SkyWest Airlines 2007 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... the fiscal year ended December 31, 2007 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 No. 0-14719 SKYWEST, INC. Incorporated under the Laws of Utah 87-0292166 (IRS Employer ID No.) 444 South River Road...

  • Page 3
    ... ...Item 8. Financial Statements and Supplementary Data...Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Item 9A. Controls and Procedures ...Item 9B. Other Information ...PART III Item 10. Directors, Executive Officers and Corporate Governance...Item...

  • Page 4
    ... airline industry, including significant fare-restructuring activities, consolidation of major carriers, leaving fewer potential code-share partners, capacity reductions and bankruptcy filings and other restructurings by major and regional carriers, including Delta Air Lines ("Delta") and United Air...

  • Page 5
    ... departures as of December 31, 2007, of which approximately 1,150 were United Express flights, 525 were Delta Connection flights and 75 were Midwest flights. SkyWest Airlines' operations are conducted from hubs located in Chicago (O' Hare), Denver, Kansas City, Los Angeles, Milwaukee, San Francisco...

  • Page 6
    ... to operate up to 25 Bombardier CRJ200s under Midwest' s code. In exchange for SkyWest Airlines' obligation to provide the designated number of flights and performing other obligations under the Midwest Services Agreement, Midwest has agreed to pay SkyWest Airlines on a weekly basis a fixed-fee per...

  • Page 7
    ... departure statistics, cancellation of flights, baggage handling performance and the overall image of the regional airline as a whole. The principal competitive factors we experience with respect to our pro-rate flying include fare pricing, customer service, routes served, flight schedules, aircraft...

  • Page 8
    ... a carrier for the code-share partner. For example, SkyWest Airlines flies out of Chicago (O' Hare), Denver, Los Angeles and San Francisco as United Express and out of Salt Lake City as Delta Connection and Kansas City and Milwaukee as Midwest Connect. ASA operates as Delta Connection out of Atlanta...

  • Page 9
    ... Express Agreement with United and a Midwest Services Agreement with Midwest, and SkyWest Airlines and ASA operate under Delta Connection Agreements with Delta. These code-share agreements authorize Delta, United and Midwest to identify our flights and fares under their two-letter flight designator...

  • Page 10
    .... ASA operates these aircraft to provide Delta Connection service between Delta hubs and destinations designated by Delta. As of December 31, 2007, ASA was operating more than 750 Delta Connection flights per day between Atlanta, Cincinnati, Salt Lake City and designated outlying destinations. Under...

  • Page 11
    ...Denver, Los Angeles, San Francisco, Portland and Seattle/Tacoma and designated outlying destinations. Generally, under the United Express Agreement, United retains all air fares, cargo rates, mail charges and other revenues associated with each flight. In exchange for providing the designated number...

  • Page 12
    ... 2007, SkyWest Airlines scheduled the following daily flights as a United Express carrier: 284 flights to or from Chicago O' Hare International Airport, 270 flights to or from Denver International Airport, 284 flights to or from Los Angeles International Airport, 236 flights to or from San Francisco...

  • Page 13
    ... our business, financial condition, results of operations and liquidity. Employees As of December 31, 2007, SkyWest and SkyWest Airlines collectively employed 10,249 full-time equivalent employees consisting of 4,587 pilots and flight attendants, 4,084 customer service personnel, 1,095 mechanics and...

  • Page 14
    ...we consider SkyWest Airlines' relationships with its employees to be good. As of December 31, 2007, ASA employed approximately 4,295 full-time equivalent employees consisting of 2,356 pilots and flight attendants, 751 customer service personnel, 831 mechanics and other maintenance personnel, and 357...

  • Page 15
    ..., facilities and services to support a significant portion of our operations, including airport and terminal facilities and operations, information technology support, ticketing and reservations, scheduling, dispatching, fuel purchasing and ground handling services. If Delta, United or Midwest were...

  • Page 16
    ... terminations of our code-share agreements, Delta, United and Midwest could require us to sell or assign to them facilities and inventories, including maintenance facilities, we use in connection with the codeshare services we provide. As a result, in order to offer airline service after termination...

  • Page 17
    ... regional jet models, our results of operation and financial condition could be negatively impacted. We may be limited from expanding our flying within the Delta and United flight systems, and there are constraints on our ability to provide airline services to airlines other than Delta and United...

