Form 8-K SKYWEST INC For: Apr 12

 

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):  April 12, 2018

 

SKYWEST, INC.

(Exact name of registrant as specified in its charter)

 

 

 

(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 7.01                                           Regulation FD Disclosure

 

Effective as of January 1, 2018, SkyWest, Inc. (the “Company”) adopted the new accounting standard for “Revenue from Contracts with Customers (Topic 606)” (“Topic 606”), as discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Form 10-K”).  The Company is furnishing this Current Report on Form 8-K to retrospectively adjust previously issued financial statements for the impact of Topic 606.  Beginning with the quarter ending March 31, 2018, the Company’s financial information will reflect adoption of the new standard with prior periods adjusted accordingly.

 

The impact to the Company’s financial statements as a result of the adoption of Topic 606 is discussed below. The adoption of Topic 606 only affects the Company’s consolidated balance sheets and statements of comprehensive income (loss) classification, with no impact on the Company’s operating income (loss), net income (loss), earnings (loss) per share or cash flows.

 

Consolidated statements of comprehensive income (loss)

 

Under the principal versus agent considerations of Topic 606, the Company will record directly-reimbursed fuel expenses under its fixed-fee flying contracts as a reduction to aircraft fuel expense (net) rather than as revenue (gross).  This classification change will result in a reduction to total revenue and a reduction to operating expenses by the same amount, resulting in no change to operating income (loss).

 

Under the nonrefundable up-front fees considerations of Topic 606, reimbursements from the Company’s major airline partners for up-front contract costs will be deferred and amortized over the contract term.  The related costs to fulfill the contract will also be capitalized and amortized over the contract term in accordance with Accounting Standards Codification (ASC) 340-40.  As the amount of the up-front reimbursement is determined from the Company’s actual costs to fulfill the contract, this change will not impact the Company’s operating income (loss) as the amount of deferred revenue and the amount of capitalized costs are the same and will be amortized over the same period.  This change is also expected to result in deferred revenue liability and a capitalized fulfillment cost on the balance sheet of the same amount.

 

Prior to the Company’s adoption of Topic 606, the Company segregated its revenue into two categories: “Passenger revenue” and “Ground handling and other revenue.”  “Passenger revenue” included revenue from fixed-fee flying contracts, prorate flying revenue agreements and airport customer service agreements for flights operated by the Company.  “Ground handling and other revenue” included revenue from airport customer service agreements for flights operated by third parties and other revenue.  Under the disaggregated revenue disclosure considerations in Topic 606, the Company will segregate its revenue into the following categories: “Flying agreements revenue” and “Airport customer service and other revenue.”  “Flying agreement revenue” will include revenue from fixed-fee flying agreements, prorate flying agreements and other revenue generated from flying the Company’s aircraft.  “Airport customer service and other revenue” will include revenue from airport customer services agreements, including airport services the Company provides to flights operated by the Company and by third parties and other revenue.  This change will reclassify amounts previously reported as “Passenger revenue” and “Ground handling and other revenue,” but will not impact total revenue.

 

Additionally, in connection with the Company’s adoption of Topic 606, the Company renamed the operating expense “Ground handling services” to “Airport-related expenses.”  Certain airport-related expenses, such as landing fees and airport facility rents, were previously reported as “Other operating expenses” and have been reclassified as “Airport-related expenses.”

 

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Exhibit 99.1 presents the Consolidated Statements of Comprehensive Income (Loss) reflecting the adoption of Topic 606 related to revenue recognition, as well as other classification changes described in this Current Report on Form 8-K, for each of the years ended December 31, 2017 and 2016. These recast results were derived from audited financial statements included in the 2017 Form 10-K.

 

The information in this Current Report on Form 8-K, including Exhibit 99.1, is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section and shall not be deemed incorporated by reference into any registration statement or other document filed pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

 

Item 9.01                                           Financial Statements and Exhibits

 

(d)                                 The following is furnished as an exhibit to this report:

 

Exhibit Number		Title of Document
99.1		Certain 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.

