<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 0-14719
SKYWEST, INC.
Incorporated under the laws of Utah 87-0292166
(I.R.S. Employer ID No.)
444 South River Road
St. George, Utah 84790
(801) 634-3000
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 8, 1996
-------------------------------
Common stock, no par value 10,253,490
<PAGE> 2
SKYWEST, INC.
TABLE OF CONTENTS
Part I - Financial Information
<TABLE>
<CAPTION>
Item 1. Financial Statements:
<S> <C>
Condensed Consolidated Balance Sheets
As of December 31, 1995 and
March 31, 1995 3
Condensed Consolidated Statements of
Income For the Three Months and Nine
Months Ended December 31, 1995 and 1994 5
Condensed Consolidated Statements of
Cash Flows For the Nine Months Ended
December 31, 1995 and 1994 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
SKYWEST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
======================================================================================================
ASSETS
December 31, March 31,
1995 1995
------------ ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 36,691 $ 27,416
Available-for-sale securities 18,249 21,309
Receivables, net 8,729 7,004
Inventories 8,869 7,179
Other current assets 6,446 8,734
--------- ---------
Total current assets 78,984 71,642
--------- ---------
PROPERTY AND EQUIPMENT:
Flight equipment 165,453 127,004
Buildings and ground equipment 34,100 28,866
Deposits on flight equipment 8,008 9,265
Rental vehicles 2,498 1,849
--------- ---------
210,059 166,984
Less-accumulated depreciation and
amortization (67,064) (56,743)
--------- ---------
142,995 110,241
--------- ---------
OTHER ASSETS 5,866 6,299
--------- ---------
$ 227,845 $ 188,182
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
SKYWEST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, March 31,
1995 1995
------------ ---------
<S> <C> <C>
CURRENT LIABILITIES:
Trade accounts payable $ 21,508 $ 13,789
Current maturities of long-term debt 6,020 3,747
Accrued payroll 4,074 4,647
Air traffic liability 1,464 1,264
Taxes other than income taxes 1,264 1,353
Current portion of deferred credits 661 803
--------- ---------
Total current liabilities 34,991 25,603
--------- ---------
LONG-TERM DEBT, net of current maturities 55,208 29,553
--------- ---------
DEFERRED CREDITS, net of current portion 1,352 2.308
--------- ---------
DEFERRED INCOME TAXES PAYABLE 14,557 13,034
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock 88,037 87,658
Retained earnings 50,052 46,117
Treasury stock (16,352) (16,091)
--------- ---------
Total stockholders' equity 121,737 117,684
--------- ---------
$ 227,845 $ 188,182
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
SKYWEST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
=======================================================================================================
For the For the
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger $ 49,377 $ 41,190 $ 150,113 $ 136,467
Freight 1,128 909 3,291 2,842
Public service and other 552 610 1,667 1,794
Nonairline 7,934 8,739 33,476 34,767
------------ ------------ ------------ ------------
58,991 51,448 188,547 175,870
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Flying operations 21,967 16,876 63,035 50,230
Aircraft, traffic and passenger service 8,277 7,136 23,717 21,322
Maintenance 8,185 6,671 22,264 18,546
Promotion and sales 7,032 4,757 18,843 15,578
General and administrative 2,431 2,459 8,346 9,245
Depreciation and amortization 3,861 3,142 10,930 8,525
Nonairline 8,906 8,789 31,716 31,404
------------ ------------ ------------ ------------
60,659 49,830 178,851 154,850
------------ ------------ ------------ ------------
OPERATING (LOSS) INCOME (1,668) 1,618 9,696 21,020
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (208) (149) (1,208) (676)
Interest income 685 762 1,998 2,049
Gain on sales of property and equipment 69 120 202 133
------------ ------------ ------------ ------------
546 733 992 1,506
------------ ------------ ------------ ------------
(LOSS) INCOME BEFORE PROVISION
FOR INCOME TAXES (1,122) 2,351 10,688 22,526
BENEFIT (PROVISION) FOR INCOME TAXES 440 (929) (4,172) (8,880)
------------ ------------ ------------ ------------
NET (LOSS) INCOME $ (682) $ 1,422 $ 6,516 $ 13,646
============ ============ ============ ============
NET (LOSS) INCOME PER COMMON SHARE $ (.07) $ .13 $ .63 $ 1.20
============ ============ ============ ============
WEIGHTED AVERAGE SHARES 10,324,826 11,155,719 10,322,384 11,358,500
============ ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
SKYWEST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
===========================================================================================================
For the
Nine Months Ended
December 31,
-----------------------------
