SkyWest Airlines 2011 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... Colorado Springs Casper Boise Sun Valley Idaho Falls Jackson Hole Medford Klamath Falls Twin Falls Crescent City Eureka/Arcata Salt Lake City Redding Elko Chico Reno Sacramento Oakland Montrose Mammoth Lakes San Francisco Cedar City Modesto San Jose St. George Fresno Monterey Las Vegas...

  • Page 3
    ... in creating ''one team''. In 2011 we also expanded and diversified our partner relationships, launching new codeshare agreements with US Airways and Alaska Airlines. The enhanced customer base of these new relationships, may provide opportunities to expand in the future. SkyWest not only created...

  • Page 4
    ... airlines flying. Thank you for your hard work and quality service you provide to our passengers and partners. Thank you again for your investment in SkyWest. We are working hard to deliver a profitable 2012 and beyond. Sincerely, 6MAR201214075785 Jerry C. Atkin Chairman and Chief Executive Officer...

  • Page 5
    ... year ended December 31, 2011 OR អ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from Commission File No. 0-14719 to SKYWEST, INC. Incorporated under the Laws of Utah 444 South River Road St. George, Utah 84790 (435) 634-3000...

  • Page 6
    ... About Market Risk ...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...

  • Page 7
    ..., and our anticipated financial performance. These statements include, but are not limited to, statements about our future growth and development plans, including our future financial and operating results, our plans for SkyWest Airlines and ExpressJet, the anticipated benefits of our acquisition of...

  • Page 8
    ...'')) and the 50-seat Embraer ERJ-145 regional jet (''ERJ145''). We also operate the 30-seat Embraer Brasilia EMB-120 turboprop (the ''Brasilia turboprop''). We were incorporated in Utah in 1972. Our principal executive offices are located at 444 South River Road, St. George, Utah 84790, and our...

  • Page 9
    ...United Express flights, 500 were Delta Connection flights, 30 were Alaksa-coded flights and 10 were US Airways Express flights. SkyWest Airlines' operations are conducted from hubs located in Chicago (O'Hare), Denver, Los Angeles, Houston, Portland, Seattle, Phoenix, San Francisco and Salt Lake City...

  • Page 10
    ... for code-share partner regional airlines are code-share agreement terms, customer service, aircraft types, fare pricing, flight schedules and markets and routes served. The combined operations of SkyWest Airlines and ExpressJet represent the largest regional airline operation in the United States...

  • Page 11
    ... partner. For example, SkyWest Airlines flies out of Chicago (O'Hare), Washington Dulles, Denver, Houston, Los Angeles and San Francisco as United Express, out of Salt Lake City and Minneapolis as Delta Connection, out of Seattle and Portland as an Alaska carrier and out of Phoenix as an US Airways...

  • Page 12
    ... CPA with Continental. SkyWest Airlines operates under code-share agreements with US Airways and Alaska. These code-share agreements authorize Delta, United, Continental, Alaska and US Airways to identify our flights and fares under their two-letter flight designator codes (''DL,'' ''UA'' ''CO...

  • Page 13
    ... flight block hour, subject to annual escalation at an agreed rate. Costs directly reimbursed by Delta under the SkyWest Airlines Delta Connection Agreement include costs primarily related to fuel, aircraft engine maintenance and aircraft ownership. The SkyWest Airlines Delta Connection Agreement...

  • Page 14
    ... the Delta Connection flights. Costs directly reimbursed by Delta under the ExpressJet Delta Connection Agreement include costs related to fuel, ground handling, and aircraft engine maintenance and aircraft ownership. The ExpressJet Delta Connection Agreement also provides for incentive compensation...

  • Page 15
    ... Los Angeles, San Francisco, Washington Dulles and designated outlying destinations. Generally, under the SkyWest Airlines 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 16
    ...between Seattle, Portland and designated outlying destinations. Generally, under the SkyWest Airlines Alaska Capacity Purchase Agreement, Alaska retains all air fares, cargo rates, mail charges and other revenues associated with each flight. In exchange for providing the designated number of flights...

  • Page 17
    ...air fares, cargo rates, mail charges and other revenues associated with each flight. In exchange for providing the designated number of flights and performing SkyWest Airlines' obligations under the SkyWest Airlines US Airways Express Agreement, SkyWest Airlines receives from US Airways compensation...

  • Page 18
    ... 31, 2011, SkyWest Airlines scheduled ten daily flights as an US Airways Express carrier to or from Phoenix International Airport Our flight schedules are structured to facilitate the connection of our passengers with flights of our major partners at the airports we serve. Training and Aircraft...

  • Page 19
    ... more than 50% of those employees vote for union representation. A certified labor union then enters into negotiations toward a collective bargaining agreement with the employer. Under the Railway Labor Act, a collective bargaining agreement between an airline and a labor union does not expire, but...

  • Page 20
    ... Employee Group Representatives Status of Agreement Atlantic Southeast Pilots ... 1,700 Atlantic Southeast Flight Attendants . . Atlantic Southeast Flight Controllers . 1,080 40 Atlantic Southeast Mechanics ... 600 Atlantic Southeast Stock Clerks ... 70 Air Line Pilots Association...

  • Page 21
    ... laws, rules and regulations to which SkyWest Airlines and ExpressJet are subject. SkyWest Airlines' and ExpressJet's flight operations, maintenance programs, record keeping and training programs are conducted under FAA approved procedures. SkyWest Airlines and ExpressJet do not currently operate at...

  • Page 22
    ... our financial condition may deteriorate, the trading price of our common stock may decline and investors could lose all or part of their investment in us. Risks Related to Our Operations We are highly dependent on Delta, United and Continental. If any of our code-share agreements with Delta, United...

