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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ý
þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 31, 20072008

OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from          to          
 
Commission
File Number
Exact Name of Registrant as Specified in its Charter, Principal Office Address
State of
I.R.S. Employer
File Number
and Telephone Number
State of
Incorporation
I.R.S. Employer
Identification No
001-06033
UAL CorporationDelaware36-2675207
001-11355 UAL Corporation
United Air Lines, Inc.
Delaware36-2675206
77 W. Wacker Drive
Chicago, Illinois 60601
(312) 997-8000		 Delaware
Delaware		 36-2675207
36-2675206
(312) 997-8000

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class
Name of Each Exchange on Which Registered
UAL Corporation Common Stock, $.01 par value NASDAQ Global Select Market
United Air Lines, Inc. None None

Securities registered pursuant to Section 12 (g)12(g) of the Act:

UAL CorporationNone
United Air Lines, Inc.None

UAL Corporation   None
United Air Lines, Inc. None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

UAL CorporationYesý Noo
United Air Lines, Inc.Yeso Noý

UAL Corporation   Yesþ Noo
United Air Lines, Inc. Yeso Noþ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

UAL CorporationYeso Noý
United Air Lines, Inc.Yeso Noý

UAL Corporation   Yeso Noþ
United Air Lines, Inc. Yeso Noþ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

UAL CorporationYesý Noo
United Air Lines, Inc.Yesý Noo

UAL Corporation   Yesþ Noo
United Air Lines, Inc. Yesþ Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of Registrant'sRegistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K.

UAL Corporationý
United Air Lines, Inc.ý

UAL Corporation    þ
United Air Lines, Inc. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large“large accelerated filer," "accelerated filer"” “accelerated filer” and "smaller“smaller reporting company"company” inRule 12b-2 of the Exchange Act. (Check one):

UAL CorporationLarge accelerated filer ý    Accelerated filer o    Non-accelerated filer o    Smaller reporting company o
United Air Lines, Inc.Large accelerated filer o    Accelerated filer o    Non-accelerated filer ý    Smaller reporting company o

UAL Corporation   Large accelerated filerþ  Accelerated filero  Non-accelerated filero  Smaller reporting companyo
United Air Lines,Inc.  Large accelerated filero  Accelerated filero  Non-accelerated filerþ  Smaller reporting companyo
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act).

UAL CorporationYeso Noý
United Air Lines, Inc.Yeso Noý

UAL Corporation   Yeso Noþ
United Air Lines, Inc. Yeso Noþ
The aggregate market value of voting stock held by non-affiliates of UAL Corporation was $4,646,737,396$652,389,214 as of June 29, 2007.30, 2008. There is no market for United Air Lines, Inc. common stock.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

UAL CorporationYesý Noo
United Air Lines, Inc.Yesý Noo

UAL Corporation   Yesþ Noo
United Air Lines, Inc. Yesþ Noo
Indicate the number of shares outstanding of each of the issuer'sissuer’s classes of common stock, as of February 22, 2008.

UAL Corporation118,994,379 shares of common stock ($0.01 par value)
United Air Lines, Inc.205 (100% owned by UAL Corporation)

20, 2009.

UAL Corporation   143,885,823 shares of common stock ($0.01 par value)
United Air Lines, Inc. 205 (100% owned by UAL Corporation)
OMISSION OF CERTAIN INFORMATION
United Air Lines, Inc. meets the conditions set forth in General Instruction I(1)(a) and (b) ofForm 10-K and is therefore filing this form with the reduced disclosure format allowed under that General Instruction.
DOCUMENTS INCORPORATED BY REFERENCE

Information required by Items 10, 11, 12, 13 and 14 of Part III of thisForm 10-K are incorporated by reference for UAL Corporation from its definitive proxy statement for its 20082009 Annual Meeting of Stockholders to be held on June 12, 2008 and for United Air Lines, Inc. from its definitive information statement on Schedule 14C. Each statement will be filed no later than 120 days after December 31, 2007.11, 2009.


UAL Corporation and Subsidiary Companies and
United Air Lines, Inc. and Subsidiary Companies
Report onForm 10-K
For the Year Ended December 31, 2007
2008



Page
PART I
Item 1. 
Page
PART I
Item 1.Business 3
Item 1A. Risk Factors 15
Item 1B. Unresolved Staff Comments 2227
Item 2. Properties 2328
Item 3. Legal Proceedings 2530
Item 4. Submission of Matters to a Vote of Security Holders 2632
  
Executive Officers of UAL and United 2733

PART II
PART II
Item 5. Market for Registrant'sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 2834
Item 6. Selected Financial Data 3036
Item 7. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations 3137
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 6374
Item 8. Financial Statements and Supplementary Data 6578
  UAL Corporation and United Air Lines, Inc. Combined Notes to Financial Statements 7991
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 137144
Item 9A. Controls and Procedures 137144
Item 9B. Other Information 141149

PART III
PART III
Item 10. Directors, Executive Officers and Corporate Governance 142150
Item 11. Executive Compensation 142150
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 142150
Item 13. Certain Relationships, Related Transactions and Director Independence 142150
Item 14. Principal Accountant Fees and Services 142150

PART IV
PART IV
Item 15. Exhibits, Financial Statements and Schedules 143152
EX-3.1
EX-10.4
EX-10.19
EX-10.20
EX-10.21
EX-10.27
EX-12.1
EX-12.2
EX-21
EX-23.1
EX-23.2
EX-31.1
EX-31.2
EX-31.3
EX-31.4
EX-32.1
EX-32.2


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PART I

ITEM 1.    BUSINESS.

ITEM 1.  BUSINESS.
UAL Corporation (together with its consolidated subsidiaries, "UAL"“UAL”), a holding company whose principal subsidiary is United Air Lines, Inc. (together with its primary subsidiaries, "United"“United”), was incorporated under the laws of the State of Delaware on December 30, 1968. We sometimes use the words "we," "our," "us,"“we,” “our,” “us,” and the "Company"“Company” in thisForm 10-K for disclosures that relate to both UAL and United. Our world headquarters is located at 77 W. Wacker Drive, Chicago, Illinois 60601. The mailing address is P.O. Box 66919, Chicago, Illinois 60666 (telephone number(312) 997-8000).

This Annual Report onForm 10-K is a combined report of UAL and United. Unless otherwise noted, this information applies to both UAL and United. As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL.

Most of UAL'sUAL’s revenue and expenses in 20072008 were from United'sUnited’s airline operations. United transports people and cargo through its Mainlinemainline operations, which utilize full-sized jet aircraft exceeding 70 seats in size, and its regional operations, which utilize smaller aircraft not exceeding 70 seats in size that are operated under contract by United Express®Express® carriers.

The Company’s web address iswww.united.com. The information contained on or connected to the Company’s web address is not incorporated by reference into this Annual Report onForm 10-K and should not be considered part of this or any other report filed with the U.S. Securities and Exchange Commission (“SEC”). Through this website, the Company’s filings with the SEC, including annual reports onForm 10-K, quarterly reports onForm 10-Q, current reports onForm 8-K, and all amendments to those reports, are accessible without charge as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.
United Airlines operates more than 3,300nearly 3,000 flights a day on United and United Express and Ted to more than 200 U.S. domestic and international destinations from its hubs in Los Angeles, San Francisco, Denver, Chicago and Washington, D.C., based on its annual flight schedule as of January 1, 2009. With key global air rights in the Asia-Pacific region, Europe and Latin America, United is one of the largest international carriers based in the United States. United also is a founding member of Star Alliance, the world'sworld’s largest airline network, which provides connections for our customers to 897approximately 900 destinations in 160159 countries worldwide. United offers a unique set of products and services to target distinct customer groups, which we believe will allowallows us to generate a revenue premium. This strategy of market and product segmentation is intended to optimize margins and costs, and is focused on delivering an improved experience for all customers and abest-in-class customer experience for our premium customers. These services include:
• United Mainline, including United First®, United Business® and Economy Plus®, the last providing three to five inches of extra legroom on all United Mainline and explussm United Express flights;
• A new international premium travel experience featuring180-degree, lie-flat beds in business class. As of December 31, 2008, the Company has completed first and business class equipment upgrades on 25 international aircraft that have been refitted with new premium seats, entertainment systems and other product enhancements. The Company expects to complete the refurbishment of a majority of the 66 remaining aircraft in 2009 and 2010, with the remaining aircraft upgrades to be completed in 2011;
• p.s.sm—a premium transcontinental service connecting New York with both Los Angeles and San Francisco; and
• United Express, with a total fleet of 280 aircraft operated by regional airline partners, including over 100 aircraft that offer explus, United’s premium regional service providing both first class and Economy Plus seating.


3


The Company also generates revenue through its Mileage Plus®Plus® Frequent Flyer Program ("(“Mileage Plus"Plus”), United CargoSM and United Services. Mileage Plus contributed approximately $800$700 million to passenger and other revenue in 20072008 and helps the Company attract and retain high-value customers. Mileage Plus revenue increased significantly in 2007, as compared to 2006, primarily due to the change in the inactive customer account expiration period from 36 months to 18 months, as discussed in the "Critical Accounting Policies" section of Item 7, below. United Cargo generated $770$854 million in freight


and mail revenue in 2007.2008. United Services generated $183$167 million in revenue in 20072008 by utilizing downtime of otherwise under-utilized aircraft maintenance resources through third-party maintenance services. In 2007, revenues from aircraft ground handling and flight crew training services are not classified as part of United Services revenues, as discussed below.

        We believe our restructuring has made United competitive with its network airline peers. The Company seeks to achieve its goal of further improving profit margins through continuous improvements to its core business across its operations by focusing on superior customer service, controlling unit costs and improving unit revenues. With the bankruptcy reorganization completed in early 2006 and the creation of a solid platform, the Company is now building on its core competitive advantages, including strong brand recognition, its leading loyalty program and its broad global airline network.

        During 2007, UAL's management and its Board of Directors completed a strategic planning session to discuss the future of United. The Company has developed a five-year plan, the ambition of which is to position United as the airline of choice for premium customers, employees and investors, while maintaining our fundamental commitment to safety and balancing the needs of all of our stakeholders. The Company's main focus continues to be strengthening our core business, and the plan includes a detailed roadmap of more than 250 initiatives and significant capital investments for the Company over the next five years. These investments are targeted to support improvements for customers and employees, and drive revenue and efficiency improvements. In addition to strengthening the performance of the airline, our plan also includes unlocking the value of business units such as United Services and Mileage Plus. Our goal is to generate returns to stockholders that are competitive with U.S. industry in general. To achieve these goals, we are focused on consistently delivering superior service, delivering differentiated products and services, building employees' connection and commitment to United, developing new sources of revenue and controlling costs.

This        The Company's web address iswww.united.com. The information contained on or connected to the Company's web address is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this or any other report filed with the U.S. Securities and Exchange Commission ("SEC"). Through this website, the Company's filings with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, are accessible without charge as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

This Form 10-K contains various "forward-looking statements"“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements represent the Company'sCompany’s expectations and beliefs concerning future events, based on information available to the Company on the date of the filing of thisForm 10-K, and are subject to various risks and uncertainties. Factors that could cause actual results to differ materially from those referenced in the forward-looking statements are listed in Item 1A, Risk Factors and in Item 7, Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations. The Company disclaims any intent or obligation to update or revise any of the forward-looking statements, whether in response to new information, unforeseen events, changed circumstances or otherwise.

Company Operational Plans

Bankruptcy

During 2008, UAL’s management and its Board of Predecessor Company

        The following discussion provides general background information regardingDirectors were active in adjusting the Company's Chapter 11 cases,Company’s operational plans in response to difficult industry conditions and is not intended to be an exhaustive summary. Detailed information pertaining to its bankruptcy filings may be obtained atwww.pd-ual.comthe weakening global economy. Unprecedented increases in jet fuel prices during 2008 had a significant negative impact on our results of operations and were one of the leading factors that prompted the development of the Company’s operational plans, as described in the Annual Reports on Form 10-K for both UAL Corporation and United Air Lines, Inc. for the year ended December 31, 2006 (the "2006 Annual Reports"). See also Note 1, "Voluntary Reorganization Under Chapter 11,"2, “Company Operational Plans,” in theCombined Notes to Consolidated Financial Statements.

