US Airways 2006 Annual Report Download - page 44

Table of Contents
US Airways Group did not record an income tax benefit for the years ended December 31, 2005 and 2004 and recorded a full
valuation allowance on any future tax benefits generated in those periods as we had yet to achieve several consecutive quarters of
profitable results coupled with an expectation of continued profitability.
AWA's Results of Operations
In 2006, AWA realized operating losses of $35 million and a loss before income taxes and cumulative effect of change in
accounting principle of $33 million. Included in these results is $79 million of net losses associated with its fuel hedging transactions.
This includes $9 million of net realized losses on settled hedge transactions and $70 million of unrealized losses resulting from the
application of mark-to-market accounting for changes in the fair value of fuel hedging instruments.
The 2006 results include $17 million of net special charges, including $68 million of merger related transition expenses offset in
part by a credit of $51 million related to the Airbus restructuring. The 2006 results also include nonoperating expenses of $11 million
related to $6 million for prepayment penalties and an aggregate $5 million write off of debt issuance costs in connection with our
refinancing of the ATSB and GECC loans.
In 2005, AWA realized operating losses of $120 million and a loss before income taxes and cumulative effect of change in
accounting principle of $195 million. In 2005, AWA changed its accounting policy for certain maintenance costs from the deferral
method to the direct expense method as if that change occurred January 1, 2005. This resulted in a $202 million loss from the cumulative
effect of a change in accounting principle. See Note 2, "Change in Accounting Policy for Maintenance Costs," to AWA's consolidated
financial statements in Item 8B of this report.
AWA's 2005 results include $75 million of net gains associated with its fuel hedging transactions. This includes $71 million of net
realized gains on settled hedge transactions and $4 million of unrealized gains resulting from the application of mark-to-market
accounting for changes in the fair value of fuel hedging instruments.
The 2005 results include $106 million of special charges, including $13 million of merger related transition expenses, a $27 million
loss on the sale and leaseback of six 737-300 aircraft and two 757 aircraft, $7 million of power by the hour program penalties associated
with the return of certain leased aircraft and a $50 million charge related to an amended Airbus purchase agreement, along with
$7 million in capitalized interest. The Airbus restructuring fee was paid by means of setoff against existing equipment purchase deposits
held by Airbus. The 2005 results also include nonoperating expenses of $8 million related to the write-off of the unamortized value of the
ATSB warrants upon their repurchase in October 2005 and an aggregate $2 million write-off of debt issuance costs associated with the
exchange of the 7.25% Senior Exchangeable Notes due 2023 and retirement of a portion of the loan formerly guaranteed by the ATSB.
In 2004, AWA realized operating losses of $16 million and a loss before income taxes and cumulative effect of change in
accounting principle of $85 million. Included in these results was a $16 million net credit associated with the termination of the rate per
engine hour agreement with General Electric Engine Services for overhaul maintenance services on V2500-A1 engines. This credit was
partially offset by $2 million of net charges related to the return of certain Boeing 737-200 aircraft, which includes termination payments
of $2 million, the write-down of leasehold improvements and deferred rent of $3 million, offset by the net reversal of maintenance
reserves of $3 million related to the returned aircraft.
The 2004 results also include a $24 million net gain on derivative instruments associated with AWA's fuel hedging program. This
amount includes $26 million of realized gains on settled hedge transactions and $2 million of unrealized losses resulting from
mark-to-market accounting for changes in the fair value of AWA's fuel hedging instruments. A $6 million charge arising from the
resolution of pending litigation, a $5 million loss on the sale and leaseback of two new Airbus aircraft and a $1 million charge for the
write-off of debt issuance costs in connection with the refinancing of the term loan were also recognized in 2004.
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