Airtran 2005 Annual Report Download - page 32

:: REVENUE RECOGNITION : :
Passenger revenue is recognized when transportation is provided. Ticket sales for transportation which has not yet been provided are recorded as air traffic liability. Air traffic liability represents tickets sold for future
travel dates. Nonrefundable tickets expire one year from the date the ticket is purchased. A percentage of tickets expire unused. We estimate the amount of future exchanges, net of forfeitures, for all unused
tickets once the flight date has passed. These estimates are based on historical experience. Passenger traffic commissions and related fees are expensed when the related revenue is recognized. Passenger traffic
commissions and related fees not yet recognized are included as a prepaid expense.
:: FREQUENT FLYER PROGRAM : :
We accrue a liability for the estimated incremental cost of providing free travel for awards earned under our A+ Rewards Program based on awards we expect to be redeemed. We adjust this liability based on points
earned and redeemed as well as for changes in the estimated incremental costs.
Points under our A+ Rewards Program may also be earned using our branded credit cards. A prorated portion of revenue earned from this credit card is deferred, based on estimates of fair value of tickets to be
redeemed and recognized as passenger revenue when transportation is likely to be provided. Amounts received in excess of the tickets’ fair values are recognized in income currently.
:: STOCK-BASED COMPENSATION : :
We grant stock options and restricted awards from time to time to certain of our officers, directors and key employees. We account for stock option grants in accordance with Accounting Principles Board Opinion No.
25 (APB 25), “Accounting for Stock Issued to Employees,” and related interpretations and accordingly only recognize compensation expense for stock options granted where the market price of the underlying stock
exceeds the exercise price of the stock option on the date of grant.
Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation,” provides an alternative to APB 25 in accounting for stock-based compensation issued to employees.
The following table illustrates the effect on net income and earnings per common share if we had applied the fair value method to measure stock-based compensation, which is described more fully in Note 10, as
required under the disclosure provisions of SFAS 123.
For Year Ended December 31,
(In thousands, except per share data) 2005 2004 2003
Net income, as reported $ 1,722 $12,255 $100,517
Add: Stock-based employee compensation expense included in
reported income, net of related tax effects 2,059 1,500 —
Deduct: Stock-based employee compensation expense determined
under the fair value based method, net of related tax effects (3,891) (3,815) (5,425)
Pro forma net income (loss) $ (110) $ 9,940 $ 95,092
EARNINGS PER SHARE : :
Basic, as reported $ 0.02 $ 0.14 $ 1.33
Basic, pro forma $ (0.00) $ 0.12 $ 1.26
Diluted, as reported $ 0.02 $ 0.14 $ 1.21
Diluted, pro forma $ (0.00) $ 0.11 $ 1.10
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), “Share-Based Payment.” SFAS 123(R) is a revision of SFAS 123 and supersedes APB 25. Among other items, SFAS 123(R)
eliminates the use of APB 25 and the intrinsic value method of accounting for stock-based compensation and requires companies to recognize the cost of employee services received in exchange for awards of equity
instruments based on the grant date fair value of those awards in the financial statements.
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