  • Page 23
    ...standards related to flight completions and on-time arrivals. We currently use the systems, facilities and services of Delta, United and Continental to support a significant portion of our operations, including airport and terminal facilities and operations, information technology support, ticketing...

  • Page 24
    ... our business. Our business is labor intensive, requiring large numbers of pilots, flight attendants, mechanics and other personnel. Labor costs constitute a significant percentage of our total operating costs. For example, during the year ended December 31, 2011, our salary, wage and benefit costs...

  • Page 25
    ... our business and financial results. The integration of the Atlantic Southeast and ExpressJet Delaware workforces will present significant challenges, including the possibility of labor-related disagreements that may adversely affect our operations. The successful integration of Atlantic Southeast...

  • Page 26
    ... CRJ200 and ERJ145 fleets. Under our SkyWest Airlines and ExpressJet United Express Agreements, specific amounts are included in the current rates for future maintenance on CRJ200 engines used in SkyWest Airlines' and ExpressJet's' United Express operations. The actual cost of maintenance on CRJ200...

  • Page 27
    ... partners could have an adverse effect on our operating results and financial condition. SkyWest, SkyWest Airlines and ExpressJet are parties to code-share agreements with Delta, United and Continental. For the year ended December 31, 2011, approximately 99% of our ASMs were attributable to flights...

  • Page 28
    ... these large regional jets or turboprops. There can be no assurance that our operations will generate sufficient cash flow or liquidity to enable us to obtain the necessary aircraft acquisition financing to replace our current fleet, or to make required debt service payments related to our existing...

  • Page 29
    ... International Airport), Orlando and Salt Lake City. Under the SkyWest Airlines United Express Agreement, growth is restricted in Chicago (O'Hare International Airport), Denver, San Francisco, Seattle/Tacoma and Washington D.C. (Dulles International Airport). Due to the fluctuations in our schedules...

  • Page 30
    ... of December 31, 2011, we operated 17 CRJ200s under a pro-rate agreement with United. We also operate one CRJ200 under a pro-rate agreement with Delta. Our operating and financial results with respect to these pro-rate arrangements can be affected by the price and availability of jet fuel and in the...

  • Page 31
    ...changes to our schedules under our code-share agreements would adversely impact our financial results. There are long-term risks related to supply and demand of regional aircraft associated with our regional airline services strategy. Many of our major airline partners have publicly indicated in the...

  • Page 32
    ...Reduced utilization levels of our aircraft under our code-share agreements would adversely impact our financial results'' for additional details). This decrease had a negative impact on our regional airline services revenue and profitability. Declining interest rates could have a negative effect on...

  • Page 33
    ... our operations. We currently operate primarily through hubs in Atlanta, Los Angeles, Houston, Minneapolis, Detroit, San Francisco, Salt Lake City, Chicago, Denver, Cincinnati/Northern Kentucky, Houston, Washington, D.C., Newark, Cleveland and the Pacific Northwest. Nearly all of our flights either...

  • Page 34
    ..., as well as the merger of Southwest and AirTran Airways, Inc. (''AirTran'') during 2011. We understand that several airlines are currently in discussions related to consolidation in the industry. Other developments include domestic and international code-share alliances between major carriers. Any...

  • Page 35
    ... in flight, maintenance or operation activities; record keeping procedures in accordance with FAA requirements; and FAA approval of flight training and retraining programs. We cannot predict whether we will be able to comply with all present and future laws, rules, regulations and certification...

  • Page 36
    ... our operational and financial results. Moreover, any aircraft accident or incident, even if fully insured, could cause a public perception that our operations are less safe or reliable than other airlines. Risks Related to Our Common Stock We can issue additional shares without shareholder approval...

  • Page 37
    ... make the operation of a regional jet impractical. As of December 31, 2011, SkyWest Airlines operated 45 Brasilia turboprops out of Los Angeles, San Francisco, Salt Lake City, Seattle/Tacoma and Portland. SkyWest Airlines' Brasilia turboprops are generally used in its California markets, which are...

  • Page 38
    ... foot aircraft maintenance facility in Palm Springs, California. • SkyWest Airlines leases a 131,300 square foot facility at the Salt Lake International Airport. This facility consists of a 58,400 square-foot aircraft maintenance hangar and a 72,900 square-foot training and office facility. In...

  • Page 39
    ... foot office facility in Houston, Texas. This facility was previously utilized as its administrative headquarters and System Operational Control Center prior to moving these functions to Atlanta, Georgia. The lease agreement for this facility is scheduled to expire on August 30, 2012. • ExpressJet...

  • Page 40
    ...December 31, 2007, Delta notified SkyWest, SkyWest Airlines and Atlantic Southeast of a dispute under the Delta Connection Agreements executed by Delta with SkyWest Airlines and Atlantic Southeast. The dispute relates to the allocation of liability for certain irregular operation (''IROP'') expenses...

  • Page 41
    ... Price for Our Common Stock Our common stock is traded on The Nasdaq Global Select Market under the symbol ''SKYW.'' At February 10, 2012, there were approximately 923 stockholders of record of our common stock. Securities held of record do not include shares held in securities position listings...

  • Page 42
    ... information regarding these plans. Issuer Purchases of Equity Securities Our Board of Directors has adopted a stock repurchase program which authorizes us to repurchase shares of our common stock in the public market, from time to time, at prevailing prices. Our stock repurchase program currently...

