPERATING INCOME ............................ 8,349,157 3,370,897 4,278,941 4,537,874
NON-OPERATING INCOME (EXPENSE):
Interest expense ....................... (2,842,636) (1,190,155 (1,190,227) (419,460)
Interest income ........................ 2,227,819 1,396,360 775,433 570,998
Other, net ............................. 900,278 (1,849,852 1,083,140 (103,157)
------------- ------------- ------------- -------------
NET INCOME BEFORE INCOME TAXES .............. 8,634,618 1,727,250 4,947,287 4,586,255
INCOME TAX PROVISION ........................ 336,776 -- 199,455 --
------------- ------------- ------------- -------------
NET INCOME .................................. 8,297,842 1,727,250 4,747,832 4,586,255
PREFERRED STOCK DIVIDEND .................... -- 131,427 -- 127,196
------------- ------------- ------------- -------------
NET INCOME APPLICABLE TO COMMON STOCK ....... $ 8,297,842 1,595,823 4,747,832 4,459,059 $
============= ============= ============= =============
NET INCOME PER COMMON SHARE AND
COMMON SHARE EQUIVALENT
PRIMARY .............. $ 0.76 $ 0.17 $ 0.43 $ 0.42
============= ============= ============= ============
FULLY DILUTED ........ $ 0.74 $ 0.16 $ 0.39 $ 0.40
============= ============= ============= ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING
PRIMARY .............. 10,896,249 9,580,391 10,993,441 10,615,741
============= =========== ============= ============
FULLY DILUTED ........ 13,893,574 9,814,473 13,874,921 12,406,185
============= =========== ============= ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
RENO AIR, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED September 30, 1996 AND 1995
(unaudited)
<CAPTION>
Nine Months
Ended
September 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ............................................................. $ 8,297,842 $ 1,727,250
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization ........................................ 4,349,594 1,869,916
Common stock issued or to be issued for 401(k) Plan .................. 120,000 400,378
Fair value of incremental consideration on conversion of 7.25% notes . -- 1,391,692
Common stock issued as payment of interest on 7.25% notes ............ -- 101,970
Gain on sale of assets ............................................... (944,875) --
Increase in accounts receivable ...................................... (10,942,463) (6,351,721)
Increase in inventories and operating supplies ....................... (532,190) (546,432)
(Increase) decrease in prepaid expenses and other .................... (2,741,474) 251,755
Increase in restricted cash .......................................... (5,425,799) (347,535)
Increase in deposits and other ....................................... (4,412,348) (393,369)
Increase in account payable .......................................... 3,188,465 632,359
Increase in accrued liabilities ...................................... 8,626,255 1,302,712
Decrease in fuel purchase agreement .................................. (1,841,226) (11,139,267)
Increase in deferred lease payable ................................... 4,441,177 272,221
Increase in air traffic liability .................................... 10,749,686 5,970,928
------------ ------------
Net cash provided by (used in) operating activities ............... 12,932,644 (4,857,143)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of short-term investments ........................... 2,944,188 --
Proceeds from sale of assets ........................................... 2,500,000 --
Purchase of property and equipment ..................................... (39,970,633) (2,292,440)
Purchase of short-term investments ..................................... (1,973,793) (6,486,739)
------------ ------------
Net cash used in investing activities ............................. (36,500,238) (8,779,179)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of 9.00% Senior Convertible Notes ........... -- 27,197,766
Proceeds from exercise of stock options and warrants ................... 1,189,376 324,205
Proceeds from issuance of common stock ................................. -- 2,378,762
Proceeds from issuance of preferred stock .............................. -- 2,412,875
Proceeds from issuance of notes payable ................................ 15,183,000 465,511
Payments on notes payable .............................................. (1,178,292) (3,505,978)
Redemption of preferred stock .......................................... -- (2,412,875)
Preferred stock dividend and issuance costs ............................ -- (131,427)
------------ ------------
Net cash provided by financing activities ........................ 15,194,084 26,728,839
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................... (8,373,510) 13,092,517
CASH AND CASH EQUIVALENTS, beginning of period ............................. 34,985,808 9,103,564
------------ ------------
CASH AND CASH EQUIVALENTS, end of period ................................... $ 26,612,298 $ 22,196,081
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
RENO AIR, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. The results of
operations for the nine month and three month periods ended September 30, 1996,
are not necessarily indicative of the results that will be realized for the full
year.
