US Airways 2008 Annual Report Download - page 43

Table of Contents
price of oil in the latter part of 2008. We are 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 $496 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.
• $76 million of net special charges, consisting of $35 million of merger related transition expenses, $18 million in non-cash
charges related to the decline in fair value of certain spare parts associated with our Boeing 737 aircraft fleet and as a result of
our capacity reductions, $14 million in lease return costs and penalties related to certain Airbus aircraft and $9 million in
severance charges.
• $8 million in gains on forgiveness of debt, offset by $7 million in write offs of debt discount and debt issuance costs due to the
refinancing of certain aircraft equipment notes and certain loan prepayments in connection with our 2008 financing transactions,
all included in nonoperating expense.
In 2007, we realized operating income of $533 million and income before income taxes of $434 million. Our 2007 results were
impacted by recognition of the following items:
• $187 million of net 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 fuel hedge transactions.
• $99 million of net special charges due to merger related transition expenses.
• 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.
• $7 million in tax credits due to an IRS rule change allowing us 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 in 2005 and a $5 million Piedmont pilot pension curtailment gain related to the FAA mandated pilot retirement
age change discussed above. These gains were offset in part by $5 million in charges related to reduced flying from Pittsburgh.
• 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 other than temporary impairment charges for our investments in auction rate securities, offset by a $17 million
gain recognized on the sale of stock in ARINC Incorporated, all included in nonoperating expense.
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. Our 2006 results were impacted by recognition of the following items:
• $70 million of net 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 fuel hedge transactions.
• $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.
• $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, $17 million in payments in connection with the inducement to convert $70 million of the 7% Senior Convertible Notes to
common stock and a $2 million write off of debt issuance costs associated with those converted notes, offset by $8 million of
interest income earned by AWA on certain prior year federal income tax refunds, all included in nonoperating expense.
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