<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 number 0-14719
SKYWEST, INC.
Incorporated under the laws of Utah 87-0292166
(I.R.S. Employer ID No.)
444 South River Road
St. George, Utah 84790
(801) 634-3000
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at November 10, 1995
----- --------------------------------
<S> <C>
Common stock, no par value 10,324,632
</TABLE>
<PAGE> 2
SKYWEST, INC.
TABLE OF CONTENTS
Part I - Financial Information
<TABLE>
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
As of September 30, 1995 and
March 31, 1995 3
Condensed Consolidated Statements of
Income For the Three Months and Six
Months Ended September 30, 1995 and 1994 5
Condensed Consolidated Statements of
Cash Flows For the Six Months Ended
September 30, 1995 and 1994 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security 14
Holders
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
SKYWEST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
------------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 31,074 $ 27,416
Available-for sale securities 21,254 21,309
Receivables, net 11,125 7,004
Inventories 8,332 7,179
Other current assets 7,854 8,734
--------- ---------
Total current assets 79,639 71,642
--------- ---------
PROPERTY AND EQUIPMENT:
Flight equipment 135,466 127,004
Buildings and ground equipment 31,475 28,866
Deposits on flight equipment 8,008 9,265
Rental vehicles 2,944 1,849
--------- ---------
177,893 166,984
--------- ---------
Less-accumulated depreciation and
amortization (64,225) (56,743)
--------- ---------
113,668 110,241
--------- ---------
OTHER ASSETS 5,989 6,299
--------- ---------
$ 199,296 $ 188,182
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
SKYWEST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in Thousands)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
------------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 3,758 $ 3,747
Current portion of deferred credits 803 803
Trade accounts payable 18,004 13,789
Accrued payroll 5,290 4,647
Taxes other than income taxes 1,863 1,353
Air traffic liability 1,201 1,264
Income taxes payable 784 --
--------- ---------
Total current liabilities 31,703 25,603
--------- ---------
LONG-TERM DEBT, net of current maturities 27,670 29,553
--------- ---------
DEFERRED CREDITS, net of current portion 1,899 2,308
--------- ---------
DEFERRED INCOME TAXES PAYABLE 14,821 13,034
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock 87,733 87,658
Retained earnings 51,561 46,117
Treasury stock (16,091) (16,091)
--------- ---------
Total stockholders' equity 123,203 117,684
--------- ---------
$ 199,296 $ 188,182
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
SKYWEST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger $ 53,334 $ 48,971 $ 100,736 $ 95,277
Freight 1,118 970 2,163 1,933
Public service 562 571 1,115 1,184
Nonairline 14,161 15,039 25,542 26,028
------------ ------------ ------------ ------------
69,175 65,551 129,556 124,422
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Flying operations 21,961 17,057 41,068 33,354
Aircraft, traffic and passenger service 8,238 7,332 15,440 14,186
Maintenance 7,025 5,912 14,079 11,875
Promotion and sales 6,262 5,520 11,811 10,821
General and administrative 3,156 3,466 5,915 6,786
Depreciation and amortization 3,620 2,803 7,069 5,383
Nonairline 12,348 12,507 22,810 22,615
------------ ------------ ------------ ------------
62,610 54,597 118,192 105,020
------------ ------------ ------------ ------------
OPERATING INCOME 6,565 10,954 11,364 19,402
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (524) (380) (1,000) (527)
Interest income 644 721 1,313 1,287
Gain on sales of property and equipment 58 9 133 13
------------ ------------ ------------ ------------
178 350 446 773
------------ ------------ ------------ ------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 6,743 11,304 11,810 20,175
PROVISION FOR INCOME TAXES (2,634) (4,447) (4,612) (7,951)
------------ ------------ ------------ ------------
NET INCOME $ 4,109 $ 6,857 $ 7,198 $ 12,224
============ ============ ============ ============
NET INCOME PER COMMON SHARE $ .40 $ .60 $ .70 $ 1.07
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 10,323,311 11,464,235 10,321,156 11,460,444
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
