What changed in this filing

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Item 1. Financial Statements

2022-11-04 compared with 2022-08-04 · 155 added, 116 removed, 401 unchanged (40% 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:

14 unchanged sentences

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

82,514,936 and 82,335,970 shares issued as of June 30, 2022, and December 31, 2021, respectively

82,591,558 and 82,335,970 shares issued as of September 30, 2022, and December 31, 2021, respectively

Retained earnings

Treasury stock, at cost, 31,993,144 and 31,956,047 shares as of June 30, 2022, and December 31, 2021, respectively

Treasury stock, at cost, 31,994,416 and 31,956,047 shares as of September 30, 2022, and December 31, 2021, respectively

Accumulated other comprehensive loss

7 unchanged sentences

Three months ended

Six months ended

Nine months ended

September 30,

OPERATING REVENUES:

9 unchanged sentences

Aircraft rentals

Special items - impairment charges

Payroll support grant

5 unchanged sentences

Interest expense

Other income, net

Other income (expense), net

Total other expense, net

23 unchanged sentences

Balance at June 30, 2022

Exercise of common stock options and vested employee stock awards

Employee income tax paid on vested equity awards

Sale of common stock under employee stock purchase plan

Stock based compensation expense

Net unrealized depreciation on marketable securities, net of tax of $ 843

Balance at September 30, 2022

See accompanying notes to condensed consolidated financial statements.

SKYWEST, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(In Thousands)

Treasury Stock

9 unchanged sentences

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.

3 unchanged sentences

(In Thousands)

Six months ended

Nine months ended

September 30,

NET CASH PROVIDED BY OPERATING ACTIVITIES

2 unchanged sentences

( 1,758,125 )

( 1,071,637 )

Sales of marketable securities

37 unchanged sentences

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 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 and six months ended June 30, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

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 and nine months ended September 30, 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.

10 unchanged sentences

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 six months ended June 30, 2022 and 2021, capacity purchase agreements represented approximately 88.3 % and 85.0 % of the Company’s flying agreements revenue, respectively.

For the nine months ended September 30, 2022 and 2021, capacity purchase agreements represented approximately 88.0 % and 83.9 % 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.

1 unchanged sentence

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 six months ended June 30, 2022 and 2021, prorate flying agreements represented approximately 11.7 % and 15.0 % of the Company’s flying agreements revenue, respectively.

The following table represents the Company’s flying agreements revenue by type for the three and six months ended June 30, 2022 and 2021 (in thousands):

For the three months ended June 30,

For the six months ended June 30,

For the nine months ended September 30, 2022 and 2021, prorate flying agreements represented approximately 12.0 % and 16.1 % 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, 2022 and 2021 (in thousands):

For the three months ended September 30,

For the nine months ended September 30,

Capacity purchase agreements revenue:

13 unchanged sentences

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 six months ended June 30, 2022, the Company recognized $ 17.6 million of previously deferred revenue and $ 9.3 million of unbilled revenue, compared to deferring revenue of $ 26.8 million during the six months ended June 30, 2021.

The Company’s deferred revenue balance was $ 86.3 million as of June 30, 2022, including $ 20.8 million in other current liabilities and $ 65.5 million in other long-term liabilities.

Based on the number of completed block hours during the nine months ended September 30, 2022, the Company recognized $ 25.8 million of previously deferred revenue and $ 14.4 million of unbilled revenue, compared to deferring revenue of $ 7.7 million during the nine months ended September 30, 2021.

The Company’s deferred revenue balance was $ 78.1 million as of September 30, 2022, including $ 1.7 million in other current liabilities and $ 76.4 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 $ 17.7 million as of June 30, 2022, and $ 8.4 million as of December 31, 2021, and was included in other long-term assets.

The Company’s unbilled revenue balance was $ 22.8 million as of September 30, 2022, including $ 13.2 million in other current assets and $ 9.6 million in other long-term assets.

The Company’s unbilled revenue balance was $ 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.

1 unchanged sentence

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 June 30, 2022, the Company had 521 aircraft in scheduled service or under contract under code-share agreements.

