-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BqBDn5cU52K8R/Xc3ICW634MsYMvkhZhIdDwGXCvGK76Hjv1HkqKaNVjOKQmQH1J 6AaRTvo79vZfYh58oa9VGg== 0000927356-98-001079.txt : 19980710 0000927356-98-001079.hdr.sgml : 19980710 ACCESSION NUMBER: 0000927356-98-001079 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980709 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRONTIER AIRLINES INC /CO/ CENTRAL INDEX KEY: 0000921929 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 841256945 STATE OF INCORPORATION: CO FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-24126 FILM NUMBER: 98663562 BUSINESS ADDRESS: STREET 1: 12015 EAST 46TH AVE CITY: DENVER STATE: CO ZIP: 80239 BUSINESS PHONE: 3033717400 10-K/A 1 FORM 10-K/A FORM 10-K/A Amendment No. 1 to Items 8 and 14 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1998 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-24126 FRONTIER AIRLINES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Colorado 84-1256945 ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporated or organization) 12015 E. 46th Avenue, Denver, CO 80239 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (303) 371-7400 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value -------------------------- Title of Class Indicate by check mark whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K or any amendment to this Form 10-K. [X] Aggregate Market Value of Stock held by Non-Affiliates of the Company as of June 23, 1998: $31,076,647, based on a closing average bid and asked price on that date of $3.44 per share. The number of shares of the Company's Common Stock outstanding as of June 24, 1998 is 13,616,564. Documents incorporated by reference - Part III is incorporated by reference to the company's 1998 Proxy Statement. ITEM 8: FINANCIAL STATEMENTS The Company's financial statements are filed as a part of this report immediately following the signature page. 1 PART IV ITEM 14(A): EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. Exhibit Numbers Description of Exhibits - ------- ----------------------- 3.1 Amended and Restated Articles of Incorporation of the Company. (10) 3.2 Amended Bylaws of the Company (June 9, 1997). (5) 4.1 Specimen Common Stock certificate of the Company. (1) 4.2 The Amended and Restated Articles of Incorporation and Amended Bylaws of the Company are included as Exhibits 3.1 and 3.2. 4.3 Form of Warrant. (1) 4.4 Rights Agreement, dated as of February 20, 1997, between Frontier Airlines, Inc. and American Securities Transfer & Trust, Inc, including the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A and B, respectively, incorporated by reference to Frontier Airlines, Inc. Registration Statement on Form 8- A dated March 11, 1997. (6) 4.4(a) Amendment to Rights Agreement dated June 30, 1997. (5) 10.1 Office Lease. (1) 10.2 Office Lease Supplements and Amendments. (5) 10.2(a) Addendum to Office Lease (10) 10.3 1994 Stock Option Plan. (1) 10.4 Amendment No. 1 to 1994 Stock Option Plan. (2) 10.4(a) Amendment No. 2 to 1994 Stock Option Plan (5) 10.5 Registration Rights Agreement. (1) 10.6 Sales Agreement. (1) 10.7 Airport Use and Facilities Agreement, Denver International Airport (2) 10.8 Aircraft Lease Agreement dated as of July 26, 1994. (2) 10.8(a) Assignment and Assumption Agreements dated as of March 28, 1997 and March 20, 1997 between USAirways, Inc. and First Security Bank, National Association ("Trustee") and Frontier Airlines, Inc. (5) 10.8(b) Amendment No. 1, dated June 5, 1997, to Lease Agreement dated as of July 26, 1994 between Frontier Airlines, Inc. and First Security Bank, National Association. (5) 10.9 Code Sharing Agreement. (5) 2 10.10 Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23177). (3) 10.11 Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23257). (3) 10.12 Aircraft Lease Agreement dated as of May 1, 1996. (3) 10.13 Aircraft Lease Agreement dated as of June 3, 1996. (3) 10.13(a) Amendment No. 1 to Aircraft Lease Agreement dated as of June 3, 1996.(10) 10.14 Aircraft Lease Agreement dated as of June 12, 1996. Portions of this Exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received. (3) 10.15 Operating Lease Agreement dated November 1, 1996 between the Company and First Security Bank, National Association. Portions of this Exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received. (4) 10.16 Aircraft Lease Agreement (MSN 28760) dated as of December 12, 1996 between the Company and Boullion Aircraft Holding Company, Inc. Portions of this Exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received. (4) 10.16(a) Amendment No. 1 to Aircraft Lease Agreement (MSN 28760) dated May 20, 1997. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.17 Aircraft Lease Agreement (MSN 28662) dated as of December 12, 1996 between the Company and Boullion Aircraft Holding Company, Inc. Portions of this Exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received. (4) 10.17(a) Amendment No. 1 to Aircraft Lease Agreement (MSN 28662) dated May 20, 1997. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.18 Aircraft Lease Agreement (MSN 28563) dated as of March 25, 1997 between the Company and General Electric Capital Corporation. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.19 Space and Use Agreement with Continental Airlines, as amended. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.20 Letter of Understanding with Continental Airlines dated August 16,1996. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.21 Service Agreement between Frontier Airlines, Inc. and Greenwich Air Services, Inc. dated May 19, 1997. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 3 10.22 Agreement between Frontier Airlines, Inc. and Dallas Aerospace, Inc. dated April 17, 1997. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.23 General Services Agreement between Frontier Airlines, Inc. and Tramco, Inc. dated as of August 6, 1996. (5) 10.24 General Terms Engine Lease Agreement between Frontier Airlines, Inc. and Terandon Leasing Corporation dated as of August 15, 1996, as assigned to U.S. Bancorp Leasing and Financial on February 19, 1997. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.25 Lease Agreement between Frontier Airlines, Inc. and Aircraft Instrument and Radio Company, Inc. dated December 11, 1995. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.26 Agreement and Plan of Merger between Western dated June 30, 1997. (5) Pacific Airlines, Inc. and Frontier Airlines, Inc. 10.26(a)Agreement dated as of September 29, 1997 between Airlines, Inc. (7) Western Pacific Airlines, Inc. and Frontier 10.27 Security Agreement with Wexford Management LLC dated December 2, 1997. (8) 10.28 Amended and Restated Warrant Agreement with Wexford Management LLC dated as of February 27, 1998. (10) 10.29 Amended and Restated Registration Rights Agreement with Wexford Management LLC dated asof February 27, 1998. (10) 10.30 Securties Purchase Agreement with B III Capital Partners, L.P. dated as of April 24, 1998. (9) 10.31 Registration Rights Agreement with B III Capital Partners, L.P. dated as of April 24, 1998. (10) 10.32 Warrant Agreement with The Seabury Group, LLC dated as of may 26, 1998. (10) 10.33 Registration rights Agreement with The Seabury Group, LLC dated as of May 26, 1998. (10) 23.1 Consent of KPMG Peat Marwick LLP (11) 27.1 Financial Data Schedule (10) - --------------------------- (1) Incorporated by reference from the Company's Registration Statement on Form SB-2, Commission File No. 33-77790-D, declared effective May 20, 1994. (2) Incorporated by reference from the Company's Annual Report on Form 10-KSB, Commission File No. 0-4877, filed on June 29, 1995. (3) Incorporated by reference from the Company's Annual Report on Form 10-KSB, Commission File No. 0-4877, filed on June 24, 1996. (4) Incorporated by reference from the Company's Quarterly Report on Form 10- QSB, Commission File No. 0-4877, filed on February 13, 1997. (5) Incorporated by reference from the Company's Annual Report on Form 10-KSB, Commission File No. 0-24126, filed July 14, 1997. 4 (6) Incorporated by reference from the Company's Report on Form 8-K filed on March 12, 1997. (7) Incorporated by reference from the Company's Report on Form 8-K filed on October 1, 1997. (8) Incorporated by reference from the Company's Report on Form 8-K filed on December 12, 1997. (9) Incorporated by reference from the Company's Report on Form 8-K filed on May 4, 1998. (10) Previously filed. (11) Filed herewith. ITEM 14(b): REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the quarter ended March 31, 1998. 5 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. FRONTIER AIRLINES, INC. Date: July 9, 1998 By: /s/ Samuel D. Addoms --------------------- Samuel D. Addoms, Principal Executive Officer and Principal Financial Officer Date: July 9, 1998 By: /s/ Elissa A. Potucek ---------------------- Elissa A. Potucek, Vice President, Controller, Treasurer and Principal Accounting Officer Independent Auditors' Report ---------------------------- THE BOARD OF DIRECTORS AND STOCKHOLDERS FRONTIER AIRLINES, INC.: We have audited the accompanying balance sheets of Frontier Airlines, Inc. as of March 31, 1998 and 1997, and the related statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended March 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Frontier Airlines, Inc., as of March 31, 1998 and 1997, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 1998, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Denver, Colorado June 16, 1998 F-1 FRONTIER AIRLINES, INC. BALANCE SHEETS MARCH 31, 1998 AND 1997
- --------------------------------------------------------------------------------------------------------- MARCH 31, March 31, 1998 1997 ------------- ------------ Assets - ------ Current assets: Cash and cash equivalents $ 3,641,395 $ 10,286,453 Restricted investments 4,000,000 2,000,000 Trade receivables, net of allowance for doubtful accounts of $139,096 and $71,713 at March 31, 1998 and 1997 11,661,323 7,451,342 Maintenance deposits (note 3) 9,307,723 6,968,379 Prepaid expenses 3,843,694 3,449,871 Inventories 1,164,310 997,102 Deferred lease and other expenses 380,975 289,579 Note receivable - current portion - 27,288 ------------ ------------ Total current assets 33,999,420 31,470,014 Security, maintenance and other deposits (note 3) 7,633,143 6,596,660 Property and equipment, net (note 2) 5,579,019 4,340,982 Note receivable - long-term portion - 31,762 Deferred lease and other expenses 780,429 918,994 Restricted investments 2,606,459 734,133 ------------ ------------ $ 50,598,470 $ 44,092,545 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 13,664,750 $8,045,533 Air traffic liability 18,910,441 13,058,632 Other accrued expenses 5,157,640 3,318,043 Accrued maintenance expense (note 3) 12,537,228 8,277,115 Note payable - 9,812 Current portion of obligations under capital leases (note 3) 54,346 35,700 ----------- ------------ Total current liabilities 50,324,405 32,744,835 Senior secured notes payable (note 4) 3,468,138 - Accrued maintenance expense (note 3) 2,381,354 1,408,363 Obligations under capital leases, excluding current portion (note 3) 97,757 56,444 ----------- ------------ Total liabilities 56,271,654 34,209,642 ----------- ----------- Stockholders' (deficit) equity Preferred stock, no par value, authorized 1,000,000 shares; none issued and outstanding - - Common stock, no par value, stated value of $.001 per share, authorized 40,000,000 shares; 9,253,563 and 8,844,375 shares issued and outstanding at March 31, 1998 and 1997 9,253 8,844 Additional paid-in capital 37,954,584 35,764,710 Accumulated deficit (43,637,021) (25,890,651) ----------- ------------ Total stockholders' (deficit) equity (5,673,184) 9,882,903 ----------- ------------ Commitments and contingencies (notes 3,6,10 and 11) $ 50,598,470 $ 44,092,545 ============ ============ See accompanying notes to financial statements.
