<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, 1996
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 20, 1996, was approximately $129,231,000.
As of June 20, 1996, there were 10,047,208 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, 1996, 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 1996 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/
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SKYWEST, INC.
FISCAL 1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
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Page
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No.
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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 twelve western states. Pursuant to a
joint marketing and code sharing agreement with Delta Airlines, Inc. ("Delta"),
Skywest operates as a Delta Connection in SkyWest's markets. Management believes
that during calendar year 1995, approximately 48% of SkyWest's passengers were
interline passengers connecting with flights offered by Delta. In October 1995,
the Company entered into a marketing and code sharing agreement with Continental
Airlines, Inc. ("Continental") which allows SkyWest to operate as a Continental
Connection in markets which operate in and out of Los Angeles. Since inception,
approximately one percent of SkyWest's passengers were interline passengers
connecting with flights offered by Continental. With principal hubs located at
the Los Angeles and Salt Lake City International Airports, SkyWest offers a
convenient and frequent flight schedule designed to maximize connecting and
origin-destination traffic. SkyWest currently operates a fleet of 55 turbo-prop
aircraft and 10 regional jet aircraft.
Founded in 1972, the Company has experienced significant growth. During the past
five fiscal years, consolidated operating revenues have increased from $125.3
million in fiscal 1992 to $251.7 million in fiscal 1996. Total passengers
carried by SkyWest have increased from approximately 1,318,000 to approximately
2,340,000 over the same period. In fiscal 1996, the Company achieved record
levels of passengers carried, record consolidated operating revenues of $251.7
million, and net income of $4.4 million or $.42 per share. Included in the
fiscal 1996 net income is a pretax charge of approximately $6.2 million related
to the Company's fleet restructuring and transition plan wherein Metroliner
long-term operating leases are being terminated early and are being replaced
with Brasilia aircraft. Absent these expenses, net income would have been
approximately $8.2 million or $.80 per share.
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 55 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 1996, Scenic and NPT together accounted for approximately
16.0% and 8.9% 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. 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.
JOINT MARKETING AND CODE SHARING AGREEMENTS
Since April 1987, SkyWest has operated as a Delta Connection in SkyWest's
markets pursuant to the terms of a joint marketing and code sharing agreement
with Delta. On July 1, 1990, the Company and Delta entered into a revised Delta
Connection Agreement (the "Delta Connection Agreement") under which the Company
coordinates with Delta to facilitate interline connections at the Los Angeles
and Salt Lake City International Airports. At these two airports combined, Delta
presently has more passenger enplanements and flight departures than any other
carrier. The primary benefit of this affiliation is the use of the Delta
designation code (DL) in listing flights in the Official Airline Guide and in
the computerized reservation systems used throughout the industry. The Company's
code sharing arrangement allocates to the Company a portion of the passenger
fare on a formula or other basis, subject to periodic adjustments. The Company
also participates in cooperative advertising and marketing activities with
Delta, including Delta's Frequent Flyer Program, the Delta Meeting Network and
Delta Dream Vacations.
The Company believes the arrangement created between SkyWest and Delta is
similar to those which exist between other major and regional airlines. The
Delta Connection Agreement is subject to termination in various circumstances,
including upon 180 days' advance notice by either party for any or no reason.
Delta currently owns 15.5% 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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Since October 1995, SkyWest has operated as a Continental Connection, in
Southern California markets which utilize Los Angeles as a connecting hub,
pursuant to the terms of a marketing and code sharing agreement (the
"Continental Connection Agreement") with Continental. The benefits under this
agreement are similar to those described under the Delta Connection Agreement.
The Continental Connection Agreement terminates October 24, 1997, however it is
cancellable by either party with generally 90 days written notice for any or no
reason.
ROUTES
The Company's flight schedules are structured to facilitate the connection of
its passengers with flights of Delta and Continental at the airports it serves.
The following table shows selected information about the cities served by
SkyWest as of June 20, 1996.
<TABLE>
<CAPTION>
Served
State and City Since (1)
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<S> <C>
Arizona:
Phoenix.............................................................1979 (2)
Yuma................................................................1979
Tucson..............................................................1995
California:
San Diego...........................................................1968
Palm Springs........................................................1970
Los Angeles.........................................................1977
Imperial............................................................1979
Burbank.............................................................1980
Ontario.............................................................1981
Santa Maria.........................................................1982
Santa Barbara.......................................................1983
Bakersfield.........................................................1983
Fresno..............................................................1985
Sacramento..........................................................1986
San Francisco.......................................................1995
San Jose............................................................1986
San Luis Obispo.....................................................1986
Orange County.......................................................1986
Monterey............................................................1987
Colorado:
Grand Junction......................................................1983
Colorado Springs....................................................1995
Idaho:
Pocatello...........................................................1980
Idaho Falls.........................................................1982
Twin Falls..........................................................1983
Boise...............................................................1988
Sun Valley..........................................................1990
Lewiston............................................................1996
Montana:
West Yellowstone....................................................1986 (2)
Helena..............................................................1988
Bozeman.............................................................1988
Billings............................................................1988
Butte...............................................................1988
New Mexico:
Albuquerque.........................................................1995
</TABLE>
<TABLE>
<CAPTION>
Served
State and City Since (1)
- -------------- ---------
<S> <C>
</TABLE>
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<TABLE>
<S> <C>
Nevada:
Las Vegas...........................................................1974
Elko................................................................1982
Reno................................................................1982
Oregon:
Eugene..............................................................1995
Portland............................................................1995
South Dakota:
Rapid City..........................................................1994
Utah:
Cedar City..........................................................1972
Salt Lake City......................................................1972
St. George..........................................................1972
Vernal..............................................................1982
Washington:
Pasco...............................................................1996
Wyoming:
Jackson Hole........................................................1986
Casper..............................................................1994
Cody................................................................1995
Gillette............................................................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 COMMON STOCK TRANSACTIONS
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.
On November 23, 1994, the Company's Board of Directors approved the purchase of
up to 1,150,000 shares of the Company's outstanding common stock. The total
shares were purchased during the year ended March 31, 1995 at an average price
of $13.98. On February 7, 1995, the Company's Board of Directors approved the
purchase of up to 500,000 shares of the Company's outstanding common stock. On
February 6, 1996, the Company's Board of Directors approved the purchase of up
to an additional 500,000 shares of the Company's outstanding stock. During the
year ended March 31, 1996, 324,600 shares were purchased at an average price of
$12.92.
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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 and
training programs are conducted under FAA approved procedures. The Company does
not operate at any airports where landing slots are restricted.
All air carriers are required to comply with federal law and regulations
pertaining to noise abatement and engine emissions. All air carriers are also
subject to certain provisions of the Federal Communications Act of 1934, as
amended, because of their extensive use of radio and other communication
facilities. Management believes that the Company is in compliance in all
material respects with these laws and regulations.
COMPETITION
The airline industry is highly competitive. The Company not only competes with
other regional airlines, some of which are owned by or are operated as code
sharing partners of major airlines, but also faces competition from major
airlines on certain routes. SkyWest is the dominant regional airline operating
out of the Salt Lake City International Airport. Competition in the southern
California markets, which are serviced by SkyWest from its hub in Los Angeles,
is particularly intense, with a large number of carriers in these markets. In
its markets served from the Los Angeles International Airport, SkyWest's
principal competitors include Mesa Airlines, Inc. (operating as "Mesa Airlines"
and "United Express"), Wings West, Inc. (operating as "American Eagle"), and
Trans States, Inc. (operating as "USAir Express" and "Trans World Express"). The
Company also faces indirect low-fare competition from carriers such as Southwest
Airlines and Shuttle by United.
The Company believes that the principal competitive factors affecting decisions
by travelers in SkyWest's markets are the frequency, convenience and reliability
of flights and, to a lesser extent, the level of fares.
EMPLOYEES
As of June 20, 1996, the Company employed 2,169 full-time equivalent employees
consisting of 793 pilots and flight attendants, 246 maintenance personnel, 872
customer service personnel, 60 reservation and marketing personnel, and 198
employees engaged in accounting, administration and other functions. The
Company's employees are not represented by any union. The Company is aware,
however, that collective bargaining group organization efforts among its
employees occur from time to time and are expected to continue in the future.
The Company has never experienced any work stoppages and considers its
relationship with its employees to be very good.
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ITEM 2. PROPERTIES
FLIGHT EQUIPMENT
As of June 20, 1996, 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......................... 16 22 30 450 300 3.9
Metroliner....................... - 17 19 300 275 9.3
Canadair Regional Jet............ - 10 50 600 530 1.6
</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. The Company operates ten of these aircraft on stage lengths up to
600 miles. During fiscal 1996, the Company acquired seven Brasilia aircraft and
terminated eight Metroliner long-term operating leases. Subsequent to March 31,
1996, the Company acquired three Brasilia aircraft and terminated one Metroliner
long-term operating lease. As part of the effort to upgrade its fleet of
aircraft, the Company has agreed to acquire 12 Brasilia aircraft and related
parts inventory and support equipment at an aggregate cost of approximately
$96.0 million, including cost escalation provisions as of June 20, 1995. The
Company is scheduled to take delivery of these aircraft during the remainder of
fiscal 1997.
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 which are exercisable at
any time with no expiration. Any decision to acquire additional aircraft will
depend upon the Company's future operations, competitive forces, financial
resources and other factors.
GROUND FACILITIES
Employees of the Company perform substantially all routine airframe and engine
maintenance and periodic inspection of equipment. Maintenance is performed
primarily at facilities in Palm Springs, California and Salt Lake City, Utah.
The Company owns a 56,600 square foot maintenance facility in Palm Springs,
California and leases a 90,000 square foot aircraft maintenance and training
facility at the Salt Lake International Airport. The facility consists of a
40,000 square foot maintenance hangar and 50,000 square feet of training and
other facilities to support the Company's growing hub operations. The facility
was constructed and is owned by the Salt Lake City Airport Authority. The
Company is leasing the facility under an operating lease arrangement over a
36-year term.
The Company leases ticket counters, check-in, and boarding and other facilities
in the passenger terminal areas in the majority of the airports it serves and
staffs these facilities with Company personnel. Delta provides ticket handling
and/or ground support services for the Company in 12 of the 48 airports it
serves.
The Company owns a new terminal and hangar facility in Page, Arizona consisting
of 11,500 square feet of office and terminal space and 22,000 square feet of
maintenance hangar space. The Company also owns a new terminal and hangar
facility in Las Vegas, Nevada consisting of 39,500 square feet of office and
terminal space and 28,500 square feet of maintenance hangar space.
