What changed in this filing

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Item 1. Financial Statements

2022-05-05 compared with 2021-11-04 · 104 added, 255 removed, 325 unchanged (52% of the section changed)

4 unchanged sentences

(Dollars in Thousands)

September 30,

CURRENT ASSETS:

24 unchanged sentences

LIABILITIES AND STOCKHOLDERS’ EQUITY

September 30,

CURRENT LIABILITIES:

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Common stock, no par value, 120,000,000 shares authorized;

82,335,782 and 82,094,985 shares issued as of September 30, 2021, and December 31, 2020, respectively

82,514,936 and 82,335,970 shares issued as of March 31, 2022, and December 31, 2021, respectively

Retained earnings

Treasury stock, at cost, 31,955,991 and 31,913,635 shares as of September 30, 2021, and December 31, 2020, respectively

Treasury stock, at cost, 31,993,144 and 31,956,047 shares as of March 31, 2022, and December 31, 2021, respectively

Total stockholders’ equity

6 unchanged sentences

Three months ended

Nine months ended

September 30,

OPERATING REVENUES:

6 unchanged sentences

Depreciation and amortization

Airport-related expenses

Aircraft fuel

Airport-related expenses

Aircraft rentals

Special items - impairment charges

Payroll support grant

5 unchanged sentences

Interest expense

Other income (expense), net

Other income, net

Total other expense, net

5 unchanged sentences

COMPREHENSIVE INCOME:

Net unrealized depreciation on marketable securities, net of taxes

TOTAL COMPREHENSIVE INCOME

10 unchanged sentences

Stock based compensation expense

Warrants issued to U.S.

Balance at March 31, 2022

Stock based compensation expense

Warrants issued to U.S.

Balance at June 30, 2021

Sale of common stock under employee stock purchase plan

Stock based compensation expense

Balance at September 30, 2021

See accompanying notes to condensed consolidated financial statements.

SKYWEST, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(In Thousands)

Treasury Stock

Accumulated Other Comprehensive

Balance at December 31, 2020

Change in accounting principle and other (see Note 3)

Balance at December 31, 2019, as adjusted

Exercise of common stock options and vested employee stock awards

2 unchanged sentences

Stock based compensation expense

Treasury stock purchases

Cash dividends declared ($ 0.14 per share)

Balance at March 31, 2020

Stock based compensation expense

Warrants issued to U.S.

Net unrealized appreciation on marketable securities, net of tax of $ 99

Balance at June 30, 2020

Sale of common stock under employee stock purchase plan

Stock based compensation expense

Warrants issued to U.S.

Net unrealized depreciation on marketable securities, net of tax of $( 99 )

Balance at September 30, 2020

Balance at March 31, 2021

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

(In Thousands)

Nine months ended

September 30,

Three months ended

NET CASH PROVIDED BY OPERATING ACTIVITIES

1 unchanged sentence

Purchases of marketable securities

( 1,071,637 )

Sales of marketable securities

11 unchanged sentences

Net proceeds from issuance of common stock

Purchase of treasury stock

Employee income tax paid on vested equity awards

Payment of debt issuance cost

Payment of cash dividends

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

Increase in cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

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These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Due in part to the volatile effects from the global COVID-19 pandemic, in addition to other factors, the results of operations for the three and nine months ended September 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

Due in part to the uncertain rate of recovery from the global COVID-19 pandemic and workforce shortages, in addition to other factors, the results of operations for the three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ materially from those estimates and assumptions.

(2) Impact of the COVID-19 Pandemic

COVID-19, which was declared a global health pandemic by the World Health Organization in March 2020, has had a significant, negative impact on the Company’s business and financial results beginning in March 2020 and has materially and adversely affected the Company’s revenues, particularly under its prorate agreements.

The Company operated 137,493 flights during the third quarter of 2020, which increased to 210,251 flights, or 52.9 %, during the third quarter of 2021.

However, the Company operated 219,272 flights during the third quarter of 2019 and the Company has not returned to pre-COVID flight levels as of September 30, 2021.

The rate of recovery from the impact of COVID-19 and whether such recovery will be sustained are uncertain as factors outside of the Company’s control, including the distribution and efficacy of vaccines, government-imposed vaccine mandates, new variants of the virus, and continued or new government travel restrictions, cannot be estimated.

At September 30, 2021, the Company had $ 953.5 million in total available liquidity, consisting of $ 912.5 million in cash and marketable securities, and $ 41.0 million available under SkyWest Airlines’ line of credit with a bank.

2021 Appropriations Act.

In January 2021, SkyWest Airlines entered into a Payroll Support Program Extension Agreement (the “PSP Extension Agreement”) with the U.S.

Department of the Treasury (“U.S.

Treasury”) with respect to a payroll grant program under the Consolidated Appropriations Act, 2021 (“2021 Appropriations Act”).

Pursuant to the PSP Extension Agreement, SkyWest Airlines received $ 268.1 million from U.S.

Treasury during the nine months ended September 30, 2021.

In connection with the receipt of financial assistance under the PSP Extension Agreement, SkyWest Airlines is required to comply with the relevant provisions of the 2021 Appropriations Act, many of which are substantially similar to the requirements placed on SkyWest Airlines by the Payroll Support Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) that the Company entered into with U.S.

Treasury in April 2020.

The PSP Extension Agreement payments received included $ 217.7 million in the form of a payroll grant and $ 50.4 million in the form of an unsecured 10-year loan.

The loan bears interest at an annual rate of 1.00 % for the first five years (through January 2026) and the Secured Overnight Financing Rate plus 2.00 % in the final five years .

In return, the Company issued to U.S.

