US Airways 2006 Annual Report Download - page 197

Table of Contents
US Airways, Inc.
Notes to the Financial Statements — (Continued)
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 remeasurement 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.
As discussed in Note 1, effective December 31, 2006, US Airways adopted the recognition provisions of SFAS No. 158. In
accordance with SFAS 158, US Airways recognized a liability for the underfunded status of its postretirement benefit plans of
$212 million of which $183 million is noncurrent. Additionally, US Airways recorded in accumulated other comprehensive income the
prior service cost and net actuarial gain of its plans. Future changes to the funded status of these plans will be recognized in the year in
which the change occurs through other comprehensive income. The impact of adoption of SFAS 158 was not material and the amount
recorded to other comprehensive income was nominal.
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