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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to
Commission file number 0-14719
SKYWEST, INC.
Incorporated under the laws of Utah 87-0292166
(I.R.S. Employer ID No.)
444 South River Road
St. George, Utah 84790
(435) 634-3000
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 10, 2001
----- ------------------------------
Common stock, no par value 56,568,886
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SKYWEST, INC.
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
as of June 30, 2001 and
March 31, 2001 3
Condensed Consolidated Statements of
Income for the Three Months Ended
June 30, 2001 and 2000 5
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
June 30, 2001 and 2000 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 13
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PART I. FINANCIAL INFORMATION
Item 1: Financial Statements
SKYWEST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
================================================================================
ASSETS
June 30, March 31,
2001 2001
--------- ---------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 38,728 $ 27,202
Available-for-sale securities 248,835 252,827
Receivables, net 16,210 15,928
Inventories 20,907 20,069
Prepaid aircraft rents 19,826 25,494
Other current assets 14,680 13,472
--------- ---------
Total current assets 359,186 354,992
--------- ---------
PROPERTY AND EQUIPMENT:
Aircraft and rotable spares 314,411 303,016
Deposits on aircraft 116,357 110,452
Buildings and ground equipment 71,068 61,040
--------- ---------
501,836 474,508
Less-accumulated depreciation and
amortization (143,753) (136,512)
--------- ---------
358,083 337,996
--------- ---------
OTHER ASSETS 2,547 2,538
--------- ---------
$ 719,816 $ 695,526
========= =========
See notes to condensed consolidated financial statements.
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SKYWEST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in Thousands)
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, March 31,
2001 2001
--------- ---------
(Unaudited)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 10,825 $ 10,247
Trade accounts payable 49,173 46,499
Accrued salaries, wages and benefits 13,814 12,197
Engine overhaul accrual 15,463 13,946
Taxes other than income taxes 4,020 3,652
Air traffic liability 1,507 1,409
--------- ---------
Total current liabilities 94,802 87,950
--------- ---------
LONG-TERM DEBT, net of current maturities 70,067 73,854
--------- ---------
DEFERRED INCOME TAXES PAYABLE 39,136 35,699
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock 300,052 298,136
Retained earnings 237,645 221,097
Treasury stock (20,285) (20,285)
Accumulated other comprehensive loss (1,601) (925)
--------- ---------
Total stockholders' equity 515,811 498,023
--------- ---------
$ 719,816 $ 695,526
========= =========
See notes to condensed consolidated financial statements.
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SKYWEST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
================================================================================
Three Months Ended
June 30,
--------------------------
2001 2000
--------- ---------
OPERATING REVENUES:
Passenger $ 148,279 $ 128,403
Freight and other 1,385 1,984
--------- ---------
149,664 130,387
--------- ---------
OPERATING EXPENSES:
Flying operations 58,067 49,338
Aircraft, traffic and passenger service 21,941 17,517
Maintenance 18,633 15,118
Depreciation and amortization 10,370 7,827
General and administrative 8,713 8,012
Promotion and sales 6,954 6,954
Other -- 447
--------- ---------
124,678 105,213
--------- ---------
OPERATING INCOME 24,986 25,174
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 3,989 2,450
Interest expense -- (579)
Other income -- 80
--------- ---------
3,989 1,951
--------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 28,975 27,125
PROVISION FOR INCOME TAXES 11,302 10,578
--------- ---------
NET INCOME $ 17,673 $ 16,547
========= =========
NET INCOME PER COMMON SHARE:
Basic $ 0.32 $ 0.33
Diluted $ 0.31 $ 0.33
WEIGHTED AVERAGE COMMON SHARES
Basic 56,133 49,522
Diluted 57,415 50,552
See notes to condensed consolidated financial statements.