Treasury warrants to purchase up to 124,773 shares of the Company’s common stock.

These warrants have an exercise price of $ 40.41 per share and a five-year term from the date of issuance.

The relative fair value of the warrants is recorded within stockholder's equity and as a discount reducing the carrying value of the loan, which will be amortized as interest expense in the Company’s income statement over the term of the loan.

The proceeds of the grant were recorded in cash and cash equivalents when received and were recognized as a reduction in expense in payroll support grant in the Company’s income statement over the periods that the funds were intended to compensate.

The Company recorded $ 217.7 million of the PSP Extension Agreement payroll grant as an offset to operating expenses for the nine months ended September 30, 2021.

American Rescue Plan Act of 2021.

On April 23, 2021, SkyWest Airlines entered into a Payroll Support Program 3 Agreement (the “PSP 3 Agreement”) with U.S.

Treasury with respect to a payroll grant program under the American Rescue Plan Act of 2021 (“American Rescue Plan Act”).

Pursuant to the PSP 3 Agreement, SkyWest Airlines received from U.S.

Treasury approximately $ 250.0 million during the nine months ended September 30, 2021.

In connection with the receipt of financial assistance under the PSP 3 Agreement, SkyWest Airlines is required to comply with the relevant provisions of the American Rescue Plan Act, many of which are substantially similar to the requirements placed on SkyWest Airlines by the Payroll Support Program Agreement under the CARES Act and the PSP Extension Agreement under the 2021 Appropriations Act.

The relevant provisions include the requirement that the funding be used exclusively for the continuation of payment of employee wages, salaries and benefits.

Similar to the previous Payroll Support Programs, SkyWest Airlines and, in some cases, the Company is also subject to certain restrictions, including, but not limited to, limitations on involuntary terminations, pay rate reductions and furloughs through September 30, 2021, restrictions on the payment of dividends and the repurchase of shares through September 30, 2022, and certain limitations on executive compensation through April 1, 2023.

The PSP 3 Agreement payments received through September 30, 2021, included $ 205.0 million in the form of a payroll grant and $ 45.0 million in the form of an unsecured 10-year loan.

The loan bears interest at an annual rate of 1.00 % for the first five years (through April 2026) and the Secured Overnight Financing Rate plus 2.00 % in the final five years .

In return, the Company issued to U.S.

Treasury warrants to purchase up to 78,317 shares of the Company’s common stock.

These warrants have an exercise price of $ 57.47 per share and a five-year term from the date of issuance.

The Company recorded $ 205.0 million of the PSP 3 Agreement payroll grant as an offset to operating expenses for the nine months ended September 30, 2021.

As of September 30, 2021, the Company has recognized all of the payroll grants received from U.S.

Treasury as an offset to operating expenses.

Treasury Secured Loan.

In January 2021, the Company amended the secured loan agreement with U.S.

Treasury to extend the deadline pursuant to which SkyWest Airlines could, at its discretion, borrow additional amounts under the facility from March 26, 2021, to May 28, 2021.

The other terms of the secured loan agreement were not affected.

On May 10, 2021, the Company repaid all amounts outstanding under the secured loan, and in connection with such repayment, terminated the secured loan agreement.

The total repayment amount was $ 61.2 million, which included all outstanding principal and accrued interest under the secured loan.

As a result of the repayment, the collateral securing the obligations of SkyWest Airlines under the loan agreement, consisting of aircraft engines and aircraft parts, was released.

(2) Flying Agreements Revenue and Lease, Airport Services and Other Revenues

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The transaction price for the capacity purchase agreements is determined from the fixed-fee consideration, incentive consideration and directly reimbursed expenses earned as flights are completed over the agreement term.

For the nine months ended September 30, 2021, and 2020, capacity purchase agreements represented approximately 83.9 % and 86.8 % of the Company’s flying agreements revenue, respectively.

Under the Company’s prorate arrangements (referred to as a “prorate” or “revenue-sharing” agreement), the major airline partner and the Company negotiate a passenger fare proration formula, pursuant to which the Company receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on a Company airline and the other portion of their trip on the major airline partner.

For the three months ended March 31, 2022 and 2021, capacity purchase agreements represented approximately 88.8 % and 86.6 % of the Company’s flying agreements revenue, respectively.

Under the Company’s prorate arrangements (also referred to as a “prorate” or “revenue-sharing” agreement), the major airline partner and the Company negotiate a passenger fare proration formula, pursuant to which the Company receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on a Company airline and the other portion of their trip on the major airline partner.

Under the Company’s prorate flying agreements, the performance obligation is met, and revenue is recognized when each flight is completed based upon the portion of the prorate passenger fare the Company anticipates that it will receive for each completed flight.

The transaction price for the prorate agreements is determined from the proration formula derived from each passenger ticket amount on each completed flight over the agreement term.

For the nine months ended September 30, 2021, and 2020, prorate flying agreements represented approximately 16.1 % and 13.2 % of the Company’s flying agreements revenue, respectively.

The following table represents the Company’s flying agreements revenue by type for the three and nine months ended September 30, 2021, and 2020 (in thousands):

For the three months ended September 30,

For the nine months ended September 30,

For the three months ended March 31, 2022 and 2021, prorate flying agreements represented approximately 11.2 % and 13.4 % of the Company’s flying agreements revenue, respectively.

The following table represents the Company’s flying agreements revenue by type for the three months ended March 31, 2022 and 2021 (in thousands):

For the three months ended March 31,

Capacity purchase agreements revenue:

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The Company has not separately stated aircraft rental income and aircraft rental expense in the consolidated statement of comprehensive income since the use of the aircraft is not a separate activity of the total service provided.

