-----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, FE4WzOwkZ7Oxwc/4hREXOcvUE8xNI0+WPOMI02BPVrCSJBa3ckD0LOScsmK8Y2k7 DG30QoIxnVSs8pXUFVuaCA== 0000950144-98-000500.txt : 19980122 0000950144-98-000500.hdr.sgml : 19980122 ACCESSION NUMBER: 0000950144-98-000500 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980121 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SKYWEST INC CENTRAL INDEX KEY: 0000793733 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 870292166 STATE OF INCORPORATION: UT FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14719 FILM NUMBER: 98510417 BUSINESS ADDRESS: STREET 1: 444 S RIVER RD CITY: ST GEORGE STATE: UT ZIP: 84790 BUSINESS PHONE: 8016343000 MAIL ADDRESS: STREET 1: 444 SOUTH RIVER ROAD CITY: ST GEORGE STATE: UT ZIP: 84790 10-Q 1 SKYWEST, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission file number 0-14719 SKYWEST, INC. ------------- Incorporated under the laws of Utah 87-0292166 (I.R.S. Employer ID No.) 444 South River Road St. George, Utah 84790 (801) 634-3000 Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at January 16, 1998 ----- ------------------------------- Common stock, no par value 10,317,152 2 SKYWEST, INC. TABLE OF CONTENTS Part I - Financial Information Item 1. Financial Statements: Condensed Consolidated Balance Sheets as of December 31, 1997 and March 31, 1997 3 Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended December 31, 1997 and 1996 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 1997 and 1996 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 12 2 3 PART I. FINANCIAL INFORMATION SKYWEST, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) - -------------------------------------------------------------------------------- ASSETS
December 31, March 31, 1997 1997 ------------ --------- CURRENT ASSETS: Cash and cash equivalents $ 70,418 $ 37,786 Available-for-sale securities 17,887 17,970 Receivables, net 7,185 10,851 Inventories 11,343 9,987 Prepaid aircraft rents 4,646 8,612 Other current assets 4,910 5,089 -------- -------- Total current assets 116,389 90,295 -------- -------- PROPERTY AND EQUIPMENT: Aircraft and rotable spares 181,167 171,239 Buildings and ground equipment 48,829 43,508 Rental vehicles 3,488 3,291 -------- -------- 233,484 218,038 Less accumulated depreciation and amortization (93,187) (80,295) -------- -------- 140,297 137,743 -------- -------- OTHER ASSETS 4,247 4,860 -------- -------- $260,933 $232,898 ======== ========
See notes to condensed consolidated financial statements. 3 4 SKYWEST, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) (In thousands) (Unaudited) - -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, March 31, 1997 1997 ------------ --------- CURRENT LIABILITIES: Current maturities of long-term debt $ 8,429 $ 6,399 Trade accounts payable 30,823 29,213 Accrued salaries, wages and benefits 5,543 6,095 Taxes other than income taxes 1,482 1,537 Air traffic liability 1,382 1,488 Fleet restructuring accrual -- 290 -------- -------- Total current liabilities 47,659 45,022 -------- -------- LONG-TERM DEBT, less current maturities 51,248 47,337 -------- -------- DEFERRED INCOME TAXES PAYABLE 19,485 15,987 -------- -------- STOCKHOLDERS' EQUITY: Common stock 91,392 89,146 Retained earnings 71,434 55,691 Treasury stock (20,285) (20,285) -------- -------- Total stockholders' equity 142,541 124,552 -------- -------- $260,933 $232,898 ======== ========
See notes to condensed consolidated financial statements. 4 5 SKYWEST, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) - --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended December 31, December 31, ------------------------------ ------------------------------ 1997 1996 1997 1996 ----------- ----------- ----------- ----------- OPERATING REVENUES: Passenger $ 65,472 $ 55,684 $ 193,783 $ 177,768 Freight 756 1,050 3,099 3,120 Public service and other 294 308 852 980 Nonairline 6,744 6,609 27,949 28,171 ----------- ----------- ----------- ----------- Total operating revenues 73,266 63,651 225,683 210,039 ----------- ----------- ----------- ----------- OPERATING EXPENSES: Flying operations 26,765 26,587 78,550 75,536 Aircraft, traffic and passenger service 9,933 9,563 28,464 27,234 Maintenance 7,752 6,804 21,721 21,594 Promotion and sales 5,123 7,119 20,307 22,155 Depreciation and amortization 4,789 4,742 14,169 13,644 General and administrative 3,794 2,575 11,006 9,320 Nonairline 7,358 7,997 24,763 26,615 ----------- ----------- ----------- ----------- Total operating expenses 65,514 65,387 198,980 196,098 ----------- ----------- ----------- ----------- OPERATING INCOME (LOSS) 7,752 (1,736) 26,703 13,941 ----------- ----------- ----------- ----------- OTHER