The Company is taking actions to return to profitability and to strengthen liquidity, including the permanent removal of 100 aircraft from United’s mainline fleet; the elimination of the Ted product for leisure markets and the reconfiguration of Ted aircraft to include United First seating; the development of new revenue sources through delivery of new products and services valued by our customers; the streamlining of operations and corporate functions with a reduction of approximately 9,000 positions during 2008 and 2009; and the formation of a strategic alliance with Continental Airlines, all as further discussed in Item 7,Management’s Discussion and Analysis of Financial Condition and Results of Operations.
During 2008, the Company ceased operations to Ft. Lauderdale and West Palm Beach, Florida, two markets served by Ted, which uses an all-economy seating configuration to serve primarily leisure markets. In addition, during 2008, as part of its operational plans the Company ceased operations in certain non-Ted markets and also reduced frequencies in several Ted and non-Ted markets. In light of these planned capacity reductions and other factors, the Company also determined that it would eliminate its entire B737 fleet by the end of 2009. With the reduced need for Ted aircraft in leisure markets and an increased need for narrow body aircraft in non-Ted markets due to the elimination of the B737 fleet, the Company decided to reconfigure the entire Ted fleet of all-economy Airbus aircraft to include first class, as well as Economy Plus and economy seats. The reconfigured Airbus aircraft will provide United a consistent product offering for our customers and employees, and increases our fleet flexibility to redeploy aircraft onto former Ted and other narrow body routes as market conditions change.
Overall, the Company has characterized its business approach as “Focus on Five,” a comprehensive set of priorities that focus on the fundamentals of running a good airline: one that runs on time, with clean planes and courteous employees, that delivers industry-leading revenues and competitive costs and does so safely. Building on this foundation, United aims to regain its industry-leading position in key metrics reported by the U.S. Department of Transportation (“DOT”) as well as industry-leading revenue driven by products, services, schedules and routes that are valued by the Company’s customers. The goal


4

of this approach is intended to enable United to achievebest-in-class safety performance, exceptional customer satisfaction and experience and industry-leading margin and cash flow.
.Bankruptcy of Predecessor Company


On December 9, 2002 (the "Petition Date"“Petition Date”), UAL, United, and 26 direct and indirect wholly-owned subsidiaries (collectively, the "Debtors"“Debtors”) filed voluntary petitions to reorganize their businesses under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the "Bankruptcy Court"“Bankruptcy Court”). On January 20, 2006, the Bankruptcy Court confirmed the Debtors'Debtors’ Second Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code (the "Plan“Plan of Reorganization"Reorganization”). The Plan of Reorganization became effective and the Debtors emerged from bankruptcy protection on February 1, 2006 (the "Effective Date"“Effective Date”). On the Effective Date, the Company implemented fresh-start reporting in accordance with American Institute of Certified Public Accountants'Accountants’ Statement of Position90-7,Financial Reporting by Entities in Reorganization under the Bankruptcy Code ("(“SOP 90-7"90-7”).,

        The Plan of Reorganization generally provided for the full payment or reinstatement of allowed administrative claims, priority claims and secured claims, and the distribution of new UAL equity and debt securities resulting in significant changes as compared to the Debtors' creditors and employees in satisfaction of allowed unsecured and deemed claims. UAL common and preferred securities outstanding at January 31, 2006 were canceled. The Plan of Reorganization contemplated UAL issuing up to 125 million shares of new UAL common stock consisting of 115 million shares to be issued to unsecured creditors and employees and 10 million shares to be issued pursuant to UAL's share-based management and director compensation plans. The new UAL common stock was listed on a NASDAQ market and began trading under the symbol "UAUA" on February 2, 2006.

        Significant Matters Remaining to be Resolved in Bankruptcy Court.historical financial statements.

During the course of its Chapter 11 proceedings, the Company successfully reached settlements with most of its creditors and resolved most pending claims against the Debtors. However, certain significant matters remain to be resolved in the Bankruptcy Court. For further details, see Note 1, "Voluntary4, “Voluntary Reorganization Under Chapter 11—Significant Matters Remaining to be Resolved in Chapter 11 Cases,"” in theCombined Notes to Consolidated Financial Statements.

Operations

Segments.  The Company operates its businesses through two reporting segments: Mainline and United Express. The Company manages its business as an integrated network with assets deployed across integrated mainline and regional carrier networks. This focus on managing the business seeks to maximize the profitability of the overall airline network. Financial information on the Company'sCompany’s reporting segments and operating revenues by geographic regions, as reported to the U.S. Department of Transportation ("DOT"),DOT, can be found in Note 10, "Segment“Segment Information,"” in theCombined Notes to Consolidated Financial Statements.

Mainline.    Mainline  The Company’s mainline operating revenues were $17.1 billion, $17.0 billion in 2007,and $16.4 billion in 2008, 2007 and 2006, and $15.0 billion and $14.9 billion for UAL and United, respectively, in 2005.respectively. As of December 31, 2007,2008, mainline domestic operations served approximately 90over 80 destinations primarily throughout the U.S. and Canada and operated hubs at Chicago O'HareO’Hare International Airport ("O'Hare"(“O’Hare”), Denver International Airport (“Denver”), Los Angeles International Airport ("LAX"(“LAX”), San Francisco International Airport ("SFO"(“SFO”) and Washington Dulles International Airport ("(“Washington Dulles"Dulles”). Mainline international operations serve the Pacific, Atlantic and Latin America regions. The Pacific region includes non-stop service to Beijing, Hong Kong, Nagoya, Osaka, Seoul, Shanghai, Sydney and Tokyo and Taipei (with service to Guangzhou, China scheduled to commence in June 2008); direct service to Bangkok, Seoul, Singapore and SingaporeTaipei via Tokyo; direct service to Ho Chi Minh City and Singapore via Hong Kong and to Melbourne via Sydney. The Atlantic region includes non-stop service to Amsterdam, Brussels, Dubai, Frankfurt, Kuwait City, London, Munich, Paris, Rome and Zurich. The Latin American region offers non-stop service to Buenos Aires, Sao Paulo and direct service to Rio de Janeiro.Janeiro (seasonal non-stop) and Sao Paulo. The Latin American region also serves various Mexico destinations including Cancun, Cozumel (seasonal), Ixtapa/Zihuatanejo (seasonal), Mexico City, Puerto Vallarta and San Jose del Cabo, and Ixtapa/Zihuatanejo (seasonal);Cabo; various Caribbean points



including Aruba and seasonal service to Montego Bay, Punta Cana, and St. Maarten; and Central America including Guatemala City, Liberia, and Costa Rica (seasonal).

        UAL's

UAL’s operating revenues attributed to mainline domestic operations were $9.7 billion in 2008, $10.9 billion in 2007 and $10.0 billion in 2006 and $9.0 billion in 2005.2006. Operating revenues attributed to mainline international operations were $7.4 billion in 2008, $6.1 billion in 2007 and $6.4 billion in 2006 and $6.0 billion in 2005.2006. For purposes of the Company'sCompany’s geographic revenue reporting, the Company considers destinations in Mexico and the Caribbean to be part of the Latin America region as opposed to the North America region.


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The mainline segment operated 460409 aircraft as of December 31, 2007,2008, and produced approximately 142135.8 billion available seat miles ("ASMs"(“ASMs”) and 117110.1 billion revenue passenger miles ("RPMs"(“RPMs”) during 2007;2008; in 2006,2007, the mainline segment produced approximately 143141.9 billion ASMs and 117117.4 billion RPMs.

United Express.  United Express operating revenues were $3.1 billion in both 2008 and 2007 and $2.9 billion in 2006 and $2.4 billion in 2005.2006. United has contractual relationships with various regional carriers to provide regional jet and turboprop service branded as United Express. United Express is an extension of the United mainline network (United, Ted and p.s.). SkyWestnetwork. Chautauqua Airlines, Colgan Airlines, Go Jet Airlines, Mesa Airlines, Colgan Airlines, Chautauqua Airlines, Shuttle America, Trans States Airlines, GoJetSkyWest Airlines and ExpressJetTrans States Airlines are all United Express carriers, most of which operate under capacity purchase agreements. Under these agreements, United pays the regional carriers contractually-agreed fees (carrier-controlled costs) for operating these flights plus a variable reimbursement (incentive payment) based on agreed performance metrics. The carrier-controlled costs are based on specific rates for various operating expenses of the United Express carriers, such as crew expenses, maintenance and aircraft ownership, some of which are multiplied by specific operating statistics (e.g., block hours, departures) while others are fixed monthly amounts. The incentive payment is a markup applied to the carrier-controlled costs for superior operational performance. Under these capacity agreements, United is responsible for all fuel costs incurred as well as landing fees, facilities rent and de-icingdeicing costs, which are passed through without any markup. In return, the regional carriers operate this capacity on schedules determined by United. United which also determines pricing, revenues and inventory levels and assumes the inventory and distribution risk for the available seats.

The capacity agreements which United has entered into with United Express carriers do not include the provision of ground handling services. As a result, United Express sources ground handling support from a variety of third-party providers as well as by utilizing internal United resources in some cases.

While the regional carriers operating under capacity purchase agreements comprise over 95% of United Express flying, the Company also has limited prorate agreements with SkyWestColgan Airlines and ColganSkyWest Airlines. Under these prorate agreements, United and its prorate partners agree to divide revenue collected from each passenger according to a formula, while both United and the prorate partners are individually responsible for their own costs of operations. United also collects a program fee from Colgan Airlines to cover certain marketing and distribution costs such as credit card transaction fees, global distribution systems ("GDS"(“GDS”) transaction fees and frequent flyer costs. Unlike capacity purchase agreements, these prorate agreements require the regional carrier to retain the control and risk of scheduling, market selection, seat pricing and inventory for its flights.

United Express carriers operated 279280 aircraft as of December 31, 2007,2008, and produced approximately 1616.2 billion ASMs and 1312.1 billion RPMs during 2007,2008, while producing approximately 1616.3 billion ASMs and 1212.6 billion RPMs in 2006.

2007.

        Ted.    In February of 2004, United launched Ted in Denver to provide a tailored single-class service, including Economy Plus seating, to better serve leisure destinations in the United network. Currently 56 A320 aircraft are configured for Ted service. Ted provides service from United's five domestic hubs to destinations in Arizona, California, Florida, Louisiana, Nevada, Mexico and the



Caribbean. As of December 31, 2007, Ted provided service from all of United's hubs to 11 destinations in the U.S., including its territories, and five in Mexico.

United Cargo.  United Cargo offers both domestic and international shipping through a variety of services including United Small Package Delivery, Express and General cargo services. Freight shipments comprise approximately 90%85% of United Cargo'sCargo’s volumes, with mail comprising the remainder. During 2007,2008, United Cargo accounted for approximately 4% of the Company'sCompany’s operating revenues by generating $770$854 million in freight and mail revenue, a 3%an 11% increase versus 2006.

2007.

United Services.  United Services is a global airline support business offering customers comprehensive aircraft maintenance, repair and overhaul ("MRO"(“MRO”) services which include engine maintenance, maintenance of high-tech components,and line maintenance and landing gear maintenance.services. United Services brings nearly 80 years of experience to serve approximately 110over 100 airline customerscustomer contracts worldwide. During 2008 and 2007, United Services generated approximately $167 million and $183 million, respectively, in third-party revenue, a 15% decrease as compared to 2006 as a result of the discontinuance of some low margin contracts. Revenues from ground handling and flight crew training services, which were $67 million in 2006, are not classified as part of United Services in 2007.

revenue.

Fuel.    Since 2005, fuel has been the Company's largest operating expense. The Company's annual mainline and United Express fuel costs and consumption for 2007 and 2006 were as follows:

 
 2007
 2006
 
 Mainline
 United
Express
 Mainline
 United
Express
Gallons consumed (in millions)  2,292  377  2,290  373
Average price per gallon, including tax and
    hedge impact		 $2.18 $2.43 $2.11 $2.23
Cost (in millions) $5,003 $915 $4,824 $834

        United Express fuel expense is classified as Regional affiliates expense in theStatements of Consolidated Operations.

  The price and availability of jet fuel significantly affectaffects the Company'sCompany’s results of operations. Fuel has been the Company’s largest operating expense for the last several years. The Company has a risk management strategy to hedge a portion of its price risk related to projected jet fuel requirements. The Company utilizes various types of hedging instruments including purchased calls, collars, 3-way collars and 4-way collars. A significantcollar involves the purchase of fuel call options with the simultaneous sale of


6

fuel put options with identical expiration dates. If fuel prices rise above the ceiling of the collar, the Company’s counterparties are required to make settlement payments to the Company, while if fuel prices fall below the floor of the collars, the Company is required to make settlement payments to its fuel hedge counterparties. In addition, the Company has been and may in the future be further required to provide counterparties with cash collateral prior to settlement of the hedge positions.
In both 2008 and 2007, an increase in jet fuel prices was the primary reason that the Company'sfor higher mainline and United Express fuel expense increasedand aircraft fuel cost per gallon, as highlighted in eachthe table below. The price of crude oil reached a record high of approximately $145 per barrel in July 2008 and then dramatically decreased in the second half of the last three years. year to approximately $45 per barrel at December 31, 2008. This significant fuel price volatility drove the Company’s total fuel hedge losses of more than $1.1 billion in 2008. A significant portion of these losses were unrealized as of December 31, 2008 and could increase or decrease in future periods based on future changes in market prices before the related hedge contracts settle. While the Company’s results of operations should benefit significantly from lower fuel prices on its unhedged fuel consumption, in the near term lower fuel prices could also significantly and negatively impact liquidity based on the amount of cash settlements and collateral that may be required.
The Company mayaccounts for the majority of its fuel derivative contracts as economic hedges, which aremarked-to-market with gains and losses classified as fuel expense. Remaining fuel derivative contracts which do not be ablequalify for economic hedge accounting aremarked-to-market with gains and losses classified as nonoperating expense. See Item 7A,“Quantitative and Qualitative Disclosures About Market Risk”and Note 13, “Fair Value Measurements and Derivative Instruments,” inCombined Notes to offset allConsolidated Financial Statementsfor additional details regarding gains and losses from settled and open positions, cash settlements, unrealized amounts at the end of any futurethe period and hedge collateral. Derivative gains and losses from contracts qualifying for economic hedge accounting are recorded in mainline fuel expense increases through higher revenues and the use ofare not allocated to United Express fuel hedge contracts.

expense.