  • Page 43
    ...Airlines, Corp.; Republic Airways, Holdings Inc.; SkyWest, Inc. Southwest Airlines, Spirit Airlines Inc.; United Continental Holdings, Inc.; and US Airways Group, Inc. ITEM 6. SELECTED FINANCIAL DATA The following selected financial and operating data should be read in conjunction with ''Management...

  • Page 44
    .... Selected Operating Data 2011 2010 Year Ended December 31, 2009 2008 2007 Block hours ...Departures ...Passengers carried ...Revenue passenger miles (000) ...Available seat miles (000) ...Revenue per available seat mile ...Cost per available seat mile ...Average passenger trip length ...Number of...

  • Page 45
    ... 31, 2011, SkyWest Airlines operated as a Delta Connection carrier in Salt Lake City and Minneapolis, a United Express carrier in Los Angeles, San Francisco, Denver, Houston, Chicago and the Pacific Northwest, an Alaska carrier in Seattle/ Tacoma and Portland and a US Airways carrier in Phoenix. On...

  • Page 46
    ... and we are compensated by the major airline partner at contracted rates based on the completed block hours, flight departures and other operating measures. On pro-rate flights, we control scheduling, ticketing, pricing and seat inventories and receive a pro-rated portion of passenger fares. For the...

  • Page 47
    ...year ended December 31, 2011, under our SkyWest Airlines and ExpressJet United Express Agreements we incurred $77.6 million of CRJ200 engine maintenance expense, compared to $75.7 million during the year ended December 31, 2010. We anticipate that the number of scheduled engine maintenance events we...

  • Page 48
    ...party vendor provides our long-term engine services covering the scheduled and unscheduled repairs for engines on our CRJ700s operated under the SkyWest Airlines United Express Agreement. Under the terms of the vendor agreement, we pay a set dollar amount per engine hour flown on a monthly basis and...

  • Page 49
    ... cash flow model. Results of Operations Our Business Segments For the year ended December 31, 2011, we had two reportable segments which are the basis of our internal financial reporting: SkyWest Airlines and ExpressJet (which reflects the combined operations of Atlantic Southeast and ExpressJet...

  • Page 50
    ... associated percentages-of-change for the periods identified below. Year Ended December 31, 2011 2010 % Change Revenue passenger miles (000) ...Available seat miles (''ASMs'') (000) . Block hours ...Departures ...Passengers carried ...Passenger load factor ...Revenue per available seat mile ...Cost...

  • Page 51
    ...year ended December 31, 2010. We are reimbursed for our actual fuel costs by our major partners under our contract flying arrangements. For financial reporting purposes, we record these reimbursements as operating revenue. Under the SkyWest Airlines and ExpressJet Delta Connection Agreements and the...

  • Page 52
    ... % Change Percent 2011 Cents Per ASM 2010 Cents Per ASM Aircraft fuel ...Salaries, wages and benefits ...Aircraft maintenance, materials and repairs ...Aircraft rentals ...Depreciation and amortization . Station rentals and landing fees Ground handling services ...Acquisition related costs ...Other...

  • Page 53
    ... SkyWest Airlines and ExpressJet United Express Agreements increased $1.9 million compared to the year ended December 31, 2010. The increase in CRJ 200 engine overhauls reimbursed at a fixed hourly rate was principally due to scheduled engine maintenance events. We anticipate the number of scheduled...

  • Page 54
    ...to our major partners paying for certain station rents and landing fees directly to the applicable airports. Ground handling service. Ground handling service expense increased $20.8 million, or 18.8%, during the year ended December 31, 2011, compared to the year ended December 31, 2010. The increase...

  • Page 55
    ... 31, 2011, compared to net income of $96.4 million, or $1.70 per diluted share, for the year ended December 31, 2010. 2010 Compared to 2009 For the year ended December 31, 2010, we had two reportable segments which are the basis of our internal financial reporting: SkyWest Airlines and ExpressJet...

  • Page 56
    ... forth our major operational statistics and the associated percentages-of-change for the periods identified below. Year Ended December 31, 2010 2009 % Change Revenue passenger miles (000) ...Available seat miles (''ASMs'') (000) . Block hours ...Departures ...Passengers carried ...Passenger load...

  • Page 57
    ... high number of flight cancellations, primarily due to weather problems in its Atlanta hub, during the year ended December 31, 2009. Additionally, on March 31, 2009, as a result of an internal audit, Atlantic Southeast grounded 60 CRJ200 aircraft in order to perform engine safety inspections...

  • Page 58
    ... majority of the fuel for our Delta Connection aircraft, commencing on June 1, 2009. United also purchased fuel directly from a fuel vendor for our United Express aircraft under contract flying operated out of Chicago, San Francisco, Los Angeles and Denver. Continental also purchases the majority of...

  • Page 59
    ...our SkyWest Airlines and ExpressJet United Express Agreements and our code-share agreement with AirTran increased $41.5 million compared to the year ended December 31, 2009. The increase in CRJ 200 engine overhauls reimbursed at a fixed hourly rate was principally due to scheduled engine maintenance...

  • Page 60
    ... agreed to defer $49 million otherwise payable to SkyWest Airlines under the SkyWest Airlines United Express Agreement. This amount accrues a deferral fee of 8% which is reported in our consolidated statement of income as interest income. On August 11, 2010, United repaid the $80 million term loan...

  • Page 61
    ... the purchase price. Income Taxes. The provision for income taxes, as a percentage of income before taxes, decreased to 34.0% in 2010 from 36.5% in 2009. The reduction of 2.5% reflects the impact of a purchase accounting gain that does not have a tax effect, resulting in a decrease in the rate of...

  • Page 62
    ...unusual circumstances, the working capital currently available to us and our cash flows from operations will be sufficient to meet our present financial requirements, including anticipated expansion, planned capital expenditures, and scheduled lease payments and debt service obligations for at least...

