1
EXHIBIT 13.1
SUMMARY FINANCIAL AND OPERATING DATA
Year Ended March 31,
----------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Operating revenues (000) ......... $ 474,778 $ 388,626 $ 266,135 $ 245,766 $ 212,483
Operating income (000) ........... $ 86,680 $ 64,305 $ 32,819 $ 16,025 $ 5,636
Net income (000) (1) ............. $ 57,104 $ 41,835 $ 21,944 $ 10,111 $ 4,366
Net income per common share (2):
Basic ......................... $ 2.32 $ 1.73 $ 1.06 $ .50 $ .21
Diluted ....................... $ 2.29 $ 1.69 $ 1.04 $ .50 $ .21
Weighted average shares (000) (2):
Basic ......................... 24,563 24,199 20,799 20,170 20,568
Diluted ....................... 24,961 24,787 21,168 20,248 20,736
Total assets (000) ............... $ 470,183 $ 417,660 $ 318,914 $ 231,934 $ 226,996
Current assets (000) ............. $ 233,826 $ 216,684 $ 189,771 $ 89,336 $ 75,908
Current liabilities (000) ........ $ 79,647 $ 74,326 $ 46,662 $ 44,058 $ 43,090
Long-term debt (000) ............. $ 48,321 $ 61,830 $ 41,109 $ 47,337 $ 53,736
Stockholders' equity (000) ....... $ 312,220 $ 256,256 $ 211,133 $ 124,552 $ 115,800
Return on average equity ......... 20.1% 17.9% 14.8% 8.3% 3.7%
OPERATING DATA
Passengers carried ............... 5,503,290 4,900,921 2,989,062 2,656,602 2,340,366
Revenue passenger miles (000) .... 1,196,680 1,015,872 745,386 717,322 617,136
Available seat miles (000) ....... 2,165,380 1,844,123 1,463,975 1,413,170 1,254,334
Load factor ...................... 55.3% 55.1% 50.9% 50.8% 49.2%
Break-even load factor ........... 45.5% 46.3% 45.0% 47.9% 48.4%
Yield per revenue passenger mile . 39.0cent(s) 37.5cent(s) 34.8cent(s) 33.3cent(s) 33.2cent(s)
Revenue per available seat mile .. 21.8cent(s) 21.0cent(s) 18.1cent(s) 17.3cent(s) 16.9cent(s)
Cost per available seat mile ..... 18.0cent(s) 17.6cent(s) 16.0cent(s) 16.3cent(s) 16.6cent(s)
Average passenger trip length .... 217 207 249 270 264
Number of aircraft at end of year 103 99 60 60 63
2
QUARTERLY FINANCIAL AND STOCK PRICE DATA
Fiscal Year 2000
----------------------------------------------------
First Second Third Fourth Year
-------- -------- -------- -------- --------
Operating revenues (000) ........ $111,562 $122,737 $117,381 $123,098 $474,778
Operating income (000) .......... $ 20,476 $ 24,661 $ 20,180 $ 21,363 $ 86,680
Net income (000) (1) ............ $ 13,581 $ 15,944 $ 13,618 $ 13,961 $ 57,104
Net income per common share (2):
Basic ...................... $ .55 $ .65 $ .55 $ .57 $ 2.32
Diluted .................... $ .55 $ .64 $ .54 $ .55 $ 2.29
Stock price data (2): High ...... $ 30.25 $ 27.63 $ 29.00 $ 39.13 $ 39.13
Low ....... $ 21.50 $ 20.13 $ 21.44 $ 27.50 $ 20.13
Fiscal Year 1999
----------------------------------------------------
First Second Third Fourth Year
-------- -------- -------- -------- --------
Operating revenues (000) ........ $ 81,959 $101,229 $102,255 $103,183 $388,626
Operating income (000) .......... $ 13,502 $ 17,708 $ 15,276 $ 17,819 $ 64,305
Net income (000) ................ $ 9,741 $ 12,854 $ 8,525 $ 10,715 $ 41,835
Net income per common share (2):
Basic ...................... $ .41 $ .53 $ .35 $ .44 $ 1.73
Diluted .................... $ .40 $ .52 $ .34 $ .43 $ 1.69
Stock price data (2): High ...... $ 29.75 $ 34.00 $ 32.69 $ 38.00 $ 38.00
Low ....... $ 17.69 $ 15.00 $ 16.06 $ 25.13 $ 15.00
(1) During fiscal 1999, the Company sold the operations of Scenic Airlines,
Inc., and recorded related losses of $793,000, or $(.03) per diluted share. The
Scenic Operations have been reflected as Discontinued Operations in the
accompanying consolidated financial statements, with corresponding
reclassifications to previously reported information.
(2) On May 5, 1998, the Company's Board of Directors declared a 100 percent
stock dividend (one share for each share outstanding) payable to stockholders of
record on May 20, 1998. The dividend was distributed on June 8, 1998. The
Company paid cash in lieu of issuing fractional shares. All common shares and
per share information in the accompanying consolidated financial statements have
been retro actively adjusted to reflect this stock dividend.
As of April 30, 2000, there were 1,004 holders of common stock. Cash dividends
of $.20 and $.12 per share of outstanding common stock were accrued in fiscal
years 2000 and 1999, respectively.
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company, through SkyWest Airlines, Inc. ("SkyWest"), operates a regional
airline offering scheduled passenger service with approximately 1,000 daily
departures to 63 cities in 13 western states and Canada. Total operating
revenues and passengers carried have grown consistently from fiscal 1995 through
fiscal 2000, at compounded annual growth rates of approximately 20.8 percent and
21.6 percent, respectively. All of our growth has been internally generated
without any material acquisitions. In fiscal 1995, SkyWest generated
approximately 976 million available seat miles ("ASMs") and had a fleet of
twenty-six 19-seat Metroliners, twenty-eight 30-seat Brasilias and six Canadair
Regional Jets ("CRJs") at fiscal year end. As a result of additional aircraft
acquisitions, SkyWest generated approximately 2.2 billion ASMs in fiscal 2000
with a fleet of 92 Brasilias and 11 CRJs at fiscal year end. The transition out
of the Metroliner aircraft, completed in December 1996, enabled SkyWest to
upgrade its aircraft to an all cabin-class fleet of Brasilias and CRJs, which
offer increased passenger acceptance and capacity and higher operating
efficiencies.
In fiscal 2000, the Company generated net income of $57.1 million, compared to
$41.8 million in fiscal 1999 and $21.9 million in fiscal 1998. During fiscal
1999, the Company sold the operations of Scenic Airlines, Inc., and recorded a
net loss of $0.8 million on the sale. The amount has been reflected as
Discontinued Operations in the accompanying consolidated financial statements.