As of September 30, 2022, the Company had 530 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:

25 unchanged sentences

Individual aircraft have scheduled removal dates from 2022 to 2032

Total under American Agreements

Total under American Agreement

Alaska Capacity Purchase Agreement

4 unchanged sentences

Individual aircraft have scheduled removal dates from 2030 to 2034

In addition to the contractual arrangements described above, as of June 30, 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.

In addition to the contractual arrangements described above, as of September 30, 2022, SkyWest Airlines has a capacity purchase agreement with Delta to place seven additional Embraer E175 regional jet aircraft (“E175”) into service, with delivery dates currently scheduled for the fourth quarter of 2022 through 2024.

SkyWest Airlines has a capacity purchase agreement with Alaska to place one additional E175 aircraft into service, with a delivery date currently scheduled for 2025.

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 E175 aircraft into service.

The delivery date for the new E175 aircraft is currently scheduled for the first half of 2023.

SkyWest Airlines has a capacity purchase agreement with Delta to place 14 E175 aircraft into service.

The delivery dates for the 14 new E175 aircraft are currently scheduled for the second half of 2022.

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

2 unchanged sentences

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 and six months ended June 30, 2022 and 2021 (in thousands):

For the three months ended June 30,

For the six months ended June 30,

The following table represents the Company’s lease, airport services and other revenues for the three and nine months ended September 30, 2022 and 2021 (in thousands):

For the three months ended September 30,

For the nine months ended September 30,

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 June 30, 2022 (in thousands):

July 2022 through December 2022

Of the Company’s $ 5.6 billion of property and equipment, net as of June 30, 2022, $ 240.1 million of regional jet aircraft and spare engines was leased to third parties under operating leases.

October 2022 through December 2022

Of the Company’s $ 5.6 billion of property and equipment, net, as of September 30, 2022, $ 234.7 million of regional jet aircraft and spare engines was leased to third parties under operating leases.

The Company’s mitigation strategy for the residual asset risks of these assets includes leasing aircraft and engine types that can be operated by the Company in the event of a default.

5 unchanged sentences

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

As of June 30, 2022, the Company had gross receivables of $ 97.0 million in current assets and gross receivables of $ 234.4 million in other long-term assets.

As of September 30, 2022, the Company had gross receivables of $ 94.2 million in current assets and gross receivables of $ 227.6 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 notes receivable.

During the six months ended June 30, 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 $ 40.4 million at June 30, 2022, compared to $ 42.0 million at December 31, 2021.

The $ 1.6 million decrease in the credit loss reserve for the six months ended June 30, 2022, was reflected as a decrease to the credit loss expense.

During the nine months ended September 30, 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 $ 38.0 million at September 30, 2022, compared to $ 42.0 million at December 31, 2021.

The $ 4.0 million decrease in the credit loss reserve for the nine months ended September 30, 2022, was reflected as a decrease to the credit loss expense.

(3) Stock-Based Compensation

During the six months ended June 30, 2022, the Company granted 66,680 restricted stock units and 221,942 performance shares to certain employees of the Company under the SkyWest, Inc.

During the nine months ended September 30, 2022, the Company granted 66,680 restricted stock units and 225,345 performance shares to certain employees of the Company under the SkyWest, Inc.

2019 Long-Term Incentive Plan.

1 unchanged sentence

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 six months ended June 30, 2022, the Company did not grant any options to purchase shares of common stock to employees.

Additionally, during the six months ended June 30, 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 .

Upon vesting, each restricted stock unit and performance share

will be replaced with one share of common stock.

The weighted average fair value of these restricted stock units and performance shares on their date of grant was $ 32.76 per share .

During the nine months ended September 30, 2022, the Company did not grant any options to purchase shares of common stock to employees.

Additionally, during the nine months ended September 30, 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.

1 unchanged sentence

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

During the six months ended June 30, 2022 and 2021, the Company recorded pre-tax stock-based compensation expense of $ 7.4 million and $ 5.5 million, respectively.