1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,516 $ 13,646
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,930 8,525
Gain on sales of property and equipment (205) (133)
Maintenance expense related to disposition of rotable spares 90 179
Increase in deferred income taxes 1,523 2,166
Amortization of deferred credits (1,098) (613)
Nonairline depreciation and amortization 1,978 1,478
Tax benefit from exercise of common stock options -- 182
Changes in operating assets and liabilities:
(Increase) decrease in receivables (1,725) 3,116
Increase in inventories (1,690) (742)
Decrease (increase) in other current assets 2,288 (2,361)
Increase in trade accounts payable 6,893 2,988
Decrease in other current liabilities (462) (567)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 25,038 27,864
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of available-for-sale securities 3,060 (9,630)
Acquisition of property and equipment:
Flight equipment (41,742) (11,314)
Deposits on flight equipment (3,053) (5,697)
Buildings and ground equipment (5,234) (4,354)
Rental vehicles (2,502) (1,831)
Proceeds from sales of property and equipment 3,214 1,026
Decrease in deposits on flight equipment 4,310 2,135
Increase in other assets (107) (355)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (42,054) (30,020)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 30,920 --
Issuance of common stock 379 164
Purchase of treasury stock (261) (14,675)
Payment of cash dividends (1,755) (2,292)
Reduction of long-term debt (2,992) (2,919)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 26,291 (19,722)
-------- --------
Increase (decrease) in cash and cash equivalents 9,275 (21,878)
Cash and cash equivalents at beginning of period 27,416 56,402
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 36,691 $ 34,524
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,139 $ 1,372
Income taxes 3,090 6,917
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
SKYWEST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Consolidated Financial Statements
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. These condensed consolidated financial
statements reflect all adjustments which, in the opinion of management, are
necessary to present fairly the results of operations for the interim periods
presented. All adjustments are of a normal recurring nature. Certain information
and disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
following disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed consolidated financial
statements be read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's latest annual report on Form 10-K.
The results of operations for the three and nine months ended December 31, 1995
are not necessarily indicative of the results that may be expected for the year
ending March 31, 1996.
Note B - Available-for-sale Securities
Available-for-sale securities are carried at the lower of aggregate cost or
market value.
Note C - Income Taxes
For the nine months ended December 31, 1995 and 1994, the Company provided for
income taxes based upon the estimated annualized effective tax rate after giving
effect to available investment tax credits. Investment tax credits have been
accounted for by the flow-through method. Effective April 1, 1993, the Company
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS No. 109). The Company has classified the net current and
noncurrent deferred tax assets and liabilities in accordance with SFAS No. 109
which at December 31, 1995 included a current deferred tax asset of
approximately $1.6 million and a deferred tax liability of approximately $14.6
million.
Note D - Net Income Per Common Share
Net income per common share is calculated based upon the weighted average shares
outstanding during the periods. No material dilution results from common stock
equivalents which are outstanding options to purchase common stock.
Note E - Financial Information Relating to Business Segments
Nonairline revenues and expenses as included in the Condensed Consolidated
Financial Statements primarily represent the operations of Scenic Airlines, Inc.
("Scenic") and National Parks Transportation, Inc. ("NPT"), both wholly-owned
subsidiaries of SkyWest, Inc. Scenic provides air tours and general aviation
services to the scenic regions of northern Arizona, southern Utah and southern
Nevada, commonly referred to as the "Grand Circle". The primary aircraft used to
accomplish scenic tours are 19 passenger deHavilland Twin Otter VistaLiners. NPT
provides car rental services through a fleet of Avis vehicles located at five
airports served by SkyWest Airlines, Inc. The following information presents the
impact of this segment of business on the accompanying Condensed Consolidated
Financial Statements.
