-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, jr3KGz5+vmy2YbpDjhkWunDZCU0h6hg/kauUofowMsqGsp+H8115GnRzPRN4Ht5R BK/31xUHc9edDopjo8U1oQ== 0000950149-95-000385.txt : 199506300000950149-95-000385.hdr.sgml : 19950630 ACCESSION NUMBER: 0000950149-95-000385 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950629 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-14719 FILM NUMBER: 95550430 BUSINESS ADDRESS: STREET 1: 444 S RIVER RD CITY: ST GEORGE STATE: UT ZIP: 84770 BUSINESS PHONE: 8016343000 MAIL ADDRESS: STREET 1: 444 SOUTH RIVER ROAD CITY: ST GEORGE STATE: UT ZIP: 84770 10-K405 1 FORM 10-K405 FOR THE FISCAL YEAR ENDED 3-31-95 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, 1995 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 21, 1995, was approximately $225,796,638. As of June 21, 1995, there were 10,322,132 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, 1995, 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 1995 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 1995 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 to 48 cities in eleven western states. Pursuant to a joint marketing and code sharing agreement with Delta, SkyWest operates as The Delta Connection in SkyWest's markets. Management believes that during calendar year 1994, approximately 48% of SkyWest's passengers were interline passengers connecting with flights offered by Delta. 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 54 turbo-prop aircraft and 8 regional jet aircraft. Founded in 1972, the Company has experienced significant growth and profitability since 1984. During the past five fiscal years, consolidated operating revenues have increased from $113.3 million in fiscal 1991 to $225.4 million in fiscal 1995. Total passengers carried by SkyWest have increased from approximately 1,169,000 to approximately 2,074,000 over the same period. In fiscal 1995, the Company achieved record levels of passengers carried, and record consolidated operating revenues of $225.4 million, net income was $13.7 million. The Company, through two wholly-owned subsidiaries, is also engaged in various other transportation related businesses. Scenic Airlines, Inc. (formerly Aviation Services West, Inc.) ("Scenic") provides air tours and general aviation services to the scenic regions of northern Arizona and southern Utah and operates 57 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 1995, Scenic and NPT together accounted for approximately 18.5% and 11.9% of the Company's consolidated operating revenues and net income, respectively. Effective June 15, 1993, the Company through its wholly-owned subsidiary, Aviation Services West, Inc. ("ASW") consummated an agreement to acquire from an entity then known as Scenic Airlines, Inc. ("Scenic Airlines") the flight tour operations of Scenic Airlines. (See Acquisition of Scenic Airlines) JOINT MARKETING AND CODE SHARING AGREEMENT Since April 1987, SkyWest has operated as "The Delta Connection" in SkyWest's markets pursuant to the terms of a joint marketing and code sharing agreement with Delta Air Lines, Inc. ("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 15.1% 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. 1 4 ROUTES The Company's flight schedules are structured to facilitate the connection of its passengers with flights of Delta at the airports it serves. The following table shows selected information about the cities served by SkyWest as of June 21, 1995.
Served State and City Since (1) -------------- --------- Arizona: Page................................................... 1974 Phoenix................................................ 1979 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 Jose............................................... 1986 San Luis Obispo........................................ 1986 Orange County.......................................... 1986 Monterey............................................... 1987 Colorado: Grand Junction......................................... 1983 Idaho: Pocatello.............................................. 1980 Idaho Falls............................................ 1982 Twin Falls............................................. 1983 Boise.................................................. 1988 Sun Valley............................................. 1990 Montana: West Yellowstone....................................... 1986(2) Helena................................................. 1988 Bozeman................................................ 1988 Billings............................................... 1988 Butte.................................................. 1988 Kalispell.............................................. 1995 Missoula............................................... 1995 New Mexico: Albuquerque............................................ 1995 Nevada: Las Vegas.............................................. 1974 Ely.................................................... 1982 Elko................................................... 1982 Reno................................................... 1982
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Served State and City Since (1) -------------- --------- Oregon: Eugene................................................. 1995 Portland............................................... 1995 South Dakota: Rapid City............................................. 1994 Sioux Falls............................................ 1994 Utah: Cedar City............................................. 1972 Salt Lake City......................................... 1972 St. George............................................. 1972 Vernal................................................. 1982 Wyoming: Jackson Hole........................................... 1986 Casper................................................. 1994 Cody................................................... 1995
(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. RECENT PUBLIC OFFERINGS On June 21, 1993, the Company completed a public offering of 1,875,000 shares of common stock which generated net proceeds of $28,802,000 after deducting underwriting commissions and other expenses. On July 7, 1993, the underwriters executed an over allotment option for 219,250 shares of common stock which generated net proceeds of $3,412,000 after deducting underwriting commissions. On February 16, 1994, the Company completed another public offering of 1,150,000 shares of common stock which generated net proceeds of $33,456,000 after deducting underwriting commissions and other expenses. A portion of the proceeds were used to fund the acquisition of Scenic Airlines, to pay off certain long-term debt and to facilitate the acquisition of the Canadair Regional Jets. The balance is being used for general corporate purposes. 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. 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 3 6 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"). 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 21, 1995, the Company employed 2,369 employees consisting of 771 pilots and flight attendants, 283 maintenance personnel, 1,065 customer service personnel, 61 reservation and marketing personnel, and 189 employees engaged in accounting, administration and other functions. The increase was primarily due to hiring pilots, flight attendants and customer service personnel for regional jet operations. 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 21, 1995, 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 . . . . . . . . . . 12 17 30 550 300 4.0 Metroliner . . . . . . . . . 1 24 19 400 275 8.3 Canadair Regional Jet . . . . - 8 50 800 530 .8
SkyWest's aircraft are primarily turbo-prop, 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. Although the Metroliner aircraft has been a principal factor in the Company's historical growth, it does not provide the operating efficiencies and customer acceptance offered by the Brasilia aircraft. Management has effected a plan to eliminate these Metroliner aircraft by the end of fiscal 1997. As a result, the Company's turboprop fleet will consist 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. As noted above, the Company operates eight of these aircraft and on stage lengths up to 800 miles. During fiscal 1995, the Company acquired five Brasilia aircraft and terminated two Metroliner long-term operating leases. The Company took delivery of one new Brasilia in June 1995. As part of the effort to upgrade its fleet of aircraft, the Company has agreed to acquire 21 Brasilia aircraft and related parts inventory and support equipment at an aggregate cost of approximately $158.0 million, including cost escalation provisions as of June 21, 1995. The Company is scheduled to take delivery of six of these aircraft in the remainder of fiscal 1996, and the remaining 15 in fiscal 1997. As of June 21, 1995, the Company has also agreed to acquire two Canadair Regional Jets and related spare parts inventory and support equipment at an aggregate cost of approximately $36 million, including estimated cost escalations. Two Canadair Regional Jets were delivered during the fourth quarter of fiscal 1995 and two were delivered subsequent to March 31, 1995, and have been financed under long-term lease arrangements. The remaining two Canadair Regional Jets are scheduled for delivery in fiscal 1996. The Company has also secured options to purchase an additional 10 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; five are exercisable through September 1995 and five are exercisable through July 1996. Any decision to acquire additional aircraft in the long-term 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 eight of the 48 airports it serves. 5 8 The Company's corporate headquarters are located in a newly constructed 63,000 square foot building in St. George, Utah. Management deems the Company's facilities as being suitable and necessary to support exisiting operations and facilities are adequate for the forseeable future. 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 1995. 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 21, 1995, there were approximately 1,138 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 1995 Fiscal 1994 ----------- ----------- Quarter High Low High Low ------- ---- ----- ---- ----- First $40.25 $20.50 $23.63 $15.50 Second 29.75 22.00 25.25 15.00 Third 22.50 12.50 34.50 25.25 Fourth 15.75 11.38 38.75 31.00
The transfer agent for the Company's Common Stock is Zions First National Bank, Salt Lake City, Utah. In fiscal 1995, the Board of Directors declared an annual dividend of $.08 per share and a special dividend of $.20 per share. In fiscal 1994, the Board of Directors declared an annual dividend of $.05 per share and a special dividend of $.010 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, 1995, 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 OPERATION The information required by this item is incorporated herein by reference to pages 10 through 14 of the Company's Annual Report to Shareholders for the fiscal year ended March 31, 1995, 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 15 through 27 of the Company's Annual Report to Shareholders for the fiscal year ended March 31, 1995, 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 1995 annual stockholders meeting to be held August 8, 1995, 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, 1995, 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, 1995 and 1994 - Consolidated statements of income for the years ended March 31, 1995, 1994 and 1993 7 10 - Consolidated statements of stockholders' equity for the years ended March 31, 1995, 1994 and 1993 - Consolidated statements of cash flows for the years ended March 31, 1995, 1994 and 1993 - 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, 1995. (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. (Confindential treatment requested) . . . . . . . . . . . . . . . . X 10.17 SkyWest, Inc. 1995 Employee Stock Purchase Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . X
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, 1995, 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 For 10-K filed for the year ended March 31, 1994. 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 26, 1995. 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. Arthur Andersen LLP Salt Lake City, Utah May 26, 1995 11 14 SKYWEST, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
Additions Balance at Charged To Balance Beginning Costs and at End Description of Year Expenses Deductions of Year - ---------------------------------- --------- -------- ---------- --------- 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 ======== ======= ======== ======== Year Ended March 31, 1994: Allowance for obsolescence $180,000 $ - $ - $180,000 Allowance for doubtful accounts receivable 142,830 32,572 (31,476) 143,926 -------- ------- -------- -------- $322,830 $32,572 $(31,476) $323,926 ======== ======= ======== ======== Year Ended March 31, 1993: Allowance for obsolescence $180,000 $ - $ - $180,000 Allowance for doubtful accounts receivable 160,000 23,390 (40,560) 142,830 -------- ------- -------- -------- $340,000 $23,390 $(40,560) $322,830 ======== ======= ======== ========
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 - ------------------------------ Chief Executive Officer June 26, 1995 Jerry C. Atkin /s/ Sidney J. Atkin Vice Chairman of the Board - ------------------------------ and Director June 26, 1995 Sidney J. Atkin Executive Vice President - Finance /s/ Bradford R. Rich Chief Financial Officer and Treasurer June 26, 1995 - ------------------------------ (principal financial and Bradford R. Rich accounting officer) Director - ------------------------------ J. Ralph Atkin /s/ Lee C. Atkin Director June 26, 1995 - ------------------------------ Lee C. Atkin /s/ Lee C. Atkin Director June 26, 1995 - ------------------------------ Dell C. Stout /s/ Mervyn K. Cox Director June 26, 1995 - ------------------------------ Mervyn K. Cox /s/ Brent V. Atkin Director June 26, 1995 - ------------------------------ Brent V. Atkin /s/ Ian M. Cumming Director June 26, 1995 - ------------------------------ Ian M. Cumming Director - ------------------------------ Steven F. Udvar-Hazy Director - ------------------------------ W. Martin Braham
13 16 Exhibit Index Ex 10.16 Purchase agreement No. DSP/AJV-042/95 dated June 9, 1995 between Embraer - Empressa Brasileria de Aeronautica S.A. and SkyWest Airlines, Inc. (Confidential treatment requested) Ex 10.17 SkyWest, Inc. 1995 Employee Stock Purchase Plan Ex 11.0 Computation of earnings per share Ex 13.1 Certain portions of the Annual Report to Shareholders for the year ended March 31, 1995, are incorporated by reference into this report on Form 10-K Ex 24.1 Consent of independent public accountants Ex 27 Financial Data Schedule EX-10.16 2 PURCHASE AGREEMENT DATED JUNE 9, 1995 1 Exhibit 10.16 PURCHASE AGREEMENT NO. DSP/AJV-042/95 EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A. AND SKYWEST AIRLINES, INC. 2 INDEX ARTICLE PAGE ------- ---- 1. DEFINITIONS 1 2. SUBJECT 2 3. PRICE 3 4. PAYMENT 3 5. FINANCING 4 6. DELIVERY 7 7. CERTIFICATION 8 8. ACCEPTANCE AND TRANSFER OF OWNERSHIP 8 9. STORAGE CHARGE 9 10. DELAYS IN DELIVERY 10 11. INSPECTION AND QUALITY CONTROL 12 12. CHANGES 13 13. WARRANTY 14 14. TECHNICAL ASSISTANCE SERVICES 15 15. SPARE PARTS POLICY 15 16. PUBLICATIONS 16 17. ASSIGNMENT 16 18. RESTRICTIONS AND PATENT INDEMNITY 16 19. MARKETING PROMOTIONAL RIGHTS 17 20. TAXES 17 21. APPLICABLE LAW 17 22. ARBITRATION 17 23. TERMINATION 18 24. INDEMNITY 20 25. NOTICES 20 26. CONFIDENTIALITY 21 27. INTEGRATED AGREEMENT 21 28. NEGOTIATED AGREEMENT 21 29. COUNTERPARTS 21 30. ENTIRE AGREEMENT 22 ATTACHMENTS: "A" - AIRCRAFT TECHNICAL DESCRIPTION AND AIRCRAFT SPECIFIC CONFIGURATION "B" - AIRCRAFT FINISHING, REGISTRATION MARKS, FERRY EQUIPMENT, SPARE PARTS POLICY, AND LIST OF PUBLICATIONS "C" - WARRANTY CERTIFICATE - MATERIAL AND WORKMANSHIP "D" - EMB-120 BRASILIA PRICE ESCALATION FORMULA 3 PURCHASE AGREEMENT NO. DSP/AIV-012/95 THIS AGREEMENT IS ENTERED INTO THIS 9th DAY OF, June, 1995, BY AND BETWEEN EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A. AND SKYWEST AIRLINES, INC., FOR THE PURCHASE AND SALE OF EMBRAER AIRCRAFT. THE SALE COVERED BY THIS AGREEMENT SHALL BE GOVERNED SOLELY BY THE TERMS AND CONDITIONS HEREIN SET FORTH, AS WELL AS BY THE PROVISIONS SET FORTH IN THE ATTACHMENTS HERETO. THIS AGREEMENT SHALL NOT BE EFFECTIVE UNLESS AND UNTIL IT IS SIGNED BY AN AUTHORIZED OFFICER OF SKYWEST AIRLINES, INC. AND EXECUTED BY TWO AUTHORIZED OFFICERS OF EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A. 1. DEFINITIONS: For the purpose of this Agreement, the following definitions are hereby adopted by the parties: a. EMBRAER - shall mean EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A., a Brazilian corporation with its principal place of business at Sao Jose dos Campos, Sao Paulo, Brazil. b. BUYER - shall mean Skywest Airlines, Inc., a company with its principal place of business at 444 South River Road, St. George, Utah 84770-2086. c. PARTIES - shall mean Embraer and Buyer. d. AIRCRAFT - shall mean the EMB-120ER "BRASILIA" aircraft or, where there is more than one such aircraft, each of the EMB-120ER "BrasiliaO" aircraft manufactured by EMBRAER, for sale to BUYER pursuant to this Agreement, according to the Technical Description number TD-120/9401, dated September 1994, and the AIRCRAFT Specific Configuration constituting the Attachment "A" to this Agreement, and equipped with Pratt & Whitney Canada Inc. PW-118A engines, according to PW-118A Turboprop Engine Specification No. 923, dated September 4, 1987, supplemented by Supplemental No. 923 MMOO, dated September 4, 1989. The INITIALS -------- /s/ EC /s/ LG Page 1 of 22 4 Technical Description and AIRCRAFT Specific Configuration subject of the Attachment "A" hereto, shall be substituted by BUYER'S AIRCRAFT Technical Specification on or before three (3) months prior to the THIRD AIRCRAFT CONTRACTUAL DELIVERY DATE. e. SERVICES - shall mean technical assistance services as specified in Article 14 herein. f. CONTRACTUAL DELIVERY DATE - shall mean the delivery date referred to in Article 6 of this Agreement. g. ACTUAL DELIVERY DATE - shall mean, in respect of each AIRCRAFT, the date on which Buyer obtains title to that AIRCRAFT in accordance with Article 8 hereof. h. CTA - shall mean the Aerospace Technical Center of the Brazilian Ministry of Aeronautics. i. FAA - shall mean the Federal Aviation Administration. j. BASIC PRICE - shall mean the AIRCRAFT total price, effective on the date of execution of this Purchase Agreement, as referred to in its Article 3. k. PURCHASE PRICE - shall mean the AIRCRAFT total price, effective on the relevant AIRCRAFT CONTRACTUAL DELIVERY DATE, resulting from the application of the Escalation Formula established in Attachment "D" hereto. 2. SUBJECT: This Agreement covers: a. Ten (10) AIRCRAFT. b. SERVICES as specified in Article 14 herein. These AIRCRAFT refer to the exercise by BUYER of its option to purchase EMB-120 Brasilia AIRCRAFT according to the provisions of Purchase Agreement No. DSP/AJV-30B/93, Article 26 - Groups I and II INITIALS -------- /s/ EC /s/ LG Page 2 of 22 5 3. PRICE: (Confidential information apearing here has been omitted and submitted separately to the Securities and Exchange Commission) 4. PAYMENT: (Confidential information appearing here has been omitted and submitted separately to the Securities and Exchange Commission) The prices specified in the previous Article shall be paid by BUYER as follows: INITIALS -------- /s/ EC /s/ LG Page 3 of 22 6 (Confidential information appearing here has been omitted and submitted separately to the Securities and Exchange Commission) 5. FINANCING: a. The amounts specified in Article 4.a.7 of the Purchase Agreement shall be paid in cash. Such amounts may also be paid by BUYER to EMBRAER, in cash, by means of an approved financing to be obtained by BUYER, hereinafter called BUYER'S CREDIT. b. If requested by BUYER, EMBRAER will exert its best efforts to assist BUYER in applying for and structuring such BUYER'S CREDIT financing in compliance with the financing terms of the Brazilian Export Financing Program (PROEX) as effective at the date of such request. BUYER understands that EMBRAER does not guaranty the availability of PROEX or the terms of such financing program and that the application of BUYER shall be subject to the sole approval of INITIALS -------- /s/ EC /s/ LG Page 4 of 22 7 the Brazilian Export Authority on a case-by-case basis (i.e., EMBRAER shall incur no liability and Buyer shall have no recourse against EMBRAER if the application is not approved by the Brazilian Export Authority, or if it is approved, but only on different terms and conditions than any previous approval by the Brazilian Export Authority). For illustrative purposes only, the last PROEX approval was on the following terms (it being understood that any approval for BUYER may differ and change without previous notice once each application is examined according to the sole discretion and criteria of the Brazilian Export Authority, on a case-by-case basis): 1. Financing up to eighty-five percent (85%) of the AIRCRAFT PURCHASE PRICE; 2. Financing Period: ten (10) years; 3. Net Annual Interest Rate: the amount will be calculated over the unpaid balance at each principal repayment date. The interest rate will be, at BUYER'S option either: a) Fixed Interest Rate: Libor rate published by Central Bank of Brazil, for the total term of the financing, valid on the AIRCRAFT ACTUAL DELIVERY DATE; or b) Floating Interest Rate: Libor rate published by Central Bank of Brazil, for the term of each installment period, (i.e., Libor for six months operations) valid on the AIRCRAFT ACTUAL DELIVERY DATE and on the first day of each interest period. 