SkyWest Airlines 2012 Annual Report Download - page 84

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SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2012
(1) Nature of Operations and Summary of Significant Accounting Policies (Continued)
Other Revenue Items
The Company’s passenger and ground handling revenues could be impacted by a number of
factors, including changes to the Company’s code-share agreements with Delta, United, Alaska,
American or US Airways, contract modifications resulting from contract re-negotiations, the Company’s
ability to earn incentive payments contemplated under the Company’s code-share agreements and
settlement of reimbursement disputes with the Company’s major partners.
Under the Company’s code-share agreements with Delta, United, Alaska, US Airways and
American, the compensation structure generally consists of a combination of agreed-upon rates for
operating flights and direct reimbursement for other certain costs associated with operating the aircraft.
A portion of the Company’s contract flying compensation is designed to reimburse the Company for
certain aircraft ownership costs. The Company has concluded that a component of its revenue under
these agreements is rental income, inasmuch as the agreements identify the ‘‘right of use’’ of a specific
type and number of aircraft over a stated period of time. The amounts deemed to be rental income
under the agreements for the years ended December 31, 2012, 2011 and 2010 were $506.7 million,
$521.3 million and $492.7 million, respectively. These amounts were recorded as passenger revenue on
the Company’s consolidated statements of operations. The Company has not separately stated aircraft
rental income and aircraft rental expense in the consolidated statement of comprehensive income
(loss)since the use of the aircraft is not a separate activity of the total service provided and there is not
a separate profitability measurement for the deemed rental activity of the aircraft.
Deferred Aircraft Credits
The Company accounts for incentives provided by aircraft manufacturers as deferred credits. The
deferred credits related to leased aircraft are amortized on a straight-line basis as a reduction to rent
expense over the lease term. Credits related to owned aircraft reduce the purchase price of the aircraft,
which has the effect of amortizing the credits on a straight-line basis as a reduction in depreciation
expense over the life of the related aircraft. The incentives are credits that may be used to purchase
spare parts and pay for training and other expenses.
Income Taxes
The Company recognizes a liability or asset for the deferred tax consequences of all temporary
differences between the tax basis of assets and liabilities and their reported amounts in the consolidated
financial statements that will result in taxable or deductible amounts in future years when the reported
amounts of the assets and liabilities are recovered or settled.
80