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Item 7. Management’s Discussion and Analysis

2023-02-16 compared with 2022-02-17 · 140 added, 167 removed, 185 unchanged (62% of the section changed)

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The following discussion and analysis presents factors that had a material effect on our results of operations during the years ended December 31, 2022 and 2021.

Also discussed is our financial position as of December 31, 2021 and 2020.

Also discussed is our financial condition as of December 31, 2022 and 2021.

You should read this discussion in conjunction with our consolidated financial statements, including the notes thereto, appearing elsewhere in this Report or incorporated herein by reference.

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As of December 31, 2022, we offered scheduled passenger and air freight service with approximately 1,620 total daily departures to destinations in the United

States, Canada, Mexico and the Caribbean.

States, Canada, and Mexico.

As of December 31, 2022, we had 625 total aircraft in our fleet, including 517 aircraft in scheduled service or under contract under our code-share agreements, summarized as follows:

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*As of December 31, 2022, other aircraft included:

supplemental spare aircraft supporting our code-share agreements which may be used in future code-share or leasing arrangements, aircraft transitioning between code-share agreements with our major airline partners, or aircraft that are scheduled to be disassembled for use as spare parts.

**The Company took delivery of the 18 E175 aircraft under its contract with American as of December 31, 2021.

The 18 E175 aircraft are scheduled to begin service in 2022.

supplemental spare aircraft supporting our code-share agreements that may be used in future code-share or leasing arrangements, aircraft transitioning between code-share agreements with our major airline partners, aircraft held for sale, or aircraft that are scheduled to be disassembled for use as spare parts.

Our business model is based on providing scheduled regional airline service under code-share agreements (commercial agreements between airlines that, among other things, allow one airline to use another airline’s flight designator codes on its flights) with our major airline partners.

Our success is principally centered on our ability to meet the needs of our major airline partners through providing a reliable and safe operation at attractive economics.

The COVID-19 pandemic had a significant impact to our operations including a reduction in the number of flights we were scheduled to operate during 2020 and 2021 and changes we made to enhance the safety of our passengers and employees, including aircraft cleaning procedures and use of personal protective equipment.

During the 2021 calendar year, we made several changes to our fleet count under our flying agreements, including the addition of 18 new E175 aircraft, 24 used CRJ700 aircraft, one new and four used CRJ900 aircraft, and 10 used CRJ200 aircraft.

Leases on two CRJ200 aircraft with third parties terminated during 2021.

We anticipate our fleet will continue to evolve, as we are scheduled to add two new E175 aircraft with American in 2022, 16 new E175 aircraft with Delta by the first half of 2023, and eleven new E175 aircraft with Alaska by the first half of 2023.

The 16 E175 aircraft with Delta will replace 16 older SkyWest-owned or financed CRJ900 aircraft currently operating under contract with Delta.

Under the terms of the contract 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.

During the 2022 calendar year, we made changes to our fleet count under our flying agreements, including the addition of 25 new E175 aircraft.

Additionally, during the 2022 calendar year, we increased the number of CRJ700 aircraft we leased to third parties from 34 to 35 aircraft.

We anticipate our fleet will continue to evolve, as we are scheduled to add a total of three new E175 aircraft with Delta in 2023 and 2024 and one new E175 aircraft with Alaska in 2025.

Timing of these anticipated deliveries may be subject to change as we are coordinating with our major airline partners in response to the COVID-19 recovery, labor availability or other factors.

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We had total operating revenues of $3.0 billion for the year ended December 31, 2022, a 10.7% increase compared to total operating revenues of $2.7 billion for the year ended December 31, 2021.

We had net income of $111.9 million, or $2.20 per diluted share, for the year ended December 31, 2021, compared to a net loss of $8.5 million, or $0.17 loss per share, for the year ended December 31, 2020.

We had net income of $73.0 million, or $1.44 per diluted share, for the year ended December 31, 2022, compared to net income of $111.9 million, or $2.20 per diluted share, for the year ended December 31, 2021.

The significant items affecting our revenue and operating expenses during the year ended December 31, 2022, are outlined below:

The number of aircraft we have in scheduled service and the number of block hours we generate on our flights are primary drivers to our flying agreements revenue under our capacity purchase arrangements.

The number of aircraft we have in scheduled service and the number of block hours we incur on our flights are primary drivers to our flying agreements revenue under our capacity purchase agreements.

The number of flights we operate and the corresponding number of passengers we carry are the primary drivers to our revenue under our prorate flying agreements.

As a result of higher passenger demand compared to the onset of the COVID-19 pandemic, the number of aircraft we operated increased from 452 as of December 31, 2020, to 509 as of December 31, 2021;

the number of block hours increased from 1.0 million in 2020 to 1.3 in 2021, or by 35.6%;

and the number of passengers we carried increased from 21.3 million in 2020 to 36.6 million in 2021, or by 72.2%.

As a result of increased flight schedules and additional aircraft operating under our capacity purchase agreements in 2021 compared to 2020, our capacity purchase revenue increased $413.5 million, or 23.1% in 2021.

Additionally, we recognized $6.8 million of previously deferred revenue and $8.4 million of unbilled revenue for the year ended December 31, 2021, compared to deferring revenue of $110.7 million of fixed monthly payments received under our capacity purchase agreements for the year ended December 31, 2020, as further described in the section of this report entitled “Results of Operations.” As a result of increased flight schedules and passengers carried on our prorate routes, our prorate revenue increased $140.8 million, or 52.4% in 2021, as compared to 2020.

Despite the ongoing COVID-19 demand recovery, the negative impact to our revenues due to the COVID-19 pandemic and its associated effects on the travel industry, including potential labor shortages that may negatively impact our future flight schedules, may continue in 2022.

The number of aircraft we have in scheduled service or under contract under code-share agreements increased from 509 as of December 31, 2021, to 517 as of December 31, 2022;

the number of block hours decreased from 1.32 million in 2010 to 1.25 million in 2022, or by 4.9%.

Our capacity purchase revenue increased $345.1 million, or 15.6%, from 2021 to 2022.