4. Principal repayments in equal semi-annual installments, interest payable on the same maturity as the installments on the outstanding balances, with the first payment becoming due one hundred eighty (180) days after the AIRCRAFT ACTUAL DELIVERY DATE and subsequent payments becoming due at one hundred eighty (180) day intervals thereafter. c. If the financing terms and conditions as approved by the Brazilian Export Authority are accepted by BUYER, the financing shall be contracted by BUYER at a financing institution which shall follow all procedures determined by the PROEX in order to obtain its benefits. If requested by the financial institution, EMBRAER will exert its best INITIALS -------- /s/ EC /s/ LG Page 5 of 22 8 efforts to assist such financial institution to comply with the conditions of the PROEX. d. Whether or not the BUYER'S CREDIT will be utilized in conjunction with the PROEX, the payment of the amounts referred to in item OaO hereinabove shall be paid to EMBRAER in immediately available funds, by a tested telegraphic transfer order or by other means as may be determined by EMBRAER. e. On or before forty-five (45) calendar days of the relevant AIRCRAFT CONTRACTUAL DELIVERY DATE, BUYER shall provide EMBRAER with a binding commitment letter, in a form and from a prime bank or similar financial institution acceptable to EMBRAER, evidencing that the relevant BuyerOs Credit shall have been approved. If there is no evidence of such approval, EMBRAER shall have the option, at its sole discretion, to postpone the relevant AIRCRAFT CONTRACTUAL DELIVERY DATE for the same number of days that BUYER shall take to provide EMBRAER a written notice concerning such evidence, plus an additional period of fifteen (15) days as it shall be necessary for EMBRAER, due to such BUYER'S delay, to adjust its scheduled production for the purpose of delivering the AIRCRAFT to BUYER. f. In the event that a BUYER'S CREDIT is not approved on or before forty-five (45) calendar days of the relevant AIRCRAFT CONTRACTUAL DELIVERY DATE, without prejudice to EMBRAER'S option as specified in item "e" above, Buyer shall have the option, to be exercised by a written communication to be received by EMBRAER on or prior to forty (40) calendar days of the AIRCRAFT CONTRACTUAL DELIVERY DATE, to either: 1. Pay the due amounts as specified in item "a" hereinabove, using BUYER'S own resources or, 2. Pay the referred to amounts using alternate financing scheme to be obtained by BUYER and submitted to EMBRAER for approval. g. The payment referred to in items "f.1" and "f.2" hereinabove shall be made by means of an irrevocable letter of credit to be opened by BUYER no later than five (5) days before the AIRCRAFT ACTUAL DELIVERY DATE, as per the following terms and conditions: INITIALS -------- /s/ EC /s/ LG Page 6 of 22 9 1. In favor of EMBRAER - Empresa Brasileira de Aeronautica S.A.; 2. For account of Skywest Airlines, Inc.; 3. Sum available by presentation of sight draft accompanied by one copy of the "Certificate of Acceptance and Transfer of Title and Risks" relative to the AIRCRAFT, signed by Buyer or its authorized representative; 4. Credit to be negotiated only at financial institutions with offices located in Sao Jose dos Campos or in Sao Paulo, State of Sao Paulo, Brazil; 5. To remain valid until sixty (60) calendar days following the AIRCRAFT ACTUAL DELIVERY DATE; 6. To permit partial shipments, if necessary; 7. To be issued by a prime bank accepted by EMBRAER. For purposes of EMBRAER'S previous examination and approval, a draft of the terms of such letter of credit shall be presented by BUYER to EMBRAER on or before forty-five (45) calendar days of an AIRCRAFT CONTRACTUAL DELIVERY DATE. h. The options and procedures specified hereinabove shall also be applied in the event that the financing is approved for an amount less than the amount applied for. 6. DELIVERY: Subject to payment in accordance with Article 4 hereof and the provisions of Articles 5, 8 and 10 hereof, the AIRCRAFT shall be offered by EMBRAER to Buyer, by means of a written notice, for inspection, acceptance and subsequent delivery, in Fly Away Factory ("F.A.F.") conditions, at Sao Jose dos Campos, State of Sao Paulo, Brazil, according to the following schedule: 1. First Aircraft on or before October 20, 1995 2. Second Aircraft - on or before December 10, 1995 3. Third Aircraft - on or before December 20, 1995 4. Fourth Aircraft - on or before February 20, 1996 5. Fifth Aircraft - on or before May 20, 1996 INITIALS -------- /s/ EC /s/ LG Page 7 of 22 10 6. Sixth Aircraft - on or before August 20, 1996 7. Seventh Aircraft - on or before September 20, 1996 8. Eighth Aircraft - on or before November 20, 1996 9. Ninth Aircraft - on or before November 29, 1996 10. Tenth Aircraft - on or before January 20, 1997 7. CERTIFICATION: The AIRCRAFT shall be delivered to BUYER with an export certificate of airworthiness issued by CTA complying with the requirements of FAR-25 and the requirements of the FAA. The condition of the AIRCRAFT on delivery and the documentation delivered with the AIRCRAFT, including the above-mentioned export certificate of airworthiness, shall be sufficient to enable BUYER to obtain a standard certificate of airworthiness for the AIRCRAFT. Subject to the above, it shall be BUYER'S responsibility to obtain such standard certificate of airworthiness for the AIRCRAFT. 8. ACCEPTANCE AND TRANSFER OF OWNERSHIP: a. Unless BUYER is notified otherwise, the AIRCRAFT shall be delivered in accordance with the provisions and schedules specified in Article 6 herein. EMBRAER shall give BUYER fifteen (15) calendar days advance notice of the date on which EMBRAER considers that each AIRCRAFT will be ready for delivery. Upon successful completion of ground and flight tests performed by EMBRAER, BUYER will receive a written confirmation that the AIRCRAFT concerned is ready for delivery, on which date BUYER shall promptly inspect such AIRCRAFT. b. BUYER shall be allowed a reasonable period of time to inspect and conduct an acceptance flight of each AIRCRAFT prior to its delivery. The fuel for the AIRCRAFT'S acceptance flight will be provided by EMBRAER. After such acceptance flight, each AIRCRAFT will be delivered by EMBRAER to BUYER in accordance with Article 6 hereof with its wing tanks full. c. If BUYER finds and AIRCRAFT acceptable, BUYER shall promptly make the due payments, if any, according to Article 4 hereof and accept delivery of such AIRCRAFT, whereupon the necessary title and risk transfer documents shall be executed in order to effect title transfer. d. If BUYER declines to accept an AIRCRAFT, BUYER shall immediately give EMBRAER written notice of all specific reasons for INITIALS -------- /s/ EC /s/ LG Page 8 of 22 11 such refusal and EMBRAER shall have five (5) business days, commencing on the first business day after receipt of such notice, to take all necessary actions in order to resubmit the AIRCRAFT to BUYER for reinspection. e. BUYER shall reinspect the AIRCRAFT within five (5) calendar days after receipt of notice from EMBRAER that all necessary actions were taken. This period, as well as the one mentioned in item "d" above, shall not be considered as part of the thirty (30) calendar days grace period provided for in Article 10.b.1 hereof. f. Should BUYER fail to comply with the procedures specified in any of the preceding items, EMBRAER shall not be held liable for any delays in delivery. g. Should BUYER fail to perform the acceptance and receipt of title of the AIRCRAFT within ninety (90) calendar days to be computed from the notification specified in item "a" above, EMBRAER shall be entitled to either terminate this Agreement pursuant to Article 23.f hereinbelow or, at its sole discretion, renegotiate the terms of this Agreement with BUYER. 9. STORAGE CHARGE: a. A storage charge equal to zero point zero three percent (0.03%) of the relevant AIRCRAFT BASIC Price per calendar day shall be charged by EMBRAER to BUYER commencing on the fifteenth (15th) calendar day after: 1. BUYER's failure to perform inspection or reinspection of an AIRCRAFT, per the date or time period specified in writing by EMBRAER, according to Articles 6 and/or 8 hereof, as applicable. 2. BUYER's acceptance of an AIRCRAFT when Buyer defaults in the fulfillment of any payment due in taking title to such AIRCRAFT immediately thereafter. b. A storage charge equal to zero point zero three percent (0.03%) of the relevant AIRCRAFT BASIC PRICE per calendar day shall be charged by EMBRAER to BUYER commencing on the thirtieth (30th) calendar day after BUYER's failure after title transfer to remove an AIRCRAFT from EMBRAER's facilities. INITIALS -------- /s/ EC /s/ LG Page 9 of 22 12 c. In the event an Aircraft Contractual Delivery Date must be extended by Embraer from that which is designated in Article 6 hereof due to Buyer's failure to perform any action or provide any information contemplated by this Agreement, other than the ones specified in the preceding item", the storage charge shall commence on the fifteenth (15th) calendar day after the Contractual Delivery Date relative to such Aircraft. d. Buyer undertakes to pay the storage charge, as set forth in items "a", "b" or "c" hereinabove, as applicable, in U.S. dollars per each month of delay or part thereof, upon presentation of an invoice by Embraer. 10. DELAYS IN DELIVERY: a. EXCUSABLE DELAYS: 1. EMBRAER shall not be held liable or be found in default for any delays in the delivery of an AIRCRAFT or in the performance of any act to be performed by EMBRAER under this Agreement, resulting from, but not restricted to, the following events or occurrences hereinafter referred to as "excusable delays": (a) force majeure (including, but not limited to, war or state of war, civil war, insurrection, fire, accident, explosion, flood, act of government, governmental priorities, requisition, strike, labor troubles); (b) inability despite due and timely diligence to procure any materials, equipment, accessories, parts or means of transport; or (c) any delay resulting from any failure by BUYER to perform any action or provide any information contemplated by this Agreement or delays resulting from any other cause to the extent it is beyond EMBRAER's control or does not result from EMBRAER's fault or negligence. 2. Within sixty (60) calendar days after the occurrence of any of the above-mentioned events which constitute causes of excusable delays in delivery of an AIRCRAFT or in the performance of any act to be performed by EMBRAER under this Agreement, EMBRAER undertakes to send a written notice to BUYER, with requested acknowledgment of receipt, including a description of details involved and an estimate of the effects expected upon the timing of the performance of its contractual obligations. INITIALS -------- /s/ EC /s/ LG Page 10 of 22 13 3. Any such delays shall extend the time for delivery of an AIRCRAFT by the same number of calendar days required for the cause of delay to be remedied. EMBRAER undertakes to use its best efforts whenever applicable to avoid or remove any such causes of delay and to minimize their effect on the CONTRACTUAL DELIVERY DATE OF AN AIRCRAFT. 4. If the cause of such excusable delays is such as to last longer than three hundred (300) calendar days or to render the performance of this Agreement impossible, then this Agreement shall be considered terminated without liability to either party, except as provided for in Article 23.b hereof. b. NON-EXCUSABLE DELAYS: 1. If the delivery of an AIRCRAFT is delayed, without any excusable reason, by more than thirty (30) calendar days after the CONTRACTUAL DELIVERY DATE for such AIRCRAFT, BUYER will be entitled to claim from EMBRAER liquidated damages equal to zero point zero three percent (0.03%) of the BASIC PRICE for each delayed AIRCRAFT, for each calendar day of delay in excess of the above-mentioned thirty (30) calendar days, up to the date EMBRAER notices BUYER such AIRCRAFT will be ready for delivery via written notice per Article 8.a hereof, it being understood that such liquidated damages will not, in any event, exceed three percent (3%) of the BASIC PRICE of the delayed item. 2. The grace period of thirty (30) calendar days granted by BUYER to EMBRAER as mentioned herein shall only prevail should Buyer receive a written notification from EMBRAER advising the expected delay and provided such written notification is presented to BUYER sixty (60) calendar days prior to the relevant AIRCRAFT CONTRACTUAL DELIVERY DATE. 3. It is agreed between the PARTIES that if, with respect to a delayed AIRCRAFT, EMBRAER does not receive a claim for liquidated damages as mentioned in item "b.1" above from BUYER within ninety (90) calendar days after the CONTRACTUAL DELIVERY DATE of such AIRCRAFT, BUYER shall be deemed to have f ully waived its rights to such liquidated damages. ----------------------- INITIALS ----------------------- /s/ EC /s/ LG Page 11 of 22 14 c. DELAY DUE TO LOSS OR STRUCTURAL DAMAGE OF THE AIRCRAFT: Should any AIRCRAFT be destroyed or damaged before its acceptance to the extent that it becomes commercially useless, BUYER may, at its sole discretion, either take a replacement AIRCRAFT at a later delivery date to be agreed by the PARTIES or terminate this Agreement with respect to such AIRCRAFT by notice to EMBRAER given in accordance with Article 25 hereof, without any liability to either party. 11. INSPECTION AND QUALITY CONTROL: a. BUYER is hereby allowed to have one or more authorized representatives at EMBRAER'S facilities in order to assure that the AIRCRAFT and SERVICES were developed in accordance with this Agreement and according to all applicable quality control standards. b. BUYER shall present and communicate to EMBRAER the names of its authorized representatives, by means of a written notice, at least thirty (30) calendar days prior to the earliest delivery date specified in Article 6 hereof. c. Such representatives shall also be authorized to sign the acceptance and transfer of title and risk documents and accept delivery of the AIRCRAFT pursuant to Article 8 hereof. d. For the purposes subject hereof, EMBRAER shall provide reasonable communication facilities for BUYER'S authorized representatives, as well as the necessary tools, measuring devices, test equipment and technical assistance as may be necessary to perform acceptance tests. e. It is agreed by the PARTIES that BUYER'S authorized representatives shall observe Embraer's administrative rules and instructions while at EMBRAER'S facilities. f. The BUYER'S authorized representatives shall be allowed exclusively in those areas related to the subject matter hereof and BUYER agrees to hold harmless EMBRAER from and against all and any kind of liabilities in respect to such representatives, for whom BUYER is solely and fully responsible under all circumstances and in any instance. ------------------ INITIALS ------------------ /s/ EC /s/ LG Page 12 of 22 15 12. CHANGES: a. Each AIRCRAFT will comply with the standards defined in the Attachment "A" hereto and shall incorporate all modifications which are classified as Airworthiness Directives (AD's) mandatory by CTA or FAA or those agreed upon by BUYER and EMBRAER in accordance with this Article 12. b. All the specified tray-mounted avionic equipment installed in the AIRCRAFT shall be of the latest modification standard made available to EMBRAER by the relevant vendor at such time as not to violate the delivery schedule of the AIRCRAFT. All other parts will be of the latest modification standa rd available at the moment of scheduled installation in the AIRCRAFT. c. The PARTIES hereby agree that changes can be made by EMBRAER in the design of the AIRCRAFT; the definition of which and its respective classification shall be in compliance to the AIRCRAFT Type Specification as follows: 1. Minor changes - defined as those modifications which shall not adversely affect the Aircraft in any of the following: - Performance, weight or balance; - Structural strength, flight qualities; operation and/or characteristics; - Interchangeability of parts; - Aircraft delivery and prices; - Operational safety; - Ease of maintenance; - Noise and environmental control. 2. Major changes - defined as those modifications which affect at least one of the topics mentioned in item "c.1" hereinabove. d. EMBRAER shall have the right, without the prior consent of BUYER, to make minor changes, as referred to in item "c.1" hereinabove, in the design of AIRCRAFT. The costs of any such changes shall be borne by EMBRAER. e. Major changes as referred to in item "c.2" hereinabove which are classified as Airworthiness Directives (AD's) mandatory by CTA and/or FAA shall be conveyed to BUYER by means of Service ---------------- INITIALS ---------------- /s/ EC /s/ LG Page 13 of 22 16 Bulletins, approved by said authorities and incorporated by EMBRAER in all AIRCRAFT delivered or to be delivered to BUYER at EMBRAER'S own costs during the term of the AIRCRAFT'S Warranty Certificate validity, in a reasonable period of time. When flight safety is affected, such changes will be imme diately incorporated. EMBRAER shall not be liable for any delays in the AIRCRAFT CONTRACTUAL DELIVERY DATE resulting from the execution of any change classified as mandatory by CTA or FAA when the AIRCRAFT shall have already surpassed the specific production stage affected by the incorporation of said change. f. Major changes (any other than those which are Airworthiness Directives mandatory as per item "e" above), any change developed by EMBRAER as product improvement and any change required by BUYER, including those changes required by BUYER'S country authorities as a consequence of alterations, amendments and/or innovations of its present airworthiness regulations, shall be considered as optional and, as such, the corresponding cost proposals shall be submitted by EMBRAER to BUYER for consideration and approval. Should BUYER not approve any such change, it shall not be incorporated in the AIRCRAFT. g. Any change made by EMBRAER in accordance with the preceding items which affect the provisions of Attachment "A" hereto shall be incorporated in said Attachment by means of an amendment. The amendments shall be submitted to BUYER for signature thirty (30) calendar days prior to the relevant AIRCRAFT CONTRACTUAL DELIVERY DATE, a copy of which shall be received by EMBRAER, duly signed, prior to the relevant AIRCRAFT ACTUAL DELIVERY DATE. 13. WARRANTY: The materials and workmanship relative to the AIRCRAFT subject of this Agreement will be warranted in accordance with the terms and conditions specified in Attachment "C" hereto. If BUYER intends to place the AIRCRAFT on lease to another party or to assign the rights and obligations as specified in Article 17 hereof, it is BUYER'S responsibility to obtain EMBRAER'S prior consent as well as to provide EMBRAER written notice within five (5) business days of any changes as to BUYER'S designated lessee or assignee complying with Article 6 of the Attachment "C" hereof. ------------------ INITIALS ------------------ /s/ EC /s/ LG Page 14 of 22 17 14. TECHNICAL ASSISTANCE SERVICES: The inflight operational familiarization and technical support programs specified below are being offered at no charge to BUYER, except for fuel and any other operational expenses involved in flight training as well as travel and lodging expenses of BUYER'S trainees. Notwithstanding the eventual us e of the term "training" in this Article 14 or in the Agreement, the intent of the SERVICES provided hereunder is to familiarize the BUYER'S pilots with the operation of the AIRCRAFT. It is not the intent of EMBRAER to provide basic training to any representatives of BUYER. Inflight Operational Familiarization - Provided that BUYER'S pilots previously complete the ground familiarization as regards AIRCRAFT systems, weight and balance, performance and normal/emergency procedures, as it shall be agreed with Embraer Aircraft Corporation (EAC) to take place at its facilities in Ft. Lauderdale, Florida, United States of America, inflight operational familiarization of not more than five (5) hours per pilot for two (2) pilots per AIRCRAFT shall be provided at EMBRAER'S facilities in Sao Jose dos Campos, Sao Paulo, Brazil or at such other location as EMBRAER shall reasonably designate. Such inflight operational familiarization shall be performed in BUYER'S AIRCRAFT after delivery of such AIRCRAFT to BUYER pursuant to Articles 6 and 8 hereof. BUYER must give written notification to EMBRAER thirty (30) calendar days in advance of BUYER'S expected training schedules. The PARTIES further understand and agree that in the event BUYER elects not to take all or any portion of the technical assistance SERVICES provided for herein, no refund or other financial adjustment of the contract price will be made since such SERVICES are offered free-of-charge as referred to in item "a.2" of Article 3 hereinabove. Any other additional SERVICES shall depend on mutual agreement between the PARTIES and shall be charged by EMBRAER accordingly. The presence of BUYER'S authorized trainees and representatives at EMBRAER'S facilities shall be allowed exclusively in those areas related to the subject matter hereof and BUYER agrees to hold harmless EMBRAER from and against all and any kind of liabilities in respect to such trainees and representatives for whom BUYER is solely and fully responsible under all aspects and in any instance. --------------- INITIALS --------------- /s/ EC /s/ LG Page 15 of 22 18 15. SPARE PARTS POLICY: EMBRAER guarantees the supply of spare parts and Aircraft Ground Equipment for the AIRCRAFT, in accordance with Article 4 of Attachment "B" hereto, for a period of ten (10) years after production of the last aircraft of the same type. Such spare parts and Aircraft Ground Equipment shall be supplied according to the prevailing availability, sale conditions, delivery schedule and effective price on the date of acceptance by EMBRAER of the purchase order. The spare parts and Aircraft Ground Equipment may be supplied either by EMBRAER or through its subsidiaries or branch offices located abroad. 