7
<PAGE> 8
SKYWEST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
December 31, December 31,
(in 000's) (in 000's)
-------------------------- --------------------------
1995 1994 1995 1994
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues $ 7,934 $ 8,739 $ 33,476 $ 34,767
Operating (loss) income (972) (50) 1,760 3,363
Depreciation and amortization 713 510 1,978 1,478
Capital expenditures 2,745 1,866 9,186 3,791
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1995 As of December 31, 1994
----------------------- -----------------------
<S> <C> <C>
Identifiable assets $ 27,323 $ 20,230
========== =========
</TABLE>
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
<TABLE>
<CAPTION>
Airline Operating Statistics
-----------------------------------------------------------------------------------
For the For the
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------------------- -----------------------------------------
1995 1994 % Change 1995 1994 % Change
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Passengers carried 579,141 504,128 14.9% 1,721,704 1,597,203 7.8%
Revenue passenger miles (000s) 152,941 117,052 30.7% 453,900 377,903 20.1%
Available seat miles (000s) 312,678 238,907 30.9% 938,176 737,162 27.3%
Passenger load factor 48.9% 49.0% (0.1) pts 48.4% 51.3% (2.9) pts
Passenger breakeven load factor 49.8% 47.3% 2.5 pts 46.3% 45.1% 1.2 pts
Yield per revenue passenger mile $ .323 $ .352 (8.2%) $ .331 $ .361 (8.3%)
Cost per available seat mile $ .166 $ .172 (3.5%) $ .158 $ .168 (6.0%)
Average passenger trip (miles) 264 232 13.8% 264 237 11.4%
</TABLE>
For the Three Months Ended December 31, 1995 and 1994
- -----------------------------------------------------
For the quarter ended December 31, 1995, the Company experienced significant
increases in available seat miles ("ASMs") and revenue passenger miles ("RPMs")
in comparison to the quarter ended December 31, 1994. Operating revenues
increased 14.7 percent to $59.0 million for the quarter ended December 31, 1995,
compared to $51.4 million for the quarter ended December 31, 1994. Nonairline
revenues decreased 9.2 percent to $7.9 million for the quarter ended December
31, 1995, compared to $8.7 million for the quarter ended December 31, 1994. The
Company's results were a loss of $.7 million or $.07 per share for the quarter
ended December 31, 1995, compared to net income of $1.4 million or $.13 per
share for the quarter ended December 31, 1994.
Passenger revenues, which represented 83.7 percent of total operating revenues,
increased 19.9 percent to $49.4 million for the quarter ended December 31, 1995,
compared to $41.2 million or 80.1 percent of total operating revenues for the
quarter ended December 31, 1994. The increase is attributable to a 30.7 percent
increase in RPMs which was somewhat offset by an 8.2 percent decrease in yield
per RPM. ASMs increased 30.9 percent due to the acquisition of five new
cabin-class Brasilia aircraft which have replaced Metroliners as their leases
terminated. Although passenger load factors were only down .1 point, passenger
enplanements did not meet the Company's expectations due to the following
factors: (1) the competitive disadvantage of the Metroliner aircraft and airline
passenger's growing reluctance to book flights on aircraft which do not have
cabin-class amenities; (2) the schedule restructuring by Delta Air Lines
("Delta") in Los Angeles which reduced daily departures by 31 percent effective
May 1, 1995, thereby reducing the Company's connection opportunities; and (3) a
resistance of travel agents toward booking passengers on the Delta system after
Delta instigated commission caps last spring as well as commission overrides
being offered by the Company's competitors.
Yield per RPM decreased 8.2 percent to $.323 for the quarter ended December 31,
1995, compared to $.352 for the quarter ended December 31, 1994, primarily due
to a 13.8 percent increase in the average passenger trip length due to the
regional jets averaging 480 miles and continued fare restructuring to respond to
the ongoing indirect pressure from low-fare carriers on the west coast. The 8.2
percent decline in yield coupled with a lower load factor resulted in a lower
airline operating revenue per ASM of $.163 for the quarter ended December 31,
1995, compared to $.179 for the quarter ended December 31, 1994.
Nonairline revenues decreased 9.2 percent to $7.9 million for the quarter ended
December 31, 1995, from $8.7 million for the quarter ended December 31, 1994.
The decrease in revenues reflected a 12 percent reduction in enplanements for
the quarter ended December 31, 1995, compared to the quarter ended December 31,
1994, which the Company attributes to the following factors: (1) the impact of
new low-fare competition; and (2) the Company's lack of success in
differentiating its premium touring packages from low price transportation
alternatives.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Total operating expenses and interest increased 21.8 percent to $60.9 million
for the quarter ended December 31, 1995, compared to $50.0 million for the
quarter ended December 31, 1994. As a percentage of consolidated operating
revenues, total operating expenses and interest were 103 percent for the quarter
ended December 31, 1995, compared to 97.1 percent for the quarter ended December
31, 1994. For the quarter ended December 31, 1995, total airline operating
expenses and interest (excluding nonairline expenses) were 102 percent of
airline revenues compared to 96.4 percent for the quarter ended December 31,
1994. Operating expenses increased at a higher percentage than operating
revenues due to the following factors: (1) the increase in the price of fuel per
gallon; (2) additional costs associated with the Metroliner and Brasilia
transition; and (3) additional costs associated with customer reservation system
fees. Although airline operating costs per ASM (including interest expenses)
decreased to 16.6c. for the quarter ended December 31, 1995, from 17.2c. for the
quarter ended December 31, 1994, the 3.5 percent decrease in cost per ASM is
less than the 8.9 percent decrease in airline operating revenue per ASM which
resulted in the net loss for the quarter ended December 31, 1995. Factors
relating to the increases in operating expenses and interest are discussed
below.
Salaries, wages, and employee benefits decreased as a percentage of airline
operating revenues to 27.1 percent for the quarter ended December 31, 1995, from
28.3 percent for the quarter ended December 31, 1994, since incentives were not
paid out. The average number of full-time equivalent employees for the quarter
ended December 31, 1995 was 2,052, compared to 1,862 for the quarter ended
December 31, 1994. The increase in number of personnel was due to hiring pilots,
flight attendants, and customer service personnel to support increased Brasilia
and regional jet operations. Salaries, wages and employee benefits per ASM
decreased to 4.4c. for the quarter ended December 31, 1995, compared to 5.1c.
for the quarter ended December 31, 1994, primarily due to the increased ASM's
generated from regional jet operations.
Aircraft costs, including aircraft rent and depreciation, remained constant as a
percentage of airline operating revenues at 20.8 percent for the quarter ended
December 31, 1995 and 1994. The Company acquired additional Brasilia aircraft
and regional jets, which were somewhat offset by the return of Metroliner
aircraft as well as increased ASMs generated from regional jet operations.
Aircraft costs per ASM decreased to 3.4c. for the quarter ended December 31,
1995, from 3.7c. for the quarter ended December 31, 1994.
Maintenance expense increased as a percentage of airline operating revenues to
12.0 percent for the quarter ended December 31, 1995, compared to 9.6 percent
for the quarter ended December 31, 1994. The increase is due to additional costs
associated with meeting return specifications for Metroliner aircraft due to
trade-ins and expiring leases. In addition, the Company incurred expenses
related to aircraft damage from weather and other causes. The Company also uses
the accrual method of accounting for jet engine overhauls. Maintenance expense
per ASM increased slightly to 2.0c. for the quarter ended December 31, 1995,
from 1.7c. for the quarter ended December 31, 1994.
Fuel costs increased as a percentage of airline operating revenues to 12.0
percent for the quarter ended December 31, 1995, compared to 11.4 percent for
the quarter ended December 31, 1994, primarily due to an increase in the average
fuel price per gallon to $.86 from $.78, respectively. The 8.5c. increase per
gallon includes the 4.3c. federal transportation tax on fuel which became
effective October 1, 1995 and is expected to increase the Company's annual
operating expenses by approximately $1.4 million if the federal exemption is not
extended. Fuel costs per ASM decreased slightly to 1.9c. for the quarter ended
December 31, 1995, compared to 2.0c. for the quarter ended December 31, 1994.
The operation of additional Brasilia aircraft which are more fuel efficient, on
a cost per ASM basis, than Metroliner aircraft, as well as from the increased
ASM's generated from regional jet operations are the contributing factors for
this reduction.
Interest expense increased as a percentage of airline operating revenues to .4
percent for the quarter ended December 31, 1995, from .3 percent for the quarter
ended December 31, 1994. The increase was primarily due to the addition of $38.0
million of long-term debt financing of five additional Brasilia aircraft.
Other expenses, primarily consisting of commissions, landing fees, station
rentals, computer reservation system fees, and hull and liability insurance,
increased as a percentage of airline operating revenues to 29.6 percent for the
quarter ended December 31, 1995, from 26.0 percent for the quarter ended
December 31, 1994. The increase was due primarily to significant increases in
customer reservation system booking fees and handling fees associated with the
Company's relationship with Delta. Other expenses per ASM increased slightly to
4.8c. for the quarter ended December 31, 1995, compared to 4.6c. for the quarter
ended December 31, 1994.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Nine Months Ended December 31, 1995 and 1994:
- ---------------------------------------------
For the nine months ended December 31, 1995, the Company experienced continued
growth in ASMs, RPMs and passengers carried in comparison to the nine months
ended December 31, 1994, which was due to additional aircraft deliveries.
Operating revenues increased 7.2 percent to $188.5 million for the nine months
ended December 31, 1995, compared to $175.9 million for the nine months ended
December 31, 1994. Nonairline revenues decreased 3.7 percent to $33.5 million
for the nine months ended December 31, 1995, compared to $34.8 million for the
nine months ended December 31, 1994. Interest expense increased 78.7 percent to
$1.2 million for the nine months ended December 31, 1995, from $.7 million for
the nine months ended December 31, 1994, as a result of additional debt
financing on Brasilia aircraft. Net income was $6.5 million or $.63 per share
for the nine months ended December 31, 1995, compared to $13.6 million or $1.20
per share for the nine months ended December 31, 1994.
Passenger revenues, which represented 79.6 percent of total operating revenues,
increased 10.0 percent to $150.1 million for the nine months ended December 31,
1995, compared to $136.5 million or 77.6 percent of total operating revenues for
the nine months ended December 31, 1994. The increase is attributable to a 20.1
percent increase in RPM's which was somewhat offset by an 8.3 percent decrease
in yield per RPM. ASMs increased 27.3 percent due to the acquisition of five
cabin-class Brasilia aircraft which have replaced five Metroliner aircraft as
their leases terminated. Passenger load factors decreased to 48.4 percent for
the nine months ended December 31, 1995, from 51.3 percent for the nine months
ended December 31, 1994, due to the following factors: (1) the competitive
disadvantage of the Metroliner aircraft and airline passenger's growing
reluctance to book flights on aircraft which do not have cabin-class amenities;
(2) the schedule restructuring by Delta in Los Angeles which reduced daily
departures by 31 percent effective May 1, 1995, therefore reducing the Company's
connection opportunities; and (3) a resistance of travel agents toward booking
passengers on the Delta system after Delta instigated commission caps last
spring as well as commission overrides being offered by the Company's
competitors.
Yield per RPM decreased 8.3 percent to $.331 for the nine months ended December
31, 1995, compared to $.361 for the nine months ended December 31, 1994,
primarily as a result of an increase in average passenger trip length due to the
regional jets averaging 481 miles and continued fare restructuring to respond to
ongoing indirect pressure from low-fare carriers on the west coast. The 8.3
percent decline in yield coupled with the 2.9 points decline in load factor
resulted in a lower airline operating revenue per ASM.
