US Airways 2004 Annual Report Download - page 62

Table of Contents
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(f) General Guarantees and Indemnifications
The Company is the lessee under many aircraft financing agreements (including leveraged lease financings of aircraft under the pass through trusts) and
real estate leases. It is common in such transactions for the Company as the lessee to agree to indemnify the lessor and other related third parties for the
manufacture, design, ownership, financing, use, operation and maintenance of the aircraft, and for tort liabilities that arise out of or relate to the Company's
use or occupancy of the leased asset. In some cases, this indemnity extends to related liabilities arising from the negligence of the indemnified parties, but
usually excludes any liabilities caused by their gross negligence or willful misconduct. Additionally, in the case of real estate leases, the Company typically
indemnifies such parties for any environmental liability that arises out of or relates to the Company's use of the leased premises. The Company expects that it
would be covered by insurance (subject to deductibles) for most tort liabilities and related indemnities described above with respect to leased real estate and
operated aircraft.
7. Income Taxes
The Company recorded income tax expense (benefit) as follows:
Year Ended December 31,
2004 2003 2002
(in thousands)
Federal $ — $ 114 $ (35,071)
State 30 — —
Total current taxes 30 114 (35,071)
Deferred taxes — — —
Total income tax expense (benefit) $ 30 $ 114 $ (35,071)
The Company's emergence from bankruptcy reorganization in 1994 and the associated implementation of fresh start reporting gave rise to significant items
of expense for financial reporting purposes that are not deductible for income tax purposes. In large measure, it is these nondeductible (for income tax
purposes) expenses that result in an effective tax expense (benefit) rate for financial reporting purposes that differs from the current federal statutory income
tax rate of 35%.
Income tax expense (benefit) differs from amounts computed at the federal statutory income tax rate as follows:
Year Ended December 31,
2004 2003 2002
(in thousands)
Income tax expense (benefit) at the federal statutory income tax rate $ (31,148) $ 20,137 $ (75,165)
State income tax expense (benefit), net of federal income tax expense (benefit) (3,196) 2,383 (8,024)
State rate change — (3,229) —
Change in valuation allowance 32,492 (17,334) 38,137
Expired tax credits — — 7,987
Other, net 1,882 (1,843) 1,994
Total $ 30 $ 114 $ (35,071)
As of December 31, 2004, the Company has available net operating loss carryforwards ("NOLs") and tax credit carryforwards for federal income tax
purposes of approximately $451.4 million and $1.1 million, respectively. The NOLs expire during the years 2007 through 2024 while approximately
$0.2 million of the tax credit carryforwards will expire in 2005 and 2006. The Company also had capital loss carryforwards for federal income tax purposes of
approximately $1.4 million which expire in 2009. However, such carryforwards are not available to offset federal (and in certain circumstances, state)
alternative minimum taxable income. Further, as a result of a statutory "ownership change" (as defined for purposes of Section 382 of the Internal Revenue
Code) that occurred as a result of the Company's reorganization in 1994, the Company's ability to utilize its NOLs and tax credit carryforwards may be
restricted.
In September 2003, Holdings filed its 2002 consolidated income tax return with the IRS, which included a claim to carryback losses incurred in 2002 to the
tax years 1999 and 2000. This resulted in a refund of approximately $3.1 million, of which substantially all was received in the fourth quarter of 2003.
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