What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-16 compared with 2022-02-17 · 209 added, 249 removed, 706 unchanged (39% of the section changed)

27 unchanged sentences

At December 31, 2022, the Company’s deferred revenue balance totaled $113.5 million, of which $5.2 million was presented as a component of other current liabilities and $108.3 million was included in other long-term liabilities on the balance sheet.

The Company’s unbilled revenue balance totaled $19.9 million, of which $9.9 million was presented as a current asset, and $10.0 million was presented as a long-term asset on the balance sheet.

As discussed in Note 1 to the consolidated financial statements, under the Company’s capacity purchase agreements, the Company is paid a fixed amount per aircraft each month over the contract term.

The Company recognizes revenue related to the fixed amount per aircraft per month based upon completed block hours proportionate to total forecasted block hours over the contract term.

To perform the

allocation over the contract, the Company estimates revenue per block hour using historical data and forecasted flight activity and utilizing trends within the industry.

Auditing the forecasted block hours over the term of the contract, which is the primary input used in the deferred revenue calculation, required extensive audit effort due to the estimation uncertainty of the forecasted block hours over the contract term resulting from the COVID-19 pandemic.

recognizes revenue related to the fixed amount per aircraft per month based upon completed block hours proportionate to total forecasted block hours over the contract term.

To perform the allocation over the contract, the Company estimates revenue per block hour using historical data and forecasted flight activity and utilizing trends within the industry.

How We Addressed the Matter in Our Audit

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Specifically, we compared management’s forecasted block hours to historical flight activity, existing flight schedules with partner airlines, and industry trends and publications.

We evaluated management’s ability to accurately forecast flight activity by performing hindsight analyses comparing actual historical results to past forecasts, including forecasts developed during the COVID-19 pandemic.

We evaluated management’s ability to accurately forecast flight activity by performing hindsight analyses comparing actual historical results to past forecasts.

We also performed sensitivity analyses to understand the impact of fluctuations in forecasted block hours to the deferred revenue liability.

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

Accumulated other comprehensive loss

Total stockholders’ equity

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Depreciation and amortization

Airport-related expenses

Aircraft fuel

Aircraft rentals

Airport-related expenses

Special items

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Net income (loss)

Net unrealized appreciation on marketable securities, net of taxes

Net unrealized depreciation on marketable securities, net of taxes

TOTAL COMPREHENSIVE INCOME (LOSS)

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Balance at December 31, 2019, as adjusted

Net unrealized appreciation on marketable securities, net of tax of $ 10

Net income (loss)

Exercise of common stock options and vested employee stock awards

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Stock based compensation expense

Common stock purchased and cancelled

Treasury stock purchases

Cash dividends declared ($ 0.14 per share)

Warrants issued to U.S.

Balance at December 31, 2020

Change in accounting principle and other (see Note 1)

Balance at December 31, 2019, as adjusted

Net income (loss)

Exercise of common stock options and vested employee stock awards

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Stock based compensation expense

Treasury stock purchases

Cash dividends declared ($ 0.14 per share)

Warrants issued to U.S.

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Stock based compensation expense

Warrants issued to U.S.

Net unrealized depreciation on marketable securities, net of tax of $ 1,224

Balance at December 31, 2022

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Loss (gain) on disposal of fixed assets

Gain on investments in other companies

Net increase in deferred income taxes

Gain on sale of ExpressJet subsidiary

Impairment on assets held for sale

Special items

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Sales of marketable securities

Net cash received from sale of ExpressJet subsidiary

Acquisition of property and equipment:

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Aircraft deposits applied towards acquired aircraft

Decrease (increase) in other assets

Increase in other assets

NET CASH USED IN INVESTING ACTIVITIES

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Principal payments on long-term debt

Payment of debt issuance cost

Net proceeds from issuance of common stock

Purchase of treasury stock

Purchase of common stock

Employee income tax paid on vested equity awards

Payment of debt issuance cost

Purchase of treasury stock

Payment of cash dividends

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Acquisition of property and equipment

Debt assumed on aircraft acquired under operating leases

Engines contributed to joint venture

Non-cash assets used to acquire aircraft under operating leases

Lease liability arising from the recognition of right-of-use asset

Warrants issued to U.S.

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Interest, net of capitalized amounts

SUPPLEMENTAL DISCLOSURE OF SALE OF SUBSIDIARY:

Decrease in carrying amount of assets

Decrease in carrying amount of liabilities

Cash received from buyers

Gain on sale of subsidiary

See accompanying notes to consolidated financial statements.

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(“SkyWest Airlines”) operates the largest regional airline in the United States.

On January 22, 2019, the Company completed the sale of its former wholly owned subsidiary, ExpressJet Airlines, Inc.

(“ExpressJet”).

As of December 31, 2022, SkyWest Airlines offered scheduled passenger service under code-share agreements with United Airlines, Inc.

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(“American”) and Alaska Airlines, Inc.

(“Alaska”) with approximately 2,080 total daily departures to destinations in the United States, Canada, Mexico and the Caribbean.

(“Alaska”) with approximately 1,620 total daily departures to destinations in the United States, Canada and Mexico.

Additionally, the Company provides airport customer service and ground handling services for other airlines throughout its system.

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

For the year ended December 31, 2022, approximately 42.6 % of the Company’s aircraft in scheduled service was operated for United, approximately 30.0 % was operated for Delta, approximately 19.3 % was operated for American and approximately 8.1 % was operated for Alaska.

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As of December 31, 2022, SkyWest Airlines operated as a Delta Connection carrier primarily in Salt Lake City, Detroit and Minneapolis, a United Express carrier primarily in Los Angeles, San Francisco, Denver, Houston, Chicago and the Pacific Northwest, an American carrier primarily in Chicago, Dallas, Los Angeles and Phoenix and an Alaska carrier primarily in the Pacific Northwest.

SkyWest Airlines operates the following aircraft manufactured by Bombardier Aerospace (“Bombardier”):

CRJ900s, CRJ700s and CRJ200s, and E175s manufactured by Embraer S.A.

SkyWest Airlines operates the following aircraft manufactured by Bombardier:

CRJ900s, CRJ700s and CRJ200s, and E175s manufactured by Embraer.

The CRJ700, CRJ900 and E175 aircraft have a dual-class seat configuration typically configured with 65 to 76 seats.

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Basis of Presentation

The Company’s consolidated financial statements include the accounts of the Company and the SkyWest Airlines, ExpressJet (for the periods owned by the Company) and SkyWest Leasing segments, with all inter-company transactions and balances having been eliminated.

