SkyWest Airlines 2006 Annual Report Download - page 59

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Inventories
Inventories include expendable parts, fuel and supplies and are valued at cost (FIFO basis) less an
allowance for obsolescence based on historical results and management’s expectationsof future
operations. Expendable inventory partsare chargedto expense as used. An obsolescenceallowance for
flight equipment expendable parts is accrued basedon estimated lives of the corresponding fleet types and
salvage values. The inventory allowance as of December31,2006 and 2005 was$3.6 million and$2.9
million, respectively. These allowances are based on management estimates, which aresubject to change.
Property and Equipment
Property and equipment arestated at cost and depreciated overtheir usefullives to their estimated
residual values using thestraight-line method as follows:
DepreciableResidual
Assets Life Value
Aircraft androtablespares. ...................................10-18 years0-30%
Ground equipment..........................................5-7 years0%
Office equipment............................................5-7 years0%
Leaseholdimprovements.....................................15years
or life of
the lease 0%
Buildings...................................................20-39.5years 0%
Impairmentof Long Lived and Intangible Assets
As of December 31,2006, the Company hadapproximately $2.6 billion of property and equipment
and relatedassets. Additionally, as of December 31, 2006, the Company had approximately $30.7 million in
intangible assets. In accounting for these long-livedand intangible assets, theCompany makes estimates
abouttheexpected useful lives of the assets, the expected residual values of certainof these assets, and the
potential for impairment based on the fair value of the assets and the cash flows they generate. The
Companyrecorded an intangible asset of approximately $33.7million relating to the acquisition of ASA.
Theintangible is being amortizedover fifteen years underthe strait-line method. As of December 31, 2006
and2005, theCompany recorded $3.0 million and $718,000 in accumulated amortization expense,
respectively. Factors indicating potential impairment include, but arenot limited to, significant decreases
in themarketvalue of the long-lived assets, asignificant change in the condition of thelong-lived assets
and operating cash flow losses associated with the use of the long-lived assets. On a periodic basis, the
Companyevaluates whether thebook valueof its aircraft is impairedinaccordance with Statementof
FinancialAccounting Standards(“SFAS”)No. 144, Accountingfor theImpairment or Disposal of Long-
Lived Assets. Based on theresults of theevaluations, the Company’s management concluded no
impairment was necessary as of December 31, 2006.
Capitalized Interest
Interest is capitalized on aircraft purchase deposits and long-termconstruction projectsas a portion of
the cost of the asset and is depreciated over the estimated useful life of the asset. During the years ended
December31, 2006, 2005 and 2004, the Company capitalized interest costs of approximately $592,000,
$2,833,000, and $3,397,000, respectively.
Maintenance
TheCompany operates under an FAA-approved continuous inspection andmaintenance program.
TheCompany uses the direct expense method of accounting for its regionaljet engine overhauls where the