<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission file number 0-14719
SKYWEST, INC.
Incorporated under the laws of Utah 87-0292166
(I.R.S. Employer ID No.)
444 South River Road
St. George, Utah 84790
(435) 634-3000
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at August 2, 1999
----- -----------------------------
<S> <C>
Common stock, no par value 24,553,625
</TABLE>
<PAGE> 2
SKYWEST, INC.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
as of June 30, 1999 and
March 31, 1999 3
Condensed Consolidated Statements of
Income for the Three Months Ended
June 30, 1999 and 1998 5
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
June 30, 1999 and 1998 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 12
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
SKYWEST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
================================================================================
ASSETS
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 26,003 $ 52,237
Available-for-sale securities 127,131 109,580
Receivables, net 23,679 13,273
Inventories 14,947 13,863
Prepaid aircraft rents 15,481 18,755
Other current assets 11,768 8,976
--------- ---------
Total current assets 219,009 216,684
--------- ---------
PROPERTY AND EQUIPMENT:
Aircraft and rotable spares 229,111 225,223
Deposits on aircraft 58,525 41,463
Buildings and ground equipment 42,226 39,418
Rental vehicles 4,663 4,603
--------- ---------
334,525 310,717
Less-accumulated depreciation and
amortization (118,170) (111,793)
--------- ---------
216,355 198,924
OTHER ASSETS 2,078 2,052
--------- ---------
$ 437,442 $ 417,660
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
SKYWEST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in Thousands)
(Unaudited)
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 8,581 $ 8,497
Trade accounts payable 53,594 45,630
Accrued salaries,wages and benefits 8,906 10,471
Income taxes payable 7,948 5,937
Taxes other than income taxes 2,456 2,372
Air traffic liability 1,432 1,419
--------- ---------
Total current liabilities 82,917 74,326
--------- ---------
LONG-TERM DEBT, net of current maturities 59,270 61,830
--------- ---------
DEFERRED INCOME TAXES PAYABLE 25,837 25,248
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock 162,432 162,116
Retained earnings 127,271 114,425
Treasury stock (20,285) (20,285)
--------- ---------
Total stockholders' equity 269,418 256,256
--------- ---------
$ 437,442 $ 417,660
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
SKYWEST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended
June 30,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING REVENUES:
Passenger $ 109,713 $ 80,514
Freight and other 1,849 1,445
------------ ------------
111,562 81,959
------------ ------------
OPERATING EXPENSES:
Flying operations 39,584 29,173
Aircraft, traffic and passenger service 16,010 12,753
Maintenance 14,409 9,647
Promotion and sales 7,692 6,512
General and administrative 6,387 5,200
Depreciation and amortization 6,487 4,766
Other 517 405
------------ ------------
91,086 68,456
------------ ------------
OPERATING INCOME 20,476 13,503
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (563) (254)
Interest income 2,084 1,765
Gain on sales of property and equipment 90 86
------------ ------------
1,611 1,597
------------ ------------
INCOME BEFORE INCOME TAXES 22,087 15,100
PROVISION FOR INCOME TAXES 8,506 5,828
------------ ------------
INCOME FROM CONTINUING OPERATIONS 13,581 9,272
------------ ------------
DISCONTINUED OPERATIONS, net of income taxes:
Income from operations of Scenic Airlines -- 469
------------ ------------
NET INCOME $ 13,581 $ 9,741
============ ============
INCOME FROM CONTINUING OPERATIONS
PER COMMON SHARE:
Basic $ 0.55 $ 0.39
Diluted $ 0.55 $ 0.38
INCOME FROM DISCONTINUED
OPERATIONS PER COMMON SHARE:
Basic $ -- $ 0.02
Diluted $ -- $ 0.02
NET INCOME PER COMMON SHARE:
Basic $ 0.55 $ 0.41
Diluted $ 0.55 $ 0.40
WEIGHTED AVERAGE COMMON SHARES
Basic 24,488,000 24,064,000
Diluted 24,707,000 24,605,000
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
SKYWEST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Months Ended
June 30,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,581 $ 9,741
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,487 4,766
Gain on sales of property and equipment (90) (86)
Maintenance expense related to disposition of rotable spares 63 9
Increase in deferred income taxes 589 156
Nonairline depreciation and amortization 271 1,028
Changes in operating assets and liabilities:
Increase in receivables, net (10,406) (4,944)
Increase in inventories (1,084) (2,576)
Decrease in other current assets 482 1,646
Increase in trade accounts payable 7,964 8,784
Increase in other current liabilities 544 6,487
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,401 25,011
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of available-for-sale securities -- 186
Purchase of available-for-sale securities (17,551) --
Acquisition of property and equipment:
Aircraft and rotable spares (4,135) (34,217)
Deposits on aircraft and rotable spares (17,062) (5,800)
Buildings and ground equipment (2,808) (3,373)
Rental vehicles (764) (2,188)
Proceeds from sales of property and equipment 653 466
Increase in other assets (74) (12)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (41,741) (44,938)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 316 1,382
Reduction of long-term debt (2,476) (2,159)
Payment of cash dividends (734) (600)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (2,894) (1,377)
--------- ---------
Decrease in cash and cash equivalents (26,234) (21,304)
Cash and cash equivalents at beginning of period 52,237 139,772
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,003 $ 118,468
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 761 $ 385
Income taxes 7,227 475
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Consolidated Financial Statements
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. These condensed consolidated financial
statements reflect all adjustments which, in the opinion of management, are
necessary to present fairly the results of operations for the interim periods
presented. All adjustments are of a normal recurring nature. Certain information
and disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
following disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed consolidated financial
statements be read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's latest annual report on Form 10-K.