F-2 FRONTIER AIRLINES, INC. STATEMENTS OF OPERATIONS YEARS ENDED MARCH 31, 1998, 1997 AND 1996 - --------------------------------------------------------------------------------
1998 1997 1996 ---- ---- ---- Revenues: Passenger $ 142,018,392 $ 113,758,027 $ 68,530,051 Cargo 3,008,919 1,956,150 1,148,357 Other 2,115,326 786,457 714,167 ------------- -------------- ------------- Total revenues 147,142,637 116,500,634 70,392,575 ------------- -------------- ------------- Operating expenses: Flight operations 66,288,125 52,650,575 28,019,390 Aircraft and traffic servicing 30,684,992 24,849,388 18,486,719 Maintenance 31,790,600 24,945,636 11,732,102 Promotion and sales 29,328,970 21,526,345 14,218,814 General and administrative 6,352,977 4,617,982 3,320,700 Depreciation and amortization 1,251,364 1,072,160 547,514 ------------- -------------- ------------- Total operating expenses 165,697,028 129,662,086 76,325,239 ------------- -------------- ------------- Operating loss (18,554,391) (13,161,452) (5,932,664) ------------- -------------- ------------- Nonoperating income: Interest income 722,380 1,033,508 419,756 Interest expense (324,167) (20,435) (22,671) Other, net 409,808 (37,953) (46,103) ------------- -------------- ------------- Total nonoperating income, net 808,021 975,120 350,982 ------------- -------------- ------------- Net loss $ (17,746,370) $ (12,186,332) $ (5,581,682) ============== ============== ============= Basic and diluted loss per common share $(1.95) $(1.49) $(1.23) ============== ============== ============= Weight average shares outstanding 9,095,220 8,156,302 4,536,914 ============== ============== =============
See accompanying notes to financial statements. F-3 FRONTIER AIRLINES, INC. STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED MARCH 31, 1998, 1997 AND 1996 - -------------------------------------------------------------------------------
COMMON STOCK ----------------------- ADDITIONAL TOTAL STATED PAID-IN ACCUMULATED stockholders' SHARES VALUE CAPITAL DEFICIT (DEFICIT) EQUITY ------------ -------- ---------- ----------- ---------------- BALANCES, MARCH 31, 1995 3,443,300 $3,443 9,761,686 (8,122,637) 1,642,492 Contribution of common stock to employee stock ownership plan 137,340 - 721,000 - 721,000 Issuance of compensatory common stock options - - 60,500 - 60,500 Sale of common stock and warrants, net of offering costs of $1,230,000 1,840,000 1,978 7,279,532 - 7,281,510 Issuance of warrants 577,200 577,200 Net loss - - - (5,581,682) (5,581,682) ------------- --------- ---------- ----------- ---------------- BALANCES, MARCH 31, 1996 5,420,640 5,421 18,399,918 (13,704,319) 4,701,020 Sale of common stock, net of offering costs of $279,385 678,733 679 2,720,615 2,721,294 Exercise of common stock warrants, net of issuance costs of $55,518 2,666,133 2,666 13,275,145 13,277,811 Contribution of common stock to employee stock ownership plan 78,869 78 499,922 500,000 Issuance of warrants 869,110 869,110 Net loss (12,186,332) (12,186,332) ------------- --------- ---------- ----------- ---------------- BALANCES, MARCH 31, 1997 8,844,375 8,844 35,764,710 (25,890,651) 9,882,903 Exercise of common stock options 409,188 409 434,948 435,357 Warrants issued in conjunction - with debt 1,754,926 1,754,926 Net loss (17,746,370) (17,746,370) ------------- --------- ---------- ----------- ---------------- BALANCES, MARCH 31, 1998 9,253,563 $9,253 37,954,584 (43,637,021) (5,673,184) ============= ========= ========== =========== ================ See accompanying notes to financial statements
F-4 FRONTIER AIRLINES, INC. Statements of Cash Flows Years Ended March 31, 1998, 1997 and 1996 - --------------------------------------------------------------------------------
1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net loss $(17,746,370) $(12,186,332) $(5,581,682) Adjustments to reconcile net loss to net cash used by operating activities: Employee stock ownership plan compensation expense - 500,000 721,000 Issuance of compensatory common stock options - - 60,500 Depreciation and amortization 1,749,097 1,322,916 603,014 Loss on sale of equipment 10,334 4,708 62,940 Changes in operating assets and liabilities: Restricted investments (2,372,326) 82,458 (842,574) Trade receivables (4,209,981) (1,579,184) (2,289,183) Security, maintenance and other deposits (3,583,327) (1,608,524) (5,149,965) Prepaid expenses (393,823) (562,954) (2,269,203) Inventories (167,208) (427,926) (362,581) Note receivable 11,740 10,950 - Accounts payable 5,619,217 3,643,071 1,590,072 Air traffic liability 5,851,809 1,858,072 7,384,114 Other accrued expenses 1,839,597 1,323,037 (337,294) Accrued maintenance expense 5,233,104 1,151,443 5,572,559 ------------- ------------- ------------ Net cash used in operating activities (8,158,137) (6,468,265) (838,283) ------------- ------------- ------------ Cash flows used by investing activities: Decrease (increase) in short-term investments - 1,168,200 (1,168,200) Aircraft lease deposits 207,500 (2,682,250) (1,661,250) Increase in restricted investments (1,500,000) (600,000) - Capital expenditures (2,355,266) (3,434,789) (1,097,788) Proceeds from sale of property and equipment - - 32,440 ------------- ------------- ------------ Net cash used in investing activities (3,647,766) (5,548,839) (3,894,798) ------------- ------------- ------------ Cash flows from financing activities: Net proceeds from issuance of common stock and warrants 435,357 15,999,455 7,281,510 Proceeds from sale of senior secured notes including warrants 5,000,000 - - Cash payments for debt issuance costs (227,500) Proceeds from short-term borrowings 202,810 95,911 101,496 Principal payments on short-term borrowings (212,622) (96,540) (91,055) Principal payments on obligations under capital leases (37,200) (54,523) (34,357) ------------- ------------- ------------ Net cash provided by financing activities 5,160,845 15,944,303 7,257,594 ------------- ------------- ------------ Net (decrease) increase in cash and cash equivalents (6,645,058) 3,927,199 2,524,513 Cash and cash equivalents, beginning of year 10,286,453 6,359,254 3,834,741 ------------- ------------- ------------ Cash and cash equivalents, end of year $3,641,395 $10,286,453 $6,359,254 ============= ============= ============ See accompanying notes to financial statements.
