Republic Airlines Annual Report 1984

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R
_
EJ!ublic AiRliNES
Annual Report 1984
Contents
Highlights ... . .. .. ............ .. ........ ........ 1
About Republic .... ... . .. ...... .................. 1
Letter to stockholders . . .............. .. .......... 2
Management's discussion and analysis .............. .4
Ten-year summary ............................ ... 4
Year in review ......... ........ .. ...... .... . . .. l 0
Route map ..... . ...................... ... . . .. .. 14
Financial statements .. . ...... . ...... ....... ...... 16
Auditors' report .. .... ..... . . . . .. ........ ....... 20
Notes to financial statements ............. .. .. .... . 21
Supplemental tockholder information ...... . . .... .. 26
Board of Directors and Officers ...... in ide back cover
Highlights
Operating Revenues ... .. ... . . . ...... . .. . .
Operating Profit (Loss) . .. ... .. .. .. ... ... .
Net Earnings (Loss) . . . . ...... . .. .. ...... .
Net Earnings (Loss) per Common Share ... . .
Revenue per Passenger Mile (Yield) ...... . .
Cash Provided From Operations . . . ... .. .. .
Stockholders' Equity (Deficit) . . .. . ... . . . . .
Revenue Passenger Miles . .. . . ....... . ... .
Passenger Load Factor .. . ..... . ... . .. ... .
Cargo Ton Miles .. ... . ......... ... .. ... .
Employees ........ . .. .. ..... . . ....... . .
1984
$1,547,232,000
$ 100,002,000
$ 29,511,000
$ .75
16.63C
$ 132,335,000
$ 8,640,000
8,594,040,000
50.2%
94,773,000
13,400
1983
$1 , 511 ,494,000
$ (31 ,017 ,000)
$ (111 ,031 ,000)
$ (4 .28)
14.41C
$ (73 ,821 ,000)
$ (22,381 ,000)
9,674,550,000
54.4 %
79,679,000
14,250
About Republic
Republic Airlines-one of the nation's 11 major carriers-provides con-
venient, dependable air service to the traveling and shipping public. In 1984,
Fortune magazine ranked Republic as the 13th-largest transportation company
in the United States.
Originally called Wisconsin Central Airlines , the Company inaugurated
scheduled service in February 1948. Four years later, the name was changed to North Central
to reflect route expansion into new cities in the Midwest. Southern Airways, which began opera-
tions in 1949, was merged into the Company in 1979, and the name became " Republic." Hughes
Airwest, another 30-year carrier, was acquired the next year.
Today Republic serves more than 100 cities in 34 states. Its 85 ,000-mile route system extends
coast-to-coast, and from Canada to the Cayman Islands in the Caribbean. Major connecting com-
plexes have been developed at Detroit Minneapolis/St. Paul and Memphis. (See the Republic Airlines
system map on page 14.)
In 1984, Republic carried 15 .3 million passenger 8.6 billion revenue mile . The airline's 160
aircraft-McDonnell Douglas MD-80s and DC-9s, Boeing 727s, and Convair 580s- make 1,040
departures daily.
Republic's growth and development since the early days re ult from the efforts of dedicated
employee and their legacy of quality airline ervice.
To our stockholders, employees and friends:
2
Republic Airline earned $29.5 million in 1984, the best
financial performance in the Company ' hi tory . Thi
repre ent an improvement of $140.5 mill ion when compared
with a lo of 111 million for the previous year. The
operating profit of $100 million al o wa a record , in
contra t to an operating lo of $31 million in 1983.
The e gain are the re ult of significant employee
commitment tc, the Company 's Partnership Plan, emphasis on
route realignment, and lowered operating costs . Employees
ha e been re ponsive to many changes in the past year.
Their dedication and willingness to meet new challenges
were crucial to Republic' financial improvement.
Agreement reached under the Plan save $100 million
annually through 1986. They include a 15 percent pay
reduction and wage freeze, an 8 percent improvement in
producti vity, lower pay scale for new hires, and part-time
taffing. In turn , employees are receiving stock in the
Company and a profit haring plan that contributes to their
future.
Republic' Partner hip Plan has several advantages. It
provide the time to implement effective marketing programs
and improve the ai rline' competitive position . In contra t,
many airline that asked for employee help received only
one-year conce ion . Management ha been able to change
it focu from day-to-day emphasis to a long-range program
to enhance the Company ' position as a major factor in air
tran portation.
During 1984 Republic strengthened management, improved
it financial tructure and introduced new marketing
trategies.
In April 1984, Daniel F. May was elected Chairman of
the Board and Chief Executive Officer. Stephen M . Wolf,
who joined the Company in February as Executive Vice
Pre ident, wa named President and Chief Operating
Officer. Later, to fill officer po itions re ulting primarily
from retirements even experienced airline executives
were added to management.
Empha i wa placed on more effective scheduling. Flights
were increased at the three major hubs: Detroit, Memphis,
and Minneapoli /St. Paul. Eight markets were added that
will become profit generator , each linked with one of the
hub . Service wa eliminated at 23 points which did not
contribute to overall ystem integrity. In 1985, nine new
market will be erved beginning in April .
A,\ _ _
_,
~,.
' .,,,
Innovative marketing programs were introduced, including
Business Fir t Cla - competiti ve with other carriers' first
class service, and only $15 above full coach fare. The
, .-,;,. ..- 4
" 'fii!,,. ;l,j , ~
.
'
,,
,j/
,/
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Company's Frequent Flyer plan was expanded to a
partnership with Pan American. Republic and Pan Am 's
frequent flyer credits are interchangeable. A trategic
marketing agreement was entered into with Simmon
Airline , including the purchase of an equity position
which will provide additional feeder traffic to Republic's
largest hub, Detroit.
The sale of $ 150 million in secured trust notes wa
planned during the fourth quarter and finalized in
February 1985. Proceeds were used to reduce floating-rate
bank debt and increa e working capital. This also enabled
the Company to add three long-range aircraft to the fleet.
A new adverti ing agency was selected to promote
Republic's quality service and convenient schedules, and
to support marketing objectives. Thi wa followed by the
introduction of a new corporate identity program to create
greater awarene of Republic a a profes ional,
contemporary airline.
The Company gratefully acknowledges the valuable
contribution of Alton F. Irby, Jr. , a director, who died in
December I 984. Thi prominent Atlanta insurance executive
and civic leader had served the airline ince 1952.
The accomplishments of the past year extend into 1985.
Route restructuring will continue as Republic add markets
that help to develop it three major hubs. We believe the
Company is being po itioned for ub tantially improved
financial performance in the future.
~7~
Daniel F. May 't
~
Chairman of rhe Board
6r{
Chief Execurive Officer
~.iq
President and
Chief Operaling Officer
March 7, 1985
3
Management's discussion and analysis
Re ult of operation
198-t c mpared with 1983
Th ub tantially higher yield
(revenue per cheduled pa enger mile)
of 16.63 cent in 1984 wa off et
In contra t, scheduled revenue
pa enger miles for 1983, particularly
the first ix months, were inflated. Thi
resulted from exten ive fare wars,
Th r omewhat by a decline in scheduled
. 9 4,
111
5 million
n in rea e
r venu pa senger mile from 9 .6
billion in 1983 to 8.5 billion (11.5 %)
in 1984, but the net effect wa an
increa of$27.3 million (2 %) in
1 .7 million pa eng r revenue to $1 .4 bill ion. The
decline in revenue pa enger mile
during 1984 re ulted primarily from
higher far level and fewer
promotional programs , a well as a
pecial promotion and the requirement
that all free travel earned in 1982,
under the Company's Frequent Flyer
Program, be taken by March 31 , 1983 .
The Company changed its Frequent
Flyer Program in 1983 to avoid
concentration of passenger u ing free
travel during a particular period .
Ten-year
OPERATIO
ting
ting
ting
rnin
rnin
Curr nt
er
I ,
I l
e
kh
n
n
a
n
argo
tino
and
y.
f
illion
by
n
al o a
4.2 % decrea e in cheduled available
eat mile.
Average yield increased from 14.41
cents per mile in 1983 to 16.63 cent
in 1984, a 15.4% improvement. For
the fir t half of 1983 , the airline
industry wa engaged in wide pread
fare wars. The Company matched the
summary
1984 1983
usands . C'l cpl per hare)
. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . .
. . . . . . . . . . . . ... . ....... . .. . . .. $1 ,547 ,232 $1 ,511 ,494
....... . .... ......... .. ... . ... . . . . . . . . . . . ..... . . . ..... . ...... 1,447 ,230 1,542,511
) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . ... . '
. .... . . .. . . . .. 100 002 (31 ,017)
........ . . .. . . ....... .. . . . . . ..... ... . .... ..... '
..... . ..... . .. 29,511 (111 031)
) p r C mrnon hare- Primary . . . . . . . . .
. . . '
... . .. .... ... . .......... .76 (4.28)
- Fully diluted . . '
.......... . .... .. . . . .. .. . . . . . . .75 (4 .28)
IAL DA TA (in thou and . c ccpt per hare)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. '
. ... . . ... ..... $ 302,796 263 ,067
ipmcnt- nct .... . . ............... .. . . . .... . ... . ..... . ...... . .. . ... 761 678 829,830
. . . . . . . '
..... . ........... . . ... . ... .. . . . . . . .. '
.... . . ... .. . . .. . ... 1,084,909 1,108,672
apital lea e obligation .. ...... . .. .. .... . . .. . . . ... ... . . . . . . 675 ,215 759 395
ck of ub idiar ...... . . . . . . . . ... . . . .. .. ... . .. . .. . . . . . . . .. 28 ,000 28,000
,cit) ... . . . ...... .. ... . . 8,640 (22 ,381 )
of ommon tock ............ .. . . .. ... ... . . . .. . ..... . .....
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . '
. . . .. . . . . ........ . .. . .. . 15 ,257 ,000 17,787 ,000
00) ... . .......... . .............. . . . . .. . . . . . . . . . . . . .... . . .. .. . . 8,594,000 9,675 ,000
(000) . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . '
... . . . . . . . ... .. . . . . 17, 113,000 17,773 ,000
t r .. .. . . . ... . ... . .... . ................... ... . . . . .. . . . . ..... . . 50.2 % 54.4 %
000) . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .... . ... .. ........ . ... ...... 95 ,000 80,000
rrorn 0-tob r I . 19 0, Rcpuhlil A1r!Jnc, \\ c, 1. Inc. a
~ 111 n!Jda1ed ub 1d1ar~ ac4u1rcd on 1ha1 d,11c. 1, included
4
deeply discounted fare of competitors
to maintain it market hare. Al o, free
flight were offered in certain
promotions to timulate traffic. These
activitie decrea ed yield significantly,
while generating a high level of
revenue passenger mile .
Since the fir t half of 1983 , the
Company has been able to maintain
higher fare level in mo t of it
markets . However, yield decreased
lightly in the la t ix month of 1984,
to 16.52 cent per mile from 16. 74
cents in the first half of the year. This
downward trend wa caused by
matching the di counted fares initiated
in ome of the Company 's market by
new entrant , including low-cost
operators.