                         
     Average price per gallon
 
  $  (in cents) 
(In millions, except per gallon)
 2008  2007  2006  2008  2007  2006 
 
Mainline fuel purchase cost $7,114  $5,086  $4,798   326.0   221.9   209.5 
Non-cash fuel hedge (gains) losses in mainline fuel  568   (20)  2   26.0   (0.9)  0.1 
Cash fuel hedge (gains) losses in mainline fuel  40   (63)  24   1.9   (2.7)  1.1 
                         
Total mainline fuel expense  7,722   5,003   4,824   353.9   218.3   210.7 
United Express fuel expense(a)  1,257   915   834   338.8   242.7   223.2 
                         
UAL system operating fuel expense $8,979  $5,918  $5,658   351.7   221.7   212.5 
                         
Non-cash fuel hedge losses in nonoperating income (loss) $279  $—  $—             
Cash fuel hedge losses in nonoperating income (loss)  249   —   —             
Mainline fuel consumption (gallons)  2,182   2,292   2,290             
Regional affiliates fuel consumption (gallons)  371   377   373             
                         
Total fuel consumption (gallons)  2,553   2,669   2,663             
(a)United Express fuel costs are classified as part of Regional affiliate expense.
To ensure adequate supplies of fuel and to provide a measure of control over fuel costs, the Company arranges to have fuel shipped on major pipelines and stored close to its major hub locations. Although the Company currently does not anticipate a significant reduction in the availability of jet fuel, a number of factors make predicting fuel prices and fuel availability uncertain, including changes in world energy demand, geopolitical uncertainties affecting energy supplies from oil-producing nations, industrial accidents, threats of terrorism directed at oil supply infrastructure, extreme weather conditions causing temporary shutdowns of production and refining capacity, andas well as changes in relative demand for other petroleum products that may impact the quantity and price of jet fuel produced from period to period.


7

Alliances.  United has entered into a number of bilateral and multilateral alliances with other airlines, expandingwhich enhance travel choicesoptions for our customers through these relationships by participating inseeking access to markets worldwide that United does not serve directly. These marketing alliances typically include one or more of the following features: joint frequent flyer program participation; code sharingcodesharing of flight operations (whereby selected seats on one carrier'scarrier’s selected flights can be marketed under the brand name of another carrier); coordination of reservations, ticketing, passenger check-in, baggage handling and flight schedules; and other resource-sharing activities.


The most significant of these arrangements is the Star Alliance, a global integrated airline network co-founded by United in 1997. As of February 1, 2008,2009, Star Alliance carriers serve nearlyapproximately 900 destinations in 160159 countries with over 17,00016,500 average daily flights. Current Star Alliance partners, in addition to United, are Air Canada, Air China, Air New Zealand, All Nippon Airways, Asiana, the Austrian Airlines Group, bmi, EgyptAir, LOT Polish Airlines, Lufthansa, SAS, Shanghai Airlines, Singapore Airlines, South African Airways, Spanair, Swiss, TAP Portugal, THAI, Turkish Airlines and US Airways. Regional member carriers are Adria Airways (Slovenia), Blue1 (Finland) and Croatia Airlines. Air India, EgyptAirBrussels Airlines, Continental Airlines and TurkishTAM Airlines have been accepted as future members and are expected to joinbecome future members of the Star Alliance soon.

Alliance.

United also has independent marketing agreements with other air carriers including Aloha,Aer Lingus, Air One, Great Lakes Aviation, Gulfstream International, Great Lakes Aviation,Hawaiian, Island Air, Qatar Airways, TACA Group TAM and Virgin Blue.
Continental Alliance.  In February 2008, US AirwaysUnited and United reached final agreement on amendmentsContinental announced their plan to form a new alliance partnership that will link the airlines’ networks and services worldwide to the contracts governing their code sharebenefit of customers, employees and shareholders, creating new revenue opportunities, cost savings and other efficiencies. In addition, Continental plans to join United and its 20 other partners in the Star Alliance, relationship;the most comprehensive airline alliance in the world. During 2008, United, Continental and eight other airlines submitted a request to the DOT and applicable foreign authorities to allow Continental to join United, Air Canada, Lufthansa and six other carriers in their already established anti-trust immunized alliance. If approved, the immunity will enable United, Air Canada, Continental and Lufthansa to implement a joint venture covering transatlantic routings that would deliver highly competitive flight schedules, fares and service. In the U.S. market, where antitrust immunity would not apply, customers will benefit as United and Continental plan to begin broad codesharing, which eases travel for customers flying on itineraries using both carriers, and cooperation on frequent flyer programs and airport lounges, subject to regulatory notice and Continental exiting certain of its current alliance relationships. In addition, United and Continental are also exploring opportunities to capture important cost savings in the areas of information technology, frequent flyer programs, airport operations, lounges, procurement and sales and marketing.
Continental’s and United’s route networks are highly complementary, with little overlap, so they add value to each other and to customers who are planning domestic and international travel. Under codesharing, customers will benefit from a coordinated process for reservations/ticketing, check-in, flight connections and baggage transfer. Frequent flyer reciprocity will allow members of Continental’s OnePass program and United’s Mileage Plus program to earn miles in their accounts when flying on either partner airline and redeem awards on both carriers. Continental’s plans to join the Star Alliance and other planned cooperation are subject to certain regulatory and other approvals and the Bankruptcy Court approved these amendments.

termination of certain contractual relationships, including Continental’s existing agreements with SkyTeam members that restrict its participation in another global alliance.

Mileage Plus.  Mileage Plus builds customer loyalty by offering awards and services to frequent travelers. Mileage Plus members can earn mileage credit for flights on United, United Express, Ted, members of the Star Alliance and certain other airlines that participate in the program. Miles can also can be earned by purchasing the goods and services of our non-airline partners, such as hotels, car rental companies and credit card issuers. Mileage credits can be redeemed for free, discounted or upgraded travel and non-travel awards. There are more than 5254 million members enrolled in Mileage Plus. In 2007, 2.22008, 2.3 million Mileage Plus travel awards were used on United, as compared to 2.2 million in 2007


8

and 2.3 million in 2006 and 2.2 million in 2005.2006. These amounts represent the number of awards for which travel was provided and not the number of available seats that were allocated to award travel. These awards represented 8.0%9.1% of United'sUnited’s total revenue passenger miles in 2008, 8.0% in 2007 and 8.1% in 2006 and 7.4% in 2005.2006. In addition, Mileage Plus members redeemed miles for 928,000 approximately 613,000non-United awards in 20072008 as compared to 610,000928,000 in 2006. 2007.Non-United awards include awards such as Red Carpet club memberships, car and hotel awards, merchandise and travel solely on another air carrier. Total miles redeemed for travel on United in 2007,2008, including travel awards andclass-of-service upgrades, represented 88%89% of the total miles redeemed (for both completed and future travel).

The Company expanded its offering of merchandise available for awards in 2009, which may increase the amount of non-travel awards.

For a detailed description of the accounting treatment of Mileage Plus program activity, which was changed to a deferred revenue model upon the adoption of fresh-start reporting on the Effective Date, see "CriticalCritical Accounting Policies" Policiesin Item 7,, Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations.

UAL Loyalty Services, LLC ("ULS"(“ULS”).  ULS focuses on expanding the non-core marketing businesses of United and building airline customer loyalty. ULS operates substantially all United-branded travel distribution and customer loyaltye-commerce activities, such as united.com. In addition, ULS owns and operates Mileage Plus, being responsible for member relationships, communications and account management; while United is responsible for other aspects of Mileage Plus, including elite membership programs such as Global Services, Premier, Premier Executive and Premier Executive 1K, and the establishment of award mileage redemption programs and airline-related customer loyalty recognition policies. United is also responsible for managing relationships with its Mileage Plus airline partners, while ULS manages relationships with non-airline business partners, such as the Mileage Plus Visa Card, hotels, car rental companies and dining programs, among others.

Distribution Channels.  The majority of United'sUnited’s airline seat inventory continues to be distributed through the traditional channels of travel agencies and GDS, such as Sabre and Galileo. The growing use of alternative distribution systems, includingwww.united.comand GDS new entrants, however, provides United with an opportunity to lower its ticket distribution costs. To encourage customer use of



lower-cost channels and capitalize on these cost-saving opportunities, the Company will continue to expand the capabilities of its website.

Industry Conditions

Seasonality.  The air travel business is subject to seasonal fluctuations. The Company'sCompany’s operations can be adversely impacted by severe weather and the first and fourth quarter results of operations normally reflect lower travel demand. Historically, results of operations are better in the second and third quarters which reflect higher levels of travel demand.

Domestic Competition.  The domestic airline industry is highly competitive and dynamic. In domestic markets, new and existing carriers are generally free to initiate service between any two points within the U.S. United'sUnited States. United’s competitors consist primarily of other airlines, a number of whom are low-cost carriers ("LCC(s)"(“LCCs”) with cost structures lower than United's,United’s, and, to a lesser extent, other forms of transportation.

The rate of capacity increases in the domestic market has slowed in the past several years, but LCCs have continued expanding into markets where United flies. United has extensive experience competing directly with LCCs in its markets and believes it is well positioned to compete effectively. In response to the adverse economic conditions in 2008, United and many of its competitors implemented significant capacity reductions in both domestic and international markets.


9

United’s capacity increases (decreases) for 2008 and its forecasted 2009 capacity decreases, as compared to the year-ago periods, are summarized in the following table:
       
    Mainline
  Consolidated Domestic International
 
Fourth Quarter 2008 (10.6)% (14.4)% (8.1)%
Full-year 2008 (3.9)% (7.8)% 0.9%
First Quarter 2009 (12.5)% to (11.5)% (14.0)% to (13.0)% (15.0)% to (14.0)%
Full-year 2009 (8.0)% to (7.0)% (12.5)% to (11.5)% (6.0)% to (5.0)%
During 2008, several smaller carriers entered into either bankruptcy liquidation or reorganization proceedings. Carriers that reorganize through bankruptcy proceedings may be able to improve their cost structure making them more competitive with the rest of the industry. In addition, Delta Airlines completed its acquisition of Northwest Airlines Corporation in late 2008. This merger may enable the combined airline to improve its revenue and cost performance relative to peers and thus enhance its competitive position within the industry. It is also possible that other airline mergers or acquisitions may occur in the future.
Domestic pricing decisions are largely affected by the need to be competitive with other U.S. airlines. Fare discounting by competitors has historically had a negative effect on the Company'sCompany’s financial results because United often finds it necessary to match competitors'competitors’ fares to maintain passenger traffic. Attempts by United and other network airlines to raise fares often fail due to lack of competitive matching by LCCs; however, because of capacity constraint, and the pressure of higher fuel prices and other industry conditions, some fare increases have occurred.occurred in recent years. Because of different cost structures, low ticket prices that may generate a profit for a LCC may have an adverse effect on the Company'sCompany’s financial results. Also, additional revenue from fuel-related fare increases may not completely offset the Company'sCompany’s increased cost of fuel.

