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Nature of Operations and Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2017
Nature of Operations and Summary of Significant Accounting Policies |
Nature of Operations and Summary of Significant Accounting Policies | (1) Nature of Operations and Summary of Significant Accounting Policies SkyWest, Inc. (the “Company”), through its subsidiaries, SkyWest Airlines, Inc. (“SkyWest Airlines”) and ExpressJet Airlines, Inc. (“ExpressJet”), operates the largest regional airlines in the United States. As of December 31, 2017, SkyWest Airlines and ExpressJet offered scheduled passenger service under code-share agreements with United, Delta, American and Alaska with approximately 2,980 total daily departures to different destinations in the United States, Canada, Mexico and the Caribbean. Additionally, the Company provides airport customer service and ground handling services for other airlines throughout its system. As of December 31, 2017, the Company had 595 aircraft in scheduled service out of a combined fleet of 623 aircraft consisting of the following:
|  | CRJ200 |  | CRJ700 |  | CRJ900 |  | ERJ135 |  | ERJ145 |  | E175 |  | Total |
United |  | 81 |  | 20 |  | — |  | 3 |  | 109 |  | 65 |  | 278 |
Delta |  | 94 |  | 60 |  | 52 |  | — |  | — |  | 19 |  | 225 |
American |  | 16 |  | 49 |  | — |  | — |  | — |  | — |  | 65 |
Alaska |  | 4 |  | — |  | — |  | — |  | — |  | 23 |  | 27 |
Aircraft in scheduled service |  | 195 |  | 129 |  | 52 |  | 3 |  | 109 |  | 107 |  | 595 |
Subleased to an un-affiliated entity |  | 4 |  | — |  | — |  | — |  | — |  | — |  | 4 |
Other* |  | 9 |  | 7 |  | — |  | — |  | 8 |  | — |  | 24 |
Total Fleet |  | 208 |  | 136 |  | 52 |  | 3 |  | 117 |  | 107 |  | 623 |
* As of December 31, 2017, these aircraft have been removed from service and are in the process of being returned under the applicable leasing arrangement or are aircraft transitioning between code-share agreements with the Company’s major airline partners. During the year ended December 31, 2017, the Company sold eleven owned Embraer Brasilia EMB120 (“EMB120”) 30-seat turboprop aircraft at net book value. For the year ended December 31, 2017, approximately 46.7% of the Company’s aircraft in scheduled service operated for United, approximately 37.8% was operated for Delta, approximately 10.9% was operated for American and approximately 4.6% was operated for Alaska. SkyWest Airlines has been a code-share partner with Delta since 1987, United since 1997, Alaska since 2011 and American since 2012. As of December 31, 2017, SkyWest Airlines operated as a Delta Connection carrier primarily in Salt Lake City and Minneapolis, a United Express carrier primarily in Los Angeles, San Francisco, Denver, Houston, Chicago and the Pacific Northwest, an American carrier primarily in Chicago, Los Angeles and Phoenix and an Alaska carrier primarily in the Pacific Northwest. As of December 31, 2017, ExpressJet operated as a Delta Connection carrier primarily in Atlanta and Detroit, a United Express carrier primarily in Chicago (O’Hare), Cleveland, Newark and Houston and an American carrier primarily in Dallas. The Company’s subsidiaries operate the following aircraft manufactured by Bombardier Aerospace (“Bombardier”) and Embraer S.A. (“Embraer”): Bombardier CRJ200 regional jets (“CRJ200s”), Bombardier CRJ700 regional jets (“CRJ700s”), Bombardier CRJ900 regional jets (“CRJ900s”), Embraer ERJ145 Regional Jets (“ERJ145s”) and Embraer E175 dual-class regional jet aircraft (which are typically configured with 76 seats) (“E175s”). Additionally, the Company has ordered 30 E175 aircraft from Embraer configured with 70 seats (“E175 SC”). Basis of Presentation The Company’s consolidated financial statements include the accounts of the Company and the SkyWest Airlines, ExpressJet and SkyWest Leasing segments, with all inter‑company transactions and balances having been eliminated. In preparing the accompanying consolidated financial statements, the Company has reviewed, as determined necessary by the Company’s management, events that have occurred after December 31, 2017, through the filing date of the Company’s annual report with the U.S. Securities and Exchange Commission. The Company reclassified certain prior period amounts to conform to the current period presentation (see Recent Accounting Pronouncements). Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company classified $8.2 million of cash as restricted cash collateralizing letters of credit under the Company’s workers’ compensation insurance policy and classified it accordingly in the consolidated balance sheets as of December 31, 2016. The Company had no restricted cash as of December 31, 2017, as the Company satisfied the workers’ compensation insurance policy requirement with a letter of credit. Marketable Securities The Company’s investments in marketable debt and equity securities are deemed by management to be available-for-sale and are reported at fair market value with the net unrealized appreciation reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity. At the time of sale, any realized appreciation or depreciation, calculated by the specific identification method, is recognized in other income and expense. The Company’s position in marketable securities as of December 31, 2017 and 2016 was as follows (in thousands):
