-----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, RWy16Ncs8LbMtExcJbXneDiOy8qwvxYoduPn1k2MzaikyqLcAdncRUIvbOrbT8S3 oE3ctxOEx+xQSt+1Xj8NRw== 0000950149-97-001279.txt : 19970626 0000950149-97-001279.hdr.sgml : 19970626 ACCESSION NUMBER: 0000950149-97-001279 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970625 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14719 FILM NUMBER: 97629133 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-K 1 FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31, 1997 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 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 No. 0-14719 SKYWEST, INC. ------------- Incorporated under the Laws of Utah 87-0292166 (IRS Employer ID No.) 444 South River Road St. George, Utah 84790 (801) 634-3000 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 Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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 --- --- The aggregate market value of Common Stock held by non-affiliates (based upon the closing sale price of the Common Stock on the NASDAQ National Market System) on June 17, 1997, was approximately $171,284,811. As of June 17, 1997, there were 10,150,211 shares of Common Stock outstanding. Documents Incorporated by Reference Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended March 31, 1997, are incorporated by reference in Part II as specified. Portions of the Registrant's Proxy Statement to be used in connection with the solicitation of proxies to be voted at the Registrant's 1997 Annual Meeting of Shareholders, to be filed with the Commission, are incorporated by reference in Part III as specified. 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 the definitive proxy statement incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. [X] 2 SKYWEST, INC. FISCAL 1997 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PART I
Page No. -------- Item 1. Business........................................................................1 Item 2. Properties......................................................................5 Item 3. Legal Proceedings...............................................................6 Item 4. Submission of Matters to a Vote of Security Holders.............................6 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters...................................................6 Item 6. Selected Financial Data.........................................................6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.........................................................6 Item 8. Financial Statements and Supplementary Data.....................................7 Item 9. Changes in and Disagreements on Accounting and Financial Disclosure.............7 PART III Item 10. Directors and Executive Officers of the Registrant..............................7 Item 11. Executive Compensation..........................................................7 Item 12. Security Ownership of Certain Beneficial Owners and Management..................7 Item 13. Certain Relationships and Related Transactions..................................7 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................7
3 PART I ITEM 1. BUSINESS GENERAL SkyWest, Inc. (the "Company"), through its wholly-owned subsidiary, SkyWest Airlines, Inc. ("SkyWest"), operates one of the larger regional airlines in the United States. SkyWest provides passenger and air freight service and completes over 550 daily flights. Pursuant to a joint marketing and code sharing agreement with Delta Airlines, Inc. ("Delta"), SkyWest operates as a Delta Connection in SkyWest's markets. Management believes that during calendar year 1996, approximately 48% of SkyWest's passengers were interline passengers connecting with flights offered by Delta. In October 1995, the Company entered into a marketing and code sharing agreement with Continental Airlines, Inc. ("Continental") which allows SkyWest to operate as a Continental Connection in markets which operate in and out of Los Angeles. Approximately three percent of SkyWest's passengers are interline passengers connecting with flights offered by Continental. With principal hubs located at the Los Angeles and Salt Lake City International Airports, SkyWest offers a convenient and frequent flight schedule designed to maximize connecting and origin-destination traffic. SkyWest currently operates a fleet of 50 turbo-prop aircraft and 10 regional jet aircraft. Founded in 1972, the Company has experienced significant growth. During the past five fiscal years, consolidated operating revenues have increased from $146.8 million in fiscal 1993 to $283.3 million in fiscal 1997. Total passengers carried by SkyWest have increased from approximately 1,523,000 to approximately 2,657,000 over the same period. In fiscal 1997, the Company achieved record levels of passengers carried, record consolidated operating revenues of $283.3 million, and net income of $10.1 million or $1.00 per share. The Company, through two wholly-owned subsidiaries, is also engaged in various other transportation related businesses. Scenic Airlines, Inc. ("Scenic") provides air tours and general aviation services to the scenic regions of northern Arizona and southern Utah and operates 49 aircraft. National Parks Transportation, Inc. ("NPT") provides car rental services through a fleet of Avis vehicles located at five airports served by SkyWest. In fiscal 1997, Scenic and NPT together accounted for approximately 13.6 percent of the Company's consolidated operating revenues. JOINT MARKETING AND CODE SHARING AGREEMENTS Since April 1987, SkyWest has operated as a Delta Connection in SkyWest's markets pursuant to the terms of a joint marketing and code sharing agreement with Delta. On July 1, 1990, the Company and Delta entered into a revised Delta Connection Agreement (the "Delta Connection Agreement") under which the Company coordinates with Delta to facilitate interline connections at the Los Angeles and Salt Lake City International Airports. At these two airports combined, Delta presently has more passenger enplanements and flight departures than any other carrier. The primary benefit of this affiliation is the use of the Delta designation code (DL) in listing flights in the Official Airline Guide and in the computerized reservation systems used throughout the industry. The Company's code sharing arrangement allocates to the Company a portion of the passenger fare on a formula or other basis, subject to periodic adjustments. The Company also participates in cooperative advertising and marketing activities with Delta, including Delta's Frequent Flyer Program, the Delta Meeting Network and Delta Dream Vacations. The Company believes the arrangement created between SkyWest and Delta is similar to those which exist between other major and regional airlines. The Delta Connection Agreement is subject to termination in various circumstances, including upon 180 days' advance notice by either party for any or no reason. Delta currently owns 15 percent of the Company's outstanding common stock. Pursuant to a Stock Option Agreement between Delta and the Company, Delta holds preemptive rights and registration rights (two demand rights and unlimited "piggy-back" rights) with respect to the Common Stock owned by Delta, as well as the right to designate one nominee for the Company's Board of Directors, so long as Delta owns at least ten percent of all Common Stock. Effective April 1, 1997, W. Martin Braham, Delta's designated Board member resigned from the Board, at Delta's request. All Delta designated board members of other regional airlines with similar arrangements also resigned. However, so long as Delta is the owner of 10% or more of the Company's outstanding Common Stock, the Company is required to include a designee of Delta reasonably acceptable to the Company on the slate of nominees for election of directors nominated by the Company's Board of Directors and to use its best efforts to assure the election of the designee to the Board of Directors. Delta has not designated a nominee to replace Mr. Braham and the Company does not otherwise intend to nominate a replacement for the vacancy created by Mr. Braham's resignation. 1 4 Since October 1995, SkyWest has operated as a Continental Connection, in Southern California markets which utilize Los Angeles as a connecting hub, pursuant to the terms of a marketing and code sharing agreement (the "Continental Connection Agreement") with Continental. The benefits under this agreement are similar to those described under the Delta Connection Agreement. The Continental Connection Agreement terminates October 24, 1997, however it is cancelable by either party with generally 90 days written notice for any or no reason. ROUTES The Company's flight schedules are structured to facilitate the connection of its passengers with flights of Delta and Continental at the airports it serves. The following table shows selected information about the cities served by SkyWest as of June 17, 1997.
