Alaska Airlines and Horizon Air 2007 Annual Report Download - page 147

stage nature. Capitalized interest increased $3.1
million from 2006, resulting from an increase in
pre-delivery deposits in connection with our
orders for B737-800 and Bombardier Q400
aircraft.
CONSOLIDATED INCOME TAX EXPENSE
(BENEFIT)
Our consolidated effective income tax rate on
income (loss) before income taxes for 2007 was
38.0% compared to an effective income tax rate
of 40.1% in 2006. The effective rate for 2007
was positively impacted by $2.1 million in credits
resulting from a favorable outcome of the state
income tax matters referred to in Note 13.
Excluding this benefit, our effective tax rate
would have been 39.0%, which is different from
our marginal 2007 tax rate of 37.4%. The
difference is primarily due to the magnitude of
nondeductible expenses, such as employee
per-diem costs and stock-based compensation
expense recorded for certain stock awards. The
2006 year includes $5.5 million of tax benefits
associated with the reduction of certain tax
contingency accruals for periods for which the
statute of limitations expired in 2006. Excluding
this benefit, our effective tax benefit rate for
2006 would have been 33.8%.
2006 COMPARED WITH 2005
Our consolidated net loss for 2006 was $52.6
million, or $1.39 per share, compared to a net
loss of $5.9 million, or $0.01 per diluted share,
in 2005.
Both the 2006 and 2005 results include certain
significant items that affect the comparability of
the years:
• Our 2006 consolidated net loss includes
charges of $189.5 million ($118.5
million after tax) associated with our
fleet transition plan (See Note 2 to the
consolidated financial statements);
• We recorded restructuring charges of
$24.8 million ($15.5 million after tax) in
2006 associated with the severance
packages offered to eligible employees
affected by new contracts this year
compared to $20.4 million ($12.7 million
after tax) in 2005 related to severance
costs resulting from the subcontracting
of the ramp services operation in Seattle
and costs associated with the
termination of the lease at our Oakland
heavy maintenance base;
• Adjustments to reflect the timing of gain
or loss recognition resulting from
mark-to-market fuel hedge accounting
totaling $89.9 million ($56.3 million
after tax) of losses and $61.7 million
($38.6 million after tax) of gains in 2006
and 2005, respectively;
• Our 2005 consolidated net loss includes
a $144.7 million pretax ($90.4 million
after tax) charge resulting from the
change in the method of accounting for
major airframe and engine overhauls as
discussed in Note 17 to the
consolidated financial statements; and
• Our 2005 results also include a $5.7
million ($3.6 million after tax) refund,
including $1.0 million of related interest
income, for navigation fees paid in Mexico.
We believe disclosure of the impact of these
individual charges is useful information to
investors and other readers because of the
reasons provided above in the “2007 Compared
With 2006” section.
Alaska reported a 2006 loss before income
taxes of $92.2 million, while Horizon reported
income before income taxes of $11.7 million.
Financial and statistical data for Alaska and
Horizon are shown on pages 34 and 35,
respectively.
ALASKA AIRLINES
Alaska reported a loss before income taxes of
$92.2 million during 2006 compared to income
before income taxes and accounting change of
$124.2 million in 2005. The $216.4 million
difference between the years is primarily the
result of the fleet transition and restructuring
charges recognized in 2006 totaling $218.4
million, combined with a significant increase in
fuel expenses, offset by an 11.4% increase in
operating revenues and a reduction in
maintenance costs and aircraft rent.
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ŠForm 10-K