![](/cdn/assets/images/search/clock.png)
We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Share Name | Share Symbol | Market | Type |
---|---|---|---|
SkyWest Inc | NASDAQ:SKYW | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
-5.73 | -6.78% | 78.75 | 76.75 | 78.23 | 86.40 | 76.295 | 85.06 | 947,490 | 01:00:00 |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
Incorporated under the laws of | ||
(I.R.S. Employer ID No.) |
(
(Address of principal executive offices and telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on which Registered |
The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Accelerated filer ◻ | ||
Non-accelerated filer ◻ | Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
Class | Outstanding at July 19, 2024 | |
Common stock, no par value |
SKYWEST, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
3 | |||
3 | |||
5 | |||
6 | |||
8 | |||
9 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 | ||
39 | |||
39 | |||
40 | |||
40 | |||
40 | |||
40 | |||
41 | |||
42 | |||
Exhibit 31.1 | Certification of Chief Executive Officer | ||
Exhibit 31.2 | Certification of Chief Financial Officer | ||
Exhibit 32.1 | Certification of Chief Executive Officer | ||
Exhibit 32.2 | Certification of Chief Financial Officer |
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
June 30, |
| December 31, | ||||
| 2024 |
| 2023 | |||
CURRENT ASSETS: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Marketable securities |
| |
| | ||
Receivables, net |
| |
| | ||
Inventories, net |
| |
| | ||
Other current assets |
| |
| | ||
Total current assets |
| |
| | ||
PROPERTY AND EQUIPMENT: | ||||||
Aircraft and rotable spares |
| |
| | ||
Deposits on aircraft |
| |
| | ||
Buildings and ground equipment |
| |
| | ||
Total property and equipment, gross |
| |
| | ||
Less-accumulated depreciation and amortization |
| ( |
| ( | ||
Total property and equipment, net |
| |
| | ||
OTHER ASSETS: | ||||||
Operating lease right-of-use assets | | | ||||
Long-term receivables and other assets |
| |
| | ||
Total other assets |
| |
| | ||
Total assets | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
3
SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY
June 30, |
| December 31, | ||||
| 2024 |
| 2023 | |||
CURRENT LIABILITIES: | ||||||
Current maturities of long-term debt | $ | | $ | | ||
Accounts payable |
| |
| | ||
Accrued salaries, wages and benefits |
| |
| | ||
Current maturities of operating lease liabilities |
| |
| | ||
Taxes other than income taxes |
| |
| | ||
Other current liabilities |
| |
| | ||
Total current liabilities |
| |
| | ||
LONG-TERM DEBT, net of current maturities |
| |
| | ||
DEFERRED INCOME TAXES PAYABLE |
| |
| | ||
NONCURRENT OPERATING LEASE LIABILITIES |
| |
| | ||
OTHER LONG-TERM LIABILITIES |
| |
| | ||
COMMITMENTS AND CONTINGENCIES (Note 7) | ||||||
STOCKHOLDERS’ EQUITY: | ||||||
Preferred stock, |
|
| ||||
Common stock, |
| |
| | ||
Retained earnings |
| |
| | ||
Treasury stock, at cost, |
| ( |
| ( | ||
Accumulated other comprehensive income (loss) | ( | | ||||
Total stockholders’ equity |
| |
| | ||
Total liabilities and stockholders’ equity | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
4
SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(Dollars and Shares in Thousands, Except per Share Amounts)
Three months ended | Six months ended | |||||||||||
June 30, | June 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
OPERATING REVENUES: | ||||||||||||
Flying agreements | $ | | $ | | $ | | $ | | ||||
Lease, airport services and other |
| |
| |
| |
| | ||||
Total operating revenues |
| |
| |
| |
| | ||||
OPERATING EXPENSES: | ||||||||||||
Salaries, wages and benefits |
| |
| |
| |
| | ||||
Aircraft maintenance, materials and repairs |
| |
| |
| |
| | ||||
Depreciation and amortization |
| |
| |
| |
| | ||||
Aircraft fuel |
| |
| |
| |
| | ||||
Airport-related expenses |
| |
| |
| |
| | ||||
Aircraft rentals |
| |
| |
| |
| | ||||
Other operating expenses |
| |
| |
| |
| | ||||
Total operating expenses |
| |
| |
| |
| | ||||
OPERATING INCOME |
| |
| |
| |
| | ||||
OTHER INCOME (EXPENSE): | ||||||||||||
Interest income |
| |
| |
| |
| | ||||
Interest expense |
| ( |
| ( |
| ( |
| ( | ||||
Other income (loss), net |
| ( |
| |
| ( |
| | ||||
Total other expense, net |
| ( |
| ( |
| ( |
| ( | ||||
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: | ||||||||||||
Basic |
| | | | | |||||||
Diluted |
| | | | | |||||||
COMPREHENSIVE INCOME (LOSS): | ||||||||||||
Net income (loss) | $ | | $ | | $ | | $ | ( | ||||
Net unrealized appreciation (depreciation) on marketable securities, net of taxes |
| ( |
| |
| ( |
| | ||||
TOTAL COMPREHENSIVE INCOME (LOSS) | $ | | $ | | $ | | $ | ( |
See accompanying notes to condensed consolidated financial statements
5
SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(UNAUDITED)
(In Thousands)
Accumulated | |||||||||||||||||||
Other | |||||||||||||||||||
Common Stock | Retained | Treasury Stock | Comprehensive | ||||||||||||||||
Shares | Amount | Earnings | Shares | Amount | Income (Loss) | Total | |||||||||||||
Balance at December 31, 2023 |
| | $ | | $ | |
| ( | $ | ( | $ | | $ | | |||||
Net income |
| — |
| — |
| |
| — |
| — |
| — | | ||||||
Stock awards |
| | — |
| — |
| — |
| — |
| — |
| — | ||||||
Employee income tax paid on stock awards | — | — | — | ( | ( | — | ( | ||||||||||||
Sale of common stock under employee stock purchase plan |
| | |
| — |
| — |
| — |
| — |
| | ||||||
Stock based compensation expense |
| — |
| |
| — |
| — |
| — |
| — | | ||||||
Treasury stock purchases | — |
| — |
| — |
| ( |
| ( |
| — | ( | |||||||
Net unrealized depreciation on marketable securities, net of tax of $ | — | — | — | — | — | ( | ( | ||||||||||||
Balance at March 31, 2024 | | $ | | $ | | ( | $ | ( | $ | | $ | | |||||||
Net income |
| — |
| — |
| |
| — |
| — |
| — | | ||||||
Stock awards | |
| — |
| — |
| — |
| — |
| — | — | |||||||
Stock based compensation expense | — |
| |
| — |
| — |
| — |
| — | | |||||||
Treasury stock purchases | — |
| — |
| — |
| ( |
| ( |
| — | ( | |||||||
Net unrealized depreciation on marketable securities, net of tax of $ | — | — | — | — | — | ( | ( | ||||||||||||
Balance at June 30, 2024 |
| | $ | | $ | |
| ( | $ | ( | $ | ( | $ | |
See accompanying notes to condensed consolidated financial statements.
6
SKYWEST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(UNAUDITED)
(In Thousands)
Accumulated | |||||||||||||||||||
Other | |||||||||||||||||||
Common Stock | Retained | Treasury Stock | Comprehensive | ||||||||||||||||
Shares | Amount | Earnings | Shares | Amount | Loss | Total | |||||||||||||
Balance at December 31, 2022 |
| | $ | | $ | |
| ( | $ | ( | $ | ( | $ | | |||||
Net loss |
| — |
| — |
| ( |
| — |
| — |
| — | ( | ||||||
Stock awards |
| | |
| — |
| — |
| — |
| — |
| | ||||||
Employee income tax paid on stock awards | — | — | — | ( | ( | — | ( | ||||||||||||
Sale of common stock under employee stock purchase plan |
| | |
| — |
| — |
| — |
| — |
| | ||||||
Stock based compensation expense |
| — |
| |
| — |
| — |
| — |
| — | | ||||||
Treasury stock purchases | — |
| — |
| — |
| ( |
| ( |
| — | ( | |||||||
Net unrealized appreciation on marketable securities, net of tax of $ | — | — | — | — | — | | | ||||||||||||
Balance at March 31, 2023 | | $ | | $ | | ( | $ | ( | $ | ( | $ | | |||||||
Net income |
| — |
| — |
| |
| — |
| — |
| — | | ||||||
Stock based compensation expense | — |
| |
| — |
| — |
| — |
| — | | |||||||
Treasury stock purchases | — |
| — |
| — |
| ( |
| ( |
| — | ( | |||||||
Net unrealized appreciation on marketable securities, net of tax of $ | — | — | — | — | — | | | ||||||||||||
Balance at June 30, 2023 |
| | $ | | $ | |
| ( | $ | ( | $ | ( | $ | |
See accompanying notes to condensed consolidated financial statements.
7
SKYWEST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In Thousands)
Six months ended | ||||||
June 30, | ||||||
| 2024 |
| 2023 | |||
NET CASH PROVIDED BY OPERATING ACTIVITIES | $ | | $ | | ||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||
Purchases of marketable securities |
| ( | ( | |||
Sales of marketable securities |
| | | |||
Acquisition of property and equipment: | ||||||
Aircraft and rotable spare parts |
| ( | ( | |||
Buildings and ground equipment |
| ( | ( | |||
Proceeds from the sale of property and equipment |
| | | |||
Decrease (increase) in other assets |
| ( | | |||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES |
| ( |
| | ||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||
Proceeds from issuance of long-term debt |
| — | | |||
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 | ( | ( | ||||
Purchase of treasury stock and excise tax |
| ( | ( | |||
NET CASH USED IN FINANCING ACTIVITIES |
| ( |
| ( | ||
Increase (decrease) in cash and cash equivalents |
| ( | | |||
Cash and cash equivalents at beginning of period |
| | | |||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | | $ | | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||
Non-cash investing and financing activities: | ||||||
Acquisition of property and equipment | $ | | $ | | ||
Derecognition of right of use assets | $ | — | $ | ( | ||
Derecognition of operating lease liabilities | $ | — | $ | | ||
Cash paid during the period for: | ||||||
Interest, net of capitalized amounts | $ | | $ | | ||
Income taxes | $ | | $ | |
See accompanying notes to condensed consolidated financial statements.
8
SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Condensed Consolidated Financial Statements
Basis of Presentation
The condensed consolidated financial statements of SkyWest, Inc. (“SkyWest” or the “Company”), its operating subsidiary SkyWest Airlines, Inc. (“SkyWest Airlines”), its leasing subsidiary SkyWest Leasing, Inc. (“SkyWest Leasing”) and its charter service subsidiary SkyWest Charter, LLC (“SWC”) included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). 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. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented. All adjustments are of a normal recurring nature, unless otherwise disclosed. 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, 2023. The results of operations for the three and six months ended June 30, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions.
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment Reporting (Accounting Standard Codification (“ASC”) Topic 280) – Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU also expands disclosure requirements to enable users of financial statements to better understand the entity’s measurement and assessment of segment performance and resource allocation. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (ASC Topic 740) – Improvements to Income Tax Disclosures”, which enhances the transparency, effectiveness and comparability of income tax disclosures by requiring consistent categories and greater disaggregation of information related to income tax rate reconciliations and the jurisdictions in which income taxes are paid. The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its consolidated financial statements and related disclosures.
(2) Operating Revenues
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. (“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
9
amount per aircraft in service each month, with additional incentives based on flight completion, on-time performance or other performance metrics. 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. Under the capacity purchase agreements, the Company’s performance obligation is met when each flight is completed, measured in completed block hours, and is reflected in flying agreements revenue. The transaction price for the capacity purchase agreements is determined from the fixed-fee consideration, incentive consideration and directly reimbursed expenses earned as flights are completed over the agreement term. For the six months ended June 30, 2024 and 2023, capacity purchase agreements represented approximately
Under the Company’s “prorate” agreements, 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. Certain routes under the Company’s prorate agreements are subsidized by the U.S. Department of Transportation under the Essential Air Service (“EAS”) program, a program created to ensure small communities in the United States maintain a minimum level of scheduled air service. The EAS contracts are generally
The following table represents the Company’s flying agreements revenue by type for the three and six months ended June 30, 2024 and 2023 (in thousands):
For the three months ended June 30, | For the six months ended June 30, | |||||||||||
| 2024 |
| 2023 | 2024 |
| 2023 | ||||||
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 and SWC 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 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. Accordingly, the Company’s revenue recognition will likely vary from the timing of cash receipts under the Company’s capacity purchase agreements. The Company refers to cash received under its capacity purchase agreements prior to recognizing revenue as “deferred revenue,” and the Company refers to revenue recognized prior to billing its major airline partners under its capacity purchase agreements as “unbilled revenue” for each reporting period. During the six months ended June 30, 2024, the Company recognized $
10
deferring revenue of $
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 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. 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 recognizes fixed monthly lease payments as lease revenue using the straight-line basis over the capacity purchase agreement term and variable lease payments in the period when the block hours are completed. The Company recognized $
The Company’s total deferred revenue balance as of June 30, 2024 was $
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.
In several of the Company’s agreements, the Company is eligible to receive incentive compensation upon the achievement of certain performance criteria. The incentives are defined in the agreements and are measured and determined on a monthly, quarterly or semi-annual basis. At the end of each period during the term of an agreement, the Company calculates the incentives achieved during that period and recognizes revenue attributable to that agreement accordingly, subject to the variable constraint guidance under ASC Topic 606.
As of June 30, 2024, the Company had
United Express Agreements | ||||||
Agreement |
| Aircraft type |
| Number of |
| Term / Termination Dates |
United Express Agreements (capacity purchase agreement) | • E175 • CRJ 700 • CRJ 200 | Individual aircraft have scheduled removal dates from 2024 to 2029 | ||||
United Express Prorate Agreement | • CRJ 200 | Terminable with notice | ||||
Total under United Express Agreements |
11
Delta Connection Agreements | ||||||
Agreement |
| Aircraft type |
| Number of |
| Term / Termination Dates |
Delta Connection Agreement (capacity purchase agreement) | • E175 • CRJ 900 • CRJ 700 | Individual aircraft have scheduled removal dates from 2025 to 2034 | ||||
Delta Connection Prorate Agreement | • CRJ 900 • CRJ 700 | Terminable with notice | ||||
Total under Delta Connection Agreements |
American Capacity Purchase Agreement | ||||||
Agreement |
| Aircraft type |
| Number of |
| Term / Termination Dates |
American Agreement (capacity purchase agreement) | • E175 • CRJ 700 | Individual aircraft have scheduled removal dates from 2025 to 2032 | ||||
Total under American Agreement |
Alaska Capacity Purchase Agreement | ||||||
Agreement |
| Aircraft type |
| Number of |
| Term / Termination Dates |
Alaska Agreement (capacity purchase agreement) | • E175 | Individual aircraft have scheduled removal dates from 2030 to 2034 |
* | 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 June 30, 2024, SkyWest Airlines reached agreements to place the following E175 aircraft under a capacity purchase agreement with the respective major airline partners:
| Q3 and Q4 2024 |
| 2025 |
| 2026 | Total | ||
Delta Air Lines |
| |
| — |
| — | | |
United Airlines(1) |
| |
| |
| | | |
Alaska Airlines |
| — |
| |
| — | | |
Total |
| |
| |
| | |
(1) |
Final delivery and in-service dates for aircraft to be placed under contract may be adjusted based on various factors.
When an aircraft is scheduled to be removed from a capacity purchase agreement, the Company may, as practical under the circumstances, negotiate an extension with the respective major airline partner, negotiate the placement of the aircraft with another major airline partner, return the aircraft to the major airline partner when the aircraft is provided by the major airline partner, 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 disassembling aircraft components such as the engines and parts to be used as spare inventory.
Lease, airport services and other revenues primarily consist of revenue generated from aircraft and spare engines leased to third parties and from airport customer service agreements, such as gate and ramp agent services at various airports where the Company has been contracted by third parties to provide such services. The following table
12
represents the Company’s lease, airport services and other revenues for the three and six months ended June 30, 2024 and 2023 (in thousands):
For the three months ended June 30, | For the six months ended June 30, | |||||||||||
| 2024 |
| 2023 | 2024 |
| 2023 | ||||||
Operating lease revenue | $ | | $ | | $ | | $ | | ||||
Airport customer service and other revenue | | | | | ||||||||
Lease, airport services and other | $ | | $ | | $ | | $ | |
The following table summarizes future minimum rental income under operating leases primarily related to leased aircraft and engines that had remaining non-cancelable lease terms as of June 30, 2024 (in thousands):
July 2024 through December 2024 |
| $ | |
2025 |
| ||
2026 |
| ||
2027 |
| ||
2028 |
| ||
Thereafter |
| ||
Total future minimum rental income under operating leases | $ |
Of the Company’s $
The transaction price for airport customer service agreements is determined from an agreed-upon rate by location applied to the applicable number of flights handled by the Company over the agreement term.
The Company’s operating revenues could be impacted by several factors, including changes to the Company’s code-share agreements with its major airline partners, changes in flight schedules, contract modifications resulting from contract renegotiations, the Company’s ability to earn incentive payments contemplated under the Company’s code-share agreements and resolution of unresolved items with the Company’s major airline partners.
Other ancillary revenues commonly associated with airlines, such as baggage fee revenue, ticket change fee revenue and the marketing component of the sale of mileage credits, are retained by the Company’s major airline partners on flights that the Company operates under its code-share agreements.
Allowance for Credit Losses
The Company monitors publicly available credit ratings for entities for which the Company has a significant receivable balance. As of June 30, 2024, the Company had gross receivables of $
The following table summarizes the changes in allowance for credit losses:
| Allowance for Credit Losses | ||
Balance at December 31, 2023 | $ | | |
Adjustments to credit loss reserves |
| | |
Write-offs charged against allowance |
| — | |
Balance at June 30, 2024 | $ | |
13
(3) Stock-Based Compensation
During the six months ended June 30, 2024, the Company granted
The Company accounts for forfeitures of restricted stock units and performance shares when forfeitures occur. The estimated fair value of the restricted stock units and performance shares is amortized over the applicable vesting periods. Stock-based compensation expense for the performance shares is based on the Company’s anticipated outcome of achieving the performance metrics. During the six months ended June 30, 2024 and 2023, the Company recorded pre-tax stock-based compensation expense of $
(4) Stock Repurchase
The Company’s Board of Directors adopted a stock repurchase program in May 2023, which authorizes the Company to repurchase shares of the Company’s common stock in the public market or in private transactions, from time to time, at prevailing prices. Under the May 2023 repurchase program, the Company’s Board of Directors authorized up to $
During the six months ended June 30, 2024, the Company repurchased
(5) 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. 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.
14
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2024 | 2023 |
| 2024 | 2023 | ||||||||
Treasury Warrants(1) | — | | — | | ||||||||
Employee Stock Awards | — | — | — | | ||||||||
Total antidilutive securities |
| — |
| |
| — |
| |
(1) | Warrants originally issued to U.S. Department of the Treasury (“U.S. Treasury”) to purchase shares of SkyWest common stock issued pursuant to the three Payroll Support Program Agreements and a loan agreement with the U.S. Treasury. |
Additionally, during the six months ended June 30, 2024 and 2023,
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 | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2024 | 2023 |
| 2024 | 2023 | ||||||||
Numerator: |
|
|
|
|
|
|
| |||||
Net income (loss) | $ | | $ | | $ | | $ | ( | ||||
Denominator: | ||||||||||||
Basic earnings per share weighted average shares |
| |
| |
| |
| | ||||
Dilutive effect of employee stock awards and warrants |
| |
| |
| |
| — | ||||
Diluted earnings per share weighted average shares |
| |
| |
| |
| | ||||
Basic earnings per share | $ | | $ | | $ | | $ | ( | ||||
Diluted earnings per share | $ | | $ | | $ | | $ | ( |
(6) Segment Reporting
The Company’s
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 and SWC segment includes revenue earned under the applicable capacity purchase agreements attributed to operating such aircraft and the respective operating costs. The SkyWest Airlines and SWC segment also includes revenue and operating expenses attributed to other flying agreements and airport services agreements. 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.
15
The following represents the Company’s segment data for the three-month periods ended June 30, 2024 and 2023 (in thousands):
Three months ended June 30, 2024 | |||||||||
SkyWest Airlines | SkyWest | ||||||||
| and SWC |
| Leasing |
| Consolidated | ||||
Operating revenues (1) | $ | | $ | | $ | | |||
Operating expense |
| |
| |
| | |||
Depreciation and amortization expense |
| |
| |
| | |||
Interest expense |
| |
| |
| | |||
Segment profit (2) |
| |
| |
| | |||
Total assets (as of June 30, 2024) |
| |
| |
| | |||
Capital expenditures (including non-cash) |
| |
| — |
| |
Three months ended June 30, 2023 | |||||||||
SkyWest Airlines | SkyWest | ||||||||
| and SWC |
| Leasing |
| Consolidated | ||||
Operating revenues (1) | $ | | $ | | $ | | |||
Operating expense |
| |
| |
| | |||
Depreciation and amortization expense |
| |
| |
| | |||
Interest expense |
| |
| |
| | |||
Segment profit (loss) (2) |
| ( |
| |
| ( | |||
Total assets (as of June 30, 2023) |
| | |
| | ||||
Capital expenditures (including non-cash) |
| | |
| |
(1) | Prorate revenue and airport customer service revenue are reflected in the SkyWest Airlines and SWC segment. |
(2) | Segment profit (loss) is equal to operating income less interest expense. |
The following represents the Company’s segment data for the six-month periods ended June 30, 2024 and 2023 (in thousands):
Six months ended June 30, 2024 | |||||||||
SkyWest Airlines | SkyWest | ||||||||
| and SWC |
| Leasing |
| Consolidated | ||||
Operating revenues (1) | $ | | $ | | $ | | |||
Operating expense |
| |
| |
| | |||
Depreciation and amortization expense |
| |
| |
| | |||
Interest expense |
| |
| |
| | |||
Segment profit (2) |
| |
| |
| | |||
Total assets (as of June 30, 2024) |
| |
| |
| | |||
Capital expenditures (including non-cash) |
| |
| — |
| |
Six months ended June 30, 2023 | |||||||||
SkyWest Airlines | SkyWest | ||||||||
| and SWC |
| Leasing |
| Consolidated | ||||
Operating revenues (1) | $ | | $ | | $ | | |||
Operating expense |
| |
| |
| | |||
Depreciation and amortization expense |
| |
| |
| | |||
Interest expense |
| |
| |
| | |||
Segment profit (loss) (2) |
| ( |
| |
| ( | |||
Total assets (as of June 30, 2023) |
| | |
| | ||||
Capital expenditures (including non-cash) |
| | |
| |
(1) | Prorate revenue and airport customer service revenue are reflected in the SkyWest Airlines and SWC segment. |
(2) | Segment profit (loss) is equal to operating income less interest expense. |
16
(7) Leases, Commitments, Guarantees and Contingencies
The Company leases property and equipment under operating leases. For leases with durations longer than 12 months, the Company recorded the related operating lease right-of-use asset and operating lease liability at the present value of lease payments over the term. The Company used its incremental borrowing rate to discount the lease payments based on information available at lease commencement.