Under the Company’s capacity purchase agreements, the Company is paid a fixed amount per aircraft each month over the contract term.

Under the Company’s capacity purchase agreements, the Company is paid a fixed amount per month per aircraft over the contract term.

The Company recognizes revenue attributed to the fixed monthly payments proportionate to the number of block hours completed during each reporting period, relative to the estimated number of block hours the Company anticipates completing over the remaining contract term.

Due to the lower number of flights operated during the COVID-19 pandemic compared to historical levels, the amount of cash collected for the fixed amount per aircraft

exceeded the revenue recognized based on flights completed.

Accordingly, the Company deferred recognizing revenue on fixed monthly cash payments the Company received under its capacity purchase agreements from the second quarter of 2020 through the second quarter of 2021.

During the three months ended September 30, 2021, the Company recognized $ 19.2 million of previously deferred revenue due to an increase in flight schedules compared to deferring revenue of $ 29.6 million during the three months ended September 30, 2020.

During the nine months ended September 30, 2021, and 2020, the Company deferred revenue of $ 7.7 million and $ 98.6 million, respectively, of fixed monthly cash payments the Company received under its capacity purchase agreements.

The Company’s deferred revenue balance was $ 118.4 million as of September 30, 2021, including $ 70.5 million in other current liabilities and $ 47.9 million in other long-term liabilities.

At December 31, 2020, the Company’s deferred revenue balance of $ 110.7 million was included in other long-term liabilities.

The Company’s deferred revenue balance will be recognized based on the number of block hours completed during each period relative to the estimated number of block hours the Company anticipates completing over the remaining contract term.

Due to the lower number of block hours completed during the COVID-19 pandemic compared to historical levels, the amount of cash collected for the fixed amount per aircraft exceeded the revenue recognized based on block hours completed.

Accordingly, the Company deferred recognizing revenue on fixed monthly cash payments the Company received under its capacity purchase agreements beginning in 2020.

Based on the number of completed block hours during the three months ended March 31, 2022, the Company recognized $ 7.5 million of previously deferred revenue and $ 3.6 million of unbilled revenue, compared to deferring revenue of $ 21.2 million during the three months ended March 31, 2021.

The Company’s deferred revenue balance was $ 96.4 million as of March 31, 2022, including $ 33.0 million in other current liabilities and $ 63.4 million in other long-term liabilities.

The Company’s deferred revenue balance was $ 103.9 million as of December 31, 2021, including $ 24.5 million in other current liabilities and $ 79.4 million in other long-term liabilities.

The Company’s unbilled revenue balance was $ 12.0 million as of March 31, 2022, and $ 8.4 million as of December 31, 2021, and was included in other long-term assets.

The Company’s deferred revenue and unbilled revenue balance will be recognized based on the number of block hours completed during each period relative to the estimated number of block hours the Company anticipates completing over the remaining contract term.

The Company’s capacity purchase and prorate agreements include weekly provisional cash payments from the respective major airline partner based on a projected level of flying each month.

The Company and each major airline partner subsequently reconcile these payments to the actual completed flight activity on a monthly or quarterly basis.

As of September 30, 2021, the Company had 486 aircraft in scheduled service or under contract under code-share agreements.

As of March 31, 2022, the Company had 513 aircraft in scheduled service or under contract under code-share agreements.

The following table summarizes the significant provisions of each code-share agreement SkyWest Airlines has with each major airline partner:

31 unchanged sentences

(Capacity purchase agreement)

Individual aircraft have scheduled removal dates in 2030

In addition to the contractual arrangements described above, as of September 30, 2021, SkyWest Airlines has a capacity purchase agreement with American to place 14 Embraer E175 dual-class regional jet aircraft (“E175”) into service.

The delivery dates for the 14 new E175 aircraft are currently scheduled for the fourth quarter of 2021 and first half of 2022 and the aircraft are expected to be placed into service in 2022.

SkyWest Airlines also has an agreement with American to place 19 used Canadair CRJ700 regional jet aircraft (“CRJ700”) under a multi-year capacity purchase agreement with scheduled in service dates into 2023.

SkyWest Airlines has a capacity purchase agreement with Alaska to place nine E175 aircraft into service.

The delivery dates for the nine new E175 aircraft are currently scheduled for 2022 and the first half of 2023, and the aircraft are expected to be placed into service in 2022 and 2023.

During the three months ended September 30, 2021, SkyWest Airlines reached an agreement with Delta to place 16 E175 aircraft into service under a capacity purchase agreement.

The delivery dates for the 16 new E175 aircraft are currently scheduled for 2022, and the aircraft are expected to be placed into service in 2022.

Under the terms of the agreement with Delta, Delta has the right to purchase the 16 E175 aircraft at the end of the contract term at a price estimated to be the fair value at the end of the contract.

These 16 new E175 aircraft are expected to replace 16 CRJ900 regional jet aircraft (“CRJ900”) the Company is operating under a capacity purchase agreement with Delta (see Note 12 “Special Items – Impairment Charge,” for further discussion of the Company’s CRJ900 aircraft).

Additionally, SkyWest Airlines entered into an agreement with Delta during the third quarter of 2021 to place four used CRJ900 aircraft under a short-term contract beginning in the fourth quarter of 2021.

Individual aircraft have scheduled removal dates from 2030 to 2034

In addition to the contractual arrangements described above, as of March 31, 2022, SkyWest Airlines has a capacity purchase agreement with American to place two Embraer E175 dual-class regional jet aircraft (“E175”) into service.

The delivery dates for the two new E175 aircraft are currently scheduled for the third quarter of 2022.

SkyWest Airlines also has an agreement with American to place 11 used Canadair CRJ700 regional jet aircraft (“CRJ700”) under a multi-year capacity purchase agreement in 2023.

