SKYWEST INC [SKYW] Filings

10-Q 1 skyw-20220630x10q.htm 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022


☐	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 0-14719

SKYWEST, INC.


Incorporated under the laws of Utah		87-0292166
		(I.R.S. Employer ID No.)

444 South River Road

St. George, Utah 84790

(435) 634-3000

(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
Common Stock, No Par Value	SKYW	The Nasdaq Global Select Market

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. Yes ⌧ No ◻

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). Yes ⌧ No ◻

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:


Large accelerated filer ⌧		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 ☐ No ⌧

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 29, 2022
Common stock, no par value		50,587,551

Table of Contents

SKYWEST, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION:
	Item 1.	Financial Statements	3
		Consolidated Balance Sheets	3
		Consolidated Statements of Comprehensive Income	5
		Consolidated Statements of Stockholders Equity	6
		Condensed Consolidated Statements of Cash Flows	7
		Notes to Condensed Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
	Item 4.	Controls and Procedures	36

PART II	OTHER INFORMATION:
	Item 1.	Legal Proceedings	37
	Item 1A.	Risk Factors	37
	Item 6.	Exhibits	37
		Signature	38

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

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

ASSETS


	June 30,		December 31,
	2022		2021
	(unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	96,071	$	258,421
Marketable securities		878,608		601,989
Receivables, net		75,963		65,348
Inventories, net		115,142		104,093
Other current assets		51,100		38,742
Total current assets		1,216,884		1,068,593

PROPERTY AND EQUIPMENT:
Aircraft and rotable spares		8,052,327		7,848,100
Deposits on aircraft		91,813		124,964
Buildings and ground equipment		270,802		256,595
Total property and equipment, gross		8,414,942		8,229,659
Less-accumulated depreciation and amortization		(2,854,966)		(2,731,060)
Total property and equipment, net		5,559,976		5,498,599

OTHER ASSETS:
Operating lease right-of-use assets		207,845		238,516
Long-term receivables and other assets		351,942		320,239
Total other assets		559,787		558,755
Total assets	$	7,336,647	$	7,125,947

See accompanying notes to condensed consolidated financial statements.

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SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

LIABILITIES AND STOCKHOLDERS’ EQUITY


	June 30,		December 31,
	2022		2021
	(unaudited)
CURRENT LIABILITIES:
Current maturities of long-term debt	$	424,998	$	391,798
Accounts payable		437,838		496,333
Accrued salaries, wages and benefits		186,062		150,583
Current maturities of operating lease liabilities		75,609		78,886
Taxes other than income taxes		28,611		28,869
Other current liabilities		45,295		48,152
Total current liabilities		1,198,413		1,194,621

LONG-TERM DEBT, net of current maturities		2,864,483		2,717,420

DEFERRED INCOME TAXES PAYABLE		679,794		663,236

NONCURRENT OPERATING LEASE LIABILITIES		134,597		158,274

OTHER LONG-TERM LIABILITIES		114,329		124,882

COMMITMENTS AND CONTINGENCIES (Note 7)

STOCKHOLDERS’ EQUITY:
Preferred stock, 5,000,000 shares authorized; none issued		—		—
Common stock, no par value, 120,000,000 shares authorized; 82,514,936 and 82,335,970 shares issued as of June 30, 2022, and December 31, 2021, respectively		731,210		722,310
Retained earnings		2,235,601		2,163,916
Treasury stock, at cost, 31,993,144 and 31,956,047 shares as of June 30, 2022, and December 31, 2021, respectively		(619,835)		(618,712)
Accumulated other comprehensive loss		(1,945)		—
Total stockholders’ equity		2,345,031		2,267,514
Total liabilities and stockholders’ equity	$	7,336,647	$	7,125,947

See accompanying notes to condensed consolidated financial statements.

