<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 September 30, 2000
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.
<TABLE>
<S> <C>
Incorporated under the laws of Utah 87-0292166
(I.R.S. Employer ID No.)
</TABLE>
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 November 6, 2000
----- -------------------------------
<S> <C>
Common stock, no par value 27,781,319
</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 September 30, 2000 and
March 31, 2000 3
Condensed Consolidated Statements of
Income For the Three and Six
Months Ended September 30, 2000 and 1999 5
Condensed Consolidated Statements of
Cash Flows For the Six Months Ended
September 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Part II - Other Information
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Item 4. Submission of Matters to a Vote of Security 13
Holders
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
SKYWEST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
--------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 125,769 $ 24,544
Available-for-sale securities 184,367 146,804
Receivables, net 18,730 9,512
Inventories 18,612 16,195
Prepaid aircraft rents 16,410 23,880
Other current assets 16,150 12,891
--------- ---------
Total current assets 380,038 233,826
--------- ---------
PROPERTY AND EQUIPMENT:
Aircraft and rotable spares 265,028 230,248
Deposits on aircraft 72,148 68,372
Buildings and ground equipment 43,099 38,832
Rental vehicles 13 3,861
--------- ---------
380,288 341,313
Less accumulated depreciation and
amortization (121,060) (107,359)
--------- ---------
259,228 233,954
--------- ---------
OTHER ASSETS 2,502 2,403
--------- ---------
$ 641,768 $ 470,183
========= =========
</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>
September 30, March 31,
2000 2000
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 12,650 $ 12,437
Trade accounts payable 40,577 42,385
Accrued salaries, wages and benefits 10,828 10,254
Engine overhaul accrual 11,759 9,889
Income taxes payable 4,506 --
Taxes other than income taxes 4,307 3,230
Air traffic liability 1,423 1,452
--------- ---------
Total current liabilities 86,050 79,647
--------- ---------
LONG-TERM DEBT, net of current maturities 59,606 48,321
--------- ---------
DEFERRED INCOME TAXES PAYABLE 27,226 29,995
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock 289,801 165,765
Retained earnings 200,590 168,331
Treasury stock (20,285) (20,285)
Net unrealized depreciation on available-for-sale
securities (1,220) (1,591)
--------- ---------
Total stockholders' equity 468,886 312,220
--------- ---------
$ 641,768 $ 470,183
========= =========
</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 Six Months Ended
September 30, September 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger $ 137,182 $ 120,552 $ 265,585 $ 230,265
Freight and other 1,449 2,185 3,433 4,034
------------ ------------ ------------ ------------
138,631 122,737 269,018 234,299
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Flying operations 54,032 43,810 103,370 83,394
Aircraft, traffic and passenger service 18,695 17,406 36,212 33,416
Maintenance 15,719 14,750 30,837 29,159
Promotion and sales 7,266 7,419 14,220 15,111
General and administrative 7,888 7,325 15,900 13,712
Depreciation and amortization 8,274 6,847 16,101 13,334
Other 84 519 531 1,036
------------ ------------ ------------ ------------
111,958 98,076 217,171 189,162
------------ ------------ ------------ ------------
OPERATING INCOME 26,673 24,661 51,847 45,137
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (1,125) (890) (1,704) (1,453)
Interest income 3,266 2,054 5,716 4,138
Gain on sales of property and equipment 390 101 470 191
------------ ------------ ------------ ------------
2,531 1,265 4,482 2,876
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 29,204 25,926 56,329 48,013
PROVISION FOR INCOME TAXES 11,389 9,982 21,967 18,488
------------ ------------ ------------ ------------
NET INCOME $ 17,815 $ 15,944 $ 34,362 $ 29,525
============ ============ ============ ============
NET INCOME PER COMMON SHARE:
Basic $ 0.69 $ 0.65 $ 1.36 $ 1.20
Diluted $ 0.68 $ 0.64 $ 1.33 $ 1.18
WEIGHTED AVERAGE COMMON SHARES:
Basic 25,807,000 24,552,000 25,284,000 24,520,000
Diluted 26,391,000 24,952,000 25,834,000 24,954,000
</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
Six Months Ended
September 30,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 34,362 $ 29,525
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 16,101 13,334
Gain on sales of property and equipment (470) (191)
Maintenance expense related to disposition of rotable spares 581 451
(Decrease) increase in deferred income taxes (2,769) 1,359
Nonairline depreciation and amortization 249 547
Changes in operating assets and liabilities:
(Increase) decrease in receivables, net (9,218) 6,722
Increase in inventories (2,417) (1,786)
Decrease (increase) in other current assets 4,211 (148)
(Decrease) increase in trade accounts payable (60) 6,567
Increase in other current liabilities 6,128 2,627
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 46,698 59,007
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale securities (37,563) (50,157)
Net unrealized appreciation on available-for-sale securities 371 --
Acquisition of property and equipment:
Aircraft and rotable spares (37,111) (13,765)
Buildings and ground equipment (4,267) (2,845)
Rental vehicles (875) (3,038)
Proceeds from sales of property and equipment 4,442 1,500
Increase in deposits on aircraft and rotable spares (3,776) (13,583)
Increase in other assets (247) (364)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (79,026) (82,252)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 124,036 1,209
Proceeds from issuance of long-term debt 15,812 --
Reduction of long-term debt (4,314) (5,332)
Payment of cash dividends (1,981) (1,469)
--------- ---------
NET CASH PROVIDED BY (USED IN )FINANCING ACTIVITIES 133,553 (5,592)
--------- ---------
Increase (decrease) in cash and cash equivalents 101,225 (28,837)
Cash and cash equivalents at beginning of period 24,544 52,237
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 125,769 $ 23,400
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,361 $ 1,497
Income taxes $ 20,196 $ 11,202
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
SKYWEST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Consolidated Financial Statements
The condensed consolidated financial statements included herein have been
prepared, 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 we believe 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 the Annual Report on Form 10-K. The results of operations for the three
and six months ended September 30, 2000, are not necessarily indicative of the
results that may be expected for the year ending March 31, 2001.
Note B - Available-for-Sale Securities
Available-for-sale securities are recorded at fair market value. Our position
in available-for-sale securities consists primarily of investment grade bonds,
bond funds and commercial paper. Unrealized appreciation and depreciation has
been recorded as a separate component of stockholders' equity.
Note C - Income Taxes
For the six months ended September 30, 2000 and 1999, the Company provided for
income taxes based upon the estimated annualized effective tax rate. At
September 30, 2000, the Company has recorded a net current deferred tax asset of
$9.8 million and a net noncurrent deferred tax liability of $27.2 million.
Note D - Net Income Per Common 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 For the
Three Months Ended Six Months Ended
September 30, September 30,
------------------- -------------------
2000 1999 2000 1999
------ ------ ------ ------
(In thousands): (In thousands):
<S> <C> <C> <C> <C>
Weighted average number of common shares outstanding ....... 25,807 24,552 25,284 24,520
Effect of outstanding stock options ........................ 584 400 550 434
------ ------ ------ ------
Weighted average number of shares for diluted net income
per common share ........................................ 26,391 24,952 25,834 24,954
====== ====== ====== ======
</TABLE>
Note E - Stock Offering
On September 12, 2000, we completed a public offering of 2,895,415 shares of
common stock which generated net proceeds of $122,109,000 after deducting
underwriting commission and other expenses.