During the nine months ended September 30, 2022 and 2021, the Company recorded pre-tax stock-based compensation expense of $ 11.1 million and $ 7.3 million, respectively.

(4) Net Income Per Common Share

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

PSP1 and Treasury Loan Warrants (1)

1 unchanged sentence

PSP3 Warrants (3)

Restricted Stock Units

Employee Stock Awards

Total antidilutive securities

6 unchanged sentences

Treasury warrants to purchase shares of SkyWest common stock for an exercise price of $ 57.47 per share.

Additionally, during the six months ended June 30, 2022, 350,000 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 June 30, 2022.

During the six months ended June 30, 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 June 30, 2021.

Additionally, during the nine months ended September 30, 2022, 334,000 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, 2022.

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.

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

Six Months Ended

Nine Months Ended

September 30,

Basic earnings per share weighted average shares

8 unchanged sentences

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 and other activities.

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 June 30, 2022 and 2021 (in thousands):

Three months ended June 30, 2022

The following represents the Company’s segment data for the three-month periods ended September 30, 2022 and 2021 (in thousands):

Three months ended September 30, 2022

Operating revenues (1)

2 unchanged sentences

Interest expense

Segment profit (2)

Total assets (as of June 30, 2022)

Segment profit (loss) (2)

Total assets (as of September 30, 2022)

Capital expenditures (including non-cash)

Three months ended June 30, 2021

Three months ended September 30, 2021

Operating revenues (1)

1 unchanged sentence

Depreciation and amortization expense

Special items - impairment charges

Interest expense

Segment profit (2)

Total assets (as of June 30, 2021)

Segment profit (loss) (2)

Total assets (as of September 30, 2021)

Capital expenditures (including non-cash)

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

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

The following represents the Company’s segment data for the six-month periods ended June 30, 2022 and 2021 (in thousands):

Six months ended June 30, 2022

(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, 2022 and 2021 (in thousands):

Nine months ended September 30, 2022

Operating revenues (1)

3 unchanged sentences

Segment profit (2)

Total assets (as of June 30, 2022)

Total assets (as of September 30, 2022)

Capital expenditures (including non-cash)

Six months ended June 30, 2021

Nine months ended September 30, 2021

Operating revenues (1)

1 unchanged sentence

Depreciation and amortization expense

Special items - impairment charges

Interest expense

Segment profit (2)

Total assets (as of June 30, 2021)

Total assets (as of September 30, 2021)

Capital expenditures (including non-cash)

2 unchanged sentences

(6) Assets Held for Sale

During the three months ended June 30, 2022, the Company committed to a formal plan to sell four CRJ-700 aircraft.

During the nine months ended September 30, 2022, the Company committed to a formal plan to sell four CRJ-700 aircraft.

The aircraft are expected to be disposed of via sale within the next 12 months.

4 unchanged sentences

Prior to the ultimate sale of the assets, subsequent changes in the estimate of the fair value of the assets held for sale will be recorded as a gain or loss with a corresponding adjustment to the assets’ carrying value.

In connection with the classification of these assets as held for sale, the Company recorded an impairment loss of $ 15.2 million, which is included in “Other operating expenses” on the Company’s consolidated statements of comprehensive income and in the SkyWest Leasing segment.

(7) Leases, Commitments, Guarantees and Contingencies

2 unchanged sentences

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

As of June 30, 2022, excluding aircraft financed by the Company’s major airline partners that the Company operates for them under contract, the Company was the lessee on 43 aircraft under long-term lease agreements with remaining terms ranging from two years to eight years .

As of September 30, 2022, excluding aircraft financed by the Company’s major airline partners that the Company operates for them under contract, the Company was the lessee of 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 June 30, 2022, the Company’s right-of-use assets were $ 207.8 million, the Company’s current maturities of operating lease liabilities were $ 75.6 million, and the Company’s noncurrent lease liabilities were $ 134.6 million.

During the six months ended June 30, 2022, the Company paid $ 35.0 million in operating leases reflected as a reduction from operating cash flows.

