<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, 1997
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 17, 1997, was approximately $171,284,811.
As of June 17, 1997, there were 10,150,211 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, 1997, 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 1997 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 1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Item 1. Business........................................................................1
Item 2. Properties......................................................................5
Item 3. Legal Proceedings...............................................................6
Item 4. Submission of Matters to a Vote of Security Holders.............................6
PART II
Item 5. Market for Registrant's Common Stock and
Related Stockholder Matters...................................................6
Item 6. Selected Financial Data.........................................................6
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.........................................................6
Item 8. Financial Statements and Supplementary Data.....................................7
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure.............7
PART III
Item 10. Directors and Executive Officers of the Registrant..............................7
Item 11. Executive Compensation..........................................................7
Item 12. Security Ownership of Certain Beneficial Owners and Management..................7
Item 13. Certain Relationships and Related Transactions..................................7
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................7
</TABLE>
<PAGE> 3
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. 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 1996,
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. Approximately three percent of
SkyWest's passengers are 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 50 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 $146.8
million in fiscal 1993 to $283.3 million in fiscal 1997. Total passengers
carried by SkyWest have increased from approximately 1,523,000 to approximately
2,657,000 over the same period. In fiscal 1997, the Company achieved record
levels of passengers carried, record consolidated operating revenues of $283.3
million, and net income of $10.1 million or $1.00 per share.
The Company, through two wholly-owned subsidiaries, is also engaged in various
other transportation related businesses. Scenic Airlines, Inc. ("Scenic")
provides air tours and general aviation services to the scenic regions of
northern Arizona and southern Utah and operates 49 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 1997, Scenic
and NPT together accounted for approximately 13.6 percent of the Company's
consolidated operating revenues.
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 percent 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. Effective April 1, 1997,
W. Martin Braham, Delta's designated Board member resigned from the Board, at
Delta's request. All Delta designated board members of other regional airlines
with similar arrangements also resigned. However, so long as Delta is the owner
of 10% or more of the Company's outstanding Common Stock, the Company is
required to include a designee of Delta reasonably acceptable to the Company on
the slate of nominees for election of directors nominated by the Company's Board
of Directors and to use its best efforts to assure the election of the designee
to the Board of Directors. Delta has not designated a nominee to replace Mr.
Braham and the Company does not otherwise intend to nominate a replacement for
the vacancy created by Mr. Braham's resignation.
1
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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
cancelable 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 17, 1997.
<TABLE>
<CAPTION>
Served
State and City Since (1)
- -------------- ---------
<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>
2
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<TABLE>
<CAPTION>
Served
State and City Since (1)
- -------------- ---------
<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
Canada:
Vancouver B.C..........................................1997
</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.
COMMON STOCK TRANSACTIONS
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. No shares were repurchased during fiscal 1997.
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.
SkyWest and Scenic operate under FAR Part 121 certificates. SkyWest also
operates under a Canadian Foreign Air Operator Certificate issued by the
Minister of Transport Canada.
3
<PAGE> 6
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 17, 1997, the Company employed 2,179 full-time equivalent employees
consisting of 812 pilots and flight attendants, 244 maintenance personnel, 832
customer service personnel, 71 reservation and marketing personnel, and 220
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.
4
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ITEM 2. PROPERTIES
FLIGHT EQUIPMENT
As of June 17, 1997, 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 34 30 450 300 3.9
Canadair Regional Jet...... - 10 50 600 530 2.5
</TABLE>
SkyWest's aircraft are primarily turboprop, 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. The Company's turboprop fleet consists 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 1997, the Company acquired 15 Brasilia aircraft and
terminated the 18 remaining Metroliner long-term operating leases.
The Company has secured options to purchase an additional ten 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 15 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 existing operations and facilities are
adequate for the foreseeable future.
5
<PAGE> 8
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 1997.
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 17, 1997, there were
approximately 1054 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 1997 Fiscal 1996
----------- -----------
Quarter High Low High Low
------- ---- ----- ---- ----
<S> <C> <C> <C> <C>
First $19.75 $13.25 $23.50 $14.13
Second 18.25 14.12 25.38 17.00
Third 15.63 12.63 19.75 12.88
Fourth 14.38 12.00 14.75 12.38
</TABLE>
The transfer agent for the Company's Common Stock is Zions First National Bank,
Salt Lake City, Utah.
On May 7, 1996, the Board of Directors declared a special dividend of $.08 per
share. On August 12, 1996, the Board of Directors changed its dividend policy
from declaring a regular annual dividend to declaring a $.05 regular quarterly
dividend.
In fiscal 1996, the Board of Directors declared an annual dividend of $.08 per
share and a special dividend of $.17 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, 1997, 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 OPERATIONS
The information required by this item is incorporated herein by reference to
pages 12 through 16 of the Company's Annual Report to Shareholders for the
fiscal year ended March 31, 1997, furnished herewith to the Commission as
Exhibit 13.1 to this report on Form 10-K.
6
<PAGE> 9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company included on pages 17
through 30 of the Company's Annual Report to Shareholders for the fiscal year
ended March 31, 1997, 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 1997 annual stockholders meeting to be held August 12, 1997,
to be filed with the Commission.
<TABLE>
<CAPTION>
Headings in
Proxy Statement
---------------
<S> <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, 1997, 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, 1997 and 1996
- Consolidated statements of income for the years ended March 31,
1997, 1996 and 1995
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- Consolidated statements of stockholders' equity for the years
ended March 31, 1997, 1996 and 1995
- Consolidated statements of cash flows for the years ended March
31, 1997, 1996 and 1995
- 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, 1997.
(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>
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.................................(11)
</TABLE>
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<TABLE>
<CAPTION>
Incorporated by Filed
Number Exhibit Reference Herewith
- ------ ------- --------------- --------
<S> <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, 1997, 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.
(11) Incorporated by reference to Registrant's Form 10-K filed for the
year ended March 31, 1996.
