skyw_Current folio_10Q

Table of Contents

prorate

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 March  31, 2018

 

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 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)

 

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 and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 ☐

(Do not check if a 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 April 30, 2018

Common stock, no par value

 

52,045,770

 

 

 

 

 


 

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 as of March 31, 2018 (unaudited) and December 31, 2017

3

 

 

Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 31, 2018 and 2017

5

 

 

Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2018 and 2017

6

 

 

Notes to Condensed Consolidated Financial Statements

7

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

 

Item 4.

Controls and Procedures

28

 

 

 

 

PART II 

OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

29

 

Item 1A.

Risk Factors

29

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

 

Item 6.

Exhibits

30

 

 

Signature

30

 

 

 

 

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


 

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

March 31,

    

December 31,

 

 

    

2018

    

2017 (a)

 

 

 

(unaudited)

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

251,447

 

$

181,792

 

Marketable securities

 

 

394,080

 

 

503,503

 

Income tax receivable

 

 

8,596

 

 

5,316

 

Receivables, net

 

 

61,327

 

 

42,731

 

Inventories, net

 

 

117,217

 

 

119,755

 

Prepaid aircraft rents

 

 

89,731

 

 

115,098

 

Other current assets

 

 

30,225

 

 

26,938

 

Total current assets

 

 

952,623

 

 

995,133

 

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT:

 

 

 

 

 

 

 

Aircraft and rotable spares

 

 

5,583,624

 

 

5,335,870

 

Deposits on aircraft

 

 

49,000

 

 

49,000

 

Buildings and ground equipment

 

 

275,926

 

 

265,608

 

 

 

 

5,908,550

 

 

5,650,478

 

Less-accumulated depreciation and amortization

 

 

(1,533,346)

 

 

(1,467,475)

 

Total property and equipment, net

 

 

4,375,204

 

 

4,183,003

 

 

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

 

 

  Long-term prepaid assets

 

 

203,178

 

 

230,923

 

Other assets

 

 

69,182

 

 

65,341

 

Total other assets

 

 

272,360

 

 

296,264

 

Total assets

 

$

5,600,187

 

$

5,474,400

 

(a)

Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information. 

 

See accompanying notes to condensed consolidated financial statements.

3


 

Table of Contents

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

    

December 31,

 

    

 

    

2018

    

2017 (a)

 

 

 

 

(unaudited)

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

335,429

 

$

309,678

 

 

Accounts payable

 

 

290,140

 

 

288,904

 

 

Accrued salaries, wages and benefits

 

 

145,137

 

 

154,367

 

 

Taxes other than income taxes

 

 

16,570

 

 

19,228

 

 

Other current liabilities

 

 

50,542

 

 

48,648

 

 

Total current liabilities

 

 

837,818

 

 

820,825

 

 

 

 

 

 

 

 

 

 

 

OTHER LONG TERM LIABILITIES

 

 

62,363

 

 

58,662

 

 

 

 

 

 

 

 

 

 

 

LONG TERM DEBT, net of current maturities

 

 

2,440,771

 

 

2,377,346

 

 

 

 

 

 

 

 

 

 

 

DEFERRED INCOME TAXES PAYABLE

 

 

434,683

 

 

419,020

 

 

 

 

 

 

 

 

 

 

 

DEFERRED AIRCRAFT CREDITS

 

 

37,415

 

 

44,225

 

 

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 6)

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

Preferred stock, 5,000,000 shares authorized; none issued

 

 

 —

 

 

 —

 

 

Common stock, no par value, 120,000,000 shares authorized; 81,104,752 and 80,398,104 shares issued, respectively

 

 

679,768

 

 

672,593

 

 

Retained earnings

 

 

1,566,114

 

 

1,516,957

 

 

Treasury stock, at cost, 29,058,982 and 28,643,535 shares, respectively

 

 

(458,645)

 

 

(435,178)

 

 

Accumulated other comprehensive loss

 

 

(100)

 

 

(50)

 

 

Total stockholders’ equity

 

 

1,787,137

 

 

1,754,322

 

 

Total liabilities and stockholders’ equity

 

$

5,600,187

 

$

5,474,400

 

 

(a)

Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information. 

 

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

SKYWEST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

 

March 31,

 

 

 

    

2018

    

2017 (a)

    

 

OPERATING REVENUES:

 

 

 

 

 

 

 

 

Flying agreements

 

$

767,964

 

$

734,529

 

 

Airport customer service and other

 

 

15,436

 

 

12,637

 

 

Total operating revenues

 

 

783,400

 

 

747,166

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

Salaries, wages and benefits

 

 

306,719

 

 

297,667

 

 

Aircraft maintenance, materials and repairs

 

 

141,606

 

 

132,325

 

 

Depreciation and amortization

 

 

77,585

 

 

70,114

 

 

Aircraft rentals

 

 

44,680

 

 

57,709

 

 

Airport-related expenses

 

 

29,307

 

 

31,948

 

 

Aircraft fuel

 

 

26,939

 

 

18,433

 

 

Other operating expenses

 

 

68,389

 

 

62,675

 

 

Total operating expenses

 

 

695,225

 

 

670,871

 

 

OPERATING INCOME

 

 

88,175

 

 

76,295

 

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

Interest income

 

 

1,705

 

 

660

 

 

Interest expense

 

 

(26,234)

 

 

(24,549)

 

 

Other income

 

 

3,558

 

 

 —

 

 

Total other expense, net

 

 

(20,971)

 

 

(23,889)

 

 

INCOME BEFORE INCOME TAXES

 

 

67,204

 

 

52,406

 

 

PROVISION FOR INCOME TAXES

 

 

12,842

 

 

17,620

 

 

NET INCOME

 

$

54,362

 

$

34,786

 

 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER SHARE

 

$

1.05

 

$

0.67

 

 

DILUTED EARNINGS PER SHARE

 

$

1.03

 

$

0.65

 

 

Weighted average common shares:

 

 

 

 

 

 

 

 

Basic

 

 

51,921

 

 

51,820

 

 

Diluted

 

 

53,033

 

 

53,202

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME:

 

 

 

 

 

 

 

 

Net income

 

$

54,362

 

$

34,786

 

 

Net unrealized appreciation (depreciation) on marketable securities, net of taxes

 

 

(50)

 

 

39

 

 

TOTAL COMPREHENSIVE INCOME

 

$

54,312

 

$

34,825

 

 

(a)

Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information. 

 

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)

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

March 31,

 

 

    

2018

    

2017

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

$

165,895

 

$

143,940

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(387,572)

 

 

(455,990)

 

Sales of marketable securities

 

 

496,945

 

 

383,163

 

Proceeds from the sale of aircraft, property and equipment

 

 

 —

 

 

36,512

 

Acquisition of property and equipment:

 

 

 

 

 

 

 

Aircraft and rotable spare parts

 

 

(198,777)

 

 

(220,916)

 

Buildings and ground equipment

 

 

(9,305)

 

 

(479)

 

Aircraft deposits applied towards acquired aircraft

 

 

 —

 

 

11,228

 

Increase in other assets

 

 

(1,364)

 

 

(2,425)

 

 

 

 

 

 

 

 

 

NET CASH USED IN INVESTING ACTIVITIES

 

 

(100,073)

 

 

(248,907)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

 

101,317

 

 

157,983

 

Principal payments on long-term debt

 

 

(71,587)

 

 

(88,104)

 

Net proceeds from issuance of common stock

 

 

2,320

 

 

1,481

 

Purchase of treasury stock and employee income tax paid on equity awards

 

 

(23,467)

 

 

(13,671)

 

Increase in debt issuance cost

 

 

(610)

 

 

(1,452)

 

Payment of cash dividends

 

 

(4,140)

 

 

(2,588)

 

 

 

 

 

 

 

 

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

 

3,833

 

 

53,649

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 

69,655

 

 

(51,318)

 

Cash and cash equivalents at beginning of period

 

 

181,792

 

 

155,009

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

251,447

 

$

103,691

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Non-cash investing activities:

 

 

 

 

 

 

 

Acquisition of rotable spare parts

 

$

574

 

$

1,704

 

Debt assumed on aircraft acquired off lease

 

$

59,132

 

$

 —

 

Cash paid during the period for:

 

 

 

 

 

 

 

Interest, net of capitalized amounts

 

$

26,481

 

$

24,039

 

Income taxes

 

$

486

 

$

478

 

 

See accompanying notes to condensed consolidated financial statements.

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Table of Contents

SKYWEST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 1 — Condensed Consolidated Financial Statements

 

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 months ended March 31, 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

 

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.  Topic 842 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 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 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.

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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 affects the Company’s consolidated balance sheets and statements of comprehensive income (loss) 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 and 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 revenue.”  “Flying agreements revenue” includes revenue from fixed-fee contracts, prorate flying agreements and other revenue generated from flying the Company’s aircraft, primarily lease revenue for the use of the aircraft.  “Airport customer service and other revenue” 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.

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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

March 31, 2017

Income Statement:

    

Previously Reported

 

Adjustments

 

Current Presentation

OPERATING REVENUES:

 

 

 

 

 

 

 

 

 

 Flying agreements (1)

 

$

745,411

 

$

(10,882)

 

$

734,529

 Airport customer service and other (2)

 

 

20,004

 

 

(7,367)

 

 

12,637

 Total operating revenues

 

$

765,415

 

$

(18,249)

 

$

747,166

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 Salaries, wages and benefits

 

$

300,039

 

$

(2,372)

 

$

297,667

 Aircraft fuel

 

 

 34,310

 

 

(15,877)

 

 

18,433

 Airport-related expenses (3)

 

 

 19,535

 

 

12,413 

 

 

31,948

 Other operating expenses

 

 

 75,088

 

 

(12,413)

 

 

62,675

 Total operating expenses

 

 

689,120

 

 

(18,249)

 

 

670,871


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 three months ended March 31, 2018 and 2017, the Company recognized $0.4 million and $0.3 million, respectively, of revenue associated with the amortization of the up-front contract reimbursements.

 

As of March 31, 2018, the Company had $61.3 million in accounts receivables of which $48.8 million related to flying agreements. As of December 31, 2017, the Company had $42.7 million in accounts receivables of which $33.9 million related to flying agreements.

 

Note 2 — Flying Agreements and Airport Customer Service and Other Revenue

 

The Company recognizes flying agreement and airport customer service and other 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 Air Lines, Inc. (“Delta”), United Airlines, Inc. (“United”), 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 reimburses the Company for certain direct expenses incurred under the fixed-fee arrangement, such as airport landing fees and airport rents. Under the fixed-fee arrangements, revenue is earned when each flight is completed and is reflected in flying agreements revenue.  The

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transaction price for the fixed-fee 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 three months ended March 31, 2018, fixed-fee arrangements represented approximately 85.7% of the Company’s flying agreements revenue.  

Under the Company’s revenue-sharing arrangements (referred to as a “revenue-sharing” or “prorate” arrangement), 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.  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. The transaction price for the prorate agreements is determined from the proration formula derived from each passenger ticket amount on each completed flight over the agreement term. For the three months ended March 31, 2018, prorate flying arrangements represented approximately 14.3% of the Company’s flying agreements revenue.

Airport customer service and other revenue primarily consists of ground handling functions, such as gate and ramp agent services at applicable airports where the Company provides such services. 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.

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 table represents the Company’s flying agreements revenue by type for the three-month periods ended March 31, 2018 and 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

For the three months ended March 31,

 

    

2018

    

2017

    

Capacity purchase agreements revenue: flight operations

 

$

469,025

 

$

445,719

 

Capacity purchase agreements revenue: aircraft lease revenue

 

 

189,068

 

 

198,463

 

Prorate agreements revenue

 

 

109,871

 

 

90,347

 

   Flying agreements revenue

 

$

767,964

 

$

734,529

 

 

A portion of the Company’s compensation under its fixed-fee agreements 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. The consideration associated with the use of the aircraft under the Company’s fixed-fee agreements is deemed to be 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 fixed-fee agreements is reflected as flying agreements revenue 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.

The Company’s fixed-fee 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 the event a flying agreement includes a mid-term rate reset to adjust rates prospectively and the contractual rates under the Company’s flying agreements have not been finalized at quarterly or annual financial statement dates, the Company applies the variable constraint guidance under Topic 606, where the Company records revenue to the extend it believes that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

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

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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 Topic 606.

 

The following table 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

 

60

27

36

22

 

Individual aircraft have scheduled removal dates from 2018 to 2027

ExpressJet

Delta Connection Agreement

(fixed-fee arrangement)

 

CRJ 700

CRJ 900

 

31

6

 

 

Individual aircraft have scheduled removal dates throughout 2018 

SkyWest Airlines

Delta Connection Prorate Agreement (revenue-sharing arrangement)

 

CRJ 200

 

34

 

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

 

65

20

65

 

Individual aircraft have scheduled removal dates from 2018 to 2029

ExpressJet

United ERJ Agreement

(fixed-fee arrangement)

 

ERJ 135

ERJ 145

 

3

97

 

Individual aircraft have scheduled removal dates from 2018 to 2022

SkyWest Airlines

United Express Prorate Agreement

(revenue-sharing arrangement)

 

CRJ 200

 

20

 

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 2020

SkyWest Airlines

American Prorate Agreement

(revenue-sharing arrangement)

 

CRJ 200

 

7

 

Terminable with 120-day notice

ExpressJet

American Agreement

(fixed-fee arrangement)

 

CRJ 700

 

 12

 

CRJ700 aircraft are scheduled to expire in 2019

 

 

 

 

 

 

 

 

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Alaska Capacity Purchase Agreement

Agreement

    

Aircraft type

    

Number of
Aircraft

    

Term / Termination
Dates

SkyWest Airlines

Alaska Agreement

(fixed-fee arrangement)

 

CRJ 200

E175

 

3

25

 

Individual aircraft have scheduled removal dates from 2018 to 2030

 

 

In addition to the contractual arrangements described above, SkyWest Airlines has entered into agreements with Alaska and Delta to place additional Embraer E175 dual-class regional jet aircraft (which are typically configured with 76 seats) (“E175”) or E175 SC dual-class regional jet aircraft (which are typically configured with 70 seats) (“E175 SC”) into service for those major airline partners.  As of March 31, 2018, the Company anticipated placing an additional ten E175 aircraft with Alaska and 27 E175 or E175 SC aircraft with Delta. The delivery dates for the new E175/E175 SC aircraft are expected to take place by the end of 2018 or early 2019 with the exception of three E175 aircraft with Alaska that have been deferred until 2021. Final delivery dates may be adjusted based on various factors.

When an aircraft is scheduled to be removed from a fixed-fee 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, including placing the aircraft in a prorate arrangement.

The Company’s operating revenues could be impacted by a number of factors, including changes to the Company’s code-share agreements with its major airline partners, 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.

 

Note 3 — Share-Based Compensation and Stock Repurchases

 

During the three months ended March 31, 2018, the Company granted 15,165 fully-vested shares of common stock to the Company’s directors at a grant date fair value of $53.40. Additionally, during the three months ended March 31, 2018, the Company granted 114,856 restricted stock units and 89,982 performance shares to certain employees of the Company and its subsidiaries under the SkyWest, Inc. 2010 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 or one of the Company’s subsidiaries. The number of performance shares awardable in 2018 ranges from 0% to 200% of the original amount granted depending on the Company’s performance over the three-year vesting period 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 the restricted stock units and performance shares on the date of grant was $53.40 per share. During the three months ended March 31, 2018, the Company did not grant any options to purchase shares of common stock.

The Company accounts for forfeitures of restricted stock units and performance share grants in 2018 when forfeitures occur.  The estimated fair value of the stock options, restricted stock units and performance shares is amortized over the applicable vesting periods.  During the three months ended March 31, 2018 and 2017, the Company recorded pre-tax share-based compensation expense of $4.9 million and $3.5 million, respectively.

The Company repurchased 177,580 shares of its common stock for $10.0 million during the three months ended March 31, 2018.  Additionally, during the three months ended March 31, 2018, the Company paid $13.5 million for the income tax obligation on vested employee equity awards and issued the net, after-tax shares to employees.  The Company repurchased 281,000 shares of its common stock for $10.0 million during the three months ended March 31, 2017. Additionally, during the three months ended March 31, 2017, the Company paid $3.8 million for the income tax obligation on vested employee equity awards and issued the net, after-tax shares to employees.

 

Note 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

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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. During the three months ended March 31, 2018, 372,600 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 March 31, 2018. During the three months ended March 31, 2017, 451,000 restricted stock units and 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 March 31, 2017.

 

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

 

 

 

 

March 31,

 

 

 

    

2018

    

2017

 

 

Numerator:

 

 

 

 

 

Net Income

 

$

54,362

 

$

34,786

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

51,921

 

 

51,820

 

 

Effect of outstanding share-based awards

 

 

1,112

 

 

1,382

 

 

Weighted average number of shares for diluted net income per common share

 

 

53,033

 

 

53,202

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

1.05

 

$

0.67

 

 

Diluted earnings per share

 

$

1.03

 

$

0.65

 

 

 

 

Note 5 - Segment Reporting

 

The Company’s three reporting segments consist of the operations of SkyWest Airlines, ExpressJet and SkyWest Leasing activities. Corporate overhead expenses incurred by the Company are allocated to the operating expenses of SkyWest Airlines and ExpressJet.

 

The Company’s chief operating decision maker analyzes the profitability of operating the E175 aircraft (including operating costs and associated revenue) separately from the profitability of the Company’s ownership, financing costs and associated revenue of the Company’s E175 aircraft (including depreciation expense, interest expense and associated revenue). The SkyWest Leasing segment includes revenue attributed to the Company’s E175 aircraft ownership cost earned under the applicable fixed-fee contracts and the depreciation and interest expense of the Company’s E175 aircraft. The SkyWest Leasing segment’s total assets and capital expenditures include the acquired E175 aircraft. The SkyWest Leasing segment additionally includes the ownership and activity of four CRJ200 aircraft leased to a third party.

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The following represents the Company’s segment data for the three-month periods ended March 31, 2018 and 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended  March 31, 2018

 

 

 

SkyWest

 

 

 

SkyWest

 

 

 

 

   

Airlines

 

ExpressJet

  

Leasing

  

Consolidated

 

Operating revenues (1)

 

$

556,294

 

$

161,081

 

$

66,025

 

$

783,400

 

Operating expense

 

 

498,875

 

 

166,824

 

 

29,526

 

 

695,225

 

Depreciation and amortization expense

 

 

37,487

 

 

11,161

 

 

28,937

 

 

77,585

 

Interest expense

 

 

4,476

 

 

827

 

 

20,931

 

 

26,234

 

Segment profit (loss) (2)

 

 

52,943

 

 

(6,570)

 

 

15,568

 

 

61,941

 

Identifiable intangible assets, other than goodwill

 

 

 —

 

 

3,672

 

 

 —

 

 

3,672

 

Total assets (as of March 31, 2018)

 

 

2,184,306

 

 

581,722

 

 

2,834,159

 

 

5,600,187

 

Capital expenditures (including non-cash)

 

 

36,283

 

 

1,338

 

 

230,167

 

 

267,788

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended  March 31, 2017

 

 

 

SkyWest

 

 

 

SkyWest

 

 

 

 

   

Airlines

    

ExpressJet

    

Leasing

    

Consolidated

 

Operating revenues (1)(3)

 

$

464,916

 

$

228,447

 

$

53,803

 

$

747,166

 

Operating expense (3)

 

 

417,330

 

 

229,282

 

 

24,259

 

 

670,871

 

Depreciation and amortization expense

 

 

31,817

 

 

14,525

 

 

23,772

 

 

70,114

 

Interest expense

 

 

5,799

 

 

1,114

 

 

17,636

 

 

24,549

 

Segment profit (loss) (2) (3)

 

 

41,787

 

 

(1,949)

 

 

11,908

 

 

51,746

 

Identifiable intangible assets, other than goodwill

 

 

 

 

7,686

 

 

 

 

7,686

 

Total assets (as of March 31, 2017) (3)

 

 

2,238,740

 

 

565,839

 

 

2,338,110

 

 

5,142,689

 

Capital expenditures (including non-cash)

 

 

33,431

 

 

5,654

 

 

184,014

 

 

223,099

 


(1)

Prorate revenue, Airport customer service and other revenue is primarily reflected in the SkyWest Airlines segment.

(2)

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

(3)

Amounts adjusted due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.  

 

 

Note 6 — Commitments and Contingencies

 

As of March 31, 2018, 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, or the property may be purchased rather than leased. The following table summarizes future minimum rental payments primarily related to aircraft required under operating leases that had initial or remaining non-cancelable lease terms as of March 31, 2018 (in thousands):

 

 

 

 

 

 

March through December 2018

    

$

85,825

 

2019

 

 

85,563

 

2020

 

 

101,523

 

2021

 

 

93,118

 

2022

 

 

75,178

 

Thereafter

 

 

159,347

 

 

 

$

600,554

 

 

As of March 31, 2018, the Company had a firm purchase commitment for 37 E175/E175 SC aircraft from Embraer, S.A. with scheduled delivery dates through the end of 2018 or early 2019 with the exception of three E175 aircraft that have been deferred until 2021.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Total

    

Mar - 2018

    

2019

    

2020

    

2021

    

2022

    

Thereafter

 

Operating lease payments for aircraft and facility obligations

 

$

600,554

 

$

85,825

 

$

85,563

 

$

101,523

 

$

93,118

 

$

75,178

 

$

159,347

 

Firm aircraft and spare engine commitments

 

 

979,269

 

 

861,041

 

 

21,200

 

 

10,600

 

 

86,428

 

 

 —

 

 

 —

 

Interest commitments(1)

 

 

538,046

 

 

81,995

 

 

98,247

 

 

84,169

 

 

71,193

 

 

59,263

 

 

143,179

 

Principal maturities on long-term debt

 

 

2,801,208

 

 

250,739

 

 

340,546

 

 

311,261

 

 

299,704

 

 

289,786

 

 

1,309,172

 

Total commitments and obligations

 

$

4,919,077

 

$

1,279,600

 

$

545,556

 

$

507,553

 

$

550,443

 

$

424,227

 

$

1,611,698

 


(1)

At March 31, 2018, the Company had variable rate notes representing 2.2% of its total long-term debt. Actual interest commitments will change based on the actual variable interest.

 

 

Note 7 — 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 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 March 31, 2018 and December 31, 2017, 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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements as of March 31, 2018

 

    

Total

    

Level 1

    

Level 2

    

Level 3

Marketable Securities

 

 

 

 

 

 

 

 

 

 

 

 

Bonds and bond funds

 

$

225,199

 

$

 —

 

$

225,199

 

$

 —

Commercial paper

 

 

158,638

 

 

 —

 

 

158,638

 

 

 —

Trading Securities

 

 

10,243

 

 

10,243

 

 

 —

 

 

 —

 

 

$

394,080

 

$

10,243

 

$

383,837

 

$

 —

Cash, Cash Equivalents

 

 

251,447

 

 

251,447

 

 

 —

 

 

 —

Total Assets Measured at Fair Value

 

$

645,527

 

$

261,690

 

$

383,837

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements as of December 31, 2017

 

    

Total

    

Level 1

    

Level 2

    

Level 3

Marketable Securities

 

 

 

 

 

 

 

 

 

 

 

 

Bonds and bond funds

 

$

344,251

 

$

 

$

344,251

 

$

Commercial paper

 

 

159,252

 

 

 

 

159,252

 

 

 

 

$

503,503

 

$

 —

 

$

503,503

 

$

 —

Cash, Cash Equivalents

 

 

181,792

 

 

181,792

 

 

 

 

Total Assets Measured at Fair Value

 

$

685,295

 

$

181,792

 

$

503,503

 

$

 —

 

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The Company’s “Marketable Securities” classified as Level 1 Trading Securities were valued using active market valuations for the securities. The Company’s “Marketable Securities” classified as Level 2 securities primarily utilize broker quotes in a non-active market for valuation of these securities.

 

The Company did not make any significant transfers of securities between Level 1, Level 2 and Level 3 during the three months ended March 31, 2018.  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 March 31, 2018 and December 31, 2017, the Company classified $394.1 million and $503.5 million of marketable securities, respectively, as short-term since it had the intent to maintain a liquid portfolio and the ability to redeem the securities within one year.  As of March 31, 2018 and December 31, 2017, the cost of the Company’s total cash and cash equivalents and available for sale securities was $645.7 million and $685.5 million, respectively.  As of March 31, 2018 and December 31, 2017, the fair value of the Company’s total cash and cash equivalents and available for sale securities was $645.5 million and $685.3 million, respectively.

 

The fair value of the Company’s long-term debt classified as Level 2 debt was estimated using discounted cash flow analyses, based on the Company’s current estimated incremental borrowing rates for similar types of borrowing arrangements. 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 estimated to be $2.79 billion as of March 31, 2018 and $2.70 billion as of December 31, 2017, as compared to the carrying amount of $2.80 billion as of March 31, 2018 and $2.71 billion as of December 31, 2017.

 

Note 8 — Long-Term Debt

 

Long-term debt consisted of the following as of March 31, 2018 and December 31, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

March 31, 2018

 

 

December 31, 2017

Current portion of long-term debt

$

339,058

 

$

313,243

Current portion of unamortized debt issue cost, net

 

(3,629)

 

 

(3,565)

Current portion of long-term debt, net of debt issue costs

$

335,429

 

$

309,678

 

 

 

 

 

 

Long-term debt, net of current maturities

$

2,462,150

 

$

2,399,107

Long-term portion of unamortized debt issue cost, net

 

(21,379)

 

 

(21,761)

Long-term debt, net of current maturities and debt issue costs

$

2,440,771

 

$

2,377,346

 

 

 

 

 

 

Total long-term debt (including current portion)

$

2,801,208

 

$

2,712,350

Total unamortized debt issue cost, net

 

(25,008)

 

 

(25,326)

Total long-term debt, net of debt issue costs

$

2,776,200

 

$

2,687,024

 

During the three months ended March 31, 2018, the Company took delivery of five E175 aircraft and purchased nine previously-leased aircraft, which the Company financed through $160.4 million of long-term debt.  The debt associated with the five E175 aircraft has a twelve-year term, is due in quarterly installments with a fixed annual interest rate ranging from 4.6% to 4.7% and is secured by the E175 aircraft. The debt associated with the nine previously-leased aircraft has a term ranging from three to four years, is due in semi-annual installments with a fixed annual interest rate of 6.45% and is secured by the previously-leased aircraft.

 

As of March 31, 2018 and December 31, 2017,  the Company had $87.9 million and $87.4 million, respectively, in letters of credit and surety bonds outstanding with various banks and surety institutions.

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Note 9 — Income Taxes

 

The Company’s effective tax rate for the three months ended March 31, 2018 was 19.1%. The Company’s effective tax rate for the three months ended March 31, 2018 varied from the federal statutory rate of 21.0% primarily due to a $4.3 million discrete tax benefit from excess tax deductions generated from employee equity transactions that occurred during the three months ended March 31, 2018 pursuant to ASU 2016‑09, partially offset by the provision for state income taxes and the impact of non-deductible crew per diem meal expenses.

 

In connection with the Tax Cuts and Jobs Act of 2017 (“Tax Act”) enacted in December 2017, the Company recorded a provisional amount of income tax benefit of $246.8 million related to the remeasurement of deferred tax balances for the year ended December 31, 2017.  In accordance with relevant SEC guidance, the effects of the Tax Act may be adjusted within a one-year measurement period from the enactment date for the items that were previously reported as provisional, or where a provisional estimate could not be made.  The income tax provision for the three-months ended March 31, 2018 did not reflect any adjustments to the provisional amounts as of December 31, 2017.  The Company is still analyzing the impacts of the Tax Act on $13.9 million of alternative minimum tax credits that may be refundable and has not recorded a provisional amount as of Marc