The Company's corporate headquarters are located in a 63,000 square foot
building in St. George, Utah. Management deems the Company's facilities as being
suitable and necessary to support exisiting operations and facilities are
adequate for the foreseeable future.
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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 1996.
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 20, 1996, there were
approximately 1,085 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 1996 Fiscal 1995
----------- -----------
Quarter High Low High Low
------- ---- ----- ---- ----
<S> <C> <C> <C> <C>
First $23.50 $14.13 $40.25 $20.50
Second 25.38 17.00 29.75 22.00
Third 19.75 12.88 22.50 12.50
Fourth 14.75 12.38 15.75 11.38
</TABLE>
The transfer agent for the Company's Common Stock is Zions First National Bank,
Salt Lake City, Utah.
In fiscal 1996, the Board of Directors declared an annual dividend of $.08 per
share and a special dividend of $.17 per share. In fiscal 1995, the Board of
Directors declared an annual dividend of $.08 per share and a special dividend
of $.20 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, 1996, 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, 1996, 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, 1996, 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 1996 annual stockholders meeting to be held August 13, 1996,
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, 1996, 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, 1996 and 1995
- Consolidated statements of income for the years ended March
31, 1996, 1995 and 1994
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- Consolidated statements of stockholders' equity for the
years ended March 31, 1996, 1995 and 1994
- Consolidated statements of cash flows for the years ended
March 31, 1996, 1995 and 1994
- 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, 1996.
(c) Exhibits.
<TABLE>
<CAPTION>
Incorporated by Filed
Number Exhibit Reference Herewith
------ ------- --------- --------
<S> <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......................................................... (10)
10.17 SkyWest, Inc. 1995 Employee
Stock Purchase Plan........................................................... (10)
10.18 Marketing and Code Sharing Agreement dated
October 24, 1996 between Continental Airlines,
Inc. and SkyWest Airlines, Inc................................................ 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, 1996, 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 Form 10-K filed for the
year ended March 31, 1994.
(10) Incorporated by reference to Registrant's Form 10-K filed for the
year ended March 31, 1995.
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(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 24, 1996. Our audit was made for the purpose of forming
an opinion on the basic financial statements taken as a whole. The schedule
listed in Item 14 (a)(2) is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Salt Lake City, Utah
May 24, 1996
11
<PAGE> 14
SKYWEST, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<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, 1996:
Allowance for obsolescence $ 180,000 $ - $ - $ 180,000
Allowance for doubtful
accounts receivable 215,262 150,150 (144,067) 221,345
--------- --------- --------- ---------
$ 395,262 $ 150,150 $(144,067) $ 401,345
========= ========= ========= =========
Year Ended March 31, 1995:
Allowance for obsolescence $ 180,000 $ - $ - $ 180,000
Allowance for doubtful
accounts receivable 143,926 72,246 (910) 215,262
--------- --------- --------- ---------
$ 323,926 $ 72,246 $ (910) $ 395,262
========= ========= ========= =========
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
========= ========= ========= =========
</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 June 24, 1996
- ----------------------------- Chief Executive Officer
Jerry C. Atkin
/s/ Sidney J. Atkin Vice Chairman of the Board June 24, 1996
- ----------------------------- and Director
Sidney J. Atkin
/s/ Bradford R. Rich Executive Vice President - Finance June 24, 1996
- ----------------------------- Chief Financial Officer and Treasurer
Bradford R. Rich (principal financial and
accounting officer)
/s/ J. Ralph Atkin Director June 24, 1996
- -----------------------------
J. Ralph Atkin
/s/ Mervin J. Cox Director June 24, 1996
- -----------------------------
Mervyn K. Cox
/s/ Ian M. Cumming Director June 24, 1996
- -----------------------------
Ian M. Cumming
Director
- -----------------------------
Steven F. Udvar-Hazy
Director
- -----------------------------
W. Martin Braham
Director
- -----------------------------
Henry J. Eyring
Director
- -----------------------------
Hyrum W. Smith
</TABLE>
13
<PAGE> 1
CONFIDENTIAL TREATMENT
The attached agreement constitutes Exhibit 10.18 to the Annual Report
on Form 10-K for SkyWest, Inc. for the period ended March 31, 1996. The
Registrant has requested CONFIDENTIAL TREATMENT for portions of this Exhibit
pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934,
as amended. The Registrant seeks an exemption from the Freedom of Information
Act based on 17 C.F.R. section 200.80(b)(4).
<PAGE> 2
MARKETING AND CODE SHARING AGREEMENT
This Agreement is made this 24th day of October, 1995, by and between
CONTINENTAL AIRLINES, INC. ("CAL"), a Delaware corporation, and SKYWEST
AIRLINES, INC. ("SWA"), a Delaware corporation.
Recitals
CAL and SWA are each certificated air carriers providing air
transportation services in their respective areas of operation.
CAL and SWA desire to engage in joint marketing activities designed to
increase the flow of air passenger traffic on aircraft operated by both parties.
CAL and SWA desire to cooperate in the coordination of schedules by
allowing SWA to market its flight operations under the CO* designator.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein contained, CAL and SWA hereby agree as follows:
1. SCHEDULES TO BE OPERATED. To the extent permitted by applicable laws,
and as mutually agreed, (i) SWA operated flights to and from Los Angeles
International Airport ("LAX") that connect with a CAL operated flight, at LAX,
to or from Cleveland Hopkins International Airport, Newark International
Airport, Honolulu International Airport, Houston Intercontinental Airport, New
Orleans International Airport, San Antonio International Airport, any airports
served by CAL or Continental Express, Inc. from the above mentioned airports,
and any other mutually agreed to airports and (ii) SWA operated flights that
connect with another SWA operated flight at LAX, will be marketed under not only
SWA's or another airline's designator code, but also under CAL's "CO*"
designator code. Exhibit A hereto sets forth the flight segments operated by SWA
that, when connecting at LAX with a flight operated by CAL or SWA, will utilize
the CO* designator code (the "CO* Flights") at the commencement of this
Agreement. The parties shall meet together every six months that this Agreement
is in effect to discuss the appropriateness of expanding or contracting the list
of city pairs on Exhibit A. Flights covering an origin and destination market
that is created by a CO* Flight connecting at LAX to a flight operated by CAL
(or vice versa) are hereinafter referred to as "Through Flights." Except as
expressly set forth herein, neither party shall have any obligation to extend
CO* Flights to other routes or to maintain operations on any routes and no such
obligation can be created by any oral statements or representations or course of
dealing by a party, but only by an express written agreement. For purposes of
this Agreement, a CAL operated flight does not include flights operated by
carriers other than CAL utilizing the CO* designator code, other than those
flights operated by Continental Express, Inc. or Continental Micronesia, Inc.
-1-
<PAGE> 3
2. CODE SHARING LICENSE.
(a) Grant of License. Subject to the terms and conditions of
this Agreement, CAL hereby grants to SWA a nonexclusive,
nontransferable, revocable license to use the CO* designator code on all
of its flights operated as CO* Flights.
(b) Control of CO* Flights. SWA shall have sole responsibility
for and control over, and CAL shall have no responsibility for, control
over or obligations or duties with respect to, each and every aspect of
SWA's operations including, without limitation, scheduling (except as
provided in Section 13 hereof), pricing (except as provided in Section
14 hereof), planning of flight itineraries and routings, reservations,
reservations control/yield management, dispatch, fueling, weight and
balance, flight release, maintenance, and flight operations and
compliance with applicable rules and regulations.
3. CONFIDENTIAL INFORMATION. Neither SWA nor CAL shall disclose
the terms of this Agreement or any proprietary information with respect to the
other obtained as a result of this Agreement, either during the term hereof or
thereafter except as may be required by law or by any order of a court or
administrative agency, and then on ten days' notice to the other. The parties
hereto recognize that, in the course of the performance of each of the
provisions hereof, each party may be given and may have access to confidential
and proprietary information of the other party, including proposed schedule and
fare changes, statistical data regarding loads and fares, sales and promotional
programs and other operating and competitive information ("Confidential
Information"). Each party shall preserve, and shall ensure that each of its
officers, agents, consultants and employees who receive Confidential
Information preserve, the confidentiality of the other party's Confidential
Information.
4. QUALITY OF SERVICE. SWA shall perform its service in a timely,
expert and quality manner, in accordance with the standards of customer service
reasonably established by CAL. Without limitation, SWA shall maintain its
aircraft in an airworthy, clean, attractive and comfortable condition and
strive to maintain a completion factor of at least 98% (without considering
delays caused by air traffic control or weather). SWA will, in conducting CO*
Flight operations, employ prudent safety and loss prevention policies.
5. AUDIT. CAL shall have the right, at its own cost, to inspect,
review, and observe SWA's operations of CO* Flights, and/or to conduct a full
safety and/or service audit of SWA's operations, manuals and procedures
reasonably related to CO* Flights, at such intervals as CAL shall reasonably
request. In the exercise of such right, CAL does not undertake any
responsibility for the performance of SWA's operations. CAL shall coordinate
its safety and service audits with SWA so as to avoid disruptions of SWA's
operations. Any safety audit may include, without limitation, maintenance and
operation procedures, crew planning, reservations, passenger and baggage
handling, customer service, personnel records, spare parts, inventory records,
training records and manuals, flight, flight training and operational personnel
records. Each party shall have the right, upon reasonable notice, at its
expense and no more than once during a six month period, to inspect and audit
the financial books and records of the other party as they relate to this
Agreement. Such financial audit may be conducted by the auditing party's
officers, employees
-2-
<PAGE> 4
or third party advisors and the party being audited will reasonably cooperate
with such individuals in the performance of the audit.
6. SALES AND MARKETING PROGRAMS. The parties will work to develop
mutually agreeable joint sales and marketing programs to help promote the code
share relationship and increase revenues from same. The parties will conduct
quarterly joint sales and marketing meetings to discuss possible sales and
marketing programs and strategies. SWA will participate in CAL's frequent flyer
program, OnePass, in accordance with the terms and conditions of a separate
agreement entered into by the parties hereto, and attached hereto as Exhibit B.
SWA shall have a nonexclusive, nontransferable, revocable license to use
the CAL Service Marks (as defined below) in its marketing programs for the
purpose of promoting CO* Flights. All advertising programs using any CAL Service
Marks shall be subject to CAL's prior approval. In general, SWA's use of the CAL
Service Marks shall do no more than identify the code share relationship between
CAL and SWA, and advertise that schedules are coordinated to provide convenient
connections. Any marketing program, advertising brochures, schedules, signs or
information disseminated to the public or intended to be disseminated to the
public ("Advertising Material") shall reflect that CAL and SWA are operated
separately and shall comply with any DOT policy on airline designator code
sharing.