F-5 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 - ------------------------------------------------------------------------------- (1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS AND INDUSTRY RISKS Frontier Airlines, Inc. (the "Company") was incorporated in the State of Colorado on February 8, 1994 and is a low-fare full service commercial airline based in Denver, Colorado which currently serves cities on the west and east coasts, as well as intermediate cities in relatively close proximity to Denver. The Company commenced airline operations on July 5, 1994. The airline industry is highly competitive primarily due to the effects of the Airline Deregulation Act of 1978, which has substantially eliminated government authority to regulate domestic routes and fares and has increased the ability of airlines to compete with respect to flight frequencies and fares. The Company's results are highly sensitive to changes in fare levels. The Company cannot predict future fare levels, which can change rapidly, and are subject to actions by the Company's competitors. The airline industry is also characterized by fixed costs that are high in relation to revenues. Accordingly, a shortfall from expected revenue levels can have a material adverse effect on profitability and liquidity, including those of the Company's. The Company's connecting hub is located at Denver International Airport (DIA). DIA opened in March 1995. Financed through revenue bonds, DIA depends on landing fees, gate rentals and other income from airlines, the traveling public and others to pay debt service and support operations. Management believes that the Company's operating costs at DIA will continue to substantially exceed those that other airlines incur at hub airports in other cities. The airline industry is significantly affected by general economic conditions. Because a substantial portion of business and personal airline travel is discretionary, the industry tends to experience severe adverse financial results during general economic downturns. The Company's business also is seasonal, which affects the Company's results of operations from quarter to quarter. Fuel is a major component of operating expense for all airlines. Both the cost and availability of fuel are subject to many economic and political factors and events occurring throughout the world. The future cost and availability of fuel to the Company cannot be predicted, and substantial price increases or the unavailability of adequate fuel supplies could have a material adverse effect on the Company's operations and profitability. F-6 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - ------------------------------------------------------------------------------- (1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS For financial statement purposes, the Company considers cash and short- term investments with an original maturity of three months or less to be cash equivalents. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Noncash Financing and Investment Activities: During the year ended March 31, 1998, the Company issued warrants to its lender in connection with its $5,000,000 senior secured notes with an estimated fair market value totaling $1,645,434, and issued warrants to its financial advisor in connection with debt and equity financing with an estimated fair market value totaling $109,492. Also during the year ended March 31, 1998, the Company entered into capital lease agreements totaling $97,000, and exchanged a note receivable for certain property and equipment totaling $47,000. In the years ended March 31, 1997 and 1996, the Company issued warrants to aircraft lessors with an estimated fair market value totaling $869,110 and $577,200, respectively. The unamortized portion of deferred lease expense totaled $850,125 and $1,139,703 at March 31, 1998 and 1997. In the year ended March 31, 1996, the Company sold equipment and accepted a promissory note in lieu of cash for $70,000. Interest and Taxes Paid During the Year: Cash paid for interest totaled $184,999, $20,435, and $22,671, for the years ended March 31, 1998, 1997 and 1996, respectively. No income taxes were paid during the years ended March 31, 1998, 1997, and 1996. F-7 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - ------------------------------------------------------------------------------- (1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) RESTRICTED INVESTMENTS Restricted investments include certificates of deposit which secure certain letters of credit issued primarily to companies which process credit card sale transactions, certain airport authorities and aircraft lessors. Restricted investments are carried at cost, which management believes approximates market value. Maturities are for one year or less and the Company intends to hold restricted investments until maturity. VALULATION AND QUALIFYING ACCOUNTS The allowance for doubtful accounts was $139,096 and $72,713 at March 31, 1998 and 1997. Provisions for bad debts net of recoveries totaled $267,000, $160,000, and $222,000 for the years ended March 31, 1998, 1997 and 1996. Deductions from the reserve totaled $200,000, $120,000, and $190,000 for the years ended March 31, 1998, 1997, and 1996. INVENTORIES Inventories consist of expendable parts, supplies and aircraft fuel and are stated at the lower of cost or market. Inventories are accounted for on a first-in, first-out basis and are charged to expense as they are used. The Company has two aircraft parts agreements for the Company's 14 Boeing 737 aircraft discussed in note 3, one with another air carrier and another with an aircraft parts supplier. The Company is required to pay a monthly consignment fee to each of these lessors, based on the value of the consigned parts, and to replenish any such parts when used with a like part. At March 