US Airways 2007 Annual Report Download - page 113

Table of Contents
US Airways Group, Inc.
Notes to Consolidated Financial Statements — (Continued)
On September 30, 2005, US Airways Group completed a public offering of common stock in which it issued 9,775,000 shares of its
common stock at a price of $19.30 per share. The Company received net proceeds of $180 million from the offering.
(b) Warrants
As compensation for various elements of AWA's financial restructuring completed in January 2002, America West Holdings issued
a warrant to purchase 18.8 million shares of its Class B common stock to the ATSB and additional warrants to purchase 3.8 million
shares of its Class B common stock to other loan participants, in each case at an exercise price of $3 per share and with a term of ten
years. For accounting purposes, the warrants were valued at $35.4 million, or $1.57 per share, using the Black-Scholes pricing model
with the following assumptions: expected dividend yield of 0.0%, risk-free interest rate of 4.8%, volatility of 44.9% and an expected life
of ten years. The warrants were recorded by AWA as a non-cash capital contribution in the accompanying consolidated statements of
stockholders' equity and comprehensive income and classified as other assets, net in the accompanying consolidated balance sheets. The
warrants were amortized over the life of the AWA ATSB Loan as an increase to interest expense. In the first quarter of 2004,
approximately 220,000 warrants were exercised at $3 per share. In the third quarter of 2003, approximately 2.6 million warrants were
exercised at $3 per share. These warrant exercises were cashless transactions resulting in the issuance of approximately 1.6 million shares
of America West Holdings' Class B common stock.
In the fourth quarter of 2005, US Airways Group announced an agreement to repurchase all of the replacement warrants issued to
the ATSB in connection with the merger with America West Holdings. US Airways Group repurchased approximately 7.7 million
warrants to purchase shares of common stock that had an exercise price of $7.27 per share. The total purchase price for the warrants was
$116 million, which approximated their fair value at the purchase date. In connection with this repurchase, AWA recorded $8 million of
nonoperating expense. This amount represented the unamortized balance recorded in other assets, which was being amortized over the
life of the AWA ATSB Loan as an increase to interest expense.
In the second quarter of 2006, US Airways Group received $2.8 million of proceeds related to the issuance of 386,925 shares of
common stock that were issued pursuant to a warrant exercise. As of December 31, 2007, there were no warrants outstanding.
17. Stock-based compensation
Prior to January 1, 2006, the Company accounted for stock-based compensation plans in accordance with APB 25 and related
interpretations. Effective January 1, 2006, the Company adopted SFAS No. 123R, using the modified prospective transition method.
Under the modified prospective transition 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 No. 123 for all unvested awards granted prior to the effective date of SFAS 123R. Results for prior periods are not
restated using the modified prospective transition method.
Substantially all of 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 option plans and were converted into
options of US Airways Group. Existing stock options of US Airways Group outstanding prior to the merger on September 27, 2005 were
canceled as part of the plan of reorganization. Accordingly, as of January 1, 2006, only unvested stock options, stock appreciation rights
and restricted stock units granted subsequent to and in connection with the merger are subject to the transition provisions of SFAS 123R.
As part of the plan of reorganization, the Bankruptcy Court approved a new equity incentive plan, referred to as the 2005 Incentive
Equity Plan (the "2005 Incentive Plan"). The 2005 Incentive Plan provides for the grant of incentive stock options, nonstatutory stock
options, stock appreciation rights, stock purchase awards, stock bonus awards, stock unit awards, and other forms of equity
compensation, collectively referred to as stock awards, as well as
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