International Competition.  In United'sUnited’s international networks, the Company competes not only with U.S. airlines, but also with foreign carriers. Competition on specified international routes is subject to varying degrees of governmental regulations. Recently the U.S. and European Union ("EU"(“EU”) reachedimplemented an agreement to reduce restrictions on flight operations between the two entities. This agreement is expected to increasehas increased competition on United'sUnited’s transatlantic network from both U.S. and European airlines. In our Pacific operations, competition will be increasing as the governments of the U.S. and China permit more U.S. and Chinese airlines to fly new routes between the two countries.countries, although the commencement of some new services to China has been recently postponed due to the weak global economy. See "IndustryIndustry Regulation", below. Part of United'sUnited’s ability to successfully compete withnon-U.S. carriers on international routes is its ability to generate traffic from and to the entire U.S. via its integrated domestic route network. Foreign carriers are currently prohibited by U.S. law from carrying local passengers between two points in the U.S. and United experiences comparable restrictions in many foreign countries. In addition, U.S. carriers are often constrained from carrying passengers to points beyond designated international gateway cities due to limitations in air service agreements or restrictions imposed unilaterally by foreign governments. To compensate for these structural limitations, U.S. and foreign carriers have entered into alliances and marketing arrangements that allow these carriers to feedexchange traffic tobetween each other'sother’s flights and route networks (see "Alliances," Alliances,above, for further details).
Economic Conditions.  Airlines are highly susceptible to negative financial impacts caused by major changes in the global economy that drive sudden severe swings in costs or revenues. During 2008, the combined forces of high fuel prices, extensive competition and a severe global recession drove numerous U.S. and international carriers to file for bankruptcy and, in some cases, to liquidate. While fuel costs have significantly fallen since reaching historic highs in the summer of 2008, overall demand for airline services has decreased, and may decrease further, and the depth of, and recovery from, the global recession continues to be uncertain. As discussed further in Item 1A,Risk Factors, and in Item 7,Management’s Discussion and Analysis of Financial Condition and Results of Operations,the current


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economic conditions have had, and may continue to have, negative impacts on passenger demand, revenues, the level of credit card sales activity and our cargo operations. In response to these economic conditions, United and other carriers in the industry implemented significant reductions in domestic and international capacity, which are expected to continue into 2009.
Insurance.  United carries hull and liability insurance of a type customary in the air transportation industry, in amounts that the Company deems appropriate, covering passenger liability, public liability and damage to United'sUnited’s aircraft and other physical property. United also maintains other types of insurance such as property, directors and officers, cargo, workers’ compensation, automobile and the like, with limits and deductibles that are standard within the industry. SinceAfter the September 11, 2001 terrorist attacks, the Company'sCompany’s insurance premiums increased significantly but have increased significantly.since been reduced reflecting the market’s perception of risk, as well as the Company’s ongoing capacity reductions. Additionally, after September 11, 2001,



commercial insurers canceled United'sUnited’s liability insurance for losses resulting from war and associated perils (terrorism, sabotage, hijacking and other similar events). The U.S. government subsequently agreed to provide commercial war-risk insurance for U.S. based airlines and has renewed this coverage on a periodic basis. The current war-risk policy is effective until AugustMarch 31, 2008 covering2009 and covers losses to employees, passengers, third parties and aircraft. The Secretary of Transportation may extend this coverage until DecemberMay 31, 2008.2009. If the U.S. government does not extend this coverage beyond AugustMarch 31, 2008,2009, obtaining comparable coverage from commercial underwriters could result in substantially higher premiums and more restrictive terms, if it is available at all. See "Increases“Increases in insurance costs or reductions in insurance coverage may adversely impact the Company'sCompany’s operations and financial results"results” in Item 1A,Risk Factors, below.

Industry Regulation

Domestic Regulation.

General.  All carriers engaged in air transportation in the United StatesU.S. are subject to regulation by the DOT. Among its responsibilities, the DOT issues certificates of public convenience and necessity for domestic air transportation (no air carrier, unless exempted, may provide air transportation without a DOT certificate of public convenience and necessity), grants international route authorities, approves international code share agreements, regulates methods of competition and enforces certain consumer protection regulations, such as those dealing with advertising, denied boarding compensation and baggage liability.

Airlines also are regulated by the Federal Aviation Administration ("FAA"(“FAA”), a division of the DOT, primarily in the areas of flight operations, maintenance and other safety and technical matters. The FAA has authority to issue air carrier operating certificates and aircraft airworthiness certificates, prescribe maintenance procedures and regulate pilot and other employee training, among other responsibilities. From time to time, the FAA issues rules that require air carriers to take certain actions, such as the inspection or modification of aircraft and other equipment, that may cause the Company to incur substantial, unplanned expenses. The airline industry is also subject to various other federal state and local laws and regulations. The U.S. Department of Homeland Security ("DHS"(“DHS”) has jurisdiction over virtually all aspects of civil aviation security. See "Legislation," below. The U.S. Department of Justice ("DOJ"(“DOJ”) has jurisdiction over certain airline competition matters. The U.S. Postal Service has authority over certain aspects of the transportation of mail. Labor relations in the airline industry are generally governed by the Railway Labor Act ("RLA"(“RLA”). The Company is also subject to inquiries by the DOT, FAA and other U.S. and international regulatory bodies.

Airport Access.  Access to landing and take-off rights, or "slots,"“slots,” at several major U.S. airports and many foreign airports served by United are, or recently have been, subject to government regulation. The FAA designated Ronald
Domestic slot restrictions currently apply at Washington Reagan Washington National Airport in Washington D.C. as a "High Density Rule traffic airport" and has limited the number of departure and arrival slots at the airport. Slot restrictions at O'Hare were eliminated in July 2002 and were eliminated at, John F. Kennedy International Airport ("JFK") and LaGuardiaLa Guardia Airport, ("LaGuardia"), both in New York, and Newark Airport in January 2007. From time to time, the elimination of slot restrictions has impacted United's operational performance and reliability.

        Notwithstanding the formal elimination of slotNew Jersey. Slot restrictions at O'Hare in July 2002, the FAA imposed temporary restrictions on flight operations there beginning in 2004O’Hare ceased to address air traffic congestion concerns.apply as of November 2008. In August 2006,2008, the FAA issued new rules related to slots at the three New York City-area airports named above. These rules provide for


11

government confiscation of a longer-term rule restricting flight operationsportion of slots at O'Hare,each airport from incumbent airlines and establish a process whereby those slots will be auctioned over the course of five years. The confiscation and auction provisions are controversial and are currently the subject of litigation in federal appellate court, in which remainscarriers serving those airports and the Port Authority of New York and New Jersey claim that the FAA lacks legal authority to conduct slot auctions. On December 8, 2008, the federal appellate court in Washington D.C. stayed the auction pending a decision on the challenges to the auction process. It is difficult to predict the outcome of that litigation. If the slot auction provisions remain in effect, through October 2008.

        At LaGuardia,United will likely lose a small number of slots at each of the FAA has proposed an interim rule that would impose caps and restrictions on flight operations similar to those in effect at O'Hare. The interim rule took effect in January 2007 whenthree New York City-area airports, however the High Density Rule expired. The FAA has also proposed a longer-term rule at LaGuardia thatexact number is designed to control air traffic congestion there indefinitely. The longer-term proposal contains several



elements that could impact United's schedule and operational performance at LaGuardia.not yet known. It is not possibleyet clear what impact this might have on United’s operations at those airports.

Also in 2008, the DOT finalized amendments to its rates and charges policy that grant new authority to U.S. airports to implement forms of congestion pricing. The Air Transport Association has filed a legal challenge to the amended policy. We are currently unaware of any action by an airport to change pricing based on the new authority. It is difficult to predict whether any given airport might seek to implement this new authority and what impact on revenues or when such longer-term rulescosts a change in airport charges arising from this policy might take effect.

        In addition, in reaction to substantial flight delays and congestion inhave on United.

At the New York City region during the summer monthsend of 2007 and an increase in scheduled flights for summer 2008, the FAA announced plans to impose capacity limits at JFK and Newark airports beginning in the summer season 2008 and which would remain in effect through the summer season 2009. In addition, the DOT has indicated an intention to propose additionalproposed new regulations for managing airport congestion. However it is difficult at this timeintended to predictenhance air passenger protection. If made final as proposed, the impactnew regulations would create new areas of any new legislation onregulation and potentially permit passengers to sue air carriers should the Company's operations.

carriers fail to meet certain service performance criteria.

Legislation.  The airline industry is also subject to legislative activity that can have an impact on operations and costs. Specifically, the law that authorizes federal excise taxes and fees assessed on airline tickets expired in September 2007 was extended to February 28, 2008, and is currently extended again until February 29, 2008. In late February 2008, Congress sent legislation to the President that would extend these federal excise taxes and fees until June 30, 2008.March 31, 2009. Congress is currently attempting to pass comprehensive reauthorization legislation to impose a new funding structure and make other changes to FAA operations. Past aviation reauthorization bills have affected a wide range of areas of interest to the industry, including air traffic control operations, capacity control issues, airline competition issues, aircraft and airport technology requirements, safety issues, taxes, fees and other funding sources.

There also exists the possibility that Congress may pass other legislation that could increase labor and operating costs. Legislation is expected to focus on outsourced maintenance, Family and Medical Leave Act changes and other work rules. Climate change legislation, which would regulate green-house gas emissions, is also likely to be a significant area of legislative and regulatory focus and could adversely impact fuel costs. Customer service issues have been a significant focus ofremained active areas for both Congress and DOT regulators during 2007. It is likely that2008. In addition to DOT-proposed customer service regulations discussed above, legislation imposing more specific customer service requirements willis likely to be approved by Congress in 2008,2009, though what those requirements might be is unclear at this time. The DOT has also initiated processes to considerproceeded with regulatory changes in this area, including proposals regarding treatment of and payments to passengers involuntarily denied boarding, anddomestic baggage liability, proposals regarding flight delay reporting requirements and airline scheduling practices.

        On January 1, 2008, the State of New York implemented legislation requiring air carriers operating within the state to offer certain enumerated services to passengers experiencing extended on-board ground delays of greater than three hours. The New York law authorizes the state Consumer Protection Board to impose civil penalties for non-compliance. Although the Air Transport Association has filed a lawsuit challenging the New York statute on the grounds that federal law prohibits state regulation of airline services, several other states are considering similar legislation. The New York legislation and any other similar legislation if adopted in other states could have an impact on the Company's results of operations or financial condition.

Additionally, since September 11, 2001, aviation security has been and continues to be a subject of frequent legislative and regulatory action, requiring changes to ourthe Company’s security processes and frequently increasing the cost of its security procedures for the Company. The Aviation and Transportation Security Act (the "Aviation Security Act"), enacted in November 2001, has had wide-ranging effects on our operations. The Aviation Security Act made the federal government responsible for virtually all aspects of civil aviation security, creating a new Transportation Security Administration ("TSA"), which is a part of the DHS pursuant to the Homeland Security Act of 2002. Under the Aviation Security Act, substantially all security screeners at airports are now federal employees and significant other aspects of airline and airport security are now overseen by the TSA. Pursuant to the Aviation Security Act, funding for airline and airport security is provided in part by a passenger security fee of $2.50 per flight segment (capped at $10.00 per round trip), which is collected by the air carriers from passengers and remitted to the government. In addition, air carriers are required to submit to the government an additional security fee equal to the amount each air carrier paid for security screening of passengers and property in 2000. A DHS/U.S. Customs and Border Protection ("CBP") regulation effective in early 2008 will give CBP a greater role in airline customer processing, and potentially a greater operational role, as CBP will forbid boarding international passengers until it has cleared passenger names against watch lists. A proposed TSA regulation regarding domestic passengers, "Secure Flight," currently in the rulemaking

procedures.


process, is likely to expand TSA's role in similar ways when that rule becomes effective. Congress is expected to continue to focus on changes to aviation security law and requirements in 2008. Particular areas of attention that could result in increased costs for air carriers will likely include new requirements on cargo screening, possible deployment of antimissile technology on passenger aircraft and potential for increased passenger and carrier security fees.

International Regulation.

General.  International air transportation is subject to extensive government regulation. In connection with United'sUnited’s international services, the Company is regulated by both the U.S. government and the governments of the foreign countries United serves. In addition, the availability of international routes to U.S. carriers is regulated by treaties and related aviation agreements between the U.S. and foreign governments, and in some cases, fares and schedules require the approval of the DOTand/or the relevant foreign governments.


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Airport Access.  Historically, access to foreign markets has been tightly controlled through bilateral agreements between the U.S. and each foreign country involved. These agreements regulate the number of markets served, the number of carriers allowed to serve each market and the frequency of carriers'carriers’ flights. Since the early 1990s, the U.S. has pursued a policy of "open skies"“open skies” (meaning all carriers have access to the destination), under which the U.S. government has negotiated a number of bilateral agreements allowing unrestricted access tobetween U.S. and foreign markets. Additionally, all of the airports that United serves in Europe and Asia maintain slot controls, and many of these are restrictive due to congestion at these airports. London Heathrow, Frankfurt and Tokyo Narita are among the most restrictive due to capacity limitations, andlimitations. United has significant operations at these locations.

        Further, United's

United’s ability to serve some countriesforeign markets and expand into certain others is limited by the absence altogether of aviation agreements between the U.S. government and the relevant governments. Shifts in U.S. or foreign government aviation policies can lead to the alteration or termination of air service agreements between the U.S. and other countries.agreements. Depending on the nature of theany such change, the value of United'sUnited’s international route authorities and slot rights may be materially enhanced or diminished.

        On April 30, 2007,

The U.S./EU open skies agreement became effective in March 2008. This agreement replaced the U.S. and the EU signed a transatlantic aviation agreement to replace the existing bilateral arrangements between the U.S. Governmentgovernment and the 27 EU member states. The agreement is expected to become effective at the end of March 2008.

        The agreement is basedBased on the U.S. open skies model, it provides U.S. and authorizesEU carriers with expansive rights that have increased competition in transatlantic markets. For example, U.S. airlinesand EU carriers now have the right to operate between the United States and any point in the EU and beyond, free from government restrictions on capacity, frequencies and scheduling and provides EU carriers with reciprocal rights in these U.S./EU markets. The agreement also authorizes all U.S. and EU carriers to operate services between the United States and London Heathrow, thereby potentially adding new competition to United's Heathrow operation, although Heathrow is currently subject to bothEU. The Agreement has no direct impact on airport slot and facility constraints which may practically limit the growth of new competition in the near term. This agreementrights nor does notit provide for a reallocation of existing slots, among carriers.