NOTE B - INCOME PER COMMON SHARE
Income per share is computed by dividing the net income 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 - EQUIPMENT PURCHASES AND RELATED DEBT
In February 1996, the Company purchased an MD-87 aircraft that it
previously leased. The purchase was partially financed by the sellers with
approximately $10.4 million of debt secured by the aircraft payable over seven
years and bearing interest at LIBOR plus 2%. On July 2, 1996, the Company
purchased an MD-83 aircraft from BWIA International Airways Limited ("BWIA").
The purchase was partially financed with approximately $12.1 million of debt
secured by the aircraft payable over four years and bearing interest at LIBOR
plus 2.6%. The aircraft was leased back to BWIA until June 2, 1997, at which
point the Company intends to add the aircraft to its operations. Rental income
and related ownership costs for the BWIA aircraft are included in the statement
of operations as non-operating income (expense). In the first nine months of
1996, the Company purchased four spare engines and MD-90 spare parts for an
aggregate purchase price of approximately $13 million, of which an aggregate of
$5 million was financed with repayment over a period of three to five years at
interest rates equal to LIBOR plus from 2.85% to 3.15%. Of this amount
approximately $2 million was financed by the seller. Seller financing has been
excluded from the statements of cash flows for the nine months ended September
30, 1996.
NOTE D - SALE OF ASSETS
In September 1996, the Company sold a spare JT8D-219 engine for $2.5
million and recognized a gain on sale of $945,000. This gain is included in
non-operating income.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual
results could differ materially from those forward-looking statements.
In the first nine months of 1996, the Company significantly expanded
its operations with the addition to its fleet of three MD-90 aircraft, two MD-83
aircraft and one MD-87 aircraft and an increase in aircraft utilization. As of
September 30, 1996, the Company operated 29 aircraft, as compared to 23 aircraft
at the close of 1995. The Company has no commitments for additional aircraft in
the fourth quarter of 1996 and management intends to slow the Company's rate of
growth in 1997 (as compared to 1996), although such policy may change in
response to industry conditions or new opportunities.
The 10% federal excise tax on airline tickets, which expired December 31,
1995, was reinstated effective August 27, 1996. The tax was in part passed on to
consumers through higher gross fares. The extent it was passed on cannot be
determined due to the wide number of fare changes in the industry, both before
and after imposition of the tax. However, as a result of reimposition of the
tax, fare sales, and the traditionally weak traffic demands in the fourth
quarter, the Company's yields are currently below their levels prevailing in the
third quarter of 1996.
Extension of the tax beyond December 31, 1996, will require further
legislation. The Company cannot predict whether the tax will be extended, or the
impact on its financial results if the tax is not extended. Certain of the
Company's larger competitors have lobbied for imposition of a user fee in lieu
of the federal excise tax. Management believes that a user fee would likely have
a greater negative impact to the Company than the federal excise tax, because
the Company has lower average fares and a shorter average stage length (and thus
more passengers and departures per day) than industry average. However, the
impact of a user fee would depend on the structure of the fee, and the extent
the fee can be passed on to consumers.
Fuel prices increased significantly during the third quarter to an average
of 79 cents per gallon. Domestically, the increase was most pronounced on the
west coast, where the Company purchases substantially all its fuel. The Company
cannot predict changes in the price of fuel. In the future, the Company may
enter into fuel price hedging agreements to limit its exposure to sudden price
increases.
Effective October 1, the Company commenced service between Orange
County and San Francisco. Effective October 15, the Company commenced a
code-share arrangement with American Eagle, whereby American Eagle turbo-prop
flights to and from Los Angeles and San Diego are also marketed under the Reno
Air "QQ" code.
<PAGE>
<TABLE>
Selected Operating Statistics
<CAPTION>
Quarter Quarter Quarter
Ended Ended Ended
September 30, September 30, Percent June 30, Percent
1996 1995 Change (1) 1996 Change (2)
------------- ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Revenue passengers ........................... 1,390,089 1,140,427 22% 1,298,135 7%
Revenue Passenger Miles (RPM) (000) .......... 848,278 636,450 33% 769,876 10%
Available Seat Miles (ASM) (000) ............. 1,239,825 917,581 35% 1,169,078 6%
Passenger load factor (percent) .............. 68.4 69.4 -1% 65.9 4%
Breakeven load factor (percent) .............. 65.1 65.0 0% 63.4 3%
Revenue per passenger mile (cents) ........... 11.4 11.0 4% 11.2 2%
Passenger revenues per ASM (cents) ........... 7.8 7.6 3% 7.4 5%
Operating expenses per ASM (cents) ........... 7.8 7.6 3% 7.5 4%
Aircraft in service at end of period ......... 29 22 32% 28 4%
Total block hours ............................ 26,435 20,276 30% 25,254 5%
Average aircraft length of haul (miles) ...... 536 500 7% 537 0%
Average passenger length of haul (miles) ..... 610 558 9% 593 3%
Average cost of fuel (cen$s per gallon) ...... $0.79 $0.63 26% $0.74 7%
- ------------------------------------
(1) Percent change from quarter ended September 30, 1995 to quarter ended September 30, 1996.