1982 1981
$ 1,530,668 $ 1,448,416 $
1,493,445 1,431 ,960
37,223 16,456
(39,861 ) (46,269)
( 1. 99) (2.30)
( l. 99) (2.30)
$ 328,640 263,296 $
846,036 882 ,196
In January 1985 , the Ultimate Super
Saver Fare was introduced by a major
carrier and matched by others
including the Company. The fare
represents a di count of up to 70 %
from full coach fare with minimum
tay and advance re ervation
requirements, and cancellation
penaltie . Introduction of thi fare is
intended to timulate lei ure travel and
r ult in an overall increa in revenue
ev n though yield ar lower.
Other operating rev nues increased
7.7 million (16.5 %) to 54.3 million .
Increase in charter revenue, pace and
equipment rental and ground handling
and contract maintenance revenue
more than off et the $9 mill ion
reduction in public ervice revenue .
Since October l , 1983 , none of the
1980* 1979 1978
916,715 609 ,230 $ 487 ,565
903 ,491 581 ,177 444,756
13,224 28,053 42,809
(24,662) 13 061 24 ,571
(1. 19) .70 1.42
(1 . 19) .68 1. 31
249 ,010 144,691 107,764
778 ,375 399 632 3 14 054
1, 186,174 1,154,567 1,036,226 549,381 428 424
797 ,287 722,434 652,257 263,035 196,637
28,000 28,000
27,938 72 ,348 117,627 145 514 113 ,288
.10 .20 .20 .16
18,075 ,000 16,841 ,000 13 ,220,000 12 ,156,000 11 ,143 ,000
9,231 ,000 7 ,641 ,000 4 ,760 000 3,847,000 3,364,000
16,585 ,000 15 ,119,000 10 185 ,000 7 479 ,000 6,010,000
55 .7 % 50.5 % 46.7 % 51.4 % 56.0 %
65 ,000 51 ,000 37,000 32,000 28 ,000
$
$
cities served by the Company ha been
eligible for public service revenue.
Salaries and benefits decrea ed $74.6
million (12.8 %) during 1984. Of this
amount, $8. 7 million relate to a
change in actuarial as umption for all
defined benefit pension plan . The
balance is attributable to the effects of
pay reduction and productivity
improvement agreements negotiated
with all employee groups under the
Company 's Partner hip Plan.
The wage freeze and the 15 % pay
reduction effective in September 1983,
have been extended by agreements with
all employee groups. The new contract
contain additional concessions in the
form of various productivity
improvement or extra wage cuts.
1977 1976 1975
388,634 $ 331 ,3 15 $ 281 ,574
360,839 312,024 266 ,083
27,795 19,291 15,491
23,038 8,004 8,065
1.38 .48 .48
1.23 .43 .43
89,088 $ 71 ,362 $ 66,329
235 ,671 195 ,807 158,277
330 ,336 271 ,536 230,612
142,648 129,51 2 102,173
89 ,266 67,247 60,281
.12 .10 .10
9, 180,000 8,397,000 7,685 ,000
2,584 000 2 ,304,000 2 ,054,000
5,152 ,000 4 ,617,000 4 ,141 ,000
50.2 % 50.0 % 49 .6 %
23 ,000 22,000 19,000
s
Management's discussion and analysis (continued)
Amendable contract date now range
from September 30, 1986 to March
31 , 1987. The concessions are expected
to result in saving of $100 million
annually. Average number of
employee during 1984 declined by
5.4 % compared with 1983.
Aircraft fuel expense decrea ed by
$31. 5 million (8 .1 % ) due to a drop in
the average price per gallon from 88. 3
cents to 84.4 cents (4.4 %) and a
decrea e in consumption of 3. 8 % .
Depreciation and amortization increased
4. 8 % to $7 4 million because new
aircraft were acquired during 1983.
Other operating expense increased
$7.8 million (3.4 %) in 1984. Of this
total , selling and marketing expense
(including co-host fees for computer
reservations systems) increa ed $5 .1
million (23. 7 % ) . Advertising expense
decreased $7. 3 million (22 .4 % )
primarily because numerous promotions
initiated in 1983 were eliminated. The
major route realignment in 1984, which
included new service to eight
de tinations and uspension of
operation at 23 points, contributed to
the 6 .4 million increase in personnel
and relocation expen e and outside
ervice purchased.
In 1983 , $13 million was realized
from the sale of tax benefits. The
Company does not expect to be able to
sell tax benefits in the future. In 1984,
gain on disposition of equipment totaled
$17.3 million, compared with $920,000
in 1983 . Interest expense declined
$850 000 to $97 million while interest
income from temporary cash
investments increased $4.4 million.
The Company had income tax
expen e of $15.8 million in 1984. By
utilizing tax loss carryforwards, the
Company recorded $15.8 million as an
extraordinary item in the financial
tatements. o income tax expense was
reported in 1983 because a net loss was
incurred.
1983 compared with 1982
The Company had a net loss of $111
million , compared with a $39.9 million
los in 1982. The $71.1 million change
wa attributable to a decrease of $19.2
million (1. 3 % ) in operating revenues,
an increa e of $49. 1 million (3. 3 % ) in
operating expenses, and an increase of
$2. 9 million (3. 8 % ) in net other
expenses.
Although scheduled revenue
pa senger miles increased to 9. 6 billion
from 9.2 billion (4.3 %) in 1982, yield
declined to 14.41 cents from 15.29
cents (5.8 %) in 1982, which produced
the decrease in passenger revenues. In
the fourth quarter of 1982, several
airlines began offering deeply
di counted fares which the Company
was forced to match. While availability
of discount fares increased during the
fir t half of 1983, many of the fare
did not cover associated costs. To
stimulate traffic, free flights were
offered to fare-paying pas engers in
certain promotions and thi decreased
yield level .
Other operating revenues were down
because of a $9. 7 million decrease in
public service revenues. The change
reflects withdrawal of service from
unprofitable eligible cities and
government termination of public
service revenue for the remaining
eligible cities on October 1, 1983.
Operating expenses increased by
$49. 1 million (3. 3 % ) over 1982.
Salaries and benefits increased by
$40. 9 million. This was due to a 1. 8 %
growth in the average number of
employees in 1983 and to wage
increases which followed the temporary
OPERATING EXPENSES
9.5
DISTRIBUTION OF OPERATING
EXPENSES - 1984
Fuel 124.9%
1980 1981 1982 1983 1984
6
5.1% Depreciation and
Amortization
16.3%
Other
11.5% Maintenance
Agency Commissions
Food Service
Rentals and
Landing Fees
10 % pay reduction and wage freeze in
the first five months of 1982. Effective
in September 1983, employees agreed
to a 15 % pay cut and wage freeze
which reduced costs by approximately
28 million.
Although aircraft fuel consumption
increased 5 .2 % , related expenses were
down $19 .4 million because of a 9 .4 %
drop in fuel prices. Average price per
gallon was 88.3 cents , compared with
97 .5 cents in 1982.
An $8 . 8 million increase in the cost
of maintenance material and repairs
occurred in 1983 because of the greater
number of aircraft engine repairs and
modifications completed in order to
increase jet engine fuel efficiency.
Advertising expense was up $5 million,
compared with 1982, as the Company
continued to market its service
aggressively and build name
recognition.
Net interest expense was down $2.9
million , largely due to the decreasing
prime rate. The cancellation of the
Company 's obligation to McDonnell
Douglas Corporation for six MD-80
aircraft on order resulted in net
expenses of $1.4 million, due to the
reversal of capitalized interest on pre-
delivery deposits, and $2 million of
other charges.
LABOR COSTS
Inflation and changing prices
For information concerning the
effect of changing prices and inflation
on the Company ' operation , see
'' Supplemental tockholder
information," page 26.
Liquidity and capital resources
During 1984, the Company had net
earnings of 29.5 million . As of
December 31 , 1984 there is $8.6
million of stockholders' equity,
compared with a deficit of $22.4
million at December 31 , 1983.
Operation generated cash of $132.3
million. Cash and short-term cash
investment increased to $123.1 million
at December 31 , 1984, from 59.8
million at December 31 , 1983,
principally from operations.
Since 1981 , the Company has
supplemented its working capital and
conserved ca h primarily by the means
discussed below.
1. Reduction of Salaries and Wages.
In February 1982, a majority of
employees agreed to a one-month pay
deferral totaling $24 million which the
Company has repaid ($4. 7 million by
(Salaries And Benefits)
issuing 1 083 ,469 hares of common
stock at market value and the balance
in ca h). In September 1983, all
employees accepted a wage freeze and
15 % wage reduction. During 1984,
the e concession agreements were
extended with amendable dates in late
1986 and early 1987 for all employee
group including management, and
contained additional productivity
conce ions.
In exchange for the concessions the
Company will provide 5,529,195 share
of common stock, 2,170,000 callable
warrants to purchase common tock at
$10 per hare, and a profit-sharing
arrangement in the form of a new class
of participating, non-cumulative, non-
voting junior preferred stock. The
$72. 3 million of preferred stock allows
the employees to share in 15 % of the
Company ' profit (operating profit, less
interest expense and income taxes) in
excess of $20 million. The profit-
sharing distribution cannot exceed
$10. 8 million in any one year. These
securities will be contributed to one or
more trusts for the benefit of
employees. The issuance of the
securities is subject to compliance with
legal and regulatory requirements. In
addition, the Company has agreed not
JET FUEL PRICE
Cents Per Available Seat Mile Average Cost Per Gallon
$1.04
3.3
3.0 84
1980 1981 1982 1983 1984 1980 1981 1982 1983 1984
7
Management's discussion and analysis (continued)
to pa dividends on common tock
through December 31 1986, and to fill
one position on the Board of Directors
with an individual of national
prominence to be cho en by agreement
of all the Company's union groups and
rea onably acceptable to the Company 's
Board of Directors. As of the date of
thi report, the board member has not
yet been selected by the union groups.
2. Pension Contribution Waivers.
Pur uant to waivers granted by the
Internal Revenue Service, the Company
deferred pension funding payments
totaling $4 7. 1 million which were due
to be paid to pension plan for its
employees for the year 1981 and
1982. Payment of the 1981 and 1982
deferred amount plus intere t is being
funded over a 15-year period ,
commencing in 1983 .
As part of the recent labor
negotiations, the Company and the
pilot ' union agreed that the Company
may terminate the pilots' pen ion plan.
Termination of the plan is subject to
the appro al of the Internal Revenue
Service and the Pension Benefit
Guaranty Corporation. In connection
with thi agreement, the Company has
also received a waiver of the 1983
funding obligation of $21.8 million for
this pilots' pension plan. The
Company's obligation to fund its
accrued pension liability for the pilots'
plan is expected to be eliminated
becau e the assets of the plan are
expected to exceed the fully vested
benefits, when computed based upon
actuarial assumptions appropriate for a
plan termination. The elimination of
the e accrued pension liabilities should
result in an aggregate extraordinary gain
of approximately $55-65 million, which
is expected to be reported in 1985. As
part of this agreement, the Company
has established defined contribution
retirement and health benefit plans for
the pilots to replace the defined benefit
plan cheduled to be terminated in
1985. The 1985 expense under the new
plan will be comparable to the 1984
expense for similar benefits which was
reduced by changes in actuarial
assumptions for the defined benefit
plan. Contributions for 1983 relating to
other pension plans have been funded.