Served State and City Since (1) - -------------- --------- Arizona: Phoenix................................................1979 (2) Yuma...................................................1979 Tucson.................................................1995 California: San Diego..............................................1968 Palm Springs...........................................1970 Los Angeles............................................1977 Imperial...............................................1979 Burbank................................................1980 Ontario................................................1981 Santa Maria............................................1982 Santa Barbara..........................................1983 Bakersfield............................................1983 Fresno.................................................1985 Sacramento.............................................1986 San Francisco..........................................1995 San Jose...............................................1986 San Luis Obispo........................................1986 Orange County..........................................1986 Monterey...............................................1987 Colorado: Grand Junction.........................................1983 Colorado Springs.......................................1995 Idaho: Pocatello..............................................1980 Idaho Falls............................................1982 Twin Falls.............................................1983 Boise..................................................1988 Sun Valley.............................................1990 Lewiston...............................................1996 Montana: West Yellowstone.......................................1986 (2) Helena.................................................1988 Bozeman................................................1988 Billings...............................................1988 Butte..................................................1988 New Mexico: Albuquerque............................................1995
2 5
Served State and City Since (1) - -------------- --------- Nevada: Las Vegas..............................................1974 Elko...................................................1982 Reno...................................................1982 Oregon: Eugene.................................................1995 Portland...............................................1995 South Dakota: Rapid City.............................................1994 Utah: Cedar City.............................................1972 Salt Lake City.........................................1972 St. George.............................................1972 Vernal.................................................1982 Washington: Pasco..................................................1996 Wyoming: Jackson Hole...........................................1986 Casper.................................................1994 Cody...................................................1995 Canada: Vancouver B.C..........................................1997
(1) Refers to the calendar year service was initiated. (2) Service is provided on a seasonal basis. SEASONALITY The Company's operations are favorably affected by increased travel usually occurring in the summer months and are unfavorably affected by inclement weather which occasionally results in cancelled flights principally during the winter months. The business related to the flight tour operations of Scenic is seasonal in nature. A large percentage of Scenic's passengers are tourists visiting the Las Vegas and Grand Canyon areas during the summer months. During the first calendar quarter, the operations of Scenic are generally reduced as a result of decreased traffic. COMMON STOCK TRANSACTIONS On November 23, 1994, the Company's Board of Directors approved the purchase of up to 1,150,000 shares of the Company's outstanding common stock. The total shares were purchased during the year ended March 31, 1995 at an average price of $13.98. On February 7, 1995, the Company's Board of Directors approved the purchase of up to 500,000 shares of the Company's outstanding common stock. On February 6, 1996, the Company's Board of Directors approved the purchase of up to an additional 500,000 shares of the Company's outstanding stock. During the year ended March 31, 1996, 324,600 shares were purchased at an average price of $12.92. No shares were repurchased during fiscal 1997. GOVERNMENT REGULATION All interstate air carriers, including SkyWest and Scenic, are subject to regulation by the FAA. The FAA requires operating, air worthiness and other certificates; FAA approval of personnel who may engage in flight, maintenance or operation activities; record keeping procedures in accordance with FAA requirements; and FAA approval of flight training and retraining programs. SkyWest and Scenic operate under FAR Part 121 certificates. SkyWest also operates under a Canadian Foreign Air Operator Certificate issued by the Minister of Transport Canada. 3 6 The Company believes it is operating in material compliance with FAA regulations and holds all necessary operating and air worthiness certificates and licenses. The Company's flight operations, maintenance programs, record keeping and training programs are conducted under FAA approved procedures. The Company does not operate at any airports where landing slots are restricted. All air carriers are required to comply with federal law and regulations pertaining to noise abatement and engine emissions. All air carriers are also subject to certain provisions of the Federal Communications Act of 1934, as amended, because of their extensive use of radio and other communication facilities. Management believes that the Company is in compliance in all material respects with these laws and regulations. COMPETITION The airline industry is highly competitive. The Company not only competes with other regional airlines, some of which are owned by or are operated as code sharing partners of major airlines, but also faces competition from major airlines on certain routes. SkyWest is the dominant regional airline operating out of the Salt Lake City International Airport. Competition in the southern California markets, which are serviced by SkyWest from its hub in Los Angeles, is particularly intense, with a large number of carriers in these markets. In its markets served from the Los Angeles International Airport, SkyWest's principal competitors include Mesa Airlines, Inc. (operating as "Mesa Airlines" and "United Express"), Wings West, Inc. (operating as "American Eagle"), and Trans States, Inc. (operating as "USAir Express" and "Trans World Express"). The Company also faces indirect low-fare competition from carriers such as Southwest Airlines and Shuttle by United. The Company believes that the principal competitive factors affecting decisions by travelers in SkyWest's markets are the frequency, convenience and reliability of flights and, to a lesser extent, the level of fares. EMPLOYEES As of June 17, 1997, the Company employed 2,179 full-time equivalent employees consisting of 812 pilots and flight attendants, 244 maintenance personnel, 832 customer service personnel, 71 reservation and marketing personnel, and 220 employees engaged in accounting, administration and other functions. The Company's employees are not represented by any union. The Company is aware, however, that collective bargaining group organization efforts among its employees occur from time to time and are expected to continue in the future. The Company has never experienced any work stoppages and considers its relationship with its employees to be very good. 4 7 ITEM 2. PROPERTIES FLIGHT EQUIPMENT As of June 17, 1997, SkyWest owned or leased the following types of aircraft:
NUMBER OF SCHEDULED AVERAGE AIRCRAFT FLIGHT CRUISING AVERAGE ----------------- PASSENGER RANGE SPEED AGE TYPE OF AIRCRAFT OWNED LEASED CAPACITY (MILES) (MPH) (YEARS) - ---------------- ----- ------ --------- --------- ---------------- ------ Brasilia................... 16 34 30 450 300 3.9 Canadair Regional Jet...... - 10 50 600 530 2.5
SkyWest's aircraft are primarily turboprop, pressurized aircraft designed to operate more economically over short-haul routes with lower passenger load factors than larger jet aircraft. These factors make it economically feasible for SkyWest to provide high frequency service in markets with relatively low volumes of passenger traffic. The Company's turboprop fleet consists entirely of Brasilia aircraft. Passenger comfort features of the Brasilia aircraft include stand-up headroom, a lavatory, overhead baggage compartments and flight attendant service. Fiscal year 1995 marked the introduction of the Canadair Regional Jet. The Company operates ten of these aircraft on stage lengths up to 600 miles. During fiscal 1997, the Company acquired 15 Brasilia aircraft and terminated the 18 remaining Metroliner long-term operating leases. The Company has secured options to purchase an additional ten Brasilia aircraft at fixed prices (subject to cost escalation and delivery schedules). These options are exercisable through fiscal 1999. Options to acquire an additional ten Canadair Regional Jets have been secured which are exercisable at any time with no expiration. Any decision to acquire additional aircraft will depend upon the Company's future operations, competitive forces, financial resources and other factors. GROUND FACILITIES Employees of the Company perform substantially all routine airframe and engine maintenance and periodic inspection of equipment. Maintenance is performed primarily at facilities in Palm Springs, California and Salt Lake City, Utah. The Company owns a 56,600 square foot maintenance facility in Palm Springs, California and leases a 90,000 square foot aircraft maintenance and training facility at the Salt Lake International Airport. The facility consists of a 40,000 square foot maintenance hangar and 50,000 square feet of training and other facilities to support the Company's growing hub operations. The facility was constructed and is owned by the Salt Lake City Airport Authority. The Company is leasing the facility under an operating lease arrangement over a 36-year term. The Company leases ticket counters, check-in, and boarding and other facilities in the passenger terminal areas in the majority of the airports it serves and staffs these facilities with Company personnel. Delta provides ticket handling and/or ground support services for the Company in 15 of the 48 airports it serves. The Company owns a new terminal and hangar facility in Page, Arizona consisting of 11,500 square feet of office and terminal space and 22,000 square feet of maintenance hangar space. The Company also owns a new terminal and hangar facility in Las Vegas, Nevada consisting of 39,500 square feet of office and terminal space and 28,500 square feet of maintenance hangar space. The Company's corporate headquarters are located in a 63,000 square foot building in St. George, Utah. Management deems the Company's facilities as being suitable and necessary to support existing operations and facilities are adequate for the foreseeable future. 5 8 ITEM 3. LEGAL PROCEEDINGS The Company is a party to routine legal proceedings incident to its business. In the opinion of management, none of such proceedings are expected to have a material adverse effect on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 1997. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded over-the-counter and quoted in the NASDAQ National Market System under the symbol "SKYW." At June 17, 1997, there were approximately 1054 stockholders of record. Securities held of record do not include shares held in securities position listings. The following table sets forth the range of high and low closing sales prices for the Company's Common Stock.
Fiscal 1997 Fiscal 1996 ----------- ----------- Quarter High Low High Low ------- ---- ----- ---- ---- First $19.75 $13.25 $23.50 $14.13 Second 18.25 14.12 25.38 17.00 Third 15.63 12.63 19.75 12.88 Fourth 14.38 12.00 14.75 12.38
The transfer agent for the Company's Common Stock is Zions First National Bank, Salt Lake City, Utah. On May 7, 1996, the Board of Directors declared a special dividend of $.08 per share. On August 12, 1996, the Board of Directors changed its dividend policy from declaring a regular annual dividend to declaring a $.05 regular quarterly dividend. In fiscal 1996, the Board of Directors declared an annual dividend of $.08 per share and a special dividend of $.17 per share. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is incorporated herein by reference to page 1 of the Company's Annual Report to Shareholders for the fiscal year ended March 31, 1997, furnished herewith to the Commission as Exhibit 13.1 to this report on Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is incorporated herein by reference to pages 12 through 16 of the Company's Annual Report to Shareholders for the fiscal year ended March 31, 1997, furnished herewith to the Commission as Exhibit 13.1 to this report on Form 10-K. 6 9 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company included on pages 17 through 30 of the Company's Annual Report to Shareholders for the fiscal year ended March 31, 1997, furnished herewith to the Commission as Exhibit 13.1 to this report on Form 10-K, are incorporated by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III All items in Part III are incorporated by reference to the Company's Proxy Statement for its 1997 annual stockholders meeting to be held August 12, 1997, to be filed with the Commission.
Headings in Proxy Statement --------------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS "Election of Directors" and OF THE REGISTRANT. "Executive Officers" ITEM 11. EXECUTIVE COMPENSATION. "Executive Officers" and "Executive Compensation" and "Report of the Compensation Committee" ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL "Election of Directors" and OWNERS AND MANAGEMENT. "Security Ownership of Certain Beneficial Owners and Management" ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. "Certain Relationships and Related Transactions"
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents Filed: 1. Financial Statements. The following consolidated financial statements of SkyWest, Inc., included in the Annual Report to Shareholders for the year ended March 31, 1997, are incorporated herein by reference in Item 8 of the Form 10-K. - Report of independent public accountants - Consolidated balance sheets as of March 31, 1997 and 1996 - Consolidated statements of income for the years ended March 31, 1997, 1996 and 1995 7 10 - Consolidated statements of stockholders' equity for the years ended March 31, 1997, 1996 and 1995 - Consolidated statements of cash flows for the years ended March 31, 1997, 1996 and 1995 - Notes to consolidated financial statements 2. Financial Statement Schedules. The following consolidated financial statement schedule of SkyWest, Inc. is included in Item 14(d) hereof. - Report of independent public accountants on financial statement schedule - Schedule II -- Valuation and qualifying accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable, and therefore have been omitted. (b) Reports on Form 8-K. The Company did not file a report on Form 8-K during the quarter ended March 31, 1997. (c) Exhibits.
