US Airways 2007 Annual Report Download - page 47

Table of Contents
were also transferred to US Airways. This transaction constituted a transfer of assets between entities under common control and was
accounted for at historical cost.
Transfers of assets between entities under common control are accounted for similar to the pooling of interests method of
accounting. Under this method, the carrying amount of net assets recognized in the balance sheets of each combining entity are carried
forward to the balance sheet of the combined entity, and no other assets or liabilities are recognized as a result of the contribution of
shares. This management's discussion and analysis of financial condition and results of operations is presented as though the transfer had
occurred at the time of US Airways' emergence from bankruptcy. Therefore, the Successor Company consolidated statements of
operations, cash flows and shareholder's equity for US Airways for the three month period ended December 31, 2005 in this report are
comprised of the results of US Airways and America West Holdings. The Predecessor Company statements of operations for US Airways
for the nine month period ended September 30, 2005 remain unchanged.
In 2007, US Airways realized operating income of $524 million and income before income taxes of $485 million. Included in these
results is $245 million of net gains associated with fuel hedging transactions. This includes $187 million of unrealized gains resulting
from the application of mark-to-market accounting for changes in the fair value of fuel hedging instruments as well as $58 million of net
realized gains on settled hedge transactions. US Airways is required to use mark-to-market accounting as our existing fuel hedging
instruments do not meet the requirements 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 stockholder's 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 $4 million in charges related
to the plans to reduce flying from Pittsburgh. These charges were offset by $7 million in tax credits due to an IRS rule change allowing
US Airways to recover certain fuel usage tax amounts for years 2003-2006 and $9 million of insurance settlement proceeds related to
business interruption and property damages incurred as a result of Hurricane Katrina.
Nonoperating expense in the 2007 period includes a $17 million gain recognized on the sale of stock in ARINC Incorporated, offset
by $10 million in impairment losses on certain available for sale auction rate securities considered to be other than temporary.
In 2006, US Airways realized operating income of $557 million and income before income taxes and cumulative effect of change in
accounting principle of $446 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 $38 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 $3 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 and $8 million of interest income earned by AWA on certain prior year federal income
tax refunds.
In 2005, US Airways realized an operating loss of $325 million and income before income taxes of $22 million. Included in these
results is $50 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 offset by $20 million of net
realized gains on settled hedge transactions. Operating results in the 2005 period include $36 million of net special charges, including
$28 million in merger related transition costs and $7 million in power by the hour program penalties.
45