The results of operations for the three months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 2000.
Note B - Available-for-Sale Securities
Available-for-sale securities are recorded at fair market value.
Note C - Income Taxes
For the three months ended June 30, 1999 and 1998, the Company provided for
income taxes based upon the estimated annualized effective tax rate. At June 30,
1999, the Company has recorded a net current deferred tax asset of $6.8 million
and a net noncurrent deferred tax liability of $25.8 million.
Note D - Net Income Per Common Share
In accordance with Statement of Financial Accounting Standards No. 128 "Earnings
per Share", basic net income per common share is computed by dividing net income
by the weighted average number of common shares outstanding during the periods.
Diluted net income per common share reflects the potential dilution that could
occur if outstanding stock options were exercised. The calculation of the
weighted average number of common shares outstanding is as follows:
<TABLE>
<CAPTION>
For the
Three Months Ended
June 30,
---------------------
1999 1998
------ ------
(In thousands):
<S> <C> <C>
Weighted average number of common shares outstanding ... 24,488 24,064
Effect of outstanding stock options .................... 219 541
------ ------
Weighted average number of shares for diluted net income
per common share .................................... 24,707 24,605
====== ======
</TABLE>
7
<PAGE> 8
Note E - United Agreements
On July 23, 1997, SkyWest Airlines Inc.,("SkyWest") and United Airlines, Inc.
("United") announced a marketing agreement under which SkyWest has operated as
United Express in Los Angeles, Las Vegas, Phoenix, and in various
intra-California markets since October 1, 1997. The United Express code-share
arrangement provides extensive connecting opportunities for SkyWest/United
Express customers at United's Los Angeles hub where United is the largest major
carrier. On January 19, 1998, SkyWest and United executed a United Express
Agreement for United's Los Angeles hub and an addendum to the United Express
Agreement pursuant to which SkyWest would operate as the United Express carrier
at United's San Francisco hub, which began June 1, 1998. On February 9, 1998,
SkyWest executed an amendment to the United Express Agreement to provide service
as United Express in United's Portland and Seattle/Tacoma markets and in
additional Los Angeles markets, which began April 23, 1998. The related
financial impact for the three months ended June 30, 1999 and 1998, has been
included in the accompanying condensed consolidated financial statements.
Note F - Discontinued Operations
During the year ended March 31, 1999, the Company sold all of the assets and
operations of its wholly owned subsidiary, Scenic Airlines, Inc. (Scenic"). The
accompanying condensed consolidated financial statements reflect the disposition
of the assets and operations of Scenic as discontinued operations. Accordingly,
the revenues, costs and expenses, assets and liabilities have been excluded from
the respective captions in the financial statements and have been reported
through the date of disposition as income (loss) from discontinued operations,
net of income taxes. The revenues of Scenic amounted to $9.7 million for the
three months ended June 30, 1998.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
Operating Statistics
<TABLE>
<CAPTION>
For the
Three Months Ended
June 30,
----------------------------------------
1999 1998 % Change
---- ---- --------
<S> <C> <C> <C>
Passengers carried 1,365,706 1,017,312 34.2
Revenue passenger miles (000s) 290,590 215,726 34.7
Available seat miles (000s) 525,104 393,755 33.4
Passenger load factor 55.3% 54.8% .5 pts
Passenger breakeven load factor 45.4% 45.9% (.5) pts
Yield per revenue passenger mile 37.8cents 37.3cents 1.3
Revenue per available seat mile 21.1cents 20.7cents 1.9
Cost per available seat mile 17.4cents 17.3cents .6
Average passenger trip (miles) 213 212 .5
</TABLE>
For the Three Months Ended June 30, 1999 and 1998
For the quarter ended June 30, 1999, the Company enplaned a record number of
passengers and reported record consolidated income from continuing operations of
$13.6 million, or $0.55 per diluted common share, compared to $9.3 million, or
$0.40 per diluted common share for the same period last year. Consolidated
operating revenues increased 36.1 percent to $111.6 million for the quarter
ended June 30, 1999 from $82.0 million for the quarter ended June 30, 1998.
