US Airways 2005 Annual Report Download - page 240

Table of Contents
US Airways, Inc.
Notes to the Financial Statements — (Continued)
affiliates, and was recorded as a reduction to operating expenses during the second quarter of 2003. In September 2003, US Airways received approximately
$6 million of compensation associated with flight deck door expenditures, which was recorded as an offset to capital costs.
(c) Gain on sale of Hotwire, Inc.
In 2003, US Airways recorded a $30 million gain on the sale of its investment in Hotwire, Inc. The gain is reflected in other, net within nonoperating
income (expense) on the statement of operations.
5. 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 share 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 per share 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.
US Airways utilizes fixed price swap agreements and other similar instruments to manage its exposure related to jet fuel price changes. For the year ended
December 31, 2004, the nine months ended 2003 and the three months ended March 31, 2003, US Airways recognized gains of approximately $130 million,
$14 million and $27 million, respectively, related to its fuel hedging activities. During the three months ended March 31, 2003, the gain included $4 million
related to hedge ineffectiveness. These recognized gains were primarily included in aircraft fuel and related taxes on the statements of operations. As of
December 31, 2005 and 2004, US Airways had no open fuel hedge positions in place. At December 31, 2004, US Airways had $22 million of unrealized gains
related to previously liquidated fuel hedge positions. During the nine months ended September 30, 2005, US Airways realized $17 million of the gain as a
reduction to aircraft fuel expense. The remaining US Airways $5 million was recognized as a gain in reorganization items, net as part of fresh-start reporting.
(b) Fair value of financial instruments
The carrying amount of cash equivalents, restricted cash and short-term investments approximates fair value. US Airways estimated the fair values of its
note receivable and long-term debt by discounting expected future cash flows using current rates offered to US Airways for notes receivable and debt with
similar maturities. The estimated fair value of the remaining SHC Stock Options (including the clawback provision) was calculated using the Black-Scholes
model. The fair values of the fuel contracts were obtained from dealer quotes. These values represent the estimated amount US Airways would receive or pay
to terminate such agreements as of the valuation date. 234