Aircraft
As of June 30, 2024, excluding aircraft financed by the Company’s major airline partners that the Company operates for them under contract, the Company leased
Airport facilities
The Company has operating leases for facility space including airport terminals, office space, cargo warehouses and maintenance facilities. The Company generally leases this space from government agencies that control the use of the various airports. The remaining lease terms for facility space vary from
Leases
As of June 30, 2024, the Company’s right-of-use assets were $
The table below presents lease related terms and discount rates as of June 30, 2024:
Weighted-average remaining lease term for operating leases | |
Weighted-average discount rate for operating leases |
The Company’s lease costs for the three and six months ended June 30, 2024 and 2023 included the following components (in thousands):
For the three months ended June 30, | For the six months ended June 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Operating lease cost | $ | | $ | | $ | | $ | | ||||
Variable and short-term lease cost |
| |
| |
| |
| | ||||
Sublease income | ( | ( | ( | ( | ||||||||
Total lease cost | $ | | $ | |
| $ | | $ | |
As of June 30, 2024, 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 will be renewed or replaced by other leases.
17
July 2024 through December 2024 |
| $ | |
2025 |
| ||
2026 |
| ||
2027 |
| ||
2028 |
| ||
Thereafter |
| ||
Total future minimum operating lease payments | $ |
As of June 30, 2024, the Company had a firm purchase commitment for
The following table summarizes the Company’s commitments and obligations as noted for each of the next five years and thereafter (in thousands):
| Total |
| Jul- Dec 2024 |
| 2025 |
| 2026 |
| 2027 |
| 2028 |
| Thereafter | ||||||||
Operating lease payments for aircraft and facility obligations | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
Firm aircraft and spare engine commitments |
| | | | | — | — | — | |||||||||||||
Interest commitments (1) |
| | | | | | | | |||||||||||||
Principal maturities on long-term debt |
| | | | | | | | |||||||||||||
Total commitments and obligations | $ | | $ | | $ | | $ | | $ | | $ | | $ | |
(1) | At June 30, 2024, the Company’s long-term debt had fixed interest rates. |
Guarantees
In 2022, the Company agreed to guarantee $
In 2023, the Company agreed to guarantee up to $
The purpose of these guarantees is to help reduce the financing costs of aircraft for the third-parties in an effort to increase the potential number of commercial pilots in the Company’s hiring pipeline. The Company also recorded the estimated credit loss associated with the guarantees based on publicly available historical default rates issued by a third party for companies with similar credit ratings, factoring the collateral and guarantee term.
(8) Fair Value Measurements
The Company holds certain assets that are required to be measured at fair value in accordance with GAAP. The Company determined the fair value of these assets based on the following three levels of inputs:
Level 1 | — | Quoted prices in active markets for identical assets or liabilities. | ||
Level 2 | — | Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable |
18
or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Some of the Company’s marketable securities primarily utilize broker quotes in a non-active market for valuation of these securities. | ||||
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 June 30, 2024, and December 31, 2023, the Company held certain assets that are required to be measured at fair value on a recurring basis.
Fair Value Measurements as of June 30, 2024 | ||||||||||||
| Total |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Marketable Securities | ||||||||||||
Bonds and bond funds | $ | | $ | — | $ | | $ | — | ||||
Commercial paper |
| |
| — |
| |
| — | ||||
| — | | — | |||||||||
Investments in Other Companies | | — | — | | ||||||||
Cash and Cash Equivalents | | | — | — | ||||||||
Total Assets Measured at Fair Value | $ | | $ | | $ | | $ | |
Fair Value Measurements as of December 31, 2023 | ||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||
Marketable Securities |
|
|
|
|
|
|
|
| ||||
Bonds and bond funds | $ | $ | — | $ | | $ | — | |||||
Commercial paper |
|
| — |
| |
| — | |||||
— | — | |||||||||||
Investments in Other Companies |
| — |
| | ||||||||
Cash and Cash Equivalents | | — | — | |||||||||
Total Assets Measured at Fair Value | $ | $ | $ | $ | |
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 11 “Investments in Other Companies” regarding the Company’s investments in other companies, for the six months ended June 30, 2024.
The Company did not make any significant transfers of securities between Level 1, Level 2 and Level 3 during the six months ended June 30, 2024. The Company’s policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period.
As of June 30, 2024, and December 31, 2023, the Company classified $
(9) Assets Held for Sale
In 2022, the Company committed to a formal plan to sell
19
the six months ended June 30, 2024, the Company recorded a $
(10) Long-term Debt
Long-term debt consisted of the following as of June 30, 2024, and December 31, 2023 (in thousands):
June 30, 2024 | December 31, 2023 | ||||
Current portion of long-term debt | $ | $ | |||
Current portion of unamortized debt issue cost, net | ( | ( | |||
Current portion of long-term debt, net of debt issue costs | $ | $ | |||
Long-term debt, net of current maturities | $ | $ | |||
Long-term portion of unamortized debt issue cost, net | ( | ( | |||
Long-term debt, net of current maturities and debt issue costs | $ | $ | |||
Total long-term debt (including current portion) | $ | $ | |||
Total unamortized debt issue cost, net | ( | ( | |||
Total long-term debt, net of debt issue costs | $ | $ |
As of June 30, 2024, the Company had $
As of June 30, 2024 and December 31, 2023, the Company had $
As of June 30, 2024, SkyWest Airlines had a $
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.
June 30, 2024 | December 31, 2023 | |||||
Carrying value | $ | $ | ||||
Fair value | $ | $ |
(11) Investments in Other Companies
Equity Method Investments
During 2019, the Company created a joint venture with Regional One, Inc. and, as of June 30, 2024, has invested a total of $
20
Assets” on the Company’s consolidated balance sheet. The Company’s portion of income generated by Aero Engines for the six months ended June 30, 2024, was $
In December 2023, the Company invested $
The Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable.
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.
In 2022, the Company acquired
The shares of common stock of Eve were 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 were classified as Level 3 within the fair value hierarchy (“Eve Level 3 Investments”), and the Company used the Black Scholes Option Pricing Model to determine the estimated fair market value of the Eve Level 3 Investments, including an expected volatility of
21
Eve Level 3 Investments: | |||
Balance at December 31, 2023 |
| $ | |
Purchases |
| — | |
Exercise of put option for aircraft parts credits | ( | ||
| ( | ||
Balance at June 30, 2024 | $ |
The Company recognized a realized gain of $
(12) Income Taxes
The Company’s effective tax rate for the six months ended June 30, 2024 was
The Company’s effective tax rate for the six months ended June 30, 2023 was
(13) Legal Matters
The Company is subject to certain legal actions which it considers routine to its business activities. As of June 30, 2024, 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.
22
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis presents factors that had a material effect on the results of operations of SkyWest, Inc. (“SkyWest” “we” or “us”) during the three- and six-month periods ended June 30, 2024 and 2023. Also discussed is our financial condition as of June 30, 2024, and December 31, 2023. You should read this discussion in conjunction with our condensed consolidated financial statements for the three and six months ended June 30, 2024, including the notes thereto, appearing elsewhere in this Report. This discussion and analysis contains forward-looking statements. Please refer to the section of this Report entitled “Cautionary Statement Concerning Forward-Looking Statements” for discussion of uncertainties, risks and assumptions associated with these statements.
Cautionary Statement Concerning Forward-Looking Statements
Certain of the statements contained in this Report should be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “may,” “will,” “expect,” “intend,” “forecast,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “could,” “should,” “hope,” “likely,” and “continue” and similar terms used in connection with statements regarding our outlook, anticipated operations, the revenue environment, our contractual relationships, and our anticipated financial performance. These statements include, but are not limited to, statements about the continued demand for our product, the effect of economic conditions on SkyWest’s business, financial condition and results of operations, the scheduled aircraft deliveries and fleet size for SkyWest in upcoming periods and the related execution of SkyWest’s fleet transition strategy and expected timing thereof, expected production levels in future periods and associated staffing challenges, pilot attrition trends, SkyWest’s coordination with United Airlines, Inc. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“Alaska”) (each, a “major airline partner” and together, “major airline partners”) to optimize the delivery of aircraft under previously announced agreements, the expected terms, timing and benefits related to SkyWest’s leasing and joint venture transactions, SkyWest’s provision of assets to Corporate Flight Management, Inc. d/b/a Contour Airlines (“Contour”), as well as SkyWest’s future financial and operating results, plans, objectives, expectations, estimates, intentions and outlook, and other statements that are not historical facts. All forward-looking statements included in this Report are made as of the date hereof and are based on information available to SkyWest as of such date. SkyWest assumes no obligation to update any forward-looking statements unless required by law. Readers should note that many factors could affect the future operating and financial results of SkyWest and could cause actual results to vary materially from those expressed in forward-looking statements set forth in this Report. These factors include, but are not limited to the challenges of competing successfully in a highly competitive and rapidly changing industry; developments associated with fluctuations in the economy and the demand for air travel, including related to inflationary pressures, and related decreases in customer demand and spending; uncertainty regarding continued recovery from the COVID-19 pandemic and other potential future outbreaks of infectious diseases or other health concerns, and the consequences of such outbreaks to the travel industry, including travel demand and travel behavior, and our major airline partners in general and the financial condition and operating results of SkyWest in particular; the prospects of entering into agreements with existing or other carriers to fly new aircraft; ongoing negotiations between SkyWest and its major airline partners regarding their contractual obligations; uncertainties regarding operation of new aircraft; the ability to attract and retain qualified pilots, including captains, and related staffing challenges; the impact of regulatory issues such as pilot rest rules and qualification requirements; the ability to obtain aircraft financing; the financial stability of SkyWest’s major airline partners and any potential impact of their financial condition on the operations of SkyWest; fluctuations in flight schedules, which are determined by the major airline partners for whom SkyWest conducts flight operations; variations in market and economic conditions; significant aircraft lease and debt commitments; estimated useful life of long-lived assets, residual aircraft values and related impairment charges; labor relations and costs and labor shortages; the impact of global instability; rapidly fluctuating fuel costs and potential fuel shortages; the impact of weather-related, natural disasters and other air safety incidents on air travel and airline costs; aircraft deliveries; uncertainty regarding ongoing hostility between Russia and the Ukraine, as well as Israel and Hamas, and the related impacts on macroeconomic conditions and on the international operations of any of our major airline partners as a result of such conflict; as well as the other factors identified under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, under the heading “Risk Factors” in Part II, Item 1A of this Report, elsewhere in this Report, in our other filings with the Securities and Exchange Commission (the “SEC”) and other unanticipated factors.
23
There may be other factors that may affect matters discussed in forward-looking statements set forth in this Report, which factors may also cause actual results to differ materially from those discussed. We assume no obligation to publicly update any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting these statements other than as required by applicable law.
Overview
We have the largest regional airline operation in the United States through our operating subsidiary SkyWest Airlines, Inc. (“SkyWest Airlines”). As of June 30, 2024, we offered scheduled passenger and air freight service with approximately 2,130 total daily departures to destinations in the United States, Canada and Mexico. Our fleet of Embraer E175 regional jet aircraft (“E175”), Canadair CRJ900 regional jet aircraft (“CRJ900”) and Canadair CRJ700 regional jet aircraft (“CRJ700”) have a multiple-class seat configuration, whereas our Canadair CRJ200 regional jet aircraft (“CRJ200”) have a single-class seat configuration. During 2022, we formed SkyWest Charter, LLC (“SWC”), which offers on-demand charter services. As of June 30, 2024, we had 608 total aircraft in our fleet, including 475 aircraft in scheduled service or under contract pursuant to our code-share agreements, summarized as follows:
| E175 |
| CRJ900 |
| CRJ700 |
| CRJ200 |
| Total | |
United |
| 101 | — | 19 | 87 | 207 | ||||
Delta | 85 | 41 | 9 | — | 135 | |||||
American |
| 20 | — | 71 | — | 91 | ||||
Alaska |
| 42 | — | — | — | 42 | ||||
Aircraft in scheduled service or under contract | 248 | 41 | 99 | 87 | 475 | |||||
SWC | — | — | — | 16 | 16 | |||||
Leased to third parties |
| — | 5 | 35 | — | 40 | ||||
Other (1) |
| — | 3 | 33 | 41 | 77 | ||||
Total Fleet |
| 248 | 49 | 167 | 144 | 608 |
(1) | As of June 30, 2024, other aircraft included: supplemental spare aircraft supporting our code-share agreements that may be placed under 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. |
Our business model is based on providing scheduled regional airline service under code-share agreements (commercial agreements between airlines that, among other things, allow one airline to use another airline’s flight designator codes on its flights) with our major airline partners. Our success is principally centered on our ability to meet the needs of our major airline partners by providing a reliable and safe operation at attractive economics. From June 30, 2023, to June 30, 2024, we made changes to our fleet, including the addition of two new E175 aircraft and 11 partner-financed E175 aircraft.
We anticipate our fleet will continue to evolve, as we are scheduled to add one new E175 aircraft with Delta in the second half of 2024, 28 new E175 aircraft with United (13 in the second half of 2024, seven in 2025 and eight in 2026, of which 19 aircraft are financed by us and nine aircraft are financed by United) and one new E175 aircraft with Alaska in 2025. Timing of these anticipated deliveries may be subject to change as we are coordinating with our major airline partners in response to labor availability or other factors. Our primary objective in the fleet changes is to improve our profitability by adding new E175 aircraft and used CRJ aircraft to capacity purchase agreements, and potentially removing older aircraft from service that typically require higher maintenance costs.
As of June 30, 2024, approximately 43.6% of our aircraft in scheduled service or under contract were operated for United, approximately 28.4% were operated for Delta, approximately 19.2% were operated for American and approximately 8.8% were operated for Alaska.
Historically, multiple contractual relationships with major airlines have enabled us to reduce our reliance on any single major airline code and to enhance and stabilize operating results through a mix of fixed-fee arrangements (referred to as “capacity purchase” agreements) and “prorate” agreements. For the six months ended June 30, 2024, our capacity purchase revenue represented approximately 87.1% of our total flying agreement revenue and our prorate and SWC revenue, combined, represented approximately 12.9% of our total flying agreements revenue. On capacity purchase
24
routes, the major airline partner controls scheduling, ticketing, pricing and seat inventories and we are compensated by the major airline partner at contracted rates based on completed block hours (measured from takeoff to landing, including taxi time), flight departures, the number of aircraft under contract and other operating measures. We control scheduling, pricing and seat inventories on certain prorate routes, and we share passenger fares with our major airline partners according to prorate formulas. We are also responsible for the operating costs of the prorate flights, including fuel and airport costs.
Second Quarter Summary
We had total operating revenues of $867.1 million for the three months ended June 30, 2024, a 19.5% increase compared to total operating revenues of $725.6 million for the three months ended June 30, 2023. We had net income of $75.6 million, or $1.82 per diluted share, for the three months ended June 30, 2024, compared to net income of $15.4 million, or $0.35 per diluted share, for the three months ended June 30, 2023. The significant items affecting our revenue and operating expenses during the three months ended June 30, 2024, are outlined below:
Revenue
The number of aircraft we have in scheduled service or under contract pursuant to our code-share agreements and the number of block hours we incur on our flights are primary drivers of our flying agreements revenue under our capacity purchase agreements. The number of flights we operate and the corresponding number of passengers we carry are the primary drivers of our revenue under our prorate flying agreements. The number of aircraft we have in scheduled service or under contract pursuant to our code-share agreements decreased from 492 as of June 30, 2023 to 475 as of June 30, 2024; and the number of block hours increased from 282,617 for the three months ended June 30, 2023 to 317,462 for the three months ended June 30, 2024, or by 12.3%, due to an increase in scheduled daily utilization of our aircraft.
Our capacity purchase revenue increased $112.9 million, or 18.3%, from the three months ended June 30, 2023 to the three months ended June 30, 2024, primarily as a result of an increase in completed block hours for the comparable periods and recognizing previously deferred revenue for the three months ended June 30, 2024, compared to deferring revenue for the three months ended June 30, 2023. As a result of a higher number of passengers carried on our prorate routes and an increase in the number of prorate and charter flights operated year-over-year, our prorate and SWC revenue increased $24.8 million, or 30.2%, for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023.
Operating Expenses
Our total operating expenses increased $53.7 million, or 7.7%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase in operating expenses was primarily due to an increase in our direct operating expenses associated with the increase in the number of flights we operated. Departures increased from 173,837 for the three months ended June 30, 2023 to 189,325 for the three months ended June 30, 2024, or by 8.9%. Additional details regarding the increase in our operating expenses are described in the section of this Report entitled “Results of Operations.”
Fleet Activity
The following table summarizes our fleet scheduled for service or under contract as of:
Aircraft in Service or Under Contract |
| June 30, 2024 |
| December 31, 2023 |
| June 30, 2023 |
E175s |
| 248 |
| 237 |
| 235 |
CRJ900s |
| 41 |
| 41 |
| 41 |
CRJ700s |
| 99 |
| 118 |
| 110 |
CRJ200s |
| 87 |
| 89 |
| 106 |
Total |
| 475 |
| 485 |
| 492 |
25
Critical Accounting Policies and Estimates
Our significant accounting policies are summarized in Note 1 to our consolidated financial statements for the year ended December 31, 2023, and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are presented in our Annual Report on Form 10-K for the year ended December 31, 2023. Critical accounting policies are those policies that are most important to the preparation of our consolidated financial statements and require management’s subjective and complex judgments due to the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to revenue recognition, long-lived assets, and income tax. The application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results will likely differ, and may differ materially, from such estimates. There have been no significant changes in our critical accounting estimates during the six months ended June 30, 2024.
Recent Accounting Pronouncements
See Note 1 to the condensed consolidated financial statements for a description of recent accounting pronouncements.
Results of Operations
Three Months Ended June 30, 2024 and 2023
Operational Statistics
The following table sets forth our major operational statistics and the associated percentage changes for the periods identified below. The increase in block hours, departures and passengers carried during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, was primarily due to an increase in the number of available captains during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, which allowed for a higher scheduled utilization of our aircraft.
For the three months ended June 30, | |||||||
Block hours by aircraft type: |
| 2024 |
| 2023 |
| % Change | |
E175s |
| 195,207 | 168,416 | 15.9 | % | ||
CRJ900s | 20,823 | 19,698 | 5.7 | % | |||
CRJ700s | 58,311 | 50,094 | 16.4 | % | |||
CRJ200s |
| 43,121 | 44,409 | (2.9) | % | ||
Total block hours | 317,462 | 282,617 | 12.3 | % | |||
| |||||||
| |||||||
Departures |
| 189,325 | 173,837 | 8.9 | % | ||
Passengers carried |
| 10,691,017 | 9,887,779 | 8.1 | % | ||
Passenger load factor |
| 84.4 | % | 85.5 | % | (1.1) | pts |
Average passenger trip length (miles) |
| 460 | 451 | 2.0 | % |
Operating Revenues
The following table summarizes our operating revenue for the periods indicated (dollar amounts in thousands):
For the three months ended June 30, | ||||||||||||
| 2024 |
| 2023 |
| $ Change |
| % Change | |||||
Flying agreements | $ | 838,170 | $ | 700,394 | $ | 137,776 | 19.7 | % | ||||
Lease, airport services and other |
| 28,948 |
| 25,249 |
| 3,699 | 14.7 | % | ||||
Total operating revenues | $ | 867,118 | $ | 725,643 | $ | 141,475 |
| 19.5 | % |
Flying agreements revenue primarily consists of revenue earned on flights we operate under our capacity purchase agreements and prorate agreements with our major airline partners and on-demand charter flights. Lease,
26
airport services and other revenues consist of revenue earned from leasing aircraft and spare engines to third parties separate from our capacity purchase agreements and providing airport counter, gate and ramp services.
We disaggregate our flying agreements revenue into the following categories (dollar amounts in thousands):
For the three months ended June 30, | ||||||||||||
| 2024 |
| 2023 |
| $ Change |
| % Change | |||||
Capacity purchase agreements flight operations revenue |
| $ | 595,127 |
| $ | 499,142 |
| $ | 95,985 |
| 19.2 | % |
Capacity purchase agreements aircraft lease revenue | 135,972 | 119,026 | 16,946 | 14.2 | % | |||||||
Prorate agreements and SWC revenue |
| 107,071 |
| 82,226 |
| 24,845 |
| 30.2 | % | |||
Flying agreements revenue |
| $ | 838,170 |
| $ | 700,394 |
| $ | 137,776 |
| 19.7 | % |
The increase in “Capacity purchase agreements flight operations revenue” of $96.0 million, or 19.2%, was primarily due to a 12.3% increase in block hour production and a decrease in deferred revenue related to fixed monthly payments for flight operations received under our capacity purchase agreements for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Under our capacity purchase agreements, we are paid a fixed amount per month per aircraft over the contract term. We recognize the fixed amount per aircraft related to operating the aircraft as revenue proportionately to the number of block hours we complete for each reporting period. Under our capacity purchase agreements, the performance obligation of each completed flight is measured in block hours incurred for each completed flight. Beginning January 1, 2024, certain scheduled fixed monthly payments under our capacity purchase agreements transitioned to variable payments, which are calculated at a rate per block hour. Based on the number of completed block hours during the three months ended June 30, 2024, we recognized $5.0 million of previously deferred revenue, net of unbilled revenue, related to the non-lease fixed monthly payments we received associated with our flight operations revenues. For the three months ended June 30, 2023, we deferred recognizing $40.7 million of revenue, net of unbilled revenue, related to fixed monthly payments received associated with our flight operations revenues. The timing of our revenue recognition related to the fixed payments associated with our flight operations will be adjusted over the remaining contract term for each capacity purchase agreement based on the number of block hours we complete each reporting period relative to the number of block hours we anticipate completing over the remaining contract term of each capacity purchase agreement.
The increase in “Capacity purchase agreements aircraft lease revenue” of $16.9 million, or 14.2%, was primarily due to an increase in variable lease revenue as a result of certain scheduled fixed monthly lease payments that transitioned beginning January 1, 2024 to variable payments under our capacity purchase agreements. Under our capacity purchase agreements, a portion of the consideration we are paid is designed as reimbursement for certain aircraft ownership costs and is considered lease revenue, including fixed monthly payments and variable payments. We recognize the fixed monthly lease payments as lease revenue using the straight-line basis over the capacity purchase agreement term and variable lease payments are recognized in the period when the block hours are completed. We recognized $0.5 million of previously deferred lease revenue during the three months ended June 30, 2024, using the straight-line basis for fixed monthly lease payments, whereas we deferred recognizing lease revenue on $19.5 million during the three months ended June 30, 2023.
The deferred revenue balance applicable to each contract will be recorded as revenue over the term of each respective contract. For clarity, in total we recognized $5.5 million of previously deferred revenue, net of unbilled revenue, during the three months ended June 30, 2024, compared to deferring revenue, net of unbilled revenue, of $60.2 million during the three months ended June 30, 2023. Our total deferred revenue balance, net of unbilled revenue, was $360.9 million as of June 30, 2024, compared to total deferred revenue, net of unbilled revenue, of $367.3 million as of December 31, 2023.
The increase in prorate agreements and SWC revenue of $24.8 million, or 30.2%, was primarily due to an increase in prorate passengers and passenger revenue we received on routes we operated under our prorate agreements during the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Additionally, a portion of the increase is attributed to SWC revenue during the three months ended June 30, 2024, as SWC began operations in May 2023.
