Third Quarter 2006 Earnings Recap for employees
Today, US Airways reported financial results for the third quarter of 2006 (July through September). The airline reported a $78
million loss for the quarter; however, when $179 million in special items – like transition expenses and a fuel hedging loss – are
added back, the company made a profit of $101 million or $1.09 per diluted share, which compares to Wall Street's consensus
estimate of $1.01. Since the employee profit sharing fund is figured before special items, the company did set aside profit sharing
funds of nearly $12 million (10 percent of pre-tax, pre-bonus income excluding special items). Far more details are below, as
we explain the third quarter's income statement, an accounting of the quarter's sales, expenses and net profit or loss.
Money collected from the services that we provide is known as operating revenue. Items 1-4 are services that we provide
that bring money into the company. All figures are in millions, except the earnings per share number at the end.
1. Since we’re in the business of carrying passengers, it’s no big surprise that our largest revenue source is our customers.
Mainline revenue includes passenger revenue collected from all US
Airways mainline flights..................................................... ............$2,052
2. Our Express passengers – both from wholly owned and contract
Express carriers – are also an important source of revenue................ +$703
3. Cargo revenues include money received from transporting mail
and freight..................................................... ............................ +$40
4. In addition, operating revenue also comes from other sources like ground
handling for other airlines, interline handling fees, selling frequent flyer miles,
liquor sales and excess baggage fees........................................................ ....... +$173
From our operating revenue, the following costs must be subtracted. Items 5-15 are known as operating expenses.
5. At the top of the list is fuel, and in the third quarter fuel and related taxes made up
our largest single mainline expense..................................................... ............................... -$719
6. US Airways hedges about 50 percent of its fuel, eight to ten months into the future. Because fuel
prices fluctuate daily, the value of future hedges can go up and down. In this quarter, we booked
what's called an Unrealized hedging Loss. That means that the actual market price of fuel
was less than the price of our hedged position. While we didn't take an actual cash loss during the
quarter, we have to report the potential for future losses. If fuel prices had risen above the hedged
price, this would have been a gain (like we saw in the second quarter)......................................-$88
7. Salaries and related costs include compensation for all employees. This line would
also include Hat Trick and profit sharing (see 7a)............................... -$529
7a. Employee Profit Sharing is included in "salaries and related
costs." Although we reported a loss for this quarter, that loss
was due to special items, and profit sharing is figured excluding
special items. For Q3, the company will put $12 million towards
profit sharing, which now totals $48 million. If we're profitable at
year-end, 10 percent of the company's pre-tax, pre-bonus income
excluding special items will be distributed among employees
8. Next come Express expenses, which include the costs of the wholly owned subsidiaries,
and what we pay to purchase capacity from contract carriers................................................ -$653
From our operating revenue, the following costs must be subtracted. Items 5-15 are known as operating expenses.
7. Salaries and related costs include compensation for all employees. This line would
also include Hat Trick and profit sharing (see 7a)................................... -$529
9. We have to have something to fly, and we rent the majority of our fleet. These
charges are simply called aircraft rent............................................. -$181
10. The cost to maintain and repair our beautiful birds rolls up into
aircraft maintenance expenses.................................................... ... -$142
11. Other rent and landing fees includes rent for facilities at airports,
airports' landing fees, etc......................................................... ......................... -$146
12. Selling expenses include the distribution costs such as credit card fees and fees we
pay to the global distribution systems (Sabre, Apollo, etc.), as well as advertising expenses
............................................................ ............................................................ .... -$120
13. Special Items, net for our third quarter 2006 includes merger-related transition
expenses.................................................... ............................................................ -$27
14. Depreciation and amortization is the allowance for the usage of aircraft parts, office equipment, ground equipment,
and any other assets that the company owns and that we expense over the lifetime of the asset................................ -$42
15. Finally, other expenses include things like hotels, per diem, telephone and utility costs, etc................................. -$305
But this isn’t the end of the story. Next, we must bring our Non-
Operating Expenses and Income into the equation.
16. Interest earned from money that we have in the bank is known as
interest income...................................................... ............................ +$45
17. We incur expenses for borrowed money (debt), and this falls into
interest expense..................................................... ............................. -$74
18. Finally, we incur Other non-operating expenses............................. -$4
19. Next up, Uncle Sam. Without getting too technical, due to the accounting rules
surrounding the merger, US Airways is able to use $59 million of accumulated losses
from the "old" US Airways, which offsets an equivalent amount of goodwill (assets) on
the balance sheet. Therefore, we are taking a non-cash charge of $59 million in addition
to our regular taxes. This does not affect profit sharing.................................................-$61