SWA is specifically prohibited from using any of the CAL Service Marks
on its aircraft or other equipment, on its stationary, or elsewhere unless SWA
has received prior specific authorization in writing from CAL. SWA hereby
acknowledges CAL's exclusive ownership of the CAL Service Marks and agrees that
it will not do anything that would infringe, abridge or adversely affect,
impair or reduce the value or validity of the CAL Service Marks. In no event
shall SWA allow the use of any CAL Service Marks in marketing, selling,
promoting or otherwise identifying or referencing any flight which is not a CO*
Flight.
SWA hereby grants to CAL a nonexclusive, nontransferable, revocable
license to use the name SkyWest Airlines and any other SWA Service Marks in
CAL's marketing programs, for the purpose of promoting the CO* Flights.
As used herein the term "Service Marks" shall include, without
limitation: (i) with respect to CAL: "Continental", the "CO" and "CO*"
designator codes, and "OnePass", and (ii) with respect to SWA: "SkyWest" and
various trademarks, service marks and logos used by it, but not including its
designator code.
7. PUBLIC RELATIONS. In the event of any irregularity in CO* Flights'
operations, including, without limitation, any event causing damage to persons
or property, SWA shall identify itself as being operated independently of CAL,
and as being solely responsible for its operations. SWA may state that it holds
a code sharing license from CAL and that it obtains certain services from CAL
if third parties inquire as to such relationship.
8. IRREGULARITIES IN OPERATIONS. SWA shall promptly notify CAL of all
irregularities involving a CO* Flight which result in any damage to persons or
property as soon as such information is available and shall furnish to CAL as
much detail as practicable.
-3-
<PAGE> 5
9. REPORTING OBLIGATION.
(a) Changes of Service. Each party shall give the other party 60 days'
advance written notice (or notice as far in advance as possible if 60 days is
impracticable) of any intended (i) changes to its operating specifications, or
(ii) material changes to the manner of conducting its business or the nature of
its product. In the event any such change materially affects the value or risk
to the other party of this Code Sharing Agreement in the other party's
reasonable judgment, the other party shall be entitled to terminate this
agreement if the change is implemented. In addition, each party will give the
other party 60 days' advance written notice (or notice as far in advance as
possible if 60 days is impracticable) prior to making a schedule change that
affects a Through Flight.
(b) Correspondence from Government Authorities. SWA shall immediately
provide CAL copies of any correspondence received from any government authority
which, with respect to CO* Flights, references (i) any alleged noncompliance
with rules or regulations affecting air transportation, or (ii) any
investigation of SWA performed or proposed by any government authority,
including, without limitation, any communication issued by a government
authority concerning the airworthiness of SWA's aircraft, the compliance of
SWA's personnel with required operational or training procedures or any other
matter relating to the safe operation of SWA aircraft.
(c) Notice of Complaints. SWA shall monthly furnish CAL a summary of
complaints, notices of violation, requests to cease activity or similar
correspondence which reasonably relate to CO* Flights and which are received by
SWA from passengers, any government authority, or other parties. SWA shall
comply with CAL's reasonable requests for actual copies of any such documents.
(d) Operations. SWA shall provide CAL monthly written reports
containing the following data for the CO* Flights:
(i) the total number of scheduled, actual and canceled
departures for the month, by flight and city pair;
(ii) the load factor and the total number of revenue passengers
and (separately) non-revenue passengers boarded, by flight
number and city pair and separated by passengers connected to
CAL and passengers carried locally; and
(iii) completion and on-time performance data by system and
market.
10. FLIGHT DISPLAY.
(a) All Through Flights will be included in the availability and fare
displays of all computerized reservations systems in which CAL and SWA
participate, the Official Airline Guide (to the extent agreed upon) and CAL's
and SWA's internal reservation systems under the CAL designator code (CO or
CO*) as well as, with respect to the CO* Flights, SWA's designator code, to the
extent possible. CAL and SWA will take the
-4-
<PAGE> 6
appropriate measures necessary to ensure the display of Through Flights in
accordance with the preceding sentence.
(b) CAL and SWA will disclose and identify the CO* Flights utilizing
the CO* designator code to the public as actually being flights of and operated
by the operating party, in at least the following ways:
(i) a symbol will be used in timetables and computer reservation
system indicating that CO* Flights are actually operated by SWA;
(ii) to the extent reasonable, messages on airport flight
information displays will identify the operator of flights shown as
CO* Flights;
(iii) CAL and SWA advertising concerning CO* Flights and CAL and
SWA reservationists will disclose the operator of each flight; and
(iv) in any other manner prescribed by law.
11. TERMS AND CONDITIONS OF CARRIAGE AND CLAIMS PROCEDURES.
(a) In all cases, the contract of carriage between a passenger and a
carrier on a Through Flight will be that of the party that operates the flight.
(b) The parties will use existing IATA procedures when handling and
settling claims made by customers in connection with Through Flights.
12. IRREGULARITY HANDLING.
(a) In the event of flight delays, cancellations or other schedule
irregularities that affect CO* Flights, SWA will inform CAL of a pertinent
information concerning an irregularity for customer information purposes.
(b) The parties agree that they will cooperate in all available ways to
accommodate passengers experiencing flight irregularities in connection with a
Through Flight and that neither will forbear from providing such assistance
because the other may have been responsible for the flight irregularity. In the
event of a flight irregularity, the party causing or experiencing the
irregularity shall bear all related costs associated with accommodating the
passengers who have been delayed. The parties will review existing procedures
for accommodating interline passengers with respect to flight irregularities and
oversales to determine their adequacy for the purposes of this Agreement and
will make such adjustments in existing procedures as they find necessary or
appropriate.
13. AIRPORT OPERATIONAL ASSISTANCE. The parties intend to work to establish a
seamless connection for passengers connecting from a CO* Flight to a flight
operated by CAL (or vice versa) while traveling on a Through Flight. CAL and
SWA will cooperate to coordinate and maintain their schedules to minimize the
waiting time and to maximize convenience of passengers
-5-
<PAGE> 7
who are connecting from a CAL to a SWA flight segment (or vice versa) on
Through Flights. Each party will provide the other with the airport operational
assistance that is required to assure schedule compatibility for Through
Flights. The parties will use their respective reasonable efforts to align
gates and ticket counter space where CO* Flights operate.
14. PRICING AND CAPACITY CONTROL OF SHARED CODE SEGMENTS.
CONFIDENTIAL INFORMATION
APPEARING HERE HAS BEEN
OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.
15. REVENUE ALLOCATION.
CONFIDENTIAL INFORMATION
APPEARING HERE HAS BEEN
OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.
16. TICKET HANDLING.
(a) Passenger Ticket Stock and Accounting Procedures. CAL will
provide SWA with CAL passenger ticket stock in accordance with the
following procedures:
(i) CAL will supply SWA with adequate supplies of all necessary
passenger ticket forms, bag tags, boarding passes, validator
plates and other documents and materials necessary to enable SWA
to operate in a manner consistent with CAL procedures, upon
request to the office designated by CAL from time to time. A
receipt for all ticket forms delivered to SWA shall be signed
by an appropriate representative of SWA, and SWA shall comply
with CAL's procedures with
-6-
<PAGE> 8
respect to the control of, safeguarding of and accounting for ticket stock and
validator plates. All tickets and other documents and materials supplied by CAL
for use in connection with this Agreement shall be and remain the property of
CAL and shall be held in trust for CAL by SWA and issued or otherwise utilized
only as provided in this Agreement.
(ii) SWA shall be responsible for the safe and secure custody and care of all
tickets and other documents and materials furnished by CAL. The tickets and
other documents of CAL shall be secured in a manner satisfactory to CAL and
consistent with any applicable LATA standards and specifications. Such tickets
and documents and all records relating to them and to the sale of
transportation on CAL shall at all times be made available for inspection by
CAL or its designated representative.
(iii) All tickets shall be issued by SWA in accordance with the currently
effective tariffs and contract of carriage applicable to the transportation
being purchased and applicable trade manuals, all in accordance with
appropriate instructions which may be issued form time to time by CAL.
(iv) All tickets shall be issued by SWA in numerical sequence and all must be
accounted for at each reporting period. All tickets issued by SWA and all
coupons of voided tickets shall be sent to the office or offices designated by
CAL from time to time on the work day following issuance.
(v) All checks accepted for the sale of tickets on CAL ticket stock shall be
payable to CAL and acceptance of checks shall conform to CAL's acceptance
procedures. Any losses resulting from returned checks where SWA has failed to
follow CAL's acceptance procedures, will be charged to SWA after CAL exhausts
reasonable efforts to collect.
(vi) All tickets for payment other than cash or check shall be supported by
such documents as shall be specified by CAL.
(vii) SWA shall assume full liability for and agrees to defend, indemnify and
hold CAL harmless from and against any and all claims, demands, liability,
expenses, losses, costs or damages whatsoever in any manner arising out of or
attributed to SWA's possession, issuance, loss, misapplication, theft, or
forgery of tickets, other travel documents, or supplies furnished by CAL to SWA
including but not limited to lost ticket forms, bag tags, boarding passes or
other documents and errors in ticket issuance. In the event SWA loses or has
stolen any ticket, fails to return tickets or other documents to CAL upon
demand, fails to remit pursuant to this Agreement the monies to which CAL is
entitled from the sale of any such ticket or document, or fails to account
properly for any such tickets or document, SWA shall be liable to CAL for the
agreed value of any such ticket or document, which is agreed to be the actual
damages or loss sustained by CAL from usage of any such ticket or document, as
measured by
-7-
<PAGE> 9
the then current, non-discounted retail price of the transportation or other
service obtained with the ticket or document or, if such value cannot be
determined, $2,000.00 U.S. per ticket.
(viii) SWA may accept all credit cards honored by CAL and is appointed CAL's
agent for such purpose, provided:
1. SWA observes the floor limits for each credit card set by the issuer
of the credit card ("Card Issuer") as amended by the Card Issuer from
time to time;
2. SWA accepts each credit card within the terms of the contracts
between CAL and Card Issuer;
3. SWA complies with Part 374 of DOT's Economic Regulations;
4. SWA does not accept blacklisted cards;
5. SWA shall reimburse CAL for any losses incurred by CAL as a result
of Contractor's failure to observe the terms of this section or of the
contracts between CAL and the Card Issuer;
6. SWA complies with all of CAL's procedures; and
7. SWA shall reimburse CAL for all charge backs, returns and other
charges attributable to or arising from SWA's acceptance of credit
cards, unless either (i) CAL has realized an offsetting credit
(including through the return and cancellation of a previously issued
ticket) or (ii) such charge back, return or other charge resulted from
the gross negligence, recklessness, or willful misconduct of CAL.
