Alaska Airlines and Horizon Air 2014 Annual Report Download - page 120

RESULTS OF OPERATIONS
2014 COMPARED WITH 2013
Our consolidated net income for 2014 was $605 million, or $4.42 per diluted share, compared to net
income of $508 million, or $3.58 per diluted share, in 2013. Significant items impacting the
comparability between the periods are as follows:
‰Both periods include adjustments to reflect the timing of net unrealized mark-to-market gains or
losses related to our fuel hedge positions. For 2014, we recognized net mark-to-market
adjustments of $23 million ($15 million after tax, or $0.11 per diluted share) compared to gains
of $8 million ($5 million after tax, or $0.03 per share) in 2013.
‰In 2014, we recognized a one-time, non-cash benefit from the curtailment of certain post-
retirement benefit plans of $20 million and a one-time gain associated with the settlement of a
legal matter of $10 million. The aggregate $30 million ($19 million in aggregate after tax, or
$0.13 per diluted share) is included in Special items in the consolidated statement of operations.
‰In 2013, we recognized a one-time, non-cash Special mileage plan revenue item of $192 million
($120 million after tax, or $0.85 per diluted share) that resulted from the application of new
accounting rules associated with the modified Bank of America Affinity Card Agreement, and the
effect of an increase in the estimate of the number of frequent flier miles expected to expire
unused.
ADJUSTED (NON-GAAP) RESULTS AND PER-SHARE AMOUNTS
We believe disclosure of earnings excluding the impact of mark-to-market gains or losses or other
individual revenues or expenses is useful information to investors because:
‰We believe it is the basis by which we are evaluated by industry analysts;
‰By eliminating fuel expense and certain special items from our unit metrics, we believe that we
have better visibility into the results of our non-fuel continuing operations. Our industry is highly
competitive and is characterized by high fixed costs, so even a small reduction in non-fuel
operating costs can result in a significant improvement in operating results. In addition, we
believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the
long run, so it is important for management (and thus investors) to understand the impact of
(and trends in) company-specific cost drivers such as labor rates and productivity, airport costs,
maintenance costs, etc., which are more controllable by management;
‰Prior year Operating revenue per ASM (RASM) excludes a favorable, one-time, non-cash Special
mileage plan revenue item of $192 million primarily related to our modified affinity card
agreement with Bank of America, executed in July 2013. In accordance with accounting
standards, we recorded this item in the third quarter of 2013, and it reflects a non-cash
adjustment of the value of miles outstanding in the program. We believe it is appropriate to
exclude this special revenue item from recurring revenues from operations;
‰CASM excluding fuel and special items is one of the most important measures used by
management and by the Air Group Board of Directors in assessing quarterly and annual cost
performance;
‰Our results excluding fuel expense and special items serve as the basis for our various
employee incentive plans, thus the information allows investors to better understand the
changes in variable incentive pay expense in our consolidated statements of operations; and
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