3. Sale of Tax Benefits, Aircraft and
Other Property.
During the years 1982-1984, the
Company received net proceeds of
$30. 8 million from the sale of tax
benefits for new flight equipment
acquired by the Company and $48.1
million from the disposition of aircraft
and other property. Of these net
proceeds, $27 .1 million was used to
repay indebtedness, $30.8 million was
applied to the purchase of new aircraft,
and the balance was used for working
capital. Due to changes in the tax laws,
the Company is no longer able to sell
tax benefits for new property which it
acquires.
4. Issuance of Securities.
In December 1982, the Company
issued $75 million face value of
10-1/8 % Convertible Senior
Subordinated Debentures and received
net proceeds of $71 million. In June
1983, through a unit offering of
7,480,000 shares of common stock and
3,740,000 warrants to purchase
common stock, the Company received
net proceeds of $58.3 million. The net
proceeds of these two offerings were
used for working capital.
CAPACITY UTILIZATION
AVERAGE PASSENGER TRIP
17 .8
563
16.6 17 .1
15.1
10.2
% Capacity
-
Utilized
46.7 50.5 5 5 .7 54.4 50.2
1980 1981 1982 1983 1984 1982 1983 1984
The Company i highly le eraged. At
December 31, 1984, the Compan had
long-term debt and capital lea e
obligation , including current maturitie
of 743.6 million. Interest rate float
with prime on 49. _ % of this debt.
At December 31. 1984, the Compan
had borrowed the maximum amount
available under its Ban1c Credit
Agreement with twel e ban1c . The
borrowings are ecured by lien on
mo t Compan owned aircraft, engine
and ground equipment. and certain
account recei able. The financial
covenant of the Bank Credit
Agreement include debt-to-equity ratio
and net worth requirements, a cash and
hart-term cash inve tment minimum,
limitations on capital expenditures and
additional debt. and restrictions on the
payment of common tock dividend .
During mo t of 1984, the Compan
obtained monthly waivers of certain
financial covenant .
The Company and the participants in
the Bank Credit Agreement ha e
amended the financial covenant which,
ba ed on a urned operating re ult .
ill allo the Compan to remain in
compliance o er the remaining term of
the loan. The minimum tangible net
worth requirement-the mo t re tricti e
of the financial covenant -i ba ed on
projected re ult of operation . To
remain in compliance with minimum
tangible net worth requirement for
19 85 . the Com pan mu t achie e net
income of approximately 21 million
(exclu i e of an e traordinar gain
from termination of the pilot ' pen ion
plan). In addition, monthl re ults of
operation cannot be belo projected
re ults b more than $15 million in an
one month .
In February 1985, the Company old
150 million of Senior Secured Trust
ates ($75 million due Februar 1,
1990. at 14.625 % and 75 million due
February 1, 1993, at 15.125 %) . The
proceeds were used to prepa 110
million under the Bank Credit
Agreement with the net balance of $35
million. after expenses of 5 million ,
u ed to increa e working capital. The
Trust ote are secured b 31 aircraft
DAILY DEPARTURES
(December)
144
1.9 1.9
1.7
122
108
97
HU 94 1.2
nu .flU H
hich previou ly were pledged a
collateral under the Ban1c Credit
Agreement and relea ed by the bank
participant in con ideration of the
$110 million prepa ment.
In February 1985. the Company
lea ed three used Boeing 727-200
aircraft for u e in cheduled operation
which will be accounted for a
operating lea e . The lea e e pire in
Ma 1986 and can be extended until
December 1986 under certain
circumstance .
The Compan periodicall acquire
computer equipment, ground property
and equipment, and lea ehold
impro ements. The timing and source
of future capital need cannot be
estimated at pre ent. The amount of
capital expenditure and debt i ubject
to re triction contained in the Bank
Credit Agreement.
PASSENGERS
(Millions)
1.5
ttlll 1.1 1.1
Hill
Minneapolis/St Paul Detroit . Memphis Minneapolis/St. Paul Detroit Memphis
9
_ R
_EP-ublic AiRLiNES
Year in review
Strengthening management
Republic Airlines set the stage in
1984 for accomplishing three important
goals: strengthened management,
improved operations, and innovative
marketing. These areas are producing
positive results which affect the entire
operation.
In April 1984, several changes
occurred in the Company's senior
management. Hal N. Carr, who guided
the airline's progress for 30 years as
chairman of the Board of Directors and
earlier as president, became chairman
of the Executive Committee. Daniel F.
May, president and chief executive
officer, was named chairman and chief
executive officer. Stephen M. Wolf,
who joined Republic in February 1984
as executive vice president, was elected
president and chief operating officer.
Mr. Wolf, 43 , brings to the
Company extensive airline expertise in
operations and marketing. He has
served as president of Continental
Airlines and senior vice president-
marketing of Pan American World
Airways. He was with American
Airlines marketing department 15 years
and became vice president-Western
division.
During 1984, Mr. Wolf has been
rebuilding Republic management with
talented, experienced industry
executives to fill vacancies resulting
primarily from retirements. The
number of corporate officers has been
reduced from 26 to 19.
A. B. Magary, 42, was named senior
vice president-marketing. He is
responsible for marketing, pricing,
scheduling and reservations. He was
vice president-sales and marketing at
Hyatt International Corporation.
Previously he served Pan Am for 14
years as vice president-marketing, and
earlier in a variety of operating and
marketing responsibilities.
Arnold J. Grossman, 49, joined the
Company as vice president-marketing
systems, after a 25-year industry career
that included senior positions at
Continental and Pan American.
W. Thomas Lagow, 43 , now
Republic's vice president-marketing
planning, spent 18 years at Trans
World Airlines, becoming vice
president-scheduling.
The quality of passenger service
offered by Republic in flight and on the
ground is the responsibility of Bruce R.
Nobles, 38, who was named vice
president-customer service. He had
been marketing controller at Pan
American for two years, after serving
16 years with American.
Gary H. Lantner, 35 , formerly with
Continental and the Port Authority of
New York, was named vice president
and secretary. He is in charge of
corporate affairs , which includes
computer and communications service,
corporate budgeting, properties and
facilities , purchasing, and a new in-
house legal department. Paul C.
Jasinski, 39, who has been in the
industry 12 years with United Air
Lines and Trans World, heads the legal
department as general counsel and
assistant secretary.
Lee R. Mitchell, 47, joined the
Company in March 1985 as vice
president-computer and communications
service. During his 24 years in this
field , he served five years at Flying
Tiger Line and four with the
International Air Transport Association.
Other changes include the promotion
of Gramer D. Foster, 57, a 30-year
Republic employee and former line
captain, from vice president-flight to
senior vice president-operations, with
overall responsibility for Republic's
flying operations, as well as the
maintenance and engineering division.
Raymond W. Sellwood, 56, who joined
the airline in 1958 and has served as a
line captain and senior director-flying,
was named vice president-flight.
Position restructuring has occurred
throughout Republic's middle
management group. Functions have
been combined for efficiency, and some
jobs eliminated. Stringent cos .. controls
are in place, and management budgets
from a zero base.
Support for the Company by its
employees and union leaders has
received nationwide attention. Their
participation in the Company's
Partnership Plan includes agreements
on wages, productivity, and stock
ownership. Employees display pride
and professionalism in their work.
Communications move swiftly
throughout the airline. Management is
committed to keeping personnel
informed about their Company, its
problems, and its opportunities. A daily
news bulletin sent on the internal
communications system, a bi-weekly
newspaper to the residence, and a
24-hour telephone message line reach
Republic employees and their families .
Human resources are an integral
element for profitability. Thousands of
Company employees have worked
diligently during the six exceedingly
difficult years since deregulation of the
industry. As a turn is made toward
continued profitability, Republic
employees are eminently qualified to
support and strengthen this progress.
Marketing effectively
Innovative marketing techniques are
being introduced to make the traveling
public more aware of Republic
Airlines. The Company is emphasizing
its quality service and convenient flight
schedules. The supporting marketing
programs seek to retain the loyalty of
present passengers and to per uade new
traveler to try Republic.
To promote this marketing trategy , a
new advertising agency, Dancer
Fitzgerald Sample, New York, was
selected in June 1984. As one of the
nation's leading agencie , the firm is
well-known for the support given such
accounts as Toyota and Wendy 's, with
its attention-getting "Where's the
beef! '' campaign. Already developed
by the agency is Republic' " Perks "
program that focuse on amenities for
the business passenger.
Republic's primary traffic base is
400,000 business travelers- many of
whom fly 30 or more times a year.
This important source receives specific
attention from the Company 's Frequent
Flyer program. In 1984, thi wa
expanded to a partnership with Pan
American. Republic's frequent traveler
earn credit for free travel on Pan Am,
as well a on Republic. Similarly, Pan
Am WorldPass members can log
mileage on both Pan Am and Republic.
Of pecial appeal to frequent
travelers is the Company 's " Busines
First Cla s'' which offer the comfort
and extra ervice of fir t cla travel at
a co t of only $15 above full coach
fare . As more employer prohibit u e
of first class because of its high cost,
Republic's Business First Cla s stands
out as a major transportation bargain.
To increase revenues, Republic is
relying heavily on improved
cheduling- flying when and where the
public demands. In 1984, ervice was
inaugurated at eight new destinations:
Hartford/Springfield, Buffalo/ iagara
Falls, Rochester ( .Y.), Fort Wayne,
South Bend, Indianapolis, Oklahoma
City and Tulsa, while 23 point that
did not contribute to overall system
integrity were eliminated. Increased
attention was given to trengthening the
three major hubs : Detroit, Minneapolis/
St. Paul and Memphis. At each of
these travel center , Republic offers
more daily flight than any other
carrier.
This year, service to Pittsburgh i
being inaugurated April 1. With the
major chedule change April 28 , eight
other markets will be added: John F.
Kennedy International Airport,
Syracu e Albany ( .Y.), Erie,
Louisville, Little Rock, Shreveport, and
Appleton. This expansion will provide
even more traffic to the hubs. Detroit
departures will increase from 149 to
177; Minneapolis/St. Paul, from 123 to
153; and Memphis , from 97 to 147.
Be ide good flight schedules and
quality ervice, the Company is
promoting it name and a contemporary
corporate image. To build recognition
of the word, ''Republic,'' the stylized,
dark blue letters are under cored with a
brilliant red stripe. A newly de igned
aircraft exterior features a bright-white
plane with the Republic name in large
letters below the window line. A red
stripe highlights the fuselage , and the
under ide is painted gray. The tail
ection al o presents the name,
underlined by red and gray triping.
The e corporate colors and the
distinctive name are being used at
ticket counters and passenger boarding
areas, on ground equipment, and for all
printed materials.
Complementing the new corporate
look are navy blue uniform for
pa enger ervice agents- imilar in
appearance to the attractive uniform
worn by flight attendants. Station
agent line mechanic , fleet ervicers
and custodian oon will be wearing
new navy uniforms.
The airline has ubstantial identity
out ide North America and plan to
capitalize on this . With entry into ew
York' Kennedy airport, the Company
will utilize the Pan American terminal
and continue to build up ervice to the
Detroit and Minneapoli /St. Paul hub .