The Company’s consolidated financial statements include the accounts of the Company and the SkyWest Airlines and SkyWest Leasing segments, with all inter-company transactions and balances having been eliminated.

In preparing the accompanying consolidated financial statements, the Company has reviewed, as determined necessary by the Company’s management, events that have occurred after December 31, 2022, through the filing date of the Company’s annual report with the U.S.

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Use of Estimates

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

Actual results could differ from those estimates.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ materially from those estimates and assumptions.

Cash and Cash Equivalents

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Marketable Securities

The Company’s investments in debt securities are classified as available-for-sale and are reported at fair market value with the net unrealized appreciation reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity.

The Company’s investments in debt securities are classified as available-for-sale and are reported at fair market value with the net unrealized depreciation reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity.

At the time of sale, any realized appreciation or depreciation, calculated by the specific identification method, is recognized in other income and expense.

At December 31, 2021 and 2020, the fair market value of the available-for-sale securities was the amortized cost.

The Company’s position in marketable securities as of December 31, 2022 and 2021 was as follows (in thousands):

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Fair market value

Total cash and cash equivalents

Marketable securities:

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Total marketable securities

Total assets measured at fair value

Gross unrealized

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Fair market value

Total cash and cash equivalents

Marketable securities:

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Total marketable securities

Total assets measured at fair value

As of December 31, 2021 and 2020, the Company had classified $ 602.0 million and $ 610.2 million of marketable securities, respectively, as short-term since it had the ability to redeem the securities within one year .

As of December 31, 2022 and 2021, the Company had classified $ 944.2 million and $ 602.0 million of marketable securities, respectively, as short-term because it had the intent to maintain a liquid portfolio and the ability to redeem the securities within one year .

Inventories include expendable parts, fuel and supplies and are valued at cost (FIFO basis) less an allowance for obsolescence based on historical results, excess parts and management’s expectations of future operations.

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Impairment of Long-Lived Assets

As of December 31, 2021, the Company had approximately $ 5.5 billion of property and equipment and related assets.

In accounting for these long-lived and intangible assets, the Company makes 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.

As of December 31, 2022, the Company had approximately $ 5.5 billion of property and equipment, net.

In accounting for these long-lived assets, the Company makes 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 aircraft type level.

In 2021, the Company entered into an agreement with Delta to purchase and operate 16 new E175 aircraft under a multi-year capacity purchase agreement.

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

As of December 31, 2021, the Company only operated the CRJ900 aircraft under a flying agreement with its major airline partner Delta.

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

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 the Company 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.

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

See Note 9, Special Items, for the impairment charges recorded during the year ended December 31, 2021, related to the CRJ900 long-lived assets.

The Company did no t recognize any impairment charges of long-lived assets during the years ended December 31, 2020 and 2019.

During 2022, the Company committed to a plan to sell 14 CRJ700 aircraft, resulting in an impairment on the assets held for sale of $ 51.4 million.

See Note 9, “Assets Held for Sale” for more information on the assets held for sale.

During 2021, the Company recorded an impairment charge of $ 84.6 million to write-down certain CRJ900 aircraft to their estimated fair value.

See Note 10, “Special Items” for more information on the CRJ900 impairment.

Capitalized Interest

Interest is capitalized on aircraft purchase deposits as a portion of the cost of the asset and is depreciated over the estimated useful life of the asset.

During the years ended December 31, 2021, 2020 and 2019, the Company capitalized interest costs of approximately $ 1.9 million, $ 1.7 million, and $ 1.6 million, respectively.

During the years ended December 31, 2022 and 2021, the Company capitalized interest costs of approximately $ 1.9 million, and during the year ended December 31, 2020, the Company capitalized interest costs of approximately $ 1.7 million.

The Company operates under a U.S.

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The Company has engine services agreements with third-party vendors to provide long-term engine services covering the scheduled and unscheduled repairs for most of its aircraft.

Under the terms of the agreements, the Company pays a fixed dollar amount per engine hour flown on a monthly basis and the third-party vendors will assume the responsibility to

repair the engines at no additional cost to the Company, subject to certain specified exclusions.

Under the terms of the agreements, the Company pays a fixed dollar amount per engine hour flown on a monthly basis and the third-party vendors will assume the responsibility to repair the engines at no additional cost to the Company, subject to certain specified exclusions.

Maintenance costs under these contracts are recognized when the engine hour is flown pursuant to the terms of each contract.

The costs of maintenance for airframe and avionics components, landing gear and other recurring maintenance are expensed as incurred.

In 2020, the Company wrote-off $ 3.7 million of long-lived maintenance assets at maintenance locations the Company vacated during the year.

In 2020, the Company wrote-off $ 3.7 million of long-lived maintenance assets at maintenance locations the Company vacated during the year as a maintenance expense.

There was not a similar expense in 2022 and 2021.

Flying Agreements and Airport Customer Service and Other Revenues

The Company recognizes flying agreements revenue and lease, airport services and other revenues when the service is provided under the applicable agreement.

Under the Company’s fixed-fee arrangements (referred to as “capacity purchase agreements”) with United Airlines, Inc.

(“United”), Delta Air Lines, Inc.

(“Delta”), American Airlines, Inc.

(“American”) and Alaska Airlines, Inc.

(“Alaska”) (each, a “major airline partner”), the major airline partner generally pays the Company a fixed-fee for each departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time) incurred, and an amount per aircraft in service each month with additional incentives based on flight completion and on-time performance.

The Company recognizes revenue under its flying agreements and under its lease, airport services and other service agreements when the service is provided under the applicable agreement.

Under the Company’s capacity purchase agreements with United, Delta, American and Alaska (each, a “major airline partner”), the major airline partner generally pays the Company a fixed-fee for each departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time) incurred, and an amount per aircraft in service each month with additional incentives based on flight completion and on-time performance.

The major airline partner also directly pays for or reimburses the Company for certain direct expenses incurred under the capacity purchase agreement, such as fuel, airport landing fees and airport rents.

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For the years ended December 31, 2022, 2021 and 2020, capacity purchase arrangements represented approximately 88.0 %, 84.3 % and 87.0 % of the Company’s flying agreements revenue, respectively.

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

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

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

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

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

For the years ended December 31, 2021 and 2020, prorate flying arrangements represented approximately 15.7 % and 13.0 % of the Company’s flying agreements revenue, respectively.

