UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): January 22, 2019
SKYWEST, INC.
(Exact name of registrant as specified in its charter)
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Utah |
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0-14719 |
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87-0292166 |
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(State or other jurisdiction of |
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(Commission |
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(I.R.S. Employer |
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incorporation or organization) |
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File Number) |
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Identification No.) |
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444 South River Road
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84790 |
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(Address of principal executive offices) |
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(Zip Code) |
(435) 634-3000
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (section 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (section 240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Item 2.01 Completion of Acquisition or Disposition of Assets.
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.
Asset Sale
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.
ExpressJet and United agreed to customary representations, warranties and covenants in the Asset Purchase Agreement. Under the Asset Purchase Agreement, SkyWest will indemnify United against damages arising from, among other things, breaches of SkyWest’s or ExpressJet’s representations, warranties or covenants under the Asset Purchase Agreement. The indemnification period generally runs for a period of 12 months from the closing, with longer survival periods for certain specified representations and warranties.
The foregoing description of the Asset Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Asset Purchase Agreement, which is filed as Exhibit 2.1 to the Current Report on Form 8-K filed by SkyWest with the Securities and Exchange Commission on December 18, 2018, and is incorporated herein by reference.
Stock 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, 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 “Borrower”), the majority owner of the Buyer. Such loan will accrue interest at the rate of 6.85% per annum, mature on the last business day of the last month immediately preceding the two-year anniversary of the closing of the Stock Sale and be secured by, among other things, the Borrower’s ownership interests in the Buyer.
SkyWest and the Buyer agreed to customary representations, warranties and covenants in the Stock Purchase Agreement. Under the Stock Purchase Agreement, SkyWest will indemnify the Buyer against damages arising from, among other things, breaches of SkyWest’s representations, warranties or covenants under the Stock Purchase Agreement. The indemnification period generally runs for a period of 12 months from the closing, with longer survival periods for certain specified representations and warranties.
The foregoing description of the Stock Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Stock Purchase Agreement, which is filed as Exhibit 2.2 to the Current Report on Form 8-K filed by SkyWest with the Securities and Exchange Commission on December 18, 2018, and is incorporated herein by reference.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
In connection with the completion of the ExpressJet Sale, as of January 22, 2019, Terry M. Vais ceased serving as the Chief Operating Officer of ExpressJet and transitioned into an operations role with SkyWest.
Item 9.01 Financial Statements and Exhibits.
(b) Pro Forma Financial Information.
The Unaudited Pro Forma Consolidated Statements of Operations of SkyWest for the nine months ended September 30, 2018 and for the fiscal year ended December 31, 2017, assuming the ExpressJet Sale occurred at the beginning of those periods, the Unaudited Pro Forma Consolidated Balance Sheet of SkyWest as of September 30, 2018, assuming that the ExpressJet Sale occurred as of that date, and the related Notes to the Unaudited Pro Forma Consolidated Financial Information are being filed as Exhibit 99.1 to this Current Report on Form 8-K and are incorporated herein by reference.
(d) Exhibits.
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Exhibit
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Title of Document |
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99.1 |
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Unaudited Pro Forma Consolidated Financial Information of SkyWest, Inc. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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SKYWEST, INC. |
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Date: January 22, 2019 |
By |
/s/ Eric J. Woodward |
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Eric J. Woodward, Chief Accounting Officer |
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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 Company’s 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) included in the Company’s 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 Company’s 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)
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Historical |
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Pro Forma
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Pro Forma
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OPERATING REVENUES: |
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Flying agreements |
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$ |
2,377,659 |
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$ |
(444,943 |
)(a) |
$ |
1,932,716 |
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Airport customer service and other |
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40,531 |
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— |
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40,531 |
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|||
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Total operating revenues |
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2,418,190 |
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(444,943 |
) |
1,973,247 |
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OPERATING EXPENSES: |
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Salaries, wages and benefits |
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901,775 |
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(258,008 |
)(a) |
643,767 |
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Aircraft maintenance, materials and repairs |
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423,665 |
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(112,285 |
)(a) |
311,380 |
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Depreciation and amortization |
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246,386 |
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(30,044 |
)(a) |
216,342 |
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Aircraft rentals |
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119,015 |
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(6,052 |
)(a) |
112,963 |
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Aircraft fuel |
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87,208 |
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(30 |
)(a) |
87,178 |
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Airport-related expenses |
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80,852 |
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(2,857 |
)(a) |
77,995 |
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Other operating expenses |
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206,511 |
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(45,808 |
)(a) |
160,703 |
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Total operating expenses |
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2,065,412 |
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(455,084 |
) |
1,610,328 |
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OPERATING INCOME |
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352,778 |
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10,141 |
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362,919 |
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|||
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OTHER INCOME (EXPENSE): |
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Interest income |
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5,692 |
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— |
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5,692 |
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Interest expense |
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(86,485 |
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2,264 |
(a) |
(84,221 |
) |