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SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(Dollars and Shares in Thousands, Except per Share Amounts)



	Three months ended				Six months ended
	June 30,				June 30,
	2022		2021		2022		2021
OPERATING REVENUES:
Flying agreements	$	773,774	$	632,967	$	1,481,837	$	1,144,158
Lease, airport services and other		25,311		24,023		52,400		47,387
Total operating revenues		799,085		656,990		1,534,237		1,191,545
OPERATING EXPENSES:
Salaries, wages and benefits		288,562		233,423		588,620		453,265
Aircraft maintenance, materials and repairs		174,883		190,879		323,296		394,706
Depreciation and amortization		97,249		109,895		199,994		219,492
Aircraft fuel		31,820		25,867		56,910		45,061
Airport-related expenses		17,490		22,038		36,695		46,486
Aircraft rentals		16,024		15,723		32,020		31,213
Payroll support grant		—		(114,144)		—		(307,317)
Other operating expenses		84,455		58,286		156,052		112,774
Total operating expenses		710,483		541,967		1,393,587		995,680
OPERATING INCOME		88,602		115,023		140,650		195,865
OTHER INCOME (EXPENSE):
Interest income		2,559		210		2,984		494
Interest expense		(30,433)		(33,940)		(59,025)		(65,294)
Other income, net		12,019		80		12,899		296
Total other expense, net		(15,855)		(33,650)		(43,142)		(64,504)
INCOME BEFORE INCOME TAXES		72,747		81,373		97,508		131,361
PROVISION FOR INCOME TAXES		18,796		19,379		25,823		33,467
NET INCOME	$	53,951	$	61,994	$	71,685	$	97,894

BASIC EARNINGS PER SHARE	$	1.07	$	1.23	$	1.42	$	1.95
DILUTED EARNINGS PER SHARE	$	1.07	$	1.22	$	1.42	$	1.93
Weighted average common shares:
Basic		50,522		50,346		50,501		50,316
Diluted		50,566		50,725		50,637		50,727

COMPREHENSIVE INCOME:
Net income	$	53,951	$	61,994	$	71,685	$	97,894
Net unrealized depreciation on marketable securities, net of taxes		(1,945)		—		(1,945)		—
TOTAL COMPREHENSIVE INCOME	$	52,006	$	61,994	$	69,740	$	97,894

See accompanying notes to condensed consolidated financial statements

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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, 2021	82,336	$	722,310	$	2,163,916	(31,956)	$	(618,712)	$	—	$	2,267,514
Net income	—		—		17,734	—		—		—		17,734
Exercise of common stock options and vested employee stock awards	139		27		—	—		—		—		27
Employee income tax paid on vested equity awards	—		—		—	(37)		(1,123)		—		(1,123)
Sale of common stock under employee stock purchase plan	40		1,487		—	—		—		—		1,487
Stock based compensation expense	—		4,076		—	—		—		—		4,076
Balance at March 31, 2022	82,515	$	727,900	$	2,181,650	(31,993)	$	(619,835)	$	—	$	2,289,715
Net income	—		—		53,951	—		—		—		53,951
Stock based compensation expense	—		3,310		—	—		—		—		3,310
Net unrealized depreciation on marketable securities, net of tax of $628	—		—		—	—		—		(1,945)		(1,945)
Balance at June 30, 2022	82,515	$	731,210	$	2,235,601	(31,993)	$	(619,835)	$	(1,945)	$	2,345,031


	Common Stock			Retained		Treasury Stock
	Shares	Amount		Earnings		Shares	Amount		Total
Balance at December 31, 2020	82,095	$	704,675	$	2,052,006	(31,914)	$	(617,136)	$	2,139,545
Net income	—		—		35,900	—		—		35,900
Exercise of common stock options and vested employee stock awards	177		606		—	—		—		606
Employee income tax paid on vested equity awards	—		—		—	(42)		(1,573)		(1,573)
Sale of common stock under employee stock purchase plan	30		1,139		—	—		—		1,139
Stock based compensation expense	—		2,613		—	—		—		2,613
Warrants issued to U.S. Treasury	—		3,291		—	—		—		3,291
Balance at March 31, 2021	82,302	$	712,324	$	2,087,906	(31,956)	$	(618,709)	$	2,181,521
Net income	—		—		61,994	—		—		61,994
Stock based compensation expense	—		2,877		—	—		—		2,877
Warrants issued to U.S. Treasury	—		2,513		—	—		—		2,513
Balance at June 30, 2021	82,302	$	717,714	$	2,149,900	(31,956)	$	(618,709)	$	2,248,905

See accompanying notes to condensed consolidated financial statements.