The table below presents lease related terms and discount rates as of June 30, 2022.

As of June 30, 2022

As of September 30, 2022, the Company’s right-of-use assets were $ 192.7 million, the Company’s current maturities of operating lease liabilities were $ 74.1 million, and the Company’s noncurrent lease liabilities were $ 117.8 million.

During the nine months ended September 30, 2022, the Company paid $ 56.9 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, 2022.

As of September 30, 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 six months ended June 30, 2022 and 2021 included the following components (in thousands):

For the three months ended June 30,

For the six months ended June 30,

The Company’s lease costs for the three and nine months ended September 30, 2022 and 2021 included the following components (in thousands):

For the three months ended September 30,

For the nine months ended September 30,

Operating lease cost

2 unchanged sentences

Total lease cost

As of June 30, 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.

As of September 30, 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 June 30, 2022 (in thousands):

July 2022 through December 2022

As of June 30, 2022, the Company had a firm purchase commitment for 17 E175 aircraft from Embraer, S.A.

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

As of September 30, 2022, the Company had a firm purchase commitment for eight E175 aircraft from Embraer, S.A.

(“Embraer”) with anticipated delivery dates through 2025.

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

Jul - Dec 2022

Oct - Dec 2022

Operating lease payments for aircraft and facility obligations

3 unchanged sentences

Total commitments and obligations

(1) At June 30, 2022, the Company’s long-term debt had fixed interest rates.

During the three months ended June 30, 2022, the Company agreed to guarantee $ 17.0 million of debt for a 14 CFR Part 135 air carrier.

(1) At September 30, 2022, the Company’s long-term debt had fixed interest rates.

During the nine months ended September 30, 2022, the Company agreed to guarantee $ 19.8 million of debt for a 14 CFR Part 135 air carrier.

The debt is secured by the Part 135 air carrier’s aircraft and engines and has a five-year term.

12 unchanged sentences

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 June 30, 2022, and December 31, 2021, the Company held certain assets that are required to be measured at fair value on a recurring basis.

As of September 30, 2022, and December 31, 2021, the Company held certain assets that are required to be measured at fair value on a recurring basis.

The Company’s assets measured at fair value on a recurring basis are summarized below (in thousands):

Fair Value Measurements as of June 30, 2022

Fair Value Measurements as of September 30, 2022

Marketable Securities

11 unchanged sentences

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

See Note 10 “Investment in Other Companies” regarding the Company’s investment in other companies, during the three months ended June 30, 2022.

The Company did not make any significant transfers of securities between Level 1, Level 2 and Level 3 during the six months ended June 30, 2022.

See Note 10 “Investments in Other Companies” regarding the Company’s investment in other companies, for the nine months ended September 30, 2022.

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, 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 June 30, 2022, and December 31, 2021, the Company classified $ 878.6 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 June 30, 2022, and December 31, 2021, the cost of the Company’s total cash and cash equivalents and marketable securities was $ 977.2 million and $ 860.4 million, respectively.

As of September 30, 2022, and December 31, 2021, the Company classified $ 965.3 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 September 30, 2022, and December 31, 2021, the cost of the Company’s total cash and cash equivalents and marketable securities was $ 1,010.2 million and $ 860.4 million, respectively.

(9) Long-term Debt

Long-term debt consisted of the following as of June 30, 2022, and December 31, 2021 (in thousands):

June 30, 2022

Long-term debt consisted of the following as of September 30, 2022, and December 31, 2021 (in thousands):

September 30, 2022

December 31, 2021

8 unchanged sentences

Total long-term debt, net of debt issue costs

During the six months ended June 30, 2022, the Company took delivery of twelve new E175 aircraft that the Company financed through $ 248.9 million of long-term debt.

The debt associated with the E175 aircraft has 5-year to 12-year terms, is due in monthly or quarterly installments, and is secured by the E175 aircraft.

During the six months ended June 30, 2022, the Company executed promissory notes for $ 127.9 million.

