SkyWest Airlines 2013 Annual Report Download - page 81

SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2013
(1) Nature of Operations and Summary of Significant Accounting Policies (Continued)
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, 2013, 2012 and 2011 were $500.2 million,
$506.7 million and $521.3 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.
Net Income (Loss) Per Common Share
Basic net income (loss) per common share (‘‘Basic EPS’’) excludes dilution and is computed by
dividing net income (loss) by the weighted average number of common shares outstanding during the
period. Diluted net income (loss) per common share (‘‘Diluted EPS’’) reflects the potential dilution
that could occur if stock options or other contracts to issue common stock were exercised or converted
into common stock. The computation of Diluted EPS does not assume exercise or conversion of
securities that would have an anti-dilutive effect on net income (loss) per common share. During the
years ended December 31, 2013, 2012 and 2011, 3,072,000, 3,889,000 and 4,323,000 shares reserved for
issuance upon the exercise of outstanding options were excluded from the computation of Diluted EPS
respectively, as their inclusion would be anti-dilutive.
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