SkyWest Airlines 2011 Annual Report Download - page 88

SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2011
(6) Income Taxes (Continued)
In conjunction with the ExpressJet Merger, the Company acquired non-amortizable intangible tax
assets and other tax assets that are not anticipated to provide a tax benefit until 2025 or later due to
statutory limitations. Because of the uncertainty associated with the realization of those tax assets, the
Company recorded a full valuation allowance of approximately $73.0 million on such tax assets as of
December 31, 2011 and 2010. The Company also recorded a valuation allowance against deferred tax
assets of approximately $1 million for net operating losses in states with short carry-forward periods.
The deferred tax assets in the table above are shown net of the recorded valuation allowance.
(7) Commitments and Contingencies
Lease Obligations
The Company leases 556 aircraft, as well as airport facilities, office space, and various other
property and equipment under non-cancelable operating leases which are generally on a long-term net
rent basis where the Company pays taxes, maintenance, insurance and certain other operating expenses
applicable to the leased property. The following table summarizes future minimum rental payments
required under operating leases that have initial or remaining non-cancelable lease terms in excess of
one year as of December 31, 2011 (in thousands):
Year ending December 31,
2012 ................................................ $ 392,165
2013 ................................................ 369,002
2014 ................................................ 348,323
2015 ................................................ 305,828
2016 ................................................ 239,698
Thereafter ............................................. 907,252
$2,562,268
The majority of the Company’s leased aircraft are owned and leased through trusts whose sole
purpose is to purchase, finance and lease these aircraft to the Company; therefore, they meet the
criteria of a variable interest entity. However, since these are single owner trusts in which the Company
does not participate, the Company is not considered at risk for losses and is not considered the primary
beneficiary. As a result, based on the current rules, the Company is not required to consolidate any of
these trusts or any other entities in applying the accounting guidance. Management believes that the
Company’s maximum exposure under these leases is the remaining lease payments.
Total rental expense for non-cancelable aircraft operating leases was approximately $346.5 million,
$311.9 million and $300.8 million for the years ended December 31, 2011, 2010 and 2009, respectively.
The minimum rental expense for airport station rents was approximately $42.6 million, $43.5 million
and $47.7 million for the years ended December 31, 2011, 2010 and 2009, respectively.
The Company’s leveraged lease agreements, typically obligate the Company to indemnify the
equity/owner participant against liabilities that may arise due to changes in benefits from tax ownership
of the respective leased aircraft. The terms of these contracts range up to 17 years. The Company did
not accrue any liability relating to the indemnification to the equity/owner participant because of
management’s assessment that the probability of this occurring is remote.
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