INCOME (EXPENSE): Interest expense (467) (311) (2,037) (1,507) Interest income 1,071 614 2,681 1,853 Gain on sales of property and equipment 385 98 541 339 ----------- ----------- ----------- ----------- Total other income, net 989 401 1,185 685 ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE (PROVISION) BENEFIT FOR INCOME TAXES 8,741 (1,335) 27,888 14,626 (PROVISION) BENEFIT FOR INCOME TAXES (3,319) 514 (10,611) (5,623) ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ 5,422 $ (821) $ 17,277 $ 9,003 =========== =========== =========== =========== NET INCOME (LOSS) PER COMMON SHARE: Basic $ 0.53 $ (0.08) $ 1.70 $ 0.89 Diluted 0.52 (0.08) 1.68 0.89 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 10,207 10,096 10,179 10,073 Diluted 10,427 10,114 10,297 10,104
See notes to condensed consolidated financial statements. 5 6 SKYWEST, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) - --------------------------------------------------------------------------------
Nine Months Ended December 31, ----------------------- 1997 1996 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 17,277 $ 9,003 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,169 13,644 Nonairline depreciation and amortization 3,728 2,643 Gain on sales of property and equipment (541) (339) Maintenance expense related to disposition of rotable spares 565 82 Increase in deferred income taxes 3,498 1,414 Amortization of deferred credits -- (1,614) Tax benefit from exercise of common stock options -- 56 Changes in operating assets and liabilities: Decrease in receivables 3,666 4,682 Increase in inventories (1,356) (1,564) Decrease in other current assets 4,145 1,740 Increase in trade accounts payable 521 1,979 Increase (decrease) in other current liabilities 78 (311) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 45,750 31,415 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Sale of available-for-sale securities 83 628 Acquisition of property and equipment: Aircraft and rotable spares (17,259) (7,611) Buildings and ground equipment (5,383) (3,609) Rental vehicles (2,146) (2,850) Proceeds from sales of property and equipment 4,880 1,538 Decrease (increase) in other assets 46 (184) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (19,779) (12,088) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 11,500 -- Issuance of common stock 2,246 708 Payment of cash dividends (1,526) (1,308) Reduction of long-term debt (5,559) (4,797) -------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 6,661 (5,397) -------- -------- Increase in cash and cash equivalents 32,632 13,930 Cash and cash equivalents at beginning of period 37,786 24,529 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 70,418 $ 38,459 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 1,962 $ 1,431 Income taxes 5,757 3,944
See notes to condensed consolidated financial statements. 6 7 SKYWEST, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Consolidated Financial Statements The Condensed Consolidated Financial Statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. These Condensed Consolidated Financial Statements reflect all adjustments which, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented. All adjustments are of a normal recurring nature. Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the Consolidated Financial Statements and the Notes thereto included in the Company's latest annual report on Form 10-K. The results of operations for the three and nine months ended December 31, 1997 are not necessarily indicative of the results that may be expected for the year ending March 31, 1998. Note B - Available-for-sale Securities Available-for-sale securities are carried at the lower of aggregate cost or market value. Note C - Income Taxes For the three and nine months ended December 31, 1997 and 1996, the Company provided for income taxes based upon the estimated annualized effective tax rate. Under the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", the Company has recorded a net current tax asset of $2.4 million and a net noncurrent deferred tax liability of $19.5 million at December 31, 1997. Note D - Net Income (Loss) Per Common Share In accordance with Statement of Financial Accounting Standards No. 128 "Earnings per Share," which became effective December 15, 1997, basic net income per common share was computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share takes into consideration the effects of outstanding stock options outstanding. The calculation of the weighted average number of common shares outstanding is as follows:
Three Months Nine Months Ended December 31, Ended December 31, ------------------- ------------------ 1997 1996 1997 1996 ------- ------ ------ ----- (In thousands): Weighted average number of shares for basic net income per common share.......................................................... 10,207 10,096 10,179 10,073 Stock options............................................................... 220 18 118 31 ------ ------ ------ ------ Weighted average number of shares for diluted net income per common share.............................................................. 10,427 10,114 10,297 10,104 ====== ====== ====== ======
Note E - United Airlines Agreement On July 23, 1997, SkyWest Airlines, Inc. ("SkyWest") and United Airlines, Inc. ("United") announced a marketing agreement under which SkyWest has operated as United Express in Los Angeles, Las Vegas, Phoenix and various intra-California markets since October 1, 1997. The United Express code-share arrangement provides extensive connecting opportunities for SkyWest/United Express customers at United's Los Angeles hub where United is the largest major carrier. The related financial impact for the quarter and nine months ended December 31, 1997, has been included in the accompanying Condensed Consolidated Financial Statements. At the same time, SkyWest has also reaffirmed its Delta Air Lines, Inc. ("Delta") marketing agreement with a modification to its Delta Connection contract which allows for a reduced number of SkyWest flights at Los Angeles which is more consistent with the current level of Delta flights into and out of Los Angeles. The modified agreement also strengthens SkyWest's relationship with Delta in Salt Lake City. On January 19, 1998, SkyWest and United executed a United Express Agreement for United's Los Angeles hub and an addendum to the United Express Agreement pursuant to which SkyWest will operate as the United Express carrier at United's San Francisco hub, beginning June 1, 1998. 7 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations:
Airline Operating Data ------------------------------------------------------------------------------------------ Three Months Ended Nine Months Ended December 31, December 31, ---------------------------------------- ------------------------------------------- 1997 1996 % Change 1997 1996 % Change ------- ------- ---------- --------- --------- ---------- Passengers carried 781,034 639,599 22.1% 2,228,741 1,986,371 12.2% Revenue passenger miles (000s) 182,645 172,235 6.0% 567,437 540,043 5.1% Available seat miles (000s) 363,137 351,044 3.4% 1,113,486 1,053,935 5.7% Passenger load factor 50.3% 49.1% 1.2 pts 51.0% 51.2% (0.2) pts Passenger breakeven load factor 44.2% 49.4% (5.2) pts 45.3% 48.2% (2.9) pts Yield per revenue passenger mile 35.8c 32.3c 10.8% 34.2c 32.9c 4.0% Revenue per available seat mile 18.3c 16.2c 13.0% 17.8c 17.3c 2.9% Cost per available seat mile 16.1c 16.4c (1.8%) 15.8c 16.2c (2.5%) Average passenger trip (miles) 234 269 (13.0%) 255 272 (6.3%)
Three Months Ended December 31, 1997 Compared to Three Months Ended December 31, 1996 For the three months ended December 31, 1997, the Company enplaned a record number of passengers and reported record consolidated net income of $5.4 million, or $0.52 diluted net income per share, compared to a net loss of ($0.8) million or ($0.08) net loss per share for the three months ended December 31, 1996. Consolidated operating revenues increased 15.0 percent to $73.3 million for the three months ended December 31, 1997, compared to $63.7 million for the three months ended December 31, 1996. Passenger revenues, which represented 89.4 percent of total consolidated operating revenues, increased 17.6 percent to $65.5 million for the three months ended December 31, 1997, compared to $55.7 million or 87.5 percent of total consolidated operating revenues for the three months ended December 31, 1996. The increase was primarily the result of a 6.0 percent increase in revenue passenger miles ("RPMs") as well as a 10.8 percent increase in yield per RPM. SkyWest entered into a new code-sharing relationship with United and began operating as United Express in Los Angeles, California beginning October 1, 1997 which resulted in both increased RPMs and increased yield per RPM. The increased yield per RPM also resulted from an increase in SkyWest's portion of prorated fares with Delta in certain markets. Additionally, the Company acquired a state-of-the-art revenue management and control system which utilizes historical booking data and trends to optimize revenue. These factors combined have resulted in an increase in revenue per available seat mile to 18.3c for the three months ended December 31, 1997, compared to 16.2c for the same period ended December 31, 1996. Management has continued its efforts to reduce airline operating costs per available seat mile and as a percentage of airline revenues. For the three months ended December 31, 1997, total operating expenses and interest were 87.8 percent of airline operating revenues compared to 101.2 percent for the quarter ended December 31 1996. 