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SKYWEST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
================================================================================
Three Months Ended
June 30,
-------------------------
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,673 $ 16,547
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,370 7,827
Gain on sales of property and equipment -- (80)
Maintenance expense related to disposition of rotable spares 220 362
Increase in deferred income taxes 3,775 4,242
Nonairline depreciation and amortization -- 236
Changes in operating assets and liabilities:
Increase in receivables, net (282) (4,289)
Increase in inventories (838) (1,020)
Decrease in other current assets 4,122 5,278
Increase in trade accounts payable 2,672 3,792
Increase in engine overhaul accrual 1,517 1,066
Increase in other current liabilities 2,083 6,585
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 41,312 40,546
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases and maturities of available-for-sale securities, net 3,316 (8,005)
Acquisition of property and equipment:
Aircraft and rotable spares (14,690) (28,792)
Deposits on aircraft and rotable spares (5,905) (3,776)
Buildings and ground equipment (10,028) (2,407)
Rental vehicles -- (875)
Proceeds from sales of property and equipment -- 778
(Increase) decrease in other assets (64) 9
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (27,371) (43,068)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 1,916 433
Proceeds from issuance of long-term debt -- 15,812
Principal payments on long-term debt (3,209) (2,527)
Payment of cash dividends (1,122) (989)
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (2,415) 12,729
-------- --------
Increase in cash and cash equivalents 11,526 10,207
Cash and cash equivalents at beginning of period 27,202 24,544
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 38,728 $ 34,751
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,083 $ 737
Income taxes 505 124
See notes to condensed consolidated financial statements.
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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 accounting principles generally accepted in the United States 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. We suggest that these condensed consolidated financial
statements be read in conjunction with the consolidated financial statements and
the notes thereto included in our Annual Report on Form 10-K for the year ended
March 31, 2001. The results of operations for the three months ended June 30,
2001 are not necessarily indicative of the results that may be expected for the
nine months ended December 31, 2001.
Note B - Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
Note C - Available-for-Sale Securities
Available-for-sale securities 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 appreciation and depreciation
has been recorded as a separate component of stockholders' equity.
Note D - Income Taxes
For the three months ended June 30, 2001 and 2000, the Company provided for
income taxes based upon the estimated annualized effective tax rate. At June 30,
2001, the Company recorded a net current deferred tax asset of $10.8 million and
a net noncurrent deferred tax liability of $39.1 million.
Note E - Net Income Per Common Share
In accordance with Statement of Financial Accounting Standards No. 128 "Earnings
per Share," basic net income per common share is computed by dividing net income
by the weighted average number of common shares outstanding during the periods.
Diluted net income per common share reflects the potential dilution that could
occur if outstanding stock options were exercised. The calculation of the
weighted average number of common shares outstanding is as follows: (in
thousands)
Three Months Ended
June 30,
--------------------
2001 2000
------ ------
Weighted average number of common shares outstanding 56,133 49,522
Effect of outstanding stock options 1,282 1,030
------ ------
Weighted average number of shares for diluted net income
per common share 57,415 50,552
====== ======
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SKYWEST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note F -- Comprehensive Income
Comprehensive income includes charges and credits to stockholders' equity that
are not the results of transactions with shareholders. As of June 30, 2001, and
2000, comprehensive income includes not income and adjustments, net of tax, to
reflect unrealized appreciation and depreciation on available-for-sale
securities. The company recorded unrealized depreciation of $676,000 and
unrealized appreciation of $115,000 in available for sale securities for the
three months ended June 30, 2001 and June 30, 2000, respectively. Total
Comprehensive income is as follows:
Three Months Ended
June 30,
-------------------------
2001 2000
-------- --------
Net income $ 17,673 $ 16,547
Unrealized (depreciation)/appreciation on available for sale securities (676) 115
-------- --------
Total comprehensive income $ 16,997 $ 16,662
======== ========
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Item 2: 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 over 1,000 daily departures to
72 cities in 18 western states and Canada. All SkyWest flights are operated as
either Delta Connection or United Express under code-sharing arrangements with
Delta Air Lines, Inc., ("Delta") or United Airlines, Inc. ("United"). Total
operating revenues and passengers carried have grown consistently from fiscal
1997 through year ended March 31, 2001, at compounded annual growth rates of
approximately 21.2 percent and 20.9 percent, respectively. In fiscal 1997,
SkyWest generated approximately 1.4 billion available seat miles ("ASMs") and
had a fleet of fifty 30-seat Embraer EMB-120 Brasilia turboprops ("Brasilias")
and ten Canadair Regional Jets ("CRJs") at March 31, 1997. As a result of
additional aircraft acquisitions, SkyWest generated approximately 2.3 billion
ASMs in fiscal 2001 with a fleet of 91 Brasilias and 17 CRJs at March 31, 2001.
