US Airways 2007 Annual Report Download - page 89

Table of Contents
US Airways Group, Inc.
Notes to Consolidated Financial Statements — (Continued)
(c) In 2005, a $27 million loss was incurred related to the sale-leaseback of six Boeing 737-200 aircraft and two Boeing 757 aircraft.
(d) In 2005, in connection with the return of certain leased aircraft, AWA incurred expenses of $7 million related to penalties incurred
under an outsourced maintenance arrangement.
(e) In 2005, AWA recorded severance expense totaling approximately $2 million for terminated employees resulting from the merger.
(f) In 2004, AWA entered into definitive agreements with two lessors to return six Boeing 737-200 aircraft. Three of these aircraft
were returned to the lessors in the third quarter of 2004, two were returned in the fourth quarter of 2004 and one was returned in
January 2005. In the first quarter of 2005, AWA recorded $1 million in special charges related to the final Boeing 737-200 aircraft,
which was removed from service in January 2005.
(g) In 2006, the Company recognized $14 million in gains in connection with the settlement of bankruptcy claims, which includes
$11 million related to a settlement with Bombardier.
6. Financial instruments
(a) General
On January 1, 1998, as part of a comprehensive information technology services agreement with Sabre, US Airways was granted
two tranches of stock options ("SHC Stock Options") to acquire up to 6,000,000 shares of Class A Common Stock, $0.01 par value, of
Sabre Holdings Corporation ("SHC Common Stock"), Sabre's parent company. Each tranche included 3,000,000 stock options. In
December 1999, US Airways exercised the first tranche of stock options at an exercise price of $27 per option and received proceeds of
$81 million in January 2000 in lieu of receiving SHC Common Stock. In February 2000, SHC declared a cash dividend resulting in a
dilution adjustment to the terms of the second tranche. The adjusted terms of the second tranche include stock options to acquire
3,406,914 shares of SHC Common Stock at an exercise price of $23.78 subject to a $111.83 per share cap on the fair market value of the
underlying common stock. On December 12, 2006, Sabre announced that it had agreed to be acquired by several private equity groups for
$32.75 per share in cash. The acquisition of Sabre was completed during March 2007 at which time the remaining options were exercised
and the related shares were sold. The Company received proceeds of $31 million in connection with the transaction. Realized gains
resulting from the exercise of Sabre options are subject to a clawback provision. Under the clawback provision, if US Airways elects to
terminate its information technology service agreement with Sabre, it will be required to pay Sabre an amount equal to the gain
multiplied by the ratio of the remaining months in the contract period over 180 months. The deferred gain from the 1999 and 2007
exercises is amortized on a straight-line basis over a contractually determined period ending December 2012. As of December 31, 2007,
US Airways had $34 million of unamortized deferred gain related to the sale of Sabre options.
(b) Fuel Price Risk Management
As of December 31, 2007, the Company had entered into costless collar transactions hedging approximately 22% of the Company's
projected 2008 fuel requirements. The fair value of the financial derivative instruments was a net asset of $121 million recorded in
prepaid expenses and other at December 31, 2007 and a net liability of $66 million recorded in accounts payable at December 31, 2006.
As of December 31, 2007, US Airways had no deposits held as collateral on open fuel hedge positions as these deposits are only required
when the fair value of the hedges is in a liability position.
The Company is exposed to credit risks in the event any counterparty to a hedge transaction fails to meet its obligations. The
Company does not anticipate such non-performance as counterparties are selected based on credit ratings and exposure to any one
counterparty is closely monitored.
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