8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Salaries, wages and employee benefits increased as a percentage of airline operating revenues to 27.5 percent for the three months ended December 31, 1997, from 26.1 percent for the three months ended December 31, 1996. The average number of full-time equivalent employees for the three months ended December 31, 1997 was 1,947, compared to 1,859 for the three months ended December 31, 1996. The increase in the number of personnel was due to hiring flight attendants and customer service personnel to support increased operations. Salaries, wages, and employee benefits per ASM increased to 4.7c for the three months ended December 31, 1997, compared to 4.2c for the three months ended December 31, 1996, primarily due to increased employee incentives and profit sharing. Aircraft expenses, including aircraft rent and depreciation, decreased as a percentage of airline operating revenues to 21.2 percent for the three months ended December 31, 1997, from 22.8 percent for the three months ended December 31, 1996. Aircraft costs per ASM decreased slightly to 3.6c for the three months ended December 31, 1997, compared to 3.7c for the three months ended December 31, 1996. Maintenance expense increased as a percentage of airline operating revenues to 8.8 percent for the three months ended December 31, 1997, compared to 8.3 percent for the three months ended December 31, 1996. This increase was attributed to jet aircraft coming off warranty resulting in the Company expending more on parts and repairs. Maintenance expense per ASM increased to 1.5c for the three months ended December 31, 1997, compared to 1.4c for the three months ended December 31, 1996. Fuel expenses decreased as a percentage of airline operating revenues to 12.2 percent for the three months ended December 31, 1997, from 14.2 percent for the three months ended December 31, 1996, due primarily to a decrease in the average fuel price per gallon to $0.83 from $1.00. Fuel expenses per ASM decreased to 2.1c for the three months ended December 31, 1997, compared to 2.3c for the three months ended December 31, 1996. Other expenses, consisting primarily of commissions, landing fees, station rentals, computer reservation system fees and hull and liability insurance, decreased as a percentage of airline operating revenues to 23.6 percent for the three months ended December 31, 1997, from 29.3 percent for the three months ended December 31, 1996. The decrease is due primarily to SkyWest not incurring certain commissions on contract-related passenger revenues. Nonairline revenues, generated from the operations of Scenic Airlines, Inc. ("Scenic") and National Parks Transportation, Inc. ("NPT"), increased 2.0 percent to $6.7 million for the three months ended December 31, 1997 from $6.6 million for the three months ended December 31, 1996. Nonairline expenses decreased 8.0 percent to $7.4 million for the three months ended December 31, 1997 from $8.0 million for the three months ended December 31, 1996. The decrease in expense is primarily due to the renegotiation of aircraft leases. Additionally, the average number of full-time equivalent employees decreased to 261 for the three months ended December 31, 1997 from 301 for the three months ended December 31, 1996. Nine Months Ended December 31, 1997 Compared To Nine Months Ended December 31, 1996 For the nine months ended December 31, 1997, SkyWest enplaned a record number of passengers and the Company reported record consolidated net income of $17.3 million, or $1.68 diluted net income per share, compared to $9.0 million, or $0.89 per share, for the nine months ended December 31, 1996. Consolidated operating revenues increased 7.4 percent to a record $225.7 million for the nine months ended December 31, 1997, compared to $210.0 million for the comparable period in 1996. Passenger revenues, which represented 85.9 percent of total consolidated operating revenues, increased 9.0 percent to $193.8 million for the nine months ended December 31, 1997, compared to $177.8 million or 84.6 percent of total consolidated operating revenues for the nine months ended December 31, 1996. The increase resulted primarily from a 5.1 percent increase in RPMs as well as a 4.0 percent increase in yield per RPM. SkyWest entered into a new code-sharing relationship with United and began operating as United Express