SKYWEST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the
Six Months Ended
September 30,
-------------------------
1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,198 $ 12,224
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,069 5,383
Gain on sales of property and equipment (136) (13)
Maintenance expense related to disposition of rotable spares 113 112
Increase in deferred income taxes 1,787 1,186
Amortization of deferred credits (409) (409)
Nonairline depreciation and amortization 1,265 968
Changes in operating assets and liabilities:
(Increase) decrease in receivables, net (4,121) 600
Increase in inventories (1,153) (906)
Decrease (increase) in other current assets 880 (4,735)
Increase in trade accounts payable 4,215 3,713
Increase in other current liabilities 1,874 1,145
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,582 19,268
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of available-for-sale securities 55 (8,635)
Acquisition of property and equipment:
Aircraft and rotable spares (8,909) (7,546)
Deposits on flight equipment (3,053) (3,792)
Buildings and ground equipment (2,609) (2,545)
Rental vehicles (2,012) (696)
Proceeds from sales of property and equipment 893 121
Decrease in deposits on aircraft and rotable spares 4,310 --
Increase in other assets (48) (60)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (11,373) (23,153)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 75 143
Payment of cash dividends (1,754) (2,292)
Reduction of long-term debt (1,872) (2,033)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (3,551) (4,182)
-------- --------
Increase (decrease) in cash and cash equivalents 3,658 (8,067)
Cash and cash equivalents at beginning of period 27,416 56,402
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 31,074 $ 48,335
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 964 $ 928
Income taxes 2,524 6,379
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
SKYWEST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Consolidated Financial Statements
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. These condensed consolidated financial
statements reflect all adjustments which, in the opinion of management, are
necessary to present fairly the results of operations for the interim periods
presented. All adjustments are of a normal recurring nature. Certain information
and disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
following disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed consolidated financial
statements be read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's latest annual report on Form 10-K.
The results of operations for the three and six months ended September 30, 1995,
are not necessarily indicative of the results that may be expected for the year
ending March 31, 1996.
Note B - Marketable Securities
Marketable securities are carried at the lower of aggregate cost or market
value.
Note C - Income Taxes
For the six months ended September 30, 1995 and 1994, the Company provided for
income taxes based upon the estimated annualized effective tax rate after giving
effect to available investment tax credits. Investment tax credits have been
accounted for by the flow-through method. Effective April 1, 1993, the Company
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS No. 109). The Company has classified the net current and
noncurrent deferred tax assets and liabilities in accordance with SFAS No. 109
which at September 30, 1995 included a current deferred tax asset of
approximately $1.6 million and a deferred tax liability of approximately $14.8
million.
Note D - Net Income Per Common Share
Net income per common share is calculated based upon the weighted average shares
outstanding during the periods. No material dilution results from common stock
equivalents which are outstanding options to purchase common stock.
Note E - Financial Information Relating to Business Segments
Nonairline revenues and expenses as included in the Condensed Consolidated
Financial Statements 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. NPT
provides car rental services through a fleet of Avis vehicles located at five
airports served by SkyWest Airlines, Inc. The following information presents the
impact of this segment of business on the accompanying Condensed Consolidated
Financial Statements.
