$7,712 Cargo and freight 168 181 Other 694 621 Total operating revenues 8.688 8,514 Operating expenses Personnel costs Aviation fuel Commissions Aircraft rent Other rent and landing fees Aircraft maintenance Other selling expenses Depreciation and amortization Other Total operating expense Operating income Other income (expense) Interest income Interest expense Interest capitalized Equity in earnings of affiliates Gains on sales of interests in affiliates Other, net Other income lexpense), net Income before taxes Provision (credit) for income taxes Net income Preferred dividend requirement Eamings applicable to common stockholders Earnings per common share Basic 1997 3,179 805 595 475 420 451 346 401 1,258. 7,930 584 108 (256) 13 30 180 13 88 (353) 1,025 (64) $ 961 $12.32 $ 9.87

a. Reported operating income before interest and taxes increased by 73.6 percent in 1998 over 1997 while revenues increased by only 2.0 percent. Why?

b. Despite the increase in operating income, net income available to common dropped by 44.6 percent. Why?

c. What might explain the negative tax expense in 1997? The following from the tax face- note might help you: 1997 1996 Deferred tax assets (n thousands) Leasing transactions $ 170,966 $ 154,732 Tax benefits purchased/sold 31,352 43,441 Gain on sale and leaseback transactions 125,169 135,308 Employee benefits 683,416 608,948 Net operating loss carryforwards 193,575 540,495 Alternative minimum tax credit carryforwards 158,441 33,459 Investment tax credit carryforwards 17,841 49,802 Other deferred tax asses 94,640 82,744 Total gross deferred tax assets 1,475,400 1,648,929 Less valuation allowance Net deferred tax assets (1.377) 1,474,023 (643,546) 1,005,383 1997 1996 Deferred tax liabilities Equipment depreciation and amortization 940,784 966,874 Other deferred tax liabilities 62,791 Total deferred tax liabilities 1,003,575 45,415 1,012,289 Net deferred tax liabilities (assets) (470 448) $ 6,906

d. If you were to forecast net income for 1999, would you rely on the 1998 or 1997 net income as an indication of "sustainable" income? Real World Connection See Exercise E12.11 in this chapter for more material on US Airways.