US Airways 2007 Annual Report Download - page 54

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(f) As of September 30, 2005, US Airways recorded $1.5 billion of adjustments to reflect assets and liabilities at fair value, including
an initial net write-down of goodwill of $1.82 billion. Goodwill of $584 million was recorded to reflect the excess of the estimated
fair value of liabilities and equity over identifiable assets. Subsequent to September 30, 2005, US Airways recorded an additional
$148 million of goodwill to reflect adjustments to the estimated fair values of certain assets and liabilities.
(g) In connection with filing for bankruptcy on September 12, 2004, US Airways achieved cost-savings agreements with its principal
collective bargaining groups. In connection with the new labor agreements, approximately 5,000 employees across several of US
Airways' labor groups were involuntarily terminated or participated in voluntary furlough and termination programs.
(h) In connection with the Airbus MOU, US Airways was required to pay a restructuring fee of $39 million, which was paid by means
of offset against existing equipment deposits held by Airbus. US Airways also received credits from Airbus totaling $4 million in
2005, primarily related to equipment deposits. See also Note 3 to US Airways' consolidated financial statements included in
Item 8B of this report.
(i) The GE Merger MOU provided for the continued use of certain leased Airbus, Boeing and regional jet aircraft, the modification of
monthly lease rates and the return of certain other leased Airbus and Boeing aircraft. The GE Merger MOU also provided for the
sale-leaseback of assets securing various GE obligations. In connection with these transactions, US Airways recorded a net loss of
$5 million.
Liquidity and Capital Resources
As of December 31, 2007, our cash, cash equivalents, investments in marketable securities and restricted cash were $3 billion, of
which $2.53 billion was unrestricted. As of December 31, 2007, US Airways' cash, cash equivalents, investments in marketable securities
and restricted cash were $2.99 billion, of which $2.52 billion was unrestricted. US Airways' and our investments in marketable securities
include $353 million of investments in auction rate securities that are classified as noncurrent assets on our balance sheet.
The par value of these auction rate securities totals $411 million as of December 31, 2007. Contractual maturities for these auction
rate securities are greater than nine years with an interest reset date approximately every 28 days. Historically, the carrying value of
auction rate securities approximated fair value due to the frequent resetting of the interest rates. With the liquidity issues experienced in
the global credit and capital markets, our auction rate securities have experienced multiple failed auctions. While we continue to earn
interest on these investments at the maximum contractual rate, the estimated market value of these auction rate securities no longer
approximates par value.
Given the complexity of auction rate securities, we engaged an investment advisor to assist us in determining the fair values of our
investments. With the assistance of our advisor, we estimated the fair value of these auction rate securities based on the following: (i) the
underlying structure of each security; (ii) the present value of future principal and interest payments discounted at rates considered to
reflect current market conditions; (iii) consideration of the probabilities of default, auction failure, or repurchase at par for each period;
and (iv) estimates of the recovery rates in the event of default for each security. These estimated fair values could change significantly
based on future market conditions.
We concluded that the fair market value of these auction rate securities at December 31, 2007 was $353 million, a decline of
$58 million from par value. Of this amount $48 million was deemed temporary as we believe the decline in market value is due to general
market conditions. Based upon our evaluation of available information, we believe these investments are of high credit quality, as
substantially all of the investments carry an AAA credit rating, and approximately 30% of the par value of these auction rate securities is
insured. Accordingly, we have recorded an unrealized loss on these securities of $48 million in other comprehensive income. We
concluded that $10 million of the decline was other than temporary and recorded an impairment charge in other income, net. Our
conclusion for the other than temporary impairment is based on the significant decline in fair value indicated for a certain investment, a
portion of which is collateralized either directly or indirectly by sub-prime mortgages.
As of January 31, 2008, the commercial banks managing our investments provided us with estimated fair market values, which
indicated an additional decline in the aggregate fair market value of our auction rate securities of approximately $70 million (from
amounts provided as of December 31, 2007). We currently believe that these
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