SkyWest Airlines 2014 Annual Report Download - page 49

In November 2014, ExpressJet entered into an amended and restated ExpressJet United ERJ
Agreement, which reduced the term of the agreement from the year 2020 to 2017 and accelerated the
removal of ERJ145 aircraft from the contract between the years 2015 and 2017. As of December 31,
2014, all of ExpressJet’s ERJ145 aircraft were operated pursuant to the ExpressJet United ERJ
Agreement. The reduced term of the ExpressJet United ERJ Agreement shortened our anticipated use
of ERJ145 specific long-lived assets and resulted in an impairment review for such aircraft type specific
assets, which included capitalized aircraft improvements, spare engines and other ERJ145 long-lived
assets. The impairment analysis required us to use judgment to estimate the fair value of our ERJ145
long-lived assets. The amounts we ultimately realize from the disposal of our ERJ145 long-lived assets
may vary from our December 31, 2014 fair value assessments.
In conjunction with the acquisition of ExpressJet Delaware, we acquired an aircraft paint facility
located in Saltillo, Mexico. During the three months ended September 30, 2014, we discontinued use of
the facility and wrote down the value of the facility and related assets to its estimated fair value.
During the three months ended December 31 2014, we sold the paint facility to a third party for an
amount that approximated our estimated fair market value.
Stock-Based Compensation Expense
We estimate the fair value of stock options as of the grant date using the Black-Scholes option
pricing model. We use historical data to estimate option exercises and employee termination in the
option pricing model. The expected term of options granted is derived from the output of the option
pricing model and represents the period of time that options granted are expected to be outstanding.
The expected volatilities are based on the historical volatility of our common stock and other factors.
Fair value
We hold certain assets that are required to be measured at fair value in accordance with United
States GAAP. We determined fair value of these assets based on the following three levels of inputs:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not active; or
other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities. Some
of our marketable securities primarily utilize broker quotes in a non-active
market for valuation of these securities.
Level 3—Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or liabilities, therefore
requiring an entity to develop its own assumptions.
We utilize several valuation techniques in order to assess the fair value of our financial assets and
liabilities. Our cash and cash equivalents primarily utilize quoted prices in active markets for identical
assets or liabilities.
We have valued non-auction rate marketable securities using quoted prices in active markets for
identical assets or liabilities. If a quoted price is not available, we utilize broker quotes in a non-active
market for valuation of these securities. For auction-rate security instruments, quoted prices in active
markets are no longer available. As a result, we have estimated the fair values of these securities
utilizing a discounted cash flow model.
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