The change was primarily as a result of additional aircraft operating under our capacity purchase agreements in 2022 compared to 2021 and the temporary rate reductions we provided our major airline partners under our capacity purchase agreements during the year ended December 31, 2021 for COVID-19 relief, as further described in the section of this report entitled “Results of Operations.” As a result of decreased flight schedules and passengers carried on our prorate routes, our prorate revenue decreased $60.3 million, or 14.7% in 2022, as compared to 2021.

Operating Expenses

Our total operating expenses increased $386.1 million, or 15.8% for the year ended December 31, 2022, compared to the year ended December 31, 2021.

This increase was primarily due to an increase in the number of flights we operated and a non-cash impairment charge of $84.6 million for the year ended December 31, 2021.

Departures increased from 585,257 in 2020 to 749,943 in 2021, or by 28.1%.

Additionally, we recorded $422.7 million in payroll support grants received from Treasury as an offset to our operating expenses for the year ended December 31, 2021, compared to $345.5 million recorded for the year ended December 31, 2020.

This increase was primarily due to $422.7 million in payroll support grants received from Treasury that was recorded an offset to our operating expenses for the year ended December 31, 2021.

We did not have a comparable payroll support grant for the year ended December 31, 2022.

Additional details regarding the increase in our operating expenses are described in the section of this Report entitled “Results of Operations.”

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December 31, 2022

During 2021, we took delivery of 18 new E175 aircraft and one new CRJ900 aircraft and placed the aircraft into service or under contract under capacity purchase agreements.

We placed 24 (net) used CRJ700 aircraft, four used CRJ900 aircraft into service under capacity purchase agreements, and ten used CRJ200 aircraft into prorate service.

During 2022, we took delivery of 25 new E175 aircraft and placed the aircraft into service or under contract under capacity purchase agreements.

We removed 10 CRJ700 aircraft, three CRJ900 aircraft and four CRJ200 aircraft from service during 2022.

We are evaluating alternative uses for the aircraft removed from service.

Results of Operations

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The following table sets forth our major operational statistics and the associated percentages of change for the periods identified below.

The increase in block hours, departures and passengers carried during the year ended December 31, 2021, compared to the year ended December 31, 2020, was primarily due to demand recovery from reduced flight schedules in response to the COVID-19 pandemic.

The decrease in block hours and departures during the year ended December 31, 2022, compared to the year ended December 31, 2021, was primarily due to labor constraints, including the number of available captains in 2022.

For the year ended December 31,

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For the year ended December 31,

Capacity purchase agreements revenue:

flight operations

Capacity purchase agreements revenue:

aircraft lease and fixed revenue

Capacity purchase agreements flight operations revenue

Capacity purchase agreements aircraft lease revenue

Prorate agreements revenue

Flying agreements revenue

The increase in “Capacity purchase agreements revenue:

flight operations” of $201.4 million was primarily due to an increase in scheduled flights we operated under our contracts with our major airline partners as a result of the ongoing COVID-19 demand recovery.

Our completed departures increased 28.1% and completed block hours increased 35.6% for the year ended December 31, 2021, compared to year ended December 31, 2020.

The increase in “Capacity purchase agreements revenue:

aircraft lease and fixed revenue” of $212.1 million was primarily due to recognizing previously deferred revenue and unbilled revenue during the year ended December 31, 2021, compared to the year ended December 31, 2020, combined with aircraft lease and fixed rate revenue generated from 18 E175 aircraft added to our fleet since December 31, 2020.

Under our capacity purchase agreements, we are paid a fixed amount per month per aircraft over the contract term.

We recognize the fixed amount per aircraft as revenue

proportionately to the number of block hours we complete, our performance obligation, for each reporting period.

During the year ended December 31, 2021, the increase in our flight schedules resulted in recognizing $6.8 million of previously deferred revenue and $8.4 million in unbilled revenue on our capacity purchase agreements.

For the year ended December 31, 2020, we deferred recognizing revenue on $110.7 million of fixed monthly cash payments we received under our capacity purchase agreements.

Our deferred revenue and unbilled revenue related to the fixed payments will adjust over the remaining contract term for each capacity purchase agreement based on the number of block hours we complete each reporting period relative to the number of block hours we anticipate completing over the remaining contract term of each capacity purchase agreement.

The deferred revenue balance applicable to each contract will be recorded as revenue by the end of each respective contract term.

Our total deferred revenue and unbilled revenue balances were $103.9 million and $8.4 million as of December 31, 2021, respectively.

The increase in prorate agreements revenue of $140.8 million was primarily due to the increase in prorate passengers and passenger revenue we received on routes we operated under our prorate agreements during 2021, compared to 2020, due to the ongoing COVID-19 demand recovery.

The increase in lease, airport services and other revenues of $32.1 million was primarily due an increase in the number of flights operated at locations where we were contracted to provide airport customer service during 2021 compared to 2020 and we leased 34 CRJ700s to a third party for all of 2021, whereas we leased 34 to a third party for only a portion of 2020.

The increase in “Capacity purchase agreements flight operations revenue” of $350.1 million was primarily due to an increase in the number of E175 aircraft we operated under our contracts with our major airline partners during the year ended December 31, 2022, compared to the year ended December 31, 2021, and rate increases since December 31, 2021.

From December 31, 2021 to December 31, 2022, we added 25 E175 aircraft under capacity purchase agreements.

Our E175 aircraft completed block hours increased 3.5% for the year ended December 31, 2022, compared to the year ended December 31, 2021.

Additionally, in response to the COVID-19 demand reduction experienced by our major airline partners in 2021, we provided temporary rate reductions to our major airline partners under our capacity purchase agreements during the year ended December 31, 2021.

We did not provide our major airline partners temporary rate reductions during the year ended December 31, 2022.

The decrease in “Capacity purchase agreements aircraft lease revenue” of $5.0 million was primarily due to revenue deferred during the year ended December 31, 2022, offset by lease revenue from the 25 additional E175 aircraft placed under contract during the year ended December 31, 2022.

During the year ended December 31, 2022, we amended our capacity purchase agreements with certain major airline partners that reduced certain future contractual fixed monthly payments and increased future contractual variable payments.

As a result of these amendments, we deferred recognizing lease revenue on $22.1 million of the allocated fixed monthly lease payments received during the year ended December 31, 2022, under the straight-line method.

The decrease in prorate agreements revenue of $60.3 million was primarily due to the decrease in the number of prorate passengers and passenger revenue we received on routes we operated under our prorate agreements during 2022, compared to 2021.

