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Condensed Consolidated Financial Statements (Policies) | 9 Months Ended
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Sep. 30, 2018
Condensed Consolidated Financial Statements |
Basis of Presentation | Basis of Presentation The condensed consolidated financial statements of SkyWest, Inc. (“SkyWest” or the “Company”) and its operating subsidiaries, SkyWest Airlines, Inc. (“SkyWest Airlines”) and ExpressJet Airlines, Inc. (“ExpressJet”) 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, 2017. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. 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 will likely differ, and may differ materially, from those estimates and assumptions. The Company reclassified certain prior period amounts to conform to the current period presentation.
Recent Accounting Pronouncements | Recent Accounting Pronouncements Standards Effective in Future Years and Not Yet Adopted In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update 2016‑02, “Leases (Topic 842)” (“Topic 842”). Topic 842 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. Topic 842 will be effective beginning in the first quarter of 2019. Early adoption of Topic 842 is permitted. In July 2018, the FASB issued ASU No. 2018-11, “Targeted Improvements - Leases (Topic 842).” This update provides an optional transition method that allows entities to elect to apply the standard prospectively at its effective date, versus recasting the prior periods presented. The Company anticipates electing this adoption method and expects to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company has not completed its assessment, but the adoption of Topic 842 will have a significant impact on its consolidated balance sheets. However, the Company does not expect the adoption to have a significant impact on the recognition, measurement or presentation of lease revenue and lease expenses within the condensed consolidated statements of operations and comprehensive income or the condensed consolidated statements of cash flows. See Note 6, “Commitments and Contingencies,” about the Company’s undiscounted future lease payments and the timing of those payments. Recently Adopted Standards In May 2014, the FASB issued Accounting Standards Update No. 2014‑09, “Revenue from Contracts with Customers, (Topic 606)” (“Topic 606”). Under Topic 606, 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 adopted this standard as of January 1, 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, in addition to the aircraft lease, the individual flights are distinct services and the flight services promised in a capacity purchase 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 Topic 606 did not have a material impact on recorded amounts when applied to the opening balance sheet as of January 1, 2018. The adoption of Topic 606 only affected the Company’s consolidated balance sheets and statements of comprehensive income classification, with no impact on the Company’s operating income (loss), net income (loss), earnings (loss) per share or cash flows, however the principal versus agent considerations under Topic 606 resulted 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). This classification change resulted in a reduction to total revenue and a reduction to operating expenses by the same amount, resulting in no change to operating income. Additionally, under the nonrefundable up-front fees and contract costs considerations of Topic 606, reimbursements from the Company’s major airline partners for up-front contract costs will be deferred and amortized over the contract term. The related up-front costs to obtain the contract will also be capitalized and amortized over the contract term. As the amount of the up-front reimbursement is determined from the Company’s actual costs to fulfill the contract, this change is not expected to impact the Company’s operating income (loss) as the amount of deferred revenue and the amount of capitalized costs will be recognized over the same period. This change also resulted in a deferred revenue liability and a capitalized contract cost on the balance sheet of the same amount. Prior to the Company’s adoption of Topic 606, the Company segregated its revenue into two categories: “Passenger revenue” and “Ground handling and other revenue.” “Passenger revenue” included revenue from fixed-fee contracts, prorate flying agreements and airport customer service agreements for flights operated by the Company. “Ground handling and other revenue” included revenue from airport customer service agreements for flights operated by third parties and other revenue. Under the disaggregated revenue disclosure considerations in Topic 606, the Company segregated its revenue into the following categories: “Flying agreements revenue” and “Airport customer service and other revenues.” “Flying agreements revenue” includes revenue from fixed-fee contracts, prorate flying agreements and other revenue, primarily lease revenue for the use of the aircraft. “Airport customer service and other revenues” includes revenue from airport customer services agreements. This change reclassifies amounts previously reported as “Passenger revenue” and “Ground handling and other revenue”. Additionally, in connection with the Company’s adoption of Topic 606, the Company renamed the operating expense “Ground handling services” to “Airport-related expenses.” Certain airport-related expenses, such as landing fees and airport facility rents, were previously reported as “Other operating expenses” and have been reclassified as “Airport-related expenses.” 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. The Company adopted this standard in the first quarter of 2018 and modified the presentation to include changes in restricted cash in the Company’s Consolidated Statement of Cash Flows, which had an immaterial impact. Impact of Recently Adopted Standards The Company recast certain prior period amounts to conform with the adoption of Topic 606, as shown in the tables below (in thousands):
|  | Three months ended September 30, 2017
Income Statement: |  | Previously Reported |  | Adjustments |  | Current Presentation
OPERATING REVENUES: |  |  |  |  |  |  |  |  |
Flying agreements (1) |  | $ | 812,295 |  | $ | (11,330) |  | $ | 800,965
Airport customer service and other (2) |  |  | 19,641 |  |  | (7,933) |  |  | 11,708
Total operating revenues |  | $ | 831,936 |  | $ | (19,263) |  | $ | 812,673
OPERATING EXPENSES: |  |  |  |  |  |  |  |  |
Salaries, wages and benefits |  | $ | 303,997 |  | $ | 17 |  | $ | 304,014
Aircraft fuel |  |  | 42,071 |  |  | (19,280) |  |  | 22,791
Airport-related expenses (3) |  |  | 16,693 |  |  | 13,516 |  |  | 30,209
Other operating expenses |  |  | 78,948 |  |  | (13,516) |  |  | 65,432
Total operating expenses |  |  | 719,567 |  |  | (19,263) |  |  | 700,304
OPERATING INCOME |  | $ | 112,369 |  | $ | — |  | $ | 112,369
| 1. |  | In previously reported periods, this line item was presented as passenger revenue.
| 2. |  | In previously reported periods, this line item was presented as ground handling and other.
| 3. |  | In previously reported periods, this line item was presented as ground handling services.
|  | Nine months ended September 30, 2017
Income Statement: |  | Previously Reported |  | Adjustments |  | Current Presentation
OPERATING REVENUES: |  |  |  |  |  |  |  |  |
Flying agreements (1) |  | $ | 2,349,047 |  | $ | (31,829) |  | $ | 2,317,218
Airport customer service and other (2) |  |  | 58,063 |  |  | (23,930) |  |  | 34,133
Total operating revenues |  | $ | 2,407,110 |  | $ | (55,759) |  | $ | 2,351,351
OPERATING EXPENSES: |  |  |  |  |  |  |  |  |
Salaries, wages and benefits |  | $ | 899,966 |  | $ | (3,490) |  | $ | 896,476
Aircraft fuel |  |  | 113,564 |  |  | (52,269) |  |  | 61,295
Airport-related expenses (3) |  |  | 52,130 |  |  | 38,976 |  |  | 91,106
Other operating expenses |  |  | 229,211 |  |  | (38,976) |  |  | 190,235
Total operating expenses |  |  | 2,111,851 |  |  | (55,759) |  |  | 2,056,092
OPERATING INCOME |  | $ | 295,259 |  | $ | — |  | $ | 295,259
| 1. |  | In previously reported periods, this line item was presented as passenger revenue.
| 2. |  | In previously reported periods, this line item was presented as ground handling and other.
| 3. |  | In previously reported periods, this line item was presented as ground handling services.
Balance Sheet: |  | Previously Reported December 31, 2017 |  | Adjustments |  | Current Presentation December 31, 2017
ASSETS: |  |  |  |  |  |  |
Other long-term assets |  | $ | 49,220 |  | $ | 16,121 |  | $ | 65,341
LIABILITIES: |  |  |  |  |  |  |
Other long-term liabilities |  | $ | 42,541 |  | $ | 16,121 |  | $ | 58,662
The $16.1 million adjustment to other long-term assets and other long-term liabilities reflects the amount of capitalized up-front contract costs and the amount of deferred revenue for up-front reimbursements as of December 31, 2017. The $16.1 million capitalized contract costs and deferred revenue is expected to be amortized over the applicable remaining contract term. For the nine months ended September 30, 2018 and 2017, the Company recognized $1.4 million and $1.1 million, respectively, of revenue associated with the amortization of the up-front contract reimbursements. As of September 30, 2018, the Company had $62.2 million in accounts receivable of which $56.4 million related to flying agreements. As of December 31, 2017, the Company had $42.7 million in accounts receivable of which $33.9 million related to flying agreements.

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