SkyWest has been a code-sharing partner with Delta in Salt Lake City and United
in Los Angeles since 1987 and 1997, respectively. In April 1998, SkyWest
expanded its United Express Agreement to provide service as United Express in
United's Portland and Seattle/Tacoma markets and in additional Los Angeles
markets. In June 1998, SkyWest expanded its operations to serve as the United
Express carrier in San Francisco. Today, SkyWest operates as the Delta
Connection in Salt Lake City and as United Express in Los Angeles, San
Francisco, Denver and in the Pacific Northwest. SkyWest believes that its
success in attracting multiple code-sharing relationships is attributable 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 code 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
routes, the major airline partner controls scheduling, ticketing, pricing and
seat inventories with SkyWest receiving from its major airline partner
negotiated payments per flight departure and incentives related to passenger
volumes and levels of customer service. As of June 30, 2001, approximately 71
percent of SkyWest's capacity was in contract flying and 29 percent was in
SkyWest controlled flying. The Company plans to transition all of its Delta
Connection flying to contract flying effective October 1, 2001 and January 1,
2002 for the applicable CRJ and Brasilia operations, respectively. Therefore, as
of January 1, 2002, essentially all SkyWest flights will be operated as contract
flights. As of June 30, 2001, approximately 51 percent of SkyWest's capacity
under the Delta Connection operation was SkyWest-controlled flying. As of June
30, 2001, 60 percent of SkyWest's traffic was carried under the Delta code, and
40 percent was carried under the United code. 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 119 CRJs, which
includes 10 additional CRJs being remarketed by the manufacturer, and options
for an additional 119 CRJs with deliveries which began in July 2001. These
aircraft will be allocated between the Delta Connection and United Express
operations.
Results of Operations:
Operating Statistics
For the
Three Months Ended
June 30,
-----------------------------------------------------
2001 2000 % Change
---- ---- --------
Passengers carried 1,601,435 1,401,113 14.3
Revenue passenger miles (000s) 402,184 319,830 25.7
Available seat miles (000s) 647,128 565,409 14.5
Passenger load factor 62.1% 56.6% 9.7 pts
Passenger breakeven load factor 51.2% 45.9% 11.6 pts
Yield per revenue passenger mile 37.2cents 40.1cents (7.2)
Revenue per available seat mile 23.4cents 23.0cents 1.7
Cost per available seat mile 19.3cents 18.6cents 3.8
Average passenger trip (miles) 251 228 10.1
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Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Continued)
For the Three Months Ended June 30, 2001 and 2000
Net income increased to $17.7 million, or $0.31 per diluted share for the three
months ended June 30, 2001, compared to $16.5 million, or $0.33 per diluted
share for the three months ended June 30, 2000. Consolidated operating revenues
increased 14.8% to $149.7 million for the three months ended June 30, 2001 from
$130.4 million for the three months ended June 30, 2000.
Passenger revenues, which represented 99.0% of consolidated operating revenues,
increased 15.5% to $148.3 million for the three months ended June 30, 2001 from
$128.4 million or 98.5% of consolidated operating revenues for the three months
ended June 30, 2000. The increase was due primarily to a 25.7% increase in
revenue passenger miles, principally as a result of the delivery of additional
CRJ's over the past nine months. For the three months ended June 30, 2001, the
Company continued to increase its services with its code-sharing partners and
took delivery of four CRJs. In addition, the Company took delivery of five CRJ's
during the month of June that were remarketed by the aircraft manufacturer.
Seven of these aircraft were placed in service under the Delta Connection
operations and two were placed in service under the United Express operations.
Additionally, during the quarter two Brasilias were returned to the lessor due
to lease expiration. Fuel surcharges have also been added to fares in an effort
to mitigate increases 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 which utilizes historical booking data and trends
to optimize revenue. Together these factors increased revenue per available seat
mile 1.7% to 23.4cents for the three months ended June 30, 2001 from 23.0cents
for the three months ended June 30, 2000.
Passenger load factor increased to 62.1% for the three months ended June 30,
2001 from 56.6% for the three months ended June 30, 2000. The increase in load
factor was due primarily to the further development of code-sharing
relationships with United and Delta whereby SkyWest is experiencing increased
load factors in our new markets. The increase was also due, in part, to
refinements in SkyWest's flight schedules and continued operational
improvements.
