<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 December 31, 1994
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 84770-2086
(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 February 9, 1995
----- -------------------------------
<S> <C>
Common stock, no par value 10,318,056
</TABLE>
<PAGE> 2
SKYWEST, INC.
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
As of December 31, 1994 and
March 31, 1994 3
Condensed Consolidated Statements of
Income For the Three Months and Nine
Months Ended December 31, 1994 and 1993 5
Condensed Consolidated Statements of
Cash Flows For the Nine Months Ended
December 31, 1994 and 1993 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 6. Exhibits and Reports on Form 8-K 14
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
SKYWEST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1994 1994
------------ ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 34,524 $ 56,402
Marketable securities 21,179 11,549
Receivables, net 6,680 9,796
Inventories 6,616 5,874
Other current assets 5,828 3,467
-------- --------
Total current assets 74,827 87,088
-------- --------
PROPERTY AND EQUIPMENT:
Flight equipment 116,867 106,267
Buildings and ground equipment 27,369 23,015
Deposits on flight equipment 9,449 5,887
Rental vehicles 1,853 1,124
-------- --------
155,538 136,293
Less-accumulated depreciation and
amortization (55,062) (46,331)
-------- --------
100,476 89,962
-------- --------
OTHER ASSETS 6,795 6,967
-------- --------
$182,098 $184,017
======== ========
</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>
December 31, March 31,
1994 1994
------------ ---------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 3,026 $ 3,071
Current portion of deferred credits 803 803
Trade accounts payable 13,933 10,027
Accrued payroll 3,774 3,955
Air traffic liability 1,589 1,618
Taxes other than income taxes 642 999
-------- --------
Total current liabilities 23,767 20,473
-------- --------
LONG-TERM DEBT, net of current maturities 23,773 26,647
-------- --------
DEFERRED CREDITS, net of current portion 2,512 3.125
-------- --------
DEFERRED INCOME TAXES PAYABLE 13,150 10,984
-------- --------
STOCKHOLDERS' EQUITY:
Common stock 87,591 87,245
Treasury stock (14,675) -
Retained earnings 45,980 35,543
-------- ---------
Total stockholders' equity 118,896 122,788
-------- --------
$182,098 $184,017
======== ========
</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 Nine Months Ended
December 31, December 31,
-------------------------- -------------------------
1994 1993 1994 1993
------- ------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger $41,190 $37,500 $136,467 $110,338
Freight 909 801 2,842 2,321
Public service 445 469 1,335 1,335
Nonairline 8,904 7,762 35,226 24,902
------- ------- -------- --------
51,448 46,532 175,870 138,896
------- ------- -------- --------
OPERATING EXPENSES:
Flying operations 16,876 12,906 50,230 38,945
Aircraft, traffic and passenger service 7,136 5,714 21,322 16,425
Maintenance 6,671 5,272 18,546 15,830
Promotion and sales 4,757 3,963 15,578 11,961
General and administrative 2,459 3,011 9,245 8,849
Depreciation and amortization 3,142 2,423 8,525 6,478
Nonairline 8,789 7,973 31,404 21,796
------- ------- -------- --------
49,830 41,262 154,850 120,284
------- ------- -------- --------
OPERATING INCOME 1,618 5,270 21,020 18,612
------- ------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (149) (562) (676) (1,583)
Interest income 762 219 2,049 604
Gain on sales of property and equipment 120 32 133 42
------- ------- -------- --------
733 (311) 1,506 (937)
------- ------- -------- --------
INCOME BEFORE PROVISION
FOR INCOME TAXES 2,351 4,959 22,526 17,675
PROVISION FOR INCOME TAXES (929) (1,983) (8,880) (6,957)
------- ------- -------- --------
NET INCOME $ 1,422 $ 2,976 $ 13,646 $ 10,718
======= ======= ======== ========
NET INCOME PER COMMON SHARE $ .13 $ .29 $ 1.20 $ 1.12
======= ======= ======== ========
WEIGHTED AVERAGE SHARES 11,155,719 10,241,292 11,358,500 9,567,638
========== ========== ========== =========
</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
Nine Months Ended
December 31,
---------------------------
1994 1993
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,646 $ 10,718
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,525 6,478
Gain on sales of property and equipment (133) (42)
Maintenance expense related to disposition of rotable spares 179 101
Increase in deferred income taxes 2,166 3,798
Amortization of deferred credits (613) (613)
Nonairline depreciation and amortization 1,478 1,152
Tax benefit from exercise of common stock options 182 821
Changes in operating assets and liabilities:
Decrease in receivables 3,116 1,053
(Increase) decrease in inventories (742) 217
Increase in other current assets (2,361) (1,530)
Increase in trade accounts payable 2,988 1,155