27
The increase in lease, airport services and other revenues of $3.7 million, or 14.7%, was primarily due to an increase in lease rates for leases to third parties during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
Operating Expenses
Individual expense components attributable to our operations are set forth in the following table (dollar amounts in thousands):
For the three months ended June 30, | ||||||||||||
2024 | 2023 | $ Change | % Change | |||||||||
Salaries, wages and benefits | $ | 355,005 | $ | 322,441 | $ | 32,564 | 10.1 | % | ||||
Aircraft maintenance, materials and repairs |
| 183,267 |
| 162,491 |
| 20,776 |
| 12.8 | % | |||
Depreciation and amortization |
| 96,814 |
| 97,169 |
| (355) |
| (0.4) | % | |||
Aircraft fuel |
| 21,328 |
| 18,279 |
| 3,049 |
| 16.7 | % | |||
Airport-related expenses |
| 17,535 |
| 16,955 |
| 580 |
| 3.4 | % | |||
Aircraft rentals |
| 1,310 |
| 2,428 |
| (1,118) |
| (46.0) | % | |||
Other operating expenses |
| 72,219 |
| 74,020 |
| (1,801) |
| (2.4) | % | |||
Total operating expenses | $ | 747,478 | $ | 693,783 | $ | 53,695 |
| 7.7 | % |
Salaries, wages and benefits. The $32.6 million, or 10.1%, increase in salaries, wages and benefits was primarily due to an increase in direct labor costs that resulted from the higher number of flights we operated during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
Aircraft maintenance, materials and repairs. The $20.8 million, or 12.8%, increase in aircraft maintenance expense was primarily due to higher flight volume, which increased maintenance activity, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
Depreciation and amortization. The $0.4 million, or 0.4%, decrease in depreciation and amortization expense was primarily due to certain CRJ aircraft and engines that were depreciated to their estimated residual value since June 30, 2023, offset by an increase in depreciation expense due to the acquisition of two new E175 aircraft and spare engines since June 30, 2023.
Aircraft fuel. The $3.0 million, or 16.7%, increase in fuel cost was primarily due to an increase in the number of flights we operated under our prorate agreements and SWC and the corresponding increase in gallons of fuel we purchased combined with an increase in our average fuel cost per gallon from $3.30 for the three months ended June 30, 2023, to $3.32 for the three months ended June 30, 2024. We purchase and incur expense for all fuel on flights operated under our prorate agreements and SWC. All fuel costs incurred under our capacity purchase agreements are either purchased directly by our major airline partner, or if purchased by us, we record the direct reimbursement as a reduction to our fuel expense. The following table summarizes the gallons of fuel we purchased under our prorate agreements and SWC, for the periods indicated:
For the three months ended June 30, | |||||||||
(in thousands) |
| 2024 |
| 2023 |
| % Change | |||
Fuel gallons purchased | 6,415 | 5,538 | 15.8 | % | |||||
Fuel expense | $ | 21,328 | $ | 18,279 |
| 16.7 | % |
Airport-related expenses. Airport-related expenses include airport-related customer service costs such as outsourced airport gate and ramp agent services, airport security fees, passenger interruption costs, deicing, landing fees and station rents. For clarity, our employee airport customer service labor costs are reflected in salaries, wages and benefits and customer service labor costs we outsource to third parties are included in airport-related expenses. The $0.6 million, or 3.4%, increase in airport-related expenses for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, was primarily due to an increase in subcontracted airport services and landing fees as a result of an increase in the number of flights we operated under our prorate agreements.
28
Aircraft rentals. The $1.1 million, or 46.0%, decrease in aircraft rentals was primarily related to a decrease in our leased aircraft since the three months ended June 30, 2023. During 2023, we acquired 26 CRJ700 aircraft, eight CRJ200 aircraft and one CRJ900 aircraft under early lease buyouts.
Other operating expenses. Other operating expenses primarily consist of property taxes, hull and liability insurance, simulator costs, crew per diem and crew hotel costs. The $1.8 million, or 2.4%, decrease was primarily related to the timing of training events and other non-direct operating expenses for the three months ended June 30, 2023, compared to the three months ended June 30, 2024, offset by an increase in other operating costs as a result of the higher number of flights we operated during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, such as crew per diem and crew hotel costs.
Summary of interest expense, interest income, other income (loss), net and provision for income taxes
Interest Expense. The $4.8 million, or 14.1%, decrease in interest expense was primarily related to a decrease in outstanding debt. At June 30, 2024 we had $2.8 billion of outstanding debt, compared to $3.2 billion at June 30, 2023.
Interest income. Interest income increased $1.5 million, from $10.5 million for the three months ended June 30, 2023, to $12.0 million for the three months ended June 30, 2024. The increase in interest income was primarily related to an increase in average interest rates attributed to our marketable securities for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
Other income (loss), net. Other income (loss), net decreased $9.5 million during the three months ended June 30, 2024, compared to the three months ended June 30, 2023. Other income (loss), net primarily consists of the unrealized and realized gains and losses on our investments in other companies, income or loss related to our equity method investments and gains or losses on the sale of assets. The decrease in other income (loss), net was primarily a result of a decrease in the fair value of our investments in other companies for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
Provision (benefit) for income taxes. For the three months ended June 30, 2024 and 2023, our effective income tax rates were 26.0% and 12.6%, respectively, which included the statutory federal income tax rate of 21% and other reconciling income tax items, including state income taxes and the impact of non-deductible expenses. The increase in the effective tax rate primarily related to the impact of non-deductible expenses relative to the pre-tax earnings for the three months ended June 30, 2024, compared to pre-tax loss for the three months ended June 30, 2023.
Net income. Primarily due to the factors described above, we generated net income of $75.6 million, or $1.82 per diluted share, for the three months ended June 30, 2024, compared to net income of $15.4 million, or $0.35 per diluted share, for the three months ended June 30, 2023.
Six Months Ended June 30, 2024 and 2023
Operational Statistics
The following table sets forth our major operational statistics and the associated percentage changes for the periods identified below. The increase in block hours, departures and passengers carried during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was primarily due to an increase in the number of available captains during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
29
For the six months ended June 30, | |||||||
Block hours by aircraft type: |
| 2024 |
| 2023 |
| % Change | |
E175s |
| 374,192 | 329,167 | 13.7 | % | ||
CRJ900s | 38,215 | 40,411 | (5.4) | % | |||
CRJ700s | 116,596 | 102,122 | 14.2 | % | |||
CRJ200s |
| 78,260 | 87,159 | (10.2) | % | ||
Total block hours | 607,263 | 558,859 | 8.7 | % | |||
| |||||||
| |||||||
Departures |
| 358,757 | 334,460 | 7.3 | % | ||
Passengers carried |
| 19,840,470 | 18,463,649 | 7.5 | % | ||
Passenger load factor |
| 82.7 | % | 83.0 | % | (0.3) | pts |
Average passenger trip length (miles) |
| 461 | 461 | — | % |
Operating Revenues
The following table summarizes our operating revenue for the periods indicated (dollar amounts in thousands):
For the six months ended June 30, | ||||||||||||
| 2024 |
| 2023 |
| $ Change |
| % Change | |||||
Flying agreements | $ | 1,616,459 | $ | 1,364,232 | $ | 252,227 | 18.5 | % | ||||
Lease, airport services and other |
| 54,273 |
| 53,242 |
| 1,031 | 1.9 | % | ||||
Total operating revenues | $ | 1,670,732 | $ | 1,417,474 | $ | 253,258 |
| 17.9 | % |
Flying agreements revenue primarily consists of revenue earned on flights we operate under our capacity purchase agreements and prorate agreements with our major airline partners and on-demand charter flights. Lease, airport services and other revenues consist of revenue earned from leasing aircraft and spare engines to third parties separate from our capacity purchase agreements and providing airport counter, gate and ramp services.
We disaggregate our flying agreements revenue into the following categories (dollar amounts in thousands):
For the six months ended June 30, | ||||||||||||
2024 | 2023 | $ Change | % Change | |||||||||
Capacity purchase agreements flight operations revenue |
| $ | 1,139,287 |
| $ | 968,058 |
| $ | 171,229 |
| 17.7 | % |
Capacity purchase agreements aircraft lease revenue |
| 269,017 |
| 236,611 |
| 32,406 |
| 13.7 | % | |||
Prorate agreements and SWC revenue |
| 208,155 | 159,563 | 48,592 |
| 30.5 | % | |||||
Flying agreements revenue | $ | 1,616,459 | $ | 1,364,232 | $ | 252,227 |
| 18.5 | % |
The increase in “Capacity purchase agreements flight operations revenue” of $171.2 million, or 17.7%, was primarily due to a 8.7% increase in block hour production and a decrease in deferred revenue related to fixed monthly payments for flight operations received under our capacity purchase agreements for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. Under our capacity purchase agreements, we are paid a fixed amount per month per aircraft over the contract term. We recognize the fixed amount per aircraft related to operating the aircraft as revenue proportionately to the number of block hours we complete for each reporting period. Under our capacity purchase agreements, the performance obligation of each completed flight is measured in block hours incurred for each completed flight. Beginning January 1, 2024, certain scheduled fixed monthly payments under our capacity purchase agreements transitioned to variable payments, which are calculated at a rate per block hour. Based on the number of completed block hours during the six months ended June 30, 2024, we recognized $5.4 million of previously deferred revenue, net of unbilled revenue, related to the non-lease fixed monthly payments we received associated with our flight operations revenues. For the six months ended June 30, 2023, we deferred recognizing $83.4 million of revenue, net of unbilled revenue, related to fixed monthly payments received associated with our flight operations revenues. The timing of our revenue recognition related to the fixed payments associated with our flight operations will be adjusted over the remaining contract term for each capacity purchase agreement based on the number of block hours we complete each reporting period relative to the number of block hours we anticipate completing over the remaining contract term of each capacity purchase agreement.
30
The increase in “Capacity purchase agreements aircraft lease revenue” of $32.4 million, or 13.7%, was primarily due to an increase in variable lease revenue as a result of certain scheduled fixed monthly lease payments that transitioned beginning January 1, 2024 to variable payments under our capacity purchase agreements. Under our capacity purchase agreements, a portion of the consideration we are paid is designed as reimbursement for certain aircraft ownership costs and is considered lease revenue, including fixed monthly payments and variable payments. We recognize the fixed monthly lease payments as lease revenue using the straight-line basis over the capacity purchase agreement term and variable lease payments are recognized in the period when the block hours are completed. We recognized $1.0 million of previously deferred lease revenue during the three and six months ended June 30, 2024, using the straight-line basis for fixed monthly lease payments, whereas we deferred recognizing lease revenue on $40.0 million during the six months ended June 30, 2023.
The deferred revenue balance applicable to each contract will be recorded as revenue over the term of each respective contract. For clarity, in total we recognized $6.4 million of previously deferred revenue, net of unbilled revenue, during the six months ended June 30, 2024, compared to deferring revenue, net of unbilled revenue, of $123.4 million during the six months ended June 30, 2023. Our total deferred revenue balance, net of unbilled revenue, was $360.9 million as of June 30, 2024, compared to total deferred revenue, net of unbilled revenue, of $367.3 million as of December 31, 2023.
The increase in prorate agreements and SWC revenue of $48.6 million, or 30.5%, was primarily due to an increase in prorate passengers and passenger revenue we received on routes we operated under our prorate agreements during the six months ended June 30, 2024, compared to the six months ended June 30, 2023. Additionally, a portion of the increase is attributed to SWC revenue during the three months ended June 30, 2024, as SWC began operations in May 2023.
The increase in lease, airport services and other revenues of $1.0 million, or 1.9%, was primarily due to an increase in lease rates for leases to third parties during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Operating Expenses
Individual expense components attributable to our operations are set forth in the following table (dollar amounts in thousands):
For the six months ended June 30, | ||||||||||||
2024 | 2023 | $ Change | % Change | |||||||||
Salaries, wages and benefits | $ | 706,004 | $ | 657,642 | $ | 48,362 | 7.4 | % | ||||
Aircraft maintenance, materials and repairs |
| 328,682 |
| 304,717 |
| 23,965 |
| 7.9 | % | |||
Depreciation and amortization |
| 192,684 |
| 191,318 |
| 1,366 |
| 0.7 | % | |||
Aircraft fuel |
| 42,492 |
| 39,243 |
| 3,249 |
| 8.3 | % | |||
Airport-related expenses |
| 38,423 |
| 35,250 |
| 3,173 |
| 9.0 | % | |||
Aircraft rentals |
| 2,586 |
| 21,956 |
| (19,370) |
| (88.2) | % | |||
Other operating expenses |
| 140,715 |
| 140,192 |
| 523 |
| 0.4 | % | |||
Total operating expenses | $ | 1,451,586 | $ | 1,390,318 | $ | 61,268 |
| 4.4 | % |
Salaries, wages and benefits. The $48.4 million, or 7.4%, increase in salaries, wages and benefits was primarily due to an increase in direct labor costs that resulted from the higher number of flights we operated during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Aircraft maintenance, materials and repairs. The $24.0 million, or 7.9%, increase in aircraft maintenance expense was primarily due to higher flight volume, which increased maintenance activity, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Depreciation and amortization. The $1.4 million, or 0.7%, increase in depreciation and amortization expense was primarily due to an increase in depreciation expense due to the acquisition of two new E175 aircraft and spare engines since June 30, 2023.
31
Aircraft fuel. The $3.2 million, or 8.3%, increase in fuel cost was primarily due to an increase in the number of flights we operated under our prorate agreements and SWC and the corresponding increase in gallons of fuel we purchased, offset by a decrease in our average fuel cost per gallon from $3.65 for the six months ended June 30, 2023, to $3.42 for the six months ended June 30, 2024. We purchase and incur expense for all fuel on flights operated under our prorate agreements and SWC. All fuel costs incurred under our capacity purchase agreements are either purchased directly by our major airline partner, or if purchased by us, we record the direct reimbursement as a reduction to our fuel expense. The following table summarizes the gallons of fuel we purchased under our prorate agreements and SWC, for the periods indicated:
For the six months ended June 30, | |||||||||
(in thousands) |
| 2024 |
| 2023 |
| % Change | |||
Fuel gallons purchased | 12,440 | 10,766 | 15.5 | % | |||||
Fuel expense | $ | 42,492 | $ | 39,243 |
| 8.3 | % |
Airport-related expenses. Airport-related expenses include airport-related customer service costs such as outsourced airport gate and ramp agent services, airport security fees, passenger interruption costs, deicing, landing fees and station rents. For clarity, our employee airport customer service labor costs are reflected in salaries, wages and benefits and customer service labor costs we outsource to third parties are included in airport-related expenses. The $3.2 million, or 9.0%, increase in airport-related expenses for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was primarily due to an increase in subcontracted airport services and landing fees as a result of an increase in the number of flights we operated under our prorate agreements.
Aircraft rentals. The $19.4 million, or 88.2%, decrease in aircraft rentals was primarily related to a decrease in our leased aircraft since the six months ended June 30, 2023. During 2023, we acquired 26 CRJ700 aircraft, eight CRJ200 aircraft and one CRJ900 aircraft under early lease buyouts.
Other operating expenses. Other operating expenses primarily consist of property taxes, hull and liability insurance, simulator costs, crew per diem and crew hotel costs. The $0.5 million, or 0.4%, increase was primarily related to an increase in other operating costs as a result of the higher number of flights we operated during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, such as crew per diem and crew hotel costs, offset by the timing of training events and other non-direct operating expenses for the six months ended June 30, 2023, compared to the six months ended June 30, 2024.
Summary of interest expense, interest income, other income (loss), net and provision for income taxes
Interest Expense. The $8.5 million, or 12.7%, decrease in interest expense was primarily related to a decrease in outstanding debt. At June 30, 2024 we had $2.8 billion of outstanding debt, compared to $3.2 billion at June 30, 2023.
Interest income. Interest income increased $3.1 million, from $20.5 million for the six months ended June 30, 2023, to $23.6 million for the six months ended June 30, 2024. The increase in interest income was primarily related to an increase in average interest rates attributed to our marketable securities for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Other income (loss), net. Other income (loss), net decreased $12.9 million during the six months ended June 30, 2024, compared to the six months ended June 30, 2023. Other income (loss), net primarily consists of the unrealized and realized gains and losses on our investments in other companies, income or loss related to our equity method investments and gains or losses on the sale of assets. The decrease in other income (loss), net was primarily a result of a decrease in the fair value of our investments in other companies for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Provision (benefit) for income taxes. For the six months ended June 30, 2024 and 2023, our effective income tax rates were 25.5% and 21.6%, respectively, which included the statutory federal income tax rate of 21% and other reconciling income tax items, including state income taxes, the impact of non-deductible expenses and a discrete tax benefit or expense on employee equity transactions. The increase in the effective tax rate primarily related to the impact of non-deductible expenses relative to the pre-tax earnings for the six months ended June 30, 2024, compared to pre-tax loss for the six months ended June 30, 2023, and the impact of a discrete tax benefit from excess tax deductions
32
generated from employee equity transactions that occurred during the six months ended June 30, 2024, compared to a discrete tax expense from excess tax deductions generated from employee equity transactions that occurred during the six months ended June 30, 2023.
Net income. Primarily due to the factors described above, we generated net income of $135.9 million, or $3.28 per diluted share, for the six months ended June 30, 2024, compared to a net loss of $6.7 million, or $0.14 loss per share, for the six months ended June 30, 2023.
Our Business Segments
Three Months Ended June 30, 2024 and 2023
For the three months ended June 30, 2024, we had two reportable segments, which were the basis of our internal financial reporting: (1) the operations of SkyWest Airlines and SWC and (2) SkyWest Leasing activities. Our segment disclosure relates to components of our business for which separate financial information is available to, and regularly evaluated by, our chief operating decision maker.
For the three months ended June 30, | ||||||||||||
(dollar amounts in thousands) | ||||||||||||
| 2024 |
| 2023 |
| $ Change |
| % Change | |||||
Operating Revenues: | ||||||||||||
SkyWest Airlines and SWC | $ | 711,784 | $ | 586,476 | $ | 125,308 |
| 21.4 | % | |||
SkyWest Leasing |
| 155,334 |
| 139,167 |
| 16,167 |
| 11.6 | % | |||
Total Operating Revenues | 867,118 | 725,643 | 141,475 |
| 19.5 | % | ||||||
Operating Expenses and Interest Expense: | ||||||||||||
SkyWest Airlines and SWC | 681,357 | 629,185 | 52,172 |
| 8.3 | % | ||||||
SkyWest Leasing | 95,087 | 98,316 | (3,229) |
| (3.3) | % | ||||||
Total Operating Expenses and Interest Expense (1) | 776,444 | 727,501 | 48,943 |
| 6.7 | % | ||||||
Segment profit (loss): | ||||||||||||
SkyWest Airlines and SWC | 30,427 | (42,709) | 73,136 |
| (171.2) | % | ||||||
SkyWest Leasing | 60,247 | 40,851 | 19,396 |
| 47.5 | % | ||||||
Total Segment Profit (Loss) | 90,674 | (1,858) | 92,532 |
| (4,980.2) | % | ||||||
Interest Income |
| 12,040 |
| 10,494 | 1,546 |
| 14.7 | % | ||||
Other Income (Loss), net |
| (548) |
| 9,001 |
| (9,549) |
| (106.1) | % | |||
Consolidated Income Before Taxes | $ | 102,166 | $ | 17,637 | $ | 84,529 |
| 479.3 | % |
(1) | We include interest expense in our segment profit (loss) given our interest expense is primarily attributed to debt associated with financing aircraft under our capacity purchase agreements and revenue earned under our capacity purchase agreements is intended to compensate us for our aircraft ownership costs, including interest expense. |
SkyWest Airlines and SWC Segment Profit (Loss). SkyWest Airlines and SWC segment profit was $30.4 million for the three months ended June 30, 2024, compared to a segment loss of $42.7 million for the three months ended June 30, 2023.
SkyWest Airlines and SWC block hour production increased to 317,462, or 12.3%, for the three months ended June 30, 2024, from 282,617 for the three months ended June 30, 2023, primarily due to improvements in the number of available captains, which allowed for a higher scheduled utilization of our aircraft. Significant items contributing to the SkyWest Airlines and SWC segment profit for the three months ended June 30, 2024 are set forth below.
SkyWest Airlines and SWC operating revenues increased $125.3 million, or 21.4%, from the three months ended June 30, 2023, to the three months ended June 30, 2024. SkyWest Airlines recognizes revenue attributed to flight operations received as fixed monthly payments per aircraft proportionate to the number of block hours completed during each reporting period, relative to the estimated number of block hours we anticipate completing over the remaining contract term. During the three months ended June 30, 2024, SkyWest Airlines recognized $5.0 million of previously
33
deferred revenue, net of unbilled revenue, related to fixed monthly payments we received associated with our flight operations revenues, compared to deferring $40.7 million of revenue, net of unbilled revenue, related to fixed monthly payments received associated with our flight operations revenues during the three months ended June 30, 2023. Additionally, the increase in SkyWest Airlines and SWC operating revenues was attributed to an increase in block hour production during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
SkyWest Airlines and SWC operating expenses and interest expense increased $52.2 million, or 8.3%, from the three months ended June 30, 2023, to the three months ended June 30, 2024, due to the following primary factors:
● | SkyWest Airlines and SWC’s salaries, wages and benefits expense increased $32.6 million, or 10.1%, primarily due to an increase in direct labor costs that resulted from the higher number of flights we operated during the three months ended June 30, 2024, compared to the three months ended June 30, 2023. |
● | SkyWest Airlines and SWC’s aircraft maintenance, materials and repairs expense increased $17.4 million, or 11.0%, primarily due to higher flight volume, which increased the maintenance activity, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. |
● | SkyWest Airlines and SWC’s depreciation and amortization expense decreased by $1.0 million, or 2.5%, primarily due to certain CRJ aircraft and engines that were depreciated to their estimated residual value since June 30, 2023. |
● | SkyWest Airlines and SWC’s fuel expense increased $3.0 million, or 16.7%, due to an increase in the number of flights we operated under our prorate agreements and SWC and the corresponding increase in gallons of fuel we purchased combined with an increase in our average fuel cost per gallon from $3.30 for the three months ended June 30, 2023, to $3.32 for the three months ended June 30, 2024. |
● | SkyWest Airlines and SWC’s remaining airline expense increased $0.2 million, or 0.2%, primarily related to an increase in other operating costs as a result of the higher number of flights we operated during the three months ended June 30, 2024, compared to the three months ended June 30, 2023, such as crew per diem and crew hotel costs, offset by the timing of training events and other non-direct operating expenses for the three months ended June 30, 2023, compared to the three months ended June 30, 2024. |
SkyWest Leasing Segment Profit. SkyWest Leasing profit increased $19.4 million, or 47.5%, during the three months ended June 30, 2024, compared to the three months ended June 30, 2023. For the three months ended June 30, 2024, SkyWest Leasing recognized $0.5 million of previously deferred lease revenue, compared to deferring $19.5 million of lease revenue on the fixed monthly lease payments received for the three months ended June 30, 2023, under the straight-line basis. Additionally, SkyWest Leasing profit increased due to additional lease revenue from the E175 aircraft placed under contract since June 30, 2023, and a decrease in interest expense as a result of a lower outstanding debt balance for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
Six Months Ended June 30, 2024 and 2023
For the six months ended June 30, 2024, we had two reportable segments, which were the basis of our internal financial reporting: (1) the operations of SkyWest Airlines and SWC and (2) SkyWest Leasing activities. Our segment disclosure relates to components of our business for which separate financial information is available to, and regularly evaluated by, our chief operating decision maker.