        Underincluding those at London Heathrow. London Heathrow currently remains subject to both slot and facility constraints.

The agreement provides United with additional commercial opportunities since it triggered the agreement's "Community Carrier" clause, an EUeffectiveness of United’s anti-trust immunity with British carrier may operate services tobmi, creating the United States from any pointpotential for increased cooperation between the two carriers in the EU and not simply from its hometransatlantic market. A numberThe DOT had previously conditioned the carriers’ immunity upon the entry into force of EU carriers have indicated that they will commence services from outside their home markets to the U.S. when the agreement becomes effective, thereby potentially increasing competition in many transatlantic markets.

        The agreement would confer a number of additional rights to EU carriers that are designed to redress what the EU considers to be an imbalance between U.S. carrier access to the intra-EU market versus EU carrier access to the U.S. domestic market. In particular, EU ownership of more than



50 percent of a U.S. carrier will not be presumed to violate the actual control by U.S. citizens requirement, provided foreign ownership of the voting equity of the U.S. carrier does not exceed the statutory limit of 25 percent. U.S. ownership of EU carriers may not exceed 49.9 percent and the EU may enact future legislation restricting U.S. ownership of the voting stock of EU airlines to 25 percent. The agreement also provides EU passenger carriers with the right to operate between the U.S. and a limited number of non-EU countries and does not provide reciprocal rights to U.S. carriers.

        The EU/U.S. open skies agreement will likely directly impactwith the future valueU.K. and expected lives of route authorities to Heathrow; however, there is no direct impact from the open skies agreement on airport slot rights, including those at Heathrow. The open skies agreement is also expected to provide United and other carriers with access to new markets in EU countries. In September 2007, the DOT granted United antitrust immunity with bmi. The immunity goes into effect at the same time as the open skies agreement between the U.S. and /EU at the end of March 2008.agreement satisfies this condition. Because of the diverse nature of potential impacts on United'sUnited’s business, from the EU transatlantic aviation agreement,however, the overall future impact of the U.S./EU agreement on United'sUnited’s business in the EU region cannot be predicted with certainty.

        The European Commission (the "Commission") is expected to propose important new legislation or to adopt

Also in 2008, the EU adopted interpretive guidance and legislation that will impact the Company. The Commission recently proposed legislation that would significantly deregulate the current Computer Reservation System ("CRS") Code of Conduct. If adopted, this legislation may lead to lower airline distribution costs in Europe. The Commission may also take steps tohas officially sanctionsanctioned secondary slot trading, which is a current practice among carriers that involves the sale, purchase or lease of slots. If adopted, that legislation or interpretive guidance should resolveThis action resolves disputes about the legality of slot exchanges at EU airports and permit carriers to continue with this longstanding practice.including Heathrow. In addition, the EU has adopted legislation to include aviation within the EU'sEU’s existing greenhouse gas emissions trading scheme is currently being considered withineffective in 2012. There are significant questions that remain as to the EU legislative process. If adopted,legality of applying the scheme to non-EU airlines and the U.S. and other governments are considering filing a legal challenge to the EU’s unilateral inclusion of non-EU carriers. While such a measure could add significantly toincrease the costs of airlinescarriers operating in the EU, member states. Thethe precise cost to United is difficult to calculate with certainty due to a number of variables, and it is not clear whether the scheme will depend upon the terms of the legislation enacted, which would determine whether United will be forced to buy emission allowances and the cost at which these allowances may be obtained.

        Pursuant to an agreement reached in December 2005, a full open skies agreement between the United States and Canada came into force in 2007. The DOT also approved the 9-party antitrust immunity application (including United, Air Canada, Lufthansa, SAS, Austrian, Swiss, LOT, TAP and bmi), allowing United and Air Canada to expand their existing antitrust immunity beyond the currently allowed transborder region.

withstand legal challenge.

Environmental Regulation.

The airline industry is subject to increasingly stringent federal, state, local and foreign environmental laws and regulations concerning emissions to the air, discharges to surface and subsurface waters, safe drinking water and the management of hazardous substances, oils and waste materials. New regulations surrounding the emission of greenhouse gases (such as carbon dioxide) are being considered for promulgation both internationally and within the United States. United is carefully evaluating the potential impact of such proposed regulations. Other areas of developing regulations include the State of California rule-makings regarding air emissions from ground support equipment and a federalrule-making concerning the discharge of deicing fluid. The airline industry is also subject to other environmental laws and regulations, including those that require the Company to remediate soil or groundwater to meet certain objectives. Compliance with all environmental laws and regulations can


13

require significant expenditures. Under the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as "Superfund,"“Superfund,” and similar environmental cleanup laws, generators of waste materials and owners or operators of facilities, can be subject to liability for investigation and remediation costs at locations that have been identified as requiring response actions.



The Company also conducts voluntary environmental assessment and remediation actions. Environmental cleanup obligations can arise from, among other circumstances, the operation of aircraft fueling facilities and primarily involve airport sites. Future costs associated with these activities are currently not expected to have a material adverse affect on the Company'sCompany’s business.

Employees

As of December 31, 2007,2008, the Company and its subsidiaries had approximately 55,00050,000 active employees, of whom approximately 81%83% were represented by various U.S. labor organizations. The employee groups, number of employees and labor organization for each of United'sUnited’s collective bargaining groups were as follows:

Employee Group
Number of
Employees
Union(1)
Contract Open
Employee Group
EmployeesUnion(a)for Amendment
Public Contact/Ramp & Stores/Food Service Employees/Security
Officers/Maintenance
Instructors/Fleet Technical Instructors 17,32115,801 IAM January 1, 2010
Flight Attendants 15,03813,238 AFA January 8, 2010
Pilots 6,5186,366 ALPA January 1, 2010
Mechanics & Related 5,5515,240 AMFATeamsters(b) January 1, 2010
Engineers 261220 IFPTE January 1, 2010
Dispatchers 172173 PAFCA January 1, 2010
(1)
International Association of Machinists and Aerospace Workers ("IAM"), Association of Flight Attendants—Communication Workers of America ("AFA"), Air Line Pilots Association ("ALPA"), Aircraft Mechanics Fraternal Association ("AMFA"), International Federation of Professional and Technical Engineers ("IFPTE") and Professional Airline Flight Control Association ("PAFCA").

(a)International Association of Machinists and Aerospace Workers (“IAM”), Association of Flight Attendants—Communication Workers of America (“AFA”), Air Line Pilots Association (“ALPA”), International Brotherhood of Teamsters (“Teamsters”), International Federation of Professional and Technical Engineers (“IFPTE”) and Professional Airline Flight Control Association (“PAFCA”).
(b)During 2008, United’s mechanics and related employees elected to change their union representation from the Aircraft Mechanics Fraternal Association to the Teamsters. The Teamsters assumed the existing collective bargaining agreement between United and this employee group on April 1, 2008.
Collective bargaining agreements ("CBAs") are negotiated under the RLA, which governs labor relations in the air transportation industry, and such agreements typically do not contain an expiration date. Instead, they specify an amendable date, upon which the contract is considered "open“open for amendment." Before the amendable date, neither party is required to agree to modifications to the bargaining agreement. Nevertheless, nothing prevents the parties from agreeing to start negotiations or to modify the agreement in advance of the amendable date.” Contracts remain in effect while new agreements are negotiated. During the negotiatingnegotiation period, both the Company and the negotiating union are required to maintain the status quo. The Company plans to begin negotiations with its labor groups in 2009.


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        On December 4, 2007, the International Brotherhood of Teamsters ("Teamsters") filed an application with the National Mediation Board ("NMB") seeking the right to represent United's mechanics and related employees, who are currently represented by AMFA. On January 24, 2008 the NMB found that the Teamsters had submitted sufficient valid signed authorization cards from a majority of the eligible employees and ordered that a representation election be conducted. Voting will take place from February 26, 2008 through March 31, 2008. AMFA and Teamsters will appear on the ballot. Write-in votes are permitted. If a majority of eligible employees (active and furloughed) vote in favor of union representation, the union receiving a majority of the votes would be declared the representative. If a majority of the employees vote for representation, but no single organization receives a majority of the votes cast, there would be a runoff election between the two organizations receiving the most votes. If less than a majority of eligible employees cast ballots in the initial election, the employees will become unrepresented.


ITEM 1A.    RISK FACTORS.

ITEM 1A. RISK FACTORS.
The following risk factors should be read carefully when evaluating the Company'sCompany’s business and the forward-looking statements contained in this report and other statements the Company or its representatives make from time to time. Any of the following risks could materially adversely affect the Company'sCompany’s business, operating results, financial condition and the actual outcome of matters as to which forward-looking statements are made in this report.

Risks Related to the Company'sCompany’s Business
The Company may be unable to continue to comply with certain covenants in its Amended Credit Facility and other agreements which, if not complied with, could accelerate repayment of the Amended Credit Facility and similarly impact the Company’s obligations under certain other agreements, thereby materially and adversely affecting the Company’s liquidity.
In February 2007, the Company entered into an Amended and Restated Revolving Credit, Term Loan and Guaranty Agreement dated as of February 2, 2007 with JPMorgan Chase Bank, N.A, Citicorp USA, Inc., J.P. Morgan Securities Inc., Citigroup Global Markets, Inc. and Credit Suisse Securities (USA) LLC (the “Amended Credit Facility”) after prepaying $972 million of its then outstanding credit facility debt. The Amended Credit Facility requires compliance with certain covenants, which were further amended in May 2008. A summary of the current financial covenants includes the following:
The Company must maintain a ratio of EBITDAR to the sum of the following fixed charges for such period: (a) cash interest expense and (b) cash aircraft operating rental expense. EBITDAR represents earnings before interest expense net of interest income, income taxes, depreciation, amortization, aircraft rent and certain cash and non-cash charges as further defined by the Amended Credit Facility. The other adjustments to EBITDAR include items such as foreign currency transaction gains or losses, increases or decreases in our deferred revenue obligation, share-based compensation expense, non-recurring or unusual losses, any non-cash non-recurring charge or non-cash restructuring charge, a limited amount of cash restructuring charges, certain cash transaction costs incurred with financing activities and the cumulative effect of a change in accounting principle. The requirement to meet this ratio was suspended for the four quarters beginning with the second quarter of 2008 and ending with the first quarter of 2009, but such requirement resumes beginning in the second quarter of 2009. The required ratio for the periods ended June 30, 2009, September 30, 2009 and December 31, 2009 shall be computed based on three months ended June 30, 2009, the six months ended September 30, 2009 and the nine months ended December 31, 2009, respectively; and, the required ratio in subsequent quarters shall be computed based on the twelve months preceding each quarter-end. The Company must also maintain a minimum unrestricted cash balance of $1.0 billion at any time.
Failure to comply with any applicable covenants in effect for any reporting period could result in a default under the Amended Credit Facility. Additionally, the Amended Credit Facility contains across-default provision with respect to other credit arrangements that exceed $50 million. Although the Company was in compliance with all required financial covenants as of December 31, 2008, and the Company is not required to comply with a fixed charge coverage ratio until the three month period ending June 30, 2009, continued compliance depends on many factors, some of which are beyond the Company’s control, including the overall industry revenue environment and the level of fuel costs. There are no assurances that the Company will continue to comply with its Amended Credit Facility covenants. Failure to comply with applicable covenants in any reporting period would result in a default under the Amended Credit Facility, which could have a material adverse impact on the Company depending on the Company’s ability to obtain a waiver of, or otherwise mitigate, the impact of the default.


