SkyWest Airlines 2011 Annual Report Download - page 49

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the book value of our aircraft is impaired. Based on the results of the evaluations, our management
concluded no impairment was necessary as of December 31, 2011. However, there is inherent risk in
estimating the future cash flows used in the impairment test. If cash flows do not materialize as
estimated, there is a risk the impairment charges recognized to date may be inaccurate, or further
impairment charges may be necessary in the future.
Stock-Based Compensation Expense
We estimate the fair value of stock options as of the grant date using the Black-Scholes option
pricing model. We use historical data to estimate option exercises and employee termination in the
option pricing model. The expected term of options granted is derived from the output of the option
pricing model and represents the period of time that options granted are expected to be outstanding.
The expected volatilities are based on the historical volatility of our common stock and other factors.
Fair value
We hold certain assets that are required to be measured at fair value in accordance with United
States GAAP. We 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 our 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.
We utilize several valuation techniques in order to assess the fair value of our financial assets and
liabilities. Our cash and cash equivalents primarily utilize quoted prices in active markets for identical
assets or liabilities.
We have valued non-auction rate marketable securities using quoted prices in active markets for
identical assets or liabilities. If a quoted price is not available, we utilize broker quotes in a non-active
market for valuation of these securities. For auction-rate security instruments, quoted prices in active
markets are no longer available. As a result, we have estimated the fair values of these securities
utilizing a discounted cash flow model.
Results of Operations
Our Business Segments
For the year ended December 31, 2011, we had two reportable segments which are the basis of our
internal financial reporting: SkyWest Airlines and ExpressJet (which reflects the combined operations
of Atlantic Southeast and ExpressJet Delaware). On December 31, 2011, we completed the ExpressJet
Combination, which ended ExpressJet Delaware’s existence as a separate entity. On November 12,
2010, we completed the ExpressJet Merger. Our 2010 operating revenues, airline expenses and segment
45