(2) Percent change from quarter ended June 30, 1996 to quarter ended September 30, 1996.
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended Percent
September 30, 1996 September 30, 1995 Change (1)
------------------ ------------------ ----------
<S> <C> <C> <C>
Revenue passengers ........................... 3,786,877 2,992,427 27%
Revenue Passenger Miles (RPM) (000) .......... 2,263,359 1,568,575 44%
Available Seat Miles (ASM) (000) ............. 3,356,248 2,493,802 35%
Passenger load factor (percent) .............. 67.4 62.9 7%
Breakeven load factor (percent) .............. 65.2 62.3 5%
Revenue per passenger mile (cents) ........... 11.1 11.5 -3%
Passenger revenues per ASM (cents) ........... 7.5 7.2 4%
Operating expenses per ASM (cents) ........... 7.6 7.5 1%
Aircraft in service at end of period ......... 29 22 32%
Total block hours ............................ 72,447 56,254 29%
Average aircraft length of haul (miles) ...... 541 489 11%
Average passenger length of haul (miles) ..... 598 524 14%
Average cost of fuel (cen$s per gallon) ...... $0.74 $0.60 23%
- ------------------------------------
(1) Percent change from nine months ended September 30, 1995 to nine months ended September 30, 1996.
</TABLE>
Results of Operations
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1995
The Company realized net income of $8,297,842 or $.76 per share of
common stock, for the nine months ended September 30, 1996, as compared to net
income of $1,595,823 or $.17 per share of common stock, for the nine months
ended September 30, 1995. For the three months ended September 30, 1996, the
Company realized net income of $4,747,832 or $.43 per share, as compared to
$4,459,059 or $.42 per share, for the third quarter of 1995. The income
improvement is primarily attributable to year-over-year increases in revenue per
available seat mile ("RASM"). The Company's results also reflect a $945,000 gain
on sale of a spare engine in the third quarter of 1996, classified as
non-operating income. A non-cash, non-operating charge of $1.4 million was
recorded in the second quarter of 1995 related to the conversion of debt to
equity.
The significant improvement in results for the nine-months ended
September 30, 1996, as compared to the same period in the prior year, is
primarily attributable to the improvement in results for the first two quarters
of the year. The Company's results for the third quarter of 1996, although
improved over results for the same period in 1995, reflect higher fuel prices
and weak traffic and sale fares in September, which management believes
reflected industry-wide softness in passenger demand.
The Company's level of operations, as measured by available seat
miles, increased approximately 35% during the first nine months of 1996 as
compared to the first nine months of 1995, due to the addition of aircraft to
the Company's fleet, increased average aircraft length of haul and increased
aircraft utilization.
<PAGE>
Operating Revenues
The Company's operating revenues increased 39% in the first nine months
of 1996 as compared to the same period in 1995, due to a 35% increase in the
scope of the Company's operations (as measured by available seat miles), and a
4% increase in RASM.
The increase in RASM for the nine month period is attributable to a 4.5
percentage point increase in load factor (a 7% increase), partly offset by a 3%
drop in yield. Management believes passenger loads increased year over year
primarily due to increased customer awareness of and preference for the
Company's product, a stimulation of passenger demand by fare discounting and a
general increase in passenger demand resulting from a stronger economy. The
Company's load factor increased 4% in the third quarter of 1996 from the second
quarter of 1996 as a result of increased seasonal demand during July and August.
The Company's yields declined year-over-year primarily because of a 14%
increase in the Company's average passenger length of haul, continued
competitive pressure, and the Company's use of promotional fares in connection
with the significant expansion of its service. In July 1996, Southwest Airlines
initiated $25 fares for travel from August 19 through October 31. The Company
matched these fares only on a highly restrictive basis, thereby reducing their
negative impact on the Company's yields but increasing their negative impact on
the Company's load factor. In late September, the Company initiated a $29 fare
sale, which fares have been widely available and resulted in a significant
increase in the Company's load factor in October, although at low yields.
<PAGE>
Operating Expenses
The Company's operating expenses increased 37% in the first nine months
of 1996 as compared to the first nine months of 1995, resulting in the Company's
average cost per available seat mile increasing slightly from 7.5 cents in the
1995 period to 7.6 cents in the first nine months of 1996. Average cost per
available seat mile increased from 7.5 cents in the second quarter of 1996 to
7.8 cents in the third quarter of 1996. These increases are primarily
attributable to an approximately 23% increase in the cost per gallon of fuel.