During the nine months ended September 30, 2022, the Company took delivery of 21 new E175 aircraft that the Company financed through $ 430.9 million of long-term debt.

The debt associated with the E175 aircraft has 5 - to 12-year terms, is due in monthly or quarterly installments, and is secured by the E175 aircraft.

During the nine months ended September 30, 2022, the Company executed promissory notes for $ 167.9 million.

The promissory notes have three - to four-year terms, are due in monthly installments with fixed annual interest rates of 3.6 % to 4.7 % and are secured by spare engines.

As of both June 30, 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 June 30, 2022, SkyWest Airlines had a $ 100 million line of credit with an expiration date of March 25, 2025.

As of both September 30, 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 September 30, 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 June 30, 2022, SkyWest Airlines had no amount outstanding under the facility.

However, at June 30, 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.

As of September 30, 2022, SkyWest Airlines had no amount outstanding under the facility.

However, at September 30, 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.

The Company’s debt agreements are not traded on an active market and are recorded at carrying value on the Company’s consolidated balance sheet.

1 unchanged sentence

Debt is primarily classified as Level 2 within the fair value hierarchy.

The carrying value and fair value of the Company’s long-term debt as of June 30, 2022 and December 31, 2022, were as follows (in thousands):

June 30, 2022

The carrying value and fair value of the Company’s long-term debt as of September 30, 2022 and December 31, 2021, were as follows (in thousands):

September 30, 2022

December 31, 2021

Carrying value

(10) Investment in Other Companies

( 10) Investments in Other Companies

Equity Method Investment

During 2019, the Company created a joint venture with Regional One, Inc.

4 unchanged sentences

Aero Engines requires unanimous approval from the Company and Regional One for its engine purchases, dispositions, lease agreements with third parties and all other material transactions.

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.

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.

1 unchanged sentence

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.

Aero Engines had no debt outstanding as of June 30, 2022.

As of June 30, 2022, the Company’s investment balance in Aero Engines was $ 24.3 million.

Aero Engines had no debt outstanding as of September 30, 2022.

As of September 30, 2022, the Company’s investment balance in Aero Engines was $ 24.7 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 earnings generated by Aero Engines for the six months ended June 30, 2022, was $ 0.8 million, which is recorded in “Other income, net” on the Company’s consolidated statements of comprehensive income.

The Company’s portion of earnings generated by Aero Engines for the nine months ended September 30, 2022, was $ 1.2 million, which is recorded in “Other income, net” on the Company’s consolidated statements of comprehensive income.

Fair Value Method Investments

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

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

During the quarter ended June 30, 2022, the Company acquired 1,000,000 Class A common shares of Eve Holding, Inc.

(“Eve”) and a warrant giving the Company the right to acquire 1,500,000 Class A common shares of Eve at an exercise price of $ 0.01 per share.

The Company also received a put option from an Eve shareholder for the 1,000,000 Class A shares of Eve payable in aircraft parts credits.

The put option reduces the Company’s investment risk in Eve.

During the nine months ended September 30, 2022, the Company acquired 1,000,000 shares of common stock of Eve Holding, Inc.

(“Eve”) and a warrant giving the Company the right to acquire 1,500,000 shares of common stock of Eve at an exercise price of $ 0.01 per share.

The Company also received a put option from an Eve shareholder for the 1,000,000 shares of common stock of Eve payable in aircraft parts credits.

The intent of the put option is to reduce the Company’s investment risk in Eve.

The warrant expires in May 2032, and the put option expires in December 2031.

The Company acquired the common shares, warrant and put option (collectively the “Eve Investments”) for $ 10.0 million.

The Company evaluated the Eve Investments under ASC 321 – Investments – Equity Securities and ASC 815 – Derivatives and Hedging and recorded the Eve Investments based on their pro rata share of the consideration paid using the fair value of the Eve Investments on the acquisition date, with subsequent changes in the fair value reported in earnings.

The common shares of Eve are classified as Level 1 within the fair value hierarchy as Eve stock is actively traded on the New York Stock Exchange, and the value is determined using quoted market prices for the equity security.