(ix) SWA shall reimburse CAL for any credit card fees, commissions, discounts,
etc., paid by CAL or deducted from payments made to CAL with respect to sales
of tickets for travel on SWA, and for any bad debt expense realized by CAL with
respect to tickets sold by SWA.
(x) SWA shall prepare and furnish to CAL all written reports, accounts, and
documentation with regard to ticket handling that CAL may require daily or at
such lesser frequency as CAL may prescribe, at its sole discretion, from time
to time during the life of this Agreement. SWA will comply with all reasonable
procedures specified by CAL with regard to ticket handling.
Within two business days after the termination of this Agreement for any
reason, SWA will return to CAL all passenger ticket forms, bag tags, boarding
passes and other documents provided to SWA by CAL pursuant to this Agreement.
- 8 -
<PAGE> 10
(b) Deposits. SWA shall deposit all funds, both cash and checks,
realized from the sale of tickets on CAL ticket stock by it in CAL
accounts maintained at depositories from time to time designated by CAL
on or before the first banking day following receipt of such funds.
(c) Delta Ticket Stock. SWA will be permitted to use Delta
Airlines' ticket stock to ticket passengers for travel on Through
Flights, with the understanding that CAL will suffer no adverse effects
as a result of such use. SWA shall hold harmless and indemnify CAL from
and against any such adverse effects resulting from such use of Delta
Airlines' ticket stock. The parties will work together to minimize any
such adverse effects.
(d) Ticket Acceptance. For the term of this Agreement, CAL
hereby authorizes SWA to accept flight coupons written for CO* Flights
in accordance with any applicable restrictions. SWA shall not endorse or
refund any such coupons without CAL's written consent, except in
accordance with CAL's contract of carriage. In addition, SWA shall
accept and is authorized to accept the coupons and certificates set
forth on Exhibit C hereto in accordance with the terms and conditions
applicable thereto.
17. COMPLIANCE WITH LAWS AND REGULATIONS. CAL and SWA each represent,
warrant, and agree that performance of its respective obligations under this
Agreement shall be conducted and all of its personnel shall at all times meet,
be in full compliance with an have all required licenses under any and all
applicable statutes, orders, rules and regulations, and satisfy all applicable
insurance requirements, whether in effect or hereafter promulgated of the
United States National Transportation Safety Board, Department of
Transportation or Federal Aviation Administration, Department of Defense or any
country or territory with jurisdiction over the Through Flights.
18. INDEPENDENT PARTIES.
(a) Independent Contractors. It is expressly recognized and
agreed that each party, in its performance and otherwise under this
Agreement, is and shall be engaged and acting as an independent
contractor and in its own independent and separate business; that each
party shall retain complete and exclusive control over its staff and
operations and the conduct of its business; and that each party shall
bear and pay all expenses, costs, risks and responsibilities incurred by
it in connection with its obligations under this Agreement. Neither CAL
nor SWA nor any officer, employee, representative, or agent of CAL or
SWA shall in any manner, directly or indirectly, expressly or by
implication, be deemed to be, or make any representation or take any
action which may give rise to the existence of, any employment, agent,
partnership, of other like relationship as between CAL and SWA but each
party's relationship as respects the other party in connection with this
Agreement is and shall remain that of an independent contractor.
(b) Status of Employees. The employees, agents and/or
independent contractors of SWA shall be employees, agents, and
independent contractors of SWA for all purposes, and under no
circumstances shall be deemed to be employees, agents or independent
contractors of CAL. The employees, agents and independent contractors of
CAL shall be employees, agents and independent contractors of CAL for
all purposes, and under no
-9-
<PAGE> 11
circumstances shall be deemed to be employees, agents or independent
contractors of SWA. In its performance under this Agreement, each party shall
act as an independent contractor and not as an agent for the other. CAL shall
have no supervisory power or control over any employees, agents or independent
contractors employed by SWA, and SWA shall have no supervisory power or control
over any employees, agents and independent contractors employed by CAL.
(c) Liability For Employee Costs. Each party, with respect to its own
employees (hired directly or through a third party), accepts full and exclusive
liability for the payment of worker's compensation and/or employer's liability
(including insurance premiums where required by law) and for the payment of all
taxes, contributions or other payments for unemployment compensation,
vacations, or old age benefits, pensions and all other benefits now or
hereafter imposed upon employers with respect to its employees by any
government or agency thereof or any other party (whether measured by the wages,
salaries, compensation or other remuneration paid to such employees or
otherwise) and each party further agrees to make such payments and to make and
file all reports and returns, and to do everything necessary to comply with the
laws imposing such taxes, contributions or other payments.
19. INDEMNIFICATION AND INSURANCE.
(a) Indemnification.
(i) SWA hereby assumes liability for, and shall indemnify,
defend, protect, save and hold harmless CAL, its officers, agents, and
employees from and against any and all liabilities, claims, judgements,
damages, and losses, including all costs, fees, and expenses incidental
thereto, of every type and nature whatsoever, including without
limitation those involving (i) death of or injury to any person
including, but not limited to, SWA's officers, employees and agents,
(ii) loss of, damage to, or destruction of any property whatsoever,
including any loss of use thereof, and (iii) trademark, service mark or
trade name infringement, provided that such liabilities, claims,
judgements, damages or losses are caused by or arise out of (or are
alleged to be caused by or arise out of) any alleged acts or omissions
of SWA or its officers, employees, or agents which are in any way
related to the services contemplated by this Agreement. CAL shall give
SWA prompt notice of any claim made or suit instituted against CAL
which, if successful, would result in indemnification of CAL hereunder,
and CAL shall have the right to compromise or participate in the defense
of same to the extent of its own interest.
(ii) CAL hereby assumes liability for, and shall indemnify,
defend, protect, save and hold harmless SWA, its officers, agents, and
employees from and against any and all liabilities, claims, judgements,
damages, and losses, including all costs, fees, and expenses incidental
thereto, of every type and nature whatsoever, including without
limitation those involving (i) death of or injury to any person
including, but not limited to, CAL's officers, employees
-10-
<PAGE> 12
and agents, (ii) loss of, damage to, or destruction of any property
whatsoever, including any loss of use thereof, and (iii) trademark, service
mark or trade name infringement, provided that such liabilities, claims,
judgements, damages or losses are caused by or arise out of (or are alleged
to be caused by or arise out of any alleged acts or omissions of CAL or its
officers, employees, or agents which are in any way related to the services
contemplated by this Agreement. SWA shall give CAL prompt notice of any
claim made or suit instituted against SWA which, if successful, would result
in indemnification hereunder, and SWA shall have the right to compromise or
participate in the defense of same to the extent of its own interest.
(b) Insurance Coverage.
CONFIDENTIAL INFORMATION
APPEARING HERE HAS BEEN
OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.
(i) Subject to Section 19(b)(i) above, each party as appropriate
shall cause the policies of insurance described in such Section
19(b)(i) to be duly and properly endorsed by that party's insurance
underwriters as follows:
1. as to the policies of insurance described in
paragraphs (b)(i)1 and (b)(i)2 of Section 19:
(A) to provide that any waiver of rights of
subrogation against other parties by one party will not
affect the coverage provided thereunder with respect to
the other party; and
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<PAGE> 13
20. TERM AND TERMINATION.
(a) Term. The term of this Agreement shall commence on October 24,
1995 and shall continue for a period of two years, unless earlier terminated as
provided herein, and shall continue thereafter until either party gives the
other party notice of termination at least 90 days prior to the effective date
of such termination. In no event shall termination or expiration pursuant to
this Section 20(a) be effective unless such 90 days' notice is provided.
(b) Termination as a Result of Changes of Law. In the event there is
any change in treaties, statues or regulations of air transportation that
materially affects the rights and/or obligations presently in force with
respect to the air transportation services of CAL or SWA or both, relating to
CO* Flights or the Through Flights, then the parties will consult, within 30
days after any of the occurrences described herein, in order to determine or
seek mutual agreement as to what, if any changes to this Agreement are
necessary or appropriate, including but not limited to the early termination
and cancellation of this Agreement.
(c) Other Termination Rights.
CONFIDENTIAL INFORMATION
APPEARING HERE HAS BEEN
OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.
-13-
<PAGE> 14
CONFIDENTIAL INFORMATION
APPEARING HERE HAS BEEN
OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.
21. BOOKING FEE.
CONFIDENTIAL INFORMATION
APPEARING HERE HAS BEEN
OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.
22. ENTIRE AGREEMENT, WAIVERS AND AMENDMENTS. This Agreement
constitutes the entire understanding of the parties with respect to the subject
matter hereof superseding all prior discussions and agreements, written or oral.
This Agreement may not be amended, nor may any of its provisions be waived,
except by writing signed by both parties. No delay on the part of either party
in exercising any right power or privilege hereunder shall operate as a waiver
hereof, nor shall any waiver operate as a continuing waiver of any right, power
or privilege.
-14-
<PAGE> 15
23. NOTICES. All notices given hereunder shall be in writing delivered
by hand, certified mail, telex, or telecopy to the parties at the following
addresses:
If to CAL:
Continental Airlines, Inc. Telephone No.: 713-834-2966
2929 Allen Parkway Telecopier No.: 713-520-6329
Houston, Texas 77019
Attention: Vice President Alliance Development
With copy to:
Continental Airlines, Inc. Telephone No.: 713-834-2948
2929 Allen Parkway Telecopier No.: 713-520-6329
Houston, Texas 77019
Attention: Senior Vice President
and General Counsel
If to SWA:
SKYWEST AIRLINES, INC. Telephone No.:
Telecopier No.:
With copy to:
SKYWEST AIRLINES, INC. Telephone No.:
Telecopier No.:
24. SUCCESSORS AND ASSIGNS. Neither party may assign its rights or
delegate its duties under this Agreement without the prior written consent of
the other party, and any such purported assignment or delegation shall be void.
This Agreement shall be binding on the lawful successors of each party.
25. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
26. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not define or limit any of the terms or provisions
hereof.
27. COUNTERPARTS. This Agreement may be executed in counterparts, all
of which taken together shall constitute one agreement.
-15-
<PAGE> 16
28. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REFERENCE TO
PRINCIPLES OF CHOICE OR CONFLICTS OF LAW.