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SKYWEST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In Thousands)


	Six months ended
	June 30,
	2022		2021
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	215,279	$	498,688

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities		(1,254,213)		(798,877)
Sales of marketable securities		975,649		799,241
Acquisition of property and equipment:
Aircraft and rotable spare parts		(301,004)		(63,450)
Buildings and ground equipment		(9,525)		(8,700)
Proceeds from the sale of property and equipment		6,275		2,282
Deposits on aircraft		(37,100)		(58,269)
Aircraft deposits applied towards acquired aircraft		70,501		—
Increase in other assets		(7,172)		(54,608)
NET CASH USED IN INVESTING ACTIVITIES		(556,589)		(182,381)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt		376,753		95,430
Principal payments on long-term debt		(196,961)		(281,778)
Net proceeds from issuance of common stock		1,514		1,745
Employee income tax paid on vested equity awards		(1,123)		(1,573)
Payment of debt issuance cost		(1,223)		—
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		178,960		(186,176)

Increase (decrease) in cash and cash equivalents		(162,350)		130,131
Cash and cash equivalents at beginning of period		258,421		215,723
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	96,071	$	345,854

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Non-cash investing and financing activities:
Acquisition of property and equipment	$	18,234	$	11,797
Warrants issued to U.S. Treasury	$	—	$	5,804
Cash paid during the period for:
Interest, net of capitalized amounts	$	60,197	$	66,767
Income taxes	$	217	$	457

See accompanying notes to condensed consolidated financial statements.

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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”) and its operating subsidiary SkyWest Airlines, Inc. (“SkyWest Airlines”) and its leasing subsidiary SkyWest Leasing, Inc. (“SkyWest Leasing”) 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, 2021. Due in part to the uncertain rate of recovery from the global COVID-19 pandemic and workforce shortages, in addition to other factors, the results of operations for the three and six months ended June 30, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

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.

(2) Flying Agreements Revenue and Lease, Airport Services and Other Revenues

The Company recognizes flying agreements revenue and lease, airport services and other revenues when the service is provided under the applicable agreement. Under the Company’s fixed-fee arrangements (referred to as “capacity purchase agreements”) with United Airlines, Inc. (“United”), Delta Air Lines, Inc. (“Delta”), American Airlines, Inc. (“American”) and Alaska Airlines, Inc. (“Alaska”) (each, a “major airline partner”), the major airline partner generally pays the Company a fixed-fee for each departure, flight hour (measured from takeoff to landing, excluding taxi time) or block hour (measured from takeoff to landing, including taxi time) incurred, and an amount per aircraft in service each month with additional incentives based on flight completion and on-time performance. The 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, 2022 and 2021, capacity purchase agreements represented approximately 88.3% and 85.0% of the Company’s flying agreements revenue, respectively.

Under the Company’s prorate arrangements (also referred to as a “prorate” or “revenue-sharing” agreement), the major airline partner and the Company negotiate a passenger fare proration formula, pursuant to which the Company receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on a Company airline and the other portion of their trip on the major airline partner. Under the Company’s prorate flying agreements, the performance obligation is met, and revenue is recognized when each flight is completed based upon the portion of the prorate passenger fare the Company anticipates that it will receive for each completed flight. The transaction price for the prorate agreements is determined from the proration formula derived from each passenger ticket amount on each completed flight over the agreement term. For the six months ended June 30, 2022 and 2021, prorate flying agreements represented approximately 11.7% and 15.0% of the Company’s flying agreements revenue, respectively.