The Company acquired the shares of common stock, warrant and put option (collectively the “Eve Investments”) for $ 10.0 million.

The Company evaluated the Eve Investments under Accounting Standard Codification (“ASC”) Topic 321, “Investments – Equity Securities” and ASC Topic 815, “Derivatives and Hedging,” and recorded the Eve Investments based on their pro rata share of the consideration paid using the fair value of the Eve Investments on the acquisition date, with subsequent changes in the fair value reported in earnings.

The shares of common stock of Eve are classified as Level 1 within the fair value hierarchy as Eve stock is actively traded on the New York Stock Exchange, and the value is determined using quoted market prices for the equity security.

The warrant and put option are classified as Level 3 within the fair value hierarchy, and the Company used the Black Scholes Option Pricing Model to determine the estimated fair market value of the warrant and put option, including an expected volatility of 49 %, which is a significant unobservable input that was derived from historical volatility of comparable companies.

The table below shows the reconciliation of the Level 3 Eve Investments (in thousands):

The table below shows the reconciliation of the Level 3 warrant and put option Eve Investments (in thousands):

Balance at March 31, 2022

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Balance at June 30, 2022

The Company recognized an unrealized gain of $ 9.5 million in “Other income, net” on the Company’s consolidated statements of comprehensive income for the six months ended June 30, 2022, related to the Eve Investments.

As of June 30, 2022, the fair value of the Eve Investments was $ 19.5 million and was recorded in “Other Assets” on the Company’s consolidated balance sheet.

Unrealized gains

Balance at September 30, 2022

The Company recognized unrealized gains of $ 16.1 million in “Other income, net” on the Company’s consolidated statements of comprehensive income for the nine months ended September 30, 2022, related to the Eve Investments.

As of September 30, 2022, the fair value of the Eve Investments was $ 26.1 million and was recorded in “Other Assets” on the Company’s consolidated balance sheet.

(11) Income Taxes

The Company’s effective tax rate for the three months ended June 30, 2022 was 25.8 %.

The Company’s effective tax rate for the three months ended June 30, 2022 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 six months ended June 30, 2022 was 26.5 %.

The Company’s effective tax rate for the six months ended June 30, 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 six months ended June 30, 2022.

The Company’s effective tax rate for the three and six months ended June 30, 2021 was 23.8 % and 25.5 %, respectively.

The Company’s effective tax rate for the three and six months ended June 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, 2022 was 14.8 %.

The Company’s effective tax rate for the three months ended September 30, 2022 varied from the federal statutory rate of 21.0 % primarily due to a benefit from the release of $ 7.4 million of a previously recorded uncertain tax position liability with the benefit partially offset by the provision for state income taxes, the impact of non-deductible expenses, and the recording of a valuation allowance on state net operating losses anticipated to expire prior to utilization.

The Company’s effective tax rate for the nine months ended September 30, 2022 was 22.2 %.

The Company’s effective tax rate for the nine months ended September 30, 2022 varied from the federal statutory rate of 21.0 % primarily due to a benefit from the release of $ 7.4 million of a previously recorded uncertain tax position liability with the benefit partially offset by the provision for state income taxes, the impact of non-deductible expenses, and the recording of a valuation allowance on state net operating losses anticipated to expire prior to utilization.

The Company’s effective tax rate for the three and nine months ended September 30, 2021 was 31.9 % and 26.1 %, respectively.

The Company’s effective tax rate for the three and 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.

(12) Special Items – Impairment Charge

During the three and nine months ended September 30, 2021, the Company recorded a non-cash impairment charge of $ 84.6 million to write-down certain CRJ900 aircraft to their estimated fair value.

In 2021, the Company 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 capacity purchase agreement terms 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.

This special item impairment charge is reflected in the SkyWest Airlines operating expenses under Note 5, “Segment Reporting” for the three and nine months ended September 30, 2021.

The Company did not have a similar impairment charge at the fleet level during the nine months ended September 30, 2022.

(13) Legal Matters

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

As of June 30, 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.

As of September 30, 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