Total operating expenses and interest increased 17.9% to $124.7 million for the
three months ended June 30, 2001, compared to $105.8 million for the three
months ended June 30, 2000. As a percentage of consolidated operating revenues,
total operating expenses and interest increased to 83.3% for the three months
ended June 30, 2001 from 81.1% for the comparable period of fiscal 2000. The
total increase in operating expenses was primarily due to infrastructure and
build-up costs prior to new aircraft deliveries in SkyWest's planned expansion,
which are reimbursed by our major partners.
Airline operating costs per available seat mile (including interest expense)
increased 3.8% to 19.3cents for the three months ended June 30, 2001 from
18.6cents for the three months ended June 30, 2000. 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 June 30, 2001 from 25.5%
for the three months ended June 30, 2000. The increase was principally the
result of airline operating revenues increasing only 14.8% period over period
and salaries, wages and employee benefits increasing 18.6% period over period.
The average number of full-time equivalent employees for the three months ended
June 30, 2001 was 4,034 compared to 3,500 for the three months ended June 30,
2000, an increase of 15.3%. The increase in number of employees was due, in
large part, to the addition of personnel required for SkyWest's expansion.
Salaries, wages and employee benefits per available seat mile increased to
6.1cents for the three months ended June 30, 2001, compared to 5.8cents for the
three months ended June 30, 2000, as a result of additional employees related to
SkyWest's expansion.
Aircraft costs, including aircraft rent and depreciation, increased as a
percentage of airline operating revenues to 18.1% for the three months ended
June 30, 2001, from 16.6% for the three months ended June 30, 2000. The increase
was due primarily to airline operating revenues increasing only 14.8% period
over period and aircraft costs increasing 25.2% period over period. Aircraft
costs per available seat mile increased to 4.2cents for the three months ended
June 30, 2001, from 3.8cents for the three months ended June 30, 2000. The
increase in the costs are due to a higher mix of new aircraft within the fleet.
Maintenance expense increased as a percentage of airline operating revenues to
8.7% for the three months ended June 30, 2001, compared to 7.9% for the three
months ended June 30, 2000. The increase was due primarily to airline operating
revenues increasing only 14.8% period over period and maintenance expense
increasing 25.8% period over period. Maintenance expense per available seat mile
increased to 2.0cents for the three months ended June 30, 2001, from 1.8cents
for the three months ended June 30, 2000. The increase in maintenance expense
per available seat mile was due to general maintenance inspections, work related
to the delivery of our additional aircraft and the timing of certain maintenance
expense on existing aircraft.
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Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Continued)
Fuel costs increased as a percentage of airline operating revenues to 12.2% for
the three months ended June 30, 2001, from 11.6% for the three months ended June
30, 2000. The increase was due primarily to a 5.8% increase in the average fuel
price per gallon to $1.11 from $1.05. Fuel costs per available seat mile
increased to 2.8cents for the three months ended June 30, 2001, from 2.7cents
for the three months ended June 30, 2000.
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 18.1% for the three
months ended June 30, 2001, from 19.1% for the three months ended June 30, 2000.
The decrease was primarily the result of SkyWest obtaining additional economic
efficiencies related to these costs through increased available seat mile
production. Other expenses per available seat mile decreased to 4.2cents for the
three months ended June 30, 2001, from 4.4cents for the three months ended June
30, 2000.
Liquidity and Capital Resources
The Company had working capital of $264.4 million and a current ratio of 3.8:1
at June 30, 2001, compared to working capital of $267.0 million and a current
ratio of 2.4:1 at March 31, 2001. During the three months ended June 30, 2001
the principal sources of funds were $41.3 million generated from operations,
$3.3 million from the sale of investments in securities and $1.9 million from
the issuance of common stock upon exercise of stock options. During the three
months ended June 30, 2001, the Company invested $14.7 million in flight
equipment, $10.1 million in buildings and ground equipment, $5.9 million in
aircraft deposits, and other, reduced long-term debt by $3.2 million, and paid
cash dividends of $1.1 million. These factors resulted in a net increase of
$11.5 million in cash and cash equivalents.
The Company's position in available-for-sale securities, consisting primarily of
investment grade bonds, bond funds and commercial paper, decreased to $248.8
million at June 30, 2001, compared to $252.8 million at March 31, 2001. At June
30, 2001, our mix of capital was 12.0% debt to 88.0% stockholders equity.