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


	For the three months ended June 30,				For the six months ended June 30,
	2022		2021		2022		2021
Capacity purchase agreements revenue: flight operations	$	387,456	$	273,176	$	735,930	$	484,228
Capacity purchase agreements revenue: aircraft lease and fixed revenue		291,585		256,559		572,004		488,050
Prorate agreements revenue		94,733		103,232		173,903		171,880
Flying agreements revenue	$	773,774	$	632,967	$	1,481,837	$	1,144,158

A portion of the Company’s compensation under its capacity purchase agreements is designed to reimburse the Company for certain aircraft ownership costs. The consideration for aircraft ownership costs varies by agreement but is intended to cover either the Company’s aircraft principal and interest debt service costs, its aircraft depreciation and interest expense or its aircraft lease expense costs while the aircraft is under contract. The consideration received for the use of the aircraft under the Company’s capacity purchase agreements is reflected as lease revenue, inasmuch as the agreements identify the “right of use” of a specific type and number of aircraft over a stated period of time. The lease revenue associated with the Company’s capacity purchase agreements is accounted for as an operating lease and is reflected as flying agreements revenue on the Company’s consolidated statements of comprehensive income. The Company has not separately stated aircraft rental income and aircraft rental expense in the consolidated statement of comprehensive income since the use of the aircraft is not a separate activity of the total service provided.

Under the Company’s capacity purchase agreements, the Company is paid a fixed amount per month per aircraft over the contract term. The Company recognizes revenue attributed to the fixed monthly payments proportionate to the number of block hours completed during each reporting period, relative to the estimated number of block hours the Company anticipates completing over the remaining contract term. Due to the lower number of block hours completed during the COVID-19 pandemic compared to historical levels, the amount of cash collected for the fixed amount per aircraft exceeded the revenue recognized based on block hours completed. Accordingly, the Company deferred recognizing revenue on fixed monthly cash payments the Company received under its capacity purchase agreements beginning in 2020. Based on the number of completed block hours during the six months ended June 30, 2022, the Company recognized $17.6 million of previously deferred revenue and $9.3 million of unbilled revenue, compared to deferring revenue of $26.8 million during the six months ended June 30, 2021. The Company’s deferred revenue balance was $86.3 million as of June 30, 2022, including $20.8 million in other current liabilities and $65.5 million in other long-term liabilities. The Company’s deferred revenue balance was $103.9 million as of December 31, 2021, including $24.5 million in other current liabilities and $79.4 million in other long-term liabilities. The Company’s unbilled revenue balance was $17.7 million as of June 30, 2022, and $8.4 million as of December 31, 2021, and was included in other long-term assets. The Company’s deferred revenue and unbilled revenue balance will be recognized based on the number of block hours completed during each period relative to the estimated number of block hours the Company anticipates completing over the remaining contract term.

The Company’s capacity purchase and prorate agreements include weekly provisional cash payments from the respective major airline partner based on a projected level of flying each month. The Company and each major airline partner subsequently reconcile these payments to the actual completed flight activity on a monthly or quarterly basis.

As of June 30, 2022, the Company had 521 aircraft in scheduled service or under contract under code-share agreements. The following table summarizes the significant provisions of each code-share agreement SkyWest Airlines has with each major airline partner:

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United Express Agreements
Agreement	Aircraft type	Number of Aircraft	Term / Termination Dates
United Express Agreements (Capacity purchase agreement)	• E175 • CRJ 700 • CRJ 200	90 19 70	• Individual aircraft have scheduled removal dates from 2024 to 2029
United Express Prorate Agreement (Prorate agreement)	• CRJ 200	41	• Terminable with 120-day notice
Total under United Express Agreements		220

Delta Connection Agreements
Agreement	Aircraft type	Number of Aircraft	Term / Termination Dates
Delta Connection Agreement (Capacity purchase agreement)	• E175 • CRJ 900 • CRJ 700 • CRJ 200	73 44 5 9	• Individual aircraft have scheduled removal dates from 2022 to 2032
Delta Connection Prorate Agreement (Prorate agreement)	• CRJ 200	20	• Terminable with 30-day notice
Total under Delta Connection Agreements		151


American Capacity Purchase Agreement
Agreement	Aircraft type	Number of Aircraft	Term / Termination Dates
American Agreement (Capacity purchase agreement)	• E175 • CRJ 700	18 90	• Individual aircraft have scheduled removal dates from 2022 to 2032
Total under American Agreements		108

Alaska Capacity Purchase Agreement

Agreement

Aircraft type

Number of
Aircraft

Term / Termination Dates

Alaska Agreement

(Capacity purchase agreement)

•

E175

•

Individual aircraft have scheduled removal dates from 2030 to 2034

In addition to the contractual arrangements described above, as of June 30, 2022, SkyWest Airlines has a capacity purchase agreement with American to place two Embraer E175 dual-class regional jet aircraft (“E175”) into service. The delivery dates for the two new E175 aircraft are currently scheduled for the third quarter of 2022. SkyWest Airlines also has an agreement with American to place 11 used Canadair CRJ700 regional jet aircraft (“CRJ700”) under a multi-year capacity purchase agreement in 2023.

