SkyWest Airlines 2007 Annual Report Download - page 38

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Guarantees
SkyWest has guaranteed the obligations of SkyWest Airlines under the SkyWest Airlines Delta Connection
Agreement and the Midwest Airline Services Agreement and the obligations of ASA under the ASA Delta Connection
Agreement.
New Accounting Standards
In July 2006, the Financial Accounting Standards Board (the “FASB”) issued Interpretation No. 48, Accounting for
Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (“FIN No. 48”), which clarifies the accounting
and disclosure for uncertainty in tax positions. FIN No. 48 seeks to reduce the diversity in practice associated with certain
aspects of the recognition and measurement related to accounting for income taxes. We are subject to the provisions of FIN
No.48 as of January 1, 2007, and our management has analyzed filing positions in all of the federal and state jurisdictions
where we are required to file income tax returns, as well as all open tax years in these jurisdictions. The periods subject to
examination for our federal return are the 2004 through 2006 tax years. The adoption of FIN No. 48 did not have a material
effect on our consolidated financial position or results of operations. Our policy for recording interest and penalties on tax
positions is to record such items as a component of the provision for income taxes.
In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value
Measurements. This standard defines fair value, establishes a framework for measuring fair value in accounting principles
generally accepted in the United States of America, and expands disclosure about fair value measurements. This
pronouncement applies to other accounting standards that require or permit fair value measurements. Accordingly, this
statement does not require any new fair value measurement. This statement is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Our management does not believe the adoption of this
standard will have a material impact on our consolidated financial position or results of operations.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities (Statement 159). Statement 159 allows entities the option to measure eligible financial instruments at fair value as
of specified dates. Such election, which may be applied on an instrument by instrument basis, is typically irrevocable once
elected. Statement 159 is effective for fiscal years beginning after November 15, 2007. Our management does not believe
Statement 159 will result in a material adverse effect on our financial condition, results of operations, or cash flow.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Aircraft Fuel
Historically, we have not experienced difficulties with fuel availability and we currently expect to be able to obtain
fuel at prevailing prices in quantities sufficient to meet our future needs. Pursuant to our contract flying arrangements, United
and Midwest have agreed to bear the economic risk of fuel price fluctuations on our contracted United Express and Midwest
flights. On our Delta Connection regional jet flights, Delta has agreed to bear the economic risk of fuel price fluctuations. We
bear the economic fuel risk on our pro-rate operations. For the year ended December 31, 2007, contract flying and pro-rate
revenue flying represented approximately 95% and 5%, respectively, of our passenger revenues. As of December 31, 2007,
essentially all of our Brasilia turboprops flown for Delta were flown under pro-rate arrangements, while approximately 38%
of our Brasilia turboprops flown in the United system were flown under pro-rate arrangements. Because third parties bear the
economic risk of fuel price fluctuations on most of our flights, we believe that our results from operations will not be
materially and adversely affected by fuel price volatility.
Interest Rates
Our earnings are affected by changes in interest rates due to the amounts of variable rate long-term debt and the
amount of cash and securities held. The interest rates applicable to variable rate notes may rise and increase the amount of
interest expense. We would also receive higher amounts of interest income on cash and securities held at the time; however,
the market value of our available-for-sale securities would likely decline. At December 31, 2007, we had variable rate notes
representing 49.6% of our total long-term debt compared to 55.4% of our long-term debt at December 31, 2006. For
illustrative purposes only, we have estimated the impact of market risk using a hypothetical increase in interest rates of one
percentage point for both variable rate long-term debt and cash and securities. Based on this hypothetical assumption, we
would have incurred an additional $9.6 million in interest expense and received $6.9 million in additional interest income for
the year ended December 31, 2007 and we would have incurred an additional $10.2 million in interest expense and received
$4.6 million in additional interest income for the year ended December 31, 2006.