SkyWest Airlines 2010 Annual Report Download - page 78

SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010
(1) Nature of Operations and Summary of Significant Accounting Policies (Continued)
Impairment of Long Lived and Intangible Assets
As of December 31, 2010, the Company had approximately $2.9 billion of property and equipment
and related assets. Additionally, as of December 31, 2010, the Company had approximately
$21.7 million in intangible assets. In accounting for these long-lived and intangible assets, the Company
makes estimates about the expected useful lives of the assets, the expected residual values of certain of
these assets, and the potential for impairment based on the fair value of the assets and the cash flows
they generate. On September 7, 2005, the Company completed the acquisition of all of the issued and
outstanding capital stock of Atlantic Southeast. The Company recorded an intangible asset of
approximately $33.7 million relating to the acquisition of Atlantic Southeast. The intangible asset is
being amortized over fifteen years under the straight-line method. As of December 31, 2010 and 2009,
the Company had $12.0 million and $9.7 million in accumulated amortization expense, respectively.
Factors indicating potential impairment include, but are not limited to, significant decreases in the
market value of the long-lived assets, a significant change in the condition of the long-lived assets and
operating cash flow losses associated with the use of the long-lived assets. On a periodic basis (at least
annually), the Company evaluates whether the book value of its aircraft is impaired. Based on the
results of the evaluations, the Company’s management concluded no impairment was necessary as of
December 31, 2010.
Capitalized Interest
Interest is capitalized on aircraft purchase deposits as a portion of the cost of the asset and is
depreciated over the estimated useful life of the asset. During the years ended December 31, 2010,
2009 and 2008, the Company capitalized interest costs of approximately $5,000, $843,000, and
$1.4 million, respectively.
Maintenance
The Company operates under an FAA-approved continuous inspection and maintenance program.
The Company uses the direct expense method of accounting for its regional jet engine overhauls
wherein the expense is recorded when the overhaul event occurs. The Company has an engine services
agreement with a third party vendor to provide long-term engine services covering the scheduled and
unscheduled repairs for certain of its Bombardier CRJ700 Regional Jet (‘‘CRJ700s’’)and ERJ145
regional jet aircraft. Under the terms of the agreement, the Company pays a set dollar amount per
engine hour flown on a monthly basis and the third party vendor will assume the responsibility to
repair the engines at no additional cost to the Company, subject to certain specified exclusions.
Maintenance costs under these contracts are recognized when the engine hour is flown pursuant to the
terms of the contract. The Company uses the ‘‘deferral method’’ of accounting for its Brasilia
Turboprop engine overhauls wherein the overhaul costs are capitalized and depreciated to the next
estimated overhaul event. The costs of maintenance for airframe and avionics components, landing gear
and normal recurring maintenance are expensed as incurred. For leased aircraft, the Company is
subject to lease return provisions that require a minimum portion of the ‘‘life’’ of an overhaul be
remaining on the engine at the lease return date. For Brasilia Turboprop engine overhauls related to
leased aircraft to be returned, the Company adjusts the estimated useful lives of the final engine
overhauls based on the shorter of the remaining useful life or the respective lease return dates.
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