  • Page 63
    ... CRJ200, CRJ700 and CRJ900 aircraft. The average effective interest rate on the debt related to the CRJ aircraft was approximately 4.4% at December 31, 2011. Guarantees We have guaranteed the obligations of SkyWest Airlines under the SkyWest Airlines Delta Connection Agreement and the obligations of...

  • Page 64
    ...impact the actual cost to us to acquire these aircraft. To the extent we place these aircraft in service under our code-share agreements with Delta, United, Continental or other carriers, our code-share agreements currently provide that reimbursement rates will be adjusted higher or lower to reflect...

  • Page 65
    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. 61

  • Page 66
    ... 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform...

  • Page 67
    SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) ASSETS December 31, 2011 December 31, 2010 CURRENT ASSETS: Cash and cash equivalents Marketable securities ...Restricted cash ...Income tax receivable ...Receivables, net ...Inventories, net ...Prepaid aircraft rents ...

  • Page 68
    SKYWEST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) (Dollars in thousands) LIABILITIES AND STOCKHOLDERS' EQUITY December 31, 2011 December 31, 2010 CURRENT LIABILITIES: Current maturities of long-term debt . Accounts payable ...Accrued salaries, wages and benefits . Accrued ...

  • Page 69
    ... handling and other ...Total operating revenues ...OPERATING EXPENSES: Salaries, wages and benefits ...Aircraft maintenance, materials and repairs Aircraft fuel ...Aircraft rentals ...Depreciation and amortization ...Station rentals and landing fees ...Ground handling services ...Acquisition related...

  • Page 70
    ... on marketable securities net of tax of $457 Total comprehensive income ...Exercise of common stock options and issuance of restricted stock ...Sale of common stock under employee stock purchase plan ...Stock based compensation expense related to the issuance of stock options ...Tax benefit from...

  • Page 71
    ...: Depreciation and amortization ...Stock based compensation expense ...Gain on sale of property and equipment ...Undistributed losses (earnings) of other companies ...Capitalized brasilia engine overhauls ...Purchase accounting gain (adjustment) ...Impairment on marketable securities ...Net increase...

  • Page 72
    ... 31, 2011, SkyWest Airlines operated as a Delta Connection carrier in Salt Lake City and Minneapolis, a United Express carrier in Los Angeles, San Francisco, Denver, Houston, Chicago and the Pacific Northwest, an Alaska carrier in Seattle/ Tacoma and Portland and an US Airways carrier in Phoenix. On...

  • Page 73
    ... operated as a Delta Connection carrier in Atlanta and Cincinnati and a United Express carrier in Chicago (O'Hare), Washington, D.C. (Dulles International Airport), Cleveland, Newark and Houston. Basis of Presentation The Company's consolidated financial statements include the accounts of SkyWest...

  • Page 74
    SKYWEST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2011 (1) Nature of Operations and Summary of Significant Accounting Policies (Continued) specific identification method, is recognized in other income and expense. The Company's position in marketable...

  • Page 75
    ...and maintenance program. The Company uses the direct expense method of accounting for its regional jet engine overhauls wherein the expense is recorded when the overhaul event occurs. The Company has an engine services agreement with a third party vendor to provide long-term engine services covering...

  • Page 76
    ... and Ground Handling Revenues The Company recognizes passenger and ground handling revenues when the service is provided. Under the Company's contract and pro-rate flying agreements with Delta, United, Continental, US Airways, Alaska and AirTran, revenue is considered earned when the flight is...

  • Page 77
    ... to SkyWest Airlines and Atlantic Southeast during December 2007. Delta continues to withhold a portion of the funds the Company believes are payable as weekly scheduled wire payments to SkyWest Airlines and ExpressJet (See Note 7 for additional details). United Express Agreements SkyWest Airlines...

  • Page 78
    ..., Atlantic Southeast began operating as a United Express carrier. The United Express Agreement executed by Atlantic Southeast is a capacity purchase agreement with a five-year term, and other terms which are generally consistent with the SkyWest Airlines United Express Agreement. On December 1, 2009...

  • Page 79
    ... Company's consolidated statements of operations. Under the SkyWest Inc. Delta Connection Agreement and the SkyWest Airlines United Express Agreement, the Company receives a reimbursement for direct costs associated with placing each additional aircraft into service. The reimbursement is applicable...

  • Page 80
    SKYWEST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2011 (1) Nature of Operations and Summary of Significant Accounting Policies (Continued) Income Taxes The Company recognizes a liability or asset for the deferred tax consequences of all temporary ...

  • Page 81
    ... carrying amount of $1,898.0 million as of December 31, 2010. Segment Reporting Generally accepted accounting principles require disclosures related to components of a company for which separate financial information is available to and evaluated regularly by the company's chief operating decision...

  • Page 82
    ...(now ExpressJet) agreed to provide regional airline services in the Continental flight system. The Continental CPA became effective on November 12, 2010. The Company accounted for the ExpressJet Merger in accordance with FASB ASC Topic 805, Business Combinations, whereby the tangible assets acquired...

  • Page 83
    ...nor are these results necessarily indicative of the Company's future consolidated results of operations. The Company expects to realize benefits from integrating the operations of Atlantic Southeast and ExpressJet, as discussed above, and to incur certain one-time cash costs. The unaudited pro forma...

  • Page 84
    ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2011 (3) Segment Reporting (Continued) The Company's two operating segments consist of its two subsidiaries, SkyWest Airlines and ExpressJet. On December 31, 2011, ExpressJet Delaware and Atlantic Southeast merged through the...