11
Year in review (continued)
Republic can then originate traffic
de tined for Europe and the Middle
Ea t by providing convenient
connections at ew York. Passengers
to the United State would be booked
on Republic for domestic points not
erved by Pan Am.
The Company has ale offices
throughout Europe, the Middle East, the
Far Ea t, Southea t A ia and Au tralia.
Marketing efforts in these areas are
generating revenue from visitors bound
for the States who otherwise would fly
with competitors. This overseas market
offer another growth opportunity, as
Republic serves every major gateway to
the United State .
Although dome tic business
pa engers remain the Company's
primary marketing objective, revenue
from leisure travelers-at home and
from abroad-is an increasing source of
income and one that will be stimulated
with pecial fares and promotions
throughout 1985.
Passenger service
One of Republic's major goal is to
offer quality service. The Company and
it per onnel are dedicated to providing
friendly professional attention to all
pa engers-from the frequent traveler
to the " fir t flighter. "
A new concept of flight attendant
training has been introduced. It focuses
on con i tency and quality of service,
good communication with pa engers
and employees, and standardization of
procedure . A workshop featuring
marketing awareness and service
recently wa held at the flight crew
ba e . The program, ' Cleared for ew
Approach,'' provided unique refre her
training. A route expan ion result in
the hiring of additional flight
attendant . each new employee will
recei e thi progre ive training
approach.
L
Training is an important element for
all employees in presenting a quality
image. The efficiency and courtesy of
passenger agents and reservations
personnel have a positive effect on the
passenger. This also contributes to
profit because of improved
productivity. With the introduction of
the Ultimate Super Saver fare in 1985,
reservations activity increased 30
percent in a matter of days. Staffing
was increased, but the high productivity
level of Republic employees lowered
the number required.
The Company supports its personnel
with sophisticated, state-of-the-art
equipment and systems. Some 80,000
passenger calls are handled daily at
Company reservations centers. This
geographic network permits maximum
savings of phone lines and use charges.
When telephone volume increases at a
particular reservations center, overflow
can be shifted automatically, for minutes
or hours, to one of the other cities.
Supplementing Republic's field sales
force is a new telemarketing section
which provides toll-free 800 lines. This
service allows passenger and cargo
sales representatives to spend more
time making personal calls on
customers. Travel agencies and
corporate travel departments who need
immediate assistance can receive
information from experienced
marketing people via telephone. The
telemarketing plan can also be
" reversed " -when the Company wants
to distribute information about new fare
promotions or new service to travel
agents and corporate accounts.
~lit
.. , fz1i>OlJ too
.ff}~:
\tS
et
~~~
~tot~
~ -
Republic also is enlarging its ticket
counters and gate space to upgrade
passenger service. At Detroit, the
largest system hub, the Company is
adding 13 ticket counter positions for a
total of 30 increasing the passenger
area to 33 boarding gates, and
expanding aircraft parking to
accommodate 37 planes at one time.
Outside the terminal, new curbside
baggage check-in is available. At
Minneapolis/St. Paul, modifications are
underway for expanding the number of
gates and improving baggage service to
handle increased flight schedules.
Memphis will add curbside check-in
and will increase jetway gates from 17
to 31. The baggage area is being
enlarged to support the growing
number of connecting flights .
Republic Executive Suites offer
comfortable facilities in the airport
terminals at six major cities throughout
the system. Many of these are to be
enlarged in 1985. Additional Executive
Suites are planned to serve an
increasing membership-attracted by the
convenience and amenities available at
a low annual fee .
Operations update
The Company's 1984 operating
performance again was among the
highest in the industry. The airline flew
99.1 percent of its 161 ,074,000
scheduled miles. Contributing to this
excellent operating effort was
Republic's exacting maintenance
program. Only three-tenth of 1 percent
of departures were cancelled, and just
1 . 7 percent were delayed for
maintenance rea on .
The Republic fleet of 160 aircraft is
maintained at the Main Operations Ba e
in Minneapolis/St. Paul and at the
Atlanta base. The Phoenix base was
closed in 1984 because of the size and
efficiency of the other facilitie and the
buildup of the Twin Cities, Detroit and
Memphis hubs. The leasehold was
transferred to another company early in
1985, which will result in an annual
savings of over $2 million.
The maintenance facilities also are
profit generators, performing work for
other airlines. Contract maintenance
income totals $10 million annually and
is expected to increase as more
emphasis is placed on this activity.
Each week Republic's Atlanta base
paints a jetliner in the new corporate
look. Extensive interior refurbishing is
taking place. Already completed are
coat closets adjoining Business First
Class and updated wide-body interiors
in all Boeing 727s and DC-9s.
These aircraft are fuel-efficient on
Republic's route structure especially
the two-engine MD-80s and DC-9s.
Fuel conservation is a key flight
planning function . Operating techniques
are continually updated for efficient
flight. Aircraft fuel expense remains
the Company's second largest outlay.
Each one-cent reduction per gallon
produces $4 million savings annually.
Fuel management, along with a fuel
price reduction of four cents a gallon in
1984, kept these costs in line.
Cost control throughout the Company
is an important element in maintaining
profitability, and both management and
employees have concentrated on this
need . Much of the success in reducing
co t in 1984 is attributed to the
Partner hip Plan which makes every
employee a stockholder. Ownership of
the Company i a strong incentive for
good morale and attention to job
performance, resulting in quality airline
ervice. Employees take personal pride
in erving Republic's passengers.
Looking ahead
There is some encouragement in the
airline industry. The economic recovery
ha generated a urge of business and
pleasure travel , while fuel cost
declined significantly and interest rate
remained relatively stable during the
past two years .
Airlines have been forced to find
their re pective niches in the
marketplace and resolve financial
losses . Deregulation made it easy for
the entry of new airlines, but also
removed guarantees for their existence.
Many of these fledgling carriers never
got off the ground, and others flew
only a hort time. The unsucce sful
ones based their strategy solely on very
low fare , trying to survive with
volume. The Company has taken action
to defend itself against this competition.
Demand for air travel is continuing
to increa e in 1985, and in a
deregulated environment, the indu try
is more competitive than ever.
Although some of the instability and
turbulence has pa sed, Republic's
management and employees are not
complacent. The Company is working
aggressively to capture market hare-
utilizing pricing scheduling, amenitie ,
and customer loyalty program - and i
strengthening it hub against
encroachment by other airline .
Republic is focu ing it effort on
attaining a preferential po ition in the
indu try and long-term profitability.
13
SAN FRANCISCO
14
ORANGE COUNTY
Routes effective April 28, 1985
Republic expects to announce in
1985 new service to Mexico.
--- Operated by Simmons Airlines
PHILADELPHIA
NEW ORLEANS
15
GRAND CAYMAN
Consolidated balance sheets
(in thou ands)
ASSETS December 31
16
1984 1983
CURRENT ASSETS
Cash and short-term cash investments . . . . . . . . . . . . . . . . . . . . . . . $ 123 ,143
109,193
38,898
31 ,562
Accounts receivable-less allowances .. . .......... . ......... .
Flight equipment parts and supplies-less reserves .......... . . .
Prepaid expenses and other .. .. .... .. ... . .. . .. .. ........ . . .
PROPERTY AND EQUIPMENT-at cost
Flight equipment ............. . ... . ............. .. ..... ..
Ground property and equipment .................. .. .. .. ... .
Less accumulated depreciation .... . ........ .. ............. .
PROPERTY AND EQUIPMENT UNDER CAPITAL LEASES
Flight equipment . . . . ...... . ...................... . ... .. .
Ground property and equipment ............. . .. .. . . . . . . ... .
Less accumulated amortization .................. . ... .. .... .
DEFERRED CHARGES AND OTHER ASSETS . ... . .. ... ... . .
302,796
891 ,776
113,312
1,005,088
361,154
643,934
157,145
16,281
173,426
55 ,682
117,744
20,435
$1 ,084,909
$ 59,781
119,690
49,762
33,834
263,067
900,309
110,003
1,010,312
310,194
700,118
157,145
15,937
173,082
43 ,370
129,712
15 ,775
$1 ,108 672
LIABILITIES December 31
1984 1983
CURRENT LIABILITIES
Current maturities of long-term debt ........ . .......... . ... .
Current obligations under capital leases ..................... .
Accounts payable ..... ......... ...................... ... .
Interline payables and tickets outstanding ................... .
Accrued compensation and vacation benefits .... . ............ .
Accrued interest ........ . .......... . .................... .
Accrued pension liability .................... . . .... ..... . . .
Other accrued expenses .................................. .
LONG-TERM OBLIGATIONS
Long-term debt-less current maturities ..................... .
Noncurrent obligations under capital leases .................. .
Long-term pension liability and other ..................... . .
COMMITMENTS AND CONTINGENCIES (Notes B, D and H)
REDEEMABLE PREFERRED STOCK OF SUBSIDIARY .... .. .
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock-authorized 25,000,000 shares of $.01 par value .
Common stock-authorized 60,000,000 shares of $.20 par value .
Additional paid-in capital ................... . ............ .
Retained earnings ( deficit) ................................ .
Employee stock to be issued .............................. .
Unearned compensation for stock to be issued ........... .. .. .
$ 59,696
8,712
43 ,776
84,661
46,872
11,214
22,464
26,751
304,146
538,282
136,933
68,908
744,123
28,000
6,128
114,664
(118,176)
26 571
(20,547)
8,640
1,084 909
$ 50,079
7,834
41,488
73,478
57,200
11 ,849
31,826
21,781
295,535
613,941
145,454
48,123
807,518
28 000
6,126
114 630
(143,137)
(22,381)
1,108,672
The accompanying notes are an integral part of these statement .
17
Consolidated statements of operations
(in thousands except per share amounts)
Year ended December 31
18
OPERA TING REVENUES 1984
Passenger . ............ . ..... ... . .. .. . .. ... . ... $1,415,583
Cargo. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 ,318
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,331
OPERA TING EXPENSES
Salaries and benefits ....... .. . ...... ... ........ .
Aircraft fuel ..................................
Maintenance materials and repairs ...... .... ......
Food service . . ..... ........ .. .. . . .. .... ..... . .
Rentals and landing fees . ... ... .... .. . ... .... . . .
Agency commissions ... ...... ............. . ....
Depreciation and amortization ....................
Other . . ......... . .. ..... .. ... . . ..............
Operating profit (loss) ...... ..... . ... . . .... ..
OTHER EXPENSES (INCOME)
Interest expense .. . .. .. ..... ... ...... ..........
Sale of tax benefits ............ ..... .. .. ....... .
Gain on disposition of property and equipment .. .. . .
Interest income and other-net .. . . . . . .... . ... . ....
Earnings (loss) before income taxes
and extraordinary item ....................
INCOME TAXES ................. .. .......... ..
Earnings (loss) before extraordinary item ..... . .
EXTRAORDINARY ITEM
Effect of utilization of tax loss carryforwards .......
NET EARNINGS (LOSS) ............ ......... ....
NET EARNINGS (LOSS) PER COMMON SHARE-
PRIMARY
Before extraordinary item .... . ...... . ........ .