Excluding fuel expense, the Company's cost per ASM remained the same for the
nine months ended September 30, 1995 and 1996.
Advertising, sales and distribution expense per ASM increased
year-over-year due to a greater use of third-party reservation services. The
Company is establishing a second reservation center in Las Vegas, which is
planned to be in operation in the second quarter of 1997, and is intended to
reduce the Company's third party reservations expense.
Maintenance expense per ASM increased by 18% between the nine month
periods on account of both (i) the impact in 1995 of a $1.6 million net
reduction in operating expense resulting from a credit to the Company's
maintenance reserves with respect to two leased aircraft and (ii) a smaller
portion of the Company's fleet continuing to be under manufacturer warranty.
The foregoing increases were offset in part by cost efficiencies
resulting primarily from the expanded scope of operations, an 11% increase in
average aircraft length of haul and an approximately 2% increase in average
daily aircraft utilization. In addition, the Company reduced its commission
expense by an increase in the percentage of passengers booked directly through
the Company's reservations facility.
For the three months ended September 30, 1996, the Company's operating
expenses increased 38% over the comparable period in 1995, resulting in the
Company's average cost per available seat mile increasing to 7.8 cents from 7.6
cents in the prior year's third quarter, primarily on account of the increase in
the cost per gallon of fuel and the other factors noted above. Excluding fuel
expense, the Company's cost per ASM was 6.3 cents in the third quarter of 1996
compared to 6.3 cents in the comparable 1995 period.
<PAGE>
The following chart lists the components of the Company's unit costs:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------------
1996 1995 % Change
------------ ------------- ------------
Operating Expenses per Available Seat Mile (cents)
<S> <C> <C> <C>
Salaries, wages and benefits 1.21 1.23 -1.6%
Aircraft fuel and oil 1.44 1.30 10.8%
Aircraft leases 1.33 1.47 -9.5%
Maintenance 0.59 0.50 18.0%
Handling, landing and airport fees 0.76 0.75 1.3%
Advertising, sales and distribution 0.70 0.58 20.7%
Commissions 0.44 0.50 -12.0%
Facility leases 0.25 0.27 -7.4%
Insurance 0.17 0.20 -15.0%
Communications 0.10 0.10 0.0%
Depreciation and amortization 0.12 0.07 71.4%
Other 0.52 0.53 -1.9%
------------ ------------- ------------
7.63 7.50 1.7%
============ ============= ============
</TABLE>
The Company's break-even load factor increased to 65.2% in the first
nine months of 1996 from 62.3% in the first nine months of 1995 due to the
decrease in yield and the increase in cost per ASM.
<PAGE>
Liquidity and Capital Resources
As of September 30, 1996, the Company's cash, cash equivalents and
short-term investments totaled $28.6 million, which reflects a decrease of $9.3
million from December 31, 1995. Also, the Company's working capital declined to
a $2.9 million deficit at September 30, 1996, as compared to working capital of
$18.3 million at December 31, 1995. The decreases in cash and working capital
are primarily due to the use of cash to purchase assets. Such purchases include
the downpayments on an MD-87 aircraft, an MD-83 aircraft and four spare engines,
as well as the purchase of MD-90 spare parts and the payments of lease deposits
on three MD-90 and three MD-80 aircraft. The increase in accounts receivable
from December 31, 1995 to September 30, 1996 reflects the increase in air
traffic liability during the period, resulting from the Company's larger scope
of operation and increased advance ticket sales.
In the first nine months of 1996, net cash provided by operating
activities totaled $12.9 million, compared to net cash used in operating
activities of $4.9 million for the same period in 1995. The difference is
primarily attributable to the increase in cash flow resulting from realization
of a larger net profit in the current year's period and the increase in air
traffic liability.
Cash used in investing activities (to purchase property and equipment)
in the first nine months of 1996, net of proceeds from the sale of short-term
investments, was $36.5 million, compared to $8.8 million used in investing
activities in the first nine months of 1995. The difference between the periods
is primarily attributable to the purchases in 1996 of the aircraft, spare
engines and spare parts, as noted above.
Cash provided by financing activities was $15.2 million in the first
nine months of 1996, arising from the financing of the capital acquisitions
described above and the exercise of stock options, compared to cash provided by
financing activities of $26.7 million, resulting from sales of common and
preferred stock, for the comparable period in 1995.
