US Airways 2003 Annual Report Download - page 44

Table of Contents
impairment loss equal to the difference. The Company assesses the fair value of the reporting unit considering both the income approach and market
approach. Under the market approach, the fair value of the reporting unit is based on quoted market prices and the number of shares outstanding for US
Airways Group common stock. Under the income approach, the fair value of the reporting unit is based on the present value of estimated future cash flows.
The income approach is dependent on a number of factors including estimates of future market growth trends, forecasted revenues and expenses, expected
periods the assets will be utilized, appropriate discount rates and other variables. The Company bases its estimates on assumptions that it believes to be
reasonable, but which are unpredictable and inherently uncertain. Actual future results may differ from those estimates. The Company concluded that
Goodwill was not impaired during 2003. See Note 2(g) to the Consolidated Financial Statements for details regarding past goodwill impairment tests.
Passenger Revenue Recognition
The Company recognizes passenger transportation revenue and related commission expense when transportation is rendered. Passenger ticket sales
collected prior to the transportation taking place are reflected in Traffic balances payable and unused tickets on the Consolidated Balance Sheet. Due to
various factors including refunds, exchanges, unused tickets and transactions involving other carriers, certain amounts are recorded based on estimates. These
estimates are based upon historical experience and have been consistently applied to record revenue. The Company routinely performs evaluations of the
liability that may result in adjustments which are recognized as a component of Passenger transportation revenue. Actual refund, exchange and expiration
activity may vary from estimated amounts. The Company has experienced changes in customer travel patterns resulting from various factors, including new
airport security measures, concerns about further terrorist attacks and an uncertain economy, resulting in more forfeited tickets and fewer refunds. Therefore,
during the fourth quarter of 2003, a $34 million favorable adjustment was made to Passenger transportation revenue to reflect an increase in expired tickets.
Fresh-start Reporting
In accordance with SOP 90-7, the Company adopted fresh-start reporting upon emergence from Chapter 11. Accordingly, the Company valued its
assets, liabilities and equity at fair value. The excess of the reorganization value over tangible assets and identifiable intangible assets has been reflected as
Goodwill on the Consolidated Balance Sheet. Estimates of fair value represent the Company's best estimate based on independent appraisals and valuations
and, where the foregoing are not available, industry trends and by reference to market rates and transactions. US Airways Group's fresh-start equity value of
$438 million at March 31, 2003 was determined with the assistance of financial advisors. In determining the equity value, the financial advisors and the
Company considered several matters, including the following: (i) certain recent financial information of the Company; (ii) certain financial projections
prepared by the Company in connection with the ATSB Loan and RSA Investment Agreement including the underlying assumptions; (iii) the equity
transactions encompassed by the RSA Investment Agreement; (iv) a discounted cash flow analysis prepared on a going concern basis; (v) current and
historical market values of publicly traded companies that are in businesses reasonably comparable to the Company and (vi) certain additional economic and
industry conditions. The foregoing estimates and assumptions are inherently subject to significant uncertainties and contingencies beyond the control of the
Company. Accordingly, there can be no assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results
could vary materially. See Note 3(a) to the Consolidated Financial Statements for further detail related to the fresh-start fair value adjustments.
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