Alaska Airlines and Horizon Air 2007 Annual Report Download - page 156

additional $58.4 million charge in the third
quarter for the impairment. See Note 2 in the
consolidated financial statements for further
discussion about the impairment of the MD-80s.
In 2007, Horizon announced plans to phase out
its remaining leased Q200 aircraft by the end of
2009 and is in the process of evaluating
potential arrangements to dispose of those
leased aircraft. All of these aircraft are leased
under operating lease agreements. However, as
a result of this decision, we reassessed the
depreciable lives and salvage values of the
related rotable and repairable Q200 parts and,
as such, we have increased the periodic
depreciation expense.
We are early in the process of evaluating whether
further fleet simplification of Horizon’s fleet
would be beneficial. Such simplification could
involve a move away from the CRJ-700 aircraft to
an all-Q400 fleet. No decisions have been made
at this time. However, should we decide to exit
the CRJ-700 fleet prior to the end of the lease
expiration for those aircraft, we would likely
revise the useful lives of the related rotable and
repairable parts, which would result in higher
depreciation expense.
There is inherent risk in estimating the fair value
of our aircraft and related parts and their salvage
values at the time of impairment. Actual
proceeds upon disposition of the aircraft or
related parts could be materially less than
expected, resulting in additional loss. Our
estimate of salvage value at the time of disposal
could also change, requiring us to increase the
depreciation expense on the affected aircraft.
WORKERS’ COMPENSATION AND
EMPLOYEE HEALTH-CARE ACCRUALS
We use a combination of insurance and self-
insurance mechanisms to provide for workers’
compensation claims and employee health-care
benefits. Liabilities associated with these risks
are not discounted and are estimated, in part, by
considering historical claims experience, severity
factors and other actuarial assumptions. The
estimated accruals for these liabilities could be
significantly affected if future occurrences and
claims differ from these assumptions and
historical trends. Our workers’ compensation and
employee health care accruals totaled $42.9
million at December 31, 2007, compared to
$42.7 million at December 31, 2006.
NEW ACCOUNTING STANDARDS
In September 2006, the FASB issued Statement
of Financial Accounting Standards No. 157, Fair
Value Measurements (SFAS 157), which defines
fair value, establishes a framework for
measuring fair value and expands disclosure
about fair-value measurements required under
other accounting pronouncements. SFAS 157
does not change existing guidance as to whether
or not an instrument is carried at fair value. The
statement is effective for financial and
nonfinancial assets and liabilities for fiscal years
beginning after November 15, 2007 and 2008,
respectively. We are currently evaluating the
impact of adopting SFAS 157 but do not expect
the statement to have a significant impact on our
results from operations or financial position.
In February 2007, the FASB issued SFAS
No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, which allows
entities the option to measure eligible financial
instruments at fair value as of specified dates.
Such election, which may be applied on an
instrument-by-instrument basis, is typically
irrevocable once elected. This statement is
effective for fiscal years beginning after
November 15, 2007, and early adoption is
allowed under certain circumstances. We do not
expect this statement to have a significant
impact on our financial position, results of
operations or cash flows.
In December 2007, the FASB issued SFAS
No. 141R, Business Combinations, and SFAS
No. 160, Noncontrolling Interests in
Consolidated Financial Statements. These
standards were issued jointly and will require
most identifiable assets, liabilities,
noncontrolling interests, and goodwill acquired in
a business combination to be recorded at full fair
value and will require noncontrolling interests
(previously referred to as minority interests) to
be reported as a component of equity, which
changes the accounting for transactions with
noncontrolling interest holders. Both statements
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