7
<PAGE> 8
SKYWEST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
September 30, September 30,
(in 000's) (in 000's)
---------------------- ----------------------
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating revenues $14,161 $15,039 $25,542 $26,028
Operating income 1,813 2,533 2,732 3,414
Depreciation and amortization 687 408 1,265 968
Capital expenditures 2,025 397 6,441 1,925
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1995 As of September 30, 1994
------------------------ ------------------------
<S> <C> <C>
Identifiable assets $28,933 $21,936
======= =======
</TABLE>
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
<TABLE>
<CAPTION>
Operating Statistics
For the For the
Three Months Ended Six Months Ended
September 30, September 30,
------------------------------------- ------------------------------------------
1995 1994 % Change 1995 1994 % Change
--------- --------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Passengers carried 608,003 556,293 9.3% 1,142,563 1,093,075 4.5%
Revenue passenger miles (000s) 165,870 136,088 21.9% 300,958 260,851 15.4%
Available seat miles (000s) 333,683 252,000 32.4% 625,497 498,255 25.5%
Passenger load factor 49.7% 54.0% (4.3) pts 48.1% 52.4% (4.3) pts
Passenger breakeven load factor 45.9% 45.4% .5 pts 44.6% 44.2% .4 pts
Yield per revenue passenger mile $ .322 $ .360 (10.6%) $ .335 $ .365 (8.2%)
Cost per available seat mile $ .152 $ .168 (9.5%) $ .154 $ .166 (7.2%)
Average passenger trip (miles) 273 245 11.4% 263 239 10.0%
</TABLE>
For the Three Months Ended September 30, 1995 and 1994
For the quarter ended September 30, 1995, the Company experienced continued
growth in available seat miles ("ASMs") and revenue passenger miles ("RPMs") due
to additional aircraft deliveries. Operating revenues increased to $69.2 million
for the quarter ended September 30, 1995, compared to $65.6 million for the
quarter ended September 30, 1994. Nonairline revenues decreased to $14.2 for the
quarter ended September 30, 1995, compared to $15.0 million for the quarter
ended September 30, 1994. Net income was $4.1 million or $.40 per share for the
quarter ended September 30, 1995, compared to $6.9 million or $.60 per share for
the quarter ended September 30, 1994.
Passenger revenues, which represented 77.1 percent of total operating revenues,
increased 8.9 percent to $53.3 million for the quarter ended September 30, 1995,
compared to $49.0 million or 74.7 percent of total operating revenues for the
quarter ended September 30, 1994. The increase is attributable to a 21.9 percent
increase in RPMs which was offset by a 10.6 percent decrease in yield per RPM.
ASMs increased 32.4 percent due to the acquisition of three cabin-class Brasilia
aircraft which have replaced Metroliner aircraft as their leases terminated.
However, RPM growth did not increase at the same pace as ASM growth due to the
following three factors: (1) a lingering resistance of travel agents toward
booking passengers in the Delta Air Lines system after Delta Air Lines
instigated commission caps last spring; (2) the competitive disadvantage of the
Metroliner aircraft in addition to the growing reluctance of passengers to book
flights on Metroliner aircraft which do not have cabin-class amenities; and (3)
the impact of a May 1 schedule change that reduced Delta daily departures in Los
Angeles from 86 flights to 59 flights which reduced the Company's connection
opportunities as well as the Company's competitors in Los Angeles using upgraded
equipment with stand up head room. As a result of the above, load factor
decreased 4.3 points from 54.0 percent for the quarter ended September 30, 1995,
to 49.7 percent which was the primary factor for lower revenue per ASM.
Yield per RPM decreased 10.6 percent to $.322 for the quarter ended September
30, 1995, compared to $.360 for the quarter ended September 30, 1994 primarily
as a result of an increase in average passenger trip length due to the regional
jets averaging 492 miles and continued fare restructuring to respond proactively
to the ongoing indirect pressure from low-fare carriers.
Nonairline revenues for the quarter were disappointing, decreasing 5.8 percent
for the quarter ended September 30, 1995, from $15.0 million to $14.2 million.
Two of the three months of the quarter are typically peak operating months for
the Company's seasonal entity, Scenic Airlines, Inc.; however, revenues
decreased due to the following factors: (1) soft traffic resulting from a
decrease in Asian market travel; (2) increased competition and lack of product
differentiation from the touring packages offered by the Company's competitors;
and (3) negative publicity regarding the safety of Grand Canyon tour operators.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Total operating expenses and interest increased 14.8 percent to $63.1 million
for the quarter ended September 30, 1995 compared to $55.0 million for the
quarter ended September 30, 1994. As a percentage of consolidated operating
revenues, total operating expenses and interest increased to 91.3 percent for
the quarter ended September 30, 1995, from 83.9 percent for the comparable
quarter ended September 30, 1994. For the quarter ended September 30, 1995,
total airline operating expenses and interest (excluding nonairline expenses)
were 92.3 percent of airline revenues compared to 84.1 percent for the quarter
ended September 30, 1994. Operating expenses increased at a higher percentage
than operating revenues which caused margin to decline. However, the Company did
not experience unexpected or unusual cost increases relative to the ASM
production. As a result of increased regional jet operations together with the
continued cost reduction measures, airline operating costs per ASM (including
interest expense) decreased to 15.2(cent) for the quarter ended September 30,
1995, from 16.8(cent) for the comparable quarter ended September 30, 1994.
