US Airways 2008 Annual Report Download - page 153

Table of Contents
US Airways, Inc.
Notes to Consolidated Financial Statements — (Continued)
debt losses, which have been minimal in the past, have been considered in establishing allowances for doubtful accounts. US Airways
does not believe it is subject to any significant concentration of credit risk.
(c) Interest Rate Risk
US Airways has exposure to market risk associated with changes in interest rates related primarily to its variable rate debt
obligations. Interest rates on $1.42 billion principal amount of long-term debt as of December 31, 2008 are subject to adjustment to
reflect changes in floating interest rates. The weighted average effective interest rate on US Airways' variable rate debt was 5.34% at
December 31, 2008.
The fair value of US Airways' long-term debt was approximately $2.28 billion and $1.55 billion at December 31, 2008 and 2007,
respectively. The fair values were estimated using quoted market prices where available. For long-term debt not actively traded, fair
values were estimated using a discounted cash flow analysis, based on US Airways' current incremental borrowing rates for similar types
of borrowing arrangements.
6. Fair value measurements
As described in Note 1(s), US Airways adopted SFAS No. 157 on January 1, 2008. SFAS No. 157, among other things, defines fair
value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category
measured at fair value on either a recurring or nonrecurring basis. SFAS No. 157 clarifies that fair value is an exit price, representing the
amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As
such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in
pricing an asset or liability. As a basis for considering such assumptions, SFAS No. 157 establishes a three-tier fair value hierarchy,
which prioritizes the inputs used in measuring fair value as follows:
Level 1. Observable inputs such as quoted prices in active markets;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own
assumptions.
Assets measured at fair value on a recurring basis are as follows (in millions):
Quoted Prices in Significant Other Significant
Fair Value Active Markets for Observable Unobservable
December 31, Identical Assets Inputs Inputs Valuation
2008 (Level 1) (Level 2) (Level 3) Technique
Investments in marketable securities (noncurrent) $ 187 $ — $ — $ 187 (1)
Fuel hedging derivatives (375) — (375) — (2)
(1) US Airways 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, passing a future auction, 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. Refer to Note 5(b) for further discussion of US Airways' investments in marketable securities.
(2) Since US Airways' fuel hedging derivative instruments are not traded on a market exchange, the fair values are determined using
valuation models which include assumptions about commodity prices based on those observed in the underlying markets. The fair
value of fuel hedging derivatives is recorded in accounts payable
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