Extraordinary item ........ .... . ..... ... ..... .
Net earnings (loss) . ......... ... ............. .
NET EARNINGS (LOSS) PER COMMON SHARE-
FULLY DILUTED
Before extraordinary item .............. . ..... .
Extraordinary item .. . ... . ............. . ..... .
Net earnings (loss) .. ........ ......... .. . .... .
$
1,547,232
506,905
359,417
58,167
33 ,242
75,290
104,420
74,008
235 ,781
1,447,230
100,002
97,000
(17,316)
(9,193)
70,491
29,511
15 ,802
13,709
15,802
29,511
$ .30
.46
$ .76
$ .29
.46
$ .75
The accompanying notes are an integral part of these statements.
1983
$1 ,388,285
76,626
46,583
$
1,511,494
581,496
390,937
58,111
34,201
76,863
102,258
70,625
228,020
1,542,511
(31,017)
97,852
(13,046)
(923)
(3 ,869)
80,014
(111,031)
(111 ,031)
011 ,031)
$ (4.28)
$ (4.28)
$ (4.28)
$ (4.28)
1982
$1,402,693
72,914
55 ,061
$
1,530,668
540,614
410,365
49,353
33,811
76,188
103 ,546
68,818
210,750
1,493,445
37,223
100,703
(17 ,752)
(2,570)
(3 ,297)
77,084
(39,861)
(39,861)
(39,861)
$ (1.99)
$ 0 .99)
$ (1. 99)
$ 0 .99)
Consolidated statements of changes in financial position
(in thousands)
Year ended December 31
CASH AND SHORT-TERM CASH INVESTMENTS 1984
AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . $ 59,781
FUNDS PROVIDED
Earning (loss) before extraordinary item ... . .. .. .. .
Add non-cash items:
Depreciation and amortization .................. .
Amortization of unearned compensation .... ...... .
Other ...................................... .
Net change in certain working capital items .... . ... .
Ca h provided from (used in) operation ,
exclusive of extraordinary item .. . .......... .
Extraordinary item-tax loss carryforwards ......... .
Cash provided from (used in) operations .... ... .
Net book value of equipment di positions .......... .
Cancellation of advance deposits ...... . . . ........ .
Increase in long-term obligation ................. .
Deferral of pension payment .................... .
Is uance of common stock and warrant ........... .
Other ........................................ .
FUNDS USED
Additions to property and equipment ....... . .... . . .
Payment of long-term obligations . .... ......... ... .
Payment of cash dividends on preferred stock ...... .
Other ........................................ .
INCREASE (DECREASE) IN CASH AND
SHORT-TERM CASH I VESTMENTS .............. .
CASH A D SHORT-TERM CASH INVESTMENTS
13,709
74,008
6,024
1,043
21 ,749
116,533
15,802
132,335
10,285
2,181
22,088
36
6,386
173,311
15 ,926
75,866
4,550
13 ,607
109,949
63 ,362
ATE D OF YEAR .......... .. .................... $123,143
I CREASE (DECREASE) IN CASH FROM CHANGES
I CERT AI WORKING CAPITAL ITEMS
Accounts receivable ............................ .
Flight equipment part and upplies ..... . ......... .
Prepaid expen es and other ...................... .
Account payable .............................. .
Interline payables and ticket out tanding .......... .
Accrued expense ..... .. .................. . .... .
$ 10,497
10,864
2,272
2,288
11 ,183
(15 ,355)
21,749
The accompanying notes are an integral part of these statements.
1983
$125,484
(111 ,031)
70,625
1,966
(35,381)
(73,821)
(73,821)
2,372
3,428
30,887
23 ,010
62 ,532
1,447
49,855
59,969
44 ,985
1,820
8 784
115,558
(65,703)
$ 59,781
1,284
(393)
(1 ,021)
(12 ,415)
5,341
(28,177)
$(35,381)
1982
$ 43 ,542
(39 ,861)
68,818
1,544
21 ,106
51 ,607
51 ,607
14,635
10,416
119,921
24,086
1
1,203
221,869
84,291
43 ,635
4,550
7 451
139,927
81 ,942
$125,484
$ 22,744
(1 ,605)
(4,541)
(2,398)
(16,250)
23 ,156
21 ,106
19
Consolidated statements of changes in stockholders' equity ( deficit)
Years ended December 31, 1982, 1983 and 1984
(in thou and )
Common Stock
Shares
Issued Amount
- - -
Balance at January 1, 1982 . ... ............ 22,061 $4,412
Cash dividends on redeemable preferred stock
Issuance of common stock .. ... ... . . . . .. . 5 1
Net loss for 1982 .. .... . ... .... .. . . .....
- - - - - -
Balance at December 31 , 1982 .. . .. ... . .... 22,066 4,413
Cash dividends on redeemable preferred stock
Issuance of common stock and warrants . .. . 8,564 1,713
Net loss for 1983 ...... . .. . . .. . . . . .. ....
- --
Balance at December 31 , 1983 . . .... ... . . . . 30,630 6,126
Cash dividends on redeemable preferred stock
Issuance of common stock .... . .. . .. . .... 9 2
Employee stock to be issued .. . . .. . . .. .. . .
Amortization of unearned compensation ....
Net earnings for 1984 .. ... . ... .. . . .. ....
- --
Balance at December 31, 1984 ..... .. ... ... 30,639 $6,128
- - - - - -
The accompanying notes are an integral part of these statements.
Auditors' report
Alexander Grant
& COMPANY
CERT IFIED PUBLIC ACCOUNTANTS
Stockholders and Board of Directors
Republic Airlines, Inc.
Additional
Paid-In
Capital
$ 53 ,811
53 ,811
60,819
114,630
34
$114,664
Retained
Earnings
(Deficit)
$ 14,125
(4,550)
{39,861)
(30,286)
(1 ,820)
(111 ,031)
(143,137)
(4,550)
29,511
$(118, 176)
MEMBER FIRM
Employee
Stock to
be Issued
$
26,571
$26,571
Unearned
Compen-
sation
$
(26,571)
6,024
$(20,547)
GRANT THORNTON INTERNATIONAL
We have examined the consolidated balance sheets of Republic Airlines, Inc. (a Wisconsin corporation) and its subsidiary
a of December 31 , 1984 and 1983 , and the consolidated statements of operations, changes in stockholders' equity
(deficit) and changes in financial position for the years ended December 31 , 1984, 1983 and 1982. Our examinations
were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting
record and such other auditing procedures as we considered necessary in the circumstances.
In our opinion the consolidated financial statements referred to above present fairly the financial position of Republic
Airlines. Inc. , and its subsidiary at December 31 , 1984 and 1983 , and the results of their operations and changes in
their financial position for the years ended December 31 , 1984, 1983 and 1982 in conformity with generally accepted
accounting principle applied on a con istent basis.
Minneapoli , Minne ota
Februar 11 , 1985
_Q
Notes to financial statements
December 31, 1984, 1983 and 1982
Note A - Summary of Significant Accounting Policies
1. Principles of Consolidation: The consolidated financial state-
ments include the accounts of Republic Airlines West, Inc. , a
subsidiary. All significant intercompany transactions have been
eliminated. Republic Airlines West, Inc. adopted a plan of dis-
solution whereby all of its assets and liabilities will be transferred
to Republic Airlines, Inc.
2. Flight Equipment Parts and Supplies: Spare parts and supplies
are priced at average cost. An allowance for obsolescence
($15,660,000 at December 31, 1984, and $14,101,000 at De-
cember 31 , 1983) is provided for repairable parts by allocating
their cost over the life of the related aircraft.
3. Prepaid Expenses-Engine Overhaul: The Company reclassi-
fies to a current prepaid expense the estimated portion of the pur-
chase price of flight equipment attributable to its overhaul
expected to be consumed within the next 12 months ($21,070,000
at December 31, 1984, and $21,720,000 at December 31, 1983).
Actual overhaul costs are charged to expense as incurred.
4. Property, Equipment and Depreciation: Owned property and
equipment are stated at cost. Property and equipment acquired
under capital leases are stated at the lower of the present value
of minimum lease payments or fair market value at the inception
of the lease. Depreciation and am01tization of property and equip-
ment are provided on a straight-line basis over estimated useful
lives of7-20 years for flight equipment and 3-10 years for other
property and equipment.
5. Deferred Charges: Expenses incurred in connection with the
issuance of long-term obligations are deferred and amortized on
a straight-line basis over the terms of the related obligations.
6. Passenger Revenue: Passenger revenue is recognized when
the transportation service is provided. Tickets sold but unused
are classified as a current liability.
7. Pension Costs: The Company has pension plans covering all
employee groups and funds its current expense of normal costs .
Prior service costs are amortized over varying periods up to 40
years . Pension funding is determined under the unit credit,
aggregate frozen liability and individual entry age normal
methods.
8. Income Taxes: The Company uses the flow-through method
of accounting for investment tax credits which reduces income
tax expense when the related liability is reduced. Investment
credits not applied currently are offset against deferred income
taxes to the extent they are applicable to previously deferred taxes
becoming payable in the carryover periods. The Company recog-
nizes deferred income taxes resulting from differences in finan-
cial and income tax reporting.
Note B - Sale of Tax Benefits - The leasing provisions of the
Economic Recovery Tax Act of 1981 allowed the Company to
enter into sale-leaseback transactions for income tax purposes in-
volving certain equipment additions. As a result of these trans-
actions, the Company has recognized other income (net of related
expenses) of $13,046,000 in 1983 and $17,752,000 in 1982. Pro-
visions of these transactions include, among other things, indem-
nification of the buyer against loss of the stipulated tax benefit
amount. The Company does not expect to be able to sell tax
benefits in the future.
Note C - Long-term Debt - Substantially all flight equipment,
spare parts and ground property owned by the Company and
certain accounts receivable ($38,511 ,000 at December 31, 1984,
and $42,684,000 at December 31, 1983) are pledged as collateral
against the long-term debt, consisting of the following at
December 31 (in thousands) :
1984 Adjusted
for Trust Notes
1984 (Note K) 1983
Bank Credit Agreement (a) . $333,154 223 , 154 $377 ,455
Installment notes (b) . . 140,507 140.507 157,607
Equipment Trust Notes:
14-5/8 % due February I,
1990 (Note K) .. .. 72,762
15-1/8 % due February I,
1993 (Note K) . 72,762
9 % due May 1, 1993 (c) . 26,700 26,700 29,850
11 -1/2 % due July I,
1998 (c) 7,265 7,265 7,784
Subordinated debentures (d):
13 % due November 15 ,
1993 13 ,3 10 13.3 10 14.260
10- 1/8% due December
15, 2007. 73 ,278 73 ,278 73,203
Sundry . . . . . . . . . . .