For the years ended December 31, 2022, 2021 and 2020, prorate flying agreements represented approximately 12.0 %, 15.7 %, and 13.0 % of the Company’s flying agreements revenue, respectively.

The following table represents the Company’s flying agreements revenue by type for the years ended December 31, 2022, 2021 and 2020 (in thousands):

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 (non-lease component)

Capacity purchase agreements fixed aircraft lease revenue

Capacity purchase agreements variable aircraft lease revenue

Prorate agreements revenue

Flying agreements revenue

The Company allocates the total consideration received under its capacity purchase agreements between the lease and non-lease components based on stand-alone selling prices.

A portion of the Company’s compensation under its capacity purchase agreements is designed to reimburse the Company for certain aircraft ownership costs.

The consideration for aircraft ownership costs varies by agreement but is intended to cover either the Company’s aircraft principal and interest debt service costs, its aircraft depreciation and interest expense or its aircraft lease expense costs while the aircraft is under contract.

The consideration received for the use of the aircraft under the Company’s capacity purchase agreements is reflected as lease revenue, inasmuch as the agreements identify the “right of use” of a specific type and number of aircraft over a stated period of time.

The lease revenue associated with the Company’s capacity purchase agreements is accounted for as an operating lease and is reflected as flying agreements revenue on the Company’s consolidated statements of comprehensive income.

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

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

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

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

In 2021, the Company recognized $ 6.8 million of previously deferred revenue and $ 8.4 million of unbilled revenue due to an increase in flight schedules compared to deferring revenue of $ 110.7 million in 2020.

The consideration received for the use of the aircraft under the Company’s capacity purchase agreements is accounted for as lease revenue, inasmuch as the agreements identify the “right of use” of a specific type and number of aircraft over a stated period of time.

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

Accordingly, the Company re-evaluated the allocation of the total consideration between the lease and non-lease components for the amended agreements, including the allocation of the consideration to the fixed and variable lease components.

As a result of these amendments, the Company 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 Company has not separately stated aircraft rental income and aircraft rental expense in the consolidated statement of comprehensive income (loss) because the use of the aircraft is not a separate activity of the total service provided under the capacity purchase agreements.

A portion of the Company’s compensation under its capacity purchase agreements relates to operating the aircraft, identified as the non-lease component of the capacity purchase agreement.

The Company recognizes revenue attributed to the non-lease component received as fixed-fees for each departure, flight hour or block hour on an as-completed basis for each reporting period.

The Company recognizes 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 the Company anticipates completing over the remaining contract term.

Due to the lower number of block hours completed during 2020 as a result of the COVID-19 pandemic compared to historical levels, the amount of cash collected for the fixed amount per aircraft for operating the aircraft did not align with revenue recognized based on block hours completed.

Accordingly, the Company deferred recognizing revenue on fixed monthly payments the Company received for operating the aircraft under its capacity purchase

agreements beginning in 2020.

In 2022, the Company deferred $ 18.7 million of fixed monthly payments under certain agreements and recognized $ 11.5 million of unbilled revenue under certain other agreements, compared to recognizing previously deferred revenue of $ 6.8 million and $ 8.4 million of unbilled revenue in 2021.

The Company’s deferred revenue and unbilled revenue balance is measured on a contract-by-contract basis and 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 respective contract terms.

The Company’s total deferred revenue balance, as of December 31, 2022, was $ 144.7 million, including $ 5.2 million in other current liabilities and $ 139.5 million in other long-term liabilities.

The Company’s unbilled revenue balance as of December 31, 2022, was $ 19.9 million, including $ 9.9 million in other current assets and $ 10.0 million in other long-term assets.

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

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

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

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

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

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The average remaining term of the aircraft under contract is 4.3 years

Total under American Agreements

Total under American Agreement

Alaska Capacity Purchase Agreement

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(capacity purchase agreement)

Individual aircraft have scheduled removal dates in 2030

Individual aircraft have scheduled removal dates from 2030 to 2034

The average remaining term of the aircraft under contract is 8.8 years

In addition to the contractual arrangements described above, as of December 31, 2021, SkyWest Airlines has a capacity purchase agreement with American to place two E175 aircraft into service.

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

SkyWest Airlines also has a capacity purchase agreement with American for eleven used CRJ700 aircraft.

The aircraft are anticipated to be placed into service by the end of 2023.

We anticipate using CRJ700s we already possess that are not currently under contract with a major airline partner to fulfill this agreement.

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

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

In 2021, SkyWest Airlines reached an agreement with Delta to place 16 E175 aircraft into service under a capacity purchase agreement.

The delivery dates for the 16 new E175 aircraft are currently scheduled for 2022, and the aircraft are expected to be placed into service in 2022 and early 2023.

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

These 16 new E175 aircraft are expected to replace 16 CRJ900 aircraft the Company is operating under a capacity purchase agreement with Delta (see Note 9 “Special Items – Impairment Charge,” for further discussion of the Company’s CRJ900 aircraft).

* The Company’s prorate agreements are based on specific routes, not a specific aircraft count.

The number of aircraft listed above for each prorate agreement approximates the number of aircraft the Company uses to serve the prorate routes.

In addition to the contractual arrangements described above, as of December 31, 2022, SkyWest Airlines has a capacity purchase agreement with Delta to place a total of three additional E175 aircraft into service, with delivery dates currently scheduled in 2023 and 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.

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

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Of the Company’s $ 5.5 billion of property and equipment, net as of December 31, 2022, $ 221.0 million of regional jet aircraft and spare engines were leased to third parties under operating leases.

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

A portion of the Company’s leases to third parties contain variable payments from lessees based on departures where the Company pays for maintenance.

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.

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

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Balance at December 31, 2021

Adjustments to credit loss reserves

Write-offs charged against allowance

Balance at December 31, 2022

The Company recognizes a net liability or asset for the deferred tax consequences of all temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements that are expected to result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled.

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

For the year ended December 31, 2021, 140,000 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 December 31, 2021.

Additionally, for the year ended December 31 , 2021, warrants to purchase 78,000 shares of common stock at $ 57.47 per share were excluded from the computation of Diluted EPS since the warrants' exercise price was greater than the average market price of the common shares.

For the year ended December 31, 2020, 1,074,375 shares reserved for the issuance of employee equity awards and warrants to acquire the Company’s common stock were excluded in the computation of Diluted EPS since the Company reported a net loss for the year ended December 31, 2020.

For the year ended December 31, 2019, 150,000 performance share units (at target performance) were excluded in the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of December 31, 2019.

Securities that could potentially dilute Basic EPS in the future, and which were excluded from the calculation of Diluted EPS because inclusion of such share would be anti-dilutive, are as follows (in thousands):

Year Ended December 31,

PSP1 and Treasury Loan Warrants (1)

PSP2 Warrants (2)

PSP3 Warrants (3)

Employee Stock Awards

Total antidilutive securities

(1) Pursuant to the payroll support program established under the CARES Act (“PSP1”) and Loan and Guarantee Agreement with the U.S.

Department of the Treasury (“U.S.

Treasury”), SkyWest issued to Treasury warrants to purchase shares of SkyWest common stock for an exercise price of $ 28.38 per share.

(2) Pursuant to the payroll support program established under the 2021 Consolidated Appropriations Act (“PSP2”), SkyWest issued to U.S.

Treasury warrants to purchase shares of SkyWest common stock for an exercise price of $ 40.41 per share.

(3) Pursuant to the payroll support program established under the American Rescue Plan (“PSP3”), SkyWest issued to U.S.

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

Additionally, for the years ended December 31, 2022, 2021 and 2020, 146,000 , 140,000 and 178,000 performance share units (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of December 31, 2022, 2021 and 2020, respectively.

The calculation of the weighted average number of common shares outstanding for Basic EPS and Diluted EPS are as follows for the years ended December 31, 2022, 2021 and 2020 (in thousands):

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Basic earnings per share weighted average shares

Dilution due to stock options and restricted stock units

Dilution due to employee equity awards and warrants

Diluted earnings per share weighted average shares

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Comprehensive Income (Loss)

Comprehensive income (loss) includes charges and credits to stockholders’ equity that are not the result of transactions with the Company’s shareholders, including changes in unrealized appreciation on marketable debt securities.

Fair Value of Financial Instruments

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These analyses consider, among other items, the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and the expectation of the next time the security is expected to have a successful auction.

The fair value of the Company’s long-term debt is estimated based on current rates offered to the Company for similar debt and was approximately $ 3,132.1 million as of December 31, 2021, as compared to the carrying amount of $ 3,140.9 million as of December 31, 2021.

The Company’s fair value of long-term debt as of December 31, 2020 was $ 3,244.0 million as compared to the carrying amount of $ 3,236.0 million as of December 31, 2020.

Certain investments in other companies are reported at fair value based on market quoted prices or using the Black Scholes Option Pricing model in the consolidated balance sheets.

The fair value of the Company’s long-term debt is estimated based on current rates offered to the Company for similar debt.

Segment Reporting

Generally accepted accounting principles require disclosures related to components of a company for which separate financial information is available to, and regularly evaluated by, the Company’s chief operating decision maker when deciding how to allocate resources and in assessing performance.

The Company’s three operating segments (prior to the sale of ExpressJet in January 2019) consist of the operations conducted by SkyWest Airlines, ExpressJet (for the periods owned by the Company) and SkyWest Leasing.

Following the sale of ExpressJet, the Company has two reportable segments:

GAAP requires disclosures related to components of a company for which separate financial information is available to, and regularly evaluated by, the Company’s chief operating decision maker when deciding how to allocate resources and in assessing performance.

The Company has two reportable segments:

SkyWest Airlines and SkyWest Leasing.

Information pertaining to the Company’s reportable segments is presented in Note 3, Segment Reporting .

Recent Accounting Pronouncements

In November 2021, the FASB issued ASU No.2021-10, Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance (ASU No.

2021-10”), which increases the transparency of government assistance received by business entities, including disclosure of the types of assistance, an entity’s accounting for the assistance, and the effect of the assistance on an entity’s financial statements.

2021-10 is effective for annual reporting periods beginning after December 15, 2021.

The Company is currently evaluating the impact that adopting ASU No.

2021-10 but does not currently expect a material impact on the Company’s consolidated financial statements .

(2) Impact of the COVID-19 Pandemic

COVID-19, which was declared a global health pandemic by the World Health Organization in March 2020, had a significant, negative impact on the Company’s business and financial results in 2020 with moderate improvement in 2021.

The ongoing spread of the virus and its variants continues to negatively impact our business, and the domestic and international networks of our major airline partners for whom we conduct flight operations and rely on to set our flight schedules.

Various factors outside our control may impact the demand for air travel and our flight schedules, such as the distribution and efficacy of vaccines, government-imposed vaccine mandates, new variants of the virus, and continued or new government travel restrictions.

Additionally, indirect factors may impede the timing of our recovery from the virus even if passenger demand returns to pre-COVID-19 levels, such as employee attrition and workforce shortages and third-party labor shortages that may result in delays in outsourced maintenance work and availability of aircraft parts.

At December 31, 2021, the Company had $ 904.0 million in total available liquidity, consisting of $ 860.4 million in cash and marketable securities, and $ 43.6 million available under SkyWest Airlines’ line of credit with a bank.

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

At December 31, 2021, the Company’s current portion of long-term debt was $ 391.8 million, compared to $ 402.2 million at December 31, 2020.

(2) Recovery from the COVID-19 Pandemic and Labor Impact

COVID-19 had a significant, negative impact on the Company’s business and financial results in 2020 with moderate improvement in 2021.

During 2022, passenger demand recovered;

however, indirect factors of COVID-19, such as employee attrition, particularly captain attrition, and workforce shortages negatively impacted the Company’s operations in 2022.

Payroll Support Programs.

In 2020 and 2021, the Company entered into three Payroll Support Program Agreements with Treasury that provided certain payroll support relief payments, including the Payroll Support Program (“PSP1”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the Payroll Support Program Extension Agreement (“PSP2”) under the Consolidated Appropriations Act, 2021 (“2021 Appropriations Act”)

and Payroll Support Program 3 Agreement (“PSP3”) under the American Rescue Plan Act of 2021 (“American Rescue Plan Act”).

In 2020 and 2021, the Company entered into three Payroll Support Program Agreements with Treasury that provided certain payroll support relief payments, including the PSP1 under the CARES Act, the PSP2 under the 2021 Appropriations Act and the PSP3 under the American Rescue Plan Act.

The relief payments were conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through September 30, 2021.

Other conditions include restrictions on share repurchases and dividends through September 30, 2022, continuing essential air service as directed by the U.S.

Other conditions included restrictions on share repurchases and dividends through September 30, 2022, continuing essential air service as directed by the U.S.

Department of Transportation and certain limitations on executive compensation.

The payments received under the payroll support programs included an amount in the form of a payroll grant and an amount in the form of an unsecured 10-year loan.

The payments received under the payroll support

programs included an amount in the form of a payroll grant and an amount in the form of an unsecured 10-year loan.

In return, the Company issued to Treasury warrants to purchase shares of the Company’s common stock.

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The PSP1 grant was recognized during 2020 and grants received from PSP2 and PSP3 were recognized during 2021.

No grants were received or recognized during 2022.

In 2020, in connection with the CARES Act, the Company entered into the Treasury Loan Agreement with Treasury (“Secured Loan”) and borrowed $ 60.0 million under the agreement and in conjunction therewith, issued warrants to purchase shares of the Company’s common stock.

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Number of Warrants

See Note 4, "Long-Term Debt,"

for further discussion on the loans with Treasury and Note 10 “Capital Transactions” for further discussion on the warrants issued to acquire the Company’s shares issued to Treasury.

See Note 11, “Capital Transactions” for further discussion on the warrants issued to acquire the Company’s shares issued to Treasury.

(3) Segment Reporting

Prior to the Company’s sale of ExpressJet on January 22, 2019, the Company’s three reporting segments consisted of the operations of SkyWest Airlines, ExpressJet and SkyWest Leasing activities.

The segment information presented for ExpressJet reflects the period of time prior to the sale, when ExpressJet was operating as a subsidiary of the Company.

The Company concluded that the sale of ExpressJet did not meet the criteria for a discontinued operation.

Following the sale of ExpressJet, the Company has two reportable segments:

SkyWest Airlines and SkyWest Leasing.

The Company’s two reportable segments consist of the operations of SkyWest Airlines and SkyWest Leasing activities.

The Company’s chief operating decision maker analyzes the profitability of operating new aircraft financed through the issuance of debt, including the Company’s E175 fleet, separately from the profitability of the Company’s capital deployed for ownership and financing of such aircraft.

The SkyWest Airlines segment includes revenue earned under the applicable capacity purchase contracts attributed to operating such aircraft and the respective operating costs.

The SkyWest Leasing segment includes applicable revenue earned under the applicable capacity purchase contracts 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 Airlines segment includes revenue earned under the applicable capacity purchase agreements attributed to operating such aircraft and the respective operating costs.

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 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.

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

The following represents the Company’s segment data for the years ended December 31, 2022, 2021, and 2020 (in thousands).

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Depreciation and amortization expense

Special items

Interest expense

Segment profit (2)

Segment profit (loss) (2)

Total assets (as of December 31, 2022)

Capital expenditures (including non-cash)

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Depreciation and amortization expense

Special items - impairment charges

Interest expense

Segment profit (loss) (2)

Segment profit (2)

Total assets (as of December 31, 2021)

Capital expenditures (including non-cash)

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Depreciation and amortization expense

Special items

Interest expense

Segment profit (loss) (2)

Total assets (as of December 31, 2020)

Capital expenditures (including non-cash)

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Notes payable to banks, due in quarterly installments, plus interest at 2.33 % to 5.95 % through 2034, secured by aircraft

Notes payable to banks, due in monthly or semi-annual installments, plus interest at 2.68 % to 5.03 % through 2031, secured by aircraft

Notes payable to US Government, interest due quarterly at 1.00 % through 2025 and based on SOFR plus spread from 2025 through 2031, unsecured

Notes payable to US Government, interest due quarterly based on LIBOR plus interest spread currently at 3.22 % through 2025, secured by parts and engines

Notes payable to bank, due in monthly installments interest based on LIBOR plus interest spread at 2.65 % through 2021

Notes payable to banks, due in semi-annual installments plus interest at 6.24 % to 6.51 % through 2021, secured by aircraft

Notes payable to a financing company, due in semi-annual installments, with a fixed interest rate of 3.25 % through 2021, secured by aircraft

Notes payable to banks, due in monthly or semi-annual installments, plus interest at 2.68 % to 5.66 % through 2032, secured by aircraft and engines

Notes payable to U.S.

Government, interest due quarterly at 1.00 % through 2025 and based on SOFR plus spread from 2025 through 2031, unsecured

Long-term debt

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During 2022, the Company took delivery of 25 new E175 aircraft that the Company financed through $ 516.6 million of long-term debt.

The debt associated with the 18 E175 aircraft has a 5-year to 12-year term range, is due in monthly or quarterly installments with fixed annual interest rates of 2.7 % to 3.1 % and is secured by the E175 aircraft.

During 2021, in connection with the payroll support programs, the Company issued to Treasury promissory notes for an aggregate principal amount of $ 95.4 million and issued warrants to purchase up to 203,090 shares of the Company’s common stock.

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

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

In 2020, in connection with the CARES Act, the Company entered into the Secured Loan with Treasury and borrowed $ 60 million under the agreement.

During 2021, the Company repaid all amounts outstanding under the Secured Loan with Treasury, and in connection with such repayment, terminated the Secured Loan agreement.

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

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

Additionally, in 2021, the Company repaid $ 80.1 million of debt related to aircraft early.

The debt associated with the 25 E175 aircraft has 5 - to 12-year terms, is due in monthly or quarterly installments, and is secured by the E175 aircraft.

During 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 December 31, 2022 and 2021, the Company had $ 3.05 billion and $ 2.94 billion, respectively, of long-term debt obligations primarily related to the acquisition of aircraft and certain spare engines.

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The aggregate amounts of principal maturities of long-term debt as of December 31, 2022 were as follows (in thousands):

As of December 31, 2021 and 2020, SkyWest Airlines had a $ 75 million line of credit.

As of December 31, 2022, SkyWest Airlines had a $ 100 million line of credit.

As of December 31, 2021, SkyWest Airlines had a $ 75 million line of credit.

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

As of December 31, 2021 and 2020, SkyWest Airlines had no amount outstanding under the line of credit facility.

As of December 31, 2022 and 2021, SkyWest Airlines had no amounts outstanding under the line of credit facility.

However, at December 31, 2022 and 2021, the Company had $ 29.9 million and $ 31.4 million, respectively, in letters of credit issued under the facility which reduced the amount available under the facility to $ 70.1 million and $ 43.6 million, respectively.

During the year ended December 31, 2021, the Company extended the expiration date of the line of credit to March 31, 2022.

The facility has a variable interest rate of LIBOR plus 2.5 % at December 31, 2021.

The line of credit expires March 25, 2025 and has a variable interest rate of 3.5 % plus the one month SOFR rate.

As of December 31, 2022 and 2021, the Company had $ 59.2 million and $ 61.4 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions.

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.

The fair value of the Company’s long-term debt is estimated based on current rates offered to the Company for similar debt.

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 December 31, 2022 and 2021, were as follows (in thousands):

December 31, 2022

December 31, 2021

Carrying value

(5) Income Taxes

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Provision for income taxes

For the year ended December 31, 2022, the Company recorded a $ 1.7 million valuation allowance against certain deferred tax assets associated with state net operating losses with a limited carry forward period.

For the year ended December 31, 2020, the Company released $ 0.9 million of valuation allowance against certain deferred tax assets primarily associated with state net operating losses with a limited carry forward period.

For the year ended December 31, 2019, the Company released $ 0.5 million of valuation allowance against certain deferred tax assets primarily associated with ExpressJet state net operating losses.

The decrease in the valuation allowance for 2020 was primarily based on changes in the Company's income tax projections which reduced the amount of deferred tax assets that are anticipated to expire before the deferred tax assets may be utilized.

The Company recorded a $ 0.1 million, $ 1.4 million and $ 3.5 million benefit from share-based compensation in 2021, 2020, and 2019, respectively, relating to ASU 2016-09 which, requires excess tax benefits and deficiencies to be recognized in the income tax provision during the period stock options are exercised and when stock awards vest.

The increase in the valuation allowance for 2022 was primarily based on changes in the Company's income tax projections by jurisdiction which increased the amount of deferred tax assets that are anticipated to expire before the deferred tax assets may be utilized.

The Company recorded a $ 0.5 million expense, $ 0.1 million benefit and $ 1.4 million benefit from share-based compensation in 2022, 2021, and 2020, respectively, relating to ASU 2016-09 which, requires excess tax benefits and

deficiencies to be recognized in the income tax provision during the period stock options are exercised and when stock awards vest.

For the year ended December 31, 2022, the Company recorded a $ 7.3 million tax benefit for the release of uncertain tax position under ASC Topic 740 which is recorded in “Other, net” above.

The significant components of the Company’s net deferred tax assets and liabilities as of December 31, 2022 and 2021, are as follows (in thousands):

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Operating lease liabilities

Interest deduction limitation

Accrued reserves and other

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Accelerated depreciation

( 1,094,538 )

Operating lease right-of-use assets

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The Company anticipates that the federal and state net operating losses will start to expire in 2037 and 2023, respectively.

The Company has no ongoing federal or state examinations.

The Company has no ongoing federal examinations.

The Company has one ongoing state examination for tax year 2020.

Federal tax years 2019, 2020 and 2021 are open to examination.

Under ASC Topic 740, the accounting guidance related to uncertainty in tax positions requires that the impact of a tax position be recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position.

Under Accounting Standard Codification (“ASC”) Topic 740, the accounting guidance related to uncertainty in tax positions requires that the impact of a tax position be recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the year ended December 31, 2022, 2021, and 2020 is as follows (in thousands) :

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Interest and penalties in year-end balance

For the years ending December 31, 2021, 2020, and 2019, the Company recorded $ 549,000 , $ 360,000 , and $ 67,000 , respectively, of interest expense related to uncertain tax positions not offset by the Company's tax attributes.

For the years ended December 31, 2022, 2021, and 2020, the Company recorded $ 343,000 , $ 549,000 , and $ 360,000 , respectively, of interest expense related to uncertain tax positions not offset by the Company's tax attributes.

For the year ended December 31, 2022, the Company released $ 7.7 million of the prior year uncertain tax position, including interest, as the tax year statutes impacted by these positions have closed.

(6) Commitments and Contingencies

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As of December 31, 2022, the Company had approximately 13,582 employees.

Although no SkyWest Airlines employees are represented by a national union, certain SkyWest Airline employees are covered under a stable and binding collective bargaining agreement that is administered by employee representatives.

Although no SkyWest Airlines employees are represented by a national union, the majority of SkyWest Airline employees are covered under by a written, stable and binding collective bargaining agreement under the RLA, entered into between SkyWest Airlines and a long-established labor association, such as the SkyWest Airlines Pilot Association (“SAPA”).

Aircraft Purchase Commitments

As of December 31, 2021, the Company had a purchase commitment to purchase 29 new E175 aircraft in 2022 and 2023.

Effective January 1, 2019, the Company adopted Topic 842.

As of December 31, 2022, the Company had a purchase commitment to purchase two new E175 aircraft in 2023, one new E175 aircraft in 2024 and one new E175 aircraft in 2025.

During the year ended December 31, 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.

The purpose of the arrangement is to increase the potential number of commercial pilots in the Company’s hiring pipeline.

In exchange for providing the guarantee, the Company received 6.5 % of the guaranteed amount as consideration, payable in common stock of the Part 135 air carrier, and is recorded in “Other income, net” on the Company’s consolidated statements of comprehensive income (loss) over the term of the guarantee.

The Company also recorded the estimated credit loss associated with the guarantee in “Other long-term liabilities” on the Company’s

consolidated balance sheet based on publicly available historical default rates issued by a third party for companies with similar credit ratings, factoring the collateral and guarantee term.

The Company leases property and equipment under operating leases.

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

As of December 31, 2021, excluding aircraft financed by our major airline partners that we operate for them under contract, the Company had 43 aircraft under long-term lease agreements with remaining terms ranging from two years to nine years .

With the adoption of Topic 842, the Company evaluated whether leased aircraft asset groups within the Company’s fleet were impaired.

Under the transition guidance for Topic 842, a company is permitted to recognize a previously unrecognized impairment related to a right-of-use asset in the period prior to the adoption date of Topic 842 if the event giving rise to the impairment occurred before the adoption date.

In 2016, the Company recorded an impairment on certain of its long-lived assets, which included the Company’s CRJ200 aircraft .

In 2016, the market lease rate was less than the contractual lease rate on the Company’s CRJ200 leased aircraft.

The Company recorded an impairment of $ 13.1 million (net of tax) as an adjustment to the Company’s January 1, 2019 retained earnings related to the previously unrecognized impairment of these leased CRJ200s.

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

The Company leases 32 CRJ aircraft under a lease agreement that expires in March 2024.

During the year ended December 31, 2022, the Company began storing aircraft under this lease agreement, which shortened the Company’s estimated useful life of the aircraft under the lease and resulted in the Company recognizing $ 11.4 million of accelerated lease expense during the year ended December 31, 2022.

Airport facilities

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The Company expects that, in the normal course of business, such operating leases that expire will 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 December 31, 2021 (in thousands):

The following table summarizes future minimum rental payments primarily related to leased aircraft and maintenance facilities required under operating leases that had initial or remaining non-cancelable lease terms as of December 31, 2022 (in thousands):

Total rental expense for non-cancelable aircraft operating leases was approximately $ 75.4 million, $ 63.4 million and $ 65.3 million for the years ended December 31, 2022, 2021, and 2020, respectively.

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Level 3 —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 December 31, 2021, the Company held certain assets that are required to be measured at fair value on a recurring basis.

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

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

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Commercial paper

Investments in Other Companies

Cash and Cash Equivalents

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

The Company did no t make any significant transfers of securities between Level 1, Level 2 and Level 3 during the year ended December 31, 2021.

See Note 14, “Investments in Other Companies” regarding the Company’s investments in other companies, for the year ended December 31, 2022.

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

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

(9) Assets Held for Sal e

During the year ended December 31, 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.

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 a third-party valuation, market trends and condition of the airframes and engines, considered Level 3 within the fair value hierarchy.

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.

(10) Special Items

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

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

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

During 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 agreements with Delta and forecasted cash flow including the estimated value the Company would realize upon disposal of aircraft.

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.

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

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

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

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

This special item impairment charge is reflected in the SkyWest Airlines operating expenses under Note 3, “Segment Reporting.”

The following table summarizes the components of the Company's special items, for the years ended December 31, 2021, 2020 and 2019 (in thousands):

Year ended December 31,

Special items:

CRJ900 Impairment Charge 1

Parts Credit 2

Employee severance 3

Total special items

(1) Consists of the impairment charges to write-down CRJ900 aircraft in 2021 to their estimated fair value as discussed above.

(2) The Company terminated an agreement with an aircraft manufacturer that obligated the Company to future aircraft lease return conditions on aircraft the Company leased.

In conjunction with the terminated agreement, the aircraft manufacturer released the Company from the future aircraft lease return obligations and the Company agreed to

terminate aircraft part credits previously issued by the manufacturer to the Company.

As a result of the terminated agreement, the Company recorded a non-cash expense of $ 18.5 million (pre-tax) during 2019 to write-off the terminated aircraft part credits, which was reflected as a special items operating expense in the consolidated statement of comprehensive income.

These special items are reflected in the SkyWest Airlines operating expenses under Note 3, “Segment Reporting.”

(3) During 2019, the Company incurred $ 3.4 million of employee severance related costs associated with the sale of ExpressJet that are also reflected in special items.

These special items are reflected in the ExpressJet operating expenses under Note 3, “Segment Reporting.”

This special item impairment charge is reflected in the SkyWest Airlines operating expenses under Note 3, “Segment Reporting” for the year ended December 31, 2021.

(11) Capital Transactions

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On May 7, 2019, the Company’s shareholders approved the adoption of the SkyWest, Inc.

2019 Long-Term Incentive Plan, which provides for the issuance of up to 4,500,000 shares of common stock to the Company’s directors, employees, consultants and advisors (the “2019 Incentive Plan”).

2019 Long-Term Incentive Plan, which provides for the issuance of up to 4,500,000 shares of common stock to the Company’s directors,

employees, consultants and advisors (the “2019 Incentive Plan”).

The 2019 Incentive Plan provides for awards in the form of options to acquire shares of common stock, stock appreciation rights, restricted stock grants, restricted stock units and performance awards.

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Non-vested RSUs outstanding at December 31, 2022

Performance Stock Units (“PSUs”)

Performance Share Units (“PSUs”)

During the year ended December 31, 2022, the Compensation Committee granted performance share units, which are performance-based restricted stock units, to certain Company employees.

The PSUs have a three-year vesting period, during which the recipient must remain employed with the Company.

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

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

The Company’s compensation expense for performance share units is based upon the projected number of performance share units estimated to be awarded at the conclusion of the performance period.

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The Compensation Committee will determine the achievement of performance results and corresponding vesting of performance shares for each year’s grant in 2020, 2021 and 2022 following the conclusion of the respective performance period.

At the end of each performance period, the number of shares awarded can range from 0 % to 250 % of the original granted amount for performance share units granted in 2021 and 0 % to 200 % for performance share units granted in 2020 and 2019.

At the end of each performance period, the number of shares awarded can range from 0 % to 250 % of the original granted amount for performance share units granted in 2022 and 2021 and 0 % to 200 % for performance share units granted in 2020.

The following table summarizes the activity of performance share units granted at target as of December 31, 2022:

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Non-vested PSUs outstanding at December 31, 2020

Additional PSUs awarded from the 2017 grant

PSUs forfeited from the 2018 grant

Non-vested PSUs outstanding at December 31, 2021

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During the years ended December 31, 2022, 2021 and 2020, the Company granted fully-vested shares of common stock to the Company’s directors in the amounts of 24,423 , 21,175 and 14,643 shares, respectively, with a weighted average grant-date fair value of $ 32.86 , $ 44.87 and $ 61.45 respectively.

During the year ended December 31, 2021, 2020 and 2019, the Company recorded equity-based compensation expense of $ 8.7 million, $ 6.8 million and $ 10.3 million, respectively.

Additionally, in 2019, the Company incurred $ 7.9 million of employee severance related costs associated with the sale of ExpressJet, partially offset by a forfeiture credit of $ 4.5 million, primarily resulting from stock-based compensation awards that terminated upon the sale of ExpressJet during 2019.

During the years ended December 31, 2022, 2021 and 2020, the Company recorded equity-based compensation expense of $ 9.2 million, $ 8.7 million and $ 6.8 million, respectively.

As of December 31, 2022, the Company had $ 18.5 million of total unrecognized compensation cost related to non-vested restricted stock grants and non-vested performance stock units.

Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures and estimates of the Company’s future performance for unvested performance share units.

The Company expects to recognize this cost over a weighted average period of 1.9 years.

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

The weighted average fair value of these warrants was estimated at $ 32.52 and $ 22.31 per share for the 124,773 and 78,317 warrants, respectively, using the Black-Scholes option pricing model.

The weighted average grant-date fair value of these warrants was estimated at $ 32.52 and $ 22.31 per share for the 124,773 and 78,317 warrants, respectively, using the Black-Scholes option pricing model.

During the year ended December 31, 2020, the Company issued to Treasury warrants to purchase 370,720 shares of the Company’s common stock as part of the CARES Act payroll support.

The warrants were issued with an e xercise price of $ 28.38 per share for a five-year term from the date of issuance.

The fair value of the warrants issued to

Treasury was estimated as of the grant date using the Black-Scholes option pricing model.

The Company estimated a weighted average fair value of the warrants issued to Treasury at $ 13.57 per share.

The weighted average grant-date fair value of these warrants issued to Treasury was estimated at $ 13.57 per share using the Black-Scholes option pricing model.

Additionally, in 2020, the Company issued to Treasury warrants to purchase 211,416 shares of the Company’s common stock in conjunction with the Company’s $ 60 million borrowing under the CARES Act Secured Loan facility.

The warrants were issued with an e xercise price of $ 28.38 per share for a five-year term from the date of issuance.

The weighted average fair value of these warrants was estimated at $ 15.22 per share using the Black-Scholes option pricing model.

The weighted average grant-date fair value of these warrants issued to Treasury was estimated at $ 15.22 per share using the Black-Scholes option pricing model.

The Company did not issue any warrants for the year ended December 31, 2022.

(12) Retirement Plans and Employee Stock Purchase Plans

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Generally, the Company matches 100 % of such contributions up to levels ranging from 2 % to 12 % of compensation, based on position and years of service.

SkyWest Airlines pilots with ten or more years of service receive a non-elective contribution of 12 % of their compensation in place of a matching contribution.

Additionally, a discretionary contribution may be made by the Company.

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The Company’s stock repurchase program authorizes the repurchase of up to $ 250.0 million of the Company’s common stock commencing on February 5, 2019, of which $ 139.6 million remained available at December 31, 2022.

During the years ended December 31, 2020 and 2019, the Company purchased as treasury shares or purchased and cancelled 0.4 million and 1.7 million shares of common stock for approximately $ 20.0 million and $ 94.6 million, respectively at a weighted average price per share of $ 51.87 and $ 56.86 , respectively.

The company did not repurchase any shares of its common stock during 2021.

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

Additionally, during the year ended December 31, 2021, 2020 and 2019, the Company paid $ 1.6 million, $ 6.2 million and $ 9.3 million, respectively, for a net settlement of the income tax obligation on employee equity awards that vested during the applicable periods.

(13) Related-Party Transactions

During the year ended December 31, 2021, the Company purchased $ 501,722 of spare aircraft parts from an entity affiliated with a director of the Company.

(14) Gain on Sale of ExpressJet

On January 22, 2019, the Company completed the sale of its former wholly owned subsidiary ExpressJet.

The Company recorded a gain of $ 46.5 million (pre-tax) from the sale of ExpressJet.

The closing of the transaction was completed in two parts, through an asset sale and stock sale, as further described below.

On January 11, 2019, pursuant to the terms and conditions of the Asset Purchase Agreement, dated as of December 17, 2018, by and among the Company, ExpressJet and United, United acquired certain specified assets and liabilities of ExpressJet, including, among other things, aircraft engines, auxiliary power units, rotable spare parts, ground support equipment and flight training equipment for $ 60.8 million in cash, subject to certain purchase price adjustments (the “Asset Sale”).

Certain assets and liabilities of ExpressJet were expressly excluded from the Asset Sale.

Additionally, on January 22, 2019, pursuant to the terms and conditions of the Stock Purchase Agreement, dated as of December 17, 2018, by and among the Company and ManaAir, LLC, a company in which United owns a minority interest (the “Buyer”), the Buyer acquired all of the outstanding shares of capital stock of ExpressJet from the Company for $ 18.8 million in cash, subject to certain purchase price adjustments (the “Stock Sale,”).

To facilitate payment of the purchase price for the Stock Sale, at the closing of the Stock Sale, the Company loaned $ 26 million to Kair Enterprises, Inc.

(the “Borrower”), the majority owner of the Buyer.

Such loan accrues interest at the rate of 6.85 % per annum, matures on the last business day of the last month immediately preceding the two-year anniversary of the closing of the Stock Sale and is secured by, among other things, the Borrower’s ownership interests in the Buyer.

The Company evaluated the collectability of this loan balance as of December 31, 2021 under Topic 326.

See Note 1 - Flying Agreements and Airport Customer Services and Other Revenues and Allowance for Credit Losses for additional information.

(15) Investment in Other Companies

During the year ended December 31, 2020, the Company repurchased 0.4 million shares of common stock for approximately $ 20.0 million at a weighted average price per share of $ 51.87 .

The Company did not repurchase any shares of its common stock during 2022 and 2021.

Under the terms of the PSP3 Agreement, the Company’s restriction from repurchasing shares of its common stock ended on September 30, 2022.

Additionally, during the years ended December 31, 2022, 2021 and 2020, the Company paid $ 1.2 million, $ 1.6 million and $ 6.2 million, respectively, for a net settlement of the income tax obligation on employee equity awards that vested during the applicable periods.

(14) Investments in Other Companies

Equity Method Investment

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

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(“Aero Engines”).

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

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

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

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

The Company purchased 15 spare engines and sold the 15 spare engines to Aero Engines at net book value.

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

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

The Company’s portion of the loss generated by Aero Engines for the year ended December 31, 2021, was $ 5.3 million, which is recorded in “Other Income (Expense)” on the Company’s consolidated statements of comprehensive income.

Aero Engines’ net loss was primarily due to engine overhaul costs that were expensed during the year ended December 31, 2021.

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

The Company signed a non-binding letter

of intent to purchase 100 eVTOL aircraft.

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

As of December 31, 2021, no monetary transactions have occurred.

The Company’s portion of the earnings generated by Aero Engines for the year ended December 31, 2022, was $ 1.4 million, which is recorded in “Other income (expense), net” on the Company’s consolidated statements of comprehensive income (loss).

Fair Value Method Investment

In 2021, the Company entered into a strategic partnership with Eve UAM, to develop a network of deployment for Eve UAM’s eVTOL aircraft.

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

During the year ended December 31, 2022, the Company acquired 1,000,000 shares of common stock of 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 Eve Investments for $ 10.0 million.

The Company evaluated the Eve Investments under 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 warrant and put option Eve Investments (in thousands):

Level 3 Investments:

Balance at December 31, 2021

Unrealized gains

Balance at December 31, 2022

The Company recognized unrealized gains of $ 11.4 million in “Other income, net” on the Company’s consolidated statements of comprehensive income for the year ended December 31, 2022, related to the Eve Investments.

As of December 31, 2022, the fair value of the Eve Investments was $ 21.4 million and was recorded in “Other Assets” on the Company’s consolidated balance sheet.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data