US Airways 2007 Annual Report Download - page 100

Table of Contents
US Airways Group, Inc.
Notes to Consolidated Financial Statements — (Continued)
The reorganization of the Company and merger with America West Holdings on September 27, 2005 resulted in a statutory
"ownership change" as defined for purposes of Section 382 of the Internal Revenue Code. When a company undergoes such an
ownership change, Section 382 limits the company's future ability to utilize any NOL generated before the ownership change and certain
subsequently recognized "built-in" losses and deductions, if any, existing as of the date of the ownership change. As a result of the
merger, a significant portion of US Airways Group's common stock was beneficially owned by a small number of equity investors. Due
to sales by some of these investors and purchases by other investors since the merger, an "ownership change" occurred in February 2007
for US Airways Group, as that term is defined in Section 382 of the Internal Revenue Code. Accordingly, the Company's annual use of its
NOL that existed as of the date of the ownership change is limited. The Company's ability to utilize any new NOL arising after the
February 2007 ownership change is not affected.
As of December 31, 2007, the Company has approximately $761 million of gross NOL to reduce future federal taxable income. Of
this amount, approximately $649 million is available to reduce federal taxable income in the calendar year 2008. The NOL expires during
the years 2022 through 2025. The Company's deferred tax asset, which includes the $649 million of NOL discussed above, has been
subject to a full valuation allowance. The Company also has approximately $63 million of tax affected state NOL as of December 31,
2007.
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.
Throughout 2006 and 2007, the Company utilized NOL that was generated prior to the merger. Utilization of the NOL results in a
corresponding decrease in the valuation allowance. In accordance with SFAS No. 109, as this valuation allowance was established
through the recognition of tax expense, the decrease in valuation allowance offsets the Company's tax provision dollar for dollar. The
Company recognized $7 million and $85 million of non-cash tax expense for the years ended December 31, 2007 and 2006, respectively,
as the Company utilized NOL that was generated by US Airways prior to the merger. In accordance with SFAS No. 109, as this was
acquired NOL, the decrease in the valuation allowance associated with this NOL reduced goodwill instead of the provision for income
taxes. At December 31, 2007, the remaining federal valuation allowance is $32 million, all of which was established through the
recognition of tax expense. In addition, the Company has $37 million and $4 million, respectively, of unrealized federal and state tax
benefit related to amounts recorded in other comprehensive income. The remaining state valuation allowance is $45 million, of which
$21 million was established through the recognition of tax expense and $24 million is associated with acquired NOL.
The Company is subject to Alternative Minimum Tax liability ("AMT"). In most cases, the recognition of AMT does not result in
tax expense. However, since the Company's net deferred tax asset is subject to a full valuation allowance, any liability for AMT is
recorded as tax expense. The Company recorded AMT expense of $1 million and $10 million for the years ended December 31, 2007 and
2006, respectively. The Company also recorded $1 million and $2 million of state income tax related to certain states where NOL was not
available or limited, for the years ended December 31, 2007 and 2006, respectively.
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