US Airways 2004 Annual Report Download - page 51

Table of Contents
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired
as defined by Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to
be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.
(e) Restricted Cash
Restricted cash includes cash deposits securing certain letters of credit and surety bonds and cash deposits held by institutions that process credit card sales
transactions. Current restricted cash includes amounts set aside in an irrevocable trust for the redemption of the 10 3/4% senior unsecured notes that was
subsequently paid on January 26, 2005.
(f) Aircraft Maintenance and Repairs
Routine maintenance and repairs are charged to expense as incurred. The cost of major scheduled airframe, engine and certain component overhauls are
capitalized and amortized over the periods benefited and are included in aircraft maintenance materials and repairs expense.
In the first quarter of 2004, the Company revised the estimated useful life for certain aircraft and related spare parts inventory as a result of changes in
AWA's fleet plan and for capitalized maintenance on certain of its engines as a result of changes in aircraft utilization. The net impact of this change in
estimate decreased the net loss for 2004 by approximately $18.4 million or $0.51 per basic and diluted share.
An accrual for the estimated cost of scheduled airframe and engine overhauls required to be performed on leased aircraft prior to their return to the lessors
has also been recorded. These estimates are based on historical costs and our assumptions regarding the renewal of aircraft leases.
(g) Derivative Instruments
AWA's fuel hedging contracts do not qualify as cash flow hedges under Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). See Note 2, "Restatement of Previously Reported Amounts." Accordingly, the derivative hedging
instruments are recorded as an asset or liability on the balance sheet at fair value and the changes in the fair values are recorded in "Gain (Loss) on Derivative
Instruments, Net" in the accompanying consolidated statements of operations. See Note 12, "Nonoperating Income (Expenses) — Other, Net."
(h) Frequent Flyer Awards
The Company maintains a frequent travel award program known as "FlightFund" that provides a variety of awards to program members based on
accumulated mileage. The estimated cost of providing the free travel, using the incremental cost method as adjusted for estimated redemption rates, is
recognized as a liability and charged to operations as program members accumulate mileage.
The Company also sells mileage credits to companies participating in its FlightFund program, such as hotels, car rental agencies and credit card
companies. Transportation-related revenue from the sale of mileage credits is deferred and recognized when transportation is provided.
(i) Deferred Credits-Operating Leases
Rents for operating leases were adjusted to fair market value when the Company emerged from bankruptcy in 1994. The net present value of the difference
between the stated lease rates and the fair market rates has been recorded as a deferred credit in the accompanying consolidated balance sheets. The deferred
credit will be increased through charges to interest expense and decreased on a straight-line basis as a reduction in rent expense over the applicable lease
periods. At December 31, 2004 and 2003, the unamortized balance of the deferred credit was $38.3 million and $44.6 million, respectively.
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