Nonairline revenues decreased 3.7 percent for the nine months ended December 31,
1995, to $33.5 million from $34.8 million for the same nine months ended
December 31, 1994. The decrease in revenues reflected a 12 percent reduction in
enplanements compared to the nine months ended December 31, 1994, which the
Company attributes to the following factors: (1) the impact of new low-fare
competition; and (2) the Company's lack of success in differentiating its
premium touring packages from low price transportation alternatives.
Total operating expenses and interest increased 15.8 percent to $180.1 million
for the nine months ended December 31, 1995, compared to $155.5 million for the
same nine months ended December 31, 1994. As a percentage of airline operating
revenues, total airline operating expenses and interest increased to 95.7
percent for the nine months ended December 31, 1995, from 88.0 percent for the
nine months ended December 31, 1994. Operating expenses increased at a higher
percentage than operating revenues due to the following factors: (1) the
increase in the price of fuel per gallon; (2) additional costs associated with
the Metroliner and Brasilia transition; and (3) additional costs associated with
the customer reservation system fees. Although airline operating costs per ASM
(including interest expenses) decreased to 15.8c. for the nine months ended
December 31, 1995, from 16.8c. for the nine months ended December 31, 1994, the
6.0 percent decrease in cost per ASM is less than the 13.8 percent decrease in
airline operating revenue per ASM. Factors relating to the increases in
operating expenses and interest are discussed below.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Salaries, wages and employee benefits decreased slightly as a percentage of
airline operating revenues to 26.4 percent for the nine months ended December
31, 1995, from 26.5 percent for the nine months ended December 31, 1994, since
incentives were not paid out. The average number of full-time equivalent
employees increased 11.7 percent for the nine months ended December 31, 1995, to
2,041, compared to 1,828 for the same period ended December 31, 1994. The
increase in personnel was due to hiring pilots, flight attendants and customer
service personnel to support increased Brasilia and regional jet operations.
Salaries, wages and employee benefits per ASM decreased to 4.4c. for the nine
months ended December 31, 1995, compared to 5.1c. for the nine months ended
December 31, 1994, primarily due to the increase in ASMs generated from
increased regional jet operations.
Aircraft costs, including aircraft rent and depreciation, increased as a
percentage of airline operating revenues to 20.5 percent for the nine months
ended December 31, 1995, compared to 18.4 percent for the same period ended
December 31, 1994. The increase is due to higher acquisition costs for regional
jets as well as additional Brasilia aircraft. Aircraft costs per ASM decreased
slightly to 3.4c. for the nine months ended December 31, 1995, from 3.5c. for
the nine months ended December 31, 1994, due to the increased ASMs generated
from regional jet operations.
Maintenance expense increased as a percentage of airline operating revenues to
10.6 percent for the nine months ended December 31, 1995, compared to 8.6
percent for the same period ended December 31, 1994. This increase is due to
increased regional jet operations, wherein the Company uses the accrual method
in accounting for jet engine overhauls. The Company also incurred costs
associated with return specifications for Metroliner aircraft due to trade-ins
and expiring leases. In addition, the Company incurred expenses related to
aircraft damage from weather and other causes. This increase was somewhat offset
by the utilization of more Brasilia aircraft which are more efficient than
Metroliner aircraft. Maintenance expenses per ASM increased slightly to 1.7c.
for the nine months ended December 31, 1995, from 1.6c. for the nine months
ended December 31, 1994, due to the increased ASMs generated from regional jet
operations.
Fuel costs increased as a percentage of airline operating revenues to 10.8
percent for the nine months ended December 31, 1995, from 9.4 percent for the
same period ended December 31, 1994, primarily due to an increase in the average
fuel price per gallon to $.79 from $.74 which includes the 4.3c. fuel tax which
became effective October 1, 1995 and is expected to increase the Company's
annual operating expenses by approximately $1.4 million if the federal exemption
is not extended. Fuel costs per ASM remained constant at 1.8c. for the nine
months ended December 31, 1995 and December 31, 1994.