Factors relating to the change in operating expenses and interest are discussed
below.
Salaries, wages and employee benefits increased as a percentage of airline
operating revenues to 26.1 percent for the quarter ended September 30, 1995,
from 25.9 percent for the quarter ended September 30, 1994. This percentage
increased as a result of decreased revenue per ASM and an increase in the
average number of full-time equivalent employees. The average number of
full-time equivalent employees for the quarter ended September 30, 1995 was
2,058, compared to 1,823 for the quarter ended September 30, 1994. The increase
in number of personnel was due to hiring pilots, flight attendants and customer
service personnel to support increased Brasilia and regional jet operations.
Salaries, wages and employee benefits per ASM decreased to 4.3(cent) for the
quarter ended September 30, 1995, compared to 5.2(cent) for the quarter ended
September 30, 1994, primarily due to the increased ASMs generated from increased
regional jet operations.
Aircraft costs, including aircraft rent and depreciation, increased as a
percentage of airline operating revenues to 20.0 percent for the quarter ended
September 30, 1995 from 17.4 percent for the quarter ended September 30, 1994.
The increase is due to higher acquisition costs for regional jets as well as
additional Brasilia aircraft. Aircraft costs per ASM decreased to 3.3(cent) for
the quarter ended September 30, 1995, compared to 3.5(cent) for the quarter
ended September 30, 1994 due to the increase in ASMs generated from regional jet
operations.
Maintenance expenses increased as a percentage of airline operating revenues to
9.2 percent for the quarter ended September 30, 1995, compared to 8.2 percent
for the quarter ended September 30, 1994. The slight increase is due to
increased regional jet operations, wherein the Company uses the accrual method
in accounting for jet engine overhauls. This increase was somewhat offset by the
utilization of more Brasilia aircraft which are more efficient than Metroliner
aircraft. Maintenance expenses per ASM decreased slightly to 1.8(cent) for the
quarter ended September 30, 1995, from 1.6 (cent) for the quarter ended
September 30, 1994.
Fuel costs increased as a percentage of airline operating revenues to 10.9
percent for the quarter ended September 30, 1995, from 8.2 percent for the
quarter ended September 30, 1994, primarily due to an increase in the average
fuel price per gallon to 78(cent) from 75(cent). Fuel costs per ASM increased
slightly to 1.8 (cent) for the quarter September 30, 1995, from 1.6 (cent) for
the quarter ended September 30, 1994. On October 1, 1995, an exemption of
4.3(cent) per gallon on aviation fuel taxes expired; however, it is likely that
an extension for as much as three years will be granted.
Interest expense increased as a percentage of airline operating revenues to 1.0
percent for the quarter ended September 30, 1995, from .8 percent for the
quarter ended September 30, 1994. The increase was primarily due to debt
financing of additional Brasilia aircraft.
Other expenses, primarily consisting of commissions, landing fees, station
rentals, computer reservation system fees and hull and liability insurance,
increased as a percentage of airline operating revenues to 25.1 percent for the
quarter ended September 30, 1995, from 23.6 percent for the quarter ended
September 30, 1994. The increase was due primarily to significant increases in
customer reservation system booking fees.
Nonairline expenses decreased 1.3 percent to $12.3 million for the quarter ended
September 30, 1995, compared to $12.5 million for the quarter ended September
30, 1994. The number of full-time equivalent employees increased 14.0 percent to
308 for the quarter ended September 30, 1995, from 265 for the quarter ended
September 30, 1994.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
For the Six Months Ended September 30, 1995 and 1994:
For the six months ended September 30, 1995, the Company experienced increases
in ASMs and RPMs in comparison to the six months ended September 30, 1994, which
was primarily the result of regional jet operations. Operating revenues
increased 4.1 percent to $129.6 million for the six months ended September 30,
1995, compared to $124.4 million for the six months ended September 30, 1994.