in Los Angeles, California beginning October 1, 1997 which resulted in both increased RPMs and increased yield per RPM. The increased yield per RPM also resulted from an increase in SkyWest's portion of prorated fares with Delta in certain markets. Additionally, SkyWest acquired a new state-of-the-art revenue management and control system which utilizes historical booking data and trends to optimize revenue. The combination of these factors was principally responsible for an increase in revenue per ASM to 17.8c for the nine months ended December 31, 1997, compared to 17.3c for the same period of 1996. Management has continued its efforts to reduce airline operating costs per ASM and as a percentage of airline operating revenues. For the nine months ended December 31, 1997, total airline expenses and interest were 88.8 percent of airline operating revenues compared to 94.0 percent for the nine months ended December 31, 1996. Salaries, wages and employee benefits increased as a percentage of airline operating revenues to 25.2 percent for the nine months ended December 31, 1997, from 24.8 percent for the nine months ended December 31, 1996. The average number of full-time equivalent employees for the nine months ended December 31, 1997, was 1,916 compared to 1,847 for the nine months ended December 31, 1996. The increase in number of personnel was due to hiring flight attendants and customer service personnel to support increased operations. Salaries, wages and employee benefits per ASM increased slightly to 4.5c for the nine months ended December 31, 1997, compared to 4.3c for the nine months ended December 31, 1996, due primarily to increased employee incentives and profit sharing. 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Aircraft expenses, including aircraft rent and depreciation, decreased as a percentage of airline operating revenues to 19.8 percent for the nine months ended December 31, 1997, from 20.2 percent for the nine months ended December 31, 1996. Aircraft costs per ASM were consistent at 3.5c for the nine months ended December 31, 1997 and 1996. Maintenance expense decreased as a percentage of airline operating revenues to 7.7 percent for the nine months ended December 31, 1997, from 8.5 percent for the nine months ended December 31, 1996. This decrease resulted primarily from the acquisition and utilization of 15 new Brasilia aircraft, which are more efficient than Metroliner aircraft. Maintenance expense per ASM decreased slightly to 1.4c for the nine months ended December 31, 1997, from 1.5c for the nine months ended December 31, 1996. Fuel expenses decreased as a percentage of airline operating revenues to 11.2 percent for the nine months ended December 31, 1997, from 12.4 percent for the nine months ended December 31, 1996, due primarily to a decrease in the average fuel price per gallon to $0.85 from $0.94. Fuel expenses per ASM decreased to 2.0c for the nine months ended December 31, 1997, from 2.1c for the nine months ended December 31, 1996. Other expenses, consisting primarily of commissions, landing fees, station rentals, computer reservation system fees and hull and liability insurance, decreased as a percentage of airline operating revenues to 24.2 percent for the nine months ended December 31, 1997, from 27.2 percent for the nine months ended December 31, 1996. The decrease is due primarily to SkyWest not incurring certain commissions on contract-related passenger revenues. Nonairline revenues, generated from the operations of Scenic and NPT, decreased 0.8 percent to $27.9 million for the nine months ended December 31, 1997 from $28.2 million for the nine months ended December 31, 1996. Nonairline expenses and interest decreased 4.4 percent to $25.4 million for the nine months ended December 31, 1997, compared to $26.6 million for the nine months ended December 31, 1996. The decrease was due to implementation of cost control measures and the restructuring of the financing of flight equipment and facilities. Liquidity and Capital Resources The Company had working capital of $68.7 million and a current ratio of 2.4:1 at December 31, 1997, compared to working capital of $45.3 million and a current ratio of 2.0:1 at March 31, 1997. During the first nine months of fiscal 1998, the Company invested $17.3 million in flight equipment, $7.5 million in buildings, ground equipment and other fixed assets, reduced long-term debt by $5.6 million and paid cash dividends of $1.5 million. The principal sources of cash during the first nine months of fiscal 1998 were $45.8 million provided by operating activities, $11.5 million of proceeds from long-term debt and $7.3 million from the sale of marketable securities, property