34
For the six months ended June 30, | ||||||||||||
(dollar amounts in thousands) | ||||||||||||
| 2024 |
| 2023 |
| $ Change |
| % Change | |||||
Operating Revenues: | ||||||||||||
SkyWest Airlines and SWC | $ | 1,358,593 | $ | 1,154,649 | $ | 203,944 |
| 17.7 | % | |||
SkyWest Leasing |
| 312,139 |
| 262,825 |
| 49,314 |
| 18.8 | % | |||
Total Operating Revenues | 1,670,732 | 1,417,474 | 253,258 |
| 17.9 | % | ||||||
Operating Expenses and Interest Expense: | ||||||||||||
SkyWest Airlines and SWC | 1,326,196 | 1,266,639 | 59,557 |
| 4.7 | % | ||||||
SkyWest Leasing | 184,185 | 191,017 | (6,832) |
| (3.6) | % | ||||||
Total Operating Expenses and Interest Expense (1) | 1,510,381 | 1,457,656 | 52,725 |
| 3.6 | % | ||||||
Segment profit (loss): | ||||||||||||
SkyWest Airlines and SWC | 32,397 | (111,990) | 144,387 |
| (128.9) | % | ||||||
SkyWest Leasing | 127,954 | 71,808 | 56,146 |
| 78.2 | % | ||||||
Total Segment Profit (Loss) | 160,351 | (40,182) | 200,533 |
| (499.1) | % | ||||||
Interest Income |
| 23,666 | 20,527 | 3,139 |
| 15.3 | % | |||||
Other Income (Loss), net |
| (1,676) |
| 11,175 |
| (12,851) |
| (115.0) | % | |||
Consolidated Income (Loss) Before Taxes | $ | 182,341 | $ | (8,480) | $ | 190,821 |
| (2,250.2) | % |
(1) | We include interest expense in our segment profit (loss) given our interest expense is primarily attributed to debt associated with financing aircraft under our capacity purchase agreements and revenue earned under our capacity purchase agreements is intended to compensate us for our aircraft ownership costs, including interest expense. |
SkyWest Airlines and SWC Segment Profit (Loss). SkyWest Airlines and SWC segment profit was $32.4 million for the six months ended June 30, 2024, compared to a segment loss of $112.0 million for the six months ended June 30, 2023.
SkyWest Airlines and SWC block hour production increased to 607,263, or 8.7%, for the six months ended June 30, 2024, from 558,859 for the six months ended June 30, 2023, primarily due to improvements in the number of available captains, which allowed for a higher scheduled utilization of our aircraft. Significant items contributing to the SkyWest Airlines and SWC segment profit for the six months ended June 30, 2024 are set forth below.
SkyWest Airlines and SWC operating revenues increased $203.9 million, or 17.7%, from the six months ended June 30, 2023, to the six months ended June 30, 2024. SkyWest Airlines recognizes revenue attributed to flight operations received as fixed monthly payments per aircraft proportionate to the number of block hours completed during each reporting period, relative to the estimated number of block hours we anticipate completing over the remaining contract term. During the six months ended June 30, 2024, SkyWest Airlines recognized $5.4 million of previously deferred revenue, net of unbilled revenue, related to fixed monthly payments we received associated with our flight operations revenues, compared to deferring $83.4 million of revenue, net of unbilled revenue, related to fixed monthly payments received associated with our flight operations revenues during the six months ended June 30, 2023. Additionally, the increase in SkyWest Airlines and SWC operating revenues was attributed to an increase in block hour production during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
SkyWest Airlines and SWC operating expenses and interest expense increased $59.6 million, or 4.7%, from the six months ended June 30, 2023, to the six months ended June 30, 2024, due to the following primary factors:
● | SkyWest Airlines and SWC’s salaries, wages and benefits expense increased $48.4 million, or 7.4%, primarily due to an increase in direct labor costs that resulted from the higher number of flights we operated during the six months ended June 30, 2024, compared to the six months ended June 30, 2023. |
● | SkyWest Airlines and SWC’s aircraft maintenance, materials and repairs expense increased $20.7 million, or 7.0%, primarily due to higher flight volume, which increased the maintenance activity, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. |
35
● | SkyWest Airlines and SWC’s depreciation and amortization expense decreased by $3.1 million, or 4.1%, primarily due to certain CRJ aircraft and engines that were depreciated to their estimated residual value since June 30, 2023. |
● | SkyWest Airlines and SWC’s fuel expense increased $3.2 million, or 8.3%, due to an increase in the number of flights we operated under our prorate agreements and SWC and the corresponding increase in gallons of fuel we purchased, offset by a decrease in our average fuel cost per gallon from $3.65 for the six months ended June 30, 2023, to $3.42 for the six months ended June 30, 2024. |
● | SkyWest Airlines and SWC’s remaining airline expense decreased $9.6 million, or 4.8%, primarily related to a decrease in aircraft rent expense due to the early lease buyouts of 35 CRJ aircraft in 2023, offset by an increase in other operating costs as a result of the higher number of flights we operated during the six months ended June 30, 2024, compared to the six months ended June 30, 2023, such as crew per diem and crew hotel costs. |
SkyWest Leasing Segment Profit. SkyWest Leasing profit increased $56.1 million, or 78.2%, during the six months ended June 30, 2024, compared to the six months ended June 30, 2023. For the six months ended June 30, 2024, SkyWest Leasing recognized $1.0 million of previously deferred lease revenue, compared to deferring $40.0 million of lease revenue on the fixed monthly lease payments received for the six months ended June 30, 2023, under the straight-line basis. Additionally, SkyWest Leasing profit increased due to additional lease revenue from the E175 aircraft placed under contract since June 30, 2023, a decrease in interest expense as a result of a lower outstanding debt balance for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, and a gain related to reclassifying assets held for sale as held and used during the six months ended June 30, 2024.
Liquidity and Capital Resources
As of June 30, 2024, we had $834.3 million in cash and cash equivalents and marketable securities. As of June 30, 2024, we had $75.1 million available for borrowings under our line of credit. Given our available liquidity as of June 30, 2024, we believe the working capital currently available to us will be sufficient to meet our present financial requirements, including planned capital expenditures, scheduled lease payments and debt service obligations for at least the next 12 months.
Our total cash and marketable securities decreased from $835.2 million as of December 31, 2023 to $834.3 million as of June 30, 2024, or by $1.0 million. At June 30, 2024, our total capital mix was 49.4% equity and 50.6% long-term debt, compared to 45.2% equity and 54.8% long-term debt at December 31, 2023. During the six months ended June 30, 2024, we repurchased 313,381 shares of our common stock for $22.1 million under share repurchase programs authorized by our Board of Directors.
As of June 30, 2024, and December 31, 2023, we had $45.0 million and $49.1 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions. We had no restricted cash as of June 30, 2024, and December 31, 2023.
Sources and Uses of Cash
Cash Position and Liquidity. The following table provides a summary of the net cash provided by (used in) our operating, investing and financing activities for the six months ended June 30, 2024 and 2023, and our total cash and marketable securities positions as of June 30, 2024, and December 31, 2023 (in thousands):
For the six months ended June 30, | ||||||||||||
| 2024 |
| 2023 |
| $ Change |
| % Change | |||||
Net cash provided by operating activities | $ | 322,962 | $ | 333,023 | $ | (10,061) | (3.0) | % | ||||
Net cash provided by (used in) investing activities |
| (75,993) |
| 69,991 |
| (145,984) |
| (208.6) | % | |||
Net cash used in financing activities |
| (253,486) |
| (391,565) |
| 138,079 |
| (35.3) | % |
36
| June 30, |
| December 31, |
|
|
| ||||||
2024 | 2023 | $ Change | % Change | |||||||||
Cash and cash equivalents | $ | 141,760 | $ | 148,277 | $ | (6,517) |
| (4.4) | % | |||
Marketable securities |
| 692,509 |
| 686,946 |
| 5,563 |
| 0.8 | % | |||
Total | $ | 834,269 | $ | 835,223 | $ | (954) |
| (0.1) | % |
Cash Flows provided by Operating Activities
Our cash flows provided by operating activities was $323.0 million for the six months ended June 30, 2024, compared to $333.0 million for the six months ended June 30, 2023. Our operating cash flows are typically impacted by various factors including our net income, adjusted for non-cash expenses and gains such as depreciation expense, stock-based compensation expense and gains or losses on the disposal of assets; and timing of cash payments and cash receipts attributed to our various current asset and liability accounts, such as accounts receivable, inventory, accounts payable, accrued liabilities, deferred revenue and unbilled revenue.
The decrease in our cash flow from operations for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was primarily due to the timing of cash payments on our current liability accounts and a decrease in cash received in excess of revenue recognized for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, offset by the increase in net income, adjusted for non-cash items, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Cash Flows provided by (used in) Investing Activities
Our cash flows used in investing activities was $76.0 million for the six months ended June 30, 2024, compared to cash flows provided by investing activities of $70.0 million for the six months ended June 30, 2023. Our investing cash flows are typically impacted by various factors including our capital expenditures, such as the acquisition of aircraft and spare engines; deposit payments and refunds of previously made deposits on new aircraft; purchase and sales of marketable securities; proceeds from the sale of assets; and timing of cash payments and cash receipts attributed to our various long-term asset and long-term liability accounts.
Excluding the purchase and sale of marketable securities, which results in the transfer of dollars between our investments in marketable securities and our cash accounts, our cash used in investing activities decreased from $129.3 million for the six months ended June 30, 2024, to $69.6 million for the six months ended June 30, 2023. The decrease in cash used in investing activities was primarily due to a decrease of $75.7 million in the acquisition of property and equipment for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, due to the early lease buyouts we executed during the six months ended June 30, 2023. This was offset by an increase in our cash used to acquire other long-term assets, including our investment in Contour, for the six months ended June 30, 2024.
Cash Flows provided by (used in) Financing Activities
Our cash flows used in financing activities was $253.5 million for the six months ended June 30, 2024, compared to cash used in financing activities of $391.6 million for the six months ended June 30, 2023. Our financing cash flows are typically impacted by various factors including proceeds from issuance of debt, principal payments on debt obligations, repurchases of our common stock and payment of cash dividends.
The $138.1 million decrease in cash used for financing activities for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was primarily due to a decrease of $173.8 million in cash used to purchase treasury stock, offset by a decrease of $25.0 million in proceeds from the issuance of long-term debt during the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Significant Commitments and Obligations
General
See Note 7, "Leases, Commitments and Contingencies," to the condensed consolidated financial statements for our commitments and obligations for each of the next five years and thereafter.
37
Purchase Commitments and Options
As of June 30, 2024, we had a firm purchase commitment for 21 new E175 aircraft from Embraer with delivery dates anticipated into 2026.
At the time of each aircraft acquisition, we evaluate the financing alternatives available to us, and select one or more of these methods to fund the acquisition. In recent years, we have issued long-term debt to finance our new aircraft. At present, we intend to fund our aircraft purchase commitments through cash on hand and debt financing. Based on current market conditions and discussions with prospective leasing organizations and financial institutions, we currently believe that we will be able to obtain financing for our committed acquisitions, as well as additional aircraft. We intend to finance the firm purchase commitment for 21 E175 aircraft with approximately 75-85% debt and the remaining balance with cash.
Aircraft Lease and Facility Obligations
We also have long-term lease obligations, primarily relating to our facilities, aircraft and engines. Excluding aircraft financed by our major airline partners that we operate for them under contract, we had eight aircraft under lease with remaining terms ranging from five years to six years as of June 30, 2024. Future minimum lease payments due under all long-term operating leases were approximately $123.4 million at June 30, 2024. Assuming a 6.2% discount rate, which is the average incremental borrowing rate we anticipate we would have incurred on debt obtained over a similar term to acquire these assets, the present value of these lease obligations would have been equal to approximately $82.4 million at June 30, 2024.
Long-term Debt Obligations
As of June 30, 2024, we had $2.8 billion of long-term debt, which consisted of $2.6 billion of debt used to finance aircraft and spare engines and $200.6 million of unsecured debt payable to U.S. Department of the Treasury. The average effective interest rate on our debt was approximately 4.1% at June 30, 2024.
Under our capacity purchase agreements, our major airline partners compensate us for our costs of owning or leasing the aircraft on a monthly basis. The aircraft compensation structure varies by agreement, but is intended to cover either our aircraft principal and interest debt service costs, our aircraft depreciation and interest expense or our aircraft lease expense costs while the aircraft is under contract.
Guarantees
We have guaranteed the obligations of SkyWest Airlines under the United Express Agreement and the Delta Connection Agreement for the E175 aircraft. In addition, we have guaranteed certain other obligations under SkyWest Airlines’ aircraft financing and leasing agreements.
We have guaranteed $26.2 million in promissory notes of third parties in event the third parties default on their payments. The third parties’ loans are secured by aircraft and engines.
Seasonality
Our results of operations for any interim period are not necessarily indicative of those for an entire year, because the airline industry is subject to seasonal fluctuations and general economic conditions. Our operations are somewhat favorably affected by increased travel on our prorate routes, historically occurring during the summer months, and unfavorably affected by decreased travel during the months of November through February and by inclement weather, which may occasionally or frequently, depending on the severity of the inclement weather in any given winter, result in cancelled flights during the winter months.
38
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Aircraft Fuel
In the past, we have not experienced sustained material difficulties with fuel availability, and we currently expect to be able to obtain fuel at prevailing prices in quantities sufficient to meet our future needs. Pursuant to our contract flying arrangements, United, Delta, American and Alaska have agreed to bear the economic risk of fuel price fluctuations on our contracted flights. We bear the economic risk of fuel price fluctuations on our prorate and SWC operations. For the six months ended June 30, 2024, approximately 12.9% of our total flying agreements revenue was derived from prorate agreements and SWC. For the six months ended June 30, 2024, the average price per gallon of aircraft fuel was $3.42. For illustrative purposes only, we have estimated the impact of the market risk of fuel price fluctuations on our prorate and SWC operations using a hypothetical increase of 25% in the price per gallon we purchase. Based on this hypothetical assumption, we would have incurred an additional $10.6 million in fuel expense for the six months ended June 30, 2024.
Interest Rates
As of June 30, 2024, our long-term debt had fixed interest rates. We currently intend to finance the acquisition of aircraft through manufacturer financing or long-term borrowings. Changes in interest rates may impact our actual cost to acquire future aircraft. To the extent we place new aircraft in service under our capacity purchase agreements with United, Delta, American, Alaska or other carriers, our capacity purchase agreements currently provide that reimbursement rates will be adjusted to reflect the interest rates effective at the closing of the respective aircraft financing. A hypothetical 50 basis point change in market interest rates would not have a material effect on our financial results.
Labor and Inflation Risk
The global economy has experienced, and continues to experience high rates of inflation. We cannot predict how long these inflationary pressures will continue, or how they may change over time, but we expect to see continued impacts on the global economy and our Company.
As a result, our costs have become, and we expect they will continue to be, subject to significant inflationary pressures, and we may not be able to fully offset such higher costs through price increases under our capacity purchase agreements. Salaries, wages and benefits expense represented 48.6% of our total operating expense for the six months ended June 30, 2024. For illustrative purposes, a hypothetical increase of 25% to our salaries, wages and benefits during the six months ended June 30, 2024, would have increased our operating expenses by approximately $176.5 million.
Our inability or failure to offset a material increase in costs due to inflation and/or labor costs could harm our business, financial condition and operating results. Additionally, in the event we are unable to hire and retain qualified pilots or other operational personnel, including flight attendants and maintenance technicians, we may be unable to operate requested flight schedules under our capacity purchase agreements, which could result in a reduction in revenue and operating inefficiencies, such as incremental new-hire training costs, and could harm our business, financial condition and operating results.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of our disclosure controls and procedures, which have been designed to ensure that information we are required to disclose in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC. Our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as of June 30, 2024, those controls and procedures were effective to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
39
Changes in Internal Control
During the six months ended June 30, 2024, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject to certain legal actions which we consider routine to our business activities. As of June 30, 2024, our 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 our financial position, liquidity or results of operations.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, and in our other filings with the SEC, which factors could materially affect our business, financial condition and results of operations. The risks described in our reports filed with the SEC are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Our Board of Directors has adopted stock repurchase programs which authorize us to repurchase shares of our common stock in the public market or in private transactions, from time to time, at prevailing prices. Our current stock repurchase program was authorized in May 2023 for the repurchase of up to $250.0 million of our common stock. The following table summarizes the repurchases under our stock purchase program during the three months ended June 30, 2024:
| Total Number of Shares Purchased | Average Price Paid Per Share |
| Total Number of Shares Purchased as Part of a Publicly Announced Program (1) | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program (in Thousands) | |||||
April 1, 2024 - April 30, 2024 | 14,312 | $ | 69.87 | 14,312 | $ | 81,172 | ||||
May 1, 2024 - May 31, 2024 | 150,212 | $ | 75.39 | 150,212 | $ | 69,848 | ||||
June 1, 2024 - June 30, 2024 | 12,596 | $ | 79.38 | 12,596 | $ | 68,848 | ||||
Total | 177,120 | $ | 75.23 | 177,120 | $ | 68,848 |
(1) | In May 2023, our Board of Directors approved a stock purchase program, which superseded our prior repurchase program and authorized us to repurchase up to $250.0 million of our common stock. Purchases are made at management’s discretion based on market conditions and financial resources. As of June 30, 2024, we had repurchased 4,562,542 shares of our common stock for $181.2 million and had $68.8 million remaining availability under the May 2023 authorization. |
ITEM 5. OTHER INFORMATION
During the three months ended June 30, 2024, no director or officer of the Company
40
ITEM 6. EXHIBITS
10.1 | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
41
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, to be signed on its behalf by the undersigned, thereunto duly authorized, on July 26, 2024.
SKYWEST, INC. | ||
By | /s/ Robert J. Simmons | |
Robert J. Simmons | ||
Chief Financial Officer |
42
Exhibit 10.1
SKYWEST INC.
2019 LONG-TERM INCENTIVE PLAN
(AMENDED AND RESTATED EFFECTIVE MAY 7, 2024)
SkyWest, Inc. (the “Company”), a Utah corporation, hereby establishes and adopts the following SkyWest, Inc. amended and restated 2019 Long-Term Incentive Plan (the “Plan”). This Plan amends and restates the SkyWest, Inc. 2019 Long-Term Incentive Plan (the “Original 2019 Plan”) in its entirety effective as of May 7, 2024, which is the date on which this amendment and restatement of the Plan was approved by the stockholders of the Company (the “Restatement Effective Date”). The Original 2019 Plan was effective on May 7, 2019 (the “Original Effective Date”).
1. | PURPOSE OF THE PLAN |
The purpose of the Plan is to assist the Company and its Subsidiaries in attracting and retaining selected individuals to serve as employees, directors, consultants and/or advisors who are expected to contribute to the Company’s success and to achieve long-term objectives that will benefit stockholders of the Company through the additional incentives inherent in the Awards hereunder.
2.DEFINITIONS
2.1.“Award” shall mean any Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award, Other Share-Based Award, Performance Award or any other right, interest or option relating to Shares or other property (including cash) granted pursuant to the provisions of the Plan.
2.2.“Award Agreement” shall mean any agreement, contract or other instrument or document evidencing any Award hereunder, whether in writing or through an electronic medium.
2.3.“Board” shall mean the board of directors of the Company.
2.4.“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
2.5.“Committee” shall mean the entity that conducts the general administration of the Plan as provided in Article 11 hereof. With reference to the duties of the Committee under the Plan which have been delegated to one or more persons pursuant to Section 4.2(c) hereof, or which the Board has assumed, the term “Committee” shall refer to such person(s) unless the Committee or the Board has revoked such delegation or the Board has terminated the assumption of such duties. Unless otherwise determined by the Board, the Compensation Committee of the Board or a subcommittee thereof formed by the Compensation Committee to act as the Committee hereunder shall serve as the “Committee” and, unless otherwise determined by the Board, shall consist of no fewer than two Directors, each of whom is: (a) a “Non-Employee Director” within the meaning of Rule 16b-3 of the Exchange Act; and (b) an “independent director” for purpose of the rules of the applicable Securities Exchange on which the Shares are traded, to the extent required by such rules.
2.6.“Consultant” shall mean any consultant or advisor who is a natural person and who provides services to the Company or any Subsidiary, so long as such person: (a) renders bona fide services that are not in connection with the offer and sale of the Company’s securities in a capital-raising transaction; (b) does not directly or indirectly promote or maintain a market for the Company’s securities; and (c) otherwise qualifies as a consultant under the applicable rules of the Securities and Exchange Commission for registration of shares of stock on a Form S-8 registration statement.
2.7.“Director” shall mean a non-employee member of the Board.
2.8.“Dividend Equivalents” shall have the meaning set forth in Section 8.2.
2.9.“Employee” shall mean any employee of the Company or any Subsidiary.
2.10.“Equity Restructuring” means a nonreciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of Shares (or other Company securities) or the price of a Share (or other Company securities) and causes a change in the per Share value of a Share underlying outstanding Awards.
1
2.11.“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
2.12.“Fair Market Value” shall mean, with respect to Shares as of any date: (a) the closing price of the Shares as reported on the Securities Exchange on which the Shares are listed and traded on such date, or, if there is no closing price on that date, then on the last preceding date on which such a closing price was reported; (b) if the Shares are not listed on any Securities Exchange but are quoted in an inter-dealer quotation system on a last sale basis, the final ask price of the Shares reported on the inter-dealer quotation system for such date, or, if there is no such sale on such date, then on the last preceding date on which a sale was reported; or (c) if the Shares are neither listed on a Securities Exchange nor quoted on an inter-dealer quotation system on a last sale basis, the amount determined by the Committee to be the fair market value of the Shares as determined by the Committee in its sole discretion. The Fair Market Value of any property other than Shares shall mean the market value of such property determined by such methods or procedures as shall be established from time to time by the Committee.
2.13.“Incentive Stock Option” shall mean an Option which when granted is intended to qualify as an incentive stock option for purposes of Section 422 of the Code.
2.14.“Non-Qualified Stock Option” shall mean an Option not intended or not qualifying as an Incentive Stock Option.
2.15.“Option” shall mean any right granted to a Participant under the Plan allowing such Participant to purchase Shares at such price or prices and during such period or periods as the Committee shall determine.
2.16.“Original 2019 Plan” shall have the meaning set forth in the Preamble.
2.17.“Other Share-Based Award” shall have the meaning set forth in Section 8.1.
2.18.“Participant” shall mean an Employee, Director or Consultant who is selected by the Committee to receive an Award under the Plan.
2.19.“Payee” shall have the meaning set forth in Section 13.2.
2.20.“Performance Award” shall mean any Award of Performance Cash, Performance Shares or Performance Units granted pursuant to Article 9.
2.21.“Performance Cash” shall mean any cash incentives granted pursuant to Article 9 payable to the Participant upon the achievement of such performance goals as the Committee shall establish.
2.22.“Performance Period” shall mean the period established by the Committee during which any performance goals specified by the Committee with respect to a Performance Award are to be measured.
2.23.“Performance Share” shall mean any grant pursuant to Article 9 of a unit valued by reference to a designated number of Shares, which value may be paid to the Participant upon achievement of such performance goals as the Committee shall establish.
2.24.“Performance Unit” shall mean any grant pursuant to Article 9 of a unit valued by reference to a designated amount of cash or property other than Shares, which value may be paid to the Participant upon achievement of such performance goals during the Performance Period as the Committee shall establish.
2.25.“Permitted Assignee” shall have the meaning set forth in Section 12.3.
2.26.“Plan” shall mean this amended and restated SkyWest, Inc. 2019 Long-Term Incentive Plan, as set forth herein, and as subsequently amended from time to time.
2.27.“Prior Plan Award” shall mean an award granted under the Company’s 2010 Long-Term Incentive Plan.
2.28.“Restatement Effective Date” shall have the meaning set forth in the Preamble.
2.29. “Restricted Stock” shall mean any Share issued with the restriction that the holder may not sell, transfer, pledge or assign such Share and with such other restrictions as the Committee, in its sole discretion, may
2
impose, which restrictions may lapse separately or in combination at such time or times, in installments or otherwise, as the Committee may deem appropriate.