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The Company may be unable to continue to comply with certain covenants in agreements with financial institutions that process customer credit card transactions which, if not complied with, could materially and adversely affect the Company’s liquidity.
The Company has agreements with financial institutions that process customer credit card transactions for the sale of air travel and other services. Under certain of the Company’s card processing agreements, the financial institutions either require, or have the right to require, that United maintain a reserve equal to a portion of advance ticket sales that have been processed by that financial institution, but for which the Company has not yet provided the air transportation (referred to as “relevant advance ticket sales”). As of December 31, 2008, the Company had advance ticket sales of approximately $1.5 billion of which approximately $1.3 billion relates to credit card sales.
In November 2008, United entered into an amendment for its card processing agreement with Paymentech and JPMorgan Chase Bank (the “Amendment”) that suspends until January 20, 2010 the requirement for United to maintain additional cash reserves with this processor of bank cards (above the current cash reserve of $25 million at December 31, 2008) if United’s month-end balance of unrestricted cash, cash equivalents and short-term investments falls below $2.5 billion. In exchange for this benefit, United has granted the processor a security interest in certain of United’s owned aircraft with a current appraised value of at least $800 million. United also has agreed that such security interest collateralizes not only United’s obligations under the processing agreement, but also United’s obligations under United’s Amended and Restated Co-Branded Card Marketing Services Agreement. United has an option to terminate the Amendment prior to January 20, 2010, in which event the parties’ prior credit card processing reserve arrangements under the processing agreement will go back into effect.
After January 20, 2010, or in the event United terminates the Amendment, and in addition to certain other risk protections provided to the processor, the amount of any such reserve will be determined based on the amount of unrestricted cash held by the Company as defined under the Amended Credit Facility. If the Company’s unrestricted cash balance is more than $2.5 billion as of any calendar month-end measurement date, its required reserve will remain at $25 million. However, if the Company’s unrestricted cash is less than $2.5 billion, its required reserve will increase to a percentage of relevant advance ticket sales as summarized in the following table:
Required % of
Total Unrestricted Cash Balance(a)
Relevant Advance Ticket Sales
Less than $2.5 billion15%
Less than $2.0 billion25%
Less than $1.0 billion50%
(a)Includes unrestricted cash, cash equivalents and short-term investments at month-end, including certain cash amounts already held in reserve, as defined by the agreement.
If the November 2008 Amendment had not been in effect as of December 31, 2008, the Company would have been required to post an additional $132 million of reserves based on an actual unrestricted cash, cash equivalents and short-term investments balance of between $2.0 billion and $2.5 billion at December 31, 2008.
United’s card processing agreement with American Express expired on February 28, 2009 and was replaced by a new agreement on March 1, 2009 which has an initial five year term. As of December 31, 2008, there were no required reserves under this card agreement, and no reserves were required up through the date of expiration.
Under the new agreement, in addition to certain other risk protections provided to American Express, the Company will be required to provide reserves based primarily on its unrestricted cash


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balance and net current exposure as of any calendar month-end measurement date, as summarized in the following table:
Required % of
Total Unrestricted Cash Balance(a)
Net Current Exposure(b)
Less than $2.4 billion15%
Less than $2.0 billion25%
Less than $1.35 billion50%
Less than $1.2 billion100%
(a)Includes unrestricted cash, cash equivalents and short-term investments at month-end, including certain cash amounts already held in reserve, as defined by the agreement.
(b)Net current exposure equals relevant advance ticket sales less certain exclusions, and as adjusted for specified amounts payable between United and the processor, as further defined by the agreement.
The new agreement permits the Company to provide certain replacement collateral in lieu of cash collateral, as long as the Company’s unrestricted cash is above $1.35 billion. Such replacement collateral may be pledged for any amount of the required reserve up to the full amount thereof, with the stated value of such collateral determined according to the agreement. Replacement collateral may be comprised of aircraft, slots and routes, real estate or other collateral as agreed between the parties.
In the near term, the Company will not be required to post reserves under the new American Express agreement as long as unrestricted cash as measured at each month-end, and as defined in the agreement, is equal to or above $2.0 billion.
If the terms of the new agreement had been in place at December 31, 2008, and ignoring the near term protection in the preceding sentence, the Company would have been required to provide collateral of approximately $40 million.
An increase in the future reserve requirements as provided by the terms of either or both the Company’s material card processing agreements could materially reduce the Company’s liquidity.
The Company may not be able to maintain adequate liquidity.
While the Company’s cash flows from operations and its available capital have been sufficient to meet its current operating expenses, lease obligations and debt service requirements to date, the Company’s future liquidity could be negatively impacted by many factors including, but not limited to, substantial volatility in the price of fuel, declines in passenger and cargo demand associated with the weak global economy and deterioration of global financial systems. During 2008, particularly in the fourth quarter, the Company experienced weaker demand for its services due to the current economic conditions. Decreases in passenger and cargo demand resulting from a weak global economy have resulted in both lower passenger volumes and lower ticket fares, which have adversely impacted our liquidity and are expected to adversely impact our results of operations and liquidity in 2009. In addition, the Company’s 2008 and planned 2009 capacity cuts may not be sufficient to address lower demand from a weak global economy. See “Economic and industry conditions constantly change and continued or worsening negative economic conditions in the United States and elsewhere may have a material adverse effect on our business and results of operations,” below, for further discussion of the adverse impacts of a weak economy on our operations.
In 2008, fuel price changes had a more significant impact on liquidity than changes in demand for the Company’s products and services. For example, the crude oil spot price rose to a record high of approximately $145 per barrel in July 2008. The Company’s consolidated fuel cost, including the impact of fuel hedges, increased by more than $3.1 billion for the full year of 2008 as compared to 2007 primarily due to increased fuel prices, resulting in a significant negative impact on liquidity. Furthermore, fuel prices continue to be extremely volatile which may negatively impact the Company’s liquidity. Additionally, the Company’s fuel hedges require that it post cash collateral with applicable counterparties if crude oil prices change by specified amounts. The Company provided cash collateral of


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$965 million to its fuel derivative counterparties as of December 31, 2008, which decreased to $780 million as of January 19, 2009 primarily due to the settlement of December 2008 contracts. For more information on our aircraft fuel hedges, see Note 13, “Fair Value Measurements and Derivative Instruments,” inCombined Notes to Consolidated Financial Statementsand Item 7A,Quantitative and Qualitative Disclosures about Market Risk.
The Company’s current plans to address increased fuel prices and the weak global economy may not be successful in improving its results of operations and liquidity. In addition, the implementation of certain of these plans require the use of cash for such items as severance payments, lease termination fees, conversion of Ted aircraft and facility closure costs, among others. These cash requirements reduce the Company’s cash available for its ongoing operations. In addition, the economic downturn may have an adverse impact on travel demand, which may result in a negative impact on revenues and liquidity.
As described above, the Company is required to comply with certain financial covenants under its Amended Credit Facility and certain of its credit card processing agreements. The factors noted above, among other things, may impair the Company’s ability to comply with these covenants or could allow certain of our credit card processors to increase the required reserves on our advance ticket sales, which could have an adverse impact on the Company’s financial position and liquidity, depending on its ability to obtain a waiver of, or otherwise mitigate, the impact of the default. If a default occurs under our Amended Credit Facility, the cost to cure any such default may adversely impact our financial position and liquidity.
Our level of indebtedness, our non-investment grade credit rating and the current unfavorable credit market conditions may make it difficult for us to raise capital to meet liquidity needs and may increase our cost of borrowing. A higher cost of capital could negatively impact our results of operations, financial position and liquidity.
See Item 7,Management’s Discussion and Analysis of Financial Condition and Results of Operationsfor further information regarding the Company’s liquidity.
Economic and industry conditions constantly change and continued or worsening negative economic conditions in the United States and elsewhere may have a material adverse effect on our business and results of operations.
Our business and results of operations are significantly impacted by general economic and industry conditions. Industry-wide passenger air travel varies from year to year. Robust demand for our air transportation services depends largely on favorable general economic conditions, including the strength of the global and local economies, low unemployment levels, strong consumer confidence levels and the availability of consumer and business credit. For leisure travelers, air transportation is often a discretionary purchase that those consumers can eliminate from their spending in difficult economic times. In addition, during periods of poor economic conditions, businesses usually reduce the volume of their business travel, either due to cost-savings initiatives or as a result of decreased business activity requiring travel. The overall demand for air transportation in the U.S. has been negatively impacted by adverse changes and continued deterioration in the health of the U.S. and global economies which negatively impacted our results of operations for the year ended December 31, 2008, and could continue to have a significant negative impact on our future results of operations for an extended period of time. Since the end of 2008, the outlook for key economic indicators has deteriorated and credit card activity and advance bookings have not been as strong as in the prior year. These factors are expected to negatively impact the Company’s 2009 passenger and cargo revenues. In addition, decreases in cargo revenues due to lower demand have a disproportionate impact on our operating results as our cargo revenues generally have higher margins as compared to our passenger revenues. Continuation or worsening of the current global recession may lead the Company and other carriers to further reduce domestic or international capacity and may have a material adverse effect on the Company’s revenues, results of operations and liquidity.


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Continued periods of historically high fuel costs or significant disruptions in the supply of aircraft fuel could have a material adverse impact on the Company'sCompany’s operating results.

The Company'sCompany’s operating results have been, and continue to be, significantly impacted by changes in the supply or price of aircraft fuel. It isfuel, both of which are impossible to predict the future supply or price of aircraft fuel.predict. The record-high fuel prices each year from 2005 through 2007 increased in 2005 and 2006 increased further in 20072008 to new record highs with the price of crude oil spot price reaching nearly $100highs of approximately $145 per barrel.barrel in July of 2008. At times, United has not been able to increase its fares when fuel prices have risen due to the highly competitive nature of the airline industry, and it may not be able to do so in the future.future and such increases may not be sustainable in the highly competitive environment. In addition, fare increases may not totally offset the fuel price increase and may also reduce demand for air travel. From time to time, the Company enters into hedging arrangements to protect against rising fuel costs. The Company'sCompany’s hedging programs may use significant amounts of cash due to posting of cash collateral in some circumstances, may not be successful in controlling fuel costs and may be limited due to market conditions and other factors.

See Note 13, “Fair Value Measurements and Derivative Instruments,” inCombined Notes to Consolidated Financial Statementsfor additional information on the Company’s hedging programs.

Additional terrorist attacks or the fear of such attacks, even if not made directly on the airline industry, could negatively affect the Company and the airline industry.

The terrorist attacks of September 11, 2001 involving commercial aircraft severely and adversely affectedimpacted the Company'sCompany’s financial condition and results of operations, as well as prospects for the airline industry generally. Among the effects experienced from the September 11, 2001 terrorist attacks were substantial flight disruption costs caused by the FAA-imposed temporary grounding of the U.S. airline industry'sindustry’s fleet, significantly increased security costs and associated passenger inconvenience, increased insurance costs, substantially higher ticket refunds and significantly decreased traffic and revenue per revenue passenger mile ("yield"(“yield”).

Additional terrorist attacks, even if not made directly on the airline industry, or the fear of or the precautions taken in anticipation of such attacks (including elevated national threat warnings or selective cancellation or redirection of flights) could materially and adversely affect the Company and the airline industry. The warwars in Iraq and Afghanistan and additional international hostilities, including heightened terrorist activity, could also have a material adverse impact on the Company'sCompany’s financial condition, liquidity and results of operations. The Company'sCompany’s financial resources might not be sufficient to absorb the adverse effects of any further terrorist attacks or an increase in post-war unrest in Iraq or other international hostilities involving the United States or U.S. interests.

The airline industry is highly competitive, susceptible to price discounting and may undergo further bankruptcy restructuring or industry consolidation.

The U.S. airline industry is characterized by substantial price competition, especially in domestic markets. Some of our competitors have substantially greater financial resources or lower-cost structures than United does, or both. In recent years, the market share held by LCCslow-cost carriers has increased significantly. Large network carriers, like United, have often had a lack of pricing power within domestic markets.

        In addition, Northwest

During 2008, Aloha Airlines, ATA Airlines, Eos Airlines, Inc., Frontier Airlines and Delta Air Lines, Inc. completed their reorganizations underSkybus Airlines all filed for bankruptcy protection in 2007.protection. Other domestic and international carriers could file forrestructure in bankruptcy or threaten to do so to reduce their costs. Carriers operating under bankruptcy protection can operate in a manner that could be adverse to the Company and could emerge from bankruptcy as more vigorous competitors.


        From time to time

During 2008, the U.S. airline industry has undergoneunderwent consolidation as inwith the merger of US AirwaysDelta Airlines, Inc. and America West, and may experience additionalNorthwest Airlines. There is ongoing speculation that further airline industry consolidation could occur in the future. United routinely monitors changes in the competitive landscape and engages in analysis and discussions regarding its strategic position, including alliances, asset acquisitions and


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divestitures and business combinations. There is ongoing speculation that some typeIn 2008, the Company announced its agreement to form a strategic alliance with Continental Airlines. This alliance may not realize all of airline industry consolidation could occur in the near-term.benefits of a merger. The Company has had, and expects to continue tomay have future discussions with other airlines regarding mergersand/or other strategic alternatives. If other airlines participate in merger activity, and United does not, those airlines may significantly improve their cost structures or revenue generation capabilities, thereby potentially making them stronger competitors of United.

In addition, United and certain of its competitors announced significant capacity reductions during 2008. The Company may not achieve necessary increases in unit revenue from the announced capacity reductions and unit costs may be adversely impacted by capacity reductions. Further, certain of the Company’s competitors may not reduce capacity or may increase capacity, thereby diminishing our expected benefit from capacity reductions. The poor economic environment may have an adverse impact on travel demand, which may result in a negative impact on revenues.
Additional security requirements may increase the Company'sCompany’s costs and decrease its revenues and traffic.

Since September 11, 2001, the DHS and the TSATransportation Security Administration have implemented numerous security measures that affect airline operations and costs and are likely to implement additional measures in the future. In addition, foreign governments have also instituted additional security measures at foreign airports United serves. A substantial portion of the costs of these security measures is borne by the airlines and their passengers, increasing the Company'sCompany’s costsand/or reducing its revenue and traffic. Additional measures taken to enhance either passenger or cargo security proceduresand/or to recover associated costs in the future may result in similar adverse effects on United'sUnited’s results of operations.

Extensive government regulation could increase the Company'sCompany’s operating costs and restrict its ability to conduct its business.

Airlines are subject to extensive regulatory and legal compliance requirements that result in significant costs. In addition to the enactment of the Aviation Security Act, laws, regulations, taxes and airport rates and charges have been proposed from time to time that could significantly increase the cost of airline operations or reduce airline revenue. The FAA from time to time also issues directives and other regulations relating to the maintenance and operation of aircraft that require significant expenditures by United. The Company expects to continue incurring material expenses to comply with the regulations of the FAA and other agencies.

United operates under a certificate of public convenience and necessity issued by the DOT. If the DOT altered, amended, modified, suspended or revoked our certificate, it could have a material adverse effect on the Company'sCompany’s business. The FAA can also limit United'sUnited’s airport access by limiting the number of departure and arrival slots at "high“high density traffic airports"airports” and local airport authorities may have the ability to control access to certain facilities or the cost of access to such facilities, which could have an adverse effect on the Company'sCompany’s business.

In addition, access to landing and take-off rights or "slots"“slots” at several major U.S. airports and many foreign airports served by United are, or recently have been, subject to government regulation. As passenger travel has continued to increase in recent years, many U.S. and foreign airports have become increasingly congested. Certain of United'sUnited’s major hubs are among the more congested airports in the U.S. and have been or could be the subject of regulatory action that might limit the number of flightsand/or increase costs of operations at certain times or throughout the day.

In addition, the Company'sCompany’s operations may be adversely impacted due to the existing outdated air traffic control ("ATC"(“ATC”) system utilized by the U.S. government. During peak travel periods in certain markets the current ATC system'ssystem’s inability to handle existing travel demand has led to short-term capacity constraints imposed by government agencies, as discussed above, and has also resulted in delays and disruptions of traffic using the ATC system. In addition, the current system will not be able to effectively handle projected future air traffic growth. Therefore, imposition of these air trafficATC constraints on


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a long-term basis may have a material adverse effect on our results of operations. Failure to update the ATC system in a timely manner, and the substantial funding requirements of a



modernized ATC system that may be imposed on carriers like United, may have an adverse impact on the Company'sCompany’s financial condition or results of operations.

Many aspects of United'sUnited’s operations are also subject to increasingly stringent federal, state and local laws protecting the environment. Future environmental regulatory developments, such as in regard to climate change, in the U.S. and abroad could adversely affect operations and increase operating costs in the airline industry. For example, potentialThere are a few climate change laws and regulations that have gone into effect that apply to United, including environmental taxes for certain international flights, some limited greenhouse gas reporting requirements and some land-based planning laws which could apply to airports and ultimately impact airlines depending upon the circumstances. In addition, the EU has adopted legislation to include aviation within the EU’s existing greenhouse gas emission trading scheme effective in 2012. There are significant questions that remain as to the legality of applying the scheme to non-EU airlines and the U.S. and other governments are considering filing a legal challenge to the EU’s unilateral inclusion of non-EU carriers. While such a measure could significantly increase the costs of carriers operating in the EU, the precise cost to United is difficult to calculate with certainty due to a number of variables, and it is not clear whether the scheme will withstand legal challenge. There may be future regulatory actions that may be taken by the U.S. government, state governments within the U.S., foreign governments, or the International Civil Aviation Organization, or through a new climate change treaty to limitregulate the emission of greenhouse gases by the aviation industryindustry. Such future regulatory actions are uncertain at this time (in terms of either the regulatory requirements or their applicability to United), but the impact to the Company and its industry would likely be adverse and could be significant including the potential for increased fuel costs, carbon taxes or fees or a requirement to purchase carbon credits.

The ability of U.S. carriers to operate international routes is subject to change because the applicable arrangements between the United States and foreign governments may be amended from time to time, or because appropriate slots or facilities may not be made available. United currently operates on a number of international routes under government arrangements that limit the number of carriers, capacity, or the number of carriers allowed access to particular airports. If an open skies policy were to be adopted for any of these routes, such an event could have a material adverse impact on the Company'sCompany’s financial position and results of operations and could result in the impairment of material amounts of related tangible and intangible assets. Recently,
Certain aspects of United’s proposed cooperation with Continental through broad revenue and codesharing and other commercial cooperation and Continental’s entry into the U.S.Star Alliance is subject to receipt of certain regulatory and other approvals and the EU enteredtermination of certain contractual relationships, including Continental’s existing agreements with SkyTeam members that restrict its participation in another global alliance. The parties may not be successful in obtaining regulatory approval or the timing for termination of existing contractual relationships may be delayed.
The Company’s plans to enter into an "open skies" agreementor expand antitrust immunized joint ventures for various international regions, involving Continental, United and other members of the Star Alliance are subject to receipt of approvals from applicable national authorities or otherwise satisfying applicable regulatory requirements, and there can be no assurances that such approvals will become effective atbe granted or applicable regulatory requirements will be satisfied. Other air carriers are also seeking to initiate or expand antitrust immunity for joint ventures which, if approved, could adversely affect the endCompany’s financial position and results of March 2008. See Note 8, "Intangibles," in theCombined Notes to Consolidated Financial Statements for additional information on the open skies agreement.

operations.

Further, the Company'sCompany’s operations in foreign countries are subject to variousa variety of laws and regulations in those countries. The Company cannot provide any assurance that current laws and regulations, or laws or regulations enacted in the future, will not adversely affect its financial condition or results of operations.


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The Company'sCompany’s results of operations fluctuate due to seasonality and other factors associated with the airline industry.

Due to greater demand for air travel during the summer months, revenues in the airline industry in the second and third quarters of the year are generally stronger than revenues in the first and fourth quarters of the year. The Company'sCompany’s results of operations generally reflect this seasonality, but have also been impacted by numerous other factors that are not necessarily seasonal including, among others, the imposition of excise and similar taxes, extreme or severe weather, air traffic control congestion, changes in the competitive environment due to industry consolidation and other factors and general economic conditions. As a result, the Company'sCompany’s quarterly operating results are not necessarily indicative of operating results for an entire year and historical operating results in a quarterly or annual period are not necessarily indicative of future operating results.

The Company's financial condition andCompany may never realize the full value of its intangible assets or our long-lived assets causing it to record impairments that may negatively affect its results of operationsoperations.
In accordance with Statement of Financial Accounting Standards No. 142,Goodwill and Other Intangible Assets(“SFAS 142”) and Statement of Financial Accounting Standards No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets,(“SFAS 144”), the Company is required to test certain of its intangible assets for impairment on an annual basis on October 1 of each year, or more frequently if conditions indicate that an impairment may have occurred. In addition, the Company is required to test certain of its tangible assets for impairment if conditions indicate that an impairment may have occurred.
During the second quarter of 2008, the Company performed an interim impairment test of its goodwill, all indefinite-lived intangible assets and certain of its long-lived assets (principally aircraft and related spare engines and spare parts) due to events and changes in circumstances that indicated an impairment might have occurred. Factors deemed by management to have collectively constituted a potential impairment triggering event included record high fuel prices, significant losses in 2008, a softening U.S. economy, analyst downgrade of UAL common stock, rating agency changes in outlook for the Company’s debt instruments from stable to negative, the announcement in 2008 of the planned removal from UAL’s fleet of 100 aircraft and a significant decrease in the fair value of the Company’s outstanding equity and debt securities during 2008, including a decline in UAL’s market capitalization to significantly below book value.
During the fourth quarter of 2008, the Company performed its annual impairment test of intangible assets and determined that no additional impairment had occurred. In addition, due to certain conditions similar to those which triggered the second quarter 2008 impairment testing, in the fourth quarter of 2008, the Company tested its B737 and B747 aircraft for additional impairment during the fourth quarter, including evaluating the fair value of those aircraft already removed from service, which resulted in additional impairment charges being recorded in the fourth quarter.
As a result of the impairment testing performed in the second and fourth quarters of 2008, the Company recorded goodwill and tangible and intangible asset impairment charges totaling approximately $2.6 billion during 2008. The Company determined that goodwill was completely impaired. However, the Company still has book values at December 31, 2008 of approximately $10.3 billion of operating property and equipment and $2.7 billion of intangible assets that could be subject to future impairment charges. We may be further affected byrequired to recognize additional impairments in the future resolutiondue to, among other factors, extreme fuel price volatility, tight credit markets, a decline in the fair value of bankruptcy-related contingencies.certain tangible or intangible assets, unfavorable trends in historical or forecasted operating or cash flow losses and the uncertain economic environment, as well as other uncertainties. The Company can provide no assurance that a material impairment charge of tangible or intangible assets will not occur in a future period. The value of our aircraft could be impacted in future periods by changes in the market for these aircraft. Such changes could result in a greater supply and lower demand for certain aircraft types as other


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        Despite the Company's exit from bankruptcy on February 1, 2006, several significant matters remain to be resolved in connection with its reorganization under Chapter 11 of the United States Bankruptcy Code. Unfavorable resolution of these matters

carriers are also grounding aircraft. An impairment charge could have a material adverse effect on the Company's business. For additional detail regarding these matters, see Note 1, "Voluntary Reorganization Under Chapter 11—Significant Matters Remaining to be ResolvedCompany’s financial position and results of operations in Chapter 11 Cases," in theCombined Notes to Consolidated Financial Statements.

period of recognition.

The Company'sCompany’s initiatives to improve the delivery of its products and services to its customers, reduce costs, increase its revenues and increase shareholder value, including the operational plans recently initiated by the Company, may not be adequate or successful.

The Company continues to identify and implement continuous improvement programs to improveenhance the delivery of its products and services to its customers, reduce its costs and increase its revenues. Some of theseIn response to the unprecedented increase in fuel prices during 2008 and the weakening U.S. and global economies, the Company began implementing certain operational plans. The Company’s efforts are focused on cost savings in areas such areas as telecommunications, airport services, catering, maintenance materials, aircraft ground handling and regional affiliates expenses, among others. In addition, the Company is significantly reducing mainline domestic and consolidated capacity and is removing 100 aircraft from its mainline fleet, including its entire B737 fleet of 94 aircraft and six B747 aircraft. United is also eliminating its Ted product and reconfiguring that fleet’s 56 A320s to include United First class seats. See Item 7,Management’s Discussion and Analysis of Financial Condition and Results of Operationsfor further information regarding the Company’s capacity reductions. The Company will continue to review the deployment of all of our aircraft in various markets and the overall composition of our fleet to ensure that we are using our assets appropriately to provide the best available return. In connection with the capacity reductions, the Company is further streamlining its operations and corporate functions in order to match the size of its workforce to the size of its operations. The Company currently estimates a reduction of approximately 9,000 positions during 2008 and 2009, through a combination of furloughs and furlough-mitigation plans, such as early-out options. There can be no assurance that the Company’s initiatives to reduce costs and increase revenues will be successful.
The Company is taking additional actions beyond the operational plans discussed above, including increased cost reductions, new revenue sources and other actions. Certain of the Company’s plans to improve its performance require the use of significant cash for such items as severance payments, lease termination fees, conversion of Ted aircraft and facility closure costs, among others. The Company is also reviewing strategic alternatives to maximize the value of its MROassets and Mileage Plusits businesses, which may include a possible sale of all, or part of, these assets or operations. There can be no assurance that any transactions with respect to these assets or operations will occur, nor are there any assurances with respect to the form or timing of any such transactions or their actual effect on shareholder value. A number of the Company'sCompany’s ongoing initiatives involve significant changes to the Company'sCompany’s business that it may be unable to implement successfully. In addition, revenue and other initiatives may not be successful due to the competitive landscape of the industry and the reaction of our competitors to certain of our initiatives. The adequacy and ultimate success of the Company'sCompany’s programs and initiatives to improve the delivery of its products and services to its customers, reduce its costs and increase both its revenues and shareholder value cannot be assured. There can be no assurance that any transactions with respect to the Company's MRO and Mileage Plus business will occur, nor are there any assurances with respect to the form or timing of any such transactions or their actual effect on shareholder value.

Union disputes, employee strikes and other labor-related disruptions may adversely affect the Company'sCompany’s operations and impair its financial performance.

Approximately 81%83% of the employees of UAL are represented for collective bargaining purposes by U.S. labor unions. These employees are organized into six labor groups represented by six different unions.

Relations between air carriers and labor unions in the United States are governed by the RLA. Under the RLA, a carrier must maintain the existing terms and conditions of employment following the amendable date through a multi-stage and usually lengthy series of bargaining processes overseen by the NMB.National Mediation Board (“NMB”). This process continues until either the parties have reached agreement on a new CBAcollective bargaining agreement or the parties are released to "self-help"“self-help” by the NMB. Although in most circumstances the RLA prohibits strikes, shortly after release by the NMB, carriers and unions are free to engage in self-help measures such as strikes and lock-outs. All six of the Company's


23

Company’s U.S. labor agreements become amendable in January 2010.2010, with negotiations between the Company and the labor unions scheduled to commence during 2009. The Company can provide no assurance that a successful or timely resolution of labor negotiations for all amendable agreements will be achieved. There is also a risk that dissatisfied employees, either with or without union involvement, could engage in illegal slow-downs, work stoppages, partial work stoppages, sick-outs or other actions short of a full strike that could individually or collectively harm the operation of the airline and materially impair its financial performance.

