SkyWest Airlines 2013 Annual Report Download - page 93

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SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2013
(6) Fair Value Measurements (Continued)
The following table presents the Company’s assets measured at fair value on a recurring basis
using significant unobservable inputs (Level 3) at December 31, 2013 (in thousands):
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
Auction Rate
Securities
Balance at January 1, 2013 ................................. $3,844
Total realized and unrealized gains or (losses)
Included in earnings .................................... —
Included in other comprehensive income ..................... (71)
Transferred out .......................................... —
Settlements ............................................. (1,528)
Balance at December 31, 2013 ............................... $2,245
(7) Investment in Other Companies
In September 2008, the Company entered into an agreement to acquire a 20% interest in Trip
Linhas Aereas, a regional airline operating in Brazil (‘‘TRIP’’). As of December 31, 2013, the
Company’s investment balance in TRIP was $19.1 million. In connection with the investment in TRIP,
the Company entered into a put option agreement with the majority shareholder of TRIP that allowed
the Company to put its investment to TRIP’s majority shareholder at an established price based on a
5% annual rate of return over the investment period.
On July 12, 2012, the Company sold its interest in TRIP for a price of $42 million. The purchase
price is scheduled to be paid in three installments over a two-year period and may be accelerated upon
the occurrence of certain conditions identified in the purchase agreement. As part of the sale
transaction, the Company also received an option to acquire 15.38% of the ownership in Trip
Investimentos Ltda., the purchaser of the Company’s TRIP shares (‘‘Trip Investimentos’’). The option
has an initial exercise price per share equal to the price paid by Trip Investimentos to acquire the TRIP
shares from the Company. The exercise price escalates annually at a specified rate and the Company
can exercise the option, at its discretion, between the second and fourth anniversaries of the Company’s
receipt of the final required installment payments from Trip Investimentos. Under the terms of the
agreement, Trip Investmentos is prohibited from transferring the TRIP shares until all three installment
payments have been made. The restriction on Trip Investimentos’ ability to transfer the TRIP shares
prevents the transaction from being recognized as a sale for financial reporting purposes. As a result,
the Company intends to account for the transaction as a sale once all three installment payments have
been made. The Company has no continuing involvement with the TRIP shares. As of December 31,
2013, the Company had received the first two installment payments totaling $26.2 million. These
payments were recorded as an ‘‘Other Long-Term Liability’’ on the Company’s consolidated balance
sheet. The third installment payment is due July 12, 2014 for an amount of $16.8 million. The last
installment payment and the option to purchase 15.38% of Trip Investimentos represent variable
interests in TRIP Investimentos, which is a variable interest entity. The Company has no equity interest
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