The improvement since fiscal 1996 reflects, among other factors, the addition of
United Airlines, Inc. ("United") as a code-sharing partner and the completion of
SkyWest's transition to an all cabin-class fleet.
SkyWest has been a code-sharing partner with Delta Air Lines, Inc. ("Delta") and
United since 1987 and 1997, respectively. In February 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 in April 1998. In January 1998, SkyWest executed an addendum
to the United Express Agreement, expanding SkyWest's operations to serve as the
United Express carrier in San Francisco which began in June 1998. SkyWest
operates as the Delta Connection in Salt Lake City and as United Express in Los
Angeles, San Francisco and in the Pacific Northwest. SkyWest believes that its
success in attracting multiple code-sharing relationships is attributed to its
delivery of high quality customer service with an all cabin-class fleet.
Multiple code-sharing relationships have enabled SkyWest to reduce reliance on
any single major airline and to enhance and stabilize operating results through
a mix of SkyWest-controlled flying and contract flying. On SkyWest-controlled
flights, SkyWest controls scheduling, ticketing, pricing and seat inventories
and receives a prorated portion of passenger fares. On contract flights, the
major partner controls scheduling, ticketing, pricing and seat inventories with
SkyWest receiving negotiated payments per flight departure and incentives
related to passenger volumes and levels of customer service. As of March 31,
2000, approximately 65 percent of SkyWest's capacity was in contract flying and
35 percent was in SkyWest-controlled flying. SkyWest anticipates that it's
contract flying operations will increase as additional routes are added to the
SkyWest system; however, we anticipate that margins associated with fixed-fee
routes will be less than the margins SkyWest has historically generated on
mature SkyWest-controlled routes. Another benefit of the multiple code-sharing
relationships is the ability to grow within two major airline systems. The
Company has agreements to acquire an additional 55 CRJs with options for an
additional 110 aircraft with deliveries beginning in May 2000. The Company has
also entered into a conditional agreement for an additional 40 CRJs with options
for an additional 80 aircraft. The conditional agreement is subject to final
resolution of the scope clause negotiations between United and their pilot union
and expires June 30, 2000. These aircraft will be allocated between the United
Express and Delta Connection operations.
The Company has continued to emphasize cost management and better utilization of
existing resources. During fiscal 2000, SkyWest experienced only a 2.3 percent
increase in cost per ASM in spite of a 45 percent increase in the average cost
of fuel during the year. Fuel costs are currently 12.5 percent of total airline
operating expenses. Cost per ASM was 18.0cent(s) for fiscal 2000 compared to
17.6cent(s) for fiscal 1999.
4
RESULTS OF OPERATIONS
The following table sets forth information regarding the Company's operating
expense components. Airline operating expenses 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 Year Ended March 31,
----------------------------------------------------------------------------------
2000 1999 1998
---------------------- ------------------------ -----------------------
Percent Cents Percent Cents Percent Cents
of per of per of per
Amount Revenue ASM Amount Revenue ASM Amount Revenue ASM
-------- ------- ----- -------- ------- ----- -------- ------- -----
Salaries, wages and employee benefits .. $122,617 25.9% 5.7cent(s) $101,243 26.2% 5.5cent(s) $ 67,591 25.5% 4.6cent(s)
Aircraft costs ......................... 82,102 17.4 3.8 70,561 18.2 3.8 52,357 19.8 3.6
Maintenance ............................ 42,611 9.0 2.0 36,563 9.5 2.0 20,535 7.8 1.4
Fuel ................................... 48,424 10.2 2.2 29,477 7.6 1.6 28,510 10.8 2.0
Other airline expenses ................. 90,389 19.1 4.2 84,712 21.9 4.6 62,701 23.7 4.3
Interest ............................... 2,726 .6 .1 2,376 .6 .1 1,639 .6 .1
-------- ---- ---- -------- ---- ---- -------- ---- ----
Total airline expenses ................. 388,869 82.2 18.0cent(s) 324,932 84.0 17.6cent(s) 233,333 88.3 16.0cent(s)
-------- ---- ==== -------- ---- ==== -------- ---- ====
Other .................................. 1,955 93.8 1,765 94.1 1,622 93.6
-------- ---- -------- ---- -------- ----
Total operating expenses and interest .. $390,824 82.3% $326,697 84.1% $234,955 88.3%
======== ==== ======== ==== ======== ====
FISCAL 2000 COMPARED TO FISCAL 1999
During fiscal 2000, SkyWest continued to improve upon its code-sharing
agreements with its major code-sharing partners and took delivery of the last
five Brasilias ordered. As a result, SkyWest experienced growth in available
seat miles ("ASMs"), revenue passenger miles ("RPMs"), passengers carried and
load factors. In fiscal 2000, net income increased 36.5 percent to $57.1
million, or $2.29 per diluted share, compared to $41.8 million, or $1.69 per
diluted share in fiscal 1999. Consolidated operating revenues increased 22.2
percent to a record $474.8 million in fiscal 2000 compared to $388.6 million in
fiscal 1999.
Passenger revenues, which represented 98.3 percent of total operating revenues,
increased 22.4 percent to $466.7 million in fiscal 2000 compared to $381.4
million or 98.1 percent of total operating revenues in fiscal 1999. The increase
is due to a 17.8 percent increase in RPMs and a 4.0 percent increase in yield
per RPM. The increase in yield per RPM is the result of competitors eliminating
or reducing scheduled service in the San Francisco and Los Angeles markets.
Additionally, SkyWest implemented several fare increases during the last fiscal
year which have remained intact. Fuel surcharges have also been added to fares
to mitigate the increase in fuel prices the last half of the year. SkyWest also
continues to maximize revenue by use of a state-of-the-art revenue management
and control system which utilizes historical booking data and trends to optimize
revenue. Together, these factors increased revenue per ASM 3.8 percent to
21.8cent(s) in fiscal 2000 compared to 21.0cent(s) in fiscal 1999.
During fiscal 2000, total airline operating revenues increased 22.2 percent and
total airline operating expenses increased only 19.7 percent. As a result, total
airline operating expenses and interest were 82.2 percent of total airline
operating revenues in fiscal 2000 compared to 84.0 percent in fiscal 1999.
Salaries, wages and employee benefits decreased as a percentage of airline
operating revenues to 25.9 percent in fiscal 2000 from 26.2 percent in fiscal
1999. The decrease is the result of airline operating revenues increasing 22.2
percent year over year and salaries, wages and employee benefits increasing only
21.1 percent year over year. The average number of employees was 3,302 for
fiscal 2000 compared to 3,092 for fiscal 1999, an increase of 6.8 percent. The
increase is due to the addition of personnel required for SkyWest's expansion.
Salaries, wages and employee benefits per ASM increased to 5.7cent(s) in fiscal
2000 from 5.5cent(s) in fiscal 1999.