Decrease in other current liabilities (567) (61)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 27,864 23,247
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (9,630) (9,421)
Acquisition of property and equipment:
Flight equipment (11,314) (32,202)
Deposits on flight equipment (5,697) (3,495)
Buildings and ground equipment (4,354) (1,462)
Rental vehicles (1,831) (1,123)
Proceeds from sales of property and equipment 1,026 445
Decrease in deposits on flight equipment 2,135 -
Increase in other assets (355) (4,251)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (30,020) (51,509)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 164 32,734
Purchase of treasury stock (14,675) -
Payment of cash dividends (2,292) (1,027)
Reduction of long-term debt (2,919) (14,846)
Proceeds from long-term debt - 25,962
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (19,722) 42,823
-------- --------
Increase (decrease) in cash and cash equivalents (21,878) 14,561
Cash and cash equivalents at beginning of period 56,402 9,833
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 34,524 $ 24,394
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,372 $ 1,424
Income taxes 6,917 4,244
</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 nine
months ended December 31, 1994 are not necessarily indicative of the results
that may be expected for the year ending March 31, 1995.
Note B - Marketable Securities
Marketable securities are carried at the lower of cost or market value.
Note C - Income Taxes
For the nine months ended December 31, 1994 and 1993, 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 adoption of SFAS No. 109 had
no effect on pretax income or net income for the nine months ended December 31,
1993. The Company has classified the net current and noncurrent deferred tax
assets and liabilities in accordance with SFAS No. 109 which at December 31,
1994 included a current deferred tax asset of approximately $1.3 million and a
deferred tax liability of approximately $13.1 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 - Acquisition of the Flight Tour Operations of Scenic Airlines, Inc.
On June 15, 1993, Aviation Services West, Inc. ("ASW"), a wholly-owned
subsidiary of the Company, 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, Nevada and the Grand Canyon using VistaLiner aircraft. Subsequent
to the acquisition, ASW changed its name to Scenic Airlines, Inc. ("Scenic")
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.
7
<PAGE> 8
SKYWEST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note F - Financial Information Relating to Business Segments
Nonairline revenues and expenses as included in the Condensed Consolidated
Financial Statements primarily represent the operations of 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 the flight tour operations of Scenic Airlines, Inc. (See Note E
to the Condensed Consolidated Financial Statements) has approximately tripled
the size of this segment of the business. 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.
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
December 31, December 31,
(in 000's) (in 000's)
--------------------------- ---------------------------
1994 1993 1994 1993
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues $ 8,739 $ 7,616 $ 34,767 $ 24,523
Operating income (loss) (51) (357) 3,363 2,727
Depreciation and amortization 510 438 1,478 1,151
Capital expenditures 1,866 519 3,791 7,302
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1994 As of December 31, 1993
------------------------ ------------------------
<S> <C> <C>
Identifiable assets $ 20,230 $ 17,017
======== ========
</TABLE>
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
<TABLE>
<CAPTION>
Airline Operating Statistics
For the For the
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------------------- -----------------------------------
1994 1993 % Change 1994 1993 % Change
-------- ------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Passengers carried 504,128 440,579 14.4% 1,597,203 1,264,519 26.3%
Revenue passenger miles (000s) 117,052 88,123 32.8% 377,903 251,882 50.0%
Available seat miles (000s) 238,907 182,843 30.7% 737,162 539,107 36.7%
Passenger load factor 49.0% 48.2% 0.8 pts 51.3% 46.7% 4.6 pts
Passenger breakeven load factor 47.3% 41.9% 5.4pts 45.1% 40.8% 4.3 pts
Yield per revenue passenger mile $ .352 $ .426 (17.4%) $ .361 $ .438 (17.6%)
Cost per available seat mile $ .172 $ .185 (7.0%) $ .168 $ .185 (9.2%)
Average passenger trip (miles) 232 200 16.0% 237 199 19.1%
</TABLE>
For the Three Months Ended December 31, 1994 and 1993
For the quarter ended December 31, 1994, the Company experienced significant
increases in available seat miles ("ASMs") and revenue passenger miles ("RPMs")
in comparison to the quarter ended December 31, 1993. Operating revenues
increased 10.6 percent to $51.4 million for the quarter ended December 31,
1994, compared to $46.5 million for the quarter ended December 31, 1993.
