US Airways 2005 Annual Report Download - page 181

Table of Contents
America West Airlines, Inc.
Notes to Consolidated Financial Statements — (Continued)
discussed in Note 4. Express expenses on the statements of operations consists of the following (in millions):
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2005 2004 2003
Aircraft fuel and related taxes $ 182 $ 102 $ 61
Capacity purchases 317 238 198
Other rent and landing fees 11 8 7
Selling expenses 32 23 19
Other expenses 3 3 2
Express expenses $ 545 $ 374 $ 287
(q) Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment" ("SFAS 123R"). SFAS 123R is a revision of SFAS No. 123, "Accounting
for Stock Based Compensation", and supersedes APB 25. Among other items, SFAS 123R eliminates the use of APB 25 and the intrinsic value method of
accounting, and requires AWA 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. Pro forma disclosure is no longer an alternative under the new standard. Although early adoption was
allowed, AWA adopted SFAS 123R as of January 1, 2006, the required effective date for calendar year companies.
SFAS 123R permits companies to adopt its requirements using either a "modified prospective" method, or a "modified retrospective" method. Under the
"modified prospective" method, compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of
SFAS 123R for all share-based payments granted after that date, and based on the requirements of SFAS 123 for all unvested awards granted prior to the
effective date of SFAS 123R. Under the "modified retrospective" method, the requirements are the same as under the "modified prospective" method, but also
permit entities to restate financial statements of previous periods based on pro forma disclosures made in accordance with SFAS 123. AWA adopted the
requirements of SFAS 123R using the modified prospective method.
AWA currently utilizes a standard option pricing model (i.e., Black-Scholes) to measure the fair value of stock options granted to employees. While
SFAS 123R permits entities to continue to use such a model, the standard also permits the use of a more complex binomial, or "lattice" model. Based upon
research done by AWA on the alternative models available to value option grants, AWA has determined that it will continue to use the Black-Scholes model
for option valuation as of the current time.
SFAS 123R includes several modifications to the way that income taxes are recorded in the financial statements. The expense for certain types of option
grants is only deductible for tax purposes at the time that the taxable event takes place, which could cause variability in effective tax rates. SFAS 123R does
not allow companies to "predict" when these taxable events will take place. Furthermore, it requires that the benefits associated with the tax deductions in
excess of recognized compensation cost be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase net financing cash flows in periods after the effective date. These future amounts cannot be
estimated, because they depend on, among other things, when employees exercise stock options.
America West Holdings and AWA employee stock options outstanding at the time of the merger were fully vested in accordance with the change of
control provisions of America West Holdings' stock 175