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8-K - 8-K - SKYWEST INC | a19-3151_18k.htm |
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
SKYWEST, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
On January 22, 2019, SkyWest, Inc. (SkyWest) completed the previously announced sale of its wholly owned subsidiary ExpressJet Airlines, Inc. (ExpressJet). The closing of the transaction was completed in two parts, through an asset sale and stock sale, as further described below.
On January 11, 2019, pursuant to the terms and conditions of the Asset Purchase Agreement, dated as of December 17, 2018 (the Asset Purchase Agreement), by and among SkyWest, ExpressJet and United Airlines, Inc. (United), United acquired certain specified assets and liabilities of ExpressJet, including, among other things, aircraft engines, auxiliary power units, rotable spare parts, ground support equipment and flight training equipment for $60 million in cash, subject to certain purchase price adjustments (the Asset Sale). Certain assets and liabilities of ExpressJet were expressly excluded from the Asset Sale.
Additionally, on January 22, 2019, pursuant to the terms and conditions of the Stock Purchase Agreement, dated as of December 17, 2018, by and among SkyWest and ManaAir, LLC, a company in which United owns a minority interest (the Buyer), the Buyer acquired all of the outstanding shares of capital stock of ExpressJet from SkyWest for $16 million in cash and, subject to certain purchase price adjustments (the Stock Sale, and collectively with the Asset Sale, the ExpressJet Sale). To facilitate payment of the purchase price for the Stock Sale and to provide an initial working capital, at the closing of the Stock Sale, SkyWest Leasing, Inc., a wholly-owned subsidiary of SkyWest, loaned $26 million to Kair Enterprises, Inc., the majority owner of the Buyer.
The following pro forma consolidated financial information is based on the historical financial statements of SkyWest, Inc. and its subsidiaries (the Company), including certain pro forma adjustments, and has been prepared to illustrate the pro forma effect of the ExpressJet Sale.
The unaudited pro forma consolidated statements of operations for the nine months ended September 30, 2018 and for the year ended December 31, 2017, assume that the ExpressJet Sale occurred at the beginning of those periods and may not be useful in predicting the Companys future condition and operating results. The statements of operations do not include any gain or loss on the sale or costs associated with the sale of the business. The unaudited pro forma consolidated balance sheet as of September 30, 2018 is presented as if the ExpressJet Sale had occurred as of that date.
The unaudited pro forma consolidated financial information has been prepared based upon available information and management estimates; actual amounts may differ from these estimated amounts. ExpressJet significantly reduced the number of aircraft operating under its flying agreements with Delta Air Lines and United Airlines during the periods presented. The unaudited pro forma consolidated financial statements are not necessarily indicative of the financial position or results of operations that might have occurred had the disposition occurred as of the dates stated above. The pro forma adjustments are described in the notes to the pro forma financial statements.
The unaudited pro forma consolidated financial information should be read in conjunction with the audited financial statements and notes and related Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) included in the Companys Annual Report on Form 10-K for the year ended December 31, 2017 and unaudited interim financial statements and related MD&A included in the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2018.