SkyWest Airlines has a capacity purchase agreement with Alaska to place an additional E175 aircraft into service. The delivery date for the new E175 aircraft is currently scheduled for the first half of 2023.

SkyWest Airlines has a capacity purchase agreement with Delta to place 14 E175 aircraft into service. The delivery dates for the 14 new E175 aircraft are currently scheduled for the second half of 2022.

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

When an aircraft is scheduled to be removed from a capacity purchase arrangement, the Company may, as practical under the circumstances, negotiate an extension with the respective major airline partner, negotiate the placement of the aircraft with another major airline partner, return the aircraft to the lessor if the aircraft is leased and the lease is expiring, place owned aircraft for sale, or pursue other uses for the aircraft. Other uses for the aircraft may include placing the aircraft in a prorate agreement, leasing the aircraft to a third party or parting out the aircraft to use the engines and parts as spare inventory or to lease the engines to a third party.

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Lease, airport services and other revenues primarily consists of revenue generated from aircraft and spare engines leased to third parties and airport customer services, such as gate and ramp agent services at applicable airports where the Company has agreements with third parties. The following table represents the Company’s lease, airport services and other revenues for the three and six months ended June 30, 2022 and 2021 (in thousands):


	For the three months ended June 30,				For the six months ended June 30,
	2022		2021		2022		2021
Operating lease revenue	$	16,450	$	16,458	$	33,005	$	31,408
Airport customer service and other revenue		8,861		7,565		19,395		15,979
Lease, airport services and other	$	25,311	$	24,023	$	52,400	$	47,387

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


July 2022 through December 2022	$	23,754
2023		47,084
2024		45,053
2025		40,083
2026		34,516
Thereafter		120,636
	$	311,126

Of the Company’s $5.6 billion of property and equipment, net as of June 30, 2022, $240.1 million of regional jet aircraft and spare engines was leased to third parties under operating leases. 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 settlement of reimbursement disputes 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, 2022, the Company had gross receivables of $97.0 million in current assets and gross receivables of $234.4 million in other long-term assets. The Company has established credit loss reserves based on publicly available historic default rates issued by a third party for companies with similar credit ratings, factoring in the term of the respective accounts receivable or notes receivable. During the six months ended June 30, 2022, there were no significant changes in the outstanding accounts receivable or notes receivable or the credit ratings of the entities. The Company’s credit loss reserve was $40.4 million at June 30, 2022, compared to $42.0 million at December 31, 2021. The $1.6 million decrease in the credit loss reserve for the six months ended June 30, 2022, was reflected as a decrease to the credit loss expense.

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(3) Stock-Based Compensation

During the six months ended June 30, 2022, the Company granted 66,680 restricted stock units and 221,942 performance shares to certain employees of the Company under the SkyWest, Inc. 2019 Long-Term Incentive Plan. Both the restricted stock units and performance shares have a three-year vesting period, during which the recipient must remain employed with the Company. The number of performance shares awardable from the 2022 grants can range from 0% to 250% of the original amount granted depending on the Company’s performance over three one-year measurement periods against the pre-established targets. Upon vesting, each restricted stock unit and performance share will be replaced with one share of common stock. The fair value of these restricted stock units and performance shares on their date of grant was $32.86 per share. During the six months ended June 30, 2022, the Company did not grant any options to purchase shares of common stock to employees. Additionally, during the six months ended June 30, 2022, the Company granted 24,423 fully vested shares of common stock to the Company’s directors at a grant date fair value of $32.86.

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, 2022 and 2021, the Company recorded pre-tax stock-based compensation expense of $7.4 million and $5.5 million, respectively.