  • Page 18
    ...Delta Connection Agreement, our growth is restricted in Atlanta, Cincinnati, New York (John F. Kennedy International Airport), Orlando and Salt Lake City. Under SkyWest Airlines' United Express Agreement, growth is restricted in Chicago (O' Hare International Airport), Denver, San Francisco, Seattle...

  • Page 19
    ...the issuance of FAA directives restricting or prohibiting the use of Bombardier aircraft types we operate would have a material adverse effect on our business and operations. Maintenance costs will likely increase as the age of our regional jet fleet increases. Because the average age of our CRJ900s...

  • Page 20
    ... on our operations. We currently operate primarily through hubs in Atlanta, Kansas City, Los Angeles, Milwaukee, San Francisco, Salt Lake City, Chicago, Denver, Cincinnati/Northern Kentucky and the Pacific Northwest. Nearly all of our flights will either originate or fly into one of these hubs. Our...

  • Page 21
    ... affect, the operations and financial performance of the airline industry. The price of aircraft fuel is unpredictable and increased significantly during much of 2007. Higher fuel prices may lead to higher airfares, which would tend to decrease the passenger load of our code-share partners. In the...

  • Page 22
    ...Age (years) CRJ200s...CRJ700s...CRJ900s...Brasilia Turboprops ...ATR-72 Turboprops ... 82 48 7 12 - 164 54 10 47 12 50 70 90 30 66 1,500 1,600 1,500 300 300 530 530 530 300 300 6.2 3.3 1.1 10.7 14.2 SkyWest Airlines has firm orders to acquire 18 new CRJ700s, four new CRJ900s and four used CRJ...

  • Page 23
    ... where passenger load and other factors make the operation of a Bombardier Regional Jet impractical. As of December 31, 2007, SkyWest Airlines operated 59 Brasilia turboprops out of Los Angeles, San Francisco, Salt Lake City, Seattle/Tacoma and Portland. SkyWest Airlines' Brasilia turboprops are...

  • Page 24
    ..., check-in and boarding and other facilities in the passenger terminal areas in the majority of the airports it serves and staffs those facilities with SkyWest Airlines personnel. Other airlines, including Delta, Midwest and United, provide ticket handling and/or ground support services for SkyWest...

  • Page 25
    ... in the passenger terminal areas in the majority of the airports it serves and staffs those facilities with ASA personnel. Other airlines, including Delta, provide ticket handling and/or ground support services for ASA in 96 of 136 airports ASA serves. Our management deems SkyWest Airlines' and ASA...

  • Page 26
    ...December 31, 2007, we had spent approximately $126.0 million to purchase and retire approximately 5,000,000 shares of common stock. The authorization of Board of Directors does not have an expiration date. ITEM 6. SELECTED FINANCIAL DATA The following selected financial and operating data should be...

  • Page 27
    ... 469 413 393 Number of operating aircraft at end of year...436 410 380 206 185 Quarterly Financial Data Year Ended December 31, 2007 Second Third Fourth Quarter Quarter Quarter First Quarter Year Operating revenues (000) ...Operating income (000)...Net income (000) ...Net income per common share...

  • Page 28
    ... to operate additional aircraft under the Midwest Services Agreement. We serve markets from Midwest' s current hubs in Milwaukee and Kansas City. As of December 31, 2007, SkyWest Airlines operated as a Delta Connection carrier in Salt Lake City, a United Express carrier in Los Angeles, San Francisco...

  • Page 29
    ... 12, 2007, we announced that SkyWest Airlines plans to acquire 22 additional regional jet aircraft through 2010, 18 of which we intend to operate for United Express, as part of an aircraft transition plan, allowing United Express to remove 23 EMB-120 30 seat turboprop aircraft from the contract...

  • Page 30
    ... discount rate to be used in discounting future lease payments. These estimates are utilized by management in making computations as required by existing accounting standards that determine whether the lease is classified as an operating lease or a capital lease. All of our aircraft leases...

  • Page 31
    ... aircraft fleet from 410 as of December 31, 2006 to 436 as of December 31, 2007. Additionally, our average passenger trip length increased from 503 miles as of December 31, 2006 to 520 miles as of December 31, 2007, primarily due to the increased number of CRJ700s and CRJ900s we placed into service...

  • Page 32
    ... December 31, 2007, approximately 98% of our ASMs were generated by our contract flying, where Delta, United or Midwest controls scheduling, ticketing, pricing and seat inventories. Our contract-flying routes primarily supplement Delta, United and Midwest mainline service in previously established...

  • Page 33
    ...pretax) under the United Express Agreement and Midwest Services Agreement to compensate us for future engine maintenance overhauls. Because the "Maintenance" category in the table above does not include salaries, wages and employee benefits associated with our maintenance operations (those costs are...

