Airtran 2008 Annual Report Download - page 51

Impairment of goodwill expense for the year ended December 31, 2008 was $8.4 million. Excess of cost over
fair value of net assets acquired (goodwill) and indefinite-lived intangibles, such as trade names, are not
amortized but are subject to periodic impairment tests in accordance with Statement of Financial Accounting
Standards No. 142 (SFAS 142), Goodwill and Other Intangible Assets. Because current adverse industry
conditions and our recent operating losses were indicators that our intangible assets may have been impaired,
we prepared an assessment in accordance with SFAS 142 and concluded that all of our goodwill was impaired
as of June 30, 2008, while our trademarks and trade names were not impaired. Consequently, we recorded a
charge of $8.4 million to write-off the financial statement carrying value of all of our goodwill during 2008.
Other (Income) Expense
Other (income) expense, net increased by $163.1 million to $219.9 million for 2008 compared to 2007. We
reported losses on derivative financial instruments of $150.8 million for 2008, compared to losses of $0.3
million for 2007. Interest income decreased $16.7 million due to lower interest rates. Also, during 2008, we
recorded a $5.2 million charge to interest income related to realized and unrealized losses on investments.
Interest expense, including amortization of debt issuance costs, increased by $2.6 million 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 unfavorable impact of debt service for our 5.5% convertible senior
notes issued in May 2008; the unfavorable impact of debt service for our letter of credit and revolving line of
credit facility obtained in 2008; and a $2.4 million charge related to debt issuance costs written off and
prepayment penalties related to debt repayments from B737 aircraft sold during 2008. Capitalized interest
decreased by $3.9 million. 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. Other (Income)
Expense for 2007 includes $10.7 million to write-off the costs associated with the attempted acquisition of
Midwest Airlines which was terminated in August 2007.
Income Tax Expense (Benefit)
Our effective rate was 6.2 percent and 39.7 percent for the years ended December 31, 2008 and 2007,
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. Also, during 2008, we recorded an $8.4 million charge to write-off all of the carrying
value of our goodwill. Because this write-off is not deductible for income tax purposes, we did not record a tax
benefit and consequently our effective tax rate was reduced.
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 carryforwards)
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, 2008, we had recorded $97.2 million
of valuation allowance related to our net deferred tax assets.
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