US Airways 2005 Annual Report Download - page 246

Table of Contents
US Airways, Inc.
Notes to the Financial Statements — (Continued)
2005, (ii) a 6.00% note payable for $10 million, and (iii) 70%, or 4,873,485 shares, of the unsecured creditors stock, net of the shares allocated to ALPA,
valued at $57 million. Accordingly, US Airways eliminated the $948 million liability related to the three terminated plans, including the minimum liability
adjustment, and recognized a net settlement gain of $868 million. This gain is included in reorganization items, net in the statements of operations.
During hearings in late 2004 and January 2005, the Bankruptcy Court approved various settlement agreements between US Airways and its unions, and
between US Airways and the court-appointed Section 1114 Committee (representing retirees not represented by the unions) to begin the significant
curtailments of postretirement benefits. Effective March 1, 2005, those benefits were significantly reduced. US Airways re-measured its postretirement benefit
obligation based on the new terms, which resulted in a reduction in the postretirement benefit obligation of approximately $1.1 billion and a curtailment gain
of $183 million. Since the remeasurement and reduction of the postretirement benefit obligation created a significant unrecognized prior service gain,
US Airways recognized net periodic other postretirement benefit income until the emergence from bankruptcy on September 27, 2005. In accordance with
SOP 90-7, US Airways revalued its postretirement benefit obligation on emergence, and adjusted its liability to $229 million, a reduction of $1.25 billion. Of
this, a $1.24 billion gain, including the recognition of the unamortized portion of the prior service gain created as a result of the benefit curtailment, is
included in reorganization items, net in the statement of operations. Adjustments made subsequent to September 30, 2005 totaling $10 million were made
directly to goodwill.
In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Medicare Prescription Drug Act") became law in
the United States. The Medicare Prescription Drug Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of
retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the Medicare benefit. US Airways elected to recognize the
effects of the Medicare Prescription Drug Act in the quarter ended June 30, 2004, as permitted by FASB Staff Position FAS 106-2, "Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003."
The recognition of this subsidy resulted in a reduction in expense of $20 million for the year ended December 31, 2004 and a $198 million actuarial gain
that was subject to amortization, based over the remaining period to expected retirement. Significant assumptions included in the re-measurement of the
accumulated postretirement benefit obligation were a 6.25% discount rate and a reduction in retiree participation in the company-sponsored plan as certain
defined drug benefit caps make the plan more costly to retirees than Medicare.
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