29. EQUAL OPPORTUNITY. EEO clauses contained at 11 C.F.R. sections
60-1.4, 60-250.4 and 60-741.4 are hereby incorporated by reference. Each party
shall comply with all equal opportunity laws and regulations which apply to or
must be satisfied by that party as a result of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
CONTINENTAL AIRLINES, INC. SKYWEST AIRLINES, INC.
By: /s/ By: /s/
_________________________ __________________________
Title: VP Alliance Operations Title: Executive V.P. - Chief Operating Officer
---------------------- ----------------------------------------
-16-
<PAGE> 17
EXHIBIT A
CO* Flights
NONSTOP ONESTOP
LAX - BFL LAX - BFL - SMF
LAX - FAT LAX - ONT - FAT
LAX - IPL LAX - SBA - SJC
LAX - MRY LAX - SBP - SMF
LAX - ONT LAX - SNA - MRY
LAX - PSP LAX - SNA - PSP
LAX - SAN
LAX - SBA
LAX - SBP
LAX - SJC
LAX - SMX
LAX - SNA
LAX - YUM
<PAGE> 18
EXHIBIT B
CONFIDENTIAL INFORMATION
APPEARING HERE HAS BEEN
OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.
<PAGE> 19
SCHEDULE B
CONFIDENTIAL INFORMATION
APPEARING HERE HAS BEEN
OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.
<PAGE> 20
SCHEDULE C
CONFIDENTIAL INFORMATION
APPEARING HERE HAS BEEN
OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.
<PAGE> 21
EXHIBIT C
CONFIDENTIAL INFORMATION
APPEARING HERE HAS BEEN
OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.
<PAGE> 22
SPECIAL PRORATE AGREEMENT
BETWEEN
CONTINENTAL AIRLINES
AND
SKYWEST AIRLINES
CONFIDENTIAL INFORMATION
APPEARING HERE HAS BEEN
OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.
<PAGE> 23
ATTACHMENT A
CONFIDENTIAL INFORMATION
APPEARING HERE HAS BEEN
OMITTED AND FILED
SEPARATELY WITH THE
COMMISSION.
<PAGE> 24
ATTACHMENT B
CONFIDENTIAL INFORMATION
APPEARING HERE HAS BEEN
OMITTED AND FILED
SEPARATELY WITH THE
COMMISSION.
<PAGE> 25
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
Year ended March 31,
------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues (000) $ 251,734 $ 225,398 $ 187,993 $ 146,800 $ 125,310
Operating income (000) $ 5,710 $ 20,341 $ 24,680 $ 11,465 $ 3,802
Net income (000) $ 4,366 $ 13,701 $ 14,396 $ 6,704 $ 1,986
Weighted average shares (000) $ 10,284 $ 11,112 $ 9,883 $ 7,927 $ 7,823
Net income per common share $ .42 $ 1.23 $ 1.46 $ .85 $ .25
Total assets (000) $ 227,550 $ 188,182 $ 184,017 $ 86,945 $ 72,383
Current assets (000) $ 76,462 $ 71,642 $ 87,088 $ 28,243 $ 24,330
Current liabilities (000) $ 43,644 $ 25,603 $ 20,473 $ 15,909 $ 13,012
Long-term debt (000) $ 53,736 $ 29,553 $ 26,647 $ 18,391 $ 13,753
Stockholders' equity (000) $ 115,800 $ 117,684 $ 122,788 $ 42,766 $ 35,310
Return on average equity 3.7% 11.1% 17.4% 17.2% 5.8%
Passengers carried 2,340,366 2,073,885 1,730,993 1,523,384 1,317,693
Revenue passenger miles (000) 617,136 488,901 345,414 294,276 250,615
Available seat miles (000) 1,254,334 976,095 727,059 669,724 604,633
Load factor 49.2% 50.1% 47.5% 43.9% 41.4%
Break-even loan factor 48.4% 45.5% 41.2% 41.1% 40.8%
Yield revenue per passenger mile $ .332 $ .363 $ .439 $ .450 $ .455
Cost per available seat mile $ .166 $ .171 $ .188 $ .191 $ .192
Average passenger trip length 264 236 200 193 190
Number of aircraft at end of year 63 60 55 50 50
</TABLE>
QUARTERLY FINANCIAL AND STOCK PRICE DATA
<TABLE>
<CAPTION>
Fiscal Year 1996
------------------------------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues (000) $ 60,381 $ 69,175 $ 58,991 $ 63,187 $ 251,734
Operating income (loss) (000) $ 4,799 $ 6,565 $ (1,668) $ (3,986) $ 5,710
Net income (loss) (000) $ 3,089 $ 4,109 $ (682) $ (2,150) $ 4,366
Net income (loss) per common share $ .30 $ .40 $ (.07) $ (.21) $ .42
Stock price data: High $ 23.50 $ 25.38 $ 19.75 $ 14.75 $ 25.38
Low $ 14.13 $ 17.00 $ 12.88 $ 12.38 $ 12.38
</TABLE>
<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 $ .47 $ .60 $ .13 $ .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>
As of April 30, 1996, there were 1,103 holders of common stock. Cash
dividends of $.25 and $.28 per share of outstanding common stock were paid in
fiscal years 1996 and 1995, respectively.
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The following table sets forth information regarding the Company's
operating cost components:
<TABLE>
<CAPTION>
Fiscal Year ended March 31,
--------------------------------------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------------------------------------
Percent Cents Percent Cents Percent Cents
of per of per of per
Amount Revenue ASM Amount Revenue ASM Amount Revenue ASM
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries, wages and
employee benefits $ 56,005 26.5% 4.5 cents $ 49,684 27,0% 5.1 cents $ 44,725 28.4% 6.2 cents
Aircraft costs 43,009 20.3 3.5 35,355 19.2 3.6 25,672 16.3 3.5
Maintenance 20,779 9.8 1.6 18,350 10.0 1.9 15,336 9.8 2.1
Fuel 23,084 10.9 1.8 16,625 9.0 1.7 13,094 8.3 1.8
Other 56,794 26.9 4.5 45,742 24.9 4.7 35,684 22.7 4.9
Interest 2,160 1.0 .2 1,086 0.6 0.1 1,816 1.2 0.3
Fleet restructuring and
transition 6,247 3.0 .5 -- -- -- -- -- --
-------- ---- --- -------- ---- ---- -------- ---- ----
Total airline expense 208,078 98.4 16.6 cents 166,842 90.7 17.1 cents 136,347 86.7 18.8 cents
-------- ---- ---- -------- ---- ---- -------- ---- ----
Non-airline expenses 40,109 99.7 39,315 94.4 28,944 94.0
-------- ---- -------- ---- -------- ----
Total operating expenses
and interest $248,187 98.6% $206,157 91.4% $165,291 87.9%
-------- ---- -------- ---- -------- -----
</TABLE>
Airline operating costs are expressed as a percentage of total airline
operating revenues. Non-airline expenses are expressed as a percentage of
total non-airline revenues. Total operating expenses and interest are expressed
as a percentage of total consolidated revenues.
FISCAL 1996 COMPARED TO FISCAL 1995
The Company experienced continued growth in revenue passenger miles
("RPMs"), available seat miles ("ASMs") and passenger enplanements during
fiscal 1996 compared to fiscal 1995. Consolidated operating revenues increased
11.7 percent to a record $251.7 million in fiscal 1996 compared to $225.4
million in fiscal 1995. Consolidated net income decreased to $4.4 million, or
$.42 per share in fiscal 1996 compared to $13.7 million, or $1.23 per share in
fiscal 1995. The fiscal 1996 results include a pretax fleet restructuring and
transition expense of $6.2 million, or $.38 per share resulting from a fleet
rationalization plan that required a restructuring of the Company's turboprop
fleet. The $6.2 million fleet restructuring and transaction expense primarily
represents crew related costs associated with the discontinuance of Metroliner
aircraft operations as well as accelerated maintenance costs associated with
the early termination of Metroliner leases. The amount consists of $2.5
million of costs incurred in fiscal 1996 and an accrual for $3.7 million of
fiscal 1997 restructuring costs. The fleet rationalization plan will result in
an all Brasilia turboprop fleet and will be completed by the end of fiscal 1997.
Passenger revenues, which represented 81.5 percent of total operating
revenues, increased 15.5 percent to $205.0 million in fiscal 1996 from $177.6
million in fiscal 1995. The increase is due to a 26.2 percent increase in RPMs
offset by an 8.5 percent decrease in yield per RPM to $.332 in fiscal 1996 from
$.363 in fiscal 1995. The increase in RPMs is due to the addition of four new
Canadair Regional Jets and seven new Brasilia aircraft which replaced eight
Metroliner aircraft as their leases expired or were terminated as part of the
fleet rationalization program. These aircraft fleet additions and changes
resulted in a 28.5 percent increase in ASMs. The growth in ASMs exceeded the
growth in RPMs and resulted in a decrease in passenger load factor to 49.2
percent in fiscal 1996 from 50.1 percent in fiscal 1995. Although the passenger
load factor was only down .9 points and in spite of a strong trend of growth in
demand exceeding growth in capacity during the fourth quarter, passenger
enplanements did not meet management's expectations during the first nine
months due to the following factors: 1) growing reluctance of airline
passengers to book flights on Metroliner aircraft which do not have cabin-class
amenities, 2) the schedule restructuring by Delta Airlines, Inc. ("Delta") at
the Los Angeles hub which reduced daily departures by 31 percent effective May
1, 1995, thereby reducing the Company's connection opportunities, 3) the impact
of indirect competition from low-fare carriers and 4) a continuing reluctance
of travel agents to book passengers on the Delta
<PAGE> 27
system after Delta instigated commission caps last spring as well as commission
overrides being offered by the Company's competitors.
Yield per revenue passenger mile decreased 8.5 percent to $.332 in
fiscal 1996 compared to $.363 in fiscal 1995. The decrease is due to an 11.9
percent increase in the average passenger trip length resulting from growing
regional jet operations. The 8.5 percent decrease coupled with a lower
passenger load factor resulted in a decrease in revenue per ASM to $1.69 in
fiscal 1996, compared to $1.88 in fiscal 1995.
Non-airline revenues, which consist of operations of Scenic Airlines,
Inc. and National Parks Transportation, Inc. decreased 3.3 percent to $40.3
million in fiscal 1996 from $41.6 million in fiscal 1995. Non-airline net
income decreased to $.4 million in fiscal 1996, from $1.6 million in fiscal
1995. The decreases are due to the following factors: 1) a 13 percent decrease
in the overall tourist traffic Grand Canyon/Las Vegas market; 2) the impact of
new low-fare competition and 3) the Company's difficulty in differentiating its
premium touring packages from low price transportation alternatives.
