SkyWest Airlines 2002 Annual Report Download - page 30

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mitigation of the historical seasonal trends due to an increase in the portion of its operations in
contract flying.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Aircraft Fuel
In the past, the Company has not experienced difficulties with fuel availability and expects to be
able to obtain fuel at prevailing prices in quantities sufficient to meet its future needs. Effective
January 1, 2002, the Company’s contracts with its major partners obligate its major partners to bear the
economic risk of fuel price fluctuations. As such, during the terms of those contracts the Company
anticipates that its results from operations will not be directly affected by fuel price volatility.
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. However, the Company
would also receive higher amounts of interest income on its cash and securities held at the time. At
December 31, 2002, the Company had variable rate notes representing 10.7% of its total long-term
debt compared with 12.7% of its total long-term debt at December 31, 2001. For illustrative purposes
only, 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 $160,000 in interest
expense and received $3,565,000 in additional interest income for the year ended December 31, 2002
and an additional $193,000 in interest expense and received $2,868,000 in additional interest income for
the year ended December 31, 2001. 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. Management does not believe the Company has significant exposure to the changing
interest rates on its fixed-rate long-term debt instruments, which represent 89.3% of the total long-term
debt at December 31, 2002 and 87.3% at December 31, 2001.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth below should be read together with ‘‘Management’s Discussion and
Analysis of Financial Condition and Results of Operations,’’ appearing elsewhere herein.
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