Nonairline revenues decreased 1.9 percent to $25.5 million for the six months
ended September 30, 1995, compared to $26.0 million for the six months ended
September 30, 1994. Interest expense increased 89.8 percent to $1.0 million for
the six months ended September 30, 1995, from $.5 million for the six months
ended September 30, 1994, as a result of additional debt financing on Brasilia
aircraft. Net income was $7.2 million or $.70 per share for the six months ended
September 30, 1995, compared to $12.2 million or $1.07 per share for the six
months ended September 30, 1994.
Passenger revenues, which represented 77.8 percent of total operating revenues,
increased 5.7 percent to $100.7 million for the six months ended September 30,
1995, compared to $95.3 million or 76.6 percent of total operating revenues for
the six months ended September 30, 1994. The increase is attributable to a 15.4
percent increase in RPMs which was offset by an 8.2 percent decrease in yield
per RPM. ASMs increased 25.5 percent due to the acquisition of three cabin-class
Brasilia aircraft which have replaced Metroliner aircraft as their leases
terminated. However, RPM growth did not increase at the same pace as ASM growth
due to the following three factors: (1) a lingering resistance of travel agents
toward booking passengers in the Delta Air Lines system after Delta Air Lines
instigated commission caps last spring; (2) the competitive disadvantage of the
Metroliner aircraft in addition to the growing reluctance of passengers to book
flights on the Metroliner aircraft which do not have cabin-class amenities; and
(3) the impact of a May 1 schedule change that reduced Delta daily departures in
Los Angeles from 86 flights to 59 flights which reduced the Company's connection
opportunities as well as the Company's competitors in Los Angeles using upgraded
equipment with stand up head room. As a result of the above, load factor
decreased 4.3 points to 48.1 percent for the six months ended September 30,
1995, compared to 52.4 percent for the six months ended September 30, 1994,
which was the primary factor for lower revenue per ASM.
Yield per RPM decreased 8.2 percent to $.335 for the six months ended September
30, 1995, compared to $.365 for the quarter ended September 30, 1994, primarily
as a result of an increase in average passenger trip length due to the regional
jets averaging 482 miles and continued fare restructuring to respond proactively
to the ongoing indirect pressure from low-fare carriers.
Nonairline revenues for the six months decreased 1.9 percent for the quarter
ended September 30, 1995, to $25.5 million from $26.0 million for the same six
months ended September 30, 1994. Revenues decreased due to the following
reasons: (1) soft traffic resulting from a decrease in Asian market travel; (2)
increased competition and lack of product differentiation from the touring
packages offered by the Company's competitors; and (3) negative publicity
regarding the safety of Grand Canyon tour operators.
Total operating expenses and interest increased 12.9 percent to $119.2 million
for the six months ended September 30, 1995, compared to $105.5 million for the
six months ended September 30, 1994. As a percentage of consolidated operating
revenues, total operating expenses and interest increased to 92.0 percent for
the six months ended September 30, 1995, from 84.8 percent for the comparable
six months ended September 30, 1994. Operating expenses increased at a higher
percentage than operating revenues which caused margins to decline. However, the
Company did not experience unexpected or unusual cost increases relative to the
ASM production. As a result of increased regional jet operations together with
the continued cost reduction measures, airline operating costs per ASM
(including interest expenses) decreased to 15.4(cent) for the six months ended
September 30, 1995, from 16.6(cent) for the comparable six months ended
September 30, 1994. Factors relating to the increase in operating expenses and
interest are discussed below.