Incorporated by Filed Number Exhibit Reference Herewith - ------ ------- --------------- -------- 3.1 Restated Articles of Incorporation..............................(1) 3.2 Amended By-Laws.................................................(6) 4.1 Articles IV and VI of Restated Articles of Incorporation describing the Common Shares and shareholders rights (included in Exhibit 3.1)....................................................(1) 4.2 Article II of the Amended By-Laws defining the rights of Common Shareholders (included in Exhibit 3.2)....................................................(6) 10.1 SkyWest, Inc. Amended and Combined Incentive and Non-Statutory Stock Option Plan.................................(6) 10.2 Delta Connection agreement dated January 13, 1987 between Delta Air Lines, Inc. and SkyWest Airlines, Inc...................................................(2) 10.3 Stock Option agreement dated January 28, 1987 between Delta Air Lines, Inc. and SkyWest, Inc....................................................(2) 10.4 Purchase Agreement No. 382 COI/85 dated December 27, 1985 between EMBRAER-Empresa Brasileira de Aeronautica S.A. and SkyWest Airlines, Inc., as amended by a Letter Supplement dated December 30, 1985 and an Amendment dated January 30, 1986....................(1)
8 11
Incorporated by Filed Number Exhibit Reference Herewith - ------ ------- --------------- -------- 10.5 Aircraft Lease dated December 29, 1986 between EFA Leasing Company and SkyWest Airlines, Inc. (N2698C).................................(3) 10.6 Aircraft Lease dated December 29, 1986 between EFA Leasing Company and SkyWest Airlines, Inc. (N26974).........................................(3) 10.7 Aircraft Lease dated December 29, 1986 between EFA Leasing Company and SkyWest Airlines, Inc. (N2699Y).........................................(3) 10.10 Aircraft Lease dated October 31, 1988 between CIT Group/Capital Financing, Inc. and SkyWest Airlines, Inc. (N2720B, N27220, N2724S).................................................(4) 10.11 Aircraft Lease dated December 12, 1988 between Heleasco Fourteen, Inc. and SkyWest Airlines, Inc. (N27240, N2726N, N2725D).........................................................(4) 10.12 Aircraft Lease dated April 10, 1989 between Wilmington Trust Company, and SkyWest Airlines, Inc. (N27297, N27278, N2730P).........................(5) 10.13 Lease Agreement dated December 1,1989 between Salt Lake City Corporation and SkyWest Airlines, Inc............(7) 10.14 Purchase Agreement No. DSP/AJV-30B/93 dated March 30, 1993, between EMBRAER-Empresa Brasileira de Aeronautica S.A. and SkyWest Airlines, Inc., as amended by a Letter of Supplement dated May 17, 1993.........................(8) 10.15 Purchase Agreement dated July 23,1993 between Bombardier Regional Aircraft Division and SkyWest Airlines, Inc...........................................(9) 10.16 Purchase agreement No. DSP/AJV-042/95 dated June 9, 1995 between Embraer - Empresa Brasileira de Aeronautica S.A. and SkyWest Airlines, Inc..........................................(10) 10.17 SkyWest, Inc. 1995 Employee Stock Purchase Plan................(10) 10.18 Marketing and Code Sharing Agreement dated October 24, 1996 between Continental Airlines, Inc. and SkyWest Airlines, Inc.................................(11)
9 12
Incorporated by Filed Number Exhibit Reference Herewith - ------ ------- --------------- -------- 11.0 Computation of earnings per share..............................................X 13.1 Certain portions of the Annual Report to Shareholders for the year ended March 31, 1997, are incorporated by reference into this report on Form 10-K.....................................X 22.1 Subsidiaries of the Registrant..................................(1) 24.1 Consent of independent public accountants......................................X
- -------------- (1) Incorporated by reference to Registration Statement on Form S-1, File No. 33-5823. (2) Incorporated by reference to Registrant's 10-Q filed for the quarter ended December 31, 1986. (3) Incorporated by reference to Registrant's Form 10-K filed for the year ended March 31, 1987. (4) Incorporated by reference to Registrant's Form 10-K filed for the year ended March 31, 1989. (5) Incorporated by reference to Registrant's Form 10-K filed for the year ended March 31, 1990. (6) Incorporated by reference to Registration Statement on Form S-8, File No. 33-41285. (7) Incorporated by reference to Registrant's Form 10-K filed for the year ended March 31, 1992. (8) Incorporated by reference to Registration Statement on Form S-2, File No. 33-61958. (9) Incorporated by reference to Registrant's Form 10-K filed for the year ended March 31, 1994. (10) Incorporated by reference to Registrant's Form 10-K filed for the year ended March 31, 1995. (11) Incorporated by reference to Registrant's Form 10-K filed for the year ended March 31, 1996. 10 13 (d) Financial Statement Schedule. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To SkyWest, Inc.: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in SkyWest, Inc.'s Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated May 23, 1997. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14 (a)(2) is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Arthur Andersen LLP Salt Lake City, Utah May 23, 1997 11 14 SKYWEST, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
Additions Balance at Charged To Balance Beginning Costs and at End Description of Year Expenses Deductions of Year ----------- ------- -------- ---------- ------- Year Ended March 31, 1997: Allowance for obsolescence $180,000 $ 100,000 $ - $280,000 Allowance for doubtful accounts receivable 221,345 44,686 (162,053) 103,978 -------- --------- --------- -------- $401,345 $ 144,686 $(162,053) $383,978 ======== ========= ========= ======== Year Ended March 31, 1996: Allowance for obsolescence $180,000 $ - $ - $180,000 Allowance for doubtful accounts receivable 215,262 150,150 (144,067) 221,345 -------- --------- --------- -------- $395,262 $ 150,150 $(144,067) $401,345 ======== ========= ========= ======== Year Ended March 31, 1995: Allowance for obsolescence $180,000 $ - $ - $180,000 Allowance for doubtful accounts receivable 143,926 72,246 (910) 215,262 -------- --------- --------- -------- $323,926 $ 72,246 $ (910) $395,262 ======== ========= ========= ========
12 15 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SKYWEST, INC. By /s/ Jerry C. Atkin Jerry C. Atkin Chairman, President and Chief Executive Officer Pursuant to the requirement of the Securities Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
Names Capacities Date ----- ---------- ---- /s/ Jerry C. Atkin Chairman of the Board, President and June 17, 1997 - -------------------------- Chief Executive Officer Jerry C. Atkin /s/ Sidney J. Atkin Vice Chairman of the Board June 17, 1997 - -------------------------- and Director Sidney J. Atkin Executive Vice President - Finance June 17, 1997 /s/ Bradford R. Rich Chief Financial Officer and Treasurer - -------------------------- (principal financial and Bradford R. Rich accounting officer) /s/ J. Ralph Atkin Director June 17, 1997 - -------------------------- J. Ralph Atkin /s/ Mervyn K. Cox Director June 17, 1997 - -------------------------- Mervyn K. Cox /s/ Ian M. Cumming Director June 17, 1997 - -------------------------- Ian M. Cumming - -------------------------- Director Steven F. Udvar-Hazy - -------------------------- Director Henry J. Eyring - -------------------------- Director Hyrum W. Smith
13 EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE
FISCAL YEAR ENDED MARCH 31, ------------------------------- 1997 1996 1995 ------ -------- -------- (Amounts in thousands, except per share data) Basic Weighted average common shares outstanding.................. 10,085 10,284 11,112 ======= ======= ======= Net income.................................................. $10,111 $ 4,366 $13,701 ======= ======= ======= Per share amount............................................ $ 1.00 $ .42 $ 1.23 ======= ======= ======= Primary Weighted average common shares outstanding.................... 10,085 10,284 11,112 Net effect of dilutive common stock options -- based on the treasury stock method using average market price of $15.15, $16.92 and $22.48, respectively, net of tax benefit......... 39 84 102 ------- ------- ------- Total................................................. 10,124 10,368 11,214 ======= ======= ======= Net income....................................................$10,111 $ 4,366 $13,701 ======= ======= ======= Per share amount..............................................$ 1.00 $ .42 $ 1.22 ======== ======= ======= Fully Diluted Weighted average common shares outstanding.................... 10,085 10,284 11,112 Net effect of dilutive stock options -- based on the treasury stock method using the greater of year-end market price or the average market price, of $15.15, $16.92 and $22.48 respectively, net of tax benefit............................ 39 84 102 ------- ------- ------- Total................................................. 10,124 10,368 11,214 ======= ======= ======= Net income....................................................$10,111 $ 4,366 $13,701 ======= ======= ======= Per share amount..............................................$ 1.00 $ .42 $ 1.22 ======= ======= =======
EX-13.1 3 SELECTED PORTIONS OF THE 1997 ANNUAL REPORT 1 SUMMARY FINANCIAL AND OPERATING DATA
Year Ended March 31, - ------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- Operating revenues (000) $ 283,307 $ 251,734 $ 225,398 $ 187,993 $ 146,800 Operating income (000) $ 15,417 $ 5,710 $ 20,341 $ 24,680 $ 11,465 Net income (000) $ 10,111 $ 4,366 $ 13,701 $ 14,396 $ 6,704 Weighted average shares (000) 10,085 10,284 11,112 9,883 7,927 Net income per common share $ 1.00 $ .42 $ 1.23 $ 1.46 $ .85 Total assets (000) $ 232,898 $ 227,550 $ 188,182 $ 184,017 $ 86,945 Current assets (000) $ 90,295 $ 76,462 $ 71,642 $ 87,088 $ 28,243 Current liabilities (000) $ 45,022 $ 43,644 $ 25,603 $ 20,473 $ 15,909 Long-term debt (000) $ 47,337 $ 53,736 $ 29,553 $ 26,647 $ 18,391 Stockholders' equity (000) $ 124,552 $ 115,800 $ 117,684 $ 122,788 $ 42,766 Return on average equity 8.3% 3.7% 11.1% 17.4% 17.2% SKYWEST AIRLINES, INC. OPERATING DATA Passengers carried 2,656,602 2,340,366 2,073,885 1,730,993 1,523,384 Revenue passenger miles (000) 717,322 617,136 488,901 345,414 294,276 Available seat miles (000) 1,413,170 1,254,334 976,095 727,059 669,724 Load factor 50.8% 49.2% 50.1% 47.5% 43.9% Break-even load factor 47.9% 48.4% 45.5% 41.2% 41.1% Yield per revenue passenger mile $ .333 $ .332 $ .363 $ .439 $ .450 Cost per available seat mile $ .163 $ .166 $ .171 $ .188 $ .191 Average passenger trip length 270 264 236 200 193 Number of aircraft at end of year 60 63 60 55 50
QUARTERLY FINANCIAL AND STOCK PRICE DATA