10
<PAGE> 13
(d) Financial Statement Schedule.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To SkyWest, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in SkyWest, Inc.'s Annual Report to
Shareholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated May 23, 1997. 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 23, 1997
11
<PAGE> 14
SKYWEST, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<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, 1997:
Allowance for obsolescence $180,000 $ 100,000 $ - $280,000
Allowance for doubtful
accounts receivable 221,345 44,686 (162,053) 103,978
-------- --------- --------- --------
$401,345 $ 144,686 $(162,053) $383,978
======== ========= ========= ========
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
======== ========= ========= ========
</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 17, 1997
- -------------------------- Chief Executive Officer
Jerry C. Atkin
/s/ Sidney J. Atkin Vice Chairman of the Board June 17, 1997
- -------------------------- and Director
Sidney J. Atkin
Executive Vice President - Finance June 17, 1997
/s/ Bradford R. Rich Chief Financial Officer and Treasurer
- -------------------------- (principal financial and
Bradford R. Rich accounting officer)
/s/ J. Ralph Atkin Director June 17, 1997
- --------------------------
J. Ralph Atkin
/s/ Mervyn K. Cox Director June 17, 1997
- --------------------------
Mervyn K. Cox
/s/ Ian M. Cumming Director June 17, 1997
- --------------------------
Ian M. Cumming
- -------------------------- Director
Steven F. Udvar-Hazy
- -------------------------- Director
Henry J. Eyring
- -------------------------- Director
Hyrum W. Smith
</TABLE>
13
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
-------------------------------
1997 1996 1995
------ -------- --------
(Amounts in thousands, except per share data)
<S> <C> <C> <C>
Basic
Weighted average common shares outstanding.................. 10,085 10,284 11,112
======= ======= =======
Net income.................................................. $10,111 $ 4,366 $13,701
======= ======= =======
Per share amount............................................ $ 1.00 $ .42 $ 1.23
======= ======= =======
Primary
Weighted average common shares outstanding.................... 10,085 10,284 11,112
Net effect of dilutive common stock options -- based on the
treasury stock method using average market price of $15.15,
$16.92 and $22.48, respectively, net of tax benefit......... 39 84 102
------- ------- -------
Total................................................. 10,124 10,368 11,214
======= ======= =======
Net income....................................................$10,111 $ 4,366 $13,701
======= ======= =======
Per share amount..............................................$ 1.00 $ .42 $ 1.22
======== ======= =======
Fully Diluted
Weighted average common shares outstanding.................... 10,085 10,284 11,112
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 $15.15, $16.92 and $22.48
respectively, net of tax benefit............................ 39 84 102
------- ------- -------
Total................................................. 10,124 10,368 11,214
======= ======= =======
Net income....................................................$10,111 $ 4,366 $13,701
======= ======= =======
Per share amount..............................................$ 1.00 $ .42 $ 1.22
======= ======= =======
</TABLE>
<PAGE> 1
SUMMARY FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
Year Ended March 31,
- -------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating revenues (000) $ 283,307 $ 251,734 $ 225,398 $ 187,993 $ 146,800
Operating income (000) $ 15,417 $ 5,710 $ 20,341 $ 24,680 $ 11,465
Net income (000) $ 10,111 $ 4,366 $ 13,701 $ 14,396 $ 6,704
Weighted average shares (000) 10,085 10,284 11,112 9,883 7,927
Net income per common share $ 1.00 $ .42 $ 1.23 $ 1.46 $ .85
Total assets (000) $ 232,898 $ 227,550 $ 188,182 $ 184,017 $ 86,945
Current assets (000) $ 90,295 $ 76,462 $ 71,642 $ 87,088 $ 28,243
Current liabilities (000) $ 45,022 $ 43,644 $ 25,603 $ 20,473 $ 15,909
Long-term debt (000) $ 47,337 $ 53,736 $ 29,553 $ 26,647 $ 18,391
Stockholders' equity (000) $ 124,552 $ 115,800 $ 117,684 $ 122,788 $ 42,766
Return on average equity 8.3% 3.7% 11.1% 17.4% 17.2%
SKYWEST AIRLINES, INC. OPERATING DATA
Passengers carried 2,656,602 2,340,366 2,073,885 1,730,993 1,523,384
Revenue passenger miles (000) 717,322 617,136 488,901 345,414 294,276
Available seat miles (000) 1,413,170 1,254,334 976,095 727,059 669,724
Load factor 50.8% 49.2% 50.1% 47.5% 43.9%
Break-even load factor 47.9% 48.4% 45.5% 41.2% 41.1%
Yield per revenue passenger mile $ .333 $ .332 $ .363 $ .439 $ .450
Cost per available seat mile $ .163 $ .166 $ .171 $ .188 $ .191
Average passenger trip length 270 264 236 200 193
Number of aircraft at end of year 60 63 60 55 50
</TABLE>
QUARTERLY FINANCIAL AND STOCK PRICE DATA
<TABLE>
<CAPTION>
Fiscal Year 1997
- --------------------------------------------------------------------------------------------------------------------
First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
Operating revenues (000) $ 72,125 $ 77,730 $ 64,595 $ 68,857 $ 283,307
Operating income (loss) (000) $ 7,678 $ 7,999 $ (1,736) $ 1,476 $ 15,417
Net income (loss) (000) $ 4,834 $ 4,990 $ (821) $ 1,108 $ 10,111
Net income (loss) per common share $ .48 $ .50 $ (.08) $ .11 $ 1.00
Stock price data: High $ 19.75 $ 18.25 $ 15.63 $ 14.38 $ 19.75
Low $ 13.25 $ 14.12 $ 12.63 $ 12.00 $ 12.00
</TABLE>
<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>
As of April 30, 1997, there were 1,051 holders of common stock. Cash
dividends of $.23 and $.25 per share of outstanding common stock were paid in
fiscal years 1997 and 1996, respectively.