Due to labor constraints, including the number of available captains, we operated fewer aircraft under our prorate agreements during the year ended December 31, 2022, compared to the year ended December 31, 2021.

The increase in lease, airport services and other revenues of $6.7 million was primarily due an increase in the number of flights operated at locations where we were contracted to provide airport customer service during 2022 compared to 2021.

We also leased 35 CRJ700 aircraft to third parties during 2022, compared to 34 CRJ700 aircraft leased to a third parties during 2021.

Operating Expenses

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Depreciation and amortization

Airport-related expenses

Aircraft fuel

Aircraft rentals

Airport-related expenses

Special items

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Total operating expenses

Interest expense

Total airline expenses

NM = Not Meaningful

Salaries, wages and benefits.

The $160.6 million, or 19.4%, increase in salaries, wages and benefits was due to the increase in direct labor costs that resulted from a higher number of flights we operated during 2021 in response to demand recovery from the COVID-19 pandemic.

The $224.9 million, or 22.8%, increase in salaries, wages and benefits was due to increased costs to attract and retain aviation professionals, particularly pilots.

In 2022, we increased the pay rates to various workgroups, including our pilots, that resulted in an increase to our salaries, wages and benefits for the year ended December 31, 2022, compared to the year ended December 31, 2021.

Aircraft maintenance, materials and repairs.

The $198.8 million, or 32.1%, increase in aircraft maintenance expense was primarily due to an increase in direct maintenance costs, including the replacement of time-limited engine components, incurred on a portion of SkyWest Airlines’ CRJ700 and CRJ200 fleet intended to extend the operational performance and reliability of these older aircraft, including increased engine maintenance expense during 2021 compared to 2020.

The $173.6 million, or 21.2%, decrease in aircraft maintenance expense was primarily due to reliability improvement costs incurred on a portion of SkyWest Airlines’ CRJ700 and CRJ200 fleets, such as engine maintenance expense, during the year ended December 31, 2021.

As a result of the maintenance work completed in 2021, our maintenance events were lower for the year ended December 31, 2022, compared to the year ended December 31, 2021.

Depreciation and amortization.

The $34.8 million, or 7.3%, decrease in depreciation and amortization expense was primarily due to certain CRJ200 aircraft that became fully depreciated during 2020.

This reduction in depreciation on our CRJ200 fleet was partially offset by an increase in depreciation expense due to the acquisition of 18 new E175 aircraft and spare engines in 2021, as well as the acquisition of eleven used CRJ700 aircraft in 2021.

Airport-related expenses .

Airport-related expenses include airport-related customer service costs such as outsourced airport gate and ramp agent services, airport security fees, passenger interruption costs, deicing, landing fees and station rents.

For clarity, our employee airport customer service labor costs are reflected in salaries, wages and benefits and customer service labor costs we outsource to third parties are included in airport-related expenses.

The $10.8 million, or 11.5%, increase in airport-related expenses was primarily due to an increase in airport service activities in response to an increase in our prorate passengers.

The $45.6 million, or 10.4%, decrease in depreciation and amortization expense was primarily due to certain CRJ200 aircraft that became fully depreciated after December 31, 2021.

This reduction in depreciation on our CRJ200 fleet was partially offset by an increase in depreciation expense due to the acquisition of 25 new E175 aircraft and spare engines in 2022.

Aircraft fuel.

The $45.3 million, or 73.4%, increase in fuel cost was primarily due to an increase in the number of flights we operated under our prorate agreements and corresponding increase in gallons of fuel we purchased, and an increase in our average fuel cost per gallon from $1.89 in 2020 to $2.49 in 2021.

The $1.4 million, or 1.3%, increase in fuel cost was primarily due to an increase in our average fuel cost per gallon from $2.49 in 2021 to $4.14 in 2022, offset by a decrease in the number of flights we operated under our prorate arrangements and the corresponding decrease in gallons of fuel we purchased.

We purchase and incur expense for all fuel on flights operated under our prorate agreements.

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Aircraft rentals.

The $2.0 million, or 3.0%, decrease in aircraft rentals was primarily related to a reduction of our fleet size that was financed through leases from third parties as a result of scheduled lease expirations during 2020.

The $12.0 million, or 18.9%, increase in aircraft rentals was primarily related to a shortened expected useful life on 21 leased CRJ aircraft that are in the process of being stored prior to the lease expiration in early 2024, which resulted in an acceleration of lease expenses on those aircraft.

Airport-related expenses .

The $33.1 million, or 31.7%, decrease in airport-related expenses for the year ended December 31, 2022, compared to the year ended December 31, 2021, was primarily due to a decrease in subcontracted airport services, landing fees and deicing events as a result of a decrease in the number of flights we operated under our prorate arrangements.

Special items .

Special items for 2021 consisted of a non-cash impairment charge on SkyWest Airlines’ CRJ900 aircraft of $84.6 million.

During 2021, SkyWest reached an agreement with Delta to place 16 new E175 aircraft under contract beginning in 2022.

These E175 aircraft will replace 16 older SkyWest-owned or financed CRJ900 aircraft currently operating under contract with Delta.

We do not anticipate extending the contract term with Delta on these 16 CRJ900 aircraft.

These factors, combined with the market value of SkyWest’s CRJ900 fleet, resulted in a non-cash impairment charge of $84.6 million.

Special items for 2021 consisted of a non-cash impairment charge on SkyWest Airlines’ CRJ900 fleet of $84.6 million.

Payroll support grant.

During 2020 and 2021, w e entered into three Payroll Support Program Agreements with U.S.

During 2021, w e entered into two Payroll Support Program Agreements with U.S.

Treasury that provided certain payroll support relief payments that were recognized as a reduction in labor expense over the periods the grants intended to compensate.

We recognized $422.7 million in payroll support grant proceeds we received as a reduction to our operating expenses for the year ended December 31, 2021, a 22.3% increase compared to $345.5 million in payroll support grant proceeds we received as a reduction to our operating expenses for year ended December 31, 2020.

We recognized $422.7 million in payroll support grant proceeds we received as a reduction to our operating expenses for the year ended December 31, 2021.

We did not have a comparable payroll support grant during the year ended December 31, 2022.

Other operating expenses.