Salaries, wages and employee benefits increased as a percentage of airline
operating revenues to 26.1 percent for the six months ended September 30, 1995,
from 25.8 percent for the six months ended September 30, 1994. This percentage
increased as a result of decreased revenue per ASM and an increase in the
average number of full-time equivalent employees. The average number of
full-time equivalent employees for the six months ended September 30, 1995, was
2,036, compared to 1,811 for the six months ended September 30, 1994. The
increase in number of personnel was due to hiring pilots, flight attendants and
customer service personnel to support increased Brasilia and regional jet
operations. Salaries, wages and employee benefits per ASM decreased to 4.3(cent)
for the six months ended September 30, 1995, compared to 5.1(cent) for the six
months ended September 30, 1994, primarily due to the increase in ASMs generated
from increased regional jet operations.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Aircraft costs, including aircraft rent and depreciation, increased as a
percentage of airline operating revenues to 20.4 percent for the six months
ended September 30, 1995, from 17.4 percent for the six months ended September
30, 1994. The increase is due to higher acquisition costs for regional jets as
well as additional Brasilia aircraft. Aircraft costs per ASM remained constant
at 3.4(cent) for the six months ended September 30, 1995, as well as for the six
months ended September 30, 1994, due to the increased ASMs generated from
regional jet operations.
Maintenance expenses increased as a percentage of airline operating revenues to
9.8 percent for the six months ended September 30, 1995, compared to 8.6 percent
for the six months ended September 30, 1994. The slight increase is due to
increased regional jet operations, wherein the Company uses the accrual method
in accounting for jet engine overhauls. This increase was somewhat offset by the
utilization of more Brasilia aircraft which are more efficient than Metroliner
aircraft. Maintenance expenses per ASM decreased slightly to 1.6(cent) for the
six months ended September 30, 1995, from 1.7(cent) for the six months ended
September 30, 1994.
Fuel costs increased as a percentage of airline operating revenues to 10.2
percent for the six months ended September 30, 1995, from 8.2 percent for the
six months ended September 30, 1994, primarily due to an increase in the average
fuel price per gallon to 76(cent) from 72(cent). Fuel costs per ASM increased
slightly to 1.7(cent) for the six months ended September 30, 1995, from
1.6(cent) for the six months ended September 30, 1994. On October 1, 1995, an
exemption of 4.3(cent) per gallon on aviation fuel taxes expired; however, it is
likely that an extension for as much as three years will be granted.
Interest expense increased as a percentage of airline operating revenues to 1.0
percent for the six months ended September 30, 1995, from .5 percent for the six
months ended September 30, 1994. The increase was primarily due to interest
expense charges on interim short-term loans on regional jets which was offset by
lower aircraft rents. Subsequently, the interim loans were replaced with
long-term operating leases.
Other expenses, primarily consisting of commissions, landing fees, station
rentals, computer reservation system fees and hull and liability insurance,
increased as a percentage of airline operating revenues to 25.1 percent for the
six months ended September 30, 1995, from 23.8 percent for the six months ended
September 30, 1994. The increase was due primarily to significant increases in
customer reservation system booking fees.
Nonairline expenses increased .9 percent to $22.8 million for the six months
ended September 30, 1995, compared to $22.6 million for the six months ended
September 30, 1994. The number of full-time equivalent employees increased 16.5
percent to 304 for the six months ended September 30, 1995, from 261 for the six
months ended September 30, 1994.
Liquidity and Capital Resources
The Company had working capital of $47.9 million and a current ratio of 2.5:1 at
September 30, 1995, compared to working capital of $46.0 million and a current
ratio of 2.8:1 at March 31, 1995. During the first six months of fiscal 1996,
the Company invested $12.0 million in flight equipment, $4.7 million in
buildings, ground equipment and other assets as well as reduced long-term debt
by $1.9 million and paid dividends of $1.8 million. The principal source of
funds during the first six months of fiscal 1996 was $18.6 million provided by
operating activities, a return of $4.3 million in deposits on aircraft and $1.2
million from sale of other assets. These factors resulted in a $3.7 million cash
and cash equivalents increase.
At September 30, 1995, the Company's long-term debt to equity position was 18
percent debt and 82 percent equity compared to 20 percent debt and 80 percent
equity at March 31, 1995.