SkyWest Airlines has a capacity purchase agreement with Alaska to place an additional seven E175 aircraft into service.

The delivery dates for the seven new E175 aircraft are currently scheduled for 2022 and the first half of 2023.

SkyWest Airlines has a capacity purchase agreement with Delta to place 16 E175 aircraft into service.

The delivery dates for the 16 new E175 aircraft are currently scheduled for 2022.

Final delivery and in-service dates for aircraft to be placed under contract may be adjusted based on various factors.

When an aircraft is scheduled to be removed from a capacity purchase agreement, the Company may, as practical under the circumstances, negotiate an extension with the respective major airline partner, negotiate the placement of the aircraft with another major airline partner, return the aircraft to the lessor if the aircraft is leased and the lease is expiring, place owned aircraft for sale, or pursue other uses for the aircraft.

When an aircraft is scheduled to be removed from a capacity purchase arrangement, the Company may, as practical under the circumstances, negotiate an extension with the respective major airline partner, negotiate the placement of the aircraft with another major airline partner, return the aircraft to the lessor if the aircraft is leased and the lease is expiring, place owned aircraft for sale, or pursue other uses for the aircraft.

Other uses for the aircraft may include placing the aircraft in a prorate agreement, leasing the aircraft to a third party or parting out the aircraft to use the engines and parts as spare inventory or to lease the engines to a third party.

The following represents the Company’s lease, airport services and other revenue for the three and nine months ended September 30, 2021, and 2020 (in thousands):

For the three months ended September 30,

For the nine months ended September 30,

Lease, airport services and other revenues primarily consists of revenue generated from aircraft and spare engines leased to third parties and airport customer services, such as gate and ramp agent services at applicable airports where the Company has agreements with third parties.

The following table represents the Company’s lease, airport services and other revenues for the three months ended March 31, 2022 and 2021 (in thousands):

For the three months ended March 31,

Operating lease revenue

1 unchanged sentence

Lease, airport services and other

The following table summarizes future minimum rental income under operating leases primarily related to leased aircraft and engines that had remaining non-cancelable lease terms as of September 30, 2021 (in thousands):

October 2021 through December 2021

Of the Company’s $ 5.3 billion of property and equipment, net as of September 30, 2021, $ 256.7 million of regional jet aircraft and spare engines was leased to third parties under operating leases.

April 2022 through December 2022

Of the Company’s $ 5.5 billion of property and equipment, net as of March 31, 2022, $ 246.9 million of regional jet aircraft and spare engines was leased to third parties under operating leases.

The Company mitigates the residual asset risks of these assets by leasing aircraft and engine types that can be operated by the Company in the event of a default.

Additionally, the operating leases typically have specified lease return condition requirements paid by the

lessee to the Company and the Company typically maintains inspection rights under the leases.

Additionally, lease, airport services and other revenues includes airport agent services, such as gate and ramp agent services at applicable airports where the Company provides such services.

Additionally, the operating leases typically have specified lease return condition requirements paid by the lessee to the Company and the Company typically maintains inspection rights under the leases.

The transaction price for airport customer service agreements is determined from an agreed-upon rate by location applied to the applicable number of flights handled by the Company over the agreement term.

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Allowance for credit losses

The Company adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments” (“Topic 326”) on January 1, 2020.

At adoption, the Company’s primary financial assets included trade receivables from its flying agreements, a note receivable from the sale of the Company’s subsidiary, ExpressJet Airlines, Inc., in 2019, and receivables from aircraft manufacturers and other third parties in the airline industry.

The Company recorded a credit loss of $ 11.6 million net of income tax in conjunction with the adoption of Topic 326.

The Company recorded this credit loss as a January 1, 2020, beginning balance sheet entry to retained earnings (net of income tax).

The Company monitors publicly available credit ratings for entities for which the Company has a significant receivable balance.

As of September 30, 2021, the Company had gross receivables of $ 79.0 million in current assets and gross receivables of $ 222.8 million in other long-term assets.

The Company has established credit loss reserves based on publicly available historic default rates issued by a third party for companies with similar credit ratings, factoring in the term of the respective accounts receivable or note receivable.

During the nine months ended September 30, 2021, there were no significant changes in the outstanding accounts receivable or notes receivable or the credit ratings of the entities.

The Company’s credit loss reserve was $ 44.6 million at September 30, 2021, compared to $ 46.2 million at December 31, 2020.

The $ 1.6 million decrease in the credit loss reserve for the nine months ended September 30, 2021, was reflected as a reduction to the credit loss expense.

(4) Share-Based Compensation and Stock Repurchases

During the nine months ended September 30, 2021, the Company granted 44,770 restricted stock units and 157,210 performance shares to certain employees of the Company under the SkyWest, Inc.

As of March 31, 2022, the Company had gross receivables of $ 89.4 million in current assets and gross receivables of $ 232.1 million in other long-term assets.

During the three months ended March 31, 2022, there were no significant changes in the outstanding accounts receivable or notes receivable or the credit ratings of the entities.

The Company’s credit loss reserve was $ 42.1 million at March 31, 2022, compared to $ 42.0 million at December 31, 2021.

The $ 0.1 million increase in the credit loss reserve for the three months ended March 31, 2022, was reflected as an increase to the credit loss expense.

(3) Share-Based Compensation

During the three months ended March 31, 2022, the Company granted 66,680 restricted stock units and 221,942 performance shares to certain employees of the Company under the SkyWest, Inc.

2019 Long-Term Incentive Plan.

Both the restricted stock units and performance shares have a three-year vesting period, during which the recipient must remain employed with the Company.