2.30.“Restricted Stock Award” shall have the meaning set forth in Section 7.1.
2.31.“Restricted Stock Unit” means an Award that represents an unfunded, unsecured right to receive, on the applicable settlement date, one Share or an amount in cash or other consideration as determined by the Committee in its sole discretion upon the satisfaction of vesting restrictions as the Committee may establish, which restrictions may lapse separately or in combination at such time or times, in installments or otherwise, as the Committee may deem appropriate.
2.32.“Restricted Stock Unit Award” shall have the meaning set forth in Section 7.1.
2.33.“Securities Exchange” means the principal U.S. national securities exchange on which the Shares are listed and traded on the date in question. As of the date hereof, the applicable Securities Exchange is The NASDAQ Global Select Market.
2.34.“Shares” shall mean the shares of common stock, no par value, of the Company.
2.35.“Stock Appreciation Right” shall mean the right granted to a Participant pursuant to Article 6.
2.36.“Subsidiary” shall mean any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning with the Company if, at the relevant time each of the entities other than the last entity in the unbroken chain owns, at the time of the determination, securities or interests representing at least 50% or more of the total combined voting power of all classes of securities or interests in one of the other entities in the chain.
2.37.“Substitute Awards” shall mean Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for: (i) awards previously granted by an entity (other than the Company or a Subsidiary) that is acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines; or (ii) the right or obligation of any entity acquired by the Company or acquired by any Subsidiary, or with which the Company or any Subsidiary combines, to make future awards.
2.38.“Vesting Period” shall mean the period of time specified by the Committee during which vesting restrictions for an Award are applicable.
3.SHARES SUBJECT TO THE PLAN
3.1Number of Shares.
(a)Subject to adjustment as provided in Section 12.2, as of the Restatement Effective Date, such number of Shares shall be authorized for grant under the Plan as is equal to the sum of (i) 5,465,5251 Shares, plus (ii) any Shares covered by Prior Plan Awards that became available for grant under the Original 2019 Plan pursuant to Section 3.1(b) of the Original 2019 Plan prior to the Restatement Effective Date.2 Any Shares that are subject to Options or Stock Appreciation Rights granted on or after the Original Effective Date shall be counted against this limit as one (1) Share for every one (1) Share granted, and any Shares that are subject to Awards other than Options or Stock Appreciation Rights granted on or after the Original Effective Date shall be counted against this limit as one and sixty-five one-hundredths (1.65) Shares for every one (1) Share granted.
1 Represents the sum of (A) 4,167,525 Shares authorized for issuance under the Original 2019 Plan as of the Original Effective Date, plus (B) 1,298,000 newly authorized Shares approved by the Company’s stockholders on the Restatement Effective Date.
2 As of the Restatement Effective Date (i.e., the date of the Company’s Annual Stockholder Meeting in 2024 (May 7, 2024)), and subject to stockholder approval, there will be 3,898,000 shares available for the grant of new Awards (consisting of 2,600,000 shares that were available for the grant of new awards under the Plan as of December 31, 2023, plus 1,298,000 newly authorized shares approved by the Company’s stockholders on the Restatement Effective Date), less grants made under the Original 2019 Plan after December 31, 2023 and counted as provided in Section 3.1(a), subject to adjustment pursuant to Section 12.2 and Section 3.1(b).
3
(b)If an Award or any Shares subject to an Award is forfeited, expires, or is settled for cash (in whole or in part), the Shares subject to such Award shall, to the extent of such forfeiture, expiration or cash settlement, again be available for Awards under the Plan, in accordance with Section 3.1(d) below. Notwithstanding anything to the contrary contained herein, the following Shares shall not be added to the Shares authorized for grant under Section 3.1(a): (i) Shares tendered by the Participant or withheld by the Company in payment of the purchase price of an Option, or to satisfy any tax withholding obligation with respect to an Award; (ii) Shares subject to a Stock Appreciation Right that are not issued in connection with its stock settlement on exercise thereof; and (iii) Shares reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of Options. Any Shares of Restricted Stock forfeited by the Participant or repurchased by the Company under Section 7.3(d) hereof at the same price paid by the Participant so that such Shares are returned to the Company will again be available for Awards under the Plan, in accordance with Section 3.1(d) below. The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards shall not be counted against the Shares available for issuance under the Plan. Notwithstanding the provisions of this Section 3.1(b), no Shares may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the Code.
(c)Substitute Awards shall not reduce the Shares authorized for grant under the Plan (except that Shares acquired by exercise of substitute Incentive Stock Options will count against the maximum number of Shares that may be issued pursuant to the exercise of Incentive Stock Options under the Plan), nor shall Shares subject to a Substitute Award again be available for Awards under the Plan to the extent of any forfeiture, expiration or cash settlement as provided in paragraph (b) above. Additionally, in the event that a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for grant under Section 3.1(a) of the Plan; provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not Employees, Consultants or Directors prior to such acquisition or combination.
(d)Any Shares that again become available for grant pursuant to Section 3.1(b) shall be added back as: (i) one (1) Share if such Shares were subject to Options or Stock Appreciation Rights granted under the Plan; and (ii) as one and sixty-five one-hundredths (1.65) Shares if such Shares were subject to Awards other than Options or Stock Appreciation Rights granted under the Plan.
(e)Solely for purposes of determining whether Shares are available for the grant of Incentive Stock Options under the Plan, the maximum aggregate number of Shares that may be issued pursuant to Incentive Stock Options granted under the Plan shall be 10,000,000 Shares, subject to adjustment as provided in Section 12.2.
3.2.Character of Shares. Any Shares issued hereunder may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares purchased in the open market or otherwise.
3.3Award Vesting Limitations. Notwithstanding any other provision of the Plan to the contrary, but subject to Section 11, Section 12.2 and the last sentence of this Section 3.3, Awards granted under the Plan shall vest no earlier than the first anniversary of the date the Award is granted and no Award Agreement shall reduce or eliminate the minimum vesting requirement; provided, however, that, notwithstanding the foregoing, the minimum vesting requirement of this Section 3.3 shall not apply to: (a) any Awards delivered in lieu of fully-vested cash-based Awards under the Plan (or other fully-vested cash awards or payments), (b) any Awards to Directors for which the vesting period runs from the date of one annual meeting of the Company’s stockholders to the next annual meeting of the Company’s stockholders which is at least fifty (50) weeks after the immediately preceding year’s annual meeting, or (c) any other Awards that result in the issuance of an aggregate of up to five percent (5%) of the number of Shares authorized for grant under the Plan as of the Restatement Effective Date. Nothing in this Section 3.3 precludes the Committee (or the Board, in the case of awards granted to Directors) from taking action, in its sole discretion, to accelerate the vesting of any Award in connection with or following a Participant’s death, disability, termination of service or the consummation of a Change in Control in the terms of an Award Agreement or otherwise.
4
4.ELIGIBILITY AND ADMINISTRATION
4.1.Eligibility. Any Employee, Director or Consultant shall be eligible to be selected as a Participant.
4.2.Administration.
(a)The Plan shall be administered by the Committee. The Committee shall have full power and authority, subject to the provisions of the Plan and subject to such orders or resolutions not inconsistent with the provisions of the Plan as may from time to time be adopted by the Board, to: (i) select the Employees, Directors and Consultants to whom Awards may from time to time be granted hereunder; (ii) determine the type or types of Awards to be granted to each Participant hereunder; (iii) determine the number of Shares (or dollar value) to be covered by each Award granted hereunder; (iv) determine the terms and conditions, not inconsistent with the provisions of the Plan, of any Award granted hereunder; (v) determine whether, to what extent and under what circumstances Awards may be settled in cash, Shares or other property; (vi) determine whether, to what extent, and under what circumstances cash, Shares, other property and other amounts payable with respect to an Award made under the Plan shall be deferred either automatically or at the election of the Participant; (vii) subject to Section 12.1, determine whether, to what extent, and under what circumstances any Award shall be canceled or suspended; (viii) interpret and administer the Plan and any instrument or agreement entered into under or in connection with the Plan, including any Award Agreement; (ix) correct any defect, supply any omission, or reconcile any inconsistency in the Plan or any Award in the manner and to the extent that the Committee shall deem desirable to carry it into effect; (x) establish such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; (xi) determine whether any Award, other than an Option or Stock Appreciation Right, will have Dividend Equivalents; (xii) accelerate the vesting, payment and/or settlement of any Award; (xiii) amend any Award or Award Agreement, provided that the rights or obligations of the Participant of the Award that is the subject of any such Award Agreement are not impaired by such amendment in any material respect, unless the consent of the Participant is obtained or such amendment is otherwise permitted under Sections 11.1, 11.2, 12.1, 12.2, 13.5, 13.15 or the other terms of this Plan; and (xiv) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan.
(b)Decisions of the Committee shall be final, conclusive and binding on all persons or entities, including the Company, any Participant, and any Subsidiary. A majority of the members of the Committee may determine its actions, including fixing the time and place of its meetings. Notwithstanding the foregoing, any action or determination by the Committee specifically affecting or relating to a Director shall require the prior approval of the Board.
(c)To the extent not inconsistent with applicable law, or the rules and regulations of the Securities Exchange on which the Shares are traded, the Board or the Committee may delegate to a committee of one or more directors of the Company or one or more officers of the Company any of the authority of the Committee under the Plan, including the right to grant, cancel or suspend Awards; provided, however, that in no event shall an officer of the Company be delegated the authority to grant Awards to, or amend Awards held by, the following individuals: (a) individuals who are subject to Section 16 of the Exchange Act, or (b) officers of the Company (or Directors) to whom authority to grant or amend Awards has been delegated hereunder. Any delegation hereunder shall be subject to the restrictions and limits that the Board or Committee specifies at the time of such delegation, and the Board or Committee, as applicable, may at any time rescind the authority so delegated or appoint a new delegatee. At all times, the delegatee appointed under this Section 4.2(c) shall serve in such capacity at the pleasure of the Board or the Committee, as applicable, and the Board or the Committee may abolish any committee at any time and re-vest in itself any previously delegated authority.
4.3.Director Limit. Notwithstanding any provision to the contrary in the Plan, the Board may establish compensation for non-employee Directors from time to time, subject to the limitations in the Plan. The Board will from time to time determine the terms, conditions and amounts of all such non-employee Director compensation in its discretion and pursuant to the exercise of its business judgment, taking into account such factors, circumstances and considerations as it shall deem relevant from time to time, provided that the sum of any cash compensation, or other compensation, and the value (determined as of the grant date in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor thereto) of Awards granted to a non-employee Director as compensation for services as a non-employee Director during any fiscal year of the Company may not exceed $500,000 (increased to $750,000 with respect to any non-employee Director serving as Chairman of the Board or Lead Independent Director or in the fiscal year of a non-employee Director's initial service as a non-employee Director) (with any compensation that is deferred counting towards this limit for the year in which the compensation is first earned, and not a later year of settlement). The Board may make exceptions to this limit for individual non-employee Directors in
5
extraordinary circumstances, as the Board may determine in its discretion, provided that the non-employee Director receiving such additional compensation may not participate in the decision to award such compensation or in other contemporaneous compensation decisions involving non-employee Directors.
5. OPTIONS
5.1.Grant of Options. Options may be granted hereunder to Participants either alone or in addition to other Awards granted under the Plan. Any Option shall be subject to the terms and conditions of this Article and to such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall deem desirable.
5.2.Award Agreements. All Options shall be evidenced by a written Award Agreement in such form and containing such terms and conditions as the Committee shall determine which are not inconsistent with the provisions of the Plan (including Section 3.3). The terms and conditions of Options need not be the same with respect to each Participant. Granting an Option pursuant to the Plan shall impose no obligation on the recipient to exercise such Option. Any individual who is granted an Option pursuant to this Article may hold more than one Option granted pursuant to the Plan at the same time.
5.3.Option Price. Other than in connection with Substitute Awards, the option price per each Share purchasable under any Option granted pursuant to this Article shall not be less than 100% of the Fair Market Value of one Share on the date of grant of such Option; provided, however, that in the case of an Incentive Stock Option granted to a Participant who, at the time of the grant, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Subsidiary, the option price per share shall be no less than 110% of the Fair Market Value of one Share on the date of grant.
5.4.Option Term. The term of each Option shall be fixed by the Committee in its sole discretion; provided that no Option shall be exercisable after the expiration of seven (7) years from the date the Option is granted, except in the event of death or disability; provided, however, that the term of the Option shall not exceed five (5) years from the date the Option is granted in the case of an Incentive Stock Option granted to a Participant who, at the time of the grant, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Subsidiary.
5.5.Exercise of Options.
(a)Vested Options granted under the Plan shall be exercised by the Participant or by a Permitted Assignee thereof (or by the Participant’s executors, administrators, guardian or legal representative, as may be provided in an Award Agreement) as to all or part of the Shares covered thereby, by giving notice of exercise to the Company or its designated agent, specifying the number of Shares to be purchased. The notice of exercise shall be in such form, made in such manner, and shall comply with such other requirements consistent with the provisions of the Plan as the Committee may prescribe from time to time.
(b)Unless otherwise provided in an Award Agreement, full payment of such purchase price shall be made at the time of exercise and shall be made: (i) in cash or cash equivalents (including certified check or bank check or wire transfer of immediately available funds); (ii) by tendering previously acquired Shares (either actually or by attestation) with a fair market value on the date of delivery equal to the amount of the purchase price to be paid by the Participant; (iii) with the consent of the Committee, by delivery of other consideration having a fair market value on the exercise date equal to the total purchase price; (iv) with the consent of the Committee, by the withholding of Shares issuable upon exercise of such Options by the Company with a fair market value on the date of delivery equal to the amount of the purchase price to be paid by the Participant; (v) through any other method specified in an Award Agreement (including through delivery (including telephonically to the extent permitted by the Company) of a notice that the Participant has placed a market sell order with a broker acceptable to the Company with respect to Shares then issuable upon exercise of such Options, and that the broker has been directed to deliver promptly to the Company funds sufficient to satisfy the applicable purchase price (provided that such amount is paid to the Company at such time as may be required by the Company)); or (vi) any combination of any of the foregoing. The notice of exercise, accompanied by such payment, shall be delivered to the Company at its principal business office or such other office as the Committee may from time to time direct, and shall be in such form, containing such further provisions consistent with the provisions of the Plan, as the Committee may from time to time prescribe. In no event may any Option granted hereunder be exercised for a fraction of a Share.
6
(c)Notwithstanding the foregoing, an Award Agreement evidencing an Option may provide that if on the last day of the term of the Option the Fair Market Value of one Share exceeds the option price per Share, the Participant has not exercised the Option (or a tandem Stock Appreciation Right, if applicable) and the Option has not expired, the Option shall be deemed to have been exercised by the Participant on such day with payment made by withholding Shares otherwise issuable in connection with the exercise of the Option (subject to Section 13.2). In such event, the Company shall deliver to the Participant the number of Shares for which the Option was deemed exercised, less the number of Shares required to be withheld for the payment of the total purchase price and required withholding taxes; provided, however, any fractional Share shall be settled in cash.
5.6.Form of Settlement. In its sole discretion, the Committee may provide that the Shares to be issued upon an Option's exercise shall be in the form of Restricted Stock or other similar securities.
5.7.Incentive Stock Options. The Committee may grant Incentive Stock Options to any Employee of the Company or any of its present or future parent or subsidiary corporations, as defined in Sections 424(e) or (f) of the Code, respectively, and any other entities the employees of which are eligible to receive Incentive Stock Options under the Code. All Incentive Stock Options will be subject to and construed consistently with Section 422 of the Code. By accepting an Incentive Stock Option, the Participant agrees to give prompt notice to the Company of dispositions or other transfers (other than in connection with a Change in Control) of Shares acquired under the Option made within (a) two (2) years from the grant date of the Option or (b) one (1) year after the transfer of such Shares to the Participant, specifying the date of the disposition or other transfer and the amount the Participant realized, in cash, other property, assumption of indebtedness or other consideration, in such disposition or other transfer. Neither the Company nor the Committee will be liable to a Participant, or any other party, if an Incentive Stock Option fails or ceases to qualify as an “incentive stock option” under Section 422 of the Code. Any Incentive Stock Option or portion thereof that fails to qualify as an “incentive stock option” under Section 422 of the Code for any reason, including becoming exercisable with respect to Shares having a fair market value exceeding the $100,000 limitation under Treasury Regulation Section 1.422-4, will be a Non-Qualified Stock Option.
6.STOCK APPRECIATION RIGHTS
6.1.Grant and Exercise. Stock Appreciation Rights may be granted hereunder to Participants either alone or in addition to other Awards granted under the Plan.
6.2.Terms and Conditions. Stock Appreciation Rights shall be subject to the terms and conditions of this Article and to such additional terms and conditions, not inconsistent with the provisions of the Plan (including Section 3.3), as shall be determined from time to time by the Committee, including the following:
(a)Upon the exercise of a Stock Appreciation Right, the holder shall have the right to receive the excess of: (i) the Fair Market Value of one Share on the date of exercise (or such amount less than such Fair Market Value as the Committee shall so determine at any time during a specified period before the date of exercise), over (ii) the grant price of the Stock Appreciation Right.
(b)The Committee shall determine in its sole discretion whether payment on exercise of a Stock Appreciation Right shall be made in cash, in whole Shares or other property, or any combination thereof.
(c)The terms and conditions of Stock Appreciation Rights need not be the same with respect to each recipient.
(d)The Committee may impose such other terms and conditions on the exercise of any Stock Appreciation Right, as it shall deem appropriate. A Stock Appreciation Right shall: (i) have a grant price per Share of not less than the Fair Market Value of one Share on the date of grant, except in the case of Substitute Awards or in connection with an adjustment provided in Section 12.2; and (ii) have a term not greater than seven (7) years.
(e)An Award Agreement evidencing a Stock Appreciation Right may provide that if on the last day of the term of a Stock Appreciation Right the Fair Market Value of one Share exceeds the grant price per Share of the Stock Appreciation Right, the Participant has not exercised the Stock Appreciation Right or the tandem Option (if applicable), and the Stock Appreciation Right has not expired, the Stock Appreciation Right shall be deemed to have been exercised by the Participant on such day. In such event, the Company shall make payment to the Participant in
7
accordance with this Section, reduced by the number of Shares (or cash) required for withholding taxes (subject to Section 13.2). Any fractional Share shall be settled in cash.
7.RESTRICTED STOCK AND RESTRICTED STOCK UNITS
7.1.Grants. Awards of Restricted Stock and of Restricted Stock Units may be issued hereunder to Participants either alone or in addition to other Awards granted under the Plan (a “Restricted Stock Award” or “Restricted Stock Unit Award” respectively), and such Restricted Stock Awards and Restricted Stock Unit Awards shall also be available as a form of payment of Performance Awards and other earned cash-based incentive compensation. Subject to Section 3.3, each Restricted Stock Award and Restricted Stock Unit Award shall be subject to vesting restrictions imposed by the Committee during the applicable Vesting Period. The Committee has absolute discretion to determine whether any consideration (other than services) is to be received by the Company or any Subsidiary as a condition precedent to the issuance of Restricted Stock Awards or Restricted Stock Unit Awards; provided that the consideration shall in all events equal or exceed the par value per Share.
7.2.Award Agreements. The terms of any Restricted Stock Award or Restricted Stock Unit Award granted under the Plan shall be set forth in an Award Agreement which shall contain provisions determined by the Committee and not inconsistent with the Plan, including whether any such Restricted Stock Unit Awards shall have Dividend Equivalents. The terms of Restricted Stock Awards and Restricted Stock Unit Awards need not be the same with respect to each Participant.
7.3.Rights of Holders of Restricted Stock and Restricted Stock Units.
(a)Unless otherwise provided in the applicable Award Agreement, beginning on the date of grant of the Restricted Stock Award and subject to execution of the Award Agreement, the Participant shall become a stockholder of the Company with respect to all Shares subject to the Award Agreement and shall have all of the rights of a stockholder, including the right to vote such Shares and, subject to Section 7.3(c), the right to receive dividends and other distributions made with respect to such Shares.
(b)A Participant receiving a Restricted Stock Unit Award shall not possess voting rights or the right to receive any dividends or other distributions with respect to such Award. The applicable Award Agreement may, however, grant the Participant Dividend Equivalents with respect to Restricted Stock Units (which Dividend Equivalents shall be subject to the provisions of Section 8.2).
(c)Notwithstanding the provisions of this Section, cash dividends with respect to any Restricted Stock Award and any other property (other than cash) distributed as a dividend or otherwise with respect to any Restricted Stock Award shall be subject to restrictions and risk of forfeiture to the same extent as the Restricted Stock with respect to which such cash, Shares or other property has been distributed and shall either (i) be paid at the time such restrictions and risk of forfeiture lapse or (ii) forfeited to the extent the underlying Restricted Stock is forfeited.
(d)Except as otherwise determined by the Committee at the time of the grant of a Restricted Stock Award or thereafter, (a) if no purchase price was paid by the Participant for the Restricted Stock, upon a termination of the Participant's employment or service relationship, the Participant's rights in unvested Restricted Stock then subject to restrictions shall lapse and be forfeited, and such Restricted Stock shall be surrendered to the Company and cancelled without consideration, and (b) if a purchase price was paid by the Participant for the Restricted Stock, upon a termination of the Participant's employment or service relationship, the Company shall have the right to repurchase from the Participant the unvested Restricted Stock then subject to restrictions at a cash price per share equal to the price paid by the Participant for such Restricted Stock or such other amount as may be specified in the applicable Award Agreement.
7.4Issuance of Shares. Any Restricted Stock granted under the Plan may be evidenced in such manner as the Board may deem appropriate, including book-entry registration or issuance of a stock certificate or certificates, which certificate or certificates shall be held by the Company. Such certificate or certificates shall be registered in the name of the Participant and shall bear an appropriate legend referring to the restrictions applicable to such Restricted Stock.
8
8.OTHER SHARE-BASED AWARDS; DIVIDEND EQUIVALENTS
8.1.Grants of Other Share-Based Awards. Other Awards of Shares and other Awards that are valued in whole or in part by reference to, or are otherwise based on, Shares or other property (“Other Share-Based Awards”), including deferred stock units, may be granted hereunder to Participants either alone or in addition to other Awards granted under the Plan. Other Share-Based Awards shall also be available as a form of payment of other Awards granted under the Plan and other earned cash-based compensation. Subject to Section 3.3, other Share-Based Awards shall be subject to such vesting restrictions as are imposed by the Committee during the applicable Vesting Period.
8.2.Dividend Equivalents. Subject to the provisions of the Plan and any Award Agreement, the recipient of an Award other than an Option or Stock Appreciation Right may, if so determined by the Committee, be entitled to receive amounts equivalent to cash, stock or other property dividends on Shares (“Dividend Equivalents”) with respect to the number of Shares covered by the Award, as determined by the Committee, in its sole discretion. The Committee may provide that the Dividend Equivalents (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested and shall provide that the Dividend Equivalents are subject to the same vesting or performance conditions as the underlying Award. Notwithstanding the foregoing, dividends or Dividend Equivalents with respect to an Award that is subject to vesting that are based on dividends paid prior to the vesting of such Award shall only be paid out to the Participant to the extent that the vesting conditions are subsequently satisfied and the Award vests. For the avoidance of doubt, dividend or Dividend Equivalents may not be granted in connection with an Option or Stock Appreciation Rights.