<PAGE>
The Company's leased aircraft are leased under operating leases with
remaining terms ranging from less than one to 18 years. In the first nine months
of 1996, the Company purchased one MD-87 aircraft that was previously leased to
it, and leased one MD-87 aircraft, two MD-83 aircraft and three new MD-90
aircraft under long term leases. The purchase of the MD-87 aircraft was
partially financed with $10.4 million of debt secured by the aircraft payable
over seven years and bearing interest at LIBOR plus 2%. In the third quarter of
1996, , the Company also purchased an MD-83 aircraft from British West Indies
Airways ("BWIA") and leased it back to BWIA. The purchase was partially financed
with approximately $12.1 million of debt secured by the aircraft payable over
four years and bearing interest at LIBOR plus 2.6%. The aircraft was leased back
to BWIA until June 2, 1997, at which point the Company intends to add the
aircraft to its operations.
In the first nine months of 1996, the Company purchased four spare
engines and MD-90 spare parts for an aggregate purchase price of approximately
$13 million, of which an aggregate of $5 million was financed with repayment
over a period of three to five years at interest rates equal to LIBOR plus from
2.85% to 3.15%. The Company agreed to sell a different spare engine owned by it
in the third quarter of 1996 realizing non-operating income of approximately
$945,000 and cash proceeds of $2.5 million.
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. The Company
is constructing a hangar in Reno to facilitate its light maintenance operations
in Reno; the hangar is scheduled to be operational by year end and will have a
total cost estimated at $3.7 million. The Company intends to finance
approximately $2.5 million of the cost of the hangar, but does not have firm
commitments for such financing.
Management believes the Company's cash position, together with cash
flow generated from operations, will be sufficient to meet the Company's
obligations and capital requirements for the next twelve months. Nevertheless,
airline results are highly sensitive to various factors, including the price of
fuel and the actions of competing airlines, either of which can materially and
adversely affect the Company's liquidity and cash flows. Management may seek to
raise additional funds through sales of equity or debt securities, on a secured
or unsecured basis.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits Page
11 Statement Re: Computation of Earnings Per Share for the
Nine Months and Three Months ended September 30, 1996 16
B. Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RENO AIR, INC.
DATE: November 12, 1996 By: /s/ PAUL H. TATE
----------------
Paul H. Tate
as Chief Financial Officer
and on behalf of Registrant
<TABLE>
Exhibit 11
Statement Re: Computation of Per Share Earnings
<CAPTION>
Nine Months Ended Three Months Ended
September 30, 1996 September 30, 1996
Fully Fully
Primary Diluted Primary Diluted
<S> <C> <C> <C> <C>
Weighted Average Shares Outstanding ..................... 10,211,249 10,211,249 10,322,972 10,322,972
Common Stock Equivalents:
Options ...................................... 619,757 736,654 607,698 612,872
Warrants ..................................... 65,243 65,243 62,771 62,771
Other Dilutive Securities:
7.25% notes ............................................. 5,428 1,306
9% Senior convertible notes ............................. 2,875,000 2,875,000
----------- ----------- ----------- -----------
10,896,249 13,893,574 10,993,441 13,874,921
=========== =========== =========== ===========
Net Income Applicable to Common Stock ................... $ 8,297,842 $ 8,297,842 $ 4,747,832 $ 4,747,832
Interest expense addback 9% senior convertible notes .... 1,942,397 652,192
----------- ----------- ----------- -----------
$ 8,297,847 $10,240,239 $ 4,747,833 $ 5,400,024
=========== =========== =========== ===========
Per Share Earnings ..................................... $ 0.76 $ 0.74 $ 0.43 $ 0.39
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Sep-30-1996
<CASH> 26,612,298
<SECURITIES> 1,973,793
<RECEIVABLES> 29,179,758
<ALLOWANCES> 0
<INVENTORY> 1,831,084
<CURRENT-ASSETS> 76,935,971
<PP&E> 66,242,173
<DEPRECIATION> 9,167,581
<TOTAL-ASSETS> 160,580,363
<CURRENT-LIABILITIES> 79,881,228
<BONDS> 50,486,652
0
0
<COMMON> 103,267
<OTHER-SE> 18,287,090
<TOTAL-LIABILITY-AND-EQUITY> 160,580,363
<SALES> 264,456,401
<TOTAL-REVENUES> 264,456,401
<CGS> 256,107,244
<TOTAL-COSTS> 256,107,244
<OTHER-EXPENSES> (900,278)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,842,636
<INCOME-PRETAX> 8,634,618
<INCOME-TAX> 336,776
<INCOME-CONTINUING> 8,634,618
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,297,842
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.74
</TABLE>