Nonairline revenues increased 14.7 percent to $8.9 million for the quarter
ended December 31, 1994, compared to $7.8 million for the quarter ended
December 31, 1993. Interest expense decreased 73.5 percent to $.1 million for
the quarter ended December 31, 1994, from $.6 million for the quarter ended
December 31, 1993, as the result of the Company reducing its effective interest
rate on debt by replacing higher interest debt, on Brasilia aircraft, with
lower interest debt subsidized by the Federative Republic of Brazil. Interest
income increased 247.9 percent to $.8 million for the quarter ended December
31, 1994, compared to $.2 million for the quarter ended December 31, 1993. The
increase is due to an overall increase in the Company's cash and marketable
securities from the completion of public offerings of the Company's Common
Stock during fiscal 1994 and the increase in prevailing interest rates. Net
income was $1.4 million or $.13 per share for the quarter ended December 31,
1994, compared to $3.0 million or $.29 per share for the quarter ended December
31, 1993.
Passenger revenues, which represented 80.1 percent of total operating revenues,
increased 9.8 percent to $41.2 million for the quarter ended December 31, 1994,
compared to $37.5 million or 80.6 percent of total operating revenues for the
quarter ended December 31, 1993. The increase is attributable to a 32.8
percent increase in RPM's. The increase in RPM's is due to four new regional
jets being utilized in operations and from the acquisition of three new
cabin-class Brasilia aircraft which are being used to replace Metro aircraft
as their leases terminate. Yield per RPM decreased 17.4 percent to $.352
for the quarter ended December 31, 1994, compared to $.426 for the quarter
ended December 31, 1993, primarily due to three factors; 1) a 16 percent
increase in the average passenger trip length due to the introduction of the
Canadair Regional Jet wherein the average trip length is 425 miles, 2)
continued refinements in the total revenue management system where seats are
made available based on historical demand as well as future booking curves and
3) restructured fares in approximately 20 markets to proactively respond to the
indirect competition from low-fare carriers.
Although passenger load factor increased to 49.0 percent for the quarter ended
December 31, 1994, from 48.2 percent for the quarter ended December 31, 1993,
the passenger traffic was lower than management expected. Passenger traffic
fell short due to the following factors; 1) negative publicity regarding
regional airlines, 2) an increased number of canceled flights due to equipment
dispatch reliability, 3) inclement weather throughout the system and 4) the
impact of indirect competition from low-fare carriers.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Due to passenger enplanements being lower than expected which resulted in lower
revenues, the positive spread between actual and breakeven load factor
decreased to 1.7 points for the quarter ended December 31, 1994, compared to
6.3 points for the quarter ended December 31, 1993.
For the quarter ended December 31, 1994, total airline operating expenses and
interest (excluding nonairline expenses) were 80.1 percent of consolidated
operating revenues compared to 72.7 percent for the comparable quarter ended
December 31, 1993. This percentage increased because passenger enplanements
did not meet management's expectation which resulted in decreased revenues and
was not due to the Company experiencing unexpected or unusual cost increases
relative to the ASM production. As a result of the new regional jet operations,
together with continued cost reduction measures, airline operating costs per ASM
(including interest expense) decreased to 17.2c. for the quarter ended December
31, 1994 from 18.5c. for the comparable quarter ended December 31, 1993. Total
operating expenses and interest increased 19.5 percent to $50.0 million for the
quarter ended December 31, 1994, compared to $41.8 million for the quarter ended
December 31, 1993. Approximately 10 percent of the $8.2 million increase in
such expense was related to the nonairline operations and 60 percent was related
to the operations of the new regional jets. As a percentage of consolidated
operating revenues, total operating expenses and interest increased to 97.1
percent for the quarter ended December 31, 1994, compared to 89.9 percent for
the comparable quarter ended December 31, 1993, as a result of factors discussed
below.
Salaries, wages, and employee benefits decreased as a percentage of
consolidated operating revenues to 23.5 percent for the quarter ended December
31, 1994, from 24.1 percent for the quarter ended December 31, 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 for the quarter ended December 31, 1994 was 2,076,
compared to 1,844 for the quarter ended December 31, 1993. The increase in the
number of personnel was primarily due to hiring pilots, flight attendants and
customer service personnel to support new regional jet operations. Salaries,
wages and employee benefits per ASM decreased to 5.1c. for the quarter ended
December 31, 1994, compared to 6.1c. for the quarter ended December 31, 1993,
primarily due to the increased ASM's generated from regional jet operations.
Aircraft costs, including aircraft rent and depreciation, increased as a
percentage of consolidated operating revenues to 17.3 percent for the quarter
ended December 31, 1994 from 13.8 percent for the quarter ended December 31,
1993. The increase is due to higher rent amounts on the regional jets as well
as additional Brasilia aircraft. Aircraft costs per ASM increased to 3.7c. for
the quarter ended December 31, 1994, from 3.5c. for the quarter ended December
31, 1993.
Maintenance expense increased as a percentage of consolidated operating
revenues to 9.4 percent for the quarter ended December 31, 1994, compared to
7.8 percent for the quarter ended December 31, 1993. The increase is due to
use of the accrual method for regional jet engine overhauls, change in vendors
supplying parts and increased parts usage in certain categories. Maintenance
expense per ASM remained constant at 2.0c. for the quarters ended December 31,
1994 and 1993, primarily due to the increased ASM's generated from regional jet
operations.
Fuel costs increased as a percentage of consolidated operating revenues to 8.0
percent for the quarter ended December 31, 1994, compared to 7.1 percent for
the quarter ended December 31, 1993. The percentage increased due primarily to
an increase in the number of gallons used for jet operations. This was
somewhat offset by a decrease in the average fuel price to $.78 for the quarter
ended December 31, 1994, from $.81 for the quarter ended December 31, 1993.
Fuel costs per ASM decreased to 1.7c. for the quarter ended December 31, 1994,
compared to 1.8c. for the quarter ended December 31, 1993 due to the operation
of additional Brasilia aircraft which are more fuel efficient, on a cost per
ASM basis, than Metroliners, as well as from the increased ASM's generated from
regional jet operations.
Interest expense decreased as a percentage of consolidated operating revenues
to .3 percent for the quarter ended December 31, 1994 from 1.2 percent for the
quarter ended December 31, 1993 as the result of the Company reducing its
effective interest rate on debt by replacing higher interest debt with lower
interest debt subsidized by the Federative Republic of Brazil.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Other expenses, primarily consisting of commissions, landing fees, station
rentals, computer reservation system fees and hull and liability insurance,
increased as a percentage of consolidated operating revenues to 21.6 percent
for the quarter ended December 31,1 994, from 18.8 percent for the quarter
ended December 31, 1993. The increase is due primarily to an increase in the
rates charged by third party suppliers for passenger handling related charges.
The Company is in ongoing discussions with Delta Air Lines, Inc. concerning the
Joint Marketing and Code-Sharing Agreement. Current discussions are centered
around possible cost structure changes under the agreement as well as aircraft
allocation and market planning opportunities. The Company is presently unable
to predict the impact of these possible changes on future operating results.
Nine Months Ended December 31, 1994 and 1993:
For the nine months ended December 31, 1994, the Company experienced
significant increases in ASM's, RPM's and passengers carried in comparison to
the nine months ended December 31, 1993, which was primarily the result of the
new regional jet operations. Operating revenues increased 26.6 percent to
$175.9 million for the nine months ended December 31, 1994, compared to $138.9
million for the nine months ended December 31, 1993. Nonairline revenues
increased 41.4 percent to $35.2 million for the nine months ended December 31,
1994, compared to $24.9 million for the nine months ended December 31, 1993.
Interest expense decreased 57.3 percent to $.7 million for the nine months
ended December 31, 1994, from $1.6 million for the nine months ended December
31, 1993, as the result of the Company reducing its effective rate on debt by
replacing higher interest debt, on Brasilia aircraft, with lower interest debt
subsidized by the Federative Republic of Brazil. Interest income increased
239.2 percent to $2.0 million for the nine months ended December 31, 1994, from
$.6 million for the nine months ended December 31, 1993. The increase is due
to an overall increase in the Company's cash and marketable securities from the
completion of public offerings of the Company's Common Stock during fiscal 1994
and the increase in overall interest rates. Net income was $13.6 million or
$1.20 per share for the nine months ended December 31, 1994, compared to $10.7
million or $1.12 per share for the nine months ended December 31, 1993.
Passenger revenues, which represented 77.6 percent of total operating revenues,
increased 23.7% to $136.5 million for the nine months ended December 31, 1994,
compared to $110.3 million or 79.4 percent of total operating revenues for the
nine months ended December 31, 1993. This increase is attributable to a 50.0
percent increase in RPM's. The increase in RPM's is due to four regional jets
being utilized in operations and from the acquisition of three new cabin-class
Brasilia aircraft which are being utilized in continually developing California
Central Coast markets. Yield per RPM decreased 17.6 percent to $.361 for the
nine months ended December 31, 1994, compared to $.438 for the nine months
ended December 31, 1993, primarily due to three factors; 1) a 19.1 percent
increase in the average passenger trip length due to the introduction of the
Canadair Regional Jet wherein the average trip length is 425 miles, 2)
continued refinements in the total revenue management system where seats are
made available based on historical demands as well as future booking curves and
3) restructured fares in approximately 20 markets to proactively deal with the
indirect competition form low-fare carriers.
As the result of the continued positive trend of RPM (demand) growth in excess
of ASM (capacity) growth and due to regional jet operations, load factor
increased 4.6 points to 51.3 percent for the nine months ended December 31,
1994, compared to 46.7 percent for the nine months ended December 31, 1993.
Because of the strength of passenger enplanements for the first six months of
fiscal 1995, the positive spread between actual and breakeven load factors
increased to 6.2 points for the nine months ended December 31, 1994, compared
to 5.9 points for the same period ended December 31, 1993.
Management has continued its efforts to reduce airline operating costs per ASM
and as a percentage of revenues. For the nine months ended December 31, 1994,
total airline operating expenses and interest (excluding nonairline expenses)
were 70.6 percent of consolidated operating revenues compared to 72.0 percent
for the comparable quarter ended December 31, 1993. As a result of the new
regional jet operations together with continued cost reduction measures, cost
per ASM decreased to 16.8c. for the nine months ended December 31, 1994, from
18.5c. for the comparable period ended December 31, 1993. Total operating
expenses and interest increased 27.6 percent to $155.5 million for the nine
months ended December 31, 1994, compared to $121.9 million for the nine months
ended December 31, 1993. Approximately 29 percent of the $33.6 million
increase in such expense was related to
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
nonairline operations and 48 percent was related to the introduction of new
regional jet operations. As a percentage of consolidated operating revenues,
total operating expenses and interest increased to 88.4 percent for the nine
months ended December 31, 1994, from 87.7 percent for the comparable period
ended December 31, 1993, as a result of factors discussed below.
Salaries, wages and employee benefits decreased as a percentage of consolidated
operating revenues to 21.3 percent for the nine months ended December 31, 1994,
from 23.5 percent for the nine months ended December 31, 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 for the nine months ended December 31, 1994 was 2,040,
compared to 1,755 for the same period ended December 31, 1993. The increase is
primarily attributable to hiring pilots, flight attendants and customer service
personnel to support new regional jet operations. Salaries, wages and employee
benefits per ASM decreased to 5.1c. for the nine months ended December 31,
1994, compared to 6.1c. for the same period ended December 31, 1993, primarily
due to the increased ASM's generated from regional jet operations.
Aircraft costs, including aircraft rent and depreciation increased slightly as
a percentage of consolidated operating revenues to 14.8 percent for the nine
months ended December 31, 1994, compared to 13.6 percent for the same period
ended December 31, 1993. Aircraft costs per ASM were similar for both periods
presented which was 3.5c. for the nine months ended December 31, 1994 and 1993.
In spite of increased aircraft rents and depreciation amounts for new Brasilia
and regional jet aircraft, aircraft costs per ASM were similar due to the
increased ASM's generated from regional jet operations.
Maintenance expense decreased as a percentage of consolidated operating
revenues to 7.6 percent for the nine months ended December 31, 1994, compared
to 8.0 percent for the same period ended December 31, 1993. This decrease
resulted primarily from the acquisition of three Brasilia aircraft as
replacements for two older Metroliners as well as the extension by the FAA of
permitted overhaul intervals on Brasilia aircraft. Maintenance expense per ASM
decreased to 1.8c. for the nine months ended December 31, 1994, from 2.1c. for
the same period ended December 31, 1993.
