US Airways 2005 Annual Report Download - page 179

Table of Contents
America West Airlines, Inc.
Notes to Consolidated Financial Statements — (Continued)
Since AWA's financial derivative instruments are not traded on a market exchange, the values are determined by the use of valuation models with
assumptions about commodity prices based on those observed in the underlying markets.
In 2004 AWA restated its consolidated financial statements to eliminate hedge accounting under SFAS 133 for its fuel hedging transactions. As part of
this restatement, $2 million of unrealized gains previously reported as a component of accumulated other comprehensive income in 2002 were eliminated in
the 2003 financial statements.
(k) Deferred Credits
Rents for operating leases were adjusted to fair market value when AWA emerged from bankruptcy in 1994. The net present value of the difference
between the stated lease rates and the fair market rates has been recorded as a deferred credit in the accompanying balance sheets. The deferred credit will be
decreased on a straight-line basis as a reduction in rent expense over the applicable lease periods. At December 31, 2005 and 2004, the unamortized balance
of the deferred credit was $37 million and $38 million, respectively.
In January 2002, AWA closed a $429 million loan supported by a $380 million government loan guarantee. This loan triggered aircraft rent concessions
negotiated with approximately 20 aircraft lessors. Approximately $18 million of aircraft rent, which was accrued as of December 31, 2001, was waived by the
aircraft lessors. This amount has been recorded as a deferred credit in the accompanying consolidated balance sheet and is being amortized over the remaining
lives of the applicable leases as a reduction in rent expense. At December 31, 2005 and 2004, the unamortized balance of the deferred credit was
approximately $3 million and $4 million, respectively.
(l) Passenger Revenue
Passenger revenue is recognized when transportation is provided. Passenger ticket sales are recorded as an air traffic liability and are subsequently
relieved either through carriage of the passenger, refund to the passenger, expiration of the passenger ticket or billing from another air carrier that provided the
service. Passenger traffic commissions and related fees are expensed when the related revenue is recognized. Passenger traffic commissions and related fees
not yet recognized are recorded as a prepaid expense.
Due to various factors including complex pricing structures, refunds, exchanges, unused tickets and transactions involving other carriers, certain amounts
are recorded in revenue based on estimates regarding both the timing of the revenue recognition and the amount of revenue to be recognized. These estimates
are based upon historical experience and have been consistently applied to record revenue. AWA routinely performs evaluations of the liability, which may
result in adjustments that are recognized as a component of mainline passenger revenue. Actual refund, exchange and expiration activity may vary from
estimated amounts.
AWA also sells mileage credits to companies participating in its FlightFund program, such as hotels, car rental agencies and credit card companies.
Transportation-related revenue from the sale of mileage credits is deferred and recognized when transportation is provided. The remaining portion of sales
proceeds is recognized immediately as a component of other operating revenues.
(m) Stock-based Compensation
Certain of AWA's employees are eligible to participate in the stock option plans of US Airways Group. US Airways Group accounts for its stock option
plans in accordance with the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As such,
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