Passenger revenues, which represented 98.3 percent of consolidated operating
revenues, increased 36.3 percent to $109.7 million for the quarter ended June
30, 1999 from $80.5 million or 98.2 percent of consolidated operating revenues
for the quarter ended June 30, 1998. The increase was primarily the result of a
34.7 percent increase in revenue passenger miles ("RPMs") as well as a 1.3
percent increase in yield per RPM. SkyWest began operating as United Express in
Portland, Oregon and Seattle/Tacoma, Washington on April 23, 1998 and in San
Francisco, California beginning June 1, 1998. This new code-sharing relationship
has resulted in both increased RPMs and increased yield per RPM. The increased
yield per RPM also resulted from an increase in SkyWest's portion of prorated
fares with Delta in certain markets. SkyWest has also previously acquired a
state-of-the-art revenue management and control system which utilizes historical
booking data to optimize revenue. Together, these factors resulted in a 1.9
percent increase in revenue per available seat mile to 21.1cents for the quarter
ended June 30, 1999 from 20.7cents for the quarter ended June 30, 1998.
Passenger load factor increased to 55.3 percent for the quarter ended June 30,
1999 from 54.8 percent for the quarter ended June 30, 1998. The increase in load
factor is due primarily to the new code-sharing relationship with United whereby
SkyWest is experiencing high load factors in many United Express markets. The
increase is also from refinements in the flight schedules and continued
operational improvements to and from the Salt Lake City hub.
Total operating expenses and interest increased 33.4 percent to $91.6 million
for the quarter ended June 30, 1999 compared to $68.7 million for the quarter
ended June 30, 1998. As a percentage of consolidated operating revenues, total
operating expenses and interest decreased to 82.2 percent for the quarter ended
June 30, 1999 from 83.8 percent for the comparable quarter ended June 30, 1998.
For the quarter ended June 30, 1999, total airline operating expenses and
interest (excluding nonairline expenses) were 82.1 percent of airline operating
revenues compared to 83.8 percent for the quarter ended June 30, 1998. The
improved margin is the result of increased passenger enplanements and operating
revenues which have outpaced the increase in operating expenses.
Airline operating costs per available seat mile (including interest expense)
increased only .6 percent to 17.4cents for the quarter ended June 30, 1999 from
17.3cents for the quarter ended June 30, 1998. Factors relating to the change in
operating expenses are discussed below.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Salaries, wages and employee benefits decreased as a percentage of airline
operating revenues to 25.9 percent for the quarter ended June 30, 1999 from 26.3
percent for the quarter ended June 30, 1998. The average number of full-time
equivalent employees for the quarter ended June 30, 1999 was 3,180 compared to
2,341 for the quarter ended June 30, 1998. The increase in number of personnel
was due to the United Express expansion. Salaries, wages and employee benefits
per ASM increased to 5.5cents for the quarter ended June 30, 1999 compared to
5.4cents for the quarter ended June 30, 1998 as a result of additional employees
and higher employee incentives based on increased profitability.
Aircraft costs, including aircraft rent and depreciation, decreased as a
percentage of airline operating revenues to 17.6 percent for the quarter ended
June 30, 1999 from 18.5 percent for the quarter ended June 30, 1998. The
decrease is due to airline operating revenues increasing at a faster rate than
aircraft costs. Aircraft costs per ASM decreased slightly to 3.7cents for the
quarter ended June 30, 1999 from 3.8cents for the quarter ended June 30, 1998.
Maintenance expense increased as a percentage of airline operating revenues to
9.2 percent for the quarter ended June 30, 1999 compared to 8.4 percent for the
quarter ended June 30, 1998. This increase was the result of an increase in
flight hours which results in higher maintenance expense as well as maintenance
expense incurred on used Brasilia aircraft which were acquired in connection
with the United Express expansion. Management expects these costs to decrease
since the costs incurred were expended to bring the used aircraft up to SkyWest
maintenance standards. Maintenance expense per ASM increased to 2.0cents for the
quarter ended June 30, 1999 from 1.7cents for the quarter ended June 30, 1998.