Note F - Stock Dividend
On November 7, 2000, the Board of Directors declared a dividend distribution of
one share of common stock for each outstanding share of common stock. The stock
dividend will be distributed on December 15, 2000, to shareholders of record as
of November 30, 2000.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
<TABLE>
<CAPTION>
Operating Statistics
---------------------------------------------------------------------------------------------
For the For the
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------------------------- -------------------------------------------
2000 1999 % Change 2000 1999 % Change
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Passengers carried 1,471,618 1,487,297 (1.1) 2,872,731 2,853,003 .7
Revenue passenger miles (000s) 338,154 323,282 4.6 657,984 613,872 7.2
Available seat miles (000s) 575,957 550,629 4.6 1,141,366 1,075,733 6.1
Passenger load factor 58.7% 58.7% -- 57.6% 57.1% .5 pts
Passenger breakeven load factor 47.9% 47.3% .6 pts 46.8% 46.4% .4 pts
Yield per revenue passenger mile 40.6 cent(s) 37.3 cent(s) 8.8 40.4 cent(s) 37.5 cent(s) 7.7
Revenue per available seat mile 24.1 cent(s) 22.2 cent(s) 8.6 23.5 cent(s) 21.7 cent(s) 8.3
Cost per available seat mile 19.6 cent(s) 17.9 cent(s) 9.5 19.1 cent(s) 17.6 cent(s) 8.5
Average passenger trip (miles) 230 217 6.0 229 215 6.5
</TABLE>
For the Three Months Ended September 30, 2000 and 1999
For the three months ended September 30, 2000, we continued to develop our
code-sharing services with our code-sharing partners and took delivery of the
second of 55 Canadair Regional Jets on order. Net income increased to $17.8
million, or $0.68 per share on a diluted basis, compared to $15.9 million, or
$0.64 per share on a diluted basis for the same period last year. Consolidated
operating revenues increased 13.0% to $138.6 million for the three months ended
September 30, 2000 from $122.7 million for the three months ended September 30,
1999.
Passenger revenues, which represented 99.0% of consolidated operating revenues,
increased 13.8% to $137.2 million for the three months ended September 30, 2000
from $120.6 million or 98.2% of consolidated operating revenues for the three
months ended September 30, 1999. The increase was primarily the result of a 4.6%
increase in revenue passenger miles ("RPMs") as well as an 8.8% increase in
yield per RPM. The increase in RPMs is the result of additional aircraft
deliveries and flights, period over period. The increase in yield per RPM is the
result of competitors eliminating and reducing scheduled service in the San
Francisco and Los Angeles markets. Additionally, SkyWest implemented selected
fare increases during the 2000 fiscal year which have remained intact. Fuel
surcharges have also been added to fares to mitigate the increase in fuel
prices. On SkyWest-controlled flights, SkyWest also continues its efforts to
maximize revenue by use of a sophisticated revenue management and control system
that utilizes historical booking data and trends to optimize revenue. Together
these factors increased revenue per available seat mile 8.6% to 24.1" for the
three months ended September 30, 2000 from 22.2" for the three months ended
September 30,1999.
During the quarter ended September 30, 2000, SkyWest experienced decreased
passenger enplanements in the United Express portion of operations due to United
Airlines' flight cancellations and delays. This decrease was somewhat offset by
increased passenger enplanements in the Delta Connection portion of operations.
However, the overall decrease in passenger enplanements resulted in a passenger
load factor of 58.7% for both quarters ended September 30, 2000 and 1999.
Total operating expenses and interest increased 14.3% to $113.1 million for the
three months ended September 30, 2000 compared to $98.9 million for the three
months ended September 30, 1999. As a percentage of consolidated operating
revenues, total operating expenses and interest increased to 81.6% for the three
months ended September 30, 2000 from 80.6% for the comparable quarter ended
September 30, 1999. For the three months ended September 30, 2000, total airline
operating expenses and interest (excluding nonairline expenses) were 81.6% of
airline operating revenues compared to 80.6% for the three months ended
September 30, 1999. The decreased margin is primarily the result of increased
fuel and labor costs which have outpaced the increase in operating revenues.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Airline operating costs per available seat mile ("ASMs") (including interest
expense) increased 9.5% to 19.6" for the three months ended September 30, 2000
from 17.9" for the three months ended September 30, 1999. Factors relating to
the change in operating expenses are discussed below.
Salaries, wages and employee benefits increased as a percentage of airline
operating revenues to 26.2% for the three months ended September 30, 2000 from
25.4% for the three months ended September 30, 1999. The average number of
full-time equivalent employees for the three months ended September 30, 2000 was
3,709 compared to 3,264 for the three months ended September 30, 1999 an
increase of 13.6%. The increase in number of personnel was due in large part, to
the addition of personnel required for SkyWest's expansion. Salaries, wages and
employee benefits per ASM increased to 6.3" for the three months ended September
30, 2000 compared to 5.6" for the three months ended September 30, 1999 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 16.0% for the three months ended
September 30, 2000 from 16.6% for the three months ended September 30, 1999. The
decrease is due to airline operating revenues increasing 13.5% period over
period and aircraft costs increasing only 9.2% period over period. Aircraft
costs per ASM increased slightly to 3.8" for the three months ended September
30, 2000 from 3.7" for the three months ended September 30, 1999.
Maintenance expense decreased as a percentage of airline operating revenues to
7.6% for the three months ended September 30, 2000 compared to 8.4% for the
three months ended September 30, 1999. The decrease was due primarily to airline
operating revenues increasing 13.5% period over period and maintenance expense
increasing only 1.9% period over period. As a result, maintenance expense per
ASM decreased to 1.8" for the three months ended September 30, 2000 from 1.9"
for the three months ended September 30, 1999.
Fuel costs increased as a percentage of airline operating revenues to 12.8% for
the three months ended September 30, 2000 from 9.9% for the three months ended
September 30, 1999, primarily due to a 46.0% increase in the average fuel price
per gallon to $1.27 from $0.87. Fuel costs per ASM increased to 3.1" for the
three months ended September 30, 2000 from 2.2" for the three months ended
September 30, 1999.
Other expenses, primarily consisting of commissions, landing fees, station
rentals, computer reservation system fees and hull and liability insurance,
decreased as a percentage of airline operating revenues to 18.3% for the three
months ended September 30, 2000 from 19.6% for the three months ended September
30, 1999. The decrease is primarily the result of the airline not incurring
commissions on United Express contract related passenger revenues, which are
paid by United. Other expenses per available seat mile were 4.4""for both
quarters ended September 30, 2000 and 1999.
For the Six Months Ended September 30, 2000 and 1999
For the six months ended September 30, 2000, we continued to develop our
code-sharing services with our code-sharing partners and took delivery of the
first two of 55 Canadair Regional Jets on order. Net income increased to $34.4
million, or $1.33 per share on a diluted basis, compared to $29.5 million, or
$1.18 per share on a diluted basis for the same period last year. Consolidated
operating revenues increased 14.8% to $269.0 million for the six months ended
September 30, 2000 from $234.3 million for the six months ended September 30,
1999.
Passenger revenues, which represented 98.7% of consolidated operating revenues,
increased 15.3% to $265.6 million for the six months ended September 30, 2000
from $230.3 million or 98.3% of consolidated operating revenues for the six
months ended September 30, 1999. The increase was primarily the result of a 7.2%
increase in RPMs as well as a 7.7% increase in yield per RPM. The increase in
RPMs is the result of additional aircraft deliveries and flights, period over
period. The increase in yield per RPM is the result of competitors eliminating
and reducing scheduled service in the San Francisco and Los Angeles markets.
Additionally, SkyWest implemented selected fare increases during the 2000 fiscal
year which have remained intact. Fuel surcharges have also been added to fares
to mitigate the increase in fuel prices. On SkyWest-controlled flights, SkyWest
continues its efforts to maximize revenue by use of a sophisticated revenue
management and control system that utilizes historical booking data and trends
to optimize revenue. Together these factors increased revenue per available seat
mile 8.3% to 23.5""for the six months ended September 30, 2000 from 21.7" for
the six months ended September 30, 1999. Additionally, passenger load factor
increased .5 points to 57.6% for the six months ended September 30, 2000 from
57.1% for the six months ended September 30, 1999.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Total operating expenses and interest increased 14.8% to $218.9 million for the
six months ended September 30, 2000 compared to $190.6 million for the six
months ended September 30, 1999. As a percentage of consolidated operating
revenues, total operating expenses and interest was 81.4% for both the six
months ended September 30, 2000 and 1999. For the six months ended September 30,
2000 and 1999, total airline operating expenses and interest (excluding
nonairline expenses) was 81.3% of airline operating revenues. Airline operating
costs per ASM (including interest expense) increased 8.5% to 19.1" for the six
months ended September 30, 2000 from 17.6" for the six months ended September
30, 1999. Factors relating to the change in operating expenses are discussed
below.
Salaries, wages and employee benefits increased as a percentage of airline
operating revenues to 25.8% for the six months ended September 30, 2000 from
25.6% for the six months ended September 30, 1999. The average number of
full-time equivalent employees for the six months ended September 30, 2000 was
3,612 compared to 3,222 for the six months ended September 30, 1999 an increase
of 12.1%. The increase in number of personnel was due in large part, to the
addition of personnel required for SkyWest's expansion. Salaries, wages and
employee benefits per ASM increased to 6.1" for the six months ended September
30, 2000 from 5.5" for the six months ended September 30, 1999 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 16.3% for the six months ended
September 30, 2000 from 17.1% for the six months ended September 30, 1999. The
decrease is due to airline operating revenues increasing 15.2% period over
period and aircraft costs increasing only 9.8% period over period. Aircraft
costs per ASM increased slightly to 3.8" for the six months ended September 30,
2000 from 3.7" for the six months ended September 30, 1999.
Maintenance expense decreased as a percentage of airline operating revenues to
7.7% for the six months ended September 30, 2000 from 8.8% for the six months
ended September 30, 1999. The decrease was due primarily to airline operating
revenues increasing 15.2% period over period and maintenance expense increasing
only 1.2% period over period. Maintenance expense per ASM decreased to 1.8"
for the six months ended September 30, 2000 from 1.9" for the six months
ended September 30, 1999.
Fuel costs increased as a percentage of airline operating revenues to 12.2% for
the six months ended September 30, 2000 from 9.1% for the six months ended
September 30, 1999, primarily due to a 45% increase in the average fuel price
per gallon to $1.16 from $.80. Fuel costs per ASM increased to 2.9" for the six
months ended September 30, 2000 from 2.0" for the six months ended September 30,
1999.
Other expenses, primarily consisting of commissions, landing fees, station
rentals, computer reservation system fees and hull and liability insurance,
decreased as a percentage of airline operating revenues to 18.7% for the six
months ended September 30, 2000 from 20.1% for the six months ended September
30, 1999. The decrease is primarily the result of the airline not incurring
commissions on United Express contract related passenger revenues. Other
expenses per available seat mile were 4.4""for both quarters ended September 30,
2000 and 1999.
Liquidity and Capital Resources
We had working capital of $294.0 million and a current ratio of 4.4:1 at
September 30, 2000 compared to working capital of $154.2 million and a current
ratio of 2.9:1 at March 31, 2000. The improvement in working capital is the
result of completion of a common stock offering during the six months ended
September 30, 2000 wherein we generated net proceeds of $122,109,000. During
the six months ended September 30, 2000, the principal sources of funds were
$124.0 million generated from the issuance of common stock, $46.7 million from
operations, $15.8 million from the issuance of long-term debt and $4.4 million
of proceeds from the sale of property and equipment. During the six months
ended September 30, 2000 the Company invested $37.6 million in
available-for-sale securities, $37.1 million in flight equipment, $4.1 million
in buildings and ground equipment, $3.8 million in aircraft deposits, $.8
million in rental vehicles, reduced long-term debt by $4.3 million and paid
cash dividends of $2.0 million. These factors resulted in an increase of $101.2
million in cash and cash equivalents.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
The Company's position in available-for-sale securities, consisting primarily of
bonds, bond funds and commercial paper, increased to $184.4 million at September
30, 2000 compared to $146.8 million at March 31, 2000. At September 30, 2000,
our ratio of long-term debt to stockholder's equity was 11% compared to 13% at
March 31, 2000.
During the six months ended September 30, 2000 SkyWest took delivery of two new
Canadair Regional Jet aircraft in connection with SkyWest's planned expansion
and financed one of the aircraft with long-term debt and one through an
operating lease arrangement. As of September 30, 2000 SkyWest had agreed to
acquire 53 new Canadair Regional Jet aircraft at an aggregate purchase price of
approximately $1.2 billion. SkyWest also has options to acquire an additional
75 Canadair Regional Jets of which 55 are at fixed prices (subject to cost
escalations), have delivery schedules, and are exercisable in blocks of five
aircraft and expire at varying dates between January 2002 and February 2008.
The 20 remaining options are at fixed prices (subject to cost escalations), do
not have delivery schedules and do not carry an expiration date. SkyWest has
also entered into a conditional agreement for 40 additional Canadair Regional
Jets at an aggregate cost of $880 million. The conditional agreement is subject
to the execution of an agreement with United covering the operation of these
aircraft.Based upon the scope clause amendment which has been ratified by
Uniteds' pilot union, we are nearing completion of an agreement with United. In
addition, the conditional agreement carries an expiration date of January 15,
2001. We have also secured options on an additional 80 Canadair Regional Jets,
of which 40 are at fixed prices (subject to cost escalations), have delivery
schedules, are exercisable in blocks of five aircraft and expire at varying
dates between July 2003 and June 2006. The remaining 40 options are at fixed
prices (subject to cost escalations), do not have delivery schedules and do not
carry an expiration date. Depending on the state of the aircraft financing
market at the time of delivery, management will determine whether to acquire
the remaining CRJ aircraft through third-party, long-term loans or through
operating lease arrangements.
We have significant long-term operating lease obligations primarily relating to
our aircraft fleet. These leases are classified as operating leases and
therefore are not reflected as liabilities in our consolidated balance sheets.
At September 30, 2000, SkyWest leased 83 aircraft under leases with an average
remaining term of approximately 8.6 years. Future minimum lease payments due
under all long-term operating leases were approximately $563.4 million at
September 30, 2000. At an 8% discount factor, the present value of these
obligations would be equal to approximately $386.5 million at September 30,
2000.
Our total long-term debt of $72.3 million was incurred in connection with the
acquisition of Brasilia Turboprops and Canadair Regional Jets. Certain amounts
related to Brasilia Turboprops 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 4.09% on $31.2 million of the long-term debt at September 30,
2000. The continuing subsidy payments are at risk if the Federative Republic of
Brazil does not meet its obligations under the export support program. While we
have no reason to believe, based on information currently available, that we
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 Brasilia Turboprop long-term debt of $25.2 million, the
average effective rate is 3.82% at September 30, 2000 and the lender has assumed
the risk of the subsidy payments. The average effective rate on the debt related
to the Canadair Regional Jet aircraft of $15.8 million was 7.66% at September
30, 2000 and is not subject to subsidy payments.
We spent approximately $24.0 million for nonaircraft capital expenditures during
the six months ended September 30, 2000, consisting primarily of aircraft engine
overhauls, rotable spare parts, buildings and ground equipment and rental
vehicles.
We have 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 9.25% at September 30, 2000. We believe that, in the absence of
unusual circumstances, the working capital available to us will be sufficient to
meet our present requirements, including expansion, capital expenditures, lease
payments and debt service requirements for at least the next 12 months.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Seasonality
As is common in the airline industry, SkyWest's operations are favorably
affected by increased travel, historically occurring in the summer months, and
are unfavorably affected by decreased business travel during the months from
November through January and by inclement weather which occasionally results in
cancelled flights, principally during the winter months. However, SkyWest does
expect some mitigation of the historical seasonal trends due to an increase in
the portion of its operations in contract flying.
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 we believe that the
expectations reflected in such forward-looking statements are reasonable, we 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 our operating results include, among other things, employee
relations and labor costs, 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.
12
<PAGE> 13
PART II. OTHER INFORMATION
SKYWEST, INC.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Aircraft Fuel
We are exposed to fluctuations in the price and availability of aircraft fuel
that affect our earnings. Our financial statements reflect both the cost of fuel
we purchase for SkyWest controlled flights, as well as fuel we purchase for
contract flights which is subject to reimbursement by our code-sharing partners.
Currently, we have limited exposure to fuel price increases with respect to
approximately 65% of available seat miles produced, due to contractual
arrangements with Delta and United. These major airlines reimburse us for the
actual cost of fuel on contracted flights. For illustrative purposes only, we
have estimated the impact of market risk using a hypothetical increase in fuel
price per gallon of 10% for the three months and six months ended September 30,
2000 and 1999. Based on this hypothetical assumption and after considering the
impact of the contractual arrangements, we would have experienced an increase in
fuel expense of approximately $618,000 for the three months ended September 30,
2000 and $421,000 for the three months ended September 30, 1999. We would have
experienced an increase in fuel expense of approximately $1,136,000 for the six
months ended September 30, 2000 and $511,000 for the six months ended September
30, 1999. We currently intend to use cash generated by operating activities to
fund any adverse change in the price of fuel.
Interest Rates
Our 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. The
interest rates applicable to variable rate notes may rise and increase the
amount of interest expense. We would also receive higher amounts of interest
income on our cash and securities held at the time; however, the market value of
our available-for-sale securities would decline. At September 30, 2000 we had
variable rate notes representing 27% of the total long-term debt and 8% at
September 30, 1999. We do not have significant exposure to the changing interest
rates on our fixed-rate long-term debt instruments, which represented 73% of the
total long-term debt at September 30, 2000 and 92% at September 30, 1999. For
illustrative purposes only, we have estimated the impact of market risk using a
hypothetical increase in interest rates of one percentage point for both our
variable rate long-term debt and cash and securities. Based on this hypothetical
assumption, we would have incurred an additional $49,000 in interest expense and
received $625,000 in additional interest income for the three months ended
September 30, 2000 and an additional $13,000 in interest expense and received
$420,000 in additional interest income for the three months ended September 30,
1999. Additionally, we would have incurred $60,000 in interest expense and
received $1,204,000 in additional interest income for the six months ended
September 30, 2000 and an additional $27,000 in interest expense and received
$862,000 in additional interest income for the six months ended September 30,
1999. As a result of this assumption, we believe we could fund interest rate
increases on our variable rate long-term debt with the increased amounts of
interest income.
Item 4: Submission of Matters to a Vote of Security Holders
The registrant held its Annual Meeting of Shareholders on August 8, 2000. The
shareholders elected the following Board of Directors to serve for one year:
<TABLE>
<CAPTION>
Name Shares Voted For
---- ----------------
<S> <C>
Jerry C. Atkin 21,810,637
Sidney J. Atkin 21,460,278
J. Ralph Atkin 21,460,122
Mervyn K. Cox 21,827,571
Ian M. Cumming 21,826,913
Steven F. Udvar-Hazy 21,827,487
Hyrum W. Smith 21,825,460
Henry J. Eyring 21,827,440
Robert G. Sarver 21,818,910
</TABLE>
13
<PAGE> 14
PART II. OTHER INFORMATION
SKYWEST, INC
(Continued)
The shareholders approved an amendment to increase the authorized number of
common shares from 40,000,000 to 120,000,000 by a vote of 13,113,836 for and
9,110,382 against. The shareholders approved the adoption of the SkyWest Inc.
Executive Stock Incentive Plan by a vote of 13,505,723 for and 7,461,581
against. The shareholders approved the adoption of the SkyWest, Inc. Allshare
Stock Option Plan by a vote of 14,600,523 for and 6,380,895 against. The
shareholders also ratified the appointment of Arthur Andersen LLP as independent
auditors for fiscal year 2001 by a vote of 22,224,467 for and 28,691 against.
Item 6: Exhibits and Reports on Form 8-K
a. Exhibits - 27.1 Financial Data Schedule Exhibit
b. Reports on Form 8-K - There were no reports on Form 8-K filed during the
quarter ended September 30, 2000.
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
November 6, 2000 BY: /s/ Bradford R. Rich
------------------------------------
Bradford R. Rich
Executive Vice President,
Chief Financial Officer and
Treasurer
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
27.1 Financial Data Schedule Exhibit
</TABLE>