31, 1998 and 1997, the Company held consigned parts and supplies in the amount of approximately $8,161,000 and $7,105,944, which are not included in the Company's balance sheet. PROPERTY AND EQUIPMENT Property and equipment are carried at cost. Major additions, betterments and renewals are capitalized. Depreciation and amortization is provided for on a straight-line basis to estimated residual values over estimated depreciable lives as follows: Flight equipment 5-20 years Improvements to leased aircraft Life of improvements or term of lease, whichever is less Ground property, equipment, and leasehold improvements 3-5 years or term of lease F-8 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - ------------------------------------------------------------------------------- (1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Assets utilized under capital leases are amortized over the lesser of the lease term or the estimated useful life of the asset using the straight- line method. Amortization of capital leases is included in depreciation expense. MAINTENANCE Routine maintenance and repairs are charged to operations as incurred. Under the terms of its aircraft lease agreements, the Company is required to make monthly maintenance deposits based on usage; such deposits are applied against the cost of major airframe maintenance checks, landing gear and engine overhauls. These deposits are expensed in the month the usage was incurred and a liability for accrued maintenance is established. Deposit balances remaining at lease termination remain with the lessor and any remaining liability for maintenance checks is reversed against the deposit balance. Additionally, a provision is made for the estimated costs of scheduled major overhauls required to be performed on leased aircraft and components under the provisions of the aircraft lease agreements if the required monthly deposit amounts are not adequate to cover the entire cost of the scheduled maintenance. Accrued maintenance expense expected to be incurred beyond one year is classified as long-term. REVENUE RECOGNITION Passenger, cargo, and other revenues are recognized when the transportation is provided or after the tickets expire, and are net of excise taxes. Revenues which have been deferred are included in the accompanying balance sheet as air traffic liability. PASSENGER TRAFFIC COMMISSIONS AND RELATED EXPENSES Passenger traffic commissions and related expenses are expensed when the transportation is provided and the related revenue is recognized. Passenger traffic commissions and related expenses not yet recognized are included as a prepaid expense. FREQUENT FLYER AWARDS The Company had maintained a frequent travel award program that provided awards to program members based on accumulated segments flown, which was discontinued effective September 11, 1996. The Company allows its passengers to accumulate mileage on Continental Airlines' OnePass frequent flyer program. The cost of providing mileage on the OnePass program is based on an agreed upon rate per mileage credit, which is paid to Continental Airlines on a monthly basis. F-9 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - ------------------------------------------------------------------------------- (1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) LOSS PER COMMON SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128). This statement replaces the presentation of primary earnings per share (EPS) and fully diluted EPS with a presentation of basic EPS and diluted EPS, respectively. Basic EPS excludes dilution and is computed by dividing earnings (loss) available to common stockholders by the weighted- average number of common shares outstanding for the period. Similar to fully diluted EPS, diluted EPS reflects the potential dilution of securities that could share in earnings. This statement has been adopted in the accompanying financial statements. Common stock equivalents are excluded from the computation of diluted loss per share as their effect would have been anti-dilutive. INCOME TAXES The Company accounts for income taxes using the asset and liability method prescribed by Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and tax bases of the existing assets and liabilities. A valuation allowance for net deferred tax assets is provided unless realizability is judged by management to be more likely than not. The effect on deferred taxes from a change in tax rates is recognized in income in the period that includes the enactment date. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company estimates the fair value of its monetary assets and liabilities based upon existing interest rates related to such assets and liabilities compared to current rates of interest for instruments with a similar nature and degree of risk. The Company estimates that the carrying value of all of its monetary assets and liabilities approximates fair value as of March 31, 1998. F-10 FRONTIER AIRLINES, INC. Notes to Financial Statements, continued - -------------------------------------------------------------------------------- (1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) STOCK BASED COMPENSATION The Company follows Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees ("APB 25") and related Interpretations in accounting for its employee stock options and follows the disclosure provisions of Statement of financial Accounting Standards No. 123 (SFAS No. 123). Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The Company has included the pro forma disclosures required by SFAS No. 123 in Note 7. IMPAIRMENT OF LONG-LIVED ASSETS The Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and either the undiscounted future cash flows estimated to be generated by those assets or the fair market value are less than the assets' carrying amount. RECLASSFICATIONS Certain prior year amounts have been reclassified to conform to the current year presentation. (2) PROPERTY AND EQUIPMENT, NET As of March 31, 1998 and 1997 property and equipment consisted of the following: 1998 1997 ---------- ---------- Flight equipment and improvements to leased aircraft $4,932,024 $3,251,284 Ground property, equipment and leasehold improvements 3,673,363 2,923,658 ---------- ---------- 8,605,387 6,174,942 Less accumulated depreciation and amortization 3,026,368 1,833,960 ---------- ---------- Property and equipment, net $5,579,019 $4,340,982 ========== ========== Property and equipment includes certain office equipment under capital leases. At March 31, 1998 and 1997, office equipment recorded under capital leases was $280,857 and $183,698 and accumulated amortization was $113,364 and $104,479. F-11 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- (3) LEASE COMMITMENTS AIRCRAFT LEASES At March 31, 1998, the Company operated 14 aircraft which are accounted for under operating lease agreements with initial terms ranging from 2 to 8 years with certain leases that allow for renewal options. Security deposits related to leased aircraft at March 31, 1998 and 1997 totaled $4,604,750 and $4,812,250 and are included in security, maintenance and other deposits on the balance sheet. Letters of credits issued to certain aircraft lessors in lieu of cash deposits and related restricted investments to secure these letters of credits at March 31, 1998 and 1997 totaled $2,100,000 and $1,500,000. In addition to scheduled future minimum lease payments, the Company is required to pay to each aircraft lessor monthly cash deposits based on flight hours and cycles operated to provide funding for certain scheduled maintenance costs of leased aircraft. The lease agreements provide that the Company shall pay taxes, maintenance, insurance, and other operating expenses applicable to the leased property. At March 31, 1998 and 1997, aircraft maintenance deposits totaled $11,466,033 and $8,142,176 and are reported as a component of security, maintenance and other deposits on the balance sheet. Any cash deposits paid to aircraft lessors for future scheduled maintenance costs to the extent not used during the lease term remain with the lessors, and any remaining liability for maintenance checks is reversed against the deposit balance. Maintenance deposits are unsecured and may be subject to the risk of loss in the event the lessors are not able to satisfy their obligations under the lease agreements. OTHER LEASES The Company leases a office and hangar space, a spare engine and office equipment for its headquarters, airport facilities, and certain ground equipment. The Company also leases certain airport gate facilities on a month-to-month basis. At March 31, 1998, commitments under capital and noncancelable operating leases (excluding maintenance deposit requirements) with terms in excess of one year were as follows: F-12 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- (3) LEASE COMMITMENTS (CONTINUED) Capital Operating Leases Leases -------- ------------ Year ended March 31: 1999 $ 69,069 $ 35,944,976 2000 43,167 32,112,675 2001 24,636 22,715,742 2002 24,636 18,688,397 2003 24,636 17,773,916 Thereafter - 32,987,326 -------- ------------ Total minimum lease payments 186,144 160,223,032 ============ Less amount representing interest (34,041) -------- Present value of obligations under capital leases 152,103 Less current portion of obligations under capital leases 54,346 -------- Obligations under capital leases, excluding current portion $ 97,757 ======== The obligations under capital leases have been discounted at imputed interest rates ranging from 10.5% to 12.2%. Rental expense under operating leases, including month-to-month leases, for the years ended March 31, 1998, 1997 and 1996 was $36,573,509, $25,336,749 and $12,625,175, respectively. F-13 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- (4) SENIOR SECURED NOTES In December 1997, the Company sold $5,000,000 of 10% senior secured notes to Wexford Management LLC ("Wexford"). The notes are due and payable in full on December 15, 2001 with interest payable quarterly in arrears. The notes are secured by substantially all of the assets of the company. The Wexford agreement contains restrictions primarily related to liens on assets and requires prior written consent for expenditures outside the ordinary course of business. In connection with this transaction, the Company issued Wexford warrants to purchase 1,750,000 shares of Common Stock at $3.00 per share. The Company determined the value of the warrants to be $1,645,434 and recorded the value as equity in additional paid-in capital. The balance of the notes will be accreted to its face value over the term of the notes and included as interest expense. The effective interest rate on the notes is approximately 22.5% including the value of the warrants. (5) INCOME TAXES The Company has not recognized any income tax benefit related to net operating losses incurred for the years ended March 31, 1998, 1997 and 1996 because the benefit of the net operating losses were offset by an increase in the valuation allowance for net deferred tax assets. The differences between the Company's provision for income taxes and such provisions (benefit) for income taxes computed at the federal statutory rate is comprised of the items shown in the following table:
1998 1997 1996 ---- ---- ---- Income tax benefit at the statutory rate 34% 34% 34% Net operating loss producing no current benefit (34%) (34%) (34%) ---------------------------------------- - - - ========================================
F-14 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- (5) INCOME TAXES, CONTINUED The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at March 31, 1998 are presented below:
1998 1997 --------------- --------------- Deferred tax assets: Net operating loss carryforwards $ 13,434,000 $ 7,603,000 Start-up cost deferred for tax purposes 108,000 198,000 Accrued maintenance not deductible for tax purposes 899,000 717,000 Accrued vacation and health insurance liability not deductible for tax purposes 527,000 395,000 Other 110,000 117,000 --------------------------------- Total gross deferred tax assets 15,078,000 9,030,000 Less valuation allowance (14,832,000) (8,934,000) --------------------------------- 246,000 96,000 --------------------------------- Deferred tax liabilities: Equipment depreciation and amortization (246,000) (96,000) --------------------------------- Net deferred taxes - - =================================
