US Airways 2008 Annual Report Download - page 104

Table of Contents
US Airways Group, Inc.
Notes to Consolidated Financial Statements — (Continued)
5. Income taxes
The Company accounts for income taxes using the asset and liability method. The Company files a consolidated federal income tax
return with its wholly owned subsidiaries. The Company and its wholly owned subsidiaries allocate tax and tax items, such as net
operating losses ("NOL") and net tax credits, between members of the group based on their proportion of taxable income and other items.
Accordingly, the Company's tax expense is based on taxable income, taking into consideration allocated tax loss carryforwards/
carrybacks and tax credit carryforwards.
The Company reported a loss for 2008, which increased its NOL, and has not recorded a tax provision for 2008. As of
December 31, 2008, the Company has approximately $1.49 billion of gross NOL to reduce future federal taxable income. Of this amount,
approximately $1.44 billion is available to reduce federal taxable income in the calendar year 2009. The NOL expires during the years
2022 through 2028. The Company's deferred tax asset, which includes $1.41 billion of the NOL discussed above, has been subject to a
full valuation allowance. The Company also has approximately $77 million of tax-effected state NOL as of December 31, 2008.
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.
At December 31, 2008, the federal valuation allowance is $568 million, all of which will reduce future tax expense when
recognized. The state valuation allowance is $82 million, of which $58 million was established through the recognition of tax expense.
The remaining $24 million was established in purchase accounting. Effective January 1, 2009, the Company adopted SFAS No. 141R. In
accordance with SFAS No. 141R, all future decreases in the valuation allowance established in purchase accounting will be recognized as
a reduction of tax expense. In addition, the Company has $23 million and $2 million, respectively, of unrealized federal and state tax
benefit related to amounts recorded in other comprehensive income.
Throughout 2006 and 2007, the Company utilized NOL that was generated by US Airways prior to the merger. Utilization of the
NOL results in a corresponding decrease in the valuation allowance. 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. As this was acquired NOL, the decrease in the valuation allowance
associated with this NOL reduced goodwill instead of the provision for income taxes.
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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