~ ~ ~
Total long-term debt . 597,978 633,502 664,020
Less current maturities (e) . . 59,696 59,696 50,079
$538,282 $573 ,806 $6 13 ,941
(a) The balance at December 31 , 1984, will be retired with an
initial payment of $110,000,000 in February 1985 (Note K) ,
quarterly installments aggregating an additional $36,000,000 in
1985 , $29,000,000 in 1986, $35,500,000 in 1987, $38 ,000,000
in 1988, 1989 and 1990 and a final payment of $8,654,000 in
1991. The Company is also required to prepay indebtedness un-
der the Bank Credit Agreement to the extent the Company
achieves profits in excess of specified amounts and from net pro-
ceeds from the disposition of certain flight equipment. Interest
is paid monthly to each participating bank at 1/2 % over the Citi-
bank, N .A. alternative rate or other rates as negotiated with the
individual bank participants. The effective rate at December 31,
1984, was 11-1/4 %.
21
Notes to financial statements (continued)
December 31, 1984, 1983 and 1982
Among the original loan covenants in the Bank Credit Agree-
ment were requirements for the maintenance of debt to equity
ratios and restrictions on dividend payments and capital expen-
ditures . As a result of losses in 1982 and 1983 , these covenants
were amended to permit the Company to remain in compliance.
The most restrictive revised covenant requires the maintenance
of minimum tangible net worth, as defined in the Bank Credit
Agreement. During most of 1984 the Company obtained month-
ly waivers of certain covenants. The Company and the banks have
executed a letter amendment and agreement dated as of August
1, 1984, which amends the financial covenants and, based on as-
sumed operating results , will allow the Company to remain in
compliance over the remaining term of the loan.
The Company is required to maintain average compensating
balances of 10 % of the monthly average loan outstanding and
to pay interest on any compensating balance shortfall at 1/2 %
over the Citibank, N.A. alternative rate. During 1984 the Com-
pany was required to maintain average compensating balances
(adjusted for float) of $37,069,000. At December 31 , 1984, the
required compensating balance (adjusted for float) was approxi-
mately $34,735 ,000.
(b) Consists of various installment notes with final maturity dates
from 1985 through 1998 at a weighted average interest rate of
15 % . The aggregate installment payments in 1985 will be ap-
proximately $37,536,000 including interest.
(c) The Equipment Trust Notes due May 1, 1993 , require semi-
annual sinking fund payments of $1,575 ,000 from 1985 through
1992 and $1 ,500,000 at maturity plus interest. The Company may
make semiannual optional sinking fund payments up to
$1 ,575 ,000 and may pay off the remaining balance in full on or
after May 1, 1988, at a premium.
The Equipment Trust Notes due July 1, 1998, require semian-
nual sinking fund payments of approximately $259,000 plus in-
terest at rates ranging from 3/4 to 1-1/2% over the Citibank, N .A .
alternative rate. The Company may pay off the remaining balance
in full at any time without a premium.
(d) The 13 % convertible subordinated debentures due Novem-
ber 15, 1993, have interest payments due semiannually. The de-
benture holder may convert the principal to common stock of the
Company at $11.84 per share (1 ,124,155 shares at December
31 , 1984) subject to adjustment. The debentures are redeemable
at a premium beginning on November 16, 1985. Annual sinking
fund payments are $950,000 in 1985, $1 ,220,000 in 1986,
$1 ,490,000 in 1987, $1 ,600,000 in each of 1988 through 1992
and $1 ,650,000 in 1993.
The 10-1/8 % convertible senior subordinated debentures were
issued at 97-1/2 % of face value (unamortized discount of
22
$1 ,722,000 and $1 ,797,000 at December 31 , 1984 and 1983,
respectively). The debentures are superior in right of payment
to the Company's 13 % convertible subordinated debentures. In-
terest payments are due semiannually, and debenture holders may
convert the principal to common stock of the Company at $10
per share (7 ,500,000 shares at December 31 , 1984). Debentures
are redeemable by the Company at a premium through December
15, 1992, and at face value thereafter. Sinking fund payments
of $3,750,000 are due annually beginning December 15, 1992,
and continuing through December 15, 2006, with the balance due
at maturity.
(e) Current maturities of all long-term debt due in each of the
next five years following December 31 , 1984, are as follows (in
thousands):
1985 ...... .. ..... ... . .
1986 .... . .
1987 . .. . .
1988 . ... .
1989 ..
1984
$59,696
66,155
72,585
77,374
75 ,558
1984 Adjusted
for Trust Notes
(Note K)
$59,696
49,155
52,085
55,374
53,558
Note D - Leases - The Company has lease commitments for flight
equipment, various airport facilities , its main operating facili-
ties, its maintenance and training facilities, and other property
and equipment. The lease commitments for airport facilities are
based upon usage and landings and are subject to adjustment
depending upon the needs of each airport operating authority and,
therefore, certain amounts of the commitments are not deter-
minable.
The Company has capital lease agreements for 19 aircraft. The
debt obligations relating to the capitalization of these leases were
$135 ,034,000 at December 31 , 1984. The aggregate payments
in 1985 will be approximately $19,370,000 including interest at
a weighted average rate of 9-3/4 % .
In addition, the Company has various types of ground property
and equipment under capital lease agreements. The debt obliga-
tions relating to the capitalization of these leases were
$10,611 ,000 at December 31 , 1984. The aggregate payments in
1985 will be approximately $3 ,605,000 including interest at a
weighted average rate of 13-1/2 % .
At December 31 , 1984, future minimum rental payments under
capital leases and noncancellable operating leases with initial or
remaining terms of more than one year are as follows (in
thousands):
1985
1986
1987 .
1988
1989 . .
Thereafter . .. .
Total minimum lease payments
Less amounts representing interest
Present value of future minimum capital
lease payments .
Operating
Leases
$ 32 ,330
30.676
25,329
22,978
22,555
297,268
$431 ,136
Capital
Leases
$ 22,975
22,332
19,316
19,135
19,080
156,923
259,761
~
$145,645
Note E - Income Taxes - Income tax expense for the years end-
ed December 31 is as follows (in thousands):
1984 1983 1982
Federal . $14,253 $ - S
State and local ~
$15 ,802 $ - $
Deferred income taxes of $2,020,000 were reinstated during
1984.
Differences between income tax expense and amounts derived
by applying the statutory federal income tax rate of 46 % to in-
come before income taxes are as follows (in thousands):
1984 1983 1982
Income tax expense (credit) at statutory
federal income tax rates . . ... Sl3 ,575 $(51 ,074) $(18,336)
State and local taxes net of
federal income tax benefit ... 1,549
on-taxable permanent differences 668 797 1,471
Tax effect of net operating loss
carryforwards not recognized . 50,268 16,732
Other . . . . ... . . . . . . 10 9 133
$15,802 s - s;
For Federal income tax reporting purposes the Company and its
subsidiary file separate tax returns. Republic Airlines, Inc. has ,
as of December 31, 1984, net operating loss carryovers of ap-
proximately $161,695,000 available to offset future taxable in-
come. Approximately $21,111,000 expires in 1996, $22,372,000
in 1997 and $118,212,000 in 1998. Investment tax credit of
$43,446,000 are available to offset future income taxes payable
and expire as follows: $9,940,000 in 1994; $17 ,120,000 in 1995;
$6,035,000 in 1996; $4,098,000 in 1997; $2,905 ,000 in 1998;
and $3,348,000 in 1999.
Republic Airlines West, Inc. ha , as of December 31 , 1984 n_et
operating loss carryovers of approximately $75,407 ,000 avail-
able to offset future taxable income. Approximately $33 ,643 ,000
expires in 1994, $23,674,000 in 1995 and $18 090,000 in 1996.
Investment tax credits of $7,179,000 are available to offset future
income taxes payable and expire as follows: $370,000 in 1993;
$4,481 ,000 in 1994; $402,000 in 1995; $1,724,000 in 1996; and
$202 ,000 in 1997.
For financial reporting purposes , the Company and its subsidi-
ary calculate income taxes on a consolidated basis. On this basis,
as of December 31, 1984, there are approximately $171 million
of net operating loss carryovers available to offset future con-
solidated taxable income and consolidated investment tax credit
carryovers of approximately $39 million are available to offset
future consolidated tax provisions. Any utilization of the preac-
quisition net operating losses or investment credits of Republic
Airlines West, Inc. will be recorded as adjustments of the pur-
chase transaction.
The Internal Revenue Service has examined and cleared the Com-
pany's federal tax returns through December 31, 1979. During
1984, the Company reversed various tax liability accruals of ap-
proximately $2 million which resulted from the settlement of an
Internal Revenue Service examination.
Note F - Retirement Plans - The Company has retirement plans
covering all employee groups. Pension expense for 1984, 1983
and 1982 was $24,726,000, $36,784,000 and $35,865,000,
respectively. The Company has either made contributions to the
plans equal to the amounts accrued for pension expense or has
obtained minimum funding waivers from the Internal Revenue
Service. In January 1985, the Company received permission from
the Internal Revenue Service to fund $21,815,000 of the 1983
pilots' defined benefit pension costs over not more than 15 years.
In December 1983 and September 1982, the Company also
received permission to fund $23,010,000 of 1982 and
$24,086,000 of 1981 pension costs relating to all defined benefit
plans over not more than 15 years. The current portion of the
long-term pension liability due in 1985 is $4,157,000 including
interest accrued through December 31, 1984.
In 1984 the assumed rate of return used in determining the
actuarial present value of accumulated benefits for all defined
benefit pension plans was increased from 7-1 /2 % to 8-1 /2 % . The
effect of this change was to increase 1984 net earnings by
approximately $8 ,714,000 or $.25 per share and to decrease the
pre ent value of plan benefits by approximately $35 ,542,000.
Changes during 1982 in the actuarial assumptions used in com-
puting pension costs had the effect of reducing the 1982 net lo s
by approximately $2 ,980,000 or $.14 per share. Also in 1982,
plan improvements and early retirement pension benefits had the
effect of increasing the present value of plan benefits approxi-
mately $44,665 ,000 and increasing the 1982 net lo s approxi-
mately $3 ,705,000 or $.17 per share.
23
Notes to financial statements (continued)
December 31, 1984, 1983 and 1982
During 1984 the pilots and the Company agreed to terminate the
pilots' defined benefit pension plan. This plan is expected to be
terminated during 1985. At January 1, 1983, the latest available
actuarial valuation date for the pilots' plan, the accumulated plan
benefits and plan assets , adjusted for the change in assumed rate
of return to 8-1/2 % , were as follows (in thousands):
Actuarial present value of accumulated plan benefits:
Vested . . . . . . .... . .. .. .. .
onvested . . ... . . .. ..... .
et a ets available for benefits ... ... ...... . . ... . .
$174,214
23 ,801
$198 ,015
$192,686
The pilots and the Company further agreed to establish a Volun-
tary Employee Benefit Association (VEBA) and a
defined contribution retirement plan. Effective July 1, 1984, the
Company started contributions to the VEBA which provides
coverage for long-term disability claims, health care and survivor
benefits. Effective January 1, 1985, the Company will make con-
tributions to the defined contribution retirement plan in an amount
equal to 19. 1 % of pilots' monthly gross wages, recalculated in
November of each year, reduced by contributions to the VEBA.
During 1985, the 19. 1 % annual amount to be allocated between
the VEBA and the defined contribution plan is expected to be
approximately $21 million which is comparable to the 1984 ex-
pense for similar benefits provided to the pilots.