Other operating expenses primarily consist of property taxes, hull and liability insurance, simulator costs, crew per diem, crew hotel costs and credit loss reserves.

The $33.1 million, or 14.9%, increase in other operating expenses was primarily related to an increase in other operating costs that correspond to the higher number of flights we operated during 2021 compared to 2020, such as crew per diem, crew hotel costs and simulator costs.

The $62.2 million, or 24.3%, increase in other operating expenses was primarily related to an asset held for sale write-down of $51.4 million during the year ended December 31, 2022, and an increase in training expenses and simulator costs related to an increase in pilot hiring during 2022.

Summary of interest expense, interest income, other income (expense) and provision for income taxes:

Interest Expense.

The $0.1 million, decrease in interest expense was primarily related to $3.6 million of deferred loan costs expense attributed to the payoff and termination of the secured loan agreement with U.S.

Treasury in 2021, offset by a decrease in interest expense due to a lower average effective interest rate in 2021 as compared to 2020.

The $4.0 million increase in interest expense was primarily related an increase in long-term debt subsequent to December 31, 2021, as well as a higher average effective interest rate in 2022 as compared to 2021.

Our average effective interest rate for 2022 and 2021 was 4.0% and 3.8%, respectively.

Total airline expenses.

Our total airline expenses, comprising of our total operating expenses and interest expense, increased $419.3 million, or 19.6%, due to an increase in direct operating costs attributed to the higher number of completed flights in 2021 compared to 2020 and due to the non-cash impairment charge of $84.6 million on SkyWest operated CRJ900 aircraft in 2021, offset by an increase in the payroll support grant benefit we recorded in 2021, compared to the benefit recorded in 2020.

As our interest expense is primarily attributed to debt associated with financing aircraft under our capacity purchase agreements and as revenue earned under our capacity purchase agreements is intended to compensate us for our

aircraft ownership costs, including interest expense, we believe our total airline expense is meaningful expense measure for management discussion and analysis purposes.

Summary of interest income, other income (expense) and provision for income taxes:

Interest income.

Interest income decreased $4.8 million, or 81.1%, during 2021, compared to 2020.

The decrease in interest income was primarily related to a decrease in average interest rates attributed to our marketable securities from 2020 to 2021.

Interest income increased $16.5 million, from $1.1 million during the year ended December 31, 2021, to $17.6 million during the year ended December 31, 2022.

The increase in interest income was primarily related to an increase in marketable securities from $602.0 million at December 31, 2021 to $944.2 million at December 31, 2022, as well as an increase in the average interest rates attributed to our marketable securities from 2021 to 2022.

Other income (expense), net.

Other income (expense), net decreased $4.4 million, compared to 2020.

Other income (expense), net primarily consists of income related to our investment in a joint venture with a third party.

In 2021, the joint venture incurred an increase in engine overhaul expenses compared to 2020.

Other income (expense), net increased $24.1 million, compared to 2021.

Other income (expense), net primarily consists of the unrealized gains on our investments in other companies, income related to our investment in a joint venture with a third party and gains or losses on the sale of assets.

During 2022, we recorded gains from our investments in other companies of $11.4 million and gains, net of losses, of $7.9 million on the sale of assets.

Summary of provision for income taxes:

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For the years ended December 31, 2022, and December 31, 2021, our income tax provision rates were 21.2% and 25.7%, respectively, which include the statutory federal income tax rate of 21% and other reconciling income tax items, including state income taxes and the impact of non-deductible expenses.

For the year ended December 31, 2020, the lower effective tax rate was primarily due to pre-tax loss of $7.3 million and non-deductible expenses which resulted in a $1.2 million provision for income taxes.

For the year ended December 31, 2022, the decrease in our effective tax rate primarily related to the lapse of a previously recorded uncertain tax position liability of $7.3 million that was recognized as a benefit in 2022, partially offset by a $1.7 million valuation allowance on state net operating losses anticipated to expire prior to utilization recorded in 2022.

Our income tax provision rate may fluctuate each reporting period based on various factors including, but not limited to, the amount of our non-deductible operating expenses, relative to our income before income taxes.

Primarily due to the factors described above, we generated net income of $111.9 million, or $2.20 per diluted share, for the year ended December 31, 2021, compared to a net loss of $8.5 million, or $0.17 loss per share, for the year ended December 31, 2020.

Primarily due to the factors described above, we generated net income of $73.0 million, or $1.44 per diluted share, for the year ended December 31, 2022, compared to net income of $111.9 million, or $2.20 per diluted share, for the year ended December 31, 2021.

Our Business Segments 2022 compared to 2021 :

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Our chief operating decision maker analyzes the profitability of operating aircraft under our code-share agreements separately from the profitability of our financing new aircraft acquired through debt and cash placed under our capacity purchase agreements, currently consisting of our E175 fleet, and our return on such aircraft financing.

More specifically, the SkyWest Leasing segment includes an allocation of revenue from our capacity purchase agreements attributed to our financing of new aircraft through debt and cash covered under such agreements (aircraft lease revenue), and the respective depreciation and interest expense of such financed aircraft.

More specifically, the SkyWest Leasing segment includes an allocation of revenue from our capacity purchase agreements attributed to our financing of new aircraft through debt and cash covered under such agreements, and the respective depreciation and interest expense of such financed aircraft.

The SkyWest Leasing segment also includes the activity of acquiring and leasing used regional jet aircraft and regional aircraft engines to other entities.

The SkyWest Leasing segment’s total assets and capital expenditures include new E175 aircraft acquired through the issuance of debt and our aircraft and engines leased to other entities.

Additionally, aircraft removed from SkyWest Airlines operations and held for sale are included in the SkyWest Leasing segment.

The SkyWest Airlines segment includes all other revenue and operating expenses attributed to operating aircraft under our capacity purchase agreements and all revenue and operating expenses attributed to our prorate agreements and airport service agreements.

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Operating Revenues:

SkyWest Airlines operating revenue

SkyWest Leasing operating revenues

SkyWest Airlines

SkyWest Leasing

Total Operating Revenues

Airline Expenses:

SkyWest Airlines airline expense

SkyWest Leasing airline expense

Total Airline Expenses (1)

Segment profit:

SkyWest Airlines segment profit (loss)

SkyWest Leasing profit

Operating Expenses and Interest Expense:

SkyWest Airlines

SkyWest Leasing

Total Operating Expenses and Interest Expense (1)

Segment profit (loss):

SkyWest Airlines

SkyWest Leasing

Total Segment Profit

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Consolidated Income Before Taxes

NM = Not Meaningful

(1) Total Airline Expenses includes operating expense and interest expense

SkyWest Airlines Segment Profit.