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth information regarding the Company's
operating cost components:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
1997 1996 1995
--------------------------------------------------------------------------------
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 ................ $ 60,759 24.8% 4.3c $ 56,005 26.5% 4.5c $ 49,684 27.0% 5.1c
Aircraft costs ............. 49,822 20.4 3.5 43,009 20.3 3.5 35,355 19.2 3.6
Maintenance ................ 20,929 8.6 1.4 20,779 9.8 1.6 18,350 10.0 1.9
Fuel ....................... 30,713 12.6 2.2 23,084 10.9 1.8 16,625 9.0
Other ...................... 66,323 27.0 4.7 56,794 26.9 4.5 45,742 24.9 4.7
Interest ................... 2,431 1.0 .2 2,160 1.0 .2 1,086 0.6 0.1
Fleet restructuring and
transition expenses ...... - - - 6,247 3.0 .5 - - -
-------- ---- --- -------- ---- --- -------- ---- ---
Total airline expenses ..... 230,977 94.4 16.3c 208,078 98.4 16.6c 166,842 90.7 17.1c
-------- ---- ==== -------- ---- ==== -------- ---- ====
Nonairline expenses ........ 39,344 101.7 40,109 99.7 39,315 94.4
-------- ----- -------- ---- -------- ----
Total operating expenses and
interest ................ $270,321 95.4% $248,187 98.6% $206,157 91.4%
======== ==== ======== ==== ======== ====
</TABLE>
Airline operating costs are expressed as a percentage of total airline operating
revenues. Nonairline expenses are expressed as a percentage of total nonairline
revenues. Total operating expenses and interest are expressed as a percentage of
total consolidated revenues.
Fiscal 1997 Compared to Fiscal 1996
Consolidated operating revenues increased 12.5 percent to a record
$283.3 million in fiscal 1997 compared to $251.7 million in fiscal 1996. The
Company also experienced continued growth in passenger enplanements, revenue
passenger miles ("RPMs") and available seat miles ("ASMs") during fiscal 1997
compared to fiscal 1996. Consolidated net income increased to $10.1 million, or
$1.00 per share in fiscal 1997 compared to $4.4 million, or $.42 per share, in
fiscal 1996. The fiscal 1996 results include a pretax fleet restructuring of
$6.2 million, or $.38 per share, resulting from a fleet rationalization plan
that required a restructuring of the Company's turboprop fleet.
Passenger revenues, which represented 84.4 percent of total operating
revenues, increased 16.7 percent to $239.2 million in fiscal 1997 from $205.0
million in fiscal 1996. The increase is primarily due to a 16.2 percent increase
in RPMs, while yield per RPM remained relatively constant at $.333 in fiscal
1997 compared to $.332 in fiscal 1996. The increase in RPMs is due to a 20.3
percent increase in ASMs generated by Canadair Regional Jets, which are used to
provide service to destinations such as San Francisco, California, Pasco,
Washington and Colorado Springs, Colorado. Additionally, the Company acquired 15
new Brasilia aircraft to replace the 18 remaining 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 12.7 percent increase
in ASMs. The growth in RPMs exceeded the growth in ASMs and resulted in a
passenger load factor of 50.8 percent in fiscal 1997 compared to 49.2 percent in
fiscal 1996. As a result of the increased passenger load factor and a .3 percent
increase in yield per RPM, revenue per ASM increased 2.4 percent to $.173 in
fiscal 1997 from $.169 in fiscal 1996.
Total airline operating expenses and interest were 94.4 percent of total
airline operating revenues in fiscal 1997 compared to 98.4 percent in fiscal
1996. Exclusive of the one-time charge related to the fleet restructuring and
transition from Metro to Brasilia aircraft recorded in fiscal 1996, total
operating expenses and interest, as a percentage of total airline operating
revenues, decreased to 94.4 percent from 95.4 percent in fiscal 1996. This
percentage decrease is due to a 16.7 percent growth rate in passenger revenues
compared to a 14.4 percent increase in operating expenses and interest. The 14.4
percent increase in operating expenses and interest is exclusive of the one-time
fleet restructuring and transition expense recorded in fiscal 1996. Airline
operating costs per ASM decreased to 16.3(cent) in fiscal 1997 from
<PAGE> 3
16.6(cents) in fiscal 1996. Exclusive of the one-time fleet restructuring and
transition expense, airline operating costs per ASM would have been 16.1(cents)
for fiscal 1996. The slight increase in cost per ASM in fiscal 1997 is primarily
due to increased fuel costs.
Salaries, wages and employee benefits decreased as a percentage of
airline operating revenues to 24.8 percent in fiscal 1997 from 26.5 percent in
fiscal 1996. The decrease is primarily due to airline operating revenues
increasing at a faster rate than employee related expenses. The average number
of employees was 1,852 for 1997 compared to 1,753 for fiscal 1996. The increase
is primarily due to the addition of flight attendants to crew new Brasilia
aircraft. Salaries, wages and employee benefits per ASM decreased to 4.3(cents)
in fiscal 1997 from 4.5(cents) in fiscal 1996.
Aircraft costs, including aircraft rent and depreciation, increased
slightly as a percentage of airline operating revenues to 20.4 percent in fiscal
1997 from 20.3 percent in fiscal 1996, as a result of the fleet transition to
Brasilia aircraft. Aircraft costs per ASM was 3.5(cents) in fiscal 1997 and
1996.
Maintenance expense decreased slightly as a percentage of airline
operating revenues to 8.6 percent in fiscal 1997 from 9.8 percent in fiscal
1996. Maintenance cost per ASM decreased to 1.4(cents) in fiscal 1997 from
1.6(cents) in fiscal 1996 due to the efficiency of additional new Brasilia
aircraft.
Fuel costs increased as a percentage of airline operating revenues to
12.6 percent in fiscal 1997 compared to 10.9 percent in fiscal 1996. The
increase is primarily due to an 18.8 percent increase in the average fuel price
per gallon to $.95 in fiscal 1997 from $.80 in fiscal 1996. As a result, fuel
costs per ASM increased to 2.2(cents) in fiscal 1997 from 1.8(cents) in fiscal
1996.