Total airline operating expenses and interest were 98.4 percent of
total airline operating revenues in fiscal 1996 compared to 90.7 percent in
fiscal 1995. This percentage increase is due to passenger enplanements not
meeting expectations which resulted in passenger revenues falling short of
internal plans as well as the airline incurring a one-time fleet restructuring
and transition expense. Exclusive of the one-time fleet restructuring and
transition expense, total airline operating expense increased only 21.0 percent
for fiscal 1996 over fiscal 1995 airline operating expenses while ASMs
increased 28.5 percent. Due to the continuing fleet rationalization program,
management has continued to reduce airline operating costs per ASM. Airline
operating costs per ASM decreased to 16.6 cents in fiscal 1996 from 17.1 cents
in fiscal 1995. Exclusive of the one-time fleet restructuring and transition
expense, airline operating costs per ASM would have been 16.1 cents for fiscal
1996.
Salaries, wages and employee benefits decreased as a percentage of
airline operating revenues to 26.5 percent in fiscal 1996 from 27.0 percent in
fiscal 1995. The decrease is primarily due to lower employee incentive payments
resulting from the decrease in profitability for fiscal 1996 compared to fiscal
1995. The average number of full-time equivalent employees was 1,753 for 1996
compared to 1,760 for fiscal 1995. Salaries, wages and employee benefits per
ASM decreased to 4.5 cents in fiscal 1996 from 5.1 cents in fiscal 1995.
Aircraft costs, including aircraft rent and depreciation, increased as
a percentage of airline operating revenues to 20.3 percent in fiscal 1996 from
19.2 percent in fiscal 1995. This percentage increased as a result of the
utilization of additional Brasilia and regional jet aircraft as well as
passenger traffic falling short of management's expectation resulting in lower
operating revenues. Aircraft costs per ASM decreased slightly to 3.5 cents in
fiscal 1996 from 3.6 cents in fiscal 1995.
Maintenance expense decreased slightly as a percentage of airline
operating revenues to 9.8 percent in fiscal 1996 from 10.0 percent in fiscal
1995. Maintenance cost per ASM decreased to 1.6 cents in fiscal 1996 from 1.9
cents in fiscal 1995 due to the increased ASMs generated from operations.
Fuel costs increased as a percentage of airline operating revenues to
10.9 percent in fiscal 1996 compared to 9.0 percent in fiscal 1995. The
increase is primarily due to an increase in the average fuel price per gallon
to $.80 in fiscal 1996 from $.74 in fiscal 1995. As a result, fuel costs per
ASM increased slightly to 1.8 cents in fiscal 1996 from 1.7 cents in fiscal
1995.
Other expenses, which consist primarily of commissions, landing fees,
station rents, computer reservation systems and hull and liability insurance,
increased as a percentage of airline operating revenues to 26.9 percent in
<PAGE> 28
fiscal 1996 compared to 24.9 in fiscal 1995. The increase is due primarily to
significant rate increases in customer reservation system booking fees. In
addition, the Company has experienced rate increases in landing fees and
general passenger handling charges. Interest expense increased as a percentage
of airline operating revenues to 1.0 percent in fiscal 1996 from .6 percent in
fiscal 1995. The increase is due to an increase in debt financings of new
Brasilia aircraft.
Non-airline expenses increased 2.0 percent to $40.1 million for fiscal
1996 compared to $39.3 million for fiscal 1995. These expenses remained
relatively constant as no major operational changes were made.
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 was due to slower traffic growth resulting from
negative publicity regarding the safety of regional airlines as well as the
continued discount fare environment in which the Company operates.
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 was due primarily to a 41.5 percent
increase in RPMs offset by a 17.3 percent decrease in yield per RPM to $.363 in
fiscal 1995 from $.439 in fiscal 1994. The increase in RPMs was due to the
introduction of six new Canadair Regional Jets. These jets were 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 and represent markets
where Delta successfully transitioned service entirely to the Delta Connection
program. The Company was also utilizing these Regional Jets in the Boise, Idaho
and Butte, Montana markets where service was upgraded from Brasalia aircraft.
During the first seven months of fiscal 1995, the Company continued a
positive trend of RPM growth outpacing ASM growth. October 1994 was 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 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 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 experience severe weather conditions at certain times, including the
flooding in California, and had 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 were 425 miles. The remaining decrease was due to the Company
experiencing indirect low-fare competition. In order to continue to migrate the
impact of this competition, the Company continued to make refinements in the
total revenue management system whereby seats were made available based on
historical demand as well as future booking curves. To achieve the objective of
maximizing revenue, the Company sought to 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 transaction 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. Non-airline 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 was primarily due to having a full year of
operations from the acquisition, previously
<PAGE> 29
mentioned. Non-airline net income increased 41.4 percent to $1.6 million in
fiscal 1995 from $1.2 million in fiscal 1994.
ASMs increased 34.3 percent in fiscal 1995 primarily due to 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 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 break-even 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 was 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 ASMs. 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 17.1
cents in fiscal 1995 from 18.8 cents 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 was due to
hiring additional pilots, flight attendants and customer service personnel for
Regional Jet operations. Salaries, wages and employee benefits per ASM
decreased to 5.1 cents in fiscal 1995 from 6.2 cents in fiscal 1994 due to the
increased ASMs 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 expectations which created a
revenue shortfall. Aircraft costs per ASM increased slightly to 3.6 cents in
fiscal 1995 from 3.5 cents in fiscal 1994.
Maintenance expense increases 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 was 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 cost per ASM decreased to 1.9 cents in fiscal 1995 from
2.1 cents in fiscal 1994 due to the increased ASMs 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
was due to a larger number of gallons used in operations, primarily from jet
operations. The increase in usage was 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 1.7 cents in fiscal 1995 from 1.8 cents 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 ASMs generated from Regional Jet operations.
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 was due primarily to
significant rate increases in customer reservation systems booking fees. In
addition, the Computer experienced rate increases in landing fees and general
passenger handling charges. 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 was due to the Company reducing its effective
interest rate on debt subsidized by the Federative Republic of Brazil.
Interest income increased 164.4 percent in fiscal 1995 to $2.8 million
compared to $1.1 million in fiscal 1994. The increase was 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.
<PAGE> 30
Non-airline expenses increased 35.8 percent to $39.3 million for fiscal
1995 compared to $28.9 million for fiscal 1994. The increase was 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $32.8 million and a current ratio of
1.8:1 at March 31, 1996, compared to working capital of $46.0 million and a
current ratio of 2.8:1 at March 31, 1995. The principal sources of funds during
fiscal 1996 were $26.9 million generated from operations, $31.0 million in
proceeds from the issuance of long-term debt, $5.7 million of net deposits
related to aircraft acquisitions, $4.1 million of proceeds from the sale of
property and equipment and $2.2 million from the sale of available-for-sale
securities. During fiscal 1996 the Company invested $48.5 million in flight
equipment and $13.2 million in buildings, ground equipment and other assets. The
Company also repurchased $4.2 million of its outstanding common stock, reduced
long-term debt by $4.3 million and paid $2.6 million in cash dividends. These
factors contributed to a $2.9 million decrease in cash and cash equivalents
during fiscal 1996.
The Company's position in available-for-sale securities, consisting
primarily of bonds and commercial paper, has decreased to $19.1 million at
March 31, 1996, compared to $21.3 million at March 31, 1995.
The Company took delivery of seven new Brasilia aircraft during the
year ended March 31, 1996 as part of the strategy to upgrade its fleet. At
March 31, 1996, the Company had agreed to purchase 15 additional Brasilia
aircraft and related spare parts inventory and support equipment at an
aggregate cost of approximately $120 million, including estimated cost
escalations. These aircraft are scheduled for delivery in fiscal 1997. The
Company took delivery of four Canadair Regional Jets during the year ended
March 31, 1996. There have been ten Regional Jets delivered to date.
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 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 obtained and are
exercisable at anytime with no expiration.
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, 1996, the Company leased 65 aircraft, including
Scenic Airlines 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 $378.5 million at March 31, 1996.
At March 31, 1996, the Company had outstanding long-term debt,
including current maturities, of approximately $60.0 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 $14.4 million of
the $60.0 million long-term debt are floating based on one month and three
month LIBOR. The subsidy payments reduced the stated interest rates on the
$60.0 million of long-term debt to an average effective rate of approximately
4.0 percent as of March 31, 1996. The debt is payable in installments through
January 2006.
The Company expended approximately $28.5 million for non-aircraft
capital expenditures during the year ended March 31, 1996, consisting primarily
of aircraft engine overhauls and aircraft modifications to be made pursuant to
industry-wide FAA directives as well as Scenic Airlines' terminal and
maintenance facilities.
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 8.0 percent at March 31, 1996. The Company also has available $1.0
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 $1.0 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 $.5 million on December 1, 1996, and will expire on December 1, 1997.
<PAGE> 31
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, 1996 and 1995, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended March 31, 1996. 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 misstatements. 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, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1996 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Salt Lake City, Utah
May 24, 1996
REPORT OF MANAGEMENT
The integrity and objectivity of the information presented in this
Annual Report are the responsibility of SkyWest, Inc. management. The
consolidated financial statements contained in this report have been audited by
Arthur Andersen LLP, independent public accountants, whose report appears on
this page.
The Company maintains a system of internal controls that provides
reasonable assurance as to the integrity and reliability of the financial
statements, the safeguarding of its assets against loss or unauthorized use and
the prevention and detection of fraudulent financial reporting.
The Board if Directors pursues its responsibility for these statements
through its Audit Committee, which consists solely of directors who are
neither officers nor employees of the Company. The Audit Committee meets
periodically with the independent public accountants, the internal auditors and
representatives of management to discuss internal accounting control, auditing
and financial reporting matters.
/s/ Jerry C. Atkin /s/ Bradford R. Rich
Jerry C. Atkin Bradford R. Rich
Chairman, President and Executive Vice President-Finance,
Chief Executive Officer Chief Financial Officer and Treasurer
<PAGE> 32
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31,
- ----------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 24,529 $ 27,416
Available-for-sale securities 19,097 21,309
Receivables, less allowance for doubtful
accounts of $221 in 1996 and $215 in 1995 12,893 7,004
Inventories 8,923 7,179
Other current assets 11,020 8,734
--------------------
Total current assets 76,462 71,642
--------------------
PROPERTY AND EQUIPMENT, AT COST:
Aircraft and rotable spares 171,840 127,004
Buildings and ground equipment 39,092 28,866
Deposits on aircraft and rotable spares 3,603 9,265
Rental vehicles 2,237 1,849
--------------------
216,772 166,984
Less-accumulated depreciation and amortization (71,701) (56,743)
--------------------
145,071 110,241
--------------------
OTHER ASSETS 6,017 6,299
--------------------
$227,550 $188,182
--------------------
The accompanying notes are an integral part of
these consolidated balance sheets.
</TABLE>
<PAGE> 33
<TABLE>
<CAPTION>
March 31,
-------------------------------
1996 1995
-------- -------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 6,236 $ 3,747
Current portion of deferred credits 1,614 803
Trade accounts payable 23,740 13,789
Accrued salaries, wages and benefits 5,451 4,647
Taxes other than income taxes 1,330 1,353
Air traffic liability 1,485 1,264
Fleet restructuring accrual 3,788 --
-------- --------
Total current liabilities 43,644 25,603
-------- --------
LONG-TERM DEBT, less current maturities 53,736 29,553
-------- --------
DEFERRED CREDITS, less current portion -- 2,308
-------- --------
DEFERRED INCOME TAXES PAYABLE 14,370 13,034
-------- --------
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; 11,521,808 and 11,468,056
issued, respectively 88,183 87,658
Retained earnings 47,902 46,117
Treasury stock, at cost; 1,474,600 and 1,150,000
shares, respectively (20,285) (16,091)
-------- --------
Total stockholders' equity 115,800 117,684
-------- --------
$227,500 $118,182
-------- --------
</TABLE>
<PAGE> 34
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the years ended March 31,
-------------------------------------------------------------------------------
1996 1995 1994
-------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES:
Passenger $ 205,034 $ 177,588 $ 151,699
Freight 4,291 3,802 3,099
Public service and other 2,159 2,401 2,411
Non-airline 40,250 41,607 30,784
------------------------------------
Total operating revenues 251,734 225,398 187,993
------------------------------------
OPERATING EXPENSES:
Flying operations 85,117 68,135 52,256
Aircraft, traffic and passenger service 32,522 28,218 22,621
Maintenance 28,713 25,530 21,853
Promotion and sales 25,965 20,369 16,527
Depreciation and amortization 15,392 11,896 8,967
General and administrative 11,962 11,605 12,306
Fleet restructuring and transition 6,247 -- --
Non-airline 40,106 39,304 28,783
------------------------------------
Total operating expenses 246,024 205,057 163,313
------------------------------------
OPERATING INCOME 5,710 20,341 24,680
------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (2,163) (1,100) (1,978)
Interest income 2,707 2,826 1,069
Gain on sales of property and equipment 556 713 74
------------------------------------
Total other income (expense), net 1,100 1,899 (835)
------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 6,810 22,240 23,845
PROVISION FOR INCOME TAXES 2,444 8,539 9,449
------------------------------------
NET INCOME $ 4,366 $ 13,701 $ 14,396
------------------------------------
NET INCOME PER COMMON SHARE $ .42 $ 1.23 $ 1.46
------------------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 10,283,918 11,111,596 9,883,036
------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 35
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, 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
Net income - - - - -
Exercise of common stock options
(at prices ranging from $3.83 to $5.50 per share) 27,500 114 - - -
Sale of common stock under
employee stock purchase plan 26,252 287 - - -
Tax benefit from exercise of common stock options - 41 - - -
Compensation expenses related to grant of
stock options - 83 - - -
Purchase of treasury stock - - (324,600) (4,194) -
Cash dividends (at $.25 per share) - - - - (2,581)
---------------------------------------------------------------------------
BALANCE AT MARCH 31, 1996 11,521,808 $88,183 (1,474,600) $(20,285) $47,902
===========================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE> 36
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the years ended March 31,
- -------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,366 $ 13,701 $ 14,396
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 15,392 11,896 8,967
Compensation expense related to grant of stock options 83 69 -
Gain on sales of property and equipment (556) (173) (74)
Increase in allowance for doubtful accounts 6 71 1
Maintenance expense related to disposition of rotable spares 173 240 165
Deferred income taxes 1,336 2,050 5,047
Amortization of deferred credits (1,497) (817) (818)
Non-airline depreciation and amortization 2,742 2,090 1,589
Tax benefit from exercise of common stock options 41 228 861
Changes in operating assets and liabilities:
(Increase) decrease in receivables (5,895) 2,721 (1,467)
(Increase) decrease in inventories (1,744) (1,305) 218
Increase in other current assets (2,286) (5,267) (1,643)
Increase in trade accounts payable 9,951 3,762 4,222
Increase in fleet restructuring accrual 3,788 - -
Increase in other current liabilities 1,005 692 1,337
------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 26,905 29,958 32,801
====================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities - (9,760) (9,385)
Proceeds from sale of available-for-sale securities 2,212 - -
Acquisition of property and equipment:
Aircraft and rotable spares (48,508) (23,538) (35,916)
Deposits on aircraft and rotable spares (3,053) (7,653) (5,382)
Buildings and ground equipment (10,281) (5,851) (2,799)
Rental vehicles (2,842) (2,229) (1,548)
Proceeds from sales of property and equipment 4,114 1,370 861
Decrease in deposits on aircraft and rotable spares 8,715 4,275 1,000
Increase in other assets (447) (38) (5,089)
------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (50,090) (43,424) (58,258)
====================================
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 401 116 66,305
Purchase of treasury stock (4,194) (16,091) -
Payment of cash dividends (2,581) (3,127) (1,540)
Reduction of long-term debt (4,329) (3,534) (18,751)
Proceeds from issuance of long-term debt 31,001 7,116 26,012
------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 20,298 (15,520) 72,026
====================================
(Decrease) increase in cash and cash equivalents (2,887) (28,986) 46,569
Cash and cash equivalents at beginning of year 27,416 56,402 9,833
------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 24,529 $ 27,416 $ 56,402
====================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,060 $ 1,074 $ 2,074
Income taxes 3,090 6,917 5,287
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
<PAGE> 37
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.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
AVAILABLE-FOR-SALE SECURITIES
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
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, 1996 and 1995, the Company had recorded current deferred tax
assets of $3,228,000 and $1,476,000, respectively (which are included in other
current assets), and deferred income taxes payable of $14,370,000 and
$13,034,000, 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:
<TABLE>
----------------------------------------------------
<S> <C>
Aircraft and rotable spares 3-14 years
Buildings and ground equipment 3-31.5 years
Rental vehicles 4 years
</TABLE>
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.
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for
cash and cash equivalents, available-for-sale securities, receivables and
accounts payable approximate fair values because of the immediate or short-term
maturity of these financial instruments. The fair value of the Company's
long-term debt is estimated based on current rates offered to the Company for
similar debt and approximates $58,121,000 as of March 31, 1996, as compared to
the carrying amount of $59,972,000.
RECENT ACCOUNTING PRONOUNCEMENT
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS No. 121"). SFAS No. 121 is effective for fiscal years beginning after
December 15, 1995. Management does not expect that the adoption of SFAS No. 121
will have a material impact on the Company's financial position or results of
operations.
(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. Since the acquisition occurred in the
first quarter of fiscal year 1994, the pro forma impact would not differ
significantly from the actual results reported.
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
Non-airline 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. 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,
---------------------------------------
1996 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $40,250 $41,607 $30,784
Operating income 144 2,303 2,001
Depreciation and amortization 2,742 2,090 1,589
Capital expenditures 14,209 5,613 3,939
<CAPTION>
As of March 31,
-----------------------
1996 1995
-------------------------------------------------------
<S> <C> <C>
Identifiable assets $28,209 $20,135
</TABLE>
<PAGE> 39
(3) LEASE OBLIGATIONS
The Company leases 65 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 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, 1996 (in thousands):
<TABLE>
<CAPTION>
Year ending March 31,
----------------------------------------
<S> <C>
1997 $ 35,719
1998 32,563
1999 32,310
2000 31,276
2001 29,780
Thereafter 216,829
--------
$378,477
========
</TABLE>
Total rental expense for noncancelable operating leases was
approximately $31,369,000, $27,494,000 and $21,299,000 for the years ended
March 31, 1996, 1995 and 1994, respectively.
The above minimum rental payments do not include landing fees, which
amounted to approximately $4,460,000, $4,145,000 and $3,433,000 for the years
ended March 31, 1996, 1995 and 1994, respectively.
(4) INCOME TAXES
The provision for income taxes includes the following components (in
thousands):
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax provision:
Federal $2,656 $4,893 $6,132
State 204 1,119 1,402
----------------------
2,860 6,012 7,534
----------------------
Deferred tax (benefit provision:
Federal (348) 2,041 1,363
State (68) 486 350
Impact of federal rate increase on deferred taxes - - 202
----------------------
(416) 2,527 1,915
----------------------
Provision for income taxes $2,444 $8,539 $9,449
======================
</TABLE>
The following is a reconciliation between the statutory Federal income
tax rates (at a blended rate of 34 percent on taxable income up to $10,000,000
and 35 percent for taxable income in excess of $10,000,000) and the effective
rate which is derived by dividing the provision for income taxes by income
before provision for income taxes (in thousands).