SkyWest has taken delivery of two new Brasilia aircraft during the first six
months of fiscal 1996 and has agreed to purchase 20 additional Brasilia aircraft
and related spare parts inventory and support equipment at a future aggregate
cost of approximately $150 million, including estimated cost escalations. Five
more Brasilia aircraft are scheduled for delivery in fiscal 1996 and the
remaining fifteen are scheduled for delivery in fiscal 1997.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
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. Both of these
Canadair Regional Jets are scheduled for delivery in January 1996. Two Canadair
Regional Jets were delivered during the first quarter of fiscal 1996 and have
been financed under long-term lease arrangements.
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 loans or lease
arrangements. The Company also has options to acquire 10 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 December 1995 and
five are exercisable through July 1996.
As required by an FAA directive, all aircraft with 30 seats or more are to be
equipped with traffic alert and collision avoidance systems by 1995. The Company
estimates the cost to be approximately $1.4 million for the existing aircraft
fleet. The Company is funding these expenditures from cash reserves and
internally generated funds.
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 8.5
percent at September 30, 1995. In addition, the Company has available $2.0
million in a reducing revolving credit facility bearing interest at the bank's
base rate plus one half percent. The amount available under the facility reduces
to $1.5 million on December 1, 1995, and will be reduced by an additional
$500,000 on the 1st day of December on each year thereafter until December 1,
1997, at which time the facility expires. There were no amounts outstanding on
either of the facilities as of September 30, 1995.
13
<PAGE> 14
PART II. OTHER INFORMATION
SKYWEST, INC.
Item 4: Submission of Matters to a Vote of Security Holders
The registrant held its Annual Meeting of Shareholders on August 8, 1995. The
shareholders elected the following Board of Directors to serve for one year:
<TABLE>
<CAPTION>
Name Shares Voted For
---- ----------------
<S> <C>
Jerry C. Atkin 8,610,179
Sidney J. Atkin 8,608,419
J. Ralph Atkin 8,597,210
Mervyn K. Cox 8,610,357
W. Martin Braham 8,610,999
Ian M. Cumming 8,209,367
Steven F. Udvar-Hazy 8,609,459
Hyrum W. Smith 8,510,752
Henry J. Eyring 8,608,172
</TABLE>
The shareholders ratified the adoption of SkyWest's Allshare Incentive Stock
Option Plan by a vote of 6,547,159 shares for and 1,130,703 against.
The shareholders ratified the adoption of the SkyWest, Inc. 1995 Employee Stock
Purchase Plan by a vote of 7,498,726 shares for and 98,877 against.
The shareholders also ratified the appointment of Arthur Andersen LLP as
independent auditors for fiscal year 1996 by a vote of 8,896,187 shares for and
16,981 against.
Item 6:
a. Exhibits - None
b. Reports on Form 8-K - There were no reports on Form 8-K filed
during the quarter ended September 30, 1995.
14
<PAGE> 15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SKYWEST, INC.
Registrant
November 10, 1995 BY: /s/ Bradford R. Rich
-------------------------------------
Bradford R. Rich
Executive Vice President - Finance,
Chief Financial Officer and Treasurer
15
<PAGE> 16
Exhibit
No. Exhibit Description
- ------- -------------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000793733
<NAME> SKY WEST, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 31,074
<SECURITIES> 21,254
<RECEIVABLES> 11,340
<ALLOWANCES> 215
<INVENTORY> 8,332
<CURRENT-ASSETS> 79,639
<PP&E> 177,893
<DEPRECIATION> 64,225
<TOTAL-ASSETS> 199,296
<CURRENT-LIABILITIES> 31,703
<BONDS> 27,670
<COMMON> 71,642
0
0
<OTHER-SE> 51,561
<TOTAL-LIABILITY-AND-EQUITY> 199,296
<SALES> 69,175
<TOTAL-REVENUES> 69,175
<CGS> 0
<TOTAL-COSTS> 62,610
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 524
<INCOME-PRETAX> 6,743
<INCOME-TAX> 2,643
<INCOME-CONTINUING> 4,109
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,109
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