  • Page 34
    ...31, 2005. The increase in load factor was due primarily to the further development of our relationships with United and Delta whereby SkyWest Airlines and ASA supplement mainline service in previously established and developed markets. Ground Handling and Other Revenue. Total ground handling revenue...

  • Page 35
    ... December 31, 2005. The increase in number of employees was primarily due to the addition of personnel required for the new regional jet flying and due to the addition of personnel required for new cities added to our ground handling service contracts. The cost per ASM for aircraft costs, including...

  • Page 36
    ...,730 $770,991 $529,321 $424,792 $471,206 $2,991,439 Purchase Commitments and Options On November 21, 2006, we announced that SkyWest Airlines had been selected by Delta to operate 12 new CRJ700s previously operated by Comair Inc. Ten of the 12 CRJ700s were delivered by December 31, 2007 and the 35

  • Page 37
    ... 12, 2007, we announced that SkyWest Airlines plans to acquire 22 additional regional jet aircraft through 2010, 18 of which we intend to operate for United Express, as part of an aircraft transition plan, allowing United Express to remove 23 EMB-120 30-seat turboprop aircraft from the contract...

  • Page 38
    ... United Express and Midwest flights. On our Delta Connection regional jet flights, Delta has agreed to bear the economic risk of fuel price fluctuations. We bear the economic fuel risk on our pro-rate operations. For the year ended December 31, 2007, contract flying and pro-rate revenue flying...

  • Page 39
    ...will affect our ability to execute our current business plan. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information set forth below should be read together with the "Management' s Discussion and Analysis of Financial Condition and Results of Operations," appearing elsewhere herein. 38

  • Page 40
    ...audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), SkyWest, Inc.' s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring...

  • Page 41
    ... ...Deposits on aircraft...Buildings and ground equipment ...Less-accumulated depreciation and amortization ...Total property and equipment, net ...OTHER ASSETS Intangible assets, net ...Other assets ...Total other assets...Total assets...See accompanying notes to consolidated financial statements...

  • Page 42
    SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) LIABILITIES AND STOCKHOLDERS' EQUITY December 31, 2007 December 31, 2006 CURRENT LIABILITIES: Current maturities of long-term debt ...Accounts payable...Accrued salaries, wages and benefits...Accrued aircraft rents......

  • Page 43
    ... except per share amounts) Year Ended December 31, 2006 2007 2005 OPERATING REVENUES: Passenger ...Ground handling and other ...Total operating revenues...OPERATING EXPENSES: Flying operations ...Customer service...Maintenance...Depreciation and amortization ...General and administrative ...Total...

  • Page 44
    ...of common stock, net of offering costs and underwriting discount of $8,864...Exercise of common stock options...Sale of common stock under employee stock purchase plan ...Stock based compensation expense related to the issuance of stock options and the employee stock purchase plan...Tax benefit from...

  • Page 45
    ...on sale of property and equipment ...Loss on sale of marketable securities ...Decrease in allowance for doubtful accounts...Net increase in deferred income taxes...Tax benefit from exercise of common stock options ...Changes in operating assets and liabilities: Decrease (increase) in restricted cash...

  • Page 46
    ... provide service in Chicago. As of December 31, 2007, SkyWest Airlines operated approximately 1,750 total daily flights as a Delta Connection carrier in Salt Lake City and a United Express carrier in Chicago (O' Hare), Denver, Los Angeles, San Francisco, Portland and Seattle/Tacoma. SkyWest Airlines...

  • Page 47
    ... based on historical results and management' s expectations of future operations. Expendable inventory parts are charged to expense as used. An obsolescence allowance for flight equipment expendable parts is accrued based on estimated lives of the corresponding fleet types and salvage values. The...

  • Page 48
    ... and ground handling revenues when the service is provided. Under the Company' s contract and pro-rate flying agreements with Delta, United and Midwest, revenue is considered earned when the flight is completed. SkyWest Airlines and ASA have each entered into a Delta Connection Agreement with Delta...

  • Page 49
    ... the designated number of flights and performing other obligations under the Midwest Services Agreement, Midwest has agreed to pay SkyWest Airlines on a weekly basis a fixed-fee per completed block hour, fixed-fee per completed departure, a fixed-fee for overhead, and a one-time start-up payment...

