What changed in this filing

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Item 1. Financial Statements

2023-05-04 compared with 2022-11-04 · 156 added, 220 removed, 336 unchanged (53% of the section changed)

4 unchanged sentences

(Dollars in Thousands)

September 30,

CURRENT ASSETS:

24 unchanged sentences

LIABILITIES AND STOCKHOLDERS’ EQUITY

September 30,

CURRENT LIABILITIES:

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

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

82,800,633 and 82,592,830 shares issued as of March 31, 2023, and December 31, 2022, respectively

Retained earnings

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

Treasury stock, at cost, 37,093,074 and 31,994,416 shares as of March 31, 2023, and December 31, 2022, respectively

Accumulated other comprehensive loss

7 unchanged sentences

Three months ended

Nine months ended

September 30,

OPERATING REVENUES:

7 unchanged sentences

Aircraft fuel

Airport-related expenses

Aircraft rentals

Special items - impairment charges

Payroll support grant

Airport-related expenses

Other operating expenses

Total operating expenses

OPERATING INCOME

OPERATING INCOME (LOSS)

OTHER INCOME (EXPENSE):

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Interest expense

Other income (expense), net

Other income, net

Total other expense, net

INCOME BEFORE INCOME TAXES

PROVISION FOR INCOME TAXES

BASIC EARNINGS PER SHARE

DILUTED EARNINGS PER SHARE

INCOME (LOSS) BEFORE INCOME TAXES

PROVISION (BENEFIT) FOR INCOME TAXES

NET INCOME (LOSS)

BASIC EARNINGS (LOSS) PER SHARE

DILUTED EARNINGS (LOSS) PER SHARE

Weighted average common shares:

COMPREHENSIVE INCOME:

Net unrealized depreciation on marketable securities, net of taxes

TOTAL COMPREHENSIVE INCOME

COMPREHENSIVE INCOME (LOSS):

Net income (loss)

Net unrealized appreciation on marketable securities, net of taxes

TOTAL COMPREHENSIVE INCOME (LOSS)

See accompanying notes to condensed consolidated financial statements

6 unchanged sentences

Balance at December 31, 2022

Net income (loss)

Exercise of common stock options and vested employee stock awards

2 unchanged sentences

Stock based compensation expense

Treasury stock purchases

Net unrealized appreciation on marketable securities, net of tax of $ 476

Balance at March 31, 2023

Stock based compensation expense

Net unrealized depreciation on marketable securities, net of tax of $ 628

Balance at June 30, 2022

Exercise of common stock options and vested employee stock awards

Employee income tax paid on vested equity awards

Sale of common stock under employee stock purchase plan

Stock based compensation expense

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

Balance at September 30, 2022

See accompanying notes to condensed consolidated financial statements.

SKYWEST, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(In Thousands)

Treasury Stock

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Stock based compensation expense

Warrants issued to U.S.

Balance at March 31, 2022

Stock based compensation expense

Warrants issued to U.S.

Balance at June 30, 2021

Sale of common stock under employee stock purchase plan

Stock based compensation expense

Balance at September 30, 2021

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

(In Thousands)

Nine months ended

September 30,

Three months ended

NET CASH PROVIDED BY OPERATING ACTIVITIES

1 unchanged sentence

Purchases of marketable securities

( 1,758,125 )

( 1,071,637 )

Sales of marketable securities

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Aircraft deposits applied towards acquired aircraft

Increase in other assets

NET CASH USED IN INVESTING ACTIVITIES

Decrease (increase) in other assets

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES:

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Principal payments on long-term debt

Payment of debt issuance cost

Net proceeds from issuance of common stock

Employee income tax paid on vested equity awards

Payment of debt issuance cost

Purchase of treasury stock

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

Increase (decrease) in cash and cash equivalents

Decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

3 unchanged sentences

Acquisition of property and equipment

Warrants issued to U.S.

Derecognition of right of use assets

Derecognition of operating lease liabilities

Cash paid during the period for:

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(“SkyWest Leasing”) included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

During 2022, the Company formed a new subsidiary, SkyWest Charter, with the intent to offer on-demand charter service and public charter service to underserved communities in the United States.

SkyWest Charter operated its first revenue flight subsequent to March 31, 2023.

Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading.

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These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Due in part to the uncertain rate of recovery from the global COVID-19 pandemic and workforce shortages, in addition to other factors, the results of operations for the three and nine months ended September 30, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

Due in part to the uncertain rate of recovery from workforce shortages, in addition to other factors, the results of operations for the three months ended March 31, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

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

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(2) Flying Agreements Revenue and Lease, Airport Services 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.