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Other, net |
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3,470 |
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10,125 |
(a) |
13,595 |
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Total other expense, net |
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(77,323 |
) |
12,389 |
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(64,934 |
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INCOME BEFORE INCOME TAXES |
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275,455 |
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22,530 |
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297,985 |
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PROVISION FOR INCOME TAXES |
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62,189 |
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9,146 |
(b) |
71,335 |
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NET INCOME |
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$ |
213,266 |
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$ |
13,384 |
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$ |
226,650 |
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BASIC EARNINGS PER SHARE |
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$ |
4.10 |
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$ |
0.26 |
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$ |
4.36 |
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DILUTED EARNINGS PER SHARE |
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$ |
4.03 |
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$ |
0.25 |
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$ |
4.28 |
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Weighted average common shares: |
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Basic |
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52,002 |
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— |
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52,002 |
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Diluted |
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52,976 |
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— |
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52,976 |
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COMPREHENSIVE INCOME: |
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Net income |
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$ |
213,266 |
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$ |
13,384 |
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$ |
226,650 |
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Net unrealized appreciation on marketable securities, net of taxes |
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32 |
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— |
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32 |
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TOTAL COMPREHENSIVE INCOME |
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$ |
213,298 |
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$ |
13,384 |
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$ |
226,682 |
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SKYWEST, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2017
(In thousands, except per share amounts)
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Historical
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Pro Forma
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Pro Forma
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OPERATING REVENUES: |
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Flying agreements |
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$ |
3,078,297 |
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$ |
(790,283 |
)(a) |
$ |
2,288,014 |
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Airport customer service and other |
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44,295 |
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— |
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44,295 |
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Total operating revenues |
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3,122,592 |
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(790,283 |
) |
2,332,309 |
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OPERATING EXPENSES: |
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Salaries, wages and benefits |
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1,192,067 |
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(431,507 |
)(a) |
760,560 |
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Aircraft maintenance, materials and repairs |
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579,463 |
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(199,115 |
)(a) |
380,348 |
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Depreciation and amortization |
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292,768 |
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(51,982 |
)(a) |
240,786 |
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Aircraft rentals |
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215,807 |
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(34,428 |
)(a) |
181,379 |
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Aircraft fuel |
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85,136 |
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(932 |
)(a) |
84,204 |
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Airport-related expenses |
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118,374 |
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(19,131 |
)(a) |
99,243 |
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Other operating expenses |
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250,778 |
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(81,589 |
)(a) |
169,189 |
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|||
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Total operating expenses |
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2,734,393 |
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(818,684 |
) |
1,915,709 |
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|||
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OPERATING INCOME |
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388,199 |
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28,401 |
|
416,600 |
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|||
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OTHER INCOME (EXPENSE): |
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Interest income |
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4,509 |
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— |
|
4,509 |
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|||
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Interest expense |
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(104,925 |
) |
4,127 |
(a) |
(100,798 |
) |
|||
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Other, net |
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400 |
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— |
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400 |
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|||
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Total other expense, net |
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(100,016 |
) |
4,127 |
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(95,889 |
) |
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INCOME BEFORE INCOME TAXES |
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288,183 |
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32,528 |
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320,711 |
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PROVISION (BENEFIT) FOR INCOME TAXES |
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(140,724 |
) |
38,247 |
(b) |
(102,477 |
) |
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NET INCOME |
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$ |
428,907 |
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$ |
(5,719 |
) |
$ |
423,188 |
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BASIC EARNINGS PER SHARE |
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$ |
8.28 |
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$ |
(0.11 |
) |
$ |
8.17 |
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DILUTED EARNINGS PER SHARE |
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$ |
8.08 |
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$ |
(0.11 |
) |
$ |
7.97 |
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Weighted average common shares: |
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Basic |
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51,804 |
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— |
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51,804 |
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Diluted |
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53,100 |
