American Airlines 2005 Annual Report Download - page 58

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55
1. Summary of Accounting Policies (Continued)
The following table illustrates the effect on net loss and loss per share amounts if the Company had applied the
fair value recognition provisions of SFAS 123 to stock-based employee compensation (in millions, except per
share amounts):
Year Ended December 31,
2005 2004 2003
Net Loss, as reported $ (861) $ (761) $ (1,228)
Add: Stock-based employee compensation
expense included in reported net loss
132
21
20
Deduct: Total stock-based employee
compensation expense determined
under fair value based methods for all
awards
(174)
(85)
(79)
Pro forma net loss $ (903) $ (825) $ (1,287)
Basic and diluted loss per share:
As reported $ (5.21) $ (4.74) $ (7.76)
Pro forma $ (5.46) $ (5.14) $ (8.13)
New Accounting Pronouncement In December 2004, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS 123(R)).
SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair values. SFAS 123(R) is effective January 1, 2006 for
AMR. Under SFAS 123(R), the Company will recognize compensation expense for the portion of outstanding
awards as service is provided, based on the grant-date fair value of those awards calculated under SFAS 123 for
pro forma disclosures. In addition, the Company will discontinue recognizing compensation expense over the full
vesting period for retirement eligible employees for future stock option grants and will instead recognize the
expense immediately. The Company expects that the impact of adoption on its first quarter 2006 results will be
similar to the amounts disclosed in each quarterly period during 2005. However, subsequent to the first quarter of
2006, the impact of SFAS 123(R) will decrease significantly due to the vesting period ending for stock options
issued under the 2003 Employee Stock Incentive Plan.