Fiscal Year 1997 - -------------------------------------------------------------------------------------------------------------------- First Second Third Fourth Year Operating revenues (000) $ 72,125 $ 77,730 $ 64,595 $ 68,857 $ 283,307 Operating income (loss) (000) $ 7,678 $ 7,999 $ (1,736) $ 1,476 $ 15,417 Net income (loss) (000) $ 4,834 $ 4,990 $ (821) $ 1,108 $ 10,111 Net income (loss) per common share $ .48 $ .50 $ (.08) $ .11 $ 1.00 Stock price data: High $ 19.75 $ 18.25 $ 15.63 $ 14.38 $ 19.75 Low $ 13.25 $ 14.12 $ 12.63 $ 12.00 $ 12.00
Fiscal Year 1996 - -------------------------------------------------------------------------------------------------------------------- First Second Third Fourth Year Operating revenues (000) $ 60,381 $ 69,175 $ 58,991 $ 63,187 $ 251,734 Operating income (loss) (000) $ 4,799 $ 6,565 $ (1,668) $ (3,986) $ 5,710 Net income (loss) (000) $ 3,089 $ 4,109 $ (682) $ (2,150) $ 4,366 Net income (loss) per common share $ .30 $ .40 $ (.07) $ (.21) $ .42 Stock price data: High $ 23.50 $ 25.38 $ 19.75 $ 14.75 $ 25.38 Low $ 14.13 $ 17.00 $ 12.88 $ 12.38 $ 12.38
As of April 30, 1997, there were 1,051 holders of common stock. Cash dividends of $.23 and $.25 per share of outstanding common stock were paid in fiscal years 1997 and 1996, respectively. 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth information regarding the Company's operating cost components:
Fiscal Year Ended March 31, 1997 1996 1995 -------------------------------------------------------------------------------- Percent Cents Percent Cents Percent Cents of per of per of per Amount Revenue ASM Amount Revenue ASM Amount Revenue ASM Salaries, wages and employee benefits ................ $ 60,759 24.8% 4.3c $ 56,005 26.5% 4.5c $ 49,684 27.0% 5.1c Aircraft costs ............. 49,822 20.4 3.5 43,009 20.3 3.5 35,355 19.2 3.6 Maintenance ................ 20,929 8.6 1.4 20,779 9.8 1.6 18,350 10.0 1.9 Fuel ....................... 30,713 12.6 2.2 23,084 10.9 1.8 16,625 9.0 Other ...................... 66,323 27.0 4.7 56,794 26.9 4.5 45,742 24.9 4.7 Interest ................... 2,431 1.0 .2 2,160 1.0 .2 1,086 0.6 0.1 Fleet restructuring and transition expenses ...... - - - 6,247 3.0 .5 - - - -------- ---- --- -------- ---- --- -------- ---- --- Total airline expenses ..... 230,977 94.4 16.3c 208,078 98.4 16.6c 166,842 90.7 17.1c -------- ---- ==== -------- ---- ==== -------- ---- ==== Nonairline expenses ........ 39,344 101.7 40,109 99.7 39,315 94.4 -------- ----- -------- ---- -------- ---- Total operating expenses and interest ................ $270,321 95.4% $248,187 98.6% $206,157 91.4% ======== ==== ======== ==== ======== ====
Airline operating costs are expressed as a percentage of total airline operating revenues. Nonairline expenses are expressed as a percentage of total nonairline revenues. Total operating expenses and interest are expressed as a percentage of total consolidated revenues. Fiscal 1997 Compared to Fiscal 1996 Consolidated operating revenues increased 12.5 percent to a record $283.3 million in fiscal 1997 compared to $251.7 million in fiscal 1996. The Company also experienced continued growth in passenger enplanements, revenue passenger miles ("RPMs") and available seat miles ("ASMs") during fiscal 1997 compared to fiscal 1996. Consolidated net income increased to $10.1 million, or $1.00 per share in fiscal 1997 compared to $4.4 million, or $.42 per share, in fiscal 1996. The fiscal 1996 results include a pretax fleet restructuring of $6.2 million, or $.38 per share, resulting from a fleet rationalization plan that required a restructuring of the Company's turboprop fleet. Passenger revenues, which represented 84.4 percent of total operating revenues, increased 16.7 percent to $239.2 million in fiscal 1997 from $205.0 million in fiscal 1996. The increase is primarily due to a 16.2 percent increase in RPMs, while yield per RPM remained relatively constant at $.333 in fiscal 1997 compared to $.332 in fiscal 1996. The increase in RPMs is due to a 20.3 percent increase in ASMs generated by Canadair Regional Jets, which are used to provide service to destinations such as San Francisco, California, Pasco, Washington and Colorado Springs, Colorado. Additionally, the Company acquired 15 new Brasilia aircraft to replace the 18 remaining Metroliner aircraft as their leases expired or were terminated as part of the fleet rationalization program. These aircraft fleet additions and changes resulted in a 12.7 percent increase in ASMs. The growth in RPMs exceeded the growth in ASMs and resulted in a passenger load factor of 50.8 percent in fiscal 1997 compared to 49.2 percent in fiscal 1996. As a result of the increased passenger load factor and a .3 percent increase in yield per RPM, revenue per ASM increased 2.4 percent to $.173 in fiscal 1997 from $.169 in fiscal 1996. Total airline operating expenses and interest were 94.4 percent of total airline operating revenues in fiscal 1997 compared to 98.4 percent in fiscal 1996. Exclusive of the one-time charge related to the fleet restructuring and transition from Metro to Brasilia aircraft recorded in fiscal 1996, total operating expenses and interest, as a percentage of total airline operating revenues, decreased to 94.4 percent from 95.4 percent in fiscal 1996. This percentage decrease is due to a 16.7 percent growth rate in passenger revenues compared to a 14.4 percent increase in operating expenses and interest. The 14.4 percent increase in operating expenses and interest is exclusive of the one-time fleet restructuring and transition expense recorded in fiscal 1996. Airline operating costs per ASM decreased to 16.3(cent) in fiscal 1997 from 3 16.6(cents) in fiscal 1996. Exclusive of the one-time fleet restructuring and transition expense, airline operating costs per ASM would have been 16.1(cents) for fiscal 1996. The slight increase in cost per ASM in fiscal 1997 is primarily due to increased fuel costs. Salaries, wages and employee benefits decreased as a percentage of airline operating revenues to 24.8 percent in fiscal 1997 from 26.5 percent in fiscal 1996. The decrease is primarily due to airline operating revenues increasing at a faster rate than employee related expenses. The average number of employees was 1,852 for 1997 compared to 1,753 for fiscal 1996. The increase is primarily due to the addition of flight attendants to crew new Brasilia aircraft. Salaries, wages and employee benefits per ASM decreased to 4.3(cents) in fiscal 1997 from 4.5(cents) in fiscal 1996. Aircraft costs, including aircraft rent and depreciation, increased slightly as a percentage of airline operating revenues to 20.4 percent in fiscal 1997 from 20.3 percent in fiscal 1996, as a result of the fleet transition to Brasilia aircraft. Aircraft costs per ASM was 3.5(cents) in fiscal 1997 and 1996. Maintenance expense decreased slightly as a percentage of airline operating revenues to 8.6 percent in fiscal 1997 from 9.8 percent in fiscal 1996. Maintenance cost per ASM decreased to 1.4(cents) in fiscal 1997 from 1.6(cents) in fiscal 1996 due to the efficiency of additional new Brasilia aircraft. Fuel costs increased as a percentage of airline operating revenues to 12.6 percent in fiscal 1997 compared to 10.9 percent in fiscal 1996. The increase is primarily due to an 18.8 percent increase in the average fuel price per gallon to $.95 in fiscal 1997 from $.80 in fiscal 1996. As a result, fuel costs per ASM increased to 2.2(cents) in fiscal 1997 from 1.8(cents) in fiscal 1996. Other expenses, which consist primarily of commissions, landing fees, station rents, computer reservation systems and hull and liability insurance, increased as a percentage of airline operating revenues to 27.1 percent in fiscal 1997 compared to 26.9 in fiscal 1996. The increase is due primarily to rate increases in customer reservation systems booking fees. In addition, the Company has experienced rate increases in landing fees and general passenger handling charges. Interest expense as a percentage of airline operating revenues was 1.0 percent in fiscal 1997 and 1996. This percentage was the same since no new debt financings were entered into during fiscal 1997. Nonairline revenues decreased 3.9 percent to $38.7 million in fiscal 1997 compared to $40.3 million in fiscal 1996. The decrease is due to decreased passenger enplanements in fiscal 1997. Nonairline expenses decreased 1.9 percent to $39.3 million for fiscal 1997 compared to $40.1 million for fiscal 1996. The slight decrease is due to minor changes for a decreased level of operations, as well as reallocating existing capacity into lower cost tour packages. Fiscal 1996 Compared to Fiscal 1995 The Company experienced continued growth in RPMs, ASMs, and passenger enplanements during fiscal 1996 compared to fiscal 1995. Consolidated operating revenues increased 11.7 percent to a record $251.7 million in fiscal 1996 compared to $225.4 million in fiscal 1995. Consolidated net income decreased to $4.4 million, or $.42 per share in fiscal 1996 compared to $13.7 million, or $1.23 per share in fiscal 1995. The fiscal 1996 results included a pretax fleet restructuring and transition expense of $6.2 million, or $.38 per share resulting from a fleet rationalization plan that required a restructuring of the Company's turbo prop fleet. The $6.2 million fleet restructuring and transition expense primarily represented crew related costs associated with the discontinuance of Metroliner aircraft operations as well as accelerated maintenance costs associated with the early termination of Metroliner leases. The amount consists of $2.5 million of costs incurred in fiscal 1996 and an accrual for $3.7 million of fiscal 1997 restructuring costs. The fleet rationalization plan resulted in an all Brasilia turboprop fleet and was virtually completed by the end of fiscal 1997. Passenger revenues, which represented 81.5 percent of total operating revenues, increased 15.5 percent to $205.0 million in fiscal 1996 from $177.6 million in fiscal 1995. The increase was due to a 26.2 percent increase in RPMs offset by an 8.5 percent decrease in yield per RPM to $.332 in fiscal 1996 from $.363 in fiscal 1995. The increase in RPMs was due to the addition of four new Canadair Regional Jets and seven new Brasilia aircraft which replaced eight Metroliner aircraft as their leases expired or were terminated as part of the fleet rationalization program. These aircraft fleet additions and changes resulted in a 28.5 percent increase in ASMs. The growth in ASMs exceeded the growth in RPMs and resulted in a decrease in passenger load factor to 49.2 percent in fiscal 1996 from 50.1 percent in fiscal 1995. Although the passenger load factor was only down .9 points and in spite of a strong trend of growth in demand exceeding growth in capacity during the fourth quarter, passenger enplanements did not meet management's expectation during the first nine months due to the following factors: 1) growing reluctance of airline passengers to book flights on Metroliner aircraft which do not have cabin-class