US Airways 2007 Annual Report Download - page 91

Table of Contents
US Airways Group, Inc.
Notes to Consolidated Financial Statements — (Continued)
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, the Company engaged an investment advisor to assist in determining the fair values
of its investments. The Company, with the assistance of its advisor, 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.
The Company 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 the Company believes the decline in market
value is due to general market conditions. Based upon the Company's evaluation of available information, the Company believes these
investments are of high credit quality, as substantially all of the investments carry a AAA credit rating, and approximately 30% of the par
value of these auction rate securities is insured. In addition, the Company has the intent and ability to hold these investments until
anticipated recovery in market value occurs. Accordingly, the Company has recorded an unrealized loss on these securities of $48 million
in other comprehensive income. The Company concluded that $10 million of the decline was other than temporary and recorded an
impairment charge in other income, net. The Company's 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 the investments provided the Company with estimated fair market values,
which indicated an additional decline in the aggregate fair market value of the Company's auction rate securities of approximately
$70 million (from amounts provided as of December 31, 2007). The Company currently believes that these additional declines in value
are also temporary and are attributed to current credit market events and continued lack of market liquidity in early 2008. Such temporary
declines, if sustained, would be recognized in other comprehensive income in the first quarter of 2008. It is possible that additional
declines in fair value may occur. To the extent the fair market values of the auction rate securities were to subsequently increase, such
increase would reduce the unrealized loss recorded in other comprehensive income.
The Company continues to monitor the market for auction rate securities and consider its impact (if any) on the fair market value of
its investments. If the current market conditions deteriorate further, or the anticipated recovery in market values does not occur, the
Company may be required to record additional unrealized losses in other comprehensive income or impairment charges in 2008.
Gross proceeds from sales of marketable securities for the years ended December 31, 2007, 2006 and 2005 were $3.2 billion,
$1.79 billion and $416 million, respectively.
Long-term Debt
At December 31, 2007 and 2006, the fair value of long-term debt was approximately $3.23 billion and $3.09 billion, respectively.
The Company's variable rate long-term debt with a carrying value of $2.13 billion and $1.94 billion at December 31, 2007 and 2006,
respectively, approximates fair value because these borrowings have variable interest rate terms that approximate market interest rates for
similar debt instruments. The fair value of the Company's other long-term debt is determined based on quoted market prices if available
or market prices for comparable debt instruments.
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