US Airways 2006 Annual Report Download - page 73

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redeemed on partner airlines. A 1% increase or decrease in the percentage of awards redeemed on partner airlines would have a
$10 million impact on the liability as of December 31, 2006.
On January 31, 2007, we changed our program regarding active membership status to require, members to have either earned or
redeemed miles within a consecutive 18 month period to maintain active membership status. Prior to the change in the program, members
were granted a 36 month period to maintain active status.
US Airways also sells mileage credits to participating airline partners and non-airline business partners. Revenue earned from
selling mileage credits to other companies is recognized in two components. A portion of the revenue from these sales is deferred,
representing the estimated fair value of the transportation component of the sold mileage credits. The deferred revenue for the
transportation component is amortized on a straight-line basis over the period in which the credits are expected to be redeemed for travel
as passenger revenue, which is currently estimated to be 28 months. The marketing component, which is earned at the time the miles are
sold, is recognized in other revenues at the time of the sale. As of December 31, 2006, we had $220 million in deferred revenue from the
sale of mileage credits included in other accrued liabilities on our balance sheet. Of this amount, $11 million and $209 million were
reflected on the respective balance sheets of AWA and US Airways. A change to either the period over which the credits are used or the
estimated fair value of credits sold could have a significant impact on revenue in the year of change as well as future years.
Fresh-start Reporting and Purchase Accounting
In connection with its emergence from bankruptcy on September 27, 2005, US Airways adopted fresh-start reporting in accordance
with SOP 90-7. Accordingly, US Airways valued its assets, liabilities and equity at fair value. In addition, as a result of the merger, which
is accounted for as a reverse acquisition under SFAS No. 141 "Business Combinations" ("SFAS 141"), with America West Holdings as
the accounting acquirer, US Airways Group applied the provisions of SFAS 141 and allocated the purchase price to the assets and
liabilities of US Airways Group and to its wholly owned subsidiaries including US Airways. The purchase price or value of the merger
consideration was determined based upon America West Holdings' traded market price per share due to the fact that US Airways Group
was operating under bankruptcy protection. The $4.82 per share value was based on the five-day average share price of America West
Holdings, with May 19, 2005, the merger announcement date, as the midpoint. US Airways' equity value of $1 million was determined
based on an allocation of the purchase price to each of US Airways Group subsidiaries' fair values of assets and liabilities. The remaining
equity of $116 million was assigned to US Airways Group's and its other subsidiaries. US Airways engaged an outside appraisal firm to
assist in determining the fair value of the long-lived tangible and identifiable intangible assets and certain noncurrent liabilities. The
foregoing estimates and assumptions are inherently subject to significant uncertainties and contingencies beyond the control of
US Airways. Accordingly, we cannot assure you that the estimates, assumptions, and values reflected in the valuations will be realized,
and actual results could vary materially.
See Note 2(b) to the US Airways financial statements in Item 8C of this Form 10-K for further detail related to the fresh-start fair-
value and purchase accounting adjustments.
Deferred Tax Asset Valuation Allowance
At December 31, 2006, US Airways Group and AWA have each recorded a full valuation allowance against their net deferred tax
assets. In assessing the realizability of the deferred tax assets, we considered whether it was more likely than not that all or a portion of
the deferred tax assets will not be realized, in accordance with SFAS No. 109, "Accounting for Income Taxes." We utilized NOL in lieu
of cash income tax in 2006, a portion of which was reserved by a valuation allowance. The use of the NOL permitted the reversal of the
valuation allowance which reduced income tax expenses. In 2007 we expect to utilize additional NOL and as a result, the remaining
valuation allowance may be reduced to zero.
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