The number of performance shares awardable from the 2021 grants can range from 0 % to 250 % of the original amount granted depending on the Company’s performance over a two-year measurement period against the pre-established targets.

The number of performance shares awardable from the 2022 grants can range from 0 % to 250 % of the original amount granted depending on the Company’s performance over three one-year measurement periods against the pre-established targets.

Upon vesting, each restricted stock unit and performance share will be replaced with one share of common stock.

The fair value of these restricted stock units and performance shares on their date of grant was $ 32.86 per share .

During the nine months ended September 30, 2021, the Company did not grant any options to purchase shares of common stock to employees.

Additionally, during the nine months ended September 30, 2021, the Company granted 21,175 fully vested shares of common stock to the Company’s directors at a grant date fair value of $ 44.87 .

During the three months ended March 31, 2022, the Company did not grant any options to purchase shares of common stock to employees.

Additionally, during the three months ended March 31, 2022, the Company granted 24,423 fully vested shares of common stock to the Company’s directors at a grant date fair value of $ 32.86 .

The Company accounts for forfeitures of restricted stock units and performance shares when forfeitures occur.

The estimated fair value of the restricted stock units and performance shares is amortized over the applicable vesting periods.

During the nine months ended September 30, 2021, and 2020, the Company recorded pre-tax share-based compensation expense of $ 7.3 million and $ 5.9 million, respectively.

During the nine months ended September 30, 2021, the Company paid $ 1.6 million for the income tax obligation on vested employee equity awards and issued the net, after-tax shares to employees.

The Company did no t repurchase any shares of its common stock during the nine months ended September 30, 2021.

During the nine months ended September 30, 2020, the Company repurchased 385,606 shares of its common stock for $ 20.0 million and paid $ 6.2 million for the income tax obligation on vested employee equity awards and issued the net, after-tax shares to employees.

Under the terms of the PSP 3 Agreement, the Company is restricted from repurchasing shares of its common stock through September 30, 2022.

Share-based compensation expense for the performance shares is based on the Company’s anticipated outcome of achieving the performance metrics.

During the three months ended March 31, 2022 and 2021, the Company recorded pre-tax share-based compensation expense of $ 4.1 million and $ 2.6 million, respectively.

(4) Net Income Per Common Share

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The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutive effect on net income per common share.

During the nine months ended September 30, 2021, 230,000 performance shares (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of September 30, 2021.

During the nine months ended September 30, 2020, 200,000 performance shares (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of September 30, 2020.

During the nine months ended September 30, 2021, warrants to purchase 78,000 shares of common stock at $ 57.47 per share were excluded from the computation of Diluted EPS since the warrants' exercise price was greater than the average market price of the common shares during the quarters ended June 30, 2021, and September 30, 2021.

During the three months ended March 31, 2022, 361,000 performance shares (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of March 31, 2022.

During the three months ended March 31, 2021, 295,000 performance shares (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of March 31, 2021.

During the three months ended March 31, 2022, warrants to purchase 125,000 and 78,000 shares of common stock at $ 40.41 and $ 57.47 per share, respectively, were excluded from the computation of Diluted EPS since the warrants' exercise prices were greater than the average market price of the common shares during the quarter ended March 31, 2022.

The calculation of the weighted average number of shares of common stock outstanding for Basic EPS and Diluted EPS for the periods indicated (in thousands, except per share data) is as follows:

Three Months Ended

Nine Months Ended

September 30,

Basic earnings per share weighted average shares

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The SkyWest Leasing segment includes applicable revenue earned under the applicable capacity purchase agreements attributed to the ownership of new aircraft acquired through the issuance of debt and the respective depreciation and interest expense of such aircraft.

The SkyWest Leasing segment also includes the activity of leasing

regional jet aircraft and spare engines to third parties.

The SkyWest Leasing segment also includes the activity of leasing regional jet aircraft and spare engines to third parties.

The SkyWest Leasing segment’s total assets and capital expenditures include new aircraft acquired through the issuance of debt and assets leased to third parties.

The following represents the Company’s segment data for the three-month periods ended September 30, 2021, and 2020 (in thousands):

Three months ended September 30, 2021

The following represents the Company’s segment data for the three-month periods ended March 31, 2022 and 2021 (in thousands):

Three months ended March 31, 2022

Operating revenues (1)

1 unchanged sentence

Depreciation and amortization expense

Special items - impairment charges

Interest expense

Segment profit (loss) (2)

Total assets (as of September 30, 2021)

Capital expenditures (including non-cash)

Three months ended September 30, 2020

Operating revenues (1)

Operating expense

Depreciation and amortization expense

Interest expense

Segment profit (2)

Total assets (as of September 30, 2020)

Total assets (as of March 31, 2022)

Capital expenditures (including non-cash)

(1) Prorate revenue and airport customer service revenue are primarily reflected in the SkyWest Airlines segment.

(2) Segment profit (loss) is equal to operating income less interest expense.

The following represents the Company’s segment data for the nine-month periods ended September 30, 2021, and 2020 (in thousands):

Nine months ended September 30, 2021

Three months ended March 31, 2021

Operating revenues (1)

1 unchanged sentence

Depreciation and amortization expense

Special items - impairment charges

Interest expense

Segment profit (2)

Total assets (as of September 30, 2021)

Capital expenditures (including non-cash)

Nine months ended September 30, 2020

Operating revenues (1)

Operating expense

Depreciation and amortization expense

Interest expense

Segment profit (loss) (2)

Total assets (as of September 30, 2020)

Total assets (as of March 31, 2021)

Capital expenditures (including non-cash)

5 unchanged sentences

The Company used its incremental borrowing rate to discount the lease payments based on information available at lease commencement.

