SkyWest Airlines 2008 Annual Report Download - page 76

Download and view the complete annual report

Please find page 76 of the 2008 SkyWest Airlines annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 152

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152

SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2008
(4) Commitments and Contingencies (Continued)
position, liquidity or results of operations. However, the following is a significant outstanding legal
matter.
ASA and SkyWest Airlines v. Delta Air Lines
During the quarter ended December 31, 2007, Delta notified the Company, SkyWest Airlines and
ASA of a dispute under the Delta Connection Agreements executed by Delta with SkyWest Airlines
and ASA. The dispute relates to allocation of liability for certain irregular operations (‘‘IROP’’)
expenses that are paid by SkyWest Airlines and ASA to their passengers under certain situations. As a
result, Delta withheld a combined total of approximately $25 million (pretax) from one of the weekly
scheduled wire payments to SkyWest and ASA during December 2007. Delta continues to withhold a
portion of the funds the Company believes are payable as weekly scheduled wire payments to SkyWest
and ASA. As of December 31, 2008, the Company had recognized a cumulative total of $32.4 million
of revenue associated with the funds withheld by Delta. On February 1, 2008, SkyWest Airlines and
ASA filed a lawsuit in Georgia state court disputing Delta’s treatment of the matter (the ‘‘Complaint’’).
Delta filed an Answer to the Complaint and a Counterclaim against SkyWest Airlines and ASA on
March 24, 2008. Delta’s Counterclaim alleges that ASA and SkyWest Airlines breached the Delta
Connection Agreements by invoicing Delta for the IROP expenses that were paid pursuant to Delta’s
policies, and claims only a portion of those expenses may be invoiced to Delta. Delta seeks unspecified
damages in its Counterclaim.
On March 24, 2008, Delta also filed a Motion to Dismiss the Complaint. A hearing on the Motion
was held June 5, 2008. In an order entered June 13, 2008, the Court granted in part and denied in part
the Motion to Dismiss. The Court denied the Motion to Dismiss with respect to the breach of contract
claim contained in the Complaint. The Court denied in part the Motion to Dismiss with respect to the
action for declaratory judgment contained in the Complaint, and granted in part the Motion to Dismiss
to the extent the Complaint seeks to read alternative or supplemental obligations created by prior
conduct into the Connection Agreements. The Court granted the Motion to Dismiss with respect to
claims for estoppel, unilateral mistake, and mutual mistake contained in the Complaint. SkyWest
Airlines and ASA currently intend to vigorously pursue their claims set forth in the Complaint, to the
extent permitted by the Court’s ruling on the Motion to Dismiss, and their defenses to Delta’s
counterclaims.
The Company has evaluated the Delta dispute in accordance with the provisions of SFAS No. 5,
Accounting for Contingencies (‘‘SFAS No.5’’). Based on the provisions of SFAS No. 5, an estimated loss
is accrued if the loss is probable and reasonably estimable. Because these conditions have not been
satisfied, the Company has not recorded a loss related to the preceding dispute in the condensed
consolidated financial statements as of December 31, 2008.
Concentration Risk and Significant Customers
The Company requires no collateral from its major partners or customers but monitors the
financial condition of its major partners. The Company maintains an allowance for doubtful accounts
receivable based upon expected collectability of all accounts receivable. The Company’s allowance for
doubtful accounts totaled $47,000 as of December 31, 2008 and 2007. For the years ended
December 31, 2008, 2007 and 2006, the Company’s contractual relationships with Delta and United
72