Interest expenses increased as a percentage of airline operating revenues to .8
percent for the nine months ended December 31, 1995, from .5 percent for the
nine months ended December 31, 1994. The increase was due primarily to the
addition of $38.0 million of long-term debt associated with debt financing of
five additional Brasilia aircraft.
Other expenses, primarily consisting of commissions, landing fees, station
rentals, computer reservation system fees, and hull and liability insurance,
increased to 26.6 percent for the nine months ended December 31, 1995, from 24.4
percent for the nine months ended December 31, 1994. The increase was primarily
due to significant increases in customer reservation system booking fees and
handling fees associated with the Company's relationship with Delta. Other
expenses per ASM decreased slightly to 4.4c. for the nine months ended December
31, 1995, from 4.7c. for the nine months ended December 31, 1994, primarily due
to the increased ASMs generated from regional jet operations.
Liquidity and Capital Resources
The Company had working capital of $44.0 million and a current ratio of 2.3:1 at
December 31, 1995, compared to working capital of $46.0 million and a current
ratio of 2.8:1 at March 31, 1995. During the first nine months of fiscal 1996,
the Company invested $44.8 million in flight equipment, $7.7 million in
buildings, ground equipment and other fixed assets. The Company also reduced
long-term debt by $3.0 million, paid dividends of $1.8 million, and repurchased
$.3 million of its outstanding common stock. The principal source of funds
during the first nine months of fiscal 1996 was $30.9 from the issuance of long
term debt, $25.0 million provided by operating activities, a return of $4.3
million in deposits on aircraft, $3.3 million from the sale of other assets,
$3.0 million from the sale of available-for-sale securities, and $.4 million
from the issuance of common stock. These factors resulted in a $9.3 million cash
and cash equivalents increase.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
At December 31, 1995, the Company's long-term debt to equity position was 31
percent debt and 69 percent equity due to $38.0 million additional long-term
debt associated with the acquisition of five Brasilia aircraft at an average net
effective interest rate of 3.4 percent, compared to 20 percent debt and 80
percent equity at March 31, 1995.
SkyWest has taken delivery of five new Brasilia aircraft during the first nine
months of fiscal 1996 and has agreed to purchase 17 additional Brasilia aircraft
and related spare parts inventory and support equipment at a future aggregate
cost of approximately $136.0 million, including estimated cost escalations. Two
more Brasilia aircraft are scheduled for delivery in fiscal 1996 and the
remaining fifteen are scheduled for delivery in fiscal 1997.
Two Canadair Regional Jets were delivered during the first quarter of fiscal
1996 and have been financed under long-term lease arrangements. Subsequent to
December 31, 1995, the Company took delivery of two Canadair Regional Jets and
related spare parts inventory and support equipment at a cost of approximately
$37 million.
Depending in large part upon the state of the aircraft financing market and
general economic conditions at the time, management will determine whether to
purchase these Brasilia and Canadair Regional Jet aircraft with available cash
or acquire the aircraft through third-party, long-term loans or lease
arrangements. The Company 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 also been secured and are exercisable through 1997.
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
8.50 percent at December 31, 1995. In addition, the Company has available $1.0
million in a reducing revolving credit facility bearing interest at the bank's
base rate plus one half percent. The amount available under the facility reduces
to $.5 million on December 1, 1996, and the facility will expire on December 1,
1997. There were no amounts outstanding on either of the facilities as of
December 31, 1995.
13
<PAGE> 14
PART II. OTHER INFORMATION
SKYWEST, INC.
Item 6:
a. Exhibits - None
b. Reports on Form 8-K - There were no reports on Form 8-K filed during
the quarter ended December 31, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SKYWEST, INC.
Registrant
February 8, 1996 BY: /s/ Bradford R. Rich
-------------------------------
Bradford R. Rich
Executive Vice President - Finance,
Chief Financial Officer and Treasurer
14
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