(4) Net Income Per Common Share

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
PSP1 and Treasury Loan Warrants ⁽¹⁾		582		—		291		—
PSP2 Warrants ⁽²⁾		125		—		125		—
PSP3 Warrants ⁽³⁾		78		78		78		39
Restricted Stock Units		65		—		32		—
Total antidilutive securities		850		78		526		39

(1)

Pursuant to the payroll support program established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act (“PSP1”) and Loan and Guarantee Agreement with the U.S. Department of the Treasury (“U.S. Treasury”), SkyWest issued to Treasury warrants to purchase shares of SkyWest common stock for an exercise price of $28.38 per share.

(2)	Pursuant to the payroll support program established under the Consolidated Appropriations Act, 2021 (the “2021 Appropriations Act”) (“PSP2”), SkyWest issued to U.S. Treasury warrants to purchase shares of SkyWest common stock for an exercise price of $40.41 per share.

(3)	Pursuant to the payroll support program established under the American Rescue Plan Act of 2021 (the “American Rescue Plan Act”) (“PSP3”), SkyWest issued to U.S. Treasury warrants to purchase shares of SkyWest common stock for an exercise price of $57.47 per share.

Additionally, during the six months ended June 30, 2022, 350,000 performance shares (at target performance) were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of June 30, 2022. During the six months ended June 30, 2021, 295,000 performance shares (at target performance)

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were excluded from the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of June 30, 2021.

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Numerator:
Net income	$	53,951	$	61,994	$	71,685	$	97,894
Denominator:
Basic earnings per share weighted average shares		50,522		50,346		50,501		50,316
Dilutive effect of employee stock awards and warrants		44		379		136		411
Diluted earnings per share weighted average shares		50,566		50,725		50,637		50,727

Basic earnings per share	$	1.07	$	1.23	$	1.42	$	1.95
Diluted earnings per share	$	1.07	$	1.22	$	1.42	$	1.93

(5) Segment Reporting

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

The Company’s chief operating decision maker analyzes the profitability of operating new aircraft financed through the issuance of debt, including the Company’s E175 fleet, separately from the profitability of the Company’s capital deployed for ownership and financing of such aircraft. The SkyWest Airlines segment includes revenue earned under the applicable capacity purchase agreements attributed to operating such aircraft and the respective operating costs. The SkyWest Leasing segment includes applicable revenue earned under the applicable capacity purchase agreements attributed to the ownership of new aircraft acquired through the issuance of debt and the respective depreciation and interest expense of such aircraft. The SkyWest Leasing segment also includes the activity of leasing regional jet aircraft and spare engines to third parties. The SkyWest Leasing segment’s total assets and capital expenditures include new aircraft acquired through the issuance of debt and assets leased to third parties.

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


	Three months ended June 30, 2022
	SkyWest		SkyWest
	Airlines		Leasing		Consolidated
Operating revenues ⁽¹⁾	$	664,203	$	134,882	$	799,085
Operating expense		636,245		74,238		710,483
Depreciation and amortization expense		44,982		52,267		97,249
Interest expense		2,650		27,783		30,433
Segment profit ⁽²⁾		25,308		32,861		58,169
Total assets (as of June 30, 2022)		3,011,236		4,325,411		7,336,647
Capital expenditures (including non-cash)		20,010		181,168		201,178

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	Three months ended June 30, 2021
	SkyWest		SkyWest
	Airlines		Leasing		Consolidated
Operating revenues ⁽¹⁾	$	527,595	$	129,395	$	656,990
Operating expense		477,188		64,779		541,967
Depreciation and amortization expense		53,151		56,744		109,895
Interest expense		6,219		27,721		33,940
Segment profit ⁽²⁾		44,188		36,895		81,083
Total assets (as of June 30, 2021)		3,089,404		3,902,359		6,991,763
Capital expenditures (including non-cash)		21,822		4,617		26,439

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

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

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


	Six months ended June 30, 2022
	SkyWest		SkyWest
	Airlines		Leasing		Consolidated
Operating revenues ⁽¹⁾	$	1,267,252	$	266,985	$	1,534,237
Operating expense		1,257,273		136,314		1,393,587
Depreciation and amortization expense		92,676		107,318		199,994
Interest expense		4,439		54,586		59,025