 

	SKYWEST, INC.
Date: April 12, 2018	By	/s/ Eric J. Woodward
	Eric J. Woodward, Chief Accounting Officer

 

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Exhibit 99.1

 

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share amounts)

(Unaudited)

 

Previously Reported Year Ended December 31, 2017					As Adjusted Year Ended December 31, 2017
OPERATING REVENUES:					OPERATING REVENUES:
Passenger		$	3,126,708		Flying agreements		$	3,078,297
Ground handling and other		77,560			Airport customer service and other		44,295
Total operating revenues		3,204,268			Total operating revenues		3,122,592
OPERATING EXPENSES:					OPERATING EXPENSES:
Salaries, wages and benefits		1,196,227			Salaries, wages and benefits		1,192,067
Aircraft maintenance, materials and repairs		579,463			Aircraft maintenance, materials and repairs		579,463
Depreciation and amortization		292,768			Depreciation and amortization		292,768
Aircraft rentals		215,807			Aircraft rentals		215,807
Aircraft fuel		162,653			Aircraft fuel		85,136
Ground handling services		69,848			Airport-related expenses		118,374
Other operating expenses		299,303			Other operating expenses		250,778
Total operating expenses		2,816,069			Total operating expenses		2,734,393
OPERATING INCOME		388,199			OPERATING INCOME		388,199
OTHER INCOME (EXPENSE):					OTHER INCOME (EXPENSE):
Interest income		4,509			Interest income		4,509
Interest expense		(104,925		)	Interest expense		(104,925		)
Other, net		400			Other, net		400
Total other expense, net		(100,016		)	Total other expense, net		(100,016		)
INCOME BEFORE INCOME TAXES		288,183			INCOME BEFORE INCOME TAXES		288,183
PROVISION (BENEFIT) FOR INCOME TAXES		(140,724		)	PROVISION (BENEFIT) FOR INCOME TAXES		(140,724		)
NET INCOME		$	428,907		NET INCOME		$	428,907
BASIC EARNINGS PER SHARE		$	8.28		BASIC EARNINGS PER SHARE		$	8.28
DILUTED EARNINGS PER SHARE		$	8.08		DILUTED EARNINGS PER SHARE		$	8.08
Weighted average common shares:					Weighted average common shares:
Basic		51,804			Basic		51,804
Diluted		53,100			Diluted		53,100
COMPREHENSIVE INCOME:					COMPREHENSIVE INCOME:
Net income		$	428,907		Net income		$	428,907
Net unrealized appreciation on marketable securities, net of taxes		21			Net unrealized appreciation on marketable securities, net of taxes		21
TOTAL COMPREHENSIVE INCOME		$	428,928		TOTAL COMPREHENSIVE INCOME		$	428,928

 

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SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)

 

Previously Reported Year Ended December 31, 2016					As Adjusted Year Ended December 31, 2016
OPERATING REVENUES:					OPERATING REVENUES:
Passenger		$	3,051,414		Flying agreements		$	3,010,738
Ground handling and other		69,792			Airport customer service and other		52,964
Total operating revenues		3,121,206			Total operating revenues		3,063,702
OPERATING EXPENSES:					OPERATING EXPENSES:
Salaries, wages and benefits		1,211,380			Salaries, wages and benefits		1,205,459
Aircraft maintenance, materials and repairs		569,306			Aircraft maintenance, materials and repairs		569,306
Depreciation and amortization		284,969			Depreciation and amortization		284,969
Aircraft rentals		262,602			Aircraft rentals		262,602
Aircraft fuel		122,284			Aircraft fuel		70,701
Ground handling services		72,659			Airport-related expenses		122,141
Special items		465,649			Special items		465,649
Other operating expenses		305,041			Other operating expenses		255,559
Total operating expenses		3,293,890			Total operating expenses		3,236,386
OPERATING INCOME (LOSS)		(172,684		)	OPERATING INCOME (LOSS)		(172,684		)
OTHER INCOME (EXPENSE):					OTHER INCOME (EXPENSE):
Interest income		2,143			Interest income		2,143
Interest expense		(78,177		)	Interest expense		(78,177		)
Other, net		(94		)	Other, net		(94		)
Total other expense, net		(76,128		)	Total other expense, net		(76,128		)
INCOME (LOSS) BEFORE INCOME TAXES		(248,812		)	INCOME (LOSS) BEFORE INCOME TAXES		(248,812		)
PROVISION (BENEFIT) FOR INCOME TAXES		(87,226		)	PROVISION (BENEFIT) FOR INCOME TAXES		(87,226		)
NET INCOME (LOSS)		$	(161,586	)	NET INCOME (LOSS)		$	(161,586	)
BASIC EARNINGS (LOSS) PER SHARE		$	(3.14	)	BASIC EARNINGS (LOSS) PER SHARE		$	(3.14	)
DILUTED EARNINGS (LOSS) PER SHARE		$	(3.14	)	DILUTED EARNINGS (LOSS) PER SHARE		$	(3.14	)
Weighted average common shares:					Weighted average common shares:
Basic		51,505			Basic		51,505
Diluted		51,505			Diluted		51,505
COMPREHENSIVE INCOME (LOSS):					COMPREHENSIVE INCOME (LOSS):
Net income (loss)		$	(161,586	)	Net income (loss)		$	(161,586	)
Net unrealized appreciation on marketable securities, net of taxes		189			Net unrealized appreciation on marketable securities, net of taxes		189
TOTAL COMPREHENSIVE INCOME (LOSS)		$	(161,397	)	TOTAL COMPREHENSIVE INCOME (LOSS)		$	(161,397	)