8.3.Award Agreements. The terms of Other Share-Based Award and Dividend Equivalents granted under the Plan shall be set forth in an Award Agreement which shall contain provisions determined by the Committee and not inconsistent with the Plan, including whether any such Other Share-Based Awards shall have Dividend Equivalents (which Dividend Equivalents shall be subject to the provisions of Section 8.2). The terms of such Awards need not be the same with respect to each Participant.
8.3.Payment. Except as may be provided in an Award Agreement, Other Share-Based Awards and Dividend Equivalents may be paid in cash, Shares, other property, or any combination thereof, in the sole discretion of the Committee.
9.PERFORMANCE AWARDS
9.1.Grants. Performance Awards in the form of Performance Cash, Performance Shares or Performance Units, as determined by the Committee in its sole discretion, may be granted hereunder to Participants, for no consideration or for such minimum consideration as may be required by applicable law, either alone or in addition to other Awards granted under the Plan. The performance goals to be achieved for each Performance Period shall be conclusively determined by the Committee and may be based upon, without limitation, the criteria set forth in Section 10.1.
9.2.Award Agreements. The terms of any Performance Award granted under the Plan shall be set forth in an Award Agreement (or, if applicable, in a resolution duly adopted by the Committee) which shall contain provisions determined by the Committee and not inconsistent with the Plan (subject to Section 3.3), including whether such Awards shall have Dividend Equivalents (which Dividend Equivalents shall be subject to the provisions of Section 8.2). The terms of Performance Awards need not be the same with respect to each Participant.
9.3.Terms and Conditions. The performance criteria to be achieved during any Performance Period and the length of the Performance Period shall be determined by the Committee upon the grant of each Performance Award. The amount of the Award to be distributed shall be conclusively determined by the Committee.
9.4.Payment. Except as provided in Article 11 or as may be provided in an Award Agreement, Performance Awards will be distributed only after the end of the relevant Performance Period. Performance Awards may be paid in cash, Shares, other property, or any combination thereof, in the sole discretion of the Committee.
10.PERFORMANCE CRITERIA
10.1.Performance Criteria. If the Committee determines that the lapsing of restrictions on an Award and the distribution of cash, Shares or other property pursuant thereto, as applicable, shall be subject to the achievement of one or more objective performance goals established by the Committee, such performance goals may, without limitation,
9
be based on the attainment of specified levels of one or any combination of the following: net sales; revenue; revenue growth or product revenue growth; operating income (before or after taxes); pre- or after-tax income or loss (before or after allocation of corporate overhead and bonus); earnings or loss per share; net income or loss (before or after taxes); return on equity; total stockholder return; return on assets or net assets; appreciation in and/or maintenance of the price of the Shares or any other publicly-traded securities of the Company; market share; gross profits; earnings or losses (including earnings or losses before taxes, before interest and taxes, or before interest, taxes, depreciation and amortization); economic value-added models or equivalent metrics; comparisons with various stock market indices; reductions in costs; cash flow or cash flow per share (before or after dividends); return on capital (including return on total capital or return on invested capital); cash flow return on investment; improvement in or attainment of expense levels or working capital levels, including cash and accounts receivable; operating margin; gross margin; year-end cash; cash margin; debt reduction; stockholders equity; operating efficiencies; market share; customer satisfaction; customer growth; employee satisfaction; regulatory achievements (including submitting or filing applications or other documents with regulatory authorities or receiving approval of any such applications or other documents and passing pre-approval inspections (whether of the Company or the Company’s third-party manufacturer)); strategic partnerships or transactions; co-development, co-marketing, profit sharing, joint venture or other similar arrangements; financial ratios, including those measuring liquidity, activity, profitability or leverage; cost of capital or assets under management; financing and other capital raising transactions (including sales of the Company’s equity or debt securities; sales or licenses of the Company’s assets, including its intellectual property, whether in a particular jurisdiction or territory or globally; or through partnering transactions); cost per available seat mile; revenue per available seat mile; revenue or cost per revenue seat mile; percentage of flights completed on time; percentage of scheduled flights completed; lost passenger baggage per passenger or per seat mile; aircraft utilization; revenue per employee; and implementation, completion or attainment of measurable objectives with respect to commercialization, projects, service volume levels, acquisitions and divestitures; transactions; and recruiting and maintaining personnel. Such performance goals also may be based on the Company’s performance or the performance of a Subsidiary, division, business segment or business unit of the Company, or based upon the relative performance of other companies or upon comparisons of any of the indicators of performance relative to other companies. The Committee may also exclude charges related to an event or occurrence which the Committee determines should appropriately be excluded, including: (a) restructurings, discontinued operations, extraordinary items, and other unusual, infrequently occurring or non-recurring charges; (b) an event either not directly related to the operations of the Company or not within the reasonable control of the Company’s management; or (c) the cumulative effects of tax or accounting changes in accordance with U.S. generally accepted accounting principles.
11.CHANGE IN CONTROL PROVISIONS
11.1.Treatment of Awards Upon Non-Assumption in a Change in Control. Subject to Section 11.2 below, unless otherwise determined by the Committee and evidenced in an Award Agreement, in the event of a Change in Control of the Company, to the extent the successor company does not assume or substitute for an Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award or Other Share-Based Award (or in the case of a Change in Control in which the Company is the ultimate parent corporation and does not continue the Award), then immediately prior to the Change in Control: (i) those Options and Stock Appreciation Rights outstanding as of the date of the Change in Control the vesting of which is solely time-based that are not assumed or substituted for (or continued) shall immediately vest and become fully exercisable; (ii) all restrictions, limitations and other conditions applicable to Restricted Stock and Restricted Stock Units outstanding as of the date of the Change in Control the vesting of which is solely time-based that are not assumed or substituted for (or continued)shall lapse and the Restricted Stock and Restricted Stock Units shall become free of all restrictions, limitations and conditions and become fully vested; (iii) the restrictions, other limitations and other conditions applicable to any Other Share-Based Awards or any other Award outstanding as of the date of the Change in Control the vesting of which is solely time-based that are not assumed or substituted for (or continued) shall lapse, and such Other Share-Based Awards or such other Awards shall become free of all restrictions, limitations and conditions and become fully vested and transferable to the full extent of the original grant; and (iv) with respect to any Award the vesting of which is solely or partly tied to performance objectives, all performance goals or other vesting criteria applicable to such Award will be deemed achieved as follows: (A) for any performance period that has not yet commenced as of the date of the Change in Control, at 100% of target levels; (B) for any performance period that has commenced but has not yet ended as of the date of the Change in Control, at the greater of (1) 100% of target levels or (2) actual performance relative to the target levels as measured as of the date of the Change in Control (if measurable), and (C) for any performance period that has ended prior to the date of the Change in Control, at actual performance relative to the target levels as measured as of the end of the performance period, and, in
10
any case, all other terms and conditions will be deemed met and the resulting portion of the Award shall become free of all restrictions, limitations and conditions and become vested as to the portion of such Award determined in accordance with this clause (iv).
11.2.Treatment of Awards Upon Assumption or Substitution in a Change in Control. Unless otherwise provided in the applicable Award Agreement, in the event of a Change in Control of the Company in which the successor company assumes or provides a substitute award for an Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award, Other Share-Based Award or Dividend Equivalent Award (or in which the Company is the ultimate parent corporation and continues the Award), the automatic accelerated vesting of Awards as described in Section 11.1 upon a Change in Control shall not occur; provided that, if a Participant’s employment with such successor company (or the Company) or a subsidiary thereof terminates within 24 months following such Change in Control (or such other period set forth in the Award Agreement, including prior thereto if applicable) without “cause” or for “good reason” as defined in the Award Agreement or under other circumstances specified in the Award Agreement: (i) Options and Stock Appreciation Rights outstanding as of the date of such termination of employment will immediately vest, become fully exercisable, and may thereafter be exercised for 24 months (or such other longer period of time as is set forth in the applicable Award Agreement, but in no event beyond the original outside expiration date of such Award); (ii) the restrictions, limitations and other conditions applicable to Restricted Stock and Restricted Stock Units outstanding as of the date of such termination of employment shall lapse and the Restricted Stock and Restricted Stock Units shall become free of all restrictions, limitations and conditions and become fully vested; (iii) the restrictions, limitations and other conditions applicable to any Other Share-Based Awards or any other Awards shall lapse, and such Other Share-Based Awards or such other Awards shall become free of all restrictions, limitations and conditions and become fully vested and transferable to the full extent of the original grant; and (iv) with respect to any Award the vesting of which is solely or partly tied to performance objectives, all performance goals or other vesting criteria applicable to such Award will be deemed achieved as follows: (A) for any performance period that has not yet commenced as of the date of termination, at 100% of target levels; (B) for any performance period that has commenced but has not yet ended as of the date of termination, at the greater of (1) 100% of target levels or (2) actual performance relative to the target levels as measured as of the date of termination (if measurable), and (C) for any performance period that has ended prior to the date of termination, at actual performance relative to the target levels as measured as of the end of the performance period, and, in any case, all other terms and conditions will be deemed met and the resulting portion of the Award shall become free of all restrictions, limitations and conditions and become vested as to the portion of such Award determined in accordance with this clause (iv). For the purposes of this Section 11.2, an Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award or Other Share-Based Award shall be considered assumed or substituted for if, following the Change in Control, the assumed or substituted award confers the right to purchase or receive, for each Share subject to the Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award or Other Share-Based Award immediately prior to the Change in Control, the consideration (whether stock, cash or other securities or property) received in the transaction constituting a Change in Control by holders of Shares for each Share held on the effective date of such transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the transaction constituting a Change in Control is not solely common stock of the successor company, the Committee may, with the consent of the successor company, provide that the consideration to be received upon the exercise or vesting of an Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit Award or Other Share-Based Award, for each Share subject thereto, will be solely common stock of the successor company substantially equal in fair market value to the per Share consideration received by holders of Shares in the transaction constituting a Change in Control. The determination of such substantial equality of value of consideration shall be made by the Committee in its sole discretion and its determination shall be conclusive and binding.
11.3.Definition of Change in Control. For purposes of the Plan, unless otherwise provided in an Award Agreement, Change in Control means the occurrence of any one of the following events:
(a)During any twenty-four (24) month period, individuals who, as of the beginning of such period, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the beginning of such period whose election or nomination for election was approved by a vote of at least a majority of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however,
11
that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director;
(b)Any “person” (as such term is defined in the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of the Board (the “Company Voting Securities”); provided, however, that the event described in this paragraph (b) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (i) by the Company or any Subsidiary; (ii) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary; (iii) by any underwriter temporarily holding securities pursuant to an offering of such securities; (iv) pursuant to a Non-Qualifying Transaction, as defined in paragraph (c); or (v) by any person of Company Voting Securities from the Company, if a majority of the Incumbent Directors approves in advance the acquisition of beneficial ownership of 50% or more of Company Voting Securities by such person;
(c)The consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company’s stockholders, whether for such transaction or the issuance of securities in the transaction (a “Business Combination”), unless immediately following such Business Combination: (i) more than 50% of the total voting power of (A) the corporation resulting from such Business Combination (the “Surviving Corporation”), or (B) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the “Parent Corporation”), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (ii) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 50% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (iii) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (i), (ii) and (iii) above shall be deemed to be a “Non-Qualifying Transaction”); or
(d)The stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or the consummation of a sale of all or substantially all of the Company’s assets.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any person acquires beneficial ownership of 50% or more of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur.
Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Award (or portion of any Award) that provides for the deferral of compensation that is subject to Section 409A, to the extent required to avoid the imposition of additional taxes under Section 409A, the transaction or event shall only constitute a Change in Control for purposes of the payment timing of such Award if such transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).
11.4.No Restriction on Company Rights. The existence of the Plan, any Award Agreement and the Awards granted hereunder shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Shares or the rights thereof or which are convertible into or exchangeable for Shares, or the dissolution or liquidation of
12
the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.
11.5.Administrative Convenience. In the event of any Change in Control or any transaction described in Section 12.2, including any Equity Restructuring, for reasons of administrative convenience, the Company, in its discretion, may refuse to permit the exercise of any Award during a period of up to thirty (30) days prior to the consummation of any such transaction.
12.GENERALLY APPLICABLE PROVISIONS
12.1.Amendment and Termination of the Plan; Prohibition on Repricing. The Board or the Committee may, from time to time, alter, amend, suspend or terminate the Plan as it shall deem advisable, subject to any requirement for stockholder approval imposed by applicable law, including the rules and regulations of the Securities Exchange on which the Shares are then traded. However, subject to Section 12.2 hereof, without approval of the Company’s stockholders given within twelve (12) months before or after the action by the Board or the Committee, no action of the Board or the Committee may, except as provided in Section 12.2, increase the limits imposed in Section 3.1 on the maximum number of Shares which may be issued under the Plan or the maximum number of Shares that may be issued pursuant to Incentive Stock Options under the Plan. Subject to Article 11 and Section 12.2 hereof, the Committee shall not, without the approval of the stockholders of the Company, (a) authorize the amendment of any outstanding Option or Stock Appreciation Right to reduce its price per share, or (b) cancel any Option or Stock Appreciation Right in exchange for cash or another Award when the Option or Stock Appreciation Right price per share exceeds the Fair Market Value of the underlying Shares. Subject to Section 12.2 hereof, the Committee shall have the authority, without the approval of the stockholders of the Company, to amend any outstanding Award to increase the price per share or to cancel and replace an Award with the grant of an Award having a price per share that is greater than or equal to the price per share of the original Award.
12.2.Adjustments.
(a)In the event of any merger, reorganization, consolidation, recapitalization, dividend or distribution (whether in cash, shares or other property, other than a regular cash dividend), stock split, reverse stock split, spin-off or similar transaction or other change in corporate structure affecting the Shares or the value thereof, such adjustments and other substitutions may be made to the Plan and to Awards as the Committee deems equitable or appropriate taking into consideration the accounting and tax consequences, including such adjustments in the aggregate number, class and kind of securities that may be delivered under the Plan, the maximum number of Shares that may be issued pursuant to Incentive Stock Options, and, in the aggregate, in the number, class, kind and exercise price or grant price (if applicable) of securities subject to outstanding Awards granted under the Plan (including, if the Committee deems appropriate, the substitution of similar options to purchase the shares of, or other awards denominated in the shares of, another company) as the Committee may determine to be appropriate; provided, however, that the number of Shares subject to any Award shall always be a whole number.
(b)In connection with any Equity Restructuring, notwithstanding anything to the contrary in this Section 12.2 or Article 11, the Committee will equitably adjust each outstanding Award as it deems appropriate to reflect the Equity Restructuring, which may include adjusting the number, class and kind of securities subject to each outstanding Award and/or the Award’s exercise price or grant price (if applicable), granting new Awards to Participants, and making a cash payment to Participants. The adjustments provided under this Section 12.2(b) will be nondiscretionary and final and binding on the affected Participant and the Company; provided that the Committee will determine whether an adjustment is equitable.
(c)In the event of any Change in Control, after giving effect to any accelerated vesting pursuant to Section 11.1 in the event Awards under the Plan are not assumed or substituted for as provided therein, the Committee, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Participant’s request, is hereby authorized to take any one or more of the following actions whenever the Committee determines that such action is appropriate in order to (x) prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the Plan or with respect to any Award granted or issued under the Plan, or (y) to facilitate such transaction or event: (i) to provide for the cancellation of any such Award in exchange for either an amount of cash or other property with a value equal to the
13
amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participant’s rights under the vested portion of such Award, as applicable; provided that, if the amount that could have been obtained upon the exercise or settlement of the vested portion of such Award or realization of the Participant’s rights, in any case, is equal to or less than zero, then the Award may be terminated without payment; (ii) to provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and/or applicable exercise or purchase price, in all cases, as determined by the Committee; (iii) to make adjustments in the number and type of Shares (or other securities or property) subject to outstanding Awards and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding Awards; (iv) to replace such Award with other rights or property selected by the Committee; and/or (v) to provide that the Award will terminate and cannot be exercised or become payable after the applicable event.
12.3.Transferability of Awards. Except as provided below, no Award and no Shares that have not been issued or as to which any applicable restriction, performance or deferral period has not lapsed, may be sold, assigned, transferred, pledged or otherwise encumbered, other than by will or the laws of descent and distribution, and such Award may be exercised during the life of the Participant only by the Participant or the Participant’s guardian or legal representative. To the extent and under such terms and conditions as determined by the Committee, a Participant may assign or transfer an Award (each transferee thereof, a “Permitted Assignee”) to: (i) the Participant’s spouse, children or grandchildren (including any adopted and step children or grandchildren), parents, grandparents or siblings; (ii) to a trust for the benefit of one or more of the Participant or the persons referred to in clause (i); (iii) to a partnership, limited liability company or corporation in which the Participant or the persons referred to in clause (i) are the only partners, members or shareholders; or (iv) for charitable donations; provided that such transfer is not effectuated for any value or consideration and such Permitted Assignee shall be bound by and subject to all of the terms and conditions of the Plan and the Award Agreement relating to the transferred Award and shall execute an agreement satisfactory to the Company evidencing such obligations; and provided, further, that such Participant shall remain bound by the terms and conditions of the Plan. The Company shall cooperate with any Permitted Assignee and the Company’s transfer agent in effectuating any transfer permitted under this Section.
12.4.Termination of Employment or Services. The Committee shall determine and set forth in each Award Agreement whether any Awards granted in such Award Agreement will continue to be exercisable, continue to vest or be earned and the terms of such exercise, vesting or earning, on and after the date that a Participant ceases to be employed by or to provide services to the Company or any Subsidiary (including as a Director), whether by reason of death, disability, voluntary or involuntary termination of employment or services, or otherwise. The date of termination of a Participant’s employment or services will be determined by the Committee, which determination will be final.
12.5.Deferral. The Committee in its sole discretion shall be authorized to establish procedures pursuant to which the payment of any Award may be deferred.
12.6.Payment. The Committee shall determine the methods by which payments by any Participant with respect to any Awards granted under the Plan shall be made, including, without limitation: (a) in cash or cash equivalents (including certified check or bank check or wire transfer of immediately available funds), (b) Shares (including, in the case of payment of the exercise or purchase price of an Award, Shares issuable pursuant to the exercise or settlement of the Award) held for such period of time as may be required by the Committee in order to avoid adverse accounting consequences, in each case, having a fair market value on the date of delivery equal to the aggregate payments required, (c) through delivery (including telephonically to the extent permitted by the Company) of a written or electronic notice that the Participant has placed a market sell order with a broker acceptable to the Company with respect to Shares then-issuable upon exercise or vesting of an Award, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate payments required; provided, however, that payment of such proceeds is then made to the Company upon settlement of such sale, (d) other form of legal consideration acceptable to the Committee, or (e) any combination of the foregoing. The Committee shall also determine the methods by which Shares shall be delivered or deemed to be delivered to Participants. Notwithstanding any other provision of the Plan to the contrary, no Participant who is a Director or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to make payment with respect to any Awards granted under the Plan, or continue any extension of credit with respect to such payment with a loan from the Company or a loan arranged by the Company in violation of Section 13(k) of the Exchange Act. In all events, valid consideration shall be paid for all
14
Shares issued under the Plan, which consideration shall in all events equal or exceed the par value per Share.
13.MISCELLANEOUS
13.1.Award Agreements. Each Award Agreement shall either be: (a) in writing in a form approved by the Committee and executed by the Company by an officer duly authorized to act on its behalf; or (b) an electronic notice in a form approved by the Committee and recorded by the Company (or its designee) in an electronic recordkeeping system used for the purpose of tracking one or more types of Awards as the Committee may provide; in each case and if required by the Committee, the Award Agreement shall be executed or otherwise electronically accepted by the recipient of the Award in such form and manner as the Committee may require. The Committee may authorize any officer of the Company to execute any or all Award Agreements on behalf of the Company. The Award Agreement shall set forth the material terms and conditions of the Award as established by the Committee consistent with the provisions of the Plan.
13.2.Tax Withholding. The Company shall have the right to make all payments or distributions pursuant to the Plan to a Participant (or a Permitted Assignee thereof) (any such person, a “Payee”) net of any applicable federal, state and local taxes required to be paid or withheld as a result of any taxable event concerning a Payee arising in connection with any Award. The Company or any Subsidiary shall have the right to withhold or deduct from wages or other amounts otherwise payable to such Payee such withholding taxes as may be required by law, or to otherwise require the Payee to pay such withholding taxes. The Committee may in its sole discretion and in satisfaction of the foregoing requirement allow a Payee to satisfy such obligations by any payment means described in Section 12.6 hereof, including without limitation, by allowing such Payee to elect to have the Company or a Subsidiary withhold Shares otherwise issuable under an Award (or allow the surrender of Shares). Notwithstanding any other provision of the Plan, the number of Shares which may be so delivered or retained shall be limited to the number of Shares which have a fair market value on the date of delivery or retention no greater than the aggregate amount of such liabilities based on such Payee’s minimum applicable statutory tax withholding rates for federal, state, local and foreign income tax and payroll tax purposes or such other higher rates approved by the Committee (which rates shall in no event exceed the maximum individual statutory tax rate in the applicable jurisdiction at the time of such withholding (or such other rate as may be required to avoid the liability classification of the applicable award under generally accepted accounting principles in the United States of America)); provided, however, unless otherwise approved by the Committee, to the extent such Shares were acquired by the Payee from the Company as compensation, the Shares must have been held for the minimum period required by applicable accounting rules to avoid a charge to the Company’s earnings for financial reporting purposes; provided, further, that the number of Shares delivered or retained shall be rounded up to the nearest whole Share sufficient to cover the applicable tax withholding obligation to the extent rounding up to the nearest whole Share does not result in the liability classification of the applicable Award under generally accepted accounting principles in the United States of America, even if such rounding would cause the fair market value of the Shares tendered or withheld to exceed the minimum applicable statutory withholding rate. The Committee shall determine the fair market value of the Shares, consistent with applicable provisions of the Code, for tax withholding obligations due in connection with a broker-assisted cashless Option or Stock Appreciation Right exercise involving the sale of Shares to pay the Option or Stock Appreciation Right exercise price or any tax withholding obligation.
13.3.Right of Discharge Reserved; Claims to Awards. Nothing in the Plan nor the grant of an Award hereunder shall confer upon any Employee, Director or Consultant the right to continue in the employment or service of the Company or any Subsidiary or affect any right that the Company or any Subsidiary may have to terminate the employment or service of (or to demote or to exclude from future Awards under the Plan) any such Employee, Director or Consultant at any time for any reason “at will.” Except as specifically provided by the Committee, the Company shall not be liable for the loss of existing or potential profit from an Award granted in the event of termination of an employment or other relationship. No Employee, Director or Consultant shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Employees, Directors or Consultants under the Plan.
13.4.Substitute Awards. Notwithstanding any other provision of the Plan, the terms of Substitute Awards may vary from the terms set forth in the Plan to the extent the Committee deems appropriate to conform, in whole or in part, to the provisions of the awards in substitution for which they are granted.
13.5.Cancellation of Award; Forfeiture of Gain; Claw-backs.
15
(a)Notwithstanding anything to the contrary contained herein, an Award Agreement may provide that the Award shall be canceled if the Participant, without the consent of the Company, while employed by or providing services to the Company or any Subsidiary or after termination of such employment or service, violates a non-competition, non-solicitation or non-disclosure covenant or agreement or otherwise engages in activity that is in conflict with or adverse to the interest of the Company or any Subsidiary (including conduct contributing to any financial restatements or financial irregularities), as determined by the Committee in its sole discretion. The Committee may provide in an Award Agreement that if within the time period specified in the Award Agreement the Participant establishes a relationship with a competitor or engages in an activity referred to in the preceding sentence, the Participant will forfeit any gain realized on the vesting or exercise of the Award and must repay such gain to the Company.