As of September 30, 2021, excluding aircraft financed by the Company’s major airline partners that the Company operates for them under contract, the Company had 43 aircraft under long-term lease agreements with remaining terms ranging from three years to nine years .

As of March 31, 2022, excluding aircraft financed by the Company’s major airline partners that the Company operates for them under contract, the Company had 43 aircraft under long-term lease agreements with remaining terms ranging from two years to eight years .

Airport facilities

3 unchanged sentences

The Company’s operating leases with lease rates that are variable based on airport operating costs, use of the facilities or other variable factors are excluded from the Company’s right-of-use assets and operating lease liabilities in accordance with accounting guidance.

As of September 30, 2021, the Company’s right-of-use assets were $ 248.6 million, the Company’s current maturities of operating lease liabilities were $ 78.2 million, and the Company’s noncurrent lease liabilities were $ 171.4 million.

During the nine months ended September 30, 2021, the Company paid $ 63.1 million in operating leases reflected as a reduction from operating cash flows.

The table below presents lease related terms and discount rates as of September 30, 2021.

As of September 30, 2021

As of March 31, 2022, the Company’s right-of-use assets were $ 223.9 million, the Company’s current maturities of operating lease liabilities were $ 78.9 million, and the Company’s noncurrent lease liabilities were $ 148.0 million.

During the three months ended March 31, 2022, the Company paid $ 14.7 million in operating leases reflected as a reduction from operating cash flows.

The table below presents lease related terms and discount rates as of March 31, 2022.

As of March 31, 2022

Weighted-average remaining lease term for operating leases

Weighted-average discount rate for operating leases

The Company’s lease costs for the three and nine months ended September 30, 2021, and 2020 included the following components (in thousands):

For the three months ended September 30,

For the nine months ended September 30,

The Company’s lease costs for the three months ended March 31, 2022 and 2021 included the following components (in thousands):

For the three months ended March 31,

Operating lease cost

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Total lease cost

As of September 30, 2021, the Company leased aircraft, airport facilities, office space, and other property and equipment under non-cancelable operating leases, which are generally on a long-term, triple-net lease basis pursuant to which the Company pays taxes, maintenance, insurance and certain other operating expenses applicable to the leased property.

As of March 31, 2022, the Company leased aircraft, airport facilities, office space, and other property and equipment under non-cancelable operating leases, which are generally on a long-term, triple-net lease basis pursuant to which the Company pays taxes, maintenance, insurance and certain other operating expenses applicable to the leased property.

The Company expects that, in the normal course of business, such operating leases that expire may be renewed or replaced by other leases, or the property may be purchased rather than leased.

The following table summarizes future minimum rental payments primarily related to leased aircraft required under operating leases that had initial or remaining non-cancelable lease terms as of September 30, 2021 (in thousands):

October 2021 through December 2021

As of September 30, 2021, the Company had a firm purchase commitment for 39 E175 aircraft from Embraer, S.A.

(“Embraer”) with anticipated delivery dates through the first half of 2023 and a firm purchase commitment for seven used CRJ700 aircraft from a third party with anticipated delivery dates by the end of 2021.

April 2022 through December 2022

As of March 31, 2022, the Company had a firm purchase commitment for 25 E175 aircraft from Embraer, S.A.

(“Embraer”) with anticipated delivery dates through the first half of 2023.

The following table summarizes the Company’s commitments and obligations as noted for each of the next five years and thereafter (in thousands):

Oct - Dec 2021

Apr - Dec 2022

Operating lease payments for aircraft and facility obligations

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Total commitments and obligations

(1) At September 30, 2021, the Company’s long-term debt had fixed interest rates.

Note 8 — Fair Value Measurements

(1) At March 31, 2022, the Company’s long-term debt had fixed interest rates.

(7) — Fair Value Measurements

The Company holds certain assets that are required to be measured at fair value in accordance with GAAP.

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Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, therefore requiring an entity to develop its own assumptions.

As of September 30, 2021, and December 31, 2020, the Company held certain assets that are required to be measured at fair value on a recurring basis.

As of March 31, 2022, and December 31, 2021, the Company held certain assets that are required to be measured at fair value on a recurring basis.

Assets measured at fair value on a recurring basis are summarized below (in thousands):

Fair Value Measurements as of September 30, 2021

Fair Value Measurements as of March 31, 2022

Marketable Securities

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The Company’s “marketable securities” classified as Level 2 securities primarily utilize broker quotes in a non-active market for valuation of these securities.

The Company did not make any significant transfers of securities between Level 1, Level 2 and Level 3 during the nine months ended September 30, 2021.

The Company did not make any significant transfers of securities between Level 1, Level 2 and Level 3 during the three months ended March 31, 2022.

The Company’s policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period.

As of September 30, 2021, and December 31, 2020, the Company classified $ 640.7 million and $ 610.2 million of marketable securities, respectively, as short-term since it had the intent to maintain a liquid portfolio and the ability to redeem the securities within one year.

As of September 30, 2021, and December 31, 2020, the cost of the Company’s total cash and cash equivalents and available for sale securities was $ 912.5 million and $ 825.9 million, respectively.

As of March 31, 2022, and December 31, 2021, the Company classified $ 610.5 million and $ 602.0 million of marketable securities, respectively, as short-term since it had the intent to maintain a liquid portfolio and the ability to redeem the securities within one year.

As of March 31, 2022, and December 31, 2021, the cost of the Company’s total cash and cash equivalents and marketable securities was $ 856.4 million and $ 860.4 million, respectively.

The fair value of the Company’s long-term debt classified as Level 2 debt was estimated using discounted cash flow analyses, based on the Company’s current estimated incremental borrowing rates for similar types of borrowing arrangements.

