SkyWest Airlines 2013 Annual Report Download - page 66

rate notes may rise and increase the amount of interest expense. We would also receive higher amounts
of interest income on cash and securities held at the time; however, the market value of our
available-for-sale securities would likely decline. At December 31, 2013, we had variable rate notes
representing 29.5% of our total long-term debt compared to 31.7% of our long-term debt at
December 31, 2012. For illustrative purposes only, we have estimated the impact of market risk using a
hypothetical increase in interest rates of one percentage point for both variable rate long-term debt and
cash and securities. Based on this hypothetical assumption, we would have incurred an additional
$4.8 million in interest expense and received $6.7 million in additional interest income for the year
ended December 31, 2013, and we would have incurred an additional $5.5 million in interest expense
and received $6.5 million in additional interest income for the year ended December 31, 2012.
However, under our contractual arrangement with our major partners, the majority of the increase in
interest expense would be passed through and recorded as passenger revenue in our consolidated
statements of comprehensive income (loss). If interest rates were to decline, our major partners would
receive the principal benefit of the decline, since interest expense is generally passed through to our
major partners, resulting in a reduction to passenger revenue in our consolidated statement of
comprehensive income (loss).
We currently intend to finance the acquisition of aircraft through manufacturer financing,
third-party leases or long-term borrowings. Changes in interest rates may impact the actual cost to us
to acquire these aircraft. To the extent we place these aircraft in service under our code-share
agreements with Delta, United, or other carriers, our code-share agreements currently provide that
reimbursement rates will be adjusted higher or lower to reflect changes in our aircraft rental rates.
Auction Rate Securities
We have investments in auction rate securities, which are classified as available for sale securities
and reflected at fair value. As of December 31, 2013, we had investments in auction rate securities
valued at a total of $2.2 million which were classified as ‘‘Other Assets’’ on our consolidated balance
sheet. For a more detailed discussion on auction rate securities, including our methodology for
estimating their fair value, see Note 6 to our consolidated financial statements appearing in Item 8 of
this Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth below should be read together with the ‘‘Management’s Discussion and
Analysis of Financial Condition and Results of Operations,’’ appearing elsewhere herein.
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