SKYWEST, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018
(In thousands, except per share amounts)
|
|
Historical |
|
Pro Forma |
|
Pro Forma |
| |||
OPERATING REVENUES: |
|
|
|
|
|
|
| |||
Flying agreements |
|
$ |
2,377,659 |
|
$ |
(444,943 |
)(a) |
$ |
1,932,716 |
|
Airport customer service and other |
|
40,531 |
|
|
|
40,531 |
| |||
Total operating revenues |
|
2,418,190 |
|
(444,943 |
) |
1,973,247 |
| |||
OPERATING EXPENSES: |
|
|
|
|
|
|
| |||
Salaries, wages and benefits |
|
901,775 |
|
(258,008 |
)(a) |
643,767 |
| |||
Aircraft maintenance, materials and repairs |
|
423,665 |
|
(112,285 |
)(a) |
311,380 |
| |||
Depreciation and amortization |
|
246,386 |
|
(30,044 |
)(a) |
216,342 |
| |||
Aircraft rentals |
|
119,015 |
|
(6,052 |
)(a) |
112,963 |
| |||
Aircraft fuel |
|
87,208 |
|
(30 |
)(a) |
87,178 |
| |||
Airport-related expenses |
|
80,852 |
|
(2,857 |
)(a) |
77,995 |
| |||
Other operating expenses |
|
206,511 |
|
(45,808 |
)(a) |
160,703 |
| |||
Total operating expenses |
|
2,065,412 |
|
(455,084 |
) |
1,610,328 |
| |||
OPERATING INCOME |
|
352,778 |
|
10,141 |
|
362,919 |
| |||
|
|
|
|
|
|
|
| |||
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
| |||
Interest income |
|
5,692 |
|
|
|
5,692 |
| |||
Interest expense |
|
(86,485 |
) |
2,264 |
(a) |
(84,221 |
) | |||
Other, net |
|
3,470 |
|
10,125 |
(a) |
13,595 |
| |||
Total other expense, net |
|
(77,323 |
) |
12,389 |
|
(64,934 |
) | |||
INCOME BEFORE INCOME TAXES |
|
275,455 |
|
22,530 |
|
297,985 |
| |||
PROVISION FOR INCOME TAXES |
|
62,189 |
|
9,146 |
(b) |
71,335 |
| |||
NET INCOME |
|
$ |
213,266 |
|
$ |
13,384 |
|
$ |
226,650 |
|
|
|
|
|
|
|
|
| |||
BASIC EARNINGS PER SHARE |
|
$ |
4.10 |
|
$ |
0.26 |
|
$ |
4.36 |
|
DILUTED EARNINGS PER SHARE |
|
$ |
4.03 |
|
$ |
0.25 |
|
$ |
4.28 |
|
Weighted average common shares: |
|
|
|
|
|
|
| |||
Basic |
|
52,002 |
|
|
|
52,002 |
| |||
Diluted |
|
52,976 |
|
|
|
52,976 |
| |||
|
|
|
|
|
|
|
| |||
COMPREHENSIVE INCOME: |
|
|
|
|
|
|
| |||
Net income |
|
$ |
213,266 |
|
$ |
13,384 |
|
$ |
226,650 |
|
Net unrealized appreciation on marketable securities, net of taxes |
|
32 |
|
|
|
32 |
| |||
TOTAL COMPREHENSIVE INCOME |
|
$ |
213,298 |
|
$ |
13,384 |
|
$ |
226,682 |
|
SKYWEST, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2017
(In thousands, except per share amounts)
|
|
Historical |
|
Pro Forma |
|
Pro Forma |
| |||
OPERATING REVENUES: |
|
|
|
|
|
|
| |||
Flying agreements |
|
$ |
3,078,297 |
|
$ |
(790,283 |
)(a) |
$ |
2,288,014 |
|
Airport customer service and other |
|
44,295 |
|
|
|
44,295 |
| |||
Total operating revenues |
|
3,122,592 |
|
(790,283 |
) |
2,332,309 |
| |||
OPERATING EXPENSES: |
|
|
|
|
|
|
| |||
Salaries, wages and benefits |
|
1,192,067 |
|
(431,507 |
)(a) |
760,560 |
| |||
Aircraft maintenance, materials and repairs |
|
579,463 |
|
(199,115 |
)(a) |
380,348 |
| |||
Depreciation and amortization |
|
292,768 |
|
(51,982 |
)(a) |
240,786 |
| |||
Aircraft rentals |
|
215,807 |
|
(34,428 |
)(a) |
181,379 |
| |||
Aircraft fuel |
|
85,136 |
|
(932 |
)(a) |
84,204 |
| |||
Airport-related expenses |
|
118,374 |
|
(19,131 |
)(a) |
99,243 |
| |||
Other operating expenses |
|
250,778 |
|
(81,589 |
)(a) |
169,189 |
| |||
Total operating expenses |
|
2,734,393 |
|
(818,684 |
) |
1,915,709 |
| |||
OPERATING INCOME |
|
388,199 |
|
28,401 |
|
416,600 |
| |||
|
|
|
|
|
|
|
| |||
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
| |||
Interest income |
|
4,509 |
|
|
|
4,509 |
| |||
Interest expense |
|
(104,925 |
) |
4,127 |
(a) |
(100,798 |
) | |||
Other, net |
|
400 |
|
|
|
400 |
| |||
Total other expense, net |
|
(100,016 |
) |
4,127 |
|
(95,889 |
) | |||
INCOME BEFORE INCOME TAXES |
|
288,183 |
|
32,528 |
|
320,711 |
| |||
PROVISION (BENEFIT) FOR INCOME TAXES |
|
(140,724 |
) |
38,247 |
(b) |
(102,477 |
) | |||
NET INCOME |
|
$ |
428,907 |
|
$ |
(5,719 |
) |
$ |
423,188 |
|
|
|
|
|
|
|
|
| |||
BASIC EARNINGS PER SHARE |
|
$ |
8.28 |
|
$ |
(0.11 |
) |
$ |
8.17 |
|
DILUTED EARNINGS PER SHARE |
|
$ |
8.08 |
|
$ |
(0.11 |
) |
$ |
7.97 |
|
Weighted average common shares: |
|
|
|
|
|
|
| |||
Basic |
|
51,804 |
|
|
|
51,804 |
| |||
Diluted |
|
53,100 |
|
|
|
53,100 |
| |||
|
|
|
|
|
|
|
| |||
COMPREHENSIVE INCOME: |
|
|
|
|
|
|
| |||
Net income |
|
$ |
428,907 |
|
$ |
(5,719 |
) |
$ |
423,188 |
|
Net unrealized appreciation on marketable securities, net of taxes |
|
21 |
|
|
|
21 |
| |||
TOTAL COMPREHENSIVE INCOME |
|
$ |
428,928 |
|
$ |
(5,719 |
) |
$ |
423,209 |
|
SKYWEST, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2018
(In thousands)
ASSETS
|
|
|
|
Pro Forma |
|
|
| |||
(unaudited) |
|
Historical |
|
Adjustments |
|
Pro Forma |
| |||
CURRENT ASSETS: |
|
|
|
|
|
|
| |||
Cash and cash equivalents |
|
$ |
324,561 |
|
$ |
36,241 |
(c) |
$ |
360,802 |
|
Marketable securities |
|
380,242 |
|
|
|
380,242 |
| |||
Income tax receivable |
|
18,118 |
|
|
|
18,118 |
| |||
Receivables, net |
|
62,233 |
|
19,544 |
(d) |
81,777 |
| |||
Inventories, net |
|
124,037 |
|
(26,996 |
)(e) |
97,041 |
| |||
Prepaid aircraft rents |
|
89,839 |
|
|
|
89,839 |
| |||
Other current assets |
|
53,042 |
|
(3,850 |
)(e) |
49,192 |
| |||
Total current assets |
|
1,052,072 |
|
24,939 |
|
1,077,011 |
| |||
|
|
|
|
|
|
|
| |||
PROPERTY AND EQUIPMENT: |
|
|
|
|
|
|
| |||
Aircraft and rotable spares |
|
6,229,941 |
|
(93,192 |
)(e) |
6,136,749 |
| |||
Deposits on aircraft |
|
27,579 |
|
|
|
27,579 |
| |||
Buildings and ground equipment |
|
297,862 |
|
(29,865 |
)(e) |
267,997 |
| |||
|
|
6,555,382 |
|
(123,057 |
) |
6,432,325 |
| |||
Less-accumulated depreciation and amortization |
|
(1,680,115 |
) |
77,846 |
(e) |
(1,602,269 |
) | |||
Total property and equipment, net |
|
4,875,267 |
|
(45,211 |
) |
4,830,056 |
| |||
|
|
|
|
|
|
|
| |||
OTHER ASSETS: |
|
|
|
|
|
|
| |||
Long-term prepaid assets |
|
189,357 |
|
|
|
189,357 |
| |||
Other assets |
|
68,164 |
|
1,530 |
(d) |
69,694 |
| |||
Total other assets |
|
257,521 |
|
1,530 |
|
259,051 |
| |||
Total assets |
|
$ |
6,184,860 |
|
$ |
(18,742 |
) |
$ |
6,166,118 |
|
SKYWEST, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2018
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
Pro Forma |
|
|
| |||
(unaudited) |
|
Historical |
|
Adjustments |
|
Pro Forma |
| |||
CURRENT LIABILITIES: |
|
|
|
|
|
|
| |||
Current maturities of long-term debt |
|
$ |
357,327 |
|
$ |
|
|
$ |
357,327 |
|
Accounts payable |
|
320,432 |
|
(20,217 |
)(e) |
300,215 |
| |||
Accrued salaries, wages and benefits |
|
150,881 |
|
(30,479 |
)(e) |
120,402 |
| |||
Taxes other than income taxes |
|
21,618 |
|
(2,774 |
)(e) |
18,844 |
| |||
Other current liabilities |
|
63,187 |
|
(10,254 |
)(e) |
52,933 |
| |||
Total current liabilities |
|
913,445 |
|
(63,724 |
) |
849,721 |
| |||
|
|
|
|
|
|
|
| |||
LONG-TERM DEBT, net of current maturities |
|
2,751,722 |
|
|
|
2,751,722 |
| |||
|
|
|
|
|
|
|
| |||
DEFERRED INCOME TAXES PAYABLE |
|
493,562 |
|
14,662 |
(f) |
508,224 |
| |||
|
|
|
|
|
|
|
| |||
DEFERRED AIRCRAFT CREDITS |
|
34,580 |
|
|
|
34,580 |
| |||
|
|
|
|
|
|
|
| |||
OTHER LONG-TERM LIABILITIES |
|
62,678 |
|
(16,110 |
)(e) |
46,568 |
| |||
|
|
|
|
|
|
|
| |||
STOCKHOLDERS EQUITY: |
|
|
|
|
|
|
| |||
Preferred stock, 5,000,000 shares authorized; none issued |
|
|
|
|
|
|
| |||
Common stock, no par value, 120,000,000 shares authorized; 81,239,194 |
|
688,168 |
|
|
|
688,168 |
| |||
Retained earnings |
|
1,714,621 |
|
46,430 |
(g) |
1,761,051 |
| |||
Treasury stock, at cost, 29,310,836 |
|
(473,898 |
) |
|
|
(473,898 |
) | |||
Accumulated other comprehensive loss |
|
(18 |
) |
|
|
(18 |
) | |||
Total stockholders equity |
|
1,928,873 |
|
46,430 |
|
1,975,303 |
| |||
Total liabilities and stockholders equity |
|
$ |
6,184,860 |
|
$ |
(18,742 |
) |
$ |
6,166,118 |
|
SKYWEST, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma consolidated financial statements give effect to the pro forma adjustments necessary to reflect the ExpressJet Assets Sale and Stock Sale as if the ExpressJet Sale occurred at the beginning of the periods presented in the pro forma statements of operations and as of September 30, 2018 in the pro forma balance sheet.
2. PRO FORMA ADJUSTMENTS
The unaudited pro forma consolidated statements of operations and balance sheet reflect the effect of the following pro forma adjustments:
(a) Reduction of revenue and expenses associated with the ExpressJet Asset Sale and Stock Sale.
(b) Provision for income taxes based on the statutory income tax rates for ExpressJet.
(c) Estimated total proceeds received for the ExpressJet Assets and Stock Sale of $50 million in cash, net of ExpressJets cash balance included in the Stock Sale and the amount loaned to Kair Enterprises, Inc.
(d) Estimated total note receivable for the ExpressJet Stock Sale of $26 million, of which $20 million is included in receivables, net, and $6 million is reflected in long-term other assets. The pro forma adjustment also reflects ExpressJets receivables included in the Stock Sale.
(e) Elimination of assets and liabilities associated with the ExpressJet Asset Sale or Stock Sale.
(f) Estimated income taxes payable on estimated gain on the ExpressJet Assets and Stock Sale, reflected as an addition to the Companys deferred income taxes payable as of September 30, 2018.
(g) Estimated after-tax gain on the ExpressJet Assets and Stock Sale, reflected as an addition to the Companys retained earnings as of September 30, 2018.