(b) If the Company is required to prepare an accounting restatement of its financial statements due to the Company’s material noncompliance with any financial reporting requirement under the securities laws, then the Committee may, in its sole discretion (considering any factors the Committee deems appropriate), require a Participant to repay or forfeit to the Company that portion of time- and/or performance-based Awards that were granted, earned or vested during the Company’s three completed fiscal years immediately preceding the date the Company is required to prepare the accounting restatement, that the Committee determines was in excess of the amount that would have been granted, earned or vested during such period based on the restated results. In the case of time-based Awards, a recoupment may occur, in the Committee’s sole discretion, if the Committee concludes that the grant, earning and/or vesting of the Awards would not have been made, or would have been lower had they been based on the restated results, and it is possible to clearly compute the amount of such lesser award. The amount to be recouped shall be determined by the Committee in its sole and absolute discretion, and the form of such recoupment may be made, in the Committee’s sole and absolute discretion, through the forfeiture or cancellation of vested or unvested Awards, cash repayment or both. Any decision by the Committee that no recoupment shall occur because of difficulties of computation or otherwise shall not be reviewable. Further, all Awards (including, without limitation, any proceeds, gains or other economic benefit actually or constructively received by Participant upon any receipt or exercise of any Award or upon the receipt or resale of any Shares underlying the Award) shall be subject to the provisions of any claw-back policy implemented by the Company, including, without limitation, the Company’s Policy for Recovery of Erroneously Awarded Compensation, as and to the extent set forth in such claw-back policy or the Award Agreement. In addition, the Board may impose such other claw-back, recovery or recoupment provisions in an Award Agreement as the Board determines necessary or appropriate, including but not limited to a reacquisition right in respect of previously acquired shares of Common Stock or other cash or property upon the occurrence of Cause. No recovery of compensation under such a claw-back policy will be an event giving rise to a right to resign for “good reason” or “constructive termination” (or similar term) under any agreement with the Company.
13.6.Stop Transfer Orders. All certificates for Shares delivered under the Plan pursuant to any Award shall be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the U.S. Securities and Exchange Commission (“SEC”), any stock exchange upon which the Shares are then listed, and any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
13.7.Nature of Payments. All Awards made pursuant to the Plan are in consideration of services performed or to be performed for the Company or any Subsidiary, division or business unit of the Company. Any income or gain realized pursuant to Awards under the Plan constitutes a special incentive payment to the Participant and shall not be taken into account, to the extent permissible under applicable law, as compensation for purposes of any of the employee benefit plans of the Company or any Subsidiary except as may be determined by the Committee or by the Board or board of directors of the applicable Subsidiary.
13.8.Other Plans. Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.
13.9.Severability. The provisions of the Plan shall be deemed severable. If any provision of the Plan shall be held unlawful or otherwise invalid or unenforceable in whole or in part by a court of competent jurisdiction or by reason of change in a law or regulation, such provision shall: (a) be deemed limited to the extent that such court of competent jurisdiction deems it lawful, valid and/or enforceable and as so limited shall remain in full force and effect;
16
and (b) not affect any other provision of the Plan or part thereof, each of which shall remain in full force and effect. If the making of any payment or the provision of any other benefit required under the Plan shall be held unlawful or otherwise invalid or unenforceable by a court of competent jurisdiction, such unlawfulness, invalidity or unenforceability shall not prevent any other payment or benefit from being made or provided under the Plan, and if the making of any payment in full or the provision of any other benefit required under the Plan in full would be unlawful or otherwise invalid or unenforceable, then such unlawfulness, invalidity or unenforceability shall not prevent such payment or benefit from being made or provided in part, to the extent that it would not be unlawful, invalid or unenforceable, and the maximum payment or benefit that would not be unlawful, invalid or unenforceable shall be made or provided under the Plan.
13.10.Construction. As used in the Plan, the words “include” and “including,” and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation.”
13.11.Unfunded Status of the Plan. The Plan is intended to constitute an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver the Shares or payments in lieu of or with respect to Awards hereunder; provided, however, that the existence of such trusts or other arrangements is consistent with the unfunded status of the Plan.
13.12.Governing Law. The Plan and all determinations made and actions taken thereunder, to the extent not otherwise governed by the Code or the laws of the United States, shall be governed by the laws of the State of Utah, without reference to principles of conflict of laws, and construed accordingly.
13.13.Effective Date of Plan; Termination of Plan. This amended and restated Plan shall be effective on the date of the approval of the Plan by the stockholders of the Company (the “Restatement Effective Date”). If the Plan is not approved by the Company’s stockholders, this amended and restated Plan will not become effective, no Awards will be granted under this amended and restated Plan and the Original 2019 Plan will continue in full force and effect in accordance with its terms. This amended and restated Plan will be submitted for the approval of the Company’s stockholders within twelve (12) months after the date of the Board’s adoption of this amended and restated Plan. Notwithstanding anything herein to the contrary, no Incentive Stock Option shall be granted under this amended and restated Plan after the tenth (10th) anniversary of the date on which this amended and restated Plan is adopted by the Board.
13.14.Foreign Employees and Consultants. Awards may be granted to Participants who are foreign nationals or employed or providing services outside the United States, or both, on such terms and conditions different from those applicable to Awards to Employees or Consultants providing services in the United States as may, in the judgment of the Committee, be necessary or desirable in order to recognize differences in local law or tax policy. The Committee also may impose conditions on the exercise or vesting of Awards in order to minimize the Company's obligation with respect to tax equalization for Employees or Consultants on assignments outside their home country.
13.15.Compliance with Section 409A of the Code.
(a)The Company intends that all Awards be structured to comply with, or be exempt from, Section 409A, such that no adverse tax consequences, interest, or penalties under Section 409A apply. Notwithstanding anything in the Plan or any Award Agreement to the contrary, the Committee may, without a Participant’s consent, amend this Plan or Awards, adopt policies and procedures, or take any other actions (including amendments, policies, procedures and retroactive actions) as are necessary or appropriate to preserve the intended tax treatment of Awards, including any such actions intended to (A) exempt this Plan or any Award from Section 409A, or (B) comply with Section 409A, including regulations, guidance, compliance programs and other interpretative authority that may be issued after an Award’s grant date. The Company makes no representations or warranties as to an Award’s tax treatment under Section 409A or otherwise. The Company will have no obligation under this Section 13.15. otherwise to avoid the taxes, penalties or interest under Section 409A with respect to any Award and will have no liability to any Participant or any other person if any Award, compensation or other benefits under the Plan are determined to constitute noncompliant “nonqualified deferred compensation” subject to taxes, penalties or interest under Section 409A.
17
(b)If an Award constitutes “nonqualified deferred compensation” under Section 409A, any payment or settlement of such Award upon a termination of a Participant’s employment or service relationship will, to the extent necessary to avoid taxes under Section 409A, be made only upon the Participant’s “separation from service” (within the meaning of Section 409A), whether such “separation from service” occurs upon or after the termination of the Participant’s employment or service relationship. For purposes of this Plan or any Award Agreement relating to any such payments or benefits, references to a “termination,” “termination of employment” or like terms means a “separation from service.”
(c) Notwithstanding any contrary provision in the Plan or any Award Agreement, any payment(s) of “nonqualified deferred compensation” required to be made under an Award to a “specified employee” (as defined under Section 409A and as the Committee determines) due to his or her “separation from service” will, to the extent necessary to avoid taxes under Section 409A(a)(2)(B)(i) of the Code, be delayed for the six-month period immediately following such “separation from service” (or, if earlier, until the specified employee’s death) and will instead be paid (as set forth in the Award Agreement) on the day immediately following such six-month period or as soon as administratively practicable thereafter (without interest). Any payments of “nonqualified deferred compensation” under such Award payable more than six months following the Participant’s “separation from service” will be paid at the time or times the payments are otherwise scheduled to be made.
13.16No Registration Rights; No Right to Settle in Cash. The Company has no obligation to register with any governmental body or organization (including, without limitation, the SEC) any of: (a) the offer or issuance of any Award; (b) any Shares issuable upon the exercise of any Award; or (c) the sale of any Shares issued upon exercise of any Award, regardless of whether the Company in fact undertakes to register any of the foregoing. In particular, in the event that any of: (i) any offer or issuance of any Award; (ii) any Shares issuable upon exercise of any Award; or (iii) the sale of any Shares issued upon exercise of any Award are not registered with any governmental body or organization (including, without limitation, the SEC), the Company will not under any circumstance be required to settle its obligations, if any, under this Plan in cash.
13.17Captions. The captions in the Plan are for convenience of reference only, and are not intended to narrow, limit or affect the substance or interpretation of the provisions contained herein.
18
Exhibit 31.1
CERTIFICATION
I, Russell A. Childs, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of SkyWest, Inc. for the quarter ended June 30, 2024. |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report. |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: July 26, 2024 | |
| |
/s/ Russell A. Childs | |
| |
Russell A. Childs | |
Chief Executive Officer and President | |
Exhibit 31.2
CERTIFICATION
I, Robert J. Simmons, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of SkyWest, Inc. for the quarter ended June 30, 2024. |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report. |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: July 26, 2024 | |
| |
/s/ Robert J. Simmons | |
| |
Robert J. Simmons | |
Chief Financial Officer | |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of SkyWest, Inc. (the “Company”) for the quarter ended June 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Russell A. Childs, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Russell A. Childs | |
| |
Russell A. Childs | |
Chief Executive Officer and President | |
July 26, 2024 | |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Exhibit 32.2
CERTIFICATION PURSUANT
TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of SkyWest, Inc. (the “Company”) for the quarter ended June 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert J. Simmons, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Robert J. Simmons | |
| |
Robert J. Simmons | |
Chief Financial Officer | |
July 26, 2024 | |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Jun. 30, 2024 |
Dec. 31, 2023 |
---|---|---|
CONSOLIDATED BALANCE SHEETS | ||
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, shares issued | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0 | $ 0 |
Common stock, shares authorized | 120,000,000 | 120,000,000 |
Common stock, shares issued | 83,139,289 | 82,840,372 |
Treasury stock, at cost, shares | 43,045,566 | 42,615,347 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
|
OPERATING REVENUES: | ||||
Total operating revenues | $ 867,118 | $ 725,643 | $ 1,670,732 | $ 1,417,474 |
OPERATING EXPENSES: | ||||
Salaries, wages and benefits | 355,005 | 322,441 | 706,004 | 657,642 |
Aircraft maintenance, materials and repairs | 183,267 | 162,491 | 328,682 | 304,717 |
Depreciation and amortization | 96,814 | 97,169 | 192,684 | 191,318 |
Aircraft fuel | 21,328 | 18,279 | 42,492 | 39,243 |
Airport-related expenses | 17,535 | 16,955 | 38,423 | 35,250 |
Aircraft rentals | 1,310 | 2,428 | 2,586 | 21,956 |
Other operating expenses | 72,219 | 74,020 | 140,715 | 140,192 |
Total operating expenses | 747,478 | 693,783 | 1,451,586 | 1,390,318 |
OPERATING INCOME | 119,640 | 31,860 | 219,146 | 27,156 |
OTHER INCOME (EXPENSE): | ||||
Interest income | 12,040 | 10,494 | 23,666 | 20,527 |
Interest expense | (28,966) | (33,718) | (58,795) | (67,338) |
Other income (loss), net | (548) | 9,001 | (1,676) | 11,175 |
Total other expense, net | (17,474) | (14,223) | (36,805) | (35,636) |
INCOME (LOSS) BEFORE INCOME TAXES | 102,166 | 17,637 | 182,341 | (8,480) |
PROVISION (BENEFIT) FOR INCOME TAXES | 26,588 | 2,218 | 46,465 | (1,828) |
NET INCOME (LOSS) | $ 75,578 | $ 15,419 | $ 135,876 | $ (6,652) |
BASIC EARNINGS (LOSS) PER SHARE (in dollars per share) | $ 1.88 | $ 0.35 | $ 3.38 | $ (0.14) |
DILUTED EARNINGS (LOSS) PER SHARE (in dollars per share) | $ 1.82 | $ 0.35 | $ 3.28 | $ (0.14) |
Weighted average common shares: | ||||
Basic (in shares) | 40,179 | 43,837 | 40,239 | 46,614 |
Diluted (in shares) | 41,431 | 44,219 | 41,462 | 46,614 |
COMPREHENSIVE INCOME (LOSS): | ||||
Net income (loss) | $ 75,578 | $ 15,419 | $ 135,876 | $ (6,652) |
Net unrealized appreciation (depreciation) on marketable securities, net of taxes | (660) | 1,514 | (833) | 2,994 |
TOTAL COMPREHENSIVE INCOME (LOSS) | 74,918 | 16,933 | 135,043 | (3,658) |
Flying agreements | ||||
OPERATING REVENUES: | ||||
Total operating revenues | 838,170 | 700,394 | 1,616,459 | 1,364,232 |
Lease, airport services and other | ||||
OPERATING REVENUES: | ||||
Total operating revenues | $ 28,948 | $ 25,249 | $ 54,273 | $ 53,242 |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | |||
---|---|---|---|---|
Jun. 30, 2024 |
Mar. 31, 2024 |
Jun. 30, 2023 |
Mar. 31, 2023 |
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY | ||||
Net unrealized appreciation on marketable securities, net of tax | $ 212 | $ 56 | $ 488 | $ 476 |
Condensed Consolidated Financial Statements |
6 Months Ended |
---|---|
Jun. 30, 2024 | |
Condensed Consolidated Financial Statements | |
Condensed Consolidated Financial Statements | (1) Condensed Consolidated Financial Statements Basis of Presentation The condensed consolidated financial statements of SkyWest, Inc. (“SkyWest” or the “Company”), its operating subsidiary SkyWest Airlines, Inc. (“SkyWest Airlines”), its leasing subsidiary SkyWest Leasing, Inc. (“SkyWest Leasing”) and its charter service subsidiary SkyWest Charter, LLC (“SWC”) included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). 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. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented. All adjustments are of a normal recurring nature, unless otherwise disclosed. 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, 2023. The results of operations for the three and six months ended June 30, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions. Recent Accounting Pronouncements In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment Reporting (Accounting Standard Codification (“ASC”) Topic 280) – Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU also expands disclosure requirements to enable users of financial statements to better understand the entity’s measurement and assessment of segment performance and resource allocation. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its consolidated financial statements and related disclosures. In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (ASC Topic 740) – Improvements to Income Tax Disclosures”, which enhances the transparency, effectiveness and comparability of income tax disclosures by requiring consistent categories and greater disaggregation of information related to income tax rate reconciliations and the jurisdictions in which income taxes are paid. The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its consolidated financial statements and related disclosures. |
Operating Revenues |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating Revenues | (2) Operating Revenues 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. (“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, on-time performance or other performance metrics. 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. Under the capacity purchase agreements, the Company’s performance obligation is met when each flight is completed, measured in completed block hours, and is reflected in flying agreements revenue. The transaction price for the capacity purchase agreements is determined from the fixed-fee consideration, incentive consideration and directly reimbursed expenses earned as flights are completed over the agreement term. For the six months ended June 30, 2024 and 2023, capacity purchase agreements represented approximately 87.1% and 88.3% of the Company’s flying agreements revenue, respectively. Under the Company’s “prorate” agreements, 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. Certain routes under the Company’s prorate agreements are subsidized by the U.S. Department of Transportation under the Essential Air Service (“EAS”) program, a program created to ensure small communities in the United States maintain a minimum level of scheduled air service. The EAS contracts are generally two years in duration and the Company recognizes EAS revenue on a per-completed-flight basis pursuant to the terms of each contract. Under the Company’s charter operations, SWC, the Company negotiates a fare for the charter flight with the customer. The performance obligation is met and revenue is recognized upon completion of the flight. For the six months ended June 30, 2024 and 2023, prorate flying agreements and SWC revenue represented approximately 12.9% and 11.7% of the Company’s flying agreements revenue, respectively. The following table represents the Company’s flying agreements revenue by type for the three and six months ended June 30, 2024 and 2023 (in thousands):
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 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. Accordingly, the Company’s revenue recognition will likely vary from the timing of cash receipts under the Company’s capacity purchase agreements. The Company refers to cash received under its capacity purchase agreements prior to recognizing revenue as “deferred revenue,” and the Company refers to revenue recognized prior to billing its major airline partners under its capacity purchase agreements as “unbilled revenue” for each reporting period. During the six months ended June 30, 2024, the Company recognized $6.0 million of previously deferred revenue associated with the non-lease fixed monthly payments under certain agreements and decreased unbilled revenue by $0.6 million under certain other agreements, compared to deferring revenue of $77.4 million and decreasing unbilled revenue by $6.0 million during the six months ended June 30, 2023. 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 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. 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 recognizes fixed monthly lease payments as lease revenue using the straight-line basis over the capacity purchase agreement term and variable lease payments in the period when the block hours are completed. The Company recognized $1.0 million of previously deferred lease revenue during the six months ended June 30, 2024, whereas the Company deferred recognizing lease revenue of $40.0 million during the six months ended June 30, 2023, under the straight-line basis. The Company has not separately stated aircraft rental income and aircraft rental expense in the consolidated statement of comprehensive income because the use of the aircraft is not a separate activity of the total service provided under the capacity purchase agreements. The Company’s total deferred revenue balance as of June 30, 2024 was $367.6 million, including $64.2 million in other current liabilities and $303.4 million in other long-term liabilities. The Company’s unbilled revenue balance was $6.7 million as of June 30, 2024, including $1.1 million in other current assets and $5.6 million in other long-term assets. The Company’s total deferred revenue balance was $374.6 million as of December 31, 2023, including $61.0 million in other current liabilities and $313.6 million in other long-term liabilities. The Company’s unbilled revenue balance was $7.3 million as of December 31, 2023, including $1.2 million in other current assets and $6.1 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. In several of the Company’s agreements, the Company is eligible to receive incentive compensation upon the achievement of certain performance criteria. The incentives are defined in the agreements and are measured and determined on a monthly, quarterly or semi-annual basis. At the end of each period during the term of an agreement, the Company calculates the incentives achieved during that period and recognizes revenue attributable to that agreement accordingly, subject to the variable constraint guidance under ASC Topic 606. As of June 30, 2024, the Company had 475 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:
In addition to the contractual arrangements described above, as of June 30, 2024, SkyWest Airlines reached agreements to place the following E175 aircraft under a capacity purchase agreement with the respective major airline partners:
Final delivery and in-service dates for aircraft to be placed under contract may be adjusted based on various factors. When an aircraft is scheduled to be removed from a capacity purchase agreement, the Company may, as practical under the circumstances, negotiate an extension with the respective major airline partner, negotiate the placement of the aircraft with another major airline partner, return the aircraft to the major airline partner when the aircraft is provided by the major airline partner, 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 disassembling aircraft components such as the engines and parts to be used as spare inventory. Lease, airport services and other revenues primarily consist of revenue generated from aircraft and spare engines leased to third parties and from airport customer service agreements, such as gate and ramp agent services at various airports where the Company has been contracted by third parties to provide such services. The following table represents the Company’s lease, airport services and other revenues for the three and six months ended June 30, 2024 and 2023 (in thousands):
The following table summarizes future minimum rental income under operating leases primarily related to leased aircraft and engines that had remaining non-cancelable lease terms as of June 30, 2024 (in thousands):
Of the Company’s $5.4 billion of net property and equipment as of June 30, 2024, $207.6 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. Additionally, the operating leases typically have specified lease return condition requirements paid by the lessee to the Company and the Company typically maintains inspection rights under the leases. The transaction price for airport customer service agreements is determined from an agreed-upon rate by location applied to the applicable number of flights handled by the Company over the agreement term. The Company’s operating revenues could be impacted by several factors, including changes to the Company’s code-share agreements with its major airline partners, changes in flight schedules, contract modifications resulting from contract renegotiations, the Company’s ability to earn incentive payments contemplated under the Company’s code-share agreements and resolution of unresolved items with the Company’s major airline partners. Other ancillary revenues commonly associated with airlines, such as baggage fee revenue, ticket change fee revenue and the marketing component of the sale of mileage credits, are retained by the Company’s major airline partners on flights that the Company operates under its code-share agreements. Allowance for Credit Losses The Company monitors publicly available credit ratings for entities for which the Company has a significant receivable balance. As of June 30, 2024, the Company had gross receivables of $106.9 million in current assets and gross receivables of $206.0 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, notes receivable or guarantees. During the six months ended June 30, 2024, there were no significant changes in the outstanding accounts receivable, notes receivable, guarantees or credit ratings of the entities. The following table summarizes the changes in allowance for credit losses:
|
Stock-Based Compensation |
6 Months Ended |
---|---|
Jun. 30, 2024 | |
Stock-Based Compensation | |
Stock-Based Compensation | (3) Stock-Based Compensation During the six months ended June 30, 2024, the Company granted 50,577 restricted stock units and 118,021 performance shares to certain employees of the Company under the SkyWest, Inc. 2019 Long-Term Incentive Plan. Both the restricted stock units and performance shares have a three-year period, during which the recipient must remain employed with the Company. The number of performance shares awardable from the 2024 grants can range from 0% to 200% of the original amount granted depending on the Company’s performance over three one-year measurement periods against the pre-established targets. Upon vesting, each restricted stock unit and performance share will be replaced with one share of common stock. The weighted average fair value of these restricted stock units and performance shares on their date of grant was $59.57 . Additionally, during the six months ended June 30, 2024, the Company granted 14,179 fully vested shares of common stock and 2,632 fully vested restricted stock units to the Company’s directors at a weighted average grant date fair value of $61.13. During the six months ended June 30, 2024, the Company did not grant any options to purchase shares of common stock to employees.The Company accounts for forfeitures of restricted stock units and performance shares when forfeitures occur. The estimated fair value of the restricted stock units and performance shares is amortized over the applicable vesting periods. Stock-based compensation expense for the performance shares is based on the Company’s anticipated outcome of achieving the performance metrics. During the six months ended June 30, 2024 and 2023, the Company recorded pre-tax stock-based compensation expense of $10.3 million and $8.6 million, respectively. |
Stock Repurchase |
6 Months Ended |
---|---|
Jun. 30, 2024 | |
Stock Repurchase | |
Stock Repurchase | (4) Stock Repurchase The Company’s Board of Directors adopted a stock repurchase program in May 2023, which authorizes the Company to repurchase shares of the Company’s common stock in the public market or in private transactions, from time to time, at prevailing prices. Under the May 2023 repurchase program, the Company’s Board of Directors authorized up to $250.0 million for the repurchase of the Company’s common stock, superseding a prior Board authorization. At June 30, 2024, $68.8 million remains available under the May 2023 authorization. During the six months ended June 30, 2024, the Company repurchased 313,381 shares of common stock for $22.1 million at a weighted average price per share of $70.44. The Company also recorded $0.1 million of excise tax related to the stock repurchases as Treasury Stock in the Company’s Stockholders Equity for the six months ended June 30, 2024. During the six months ended June 30, 2023, the Company repurchased 8.4 million shares of common stock for $194.1 million at a weighted average price per share of $23.10 and recorded $1.9 million of excise tax related to the stock repurchases as Treasury Stock in the Company’s Stockholders Equity. |