The Company has significant long-term operating lease obligations primarily
relating to its aircraft fleet. These leases are classified as operating leases
and therefore are not reflected as liabilities in the accompanying consolidated
balance sheets. At June 30, 2001, SkyWest leased 92 aircraft under leases with
an average remaining term of approximately 8.7 years. Future minimum lease
payments due under all long-term operating leases were approximately $683.1
million at June 30, 2001. At a 7.5% discount factor, the present value of these
obligations would be equal to approximately $468.7 million at June 30, 2001.
The Company's total long-term debt of $80.9, including current portion, was
incurred in connection with the acquisition of Brasilia's and CRJ's. Certain
amounts related to Brasilias are supported by continuing subsidy payments
through the export support program of the Federative Republic of Brazil. The
subsidy payments reduce the stated interest rates to an average effective rate
of approximately 3.81% on $25.9 million of the long-term debt at June 30, 2001.
The continuing subsidy payments are at risk 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
it 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's long-term debt of $23.5 million, the
average effective rate is 3.82% at June 30, 2001 and the lender has assumed the
risk of the subsidy payments. The average effective rate on the debt related to
the CRJ aircraft of $31.5 million was 7.26% at June 30, 2001 and is not subject
to subsidy payments.
The Company spent approximately $24.7 million for nonaircraft capital
expenditures during the three months ended June 30, 2001, consisting primarily
of aircraft engine overhauls, rotable spare parts, buildings and ground
equipment and rental vehicles.
The Company has available $10.0 million in an unsecured bank line of credit with
interest payable at the bank's base rate less one-quarter percent, which was a
net rate of 6.5% at June 30, 2001. Management believes that, in the absence of
unusual circumstances, the working capital available to the Company will be
sufficient to meet its financial requirements, including expansion, capital
expenditures, lease payments 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
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Management's Discussion and Analysis of Financial
Condition and Results of Operations
(Continued)
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 Quarterly Report on Form 10-Q contains forward-looking statements and
information that are based on management's beliefs, 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
management believes 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. Key factors that may have a direct bearing on our operating results
include, among other things, changes in SkyWest's code-sharing relationships,
fluctuations in the economy and the demand for air travel, the degree and nature
of competition and SkyWest's ability to expand services in new and existing
markets and to maintain profit margins in the face of pricing pressures.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Aircraft Fuel
SkyWest is exposed to fluctuations in the price and availability of aircraft
fuel, which may affect the Company's earnings. The Company's financial
statements reflect both the cost of fuel purchased for SkyWest-controlled
flights, as well as fuel purchased for contract flights, which is subject to
reimbursement by SkyWest's code-sharing partners. Currently, the Company has
have limited exposure to fuel price increases with respect to approximately 71%
of available seat miles produced, due to contractual arrangements with United
and Delta. These major airlines reimburse SkyWest for the actual cost of fuel on
contracted flights. For illustrative purposes only, the Company has estimated
the impact of market risk using a hypothetical increase in fuel price per gallon
of 10% for the quarters ended June 30, 2001 and 2000. 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
$550,000 for the three months ended June 30, 2001 and $517,000 for the three
months ended June 30, 2000. 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 rates 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 cash and securities held at the time; however, the market
value of the Company's available-for-sale securities would decline. At June 30,
2001, the Company had variable rate notes representing 23% of its total
long-term debt and 27% at June 30, 2000. For illustrative purposes only, the
Company has estimated the impact of market risk using a hypothetical increase in
interest rates of one percentage point for both variable rate long-term debt and
cash and securities. Based on this hypothetical assumption, the Company would
have incurred an additional $45,000 in interest expense and received $721,000 in
additional interest income for the three months ended June 30, 2001 and an
additional $31,000 in interest expense and received $451,000 in additional
interest income for the three months ended June 30, 2000. As a result of this
hypothetical assumption, management believes the Company 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 represented
77% of the total long-term debt at June 30, 2001 and 73% of the Company's total
long-term debt at June 30, 2000.
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PART II. OTHER INFORMATION
SKYWEST, INC.
Item 6: Exhibits and Reports on Form 8-K
a. Reports on Form 8-K -- There were no reports on Form 8-K filed during
the quarter ended June 30, 2001.
b. Exhibits - None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SKYWEST, INC.
Registrant
August 14, 2001 BY: /s/ Bradford R. Rich
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Bradford R. Rich
Executive Vice President,
Chief Financial Officer and
Treasurer
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