SkyWest Airlines 2010 Annual Report Download - page 96

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SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2010
(7) Fair Value Measurements
The Company holds certain assets that are required to be measured at fair value in accordance
with United States GAAP. The Company determined fair value of these assets based on the following
three levels of inputs:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities. Some of the Company’s marketable securities
primarily utilize broker quotes in a non-active market for valuation of these securities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities, therefore requiring an entity to
develop its own assumptions.
As of December 31, 2010, the Company held certain assets that are required to be measured at
fair value on a recurring basis. The Company has invested in auction rate security instruments, which
are classified as available for sale securities and reflected at fair value. However, due primarily to credit
market events beginning during the first quarter of 2008, the auction events for most of these
instruments failed. Therefore, quoted prices in active markets are no longer available and the Company
has estimated the fair values of these securities utilizing a discounted cash flow analysis as of
December 31, 2010. These analyses consider, among other items, the collateralization underlying the
security investments, the creditworthiness of the counterparty, the timing of expected future cash flows,
and the expectation of the next time the security is expected to have a successful auction.
As of December 31, 2010, the Company owned $4.0 million of auction rate security instruments.
The auction rate security instruments held by the Company at December 31, 2010 were tax-exempt
municipal bond investments, for which the market has experienced some successful auctions. The
Company has classified the investments as non-current and has identified them as ‘‘Other assets’’ in its
Consolidated Balance Sheet as of December 31, 2010. The Company has classified these securities as
non-current due to the Company’s belief that the market for these securities may take in excess of
twelve months to fully recover. As of December 31, 2010, the Company continued to record interest on
all of its auction rate security instruments. Any future fluctuations in fair value related to these
instruments that the Company deems to be temporary, including any recoveries of previous write
downs, would be recorded to accumulated other comprehensive income. If the Company determines
that any future valuation adjustment was other than temporary, a charge would be recorded to earnings
as appropriate.
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