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 27.1 percent in
fiscal 1997 compared to 26.9 in fiscal 1996. The increase is due primarily to
rate increases in customer reservation systems booking fees. In addition, the
Company has experienced rate increases in landing fees and general passenger
handling charges. Interest expense as a percentage of airline operating revenues
was 1.0 percent in fiscal 1997 and 1996. This percentage was the same since no
new debt financings were entered into during fiscal 1997.
Nonairline revenues decreased 3.9 percent to $38.7 million in fiscal
1997 compared to $40.3 million in fiscal 1996. The decrease is due to decreased
passenger enplanements in fiscal 1997. Nonairline expenses decreased 1.9 percent
to $39.3 million for fiscal 1997 compared to $40.1 million for fiscal 1996. The
slight decrease is due to minor changes for a decreased level of operations, as
well as reallocating existing capacity into lower cost tour packages.
Fiscal 1996 Compared to Fiscal 1995
The Company experienced continued growth in RPMs, 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 included 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 turbo prop fleet. The $6.2 million fleet restructuring and transition
expense primarily represented 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 resulted in an all Brasilia turboprop fleet and was
virtually 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 was 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 was 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 expectation 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
<PAGE> 4
carriers and 4) a continuing reluctance of travel agents to book passengers on
the Delta system after Delta instigated commission caps in the spring of 1995 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 was 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 $.169 in fiscal 1996
compared to $.188 in fiscal 1995.
Nonairline revenues, which consist of the 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. Nonairline net income
decreased to $.4 million in fiscal 1996 from $1.6 million in fiscal 1995. The
decreases were due to the following factors: 1) a 13 percent decrease in the
overall tourist traffic in the 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 was 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 was 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
was 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
fiscal 1996 compared to 24.9 in fiscal 1995. The increase was due primarily to
significant rate increases in customer reservation systems booking fees. In
addition, the Company has experienced rate increases in landing fees and general
passenger handling charges. Interest expense increased as a percentage of
airline operating revenues to 1.0 percent in fiscal 1996 from .6 percent in
fiscal 1995. The increase was due to an increase in debt financings of new
Brasilia aircraft.
Nonairline 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.
<PAGE> 5
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $45.3 million and a current ratio of
2.0:1 at March 31, 1997 compared to working capital of $32.8 million and a
current ratio of 1.8:1 at March 31, 1996. The principal sources of funds during
fiscal 1997 were $32.1 million generated from operations, $3.6 million of
returned deposits related to aircraft acquisitions, $2.9 million of proceeds
from the sale of property and equipment, $1.1 million of proceeds from the sale
of available-for-sale securities, $.9 million from the sale of common stock and
$.4 million from the sale of other assets. During fiscal 1997 the Company
invested $12.0 million in flight equipment and $7.7 million in buildings, ground
equipment and other assets. The Company also reduced long-term debt by $6.2
million and paid $1.8 million in cash dividends. These factors resulted in a
$13.3 million increase in cash and cash equivalents during fiscal 1997.
The Company's position in available-for-sale securities, consisting
primarily of bonds and commercial paper has decreased to $18.0 million at March
31, 1997 compared to $19.1 million at March 31, 1996.
The Company took delivery of fifteen new Brasilia aircraft during the
year ended March 31, 1997 as part of the strategy to upgrade its fleet. All of
these new aircraft were financed under long-term operating lease arrangements.
The Company also has options to acquire ten additional Brasilia aircraft
at fixed prices (subject to cost escalation and delivery schedules) exercisable
through fiscal 1999. Options to acquire an additional ten Canadair Regional Jets
have been secured.
The Company has significant long-term lease 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, 1997, the Company leased 44 SkyWest aircraft and 18
Scenic Airlines aircraft under leases with remaining terms of up to 15.0 years.
Future minimum lease payments due under all long-term operating leases were
approximately $489.3 million at March 31, 1997.
At March 31, 1997, the Company had outstanding long-term debt, including
current maturities, of approximately $53.7 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 $12.5 million of the $53.7 million of
long-term debt are floating based on one month and three month LIBOR. The
subsidy payments reduced the stated interest rates on the $53.7 million of
long-term debt to an average effective rate of approximately 4.0% as of March
31, 1997. The debt is payable in either quarterly or semi-annual installments
through January 2006. These subsidy payments are at risk to the Company if the
Federative Republic of Brazil does not meet its obligations under the export
support program. While the Company has no reason to believe, based on
information currently available, that the Company will not continue to receive
these subsidy payments from the Federative Republic of Brazil in the future,
there can be no assurance that such a default will not occur.
The Company expended approximately $19.7 million for non-aircraft
capital expenditures during the year ended March 31, 1997, consisting primarily
of aircraft engine overhauls, aircraft modifications to be made pursuant to
industry-wide FAA directives, buildings and ground equipment, and rental
vehicles.
The Company has available $5.0 million in an unsecured bank line of
credit with interest payable at the bank's base rate less one-quarter percent,
which was 8.25% at March 31, 1997. The Company also has available $.5 million in
a revolving line of credit facility issued by the same bank and secured by a
lien against the Company's corporate headquarters in St. George, Utah. The $.5
million revolving facility bears interest at the bank's base rate plus one-half
percent. The amount available under the facility will expire on December 1,
1997.
<PAGE> 6
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, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended March 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SkyWest, Inc. and subsidiaries
as of March 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended March 31, 1997 in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
- -----------------------
Salt Lake City, Utah
May 23, 1997
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 of 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> 7
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 37,786 $ 24,529
Available-for-sale securities 17,970 19,097
Receivables, less allowance for doubtful accounts of $104 in 1997
and $221 in 1996 10,851 12,893
Inventories 9,987 8,923
Prepaid aircraft rents 8,612 5,433
Other current assets 5,089 5,587
--------- ---------
Total current assets 90,295 76,462
--------- ---------
PROPERTY AND EQUIPMENT, at cost:
Aircraft and rotable spares 171,239 171,840
Buildings and ground equipment 43,508 39,092
Deposits on aircraft and rotable spares - 3,603
Rental vehicles 3,291 2,237
--------- ---------
218,038 216,772
Less - accumulated depreciation and amortization (80,295) (71,701)
--------- ---------
137,743 145,071
OTHER ASSETS 4,860 6,017
--------- ---------
$ 232,898 $ 227,550
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
<PAGE> 8
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 6,399 $ 6,236
Trade accounts payable 29,213 23,740
Accrued salaries, wages and benefits 6,095 5,451
Taxes other than income taxes 1,537 1,330
Air traffic liability 1,488 1,485
Fleet restructuring accrual 290 3,788
Deferred credits - 1,614
--------- ---------
Total current liabilities 45,022 43,644
--------- ---------
LONG-TERM DEBT, less current maturities 47,337 53,736
--------- ---------
DEFERRED INCOME TAXES PAYABLE 15,987 14,370
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4)
STOCKHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares authorized; none issued - -
Common stock, no par value; 40,000,000 shares authorized;
11,624,811 and 11,521,808 shares issued, respectively 89,146 88,183
Retained earnings 55,691 47,902
Treasury stock, at cost, 1,474,600 shares (20,285) (20,285)
--------- ---------
Total stockholders' equity 124,552 115,800
--------- ---------
$ 232,898 $ 227,550
========= =========
</TABLE>
<PAGE> 9
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the years ended March 31,
--------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operating revenues:
Passenger $ 239,222 $ 205,034 $ 177,588
Freight 4,174 4,291 3,802
Public service and other 1,243 2,159 2,401
Nonairline 38,668 40,250 41,607
------------ ------------ ------------
Total operating revenues 283,307 251,734 225,398
------------ ------------ ------------
Operating expenses:
Flying operations 101,689 85,117 68,135
Aircraft, traffic and passenger service 37,044 32,522 28,218
Maintenance 29,149 28,713 25,530
Promotion and sales 29,606 25,965 20,369
Depreciation and amortization 18,481 15,392 11,896
General and administrative 12,577 11,962 11,605
Fleet restructuring and transition - 6,247 -
Nonairline 39,344 40,106 39,304
------------ ------------ ------------
Total operating expenses 267,890 246,024 205,057
------------ ------------ ------------
Operating income 15,417 5,710 20,341
------------ ------------ ------------
Other income (expense):
Interest expense (2,431) (2,163) (1,100)
Interest income 2,481 2,707 2,826
Gain on sales of property and equipment 1,113 556 173
------------ ------------ ------------
Total other income 1,163 1,100 1,899
------------ ------------ ------------
Income before provision for income taxes 16,580 6,810 22,240
Provision for income taxes 6,469 2,444 8,539
------------ ------------ ------------
Net income $ 10,111 $ 4,366 $ 13,701
============ ============ ============
Net income per common share $ 1.00 $ .42 $ 1.23
============ ============ ============
Weighted average number of common shares outstanding 10,085,260 10,283,918 11,111,596
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE> 10
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, 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 - - - - 4,366
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 expense 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
Net income - - - - 10,111
Exercise of common stock options
(at a price of $5.50 per share) 51,250 282 - - -
Sale of common stock under
Employee stock purchase plan 51,753 588 - - -
Tax benefit from exercise of common
stock options - 93 - - -
Cash dividends (at $.23 per share) - - - - (2,322)
---------- ------- ---------- -------- --------
Balance at March 31, 1997 11,624,811 $89,146 (1,474,600) $(20,285) $ 55,691
========== ======= ========== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the years ended March 31,
--------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,111 $ 4,366 $ 13,701
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 18,481 15,392 11,896
Nonairline depreciation and amortization 3,585 2,742 2,090
Maintenance expense related to disposition of rotable spares 286 173 240
Gain on sales of property and equipment (1,113) (556) (173)
(Decrease) increase in allowance for doubtful accounts (117) 6 71
Increase in deferred income taxes 1,617 1,336 2,050
Amortization of deferred credits (1,614) (1,497) (817)
Tax benefit from exercise of common stock options 93 41 228
Compensation expense related to grant of stock options - 83 69
Changes in operating assets and liabilities:
Decrease (increase) in receivables 2,159 (5,895) 2,721
Increase in inventories (1,064) (1,744) (1,305)
Increase in other current assets (2,681) (2,286) (5,267)
Increase in trade accounts payable 4,965 9,951 3,762
(Decrease) increase in fleet restructuring accrual (3,498) 3,788 -
Increase in other current liabilities 854 1,005 692
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 32,064 26,905 29,958
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities - - (9,760)
Proceeds from sale of available-for-sale securities 1,127 2,212 -
Acquisition of property and equipment:
Aircraft and rotable spares (11,979) (48,508) (23,538)
Deposits on aircraft and rotable spares - (3,053) (7,653)
Buildings and ground equipment (4,886) (10,281) (5,851)
Rental vehicles (2,850) (2,842) (2,229)
Proceeds from sales of property and equipment 2,945 4,114 1,370
Decrease in deposits on aircraft and rotable spares 3,603 8,715 4,275
Decrease (increase) in other assets 413 (447) (38)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (11,627) (50,090) (43,424)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 870 401 116
Purchase of treasury stock - (4,194) (16,091)
Payment of cash dividends (1,814) (2,581) (3,127)
Reduction of long-term debt (6,236) (4,329) (3,534)
Proceeds from issuance of long-term debt - 31,001 7,116
-------- -------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (7,180) 20,298 (15,520)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 13,257 (2,887) (28,986)
Cash and cash equivalents at beginning of year 24,529 27,416 56,402
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 37,786 $ 24,529 $ 27,416
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,399 $ 2,060 $ 1,074
Income taxes 3,950 3,090 6,917
</TABLE>
The accompanying notes are an integral part of these consolidated
statements.
<PAGE> 12
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. ("SkyWest"), Scenic Airlines, Inc.
("Scenic") and National Parks Transportation, Inc. ("NPT") 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 - 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.
Property and Equipment - Property and equipment are stated at cost and
depreciated over their useful lives to their estimated residual values using the
straight-line method as follows:
Aircraft and rotable spares 3 - 14 years
Buildings and ground equipment 3 - 39.5 years
Rental vehicles 4 years
Maintenance - The Company operates under an FAA approved continuous inspection
and maintenance program. The cost of maintenance is charged to expense when
incurred. The Company uses the deferred method of accounting for EMB-120 engine
overhauls and uses the accrual method of accounting for regional jet engine
overhauls.
Passenger and Freight Revenues - Passenger and freight revenues are recognized
when service is provided. Passenger tickets sold but not used and the liability
to other airlines are recorded as air traffic liability.
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. As of
March 31, 1997 and 1996, the Company had recorded current deferred tax assets of
$2,046,000 and $3,228,000, respectively (which are included in other current
assets), and deferred tax liabilities of $15,987,000 and $14,370,000,
respectively.
Deferred Credits - In order to assist the Company in integrating new aircraft
into its fleet, certain manufacturers provide the Company with cash or credits
for spare parts. With respect to purchased aircraft, these amounts reduce the
capitalized cost of the aircraft. With respect to leased aircraft (operating
leases), the Company has deferred these amounts and amortizes them over the
terms of the related aircraft leases as a reduction of rent expense. Amounts
amortized during the years ended March 31, 1997, 1996, and 1995 were $1,614,000,
$1,497,000 and $817,000, respectively. As of March 31, 1997, the Company has no
remaining deferred credits to amortize.
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> 13
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 $52,074,000 as of March
31, 1997, as compared to the carrying amount of $53,736,000.
Recent Accounting Pronouncement - The Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" in March 1995. SFAS No. 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. The Company adopted SFAS No.
121 effective April 1996, which had no impact on the Company's financial
position or results of operations.
(2) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
As of March 31,
------------------------
1997 1996
-------- --------
<S> <C> <C>
Note payable to bank, due in monthly installments
of $90,394 including interest at 6.95% through
December 2005, secured by aircraft $ 7,096 $ 7,666
Note payable to bank, due in monthly installments
of $88,737 including interest at 6.7% through
January 2006, secured by aircraft 7,085 7,654
Note payable to bank, due in monthly installments
of $91,290 including interest at 7.37% through
October 2005, secured by aircraft 6,953 7,513
Note payable to bank, due in monthly installments
of $64,319 plus interest at 6.36% through
November 2000. Balloon payment of $3,937,000
due December 2000, secured by aircraft 6,818 7,590
Note payable to bank, due in quarterly installments of
$177,906 plus interest at 8.58% through March 2005,
secured by aircraft 5,693 6,405
Note payable to bank, due in monthly installments of
$77,265 including interest at 7.33% through June 2003,
secured by aircraft 4,638 5,203
Note payable to bank, due in quarterly installments of
$167,246 plus interest based on three month LIBOR (7.51% at
March 31, 1997) through September 2003, secured by aircraft 4,348 5,017
Note payable to bank, due in monthly installments of $54,702
plus interest based on one month LIBOR (7.44% at March 31, 1997)
through June 2003, secured by aircraft 4,103 4,759
Note payable to financing company, due in quarterly installments
of $155,000 plus interest based on three month LIBOR (7.06%
at March 31, 1997) through July 2003, secured by aircraft 4,030 4,650
Note payable to bank, due in semi-annual installments
of $270,186 plus interest at 8.5% through May 2002,
secured by aircraft 2,972 3,513
Other - 2
-------- --------
53,736 59,972
Less - current maturities (6,399) (6,236)
-------- --------
$ 47,337 $ 53,736
======== ========
</TABLE>
<PAGE> 14
The aggregate amounts of principal maturities of long-term debt as of March 31,
1997, are as follows (in thousands):
<TABLE>
<CAPTION>
Year ending March 31,
---------------------
<S> <C>
1998 $ 6,399
1999 6,577
2000 6,768
2001 6,973
2002 7,193
Thereafter 19,826
-------
$53,736
=======
</TABLE>
The Company's long-term debt was incurred in connection with the acquisition of
Brasilia aircraft and is supported by subsidy payments through the export
support program of the Federative Republic of Brazil. The subsidy payments
reduce the stated interest rates to an average effective rate of approximately
4.0% at March 31, 1997. These subsidies payments are at risk to the Company if
the Federative Republic of Brazil does not meet its obligations under the export
support program. While the Company has no reason to believe, based on
information currently available, that the Company will not continue to receive
these subsidy payments from the Federative Republic of Brazil in the future,
there can be no assurance that such a default will not occur.
As of March 31, 1997, 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 8.25% at March 31, 1997. In addition, as of March 31, 1997,
the Company had available $500,000 in a reducing, revolving line of credit
facility bearing interest at the bank's base rate plus 1/2% and secured by a
lien against the Company's corporate headquarters in St. George, Utah. The
amount available under the revolving facility expires December 1, 1997.
The Company's long-term debt arrangements contain limitations on, among other
things, sale or lease of assets, ratio of long-term debt to tangible net worth,
cash flow coverage ratio, debt service coverage ratio and minimum tangible net
worth. As of March 31, 1997, the Company was in compliance with all the debt
covenants.