Net Income Per Common Share |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income Per Common Share | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income Per Common Share | (5) 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. 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. 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):
Additionally, during the six months ended June 30, 2024 and 2023, 400,000 and 538,000 performance shares (at target performance) were excluded from the computation of Diluted EPS because the Company had not achieved the minimum target thresholds for these shares for the six months ended June 30, 2024 and 2023, 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):
|
Segment Reporting |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting | (6) Segment Reporting The Company’s two reportable segments consist of (1) the operations of SkyWest Airlines and SWC (collectively, “SkyWest Airlines and SWC”) and (2) 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 and SWC segment includes revenue earned under the applicable capacity purchase agreements attributed to operating such aircraft and the respective operating costs. The SkyWest Airlines and SWC segment also includes revenue and operating expenses attributed to other flying agreements and airport services agreements. 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 three-month periods ended June 30, 2024 and 2023 (in thousands):
The following represents the Company’s segment data for the six-month periods ended June 30, 2024 and 2023 (in thousands):
|
Leases, Commitments, Guarantees and Contingencies |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases, Commitments, Guarantees and Contingencies | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases, Commitments, Guarantees and Contingencies | (7) Leases, Commitments, Guarantees and Contingencies The Company leases property and equipment under operating leases. For leases with durations longer than 12 months, the Company recorded the related operating lease right-of-use asset and operating lease liability at the present value of lease payments over the term. The Company used its incremental borrowing rate to discount the lease payments based on information available at lease commencement. Aircraft As of June 30, 2024, excluding aircraft financed by the Company’s major airline partners that the Company operates for them under contract, the Company leased eight aircraft under long-term lease agreements with remaining terms ranging from to six years.Airport facilities The Company has operating leases for facility space including airport terminals, office space, cargo warehouses and maintenance facilities. The Company generally leases this space from government agencies that control the use of the various airports. The remaining lease terms for facility space vary from one month to 32 years. 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. Leases As of June 30, 2024, the Company’s right-of-use assets were $82.4 million, the Company’s current maturities of operating lease liabilities were $18.8 million, and the Company’s noncurrent lease liabilities were $63.6 million. During the six months ended June 30, 2024, the Company paid $10.7 million under operating leases reflected as a reduction from operating cash flows. The table below presents lease related terms and discount rates as of June 30, 2024:
The Company’s lease costs for the three and six months ended June 30, 2024 and 2023 included the following components (in thousands):
As of June 30, 2024, 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 will be renewed or replaced by other leases. The following table summarizes future minimum rental payments required under operating leases that had initial or remaining non-cancelable lease terms as of June 30, 2024 (in thousands):
As of June 30, 2024, the Company had a firm purchase commitment for 21 E175 aircraft from Embraer with anticipated delivery dates through 2026. The following table summarizes the Company’s commitments and obligations as noted for each of the next five years and thereafter (in thousands):
Guarantees 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. In exchange for providing the guarantee, the Company received 6.5% of the guaranteed amount as consideration, payable in the estimated value of common stock of the Part 135 air carrier, all of which was sold in 2023. The balance of the debt under the guarantee was $14.7 million as of June 30, 2024. In 2023, the Company agreed to guarantee up to $12.0 million of debt for an aviation school. The debt is secured by the school’s aircraft and engines and has a five-year term. In exchange for providing the guarantee, the Company receives 2.0% of the guaranteed amount annually as consideration in cash. The balance of the debt under the guarantee was $11.5 million as of June 30, 2024. The purpose of these guarantees is to help reduce the financing costs of aircraft for the third-parties in an effort to increase the potential number of commercial pilots in the Company’s hiring pipeline. The Company also recorded the estimated credit loss associated with the guarantees based on publicly available historical default rates issued by a third party for companies with similar credit ratings, factoring the collateral and guarantee term. |
Fair Value Measurements |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | (8) Fair Value Measurements The Company holds certain assets that are required to be measured at fair value in accordance with GAAP. The Company determined the fair value of these assets based on the following three levels of inputs:
As of June 30, 2024, and December 31, 2023, 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):
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 11 “Investments in Other Companies” regarding the Company’s investments in other companies, for the six months ended June 30, 2024. The Company did not make any significant transfers of securities between Level 1, Level 2 and Level 3 during the six months ended June 30, 2024. The Company’s policy regarding the recording of transfers between levels is to record any such transfers at the end of the reporting period. As of June 30, 2024, and December 31, 2023, the Company classified $692.5 million and $686.9 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. At the time of sale, any realized appreciation or depreciation, calculated by the specific identification method, is recognized in other income (loss), net. As of June 30, 2024, and December 31, 2023, the cost of the Company’s marketable securities was $693.2 million and $686.5 million, respectively. |
Assets Held for Sale |
6 Months Ended |
---|---|
Jun. 30, 2024 | |
Assets Held for Sale | |
Assets Held for Sale | (9) Assets Held for Sale In 2022, the Company committed to a formal plan to sell 14 CRJ700 aircraft and determined the aircraft met the criteria to be classified as assets held for sale. At December 31, 2023, the Company presented the $54.3 million of assets held for sale at their fair market value less costs to sell and included the amount in “Other current assets” on the Company’s consolidated balance sheet. In March 2024, the Company changed its plan to sell the 14 CRJ700 aircraft and reclassified them as held for use assets in “Aircraft and rotable spares” on the Company’s consolidated balance sheet. The Company remeasured the fair value of the held for use assets at the time of the reclassification and, as a result, for the six months ended June 30, 2024, the Company recorded a $4.2 million gain (pre-tax) as an offset to other operating expenses primarily due to the elimination of the estimated costs to sell the assets. |
Long-term Debt |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term Debt | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term Debt | (10) Long-term Debt Long-term debt consisted of the following as of June 30, 2024, and December 31, 2023 (in thousands):
As of June 30, 2024, the Company had $2.8 billion of total long-term debt, which consisted of $2.6 billion of debt used to finance aircraft and spare engines and $200.6 million of unsecured debt payable to U.S. Treasury. The average effective interest rate on the Company’s debt was approximately 4.1% at June 30, 2024. As of June 30, 2024 and December 31, 2023, the Company had $45.0 million and $49.1 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions. As of June 30, 2024, 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 June 30, 2024, SkyWest Airlines had no amounts outstanding under the facility. However, at June 30, 2024, SkyWest Airlines had $24.9 million in letters of credit issued under the facility, which reduced the amount available under the facility to $75.1 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. 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 June 30, 2024 and December 31, 2023, were as follows (in thousands):
|
Investments in Other Companies |
6 Months Ended | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2024 | |||||||||||||||||||||||||||||||||
Investments in Other Companies | |||||||||||||||||||||||||||||||||
Investments in Other Companies | (11) Investments in Other Companies Equity Method Investments During 2019, the Company created a joint venture with Regional One, Inc. and, as of June 30, 2024, has invested a total of $26.6 million for an ownership interest in Aero Engines, LLC. (“Aero Engines”). The primary purpose of Aero Engines is to lease engines to third parties. The Company accounts for its investment in Aero Engines under the equity method. The Company’s exposure in its investment in Aero Engines primarily consists of the Company’s portion of income or loss from Aero Engines’ engine lease agreements with third parties and the Company’s ownership percentage in Aero Engines’ engines book value. Aero Engines had no debt outstanding as of June 30, 2024. As of June 30, 2024, the Company’s investment balance in Aero Engines was $22.6 million and has been recorded in “Other Assets” on the Company’s consolidated balance sheet. The Company’s portion of income generated by Aero Engines for the six months ended June 30, 2024, was $0.9 million, which is recorded in “Other income (loss), net” on the Company’s consolidated statements of comprehensive income. In December 2023, the Company invested $9.9 million for a 9.9% ownership interest in Corporate Flight Management, Inc. d/b/a Contour Airlines (“Contour”), a 14 CFR Part 135 air carrier. In January 2024, the Company invested an additional $15.1 million in Contour. The Company has a 25% ownership interest in Contour at June 30, 2024 and holds one of five seats, or 20%, on Contour’s board of directors. The Contour arrangement also includes an asset provisioning agreement under which the Company will provide CRJ airframes, engines and rotable parts to Contour. The Company accounts for its investment in Contour under the equity method where the investment is reported at cost and adjusted each period for the Company’s share of Contour’s income or loss, recorded on a one quarter lag. For the six months ended June 30, 2024, the Company recorded a loss of $0.3 million, its portion of loss generated by Contour, which was recorded in “Other income (loss), net” on the Company’s consolidated statements of comprehensive income. As of June 30, 2024, the Company’s investment balance in Contour of $24.7 million was recorded in “Other Assets” on the Company’s consolidated balance sheet. At June 30, 2024, the Company had $12.7 million in notes receivable from Contour related to the sale of aircraft under the asset provisioning agreement. The notes are secured by aircraft and collectible within four years. The Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable. 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. 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. 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 was to reduce the Company’s investment risk in Eve, and the put option expires in December 2031. The Company is restricted from selling the shares underlying the warrant until May 2025, and the warrant expires in May 2032. The Company acquired the shares of common stock, warrant and put option (collectively the “Eve Investments”) for $10.0 million. The Company evaluated the Eve Investments under 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. During the year ended December 31, 2023, the Company sold 600,411 shares of common stock of Eve, which concurrently forfeited 600,411 shares subject to the put option from the Eve shareholder. During the three months ended June 30, 2024, the Company exercised the remainder of the put option and received aircraft parts credits in exchange for the 399,589 shares of common stock. At June 30, 2024, the Company’s only remaining investment in Eve was the warrant to acquire 1.5 million shares of Eve common stock. The shares of common stock of Eve were 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 were classified as Level 3 within the fair value hierarchy (“Eve Level 3 Investments”), and the Company used the Black Scholes Option Pricing Model to determine the estimated fair market value of the Eve Level 3 Investments, including an expected volatility of 52%, which is a significant unobservable input that was derived from historical volatility of comparable companies. The table below shows the reconciliation of the Eve Level 3 Investments (in thousands):
The Company recognized a realized gain of $3.4 million from the exercise of the put option, a realized loss of $1.4 million from the forfeited shares of Eve common stock and unrealized losses of $7.4 million related to the Eve Investments that were recognized in “Other income (loss), net” on the Company’s consolidated statements of comprehensive income for the six months ended June 30, 2024. As of June 30, 2024, the fair value of the Eve Investments, which only consisted of the warrant, was $6.1 million and was recorded in “Other Assets” on the Company’s consolidated balance sheet. |
Income Taxes |
6 Months Ended |
---|---|
Jun. 30, 2024 | |
Income Taxes | |
Income Taxes | (12) Income Taxes The Company’s effective tax rate for the six months ended June 30, 2024 was 25.5%. The Company’s effective tax rate for the six months ended June 30, 2024 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, partially offset by a discrete tax benefit from excess tax deductions generated from employee equity transactions that occurred during the six months ended June 30, 2024. The Company’s effective tax rate for the six months ended June 30, 2023 was 21.6%. The Company’s effective tax rate for the six months ended June 30, 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 six months ended June 30, 2023, partially offset by the provision for state income taxes. |
Legal Matters |
6 Months Ended |
---|---|
Jun. 30, 2024 | |
Legal Matters | |
Legal Matters | (13) Legal Matters The Company is subject to certain legal actions which it considers routine to its business activities. As of June 30, 2024, 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. |
Insider Trading Arrangements |
3 Months Ended |
---|---|
Jun. 30, 2024 | |
Trading Arrangements, by Individual | |
Rule 10b5-1 Arrangement Adopted | false |
Non-Rule 10b5-1 Arrangement Adopted | false |
Rule 10b5-1 Arrangement Terminated | false |
Non-Rule 10b5-1 Arrangement Terminated | false |
Condensed Consolidated Financial Statements (Policies) |
6 Months Ended |
---|---|
Jun. 30, 2024 | |
Condensed Consolidated Financial Statements | |
Basis of Presentation | Basis of Presentation The condensed consolidated financial statements of SkyWest, Inc. (“SkyWest” or the “Company”), its operating subsidiary SkyWest Airlines, Inc. (“SkyWest Airlines”), its leasing subsidiary SkyWest Leasing, Inc. (“SkyWest Leasing”) and its charter service subsidiary SkyWest Charter, LLC (“SWC”) included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). 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. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations for the interim periods presented. All adjustments are of a normal recurring nature, unless otherwise disclosed. 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, 2023. The results of operations for the three and six months ended June 30, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment Reporting (Accounting Standard Codification (“ASC”) Topic 280) – Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU also expands disclosure requirements to enable users of financial statements to better understand the entity’s measurement and assessment of segment performance and resource allocation. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its consolidated financial statements and related disclosures. In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (ASC Topic 740) – Improvements to Income Tax Disclosures”, which enhances the transparency, effectiveness and comparability of income tax disclosures by requiring consistent categories and greater disaggregation of information related to income tax rate reconciliations and the jurisdictions in which income taxes are paid. The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its consolidated financial statements and related disclosures. |
Operating Revenues (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Agreements with other airlines | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of revenue by type | The following table represents the Company’s flying agreements revenue by type for the three and six months ended June 30, 2024 and 2023 (in thousands):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of aircraft and agreements with major airline partners |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of future minimum rental payments for operating leases |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of allowance for credit losses | The following table summarizes the changes in allowance for credit losses:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Airport customer service and other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Agreements with other airlines | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of revenue by type | represents the Company’s lease, airport services and other revenues for the three and six months ended June 30, 2024 and 2023 (in thousands):
|
Net Income Per Common Share (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income Per Common Share | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of antidilutive securities excluded from calculation of diluted EPS | 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. 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):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Basic EPS and Diluted EPS | 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):
|
Segment Reporting (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Company's segment data | The following represents the Company’s segment data for the three-month periods ended June 30, 2024 and 2023 (in thousands):
The following represents the Company’s segment data for the six-month periods ended June 30, 2024 and 2023 (in thousands):
|
Leases, Commitments, Guarantees and Contingencies (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases, Commitments, Guarantees and Contingencies | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of related terms and discount rates |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of lease costs |
The Company’s lease costs for the three and six months ended June 30, 2024 and 2023 included the following components (in thousands):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of future minimum rental income under operating leases | The following table summarizes future minimum rental payments required under operating leases that had initial or remaining non-cancelable lease terms as of June 30, 2024 (in thousands):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of commitments and obligations | The following table summarizes the Company’s commitments and obligations as noted for each of the next five years and thereafter (in thousands):
|
Fair Value Measurements (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of assets measured at fair value on a recurring basis | Assets measured at fair value on a recurring basis are summarized below (in thousands):
|
Long-term Debt (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term Debt | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of long-term debt | Long-term debt consisted of the following as of June 30, 2024, and December 31, 2023 (in thousands):
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Carrying value and fair value of long-term debt | The carrying value and fair value of the Company’s long-term debt as of June 30, 2024 and December 31, 2023, were as follows (in thousands):
|
Investments in Other Companies (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2024 | |||||||||||||||||||||||||||||||||
Investments in Other Companies | |||||||||||||||||||||||||||||||||
Schedule of reconciliation of Eve Level 3 investments | The table below shows the reconciliation of the Eve Level 3 Investments (in thousands):
|
Stock Repurchase (Details) - May 2023 Stock Repurchase Program - USD ($) $ / shares in Units, $ in Millions |
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
May 31, 2023 |
|
Common stock authorized for repurchase, maximum | $ 250.0 | ||
Stock repurchases, amount remains available | $ 68.8 | ||
Stock repurchased (shares) | 313,381 | 8,400,000 | |
Stock repurchased during period (value) | $ 22.1 | $ 194.1 | |
Weighted average price per share of common stock (in dollars per share) | $ 70.44 | $ 23.10 | |
Excise tax related to the stock repurchases as treasury stock | $ 0.1 | $ 1.9 |
Net Income Per Common Share - Antidilutive securities (Details) - shares shares in Thousands |
3 Months Ended | 6 Months Ended |
---|---|---|
Jun. 30, 2023 |
Jun. 30, 2023 |
|
Net Income Per Common Share | ||
Total antidilutive securities (in shares) | 203 | 1,461 |
Treasury Warrants | ||
Net Income Per Common Share | ||
Total antidilutive securities (in shares) | 203 | 785 |
Employee Stock Awards | ||
Net Income Per Common Share | ||
Total antidilutive securities (in shares) | 676 |
Net Income Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2024 |
Mar. 31, 2024 |
Jun. 30, 2023 |
Mar. 31, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
|
Number of outstanding units not included in computation of Diluted EPS (in shares) | 203,000 | 1,461,000 | ||||
Numerator: | ||||||
Net income (loss) | $ 75,578 | $ 60,298 | $ 15,419 | $ (22,071) | $ 135,876 | $ (6,652) |
Denominator: | ||||||
Basic earnings per share weighted average shares | 40,179,000 | 43,837,000 | 40,239,000 | 46,614,000 | ||
Dilutive effect of employee stock awards and warrants | 1,252,000 | 382,000 | 1,223,000 | |||
Diluted earnings per share weighted average shares | 41,431,000 | 44,219,000 | 41,462,000 | 46,614,000 | ||
Basic earnings per share (in dollars per share) | $ 1.88 | $ 0.35 | $ 3.38 | $ (0.14) | ||
Diluted earnings per share (in dollars per share) | $ 1.82 | $ 0.35 | $ 3.28 | $ (0.14) | ||
Performance Share Units (PSUs) | ||||||
Number of outstanding units not included in computation of Diluted EPS (in shares) | 400,000 | 538,000 |
Segment Reporting (Details) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2024
USD ($)
|
Jun. 30, 2023
USD ($)
|
Jun. 30, 2024
USD ($)
segment
|
Jun. 30, 2023
USD ($)
|
Dec. 31, 2023
USD ($)
|
|
Segment Reporting | |||||
Number of reporting segments | segment | 2 | ||||
Operating revenues | $ 867,118 | $ 725,643 | $ 1,670,732 | $ 1,417,474 | |
Operating expense | 747,478 | 693,783 | 1,451,586 | 1,390,318 | |
Depreciation and amortization expense | 96,814 | 97,169 | 192,684 | 191,318 | |
Interest expense | 28,966 | 33,718 | 58,795 | 67,338 | |
Segment profit | 90,674 | (1,858) | 160,351 | (40,182) | |
Total assets | 6,962,439 | 7,115,774 | 6,962,439 | 7,115,774 | $ 7,026,293 |
Capital expenditures (including non-cash) | 40,907 | 26,019 | 85,257 | 133,940 | |
SkyWest Airlines and SWC | |||||
Segment Reporting | |||||
Operating revenues | 711,784 | 586,476 | 1,358,593 | 1,154,649 | |
Operating expense | 678,102 | 624,490 | 1,319,465 | 1,257,882 | |
Depreciation and amortization expense | 37,004 | 37,966 | 73,112 | 76,224 | |
Interest expense | 3,255 | 4,695 | 6,731 | 8,757 | |
Segment profit | 30,427 | (42,709) | 32,397 | (111,990) | |
Total assets | 2,644,446 | 2,570,050 | 2,644,446 | 2,570,050 | |
Capital expenditures (including non-cash) | 40,907 | 25,609 | 85,257 | 46,720 | |
SkyWest Leasing | |||||
Segment Reporting | |||||
Operating revenues | 155,334 | 139,167 | 312,139 | 262,825 | |
Operating expense | 69,376 | 69,293 | 132,121 | 132,436 | |
Depreciation and amortization expense | 59,810 | 59,203 | 119,572 | 115,094 | |
Interest expense | 25,711 | 29,023 | 52,064 | 58,581 | |
Segment profit | 60,247 | 40,851 | 127,954 | 71,808 | |
Total assets | $ 4,317,993 | 4,545,724 | $ 4,317,993 | 4,545,724 | |
Capital expenditures (including non-cash) | $ 410 | $ 87,220 |
Leases, Commitments, Guarantees and Contingencies - Operating Leases (Details) $ in Thousands |
6 Months Ended |
---|---|
Jun. 30, 2024
USD ($)
aircraft
| |
Future minimum rental payments required under operating leases | |
July 2024 through December 2024 | $ 10,419 |
2025 | 17,895 |
2026 | 15,427 |
2027 | 13,052 |
2028 | 9,976 |
Thereafter | 56,617 |
Total future minimum operating lease payments | $ 123,386 |
E175 | |
Future minimum rental payments required under operating leases | |
Number of aircraft under purchase agreement | aircraft | 21 |
Leases, Commitments, Guarantees and Contingencies - Commitments and Obligations (Details) - USD ($) $ in Thousands |
Jun. 30, 2024 |
Dec. 31, 2023 |
---|---|---|
Operating lease payments for aircraft and facility obligations | ||
Jul- Dec 2024 | $ 10,419 | |
2025 | 17,895 | |
2026 | 15,427 | |
2027 | 13,052 | |
2028 | 9,976 | |
Thereafter | 56,617 | |
Total future minimum operating lease payments | 123,386 | |
Firm aircraft and spare engine commitments | ||
Jul- Dec 2024 | 143,810 | |
2025 | 230,725 | |
2026 | 236,410 | |
Total | 610,945 | |
Interest commitments | ||
Jul- Dec 2024 | 56,799 | |
2025 | 97,933 | |
2026 | 78,149 | |
2027 | 56,289 | |
2028 | 40,947 | |
Thereafter | 84,540 | |
Total | 414,657 | |
Principal maturities on long-term debt | ||
Jul- Dec 2024 | 224,243 | |
2025 | 532,255 | |
2026 | 510,598 | |
2027 | 464,289 | |
2028 | 292,862 | |
Thereafter | 779,811 | |
Total | 2,804,058 | $ 3,030,310 |
Total commitments and obligations | ||
Jul- Dec 2024 | 435,271 | |
2025 | 878,808 | |
2026 | 840,584 | |
2027 | 533,630 | |
2028 | 343,785 | |
Thereafter | 920,968 | |
Total | $ 3,953,046 |
Leases, Commitments, Guarantees and Contingencies - Guarantees (Details) - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2023 |
Dec. 31, 2022 |
Jun. 30, 2024 |
|
Leases, Commitments, Guarantees and Contingencies | |||
Guaranteed amount received as consideration, percentage | 6.50% | ||
Debt | |||
Leases, Commitments, Guarantees and Contingencies | |||
Guarantor Obligations, Current Carrying Value | $ 11.5 | ||
Debt | Aircraft and engines | |||
Leases, Commitments, Guarantees and Contingencies | |||
Guaranteed amount | $ 12.0 | $ 19.8 | |
Term of guarantee obligations | 5 years | 5 years | |
Guaranteed amount received as consideration, percentage | 2.00% | ||
Guarantor Obligations, Current Carrying Value | $ 14.7 |
Assets Held for Sale (Details) - CRJ 700 - Held for sale $ in Millions |
3 Months Ended | 6 Months Ended | 12 Months Ended | |
---|---|---|---|---|
Mar. 31, 2024
aircraft
|
Jun. 30, 2024
USD ($)
|
Dec. 31, 2022
aircraft
|
Dec. 31, 2023
USD ($)
|
|
Assets Held for Sale | ||||
Number of aircraft held-for-sale | aircraft | 14 | 14 | ||
Gain due to elimination of the costs to sell in other operating expenses | $ 4.2 | |||
Assets held for sale | $ 54.3 |
Long-term Debt - Carrying Value and Fair Value (Details) - USD ($) $ in Thousands |
Jun. 30, 2024 |
Dec. 31, 2023 |
---|---|---|
Debt Instrument [Line Items] | ||
Carrying value | $ 2,782,119 | $ 3,006,052 |
Recurring | Level 2 | ||
Debt Instrument [Line Items] | ||
Carrying value | 2,804,058 | 3,030,310 |
Fair value | $ 2,716,310 | $ 2,918,012 |
Income Taxes (Details) |
6 Months Ended | |
---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
|
Income Taxes | ||
Effective tax rate (as a percent) | 25.50% | 21.60% |
Statutory Federal income tax rate (as a percent) | 21.00% | 21.00% |
1 Year SkyWest Chart |
1 Month SkyWest Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions