SkyWest, Inc.
Notes to Unaudited Pro Forma Condensed Combined Statements of Operations
(in thousands)
1. Basis of Presentation
On September 7, 2005, SkyWest, Inc. (the “Company”) completed its acquisition of all of the issued and outstanding capital stock of Atlantic Southeast Airlines, Inc. (“ASA”) from ASA Holdings, Inc., a subsidiary of Delta Air Lines, Inc. (“Delta”). In connection with the acquisition of ASA, the Company’s wholly-owned subsidiary, SkyWest Airlines, Inc. (“SkyWest Airlines”), and Delta entered into an Amended and Restated Delta Connection Agreement, and ASA and Delta entered into a Second Amended and Restated Delta Connection Agreement (collectively, the “Delta Connection Agreements”), whereby SkyWest Airlines and ASA have agreed to provide regional airline service in the Delta flight system. The Delta Connection Agreements became effective September 8, 2005.
The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2005 and for the fiscal year ended December 31, 2004 have been prepared to illustrate the pro forma effects of the ASA acquisition as if it had occurred on January 1, 2004 and as if the ASA Delta Connection Agreement was effective January 1, 2004. The operations of ASA commencing on September 8, 2005 and through September 30, 2005, are included in the Company’s historical statement of operations. No pro forma effect has been given to the SkyWest Airlines Delta Connection Agreement prior to the effective date of September 8, 2005.
2. Pro Forma Financial Statements and Adjustments
The pro forma condensed combined information set forth in this Form 8-K/A is presented for illustrative purposes only. Such information does not purport to be indicative of the results of operations and financial position that actually would have resulted had the acquisition occurred on the date indicated, nor is it indicative of the results that may be expected in future periods. The pro forma adjustments are based upon information and assumptions available at the time of filing this Form 8-K/A.
The pro forma condensed combined statements of operations give effect to the following pro forma adjustments:
(A) Reflects the restatement of ASA revenues from the ASA historical code-share agreement with Delta to the ASA Delta Connection Agreement as if the ASA Delta Connection Agreement was effective January 1, 2004. Under the terms of the ASA Delta Connection Agreement, Delta agrees to compensate ASA for certain direct costs associated with operating the Delta Connection flights as defined in the ASA Delta Connection Agreement, plus, if ASA completes a certain minimum percentage of its Delta Connection flights, an additional percentage of such costs. Additionally, ASA’s Delta Connection Agreement provides for incentive compensation upon satisfaction of certain performance goals. Under the ASA Delta Connection Agreement, excess margins over certain percentages must be returned or shared with Delta, depending on various conditions. The pro forma revenue adjustment assumes no incentive compensation was achieved for either the year ended December 31, 2004 or for the interim period ended September 7, 2005.
(B) Reflects a reclassification of ASA expenses reported under the ASA financial statement classification to the Company’s financial statement classification of $451,103 for consistency purposes and a reduction of aircraft lease expense on aircraft lease obligations retained by Delta in connection with the Company’s acquisition of ASA of $(14,121).
(C) Reflects a reclassification of ASA expenses reported under the ASA financial statement classifications to the Company’s financial statement classifications for consistency purposes.
(D) Reflects an adjustment to ASA depreciation for changes in estimated useful lives for property and equipment using the Company’s accounting policies and reflects an adjustment to the depreciable basis of property and equipment and intangible assets resulting from the preliminary valuation and purchase price adjustments of $7,400 and a reduction of depreciation expense on aircraft retained by Delta in connection with the Company’s acquisition of ASA of $(6,658).
(E) Reflects a reclassification of ASA expenses reported under the ASA financial statement classification to the Company’s financial statement classification of $286,154 for consistency purposes and a reduction of accrued wage expense of $6,104 to reflect amounts expected to be paid.
(F) Reflects a reduction of interest income resulting from net cash paid to Delta of $376,912 for the acquisition of ASA.
(G) Reflects the elimination of interest expense on aircraft debt obligations retained by Delta in connection with the Company’s acquisition of ASA.
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(H) Reflects the income tax effects of the pro forma adjustments.
(I) Reflects a reclassification of ASA expenses report under the ASA financial statement classification to the Company’s financial statement classification of $404,826 for consistency purposes and a reduction of aircraft lease expense on aircraft lease obligations retained by Delta in connection with the Company’s acquisition of ASA of $(10,590).
(J) Reflects an adjustment to ASA depreciation for changes in estimated useful lives for property and equipment using the Company’s accounting policies and reflects an adjustment to the depreciable basis of property and equipment and intangible assets resulting from the preliminary valuation and purchase price adjustments of $(455) and a reduction of depreciation expense on aircraft retained by Delta in connection with the Company’s acquisition of ASA of $(4,994).
(K) Reflects a reclassification of ASA expenses reported under the ASA financial statement classification to the Company’s financial statement classification of $203,762 for consistency purposes and a reduction of accrued wage expense of $3,146 to reflect amounts expected to be paid.
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