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Nature of Operations and Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2011

Nature of Operations and Summary of Significant Accounting Policies

Basis of Presentation

The Company's consolidated financial statements include the accounts of SkyWest, Inc. and its subsidiaries, including SkyWest Airlines and ExpressJet, with all inter-company transactions and balances having been eliminated. References in the accompanying financial statements to "Atlantic Southeast" and "ExpressJet Delaware" refer to the operations conducted by Atlantic Southeast and ExpressJet Delaware, respectively, prior to the completion of the ExpressJet Combination on December 31, 2011.

In preparing the accompanying consolidated financial statements, the Company has reviewed, as determined necessary by the Company's management, events that have occurred after December 31, 2011, up until the filing of the Company's annual report with the U.S. Securities and Exchange Commission.

Reclassification

Reclassification

Certain reclassifications have been made to the Company's December 31, 2010 and 2009 consolidated financial statements to conform to the presentation of the Company's December 31, 2011 consolidated financial statements.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company classified $19.4 million and $21.8 million of cash as restricted cash as required by the Company's workers' compensation policy and classified it accordingly in the consolidated balance sheets as of December 31, 2011 and 2010, respectively.

Marketable Securities

Marketable Securities

The Company's investments in marketable debt and equity securities are deemed by management to be available for sale and are reported at fair market value with the net unrealized appreciation (depreciation) reported as a component of accumulated other comprehensive income (loss) in stockholders' equity. At the time of sale, any realized appreciation or depreciation, calculated by the specific identification method, is recognized in other income and expense. The Company's position in marketable securities as of December 31, 2011 and 2010 was as follows (in thousands):

	2011				2010

Investment Types	Cost		Market Value		Cost			Market Value
Commercial paper		4,555	$	4,557	$	5,002		$	4,998
Bond and bond funds		496,170		496,310		669,786			669,025
Asset backed securities		456		478		692			718

		501,181		501,345		675,480			674,741
Unrealized appreciation (depreciation)		164		—		(739	)		—

Total		501,345		501,345		674,741			674,741

Marketable securities had the following maturities as of December 31, 2011 (in thousands):

Maturities	Amount

Year 2012	$	202,454
Years 2013 through 2016		239,193
Years 2017 through 2021		1,509
Thereafter		58,189

As of December 31, 2011, the Company had classified $497.6 million of marketable securities as short-term since it has the intent to maintain a liquid portfolio and the ability to redeem the securities within one year. The Company has classified approximately $3.8 million of investments as non-current and has identified them as "Other assets" in the Company's consolidated balance sheet as of December 31, 2011 (see Note 8).

Inventories

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, 2011 and 2010 was $8.2 million and $7.5 million, respectively. These allowances are based on management estimates, which are subject to change.

Property and Equipment

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:

Assets	Depreciable Life

Aircraft and rotable spares	10 - 18 years	0 - 30	%
Ground equipment	5 - 10 years	0	%
Office equipment	5 - 7 years	0	%
Leasehold improvements	15 years or life of the lease	0	%
Buildings	20 - 39.5 years	0	%

Impairment of Long-Lived Assets

Impairment of Long Lived Assets

As of December 31, 2011, the Company had approximately $2.9 billion of property and equipment and related assets. Additionally, as of December 31, 2011, the Company had approximately $19.5 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 completed the acquisition of 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, 2011 and 2010, the Company had $14.3 million and $12.0 million in accumulated amortization expense, 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. No impairments of long-lived assets were recognized during 2011, 2010, or 2009.

Capitalized Interest

Capitalized Interest

Interest is capitalized on aircraft purchase deposits as a portion of the cost of the asset and is depreciated over the estimated useful life of the asset. During the years ended December 31, 2011, 2010 and 2009, the Company capitalized interest costs of approximately $0, $5,000, and $843,000, respectively.

Maintenance

Maintenance

The Company operates under an FAA-approved continuous inspection and maintenance program. The Company uses the direct expense method of accounting for its regional jet engine overhauls wherein the expense is recorded when the overhaul event occurs. The Company has an engine services agreement with a third party vendor to provide long-term engine services covering the scheduled and unscheduled repairs for certain of its Bombardier CRJ700 Regional Jet ("CRJ700s") and ERJ145 regional jet aircraft. Under the terms of the agreement, the Company pays a set dollar amount per engine hour flown on a monthly basis and the third party vendor will assume the responsibility to repair the engines at no additional cost to the Company, subject to certain specified exclusions. Maintenance costs under these contracts are recognized when the engine hour is flown pursuant to the terms of the contract. The Company uses the "deferral method" of accounting for its Brasilia Turboprop engine overhauls wherein the overhaul costs are capitalized and depreciated to the next estimated overhaul event. The costs of maintenance for airframe and avionics components, landing gear and normal recurring maintenance are expensed as incurred. For leased aircraft, the Company is subject to lease return provisions that require a minimum portion of the "life" of an overhaul be remaining on the engine at the lease return date. For Brasilia Turboprop engine overhauls related to leased aircraft to be returned, the Company adjusts the estimated useful lives of the final engine overhauls based on the shorter of the remaining useful life or the respective lease return dates.

