US Airways 2008 Annual Report Download - page 89

Table of Contents
US Airways Group, Inc.
Notes to Consolidated Financial Statements — (Continued)
carryforwards. A valuation allowance is established, if necessary, for the amount of any tax benefits that, based on available evidence, are
not expected to be realized.
(i) Goodwill and Other Intangibles, Net
Goodwill
SFAS No. 142, "Goodwill and Other Intangible Assets," requires that goodwill be tested for impairment at the reporting unit level
on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair
value of the reporting unit below its carrying value. Goodwill represents the purchase price in excess of the net amount assigned to assets
acquired and liabilities assumed by America West Holdings on September 27, 2005. The Company has two reporting units consisting of
its mainline and Express operations. All of the Company's goodwill was allocated to the mainline reporting unit.
In accordance with SFAS No. 142, the Company concluded that events had occurred and circumstances had changed during the
second quarter of 2008 which required the Company to perform an interim period goodwill impairment test. Subsequent to the first
quarter of 2008, the Company experienced a significant decline in market capitalization due to overall airline industry conditions driven
by record high fuel prices. The price of fuel became less volatile in the second quarter of 2008, and there was a sustained surge in fuel
prices. On May 21, 2008, the price per barrel of oil hit a then record high of $133 per barrel and from that date through June 30, 2008
stayed at an average daily price of $133 per barrel. The Company's average mainline fuel price during the second quarter of 2008 was
$3.63 as compared to $2.88 per gallon in the first quarter of 2008 and $2.20 for the full year 2007. This increase in the price per gallon of
fuel represented an increase of 26% and 65% as compared to the first quarter of 2008 and full year 2007, respectively. The Company's
average stock price in the second quarter of 2008 was $6.13 as compared to an average of $12.15 in the first quarter of 2008, a decline of
50%. In addition, the Company announced in June 2008 that in response to the record high fuel prices, it planned to reduce fourth quarter
2008 and full year 2009 domestic mainline capacity.
During the second quarter of 2008, the Company performed the first step of the two-step impairment test and compared the fair
value of the mainline reporting unit to its carrying value. Consistent with the Company's approach in its annual impairment testing, in
assessing the fair value of the reporting unit, the Company considered both the market approach and income 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 the Company's
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 significant management assumptions, including estimates of future capacity,
passenger yield, traffic, fuel, other operating costs and discount rates. Due to current market conditions, greater weighting was attributed
to the market approach, which was weighted 67% while the income approach was weighted 33% in arriving at the fair value of the
reporting unit. The Company determined that the fair value of the mainline reporting unit was less than the carrying value of the net
assets of the reporting unit, and thus the Company performed step two of the impairment test.
In step two of the impairment test, the Company determined the implied fair value of the goodwill and compared it to the carrying
value of the goodwill. The Company allocated the fair value of the reporting unit to all of its assets and liabilities as if the reporting unit
had been acquired in a business combination and the fair value of the mainline reporting unit was the price paid to acquire the reporting
unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of
goodwill. The Company's step two analysis resulted in no implied fair value of goodwill, and therefore, the Company recognized an
impairment charge of $622 million in the second quarter of 2008, representing a write off of the entire amount of the Company's
previously recorded goodwill.
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