US Airways 2005 Annual Report Download - page 180

Table of Contents
America West Airlines, Inc.
Notes to Consolidated Financial Statements — (Continued)
compensation expense for options granted would be recorded on the date of grant only if the current market price of the underlying stock exceeded the
exercise price. Stock options are issued at a price equal to fair market value on the date of grant. Accordingly, no compensation cost has been recognized for
stock options in the consolidated financial statements. Compensation expense, calculated using the provisions of APB 25, has been recorded for stock
appreciation rights and restricted stock units granted to AWA employees.
Had US Airways Group determined compensation cost based on the fair value at the grant date for its stock options, stock appreciation rights and
restricted stock units under SFAS No. 123, "Accounting for Stock Based Compensation," and allocated the compensation expense to AWA for its employees
participating in the stock option plans, AWA's net income (loss) would have been adjusted to the pro forma amounts indicated below (in millions):
2005 2004 2003
Net income (loss), as reported $ (397) $ (85) $ 61
Add: Stock-based compensation included in reported net income (loss) 3 — —
Deduct: Stock-based compensation determined under the fair value based method (11) (6) (4)
Pro forma net income (loss) $ (405) $ (91) $ 57
(n) Maintenance and Repair Costs
Maintenance and repair costs for owned and leased flight equipment are charged to operating expense as incurred. AWA historically recorded the cost of
major scheduled airframe, engine and certain component overhauls as capitalized assets that were subsequently amortized over the periods benefited (referred
to as the deferral method). US Airways Group charges maintenance and repair costs for owned and leased flight equipment to operating expense as incurred.
In 2005, AWA changed its accounting policy from the deferral method to the direct expense method. While the deferral method is permitted under accounting
principles generally accepted in the United States of America, US Airways Group and AWA believe that the direct expense method is preferable and the
predominant method used in the airline industry. The effect of this change in accounting for aircraft maintenance and repairs is recorded as a cumulative effect
of a change in accounting principle (see also Note 3, "Change in Accounting Policy for Maintenance Costs").
(o) Selling expenses
Selling expenses include commissions, credit card fees, computerized reservations systems fees and advertising and promotional expenses. Advertising
and promotional expenses are expensed when incurred. Advertising and promotional expenses for the years ended December 31, 2005, 2004 and 2003 were
$12 million, $10 million and $8 million, respectively.
(p) Express expenses
Expenses associated with AWA's regional alliance agreement with Mesa are classified as "Express expenses" on the statements of operations. Expenses
associated with prior periods have been reclassified as 174