Fuel costs increased as a percentage of airline operating revenues to 8.2
percent for the quarter ended June 30, 1999 from 7.6 percent for the quarter
ended June 30, 1998, primarily due to an increase in the average fuel price per
gallon to $0.73 from $0.66. Fuel costs per ASM increased to 1.7cents for the
quarter ended June 30, 1999 from 1.6cents for the quarter ended June 30, 1998.
Other expenses, primarily consisting of commissions, landing fees, station
rentals, computer reservation system fees and hull and liability insurance,
decreased slightly as a percentage of airline operating revenues to 20.7 percent
for the quarter ended June 30, 1999 from 22.6 percent for the quarter ended June
30, 1998.
Liquidity and Capital Resources
The Company had working capital of $136.1 million and a current ratio of 2.6:1
at June 30, 1999 compared to working capital of $142.4 million and a current
ratio of 2.9:1 at March 31, 1999. The decrease in working capital is due
primarily to the Company paying $17.1 million in required deposits, to an
aircraft manufacturer, on recent aircraft orders. These deposits are recorded as
long-term assets in the accompanying condensed consolidated balance sheets.
During the quarter ended June 30, 1999, the principal sources of funds were
$18.4 million generated from operations, $.7 million of proceeds from the sale
of property and equipment and $.3 million from the issuance of common stock upon
exercise of stock options, including tax benefit. During the quarter ended June
30, 1999 the Company invested $17.5 million in available-for-sale securities,
$17.1 million in aircraft deposits, $4.1 million in flight equipment, $2.9
million in buildings and ground equipment and other, $.8 million in rental
vehicles, reduced long-term debt by $2.5 million, and paid cash dividends of $.7
million. These factors resulted in a decrease of $26.2 million in cash and cash
equivalents.
The Company's position in available-for-sale securities, consisting primarily of
bonds, bond funds and commercial paper, increased to $127.1 million at June 30,
1999 compared to $109.6 million at March 31, 1999. At June 30, 1999, the
Company's long-term debt to equity position was 18 percent debt and 82 percent
equity compared to 19 percent debt and 81 percent equity at March 31, 1999.
During the quarter ended June 30, 1999, SkyWest took delivery of two new
Brasilia aircraft in connection with SkyWest's United Express expansion. As of
June 30, 1999, SkyWest had agreed to purchase three additional new Brasilia
aircraft and related spare parts and support equipment at an aggregate cost of
approximately $24.0 million, including estimated cost escalations. Depending on
the state of the aircraft financing market at the time of delivery, management
will determine whether to acquire the remaining three Brasilia aircraft through
third-party, long-term loans or lease arrangements.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Additionally, as of June 30, 1999, SkyWest had agreed to purchase 35 Canadair
Regional Jets ("CRJs") and related spare parts inventory and support equipment
at an aggregate cost of approximately $787.5 million. SkyWest also has options
to acquire 35 additional CRJs at fixed prices (subject to cost escalations) and
delivery schedules and are exercisable through July 2003.
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 June 30, 1999, SkyWest leased 79 aircraft under leases with an
average remaining term of approximately 9.5 years. Future minimum lease payments
due under all long-term operating leases were approximately $573.1 million at
June 30, 1999.
The Company's long-term debt was incurred in connection with the acquisition of
Brasilia aircraft and certain amounts are supported by continuing 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 3.90 percent on $39.4 million of the long-term
debt, at June 30, 1999. The continuing 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. On the remaining
long-term debt of $28.5 million, the average effective rate is 3.80 percent at
June 30, 1999 and the lender has assumed the risk of the subsidy payments.
The Company spent approximately $7.7 million for nonaircraft capital
expenditures during the quarter ended June 30, 1999, consisting primarily of
aircraft engine overhauls, rotable spare parts, buildings and ground equipment
and rental vehicles.
The Company has available $10.0 million in an unsecured bank line of credit with
interest payable at the bank's base rate less one-quarter percent, which was a
net rate of 7.5 percent at June 30, 1999. The Company believes that, in the
absence of unusual circumstances, the working capital available to the Company
will be sufficient to meet its present requirements, including expansion,
capital expenditures, lease payments and debt service requirements for at least
the next 12 months.
