US Airways 2007 Annual Report Download - page 65

Table of Contents
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, 2007, we had
$241 million in deferred revenue from the sale of mileage credits included in other accrued liabilities on our balance sheet. 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 8B 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, 2007, US Airways Group has a full valuation allowance against its 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
2007, 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 expense.
Recent Accounting and Reporting Developments
In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB
Statement No. 109" ("FIN 48"), which clarifies the accounting for uncertainty in income taxes recognized in a company's financial
statements. The interpretation prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adopted the provisions of
FIN 48 on January 1, 2007. The implementation of FIN 48 did not have a material impact on our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This standard defines fair value, establishes a
framework for measuring fair value in accounting principles generally accepted in the United States of America, and expands disclosure
about fair value measurements. This pronouncement applies to other accounting standards that require or permit fair value measurements.
Accordingly, this statement does not
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