amenities, 2) the schedule restructuring by Delta Airlines, Inc. ("Delta") at the Los Angeles hub which reduced daily departures by 31 percent effective May 1, 1995, thereby reducing the Company's connection opportunities, 3) the impact of indirect competition from low-fare 4 carriers and 4) a continuing reluctance of travel agents to book passengers on the Delta system after Delta instigated commission caps in the spring of 1995 as well as commission overrides being offered by the Company's competitors. Yield per revenue passenger mile decreased 8.5 percent to $.332 in fiscal 1996 compared to $.363 in fiscal 1995. The decrease was due to an 11.9 percent increase in the average passenger trip length resulting from growing regional jet operations. The 8.5 percent decrease coupled with a lower passenger load factor resulted in a decrease in revenue per ASM to $.169 in fiscal 1996 compared to $.188 in fiscal 1995. Nonairline revenues, which consist of the operations of Scenic Airlines, Inc. and National Parks Transportation, Inc. decreased 3.3 percent to $40.3 million in fiscal 1996 from $41.6 million in fiscal 1995. Nonairline net income decreased to $.4 million in fiscal 1996 from $1.6 million in fiscal 1995. The decreases were due to the following factors: 1) a 13 percent decrease in the overall tourist traffic in the Grand Canyon/Las Vegas market, 2) the impact of new low-fare competition, and 3) the Company's difficulty in differentiating its premium touring packages from low price transportation alternatives. Total airline operating expenses and interest were 98.4 percent of total airline operating revenues in fiscal 1996 compared to 90.7 percent in fiscal 1995. This percentage increase was due to passenger enplanements not meeting expectations which resulted in passenger revenues falling short of internal plans as well as the airline incurring a one-time fleet restructuring and transition expense. Exclusive of the one-time fleet restructuring and transition expense, total airline operating expense increased only 21.0 percent for fiscal 1996 over fiscal 1995 airline operating expenses while ASMs increased 28.5 percent. Due to the continuing fleet rationalization program, management has continued to reduce airline operating costs per ASM. Airline operating costs per ASM decreased to 16.6(cents) in fiscal 1996 from 17.1(cents) in fiscal 1995. Exclusive of the one-time fleet restructuring and transition expense, airline operating costs per ASM would have been 16.1(cents) for fiscal 1996. Salaries, wages and employee benefits decreased as a percentage of airline operating revenues to 26.5 percent in fiscal 1996 from 27.0 percent in fiscal 1995. The decrease was primarily due to lower employee incentive payments resulting from the decrease in profitability for fiscal 1996 compared to fiscal 1995. The average number of full-time equivalent employees was 1,753 for 1996 compared to 1,760 for fiscal 1995. Salaries, wages and employee benefits per ASM decreased to 4.5(cents) in fiscal 1996 from 5.1(cents) in fiscal 1995. Aircraft costs, including aircraft rent and depreciation, increased as a percentage of airline operating revenues to 20.3 percent in fiscal 1996 from 19.2 percent in fiscal 1995. This percentage increased as a result of the utilization of additional Brasilia and regional jet aircraft as well as passenger traffic falling short of management's expectation resulting in lower operating revenues. Aircraft costs per ASM decreased slightly to 3.5(cents) in fiscal 1996 from 3.6(cents) in fiscal 1995. Maintenance expense decreased slightly as a percentage of airline operating revenues to 9.8 percent in fiscal 1996 from 10.0 percent in fiscal 1995. Maintenance cost per ASM decreased to 1.6(cents) in fiscal 1996 from 1.9(cents) in fiscal 1995 due to the increased ASMs generated from operations. Fuel costs increased as a percentage of airline operating revenues to 10.9 percent in fiscal 1996 compared to 9.0 percent in fiscal 1995. The increase was primarily due to an increase in the average fuel price per gallon to $.80 in fiscal 1996 from $.74 in fiscal 1995. As a result, fuel costs per ASM increased slightly to 1.8(cents) in fiscal 1996 from 1.7(cents) in fiscal 1995. Other expenses, which consist primarily of commissions, landing fees, station rents, computer reservation systems and hull and liability insurance, increased as a percentage of airline operating revenues to 26.9 percent in fiscal 1996 compared to 24.9 in fiscal 1995. The increase was due primarily to significant rate increases in customer reservation systems booking fees. In addition, the Company has experienced rate increases in landing fees and general passenger handling charges. Interest expense increased as a percentage of airline operating revenues to 1.0 percent in fiscal 1996 from .6 percent in fiscal 1995. The increase was due to an increase in debt financings of new Brasilia aircraft. Nonairline expenses increased 2.0 percent to $40.1 million for fiscal 1996 compared to $39.3 million for fiscal 1995. These expenses remained relatively constant as no major operational changes were made. 5 LIQUIDITY AND CAPITAL RESOURCES The Company had working capital of $45.3 million and a current ratio of 2.0:1 at March 31, 1997 compared to working capital of $32.8 million and a current ratio of 1.8:1 at March 31, 1996. The principal sources of funds during fiscal 1997 were $32.1 million generated from operations, $3.6 million of returned deposits related to aircraft acquisitions, $2.9 million of proceeds from the sale of property and equipment, $1.1 million of proceeds from the sale of available-for-sale securities, $.9 million from the sale of common stock and $.4 million from the sale of other assets. During fiscal 1997 the Company invested $12.0 million in flight equipment and $7.7 million in buildings, ground equipment and other assets. The Company also reduced long-term debt by $6.2 million and paid $1.8 million in cash dividends. These factors resulted in a $13.3 million increase in cash and cash equivalents during fiscal 1997. The Company's position in available-for-sale securities, consisting primarily of bonds and commercial paper has decreased to $18.0 million at March 31, 1997 compared to $19.1 million at March 31, 1996. The Company took delivery of fifteen new Brasilia aircraft during the year ended March 31, 1997 as part of the strategy to upgrade its fleet. All of these new aircraft were financed under long-term operating lease arrangements. The Company also has options to acquire ten additional Brasilia aircraft at fixed prices (subject to cost escalation and delivery schedules) exercisable through fiscal 1999. Options to acquire an additional ten Canadair Regional Jets have been secured. The Company 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 March 31, 1997, the Company leased 44 SkyWest aircraft and 18 Scenic Airlines aircraft under leases with remaining terms of up to 15.0 years. Future minimum lease payments due under all long-term operating leases were approximately $489.3 million at March 31, 1997. At March 31, 1997, the Company had outstanding long-term debt, including current maturities, of approximately $53.7 million. All of the long-term debt 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 $12.5 million of the $53.7 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 $53.7 million of long-term debt to an average effective rate of approximately 4.0% as of March 31, 1997. The debt is payable in either quarterly or semi-annual installments through January 2006. These subsidy payments are at risk to the Company if the Federative Republic of Brazil does not meet its obligations under the export support program. While the Company has no reason to believe, based on information currently available, that the Company will not continue to receive these subsidy payments from the Federative Republic of Brazil in the future, there can be no assurance that such a default will not occur. The Company expended approximately $19.7 million for non-aircraft capital expenditures during the year ended March 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% at March 31, 1997. The Company also has available $.5 million in a revolving line of credit facility issued by the same bank and secured by a lien against the Company's corporate headquarters in St. George, Utah. The $.5 million revolving facility bears interest at the bank's base rate plus one-half percent. The amount available under the facility will expire on December 1, 1997. 6 Report of Independent Public Accountants To SkyWest Inc.: We have audited the accompanying consolidated balance sheets of SkyWest, Inc. (a Utah corporation) and subsidiaries as of March 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended March 31, 1997. 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 SkyWest, Inc. and subsidiaries as of March 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1997 in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP - ----------------------- Salt Lake City, Utah May 23, 1997 Report of Management The integrity and objectivity of the information presented in this annual report are the responsibility of SkyWest, Inc. management. The consolidated financial statements contained in this report have been audited by Arthur Andersen LLP, independent public accountants, whose report appears on this page. The Company maintains a system of internal controls that provides reasonable assurance as to the integrity and reliability of the financial statements, the safeguarding of its assets against loss or unauthorized use and the prevention and detection of fraudulent financial reporting. The board of directors pursues its responsibility for these statements through its audit committee, which consists solely of directors who are neither officers nor employees of the Company. The audit committee meets periodically with the independent public accountants, the internal auditors and representatives of management to discuss internal accounting control, auditing and financial reporting matters. /s/ JERRY C. ATKIN /s/ BRADFORD R. RICH - ----------------------- ----------------------- Jerry C. Atkin Bradford R. Rich Chairman, President and Executive Vice President - Finance, Chief Executive Officer Chief Financial Officer and Treasurer 7 CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
March 31, ------------------------- 1997 1996 --------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 37,786 $ 24,529 Available-for-sale securities 17,970 19,097 Receivables, less allowance for doubtful accounts of $104 in 1997 and $221 in 1996 10,851 12,893 Inventories 9,987 8,923 Prepaid aircraft rents 8,612 5,433 Other current assets 5,089 5,587 --------- --------- Total current assets 90,295 76,462 --------- --------- PROPERTY AND EQUIPMENT, at cost: Aircraft and rotable spares 171,239 171,840 Buildings and ground equipment 43,508 39,092 Deposits on aircraft and rotable spares - 3,603 Rental vehicles 3,291 2,237 --------- --------- 218,038 216,772 Less - accumulated depreciation and amortization (80,295) (71,701) --------- --------- 137,743 145,071 OTHER ASSETS 4,860 6,017 --------- --------- $ 232,898 $ 227,550 ========= =========