 

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The following tables retrospectively adjust the Company’s previously issued consolidated financial statements for the impact of Topic 606 on a quarterly basis for each of the quarters in the years ended December 31, 2017 and 2016, as well as other classification changes described in this Current Report on Form 8-K. Additionally, the changes had no impact on the Company’s operating income or net income. These recast results were derived from audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

		Three Months Ended
		March 31, 2017						June 30, 2017						September 30, 2017						December 31, 2017
(in thousands)		Previously Reported			As Adjusted			Previously Reported			As Adjusted			Previously Reported			As Adjusted			Previously Reported			As Adjusted
Income Statement:
OPERATING REVENUES:
Flying agreements (1)		$	745,411		$	734,529		$	791,341		$	781,724		$	812,295		$	800,965		$	777,661		$	761,079
Airport customer service and other (2)		20,004			12,637			18,418			9,788			19,641			11,708			19,497			10,162
Total operating revenues		$	765,415		$	747,166		$	809,759		$	791,512		$	831,936		$	812,673		$	797,158		$	771,241
OPERATING EXPENSES:
Salaries, wages and benefits		$	300,039		$	297,667		$	295,929		$	294,795		$	303,997		$	304,014		$	296,262		$	295,591
Aircraft fuel		34,310			18,433			37,183			20,071			42,071			22,791			49,089			23,841
Airport-related expenses (3)		19,535			31,948			15,902			28,949			16,693			30,209			17,718			27,268
Other operating expenses		75,088			62,675			75,174			62,126			78,948			65,432			70,092			60,544
Total operating expenses		689,120			670,871			703,163			684,916			719,567			700,304			704,219			678,302
Pre-tax income margin		6.8		%	7.0		%	10.0		%	10.2		%	10.4		%	10.7		%	8.6		%	8.8		%

 

		Three Months Ended
		March 31, 2016						June 30, 2016						September 30, 2016						December 31, 2016
(in thousands)		Previously Reported			As Adjusted			Previously Reported			As Adjusted			Previously Reported			As Adjusted			Previously Reported			As Adjusted
Income Statement:
OPERATING REVENUES:
Flying agreements (1)		$	744,390		$	734,499		$	784,813		$	774,255		$	781,475		$	770,773		$	740,736		$	731,211
Airport customer service and other (2)		17,685			16,970			16,525			13,509			18,301			12,938			17,280			9,546
Total operating revenues		$	762,075		$	751,469		$	801,338		$	787,764		$	799,776		$	783,711		$	758,016		$	740,757
OPERATING EXPENSES:
Salaries, wages and benefits		$	305,557		$	305,105		$	304,228		$	304,078		$	305,958		$	303,374		$	295,637		$	292,902
Aircraft fuel		25,332			15,179			32,306			18,881			33,189			19,708			31,457			16,933
Airport-related expenses (3)		20,984			32,130			16,743			30,266			16,498			29,709			18,434			30,036
Other operating expenses		74,609			63,462			79,181			65,659			77,215			64,004			74,037			62,435
Total operating expenses		700,266			689,660			717,201			703,627			713,942			697,877			1,162,480			1,145,221
Pre-tax income (loss) margin		5.8		%	5.9		%	8.3		%	8.4		%	8.3		%	8.5		%	(56.2		)%	(57.5		)%

 

(1)          In previously reported periods, this line item was presented as passenger revenue.

(2)          In previously reported periods, this line item was presented as ground handling and other.

(3)          In previously reported periods, this line item was presented as ground handling services.

 

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