  • Page 50
    ..., the Company applied Accounting Principles Board Opinion No. 25 ("Opinion No. 25"), and related interpretations in accounting for its stock-based compensation plans. SFAS No. 123, Accounting for Stock-Based Compensation, requires pro forma information regarding net income and net income per share...

  • Page 51
    ...accordance with SFAS No. 131 because the Company' s business consists of scheduled regional airline service. New Accounting Standards In July 2006, the Financial Accounting Standards Board (the "FASB") issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB...

  • Page 52
    ..., 2007 and 2006, SkyWest Airlines has a $25 million line of credit. As of December 31, 2007 and 2006, SkyWest Airlines had no amount outstanding under the facility. The facility expires on March 31, 2008 and has a fixed interest rate of 6.75%. During the year ended December 31, 2006, 14 CRJ700s were...

  • Page 53
    ...debt could be refinanced into operating leases. Hence, in 2005, $55.4 million in debt was settled and replaced with long-term operating leases. During 2005, SkyWest Airlines entered into a third party long-term leveraged lease facility for 32 regional jet aircraft. In conjunction with this financing...

  • Page 54
    ... 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 table summarizes future minimum rental payments...

  • Page 55
    ... SkyWest Airlines plans to acquire 22 additional regional jet aircraft through 2010, 18 of which the Company intends to operate for United Express, as part of an aircraft transition plan, allowing United Express to remove 23 EMB-120 30-seat turboprop aircraft from the contract reimbursement model...

  • Page 56
    ... pilots and flight attendants, 751 customer service personnel, 831 mechanics and other maintenance personnel, and 357 administration and support personnel. Three of ASA' s employee groups are represented by unions. ASA' s pilots are represented by the Air Line Pilots Association International ("ALPA...

  • Page 57
    ...million in net proceeds which were used to pay off two revolving lines of credit, to provide working capital and for general corporate purposes. Stock Compensation Effective January 1, 2001, the Company adopted two stock option plans: the Executive Stock Incentive Plan (the "Executive Plan") and the...

  • Page 58
    ... from the date of grant. The following table summarizes the stock option activity for all plans for the years ended December 31, 2007, 2006 and 2005: 2007 Weighted Weighted Average Aggregate Average Remaining Intrinsic Exercise Contractual Value Price Term ($000) $19.36 6.5 years $33,862 26.87 18...

  • Page 59
    ... length of service. Employee Stock Purchase Plan In February 1996, the Company' s Board of Directors approved the SkyWest, Inc. 1995 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...

  • Page 60
    ... Officer, serves on the Board of Directors of Zion' s Bancorporation ("Zion' s"). The Company maintains a line of credit (see Note 2) and certain bank accounts with Zion' s. Zion' s is an equity participant in leveraged leases on three CRJ200, two CRJ700 and six Brasilia turboprop aircraft operated...

  • Page 61
    ...included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting. Our management reviewed the results of its assessment with the Audit Committee of our Board of Directors. Based on this...

  • Page 62
    .... Our responsibility is to express an opinion on the company' s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the...

  • Page 63
    ... OFFICERS AND CORPORATE GOVERNANCE EXECUTIVE COMPENSATION SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS PRINCIPAL ACCOUNTANT FEES AND SERVICES PART IV "Election of Directors", "Corporate Governance...

  • Page 64
    ... United Air Lines, Inc., and SkyWest Airlines, Inc. Stock Option agreement dated January 28, 1987 between Delta Air Lines, Inc. and SkyWest, Inc. Lease Agreement dated December 1,1989 between Salt Lake City Corporation and SkyWest Airlines, Inc. Master Purchase Agreement between Bombardier and...

  • Page 65
    ... the exhibits to the Registrant' s Form 10-K filed February 28, 2007. Report of Independent Registered Public Accounting Firm We have audited the consolidated financial statements of SkyWest, Inc. and subsidiaries (the "Company") as of December 31, 2007 and 2006, and for each of the three years in...

  • Page 66
    SKYWEST, INC. AND SUBSIDIARIES SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2007, 2006 and 2005 (Dollars in thousands) Balance at Beginning of Year Additions Charged to Costs and Expenses Balance at End of Year Description Deductions Year Ended December 31, 2007:...

  • Page 67
    ... this Annual Report on Form 10-K for the year ended December 31, 2007, to be signed on its behalf by the undersigned, thereunto duly authorized, on February 26, 2008. SKYWEST, INC. By /s/ BRADFORD R. RICH Bradford R. Rich Executive Vice President and Chief Financial Officer ADDITIONAL SIGNATURES...

  • Page 68