5
Aircraft costs, including aircraft rent and depreciation, decreased as a
percentage of airline operating revenues to 17.4 percent in fiscal 2000 from
18.2 percent in fiscal 1999. The decrease is due to airline operating revenues
increasing 22.2 percent year over year and aircraft costs increasing only 16.4
percent year over year. Aircraft costs per ASM were 3.8cent(s) for both fiscal
2000 and 1999.
Maintenance expense decreased slightly as a percentage of airline operating
revenues to 9.0 percent in fiscal 2000 from 9.5 percent in fiscal 1999. The
decrease is due to airline operating revenues increasing 22.2 percent year over
year and maintenance expenses increasing only 16.5 percent year over year.
Maintenance cost per ASM was 2.0 cents for both fiscal 2000 and 1999.
Fuel costs increased as a percentage of airline operating revenues to 10.2
percent in fiscal 2000 from 7.6 percent in fiscal 1999. The increase is due to
an increase in the average cost of fuel per gallon to 93cent(s) in fiscal 2000
from 64cent(s) in fiscal 1999. As a result, fuel costs per ASM increased to
2.2cent(s) in fiscal 2000 from 1.6cent(s) in fiscal 1999.
Other expenses, which consist primarily of commissions, landing fees, station
rents, computer reservation systems and hull and liability insurance, decreased
as a percentage of airline operating revenues to 19.1 percent in fiscal 2000
compared to 21.9 percent in fiscal 1999. The decrease is primarily the result of
the Company not incurring commissions on United Express related passenger
revenues. As a result, cost per ASM decreased to 4.2cent(s) in fiscal 2000 from
4.6cent(s) in fiscal 1999.
FISCAL 1999 COMPARED TO FISCAL 1998
During fiscal 1999, SkyWest dramatically expanded its code-sharing agreements
with United Airlines and added a record number of aircraft to the fleet. As a
result, SkyWest experienced high growth factors in ASMs, RPMs, passengers
carried and load factors. In fiscal 1999, net income increased 90.6 percent to
$41.8 million, or $1.69 per diluted share, compared to $21.9 million, or $1.04
per diluted share in fiscal 1998. Consolidated operating revenues increased 46.0
percent to a record $388.6 million in fiscal 1999 compared to $266.1 million in
fiscal 1998.
Passenger revenues, which represented 98.1 percent of total operating revenues,
increased 47.1 percent to $381.4 million in fiscal 1999 compared to $259.3
million or 97.4 percent of total operating revenues in fiscal 1998. The increase
was due to a 36.3 percent increase in RPMs and a 7.8 percent increase in yield
per RPM. Effective April 23, 1998, SkyWest expanded its code-sharing
relationship with United, as United Express, and began operating flights to/from
Seattle and Portland. SkyWest also expanded its United Express operations at Los
Angeles at the same time. Effective June 1, 1998, SkyWest further expanded its
United Express operations and began operating flights to/from San Francisco. The
increase in yield per RPM was also the result of improved revenue management
resulting from schedule refinements and fleet rationalization. SkyWest also
continued to maximize revenue by use of a state-of-the-art revenue management
and control system which utilizes historical booking data and trends to optimize
revenue. Together, these factors increased revenue per ASM 16.0 percent to
21.0cent(s) in fiscal 1999 compared to 18.1cent(s) in fiscal 1998.
During fiscal 1999, total airline operating revenues increased 46.3 percent and
total airline operating expenses increased only 39.0 percent. As a result, total
airline operating expenses and interest were 84.0 percent of total airline
operating revenues in fiscal 1999 compared to 88.4 percent in fiscal 1998.
Salaries, wages and employee benefits increased as a percentage of airline
operating revenues to 26.2 percent in fiscal 1999 from 25.5 percent in fiscal
1998. The increase was primarily the result of incentive payments to employees,
which are based on SkyWest's profitability. The average number of employees was
3,092 for fiscal 1999 compared to 1,915 for fiscal 1998, an increase of 61.5
percent. The large increase was due to the addition of personnel required for
SkyWest's expansion. Salaries, wages and employee benefits per ASM increased to
5.5cent(s) in fiscal 1999 from 4.6cent(s) in fiscal 1998.
Aircraft costs, including aircraft rent and depreciation, decreased slightly as
a percentage of airline operating revenues to 18.2 percent in fiscal 1999 from
19.8 percent in fiscal 1998. The decrease was due to airline operating revenues
increasing at 46.3 percent year over year and aircraft costs increasing only
34.8 percent year over year. Aircraft costs per ASM were 3.8cent(s) in fiscal
1999 compared to 3.6cent(s) in fiscal 1998.
Maintenance expense increased slightly as a percentage of airline operating
revenues to 9.5 percent in fiscal 1999 from 7.8 percent in fiscal 1998. The
increase was due to the Company incurring initial heavy maintenance charges to
bring the acquired used Brasilias up to SkyWest's maintenance standards.
Maintenance cost per ASM was 2.0cent(s) in fiscal 1999, compared to 1.4cent(s)
in fiscal 1998.
6
Fuel costs decreased as a percentage of airline operating revenues to 7.6
percent in fiscal 1999 from 10.8 percent in fiscal 1998. The decrease was due
primarily to a decrease in the average cost of fuel per gallon to 64cent(s) in
fiscal 1999 from 81cent(s) in fiscal 1998. As a result, fuel costs per ASM
decreased to 1.6cent(s) in fiscal 1999 from 2.0cent(s) in fiscal 1998.
Other expenses, which consist primarily of commissions, landing fees, station
rents, computer reservation systems and hull and liability insurance, decreased
as a percentage of airline operating revenues to 21.9 percent in fiscal 1999
compared to 23.7 percent in fiscal 1998. The decrease was primarily the result
of the Company not incurring commissions on United Express related passenger
revenues. However, due to a 17 percent decrease in the average passenger trip
length, cost per ASM increased to 4.6" in fiscal 1999 from 4.3" in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $154.2 million and a current ratio of 2.9:1
at March 31, 2000 compared to working capital of $142.4 million and a current
ratio of 2.9:1 at March 31, 1999. The principal sources of funds during fiscal
2000 were $86.5 million generated from operations, $3.7 million of proceeds from
the sale of property and equipment, $3.3 million from the sale of common stock,
and $0.4 million of tax benefit from exercise of common stock options. During
fiscal 2000, the Company invested $37.2 million in available-for-sale
securities, $33.5 million in flight equipment, $26.9 million in net deposits on
aircraft, and $11.4 million in buildings, ground equipment and other assets. The
Company also reduced long-term debt by $9.7 million and paid $2.9 million in
cash dividends. These factors resulted in a $27.7 million decrease in cash and
cash equivalents during fiscal 2000.