The accumulated plan benefits and plan net assets for all of the
Company's defined benefit plans, except the pilots' plan previ-
ously discussed , were as follows (in thousands):
Actuarial present value of accumulated plan
benefit :
Vested .......... .
onve ted ........ .. ... .... .
Net as ets available for benefit
January 1
1984 1983
$124,944 $128 ,517
__l22Q ----22Ql
$128,734 $134,018
$114.023 $ 94,290
In addition to providing pension benefits, the Company provides
certain health care benefits for retired employees. Substantially
all of the Company ' employees continue to be eligible for those
benefit if they reach retirement age while working for the Com-
pany . The cost of retiree health care is recognized as expense
a claims are incurred. For 1984 those costs totaled approxi-
mately 1,800,000.
24
Note G- Warrants, Options and Stock Appreciation Rights -
During the second quarter of 1983, the Company issued
3,740,000 warrants in connection with a unit offering of com-
mon stock and warrants. The warrants, all of which were out-
standing at December 31, 1984, enable the holders to purchase
common stock at $10 per share through May 15, 1986.
In 1982 the Company granted 155,500 warrants to certain lenders
in consideration of the debt restructuring of the Bank Credit
Agreement and the 13 % convertible subordinated debentures due
November 15, 1993. The warrants, all of which were outstand-
ing at December 31 , 1984, enable holders to purchase common
stock at $8 per share through August 26, 1990.
On September 1, 1983, an officer of the Company was granted
an option to purchase 25,000 shares of common stock at $4.25
per share. The option terminates on August 31, 1988. At
December 31, 1984, the entire option was outstanding.
On February 24, 1984, an officer of the Company was granted
an option to purchase 95 ,000 shares of common stock at $4.125
per share. The option becomes exercisable as follows: 50,000
shares on February 20, 1985, and 45 ,000 shares on February
20, 1986. The option expires February 24, 1992.
Stockholders approved a Stock Option and Stock Appreciation
Right Plan (the "Plan") at the annual meeting in April 1984.
The Plan provides that options and/or stock appreciation rights
may be granted to officers and key employees of the Company.
An aggregate of 750,000 shares of common stock is reserved for
issuance under the Plan upon exercise of options and stock
appreciation rights.
Amounts payable upon the exercise of stock appreciation rights
are payable in cash or shares of common stock, as the Company
may determine at the date of grant. A maximum of 750,000
options and 750,000 stock appreciation rights may be granted
under the Plan. Grants outstanding under the Plan at December
31 , 1984, were as follows : 412,550 stock options at a weighted
average exercise price of $3.63 and 363 ,550 stock appreciation
rights at a weighted average base price of $3.64. As of December
31, 1984, 50,000 options at $3.75 and 35 ,000 stock apprecia-
tion rights (exercisable for cash or common stock) at $3 .75 were
exercisable. One-third of the remaining stock options and stock
appreciation rights (exercisable for cash only) become exercis-
able on each June 22 of 1985, 1986 and 1987. All of the stock
options and stock appreciation rights granted under the Plan
through December 31 , 1984, expire on various dates during 1994.
Assuming any future stock appreciation rights are exercisable for
cash only, as of December 31, 1984, an additional 386,450 stock
appreciation rights were grantable and there were 302,450 shares
available for stock option grants under the Plan. No stock options
or tock appreciation rights were exercised during 1984.
Note H - Employee Stock Agreement - At December 31. 1984.
all of the Company' employee unions had ratified amended labor
agreements. The agreement pro ide for the extension of a 15 %
pay reduction and wage freeze through the contract amendable
date ranging from September 30, 1986, through March 31. 1987.
Other terms of the agreement include additional wage and/or
producti ity conce ion equi alent to 8 % of payroll and certain
pension plan change . The Company management employee
are participating in imilar conce sion . In exchange for the con-
ce ions, the Company has agreed to is ue 5,529 ,195 share of
common stock, 7,230 shares of a new clas of participating, non-
cumulative, non-voting junior preferred stock and 2,170,000 call-
able warrant to purchase common tock at S10 per hare. The
shares and warrants will be i sued to one or more trust for the
benefit of employees.
The preferred shares will not be publicly traded and represent
a form of profit- haring arrangement. The face amount will be
Sl0.000 per hare or a total of S72 300.000. Participation will
be through redemption (at the face amount) of the preferred tock
at the rate of 15 % of the Company 's annual profit (as defined)
in excess of S20 million . commencing with the year 1985 (paya-
ble in 1986) and thereafter until the face amount has been full
redeemed. The maximum participation in any one year will be
limited to 15 % of the original face amount. For purpo e of de-
termining participation, 'profit'' will be consolidated operating
profit le s interest expen e and income taxe , a reported in the
Company s Annual Report to Stockholder . The preferred share
will have liquidation preferences equal to a multiple of the face
amount, le all payments made thereon, of 150 % in 1985 and
200 % in 1986 and thereafter.
The warrants will be callable at 150 % of the exercise price. One-
half of the warrant will be exerci able at an time from the date
of i ue through September 29. 1986. The remaining warrants
will be i sued sub equent to September 30, 1986, if the 8 % con-
ce ion described abo e ha e been pro ided, and will be exer-
cisable at any time after date of i sue and prior to the anniver ary
date of i sue in 1990.
The estimated value of the ecunt1e de cribed in the preceding
paragraph i $26,571.000 and will be amortized as additional
compen ation expense over the duration of the underlying em-
ployee agreement . During 1984, the Compan recorded amor-
tization of $6.024,000.
The Compan ha al o agreed to fill one po ition on the Board
of Director with an indi idual of national prominence to be
cho en b agreement of all the union group and rea onably ac-
ceptable to the Company' Board of Director . Thi Board mem-
ber ha not yet been elected b the union group . The agreement
al o prevent the Company from paying di idend on common
stock through December 31. 1986.
Note I - Net Earnings (Loss) Per Common Share - Primary
earnings per common share for 1984 wa ba ed on the weighted
a erage number of common and common equivalent hare out-
standing of 34,139,472. Common hares outstanding include
5,529, 19 5 hare to be i ued pur uant to employee stock agree-
ment ( ote H). Common equi alent shares re ulted from the
a urned exerci e of tock options. Fully diluted earnings per com-
mon hare wa based on the assumed issuance of 228 975 addi-
tional common hares relating to the tock bonu plan for pilots
and con ersion of tock options. Primary and fully diluted lo s
per common hare for 1983 and 1982 were based on the weighted
a erage number of common hare out tanding of 26,720.591
and 22,026 .966 . respectively . The net earnings were reduced or
net los wa increa ed by preferred di idend requirements of
S3,640.000 in 1984, S3 337,000 in 1983 and $3,943,000 in 1982
prior to computing the per common _ hare amount.
~ote J - Preferred Stock and Redeemable Preferred Stock
of Subsidiary - During 1983, the Company authorized
25,000,000 hare of S.01 par value Preferred Stock. A of De-
cember 31, 1984. no preferred share ha e been is ued. These
preferred hares are i suable in erie with term to be de ignat-
ed by the Board of Directors . The Company expect to issue
hares of thi Preferred Stock to the holder of the Republic
Airline West. Inc. Redeemable Preferred Stock (di cu sect in
the following paragraph) upon the dis olution of Republic Airlines
We t. Inc .
The Company subsidiary Republic Airline West, Inc. , ha
authorized 500,000 hare of $ 100 par value Cumulati e
Preferred Stock. In February 1981. the subsidiary is ued 280,000
share in a private placement with McDonnell Douglas Corpo-
ration in connection with aircraft acqui ition and financing trans-
actions. Cumulati e dividend are payable quarterly at an annual
rate of S13 per share through April 1985, $16 per hare from
May 1985 to January 1990, 18 per hare from February 1990
to January 1993 and $20 per share thereafter. The hare are call-
able at any time at $100 per hare plus all unpaid dividend . The
liquidation preference i $100 per hare plu unpaid dividend
before any di tribution to Republic Airline , Inc. Quarterly ink-
ing fund redemption. con i ting of 2-1/2 % of the out tanding
share at a price of S 100 per hare plu di idend unpaid to the
redemption date. begin on April 30, 1987 and i calculated to
retire all preferred hares by April 30, 1997. In ca e of default,
including failure to pay di idend , the hareholder can require
the Company to purcha e all or any portion out tanding at $100
per hare plu all unpaid dividend . Effecti e with an amend-
ment dated June 14. 1984. the hareholder can require the Com-
pany to purcha e 17,500 hare quarterly beginning February 1.
1985. The Company ma al o be required to purcha e up to
55,200 hares in the event of a prepa ment of the debt out tand-
ing under the Bank Credit Agreement. McDonnell Dougla
25
Notes to financial statements (continued)
December 31 , 1984, 1983 and 1982
waived its right to redeem these shares in connection with the
$110 million prepayment made to the banks on February 6, 1985
(Note K).
Note K - Subsequent Events - On February 6, 1985, the Com-
pany sold $150 million of Senior Secured Trust Notes at approx-
imately 97 % of face value (discount of $4,476,000 which will
be amortized over the life of the notes) with maturities of $75
Supplemental stockholder information
EFFECTS OF CHANGING PRICES (unaudited)
Basis of preparation of 1984 supplemental data
As required by Financial Accounting Standards Board Statement
No. 33 , " Financial Reporting and Changing Prices," and
amended by Statement No. 82, the Company has provided supple-
mental information concerning the effects of changing prices on
its financial statements. The disclosures are intended to address
the specific price changes in the individual resources used by the
Company.
Data developed in compliance with Statement No. 33 is of an
experimental nature. Calculations derived from the application
of Statement No. 33 involve a substantial number of assumptions
and estimates, and may not reflect the most accurate reporting
of the effects of specific price changes on the Company.
The net earnings as reported in the primary statements represent
the amount reported on the historical cost basis of accounting.
The net loss adjusted for changes in specific prices (current cost)
measures spare parts inventory, property and equipment and loss
from disposition of equipment at current cost (rather than histor-
ical cost) at the balance sheet date.
The gain from the decline in purchasing power was determined
by calculating the changes in monetary assets and liabilities by
utilizing the change in the Consumer Price Index for the year.
26
million on February 1, 1990, and February 1, 1993. The trust
notes due in 1990 have an interest rate of 14-5/8 % , and the trust
notes due in 1993 have an interest rate of 15-1/8 % . Of the net
proceeds from the sale, $110 million was used to retire Bank
Credit Agreement indebtedness. The remainder was used for
general corporate purposes. The Senior Secured Trust Notes are
secured by aircraft which had been collateral under the Bank
Credit Agreement.
In times of inflation, there is a purchasing power loss in holding
monetary assets such as cash and receivables and a purchasing
power gain in holding monetary liabilities such as debt and
payables.
Current cost calculations involve a substantial number of judg-
ments , as well as use of various estimating techniques that have
been employed to limit the cost of accumulating the data. The
data reported should not be thought of as precise measurements
of the assets and expenses involved, but as reasonable approxi-
mations of the price changes that have occurred in the business
environment in which the Company operates. Current cost asset
amounts were derived principally through a reference guide to
current selling prices supplied by the Air Transport Association.