Passenger and Ground Handling Revenues

Passenger and Ground Handling Revenues

The Company recognizes passenger and ground handling revenues when the service is provided. Under the Company's contract and pro-rate flying agreements with Delta, United, Continental, US Airways, Alaska and AirTran, revenue is considered earned when the flight is completed. Revenue is recognized under the Company's pro-rate flying agreements based upon the portion of the pro-rate passenger fare the Company anticipates that it will receive.

Other Revenue Items

Other Revenue Items

Under the Company's code-share agreements with Delta, United, Continental, Alaska, US Airways and Air-Tran, the Company earns revenue for an amount per aircraft 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, 2011, 2010 and 2009 were $521.3 million, $492.7 million and $490.1 million, respectively. These amounts were recorded as passenger revenue on the Company's consolidated statements of operations. Under the SkyWest Inc. Delta Connection Agreement and the SkyWest Airlines United Express Agreement, the Company receives a reimbursement for direct costs associated with placing each additional aircraft into service. The reimbursement is applicable to incremental costs specific to placing each additional aircraft into service. The Company recognizes the revenue associated with these reimbursement payments once the aircraft is placed into service.

The Company's passenger and ground handling revenues could be impacted by a number of factors, including changes to the Company's code-share agreements with Delta, United, Continental, Alaska, US Airways or AirTran, integration of ExpressJet's operations as contemplated by the ExpressJet Merger and the ExpressJet Combination, contract modifications resulting from contract re-negotiations, the Company's ability to earn incentive payments contemplated under the Company's code-share agreements and settlement of reimbursement disputes with the Company's major partners.

Deferred Aircraft Credits

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

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

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, 2011, 2010 and 2009, 4,323,000, 4,183,000 and 4,356,000 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.

The calculation of the weighted average number of common shares outstanding for Basic EPS and Diluted EPS are as follows for the years ended December 31, 2011, 2010 and 2009 (in thousands):

	Year Ended December 31,

	2011			2010		2009
Numerator:
Net Income (Loss)	$	(27,335	)	$	96,350	$	83,658
Denominator:
Denominator for basic earnings per-share weighted average shares		52,201			55,610		55,854
Dilution due to stock options and restricted stock		—			916		960

Denominator for diluted earnings per-share weighted average shares		52,201			56,526		56,814
Basic earnings (loss) per-share	$	(0.52	)	$	1.73	$	1.50
Diluted earnings (loss) per-share	$	(0.52	)	$	1.70	$	1.47

Comprehensive Income (Loss)

Comprehensive Income (Loss)

Comprehensive income (loss) includes charges and credits to stockholders' equity that are not the result of transactions with the Company's shareholders. Also, comprehensive income (loss) consisted of net income (loss) plus changes in unrealized appreciation (depreciation) on marketable securities and unrealized gain (loss) on foreign currency translation adjustment related to the Company's equity investment in Trip Linhas Aereas ("Trip") and Mekong Aviation Joint Stock Company ("Air Mekong") (see note 8), net of tax, for the periods indicated (in thousands):

	Year Ended December 31,

	2011			2010			2009
Net Income (Loss)	$	(27,335	)	$	96,350		$	83,658
Proportionate share of other companies foreign currency translation adjustment, net of tax		(295	)		637			972
Unrealized appreciation (depreciation) on marketable securities, net of tax		534			(745	)		3,774

Comprehensive income (loss)	$	(27,096	)	$	96,242		$	88,404

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying amounts reported in the consolidated balance sheets for receivables and accounts payable approximate fair values because of the immediate or short-term maturity of these financial instruments. Marketable securities are reported at fair value based on market quoted prices in the consolidated balance sheets. However, due to recent events in credit markets, the auction events for some of these instruments held by the Company failed during the year ended December 31, 2011. Therefore, quoted prices in active markets are no longer available and the Company has estimated the fair values of these securities utilizing a discounted cash flow analysis as of December 31, 2011. These analyses consider, among other items, the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and the expectation of the next time the security is expected to have a successful auction. The fair value of the Company's long-term debt is estimated based on current rates offered to the Company for similar debt and approximates $1,952.5 million as of December 31, 2011, as compared to the carrying amount of $1,815.4 million as of December 31, 2011. The Company's fair value of long-term debt as of December 31, 2010 was $1,926.6 million as compared to the carrying amount of $1,898.0 million as of December 31, 2010.

Segment Reporting

Segment Reporting

Generally accepted accounting principles require disclosures related to components of a company for which separate financial information is available to and evaluated regularly by the company's chief operating decision maker when deciding how to allocate resources and in assessing performance. The Company's two operating segments consist of its two subsidiaries, SkyWest Airlines and ExpressJet. Information pertaining to the Company's reportable segments is presented in Note 3, Segment Reporting.