The Company's position in available-for-sale securities, consisting primarily of
investment grade bonds, bond funds and commercial paper, increased to $146.8
million at March 31, 2000 compared to $109.6 million at March 31, 1999.
SkyWest acquired five Brasilia aircraft under operating lease arrangements
during fiscal 2000 at a cost of approximately $40 million. During fiscal 1999,
SkyWest entered into an agreement to acquire 25 CRJs and related spare parts
inventory and support equipment together with options on 25 additional aircraft.
SkyWest entered into agreements to acquire an additional 30 CRJs and secured
options for an additional 85 aircraft in fiscal 2000. This brings the total firm
order to 55 jet aircraft at an aggregate cost of approximately $1.2 billion and
110 options. Of the 110 options to acquire additional CRJs, 55 are at fixed
prices (subject to cost escalations), have delivery schedules and are
exercisable through July 2003. The remaining 55 options are at fixed prices
(subject to cost escalations), do not have delivery schedules and do not carry
an expiration date. During fiscal 2000, SkyWest also entered into a conditional
agreement for 40 additional CRJs at an aggregate cost of $880 million and
secured options on an additional 80 CRJs. The conditional agreement is subject
to the final resolution of the scope clause negotiations between United and
their pilot union and expires June 30, 2000. The options are exercisable in
blocks of five aircraft and expire 18 months before the estimated delivery of
the optioned aircraft in each block.
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, 2000, the Company leased 82 aircraft with remaining lease
terms ranging from 1 to 15 years. Future minimum lease payments due under all
long-term operating leases were approximately $581.9 million at March 31, 2000.
The present value of the operating lease obligations is $379.6 million at March
31, 2000, using an eight percent discount factor.
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 4.04 percent on $34.6 million of the long-term
debt, at March 31, 2000. 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 $26.2 million, the average effective rate is 3.82 percent at
March 31, 2000 and the lender has assumed the risk of the subsidy payments.
The Company expended approximately $42.7 million for non-aircraft capital
expenditures during the year ended March 31, 2000, consisting primarily of
aircraft engine overhauls, ground and ramp equipment and rotable spares related
to expansion, aircraft modifications to be made pursuant to industry-wide FAA
directives, buildings and ground equipment and rental vehicles.
7
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 8.75 percent at March 31, 2000. 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 expenditure, lease payment and debt service requirements for at least
the next 12 months.
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.
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 has limited its
exposure to fuel price increases with respect to approximately 65 percent of
available seat miles produced, due to contractual arrangements with Delta and
United. 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 quarter and
12 months ended March 31, 2000 and 1999. 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 $531,000 for
the quarter ended March 31, 2000 and $247,000 for the quarter ended March 31,
1999. The Company would have experienced an increase in fuel expense of
approximately $1,649,000 for the 12 months ended March 31, 2000 and $785,000 for
the 12 months ended March 31, 1999. The Company currently intends to 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. The interest rate applicable to 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 March 31, 2000
the Company had variable rate notes representing 7.5 percent of the total
long-term debt and 8 percent at March 31, 1999. 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 $12,000 in interest expense and received $459,000 in
additional interest income for the quarter ended March 31, 2000 and an
additional $15,000 in interest expense and received $419,000 in additional
interest income for the quarter ended March 31, 1999. Additionally, the Company
would have incurred $51,000 in interest expense and received $1,666,000 in
additional interest income for the 12 months ended March 31, 2000 and an
additional $65,000 in interest expense and received $1,581,000 in additional
interest income for the 12 months ended March 31, 1999. As a result of this
hypothetical assumption, the Company believes it could 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
92.5 percent of the total long-term debt at March 31, 2000 and 92.0 percent at
March 31, 1999.
8
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 below.
The Company maintains a system of internal controls that provide 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
Chief Executive Officer Chief Financial Officer
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, 2000 and 1999, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended March 31, 2000. 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 auditing standards generally accepted
in the United States. 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, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended March 31, 2000 in
conformity with accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
Salt Lake City, Utah
May 19, 2000
9
SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
March 31, March 31,
2000 1999
---------- ---------
CURRENT ASSETS:
Cash and cash equivalents .......................... $ 24,544 $ 52,237
Available-for-sale securities ...................... 146,804 109,580
Receivables, less allowance for doubtful accounts of
$59 in 2000 and $203 in 1999 ............. 9,512 13,273
Inventories ........................................ 16,195 13,863
Prepaid aircraft rents ............................. 23,880 18,755
Other current assets ............................... 12,891 8,976
--------- ---------
Total current assets ............................. 233,826 216,684
--------- ---------
PROPERTY AND EQUIPMENT, at cost:
Aircraft and rotable spares ........................ 230,248 225,233
Deposits on aircraft ............................... 68,372 41,463
Buildings and ground equipment ..................... 38,832 39,418
Rental vehicles .................................... 3,861 4,603
--------- ---------
341,313 310,717
Less-accumulated depreciation and amortization ..... (107,359) (111,793)
--------- ---------
233,954 198,924
--------- ---------
OTHER ASSETS ........................................... 2,403 2,052
--------- ---------
$ 470,183 $ 417,660
========= =========
The accompanying notes are an integral part of these
consolidated balance sheets.
10
CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, March 31,
2000 1999
--------- -----------
CURRENT LIABILITIES:
Current maturities of long-term debt ..................... $ 12,437 $ 8,497
Trade accounts payable ................................... 42,385 38,463
Accrued salaries, wages and benefits ..................... 10,254 10,471
Engine overhaul accrual .................................. 9,889 7,167
Income taxes payable ..................................... -- 5,937
Taxes other than income taxes ............................ 3,230 2,372
Air traffic liability .................................... 1,452 1,419
--------- ---------
Total current liabilities .............................. 79,647 74,326
--------- ---------
LONG-TERM DEBT, net of current maturities .................... 48,321 61,830
--------- ---------
DEFERRED INCOME TAXES PAYABLE ................................ 29,995 25,248
--------- ---------
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;
27,685,478 and 27,418,594 shares issued, respectively .. 165,765 162,116
Retained earnings ............................................ 168,331 114,425
Treasury stock, at cost, 2,949,200 shares ................ (20,285) (20,285)
Net unrealized depreciation on available-for-sale
securities ............................................. (1,591) --
--------- ---------
Total stockholders' equity ............................. 312,220 256,256
--------- ---------
$ 470,183 $ 417,660
========= =========
11
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For the year ended March 31,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
Operating revenues:
Passenger ............................................... $ 466,733 $ 381,409 $ 259,314
Freight and other ....................................... 8,045 7,217 6,821
------------ ------------ ------------
Total operating revenues .......................... 474,778 388,626 266,135
------------ ------------ ------------
Operating expenses:
Flying operations ....................................... 176,159 137,231 103,636
Aircraft, traffic and passenger service ................. 65,822 58,826 38,957
Maintenance ............................................. 60,400 51,370 29,299
Promotion and sales ..................................... 27,698 29,432 25,505
Depreciation and amortization ........................... 28,463 23,237 19,305
General and administrative .............................. 27,601 22,460 14,992
Other ................................................... 1,955 1,765 1,622
------------ ------------ ------------
Total operating expenses .......................... 388,098 324,321 233,316
------------ ------------ ------------
Operating income ........................................... 86,680 64,305 32,819
------------ ------------ ------------
Other income (expense):
Interest expense ........................................ (2,726) (2,376) (1,639)
Interest income ......................................... 8,575 7,553 4,090
Gain (loss) on sales of property and equipment .......... 309 419 (45)
------------ ------------ ------------
Total other income ................................ 6,158 5,596 2,406
------------ ------------ ------------
Income before provision for income taxes ................... 92,838 69,901 35,225
Provision for income taxes ................................. 35,734 27,273 13,565
------------ ------------ ------------
Income from continuing operations .......................... 57,104 42,628 21,660
------------ ------------ ------------
Discontinued operations, net of income taxes:
(Loss) income from operations of Scenic Airlines ........ -- (168) 284
Loss on disposition of Scenic Airlines .................. -- (625) --
------------ ------------ ------------
-- (793) 284
------------ ------------ ------------
Net income ................................................. $ 57,104 $ 41,835 $ 21,944
============ ============ ============
Income from continuing operations per common share:
Basic ................................................... $ 2.32 $ 1.76 $ 1.04
Diluted ................................................. $ 2.29 $ 1.72 $ 1.02
(Loss) income from discontinued operations per common share:
Basic and diluted ....................................... -- $ (.03) $ .02
Net income per common share:
Basic ................................................... $ 2.32 $ 1.73 $ 1.06
Diluted ................................................. $ 2.29 $ 1.69 $ 1.04
Weighted average number of common shares outstanding:
Basic ................................................... 24,563,000 24,199,000 20,799,000
Diluted ................................................. 24,961,000 24,787,000 21,168,000
The accompanying notes are an integral part of
these consolidated statements.
12
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net unrealized
depreciation on
Common Stock Treasury Stock available-for-
----------------------- Retained ------------------------- sale
Shares Amount Earnings Shares Amount securities
---------- ---------- ---------- ----------- ----------- ----------
Balance at March 31, 1997 ...................... 23,249,622 $ 89,146 $ 55,691 (2,949,200) $ (20,285) $ --
Net income .................................. -- -- 21,944 -- -- --
Exercise of common stock options
(at prices ranging from $6.32 to
$16.63 per share) ..................... 383,420 3,465 -- -- -- --
Sale of common stock under
employee stock purchase plan ............ 106,068 663 -- -- -- --
Sale of common stock, net of offering
costs of $3,648 .......................... 3,220,000 61,557 -- -- -- --
Tax benefit from exercise of common
stock options ........................... -- 1,086 -- -- -- --
Cash dividends ($.10 per share) ............. -- -- (2,134) -- -- --
---------- ---------- ---------- ----------- ----------- ----------
Balance at March 31, 1998 ...................... 26,959,110 155,917 75,501 (2,949,200) (20,285) --
Net income .................................. -- -- 41,835 -- -- --
Exercise of common stock options
(at prices ranging from $6.88 to
$16.63 per share) ..................... 399,606 3,905 -- -- -- --
Sale of common stock under
employee stock purchase plan ............. 59,878 1,062 -- -- -- --
Tax benefit from exercise of common
stock options ............................ -- 1,232 -- -- -- --
Cash dividends ($.12 per share) ............. -- -- (2,911) -- -- --
---------- ---------- ---------- ----------- ----------- ----------
Balance at March 31,1999 ....................... 27,418,594 162,116 114,425 (2,949,200) (20,285) --
Net income .................................. -- -- 57,104 -- -- --
Exercise of common stock options
(at prices ranging from $6.88 to
$12.75 per share) ..................... 183,056 1,443 -- -- -- --
Sale of common stock under
employee stock purchase plan ............. 83,828 1,816 -- -- -- --
Tax benefit from exercise of common
stock options ............................ -- 390 -- -- -- --
Cash dividends ($.20 per share) ............. -- -- (3,198) -- -- --
Net unrealized depreciation on available-for-
sale securities .......................... -- -- -- -- -- (1,591)
---------- ---------- ---------- ----------- ----------- ----------
Balance at March 31, 2000 ...................... 27,685,478 $ 165,765 $ 168,331 (2,949,200) $ (20,285) $ (1,591)
========== ========== ========== =========== ========== ==========
The accompanying notes are an integral part of
these consolidated statements.
13
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
For the year ended March 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................................... $ 57,104 $ 41,835 $ 21,944
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................................... 28,463 23,237 19,305
Nonairline depreciation and amortization ........................ 1,099 1,026 4,848
Maintenance expense related to disposition of rotable spares .... 1,880 259 322
Gain on sales of property and equipment ......................... (309) (419) (374)
Loss on disposition of Scenic Airlines .......................... -- 992 --
(Decrease) increase in allowance for doubtful accounts .......... (144) 79 20
Increase in deferred income taxes ............................... 4,747 5,238 4,023
Changes in operating assets and liabilities:
Decrease (increase) in receivables ............................ 3,905 (4,368) 132
Increase in inventories, net of dispositions .................. (2,332) (5,502) (1,749)
Increase in other current assets .............................. (9,040) (11,300) (2,802)
Decrease in net current assets of discontinued operations ..... -- 1,596 --
Increase in trade accounts payable ............................ 3,667 13,759 1,129
Increase in engine overhaul accrual ........................... 2,722 1,627 767
Decrease in fleet restructuring accrual ....................... -- -- (290)
(Decrease) increase in other current liabilities .............. (5,263) 9,947 1,132
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......................... 86,499 78,006 48,407
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases and maturities of available-for-sale securities, net .. (37,224) (94,953) --
Proceeds from sale of available-for-sale securities ............. -- -- 3,343
Net unrealized depreciation on available-for-sale securities .... (1,591) -- --
Acquisition of property and equipment:
Aircraft and rotable spares ................................. (33,476) (58,780) (22,812)
Deposits on aircraft and rotable spares ..................... (32,709) (41,463) --
Buildings and ground equipment .............................. (5,424) (5,633) (4,572)
Rental vehicles ............................................. (3,847) (4,989) (2,392)
Proceeds from sales of property and equipment ................... 3,698 2,899 11,238
Proceeds from sale of Scenic Airlines ........................... -- 21,141 --
Decrease in deposits on aircraft and rotable spares ............. 5,800 -- --
Increase in net long-term assets of discontinued operations ..... -- 914 --
Increase in other assets ........................................ (555) (616) (29)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES .............................. (105,328) (181,480) (15,224)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock ...................... 3,258 4,967 65,685
Tax benefit from exercise of common stock options ............... 390 1,232 1,086
Payment of cash dividends ....................................... (2,943) (2,778) (2,041)
Reduction of long-term debt ..................................... (9,569) (16,700) (7,427)
Proceeds from issuance of long-term debt ........................ -- 29,218 11,500
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ................ (8,864) 15,939 68,803
--------- --------- ---------
(Decrease) increase in cash and cash equivalents ................... (27,693) (87,535) 101,986
Cash and cash equivalents at beginning of year ..................... 52,237 139,772 37,786
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ........................... $ 24,544 $ 52,237 $ 139,772
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ........................................................... $ 2,799 $ 2,601 $ 3,012
Income taxes ....................................................... $ 39,849 18,233 8,221
The accompanying notes are an integral part of
these consolidated statements.
14
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") and National Parks Transportation, Inc. ("NPT"),
collectively (the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
During fiscal 1999, the Company sold the operations of Scenic Airlines, Inc.
("Scenic"). As a result, certain reclassifications have been made in the
accompanying consolidated financial statements to reflect the impact of these
sales and to classify the operations of Scenic as Discontinued Operations (see
Note 7).
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. The
Company's position in available-for-sale securities consists primarily of
investment grade bonds, bond funds and commercial paper. Unrealized holding
gains and losses are recorded as a separate component of stockholders' equity.
INVENTORIES
Inventories include expendable parts, fuel and supplies and are valued at cost
(FIFO basis) less an allowance for obsolescence. Expendable inventory 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 normal cost of recurring 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.
15
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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, 2000 and
1999, the Company had recorded current deferred tax assets of $9,992,000 and
$6,789,000, respectively (which are included in other current assets), and
deferred tax liabilities of $29,995,000 and $25,248,000, respectively.
NET INCOME PER COMMON SHARE
Basic net income per common share ("Basic EPS") excludes dilution and is
computed by dividing net income by the weighted average number of common shares
outstanding during the fiscal year. Diluted net income per common share
("Diluted EPS") reflects the potential dilution that could occur if stock
options or other contracts to issue common stock were exercised or converted
into common stock. The computation of Diluted EPS does not assume exercise or
conversion of securities that would have an antidilutive effect on net income
per common share.
Following is a reconciliation of the numerator and denominator of Basic EPS to
the numerator and denominator of Diluted EPS for all periods presented (in
thousands, except per share amounts):
Year ended March 31, 2000 1999 1998
- ------------------------------------------------------------------------------
Numerator:
Net income .................................. $57,104 $41,835 $21,944
======= ======= =======
Denominator:
Weighted average common shares outstanding .. 24,563 24,199 20,799
Effect of options ........................... 398 588 369
------- ------- -------
24,961 24,787 21,168
======= ======= =======
Basic EPS ..................................... $ 2.32 $ 1.73 $ 1.06
Diluted EPS ................................... $ 2.29 $ 1.69 $ 1.04
======= ======= =======
COMPREHENSIVE INCOME
The Company reports comprehensive income in accordance with Financial Accounting
Standards Board ("FASB") Statement No. 130, "Reporting Comprehensive Income"
which establishes a standard for reporting and displaying comprehensive income
and its components in the consolidated financial statements. Comprehensive
income includes charges and credits to stockholders' equity that are not the
results of transactions with shareholders. As of March 31, 2000, comprehensive
income includes net income and an adjustment, net of tax, to reflect an
unrealized loss on available-for-sale securities of $1,591,000. This adjustment
has been reflected in the accompanying Consolidated Statements of Stockholders'
Equity as of March 31, 2000.
16
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, FASB issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 establishes new accounting and reporting standards for companies to
report information about derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
"derivatives") and for hedging activities. In June 1999, the FASB issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133." This statement amended the effective date of SFAS 133. SFAS
133 will now be effective for financial statements issued for all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company does not
expect SFAS 133 to have a material impact on the Company's results of
operations, financial position or liquidity.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101") "Revenue Recognition in Financial Statements". SAB
101 provides guidance on the recognition, presentation and disclosure of revenue
in financial statements. Implementation of SAB 101 is required in the company's
first fiscal quarter of 2001. All registrants are expected to apply the
accounting and disclosure requirements described in SAB 101. The Company does
not expect SAB 101 to have a material impact on the Company's consolidated
financial statements.
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 $54,157,000 as of March 31, 2000, as compared to the carrying
amount of $60,758,000.
SEGMENT REPORTING
The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information". This statement requires disclosures related
to components of a company for which separate financial information is available
that is evaluated regularly by the Company's chief operating decision maker in
deciding how to allocate resources and in assessing performance. As a result of
the sale of Scenic in fiscal 1999 (see Note 7), management believes that the
Company has only one operating segment in accordance with SFAS No. 131 because
the Company's core remaining business consists of scheduled airline passenger
service.
17
(2) LONG-TERM DEBT
Long-term debt consists of the following:
As of March 31,
--------------------
2000 1999
-------- --------
(in thousands)
Notes payable to bank, due in semi-annual installments plus interest at 3.72% to
3.86%, net of the benefits of interest rate subsidies through the Brazilian
Export financing program, through February 2011, secured by aircraft ........ $ 26,167 $ 29,218
Notes payable to banks, due in monthly installments including interest at
6.70% to 7.37% through January 2006, secured by aircraft .................... 17,936 20,734
Notes payable to bank and financing company, due in quarterly installments plus
interest at 7.64% to 8.58% through March 2005, secured by aircraft .......... 6,328 7,410
Note payable to bank, due in monthly installments plus interest at 6.36% through
November 2000, balloon payment of $3,937,000 due December 2000,
secured by aircraft ......................................................... 4,502 5,274
Note payable to bank, due in quarterly installments plus interest based on three
month LIBOR (6.28% at March 31, 2000) through September 2003, secured by
aircraft .................................................................... 2,341 3,010
Note payable to bank, due in monthly installments plus interest based on one
month LIBOR (5.94% at March 31, 2000) through June 2003, secured by
aircraft .................................................................... 2,133 2,790
Note payable to bank, due in semi-annual installments plus interest at 8.50%
through May 2002, secured by aircraft ....................................... 1,351 1,891
-------- --------
60,758 70,327
Less current maturities .......................................................... (12,437) (8,497)
-------- --------
$ 48,321 $ 61,830
======== ========
The aggregate amounts of principal maturities of long-term debt as of March 31,
2000, are as follows (in thousands):
Year ending March 31,
---------------------
2001 $12,437
2002 8,262
2003 8,340
2004 6,901
2005 6,499
Thereafter 18,319
-------
$60,758
18
2. LONG-TERM DEBT (continued)
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 4.04 percent, on $34.6 million of the long-term
debt, at March 31, 2000. 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 $26.2 million, the lender has assumed the risk of the subsidy
payments which has reduced the average effective rate on this debt to
approximately 3.82 percent at March 31, 2000.
As of March 31, 2000, the Company had available $10,000,000 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 8.00 percent at March 31, 2000.
Certain of the Company's long-term debt arrangements contain limitations on,
among other things, sale or lease of assets and ratio of long-term debt to
tangible net worth. As of March 31, 2000, the Company was in compliance with all
the debt covenants.
(3) INCOME TAXES
The provision for income taxes includes the following components (in thousands):
Year ended March 31,
-------------------------------
2000 1999 1998
-------- -------- --------
Current tax provision:
Federal ............................. $ 27,510 $ 22,297 $ 7,457
State ............................... 5,484 4,348 2,104
-------- -------- --------
32,994 26,645 9,561
-------- -------- --------
Deferred tax provision :
Federal ............................. 2,294 528 3,363
State ............................... 446 100 641
-------- -------- --------
2,740 628 4,004
-------- -------- --------
Provision for income taxes ............. $ 35,734 $ 27,273 $ 13,565
======== ======== ========
The following is a reconciliation between the statutory Federal income tax rate
of 35 percent and the effective rate which is derived by dividing the provision
for income taxes by income before provision for income taxes (in thousands).
Year ended March 31,
-------------------------------
2000 1999 1998
-------- -------- --------
Computed "expected" provision for income
taxes at the statutory rates ....... $ 32,493 $ 24,465 $ 12,329
Increase (decrease) in income taxes
resulting from:
State income taxes, net of Federal
income tax benefit ............. 3,565 2,777 1,391
Other, net ....................... (324) 31 (155)
-------- -------- --------
Provision for income taxes ............. $ 35,734 $ 27,273 $ 13,565
======== ======== ========
19
3. INCOME TAXES (continued)
The significant components of the net deferred tax assets and liabilities are as
follows (in thousands):
As of March 31,
--------------------
2000 1999
-------- --------
Deferred tax assets:
Accrued benefits .............. $ 1,550 $ 1,293
Engine overhaul accrual ... 3,955 2,867
Accrued reserves and other .... 4,508 2,995
-------- --------
Total deferred tax assets ......... 10,013 7,155
-------- --------
Deferred tax liabilities:
Accelerated depreciation .. (29,688) (24,879)
Other ..................... (329) (735)
-------- --------
Total deferred tax liabilities .... (30,017) (25,614)
-------- --------
Net deferred tax liability ........ $(20,000) $(18,459)
======== ========
(4) COMMITMENTS AND CONTINGENT LIABILITIES
LEASE OBLIGATIONS
The Company leases 82 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, 2000 (in thousands):
Year ending March 31,
---------------------
2001 $ 60,665
2002 60,573
2003 58,463
2004 54,527
2005 50,502
Thereafter 297,134
---------
$ 581,864
=========
Total rental expense for noncancelable operating leases was approximately
$59,063,000, $49,232,000, and $35,188,000 for the years ended March 31, 2000,
1999 and 1998, respectively.
The above minimum rental payments do not include landing fees, which amounted to
approximately $9,932,000, $10,629,000, and $6,505,000 for the years ended March
31, 2000, 1999 and 1998, respectively.
PURCHASE COMMITMENTS AND OPTIONS
SkyWest acquired five Brasilia aircraft under operating lease arrangements
during fiscal 2000 at a cost of approximately $40 million. During fiscal 1999,
SkyWest entered into an agreement to acquire 25 CRJs and related spares parts
inventory and support equipment together with options on 25 additional aircraft.
SkyWest entered into agreements to acquire an additional 30 CRJs and secured
options for an additional 85 aircraft in fiscal 2000. This brings the total firm
order to 55 jet aircraft at an aggregate cost of approximately $1.2 billion and
110 options. Of the 110 options to acquire additional CRJs, 55 are at fixed
prices (subject to cost escalations), have delivery schedules and are
exercisable through July 2003. The remaining 55 options are at fixed prices
(subject to cost escalations), do not have delivery schedules and do not carry
an expiration date. During fiscal 2000, SkyWest also entered into a conditional
agreement for 40 additional CRJs at an aggregate cost of $880 million and
secured options on an additional 80 CRJs. The conditional agreement is subject
to the final resolution of the scope clause negotiations between United and
their pilot union and expires June 30, 2000. The options are exercisable in
blocks of five aircraft and expire 18 months before the estimated delivery of
the optioned aircraft in each block.
20
4. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
LEGAL MATTERS
The Company is subject to certain legal actions which it considers routine to
its business activities. As of March 31, 2000, management believes, after the
consultation with legal counsel, that the ultimate outcome of such legal matters
will not have a material adverse effect on the Company's financial position,
liquidity or results of operations.
STANDBY LETTERS OF CREDIT
As of March 31, 2000, the Company has outstanding letters of credit totaling
approximately $3,086,000 related to requirements of certain airports, port
authorities and workers compensation agreements.
CASH AND CASH EQUIVALENTS
As of March 31, 2000, the Company has demand deposits and money market accounts
totaling $1,946,000 with Wells Fargo Bank, $147,000 with Citibank, and
$5,012,000 with Zions First National Bank. These balances exceed the $100,000
limit for insurance by the Federal Deposit Insurance Corporation.
(5) CAPITAL TRANSACTIONS
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock from time
to time in one or more series without stockholder approval. No shares of
preferred stock are presently outstanding. The Board of Directors is authorized,
without any further action by the stockholders of the Company, to (i) divide the
preferred stock into series; (ii) designate each such series; (iii) fix and
determine dividend rights; (iv) determine the price, terms and conditions on
which shares of preferred stock may be redeemed; (v) determine the amount
payable to holders of preferred stock in the event of voluntary or involuntary
liquidation; (vi) determine any sinking fund provisions; and (vii) establish any
conversion privileges.
SUBSEQUENT CASH DIVIDEND
On May 9, 2000, the Company's Board of Directors declared a regular quarterly
cash dividend of $.04 per share payable to stockholders of record on June 30,
2000, distributable July 14, 2000.
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
3,000,000 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 percent 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.
21
5. CAPITAL TRANSACTIONS (continued)
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 2000, 1999
and 1998.
2000 1999 1998
--------------------- --------------------- ----------------------
Weighted Weighted Weighted
Number of Average Number of Average Number of Average
Options Price Options Price Options Price
--------- -------- --------- -------- --------- --------
Outstanding at
beginning of year ....... 1,226,473 $ 14.90 990,716 $ 8.34 1,132,350 $ 9.19
Granted ..................... 340,000 26.18 660,000 21.93 346,000 6.65
Exercised ................... (183,056) 7.88 (399,606) 9.77 (383,420) 9.04
Canceled .................... (48,879) 22.36 (24,637) 17.73 (104,214) 9.33
--------- --------- ---------
Outstanding at end of year... 1,334,538 $ 18.46 1,226,473 $ 14.90 990,716 $ 8.34
========= ======= ========= ======= ========== =======
Options exerciseable at
year-end ................ 94,528 79,112 289,716
Weighted average fair
value of options
granted during the year.. $ 11.37 $ 8.99 $ 4.97
The following table summarizes information about stock options outstanding at
March 31, 2000:
Options Outstanding Options Exercisable
---------------------------------------------------------- -----------------------------------
Range of Number Weighted Average Weighted Average Number Weighted Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices at March 31,2000 Contractual Life Price at March 31,2000 Price
- ---------- ---------------- ---------------- ----------------- ---------------- ----------------
$5 to $15 403,528 5.6 years $ 7.04 94,528 $ 8.64
$16 to $27 931,010 7.8 years 23.41 -- --
--------- ------
$5 to $27 1,334,538 7.1 years 18.46 94,528 8.64
========= ======
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 net income per share as if the Company had accounted
for its stock options and employee stock purchases granted or sold subsequent to
April 1, 1996, 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 pricing model with the following assumptions used
for grants in fiscal 2000, 1999 and 1998: a risk-free interest rate of 5.5
percent for fiscal 2000, 4.8 percent for fiscal 1999 and 5.6 percent for fiscal
1998, a dividend yield of .5 percent for fiscal 2000, 1999 and 1998, a
volatility factor of the expected common stock price of .496 for fiscal 2000,
.465 for fiscal 1999 and .390 for fiscal 1998 and a weighted average expected
life of four years for the stock options and six months for employee stock
purchases for all the years presented. For purposes of the pro forma
disclosures, the estimated fair value of the stock options and employee stock
purchases is amortized over the vesting period of the respective stock options
and employee stock purchases.
Following are the pro forma disclosures and the related impact on net income and
net income per share (in thousands, except per share information):
Year Ended March 31,
------------------------------
2000 1999 1998
-------- -------- --------
Net income:
As reported ............ $ 57,104 $ 41,835 $ 21,944
Pro forma .............. $ 54,990 $ 40,194 $ 21,213
Net income per common share:
Diluted as reported .... $ 2.29 $ 1.69 $ 1.04
Diluted pro forma ...... $ 2.20 $ 1.62 $ 1.00
22
5. CAPITAL TRANSACTIONS (continued)
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to April 1, 1996, 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 Employee's 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 percent of such contributions
up to 2 percent, 4 percent or 6 percent 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
approximately $4,207,000, $3,800,000 and $2,729,000 to the Plan for the years
ended March 31, 2000, 1999 and 1998, respectively.
EMPLOYEE STOCK PURCHASE PLAN
On February 7, 1996, the Company"s Board of Directors approved the SkyWest, Inc.
1996 Employee Stock Purchase Plan ("the Stock Purchase Plan"). All employees who
have completed 90 days of employment are eligible to participate, except
employees who own five percent or more of the Company's common stock. 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, 2000, 83,828
shares were purchased by employees at prices of $21.20 and $22.07. For the
fiscal year ended March 31, 1999, 59,878 shares were purchased by employees at
prices of $12.38 and $25.18. For the fiscal year ended March 31, 1998, 106,068
shares were purchased by employees at prices of $5.90 and $6.64. In addition, as
of March 31, 2000, $652,000 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.
(7) DISCONTINUED OPERATIONS
On August 26, 1998, the Company entered into an Asset Purchase Agreement
("Agreement") with Eagle Canyon Airlines, Inc. ("Eagle") to sell a majority of
the assets of Scenic Airlines, Inc. ("Scenic"). Included under the Agreement
were all of the assets, properties, rights and business of Scenic related to its
Las Vegas based tour and scheduled flight operations. The agreement was
consummated on December 23, 1998 with the Company receiving cash proceeds of
$16.2 million. Additionally, the Company recorded a pretax loss of approximately
$0.3 million on the sale during fiscal 1999.
On January 11, 1999, the Company entered into an agreement ("Page Agreement")
with JCMI, LLC, to sell the remainder of the assets and business of Scenic. The
Page Agreement includes all of the assets, properties, rights and business of
Scenic related to its Page, Arizona tour operations. The agreement was
consummated on March 2, 1999 with the Company receiving total proceeds of $5.0
million consisting of cash and a secured promissory note of $1.9 million. The
Company recorded a pretax loss of approximately $0.7 million on the sale during
fiscal 1999.
The accompanying condensed consolidated financial statements reflect the
operations of Scenic as Discontinued Operations. Accordingly, the revenues,
costs and expenses, assets and liabilities of Scenic 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 and net assets of discontinued operations. The revenues of Scenic
amounted to $28.0 million and $31.0 million for the years ended March 31, 1999
and 1998, respectively.
23
(8) 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 certain flights in the
automated airline reservation systems used throughout the industry. During
fiscal 1998, the Company entered into a code-sharing agreement with United
Airlines, Inc. ("United"). The Company uses the United two letter designator
code (UA) in displaying schedules on certain flights in the automated airline
reservation systems used throughout the industry.
As of March 31, 2000, Delta owned 3,107,798 shares of common stock which
represents 12.6 percent 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
$6,475,000, $8,409,000 and $8,893,000 during the years ended March 31, 2000,
1999 and 1998, respectively. United provides services to the Company consisting
of reservation, passenger and ground handling-services. The Company paid
$7,578,000, $5,294,000 and $742,000 to United for their services for the year
ended March 31, 2000, 1999 and 1998, respectively.
The Company had a net payable to Delta of $1,546,000 as of March 31, 2000 and a
net receivable from Delta of $761,000 as of March 31, 1999. The Company had net
receivables from United of $144,000 and $1,553,000 as of March 31, 2000 and
1999, respectively.
(9) SUBSEQUENT EVENT
Subsequent to year-end, the Company entered into a Purchase Agreement
("Agreement") with an individual purchaser to sell all the outstanding shares of
National Parks Transportation, Inc., a wholly owned subsidiary of the Company.
The purchase price consists of a total of $325,000 and the fair market value of
all rental related vehicles on August 17, 2000. As of the date of the Agreement,
a non-refundable deposit of $50,000 had been paid and will be applied to the
purchase price. The Agreement also excludes certain assets and liabilities from
the transaction. During fiscal 2000, NPT had revenues of approximately $2.1
million and net book value on rental related vehicles of approximately $3.3
million. As a result of the sale, management believes it will result in an
immaterial gain to the overall consolidated financial statements of the Company.