SkyWest Airlines 2014 Annual Report Download - page 77

SKYWEST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2014
(1) Nature of Operations and Summary of Significant Accounting Policies (Continued)
Inventories
Inventories include expendable parts, fuel and supplies and are valued at cost (FIFO basis) less an
allowance for obsolescence based on historical results and management’s expectations of future
operations. Expendable inventory parts are charged to expense as used. An obsolescence allowance for
flight equipment expendable parts is accrued based on estimated lives of the corresponding fleet types
and salvage values. The inventory allowance as of December 31, 2014 and 2013 was $11.6 million and
$10.1 million, respectively. These allowances are based on management estimates, which can be
modified based on future changes in circumstances.
Property and Equipment
Property and equipment are stated at cost and depreciated over their useful lives to their
estimated residual values using the straight-line method as follows:
Residual
Assets Depreciable Life Value
Aircraft and rotable spares ......... 10 - 18 years 0 - 30%
Ground equipment ............... 5 - 10 years 0%
Office equipment ................ 5 - 7 years 0%
Leasehold improvements .......... Shorter of 15 years or lease term 0%
Buildings ...................... 20 - 39.5 years 0%
Impairment of Long-Lived Assets
As of December 31, 2014, the Company had approximately $4.9 billion of property and equipment
and related assets. Additionally, as of December 31, 2014, the Company had approximately
$12.7 million in intangible assets. In accounting for these long-lived and intangible assets, the Company
makes estimates about the expected useful lives of the assets, the expected residual values of certain of
these assets, and the potential for impairment based on the fair value of the assets and the cash flows
they generate. On September 7, 2005, the Company acquired all of the issued and outstanding capital
stock of Atlantic Southeast and recorded an intangible asset of approximately $33.7 million relating to
the acquisition. The intangible asset is being amortized over fifteen years under the straight-line
method. As of December 31, 2014 and 2013, the Company had $21.0 million and $18.7 million in
accumulated amortization expense, attributable to the acquisition, respectively. Factors indicating
potential impairment include, but are not limited to, significant decreases in the market value of the
long-lived assets, a significant change in the condition of the long-lived assets and operating cash flow
losses associated with the use of the long-lived assets. On a periodic basis, the Company evaluates
whether impairment indicators are present. When considering whether or not impairment of long-lived
assets exists, the Company groups similar assets together at the lowest level for which identifiable cash
flows are largely independent of the cash flows of other assets and liabilities and compare the
undiscounted cash flows for each asset group to the net carrying amount of the assets supporting the
asset group. Asset groupings are done at the fleet or contract level.
In November 2014, the Company made the decision to remove all its Embraer Brasilia EMB-120
(‘‘EMB120’’) turboprop aircraft from service by the end of the second quarter of 2015. This decision
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