Alaska Airlines and Horizon Air 2014 Annual Report Download - page 158

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to
the fair value of the assets or liabilities.
The Company has elected not to use the Fair Value Option for non-financial instruments, and
accordingly those assets and liabilities are carried at amortized cost. For financial instruments, those
assets and liabilities are carried at fair value and are determined based on the market approach or
income approach depending upon the level of inputs used.
Income Taxes
The Company uses the asset and liability approach for accounting and reporting income taxes. Deferred
tax assets and liabilities are recognized for future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax
bases, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the period that includes the enactment date. A
valuation allowance would be established, if necessary, for the amount of any tax benefits that, based
on available evidence, are not expected to be realized. The Company accounts for unrecognized tax
benefits in accordance with the accounting standards.
Stock-Based Compensation
Accounting standards require companies to recognize as expense the fair value of stock options and
other equity-based compensation issued to employees as of the grant date. These standards apply to
all stock awards that the Company grants to employees as well as the Company’s Employee Stock
Purchase Plan (ESPP), which features a look-back provision and allows employees to purchase stock at
a 15% discount. All stock-based compensation expense is recorded in wages and benefits in the
consolidated statements of operations.
Earnings Per Share (EPS)
Diluted EPS is calculated by dividing net income by the average common shares outstanding plus
additional common shares that would have been outstanding assuming the exercise of in-the-money
stock options and restricted stock units, using the treasury-stock method. In 2014, 2013, and 2012,
antidilutive stock options excluded from the calculation of EPS were not material.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued Accounting Standard Update 2014-09, “Revenue from Contracts with
Customers” (ASU 2014-09), which requires an entity to recognize the amount of revenue to which it
expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace
most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard
is effective for the Company on January 1, 2017. Early adoption is not permitted. The standard permits
the use of either the retrospective or cumulative effect transition method. The Company is evaluating
the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures.
The Company has not yet selected a transition method nor has it determined the effect of the standard
on its ongoing financial reporting.
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