  • Page 85
    ... of interest rate subsidies through the Brazilian Export financing program, through 2011, secured by aircraft ...Notes payable to a financing company, due in semi-annual installments interest based on LIBOR secured by flight simulator equipment ...Long-term debt ...Less current maturities ...Long...

  • Page 86
    ... defer certain amounts otherwise payable to SkyWest Airlines under the existing United Express Agreement for a maximum period of 30 days. The maximum deferral amount is $49 million and any amounts deferred accrue a deferral fee of 8%, payable weekly. As of December 31, 2011 and 2010, $49 million was...

  • Page 87
    SKYWEST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2011 (6) Income Taxes (Continued) The following is a reconciliation between the statutory Federal income tax rate of 35% and the effective rate which is derived by dividing the provision (benefit) for...

  • Page 88
    ... and equipment under non-cancelable 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. The following table summarizes future minimum rental payments required...

  • Page 89
    ... the Company, SkyWest Airlines and Atlantic Southeast of a dispute under the Delta Connection Agreements executed by Delta with SkyWest Airlines and Atlantic Southeast. The dispute relates to the allocation of liability for certain irregular operation (''IROP'') expenses paid by SkyWest Airlines and...

  • Page 90
    ... non-revenue positive space flying by SkyWest and Atlantic Southeast employees for non-Delta related business. Delta's proposed counterclaim does not specify an amount of damages, but the proposed counterclaim alleges, on information and belief, that Delta's damages exceed $4.5 million. The State...

  • Page 91
    ... Employee Group Representatives Status of Agreement Atlantic Southeast Pilots ... 1,700 Atlantic Southeast Flight Attendants ...Atlantic Southeast Flight Controllers ... 1,080 40 Atlantic Southeast Mechanics ... 600 Atlantic Southeast Stock Clerks ... 70 Air Line Pilots Association...

  • Page 92
    SKYWEST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2011 (8) Fair Value Measurements The Company holds certain assets that are required to be measured at fair value in accordance with United States GAAP. The Company determined fair value of these ...

  • Page 93
    ...an established price based on a 5% annual rate of return over the investment period. The put is only exercisable on June 30, 2016. On September 29, 2010, the Company invested $7 million for a 30% ownership interest in Mekong Aviation Joint Stock Company, an airline operating in Vietnam (''Air Mekong...

  • Page 94
    .... The fair value of stock options awarded under the Company's stock option plans has been estimated as of the grant date using the Black-Scholes option pricing model. The Company uses historical data to estimate option exercises and employee termination in the option pricing model. The expected term...

  • Page 95
    ... FINANCIAL STATEMENTS (Continued) DECEMBER 31, 2011 (10) Capital Transactions (Continued) Incentive Plan. The following table shows the assumptions used and weighted average fair value for grants in the years ended December 31, 2011, 2010 and 2009. 2011 2010 2009 Expected annual dividend rate...

  • Page 96
    ... Company's plans for the years ended December 31, 2011, 2010 and 2009: 2011 2010 2009 Weighted Weighted Average Aggregate Weighted Weighted Average Remaining Intrinsic Average Average Number of Exercise Contractual Value Number of Exercise Number of Exercise Options Price Term ($000) Options Price...

  • Page 97
    ... 31, 2011, 2010 and 2009, respectively. Atlantic Southeast Retirement Plan ExpressJet (formerly Atlantic Southeast) sponsors the Atlantic Southeast Airlines, Inc. Investment Savings Plan (the ''Atlantic Southeast Plan''). Employees who have completed 90 days of service and are 18 years of age are...

  • Page 98
    ... retiring on or after January 1, 2009 to participate in such coverage. Employee Stock Purchase Plans In May 2009, the Company's Board of Directors approved the SkyWest, Inc. 2009 Employee Stock Purchase Plan (the ''2009 Stock Purchase Plan''). All employees who have completed 90 days of employment...

  • Page 99
    ...Chief Executive Officer, serves on the Board of Directors of Zions Bancorporation (''Zions''). The Company maintains a line of credit (see Note 3) and certain bank accounts with Zions. Zions is an equity participant in leveraged leases on three CRJ200, two CRJ700 and five Brasilia turboprop aircraft...

  • Page 100
    ... and operations for the combined company. Our management will continue to evaluate our internal control over financial reporting as we execute integration activities associated with the ExpressJet Merger and the ExpressJet Combination. Management's Annual Report on Internal Control Over Financial...

  • Page 101
    ... 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 audit...

  • Page 102
    ... in Proxy Statement ITEM 10. DIRECTORS, EXECUTIVE 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...

  • Page 103
    ... Delta Air Lines, Inc. United Express Agreement dated September 9, 2003, between 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...

  • Page 104
    ... Agreement, dated November 12, 2010, by and among ExpressJet Airlines, Inc. and Continental Airlines, Inc. Subsidiaries of the Registrant Consent of Independent Registered Public Accounting Firm Certification of Chief Executive Officer Certification of Chief Financial Officer Certification of Chief...

  • Page 105
    ... audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Salt Lake City, Utah February 24, 2012 101

  • Page 106
    SKYWEST, INC. AND SUBSIDIARIES SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2011, 2010 and 2009 (Dollars in thousands) Balance at Beginning of Year Additions Charged to Costs and Expenses Description Deductions Balance at End of Year Year Ended December 31, 2011...

  • Page 107
    ... Atkin Chairman of the Board and Chief Executive Officer (Principal Executive Officer) February 24, 2012 /s/ MICHAEL J. KRAUPP Michael J. Kraupp Chief Financial Officer and Treasurer (Principal Financial Officer) February 24, 2012 /s/ ERIC J. WOODWARD Eric J. Woodward Chief Accounting Officer...

  • Page 108
    Name Capacities Date /s/ MARGARET S. BILLSON Margaret S. Billson Director February 24, 2012 /s/ HENRY J. EYRING Henry J. Eyring Director February 24, 2012 /s/ JAMES L. WELCH James L. Welch Director February 24, 2012 104

  • Page 109
    ... are invited to attend the Annual Meeting of Shareholders of SkyWest, Inc. scheduled to be held at 11:00 a.m., Tuesday, May 1, 2012, at our headquarters located at 444 South River Road, St. George, Utah. The accompanying Notice of Annual Meeting of Shareholders and Proxy Statement describe the items...

  • Page 110
    ... Inc. 444 South River Road ɀ St. George, UT 84790 NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS OF SKYWEST, INC. Date: Time: Place: Tuesday, May 1, 2012 11:00 a.m., Mountain Daylight Time (MDT) SkyWest, Inc. Headquarters 444 South River Road St. George, Utah 84790 1. 2. 3. To elect nine directors of...

  • Page 111
    ... to Independent Registered Public Accounting Firm ...Report of the Audit & Finance Committee ...Section 16(a) Beneficial Ownership Reporting Compliance ...Shareholder Proposals for the 2013 Annual Meeting of Shareholders ...Delivery of Documents to Shareholders Sharing an Address ...Other Business...

  • Page 112
    ... Statement, the accompanying Notice of Annual Meeting, proxy card and the Annual Report to Shareholders of SkyWest, Inc. (the ''Company'' or ''SkyWest'') are being mailed on or about March 15, 2012. The Board of Directors of the Company (the ''Board'') is soliciting your proxy to vote your shares...

  • Page 113
    ... at the next annual meeting of the Company's shareholders. FOR the non-binding resolution to approve the compensation of the Company's named executive officers. FOR the ratification of the appointment of Ernst & Young, LLP as the Company's independent registered public accounting firm (independent...

  • Page 114
    ... rules that allow companies to furnish their proxy materials over the Internet. As a result, the Company is mailing to most of its shareholders a Notice of Internet Availability of Proxy Materials (the ''Notice'') instead of a paper copy of this Proxy Statement and the Company's 2011 Annual Report...

  • Page 115
    ..., including information regarding the specific experience, qualifications, attributes and skills that led the Board and the Nominating and Corporate Governance Committee to conclude that he or she should serve as a director of the Company at the present time, in light of the Company's business and...

  • Page 116
    ...C. Atkin Age: ...Director Since: ...Committees: ...Principal Occupation: ...63 1974 None Chairman of the Board and Chief Executive Officer of the Company and its two operating subsidiaries, SkyWest Airlines, Inc. (''SkyWest Airlines'') and ExpressJet Airlines, Inc. (''ExpressJet''). Mr. Atkin joined...

  • Page 117
    ... also served as the President of the American Accounting Association, the Association of Certified Fraud Examiners and Beta Alpha Phi. The Board recognizes Mr. Albrecht's valuable contribution as a director of the Company from 2003 until 2009, including his service as the Chairman of the Audit and...

  • Page 118
    ... the Republic of Ghana, and Chief Executive Officer of Euro Sky, a company organized to explore the feasibility of operating a regional airline in Austria. From March 1991 to January 1993, Mr. Atkin was Director of Business and Economic Development for the State of Utah. The Board's nomination of Mr...

  • Page 119
    ... Support division, an international provider of aviation flight support and aftermarket services. Previously she was the Chief Operations Officer and later the President, Airplane Division, of Eclipse Aviation Corporation (''Eclipse''), a manufacturer of small business jets, during its development...

  • Page 120
    ... explored and pursued various growth and expansion opportunities. In connection with his service as Chairman of the Board of Leucadia, Mr. Cumming currently serves as a director on the following Leucadia affiliated companies, each with at-least 20% Leucadia direct ownership. • Jeffries Group, Inc...

  • Page 121
    ... possesses the unique ability to apply his academic thought and studies to the practical day-to-day challenges of the Company's operations. His thoughtful application of business and legal principles has been a valuable contribution to his service as the Chairman of the Compensation Committee. 10

  • Page 122
    ... knowledge in the areas of financial analysis, business strategy and investment management. In addition to his lengthy service as the Chairman and Chief Executive Officer of Western Alliance Bancorporation, Mr. Sarver was formerly a certified public accountant. Mr. Sarver's background and experience...

  • Page 123
    ...Udvar-Hazy Age: ...Director Since: ...Committees: ...66 1986 Member of the Nominating and Corporate Governance Committee; Member of the Compensation Committee; Lead Director Chairman and Chief Executive Officer of Air Lease Corporation, which leases and finances commercial jet aircraft worldwide. Mr...

  • Page 124
    ...includes extensive experience working with organized labor groups, including unions. Mr. Welch's insights have been particularly valuable to the Board as the Company has addressed labor and related issues arising in the operation of SkyWest Airlines, as well as issues associated with the acquisition...

  • Page 125
    ... aircraft flight operations, maintenance and customer service. He also oversees SkyWest Airline's relationships with Delta Air Lines, Inc. (''Delta''), United Airlines, Inc. (''United''), U.S. Airways, Inc. (''U.S. Airways'') and Alaska Airlines. Mr. Childs was initially employed with the Company...

  • Page 126
    ...minimum, the Board will have a majority of directors who meet the criteria for independence as required by The Nasdaq Global Select Market. Director Qualifications Criteria for Membership The Company's Nominating and Corporate Governance Committee is responsible for annually reviewing with the Board...

  • Page 127
    ... Select Market, including those relating to director independence and to compensation of Audit & Finance Committee members. CEO Evaluation and Management Succession The Nominating and Corporate Governance Committee conducts an annual review to assess the performance of the Company's Chief Executive...

  • Page 128
    ... non-management directors as a group in writing by regular mail. The following address may be used by those who wish to send such communications by regular mail: Board of Directors or Name of Individual Director(s) c/o Chief Financial Officer SkyWest, Inc. 444 South River Road St. George, UT 84790...

  • Page 129
    ... and plan for the internal audit and includes management in its review of accounting and financial controls, assessment of business risks and legal and ethical compliance programs. The Board and the Nominating and Corporate Governance Committee monitor the Company's governance and succession risk...

  • Page 130
    ... Nasdaq Global Select Market listing standards. Charters for each committee are available on our website, www.SkyWest.com. The table below shows current membership for each of the standing Board committees. Audit & Finance Compensation Nominating & Corporate Governance Safety and Compliance James...

  • Page 131
    ... Committee by the terms of those plans; • Review and approve any severance or termination payments proposed to be made to any current or former officer of the Company; • Prepare and issue the report of the Compensation Committee required by the rules of the Securities and Exchange Commission...

  • Page 132
    ...'s qualifications and other relevant biographical information and provide confirmation of the candidate's consent to serve as a director. This information should be addressed to Jerry C. Atkin, Chairman of the Board and Chief Executive Officer of the Company, 444 South River Road, St. George, Utah...

  • Page 133
    ... December 31, 2011, was an officer or employee of the Company in 2011 or any time prior thereto. None of the members of the Compensation Committee during the year ended December 31, 2011, had any relationship with the Company requiring disclosure under Item 404 of Regulation S-K promulgated under...

  • Page 134
    ... information regarding the Company's executive compensation objectives, principles, practices and decisions as they relate to the following named executive officers of the Company (the ''Executives''): • Jerry C. Atkin, Chairman of the Board and Chief Executive Officer of the Company, SkyWest...

  • Page 135
    ... Company's executive compensation programs. The Committee performed such a review in 2010 that included a review of the executive compensation practices of peer airlines Midwest, Pinnacle, Express Jet, Republic, Airtran, Jet Blue, Alaska, Southwest, US Airways, American, Delta Air Lines, and United...

  • Page 136
    ... at other airlines. Salary adjustments are considered annually and influenced by growth of the Company's operations, individual performance, changes in responsibility, changes in cost of living, and other factors. The salaries of the Executives are set forth in the Summary Compensation Table set...

  • Page 137
    .... Atkin, Rich, Childs and Holt include operational performance goals, management development, new business development and development of a strategic plan. The goals for Mr. Kraupp include supporting other finance department officers, developing best practices in the Company's financial management...

  • Page 138
    ...-The total annual bonus amounts payable to the Executives for 2011 were: Mr. Atkin-$188,000; Mr. Rich-$141,500; Mr. Childs-$156,500; Mr. Holt-$102,000 and Mr. Kraupp-$57,000. Those amounts, are included in the amounts shown in the Summary Compensation Table below under the caption headings ''Bonus...

  • Page 139
    ... stock units, and performance units payable in cash. The three types of awards were used in an effort to link the Executives' long-term incentive compensation with the creation of shareholder value. The value of stock options, restricted stock units and shares of restricted stock is directly related...

  • Page 140
    ... compensation for 2011. The purpose of the performance unit awards is to reward achievement of a financial efficiency goal that supports shareholder value and reflects real performance without regard to stock market volatility. Under each Executive's performance unit award, a cash bonus is payable...

  • Page 141
    ... units if 100% of target achieved. Company did not achieve targets in 2011 and these amounts were forfeited by Messrs. Atkin, Rich, Childs, and Holt. See (1) for impact to Mr. Kraupp Retirement Benefits. The Company and SkyWest Airlines sponsor a 401(k) retirement plan for their eligible employees...

  • Page 142
    ... of the s shareholders. Each Executive is required to maintain a minimum ownership interest in the Company. The guideline ownership level is a number of shares of Common Stock having a value equal to six times annual base salary for Mr. Atkin, and three times annual base salary for Messrs. Rich...

  • Page 143
    ...its executive officers. Stock options awarded to the Executives during 2011 were intended to constitute ''qualified performance-based compensation'' under Section 162(m) of the Code. The Company's 2011 restricted stock unit grants, 2011 long-term performance unit awards (to the extent the applicable...

  • Page 144
    ... COMMITTEE REPORT The Compensation Committee has reviewed the foregoing compensation discussion and analysis and discussed with the Company's management the information set forth herein. Based on such review and discussions with management, the Compensation Committee recommended to the Board that...

  • Page 145
    ...-Equity Incentive Plan All Other Compensation Compensation ($)(3) ($) (i) Name and Principal Position Year Salary ($) Discretionary Bonus ($)(1) Stock Awards ($)(2) Option Awards ($)(2) Total ($) Jerry C. Atkin ...2011 $400,000 Chairman and Chief 2010 $384,200 Executive Officer 2009 $373,000...

  • Page 146
    ...for 2010; $3,645 in employer-paid health insurance premiums; $11,485 for a personal vehicle lease; $4,075 for personal use of the Company's recreational equipment; and $1,200 in discretionary matching contributions under the SkyWest 401(k) Plan. All other compensation for Mr. Atkin for 2009 consists...

  • Page 147
    ... as Chief Financial Officer. The remaining one-third of the shares underlying each Executive's stock option grant was not performance-based and is listed in column (f). The number of shares of Company common stock underlying each restricted stock unit award earned for year 2011 and payable in...

  • Page 148
    ... Underlying Option Unexercised Exercise Options Price Unexercisable (#) ($) Stock Awards (f) (g) Number of Market Shares or Value of Share Units Shares or That Share Units That Have Not Have Not Vested (#) Vested(5) ($) (a) Name (e) Option Expiration Date(4) Jerry C. Atkin ... 104,000 94,540 104...

  • Page 149
    ... of Securities (d) Underlying Option Unexercised Exercise Options Price Unexercisable (#) ($) (e) Option Expiration Date(4) Stock Awards (f) (g) Number of Market Shares or Value of Share Units Shares or That Share Units That Have Not Have Not Vested (#) Vested(5) ($) Michael J. Kraupp . . 18...

  • Page 150
    ... respect to contributions for 2009 through 2011 and earnings thereon). (2) The amounts in column (c) reflect the amounts of employer contributions credited under the applicable deferred compensation plan for 2011 at the rate of 15% of each Executive's 2011 base salary and 2010 bonus which was paid...

  • Page 151
    ...(c) reflects the employer contributions credited in 2011 at the rate of 15% of Mr. Holt's 2011 base salary and 2010 bonus which was paid in 2011. The amount reported in column (c) is also included in the amount reported in the ''Other Compensation'' column of the Summary Compensation Table appearing...

  • Page 152
    ... ExpressJet Deferred Compensation Plan, and the annual rate of return for the calendar year ended December 31, 2011: Name of Fund Rate of Return American Century Equity Income-Inst ...American Century International Growth-Inst ...American Century Premium Money Market-Inv ...American Century Short...

  • Page 153
    ... plans and programs of the Company and its subsidiaries if an Executive's employment had terminated on December 31, 2011, or the Company had undergone a change in control on December 31, 2011. These benefits are in addition to benefits generally available to all salaried employees of the Company...

  • Page 154
    ... the Company, an industry expert fee of $6,000 during the year ended December 31, 2011. Jerry C. Atkin, who is the Chairman of the Board and an employee of the Company, received no compensation for his service on the Board. Stock Awards Each non-employee director receives a stock award annually. On...

  • Page 155
    ... C. Atkin, the Chairman of the Board and Chief Executive Officer of the Company, is not included in the foregoing table as he is an employee of the Company and receives no monetary compensation for his services as Chairman of the Board. (2) Represents the closing price of the Common Stock awarded...

  • Page 156
    ... Ownership of Directors and Executive Officers The following table sets forth the beneficial ownership of the Common Stock as of March 2, 2012, for each director and nominee for director, each Executive, and by all directors (including nominees) and Executives of the Company as a group. Common Stock...

  • Page 157
    .... The Company is not aware of any other beneficial owner of more than 5% of the Common Stock. Amount of Beneficial Ownership Common Stock Shares Percent of Class Name Tradewinds Global Investors, LLC ...2049 Century Park East Los Angeles, CA 90067 Dimensional Fund Advisors LP ...6300 Bee Cave Road...

  • Page 158
    ... in the Company's Proxy Statement for the 2012 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the U.S. Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2011 Summary Compensation Table and the other related tables and...

  • Page 159
    ... registered public accounting firm (independent auditors) to examine the consolidated financial statements of the Company for the year ending December 31, 2012. The Company is seeking shareholder ratification of such action. It is expected that representatives of Ernst & Young LLP will attend the...

  • Page 160
    ... website at www.SkyWest.com, and is also available in print, free of charge, upon request. Requests for a printed copy of the Audit and Finance Committee charter should be submitted to Michael J. Kraupp, Chief Financial Officer and Treasurer of the Company, at 444 South River Road, St. George, Utah...

  • Page 161
    ... Act of 2002 and related rules. As part of this review, the Audit and Finance Committee reviewed the bases for management's conclusions in that report, and also reviewed the report of the independent registered public accounting firm on internal control over financial reporting. Throughout the year...

  • Page 162
    ...Company's audited financial statements with the Company's management; and • Discussed with E&Y the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit and Finance Committees, as amended and as adopted by the Public Company Accounting Oversight Board...

  • Page 163
    ...the Company's financial statements included in its Quarterly Reports on Form 10-Q, audits of the closing balance sheets of certain businesses acquired, and the review of the Company's registration statements. Audit-Related Fees During the years ended December 31, 2011 and 2010, the Company paid fees...

  • Page 164
    ... the audited financial statements with management; (2) discussed with E&Y, the Company's independent registered public accounting firm, the matters required to be discussed by the Statement on Auditing Standards No. 61, as amended and as adopted by the Public Company Accounting Oversight Board (the...

  • Page 165
    ... must be in proper form (per SEC Regulation 14A, Rule 14a-8-Shareholder Proposals) and received by the Chief Financial Officer and Treasurer of the Company on or before November 9, 2012. Shareholder proposals to be presented at the 2013 Annual Meeting of Shareholders which are not to be included in...

  • Page 166
    ... copy of this Proxy Statement and the Company's 2011 Annual Report to Shareholders should submit a request in writing to Michael J. Kraupp, Chief Financial Officer and Treasurer of the Company, 444 South River Road, St. George, Utah 84790. Beneficial owners sharing an address who are receiving...

  • Page 167
    ... Zions First National Bank Stock Transfer Department PO Box 9088 Salt Lake City, UT 84130 Independent Public Accountants Ernst & Young LLP 178 South Rio Grande Street, Suite 400 Salt Lake City, UT 84101 Corporate Headquarters SkyWest, Inc. 444 South River Road St. George, UT 84790 Tel: (435) 634...

  • Page 168
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