Current cost depreciation is based on the average current cost
of property and equipment during the year. Depreciation expense
was computed by applying the ratio of historical depreciation ex-
pense to average historical asset cost, to the average current cost
of these assets. The result should be approximately the same as
would be calculated using the depreciation methods used in
preparing the primary financial statements. Current cost does not
purport to represent the amount at which the assets could be sold.
Current tax laws do not recognize deductions for current co t
of depreciation and amortization expense therefore, income taxes
provided are reported in historical dollars as required by State-
ment No. 33.
CONSOLIDATED STATEMENT OF OPERATIONS
-ADJUSTED FOR CHANGING PRICES
Year ended December 31, 1984 (in thousands- unaudited)
Total operating revenues . ... . ........ . .... .. . .. .... .
Depreciation and amortization expense ... .. .. .. .. ........ . ............. .. .
Other operating expenses . . ..... . ... .. ... .
Loss (gain) on disposition of equipment
Other expenses-net ..
Provision for income taxes ... ... . .. . . ......... .
Extraordinary item . . ........ .
et earnings (loss) ...... .... .... ...... ............... .
Gain from decline in purchasing power of net amounts owed.
Increase in specific prices (current cost) of inventory and property and
equipment held during the year* . . . .. ....... .
Effect of increase in general price level .... ....... .
Excess of increase in specific prices over increase in general price level
* At December 31 , 1984, current cost of inventory was S41 ,387,000,
and the current co t of property and equipment, net of accumulated
depreciation and amortization, was SI ,904 , 749,000.
As Reported
in the
Primary Statements
$1 ,547 ,232
$
74,008
1,373,222
(17,316)
87,807
15 ,802
(15 ,802)
1,517,72 1
29,511
FIVE-YEAR COMPARISON OF SELECTED SUPPLEME TARY FINANCIAL DATA
-ADJUSTED FOR EFFECTS OF CHANGING PRICES
(In average 1984 constant dollars, in thousands except per share and price index amounts- unaudited)
Adjusted for Changes
in Specific Prices
(Current Cost)
$1,547,232
175 ,909
I ,374,853
18,546
87,807
15 ,802
(15,802)
1,657 ,115
$ (109,883)
$ 34,507
$ 203 ,484
127 ,8 13
$ 75,671
Year Ended December 31
Total operating revenues-in average 1984 dollars
Current cost information:
et loss from operations . . . . ....................... .
i\et loss from operations per common share ... .
Exces of increase in specific prices over increa e in general price level
Equiry in net a ets at year end ............. .
1984
SI ,547,232
S (109 ,883)
S (3.20)
S 75 ,671
Sl , 193 ,579
Gain from decline in purchasing power of net amounts owed. . . . . . . . . . . S 34,507
Cash dividends declared per common share-in average 1984 dollars ........ .
Market price per common share at year end-in average I 984 dollars ... .
Average con umer price index ...... .
s 5.30
311.1
1983 1982 1981
SI ,575,824
S (213 ,077)
S (8.10)
S 79.678
S1 ,183 ,631
S 35,087
s 3.84
298.4
S1 ,647 ,149
S (126 ,634)
S (5.93)
S 72 ,035
S1 ,222, 129
S 35,920
s 8.38
289. 1
SI ,654, 193
S (118 ,763)
s (5.71)
s 143, 132
s 9 7,410
s 78,329
s . II
s 4.56
272.4
1980
SI , 155 ,55 I
s (66,490)
s (3.21 )
s 103 ,833
s 817,654
s 70,703
s .25
s 7.22
246.8
27
Supplemental stockholder information (continued)
FORM 10-K REPORT
For the Form 10-K report filed with the Securities and Exchange
Commission, write Mr. A. L. Maxson, Senior Vice President-
Finance, Republic Airlines, Inc., 7500 Airline Drive, Minneapo-
lis, MN 55450.
COMMON STOCK INFORMATION
The following tabulation sets forth the price range for the Com-
pany's common stock which is traded on the New York Stock
Exchange and the Midwest Stock Exchange.
1984 1983
High Low ~ Low
I st Quarter . .... $5-1/4 $3-3/4 $10- 1/8 $7-1/2
2nd Quarter. 4-1/8 3-1/4 9-3/8 6-3/4
3rd Quarter ... . 5-1 /8 3-5/8 7-7/8 3-3/4
4th Quarter .. . 5-3/4 4-1 /2 5-l/8 3-1 /2
The Company has not paid any cash dividends on common stock
since 1981. The terms of the Bank Credit Agreement, as amend-
ed, restrict payment of dividends on or the repurchase of com-
mon stock until certain financial loan covenants are met. Under
the employee stock agreement, the Company cannot pay divi-
dends on common stock through December 31, 1986. At Febru-
ary 26, 1985, the Company had 36,494 holders of common stock.
QUARTERLY SUMMARIES OF OPERATIONS
(unaudited-in thousands except per share amounts)
1984
Three Months Ended
December 31 Se~tember 30 June 30
Operating revenues ........... .. ... $357 ,61 l $385,514 $410,489
Operating expense ...... .. .... . 348,334 357,015 366,758
Operating profit (loss) . . . . . . .
. . . . . . . . 9,277 28,499 43,731
Earnings (loss) before extraordinary item (5,667) 6,138 17,291
Net earnings (loss) ..... (10,032) 14,575 29,021
Net earnings (loss) per common share -
Primary :
Before extraordinary item (.18) .15 .50
Net earnings (loss) . ......... (.30) .38 .85
Fully diluted:
Before extraordinary item (.18) . 14 .42
Net earnings (loss) .. (.30) .36 .73
* Year-end adju~tmcnts resulting from changes in estimates of various
benefit accruals increased net earnings by approximately $6, I 00,000.
28
ANNUAL MEETING
Wednesday, April 24, 1985
REGISTRARS AND TRANSFER AGENTS
N orwest Bank Minneapolis, N. A.
Minneapolis, Minnesota 55480
Norwest Trust Company
New York, New York 10005
SECURITIES LISTED
Common Stock (RAI)
New York Stock Exchange
Midwest Stock Exchange
Warrants (RAIW)
New York Stock Exchange
10-1/8 % Convertible Senior Subordinated Debentures
(RAIK)
New York Stock Exchange
Trustee:
First Trust Company of Saint Paul
Saint Paul, Minnesota 55101
AUDITORS
Alexander Grant & Company
1983
Three Months Ended
March 31 December 31 * Se~tember 30 June 30
$393,618 $386,381 $392,959 $374,246
375,123 359,052 385,082 401,747
18,495 27,329 7,877 (27 ,501)
(4,053) 4,037 (12,161) (43 ,925)
(4,053) 4.037 ( 12.161) (43,9'25)
(. 16) .10 (.44) ( l.83)
(.16) .10 (.44) (1.83)
(.16) .10 (.44) (1.83)
(. 16) .10 (.44) (1 .83)
March 31
$357,908
396,630
(38,722)
(58,982)
(58,982)
(2 .70)
(2.70)
(2.70)
(2.70)
Board of Directors
DA IEL F. MAY
Chairman of the Board and
Chief Executive Officer
Republic Airlines, Inc.
CECIL A. BEASLEY, JR.
Partner-Ballard and Bea ley
(Attorney )
Washington, D.C.
ERIC BRAMLEY
Retired Editor
Aviation Daily
(Aviation industry news service)
Wild Rose, Wisconsin
HAL . CARR
Chairman of the Executive Committee
Republic Airlines, Inc.
G. F. DECO RSI
Chairman of the Board
April Graphics
(Commercial graphic arts)
Irving, Texas
DAVID H. H GHES
Pre ident
Hughes Supply, Inc.
(Electrical and plumbing supplies)
Orlando, Florida
FRA KW. HULSE
Retired Vice Chairman of the Board
Republic Airlines, Inc.
G. GU BY JORDA
Retired Chairman of the Board
The Jordan Company
(Con truction)
Columbus, Georgia
JOH M. LA WRE1 CE III
Partner-Lawrence, Thornton ,
Payne Watson & Kling
(Attorneys)
Bryan , Texas
Officers
DANIEL F. MAY
Chairman of the Board and
Chief Executive Officer
STEPHE1 M. WOLF
President and Chief Operating Officer
DOR.\1A. W. ATWOOD
Senior Vice President-
:vfaintenance and Engjneering
GRAMER D. FOSTER
Senior Vice Pre ident-Operation
A. B. :v!AGARY
Senior Vice Pre ident-Marketing
A. L. .'vfAXSO);
Senior Vice President-Finance
WILLIAM R. LUMMIS
Chairman of the Board and President
Summa Corporation
(Real estate investment , aviation ,
hotels and recreation)
La Vegas , evada
MORTO B. PHILLIPS
Chairman of the Board and Pre ident
OMI, Inc.
(Business investments)
San Francisco, California
G. FRA K PURVIS, JR.
Chairman of the Board
Pan American Life Insurance Co.
ew Orleans, Louisiana
WILLIAM E. RA KI
Retired Vice Chairman of the Board
Summa Corporation
(Real estate investments aviation
hotel and recreation)
Las Vegas, evada
HE RY M. ROSS
Pre ident
Ros Industries, Inc.
(Machinery manufacturer)
idland , Virginia
BER ARD SWEET
Retired Vice Chairman of the Board
Republic Airlines, Inc.
RICHARD A. TRIPPEER, JR.
Chairman of the Board
nion Planter Corporation and
nion Planters ational Bank
Memphi , Tenne see
W . BEW WHITE, JR.
Of Coun el-Bradley, Arant Ro e & White
(Attorneys)
Birmingham, Alabama
HE RY W. BARKHA SE.
Vice President and Trea urer
JOSEPH W. ETTEL
Vice Pre ident-Personnel
ARNOLD J. GROSSMA 1
Vice President-Marketing Systems
W. THOMAS LAGOW
Vice President-Marketing Planning
GARY H. LA::-JT1 ER
Vice President and Secretary
LEER. MITCHELL
Vice President-Computer
and Communications Service
KE ETH B. WJ LLETT
Chairman of the Board
Fir t Financial Savings and
Loan Association
Steven Point, Wi consin
STEPHE M. WOLF
President and Chief Operating Officer
Republic Airlines, Inc.
FRA KM. YOU G III
Partner- orth Haskell Slaughter
Young & Lewi
( A ttorneysJ
Birmingham , Alabama
Executive Committee
HAL . CARR, Chairman
G. F . DECO RSI
FRA KW . H LSE
DA IEL F. MAY
WM. BEW WHITE, JR.
KE ETH B. WILLETT
STEPHE M. W LF
Audit Committee
ERIC BRAMLEY, Chairman
G. FRA KP RVIS , JR.
HE RY M. ROSS
tock Option Committee
RICHARD A. TRIPPEER, JR. Chairman
HAL . CARR
DA YID H . H GHES
BR CE R. OBLES
Vice President-Customer Service
RAYMO D W. SELL WOOD
Vice President-Flight
MICHAEL D. MEYER
Controller
PAliL C. JASI SKI
General Counsel and Assistant Secretary
WALTER E. NJELSE
As istant Treasurer
GLORIA B. LSEN
Assistant Secretary
RALPH STRA . GIS
A sistant Secretary
7500 AIRLINE DRIVE MINNEAPOLIS, MINNESOTA 55450
612/726-7411