Forward-Looking Statements
This Form 10-Q contains forward-looking statements and information that are
based on management's belief, as well as assumptions made by and information
currently available to management. When used in this document, the words
"anticipate", "estimate", "project", "expect", and similar expressions are
intended to identify forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated, projected or expected. Among the
key factors that have a direct bearing on the Company's operating results
include, among other things, changes in SkyWest's code-sharing relationships,
fluctuations in the economy and the demand for air travel, the degree and nature
of competition and SkyWest's ability to expand services in new and existing
markets and to maintain profit margins in the face of pricing pressures.
Year 2000 Compliance
The Company is currently modifying computer systems and application programs, as
well as imbedded technology in the Company's equipment, for year 2000
compliance, with project completion scheduled for September 30, 1999. The
Company believes that the cost to modify its systems or applications will not
have a material effect on its financial position or results of operations. Any
expenditures will be funded through operating cash flows while any costs for new
software will be capitalized and amortized over the software's useful life.
Although the Company is working cooperatively with third parties with systems
upon which the Company must rely, the Company can not give any assurances that
the systems of other parties will be year 2000 compliant on a timely basis.
Systems operated by others which the Company would use and/or rely on would
include: Federal Aviation Administration Air Traffic Control, computer
reservation systems for travel agent sales as well as Delta and United
reservation, passenger check-in and ticketing systems. The failure of the
systems or equipment of the Company or third parties (which the Company believes
is the most likely worst case scenario) could result in the reduction or
suspension of the Company's operations and could have a material adverse effect
on the Company's financial condition and results of operations.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
The Company is reviewing and revising its business interruption contingency
plans. The review, together with any necessary revisions, will be completed
concurrent with the modifications to existing systems and application programs
by September 30, 1999. The review of these plans will include how to maintain
safety as well as performing certain functions and processes manually. Due to
the uncertainty, related to year 2000 issues, the Company's contingency plan
will be ongoing in nature and may require further modifications to existing
systems as new information is made available and the Company further assesses
the readiness of third parties upon which the Company relies.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Aircraft Fuel
The Company is exposed to fluctuations in the price and availability of aircraft
fuel that affect the Company's earnings. Currently, the Company is effectively
hedged with respect to approximately 65 percent of available seat miles
produced, due to contractual arrangements with two major airlines. These major
airlines reimburse the Company for the actual cost of fuel on contracted
flights. The impact of market risk is estimated using a hypothetical increase in
fuel price per gallon of 10 percent for the quarters ended June 30, 1999 and
1998. Based on this hypothetical assumption and after considering the impact of
the contractual arrangements, the Company would have experienced an increase in
fuel expense of approximately $323,000 for the quarter ended June 30, 1999 and
$326,000 for the quarter ended June 30, 1998. The Company will use cash
generated by operating activities to fund any adverse change in the price of
fuel.
Interest Rates
The Company's earnings are affected by changes in interest rates due to the
amounts of variable rate long-term debt and the amount of cash and securities
held. Variable rate notes may rise and increase the amount of interest expense.
The Company would also receive higher amounts of interest income on its cash and
securities held at the time. At June 30, 1999, the Company had variable rate
notes representing 8 percent of the total long-term debt and 12 percent at June
30, 1998. The impact of market risk is estimated using a hypothetical increase
in interest rates of one percentage point for both the Company's variable rate
long-term debt and cash and securities. Based on this hypothetical assumption,
the Company would have incurred an additional $14,000 in interest expense and
received $383,000 in interest income for the quarter ended June 30, 1999 and an
additional $17,000 in interest expense and received $333,000 in interest income
for the quarter ended June 30, 1998. As a result of this assumption, the Company
would fund interest rate increases on its variable rate long-term debt with the
increased amounts of interest income. The Company does not have significant
exposure to the changing interest rates on its fixed-rate long-term debt
instruments, which represent 92 percent of the total long-term debt at June 30,
1999 and 88 percent at June 30, 1998.
12
<PAGE> 13
PART II. OTHER INFORMATION
SKYWEST, INC.
Item 6: Exhibits and Reports on Form 8-K
a. Exhibits - Financial Data Schedule Exhibit 27
b. Reports on Form 8-K - There were no reports on Form 8-K filed during
the quarter ended June 30, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SKYWEST, INC.
Registrant
August 2, 1999 BY: /s/ Bradford R. Rich
---------------------------
Bradford R. Rich
Executive Vice President,
Chief Financial Officer and
Treasurer
13
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
Exhibit 27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000793733
<NAME> SKYWEST, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-21-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
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0
0
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<EPS-BASIC> .55
<EPS-DILUTED> .55
</TABLE>