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— |
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53,100 |
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|||
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COMPREHENSIVE INCOME: |
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Net income |
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$ |
428,907 |
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$ |
(5,719 |
) |
$ |
423,188 |
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Net unrealized appreciation on marketable securities, net of taxes |
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21 |
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— |
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21 |
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TOTAL COMPREHENSIVE INCOME |
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$ |
428,928 |
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$ |
(5,719 |
) |
$ |
423,209 |
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SKYWEST, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2018
(In thousands)
ASSETS
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Pro Forma |
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(unaudited) |
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Historical |
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Adjustments
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Pro Forma
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
324,561 |
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$ |
36,241 |
(c) |
$ |
360,802 |
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Marketable securities |
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380,242 |
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— |
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380,242 |
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Income tax receivable |
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18,118 |
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— |
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18,118 |
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Receivables, net |
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62,233 |
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19,544 |
(d) |
81,777 |
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Inventories, net |
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124,037 |
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(26,996 |
)(e) |
97,041 |
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Prepaid aircraft rents |
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89,839 |
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— |
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89,839 |
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Other current assets |
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53,042 |
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(3,850 |
)(e) |
49,192 |
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Total current assets |
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1,052,072 |
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24,939 |
|
1,077,011 |
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PROPERTY AND EQUIPMENT: |
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Aircraft and rotable spares |
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6,229,941 |
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(93,192 |
)(e) |
6,136,749 |
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Deposits on aircraft |
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27,579 |
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— |
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27,579 |
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|||
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Buildings and ground equipment |
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297,862 |
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(29,865 |
)(e) |
267,997 |
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|||
|
|
|
6,555,382 |
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(123,057 |
) |
6,432,325 |
|
|||
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Less-accumulated depreciation and amortization |
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(1,680,115 |
) |
77,846 |
(e) |
(1,602,269 |
) |
|||
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Total property and equipment, net |
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4,875,267 |
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(45,211 |
) |
4,830,056 |
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|||
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|
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OTHER ASSETS: |
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Long-term prepaid assets |
|
189,357 |
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— |
|
189,357 |
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Other assets |
|
68,164 |
|
1,530 |
(d) |
69,694 |
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|||
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Total other assets |
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257,521 |
|
1,530 |
|
259,051 |
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|||
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Total assets |
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$ |
6,184,860 |
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$ |
(18,742 |
) |
$ |
6,166,118 |
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SKYWEST, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2018
LIABILITIES AND STOCKHOLDERS’ EQUITY
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Pro Forma |
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(unaudited) |
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Historical |
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Adjustments
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Pro Forma
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CURRENT LIABILITIES: |
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Current maturities of long-term debt |
|
$ |
357,327 |
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$ |
— |
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$ |
357,327 |
|
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Accounts payable |
|
320,432 |
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(20,217 |
)(e) |
300,215 |
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Accrued salaries, wages and benefits |
|
150,881 |
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(30,479 |
)(e) |
120,402 |
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Taxes other than income taxes |
|
21,618 |
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(2,774 |
)(e) |
18,844 |
|
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Other current liabilities |
|
63,187 |
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(10,254 |
)(e) |
52,933 |
|
|||
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Total current liabilities |
|
913,445 |
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(63,724 |
) |
849,721 |
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|||
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LONG-TERM DEBT, net of current maturities |
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2,751,722 |
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— |
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2,751,722 |
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DEFERRED INCOME TAXES PAYABLE |
|
493,562 |
|
14,662 |
(f) |
508,224 |
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|||
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DEFERRED AIRCRAFT CREDITS |
|
34,580 |
|
— |
|
34,580 |
|
|||
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|
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|
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OTHER LONG-TERM LIABILITIES |
|
62,678 |
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(16,110 |
)(e) |
46,568 |
|
|||
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STOCKHOLDERS’ EQUITY: |
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Preferred stock, 5,000,000 shares authorized; none issued |
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— |
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— |
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— |
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Common stock, no par value, 120,000,000 shares authorized; 81,239,194 |
|
688,168 |
|
— |
|
688,168 |
|
|||
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Retained earnings |
|
1,714,621 |
|
46,430 |
(g) |
1,761,051 |
|
|||
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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 ExpressJet’s 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 ExpressJet’s 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 Company’s 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 Company’s retained earnings as of September 30, 2018.