US Airways 2003 Annual Report Download - page 73

Table of Contents
programs; (d) honor obligations arising prior to the Petition Date related to the Company's interline, clearinghouse, code sharing and other similar agreements;
(e) pay certain pre-petition taxes and fees, including transportation excise taxes, payroll taxes and passenger facilities charges; and (f) pay certain other
obligations. Substantially all other pre-petition liabilities not mentioned above were classified as Liabilities Subject to Compromise at December 31, 2002.
The following table summarizes the components of Liabilities Subject to Compromise included in the Company's Consolidated Balance Sheets as of
December 31, 2002 (in millions):
Debt $3,248
Aircraft-related accruals and deferrals 1,008
Accounts payable 344
Other accrued expenses 294
Deficiency claims and other 609
Total Liabilities Subject to Compromise $5,503
4. Financial Instruments
(a) General
On January 1, 1998, as part of a comprehensive information technology services agreement with Sabre, US Airways was granted two tranches of stock
options (SHC Stock Options) to acquire up to 6,000,000 shares of Class A Common Stock, $.01 par value, of Sabre Holdings Corporation (SHC Common
Stock), Sabre's parent company. Each tranche included 3,000,000 stock options. In December 1999, US Airways exercised the first tranche of stock options at
an exercise price of $27 per option and received proceeds of $81 million in January 2000 in lieu of receiving SHC Common Stock. Realized gains resulting
from the exercise of Sabre options are subject to a clawback provision. Under the clawback provision, if US Airways elects to terminate its information
technology service agreement with Sabre it will be required to pay Sabre an amount equal to the gain multiplied by the ratio of the remaining months in the
contract period over 180 months. The deferred gain from the 1999 exercise is amortized on a straight-line basis over a contractually determined period ending
December 2012. In February 2000, SHC declared a cash dividend resulting in a dilution adjustment to the terms of the second tranche. The adjusted terms of
the second tranche include stock options to acquire 3,406,914 shares of SHC Common Stock at an exercise price of $23.78 subject to an $111.83 per share
cap on the fair market value of the underlying common stock. These options are exercisable during a ten-year period beginning January 2, 2003.
The Company utilizes fixed price swap agreements, collar structures and other similar instruments to manage its exposure related to jet fuel price
changes. During the nine months ended December 31, 2003 and three months ended March 31, 2003, the Company recognized gains of approximately $14
million and $27 million, respectively, related to its fuel hedging activities including a gain of $4 million related to hedge ineffectiveness in the three months
ended March 31, 2003. During 2002, the Company recognized gains of approximately $18 million including a gain of $1 million related to hedge
ineffectiveness. These recognized gains were primarily included in Aviation Fuel on the Company's Consolidated Statements of Operations. As of December
31, 2003, the Company had open fuel hedge positions in place to hedge 30% of its 2004 anticipated jet fuel requirements and 5% of its 2005 anticipated jet
fuel requirements. The Company had $31 million of unrealized gains related to fuel hedge positions recorded in Accumulated other comprehensive loss, net
of income tax effect on its Consolidated Balance Sheet as of December 31, 2003. These gains are expected to be realized in 2004 and 2005 results.
US Airways routinely reviews the financial condition of each counterparty to its financial contracts and believes that the potential for default by any of
the current counterparties is negligible.
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