The accompanying notes are an integral part of these consolidated balance sheets. 8 LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, ------------------------- 1997 1996 --------- --------- CURRENT LIABILITIES: Current maturities of long-term debt $ 6,399 $ 6,236 Trade accounts payable 29,213 23,740 Accrued salaries, wages and benefits 6,095 5,451 Taxes other than income taxes 1,537 1,330 Air traffic liability 1,488 1,485 Fleet restructuring accrual 290 3,788 Deferred credits - 1,614 --------- --------- Total current liabilities 45,022 43,644 --------- --------- LONG-TERM DEBT, less current maturities 47,337 53,736 --------- --------- DEFERRED INCOME TAXES PAYABLE 15,987 14,370 --------- --------- COMMITMENTS AND CONTINGENT LIABILITIES (Note 4) STOCKHOLDERS' EQUITY: Preferred stock, 5,000,000 shares authorized; none issued - - Common stock, no par value; 40,000,000 shares authorized; 11,624,811 and 11,521,808 shares issued, respectively 89,146 88,183 Retained earnings 55,691 47,902 Treasury stock, at cost, 1,474,600 shares (20,285) (20,285) --------- --------- Total stockholders' equity 124,552 115,800 --------- --------- $ 232,898 $ 227,550 ========= =========
9 CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For the years ended March 31, -------------------------------------------------- 1997 1996 1995 ------------ ------------ ------------ Operating revenues: Passenger $ 239,222 $ 205,034 $ 177,588 Freight 4,174 4,291 3,802 Public service and other 1,243 2,159 2,401 Nonairline 38,668 40,250 41,607 ------------ ------------ ------------ Total operating revenues 283,307 251,734 225,398 ------------ ------------ ------------ Operating expenses: Flying operations 101,689 85,117 68,135 Aircraft, traffic and passenger service 37,044 32,522 28,218 Maintenance 29,149 28,713 25,530 Promotion and sales 29,606 25,965 20,369 Depreciation and amortization 18,481 15,392 11,896 General and administrative 12,577 11,962 11,605 Fleet restructuring and transition - 6,247 - Nonairline 39,344 40,106 39,304 ------------ ------------ ------------ Total operating expenses 267,890 246,024 205,057 ------------ ------------ ------------ Operating income 15,417 5,710 20,341 ------------ ------------ ------------ Other income (expense): Interest expense (2,431) (2,163) (1,100) Interest income 2,481 2,707 2,826 Gain on sales of property and equipment 1,113 556 173 ------------ ------------ ------------ Total other income 1,163 1,100 1,899 ------------ ------------ ------------ Income before provision for income taxes 16,580 6,810 22,240 Provision for income taxes 6,469 2,444 8,539 ------------ ------------ ------------ Net income $ 10,111 $ 4,366 $ 13,701 ============ ============ ============ Net income per common share $ 1.00 $ .42 $ 1.23 ============ ============ ============ Weighted average number of common shares outstanding 10,085,260 10,283,918 11,111,596 ============ ============ ============
The accompanying notes are an integral part of these consolidated statements. 10 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Common Stock Treasury Stock Retained Shares Amount Shares Amount Earnings ------ ------ ------ ------ -------- Balance at March 31, 1994 11,445,056 $87,245 - $ - $ 35,543 Net income - - - - 13,701 Exercise of common stock options (at prices ranging from $3.83 to $5.50 per share) 23,000 116 - - - Tax benefit from exercise of common stock options - 228 - - - Compensation expense related to grant of stock options - 69 - - - Purchase of treasury stock - - (1,150,000) (16,091) - Cash dividends (at $.28 per share) - - - - (3,127) ---------- ------- ---------- -------- -------- Balance at March 31, 1995 11,468,056 87,658 (1,150,000) (16,091) 46,117 Net income - - - - 4,366 Exercise of common stock options (at prices ranging from $3.83 to $5.50 per share) 27,500 114 - - - Sale of common stock under employee stock purchase plan 26,252 287 - - - Tax benefit from exercise of common stock options - 41 - - - Compensation expense related to grant of stock options - 83 - - - Purchase of treasury stock - - (324,600) (4,194) - Cash dividends (at $.25 per share) - - - - (2,581) ---------- ------- ---------- -------- -------- Balance at March 31, 1996 11,521,808 88,183 (1,474,600) (20,285) 47,902 Net income - - - - 10,111 Exercise of common stock options (at a price of $5.50 per share) 51,250 282 - - - Sale of common stock under Employee stock purchase plan 51,753 588 - - - Tax benefit from exercise of common stock options - 93 - - - Cash dividends (at $.23 per share) - - - - (2,322) ---------- ------- ---------- -------- -------- Balance at March 31, 1997 11,624,811 $89,146 (1,474,600) $(20,285) $ 55,691 ========== ======= ========== ======== ========
The accompanying notes are an integral part of these consolidated statements. 11 CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
For the years ended March 31, -------------------------------------- 1997 1996 1995 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 10,111 $ 4,366 $ 13,701 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 18,481 15,392 11,896 Nonairline depreciation and amortization 3,585 2,742 2,090 Maintenance expense related to disposition of rotable spares 286 173 240 Gain on sales of property and equipment (1,113) (556) (173) (Decrease) increase in allowance for doubtful accounts (117) 6 71 Increase in deferred income taxes 1,617 1,336 2,050 Amortization of deferred credits (1,614) (1,497) (817) Tax benefit from exercise of common stock options 93 41 228 Compensation expense related to grant of stock options - 83 69 Changes in operating assets and liabilities: Decrease (increase) in receivables 2,159 (5,895) 2,721 Increase in inventories (1,064) (1,744) (1,305) Increase in other current assets (2,681) (2,286) (5,267) Increase in trade accounts payable 4,965 9,951 3,762 (Decrease) increase in fleet restructuring accrual (3,498) 3,788 - Increase in other current liabilities 854 1,005 692 -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 32,064 26,905 29,958 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of available-for-sale securities - - (9,760) Proceeds from sale of available-for-sale securities 1,127 2,212 - Acquisition of property and equipment: Aircraft and rotable spares (11,979) (48,508) (23,538) Deposits on aircraft and rotable spares - (3,053) (7,653) Buildings and ground equipment (4,886) (10,281) (5,851) Rental vehicles (2,850) (2,842) (2,229) Proceeds from sales of property and equipment 2,945 4,114 1,370 Decrease in deposits on aircraft and rotable spares 3,603 8,715 4,275 Decrease (increase) in other assets 413 (447) (38) -------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES (11,627) (50,090) (43,424) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 870 401 116 Purchase of treasury stock - (4,194) (16,091) Payment of cash dividends (1,814) (2,581) (3,127) Reduction of long-term debt (6,236) (4,329) (3,534) Proceeds from issuance of long-term debt - 31,001 7,116 -------- -------- -------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (7,180) 20,298 (15,520) -------- -------- -------- Increase (decrease) in cash and cash equivalents 13,257 (2,887) (28,986) Cash and cash equivalents at beginning of year 24,529 27,416 56,402 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 37,786 $ 24,529 $ 27,416 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 2,399 $ 2,060 $ 1,074 Income taxes 3,950 3,090 6,917
The accompanying notes are an integral part of these consolidated statements. 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation - The accompanying consolidated financial statements include the accounts of SkyWest, Inc. (a Utah corporation) and its wholly owned subsidiaries, SkyWest Airlines, Inc. ("SkyWest"), Scenic Airlines, Inc. ("Scenic") and National Parks Transportation, Inc. ("NPT") collectively (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates in the 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 - The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Available-for-Sale Securities - The Company's investments in debt and equity securities have been classified as available-for-sale securities and are recorded at fair market value. Significant unrealized holding gains and losses will be recorded as a separate component of stockholders' equity. Inventories - Inventories include expendable parts, fuel and supplies and are valued at weighted average cost less an allowance for obsolescence. Expendable parts are charged to expense as used. Property and Equipment - Property and equipment are stated at cost and depreciated over their useful lives to their estimated residual values using the straight-line method as follows: Aircraft and rotable spares 3 - 14 years Buildings and ground equipment 3 - 39.5 years Rental vehicles 4 years Maintenance - The Company operates under an FAA approved continuous inspection and maintenance program. The cost of maintenance is charged to expense when incurred. The Company uses the deferred method of accounting for EMB-120 engine overhauls and uses the accrual method of accounting for regional jet engine overhauls. Passenger and Freight Revenues - Passenger and freight revenues are recognized when service is provided. Passenger tickets sold but not used and the liability to other airlines are recorded as air traffic liability. Income Taxes - The Company recognizes a liability or asset for the deferred tax consequences of all temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled. As of March 31, 1997 and 1996, the Company had recorded current deferred tax assets of $2,046,000 and $3,228,000, respectively (which are included in other current assets), and deferred tax liabilities of $15,987,000 and $14,370,000, respectively. Deferred Credits - In order to assist the Company in integrating new aircraft into its fleet, certain manufacturers provide the Company with cash or credits for spare parts. With respect to purchased aircraft, these amounts reduce the capitalized cost of the aircraft. With respect to leased aircraft (operating leases), the Company has deferred these amounts and amortizes them over the terms of the related aircraft leases as a reduction of rent expense. Amounts amortized during the years ended March 31, 1997, 1996, and 1995 were $1,614,000, $1,497,000 and $817,000, respectively. As of March 31, 1997, the Company has no remaining deferred credits to amortize. Net Income Per Common Share - Net income per common share is calculated using the weighted average number of common shares outstanding during the year. No material dilution results from common stock equivalents which are outstanding options to purchase common stock. 13 Fair Value of Financial Instruments - The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, available-for-sale securities, receivables and accounts payable approximate fair values because of the immediate or short-term maturity of these financial instruments. The fair value of the Company's long-term debt is estimated based on current rates offered to the Company for similar debt and approximates $52,074,000 as of March 31, 1997, as compared to the carrying amount of $53,736,000. Recent Accounting Pronouncement - The Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" in March 1995. SFAS No. 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. The Company adopted SFAS No. 121 effective April 1996, which had no impact on the Company's financial position or results of operations. (2) LONG-TERM DEBT Long-term debt consists of the following (in thousands):