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" provision for income taxes
at the statutory rate $2,315 $7,684 $8,246
Increase (decrease) in income taxes resulting from:
State income taxes, net of Federal income
tax benefit 292 727 911
Other, net (163) 128 292
----------------------
Provision for income taxes $2,444 $8,539 $9,449
======================
</TABLE>
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The components of the net deferred tax assets and liabilities as of
March 31, 1996 and 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Inventory reserves $ 222 $ 222
Vacation accrual 905 747
Air traffic liability reserves 340 340
Workers compensation accrual 251 80
Engine accrual 1,343 512
AMT credit carryforward 2,766 752
Fleet restructuring accrual 1,515 -
Other 392 289
-----------------------
Total deferred tax assets 7,734 2,942
-----------------------
Deferred tax liabilities:
Accelerated depreciation (17,505) (13,517)
Preoperating costs (278) (371)
Other (1,093) (612)
-----------------------
Total deferred tax liabilities $(18,876) $(14,500)
-----------------------
Net deferred tax liability $(11,142) $(11,558)
=======================
</TABLE>
(5) LONG-TERM DEBT
Long-term debt as of March 31, 1996 and 1995, consists of the
following (in thousands):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Note payable to bank, due in quarterly installments of $177,906 plus interest
at 8.58% through March 2005, secured by aircraft $ 6,405 $ 7,116
Note payable to bank, due in quarterly installments of $167,246 plus interest based on
three month LIBOR (7.1% at March 31, 1996) through September 2003, secured by aircraft 5,017 5,686
Note payable to bank, due in monthly installments of $77,265 including interest
at 7.33% through June 2003, secured by aircraft 5,203 5,728
Note payable to bank, due in monthly installments of $54,702 plus interest based on one
month LIBOR (7.13% at March 31, 1996) through June 2003, secured by aircraft 4,759 5,416
Note payable to finance company, due in quarterly installments of $155,000 plus interest based
on three month LIBOR (7.19%) at march 31, 1996) through July 2003, secured by aircraft 4,650 5,270
Note payable to bank, due i semi-annual installments of $270,186 plus interest at
8.5% through May 2002, secured by aircraft 3,513 4,053
Note payable to bank, due in monthly installments of $91,290 including interest at
7.37% through October 2005, secured by aircraft 7,513 -
Note payable to finance company, due in monthly installments of $90,394 including interest at
6.95% through December 2005, secured by aircraft 7,666 -
Note payable to finance company, due in monthly installments of $88,737 including interest at
6.7% through January 2006, secured by aircraft 7,654 -
Note payable to bank, due in monthly installments of $64,319 plus interest at
6.36% through November 200, with balance due December 2000, secured by aircraft 7,590 -
Other 2 31
--------------------
59,972 33,300
Less--current maturities (6,236) (3,747)
--------------------
$53,736 $29,553
====================
</TABLE>
<PAGE> 41
The aggregate amounts of principal maturities of long-term debt as of March 31,
1996, are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending March 31,
--------------------------------------------
<S> <C>
1997................................ $ 6,236
1998................................ 6,399
1999................................ 6,577
2000................................ 6,768
2001................................ 6,973
Thereafter.......................... $27,019
-------
$59,972
=======
</TABLE>
The Company has approximately $60.0 million of long-term debt that has
been 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 reduced the stated interest
rates to an average effective rate of approximately 4.0 percent at March 31,
1996.
As of March 31, 1996, 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 8.00 percent at March 31, 1996. In
addition, as of March 31, 1996, the Company had available $1,000,000 in a
reducing, revolving line of credit facility bearing interest at the bank's base
rate plus 1/2 percent and secured by a lien against the Company's corporate
headquarters in St. George, Utah. The amount available under the revolving
facility reduces to $500,000 on the first day of December 1, 1996, and expires
December 1, 1997.
The Company has a note payable arrangement that contains, among other
things, a limitation on minimum tangible net worth. As of March 31, 1996, the
Company was in compliance with all the debt covenants.
(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 percent of such
contributions up to 2 percent, 4 percent or 6 percent of the individual
participant's compensation, based upon length of service. Additionally, a
discretionary contribution may be made by the Company. The Company contributed
$1,728,000, $1,869,000 and $1,646,000 to the Plan for the years ended March 31,
1996, 1995 and 1994, 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")
which became effective July 1, 1995. 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. During the year ended March 31, 1996,
26,252 shares of common stock were purchased under the plan for $287,000 and as
of March 31, 1996, $162,000 had been withheld for the future purchase of
shares. Shares are purchased semi-annually at the lower of the beginning or the
end of the period price. Employees can terminate from the Stock Purchase Plan
at anytime upon written notice.
(7) COMMITMENTS AND CONTINGENT LIABILITIES
PURCHASE COMMITMENTS
At March 31, 1996, the Company had agreed to purchase 15 Brasilia
aircraft and related spare parts inventory and support equipment at an
aggregate future cost of approximately $120 million including estimated cost
escalations. These 15 aircraft are scheduled to be delivered 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 Brasilia aircraft at fixed prices (subject
to cost escalation and delivery schedules). These options are exercisable
through fiscal year 1999. The Company also has options to acquire an additional
ten Canadair Regional Jets and are exercisable at any time with no expiration.
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
LEGAL MATTERS
The Company is the subject of certain legal actions, which it considers
routine to its business activities. As of March 31, 1996, management believes
that any potential liability to the Company under such actions will not
materially effect the Company's financial position or results of operations.
STANDBY LETTERS OF CREDIT
As of March 31, 1996, the Company has outstanding letters of credit
totaling approximately $1,408,000 in order to comply with requirements of
certain airports, port authorities and workers compensation agreements.
CASH AND CASH EQUIVALENTS
As of March 31, 1996, the Company has demand deposits and money market
accounts totaling approximately $319,000 with First Interstate Bank, $1,999,000
with Bank of America, $579,000 with Banc One and $7,146,000 with Zions First
National Bank. These balances exceed the $100,000 limit for insurance by the
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 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Number of Price Per
Options Share Range
-----------------------------
<S> <C> <C>
Outstanding at March 31, 1995 246,397 $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 250,500 $13.75-$33.25
Exercised (23,000) $3.83-$5.50
Canceled (2,500) $16.67-$33.25
-----------------------------
Outstanding at March 31 1995 453,749 $3.83-$33.25
Granted 105,000 $15.00-$23.00
Exercised (27,500) $3.83-$5.50
-----------------------------
Outstanding at March 31, 1996 531,249 $5.50-$33.25
=============================
</TABLE>
As of March 31, 1996, there are 537,188 shares available for future
grant of shares of common stock upon the exercise of stock option under the
Option Plan.
<PAGE> 43
(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 expenses. Amounts amortized
during the years ended March 31, 1996, 1995 and 1994 were $1,497,000, $817,000
and $818,000 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. During the
year ended March 31, 1996, the Company entered into a code-sharing agreement
with Continental Airlines, Inc. ("Continental") under which the Company uses
the Continental two letter designator code (CO) in displaying schedules on
certain flights in the automated airline registration system.
As of March 31, 1996, Delta owned 1,553,899 shares of common stock
which represents approximately 13 percent 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 $9,181,000, $5,024,000, and $3,493,000 during the
years ended March 31, 1996, 1995 and 1994, respectively.
The Company had a net receivable from Delta of $2,761,000 as of March
31, 1996, and a net payable to Delta of $941,000 as of March 31, 1995. The
Company had a net receivable from Continental of $414,000 as of March 31, 1996.
(11) COMMON STOCK
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
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 during the year ended March 31, 1995 at an
average price of $13.98. On February 7, 1995, the Company's Board of Directors
approved the purchase of up to 500,000 shares of the Company's outstanding
common stock. On February 6, 1996, the Company's Board of Directors approved
the purchase of up to an additional 500,000 shares of the Company's outstanding
stock. During the year ended March 31, 1996, 324,600 shares were purchased at an
average price of $12.92.
SUBSEQUENT CASH DIVIDEND
On May 7, 1996, the Company's Board of Directors declared a special
cash dividend of $.08 per share payable to stockholders of record on June 5,
1996, distributable June 21, 1996.
(12) FLEET RESTRUCTURING AND TRANSITION EXPENSE
During fiscal 1996, the Company's management developed a fleet
restructuring and transition plan whereby all remaining Fairchild Metroliner III
aircraft will be replaced by Brasilia aircraft. As a result, the Company
incurred approximately $2.5 million in the current fiscal year of charges
related to crew training, hiring new flight attendants, accelerated aircraft
maintenance charges and engine overhauls associated with the early termination
of Metroliner leases. The Company's management also accrued $3.8 million in the
fourth quarter of fiscal 1996 related to charges to be incurred in fiscal 1997.
The charges accrued consist primarily of accelerated aircraft maintenance and
engine overhauls to meet lease return requirements, inventory write downs for
Metro III aircraft parts, lease payments and insurance for parking certain Metro
III aircraft prior to their lease termination dates. The total expenses of $6.2
million, less approximately $.8 million for crew training, have been determined
to be one-time non-recurring charges and have been classified as fleet
restructuring and transition expense in the accompanying consolidated financial
statements.
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
---------------------------
1996 1995 1994
---- ---- ----
(Amounts in thousands, except per share data)
<S> <C> <C> <C>
Basic
- -----
Weighted average common shares outstanding ..................................... 10,284 11,112 9,883
======= ======= =======
Net income ..................................................................... $ 4,366 $13,701 $14,396
======= ======= =======
Per share amount ............................................................... $ .42 $ 1.23 $ 1.46
======= ======= =======
Primary
- -------
Weighted average common shares outstanding ..................................... 10,284 11,112 9,883
Net effect of dilutive common stock options -- based on the treasury
stock method using average market price of $16.92, $22.48 and
$25.77, respectively, net of tax benefit ..................................... 84 102 180
------- ------- -------
Total ................................................................. 10,368 11,214 10,063
======= ======= =======
Net income ..................................................................... $ 4,366 $13,701 $14,396
======= ======= =======
Per share amount ............................................................... $ .42 $ 1.22 $ 1.43
======= ======= =======
Fully Diluted
- -------------
Weighted average common shares outstanding ..................................... 10,284 11,112 9,883
Net effect of dilutive stock options -- based on the treasury stock method using
the greater of year-end market price or the average market price, of $16.92,
$22.48 and $34.75 respectively, net of tax benefit ........................... 84 102 204
------- ------- -------
Total ................................................................. 10,368 11,214 10,087
======= ======= =======
Net income ..................................................................... $ 4,366 $13,701 $14,396
======= ======= =======
Per share amount ............................................................... $ .42 $ 1.22 $ 1.43
======= ======= =======
</TABLE>
15
<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 24, 1996 included in
SkyWest, Inc's Annual Report to Shareholders for the fiscal year ended March 31,
1996. We further consent to the incorporation of our report dated May 24, 1996,
incorporated by reference in this Form 10-K, into the Company's previously filed
Registration Statement File No.'s 33-41285 and 33-60173.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Salt Lake City, Utah
May 24, 1996
14
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000793733
<NAME> SKYWEST, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 24,529
<SECURITIES> 19,097
<RECEIVABLES> 13,114
<ALLOWANCES> 221
<INVENTORY> 8,923
<CURRENT-ASSETS> 76,462
<PP&E> 216,772
<DEPRECIATION> 71,701
<TOTAL-ASSETS> 227,550
<CURRENT-LIABILITIES> 43,644
<BONDS> 53,736
0
0
<COMMON> 67,898
<OTHER-SE> 47,902
<TOTAL-LIABILITY-AND-EQUITY> 227,550
<SALES> 251,734
<TOTAL-REVENUES> 251,734
<CGS> 0
<TOTAL-COSTS> 246,024
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,163
<INCOME-PRETAX> 6,810
<INCOME-TAX> 2,444
<INCOME-CONTINUING> 4,366
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,366
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
