Alaska Airlines and Horizon Air 2007 Annual Report Download - page 192

a corresponding increase in deferred tax assets
and $1.0 million of tax benefits that, if
recognized, would impact the effective tax rate.
Accrued interest on tax positions is recorded as
a component of interest expense. Total accrued
interest on tax positions included in the FIN 48
liability was zero at January 1, 2007 and $0.7
million at December 31, 2007. No penalties
were accrued at January 1, 2007 or at
December 31, 2007.
The periods subject to examination for the
Company’s federal income tax returns are the
2003 through 2006 tax years; however, the
2003 tax return is subject to examination only to
the extent of the net operating loss carryforwards
from 2003 that were utilized in 2005. The
periods subject to examination for the
Company’s major state income tax returns other
than California are also the years 2003 through
2006. In California, the income tax years 2002
through 2006 remain open to examination.
The Company does not believe that it is
reasonably possible that the total unrecognized
tax benefit would significantly increase or
decrease in the next 12 months. The FIN 48
liability for the Company’s unrecognized tax
benefit is classified in other liabilities
(noncurrent) in the consolidated balance sheets.
The Company anticipates that total unrecognized
tax benefits will not materially decrease due to
the expiration of the statute of limitations for tax
years prior to December 31, 2007.
During the first quarter of 2007, the Company
received a favorable decision in a matter with the
State of California. As a result of the decision,
the Company reduced its FIN 48 liability by $0.7
million, recorded a previously unrecognized tax
benefit of $1.0 million, and accrued interest
income of $1.5 million. The refund was received
in August 2007.
Deferred income taxes reflect the impact of
temporary differences between the carrying
amounts of assets and liabilities for financial
reporting purposes and such amounts for tax
purposes.
Deferred tax (assets) and liabilities comprise the
following at December 31 (in millions):
2007 2006
Excess of tax over book
depreciation ................... $ 431.7 $ 466.0
Fuel hedge contracts .............. 30.9 10.9
Other—net ..................... 6.7 7.7
Gross deferred tax liabilities ........ 469.3 484.6
Mileage Plan .................... (242.1) (204.0)
Alternative minimum tax ........... (1.3) (9.6)
Leased aircraft return provision ..... (2.7) (3.5)
Inventory obsolescence ............ (19.2) (16.6)
Deferred revenue ................. (22.1) (23.6)
Asset impairment ................ —(89.6)
Employee benefits ................ (128.6) (149.5)
Loss carryforwards* .............. (1.2) (1.8)
Other—net ..................... (4.4) (6.0)
Gross deferred tax assets .......... (421.6) (504.2)
Net deferred tax (assets) liabilities . . . $ 47.7 $ (19.6)
Current deferred tax asset ......... $ (84.9) $(134.2)
Noncurrent deferred tax liability ..... 132.6 114.6
Net deferred tax (asset) liability ..... $ 47.7 $ (19.6)
* State loss carryforwards of $32.6 million ($1.2 million tax
effected) expire beginning in 2008 and ending in 2026.
The Company has concluded that it is more likely
than not that its deferred tax assets will be
realizable and thus no valuation allowance has
been recorded as of December 31, 2007. This
conclusion is based on the expected future
reversals of existing taxable temporary
differences and does not rely on future taxable
income. The Company will continue to reassess
the need for a valuation allowance during each
future reporting period.
The components of income tax expense (benefit)
were as follows (in millions):
2007 2006 2005
Current tax expense (benefit):
Federal ................. $12.8 $ 0.6 $ 2.1
State ................... 4.8 2.4 0.8
Total current ................. 17.6 3.0 2.9
Deferred tax expense (benefit):
Federal ................. 55.5 (31.6) 45.2
State ................... 3.5 (6.6) 4.6
Total deferred ................ 59.0 (38.2) 49.8
Total tax expense (benefit) related
to income (loss) before
accounting change $76.6 $(35.2) $52.7
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