As of March 31, ------------------------ 1997 1996 -------- -------- Note payable to bank, due in monthly installments of $90,394 including interest at 6.95% through December 2005, secured by aircraft $ 7,096 $ 7,666 Note payable to bank, due in monthly installments of $88,737 including interest at 6.7% through January 2006, secured by aircraft 7,085 7,654 Note payable to bank, due in monthly installments of $91,290 including interest at 7.37% through October 2005, secured by aircraft 6,953 7,513 Note payable to bank, due in monthly installments of $64,319 plus interest at 6.36% through November 2000. Balloon payment of $3,937,000 due December 2000, secured by aircraft 6,818 7,590 Note payable to bank, due in quarterly installments of $177,906 plus interest at 8.58% through March 2005, secured by aircraft 5,693 6,405 Note payable to bank, due in monthly installments of $77,265 including interest at 7.33% through June 2003, secured by aircraft 4,638 5,203 Note payable to bank, due in quarterly installments of $167,246 plus interest based on three month LIBOR (7.51% at March 31, 1997) through September 2003, secured by aircraft 4,348 5,017 Note payable to bank, due in monthly installments of $54,702 plus interest based on one month LIBOR (7.44% at March 31, 1997) through June 2003, secured by aircraft 4,103 4,759 Note payable to financing company, due in quarterly installments of $155,000 plus interest based on three month LIBOR (7.06% at March 31, 1997) through July 2003, secured by aircraft 4,030 4,650 Note payable to bank, due in semi-annual installments of $270,186 plus interest at 8.5% through May 2002, secured by aircraft 2,972 3,513 Other - 2 -------- -------- 53,736 59,972 Less - current maturities (6,399) (6,236) -------- -------- $ 47,337 $ 53,736 ======== ========
14 The aggregate amounts of principal maturities of long-term debt as of March 31, 1997, are as follows (in thousands):
Year ending March 31, --------------------- 1998 $ 6,399 1999 6,577 2000 6,768 2001 6,973 2002 7,193 Thereafter 19,826 ------- $53,736 =======
The Company's long-term debt was incurred in connection with the acquisition of Brasilia aircraft and is supported by subsidy payments through the export support program of the Federative Republic of Brazil. The subsidy payments reduce the stated interest rates to an average effective rate of approximately 4.0% at March 31, 1997. These subsidies payments are at risk to the Company if the Federative Republic of Brazil does not meet its obligations under the export support program. While the Company has no reason to believe, based on information currently available, that the Company will not continue to receive these subsidy payments from the Federative Republic of Brazil in the future, there can be no assurance that such a default will not occur. As of March 31, 1997, the Company had available $5,000,000 in an unsecured bank line of credit with interest payable at the bank's base rate less one-quarter percent, which was 8.25% at March 31, 1997. In addition, as of March 31, 1997, the Company had available $500,000 in a reducing, revolving line of credit facility bearing interest at the bank's base rate plus 1/2% and secured by a lien against the Company's corporate headquarters in St. George, Utah. The amount available under the revolving facility expires December 1, 1997. The Company's long-term debt arrangements contain limitations on, among other things, sale or lease of assets, ratio of long-term debt to tangible net worth, cash flow coverage ratio, debt service coverage ratio and minimum tangible net worth. As of March 31, 1997, the Company was in compliance with all the debt covenants. (3) INCOME TAXES The provision for income taxes includes the following components (in thousands):
Year ended March 31, ---------------------------------- 1997 1996 1995 -------- -------- ------- Current tax provision: Federal $3,315 $2,656 $4,893 State 355 204 1,119 ------ ------ ------ 3,670 2,860 6,012 ------ ------ ------ Deferred tax provision (benefit): Federal 2,344 (348) 2,041 State 455 (68) 486 ------ ------ ------ 2,799 (416) 2,527 ------ ------ ------ Provision for income taxes $6,469 $2,444 $8,539 ====== ====== ======
The following is a reconciliation between the statutory Federal income tax rates (at a blended rate of 34 percent on taxable income up to $10,000,000 and 35 percent for taxable income in excess of $10,000,000) and the effective rate which is derived by dividing the provision for income taxes by income before provision for income taxes (in thousands).
Year ended March 31, -------------------------------- 1997 1996 1995 ------ ------- ------ Computed "expected" provision for income taxes at the statutory rate $5,703 $2,315 $7,684 Increase (decrease) in income taxes resulting from: State income taxes, net of Federal income tax benefit 711 292 727 Other, net 55 (163) 128 ------ ------ ------ Provision for income taxes $6,469 $2,444 $8,539 ====== ====== ======
15 The significant components of the net deferred tax assets and liabilities are as follows (in thousands):
As of March 31, ----------------------- Deferred tax assets: 1997 1996 -------- -------- Accrued benefits $ 979 $ 905 Engine overhaul accrual 1,909 1,343 AMT credit carryforward 3,939 2,766 Fleet restructuring accrual 116 1,515 Accrued expense reserves and other 1,140 1,205 -------- -------- Total deferred tax assets 8,083 7,734 -------- -------- Deferred tax liabilities: Accelerated depreciation (21,047) (17,505) Other (977) (1,371) -------- -------- Total deferred tax liabilities (22,024) (18,876) -------- -------- Net deferred tax liability $(13,941) $(11,142) ======== ========
(4) COMMITMENTS AND CONTINGENT LIABILITIES Lease Obligations The Company leases 44 SkyWest aircraft and 18 Scenic aircraft, as well as airport facilities, office space, and various other property and equipment under noncancelable operating leases which are generally on a long-term net rent basis where the Company pays taxes, maintenance, insurance and certain other operating expenses applicable to the leased property. Management expects that, in the normal course of business, leases that expire will be renewed or replaced by other leases. The following summarizes future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of March 31, 1997 (in thousands):
Year ending March 31, --------------------- 1998 $ 44,367 1999 41,549 2000 40,089 2001 39,191 2002 38,353 Thereafter 285,772 -------- $489,321 ========
Total rental expense for noncancelable operating leases was approximately $35,058,000, $31,369,000, and $27,494,000 for the years ended March 31, 1997, 1996 and 1995, respectively. The above minimum rental payments do not include landing fees, which amounted to approximately $6,259,000, $4,460,000, and $4,145,000 for the years ended March 31, 1997, 1996 and 1995, respectively. Purchase Options At March 31, 1997, the Company did not have any firm purchase commitments, however, the Company has options to acquire 10 additional EMB-120 aircraft at fixed prices (subject to cost escalation and delivery schedules). These options are exercisable through fiscal year 1999. The Company also has options to acquire an additional 10 Canadair Regional Jets, exercisable at any time. Legal Matters The Company is the subject of certain legal actions, which it considers routine to its business activities. As of March 31, 1997, management believes that any potential liability to the Company under such actions will not materially effect the accompanying consolidated financial statements. 16 Standby Letters of Credit As of March 31, 1997, the Company has outstanding letters of credit totaling approximately $1,516,000 related to requirements of certain airports, port authorities and workers compensation agreements. Cash and Cash Equivalents As of March 31, 1997, the Company has demand deposits and money market accounts totaling $463,000 with Wells Fargo Bank, $202,000 with Bank of America, $2,056,000 with Banc One and $11,390,000 with Zions First National Bank. These balances exceed the $100,000 limit for insurance by the Federal Deposit Insurance Corporation. (5) CAPITAL TRANSACTIONS Purchase of Treasury Stock On November 23, 1994, the Company's Board of Directors approved the purchase of up to 1,150,000 shares of the Company's outstanding common stock. The total shares were purchased prior to the end of fiscal 1995 at an average price of $13.98. On February 7, 1995, the Company's Board of Directors approved the purchase of up to 500,000 shares of the Company's outstanding common stock. In addition, on February 6, 1996, the Company's Board of Directors approved the purchase of up to 500,000 shares of the Company's outstanding stock. During fiscal 1996, 324,600 shares were purchased at an average price of $12.92. None of the Company's outstanding stock was repurchased during fiscal 1997. Subsequent Cash Dividend On May 6, 1997, the Company's Board of Directors declared a regular quarterly cash dividend of $.05 per share payable to stockholders of record on June 30, 1997, distributable July 14, 1997. Stock Options The Company's Board of Directors and Stockholders have approved the SkyWest, Inc. Amended and Combined Incentive and Non-statutory Stock Option Plan ("the Option Plan"). The Option Plan provides for the issuance of a maximum of 1,500,000 shares of common stock to officers, directors and other key employees. The Option Plan is administered by the Board of Directors who designate option grants as either incentive or non-statutory. Incentive stock options are granted at not less than 100% of the market value of the underlying common stock on the date of grant. Non-statutory stock options are granted at a price as determined by the Board of Directors. Both types of options are exercisable for the period as defined by the Board of Directors at the date granted; however, no stock option will be exercisable before six months have elapsed from the date it is granted and no incentive stock option shall be exercisable after ten years from the date of grant. The following table summarizes the stock option activity for fiscal years 1995, 1996 and 1997.
Average Number of Weighted Options Price --------- --------- Outstanding at March 31, 1994 228,749 $ 11.49 Granted 250,500 21.17 Exercised (23,000) 5.03 Canceled (2,500) 19.99 ------- Outstanding at March 31, 1995 453,749 17.11 Granted 105,000 16.22 Exercised (27,500) 4.13 ------- Outstanding at March 31, 1996 531,249 17.61 Granted 119,000 14.95 Exercised (51,250) 5.50 Canceled (32,824) 13.79 ------- Outstanding at March 31, 1997 566,175 $ 18.37 =======
As of March 31, 1997, there were 419,188 shares available for future grant of stock options under the Option Plan. 17 The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock-based compensation plans, which include the Option Plan and the Stock Purchase Plan (see Note 6). SFAS No. 123, "Accounting for Stock-Based Compensation," requires pro forma information regarding net income and earnings per share as if the Company had accounted for its stock options and employee stock purchases granted or sold subsequent to April 1, 1995, under the fair value method of the statement. The fair value of these stock options and employee stock purchases was estimated at the grant date using the Black-Scholes option pring model with the following assumptions: a risk-free interest rate of 6.5 percent, a dividend yield of 1.5 percent, a volatility factor of the expected common stock price of .508 and a weighted-average expected life of four years for the stock options and six- months for employee stock purchases. For purposes of the pro forma disclosures, the estimated fair value of the stock options and employee stock purchases is amortized over the estimated life of the respective stock options and employee stock purchases. Following are the pro forma disclosures and the related impact on net earnings and earnings per share (in thousands, except per share information):
Year Ended March 31, ------------------------- 1997 1996 Net Income: As Reported $ 10,111 $ 4,366 Pro Forma 9,838 4,232 Net Income Per Common Share: As Reported $ 1.00 $ 0.42 Pro Forma $ 0.98 $ 0.41
Because the SFAS No. 123 method of accounting has not been applied to options granted prior to April 1, 1995, and due to the nature and timing of option grants, the resulting pro forma compensation cost may not be indicative of future years. (6) RETIREMENT PLAN AND EMPLOYEE STOCK PURCHASE PLAN Retirement Plan The Company sponsors the SkyWest Airlines Employees Retirement Plan (the "Plan"). Employees who have completed one year of service and are 21 years of age are eligible for participation in the Plan. Employees may elect to make contributions to the Plan. The Company matches 100% of such contributions up to 2%, 4% or 6% of the individual participant's compensation, based upon length of service. Additionally, a discretionary contribution may be made by the Company. The Company's combined contribution was $1,960,000, $1,728,000 and $1,869,000 to the Plan for the years ended March 31, 1997, 1996 and 1995, respectively. Employee Stock Purchase Plan On February 7, 1995, the Company's Board of Directors approved the SkyWest, Inc. 1995 Employee Stock Purchase Plan ("the Stock Purchase Plan"). All employees who have completed 90 days of employment are eligible to participate, except officers who are highly compensated employees under section 414 (q) of the Internal Revenue Code. The Stock Purchase Plan enables employees to purchase shares of the Company's common stock at a 15 percent discount, through payroll deductions. Employees can contribute two to 15 percent of their base pay, not to exceed $21,250 each calendar year, for the purchase of shares. For the fiscal year ended March 31, 1997, 51,753 shares had been purchased by employees at prices of $10.94 and $11.79. For the fiscal year ended March 31, 1996, 26,252 shares had been purchased by employees at a price of $10.94 per share. In addition, as of March 31, 1997, $189,000 had been withheld for the future purchase of shares. Shares are purchased semi-annually at the lower of the beginning or the end of the period price. Employees can terminate from the Stock Purchase Plan at anytime upon written notice. 18 (7) FLEET RESTRUCTURING AND TRANSITION EXPENSE During fiscal 1996, the Company's management began implementing a fleet restructuring plan whereby all remaining Fairchild Metroliner III aircraft would be replaced by EMB-120 aircraft. As a result, the Company incurred approximately $2.4 million in fiscal 1996 of charges related to crew training, hiring new flight attendants, and aircraft maintenance charges to meet lease return requirements. The Company's management also accrued $3.8 million in the fourth quarter of fiscal 1996 related to charges to be incurred in fiscal 1997. The charges accrued consist primarily of aircraft maintenance to meet lease return requirements, inventory write downs for Metro III aircraft parts, lease payments and insurance for parking certain Metro III aircraft prior to their lease termination dates and labor charges to ready the Metro III aircraft for return to the lessors. The total expenses of $6.2 million, less approximately $.8 million for crew training, have been determined to be one-time non-recurring charges and have been classified as fleet restructuring and transition expense in the accompanying consolidated financial statements. During fiscal 1997, the Company incurred $3.5 million of restructuring charges and as of March 31, 1997, has a remaining accrual of $.3 million, which is expected to be used in fiscal 1998 in connection with the final disposition of remaining Metroliner aircraft and inventory. (8) SEGMENT INFORMATION Nonairline operating revenues and expenses primarily represent the operations of Scenic and NPT, both wholly-owned subsidiaries of SkyWest, Inc. Scenic provides air tours and general aviation services to the scenic regions of northern Arizona, southern Utah and southern Nevada, commonly referred to as the "Grand Circle". The primary aircraft used to accomplish scenic tours are 19 passenger deHavilland Twin Otter VistaLiners. NPT provides car rental services through a fleet of Avis vehicles located at five airports served by SkyWest. Information related to this segment of the Company's business is as follows (in thousands):
For the Year Ended March 31, ----------------------------------- 1997 1996 1995 Operating revenues $ 38,668 $40,250 $41,607 Operating (loss) income (676) 144 2,303 Depreciation and amortization 3,585 2,742 2,090 Capital expenditures 5,476 14,209 5,613
As of March 31, ------------------------- 1997 1996 -------- -------- Identifiable assets $ 28,338 $ 28,209
(9) RELATED-PARTY TRANSACTIONS The Company and Delta Air Lines, Inc. ("Delta") operate under a joint marketing and code-sharing agreement under which the Company uses the Delta two letter designator code (DL) in displaying its schedules on all flights in the automated airline reservation systems used throughout the industry. During fiscal 1996, the Company entered into a code-sharing agreement with Continental Airlines, Inc. ("Continental"). The Company uses the Continental two letter designator code (CO) in displaying schedules on certain flights in the automated airline reservation systems used throughout the industry. As of March 31, 1997, Delta owned 1,553,899 shares of common stock which represents approximately 15% of the outstanding common stock of the Company. The Company leases various terminal facilities from Delta and Delta provides certain services to the Company, including advertising, reservation and ground handling services. Expenses paid to Delta under these agreements were approximately $11,218,000, $9,181,000 and $5,024,000 during the years ended March 31, 1997, 1996 and 1995, respectively. The Company had net receivables from Delta of $780,000 and $2,761,000 as of March 31, 1997 and 1996, respectively. The Company had net receivables from Continental of $284,000 and $414,000 as of March 31, 1997 and 1996, respectively. EX-24.1 4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 24.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K of our report dated May 23,1997 included in SkyWest, Inc's Annual Report to Shareholders for the fiscal year ended March 31, 1997. We further consent to the incorporation of our report dated May 23, 1997, incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statement File No.'s 33-41285 and 33-60173. /s/ Arthur Andersen LLP Arthur Andersen LLP Salt Lake City, Utah June 20, 1997 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 0000793733 SKYWEST, INC. 1,000 12-MOS MAR-31-1997 APR-01-1996 MAR-31-1997 37,786 17,970 10,955 104 9,987 90,295 218,038 80,295 232,898 45,022 47,337 0 0 68,861 55,691 232,898 283,307 283,307 0 267,890 0 0 2,431 16,580 6,469 10,111 0 0 0 10,111 1.00 1.00
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