and equipment, and the issuance of common stock resulting from exercises of employee stock options. These factors resulted in a $32.6 million increase in cash and cash equivalents from $37.8 million as of March 31, 1997 to $70.4 million as of December 31, 1997. SkyWest has options to acquire ten additional Brasilias and ten additional CR's at fixed prices (subject to cost escalation and delivery schedules). The Brasilia options are exercisable through fiscal 1999 and the CRJ Options are exercisable at any time with no expiration. In connection with SkyWest's expansion into San Francisco, SkyWest expects to acquire an additional 17 Brasilias, related spare parts inventory and support facilities and equipment. Depending upon the outcome of current aircraft acquisition negotiations, SkyWest expects to acquire a combination of new and used Brasilias. The deliveries are expected to be scheduled between February and June 1998. The Company also anticipates that SkyWest will incur costs of approximately $12.0 million associated with the acquisition of additional ground and maintenance facilities, support equipment and spare parts inventory related to the San Francisco expansion. 10 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Depending in large part upon the outcome of current aircraft acquisition negotiations, the mix of new and used Brasilia aircraft, as well as the state of the aircraft financing market at the time, management will determine whether to purchase these Brasilia aircraft or acquire the aircraft through third-party, long-term loans or lease arrangements. SkyWest has significant long-term lease obligations primarily relating to its aircraft fleet. These leases are classified as operating leases and therefore are not reflected as liabilities in the Company's consolidated balance sheets. At December 31, 1997, SkyWest leased 44 SkyWest aircraft and eight Scenic aircraft under leases with an average remaining term of approximately 9.6 years. Future minimum lease payments due under all long-term operating leases were approximately $457.4 million at December 31, 1997. At December 31, 1997, the Company had outstanding long-term debt, including current maturities, of approximately $59.7 million. Of the long-term debt, $48.8 million was incurred in connection with the acquisition of Brasilia aircraft and is subject to subsidy payments through the export support program of the Federative Republic of Brazil. The interest rates on $11.0 million of the $48.8 million of long-term debt are floating based on one month and three month LIBOR. The subsidy payments reduced the stated interest rates on the $48.8 million of long-term debt to an average effective rate of approximately 4.0 percent as of December 31, 1997. The debt is payable in either quarterly or semi-annual installments through January 2006. The remaining $10.9 million of long-term debt was incurred to purchase ten VistaLiner aircraft operated by Scenic. These ten aircraft were previously financed under long-term operating lease arrangements and were purchased in October 1997. The Company spent approximately $13.3 million for nonaircraft capital expenditures during the nine months ended December 31, 1997, consisting primarily of aircraft engine overhauls, aircraft modifications to be made pursuant to industry-wide FAA directives, buildings and ground equipment and rental vehicles. The Company has available $5.0 million in an unsecured bank line of credit with interest payable at the bank's base rate less one-quarter percent, which was 8.25 percent at December 31, 1997. The Company believes that, in the absence of unusual circumstances, the working capital available to the Company will be sufficient to meet its present requirements, including expansion, capital expenditure, lease payment and debt service requirements for at least the next 12 months. 11 12 PART II. OTHER INFORMATION SKYWEST, INC. Item 6: a. Exhibits - Financial Data Schedule Exhibit 27 b. Reports on Form 8-K - There were no reports on Form 8-K filed during the quarter ended December 31, 1997. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SKYWEST, INC. Registrant January 21, 1998 BY: /s/ Bradford R. Rich ------------------------------------- Bradford R. Rich Executive Vice President, Chief Financial Officer and Treasurer 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF SKYWEST, INC. FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS MAR-31-1998 OCT-01-1997 DEC-31-1997 70,418 17,887 7,246 61 11,343 116,389 233,484 93,187 260,933 47,659 51,248 0 0 71,107 71,434 260,933 73,266 73,266 0 65,514 0 0 467 8,741 3,319 5,422 0 0 0 5,422 .53 .52
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