(3) INCOME TAXES
The provision for income taxes includes the following components (in thousands):
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Current tax provision:
Federal $3,315 $2,656 $4,893
State 355 204 1,119
------ ------ ------
3,670 2,860 6,012
------ ------ ------
Deferred tax provision (benefit):
Federal 2,344 (348) 2,041
State 455 (68) 486
------ ------ ------
2,799 (416) 2,527
------ ------ ------
Provision for income taxes $6,469 $2,444 $8,539
====== ====== ======
</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,
--------------------------------
1997 1996 1995
------ ------- ------
<S> <C> <C> <C>
Computed "expected" provision
for income taxes at the statutory rate $5,703 $2,315 $7,684
Increase (decrease) in income taxes resulting from:
State income taxes, net of Federal income tax benefit 711 292 727
Other, net 55 (163) 128
------ ------ ------
Provision for income taxes $6,469 $2,444 $8,539
====== ====== ======
</TABLE>
<PAGE> 15
The significant components of the net deferred tax assets and liabilities are as
follows (in thousands):
<TABLE>
<CAPTION>
As of March 31,
-----------------------
Deferred tax assets: 1997 1996
-------- --------
<S> <C> <C>
Accrued benefits $ 979 $ 905
Engine overhaul accrual 1,909 1,343
AMT credit carryforward 3,939 2,766
Fleet restructuring accrual 116 1,515
Accrued expense reserves and other 1,140 1,205
-------- --------
Total deferred tax assets 8,083 7,734
-------- --------
Deferred tax liabilities:
Accelerated depreciation (21,047) (17,505)
Other (977) (1,371)
-------- --------
Total deferred tax liabilities (22,024) (18,876)
-------- --------
Net deferred tax liability $(13,941) $(11,142)
======== ========
</TABLE>
(4) COMMITMENTS AND CONTINGENT LIABILITIES
Lease Obligations
The Company leases 44 SkyWest aircraft and 18 Scenic aircraft, as well as
airport facilities, office space, and various other property and equipment under
noncancelable operating leases which are generally on a long-term net rent basis
where the Company pays taxes, maintenance, insurance and certain other operating
expenses applicable to the leased property. Management expects that, in the
normal course of business, leases that expire will be renewed or replaced by
other leases. The following summarizes future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year as of March 31, 1997 (in thousands):
<TABLE>
<CAPTION>
Year ending March 31,
---------------------
<S> <C>
1998 $ 44,367
1999 41,549
2000 40,089
2001 39,191
2002 38,353
Thereafter 285,772
--------
$489,321
========
</TABLE>
Total rental expense for noncancelable operating leases was approximately
$35,058,000, $31,369,000, and $27,494,000 for the years ended March 31, 1997,
1996 and 1995, respectively.
The above minimum rental payments do not include landing fees, which amounted to
approximately $6,259,000, $4,460,000, and $4,145,000 for the years ended March
31, 1997, 1996 and 1995, respectively.
Purchase Options
At March 31, 1997, the Company did not have any firm purchase commitments,
however, the Company has options to acquire 10 additional EMB-120 aircraft at
fixed prices (subject to cost escalation and delivery schedules). These options
are exercisable through fiscal year 1999. The Company also has options to
acquire an additional 10 Canadair Regional Jets, exercisable at any time.
Legal Matters
The Company is the subject of certain legal actions, which it considers routine
to its business activities. As of March 31, 1997, management believes that any
potential liability to the Company under such actions will not materially effect
the accompanying consolidated financial statements.
<PAGE> 16
Standby Letters of Credit
As of March 31, 1997, the Company has outstanding letters of credit totaling
approximately $1,516,000 related to requirements of certain airports, port
authorities and workers compensation agreements.
Cash and Cash Equivalents
As of March 31, 1997, the Company has demand deposits and money market accounts
totaling $463,000 with Wells Fargo Bank, $202,000 with Bank of America,
$2,056,000 with Banc One and $11,390,000 with Zions First National Bank. These
balances exceed the $100,000 limit for insurance by the Federal Deposit
Insurance Corporation.
(5) CAPITAL TRANSACTIONS
Purchase of Treasury Stock
On November 23, 1994, the Company's Board of Directors approved the purchase of
up to 1,150,000 shares of the Company's outstanding common stock. The total
shares were purchased prior to the end of fiscal 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. In
addition, on February 6, 1996, the Company's Board of Directors approved the
purchase of up to 500,000 shares of the Company's outstanding stock. During
fiscal 1996, 324,600 shares were purchased at an average price of $12.92. None
of the Company's outstanding stock was repurchased during fiscal 1997.
Subsequent Cash Dividend
On May 6, 1997, the Company's Board of Directors declared a regular quarterly
cash dividend of $.05 per share payable to stockholders of record on June 30,
1997, distributable July 14, 1997.
Stock Options
The Company's Board of Directors and Stockholders have approved 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 are granted
at not less than 100% of the market value of the underlying common stock on the
date of grant. Non-statutory stock options are granted at a price as determined
by the Board of Directors. Both types of options are exercisable for the period
as defined by the Board of Directors at the date granted; however, no stock
option will be exercisable before six months have elapsed from the date it is
granted and no incentive stock option shall be exercisable after ten years from
the date of grant. The following table summarizes the stock option activity for
fiscal years 1995, 1996 and 1997.
<TABLE>
<CAPTION>
Average
Number of Weighted
Options Price
--------- ---------
<S> <C> <C>
Outstanding at March 31, 1994 228,749 $ 11.49
Granted 250,500 21.17
Exercised (23,000) 5.03
Canceled (2,500) 19.99
-------
Outstanding at March 31, 1995 453,749 17.11
Granted 105,000 16.22
Exercised (27,500) 4.13
-------
Outstanding at March 31, 1996 531,249 17.61
Granted 119,000 14.95
Exercised (51,250) 5.50
Canceled (32,824) 13.79
-------
Outstanding at March 31, 1997 566,175 $ 18.37
=======
</TABLE>
As of March 31, 1997, there were 419,188 shares available for future grant of
stock options under the Option Plan.
