US Airways 2007 Annual Report Download - page 146

Table of Contents
US Airways, Inc.
Notes to Consolidated Financial Statements — (Continued)
Reorganization; and (iii) 70%, or 4,873,485 shares, of the common stock of US Airways Group issued to the unsecured creditors, net of
shares allocated to ALPA.
Agreements with ALPA — On September 14, 2005, US Airways Group, US Airways, America West Holdings and AWA reached
agreement with the two ALPA-represented pilot groups at the separate airlines on a comprehensive agreement (the "Transition
Agreement") that governs many merger related aspects of the parties' relationships until there is a single collective bargaining agreement
covering all pilots. US Airways Group and US Airways had entered into a separate letter of agreement that provided that US Airways'
pilots designated by ALPA would receive 1.25 million shares of US Airways Group common stock and options to purchase 1.1 million
shares of US Airways Group common stock. The 1.25 million shares were drawn from the 8.2 million shares initially allocated to
unsecured creditors in the Plan of Reorganization and were issued to the pilots in accordance with the instructions provided by ALPA
during the fourth quarter of 2005. The options have been issued according to the following schedule: the first tranche of 500,000 options
was issued on January 31, 2006, a second tranche of 300,000 options was issued on January 31, 2007, and the third tranche of 300,000
options was issued on January 31, 2008. The options have a term of five years from date of issuance. The exercise price for each tranche
of options is the average of the closing price per share of US Airways Group common stock as reflected on the New York Stock
Exchange for the 20 business day period prior to the applicable option issuance date. The letter of agreement also includes provisions
restricting transfer of the options and governing anti-dilution. In connection with the negotiation of the Transition Agreement and the
letter of agreement, US Airways also agreed with ALPA to eliminate an existing 1% pay reduction that would have otherwise applied to
all pilots as a result of a lump sum payment due to pilots recalled from furlough and further agreed to pay $500,000 to resolve an
outstanding grievance over pay credits for pilots assigned by US Airways to travel to and from certain duty assignments.
(b) Fresh-start Reporting and Purchase Accounting
In connection with its emergence from bankruptcy on September 27, 2005, US Airways adopted fresh-start reporting in accordance
with SOP 90-7. Accordingly, US Airways valued its assets and liabilities at fair value. In addition, as a result of the merger which is
accounted for as a reverse acquisition under SFAS No. 141, "Business Combinations," ("SFAS 141") with America West Holdings as the
accounting acquirer, US Airways Group applied the provisions of SFAS 141 and allocated the purchase price to the assets and liabilities
of US Airways Group and to its wholly owned subsidiaries including US Airways. The purchase price or value of the merger
consideration was determined based upon America West Holdings' traded market price per share due to the fact that US Airways Group
was operating under bankruptcy protection prior to the merger. The outstanding shares of America West Holdings at September 27, 2005
were valued at $4.82 per share, resulting in an aggregate value assigned to the shares of $175 million. The $4.82 per share value was
based on the five-day average share price of America West Holdings common stock, with May 19, 2005, the merger announcement date,
as the midpoint. Certain unsecured creditors of US Airways Group have been or will be issued an aggregate of approximately 8.2 million
shares of US Airways Group common stock in settlement of their claims, including stock issued to the PBGC and ALPA. The fair value
of that common stock valued at an equivalent price based on the $4.82 value of the America West Holdings stock is $96 million, which
was determined to be the reorganization value of US Airways Group. America West Holdings incurred $21 million of direct acquisition
costs in connection with the merger. The following table summarizes the components of the purchase price (in millions):
Fair value of common shares issued to US Airways Group's unsecured creditors $ 96
Estimated merger costs 21
Total purchase price $ 117
US Airways' equity value of $1 million was determined based on an allocation of the purchase price to each of US Airways Group's
subsidiaries' fair values of assets and liabilities. The remaining equity of $116 million was assigned to US Airways Group and its other
subsidiaries. In connection with US Airways' emergence from
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