The valuation allowance is provided since it is uncertain that the deferred tax assets will be realized. The Company established the valuation allowance based principally on its historical financial results from operations. Additionally, the utilization of these carryforwards may be limited due to the ownership change provisions as enacted by the Tax Reform Act of 1986 and subsequent legislation. The valuation allowance for deferred tax assets as of March 31, 1997 was $8,934,000. The increase in the valuation allowance for the year ended March 31, 1998 was $5,989,000. At March 31, 1998, the Company had net operating loss carryforwards of approximately $36,015,000, which expire in the years 2010 to 2013. F-15 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- (6) WARRANTS The Company issued 2,670,000 warrants to purchase common stock in conjunction with a private placement and its initial public offering. Each warrant entitled the warrant holder to purchase one share of common stock for $5.00. These warrants were subject to redemption at $.05 per warrant by the Company on 45 days written notice if certain conditions were met. The Company met these conditions in May 1996 and on May 14, 1996, the Company notified the warrant holders of the Company's intent to exercise its redemption rights with respect to the warrants not exercised on or before June 28, 1996. 2,666,133 warrants were exercised with net proceeds to the Company totaling $13,275,000. At completion of the Company's initial public offering in 1994, an underwriter acquired options to purchase up to 110,000 shares of common stock exercisable at a price equal to $5.525 per share. Additionally, the underwriter was granted up to 110,000 warrants to purchase common stock at a price equal to $.325 per warrant and $5.00 per share of common stock. The underwriters in a secondary public offering by the Company in 1995 received a warrant to purchase 168,500 shares of common stock at $5.55 per share. The options and warrants issued to underwriters in connection with the initial and secondary public offerings expire, respectively, on May 20, 1999 and September 18, 2000. In October 1995, the Company issued to each of two of its Boeing 737-300 aircraft lessors a warrant to purchase 100,000 shares of Common Stock for an aggregate purchase price of $500,000. In June 1996, the Company issued two warrants to a Boeing 737-200 lessor, each warrant entitling the lessor to purchase 70,000 shares of common stock at an aggregate exercise price of $503,300 per warrant. In connection with a Boeing 737-300 aircraft to be delivered in August 1997, the Company has issued to the lessor a warrant to purchase 55,000 shares of Common Stock at an aggregate purchase price of $385,000. Warrants issued to aircraft lessors, to the extent not earlier exercised, expire upon expiration of the aircraft leases in March 2000, May and June 2001, and September 2005. In February 1998, in connection with the $5,000,000 senior notes as discussed in note 4, the Company issued a warrant to the lender to purchase 1,750,000 shares of the Company's Common Stock at a purchase price of $3.00 per share, which warrant expires in December 2001. In May 1998, the Company issued a warrant to its financial advisor, in connection with debt and equity financings, a warrant to purchase 548,000 shares of the Company's Common Stock at a purchase price of $3.00 per share, which warrant expires in May 2003. Of the 548,000 shares, 116,450 were recognized as of March 31, 1998 as part of the sale of the senior secured notes discussed in note 4. The Company recorded a value of $109,492 for these shares and recorded the value as equity in additional paid in capital and deferred loan expenses. The value will be amortized over the life of the notes. F-16 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- (7) STOCK OPTION PLAN The Company has a stock option plan whereby the Board of Directors or its Compensation Committee may issue options to purchase shares of the Company's common stock to employees, officers, and directors of the Company. Under the plan, the Company has reserved an aggregate of 2,250,000 shares of common stock for issuance pursuant to the exercise of options. With certain exceptions, options issued through March 31, 1998 generally vest one year from the date of grant and expire from March 9, 1999 to December 11, 2007. At March 31, 1998, 308,750 options are available for grant under the plan. A summary of the Plan's stock option activity and related information for the years ended March 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996 ------------------------------------------------------------------------ Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ------------------------------------------------------------------------ Outstanding-beginning of year 1,911,250 $1.85 1,731,250 $1.27 1,631,250 $1.17 Granted 30,000 2.77 180,000 7.40 100,000 3.07 Exercised (409,188) 1.06 Surrendered (180,000) 7.40 Re-issued 180,000 3.00 ------------------------------------------------------------------------ 1,532,062 $1.56 1,911,250 $1.85 1,731,250 $1.27 ======================================================================== Exercisable at end of year 1,445,394 $1.48 1,761,250 $1.39 1,671,250 $1.20
Exercise prices for options outstanding under the plan as of March 31, 1998 ranged from $1.00 to $3.75 per option share. The weighted-average remaining contractual life of those options is 5.6 years. A summary of the outstanding and exercisable options at March 31, 1998, segregated by exercise price ranges, is as follows:
Weighted- Average Weighted- Remaining Weighted- Exercise Price Options Average Contractual Exercisable Average Range Outstanding Exercise Price Life (in years) Options Exercise Price --------------------------------------------------------------------------------------------- $1.00 - $ 2.75 1,200,812 $1.11 5.0 1,200,812 $1.11 $3.00 - $ 3.75 331,250 3.19 7.8 244,582 3.26 ----------------------------------------------------------------------------- 1,532,062 $1.56 5.6 1,445,394 $1.48 =============================================================================
F-17 FRONTIER AIRLINES, INC. Notes to Financial Statements, continued - -------------------------------------------------------------------------------- (7) STOCK OPTION PLAN, CONTINUED Pro forma information regarding net income and earnings per share is required by SFAS No. 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to March 31, 1995 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1998, 1997 and 1996, respectively: risk- free interest rates of 6.42%, 6.55% and 6.08%, dividend yields of 0%, 0% and 0%; volatility factors of the expected market price of the Company's common stock of 64.33%, 58.78% and 60.86%, and a weighted-average expected life of the options of 7 years for each year. The Company applies APB Opinion 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost is recognized for options granted at a price equal to the fair market value of the common stock. Had compensation cost for the Company's stock-based compensation plan been determined using the fair value of the options at the grant date, the Company's net loss for the years ended March 31, 1998, 1997 and 1996, would have been $17,843,000, $12,367,000 and $5,628,000, and loss per common share would have been $1.96, $1.52 and $1.24 per share. (8) EMPLOYEE STOCK OWNERSHIP PLAN The Company has established an Employee Stock Ownership Plan (ESOP) which inures to the benefit of each permanent employee of the Company, except those employees covered by a collective bargaining agreement that does not provide for participation in the ESOP. Company contributions to the ESOP are discretionary and vary from year to year. In order for an employee to receive an allocation of company common stock from the ESOP, the employee must be employed on the last day of the ESOP's plan year, with certain exceptions. The Company's annual contribution to the ESOP, if any, will be allocated among the eligible employees of the Company as of the end of each plan year in proportion to the relative compensation (as defined in the ESOP) earned that plan year by each of the eligible employees. The ESOP does not provide for contributions by participating employees. Employees will vest in contributions made to the ESOP based upon their years of service with the Company. A year of service is an ESOP plan year during which an employee has at least 1,000 hours of service. Vesting generally occurs at the rate of 20% per year, beginning after the first year of service, so that a participating employee will be fully vested after five years of service. Distributions from the ESOP will not be made to employees during employment. However, upon termination of employment with the Company, each employee will be entitled to receive the vested portion of his or her account balance. F-18 FRONTIER AIRLINES, INC. Notes to Financial Statements, continued - -------------------------------------------------------------------------------- (8) EMPLOYEE STOCK OWNERSHIP PLAN, CONTINUED The initial Company contribution to the ESOP was made on June 22, 1995 and consisted of 137,340 shares of Common Stock, of which 27,468 shares relate to the plan year ended March 31, 1995 and 109,872 shares relate to the period from April 1, 1995 to December 31, 1995. During the years ended March 31, 1997, the Company contributed 78,869 shares to the plan and none during the year ended March 31, 1998. The Company recognized compensation expense during the year ended March 31, 1997 and 1996 of $500,000 and $721,000 related to its contribution to the ESOP and none during the year ended March 31, 1998. (9) CONCENTRATION OF CREDIT RISK The Company does not believe it is subject to any significant concentration of credit risk relating to trade receivables. At March 31, 1998 and 1997, 60% and 75% of the Company's trade receivables relate to tickets sold to individual passengers through the use of major credit cards, travel agencies approved by the Airlines Reporting Corporation, tickets sold by other airlines and used by passengers on Company flights, or the United States Postal Service. These receivables are short-term, generally being settled shortly after sale or in the month following ticket usage. (10) CONTINGENCIES The Company is party to legal proceedings and claims which arise during the ordinary course of business. In the opinion of management, the ultimate outcome of these matters will not have a material adverse effect upon the Company's financial position or results of operations. (11) SUBSEQUENT EVENTS In April 1998, the Company sold 4,363,001 shares of its common stock, no par value, through a private placement to an institutional investor. Gross proceeds to the Company from the transaction was $14,179,753, of which the Company received net proceeds of approximately $13,850,000. The Company issued a warrant to this investor to purchase 716,929 shares of common stock of the Company at a purchase price of $3.75 per share, which warrant expires in April 2002. F-19 EX-23.1 2 CONSENT OF KPMG PEAT MARWICK LLP EXHIBIT 23.1 ------------ CONSENT OF INDEPENDENT AUDITORS ------------------------------- THE BOARD OF DIRECTORS FRONTIER AIRLINES, INC.: We consent to the incorporation herein by reference in the registration statements Nos. 333-13333 and 333-31389 on Form S-8 and No. 333-07699 on Form S-3 of Frontier Airlines, Inc. of our report dated June 16, 1998, relating to the balance sheets of Frontier Airlines, Inc. as of March 31, 1998 and 1997, and the related statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended March 31, 1998, which report appears in the March 31, 1998 annual report on Form 10-K/A of Frontier Airlines, Inc. /s/ KPMG Peat Marwick LLP KPMG PEAT MARWICK LLP Denver, Colorado July 9, 1998 -----END PRIVACY-ENHANCED MESSAGE-----