1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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
(801) 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 6, 1997
----- -----------------------------
Common stock, no par value 10,178,140
2
SKYWEST, INC.
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
As of June 30, 1997 and
March 31, 1997 3
Condensed Consolidated Statements of
Income For the Three Months
Ended June 30, 1997 and 1996 5
Condensed Consolidated Statements of
Cash Flows For the Three Months Ended
June 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Part II - Other Information
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
2
3
PART I. FINANCIAL INFORMATION
SKYWEST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
ASSETS
June 30, March 31,
1997 1997
-------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 48,631 $ 37,786
Available-for-sale securities 17,953 17,970
Receivables, net 8,609 10,851
Inventories 10,891 9,987
Prepaid aircraft rents 6,476 8,612
Other current assets 4,465 5,089
-------- --------
Total current assets 97,025 90,295
-------- --------
PROPERTY AND EQUIPMENT:
Aircraft and rotable spares 184,071 171,239
Buildings and ground equipment 45,258 43,508
Rental vehicles 4,092 3,291
-------- --------
233,421 218,038
Less-accumulated depreciation and
amortization (85,544) (80,295)
-------- --------
147,877 137,743
-------- --------
OTHER ASSETS 4,724 4,860
-------- --------
$249,626 $232,898
======== ========
See notes to condensed consolidated financial statements.
3
4
SKYWEST, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in Thousands)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, March 31,
1997 1997
-------- --------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 7,287 $ 6,399
Trade accounts payable 30,644 29,213
Accrued salaries, wages and benefits 5,456 6,095
Taxes other than income taxes 1,841 1,537
Air traffic liability 1,769 1,488
Income taxes payable 1,043 -
Fleet restructuring accrual - 290
-------- --------
Total current liabilities 48,040 45,022
-------- --------
LONG-TERM DEBT, less current maturities 56,030 47,337
-------- --------
DEFERRED INCOME TAXES PAYABLE 16,840 15,987
-------- --------
STOCKHOLDERS' EQUITY:
Common stock 89,474 89,146
Retained earnings 59,527 55,691
Treasury stock (20,285) (20,285)
-------- --------
Total stockholders' equity 128,716 124,552
-------- --------
$249,626 $232,898
======== ========
See notes to condensed consolidated financial statements.
4
5
SKYWEST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
For The
Three Months Ended
June 30,
-----------------------
1997 1996
--------- ---------
OPERATING REVENUES:
Passenger $ 61,411 $ 59,661
Freight 1,253 1,010
Public service and other 289 310
Nonairline 9,162 9,588
--------- ---------
72,115 70,569
--------- ---------
OPERATING EXPENSES:
Flying operations 26,303 23,185
Aircraft, traffic and passenger service 8,876 8,591
Maintenance 6,810 7,742
Promotion and sales 7,305 7,323
General and administrative 3,315 3,439
Depreciation and amortization 4,640 4,379
Nonairline 8,163 8,232
--------- ---------
65,412 62,891
--------- ---------
OPERATING INCOME 6,703 7,678
--------- ---------
OTHER INCOME AND (EXPENSE):
Interest expense (520) (530)
Interest income 708 501
Gain on sales of property and equipment 123 203
--------- ---------
311 174
--------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 7,014 7,852
PROVISION FOR INCOME TAXES 2,669 3,018
-------- --------
NET INCOME $ 4,345 $ 4,834
======== ========
NET INCOME PER COMMON SHARE $ .43 $ .48
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING 10,150,517 10,047,208
========== ==========
See notes to condensed consolidated financial statements.
