US Airways 2004 Annual Report Download - page 92

Table of Contents
AMERICA WEST AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
As part of the restructuring completed on January 18, 2002, AWA committed to the sale and leaseback of eight aircraft. The sales and leaseback of six of
these aircraft were completed in 2002 and resulted in losses of approximately $3.8 million. The sale and leaseback of one aircraft was completed in June 2003
and resulted in a loss of approximately $0.6 million. The sale and leaseback of the final aircraft was completed in September 2003 and resulted in a loss of
approximately $0.7 million. The losses on the sale-leaseback transactions, which were subject to a firm commitment in January 2002, were accrued in the
accompanying statements of operations classified in "Special Charges" in the first quarter of 2002. See Note 11, "Special Charges."
(e) Contingent Legal Obligations
Holdings and its subsidiaries are parties to various legal proceedings, including some purporting to be class action suits, and some that demand large
monetary damages or other relief, which, if granted, would require significant expenditures. In certain cases where it is probable that the outcome will result
in monetary damages, AWA has reviewed available information and determined that the best estimate of losses to be incurred related to these cases is
$2 million, which has been accrued. For those cases where a loss is possible, or cases where a range of loss is probable but no amount within the range is a
better estimate than any other amount, the estimated amount of additional exposure ranges from $0 to $25 million. In these instances, no accrual has been
recorded.
(f) General Guarantees and Indemnifications
AWA 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 AWA 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 AWA'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, AWA typically indemnifies such parties for any
environmental liability that arises out of or relates to AWA's use of the leased premises. AWA 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.
8. Income Taxes
AWA is included in Holdings' consolidated income tax return. Income tax expense in the accompanying statements of operations has been determined on a
separate company basis.
AWA recorded income tax expense (benefit) as follows:
Year Ended December 31,
2004 2003 2002
(in thousands)
Current taxes:
Federal $ — $ 114 $ (30,544)
State 23 — —
Total current taxes 23 114 (30,544)
Deferred taxes — — —
Total income tax expense (benefit) $ 23 $ 114 $ (30,544)
AWA'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%.
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