US Airways 2005 Annual Report Download - page 201

Table of Contents
America West Airlines, Inc.
Notes to Consolidated Financial Statements — (Continued)
Composition of Deferred Tax Items
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. As of December 31, the significant components of AWA's deferred tax assets and liabilities are a
result of the temporary differences related to the items described as follows (in millions):
2005 2004
Deferred tax assets:
Net operating loss carryforwards $ 235 $ 183
Aircraft leases 13 13
Employee benefits 21 13
Frequent flyer accrual 4 7
Restructuring and other reserves 3 4
Tax credit carryforwards 1 1
Other 1 3
Gross deferred tax assets 278 224
Deferred tax liabilities:
Accelerated depreciation and amortization 9 (95)
Partnership losses (1) (2)
Other (2) —
Gross deferred tax liabilities 6 (97)
Net deferred tax assets before valuation allowance 284 127
Less valuation allowance (284) (127)
Net deferred liability $ — $ —
SFAS No. 109, "Accounting for Income Taxes," ("SFAS 109") requires that a valuation allowance be established when it is "more likely than not" that all
or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including AWA's
performance, the market environment in which AWA operates, forecasts of future profitability, the utilization of past tax credits, length of carryforward
periods and similar factors. SFAS 109 further states that it is difficult to conclude that a valuation allowance is not needed when there is negative evidence
such as cumulative losses in recent years. Therefore, cumulative losses weigh heavily in the overall assessment.
AWA was in a cumulative loss position three out of four years between December 31, 2002 through December 31, 2005, which weighed heavily in the
overall determination that a valuation allowance was needed. AWA expects to continue to record a full valuation allowance on any future tax benefits until it
has achieved several quarters of consecutive profitable results coupled with an expectation of continued profitability. As of December 2005 and 2004, the
valuation allowance totaled $284 million and $127 million, respectively.
11. Employee Benefit Plan
America West Holdings has a 401(k) defined contribution plan, covering essentially all employees of AWA. Participants may contribute from 1 to 50% of
their pretax earnings to a maximum of $14,000 in 2005. AWA's matching contribution is determined annually by the Board of Directors. AWA's
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