Airtran 2009 Annual Report Download - page 49

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Other (Income) Expense
Other (income) expense, net decreased by $183.2 million to $41.7 million net expense for 2009 compared to
$224.9 million net expense for 2008. Other (income) expense, net includes: interest income; interest expense,
capitalized interest; net (gains) losses on derivative financial instruments; and (gain) on extinguishment of debt.
Interest income increased by $2.0 million from 2008 to $5.7 million for 2009 primarily due to the net effects of
the unfavorable impact of lower interest rates and a $3.3 million gain classified as interest income upon the
redemption of all of our investments in an enhanced cash investment fund. During 2008, we recorded a charge
of $5.2 million classified as interest income for realized and unrealized losses related to our investments in
available for sale securities.
Interest expense, including amortization of debt discount and debt issuance costs, decreased by $1.5 million
from 2008 to $84.0 million for 2009. The decrease was primarily due to the net effects of the following: the
favorable impact of lower interest rates applicable to variable-interest rate debt due to declines in market
interest rates; the repurchase of $29.2 million of our 7.0% convertible notes; interest on our 5.5% convertible
senior notes issued in May 2008; interest associated with our Credit Facility obtained in the third quarter of
2008; and interest on our 5.25% convertible senior notes issued in October 2009.
Capitalized interest decreased by $6.0 million from 2008 to $1.7 million for 2009. Capitalized interest
represents the interest cost to finance purchase deposits for future aircraft. These amounts are classified as part
of the cost of the aircraft upon delivery.
We reported net (gains) on derivative financial instruments of ($30.6 million) for 2009, compared to a net loss
of $150.8 million for 2008. Net (gains) losses on derivative financial instruments consists primarily of realized
and unrealized gains and losses on fuel-related derivatives which either did not qualify for hedge accounting or
were not designated as hedges for financial accounting purposes.
During 2009, we repurchased $29.2 million of our 7.0% convertible notes resulting in a gain of $4.3 million.
Income Tax Expense (Benefit)
Our effective income tax rate was 0.5 percent and 11.4 percent for the years ended December 31, 2009 and
2008, respectively. Our effective tax rate can differ from the 37.2 percent composite statutory tax rate (35
percent federal statutory rate plus the 2.2 percent effective state tax rate) due to changes in the valuation
allowance on our deferred tax assets, certain expenses which are not deductible for income tax purposes, and
non-recurring discrete items related to restricted stock vesting. Non-deductible expense items and discrete items
tend to increase the effective tax rate when pre-tax income is reported and tend to decrease the effective tax rate
when a pre-tax loss is reported.
Income tax benefits recorded on losses result in deferred tax assets for financial reporting purposes. We are
required to provide a valuation allowance for deferred tax assets to the extent management determines that it is
more likely than not that such deferred tax assets will ultimately not be realized. We expect to realize a portion
of our deferred tax assets (including a portion of the deferred tax asset associated with loss carry-forwards)
through the reversal of existing temporary differences. However, we have determined that it is more likely than
not that our deferred tax assets in excess of our deferred tax liabilities will not ultimately be realized, in part due
to our cumulative losses over the past three years, and that we are therefore required to provide a valuation
allowance on our deferred tax assets in excess of our deferred tax liabilities. As a result, beginning with the
third quarter of 2008, our losses were not reduced by any tax benefit. Consequently, our effective tax rate for
2008 was substantially lower than the statutory rate. As of December 31, 2009 and 2008, we had recorded $6.1