The fair value of the Company’s long-term debt is estimated based on current rates offered to the Company for similar debt and was estimated to be $ 3.0 billion as of September 30, 2021, and $ 3.2 billion as of

December 31, 2020, as compared to the carrying amount of $ 3.0 billion as of September 30, 2021, and $ 3.2 billion as of December 31, 2020.

The fair value of the Company’s long-term debt is estimated based on current rates offered to the Company for similar debt and was estimated to be $ 3.2 billion as of March 31, 2022, and $ 3.2 billion as of December 31, 2021, as compared to the carrying amount of $ 3.2 billion as of March 31, 2022, and $ 3.1 billion as of December 31, 2021.

(8) Long-term Debt

Long-term debt consisted of the following as of September 30, 2021, and December 31, 2020 (in thousands):

September 30, 2021

Long-term debt consisted of the following as of March 31, 2022, and December 31, 2021 (in thousands):

March 31, 2022

December 31, 2021

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Total long-term debt, net of debt issue costs

During the nine months ended September 30, 2021, the Company took delivery of six new E175 aircraft that the Company financed through $ 117.9 million of long-term debt.

The debt associated with the six E175 aircraft has a 12-year term, is due in quarterly installments with fixed annual interest rates ranging from 2.7 % to 2.8 % and is secured by the E175 aircraft.

During the nine months ended September 30, 2021, in connection with the PSP Extension Agreement and the PSP 3 Agreement, the Company issued to U.S.

Treasury promissory notes for an aggregate principal amount of $ 95.4 million and issued warrants to purchase up to 203,090 shares of the Company’s common stock.

The Company has recorded the value of the promissory note and warrants on a relative fair value basis as $ 95.4 million of long-term debt and $ 5.8 million in common stock, respectively.

The warrants have a five-year term from the date of issuance and 124,773 of the warrants have an exercise price of $ 40.41 per share and 78,317 of the warrants have an exercise prices of $ 57.47 per share.

See Note 2, “Impact of the COVID-19 Pandemic,” for further discussion of the terms of the payroll support program loan and warrants.

During the second quarter of 2021, the Company repaid all amounts outstanding under the secured loan with U.S.

Treasury, and in connection with such repayment, terminated the secured loan agreement.

The total repayment amount was $ 61.2 million, which included all outstanding principal and accrued interest under the secured loan.

As a result of the repayment, the collateral securing the obligations of SkyWest Airlines under the secured loan agreement, consisting of aircraft engines and aircraft parts, was released.

During the three months ended September 30, 2021, the Company repaid $ 80.1 million of debt related to aircraft early.

As of September 30, 2021, and December 31, 2020, the Company had $ 59.5 million and $ 61.1 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions.

As of September 30, 2021, SkyWest Airlines had a $ 75 million line of credit.

During the three months ended March 31, 2022, the Company took delivery of four new E175 aircraft that the Company financed through $ 82.8 million of long-term debt.

The debt associated with the E175 aircraft has 5-year to 10-year terms, is due in monthly installments, and is secured by the E175 aircraft.

During the three months ended March 31, 2022, the Company executed a promissory note for $ 102.9 million.

The promissory note has a three-year term, is due in monthly installments with a fixed annual interest rate of 3.6 % and is secured by spare engines.

As of both March 31, 2022, and December 31, 2021, the Company had $ 61.4 million in letters of credit and surety bonds outstanding with various banks and surety institutions.

As of March 31, 2022, SkyWest Airlines had a $ 100 million line of credit with an expiration date of March 25, 2025.

The line of credit includes minimum liquidity and profitability covenants and is secured by certain assets.

As of September 30, 2021, SkyWest Airlines had no amount outstanding under the facility.

However, at September 30, 2021, SkyWest Airlines had $ 34.0 million in letters of credit issued under the facility, which reduced the amount available under the facility to $ 41.0 million.

During the three months ended September 30, 2021, the Company extended the expiration date of the line of credit to January 1, 2022.

As of March 31, 2022, SkyWest Airlines had no amount outstanding under the facility.

However, at March 31, 2022, SkyWest Airlines had $ 31.4 million in letters of credit issued under the facility, which reduced the amount available under the facility to $ 68.6 million.

(9) — Investment in Other Companies

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(“Aero Engines”).

The Company invested an additional $ 1.0 million into Aero Engines in 2020 and $ 3.3 million during the first quarter of 2022 and retained a 75 % ownership interest.

The primary purpose of Aero Engines is to lease engines to third parties.

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The Company determined Aero Engines is a variable interest entity as the Company has a 75 % ownership interest in Aero Engines and all material decisions require unanimous approval from the Company and Regional One, resulting in disproportionate ownership rights relative to voting rights.

As unanimous approval is required for all Aero Engines’ material activities, Aero Engines has no primary beneficiary.

As unanimous approval is required for all Aero Engines’ material activities.

Aero Engines has no primary beneficiary.

The Company accounts for its investment in Aero Engines under the equity method.

The Company’s exposure in its investment in Aero Engines primarily consists of the Company’s portion of income or loss from Aero Engines’ engine lease agreements with third parties and the Company’s ownership percentage in Aero Engines’ engines book value.

The Company invested an additional $ 1.0 million into Aero Engines in 2020.

Aero Engines had no debt outstanding as of September 30, 2021.

As of September 30, 2021, the Company’s investment balance in Aero Engines was $ 19.7 million.

Aero Engines had no debt outstanding as of March 31, 2022.

As of March 31, 2022, the Company’s investment balance in Aero Engines was $ 23.9 million.

