<PAGE> 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/
<PAGE> 2
SKYWEST, INC.
FISCAL 1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
<TABLE>
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Page
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No.
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<S> <C> <C>
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
</TABLE>
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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.
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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.
<TABLE>
<CAPTION>
Served
State and City Since (1)
-------------- ---------
<S> <C>
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
</TABLE>
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<TABLE>
<CAPTION>
Served
State and City Since (1)
-------------- ---------
<S> <C>
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
</TABLE>
(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
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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.
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ITEM 2. PROPERTIES
FLIGHT EQUIPMENT
As of June 21, 1995, SkyWest owned or leased the following types of aircraft:
<TABLE>
<CAPTION>
NUMBER OF SCHEDULED AVERAGE
AIRCRAFT FLIGHT CRUISING AVERAGE
------------------- PASSENGER RANGE SPEED AGE
TYPE OF AIRCRAFT OWNED LEASED CAPACITY (MILES) (MPH) (YEARS)
- ---------------- ----- ------ -------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Brasilia . . . . . . . . . . 12 17 30 550 300 4.0
Metroliner . . . . . . . . . 1 24 19 400 275 8.3
Canadair Regional Jet . . . . - 8 50 800 530 .8
</TABLE>
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.
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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.
<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1994
----------- -----------
Quarter High Low High Low
------- ---- ----- ---- -----
<S> <C> <C> <C> <C>
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
</TABLE>
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.
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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.
<TABLE>
<CAPTION>
Headings in
Proxy Statement
------------------------
<S> <C> <C>
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"
</TABLE>
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
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- 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.
<TABLE>
<CAPTION>
Incorporated by Filed
Number Exhibit Reference Herewith
- ------ -------------------------------------------------- --------------- --------
<S> <C> <C> <C>
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)
</TABLE>
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<TABLE>
<CAPTION>
Incorporated by Filed
Number Exhibit Reference Herewith
- ------ -------------------------------------------------- --------- --------
<S> <C> <C> <C>
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
</TABLE>
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<TABLE>
<CAPTION>
Incorporated by Filed
Number Exhibit Reference Herewith
- ------ ------------------------------------------------- --------- --------
<S> <C> <C> <C>
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
</TABLE>
- ----------------------
(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
<PAGE> 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
<PAGE> 14
SKYWEST, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Additions
Balance at Charged To Balance
Beginning Costs and at End
Description of Year Expenses Deductions of Year
- ---------------------------------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C>
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
======== ======= ======== ========
</TABLE>
12
<PAGE> 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.
<TABLE>
<CAPTION>
Names Capacities Date
- ------------------------------ -------------------------- ---------------
<S> <C> <C>
/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
</TABLE>
13
<PAGE> 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
<PAGE> 1
Exhibit 10.16
PURCHASE AGREEMENT NO. DSP/AJV-042/95
EMBRAER - EMPRESA BRASILEIRA
DE AERONAUTICA S.A.
AND
SKYWEST AIRLINES, INC.
<PAGE> 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
<PAGE> 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
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<PAGE> 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
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<PAGE> 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:
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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:
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Page 6 of 22
<PAGE> 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
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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:
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<PAGE> 21
<TABLE>
<CAPTION>
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
---------------------------- ---------------------
<S> <C>
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%
</TABLE>
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
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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.
<TABLE>
<S> <C>
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/
</TABLE>
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<PAGE> 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
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- 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
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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
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<PAGE> 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.
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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
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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
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<PAGE> 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.
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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:
<TABLE>
<CAPTION>
<S> <C>
-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
</TABLE>
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:
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<PAGE> 33
<TABLE>
<CAPTION>
QTY
TITLE (Copies)
----- --------
<S> <C>
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)
</TABLE>
(*) 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.
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<PAGE> 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.
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<PAGE> 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:
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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;
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<PAGE> 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;
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<PAGE> 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.
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<PAGE> 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.
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
ii
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
---------------------------
1995 1994 1993
-------- -------- --------
(Amounts in thousands, except per share data)
<S> <C> <C> <C>
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
======= ======= ======
- ----------------------
</TABLE>
<PAGE> 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
<PAGE> 2
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
Year Ended March 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
QUARTERLY FINANCIAL AND STOCK PRICE DATA
<TABLE>
<CAPTION>
Fiscal Year 1995
- -------------------------------------------------------------------------------------------------------------
First Second Third Fourth Year
-------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year 1994
- -------------------------------------------------------------------------------------------------------------
First Second Third Fourth Year
-------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 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:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
-----------------------------------------------------------------------------------------
1995 1994
-----------------------------------------------------------------
Percent Cents Percent Cents
of per of per
Amount Revenue ASM Amount Revenue ASM
------ ------- ------- ------ ------- ----
<S> <C> <C> <C> <C> <C> <C>
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%
======== ==== ======== ====
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
-----------------------------------------------------------------------------------------
1993
------------------------------
Percent Cents
of per
Amount Revenue ASM
------ ------- --------
<S> <C> <C> <C>
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%
======== ====
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 9
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS March 31,
--------------------------
1995 1994
------- -------
<S> <C> <C>
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
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE> 10
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31,
-----------------------
1995 1994
------ ------
<S> <C> <C>
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
======== ========
</TABLE>
<PAGE> 11
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the years ended March 31,
---------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
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
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 12
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common Stock Treasury Stock Retained
Shares Amount Shares Amount Earnings
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 13
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the years ended March 31,
----------------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 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.
<PAGE> 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):
<TABLE>
<S> <C>
License agreement and noncompete agreement $4,000
Receivables 1,342
Equipment 488
Inventory and other 311
------
$6,141
======
</TABLE>
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.
<TABLE>
<CAPTION>
Dollars in
Thousands
Pro Forma Statements of Income Information Except Per
(Unaudited) are Amounts
------------------------------------------ -----------
<S> <C>
Operating revenues $ 169,529
Operating expenses 156,971
Net income 7,425
Net income per common share .90
</TABLE>
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):
<TABLE>
<CAPTION>
For the Year Ended
March 31,
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
March 31,
--------------------------
1995 1994
-------- --------
<S> <C> <C>
Identifiable assets $ 20,135 $ 17,856
</TABLE>
(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):
<TABLE>
<CAPTION>
Year ending March 31,
---------------------
<S> <C>
1996 $ 29,793
1997 28,288
1998 25,135
1999 24,885
2000 23,854
Thereafter 156,257
--------
$288,212
========
</TABLE>
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):
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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).
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Computed "expected" provision
for income taxes at the statutory rate $ 7,684 $ 8,246 $ 3,585
</TABLE>
<PAGE> 17
<TABLE>
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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):
<TABLE>
<CAPTION>
Year ended March 31,
------------------------
Deferred tax assets: 1995 1994
---- ----
<S> <C> <C>
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)
======== ========
</TABLE>
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).
<TABLE>
<CAPTION>
Year ended March 31,
--------------------
1993
----
<S> <C>
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
======
</TABLE>
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):
<TABLE>
<CAPTION>
Year ended March 31,
-------------------------
1995 1994
---- ----
<S> <C> <C>
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
</TABLE>
<PAGE> 18
<TABLE>
<S> <C> <C>
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
======== ========
</TABLE>
The aggregate amounts of principal maturities of long-term debt as of March 31,
1995, are as follows (in thousands):
<TABLE>
<S> <C>
Year ending March 31,
1996 $ 3,747
1997 3,768
1998 3,805
1999 3,851
2000 3,900
Thereafter 14,229
-------
$33,300
=======
</TABLE>
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.
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
Number of Price Per Share
Options Range
--------- ---------------
<S> <C> <C>
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
========
</TABLE>
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.
<PAGE> 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.
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 27,416
<SECURITIES> 21,309
<RECEIVABLES> 7,219
<ALLOWANCES> 215
<INVENTORY> 7,179
<CURRENT-ASSETS> 71,642
<PP&E> 166,984
<DEPRECIATION> 56,743
<TOTAL-ASSETS> 188,182
<CURRENT-LIABILITIES> 25,603
<BONDS> 29,553
<COMMON> 71,567
0
0
<OTHER-SE> 46,117
<TOTAL-LIABILITY-AND-EQUITY> 188,182
<SALES> 225,398
<TOTAL-REVENUES> 225,398
<CGS> 0
<TOTAL-COSTS> 205,057
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,100
<INCOME-PRETAX> 22,240
<INCOME-TAX> 8,539
<INCOME-CONTINUING> 13,701
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,701
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23
</TABLE>
