US Airways 2006 Annual Report Download - page 113

Table of Contents
US Airways Group, Inc.
Notes to Consolidated Financial Statements — (Continued)
(d) Profit Sharing Plans
Most non-executive employees of US Airways Group are eligible to participate in the 2005 Profit Sharing Plan, an annual bonus
program, which was established subsequent to the merger. Annual bonus awards are paid from a profit-sharing pool equal to (i) ten
percent of the annual profits of US Airways Group (excluding unusual items) for pre-tax profit margins up to ten percent, plus (ii) 15% of
the annual profits of US Airways Group (excluding unusual items) for pre-tax profit margins greater than ten percent. Awards are paid as
a lump sum no later than March 15 after the end of each fiscal year. The profit-sharing pool is shared among eligible employee groups in
proportion to each group's share of overall cost savings achieved through US Airways' 2005 transformation plan; however, the
represented pilots' and flight attendants' portions of the pool will not be less than 36% and 14.5%, respectively. An employee's share of
the pool is based on the ratio that the employee's compensation bears to the respective employee group's aggregate compensation. The
Company recorded $59 million for profit sharing in 2006, which is recorded in salaries and related costs.
9. Income Taxes
The Company accounts for income taxes according to the provisions in SFAS No. 109, "Accounting for Income Taxes." The
Company files a consolidated federal income tax return with its wholly owned subsidiaries. The Company and its wholly owned
subsidiaries allocate tax and tax items, such as net operating losses ("NOL") and net tax credits, between members of the group based on
their proportion of taxable income and other items. Accordingly, the Company's tax expense is based on taxable income, taking into
consideration allocated tax loss carryforwards/carrybacks and tax credit carryforwards.
In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will be realized. The Company has recorded a valuation allowance against its net deferred tax asset. The
ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (including reversals of deferred tax
liabilities) during the periods in which those temporary differences will become deductible.
As of December 31, 2006, US Airways Group has available NOL and tax credit carryforwards for federal income tax purposes of
approximately $980 million and $37 million, respectively. The NOL expires during the years 2022 through 2025. Accordingly,
approximately $795 million of the NOL is available to shelter federal taxable income in the calendar year 2007.
During 2006, US Airways utilized NOL that was generated prior to the merger. In accordance with SFAS No. 109, as this was
acquired NOL, the corresponding decrease in the valuation allowance reduced goodwill instead of the provision for income taxes.
Accordingly, the Company recognized $85 million of non-cash tax expense for the year ended December 31, 2006. As of December 31,
2006, the remaining valuation allowance associated with acquired NOL is $29 million related to state NOL.
The Company is subject to Alternative Minimum Tax liability ("AMT") for the full year 2006. In most cases, the recognition of
AMT does not result in tax expense. However, since the Company's NOL was subject to a full valuation allowance, any liability for AMT
is recorded as tax expense. The Company recorded AMT expense of $10 million for the year ended December 31, 2006. The Company
also recorded $2 million of state income tax related to certain states where NOL was not available or limited, for the year ended
December 31, 2006.
US Airways is part of the US Airways Group consolidated income tax return for the tax year ended December 31, 2006. AWA is
included in America West Holdings' consolidated income tax returns for the periods ending on December 31, 2004 and for the period
beginning January 1, 2005 and ending on September 27, 2005, the date of the merger. America West Holdings and AWA, as part of the
merger, became members of the consolidated US Airways Group on September 28, 2005. The current tax provision for the year ended
December 31, 2006 was prepared in accordance with this tax return methodology.
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