Alaska Airlines and Horizon Air 2007 Annual Report Download - page 191

specified pretax margin falls below the target,
and additional shares to be granted if the margin
target is exceeded, subject to a maximum. The
Company intends to regularly review its
assumptions about meeting the performance
goal and expected vesting, and to adjust the
related compensation expense accordingly. The
Company recorded compensation expense
related to PSUs of $0.4 million for the year
ended December 31, 2007.
Employee Stock Purchase Plan
The Company sponsors an ESPP, which is
intended to qualify under Section 423 of the
Internal Revenue Code. Under the terms of the
ESPP, employees can purchase Company
common stock at 85% of the closing market
price on the first day of the offering period or the
quarterly purchase date, whichever is lower.
Because of these attributes, the ESPP is
considered compensatory under SFAS 123R and
as such, compensation cost is recognized.
Compensation cost for the Company’s ESPP was
$1.6 million and $1.0 million in 2007 and 2006,
respectively. The grant date fair value is
calculated using the Black-Scholes model in the
same manner as the Company’s option awards
for 85% of the share award plus the intrinsic
value of the 15% discount. Proceeds received
from the issuance of shares are credited to
stockholders’ equity in the period in which the
shares are issued. In 2007 and 2006, 126,584
shares and 93,342 shares, respectively, were
purchased by Company employees under the
ESPP, resulting in cash proceeds of $3.0 million
and $2.4 million, respectively.
Summary of Stock-Based Compensation
The table below summarizes the components of
total stock-based compensation for the years
ended December 31, 2007 and 2006:
(in millions) 2007 2006
Stock options ....................... $ 3.9 $3.4
Restricted stock units ................ 5.3 3.8
Performance share units .............. 0.4 —
Employee stock purchase plan ......... 1.6 1.0
Total stock-based compensation ........ $11.2 $8.2
NOTE 13. INCOME TAXES
In July 2006, the FASB issued FASB
Interpretation No 48, Accounting for Uncertainty
in Income Taxes—an interpretation of FASB
Statement No. 109 (FIN 48). The purpose of FIN
48 is to clarify certain aspects of the recognition
and measurement related to accounting for
income tax uncertainties. Under FIN 48, the
impact of an uncertain income tax position must
be recognized at the largest amount that is more
likely than not of being sustained upon audit by
the relevant taxing authority. An uncertain
income tax position will not be recognized if it
has less than a 50% likelihood of being
sustained.
The Company was subject to the provisions of
FIN 48 as of January 1, 2007. Upon adoption, no
cumulative effect of accounting change was
necessary or recorded in the consolidated
financial statements. The total amount of
unrecognized tax benefits as of the date of
adoption was $26.2 million. This number
includes a $24.5 million increase in the tax
liability and a corresponding increase in deferred
tax assets for unrecognized tax benefits as a
result of the implementation of FIN 48 and $1.7
million of tax benefits that, if recognized, would
impact the effective tax rate.
Changes in the FIN 48 liability for unrecognized
tax benefits during 2007 are as follows (in
millions):
Upon transition to FIN 48 at January 1, 2007 . . . $ 26.2
Gross increases—tax positions in prior period . . . —
Gross decreases—tax positions in prior period . . (11.5)
Gross increases—current-period tax positions . . . 13.2
Settlements .............................. —
Lapse of statute of limitations ............... —
Balance at December 31, 2007 .............. $27.9
At December 31, 2007, the total amount of
unrecognized tax benefits of $27.9 million
includes $26.2 million recorded as a liability and
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ŠForm 10-K