SkyWest Airlines segment profit increased $94.0 million during 2021, compared to 2020.

SkyWest Airlines block hour production increased to 1,319,628, or 35.6%, for 2021 from 973,338 for 2020, primarily due to demand recovery from reduced flight schedules in response to the COVID-19 pandemic.

Significant items contributing to the SkyWest Airlines segment profit are set forth below.

SkyWest Airlines operating revenues increased $555.7 million, or 33.9%, from 2020 to 2021 due to increased flight schedules, increased passenger demand under our prorate agreements, and more flights we handled under our airport service agreements, collectively as a result of the demand recovery from the COVID-19 pandemic.

SkyWest Airlines also provided temporary rate reductions for COVID relief to our major airline partners under our capacity purchase agreements during 2021 and 2020 in the same quarters we recognized payroll support grant proceeds from Treasury.

SkyWest Airlines airline expense increased $461.7 million, or 26.7%, from 2020 to 2021 due to the following primary factors:

● SkyWest Airlines’ salaries, wages and benefits expense increased by $161.2 million, or 19.6%, primarily due to an increase in direct labor costs that resulted from a significantly higher number of flights we operated during 2021.

● SkyWest Airlines’ aircraft maintenance, materials and repairs expense increased by $191.9 million, or 31.7%, primarily due to an increase in direct maintenance costs, including the replacement of time-limited engine components, incurred on a portion of SkyWest Airlines’ CRJ700 and CRJ200 fleets intended to extend the operational performance and reliability of these older aircraft, including increased engine maintenance expense during 2021 compared to 2020.

● SkyWest Airlines’ depreciation and amortization expense decreased by $10.9 million, or 4.9%, primarily due to certain CRJ200 aircraft that became fully depreciated during 2020, partially offset by an increase in depreciation expense related to the acquisition of used CRJ700 aircraft in 2021.

● SkyWest Airlines’ fuel expense increased $45.3 million, or 73.4%, due to an incre ase in the number of flights we operated under our prorate agreements and a corresponding increase in gallons of fuel we purchased and an increase in our average fuel cost per gallon from $1.89 in 2020 to $2.49 in 2021.

● SkyWest Airlines recognized $422.7 million in payroll support grant proceeds as a reduction to our operating expenses in 2021, a 22.3% increase compared to $345.5 million recognized in 2020.

● SkyWest Airlines recorded a non-cash impairment charge on its CRJ900 aircraft of $84.6 million in 2021.

See the Operating Expenses section of “Results of Operations” for further discussion on the impairment charge recorded in 2021.

SkyWest Airlines did not have a comparable charge in 2020.

● SkyWest Airlines’ remaining airline expenses increased $66.8 million, or 18.4%, primarily related to an increase in other operating costs that correspond to the higher number of flights we operated in 2021 compared to 2 020 , such as crew per diem, crew hotel costs and simulator costs.

(1) We include interest expense in our segment profit given our interest expense is primarily attributed to debt associated with financing aircraft under our capacity purchase agreements and revenue earned under our capacity purchase agreements is intended to compensate us for our aircraft ownership costs, including interest expense.

SkyWest Airlines Segment Profit (Loss).

SkyWest Airlines segment profit decreased $47.1 million during 2022, compared to 2021, from $1.5 million segment profit for the year ended December 31, 2021 to $45.6 million segment loss for the year ended December 31, 2022.

Significant items contributing to the SkyWest Airlines segment profit (loss) are set forth below.

SkyWest Airlines operating revenues increased $299.9 million, or 13.7%, from 2021 to 2022, due to the additional E175 aircraft operating under our capacity purchase agreements.

Additionally, during 2021, SkyWest Airlines provided temporary rate reductions to our major airline partners under our capacity purchase agreements during the year ended December 31, 2021, in response to the COVID-19 demand reduction experienced by our major airline partners in 2021.

We did not provide temporary rate reductions to our major airline partners in 2022.

SkyWest Airlines’ block hour production decreased to 1,254,392, or 4.9%, for 2022 from 1,319,628 for 2021, primarily due to reduced flight schedules as a result of labor constraints, including the number of available captains.

SkyWest Airlines’ operating expenses and interest expense increased $347.0 million, or 15.8%, from 2021 to 2022 due to the following primary factors:

● SkyWest Airlines’ salaries, wages and benefits expense increased by $224.1 million, or 22.8%, primarily due to increased costs to attract and retain aviation professionals for the year ended December 31, 2022, compared to the year ended December 31, 2021.

● SkyWest Airlines’ aircraft maintenance, materials and repairs expense decreased by $172.1 million, or 21.6%, primarily due to reliability improvement costs incurred on a portion of SkyWest Airlines’ CRJ700 and CRJ200 fleets, such as engine maintenance expense, during the year ended December 31, 2021.

As a result of the maintenance work completed in 2021, our maintenance events were lower for the year ended December 31, 2022, compared to the year ended December 31, 2021.

● SkyWest Airlines’ depreciation and amortization expense decreased by $27.8 million, or 13.2%, primarily due to certain CRJ200 aircraft and engines that became fully depreciated during 2022.

● SkyWest Airlines’ fuel expense increased $1.4 million, or 1.3%, due to an increase in our average fuel cost per gallon from $2.49 in 2021 to $4.14 in 2022, offset by a decrease in the number of flights we operated under our prorate arrangements and the corresponding decrease in gallons of fuel we purchased.

● SkyWest Airlines recognized $422.7 million in payroll support grant proceeds as a reduction to our operating expenses in 2021.

SkyWest Airlines did not have a comparable grant in 2022.

● SkyWest Airlines recorded a non-cash impairment charge on its CRJ900 fleet of $84.6 million in 2021.

● SkyWest Airlines’ remaining expenses decreased $16.6 million, or 3.9%, primarily related to a decrease in other operating costs that correspond to a decrease in our prorate operations in 2022 compared to 2 021 , s uch as subcontracted airport services, landing fees, and deicing events.

SkyWest Leasing Segment Profit.

SkyWest Leasing profit increased $73.1 million, or 93.7%, during 2021, compared to 2020, primarily due to the acquisition of 18 new E175 aircraft added to our fleet in 2021.

SkyWest Leasing profit decreased $51.6 million, or 34.1%, during 2022, compared to 2021.

SkyWest Leasing revenue decreased $8.5 million, or 1.6%, primarily due to deferring lease revenue, offset by lease revenue from the 25 additional E175 aircraft placed under contract during the year ended December 31, 2022, compared to December 31, 2021.

SkyWest Leasing operating expenses and interest expense increased $43.1 million, or 11.7%, from 2021 to 2022 primarily due to a non-cash impairment charge of $51.4 million related to 14 CRJ700 aircraft that were held for sale in 2022.

During 2022, the Company committed to a formal plan to sell 14 CRJ700 aircraft.

The aircraft are expected to be disposed of via sale within the next 12 months and met the criteria to be classified as assets held for sale.

The Company presented the assets held for sale at the lower of their current carrying value or their fair market value less costs to sell, resulting in a non-cash impairment charge.

Liquidity and Capital Resources

As of December 31, 2021, we had $860.4 million in cash and cash equivalents and marketable securities and $43.6 million available for borrowings under our line of credit.

Additionally, we have approximately $1.5 billion in unpledged aircraft engines and aircraft parts that we temporarily used as collateral in 2020 and 2021.

Given our available liquidity as of December 31, 2021 and given the measures we have implemented to reduce the impact of the COVID-19 pandemic on our financial position and operations, we believe the working capital currently available to us will be sufficient to meet our present financial requirements, including planned capital expenditures, scheduled lease payments, and debt service obligations for at least the next 12 months.

Our total of cash and marketable securities increased from $825.9 million as December 31, 2020, to $860.4 million as of December 31, 2021, or by $34.5 million.

Our total long-term debt, including current maturities decreased from $3,203.7 million as of December 31, 2020, to $3,109.2 million as of December 31, 2021, or by $94.5 million.

Thus, our total long-term debt, net of cash and marketable securities, decreased from $2,377.8 million as of December 31, 2020, to $2,248.8 million as of December 31, 2021, or $129.0 million.

As of December 31, 2022, we had $1.0 billion in cash, cash equivalents and marketable securities and $70.1 million available for borrowings under our line of credit.

Given our available liquidity as of December 31, 2022, we

believe the working capital currently available to us will be sufficient to meet our present financial requirements, including planned capital expenditures, scheduled lease payments and debt service obligations for at least the next 12 months.

Our total of cash, cash equivalents and marketable securities increased from $860.4 million as of December 31, 2021, to $1.0 billion as of December 31, 2022, or by $186.8 million.

Our total long-term debt, including current maturities increased from $3,109.2 million as of December 31, 2021, to $3,380.3 million as of December 31, 2022, or by $271.1 million, primarily due to debt issued to finance 25 new E175 aircraft and spare engines, partially offset by scheduled debt payments for the 2022 year.

At December 31, 2022, our total capital mix was 44.4% equity and 55.6% long-term debt, compared to 45.5% equity and 54.5% long-term debt at December 31, 2021.

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The following table provides a summary of the net cash provided by (used in) our operating, investing and financing activities for the years ended December 31, 2022 and 2021, and our total cash and marketable securities position as of December 31, 2022 and December 31, 2021 (in thousands).

See “Liquidity and Capital Resources” in Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, for a discussion of our sources and used of cash in 2020 compared to 2019.

For the year ended December 31,

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Our operating cash flows are typically impacted by various factors including our net income, adjusted for non-cash expenses and gains such as depreciation expense, asset impairment charges, stock-based compensation expense, and gains or losses on the disposal of assets;

and timing of cash payments and cash receipts attributed to our various current asset and liability accounts, such as accounts receivable, inventory, accounts payable, accrued liabilities, deferred revenue and deferred payroll support grant proceeds.

The increase in our cash flow from operations in 2021 compared to 2020, was primarily due an increase in net income of $120.4 million, the difference between a net loss of $8.5 million in 2020 and net income of $111.9 million in 2021, and a non-cash impairment charge of $84.6 recorded in 2021.

The cash provided by these operating activities were partially offset by a reduction in depreciation expense and deferred revenue, an increase in unbilled revenue, and changes in our current asset and liability accounts, primarily due to the timing of cash payments and cash receipts in 2021 compared to 2020.

The operating cash flows for 2021 and 2020 also included the benefit from the payroll support grant of $422.7 million and $345.5 million, respectively, partially offset by temporary COVID relief rate reductions provided to our major airline partners in 2021 and 2020.

The decrease in our cash flow from operations in 2022 compared to 2021, was primarily due to timing of payments associated with our accounts payable and other current liabilities at the end of 2021 compared to the end of 2022, which reduced our cash flow from operations to $273.2 million in 2022.

Additionally, depreciation and amortization, a non-cash adjustment to reconcile to net income, decreased to $394.6 million during 2022 from $440.2 million during 2021.

Cash Flows used in Investing Activities

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and timing of cash payments and cash receipts attributed to our various long-term asset and long-term liability accounts.

The increase in our cash flow used in investing activities in 2021 compared 2020, was primarily due to an increase in aircraft deposits and acquisition of aircraft, offset by the change in purchases and sales of marketable securities.

Cash used for aircraft deposits increased from $9.6 million in 2020 to $125.7 million in 2021 because of E175 aircraft purchase commitments.

We acquired 18 new E175 aircraft and eleven used CRJ700 aircraft in 2021 resulting in $537.6 million in cash used for purchases of aircraft and related parts, compared to 2020 when we acquired six new E175 aircraft and 22 used CRJ700 aircraft that resulted in cash used for purchases of aircraft and spare parts of $425.6 million.

Cash provided by sales of marketable securities, net of purchases of marketable securities in 2021 was $8.2 million, compared to cash used in purchases of marketable securities, net of sales of marketable securities of $177.2 million in 2020.

The increase in cash flows used in investing activities was also offset by an increase in our long-term assets resulting from timing of payments received from our major airline partners attributed to our long-term receivables and changes to our non-current deferred revenue.

In 2020, we amended certain debt agreements on our aircraft which suspended our obligation to make debt service payments for an approximately six-month period during 2020.

Concurrently, we suspended required aircraft ownership payments due to us from our major airline partners under our capacity purchase agreements during the same period.

We anticipate collecting the payments on these long-term receivables from our major airline partners over the remaining contract terms.

The increase in our cash flow used in investing activities in 2022 compared 2021, was primarily due to an increase in cash used for purchases of marketable securities, net of sales of marketable securities, of $354.2 million, resulting from the transfer of cash into marketable securities accounts.

Cash used in purchases of marketable securities, net of sales of marketable securities was $346.0 million in 2022, compared to cash provided by sales of marketable securities, net of purchases of marketable securities of $8.2 million in 2021.

Additionally, cash used on new aircraft deposits, net of previously made deposits applied towards acquired aircraft, provided $101.3 million of cash during 2022 compared to using $92.7 million of cash during 2021, based on the timing of new aircraft orders and aircraft deliveries.

Cash Flows provided by (used in) Financing Activities

Our cash flows used in financing activities was $90.6 million in 2021, compared to cash provided by financing activities of $178.4 million in 2020.

Our cash flows provided by financing activities was $269.1 million in 2022, compared to cash used in financing activities of $90.6 million in 2021.

Our financing cash flows are typically impacted by various factors including proceeds from issuance of debt, principal payments on debt obligations, repurchases our common stock and payment of cash dividends.

The $269.0 million increase in cash used by financing activities was primarily due to an increase of $353.1 million in principal payments on long-term debt related to the additional E175 aircraft acquired subsequent to December 31, 2020, repayment of the $60 million U.S.

Treasury secured loan, and early repayment of $80.1 million in aircraft debt.

The increase was offset by proceeds from the issuance of long-term debt primarily due to the purchase of new E175

aircraft in 2021 and a reduction in 2021 of cash used to purchase treasury stock and payment of dividends by $20.0 million and $13.1 million, respectively, due to restrictions under our loan agreements with U.S.

The $359.7 million increase in cash provided by financing activities for the year ended December 31, 2022, compared to the year ended December 31, 2021, was primarily due to an increase of $234.5 million in proceeds from the issuance of long-term debt primarily related to the acquisition of 25 E175 aircraft and an increase in debt secured by engines during 2022.

Additionally, cash used for principal payments on long-term debt decreased $125.5 million from the year ended December 31, 2021, to the year ended December 31, 2022, primarily due to paying off a portion of our long-term debt during 2021.

Significant Commitments and Obligations

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Total commitments and obligations

(1) At December 31, 2021, all of our total long-term debt associated with aircraft had fixed interest rates.

(1) At December 31, 2022, all of our total long-term debt had fixed interest rates.

Purchase Commitments and Options

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The anticipated future aircraft delivery dates are subject to change.

As of December 31, 2021, we had a firm purchase commitment for 29 E175 aircraft from Embraer with scheduled delivery dates anticipated through 2023.

As of December 31, 2022, we had a firm purchase commitment for four E175 aircraft from Embraer with scheduled delivery dates anticipated through 2025.

At the time of each aircraft acquisition, we evaluate the financing alternatives available to us, and select one or more of these methods to fund the acquisition.

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Based on current market conditions and discussions with prospective leasing organizations and financial institutions, we currently believe that we will be able to obtain financing for our committed acquisitions, as well as additional aircraft.

We intend to finance the firm purchase commitment for 29 E175 aircraft with approximately 80-85% debt and the remaining balance with cash.

We intend to finance the firm purchase commitment for four E175 aircraft with approximately 80-85% debt and the remaining balance with cash.

Aircraft Lease and Facility Obligations

We also have significant long-term lease obligations, primarily relating to our aircraft fleet.

Excluding aircraft financed by our major airline partners that we operate for them under contract, we had 43 aircraft under lease with remaining terms ranging from two years to nine years as of December 31, 2021.

Excluding aircraft financed by our major airline partners that we operate for them under contract, we had 43 aircraft under lease with remaining terms ranging from one year to eight years as of December 31, 2022.

Future minimum lease payments due under all long-term operating leases were approximately $202.9 million at December 31, 2022.

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Long-term Debt Obligations

As of December 31, 2021, we had $2.94 billion of long-term debt obligations related to the acquisition of aircraft and certain spare engines.

As of December 31, 2022, we had $3.05 billion of long-term debt obligations related to the acquisition of aircraft.

The average effective interest rate on those long-term debt obligations was approximately 4.0% at December 31, 2022.

We also had $200.6 million of long-term debt obligations under the Payroll Support Program Agreements.

Under our capacity purchase arrangements, the major airline partners compensate us for our costs of owning or leasing the aircraft on a monthly basis.

The aircraft compensation structure varies by agreement but is intended to cover

either our aircraft principal and interest debt service costs, our aircraft depreciation and interest expense or our aircraft lease expense costs while the aircraft is under contract.

We also had $200.6 million of long-term debt obligations under the Payroll Support Program Agreements and $155.1 million of long-term debt secured by spare engines.

Under our capacity purchase arrangements, our major airline partners compensate us for our costs of owning or leasing the aircraft on a monthly basis.

The aircraft compensation structure varies by agreement but is intended to cover either our aircraft principal and interest debt service costs, our aircraft depreciation and interest expense or our aircraft lease expense costs while the aircraft is under contract.

We have guaranteed the obligations of SkyWest Airlines under the Delta Connection Agreement and the United Express Agreement for the E175 aircraft.

In addition, we have guaranteed certain other obligations under aircraft financing and leasing agreements.

We have guaranteed $19.8 million in promissory notes of a third party in event the third party defaults on its payments.

The third party’s loans are secured by aircraft and engines.

Critical Accounting Policies and Estimates

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This compensation is deemed to be lease revenue, because the agreements identify the “right of use” or a specific type and number of aircraft over the agreement term.

The amount of compensation deemed to be lease revenue is determined from the agreed upon rates for the use of the aircraft included in each capacity purchase agreement, which we believe approximates fair value for the aircraft leases.

Additionally, under our capacity purchase agreements, we typically receive a fixed monthly payment for each aircraft under contract over the agreement term (“Fixed Monthly Payments”).

We recognize revenue attributed to the Fixed Monthly Payments proportionate to the number of block hours complete during each reporting period, relative to the estimated number of block hours we anticipate completing over the remaining contract term.

Due to the material decrease in completed block hours in 2020 from historical levels and from anticipated future levels over the remaining contract terms, we determined the amount of Fixed Monthly Payments we received in 2020 was disproportionately high relative to the number of block hours we completed during 2020.

In 2020, we generated 973,338 block hours and we deferred recognizing revenue of $110.7 million in Fixed Monthly Payments we received during the 2020 calendar year.

In 2021, we generated 1,319,628 block hours and we recognized $6.8 million of previously deferred revenue and $8.4 million of unbilled revenue.

We allocate the total consideration received under our capacity purchase agreements between the lease and non-lease components based on stand-alone selling prices.

A portion of the consideration received for the use of the aircraft is a fixed monthly payment per aircraft.

Accordingly, we re-evaluated the allocation of the total consideration between the lease

and non-lease components for the affected amended agreements, including the allocation of the consideration to the fixed and variable lease components.

Additionally, a portion of our compensation under our capacity purchase agreements relates to operating the aircraft, identified as the non-lease component of the capacity purchase agreement.

We recognize revenue attributed to the non-lease component received as fixed monthly payments per aircraft proportionate to the number of block hours completed during each reporting period, relative to the estimated number of block hours we anticipate completing over the remaining contract term.

In 2022, we deferred $18.7 million of fixed monthly payments and recognized $11.5 million of unbilled revenue.

The amount of deferred revenue and unbilled revenue from fixed monthly payments we recognize will increase or decrease in future reporting periods depending on the number of block hours we complete during such reporting period and our then-current forecast of block hours we anticipate completing over the remaining contract term based on information available to us as that time.

We currently anticipate we will recognize previously deferred revenue in 2022, depending upon future block hour production and flight schedules each reporting period in 2022.

Our revenues could be impacted by several factors, such as our flight schedules, passenger fares we receive under our prorate agreements, terminations, extensions or other amendments to our code-share agreements, our estimates used to determine the amount of revenue we defer under our capacity purchase agreements, and our ability to earn incentive payments contemplated under applicable agreements.

In the event contracted rates are not finalized at a quarterly or annual financial statement date, we record that period’s revenues based on the lower of the prior period’s approved rates or our estimate of rates that will be implemented upon completion of negotiations.

Also, in the event we have a reimbursement dispute with a major airline partner at a quarterly or annual financial statement date, we evaluate

the dispute under established revenue recognition criteria and, provided the revenue recognition criteria have been met, we recognize revenue for that period based on our estimate of the resolution of the dispute.

Also, in the event we have a reimbursement dispute with a major airline partner at a quarterly or annual financial statement date, we evaluate the dispute under established revenue recognition criteria and, provided the revenue recognition criteria have been met, we recognize revenue for that period based on our estimate of the resolution of the dispute.

Our rates were finalized under our code-share agreements as of December 31, 2022.

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As of December 31, 2022, we had approximately $5.5 billion of property and equipment and related assets net of accumulated depreciation.

In accounting for these long-lived, we make estimates about the expected useful lives of the assets, the expected residual values of certain of these assets, and the potential for impairment based on the fair value of the assets and the cash flows they generate.

In accounting for these long-lived assets, we make estimates about the expected useful lives of the assets, the expected residual values of certain of these assets, and the potential for impairment based on the fair value of the assets and the cash flows they generate.

Factors indicating potential impairment include, but are not limited to, significant decreases in the market value of the long-lived assets, a significant change in the condition of the long-lived assets and operating cash flow losses associated with the use of the long-lived assets.

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Asset groupings are done at the fleet type or contract level.

In 2021, we 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 December 31, 2021, we only operated the CRJ900 aircraft under a flying agreement with our major airline partner Delta.

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

In 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.

The impairment analysis required us to identify applicable asset groups, perform a recoverability test using undiscounted cash flows and estimate the fair value of the asset group through the use of third-party valuations.

Judgment was required to determine the impairment loss.

The amounts we ultimately realize from the disposal of our CRJ900 long-lived assets may vary from our 2021 fair value assessment.

During 2022, we committed to a formal plan to sell 14 CRJ700 aircraft.

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

Accordingly, the Company determined the aircraft met the criteria to be classified as assets held for sale.

The Company presented the $56.7 million of assets held for sale at the lower of their current carrying value or their fair market value less costs to sell and included the amount in “Other current assets” on the Company’s consolidated balance sheet.

The fair values are based upon observable and unobservable inputs, including market trends and conditions.

The assumptions used to determine the fair value of the assets held for sale are subject to inherent uncertainty and could produce a wide range of outcomes which the Company will continue to monitor in future periods as new information becomes available.

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 $51.4 million, which is included in “Other operating expenses” on the Company’s consolidated statements of comprehensive income and in the SkyWest Leasing segment for the year ended December 31, 2022.

Factors that may impact our estimates used for depreciation include anticipated useful lives of each aircraft type and estimated residual values of each aircraft.

As we operate all of our aircraft under code-share agreements with our major airline partners, changes in anticipated demand by our major airline partners for regional aircraft may impact our estimated useful lives and residual values for our aircraft, spare engines and other long-lived assets.

At December 31, 2021, we had 81 aircraft that were not in scheduled service with our partners, including 63 CRJ200 aircraft and 18 CRJ700 aircraft.

The CRJ200 aircraft not in scheduled service are nearly fully depreciated as of December 31, 2021.

The remaining aircraft are scheduled to be placed under contract by 2023 or will be used as supplemental spare aircraft.

As we operate our aircraft under code-share agreements with our major airline partners, changes in anticipated demand by our major airline partners for regional aircraft may impact our estimated useful lives and residual values for our aircraft, spare engines and other long-lived assets.

Deferred income taxes are determined based on the temporary differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

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Each fiscal quarter we re-evaluate our tax provision and reconsider our estimates and assumptions related to specific tax assets and liabilities, making adjustments as circumstances change.

Recent Accounting Pronouncements

See Note 1 to the Consolidated Financial Statements included in Item 8 of this Report for a description of recent accounting pronouncements.

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-K

Item 7. Management’s Discussion and Analysis