5
6
SKYWEST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For the
Three Months Ended
June 30,
-------------------
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,345 $ 4,834
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,640 4,379
Gain on sales of property and equipment (123) (203)
Maintenance expense related to disposition of rotable spares 79 43
Increase in deferred income taxes 853 856
Amortization of deferred credits - (807)
Nonairline depreciation and amortization 1,206 788
Changes in operating assets and liabilities:
Decrease (increase) in receivables, net 2,242 (210)
Increase in inventories (904) (286)
Decrease (increase) in other current assets 2,760 (2,161)
Increase in trade accounts payable 1,431 4,304
Decrease in fleet restructuring accrual (290) (966)
Increase in other current liabilities 989 2,130
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,228 12,701
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of available-for-sale securities 17 1,130
Acquisition of property and equipment:
Aircraft and rotable spares (13,196) (2,602)
Buildings and ground equipment (1,750) (1,307)
Rental vehicless (1,307) (1,019)
Proceeds from sales of property and equipment 502 699
Increase in other assets (50) -
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (15,784) (3,099)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 328 -
Proceeds from long-term debt 11,500 -
Reduction of long-term debt (1,919) (1,681)
Payment of cash dividends (508) (803)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 9,401 (2,484)
-------- --------
Increase in cash and cash equivalents 10,845 7,118
Cash and cash equivalents at beginning of period 37,786 24,529
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 48,631 $ 31,647
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 588 $ 464
Income taxes - 366
See notes to condensed consolidated financial statements.
6
7
SKYWEST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Consolidated Financial Statements
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. These condensed consolidated
financial statements reflect all adjustments which, in the opinion of
management, are necessary to present fairly the results of operations for the
interim periods presented. All adjustments are of a normal recurring nature.
Certain information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the following disclosures are adequate to make the
information presented not misleading. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's latest
annual report on Form 10-K. The results of operations for the three months
ended June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending March 31, 1998.
Note B - Available-for-Sale Securities
Available-for-sale securities are recorded at fair market value.
Note C - Income Taxes
For the three months ended June 30, 1997 and 1996, the Company provided for
income taxes based upon the estimated annualized effective tax rate. Under the
provisions of the Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", the Company has classified the net current and
noncurrent deferred tax assets and liabilities which at June 30, 1997 included
a current deferred tax asset of approximately $2.1 million and a deferred tax
liability of approximately $16.8 million.
Note D - Net Income Per Common Share
Net income per common share is calculated based upon the weighted average
shares outstanding during the period. No material dilution results from common
stock equivalents which are outstanding options to purchase common stock.
Note E - Subsequent Event
On July 23, 1997, SkyWest Airlines and United Airlines announced a marketing
agreement in which SkyWest will operate as United Express in Los Angeles, Las
Vegas, Phoenix and various intra-California markets. The United Express
code-share arrangement will provide extensive connecting opportunities for
SkyWest/United Express customers in Los Angeles where United Airlines is the
largest major carrier. The new agreement will be effective October 1, 1997,
and there has been no financial impact for the quarter ended June 30, 1997. At
the same time, SkyWest has also re-affirmed its Delta Airlines marketing
agreement with a newly signed Delta Connection contract which allows for a
certain level of SkyWest flights which is consistent with the current level of
Delta flights into and out of Los Angeles as well as a strengthened
relationship in Salt Lake City.
7
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
Operating Statistics
For the
Three Months Ended
June 30,
----------------------------------
1997 1996 % change
-------- -------- --------
Passengers carried 712,353 663,705 7.3%
Revenue passenger miles (000s) 189,040 179,647 5.2%
Available seat miles (000s) 372,901 344,454 8.3%
Passenger load factor 50.7% 52.2% (1.5) pts
Passenger breakeven load factor 46.3% 47.2% (.9) pts
Yield per revenue passenger mile $ .325 $ .332 (2.1%)
Cost per available seat mile $ .154 $ .160 (3.8%)
Average passenger trip (miles) 265 271 (2.2%)
For the Three Months Ended June 30, 1997 and 1996:
For the quarter ended June 30, 1997, the Company experienced record levels for
passenger enplanements and operating revenues. Operating revenues increased to
$72.1 million for the quarter ended June 30, 1997 compared to $70.6 million for
the quarter ended June 30, 1996. Net income was $4.3 million or $.43 per share
for the quarter ended June 30, 1997 compared to $4.8 million or $.48 per share
for the quarter ended June 30, 1996.
Passenger revenues, which represented 85.2 percent of total operating revenues,
increased 2.9 percent to $61.4 million for the quarter ended June 30, 1997
compared to $59.7 million or 84.5 percent of total operating revenues for the
quarter ended June 30, 1996. The increase is attributable to a 5.2 percent
increase in revenue passenger miles ("RPMs") which was offset by a 2.1 percent
decrease in yield per RPM. The increase in RPMs is primarily the result of
traffic stimulus generated from an all cabin class fleet. In addition, due to
the acquisition of more Brasilia aircraft, the availability of more discount
seats has generated greater passenger demand. Yield per RPM decreased 2.1
percent to $.325 for the quarter ended June 30, 1997 compared to $.332 for the
quarter ended June 30, 1996. This decrease is consistent with industry wide
fare discounting to stimulate passenger demand as well as the impact of the
aviation excise tax.
The Company's passenger load factor decreased 1.5 points to 50.7 percent for
the quarter ended June 30, 1997 compared to 52.2 percent for the quarter ended
June 30, 1996. Available seat mile growth of 8.3 percent was due to the
completion of the transition to an all cabin class fleet whereby the Company
acquired 15 new Brasilia aircraft. As a result of the decrease in yield per
RPM and the addition of available seat miles ("ASMs"), revenue per ASM
decreased 4.5 percent to 16.9c. for the quarter ended June 30, 1997 compared to
17.7c. for the quarter ended June 30, 1996. Although revenue per ASM decreased
for the quarter ended June 30, 1997, the spread between revenue per ASM and
cost per ASM remained relatively constant.
Total operating expenses and interest increased 3.9 percent to $65.9 million
for the quarter ended June 30, 1997 compared to $63.4 million for the quarter
ended June 30, 1996. As a percentage of consolidated operating revenues, total
operating expenses and interest increased to 91.4 percent for the quarter ended
June 30, 1997, from 89.9 percent for the comparable quarter ended June 30,
1996. For the quarter ended June 30, 1997, total airline operating expenses
and interest (excluding nonairline expenses) were 91.4 percent of airline
operating revenues compared to 90.5 percent for the comparable quarter ended
June 30, 1996. The decreased margin is the result of operating expenses
increasing at a faster rate than operating revenues. Primarily, as a result of
utilizing more Brasilia aircraft,
8
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
airline operating costs per ASM (including interest expense) decreased to 15.4
c. for the quarter ended June 30, 1997, from 16.0c. for the comparable quarter
ended June 30, 1996. Factors relating to the change in operating expenses and
interest are discussed below.
Salaries, wages and employee benefits increased as a percentage of airline
operating revenues to 24.9 percent for the quarter ended June 30, 1997, from
24.3 percent for the quarter ended June 30, 1996. The average number of
full-time equivalent employees for the quarter ended June 30, 1997 was 2,170,
compared to 2,128 for the quarter ended June 30, 1996. The increase in number
of personnel was primarily due to hiring flight attendants for new Brasilia
aircraft. Salaries, wages and employee benefits per ASM decreased to 4.2c. for
the quarter ended June 30, 1997 compared to 4.3c. for the quarter ended June
30, 1996, primarily due to the ASMs generated by Brasilia aircraft which are
more efficient on a unit cost basis.
Aircraft costs, including aircraft rent and depreciation, increased as a
percentage of airline operating revenues to 20.9 percent for the quarter ended
June 30, 1997, from 18.8 percent for the quarter ended June 30, 1996. Aircraft
costs per ASM increased slightly to 3.5c. for the quarter ended June 30, 1997
compared to 3.3c. for the quarter ended June 30, 1996. The increase is due to
higher average rents being paid on the Brasilia aircraft compared to the
previously operated Metroliner aircraft.
Maintenance expense decreased as a percentage of airline operating revenues to
7.5 percent for the quarter ended June 30, 1997 compared to 9.4 percent for the
quarter ended June 30, 1996. This decrease was the result of the utilization
of newer Brasilia aircraft which are more efficient than Metroliner aircraft.
Maintenance expense per ASM decreased to 1.3c. for the quarter ended June 30,
1997, from 1.7c. for the quarter ended June 30, 1996.
Fuel costs increased as a percentage of airline operating revenues to 12.0
percent for the quarter ended June 30, 1997, from 11.2 percent for the quarter
ended June 30, 1996, primarily due to ASM growth exceeding RPM growth. The
average fuel price per gallon was $.87 for the quarter ended June 30, 1997
compared to $.88 for the quarter ended June 30, 1996. Fuel costs per ASM was
2.0c. for both quarters ended June 30, 1997 and 1996.
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 25.7 percent for the
quarter ended June 30, 1997, from 25.8 percent for the quarter ended June 30,
1996.
Nonairline revenues decreased 4.4 percent to $9.2 million for the quarter ended
June 30, 1997 compared to $9.6 million for the quarter ended June 30, 1996.
The slight decrease is due to selling lower priced tour packages, as part of a
competitive strategy, rather than higher priced premium tour packages.
Nonairline expenses remained relatively constant at $8.2 million for both
quarters ended June 30, 1997 and 1996. Additionally, the average number of
full-time equivalent employees was 286 for the quarter ended June 30, 1997
compared to 309 for the quarter ended June 30, 1996.
Liquidity and Capital Resources
The Company had working capital of $49.0 million and a current ratio of 2.0:1
at June 30, 1997 compared to working capital of $45.3 million and a current
ratio of 2.0:1 at March 31, 1997. During the first quarter of fiscal 1998, the
Company invested $13.2 million in flight equipment, $3.1 million in buildings,
ground equipment and other fixed assets, reduced long-term debt by $1.9 million
and paid cash dividends of $.5 million. The principal sources of cash during
the first quarter of fiscal 1998 were $17.2 million provided by operating
activities, $11.5 million from the issuance of long-term debt, and $.8 million
from the sale of common stock and property and equipment. These factors
resulted in a $10.8 million cash and cash equivalents increase.
9
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
At June 30, 1997, the Company's long-term debt to equity position was 30
percent debt and 70 percent equity compared to 28 percent debt and 72 percent
equity at March 31, 1997.
The Company has options to acquire 10 additional Brasilia aircraft at fixed
prices (subject to cost escalation and delivery schedules) exercisable through
fiscal 1999. Options to acquire an additional ten Canadair Regional Jets have
been obtained and are exercisable at any time with no expiration.
The Company has available $5.0 million in an unsecured bank line of credit with
interest payable at the bank's base rate less one-quarter percent, which was
8.25 percent at June 30, 1997.
Future Results
This Form 10-Q contains forward-looking statements within the meaning of that
term in the Private Securities Litigation Reform Act of 1995. Forward-looking
statements are inherently subject to risks and uncertainties, some of which
cannot be predicted or quantified based on current expectations.
Readers are cautioned not to place undue reliance on any forward-looking
statements contained herein, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unexpected events.
10
11
PART II. OTHER INFORMATION
SKYWEST, INC.
Item 5: Other Information
On July 23, 1997, the Company announced a marketing agreement with United
Airlines wherein SkyWest would become a United Express carrier at Los Angeles,
Las Vegas, Phoenix and various intra-California markets. The agreement is
effective October 1, 1997. See Note E to the Condensed Consolidated Financial
Statements for other information.
Item 6: Exhibits and Reports on Form 8-K
a. Exhibits - Financial Data Schedule Exhibit 27.
b. Reports on Form 8-K - There were no reports on Form 8-K filed during the
quarter ended June 30, 1997.
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.
August 6, 1997 BY: /s/ Bradford R. Rich
-------------------------------------
Bradford R. Rich
Executive Vice President - Finance,
Chief Financial Officer and Treasurer
11