The Company’s investment in Aero Engines has been recorded in “Other Assets” on the Company’s consolidated balance sheet.

The Company’s portion of the loss generated by Aero Engines for the nine months ended September 30, 2021, was $ 5.8 million, which is recorded in “Other Income (Expense)” on the Company’s consolidated statements of comprehensive income.

Aero Engines’ net loss was primarily due to discrete engine overhaul events that were expensed during the nine months ended September 30, 2021.

The Company’s portion of earnings generated by Aero Engines for the three months ended March 31, 2022, was $ 0.4 million, which is recorded in “Other Income (Expense)” on the Company’s consolidated statements of comprehensive income.

In 2021, the Company entered into a strategic partnership with Eve UAM, LLC (“Eve”), to develop a network of deployment for Eve’s electric vertical takeoff and landing (“eVTOL”) aircraft.

The Company signed a non-binding letter of intent to purchase 100 eVTOL aircraft.

As part of the partnership, the Company anticipates it will acquire an equity interest in Eve in May 2022, upon completion of certain events by Eve.

(10) Income Taxes

The Company’s effective tax rate for the three months ended September 30, 2021, was 31.9 %.

The Company’s effective tax rate for the three months ended September 30, 2021, varied from the federal statutory rate of 21.0 % primarily due to the provision for state income taxes and a greater impact related to non-deductible expenses relative to the Company’s pre-tax earnings during the period.

The Company’s effective tax rate for the nine months ended September 30, 2021, was 26.1 %.

The Company’s effective tax rate for the nine months ended September 30, 2021, varied from the federal statutory rate of 21.0 % primarily due to the provision for state income taxes and the impact of non-deductible expenses.

The Company’s effective tax rate for the three months ended September 30, 2020, was 27.2 %.

The Company’s effective tax rate for the three months ended September 30, 2020, varied from the federal statutory rate of 21.0 % primarily due to the provision for state income taxes, the impact of non-deductible expenses, and an adjustment to the deferred state tax rate.

The Company’s effective tax rate for the nine months ended September 30, 2020, was 27.1 %.

The Company’s effective tax rate for the nine months ended September 30, 2020, varied from the federal statutory rate of 21.0 % primarily due to the provision for state income taxes.

the impact of non-deductible expenses and an adjustment to the deferred state tax rate, partially offset by a $ 1.4 million discrete tax benefit from excess tax deductions generated from employee equity transactions that occurred during the nine months ended September 30, 2020, and discrete tax benefits related to prior year state income tax filings.

(12) Special Items – Impairment Charge

During the three months ended September 30, 2021, the Company entered into an agreement with Delta to purchase and operate 16 new E175 aircraft under a multi-year capacity purchase agreement.

The 16 new E175 aircraft will replace 16 SkyWest-owned or financed CRJ900 aircraft currently under its Delta contract with expirations ranging from the second half of 2022 to early 2023.

As of September 30, 2021, SkyWest Airlines only operated the CRJ900 aircraft under a flying agreement with its major airline partner Delta.

As a result of this fleet transition beginning in 2022 and the uncertainty about the Company’s ability to redeploy the CRJ900 aircraft with another major airline partner, the Company concluded that indicators of impairment existed and therefore, evaluated its CRJ900 fleet and related CRJ900 assets for impairment.

Pursuant to ASC 360-10, “Impairment and Disposal of Long-Lived Assets,” the Company determined that the asset group for the CRJ900 aircraft existed at the major airline partner level.

A recoverability test was performed utilizing estimated undiscounted future cash flows for the CRJ900 aircraft pursuant to applicable agreements with Delta and forecasted cash flow including the estimated value the Company would realize upon disposal of aircraft.

This was compared to the carrying value of the related assets resulting in a cash flow deficiency indicating

that an impairment existed.

The impairment analysis required the Company to perform an assessment of the fair value of its long-lived assets related to the CRJ900 aircraft within the asset groups utilized in the recoverability test.

The Company engaged a third party to assist in determining the fair value of these aircraft.

These values were estimated based on listed market values or recent third-party market transactions for similar assets, adjusted by the related maintenance status of the fleet.

All fair values are considered to be Level 3 within the fair value hierarchy.

The amounts the Company may ultimately realize from the disposal of its CRJ900 long-lived assets may vary from the fair value assessments.

On September 30, 2021, the Company recorded a non-cash impairment charge of $ 84.6 million to write-down the CRJ900 aircraft operating under the Delta contracts to their estimated fair value.

This special item impairment charge is reflected in the SkyWest Airlines operating expenses under Note 6, “Segment Reporting.”

The Company’s effective tax rate for the three months ended March 31, 2022 was 28.4 %.

The Company’s effective tax rate for the three months ended March 31, 2022 varied from the federal statutory rate of 21.0 % primarily due to the provision for state income taxes, the impact of non-deductible expenses, and a discrete tax expense on employee equity transactions that occurred during the three months ended March 31, 2022.

The Company’s effective tax rate for the three months ended March 31, 2021 was 28.2 %.

The Company’s effective tax rate for the three months ended March 31, 2021 varied from the federal statutory rate of 21.0 % primarily due to the provision for state income taxes and the impact of non-deductible expenses.

(11) Legal Matters

The Company is subject to certain legal actions which it considers routine to its business activities.

As of September 30, 2021, the Company’s management believed, after consultation with legal counsel, that the ultimate outcome of such legal matters was not likely to have a material adverse effect on the Company’s financial position, liquidity, or results of operations.

As of March 31, 2022, the Company’s management believed, after consultation with legal counsel, that the ultimate outcome of such legal matters was not likely to have a material adverse effect on the Company’s financial position, liquidity, or results of operations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements