SkyWest Airlines 2005 Annual Report Download - page 55

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The United Express Agreement also provides a monthly reimbursement for an amount per aircraft designed to reimburse the
Company for certain aircraft ownership costs. In accordance with EITF 01-08, the Company has concluded that a component of
its revenue under the United Express Agreement is rental income, inasmuch as the United Express Agreement identifies 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
United Express Agreement for the years ended December 31, 2005 and 2004 were $168.4 and $114.5 million, respectively.
These amounts were recorded in passenger revenue on the Company’s consolidated statements of income. The United Express
Agreement contains certain provisions pursuant to which the parties could terminate the agreement, subject to certain rights of the
other party, if certain performance criteria are not maintained.
The Company’s revenues could be impacted by a number of factors, including changes to its code-share agreements with Delta
and United, contract modifications resulting from contract re-negotiations and the Company’s ability to earn incentive payments
contemplated under its code-share agreements.
The preparation of financial statements in conformity with accounting principals generally accepted in the United States of
America 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.
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 lease expense over the respective 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 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 will result in taxable or
deductible amounts in future years when the reported amounts of the assets and liabilities are recovered or settled.
Net Income Per Common Share
Basic net income per common share (“Basic EPS”) excludes dilution and is computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted net income per common share (“Diluted EPS”) reflects
the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into
common stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an
antidilutive effect on net income per common share. During the years ended December 31, 2005, 2004, and 2003, 2,378,000
3,836,000 and 2,735,000 options were excluded from the computation of Diluted EPS respectively.