|  |  |  |  | Gross unrealized |  | Gross unrealized |  |  |  |
At December 31, 2017 |  | Amortized Cost |  | holding gains |  | holding losses |  | Fair market value |
Total cash and cash equivalents |  | $ | 181,792 |  | $ | — |  | $ | — |  | $ | 181,792 |
Marketable securities: |  |  |  |  |  |  |  |  |  |  |  |  |
Bond and bond funds |  | $ | 344,479 |  | $ | — |  | $ | (228) |  | $ | 344,251 |
Commercial Paper |  |  | 159,252 |  |  | — |  |  | — |  |  | 159,252 |
Total marketable securities |  | $ | 503,731 |  | $ | — |  | $ | (228) |  | $ | 503,503 |
Total assets measured at fair value |  | $ | 685,523 |  | $ | — |  | $ | (228) |  | $ | 685,295 |
|  |  |  |  | Gross unrealized |  |  | Gross unrealized |  |  |  |
At December 31, 2016 |  | Amortized Cost |  | holding gains |  | holding losses |  | Fair market value |
Total cash and cash equivalents |  | $ | 146,766 |  | $ | — |  | $ | — |  | $ | 146,766 |
Marketable securities: |  |  |  |  |  |  |  |  |  |  |  |  |
Bond and bond funds |  | $ | 410,001 |  | $ | — |  | $ | (116) |  | $ | 409,885 |
Commercial Paper |  |  | 13 |  |  | — |  |  | — |  |  | 13 |
Total marketable securities |  | $ | 410,014 |  | $ | — |  | $ | (116) |  | $ | 409,898 |
Total assets measured at fair value |  | $ | 556,780 |  | $ | — |  | $ | (116) |  | $ | 556,664 |
As of December 31, 2017 and 2016, the Company had classified $503.5 million and $409.9 million of marketable securities, respectively, as short‑term since it had the ability to redeem the securities within one year. Inventories Inventories include expendable parts, fuel and supplies and are valued at cost (FIFO basis) less an allowance for obsolescence based on historical results, excess parts and management’s expectations of future operations. Expendable inventory parts are charged to expense as used. An obsolescence allowance for flight equipment expendable parts is accrued based on estimated lives of the corresponding fleet types and salvage values. The inventory allowance as of December 31, 2017 and 2016 was $17.1 million and $40.5 million, respectively. The inventory allowance decreased in 2017 due to the disposal of excess inventory that had a valuation allowance as of December 31, 2016. These allowances are based on management estimates. Property and Equipment Property and equipment are stated at cost and depreciated over their useful lives to their estimated residual values using the straight‑line method. The Company changed the estimated useful lives and residual values for certain long-lived assets as of January 1, 2017 as follows:
Assets |  | Current Depreciable Life |  | Prior Policy Depreciable Life |  | Current Residual Value |  | Prior Policy Residual Value
New Aircraft |  | 20 - 22 years |  | 18 years |  | 17.5 - 20 | % |  | 30 | %
Used Aircraft, rotable spares, and spare engines |  | up to 18 years |  | up to 18 years |  | 0 - 20 | % |  | 0 - 30 | %
Ground equipment |  | up to 10 years |  | No Change |  | 0 | % |  | No Change
Office equipment |  | up to 7 years |  | No Change |  | 0 | % |  | No Change
Leasehold improvements |  | Shorter of 15 years or lease term |  | No Change |  | 0 | % |  | No Change
Buildings |  | 20 - 39.5 years |  | No Change |  | 0 | % |  | No Change
The impact of this change increased depreciation expense by an additional $1.4 million for 2017. Impairment of Long-Lived Assets As of December 31, 2017, the Company had approximately $4.2 billion of property and equipment and related assets. Additionally, as of December 31, 2017, the Company had approximately $4.9 million in intangible assets. In accounting for these long‑lived and intangible assets, the Company makes estimates about the expected useful lives of the assets, the expected residual values of certain of these assets, and the potential for impairment based on the fair value of the assets and the cash flows they generate. On September 7, 2005, the Company acquired all of the issued and outstanding capital stock of Atlantic Southeast and recorded an intangible asset for specifically identifiable contracts of approximately $33.7 million relating to the acquisition. The Company anticipates the intangible asset will be fully amortized by the end of 2018. As of December 31, 2017 and 2016, the Company had $28.9 million and $25.5 million in accumulated amortization expense, attributable to the acquisition, respectively. Factors indicating potential impairment include, but are not limited to, significant decreases in the market value of the long‑lived assets, a significant change in the condition of the long‑lived assets and operating cash flow losses associated with the use of the long‑lived assets. On a periodic basis, the Company evaluates whether impairment indicators are present. When considering whether or not impairment of long‑lived assets exists, the Company groups similar assets together at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and compare the undiscounted cash flows for each asset group to the net carrying amount of the assets supporting the asset group. Asset groupings are done at the fleet or contract level. The Company did not recognize any impairment charges of long-lived assets during the year ended December 31, 2017. In 2016, the Company impaired certain long-lived assets relating to the CRJ200 aircraft and ERJ145 aircraft type specific assets. See Note 8, Special Items, for the impairment charges recorded during the year ended December 31, 2016. Capitalized Interest Interest is capitalized on aircraft purchase deposits as a portion of the cost of the asset and is depreciated over the estimated useful life of the asset. During the years ended December 31, 2017, 2016 and 2015, the Company capitalized interest costs of approximately $1.4 million, $1.5 million, and $2.2 million, respectively. Maintenance The Company operates under a U.S. Federal Aviation Administration approved continuous inspection and maintenance program. The Company uses the direct expense method of accounting for its regional jet engine overhauls wherein the expense is recorded when the overhaul event occurs. The Company has engine services agreements with third-party vendors to provide long-term engine services covering the scheduled and unscheduled repairs for certain of its CRJ200 aircraft, CRJ700 aircraft, ERJ145 aircraft and E175 aircraft. Under the terms of the agreements, the Company pays a fixed dollar amount per engine hour flown on a monthly basis and the third-party vendors will assume the responsibility to repair the engines at no additional cost to the Company, subject to certain specified exclusions. Maintenance costs under these contracts are recognized when the engine hour is flown pursuant to the terms of each contract. The costs of maintenance for airframe and avionics components, landing gear and other recurring maintenance are expensed as incurred. Passenger and Ground Handling Revenues The Company recognizes passenger and ground handling revenues when the service is provided under its code-share agreements. Under the Company’s fixed-fee arrangements (referred to as “fixed-fee arrangements, “fixed-fee contracts” or “capacity purchase agreements”) with Delta, United, American and Alaska (each, a “major airline partner”), the major airline partner generally pays the Company a fixed-fee for each departure, flight or block 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 reimburses the Company for certain direct expenses incurred under the fixed-fee arrangement such as fuel expense and certain airport related expenses. Under the fixed-fee arrangements, revenue is earned when each flight is completed. Under the Company’s fixed-fee agreements with Delta, United, American and Alaska, the compensation structure generally consists of a combination of agreed‑upon rates for operating flights and direct reimbursement for other certain costs associated with operating the aircraft. A portion of the Company’s contract flying compensation is designed to reimburse the Company for certain aircraft ownership costs. The aircraft compensation structure 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. Under the Company’s ExpressJet United Express ERJ Agreement and certain aircraft operating under fixed-fee contracts with Delta, the major airline partner provides the aircraft to the Company for a nominal amount. The Company has concluded that a component of its revenue under these agreements is rental income, inasmuch as the agreements identify the “right of use” of a specific type and number of aircraft over a stated period of time. The amounts deemed to be rental income under the agreements for the years ended December 31, 2017, 2016 and 2015 were $572.7 million, $516.0 million and $504.9 million, respectively. These amounts are reflected as passenger revenues on the Company’s consolidated statements of comprehensive income (loss). The Company has not separately stated aircraft rental income and aircraft rental expense in the consolidated statement of comprehensive income (loss) since the use of the aircraft is not a separate activity of the total service provided. In the event that the contractual rates under the agreements have not been finalized at quarterly or annual financial statement dates, the Company records revenues based on the lower of prior period’s approved rates, as adjusted to reflect any contract negotiations and the Company’s estimate of rates that will be implemented in accordance with revenue recognition guidelines. In the event the Company has a reimbursement dispute with a major airline partner, the Company evaluates the dispute under its established revenue recognition criteria and, provided the revenue recognition criteria have been met, the Company recognizes revenue based on management’s estimate of the resolution of the dispute. In several of the Company’s agreements, the Company is eligible for incentive compensation upon the achievement of certain performance criteria. The incentives are defined in the agreements and are being measured and determined on a monthly, quarterly or semi-annual basis. At the end of each period, the Company calculates the incentives achieved during that period and recognizes revenue accordingly. The Company’s passenger revenues from fixed-fee agreements could be impacted by a number of factors, including changes to the Company’s code‑share agreements with Delta, United, Alaska or American, contract modifications resulting from contract re‑negotiations, 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. Under a Revenue Sharing Arrangement (referred to as a “revenue-sharing” or “prorate” arrangement), the major airline and regional airline negotiate a passenger fare proration formula, pursuant to which the regional airline receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on the regional airline and the other portion of their trip on the major airline. Revenue is recognized under the Company’s prorate flying agreements 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. 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. The following summarizes the significant provisions of each code-share agreement the Company has with each major airline partner: Delta Connection Agreements
Agreement |  | Aircraft type |  | Number of Aircraft |  | Term / Termination Dates |
SkyWest Airlines Delta Connection Agreement (fixed-fee arrangement) |  | CRJ 200 CRJ 700 CRJ 900 E175 |  | 70 27 36 19 |  | Individual aircraft have scheduled removal dates under the agreement between 2018 and 2027 The average remaining term of the aircraft under contract is 2.9 years |
ExpressJet Delta Connection Agreement (fixed-fee arrangement) |  | CRJ 700 CRJ 900 |  | 33 16 |  | Individual aircraft have scheduled removal dates under the agreement during 2018 |
SkyWest Airlines Delta Connection Prorate Agreement (revenue-sharing arrangement) |  | CRJ 200 |  | 24 |  | Terminable with 30-day notice |
United Express Agreements
Agreement |  | Aircraft type |  | Number of Aircraft |  | Term / Termination Dates |
SkyWest Airlines United Express Agreements (fixed-fee arrangement) |  | CRJ 200 CRJ 700 E175 |  | 57 20 65 |  | Individual aircraft have scheduled removal dates under the agreement between 2018 and 2029 The average remaining term of the aircraft under contract is 5.1 years |
ExpressJet United ERJ Agreement (fixed-fee arrangement) |  | ERJ145 ERJ135 |  | 109 3 |  | Agreement expires in 2022 The average remaining term of the aircraft under contract is 4.8 years |
SkyWest Airlines United Express Prorate Agreement (revenue-sharing arrangement) |  | CRJ 200 |  | 24 |  | Terminable with 120-day notice |
American Agreements
Agreement |  | Aircraft type |  | Number of Aircraft |  | Term / Termination Dates |
SkyWest Airlines American Agreement (fixed-fee arrangement) |  |  CRJ 200  CRJ 700 |  | 10 37 |  |  CRJ200 aircraft are scheduled to expire in 2018 and the CRJ700 aircraft are scheduled to expire in 2019 |
SkyWest Airlines American Prorate Agreement (revenue-sharing arrangement) |  |  CRJ 200 |  | 6 |  |  Terminable with 120-day notice |
ExpressJet American Agreement (fixed-fee arrangement) |  |  CRJ 700 |  | 12 |  |  CRJ700 aircraft are scheduled to expire in 2019 |
Alaska Capacity Purchase Agreement
Agreement |  | Aircraft type |  | Number of Aircraft |  | Term / Termination Dates |
SkyWest Airlines Alaska Agreement (fixed-fee arrangement) |  | CRJ 200 E175 |  | 4 23 |  |  CRJ200 aircraft are scheduled to expire in 2018 E175 aircraft have scheduled removal dates under the agreement between 2027 and 2029 |
In addition to the contractual arrangements described above, SkyWest Airlines has entered into agreements with Alaska and Delta to place additional E175/E175 SC aircraft into service for those major airline partners. As of December 31, 2017, the Company anticipated placing an additional 12 E175 aircraft with Alaska and 30 E175 SC aircraft with Delta. The delivery dates for the new E175/E175 SC aircraft are currently scheduled to take place by the end of 2018 or early 2019. Final delivery dates may adjust based on various factors. ExpressJet initiated the wind down of its flying agreement with Delta during 2017 and expected to be complete by the end of 2018. As of December 31, 2017, ExpressJet operated 49 CRJ700s/900s under its Delta flying agreement. Of the 49 aircraft, ExpressJet anticipates returning 19 leased aircraft to Delta and removing 30 CRJ700 aircraft from service with Delta during 2018. ExpressJet is pursuing placement of the 30 CRJ700 aircraft with other partners, of which eight aircraft are scheduled to be placed under an agreement with American following the removal from service with Delta. Deferred Aircraft Credits The Company accounts for incentives provided by aircraft manufacturers as deferred credits. The deferred credits related to leased aircraft are amortized on a straight‑line basis as a reduction to rent expense over the lease term. Credits related to owned aircraft reduce the purchase price of the aircraft, which has the effect of amortizing the credits on a straight‑line basis as a reduction in depreciation expense over the life of the related aircraft. The incentives are credits that may be used to purchase spare parts and pay for training and other expenses. Income Taxes The Company recognizes a net liability or asset for the deferred tax consequences of all temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements that are expected to result in taxable or deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled. Net Income (Loss) Per Common Share Basic net income (loss) per common share (“Basic EPS”) excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) 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 (loss) per common share. During the year ended December 31, 2017, 284,000 performance shares (at target performance) were excluded in the computation of Diluted EPS since the Company had not achieved the minimum target thresholds as of December 31, 2017. During the year ended December 31, 2016, 2,077,000 shares reserved for the issuance upon the exercise of outstanding options, performance shares and restricted stock units were excluded from the computation of Diluted EPS due to the net loss in 2016 and 505,000 shares reserved for outstanding options were excluded from the Diluted EPS calculation for the year ended December 31, 2015 as the respective exercise price exceeded the weighted average fair market value of the Company’s stock for 2015. The calculation of the weighted average number of common shares outstanding for Basic EPS and Diluted EPS are as follows for the years ended December 31, 2017, 2016 and 2015 (in thousands):
|  | Year Ended December 31,
|  | 2017 |  | 2016 |  | 2015 |
Numerator: |  |  |  |  |  |  |  |  |  |
Net Income (Loss) |  | $ | 428,907 |  | $ | (161,586) |  | $ | 117,817 |
Denominator: |  |  |  |  |  |  |  |  |  |
Denominator for basic earnings per-share weighted average shares |  |  | 51,804 |  |  | 51,505 |  |  | 51,077 |
Dilution due to stock options and restricted stock units |  |  | 1,296 |  |  | — |  |  | 748 |
Denominator for diluted earnings per-share weighted average shares |  |  | 53,100 |  |  | 51,505 |  |  | 51,825 |
Basic earnings (loss) per-share |  | $ | 8.28 |  | $ | (3.14) |  | $ | 2.31 |
Diluted earnings (loss) per-share |  | $ | 8.08 |  | $ | (3.14) |  | $ | 2.27 |
Comprehensive Income (Loss) Comprehensive income (loss) includes charges and credits to stockholders’ equity that are not the result of transactions with the Company’s shareholders, including changes in unrealized appreciation on marketable securities. Fair Value of Financial Instruments The carrying amounts reported in the consolidated balance sheets for receivables and accounts payable approximate fair values because of the immediate or short‑term maturity of these financial instruments. Marketable securities are reported at fair value based on market quoted prices in the consolidated balance sheets. If quoted prices in active markets are no longer available, the Company has estimated the fair values of these securities utilizing a discounted cash flow analysis as of December 31, 2017. These analyses consider, among other items, the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and the expectation of the next time the security is expected to have a successful auction. The fair value of the Company’s long‑term debt is estimated based on current rates offered to the Company for similar debt and was approximately $2,698.4 million as of December 31, 2017, as compared to the carrying amount of $2,712.4 million as of December 31, 2017. The Company’s fair value of long‑term debt as of December 31, 2016 was $2,566.5 million as compared to the carrying amount of $2,570.9 million as of December 31, 2016. Segment Reporting Generally accepted accounting principles require disclosures related to components of a company for which separate financial information is available to, and regularly evaluated by, the Company’s chief operating decision maker when deciding how to allocate resources and in assessing performance. The Company’s three operating segments consist of the operations conducted by SkyWest Airlines, ExpressJet and SkyWest Leasing. Information pertaining to the Company’s reportable segments is presented in Note 2, Segment Reporting. Recent Accounting Pronouncements Standards Effective in Future Years and Not Yet Adopted In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2014‑09, “Revenue from Contracts with Customers” (“ASU No. 2014‑09”). Under ASU No. 2014‑09, revenue is recognized at the time a good or service is transferred to a customer for the amount of consideration received for that specific good or service. In 2016, the FASB issued several amendments to the standard, including principal versus agent considerations when another party is involved in providing goods or services to a customer and the application of identifying performance obligations. The Company’s adoption of the standard as of January 1, 2018, will be first presented in the first quarter of 2018, utilizing the full retrospective method of adoption allowed by the standard, in order to provide for comparative results in all periods presented. Under the new standard, the Company concluded that individual flights are distinct services and these flight services promised in a CPA agreement represent a series of services that should be accounted for as a single performance obligation, recognized over time as the flights are completed. The adoption of ASU No. 2014‑09 did not have a material impact on recorded amounts when applied to the opening balance sheet as of January 1, 2018 and is not expected to impact the amount or timing of the future amounts of net income, however the principal versus agent considerations under ASU No. 2014-09 will result in the Company recording directly reimbursed fuel expense under its fixed-fee contracts as a reduction to the applicable operating expense (net) rather than revenue (gross). The Company’s analysis of information necessary to recast prior period results is still preliminary and additional impacts could still result when the standard is first applied to revenue transactions during the first quarter of 2018. In February 2016, the FASB issued Accounting Standards Update 2016‑02, “Leases (Topic 842)” (“ASU No. 2016-02”). ASU No. 2016‑02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU No. 2016‑02 will be effective beginning in the first quarter of 2019. Early adoption of ASU No. 2016‑02 is permitted. ASU No. 2016‑02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company’s management is currently evaluating the impact the adoption of ASU 2016‑02 is anticipated to have on the Company’s consolidated financial statements. In 2016, the FASB issued Accounting Standards Update 2016‑15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” and Accounting Standard Update 2016‑18, “Statement of Cash Flows (Topic 230): Restricted Cash” related to the classification of certain cash receipts and cash payments and the presentation of restricted cash within an entity’s statement of cash flows, respectively. These standards are effective for interim and annual reporting periods beginning after December 15, 2017, but early adoption is permitted. The Company anticipates adopting this standard in the first quarter of 2018 that will modify the presentation of changes in restricted cash in the Company’s Consolidated Statement of Cash Flows. Recently Adopted Standards Pursuant to the guidelines of the recently issued Accounting Standards Update 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (“ASU 2015‑17”), all net deferred tax assets and liabilities are to be classified as non-current. As permitted under ASU 2015‑17, the Company adopted this guidance for the quarter ended March 31, 2017. The Company adopted ASU 2015‑17 retrospectively. Upon adoption, approximately $129.3 million of formerly recorded current deferred tax assets as of December 31, 2016 were reclassified to non-current and netted against non-current deferred income taxes payable as of December 31, 2016 in the accompanying financial statements. In March 2016, the FASB issued Accounting Standards Update No. 2016‑09, “Compensation—Stock Compensation (Topic 718)” (“ASU No. 2016‑09”). ASU No. 2016‑09 makes several amendments to Topic 718, which simplified the accounting for share-based payment transactions, including the income tax consequences, the calculation of diluted earnings per share, the treatment of forfeitures and the classification on the statement of cash flows. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements and forfeitures should be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. Amendments requiring the recognition of excess tax benefits and tax deficiencies in the income statement should be applied prospectively. Prior to the adoption of ASU No. 2016‑09, accounting principles generally accepted in the United States of America (“GAAP”) required tax effects of deductions for share-based payments in excess of compensation cost and tax deficiencies to be recorded in equity. Under ASU No. 2016‑09, the tax effects of awards are treated as discrete income tax expense items in the reporting period in which they occur. The Company adopted ASU No. 2016‑09 as of January 1, 2017. The adoption of this standard resulted in the recognition in of $0.9 million of previously unrecognized excess tax benefits in net deferred tax liabilities and an increase to retained earnings on the consolidated balance sheet as of the beginning of the current year, and the recognition of $5.4 million of excess tax benefits in the income tax provision for the year ended December 31, 2017. The adoption of ASU No. 2016‑09 did not have a material impact on the statement of cash flows presentation.

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