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

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

For the nine months ended September 30, 2022 and 2021, capacity purchase agreements represented approximately 88.0 % and 83.9 % of the Company’s flying agreements revenue, respectively.

For the three months ended March 31, 2023 and 2022, capacity purchase agreements represented approximately 88.4 % and 88.8 % of the Company’s flying agreements revenue, respectively.

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

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

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

For the nine months ended September 30, 2022 and 2021, prorate flying agreements represented approximately 12.0 % and 16.1 % of the Company’s flying agreements revenue, respectively.

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

For the three months ended September 30,

For the nine months ended September 30,

Capacity purchase agreements revenue:

flight operations

Capacity purchase agreements revenue:

aircraft lease and fixed revenue

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 three months ended March 31, 2023 and 2022, prorate flying agreements represented approximately 11.6 % and 11.2 % of the Company’s flying agreements revenue, respectively.

The following table represents the Company’s flying agreements revenue by type for the three months ended March 31, 2023 and 2022 (in thousands):

For the three months ended March 31,

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

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

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

The Company’s deferred revenue balance was $ 78.1 million as of September 30, 2022, including $ 1.7 million in other current liabilities and $ 76.4 million in other long-term liabilities.

The 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 three months ended December 31, 2022, the Company amended certain of its capacity purchase agreements resulting in a portion of the Company’s aircraft lease revenue becoming variable beginning in the fourth quarter of 2022.

Additionally, as a result of these capacity purchase agreement amendments executed in 2022, during the three months ended March 31, 2023, the Company deferred recognizing lease revenue on $ 20.6 million of the allocated fixed monthly lease payments received during the three months ended March 31, 2023, 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.

During the three months ended March 31, 2023, the Company deferred $ 39.3 million of fixed monthly payments under certain agreements and decreased unbilled revenue by $ 3.3 million under certain other agreements, compared to recognizing $ 7.5 million of previously deferred revenue and $ 3.6 million of unbilled revenue during the three months ended March 31, 2022.

The Company’s total deferred revenue balance, as of March 31, 2023 was $ 204.6 million, including $ 5.6 million in other current liabilities and $ 199.0 million in other long-term liabilities.

The Company’s unbilled revenue balance was $ 16.6 million as of March 31, 2023, including $ 7.1 million in other current assets and $ 9.5 million in other long-term assets.

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

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

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

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

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

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

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

As of September 30, 2022, the Company had 530 aircraft in scheduled service or under contract under code-share agreements.

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

As of March 31, 2023, the Company had 491 aircraft in scheduled service or under contract pursuant to code-share agreements.

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

United Express Agreements

6 unchanged sentences

(prorate agreement)

Terminable with 120-day notice

Terminable with 120-days’ notice

Total under United Express Agreements

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(prorate agreement)

Terminable with 30-day notice

Terminable with 30-days’ notice

Total under Delta Connection Agreements

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Individual aircraft have scheduled removal dates from 2030 to 2034

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

* 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 March 31, 2023, SkyWest Airlines has a capacity purchase agreement with Delta to place a total of three additional E175 regional jet aircraft (“E175”) from Embraer, S.A.

(“Embraer”) into service, with delivery dates currently s cheduled 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.

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

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

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

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

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

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

For the three months ended September 30,

For the nine months ended September 30,

Other uses for the aircraft may include placing the aircraft in a prorate agreement, leasing the aircraft to a third party or disassembling aircraft components such as the engines and parts to be used as spare inventory or to lease the engines to a third party.

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

The following table represents the Company’s lease, airport services and other revenues for the three months ended March 31, 2023 and 2022 (in thousands):

For the three months ended March 31,

Operating lease revenue

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Lease, airport services and other

The following table summarizes future minimum rental income under operating leases primarily related to leased aircraft and engines that had remaining non-cancelable lease terms as of September 30, 2022 (in thousands):

October 2022 through December 2022

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

April 2023 through December 2023

Total future minimum rental income under operating leases

Of the Company’s $ 5.6 billion of net property and equipment as of March 31, 2023, $ 216.8 million of regional jet aircraft and spare engines were leased to third parties under operating leases.

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

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

As of September 30, 2022, the Company had gross receivables of $ 94.2 million in current assets and gross receivables of $ 227.6 million in other long-term assets.

As of March 31, 2023, the Company had gross receivables of $ 120.0 million in current assets and gross receivables of $ 195.5 million in other long-term assets.

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

During the nine months ended September 30, 2022, there were no significant changes in the outstanding accounts receivable or notes receivable or the credit ratings of the entities.

The Company’s credit loss reserve was $ 38.0 million at September 30, 2022, compared to $ 42.0 million at December 31, 2021.

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

During the three months ended March 31, 2023, the Company wrote-off a $ 3.6 million receivable that was fully reserved as of December 31, 2022.

There were no other significant changes in the outstanding accounts receivable, notes receivable or credit ratings of the entities.

The following table summarizes the changes in allowance for credit losses:

Allowance for Credit Losses

Balance at December 31, 2022

Adjustments to credit loss reserves

Write-offs charged against allowance

Balance at March 31, 2023

(3) Stock-Based Compensation

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

During the three months ended March 31, 2023, the Company granted 125,780 restricted stock units and 391,810 performance shares to certain employees of the Company under the SkyWest, Inc.

2019 Long-Term Incentive Plan.

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The number of performance shares awardable from the 2023 grants can range from 0 % to 250 % of the original amount granted depending on the Company’s performance over three one-year measurement periods against the pre-established targets.

Upon vesting, each restricted stock unit and performance share

will be replaced with one share of common stock.

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

The weighted average fair value of these restricted stock units and performance shares on their date of grant was $ 18.65 per share .

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

Additionally, during the nine months ended September 30, 2022, the Company granted 24,423 fully vested shares of common stock to the Company’s directors at a grant date fair value of $ 32.86 .

During the three months ended March 31, 2023, the Company did not grant any options to purchase shares of common stock to employees.

Additionally, during the three months ended March 31, 2023, the Company granted 37,534 fully vested shares of common stock to the Company’s directors at a grant date fair value of $ 18.65 .

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

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

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

(4) Net Income Per Common Share

Basic net income per common share (“Basic EPS”) excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the period.

During the three months ended March 31, 2023 and 2022, the Company recorded pre-tax stock-based compensation expense of $ 4.3 million and $ 4.1 million, respectively.

(4) Net Income (Loss) Per Common Share

Basic net income (loss) per common share (“Basic EPS”) excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.

Diluted net income per common share (“Diluted EPS”) reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock.

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

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.

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):

Three Months Ended

Nine Months Ended

September 30,

PSP1 and Treasury Loan Warrants (1)

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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 Consolidated Appropriations Act, 2021 (the “2021 Appropriations Act”) (“PSP2”), SkyWest issued to U.S.

Treasury”), SkyWest issued to U.S.

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

(3) Pursuant to the payroll support program established under the American Rescue Plan Act of 2021 (the “American Rescue Plan Act”) (“PSP3”), SkyWest issued to U.S.

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

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

Additionally, during the nine months ended September 30, 2022, 334,000 performance shares (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of September 30, 2022.

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

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

(3) Pursuant to the payroll support program established under the American Rescue Plan Act of 2021 (“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, during the three months ended March 31, 2023 and 2022, 538,000 and 361,000 performance shares (at target performance) were excluded from the computation of Diluted EPS because the Company had not achieved the minimum target thresholds as of the three months ended March 31, 2023 and 2022, respectively.

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

Three Months Ended

Nine Months Ended

September 30,

Net income (loss)

Basic earnings per share weighted average shares

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Diluted earnings per share weighted average shares

Basic earnings per share

Diluted earnings per share

Basic earnings (loss) per share

Diluted earnings (loss) per share

(5) Segment Reporting

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

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

Three months ended September 30, 2022

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 three-month periods ended March 31, 2023 and 2022 (in thousands):

Three months ended March 31, 2023

Operating revenues (1)

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Segment profit (loss) (2)

Total assets (as of September 30, 2022)

Total assets (as of March 31, 2023)

Capital expenditures (including non-cash)

Three months ended September 30, 2021

Three months ended March 31, 2022

Operating revenues (1)

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Depreciation and amortization expense

Special items - impairment charges

Interest expense

Segment profit (loss) (2)

Total assets (as of September 30, 2021)

Total assets (as of March 31, 2022)

Capital expenditures (including non-cash)

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

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

Nine months ended September 30, 2022

Operating revenues (1)

Operating expense

Depreciation and amortization expense

Interest expense

Segment profit (2)

Total assets (as of September 30, 2022)

Capital expenditures (including non-cash)

Nine months ended September 30, 2021

Operating revenues (1)

Operating expense

Depreciation and amortization expense

Special items - impairment charges

Interest expense

Segment profit (2)

Total assets (as of September 30, 2021)

Capital expenditures (including non-cash)

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

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

(6) Assets Held for Sale

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

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

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

The Company presented the $ 13.5 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 $ 15.2 million, which is included in “Other operating expenses” on the Company’s consolidated statements of comprehensive income and in the SkyWest Leasing segment for the nine months ended September 30, 2022.

(6) Leases, Commitments, Guarantees and Contingencies

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

During the three months ended March 31, 2023, the Company acquired 32 CRJ aircraft under an early lease buyout arrangement with the lessor for $ 125.5 million.

As of March 31, 2023, excluding aircraft financed by the Company’s major airline partners that the Company operates for them under contract, the Company leased 11 aircraft under long-term lease agreements with remaining terms ranging from one year to eight years .

Airport facilities

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

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

During the nine months ended September 30, 2022, the Company paid $ 56.9 million in operating leases reflected as a reduction from operating cash flows.

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

As of September 30, 2022

As of March 31, 2023, the Company’s right-of-use assets were $ 96.4 million, the Company’s current maturities of operating lease liabilities were $ 18.7 million, and the Company’s noncurrent lease liabilities were $ 76.4 million.

During the three months ended March 31, 2023, the Company paid $ 13.6 million under operating leases reflected as a reduction from operating cash flows.

The table below presents lease related terms and discount rates as of March 31, 2023:

Weighted-average remaining lease term for operating leases

Weighted-average discount rate for operating leases

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

For the three months ended September 30,

For the nine months ended September 30,

The Company’s lease costs for the three months ended March 31, 2023 and 2022 included the following components (in thousands):

For the three months ended March 31,

Operating lease cost

2 unchanged sentences

Total lease cost

As of September 30, 2022, the Company leased aircraft, airport facilities, office space, and other property and equipment under non-cancelable operating leases, which are generally on a long-term, triple-net lease basis pursuant to which the Company pays taxes, maintenance, insurance and certain other operating expenses applicable to the leased property.

As of March 31, 2023, the Company leased aircraft, airport facilities, office space and other property and equipment under non-cancelable operating leases, which are generally on a long-term, triple-net lease basis pursuant to which the Company pays taxes, maintenance, insurance and certain other operating expenses applicable to the leased property.

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

The following table summarizes future minimum rental payments primarily related to leased aircraft required under operating leases that had initial or remaining non-cancelable lease terms as of September 30, 2022 (in thousands):

July 2022 through December 2022

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

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

The following table summarizes future minimum rental payments required under operating leases that had initial or remaining non-cancelable lease terms as of March 31, 2023 (in thousands):

April 2023 through December 2023

Total future minimum operating lease payments

As of March 31, 2023, the Company had a firm purchase commitment for four E175 aircraft from Embraer with anticipated delivery dates through 2025.

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

Oct - Dec 2022

Apr - Dec 2023

Operating lease payments for aircraft and facility obligations

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Total commitments and obligations

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

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

(1) At March 31, 2023, the Company’s long-term debt had fixed interest rates.

In 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.

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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, which will be recorded in “Other income, net” on the Company’s consolidated statements of comprehensive income 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 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.

(7) Fair Value Measurements

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

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

As of March 31, 2023, and December 31, 2022, the Company held certain assets that are required to be measured at fair value on a recurring basis.

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

Fair Value Measurements as of September 30, 2022

Fair Value Measurements as of March 31, 2023

Marketable Securities

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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 securities primarily utilize broker quotes in a non-active market for valuation of these securities.

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

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

See Note 9 “Investments in Other Companies” regarding the Company’s investment in other companies, for the three months ended March 31, 2023.

The Company did not make any significant transfers of securities between Level 1, Level 2 and Level 3 during the three months ended March 31, 2023.

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

As of September 30, 2022, and December 31, 2021, the Company classified $ 965.3 million and $ 602.0 million of marketable securities, respectively, as short-term since it had the intent to maintain a liquid portfolio and the ability to redeem the securities within one year.

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

As of March 31, 2023, and December 31, 2022, the Company classified $ 861.3 million and $ 944.2 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 .

As of March 31, 2023, and December 31, 2022, the cost of the Company’s marketable securities was $ 864.4 million and $ 949.3 million, respectively.

As of March 31, 2023, the Company had $ 56.7 million included in “Other current assets” on the Company’s consolidated balance sheet in respect of 14 CRJ700 aircraft held for sale.

The fair values were based upon observable and unobservable inputs, including a third-party valuation, market trends and conditions 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.

The Company did not record a gain or loss associated with its assets held for sale during the three months ended March 31, 2023.

(8) Long-term Debt

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

September 30, 2022

Long-term debt consisted of the following as of March 31, 2023, and December 31, 2021 (in thousands):

March 31, 2023

December 31, 2022

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Total long-term debt, net of debt issue costs

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

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

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

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

As of both September 30, 2022, and December 31, 2021, the Company had $ 61.4 million in letters of credit and surety bonds outstanding with various banks and surety institutions.

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

As of March 31, 2023, the Company had $ 3.3 billion of total long-term debt, which consisted of $ 3.1 billion of debt used to finance aircraft and spare engines and $ 200.6 million of unsecured debt payable to U.S.

The average effective interest rate on the Company’s debt was approximately 4.0 % at March 31, 2023.

During the three months ended March 31, 2023, the Company executed a promissory note for $ 25.0 million.

The promissory note has an eight -year term, is due in monthly installments, has a fixed annual interest rate of 5.6 % and is secured by spare engines.

As of March 31, 2023 and December 31, 2022, the Company had $ 59.6 million and $ 59.2 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions.

As of March 31, 2023, SkyWest Airlines had a $ 100.0 million line of credit.

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

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

However, at September 30, 2022, SkyWest Airlines had $ 31.4 million in letters of credit issued under the facility, which reduced the amount available under the facility to $ 68.6 million.

As of March 31, 2023, SkyWest Airlines had no amounts outstanding under the facility.

However, at March 31, 2023, SkyWest Airlines had $ 29.9 million in letters of credit issued under the facility, which reduced the amount available under the facility to $ 70.1 million.

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

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.

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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 September 30, 2022 and December 31, 2021, were as follows (in thousands):

September 30, 2022

carrying value and fair value of the Company’s long-term debt as of March 31, 2023 and December 31, 2022, were as follows (in thousands):

March 31, 2023

December 31, 2022

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

(“Regional One”) by investing $ 22.3 million for a 75 % ownership interest in Aero Engines, LLC.

(“Regional One”) and has invested a total of $ 26.6 million for a 75 % ownership interest in Aero Engines, LLC.

(“Aero Engines”).

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

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

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

The Company determined Aero Engines is a variable interest entity as the Company

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

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

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

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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.

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

As of September 30, 2022, the Company’s investment balance in Aero Engines was $ 24.7 million.

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

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

Aero Engines had no debt outstanding as of March 31, 2023.

As of March 31, 2023, the Company’s investment balance in Aero Engines was $ 24.9 million and has been recorded in “Other Assets” on the Company’s consolidated balance sheet.

The Company’s portion of loss generated by Aero Engines for the three months ended March 31, 2023, was $ 0.1 million, which is recorded in “Other income, net” on the Company’s consolidated statements of comprehensive income.

Fair Value Method Investments

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

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

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

In 2022, the Company acquired 1,000,000 shares of common stock of Eve Holding, Inc.

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

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

Balance at March 31, 2022

Unrealized gains

Balance at June 30, 2022

Level 3 Investments:

Balance at December 31, 2022

Unrealized gains

Balance at September 30, 2022

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

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

Balance at March 31, 2023

The Company recognized unrealized gains of $ 0.5 million in “Other income, net” on the Company’s consolidated statements of comprehensive income for the three months ended March 31, 2023, related to the Eve Investments.

As of March 31, 2023, the fair value of the Eve Investments was $ 21.9 million and was recorded in “Other Assets” on the Company’s consolidated balance sheet.

(10) Income Taxes

The Company’s effective tax rate for the three months ended September 30, 2022 was 14.8 %.

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

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

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

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

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

(12) Special Items – Impairment Charge

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

In 2021, the Company evaluated its CRJ900 fleet and related CRJ900 assets for impairment.

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

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

This was compared to the carrying value of the related assets resulting in a cash flow deficiency indicating that an impairment existed.

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

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

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

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

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

The Company’s effective tax rate for the three months ended March 31, 2023 was 15.5 %.

The Company’s effective tax rate for the three months ended March 31, 2023 varied from the federal statutory rate of 21.0 % primarily due to the impact of non-deductible expenses and a discrete tax expense on employee equity transactions that occurred during the three months ended March 31, 2023, partially offset by the provision for state income taxes.

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

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

(11) Legal Matters

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

As of September 30, 2022, the Company’s management believed, after consultation with legal counsel, that the ultimate outcome of such legal matters was not likely to have a material adverse effect on the Company’s financial position, liquidity, or results of operations.

As of March 31, 2023, the Company’s management believed, after consultation with legal counsel, that the ultimate outcome of such legal matters was not likely to have a material adverse effect on the Company’s financial position, liquidity or results of operations.

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

What changed 10-Q

Item 1. Financial Statements