16. PUBLICATION: a. Aircraft Publications - EMBRAER shall supply for each AIRCRAFT, at no cost to BUYER, copies of operational and maintenance publications applicable thereof in the English language and in the quantities as specified in Article 5 of Attachment "B" hereof. Such publications are issued under A.T.A. 100 Specification (as applicable) and are available in hard copies. The revision service for these publications is provided free-of-charge, including mailing services (except for air cargo shipping), for the first two (2) years and subsequently at a nominal fee. Such publications, except for one set of operational publications supplied with each AIRCRAFT to accomplish airworthiness requirements, will be delivered to BUYER no later than one (1) months prior to the FIRST AIRCRAFT CONTRACTUAL DELIVERY DATE. b. Vendor Items Publications - With respect to vendor items installed in the AIRCRAFT which have their own publications, the BUYER will receive them in the quantity specified in Article 5 of Attachment "B" hereto, in their original content and printed form, directly from the suppliers, who are also in charge of keeping them continuously updated through a direct communication system with the BUYER. 17. ASSIGNMENT: BUYER's rights and obligations hereunder may not be assigned without EMBRAER's previous written consent. 18. RESTRICTIONS AND PATENT INDEMNITY: This sales does not include the transfer of designs, copyrights, patents and other similar rights to Buyer. Subject to Buyer's duty to immediately -------- INITIALS -------- /s/ EC /s/ LG Page 16 of 22 19 advise EMBRAER of any alleged copyright or patent infringement, EMBRAER shall indemnify and save BUYER harmless with respect to any claims made against BUYER if the AIRCRAFT infringes copyright patents or the proprietary rights of others. 19. MARKETING PROMOTIONAL RIGHTS: EMBRAER shall have the right to show free of any charge, for marketing purposes, the image of BUYER's AIRCRAFT, painted with BUYER's colors and emblems, affixed in photographs, drawings, films, slides, audiovisual works, models or any other medium of expression (pictorial, graphic, and sculptural works), through all mass communications media such as billboards, magazines, newspapers, television, movies, theaters, as well as in posters, catalogs, models and all other kinds of promotional material. In the event such AIRCRAFT is sold to or operated by or for another company or person, Embraer shall be entitled to disclose such fact, as well as to continue to show the image of the AIRCRAFT, free of any charge, for marketing purposes, either with the original or the new colors and emblems, unless otherwise notified, provided that such notification shall be subject to the reasonable satisfaction and agreement of EMBRAER. If accepted, said prohibition, however, shall in no way apply to the promotional materials or pictorial, graphic or sculptural works already existing or to any contract for the display of such materials or works already binding EMBRAER at the time of receipt of the notification. The provisions of this Article shall be included in all future sales or lease agreements concerning the AIRCRAFT. 20. TAXES: EMBRAER shall pay all taxes arising from the sale subject of this Agreement as may be imposed on it under the Brazilian laws. All other taxes, imposts, fees, withholding taxes, stamp taxes and any other similar or dissimilar taxes, as well as any duties as may be imposed on the sale subject of this Agreement, shall be borne by BUYER. 21. APPLICABLE LAW: This Agreement shall be construed in accordance with and its performance shall be governed by the laws of the Federative Republic of Brazil. 22. ARBITRATION: All disputes arising in connection with the Agreement shall be finally settled by arbitration, to be conducted in Paris, France, under the Rules of -------- INITIALS -------- /s/ EC /s/ LG Page 17 of 22 20 Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with said Rules. 23. Termination: a. Should either party fail to comply partially or completely with its obligations hereunder, the other party shall be entitled to give notice of such failure and to require that such failure be remedied within the period specified in that notice, which period shall not be less than five (5) calendar days. Should such failure not be remedied within the period so specified, then the party who gave notice of such failure shall be entitled to terminate this Agreement provided always that the foregoing shall not apply in any circumstances where a specific right of termination is available or will be available upon the expiry of a specific period of time. Should termination occur in accordance with the foregoing, the defaulting party shall pay to the non-defaulting party, as liquidated damages, an amount determined by mutual agreement or by arbitration. b. BUYER shall have the right to terminate this Agreement, in respect to the relevant AIRCRAFT, upon the occurrence of any excusable delay of three hundred (300) calendar days or longer and any non-excusable delay of ninety (90) calendar days or longer after such AIRCRAFT CONTRACTUAL DELIVERY DATE. Such right to be exercisable by giving Embraer a written notice to such effect no earlier than the three hundredth (300th) or ninetieth (90th) calendar day as applicable. Upon receipt of such notice of termination, EMBRAER shall return to BUYER an amount equal to the amounts previously paid by BUYER relative to the relevant AIRCRAFT less the value of equipment or services previously delivered or performed by EMBRAER, it being hereby agreed by the PARTIES that, in this case, no kind of other indemnity shall be due by EMBRAER to BUYER. c. In the event of a force majeure occurring prior to the ACTUAL DELIVERY DATE of any AIRCRAFT which causes BUYER to determine not to purchase such AIRCRAFT, BUYER may by written notice to Embraer, terminate the Purchase Agreement with respect to such AIRCRAFT, and BUYER shall only be liable to EMBRAER for the following amounts on account of such AIRCRAFT: -------- INITIALS -------- /s/ EC /s/ LG Page 18 of 22 21
IF CANCELLATION OCCURS PRIOR LIABILITY OF BUYER TO TO THE FOLLOWING NUMBER OF EMBRAER DAYS BEFORE THE CONTRACTUAL PERCENTAGE OF THE DELIVERY DATE PURCHASE PRICE OF THE AIRCRAFT ---------------------------- --------------------- 181 days or more 0% 121-180 days 1% 91-120 days 2% 61-90 days 3% 31-60 days 4% 30 days or less 5%
d. In the event BUYER cancels the purchase of any AIRCRAFT under this Agreement due to the absolute unavailability of the Brazilian Export Financing Program at the time of such AIRCRAFT ACTUAL DELIVERY DATE, then BUYER shall not be liable to EMBRAER for any amount on account of such AIRCRAFT, except for any value of equipment or services previously delivered or performed by EMBRAER in connection with such specific canceled AIRCRAFT. e. EMBRAER agrees that BUYER has the option to terminate the Purchase Agreement with no penalty assessed against BUYER by EMBRAER, in the event EMBRAER fails to deliver any three (3) consecutive AIRCRAFT due for force majeure reasons (and in case of this item "e", excluding acts of government, governmental priorities, requisition, strike and labor troubles from the concept of force majeure) and/or if such delay is due to reasons detailed in Article 10.a1(b) (except to the extent that the delay is as a consequence of a general work force strike of EMBRAER or of a supplier of EMBRAER, if the supplier provides to EMBRAER a major component of the AIRCRAFT) and for which Article 23.c has not been invoked, within sixty (60) days of each relevant AIRCRAFT CONTRACTUAL DELIVERY DATE as specified in Article 6 herein. If EMBRAER fails to deliver any three (3) consecutive AIRCRAFT within such sixty (60) day period as above mentioned, BUYER's right to terminate the Purchase Agreement may be exercised by written notice to EMBRAER as provided in Article 25 herein, within five (5) days after the expiration of the sixty (60) day period following the CONTRACTUAL DELIVERY DATE of the third consecutive AIRCRAFT delayed more than sixty (60) days. In this case, all amounts paid by BUYER to EMBRAER under the Purchase Agreement, and specifically with regard to the non- delivered -------- INITIALS -------- /s/ EC /s/ LG Page 19 of 22 22 AIRCRAFT, shall be returned to BUYER, less the value of equipment or services previously delivered or performed by EMBRAER, it being hereby agreed by the PARTIES that, in this case, no other kind of indemnity shall be due by EMBRAER to BUYER. f. If EMBRAER terminates this Agreement pursuant to Article 8.g hereof, EMBRAER may, at its sole option, retain all amounts previously paid by BUYER as liquidated damages resulting from such default on the part of BUYER. 24. INDEMNITY: BUYER agrees to indemnify and hold harmless EMBRAER and EMBRAER's officers, agents and employees from and against all liabilities, damages, losses, judgments, claims and suits, including costs and expenses incident thereto, which may be suffered by, accrued against, be charged to or recoverable from EMBRAER and/or EMBRAER's officers, agents and employees by reason of loss or damage to property or by reason of injury or death of any person resulting from or in any way connected with the performance of services by employees, representatives or agents of EMBRAER for or on behalf of BUYER related to AIRCRAFT delivered by EMBRAER to BUYER, including, but not limited to, technical operations, maintenance and training services and assistance performed while on the premises of EMBRAER or BUYER, while in flight on BUYER owned AIRCRAFT or while performing any other services, at any place, in conjunction with the AIRCRAFT operations of BUYER. 25. NOTICES: All notices permitted or required hereunder shall be in writing in the English language and sent, by registered mail, telex or facsimile, to the attention of the Vice President, Contracts Division as to EMBRAER and of the Assistant to the President as to the BUYER, to the addresses indicated below or to such other address as either party may, by written notice, designate to the other. EMBRAER: EMBRAER - Empresa Brasileira de Aeronautica S.A. Av. Brigadeiro Faria Lima, 2170 12225 Sao Jose dos Campos - SP Brazil Telephone: (011) (55) (123) 25-1410 (011) (55) (123) 22-4460 Facsimile: (011) (55) (123) 25-1090 -------- INITIALS -------- /s/ EC /s/ LG Page 20 of 22 23 b. BUYER: Skywest Airlines, Inc. 444 South River Road St. George, Utah 84770-2086 Telephone: (801) 634-3000 Facsimile: (801) 634-3305 26. CONFIDENTIALITY: BUYER does not have the right to disclose the terms of this Agreement except as required by law or in order to obtain AIRCRAFT financing. BUYER agrees not to disclose any portion of this Agreement or its Attachments, amendments or any other supplement to any third party without EMBRAER's written consent, except as necessary to obtain AIRCRAFT financing. Without limiting the foregoing, in the event BUYER is legally required to disclose the terms of this Agreement, BUYER agrees to exert its best efforts to request confidential treatment of the clauses and conditions of this Agreement relevantly designated by EMBRAER as confidential. 27. INTEGRATED AGREEMENT: All attachments referred to in this Agreement and attached hereto are, by such reference and attachment, incorporated in this Agreement. This Purchase Agreement, including all Attachments and all amendments, modifications and supplements, is herein and hereinafter called the "Agreement" or the "Purchase Agreement". 28. NEGOTIATED AGREEMENT: BUYER and EMBRAER agree that this Agreement, including all of its Attachments, has been the subject of discussion and negotiation and is fully understood by the PARTIES, and that the rights, obligations and other mutual agreements of the PARTIES contained in this Agreement were arrived at in consideration of such complete discussion and negotiation between the PARTIES. 29. COUNTERPARTS: This Agreement may be signed by the PARTIES hereto in any number of separate counterparts with the same effect as if the signatures thereto and hereto whereupon the same instrument and all of which when taken together shall constitute but one and the same instrument. -------- INITIALS -------- /s/ EC /s/ LG Page 21 of 22 24 30. ENTIRE AGREEMENT: This Agreement constitutes the entire agreement of the PARTIES hereto with respect to the sale described as its subject and supersedes all previous and connected negotiations, representations and agreements between the PARTIES. This Agreement may not be altered, amended or supplemented except by a written instrument executed by the PARTIES. IN WITNESS WHEREOF, the PARTIES have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers and to be effective as of the day and year first above written. EMBRAER BUYER By: /s/ Juarez S.B. Wanderlem By: /s/ Eric Christensen ----------------------------- ---------------------------------- Name: Juarez S.B. Wanderlem Name: Eric Christensen Title: President Title: VP Planning By: /s/ Fred Curado By: /s/ Bradford R. Rich ----------------------------- ---------------------------------- Name: Fred Curado Name: Bradford R. Rich Title: Sr. VP Commercial Title: Exec. VP Finance, CFO & Treasurer Date: 11 June 1995 Date: 6-9-95 Place: Paris, France Place: St. George, Utah Witness: /s/ Witness: /s/ Name: /s/ Name: /s/
Page 22 of 22 25 PURCHASE AGREEMENT NO. DSP/AJV-042/95 ATTACHMENT A In addition to the standard equipment detailed in Technical Description number TD-120/9401, dated September 1994, as referred to in the Purchase Agreement, the equipped AIRCRAFT configuration as selected by BUYER will include some non-standard items. The complete list of equipment is detailed hereinbelow. In case of any conflict between this Attachment and TD-120/9401, this Attachment shall control. DESCRIPTION A) STANDARD EMB-120ER BRASILIA AIRCRAFT: Basic commuter configuration, incorporating the following equipment and features: - Four-blade, constant speed, full feathering and unfeathering, beta mode, overspeed protection and synchrophasing, Hamilton Standard propellers, model 14 RF-9 - Structure designed for 40,000 flight hours or 60,000 flight cycles - Pressurization system, with nominal differential pressure of 7.0 psi - Air conditioning supplied by two air cycle machines and intake for external supply - Oxygen system: demand masks for crew and drop-out masks for pax - Fuel system with two gravity refueling points and one pressure refueling point - Four electric fuel booster pumps - Complete anti-ice/de-ice system - Complete Bruce Lighting system interior lighting with cabin light control at attendant post station - Logotype lights -------- INITIALS -------- /s/ EC /s/ LG Page 1 of 5 26 - Two Rotating Beacons - Dual flight controls and instruments - Adjustable SICMA seats for pilot and copilot - Rear plug-in baggage cargo/baggage door (1.30m x 1.36m) - Front pax airstairs door (0.77m x 1.70m) - Complete carpeting, sidewall and headliner with finishing - Slush Guard: Prevents water, snow, slush and waste from dropping on flight attendant when main door closes B) BASIC AVIONICS PANEL: 1 (one) IDC Counter Pointer Encoding Altimeter 2 (two) IDC Vertical Speed Indicators 2 (two) IDC Airspeed Indicators 1 (one) JET Stand-by Gyro Horizon 1 (one) AMETEK Outside Air Temperature Indicator 2 (two) Digital Clocks 1 (one) AMETEK Stand-by Compass 1 (one) Dorne & Margolin DMELT-8 Emergency Locator Transmitter 1 (one) AVTECH Remote Audio Control Unit for ground crew 2 (two) AVTECH Audio Control Units 1 (one) AVTECH Public Address/Cabin Interphone Unit 2 (two) Collins VHF-22A VHF/COMM -------- INITIALS -------- /s/ EC /s/ LG Page 2 of 5 27 2 (two) Collins VIR-32 VHF/NAV Receivers 1 (one) Collins ADF-60A ADF System 2 (two) Collins RMI-36 Radio Magnetic Indicators 2 (two) Collins AHS-85 Attitude and Heading Ref Systems 2 (two) Collins ADI-84 Attitude Director Indicators (4"x4") 2 (two) Collins HSI-74 Electronic Horizontal Situation Indicators (4"x4"), including HPU-74, P/N 622-6198-103 1 (one) Collins Automatic Pilot System (APS-65), composed of: - 2 Autopilot/Flight Director Computers - 2 Air Data Sensors - 2 Flight Control Panels - Autopilot Panel 1 (one) Collins DME-42 DME System 2 (two) Collins TDR-94 Mode-S Transponder Systems per FAR Part 135 Paragraph 135.143 1 (one) Collins WXR-270 Color Weather Radar 1 (one) Collins ALT-55 Radio Altimeter C) OPTIONAL AVIONICS: 1. Third Collins VHF-22A VHF/COMM with CTL-22 2. Second Collins DME-42 System 3. CVR - Fairchild A 100A Cockpit Voice Recorder System 4. FDR - Solid State Fairchild/ Teledyne 28-Channel Flight Data Recorder System 5. IDC Altitude Preselect System with Servo Encoding Altimeter -------- INITIALS -------- /s/ EC /s/ LG Page 3 of 5 28 6. GPWS - Sundstrand Mark VI Ground Proximity Warning System 7. Provisioning for Bendix/King CAS66A TCAS-I. D) OPTIONAL SYSTEMS/OTHER EQUIPMENT: 1. P&W 118A Engines 2. Complete APU System with Garrett unit FTCP36-150 (AA) 3. High Altitude Oxygen System (Gaseous type) 4. Partial polyurethane painting 5. Cargo Door Anti-blockage Barrier 6. Reinforced 700 kg cargo compartment bulkhead 7. Enhanced Range Version (EMB-120ER) 8. PTT switch in the lighting panel 9. Engine Oil: Aero Exxon Turbo Oil 2380 E) INTERIOR: 1. External flushing dry toilet (ADT1), including toilet seat, paper towel dispenser, miscellaneous items, toilet paper and waste container; 2. Afterward left-hand side galley (AGL1), including miscellaneous items, two (2) hot jugs (1 gal.) - 28VDC (Manufacturer: Midland Ross - model 306-1-40 or equivalent), two (2) standard units provisions and waste container. 3. Afterward right-hand side galley (AGR3), including miscellaneous items, icebox, three (3) standard units provisions, galley service door and folding table. Note: Neither galley includes standard unit equipment and optional interphone. -------- INITIALS -------- /s/ EC /s/ LG Page 4 of 5 29 4. 30 Pax Carbon fiber Seats 9G certified, according to FAR 25.561 and 25.785 - Amendment 5. Observer Station includes: folding seat; oxygen mask connected to the crew system; seat belts; audio unit 25-63. 6. Flight Attendant Station - includes: folding seat; oxygen mask; cabin interphone handset; seat belts; flashlight; fire extinguisher; control panel for: air conditioning, cabin light, main door; life vest behind headset 7. Overhead baggage bins - 6 units -------- INITIALS -------- /s/ EC /s/ LG Page 5 of 5 30 ATTACHMENT "B" AIRCRAFT FINISHING, REGISTRATION MARKS, FERRY EQUIPMENT, SPARE PARTS POLICY AND LIST OF PUBLICATIONS 1. FINISHING a. Exterior Finishing: The AIRCRAFT shall be painted according to BUYER's color and paint scheme which shall be supplied to EMBRAER by BUYER on or before six (6) months prior to the relevant AIRCRAFT CONTRACTUAL DELIVERY DATE, except in the case of the FIRST AIRCRAFT, for which the paint scheme to be used is that which has been provided to EMBRAER Pursuant to Purchase Agreement DSP/AJV30B/93. b. Interior Finishing: Buyer shall inform EMBRAER on or before seven (7) months prior to the relevant AIRCRAFT CONTRACTUAL DELIVERY DATE of its choice of materials and colors of all and any item of interior finishing, such as seat covers, carpet, floor lining on galley areas, side walls and overhead lining, galley lining and curtain, except in the case of the FIRST through THIRD AIRCRAFT, for which the choice of materials and colors to be used is that which has been provided to EMBRAER pursuant to Purchase Agreement DSP/AJV-30B/93. The above-mentioned schedule for definition of interior finishing shall only be applicable if BUYER selects its materials from the choices offered and available by EMBRAER. In case BUYER opts to use different materials and/or patterns, such schedule shall be mutually agreed between the PARTIES at the time of signature of this Purchase Agreement. 2. REGISTRATION MARKS Each AIRCRAFT shall be delivered to BUYER with the registration marks painted on it, which shall be supplied to EMBRAER by BUYER no later than ninety (90) days before the relevant AIRCRAFT CONTRACTUAL DELIVERY DATE. 3. FERRY EQUIPMENT If it is necessary for any ferry equipment to be installed by EMBRAER for the ferry flight between Brazil and Fort Lauderdale, Florida, United States of America, EMBRAER may provide such equipment to BUYER, for a price to be previously agreed between the PARTIES. In this case, BUYER shall remove such -------- INITIALS -------- /s/ EC /s/ LG Page 1 of 4 31 ferry equipment from the AIRCRAFT at EMBRAER AIRCRAFT CORPORATION's facilities at Fort Lauderdale, Florida, United States of America. Such equipment shall be turned over to a representative of EMBRAER AIRCRAFT CORPORATION for the purpose of it being returned to EMBRAER in Brazil at BUYER's own expense. If such equipment is utilized for any reason, or if such equipment is not returned by BUYER, in EMBRAER's sole judgment in complete and perfect condition, BUYER shall fully indemnify EMBRAER for the value of such equipment, provided that in case of partial utilization of or damage to any such equipment, the value to be charged shall be the price of a new complete set of equipment. In such case the original equipment shall become property of BUYER. The above-mentioned payment shall be made to EMBRAER by BUYER upon presentation of a sight draft by EMBRAER. The presence of an EMBRAER qualified crew member during the ferry flight on the way to BUYER's facilities, to act as second in command and to assist in handling communication with Air Traffic Control (ATC) while overflying Brazilian airspace, shall depend on a previous agreement between the PARTIES provided that a written advance notice shall be given from BUYER to EMBRAER at least thirty (30) days prior to the date of such ferry flight. 4. SPARE PARTS 4.1. Policy: EMBRAER's spare parts policy is to provide the following categories of spares as specified in the respective EMBRAER publications and available to be purchased through EMBRAER: - Line Replaceable Units (LRU's); - Parts to repair and overhaul components manufactured under EMBRAER specification to be used only on the EMB-120 BRASILIA; - Parts to line maintenance; - Parts to fulfill all maintenance tasks per maintenance manual and/or maintenance plan issued by EMBRAER ; - EMBRAER-made parts; - Aircraft Ground Equipment (AGE); - Aircraft Ground Equipment spare parts manufactured under EMBRAER specifications; - Special tools; - Bulk materials. -------- INITIALS -------- /s/ EC /s/ LG Page 2 of 4 32 4.2. Emergency Spare Parts Service: EMBRAER will maintain emergency spare parts service twenty-four (24) hours a day, seven (7) days a week. EMBRAER will deliver in F.C.A. condition at Sao Jose dos Campos, State of Sao Paulo, Brazil, or at any other port of clearance that may be chosen by EMBRAER and informed to BUYER, spare parts in inventory needed for aircraft-on-ground (AOG) orders within twenty-four (24) hours after receipt. EMBRAER will notify BUYER of the action taken to satisfy each emergency in accordance with the following schedule:
-AOG (Aircraft-On-Ground)............................. within 4 hours -Critical (imminent AOG or Work Stoppage)............. within 24 hours -Expedite (Less than published or quoted lead time)... within 7 days
4.3. Parts Exchange Program: According to its prevailing availability, EMBRAER may offer an "exchange program" for repairable parts whenever the vendor does not have its own exchange program. 4.4. Parts Repair Program: For any repair required by BUYER on any EMBRAER or vendor repairable item, EMBRAER may assist BUYER to perform such repair in order to ensure the shortest turn around time (TAT). 4.5. Pricing: EMBRAER will maintain a spare parts price list updated periodically. Items not shown on the list will be quoted on request. 5. LIST OF PUBLICATIONS As provided for in Article 16 of this Agreement, the technical publications covering operation and maintenance shall be delivered to Buyer in accordance with the following list: -------- INITIALS -------- /s/ EC /s/ LG Page 3 of 4 33
QTY TITLE (Copies) ----- -------- 01. AIRPLANE FLIGHT MANUAL (*) 10 (A) 02. WEIGHT & BALANCE 10 (A) 03. WIRING MANUAL 10 (A) 04. OPERATION MANUAL 20 (B) 05. QUICK REFERENCE HANDBOOK 20 (B) 06. MAINTENANCE MANUAL 10 (A) 07. MAINTENANCE REVIEW BOARD (FAA) 1 (C) 08. AIRPORT PLANNING GUIDE 10 (A) 09. EFFECT OF WIND IN TURN PERFORMANCE 10 (A) 10. OPERATION FROM PRECIPITATION COVERED RUNWAYS AT LOW 10 (A) AMBIENT TEMPERATURE 11. FLIGHT PLANNING 10 (A) 12. ILLUSTRATED PARTS CATALOG 105 (A) 13. MAINTENANCE PLANNING GUIDE 1 (C) 14. POWERPLANT BUILD-UP 1 (C) 15. ILLUSTRATED TOOL EQUIPMENT 1 (C) 16. STRUCTURAL REPAIR 10 (A) 17. INSTRUCTIONS FOR GROUND FIRE EXTINGUISHING AND RESCUE 1 (C) 18. DEVIATION DISPATCH PROCEDURES MANUAL 10 (A) 19. SERVICE & INFORMATION BULLETIN SET 10 (A) 20. VENDOR SERVICE PUBLICATIONS (*) 10 (A)
(*) To be delivered by the supplier. (A) - 1 with each AIRCRAFT (B) - 2 with each AIRCRAFT (C) - 1 with AIRCRAFT 1 In the event BUYER elects not to take all or any portion of the publications referred to hereinabove, no refund or other financial adjustment of the contract price or additional concession/credit will be made since the publications are offered to BUYER by EMBRAER free of charge. -------- INITIALS -------- /s/ EC /s/ LG Page 4 of 4 34 ATTACHMENT "C" WARRANTY CERTIFICATE - MATERIAL AND WORKMANSHIP EMB-120 BRASILIA 1. EMBRAER subject to the conditions and limitations hereby expressed, warrants all EMB-120 BRASILIA AIRCRAFT as follows: a. For a period of twenty-four (24) months from the date of delivery to the first BUYER, the AIRCRAFT will be free from: - Defects in materials, workmanship and manufacturing processes in relation to parts manufactured by EMBRAER or by its subcontractors holding an EMBRAER part number; - Defects inherent to the design of the AIRCRAFT and it parts designed and manufactured by EMBRAER or by its subcontractors holding an EMBRAER part number. b. For a period of twelve (12) months from the date of delivery to the first BUYER, the AIRCRAFT will be free from: - Defects in operation of vendor (EMBRAER's supplier) manufactured parts, not including the engines and their accessories and the landing gear system parts, as well as failures of mentioned parts due to incorrect installation or installation not complying with the instructions issued or approved by their respective manufacturers; - Defects due to non-conformity to the technical specification referred to in the purchase agreement of the AIRCRAFT. c. For a period of twelve (12) months or six thousand (6,000) landings, whichever occurs first, from the date of delivery to the first BUYER, the AIRCRAFT will be free from: - Defects in operation of the landing gear system parts supplied by ERAM, as well as failures of mentioned parts due to incorrect installation or installation not complying with the instructions issued or approved by the manufacturer. -------- INITIALS -------- /s/ EC /s/ LG Page 1 of 4 35 Once the above-mentioned periods have expired, EMBRAER will transfer to BUYER the original Warranty issued by the vendors, if it still exists. 2. EMBRAER, subject to the conditions and limitations hereby expressed, warrants that: a. All spare parts or Aerospace Ground Equipment, which have been manufactured by EMBRAER or by its subcontractors holding an EMBRAER part number which will permit their particular identification and which have been sold by EMBRAER or its representatives, will, for a period of twelve (12) months from the date of the invoice, be free from defects of material, workmanship, manufacturing processes and defects inherent to the design of the above-mentioned parts of Aerospace Ground Equipment. b. All spare parts of Aerospace Ground Equipment which have been designed and manufactured by vendors, not including engines and their accessories, and stamped with a serial number which will permit their particular identification and which have been sold by EMBRAER or its representatives, will, for a period of six (6) months from the date of the invoice, be free from malfunction, defect of material and manufacture. 3. The obligations of EMBRAER as expressed in this Warranty are limited to replace or repair, depending solely upon its own judgment, the parts that are returned to EMBRAER or its representatives, at BUYER's own expenses, adequately packed, within a period of sixty (60) days after the occurrence of the defect, provided that EMBRAER agrees that such components are indeed defective and that the defect has occurred within the periods stipulated in this certificate. NOTE: Notification of any defect claimed under Article 3 above must be given to EMBRAER within thirty (30) days after such defect is found. Parts supplied by BUYER as replacement for defective parts are warranted for the balance of the warranty period still available from the original Warranty of the exchanged parts. However, freight, insurance, taxes and other costs eventually incurred during the shipment to EMBRAER or its representatives, reinstallation and adjustments are BUYER's responsibility. 4. EMBRAER will accept no warranty claims under any of the circumstances listed below: -------- INITIALS -------- /s/ EC /s/ LG Page 2 of 4 36 a. When the AIRCRAFT has been used in an attempt to break records, or subjects to experimental flights, or any other way not in conformity with the flight manual or the airworthiness certificate, or subjected to any manner of use in contravention of the applicable aerial navigation or other regulations and rules issued or recommended by government authorities of whatever country in which the AIRCRAFT is operated, when accepted and recommended by I.C.A.O.; b. When the AIRCRAFT or any of its parts have been altered or modified by BUYER, without prior approval from EMBRAER or from the manufacturer of the parts through a Service Bulletin; c. Whenever the AIRCRAFT or any of its parts have been involved in an accident, or when parts either defective or not complying to manufacturer's design or specification have been used; d. Whenever parts have had their identification marks, designation, seal or serial number altered or removed; e. In the event of negligence, misuses or maintenance services done on the AIRCRAFT or any of its parts not in accordance with the respective maintenance manual; f. In cases of deterioration, wear, breakage, damage or any other defect resulting from the use of inadequate packing methods when returning items to EMBRAER or its representatives. 5. This Warranty does not apply to defects presented by expendable items, whose service life or maintenance cycle is lower than the warranty period, and to materials or parts subjected to deterioration. 6. The Warranty hereby expressed is established between EMBRAER and the first BUYER, and it cannot be transferred or assigned to others, unless by written consent of EMBRAER , according to Article 17 of the Purchase Agreement of which this is an Attachment. 7. THE WARRANTIES, OBLIGATIONS AND LIABILITIES OF EMBRAER AND REMEDIES OF BUYER SET FORTH IN THIS WARRANTY CERTIFICATE ARE EXCLUSIVE AND IN SUBSTITUTION FOR, AND BUYER HEREBY WAIVES, RELEASES AND RENOUNCES, ALL OTHER WARRANTIES, OBLIGATIONS AND LIABILITIES OF EMBRAER AND ANY ASSIGNEE OF EMBRAER AND ALL OTHER RIGHTS, CLAIMS AND REMEDIES OF BUYER AGAINST EMBRAER OR ANY ASSIGNEE OF -------- INITIALS -------- /s/ EC /s/ LG Page 3 of 4 37 EMBRAER , EXPRESSED OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY NON-CONFORMANCE OF DEFECT OR FAILURE FOR ANY OTHER REASON, IN ANY AIRCRAFT OR OTHER THING DELIVERED UNDER THE PURCHASE AGREEMENT OF WHICH THIS IS AN ATTACHMENT INCLUDING DATA, DOCUMENT, INFORMATION OR SERVICE, INCLUDING BUT NOT LIMITED TO: a. ANY IMPLIED WARRANTY OR MERCHANTABILITY OR FITNESS; b. ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE; c. ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT, WHETHER OR NOT ARISING FROM THE NEGLIGENCE OR OTHER RELATED CAUSES OF EMBRAER OR ANY ASSIGNEE OR EMBRAER , WHETHER ACTIVE, PASSIVE OR IMPUTED; AND d. ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF OR DAMAGE TO ANY AIRCRAFT, FOR LOSS OF USE, REVENUE OR PROFIT WITH RESPECT TO ANY AIRCRAFT OR FOR ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES. 8. No representative or employee of EMBRAER is authorized to establish any other warranty than the one hereby expressed, nor to assume any additional obligation relative to the matter, in the name of EMBRAER and therefore any such statements eventually made by or in the name of EMBRAER shall be void and without effect. -------- INITIALS -------- /s/ EC /s/ LG Page 4 of 4 38 ATTACHMENT "D" EMB-120 ESCALATION FORMULA E(1) A(1) AL(1) T(1) C(1) L(1) P=P(0) 0.20 (--) + 0.10 (--) + 0.10 (---) + 0.05 (--) + 0.05 (--) + 0.50 (--) E(0) A(0) AL(0) T(8) C(0) L(0) PROVIDED: P shall not be less than P(0) Where: P= AIRCRAFT PURCHASE PRICE as defined in item k of Article 1 of the Purchase Agreement; P(0)= AIRCRAFT BASIC PRICE, as defined in item j. of Article 1 of the Purchase Agreement; E(1) = PW118/118A PRATT & WHITNEY Engine Price variation, calculated - ---- according to the following formula: E(0) E(1) LA(1) MA(1) - ---- = 0.60 (---) + 0.40 (---) E(0) LA(0) MA(0) Where: LA(0) = Labor Index (SIC Code 37224) - Transportation Equipment, Aircraft Engines and Engine Parts, based on the first published information for average hourly earnings, according to "Employment and Earnings", issued by the U.S. Department of Labor, referring to the three (3) month average index of the period ending six (6) months prior to December 1992; LA(1) = Labor Index (SIC Code 3724), based on the same publication above mentioned, referring to the three (3) month average index of the period ending six (6) months prior to the AIRCRAFT CONTRACTUAL DELIVERY DATE; -------- INITIALS -------- /s/ EC /s/ LG Page 1 of 3 39 MA(0) = Material Index (Commodity Code 10) - Metals and Metal Products, based on the first published information, according to "Producer Price Indexes", issued by U.S. Department of Labor, referring to the sixth (6th) month prior to December 1992; MA(1) = Material Index (Commodity Code 10), based on the same information above mentioned, referring to the sixth (6th) month prior to the Aircraft Contractual Delivery Date. A(1) Collins avionics price variation, calculated according to the - ---- = following formula: A(0) A(1) LC(1) MC(1) - ---- = 0.60 (---) + 0.40 (---) A(0) LC(0) MC(0) Where: LC(0) = Labor Index (SIC Code 381) - Search and Navigation Equipment, based on the first published information for average hourly earnings, according to "Employment and Earnings", issued by the U.S. Department of Labor, referring to the twelve (12) month average index of the period ending six (6) months prior to December 1992; LC(1) = Labor Index (SIC Code 381), based on the same publication above mentioned, referring to the twelve (12) month average index of the period ending six (6) months prior to the AIRCRAFT CONTRACTUAL DELIVERY DATE; MC(0) = Material Index (Commodity Code 1178) - Electronic Components and Accessories, based on the first published information, according to "Producer Price Indexes", issued by the U.S. Department of Labor, referring to the twelve (12) month average index of the period ending six (6) months prior to December 1992; MC(1) = Material Index (Commodity Code 1178), based on the same publication above mentioned, referring to the twelve (12) month average index of the period ending six (6) months prior to the AIRCRAFT CONTRACTUAL DELIVERY DATE. AL(0) = Aluminum Price Index (Commodity Code 1025.0107) - Aluminum Mill Shapes - sheet, coiled, bare, all others, based on the first published information, according to "Producer Price Indexes", issued by the U.S. Department of Labor, referring to the sixth (6th) month prior to December 1992; -------- INITIALS -------- /s/ EC /s/ LG Page 2 of 3 40 AL(1) = Aluminum P{rice Index (Commodity Code 1024.0107) of the sixth (6th) month prior to the AIRCRAFT CONTRACTUAL DELIVERY DATE, based on the same publication above mentioned; T(0) = Titanium Price Index (Commodity Code 1025.05) - Titanium Mill Shapes - based on the first published information, according to "Producer Price Indexes", issued by the U.S. Department of Labor, referring to the sixth (6th) month prior to December 1992; T(1) = Titanium Price Index (Commodity Code 1025.05) of the sixth (6th) month prior to the AIRCRAFT CONTRACTUAL DELIVERY DATE, based on the same publication mentioned above; C(0) = Thermosetting Resins Price Index (Commodity Code 0663) - Thermosetting Resins, based on the first published information, according to the "Producer Price Indexes", issued by the U.S. Department of Labor, referring to the sixth (6th) month prior to December 1992; C(1) = Thermosetting Resins Price Index (Commodity Code 0663) of the sixth (6th) month prior to the AIRCRAFT CONTRACTUAL DELIVERY DATE, based on the same publication above mentioned; L(0) = Labor Index (SIC Code 3721) - Transportation Equipment, Aircraft and Parts - based on the first published information for average hourly earnings, excluding lump-sum payments, according to "Employment and Earnings", issued by the U.S. Department of Labor, referring to the sixth (6th) month prior to December 1992. L(1) = Labor Index (SIC Code 3721) of the sixth (6th) month prior to the AIRCRAFT CONTRACTUAL DELIVERY DATE, based on the same publication above mentioned. -------- INITIALS -------- /s/ EC /s/ LG Page 3 of 3 EX-10.17 3 1995 EMPLOYEE STOCK PURCHASE PLAN DATED 6-14-95 1 Exhibit 10.17 SKYWEST, INC. COMMON STOCK --------------- SKYWEST, INC. 1995 EMPLOYEE STOCK PURCHASE PLAN --------------- Shares of Common Stock, no par value per share, of SkyWest, Inc., a Utah corporation (the "Company"), are being offered pursuant to the SkyWest, Inc. 1995 Employee Stock Purchase Plan (the "Purchase Plan") to participants thereunder as described herein. This document contains a summary of the terms and provisions of the Purchase Plan and certain related information, and is applicable only to participants in the Purchase Plan. --------------- THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. --------------- THE DATE OF THIS DOCUMENT IS JUNE 14, 1995. 2 CONTENTS
PAGE ---- Description of the Purchase Plan ...................................... 1 Introduction ................................................... 1 Administration of the Purchase Plan ............................ 1 Duration of the Purchase Plan .................................. 2 Shares Subject to the Purchase Plan ............................ 2 Eligibility .................................................... 2 Election to Participate in the Plan ............................ 3 Granting of Options ............................................ 3 Payment ........................................................ 4 Exercise of Options ............................................ 5 Withdrawal from Purchase Plan .................................. 6 Termination of Employment ...................................... 6 No Interest .................................................... 6 Transferability ................................................ 7 Application of Securities Laws ................................. 7 Restrictions on Resale ......................................... 7 Amendments to the Purchase Plan ................................ 7 General Provisions ............................................. 8 Federal Income Tax Consequences ................................ 8 Incorporation of Certain Documents by Reference ....................... 9 Experts ............................................................... 10
ii 3 DESCRIPTION OF THE 1995 EMPLOYEE STOCK PURCHASE PLAN INTRODUCTION The SkyWest, Inc. 1995 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors (the "Board") of SkyWest, Inc. (the "Company") on November 8, 1994 subject to approval by the Company's shareholders. The Company will present the Purchase Plan to the shareholders for their approval at the Company's annual meeting of shareholders scheduled for August 8, 1995. The following description of the Purchase Plan contains, among other information, summaries of certain provisions of the Purchase Plan, a copy of which will be provided to any employee eligible to participate in the Purchase Plan upon request. The information set forth in this document with respect to the Purchase Plan is qualified in its entirety by reference to the complete text of the Purchase Plan. The purpose of the Purchase Plan is to provide a method whereby employees of the Company and its subsidiary corporations will have an opportunity to acquire a proprietary interest in the Company through the purchase of shares of the Company's Common Stock, no par value (the "Common Stock"). The Purchase Plan has been set up to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The Purchase Plan is not a qualified retirement plan under Section 401 of the Code, nor is it subject to any provision of the Employee Retirement Income Security Act of 1974, as amended. The Company's principal executive offices are located at 444 South River Road, St. George, Utah 84770, and its telephone number (801) 634-3000. ADMINISTRATION OF THE PURCHASE PLAN The Purchase Plan shall be administered by a committee appointed by the Board consisting of three or more disinterested members of the Board (the "Committee"). The Board has appointed the Compensation Committee to administer the Purchase Plan initially. Members of the Committee are ineligible to purchase stock under the Purchase Plan. The Board may, in its sole discretion, remove members from or add members to the Committee from time to time and fill any vacancy, however caused. Members of the Committee shall serve until the expiration or termination of the Purchase Plan unless they resign or are removed by the Board before the expiration or termination of the Purchase Plan. The Committee shall have plenary authority in its discretion to interpret and construe any and all provisions of the Purchase Plan, to adopt rules and regulations for administering the Purchase Plan, to appoint custodians, accountants and other advisors, and to make all other determinations deemed necessary or advisable for administering the Purchase Plan. All determinations and decisions of the Committee shall be made by a majority of its members, whether by a vote in a meeting of the Committee or by the written consent of a majority of the Committee. The Committee's determination on the foregoing matters shall be conclusive. 1 4 DURATION OF THE PURCHASE PLAN The Purchase Plan was approved by the Board of Directors on November 8, 1994 effective as of such date, subject to the approval of the shareholders of the Company within 12 months after such date. If the Purchase Plan is not approved by the shareholders, the Plan shall not become effective. If approved, the Purchase Plan shall remain in effect until June 30, 2000, unless terminated earlier by the Board in accordance with the terms of the Purchase Plan. See "Amendments to the Purchase Plan." Offerings under the Purchase Plan may commence prior to shareholder approval, but no options may be exercised until after such approval. The first offering under the Purchase Plan shall commence on July 1, 1995. SHARES SUBJECT TO THE PURCHASE PLAN The maximum number of shares of Common Stock that may be issued under the plan is 500,000 shares. The maximum number of shares that may be issued in each Annual Offering (as defined below) is 100,000 shares plus any unissued shares from the prior Annual Offerings. If Six-Month Offerings (as defined below) are made, the maximum number of shares to be issued in each Six-Month Offering shall be 50,000 shares plus any unissued shares from any prior offerings. If the total number of shares for which options are exercised on the termination date of any Annual or Six-Month Offering exceeds the maximum number of shares for the applicable offering period, the Company shall make a pro-rata allocation of the shares available in as nearly a uniform manner as shall be practicable and the balance of payroll deductions credited to the account of each participant under the Purchase Plan shall be returned to him/her as promptly as possible without interest. In the event the outstanding shares of Common Stock of the Company increase decrease, change into, or are exchanged for a different number or kind of security of the Company through reorganization, merger, recapitalization, reclassification, stock split, reverse stock split or similar transaction ("Changes in Capital"), the number and/or kind of shares which may be offered in the Offerings shall be proportionately adjusted. No adjustments will be made for stock dividends. Any distribution of shares to shareholders aggregating less than twenty percent (20%) of the outstanding shares of Common Stock shall be deemed to be a stock dividend. Any distribution of shares to shareholders aggregating twenty percent (20%) or more shall be deemed to be a stock split. ELIGIBILITY Any employee who shall have completed 90 days' employment shall be eligible to participate in any Offerings under the Purchase Plan which commence on or after such 90 day period has concluded as long as such employee remains continuously employed by the Company. References hereinafter to employment by, or periods of employment with, the Company include employment by or with all participating subsidiaries of the Company. For purposes of participation in the Purchase Plan, a person on leave of absence shall be deemed to be an employee for the first 90 days of such leave of absence and such employee's employment shall be deemed to have terminated at the close of business on the 90th day of such leave of absence and such employee shall not be entitled to participate in the Purchase Plan unless the employee has returned to work on a full or part time basis prior to such time. Notwithstanding the above, no employee shall be granted an option under the Purchase Plan: 2 5 (a) if immediately after the grant, such employee would own stock, and/or hold outstanding options to purchase stock, possessing 5% or more of the total combined voting power or value of all classes of stock of the Company as determined under the rules of Section 424(d) of the Code; or (b) which permits his/her rights to purchase stock under all employee stock purchase plans of the Company to accrue at a rate which exceeds $25,000 in fair market value of the stock (determined at the time such option is granted) for each calendar year in which such option is outstanding. ELECTION TO PARTICIPATE IN THE PLAN The Purchase Plan provides for five annual offerings of the Company's Common Stock (the "Annual Offerings(s)") commencing on July 1 of each year covered under the Purchase Plan and ending on June 30 of the following year. Each Annual Offering, at the discretion of the Committee exercised prior to the commencement thereof, may be divided into two six-month offerings commencing, respectively on July 1 and January 1 and terminating on December 31 and June 30 respectively (the "Six-Month Offerings(s)"). (Annual Offerings and Six-Month Offerings are sometimes collectively referred to as the "Offering(s)"). "Commencement Date" means the commencement date for any Annual or Six-Month Offering as described above and "Termination Date" means the termination date for any Annual or Six-Month Offering as described above. Eligible employees will have the opportunity to elect to participate in the Purchase Plan prior to every Offering. An eligible employee may become a participant in the Purchase Plan by completing an authorization for payroll deduction under the Purchase Plan on the form provided by the Company and filing it with the Employee Benefits Department of the Company on or before the date set by the Committee (the "Election Date"). The Election Date shall always be prior to the Commencement Date for each Offering. GRANTING OF OPTIONS On the Commencement Date of each Offering, each employee who has elected to participate in the Offering (the "Participant") shall be deemed to have been granted an option to purchase a maximum number of shares of the Company's Common Stock (the "Option"). The maximum number of shares that can be purchased under an Option shall be equal to an amount (rounded down to a whole number) determined as follows: The percentage rate selected by the Participant on his/her authorization for payroll deduction form shall be multiplied by the Participant's projected Base Pay during the period of the Offering and then the product of such computation shall be divided by 85% of the market value of the Company's Common Stock on the applicable Offering Commencement Date. The market value of the stock shall be the closing sale price of the Company's Common Stock on the NASDAQ Stock Market/National Market System ("NASDAQ/NMS") on the Offering Commencement Date or the nearest prior business day on which trading occurred on the NASDAQ/NMS. A Participant's projected Base Pay during the period of an Offering shall be determined by multiplying, in the case of an Annual Offering, the Participant's normal bi-weekly rate of pay (as in effect on the last day prior to the 3 6 Commencement Date) by 26 or the hourly rate by 2,080, or in the case of a Six-Month Offering, by 13 or 1,040, as the case may be. "Base Pay" shall mean salary, wages or other regular rate of pay and overtime pay before reduction for contributions to plans maintained under Code Sections 401(k) and 125 (such as profit-sharing and cafeteria plans), but excluding bonuses, shift premiums, and other extraordinary forms of compensation. In the case of a part-time hourly employee, the employee's projected Base Pay during the period of an Offering shall be determined by multiplying the employee's hourly rate by the number of regularly scheduled hours of work for the employee during such Offering. In the case of employees paid on the basis of flight hours, the flight hour rate shall be multiplied by 1,000 or, in the case of a Six-Month Offering, by 500. The exercise price of any Option granted during any given Offering shall be the lower of 85% of the closing sale price of the Company's Common Stock on the NASDAQ/NMS on the applicable Offering Commencement Date (or the nearest prior business day on which trading occurred on the NASDAQ/NMS) or 85% of the closing sale price on the NASDAQ/NMS on the applicable Offering Termination Date (or the nearest prior business day on which trading occurred on the NASDAQ/NMS). In the event of a Change in Capital (as defined above), appropriate and proportionate adjustments may be made by the Committee in the number and/or kind of shares which are subject to purchase under outstanding Options and in the exercise price or prices applicable to such outstanding Options. Upon the dissolution or liquidation of the Company, or upon reorganization, merger or consolidation of the Company with one or more corporations as a result of which the Company is not the surviving corporation, or upon a sale of substantially all of the property or stock of the Company to another corporation (the "Reorganization Transactions"), the holder of each Option then outstanding under the Purchase Plan will thereafter be entitled to receive at the next Offering Termination Date upon the exercise of such Option for each share as to which such Option shall be exercised as nearly as reasonably may be determined, the cash, securities and/or property which a holder of one share of the Common Stock was entitled to receive upon and at the time of such Reorganization Transaction. The Board shall take such steps in connection with any Reorganization Transaction, as the Board shall deem necessary, to assure that holders of Options under the Purchase Plan shall be entitled to receive, as nearly as reasonably may be determined, the cash, securities and/or property as described above. PAYMENT Payment for shares issued under the Purchase Plan shall be made solely by payroll deductions except in the case of a leave of absence and then only in accordance with the terms of the Purchase Plan. All payroll deductions made for a Participant shall be credited to the Participant's account under the Purchase Plan. At the time a Participant files an authorization for payroll deduction, the Participant may elect to have payroll deductions made from his or her pay on each payday in an Offering at any rate designated by the Participant but not less than 2% and not more than 15% of the Participant's Base Pay in effect on the Offering Commencement Date of such Offering. Payroll deductions shall commence with the first pay day on or after the Commencement Date for the Offering for which an authorization for payroll deduction has been received. Payroll deductions for a Participant shall automatically continue for all subsequent Offerings unless the Participant withdraws from an Offering or delivers written notice of his/her election not to participate in the subsequent Offering to the Company. Such notice must be delivered to the Employee Benefits Department of the Company prior to the Election Date for the subsequent Offering. 4 7 Payroll deductions will be terminated for a Participant during an Offering if the Participant elects to withdraw from the Offering in accordance with the terms of the Purchase Plan. See "Withdrawal from Purchase Plan." A Participant's decision not to participate in any given Offering will not prevent him/her from participating in any subsequent Offering under the Purchase Plan. Once a Participant has withdrawn from an Offering or elected not to participate in an Offering, he/she must file a new authorization for payroll deduction to participate in any subsequent Offering. A Participant may change the rate of payroll deduction for any subsequent Offering by filing a new authorization for payroll deduction prior to the Election Date for the subsequent Offering. A Participant may discontinue his/her participation in an Offering as provided below but may not make any other changes during an Offering, including without limitation, altering the amount of his/her payroll deductions during any Offering. If a Participant goes on a leave of absence, such Participant shall have the right to elect: (a) to withdraw the balance in his/her account; (b) to discontinue contributions to the Purchase Plan but remain a participant in the Purchase Plan with respect to amounts contributed prior to the leave of absence; or (c) to remain a participant in the Purchase Plan during such leave of absence, authorizing deductions to be made from payments by the Company to such Participant during his/her leave of absence and undertaking to make cash payment to the Purchase Plan at the end of each payroll period to the extent that amounts payable by the Company to such Participant are insufficient to meet his/her authorized payroll deductions. Notwithstanding the above, a Participant's interest in the Purchase Plan and any Offering shall be terminated if such leave of absence extends beyond certain time periods. See "N Termination of Employment." All payroll deductions received or held by the Company under the Purchase Plan may be used by the Company for any corporate purpose and the Company shall not be obligated to segregate such payroll deductions. EXERCISE OF OPTIONS Options granted to Participants for an Offering shall be deemed to have been exercised automatically on the Offering Termination Date unless the Participant has withdrawn from the Offering. Options will automatically be deemed to be exercised for the purchase of the number of full shares of Common Stock which the accumulated payroll deductions in the Participant's account will purchase at the applicable exercise price. Any accumulated payroll deductions which would have been used to purchase fractional shares will be rolled over to the next offering unless the Participant elects in writing to have such amount returned to him/her. Notwithstanding the above, the number of shares purchased shall in no event exceed the maximum number of shares for which the Option was granted on the Offering Commencement Date. Any excess funds in a Participant's account after the purchase of the maximum number of shares will be promptly returned to the Participant without interest. The purchase of shares of Common Stock upon the exercise of Options under the Purchase Plan shall be conducted solely through Smith Barney (Address: 408 East St. George Blvd., St. George, Utah 84770; Contact Person: Jim Workman; Telephone No.: (801) 628-5241). The relationship between a Participant and Smith Barney shall be governed by an agreement to be entered into by the Participant with Smith Barney at the time the Participant elects to participate in the Purchase Plan. The Common Stock purchased under the Purchase Plan shall be registered in the name of a nominee named by Smith Barney and credited to the Participant's account at Smith Barney. Stock certificates representing the shares of Common Stock purchased under the Purchase Plan shall be delivered to Smith Barney as soon as practicable after the Offering Termination Date. 5 8 WITHDRAWAL FROM PURCHASE PLAN A Participant may withdraw from an Offering at anytime prior to the Offering Termination Date by giving written notice of such election to the Employee Benefits Department of the Company (the "Withdrawing Employee"). All of the Withdrawing Employee's payroll deductions credited to his/her account will be paid to the Withdrawing Employee without interest promptly after receipt of his/her notice of withdrawal. Upon receipt of a Withdrawing Employee's election to withdraw, the Company shall make no further payroll deductions from the Withdrawing Employee's pay during the Offering. Withdrawal from any Offering will not have any effect upon the Withdrawing Employee's eligibility to participate in any subsequent Offering under the Purchase Plan or in any similar plan which may hereafter be adopted by the Company. TERMINATION OF EMPLOYMENT Upon the termination of a Participant's employment with the Company for any reason including retirement (but excluding death while in the employ of the Company or a continuation of a leave of absence for a period beyond ninety (90) days), the Participant's participation in the Purchase Plan and in any current Offering shall be terminated. All the payroll deductions credited to the terminated Participant's account shall be returned to him/her without interest. Upon the termination of a Participant's employment because of death, the Participant's beneficiary (as determined under the Purchase Plan) shall have the right to elect either to: (i) withdraw all of the payroll deductions credited to such Participant's account under the Purchase Plan without interest; or (ii) to exercise such Participant's Option on the Offering Termination Date following the Participant's death for the purchase of the number of full shares of stock which the accumulated payroll deduction in such Participant's account at the date of the Participant's death will purchase at the applicable exercise price. In the event the beneficiary elects the latter option, any excess in the account will be returned to said beneficiary without interest. The beneficiary must make such election by written notice to the Employee Benefits department of the Company prior to the earlier of: (i) the Offering Termination Date; or (ii) the expiration of a period of ninety (90) days commencing with the date of the death of the Participant. If the beneficiary fails to make such election within the prescribed time period, then the beneficiary shall be deemed to have elected to exercise the Participant's Option as described above. If a Participant who is on leave of absence does not return to regular full time or part time employment with the Company at the earlier of (i) the termination of such leave of absence or (ii) three months from the 90th day of such leave of absence, then such Participant's participation in the Purchase Plan and any Offering shall terminate on whichever of such dates occur first. All payroll deductions credited to such Participant's account shall be returned to him/her without interest. In addition, a Participant who has been on a leave of absence for more than 90 days shall not be entitled to participate in any Offering commencing after the 90th day of such leave of absence. NO INTEREST No interest will be paid or allowed on any money paid into the Purchase Plan or credited to the account of any Participant. 6 9 TRANSFERABILITY Neither payroll deductions credited to Participant's account nor any rights with regard to the exercise of an Option or to receive stock under the Purchase Plan may be assigned, transferred, pledged, or otherwise disposed of in any way by the Participant other than by will or the laws of descent and distribution. During a Participant's lifetime, Options may only be exercised by the Participant who holds such Options. Any such attempted assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act, in its sole discretion, as an election to withdraw from the Purchase Plan. APPLICATION OF SECURITIES LAWS The Board, in its sole discretion, may require as conditions to the exercise of any Option that the shares of Common Stock reserved for issuance upon the exercise of the Options shall have been duly listed, upon official notice of issuance, upon a stock exchange, and that either: (i) a Registration Statement under the Securities Act of 1933, as amended, with respect to said shares shall be effective; or (ii) the Participant shall have represented at the time of purchase, in form and substance satisfactory to the Company, that it is his/her intention to purchase the shares for investment and not for resale or distribution. RESTRICTIONS ON RESALE All Participants are subject to certain resale restrictions regarding shares of Common Stock acquired under the Purchase Plan, as contemplated by the insider trading restrictions which prohibit transactions while in possession of material nonpublic information concerning the Company. Executive officers, directors, and 10% shareholders of the Company are also restricted by the short-swing liability provisions of Section 16(b). A Participant is not subject to any additional resale restrictions, unless the Participant is an affiliate of the Company, as such term is defined in regulations under the Securities Act of 1933, as amended (the "Securities Act"). Affiliates of a corporation are generally considered to include executive officers and directors thereof. Shares of Common Stock issued to affiliates of the Company pursuant to the Purchase Plan may not be resold unless they are registered under the Securities Act or sold pursuant to an applicable exemption, including the exemption provided by Rule 144 under the Securities Act. Pursuant to Rule 144, an affiliate of the Company is entitled to sell, within any three-month period, a number of shares of Common Stock that does not exceed the greater of one percent (1%) of the outstanding shares of such class or the average weekly trading volume of such shares during the four calendar weeks preceding such sale. Although Rule 144 imposes certain manner of sale and other restrictions, affiliates of the Company are not subject to the two-year holding period under the rule with respect to shares of Common Stock acquired under the Purchase Plan. AMENDMENTS TO THE PURCHASE PLAN The Board may, at any time and for any reason, amend or terminate the Purchase Plan. The Board, however, may not, without shareholder approval, amend the Purchase Plan to (i) increase the maximum number of shares which may be issued under any Offering (except in the case of Change in Capital); or (ii) amend the requirements as to the class of employees eligible to purchase stock under the Purchase Plan or permit the members of the Committee to purchase stock under the Purchase Plan. No termination, 7 10 modification, or amendment of the Purchase Plan may, without the consent of an employee then having an Option to purchase stock, adversely affect the rights of such employee under such Option. GENERAL PROVISIONS An employee shall have no interest in any shares of Common Stock covered by an Option under the Purchase Plan until such Option has been exercised. Neither the Purchase Plan nor any grant of Options thereunder shall be deemed to give any individual the right to remain employed by the Company, nor shall the Purchase Plan be deemed to interfere in any way with the Company's right to terminate, or otherwise modify, an employee's employment at any time. Employees shall not have any rights or interest under the Purchase Plan in any Option or shares of the Company's Common Stock prior to the grant of an Option to such employee. A Participant may designate a beneficiary under the Purchase Plan by filing a written designation of a beneficiary who is to receive any stock and/or cash upon the death of such Participant. Such designation may be changed by the Participant at any time by written notice to the Employee Benefits Department of the Company. Upon the death of a Participant and upon receipt by the Company of proof of identity of the beneficiary, the Company shall deliver any stock and/or cash entitled to be received by the deceased Participant to a beneficiary validly designated by the Participant under the Purchase Plan. In the event of the death of a Participant and the absence of a beneficiary validly designated under the Purchase Plan who is living at the time of such Participant's death, the Company shall deliver such stock and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such stock and/or cash to the spouse or to any one or more dependents of the deceased Participant as the Company may designate. Notwithstanding the above, no beneficiary shall, prior to the death of the Participant by whom he has been designated, acquire any interest in the stock or cash credited to such Participant under the Plan. FEDERAL INCOME TAX CONSEQUENCES The following tax discussion is a brief summary of current federal income tax law. The discussion is intended solely for general information and does not make specific representations to any recipient. A taxpayer's particular situation may be such that some variation of the basic rules is applicable to him or her. In addition, the federal income tax laws and regulations have been revised frequently and may be changed again at any time in the future. Therefore, each recipient is urged to consult a tax adviser before exercising any Option or before disposing of any shares of Common Stock acquired under the Purchase Plan both with respect to federal income tax consequences as well as any foreign, state or local tax consequences. Election to Participate and Initial Grant of Options. Participants who elect to participate in an offering under the Purchase Plan will elect to have regular payroll deductions made from pay during the Offering Period and will be deemed to have been granted options to purchase Common Stock exercisable on the Offering Termination Date. A recipient of options under the Purchase Plan incurs no income tax liability, and the Company obtains no deduction, from the grant of the options. The payroll deductions, however, are made on an after-tax basis. Participants will not be entitled to deduct or exclude from income or social security taxes any part of the payroll deductions. 8 11 Exercise of Options. An employee will not be subject to federal income tax upon the exercise of an option granted under the Purchase Plan, nor will the Company be entitled to a tax deduction by reason of such exercise, provided that the holder is still employed by the Company (or terminated employment no longer than three months before the exercise date). The employee will have a cost basis in the shares of Common Stock acquired upon such exercise equal to the option exercise price. Disposition of Shares Acquired Under Plan. In order to defer taxation on the difference between the fair market value and exercise price of shares acquired upon exercise of an option, the employee must hold the shares during a holding period which runs through the later of one year after the option exercise date or two years after the date the option was granted. The only exceptions are for dispositions of shares upon death, as part of a tax-free exchange of shares in a corporate reorganization, into joint tenancy with right of survivorship with one other person, or the mere pledge or hypothecation of shares. If an employee disposes of stock acquired under the Plan before expiration of the holding period in a manner not described above, such as by gift or ordinary sale of such shares, the employee must recognize as ordinary compensation income in the year of disposition the difference between the stock's fair market value and exercise price as of the date of exercise. This amount must be recognized as income even if it exceeds the fair market value of the shares as of the date of disposition or the amount of the sales proceeds received. The Company will be entitled to a corresponding compensation expense deduction. Disposition of shares after expiration of the required holding period will result in the recognition of gain or loss in the amount of the difference between the amount realized on the sale of the shares and the exercise price for such shares. Any loss on such a sale will be a long-term capital loss. Any gain on such a sale will be taxed as ordinary income up to the amount of the difference between the fair market value and the exercise price as of the date of exercise with any additional gain taxed as a long-term capital gain. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the SEC are hereby incorporated by reference in the Section 10(a) Prospectus of which this document constitutes a part (the "Purchase Plan Prospectus"): (1) The Company's Annual Report on Form 10-K (File No. 0-14719) for the fiscal year ended March 31, 1994, which contains, among other things, the consolidated financial statements of the Company for the three-year period ended March 31, 1994, together with the report thereon of Arthur Andersen LLP, independent public accountants. (2) The Company's Quarterly Reports on Form 10-Q (File No. 0-14719) for the quarters ended June 30, September 30 and December 31, 1994. (3) The Company's Current Report on Form 10-C (File No. 0-14719) dated effective as of November 29, 1994. (4) The Company's Current Report on Form 10-C (File No. 0-14719) dated effective as of February 1, 1995. 9 12 (5) The description of the Company's Common Stock, no par value, contained in the Company's Registration Statement on Form 8-A filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which description is included under the heading "Description of Capital Stock" on pages 21 of the Company's prospectus dated June 26, 1986 contained in Amendment No. 2 to the Company's Registration Statement on Form S-1 (Registration No. 33-5823), including any amendment or report filed under the Exchange Act for the purpose of updating such description. In addition, all documents subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this Registration Statement and prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold, shall be deemed to be incorporated by reference in the Purchase Plan Prospectus and to be a part hereof from the date of filing of such documents. The Purchase Plan Prospectus forms a part of a Registration Statement on Form S-8 filed with the SEC and does not contain all the information set forth therein. Reference to the Registration Statement is hereby made for further information with respect to the Company and the securities offered hereby. Accompanying this document is a copy of the Company's Annual Report to Shareholders. Upon written or oral request, the Company will provide without charge to each person to whom a copy of this Purchase Plan Prospectus has been delivered a copy of any or all of the documents referred to above (other than exhibits to such documents, unless such exhibits are specifically incorporated by reference into the information that the Purchase Plan Prospectus incorporates) and any other documents required to be delivered to participants pursuant to Rule 428(b) of the Securities Act. Requests should be directed to Eric Christensen, SkyWest, Inc., 444 South River Road, St. George, Utah 84770 (telephone (801) 634-3000). Additional updating information with respect to the Common Stock, the Company and the Purchase Plan may be provided to participants in the future by means of additional documents, appendices to this document, or other appropriate means. For a current set of information regarding the Purchase Plan or for additional information, please contact Brad Gale at the address and telephone number indicated above. EXPERTS The consolidated financial statements of the Company appearing in the Company's prospectus filed with the SEC in connection with its Registration Statement for the public offering of its Common Stock have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included therein and incorporated herein by reference. Such financial statements are, and audited financial statements to be included in subsequently filed documents will be, incorporated herein in reliance upon the reports of Arthur Andersen LLP, pertaining to such financial statements (to the extent Arthur Andersen LLP have audited such financial statements and consented to the use of their report thereon) given upon the authority of such firm as experts in accounting and auditing. 10 EX-11.0 4 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE
FISCAL YEAR ENDED MARCH 31, --------------------------- 1995 1994 1993 -------- -------- -------- (Amounts in thousands, except per share data) Basic Weighted average common shares outstanding . . . . . . . . . . . . . . 11,112 9,883 7,927 ======= ======= ====== Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,701 $14,396 $6,704 ======= ======= ====== Per share amount . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.23 $ 1.46 $ .85 ======= ======= ====== Primary Weighted average common shares outstanding . . . . . . . . . . . . . . 11,112 9,883 7,927 Net effect of dilutive common stock options -- based on the treasury stock method using average market price of $22.48, $25.77 and $7.89, respectively, net of tax benefit . . . . . . . . . . . . . . . 102 180 134 ------- ------- ----- Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,214 10,063 8,061 ======= ======= ===== Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,701 $14,396 $6,704 ======= ======= ====== Per share amount . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.22 $ 1.43 $ .83 ======= ======= ====== Fully Diluted Weighted average common shares outstanding . . . . . . . . . . . . . . 11,112 9,883 7,927 Net effect of dilutive stock options -- based on the treasury stock method using the year-end market price, of $22.48, $34.75 and $17.67 respectively, if higher than average market price, net of tax benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 204 239 ------- ------- ------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,214 10,087 8,166 ======= ======= ====== Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,701 $14,396 $6,704 ======= ======= ====== Per share amount . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.22 $ 1.43 $ .82 ======= ======= ====== - ----------------------
EX-13.1 5 CERTAIN PORTIONS OF THE ANNUAL REPORT FOR 3-31-95 1 Exhibit 13.1 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, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended March 31, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1995 in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Salt Lake City, Utah May 26, 1995 2 SUMMARY FINANCIAL AND OPERATING DATA
Year Ended March 31, - ----------------------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- Operating revenues (000) $ 225,398 $ 187,993 $ 146,800 $ 125,310 $ 113,284 Operating income (000) $ 20,341 $ 24,680 $ 11,465 $ 3,802 $ 3,903 Net income (000) $ 13,701 $ 14,396 $ 6,704 $ 1,986 $ 2,024 Weighted average shares (000) 11,112 9,883 7,927 7,823 7,820 Net income per common share $ 1.23 $ 1.46 $ .85 $ .25 $ .26 Total assets (000) $ 188,182 $ 184,017 $ 86,945 $ 72,383 $ 73,345 Current assets (000) $ 71,642 $ 87,088 $ 28,243 $ 24,330 $ 24,044 Current liabilities (000) $ 25,603 $ 20,473 $ 15,909 $ 13,012 $ 11,924 Long-term debt (000) $ 29,553 $ 26,647 $ 18,391 $ 13,753 $ 16,499 Stockholders' equity (000) $ 117,684 $ 122,788 $ 42,766 $ 35,310 $ 33,524 Return on average equity 11.1% 17.4% 17.2% 5.8% 6.0% Passengers carried 2,073,885 1,730,993 1,523,384 1,317,693 1,169,309 Revenue passenger miles (000) 488,901 345,414 294,276 250,615 229,286 Available seat miles (000) 976,095 727,059 669,724 604,633 551,626 Load factor 50.1% 47.5% 43.9% 41.4% 41.6% Breakeven load factor 45.5% 41.2% 41.1% 40.8% 40.8% Revenue per passenger mile $ .363 $ .439 $ .450 $ .455 $ .458 Cost per available seat mile $ .171 $ .188 $ .191 $ .192 $ .192 Average passenger trip length 236 200 193 190 196 Number of aircraft at end of year 60 55 50 50 47
QUARTERLY FINANCIAL AND STOCK PRICE DATA
Fiscal Year 1995 - ------------------------------------------------------------------------------------------------------------- First Second Third Fourth Year -------- -------- --------- --------- -------- Operating revenues (000) $ 58,871 $ 65,551 $ 51,448 $ 49,528 $225,398 Operating income(loss) (000) $ 8,448 $ 10,954 $ 1,618 $ (679) $ 20,341 Net income (000) $ 5,367 $ 6,857 $ 1,422 $ 55 $ 13,701 Net income per common share $ 0.47 $ 0.60 $ 0.13 $ 0.01 $ 1.23 Stock price data: High 40.25 29.75 22.50 15.75 40.25 Low 20.50 22.00 12.50 11.38 11.38
Fiscal Year 1994 - ------------------------------------------------------------------------------------------------------------- First Second Third Fourth Year -------- -------- --------- --------- -------- Operating revenues (000) $ 40,372 $ 51,992 $ 46,532 $ 49,097 $187,993 Operating income (000) $ 5,096 $ 8,246 $ 5,270 $ 6,068 $ 24,680 Net income (000) $ 2,852 $ 4,890 $ 2,976 $ 3,678 $ 14,396 Net income per common share $ 0.34 $ 0.48 $ 0.29 $ 0.34 $ 1.46 Stock price data: High 23.63 25.25 34.50 38.75 38.75 Low 15.50 15.00 25.25 31.00 15.00
3 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, ----------------------------------------------------------------------------------------- 1995 1994 ----------------------------------------------------------------- Percent Cents Percent Cents of per of per Amount Revenue ASM Amount Revenue ASM ------ ------- ------- ------ ------- ---- Salaries, wages and employee benefits ........................... $ 49,684 27.0% 5.1cents $ 44,725 28.4% 6.2cents Aircraft costs ........................ 35,355 19.2 3.6 25,672 16.3 3.5 Maintenance ........................... 18,350 10.0 1.9 15,356 9.8 2.1 Fuel .................................. 16,625 9.0 1.7 13,094 8.3 1.8 Interest .............................. 1,086 0.6 0.1 1,816 1.2 0.3 Other ................................. 45,742 24.9 4.7 35,684 22.7 4.9 -------- ---- ---- -------- ---- ---- Total airline expenses ................ 166,842 90.7 17.1cents 136,347 86.7 18.8cents -------- ---- --------- -------- ---- --------- Nonairline expenses ................... 39,315 94.4 28,944 94.0 -------- ---- -------- ---- Total operating expenses and interest ........................... $206,157 91.4% $165,291 87.9% ======== ==== ======== ====
Fiscal Year Ended March 31, ----------------------------------------------------------------------------------------- 1993 ------------------------------ Percent Cents of per Amount Revenue ASM ------ ------- -------- Salaries, wages and employee benefits ........................... $ 40,211 29.3% 6.0cents Aircraft costs ........................ 24,842 18.1 3.7 Maintenance ........................... 15,529 11.3 2.3 Fuel .................................. 12,890 9.4 1.9 Interest .............................. 1,229 0.9 0.2 Other ................................. 33,488 24.4 5.0 -------- ---- ---- Total airline expenses ................ 128,189 93.4 19.1cents -------- ---- --------- Nonairline expenses ................... 8,556 87.9 -------- ---- Total operating expenses and interest ........................... $136,745 93.1% ======== ====
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 1995 Compared to Fiscal 1994 The Company reported a record number of passenger enplanements and consolidated operating revenues of $225.4 million in fiscal 1995 compared to $188.0 million in fiscal 1994. Consolidated net income was $13.7 million, or $1.23 per share in fiscal 1995 compared to $14.4 million, or $1.46 per share in fiscal 1994. The decrease is due to slower traffic growth resulting from negative publicity regarding the safety of regional airlines as well as the continuing discount fare environment the Company operates in. Passenger revenues, which represented 78.8 percent of total operating revenues, increased 17.1 percent to $177.6 million in fiscal 1995 from $151.7 million in fiscal 1994. This increase is due primarily to a 41.5 percent increase in revenue passenger miles ("RPM's") offset by a 17.3 percent decrease in yield per RPM to $.363 in fiscal 1995 from $.439 in fiscal 1994. The increase in RPM's is due to the introduction of six new Canadair Regional Jets. These jets are being utilized in new service points consisting of Rapid City and Sioux Falls, South Dakota; Eugene, Oregon; Casper, Wyoming; and Burbank, California. With the exception of Eugene, these markets were previously served by Delta Airlines, Inc. ("Delta") and represent markets where Delta has successfully transitioned service entirely to the Delta Connection program. The Company is also utilizing these regional jets in the Boise, Idaho and Butte, Montana markets where service was upgraded from Brasilia aircraft. During the first seven months of fiscal 1995, the Company continued a positive trend of RPM growth outpacing available seat miles ("ASM's") growth. October 1994 marked the 37th out of the previous 38 months that growth in demand exceeded growth in capacity which generated higher passenger load factors. Beginning in October 1994 and continuing through the end of fiscal 1995 the Company experienced several factors which negatively affected traffic. First, negative publicity regarding the safety of regional airlines became an issue when other airlines experienced accidents. Second, the Company experienced greater exposure to indirect low-fare 4 competition, primarily in the California corridor. Third, the Company experienced several challenges with equipment dispatch reliability when completion and on-time factors decreased to unacceptable levels. The Company also experienced severe weather conditions at certain times, including the flooding in California, and having a regional jet grounded. The 17.3 percent decrease in yield per RPM was primarily from the introduction of the Canadair Regional Jets where average passenger trip lengths are 425 miles. The remaining decrease is due to the Company experiencing indirect low-fare competition. In order to continue to mitigate the impact of this competition, the Company continues to make refinements in the total revenue management system ("TRM") whereby seats are made available based on historical demand as well as future booking curves. To achieve the objective of maximizing revenue the Company will be innovative in designing pricing strategies to optimize the relationship between yield per RPM and load factor. Subsequent to year end, the Company agreed to acquire ten more Brasilia aircraft. These additional aircraft will be used to replace Metroliners wherein the long-term operating leases will be terminated early. This transition will result in an all Brasilia turboprop fleet by the end of fiscal 1997. On June 15, 1993, Aviation Services West, Inc. ("ASW") acquired from an entity then known as Scenic Airlines, Inc. ("Scenic Airlines") the flight tour operations of Scenic Airlines. Scenic Airlines provided flight tours on a scheduled basis between Las Vegas and the Grand Canyon using specially modified Vistaliner sight-seeing aircraft. Following the acquisition of Scenic Airlines, ASW changed its name to Scenic Airlines, Inc. and has continued the flight tour operations acquired from Scenic Airlines, as well as, the flight tour business conducted by ASW prior to the acquisition. Nonairline revenues, which consist of the operations of Scenic Airlines, Inc. and National Parks Transportation, Inc. increased 35.2 percent to $41.6 million in fiscal 1995, from $30.8 million in fiscal 1994. This increase is due to having a full year of operations from the acquisition, previously mentioned. Nonairline net income increased 41.4 percent to $1.6 million in fiscal 1995, from $1.2 million in fiscal 1994. ASM's increased 34.3 percent in fiscal 1995 primarily due to the regional jets being utilized for the full year as well as three additional Brasilia aircraft. The Company replaced two 19 passenger Metroliners as part of the Company's continuing transition to upgrade its fleet. Although passenger enplanements did not meet management's expectation, the Company still had RPM growth in excess of ASM growth causing passenger load factor to increase to 50.1 percent in fiscal 1995 from 47.5 percent in fiscal 1994. As a result of passenger traffic not meeting expectations, in conjunction with the decrease in yield per RPM, the positive spread between actual and breakeven load factor decreased to 4.6 points in fiscal 1995 compared to 6.3 points in fiscal 1994. As part of the continuing fleet transition, management has continued to reduce airline operating costs per ASM. Total airline operating expenses and interest were 90.7 percent of total airline operating revenues in fiscal 1995 compared to 86.7 percent in fiscal 1994. This percentage increase is due to passenger enplanements not meeting expectations which resulted in passenger revenues falling short of internal plans. Total airline operating costs increased only 22.4 percent for fiscal 1995 over fiscal 1994 airline operating costs on a 34.3 percent increase in ASM's. The Company has continued cost reduction measures with respect to most of its primary operating cost components. As a result, airline operating costs per ASM decreased to 17.1cents in fiscal 1995 from 18.8cents in fiscal 1994. Salaries, wages and employee benefits decreased as a percentage of airline operating revenues to 27.0 percent in fiscal 1995 from 28.4 percent in fiscal 1994. The decrease resulted primarily from the Company's efforts to provide an expanded level of service while at the same time creating operational efficiencies. The average number of employees was 1,760 for fiscal 1995 compared to 1,543 for fiscal 1994. The increase in employees is due to hiring additional pilots, flight attendants and customer service personnel for regional jet operations. Salaries, wages and employee benefits per ASM decreased to 5.1cents in fiscal 1995 from 6.2cents in fiscal 1994 due to the increased ASM's generated from regional jet operations. Aircraft costs, including aircraft rent and depreciation, increased as a percentage of airline operating revenues to 19.2 percent in fiscal 1995 from 16.3 percent in fiscal 1994. This percentage increased as a result of the passenger traffic falling short of management's expectation which created a revenue shortfall. Aircraft costs per ASM increased slightly to 3.6cents in fiscal 1995 from 3.5cents in fiscal 1994. Maintenance expense increased slightly as a percentage of airline operating revenues to 10.0 percent in fiscal 1995 from 9.8 percent in fiscal 1994. The slight increase is due to the use of the accrual method in accounting for jet engine overhauls which is somewhat offset by the utilization of more Brasilia aircraft which have increased time intervals between engine overhauls. Maintenance 5 cost per ASM decreased to 1.9cents in fiscal 1995 from 2.1cents in fiscal 1994 due to the increased ASM's generated from regional jet operations. Fuel costs increased as a percentage of airline operating revenues to 9.0 percent in fiscal 1995 compared to 8.3 percent in fiscal 1994. The increase is due to a larger number of gallons used in operations, primarily from jet operations. The increase in usage is somewhat offset by a decrease in the average fuel price per gallon to $.74 in fiscal 1995 from $.78 in fiscal 1994. Fuel costs per ASM decreased to 1.7cents in fiscal 1995 from 1.8cents in fiscal 1994 due to the operation of additional Brasilia aircraft which are more fuel efficient, on a cost per ASM basis, than Metroliners and due to the increased ASM's generated from regional jet operations. Interest expense decreased as a percentage of airline operating revenues to .6 percent in fiscal 1995 from 1.2 percent in fiscal 1994. The decrease is due to the Company reducing its effective interest rate on debt subsidized by the Federative Republic of Brazil. 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 24.9 percent in fiscal 1995 compared to 22.7 in fiscal 1994. The increase is 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 income increased 164.4 percent in fiscal 1995 to $2.8 million compared to $1.1 million in fiscal 1994. The increase is the result of the Company having a larger average amount of cash and short-term investments throughout the year, as well as, from higher interest rates. Nonairline expenses increased 35.8 percent to $39.3 million for fiscal 1995 compared to $28.9 million for fiscal 1994. The increase is due to having a full year of operations from the acquisition consummated on June 15, 1993, consisting of flight tour operations between Las Vegas and the Grand Canyon. Additionally, the average number of employees was 300 for fiscal 1995 compared to 244 for fiscal 1994. Fiscal 1994 Compared to Fiscal 1993 The Company enplaned a record number of passengers and reported record consolidated net income of $14.4 million, or $1.46 per share, in fiscal 1994 compared to $6.7 million, or $.85 per share, in fiscal 1993. Consolidated operating revenues increased 28.1 percent to a record $188.0 million in fiscal 1994 from $146.8 million in fiscal 1993. Passenger revenues, which represented 80.7 percent of total operating revenues, increased 14.6% to $151.7 million in fiscal 1994 from $132.4 million in fiscal 1993. This increase was due primarily to a 17.4 percent increase in RPM's, which management believes is due, in large part, to the Company's continued efforts to coordinate its operations with Delta at the Salt Lake City and Los Angeles hubs. In addition, continued refinements of the TRM has resulted in strong RPM growth while maintaining relatively strong yields. Although more discount seats were made available through the TRM system and the average passenger trip length increased 3.6%, yield per RPM decreased only 2.4% to $.439 in fiscal 1994 from $.450 in fiscal 1993. The Company enjoyed a position as a market leader in many highly competitive Southern California markets. Management attributes the Company's position to a number of factors, including (i) increased passenger acceptance of the Brasilia aircraft in highly competitive markets, (ii) continued refinements in flight scheduling and allocation of available aircraft (iii) heightened emphasis on improving the quality of system- wide customer service; and (iv) pricing strategies designed to stimulate both RPM and load factor growth without compromising favorable yields. Largely as a result of the Scenic Airlines acquisition, nonairline revenues increased 216.4% to $30.8 million in fiscal 1994 from $9.7 million in fiscal 1993. The increase was due primarily to the utilization of 14 additional VistaLiner aircraft acquired in connection with the acquisition. Nonairline net income increased 71.4% to $1.2 million in fiscal 1994 from $.7 million in fiscal 1993. ASM's increased 8.6% in fiscal 1994 due primarily to the addition of four new 30 passenger Brasilia aircraft which replaced three 19 passenger Metroliners as part of the Company's strategy to upgrade its fleet. Because growth in RPMs exceeded growth in ASMs, the passenger load factor increased to 47.5% in fiscal 1994 from 43.9% in fiscal 1993. In addition, the Company generated a positive spread of 6.3 points between actual load factor and breakeven load factor in fiscal 1994 compared to a positive spread of 2.8 points in fiscal 1993. Management continued its efforts to reduce airline operating costs per ASM and as a percentage of revenues. In fiscal 1994, total airline operating expenses and interest (excluding nonairline expenses) were 86.7% of airline operating revenues compared to 6 93.4% in fiscal 1993. The Company continued cost reduction measures with respect to most of its primary operating cost components. These measures decreased airline operating costs per ASM (including interest expense) to 18.8cents in fiscal 1994 from 19.1cents in fiscal 1993. Total operating expenses and interest increased 20.9% to $165.3 million in fiscal 1994 compared to $136.7 million in fiscal 1993. Approximately 70.9% of the increase in such expenses was related to the acquisition of Scenic Airlines and the operations of Scenic. Another factor contributing to the increase was a 8.6% increase in ASMs. Salaries, wages and employee benefits decreased as a percentage of airline operating revenues to 28.4% in fiscal 1994 from 29.3% in fiscal 1993. The decrease resulted principally from the Company's efforts to provide an expanded level of service without significantly increasing the number of employees. The average number of employees in fiscal 1994 was 1,543 compared to 1,444 in fiscal 1993. The increase is attributable to hiring of pilots, flight attendants and customer service personnel for regional jet operations. Salaries, wages and employee benefits per ASM increased to 6.2cents per ASM in fiscal 1994 compared to 6.0cents in fiscal 1993, primarily as a result of incentive bonuses paid to substantially all employees based on the Company's profitability. Aircraft costs, including aircraft rent and depreciation, decreased as a percentage of airline operating revenues to 16.3% in fiscal 1994 from 18.1% in fiscal 1993. Aircraft costs per ASM decreased to 3.5cents in fiscal 1994 from 3.7cents in fiscal 1993. The reduction resulted primarily from a decrease in the number of spare aircraft from five to four during fiscal 1994 and from the increased utilization of the more cost efficient Brasilia aircraft. Maintenance expense decreased as a percentage of airline operating revenues to 9.8% in fiscal 1994 from 11.3% in fiscal 1993. This decrease resulted primarily from the acquisition of four Brasilia aircraft as replacements for three older Metroliners and the extension by the Federal Aviation Administration ("FAA") of permitted engine overhaul intervals on Brasilia aircraft engines. Fuel costs decreased as a percentage of airline operating revenues to 8.3% in fiscal 1994 from 9.4% in fiscal 1993 primarily due to a decrease in the average fuel price per gallon to $.78 from $.84. In addition, the decrease was due in part to the Company's operation of additional Brasilia aircraft which are more fuel efficient, on a cost per ASM basis, than Metroliners. Interest expense increased as a percentage of airline operating revenues to 1.2% in fiscal 1994 from 0.9% in fiscal 1993 due to interest costs incurred by the Company in connection with the debt financing arranged for the last four Brasilia aircraft acquisitions. Other expenses, which consisted primarily of commissions, landing fees, station rents, computer reservation system fees and hull and liability insurance, decreased as a percentage of airline operating revenues to 22.7% in fiscal 1994 from 24.4% in fiscal 1993. Interest income increased 140.2% in fiscal 1994 to approximately $1.1 million from $.4 million in fiscal 1993. The increase is due to additional cash being provided from two public offerings of the Company's common stock, and the investment of this cash after paying off certain debt, etc. Nonairline expenses increased 238.3% to $28.9 million in fiscal 1994 compared to $8.6 million for fiscal 1993. The increase is due to the acquisition consummated on June 15, 1993, consisting of flight tour operations between Las Vegas and the Grand Canyon. Additionally, the average number of employees was 244 for fiscal 1994 compared to 103 for fiscal 1993. 7 LIQUIDITY AND CAPITAL RESOURCES The Company had working capital of $46.0 million and a current ratio of 2.8:1 at March 31, 1995 compared to working capital of $66.6 million and a current ratio of 4.2:1 at March 31, 1994. The principal sources of funds during fiscal 1995 were $30.0 million generated from operations and $7.1 million in proceeds from the issuance of long-term debt. During fiscal 1995 the Company invested $26.9 million in flight equipment and $8.1 million in buildings, ground equipment and other assets. The Company also repurchased $16.1 million of its outstanding Common Stock, reduced long-term debt by $3.5 million, paid $3.1 million in cash dividends and invested $9.8 million in available-for-sale securities. These factors contributed to a $29.0 million decrease in cash and cash equivalents during fiscal 1995. The Company's position in available-for-sale securities, consisting primarily of bonds and commercial paper has increased to $21.3 million at March 31, 1995, compared to $11.5 million at March 31, 1994. The Company took delivery of five new Brasilia aircraft during the year ended March 31, 1995, as part of the strategy to upgrade its fleet. At March 31, 1995, the Company had agreed to purchase 12 additional Brasilia aircraft and related spare parts inventory and support equipment at an aggregate cost of approximately $85 million, including estimated cost escalations. Subsequent to March 31, 1995, the Company agreed to purchase ten additional Brasilia aircraft and related spare parts inventory and support equipment at an aggregate future cost of approximately $80 million. Seven of these aircraft are scheduled for delivery in fiscal 1996 and the remaining 15 aircraft are scheduled for delivery in fiscal 1997. The Company took delivery of two Canadair Regional Jets during the year ended March 31, 1995, and two more subsequent to March 31, 1995. There have been eight regional jets delivered to date. The Company has agreed to acquire two additional Canadair Regional Jets and related spare parts inventory at an aggregate cost of approximately $36 million, including estimated cost escalations. The remaining two aircraft are scheduled for delivery later in fiscal 1996. Depending in large part upon the state of the aircraft financing market and general economic conditions at the time, management will determine whether to purchase these Brasilia and Canadair Regional Jet aircraft with available cash or acquire the aircraft through third-party, long-term 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; five are exercisable through September 1995 and five are exercisable through July 1996. The Company has significant long-term 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, 1995, the Company leased 66 aircraft under leases with remaining terms of up to 16.5 years. Future minimum lease payments due under all long-term operating leases were approximately $288.2 million at March 31, 1995. At March 31, 1995, the Company had outstanding long-term debt, including current maturities, of approximately $33.3 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 $16.4 million of the $33.3 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 $33.3 million of long-term debt to an average effective rate of approximately 4.8% as of March 31, 1995. The debt is payable in either quarterly or semi-annual installments through March 2005. The Company expended approximately $8.1 million for non-aircraft capital expenditures during the year ended March 31, 1995, consisting primarily of aircraft engine overhauls and aircraft modifications to be made pursuant to industry-wide FAA directives. The Company will be required to install traffic alert and collision avoidance systems on all aircraft with 30 or more seats by December 1995, at an estimated cost of $1.4 million. To date, the Company has funded these capital expenditures from cash reserves and funds generated from operations. 8 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 8.75% at March 31, 1995. The Company also has available $1.5 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 $1.5 million revolving facility bears interest at the bank's base rate plus one-half percent. The amount available under the facility will be reduced to $1.0 million on December 1, 1995, and will be reduced by an additional $500,000 on December 1 of each year thereafter until December 1, 1997, at which time the facility expires. The Company's notes payable and line of credit 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 the maintenance of minimum tangible net worth. As of March 31, 1995, the Company was in compliance with all required debt covenants. 9 CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
ASSETS March 31, -------------------------- 1995 1994 ------- ------- Current assets: Cash and cash equivalents $ 27,416 $ 56,402 Available-for-sale securities 21,309 11,549 Receivables, less allowance for doubtful accounts of $215 in 1995 and $144 in 1994 7,004 9,796 Inventories 7,179 5,874 Other current assets 8,734 3,467 -------- -------- Total current assets 71,642 87,088 -------- -------- Property and equipment, at cost: Aircraft and rotable spares 127,004 106,267 Buildings and ground equipment 28,866 23,015 Deposits on aircraft and rotable spares 9,265 5,887 Rental vehicles 1,849 1,124 -------- -------- 166,984 136,293 Less - accumulated depreciation and amortization (56,743) (46,331) -------- -------- 110,241 89,962 -------- -------- Other assets 6,299 6,967 -------- -------- $188,182 $184,017 ======== ========
The accompanying notes are an integral part of these consolidated balance sheets. 10 LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, ----------------------- 1995 1994 ------ ------ Current liabilities: Current maturities of long-term debt $ 3,747 $ 3,071 Current portion of deferred credits 803 803 Trade accounts payable 13,789 10,027 Accrued salaries, wages and benefits 4,647 3,955 Taxes other than income taxes 1,353 999 Air traffic liability 1,264 1,618 -------- -------- Total current liabilities 25,603 20,473 -------- -------- Long-term debt, less current maturities 29,553 26,647 -------- -------- Deferred credits, less current portion 2,308 3,125 -------- -------- Deferred income taxes payable 13,034 10,984 -------- -------- Commitments and contingent liabilities (Notes 3 and 7) Stockholders' equity: Preferred stock, 5,000,000 shares authorized; none issued - - Common stock, no par value; 40,000,000 shares authorized; 11,468,056 and 11,445,056 shares issued, respectively 87,658 87,245 Retained earnings 46,117 35,543 Treasury stock, at cost, 1,150,000 and 0 shares, respectively (16,091) - -------- -------- Total stockholders' equity 117,684 122,788 -------- -------- $188,182 $184,017 ======== ========
11 CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For the years ended March 31, --------------------------------------- 1995 1994 1993 -------- -------- -------- Operating revenues: Passenger $ 177,588 $ 151,699 $ 132,430 Freight 3,802 3,099 2,573 Public service and other 2,401 2,411 2,067 Nonairline 41,607 30,784 9,730 ----------- ---------- ---------- Total operating revenues 225,398 187,993 146,800 ----------- ---------- ---------- Operating expenses: Flying operations 68,135 52,256 51,421 Aircraft, traffic and passenger service 28,218 22,621 22,230 Maintenance 25,530 21,853 21,804 Promotion and sales 20,369 16,527 15,072 Depreciation and amortization 11,896 8,967 7,478 General and administrative 11,605 12,306 8,954 Nonairline 39,304 28,783 8,376 ----------- ---------- ---------- Total operating expenses 205,057 163,313 135,335 ----------- ---------- ---------- Operating income 20,341 24,680 11,465 ----------- ---------- ---------- Other income (expense): Interest expense (1,100) (1,978) (1,410) Interest income 2,826 1,069 445 Gain on sales of property and equipment 173 74 43 ----------- ---------- ---------- Total other income (expense), net 1,899 (835) (922) ----------- ---------- ---------- Income before provision for income taxes 22,240 23,845 10,543 Provision for income taxes 8,539 9,449 3,839 ----------- ---------- ---------- Net income $ 13,701 $ 14,396 $ 6,704 =========== ========== ========== Net income per common share $ 1.23 $ 1.46 $ .85 =========== ========== ========== Weighted average number of common shares outstanding 11,111,596 9,883,036 7,926,917 =========== ========== ==========
The accompanying notes are an integral part of these consolidated statements. 12 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, 1992 7,873,180 $ 18,904 -- $ -- $ 16,406 Net income -- -- -- -- 6,704 Exercise of common stock options (at prices ranging from $3.83 to $4.58 per share) 182,438 833 -- -- -- Tax benefit from exercise of common stock options -- 342 -- -- -- Cash dividends (at $.053 per share) -- -- -- -- (423) ---------- ---------- ---------- --------- ---------- Balance at March 31, 1993 8,055,618 20,079 -- -- 22,687 Net income -- -- -- -- 14,396 Exercise of common stock options (at prices ranging from $3.83 to $4.58 per share) 145,188 635 -- -- -- Tax benefit from exercise of common stock options -- 861 -- -- -- Sale of common stock 3,244,250 65,670 -- -- -- Cash dividends (at $.15 per share) -- -- -- -- (1,540) ---------- ---------- ---------- --------- ---------- 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 ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements. 13 CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
For the years ended March 31, ---------------------------------------- 1995 1994 1993 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $13,701 $14,396 $ 6,704 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,896 8,967 7,478 Compensation expense related to grant of stock options 69 - - Gain on sales of property and equipment (173) (74) (43) Increase (decrease) in allowance for doubtful accounts 71 1 (17) Maintenance expense related to disposition of rotable spares 240 165 180 Deferred income taxes 2,050 5,047 388 Amortization of deferred credits (817) (818) (817) Nonairline depreciation and amortization 2,090 1,589 774 Tax benefit from exercise of common stock options 228 861 342 Changes in operating assets and liabilities: Decrease (increase) in receivables 2,721 (1,467) (2,431) (Increase) decrease in inventories (1,305) 218 170 (Increase) decrease in other current assets (5,267) (1,643) 331 Increase in trade accounts payable 3,762 4,222 783 Increase in other current liabilities 692 1,337 1,034 ------- ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 29,958 32,801 14,876 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of available-for-sale securities (9,760) (9,385) (1,000) Proceeds from sale of available-for-sale securities - - 199 Acquisition of property and equipment: Aircraft and rotable spares (23,538) (35,916) (13,597) Deposits on aircraft and rotable spares (7,653) (5,382) (1,815) Buildings and ground equipment (5,851) (2,799) (5,189) Rental vehicles (2,229) (1,548) (305) Proceeds from sales of property and equipment 1,370 861 291 Decrease in deposits on aircraft and rotable spares 4,275 1,000 1,757 Increase in other assets (38) (5,089) (180) ------- ------- ------- NET CASH USED IN INVESTING ACTIVITIES (43,424) (58,258) (19,839) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 116 66,305 833 Purchase of treasury stock (16,091) - - Payment of cash dividends (3,127) (1,540) (423) Reduction of long-term debt (3,534) (18,751) (3,437) Proceeds from issuance of long-term debt 7,116 26,012 9,155 ------- ------- ------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (15,520) 72,026 6,128 ------- ------- ------- (Decrease) increase in cash and cash equivalents (28,986) 46,569 1,165 Cash and cash equivalents at beginning of year 56,402 9,833 8,668 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $27,416 $56,402 $ 9,833 ======= ======= ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 1,074 $ 2,074 $ 1,275 Income taxes 6,917 5,287 3,476
The accompanying notes are an integral part of these consolidated statements. 14 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., National Parks Transportation, Inc. and Scenic Airlines, Inc., collectively (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. 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 - Effective April 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Investments in Debt and Equity Securities" ("SFAS No. 115"). The adoption of SFAS No. 115 had no effect on net income. In accordance with the provisions of SFAS No. 115, all of 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. Income Taxes - Effective April 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). The adoption of SFAS No. 109 had no effect on net income. In accordance with the provisions of SFAS No. 109, 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. Investment tax credits have been accounted for by the flow-through method. As of March 31, 1995 and 1994, the Company had recorded current deferred tax assets of $1,476,000 and $1,267,000, respectively (which are included in other current assets), and deferred tax liabilities of $13,034,000 and $10,984,000, respectively. 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 - 31.5 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. 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. Reclassifications - Certain reclassifications have been made to the accompanying consolidated financial statements in order to conform to the current year presentation. 15 (2) ACQUISITION OF FLIGHT TOUR OPERATIONS OF SCENIC AIRLINES, INC. AND SEGMENT INFORMATION Acquisition On April 9, 1993, the Company, through its wholly-owned subsidiary Aviation Services West, Inc. ("ASW"), entered into an agreement to acquire certain assets of the flight tour operations (the "Flight Tour Operations") of an entity then known as Scenic Airlines, Inc. (such assets are defined herein as "Scenic Airlines") located in Las Vegas, Nevada. Scenic Airlines provided air transportation and air tours on a scheduled basis between Las Vegas and the Grand Canyon. On June 15, 1993, the acquisition was consummated and was accounted for using the purchase method. The purchase price was allocated to the following assets (in thousands): License agreement and noncompete agreement $4,000 Receivables 1,342 Equipment 488 Inventory and other 311 ------ $6,141 ======
In addition, the agreement included a commitment by ASW, which at the time of the acquisition leased four Twin Otter VistaLiner aircraft, to lease an additional 14 VistaLiner aircraft pursuant to renewable operating leases with terms ranging between one to six years. The following unaudited pro forma consolidated statement of income information for the year ended March 31, 1993 presents the pro forma results of operations of the Company as if the acquisition of Scenic Airlines had been consummated as of April 1, 1992. For purposes of preparing this pro forma presentation, the results of operations of the Company for the fiscal year ended March 31, 1993 have been consolidated with the results of the operations of Scenic Airlines for its fiscal year ended December 31, 1992. Since the acquisition occurred in the first quarter of fiscal year 1994, the pro forma impact would not differ signifcantly from the actual results reported.
Dollars in Thousands Pro Forma Statements of Income Information Except Per (Unaudited) are Amounts ------------------------------------------ ----------- Operating revenues $ 169,529 Operating expenses 156,971 Net income 7,425 Net income per common share .90
Subsequent to the acquisition, ASW changed its name to Scenic Airlines, Inc. and has continued the flight tour operations acquired from Scenic Airlines as well as the flight tour business conducted by ASW prior to the acquisition. Segment Information Nonairline operating revenues and expenses primarily represent the operations of Scenic Airlines, Inc. ("Scenic") and National Parks Transportation, Inc. ("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. The acquisition of Scenic Airlines has approximately tripled the size of this segment of the Company's business. NPT provides car rental services through a fleet of Avis vehicles located at five airports served by SkyWest Airlines, Inc. Information related to this segment of the Company's business is as follows (in thousands):
For the Year Ended March 31, 1995 1994 1993 -------- -------- ------- Operating revenues $ 41,607 $ 30,784 $ 9,730 Operating income 2,303 2,001 1,354 Depreciation and amortization 2,090 1,589 774 Capital expenditures 5,613 3,939 4,131
16
March 31, -------------------------- 1995 1994 -------- -------- Identifiable assets $ 20,135 $ 17,856
(3) LEASE OBLIGATIONS The Company leases 66 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, 1995 (in thousands):
Year ending March 31, --------------------- 1996 $ 29,793 1997 28,288 1998 25,135 1999 24,885 2000 23,854 Thereafter 156,257 -------- $288,212 ========
Total rental expense for noncancelable operating leases was approximately $32,413,000, $21,299,000 and $19,912,000 for the years ended March 31, 1995, 1994 and 1993, respectively. The above minimum rental payments do not include landing fees, which amounted to approximately $4,145,000, $3,433,000, and $2,607,000 for the years ended March 31, 1995, 1994 and 1993, respectively. (4) INCOME TAXES The provision for income taxes includes the following components (in thousands):
Year ended March 31, ------------------------------------- 1995 1994 1993 ------- ------- ------- Current tax provision Federal $ 4,893 $ 6,132 $ 2,161 State 1,119 1,402 819 ------- ------- ------- 6,012 7,534 2,980 ------- ------- ------- Deferred tax provision Federal 2,041 1,363 699 State 486 350 160 Impact of federal rate increase on deferred taxes - 202 - ------- ------- ------- 2,527 1,915 859 ------- ------- ------- Provision for income taxes $ 8,539 $ 9,449 $ 3,839 ======= ======= =======
The following is a reconciliation between the statutory Federal income tax rates (34 percent for the year ended March 31, 1993 and 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 for the years ended March 31, 1995 and 1994) 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, ------------------------------------- 1995 1994 1993 ------- ------- ------- Computed "expected" provision for income taxes at the statutory rate $ 7,684 $ 8,246 $ 3,585
17 Increase (decrease) in income taxes resulting from: State income taxes, net of Federal income tax benefit 727 911 503 Other, net 128 292 (249) ------- ------- ------- Provision for income taxes $ 8,539 $ 9,449 $ 3,839 ======= ======= =======
The components of and the changes in the net deferred tax assets and liabilities for the years ended March 31, 1995 and 1994, are as follows (in thousands):
Year ended March 31, ------------------------ Deferred tax assets: 1995 1994 ---- ---- Inventory reserves $ 222 $ 222 Vacation accrual 747 607 Integration costs 195 272 Sampling reserves 340 340 Engine accrual 512 18 AMT credit carryforward 752 409 Other 174 109 ------- -------- Total deferred tax assets 2,942 1,977 ------- -------- Deferred tax liabilities: Accelerated depreciation (13,157) (10,711) Preoperating costs (371) (464) Other (612) (519) ------- -------- Total deferred tax liabilities (14,500) (11,694) ------- -------- Net deferred tax liability $(11,558) $ (9,717) ======== ========
For the year ended March 31, 1993, the deferred tax provision resulted from temporary differences in the recognition of revenues and expenses for income tax and financial reporting purposes as follows (in thousands).
Year ended March 31, -------------------- 1993 ---- Accelerated depreciation $ (283) ITC utilized for tax reporting purposes 1,493 Revenue recognized for tax reporting purposes and deferred for financial reporting purposes (302) Other (49) ------ Total deferred tax provision $ 859 ======
As of March 31, 1995, the Company has an alternative minimum tax credit carryforward for tax reporting purposes of approximately $752,000. (5) LONG-TERM DEBT Long-term debt as of March 31, 1995 and 1994, consists of the following (in thousands):
Year ended March 31, ------------------------- 1995 1994 ---- ---- Notepayable to bank, due in quarterly installments of $177,906 plus interest at 8.58% through March 2005, secured by aircraft $ 7,116 $ - Note payable to bank, due in quarterly installments of $167,246 plus interest based on three month LIBOR (8.01% at March 31, 1995) through September 2003, secured by aircraft 5,686 6,355
18 Note payable to bank, due in monthly installments of $77,265 including interest at 7.33% through June 2003, secured by aircraft 5,728 6,215 Note payable to bank, due in monthly installments of $54,702 plus interest based on one month LIBOR (7.88% at March 31, 1995) through June 2003, secured by aircraft 5,416 6,072 Note payable to financing company, due in quarterly installments of $155,000 plus interest based on three month LIBOR (8.13% at March 31, 1995) through July 2003, secured by aircraft 5,270 5,890 Note payable to bank, due in semi-annual installments of $270,186 plus interest at 8.5% through May 2002, secured by aircraft 4,053 4,593 Note payable to bank, due in monthly installments of $9,269 including interest at 7.72%, paid in full during fiscal 1995 -- 539 Other 31 54 -------- -------- 33,300 29,718 Less - current maturities (3,747) (3,071) -------- -------- $ 29,553 $ 26,647 ======== ========
The aggregate amounts of principal maturities of long-term debt as of March 31, 1995, are as follows (in thousands): Year ending March 31, 1996 $ 3,747 1997 3,768 1998 3,805 1999 3,851 2000 3,900 Thereafter 14,229 ------- $33,300 =======
The Company had approximately $33.3 million of long-term debt that 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 subsidy payments reduce the stated interest rates to an average effective rate of approximately 4.8% at March 31, 1995. As of March 31, 1995, 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 8.75% at March 31, 1995. In addition, as of March 31, 1995, the Company had available $1,500,000 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 reduces to $1,000,000 on December 1, 1995, and will be reduced by an additional $500,000 on the first day of December of each year thereafter until December 1, 1997, at which time the facility expires. The Company's note payable 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, 1995, the Company was in compliance with all the debt covenants. 19 (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 contributed $1,869,000, $1,646,000 and $1,055,000 to the Plan for the years ended March 31, 1995, 1994 and 1993, 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. Shares will be 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. The Stock Purchase Plan will be effective July 1, 1995, therefore no amounts had been withheld or shares purchased as of March 31, 1995. (7) COMMITMENTS AND CONTINGENT LIABILITIES Purchase Commitments At March 31, 1995, the Company had agreed to purchase 12 EMB-120 aircraft and related spare parts inventory and support equipment at an aggregate future cost of approximately $85 million including estimated cost escalations. Subsequent to March 31, 1995, the Company agreed to purchase ten additional EMB-120 aircraft and related spare parts inventory and support equipment at an aggregate future cost of approximately $80 million. Seven of the total aircraft are scheduled to be delivered in fiscal year 1996 and the remaining 15 aircraft in fiscal year 1997. The Company will determine whether to finance the acquisition of the above aircraft through third party long-term loans or lease arrangements based upon circumstances existing immediately prior to each acquisition. 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 has agreed to acquire four Canadair Regional Jets and related spare parts inventory and support equipment at an aggregate cost of approximately $72 million. Two of these were delivered subsequent to year end and have been financed under long-term lease agreements. The remaining two jets are scheduled for delivery later in fiscal 1996. Management will determine whether to finance the acquisition of the remaining aircraft through third party long-term loans or lease arrangements based on circumstances existing immediately prior to each acquisition. Legal Matters The Company is the subject of certain legal actions, which it considers routine to its business activities. As of March 31, 1995, management believes that any potential liability to the Company under such actions will not materially effect the accompanying consolidated financial statements. Standby Letters of Credit As of March 31, 1995, the Company has outstanding letters of credit totaling approximately $1,236,000 in order to comply with requirements of certain airports, port authorities and workers compensation agreements. Cash and Cash Equivalents As of March 31, 1995, the Company has demand deposits and money market accounts totaling $609,000 with First Interstate Bank, $1,334,000 with Bank of America, $146,000 with Chase Manhattan Bank, $2,852,000 with Banc One and $5,695,000 with Zions First National Bank. These balances exceed the $100,000 limit for insurance by the 20 Federal Deposit Insurance Corporation. (8) STOCK OPTIONS Effective April 16, 1991, the Company's Board of Directors and Stockholders approved a merger of the previously existing incentive and nonqualified stock option plans into 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 will be granted at not less than 100% of the market value of the underlying common stock on the date of grant. Non-statutory stock options will be 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, 1994 and 1993.
Number of Price Per Share Options Range --------- --------------- Outstanding at March 31, 1992 356,625 $3.83-$4.58 Granted 78,750 $5.50 Exercised (182,438) $3.83-$4.58 Canceled (6,000) $5.50 -------- Outstanding at March 31, 1993 246,937 $3.83-$5.50 Granted 127,000 $16.67 Exercised (145,188) $3.83-$4.58 -------- Outstanding at March 31, 1994 228,749 $3.83-$16.67 Granted 232,500 $13.75-$33.25 Exercised (23,000) $3.83-$5.50 Canceled (2,500) $16.67-$33.25 -------- Outstanding at March 31, 1995 435,749 $3.83-$33.25 ========
As of March 31, 1995, there are 660,188 shares available for future grant of shares of common stock upon the exercise of stock options under the Option Plan. (9) 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, 1995, 1994, and 1993 were $817,000, $818,000 and $817,000, respectively. (10) 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. As of March 31, 1995, 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 $5,024,000, $3,493,000 and $3,309,000 during the years ended March 31, 1995, 1994 and 1993, respectively. The Company had a net payable to Delta of $941,000 as of March 31, 1995, and a net receivable from Delta of $2,810,000 as of March 31, 1994. 21 (11) COMMON STOCK Stock Dividend On April 9, 1993, the Company's Board of Directors declared a 50% stock dividend (one share for each two shares outstanding) payable to stockholders of record on April 22, 1993. The dividend was distributed on May 10, 1993. The Company paid cash in lieu of issuing fractional shares. All common shares and per share information in the accompanying consolidated financial statements have been retroactively adjusted to reflect this stock dividend. Stock Offerings On June 21, 1993, the Company completed a public offering of 1,875,000 shares of common stock which generated net proceeds of $28,802,000 after deducting underwriting commissions and other expenses. On July 7, 1993, the underwriters executed an overallotment option for 219,250 shares of common stock which generated net proceeds of $3,412,000 after deducting underwriting commissions. On February 16, 1994, the Company completed another public offering of 1,150,000 shares of common stock which generated net proceeds of $33,456,000 after deducting underwriting commissions and other expenses. A portion of the proceeds were used to fund the acquisition of Scenic Airlines (see Note 2) and to pay off certain long-term debt. The balance is being used for general corporate purposes. 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 year-end at an average price of $13.98. Additionally, 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. None of these shares had been repurchased prior to March 31, 1995. Subsequent Cash Dividend On May 26, 1995, the Company's Board of Directors declared a special cash dividend of $.17 per share payable to stockholders of record on June 16, 1995, distributable July 3, 1995. EX-24.1 6 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 26, 1995 included in SkyWest, Inc's Annual Report to Shareholders for the fiscal year ended March 31, 1995. We further consent to the incorporation of our report dated May 26, 1995, incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statement File No.'s 33-41285 and 33-60173. Arthur Andersen LLP Salt Lake City, Utah May 26, 1995 EX-27 7 FINANCIAL DATA SCHEDULE
5 1000 YEAR MAR-31-1995 APR-01-1994 MAR-31-1995 27,416 21,309 7,219 215 7,179 71,642 166,984 56,743 188,182 25,603 29,553 71,567 0 0 46,117 188,182 225,398 225,398 0 205,057 0 0 1,100 22,240 8,539 13,701 0 0 0 13,701 1.23 1.23
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