Fuel costs decreased as a percentage of consolidated operating revenues to 6.9
percent for the nine months ended December 31, 1994, from 7.1 percent for the
same period ended December 31, 1993, primarily due to a decrease in the average
fuel price per gallon to $.79 from $.80. Fuel costs per ASM decreased to 1.6c.
for the nine months ended December 31, 1994, compared to 1.8c. for the same
period ended December 31, 1993, due to the operation of additional Brasilia
aircraft which are more fuel efficient, on a cost per ASM basis, than
Metroliners, as well as from the increased ASMs generated from regional jet
operations.
Other expenses primarily consisting of commissions, landing fees, station
rentals, computer reservation system fees and hull and liability insurance
remained similar between the comparable nine month periods. These expenses
were 19.6 percent of consolidated operating revenues for the nine months ended
Decemer 31, 1994, compared to 18.7 percent for the nine months ended December
31, 1993.
Liquidity and Capital Resources
The Company had working capital of $51.1 million and a current ratio of 3.1:1
at December 31, 1994, compared to working capital of $66.6 million and a
current ratio of 4.3:1 at March 31, 1994. During the first nine months of
fiscal 1995, the Company invested $11.3 million in flight equipment, $8.4
million in buildings, ground equipment and other fixed assets and $9.6 million
in marketable securities as well as reduced long-term debt by $2.9 million and
paid dividends of $2.3 million. The Company also purchased $14.7 million of
its outstanding common stock. The principal source of funds during the first
nine months of fiscal 1995 was $27.9 million provided by operating activities.
These factors resulted in a $19.7 million cash and cash equivalents decrease.
The Company's position in marketable securities, consisting primarily of bonds
and commercial paper, has increased to $21.2 million at December 31, 1994,
compared to $11.5 million at March 31, 1994.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
At December 31, 1994, the Company's long-term debt to equity position was 17
percent debt and 83 percent equity compared to 18 percent debt and 82 percent
equity at March 31, 1994.
SkyWest has taken delivery of three new Brasilia aircraft during the first nine
months of fiscal 1995 and has agreed to purchase 14 additional Brasilia
aircraft and related spare parts inventory and support equipment at a future
aggregate cost of approximately $99 million, including estimated cost
escalations. Of these aircraft, two each are scheduled for delivery in fiscal
1995 and 1996 and the remaining ten aircraft are scheduled for delivery in
fiscal 1997.
Four Canadair Regional Jets were delivered during the fourth quarter of fiscal
1994 and have been financed under long-term lease arrangements. Additionally,
two Canadair Regional Jets were delivered during the fourth quarter of fiscal
1995 and have been financed under long-term lease arrangements. The Company
has also agreed to acquire four additional Canadair Regional Jets and related
spare parts inventory and support equipment at an aggregate cost of
approximately $72 million, including estimated cost escalations. The
remaining four are scheduled for delivery 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 loans or lease
arrangements. The Company also has options to acquire 20 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 July 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 will fund 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
8.25 percent at December 31, 1994. In addition, the Company has available $1.5
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 will
be reduced to $1.0 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 December 31, 1994.
13
<PAGE> 14
PART II. OTHER INFORMATION
SKYWEST, INC.
Item 6:
a. Exhibits
Ex. 27 Financial Data Schedule
b. Reports on Form 8-K - There were no reports on Form 8-K filed during
the quarter ended December 31, 1994.
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
February 9, 1995 BY: /s/ Bradford R. Rich
-------------------------------------
Bradford R. Rich
Executive Vice President - Finance,
Chief Financial Officer and Treasurer
14
<PAGE> 15
EXHIBIT INDEX
Ex. 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 34,524
<SECURITIES> 21,179
<RECEIVABLES> 6,824
<ALLOWANCES> 144
<INVENTORY> 6,616
<CURRENT-ASSETS> 74,827
<PP&E> 155,538
<DEPRECIATION> 55,062
<TOTAL-ASSETS> 182,098
<CURRENT-LIABILITIES> 23,767
<BONDS> 23,773
<COMMON> 72,916
0
0
<OTHER-SE> 45,980
<TOTAL-LIABILITY-AND-EQUITY> 118,896
<SALES> 175,870
<TOTAL-REVENUES> 175,870
<CGS> 0
<TOTAL-COSTS> 154,850
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 676
<INCOME-PRETAX> 22,526
<INCOME-TAX> 8,880
<INCOME-CONTINUING> 13,646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,646
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
</TABLE>
