US Airways 2007 Annual Report Download - page 40

Table of Contents
for hedge accounting established by SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." If these instruments
had qualified for hedge accounting treatment, any unrealized gains or losses, including the $187 million discussed above, would have
been deferred in other comprehensive income, a component of stockholders' equity, until the jet fuel is purchased and the underlying fuel
hedging instrument is settled. Given the market volatility of jet fuel, the fair value of these fuel hedging instruments is expected to change
until settled. Operating results in the 2007 period also include $99 million of net special charges due to merger related transition
expenses, as well as a $99 million charge for an increase to long-term disability obligations for US Airways' pilots as a result of a change
in the FAA mandated retirement age for pilots from 60 to 65 and $5 million in charges related to our plans to reduce flying from
Pittsburgh. These charges were offset by $7 million in tax credits due to an IRS rule change allowing the Company to recover certain fuel
usage tax amounts for years 2003-2006, $9 million of insurance settlement proceeds related to business interruption and property
damages incurred as a result of Hurricane Katrina and a $5 million Piedmont pilot pension curtailment gain related to the FAA mandated
pilot retirement age change discussed above.
Nonoperating expense in the 2007 period includes an $18 million write-off of debt issuance costs in connection with the refinancing
of the $1.25 billion GE loan in March 2007 and $10 million in impairment losses on certain available for sale auction rate securities
considered to be other than temporary, offset by a $17 million gain recognized on the sale of stock in ARINC Incorporated. The
refinancing of the GE loan is discussed in more detail under "Liquidity and Capital Resources — Commitments."
In 2006, we realized operating income of $558 million and income before income taxes and cumulative effect of change in
accounting principle of $404 million. Included in these results is $79 million of net losses associated with fuel hedging transactions. This
includes $70 million of unrealized losses resulting from the application of mark-to-market accounting for changes in the fair value of fuel
hedging instruments as well as $9 million of net realized losses on settled hedge transactions. Operating results in the 2006 period also
include $27 million of net special charges, consisting of $131 million of merger related transition expenses, offset by a $90 million credit
related to the restructuring of the then existing Airbus aircraft order and $14 million of credits related to the settlement of certain
bankruptcy-related claims.
Nonoperating expense in the 2006 period includes $6 million of expense related to prepayment penalties and $5 million in
accelerated amortization of debt issuance costs in connection with the refinancing of the loan previously guaranteed by the ATSB and
two loans previously provided to AWA by GECC, as well as $17 million in payments in connection with the inducement to convert
$70 million of the 7% Senior Convertible Notes to common stock, a $2 million write off of debt issuance costs associated with those
converted notes and $8 million of interest income earned by AWA on certain prior year federal income tax refunds.
In 2005, we realized operating losses of $217 million and a loss before income taxes and cumulative effect of change in accounting
principle of $335 million. In 2005, America West Holdings 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, or $6.41 per common share. See Note 3, "Change in Accounting Policy for Maintenance
Costs," to the consolidated financial statements in Item 8A of this report.
Included in the 2005 results is $75 million of net gains associated with fuel hedging transactions. This includes $71 million of net
realized gains on settled hedge transactions as well as $4 million of unrealized gains resulting from the application of mark-to-market
accounting for changes in the fair value of fuel hedging instruments. Operating results in the 2005 period also include $121 million of
special charges, including $28 million of merger related transition expenses, a $27 million loss on the sale-leaseback of six Boeing
737-300 aircraft and two Boeing 757 aircraft, $7 million of power by the hour program penalties associated with the return of certain
leased aircraft, $1 million of severance payments for terminated employees resulting from the merger, a $1 million charge related to
certain aircraft removed from service and a $50 million charge related to an amended Airbus purchase agreement, along with the write off
of $7 million in capitalized interest. The Airbus restructuring fee was paid by means of set-off against existing equipment purchase
deposits held by Airbus.
Nonoperating expense in the 2005 period includes $8 million of expenses 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
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