<PAGE> 17
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock-based compensation plans, which
include the Option Plan and the Stock Purchase Plan (see Note 6). SFAS No. 123,
"Accounting for Stock-Based Compensation," requires pro forma information
regarding net income and earnings per share as if the Company had accounted for
its stock options and employee stock purchases granted or sold subsequent to
April 1, 1995, under the fair value method of the statement. The fair value of
these stock options and employee stock purchases was estimated at the grant date
using the Black-Scholes option pring model with the following assumptions: a
risk-free interest rate of 6.5 percent, a dividend yield of 1.5 percent, a
volatility factor of the expected common stock price of .508 and a
weighted-average expected life of four years for the stock options and six-
months for employee stock purchases. For purposes of the pro forma disclosures,
the estimated fair value of the stock options and employee stock purchases is
amortized over the estimated life of the respective stock options and employee
stock purchases. Following are the pro forma disclosures and the related impact
on net earnings and earnings per share (in thousands, except per share
information):
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------
1997 1996
<S> <C> <C>
Net Income:
As Reported $ 10,111 $ 4,366
Pro Forma 9,838 4,232
Net Income Per Common Share:
As Reported $ 1.00 $ 0.42
Pro Forma $ 0.98 $ 0.41
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to April 1, 1995, and due to the nature and timing of option
grants, the resulting pro forma compensation cost may not be indicative of
future years.
(6) RETIREMENT PLAN AND EMPLOYEE STOCK PURCHASE PLAN
Retirement Plan
The Company sponsors the SkyWest Airlines Employees Retirement Plan (the
"Plan"). Employees who have completed one year of service and are 21 years of
age are eligible for participation in the Plan. Employees may elect to make
contributions to the Plan. The Company matches 100% of such contributions up to
2%, 4% or 6% of the individual participant's compensation, based upon length of
service. Additionally, a discretionary contribution may be made by the Company.
The Company's combined contribution was $1,960,000, $1,728,000 and $1,869,000 to
the Plan for the years ended March 31, 1997, 1996 and 1995, respectively.
Employee Stock Purchase Plan
On February 7, 1995, the Company's Board of Directors approved the SkyWest, Inc.
1995 Employee Stock Purchase Plan ("the Stock Purchase Plan"). All employees who
have completed 90 days of employment are eligible to participate, except
officers who are highly compensated employees under section 414 (q) of the
Internal Revenue Code. The Stock Purchase Plan enables employees to purchase
shares of the Company's common stock at a 15 percent discount, through payroll
deductions. Employees can contribute two to 15 percent of their base pay, not to
exceed $21,250 each calendar year, for the purchase of shares. For the fiscal
year ended March 31, 1997, 51,753 shares had been purchased by employees at
prices of $10.94 and $11.79. For the fiscal year ended March 31, 1996, 26,252
shares had been purchased by employees at a price of $10.94 per share. In
addition, as of March 31, 1997, $189,000 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.
<PAGE> 18
(7) FLEET RESTRUCTURING AND TRANSITION EXPENSE
During fiscal 1996, the Company's management began implementing a fleet
restructuring plan whereby all remaining Fairchild Metroliner III aircraft would
be replaced by EMB-120 aircraft. As a result, the Company incurred approximately
$2.4 million in fiscal 1996 of charges related to crew training, hiring new
flight attendants, and aircraft maintenance charges to meet lease return
requirements. 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 aircraft maintenance 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 and labor charges to ready the Metro III aircraft for return
to the lessors. 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. During fiscal 1997, the
Company incurred $3.5 million of restructuring charges and as of March 31, 1997,
has a remaining accrual of $.3 million, which is expected to be used in fiscal
1998 in connection with the final disposition of remaining Metroliner aircraft
and inventory.
(8) SEGMENT INFORMATION
Nonairline operating revenues and expenses primarily represent the operations of
Scenic and 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.
Information related to this segment of the Company's business is as follows (in
thousands):
<TABLE>
<CAPTION>
For the Year Ended March 31,
-----------------------------------
1997 1996 1995
<S> <C> <C> <C>
Operating revenues $ 38,668 $40,250 $41,607
Operating (loss) income (676) 144 2,303
Depreciation and amortization 3,585 2,742 2,090
Capital expenditures 5,476 14,209 5,613
</TABLE>
<TABLE>
<CAPTION>
As of March 31,
-------------------------
1997 1996
-------- --------
<S> <C> <C>
Identifiable assets $ 28,338 $ 28,209
</TABLE>
(9) 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 fiscal 1996,
the Company entered into a code-sharing agreement with Continental Airlines,
Inc. ("Continental"). The Company uses the Continental two letter designator
code (CO) in displaying schedules on certain flights in the automated airline
reservation systems used throughout the industry.
As of March 31, 1997, Delta owned 1,553,899 shares of common stock which
represents approximately 15% of the outstanding common stock of the Company. The
Company leases various terminal facilities from Delta and Delta provides certain
services to the Company, including advertising, reservation and ground handling
services. Expenses paid to Delta under these agreements were approximately
$11,218,000, $9,181,000 and $5,024,000 during the years ended March 31, 1997,
1996 and 1995, respectively.
The Company had net receivables from Delta of $780,000 and $2,761,000 as of
March 31, 1997 and 1996, respectively. The Company had net receivables from
Continental of $284,000 and $414,000 as of March 31, 1997 and 1996,
respectively.
<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 23,1997 included in SkyWest,
Inc's Annual Report to Shareholders for the fiscal year ended March 31, 1997. We
further consent to the incorporation of our report dated May 23, 1997,
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
June 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000793733
<NAME> SKYWEST, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 37,786
<SECURITIES> 17,970
<RECEIVABLES> 10,955
<ALLOWANCES> 104
<INVENTORY> 9,987
<CURRENT-ASSETS> 90,295
<PP&E> 218,038
<DEPRECIATION> 80,295
<TOTAL-ASSETS> 232,898
<CURRENT-LIABILITIES> 45,022
<BONDS> 47,337
0
0
<COMMON> 68,861
<OTHER-SE> 55,691
<TOTAL-LIABILITY-AND-EQUITY> 232,898
<SALES> 283,307
<TOTAL-REVENUES> 283,307
<CGS> 0
<TOTAL-COSTS> 267,890
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,431
<INCOME-PRETAX> 16,580
<INCOME-TAX> 6,469
<INCOME-CONTINUING> 10,111
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,111
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