Increases in insurance costs or reductions in insurance coverage may adversely impact the Company'sCompany’s operations and financial results.

The terrorist attacks of September 11, 2001 led to a significant increase in insurance premiums and a decrease in the insurance coverage available to commercial airlines. Accordingly, the Company'sCompany’s insurance costs increased significantly and its ability to continue to obtain certain types of insurance remains uncertain. The Company has obtained third-party war risk (terrorism) insurance through a special program administered by the FAA, resulting in lower premiums than if it had obtained this insurance in the commercial insurance market. Should the government discontinue this coverage, obtaining comparable coverage from commercial underwriters could result in substantially higher premiums and more restrictive terms, if it is available at all. If the Company is unable to obtain adequate war risk insurance, its business could be materially and adversely affected.

If any of United'sUnited’s aircraft were to be involved in an accident, the Company could be exposed to significant liability. The insurance it carries to cover damages arising from any future accidents may be


inadequate. If the Company'sCompany’s insurance is not adequate, it may be forced to bear substantial losses from an accident.

The Company relies heavily on automated systems to operate its business and any significant failure of these systems could harm its business.

The Company depends on automated systems to operate its business, including its computerized airline reservation systems, flight operations systems, telecommunication systems and commercial websites, including united.com. United'sUnited’s website and reservation systems must be able to accommodate a high volume of traffic and deliver important flight and schedule information, as well as process critical financial transactions. Substantial or repeated website, reservations systems or telecommunication systems failures could reduce the attractiveness of United'sUnited’s services versus its competitors and materially impair its ability to market its services and operate its flights.

The Company'sCompany’s business relies extensively on third-party providers. Failure of these parties to perform as expected, or unexpected interruptions in the Company'sCompany’s relationships with these providers or their provision of services to the Company, could have an adverse effect on its financial condition and results of operations.

The Company has engaged a growing number of third-party service providers to perform a large number of functions that are integral to its business, such as operation of United Express flights, operation of customer service call centers, provision of information technology infrastructure and services, provision of aircraft maintenance and repairs, provision of various utilities and performance of aircraft fueling operations, among other vital functions and services. The Company does not directly control these third-party providers, although it does enter into agreements with many of them that define expected service performance. Any of these third-party providers, however, may materially fail to meet their service performance commitments to the Company. The failure of these providers to adequately perform their service obligations, or other unexpected interruptions of services, may reduce the Company'sCompany’s revenues and increase its expenses or prevent United from operating its flights and providing other services to its customers. In addition, the Company'sCompany’s business and financial performance could be materially harmed if its customers believe that its services are unreliable or unsatisfactory.


24

The Company'sCompany’s high level of fixed obligations could limit its ability to fund general corporate requirements and obtain additional financing, could limit its flexibility in responding to competitive developments and could increase its vulnerability to adverse economic and industry conditions.

The Company has a significant amount of financial leverage from fixed obligations, including its amended credit facility, aircraft lease and debt financings, leases of airport property and other facilities, and other material cash obligations. In addition, as of December 31, 2007,2008, the Company had pledged a substantial majorityamount of its available assets as collateral to secure its various fixed obligations. At December 31, 2007, the Company has 113 unencumbered aircraft with a net book value of $2.0 billion.

The Company'sCompany’s high level of fixed obligations, a downgrade in the Company'sCompany’s credit ratings or poor credit market conditions could impair its ability to obtain additional financing, if needed, and reduce its flexibility to conduct its business. Certain of the Company'sCompany’s existing indebtedness also requires it to meet covenants and financial tests to maintain ongoing access to those borrowings. See Note 12, "Debt“Debt Obligations" and Card Processing Agreements,” in theCombined Notes to Consolidated Financial Statementsfor further details.details related to the Company’s credit agreements and assets pledged as collateral. A failure to timely pay its debts or other material uncured breach of its contractual obligations could result in a variety of adverse consequences, including the acceleration of the Company'sCompany’s indebtedness, the withholding of credit card sale proceeds by its credit card service providers and the exercise of other remedies by its creditors and equipment lessors that could result in material adverse effects on the Company'sCompany’s operations and financial condition. In such a situation, it is unlikely that the



Company would be able to fulfill its obligations to repay the accelerated indebtedness, make required lease payments, or otherwise cover its fixed costs.

The Company'sCompany’s net operating loss carry forward may be limited or possibly eliminated.

        The

As of December 31, 2008, the Company hashad a net operating loss ("NOL"(“NOL”) carry forward tax benefit of approximately $2.5$2.6 billion for federal and state income tax purposes that primarily originated before UAL'sUAL’s emergence from bankruptcy and will expire over a five to twenty year period. This tax benefit is mostly attributable to federal pre-tax NOL carry forwards of $6.6$7.0 billion. If the Company were to have a change of ownership within the meaning of Section 382 of the Internal Revenue Code, under certain conditions, its annual federal NOL utilization could be limited to an amount equal to its market capitalization at the time of the ownership change multiplied by the federal long-term tax exempt rate. A change of ownership under Section 382 of the Internal Revenue Code is defined as a cumulative change of 50 percentage points or more in the ownership positions of certain stockholders owning 5% or more of the Company'sCompany’s common stock over a three year rolling period.

To reduce the risk of a potential adverse effect on the Company'sCompany’s ability to utilize its NOL carry forward for federal income tax purposes, UAL'sUAL’s restated certificate of incorporation contains a "5%“5% Ownership Limitation,"” applicable to all stockholders except the Pension Benefit Guaranty Corporation ("PBGC"(“PBGC”). The 5% Ownership Limitation remains effective until February 1, 2011. The 5% Ownership Limitation prohibits (i) the acquisition by a single stockholder of shares representing 5% or more of the common stock of UAL Corporation and (ii) any acquisition or disposition of common stock by a stockholder that already owns 5% or more of UAL Corporation'sCorporation’s common stock, unless prior written approval is granted by the UAL Board of Directors. The percentage ownership of a single stockholder can be computed by dividing the number of shares of common stock held by the stockholder by the sum of the shares of common stock issued and outstanding plus the number of shares of common stock still held in reserve for payment to unsecured creditors under the Plan of Reorganization. For additional information regarding the 5% Ownership Limitation, please refer to UAL'sUAL’s restated certificate available on its website.

While the purpose of these transfer restrictions is to prevent a change of ownership from occurring within the meaning of Section 382 of the Internal Revenue Code (which ownership change might materially and adversely affect the Company'sCompany’s ability to utilize its NOL carry forward or other tax attributes), no assurance can be given that such an ownership change will not occur, in which case the availability of the Company'sCompany’s substantial NOL carry forward and other federal income tax attributes might be significantly limited or possibly eliminated. Any transfers of common stock that are made in violation of the restrictions set forth above will be void and, pursuant to UAL’s restated certificate of


25

incorporation, will be treated as if such transfer never occurred. This provision may prevent a sale of common stock by a stockholder or adversely affect the price at which a stockholder can sell common stock and consequently make it more difficult for a stockholder to sell shares of common stock. In addition, this limitation may have the effect of delaying or preventing a change in control of UAL, creating a perception that a change in control cannot occur or otherwise discouraging takeover attempts that some stockholders may consider beneficial, which could also adversely affect the prevailing market price of the common stock. UAL cannot predict the effect that this provision in the UAL restated certificate of incorporation may have on the market price of the common stock.
The Company is subject to economic and political instability and other risks of doing business globally.

The Company is a global business with operations outside of the United States from which it derives approximately one-third of its operating revenues, as measured and reported to the DOT. The Company'sCompany’s operations in Asia, Latin America, the Middle East and Europe are a vital part of its worldwide airline network. Volatile economic, political and market conditions in these international regions may have a negative impact on the Company'sCompany’s operating results and its ability to achieve its business objectives. In addition, significant or volatile changes in exchange rates between the U.S. dollar and other currencies, and the imposition of exchange controls or other currency restrictions, may have a material adverse impact upon the Company'sCompany’s liquidity, revenues, costs orand operating results.

The loss of skilled employees upon whom the Company depends to operate its business or the inability to attract additional qualified personnel could adversely affect its results of operations.

        The Company believes that its future success will depend in large part on its ability to attract and retain highly qualified management, operational, technical and other personnel. The Company may not be successful in retaining key personnel or in attracting and retaining other highly qualified personnel.



Any inability to retain or attract significant numbers of qualified management and other personnel could adversely affect its business.

The Company could be adversely affected by an outbreak of a disease that affects travel behavior.

An outbreak of a disease that affects travel demand or travel behavior, such as Severe Acute Respiratory Syndrome ("SARS"(“SARS”) or avian flu, or other illness, could have a material adverse impact on the Company'sCompany’s business, financial condition and results of operations.

Certain provisions of UAL'sUAL’s Governance Documents could discourage or delay changes of control or changes to the Board of Directors of UAL.

Certain provisions of the amended and restated certificate of incorporation and amended and restated bylaws of UAL (the "Governance Documents"“Governance Documents”) may make it difficult for stockholders to change the composition of UAL'sUAL’s Board of Directors and may discourage takeover attempts that some of its stockholders may consider beneficial.

Certain provisions of the Governance Documents may have the effect of delaying or preventing changes in control if UAL'sUAL’s Board of Directors determines that such changes in control are not in the best interests of UAL and its stockholders.

These provisions of the Governance Documents are not intended to prevent a takeover, but are intended to protect and maximize the value of UAL's stockholders'UAL’s stockholders’ interests. While these provisions have the effect of encouraging persons seeking to acquire control of UAL to negotiate with the UAL Board of Directors, they could enable the Board of Directors to prevent a transaction that some, or a majority, of its stockholders might believe to be in their best interests and, in that case, may prevent or discourage attempts to remove and replace incumbent directors.

The issuance of UAL'sUAL’s contingent senior unsecured notes could adversely impact results of operations, liquidity and financial position and could cause dilution to the interests of its existing stockholders.

In connection with the Company'sCompany’s emergence from Chapter 11 bankruptcy protection, UAL is obligated under an indenture to issue to the PBGC 8% senior unsecured notes with an aggregate principal amount of up to $500 million in up to eight equal tranches of $62.5 million (with no more than one tranche issued as a result of each issuance trigger event) upon the occurrence of certain financial triggering events. An issuance trigger event occurs when the Company'sCompany’s EBITDAR (as defined in the indenture) exceeds $3.5 billion over the prior twelve months ending June 30 or December 31 of any applicable fiscal year, beginning with the fiscal year ending December 31, 2009 and ending with the fiscal year ending December 31, 2017. However, if the issuance of a tranche would cause a default under any


26

other securities then existing, UAL may satisfy its obligations with respect to such tranche by issuing UAL common stock having a market value equal to $62.5 million. The issuance of these notes could adversely impact the Company'sCompany’s results of operations because of increased interest expense related to the notes and adversely impact its financial position or liquidity due to increased cash required to meet interest and principal payments. If common stock is issued in lieu of debt, this could cause additional dilution to existing UAL stockholders. See Risks Related to UAL'sUAL’s Common Stock, below, for additional information regarding other risks related to our common stock.

Risks Related to UAL'sUAL’s Common Stock

UAL's common stock has a limited trading history and its market price may be volatile.

        Because UAL's common stock began trading on the NASDAQ National Market on February 2, 2006, there is limited trading history. The market price of its common stock may fluctuate substantially due to a variety of factors, many of which are beyond UAL's control.


The issuance of additional shares of UAL'sUAL’s common stock, including upon conversion of its convertible preferred stock and its convertible notes, could cause dilution to the interests of its existing stockholders.

In connection with the Company'sCompany’s emergence from Chapter 11 bankruptcy protection, UAL issued 5,000,000 shares of 2% convertible preferred stock. Effective February 1, 2008, this preferred stock may be converted into shares of UAL's common stock. Further, the preferred stock is mandatorily convertible 15 years from the issuance date. UAL also issued approximately $150 million in convertible 5% notes shortly after the Effective Date, and subsequently issued approximately $726 million in convertible 4.5% notes on July 25, 2006. Holders of these securities may convert them into shares of UAL'sUAL’s common stock according to their terms. In February 2008, 1.0 million shares of 2% convertible preferred stock were converted into approximately 2.2 million shares of UAL common stock resulting in dilution to common stockholders. If the holders of the remaining 4.0 million shares of convertible preferred stock or the holders of the convertible notes were to exercise their rights to convert their securities into common stock, it could cause substantial dilution to existing stockholders. In January 2008, as a result of UAL's $2.15 per common share special distribution, UAL modified the conversion prices of the 5% and 4.5% notes in accordance with the terms of their indentures. The lower conversion prices increase the potential dilution to existing UAL stockholders. UAL may undertake future actions that may result in additional modifications to the conversion prices of these instruments and increase their likelihood of conversion. For further information, seeSee Note 12, "Debt Obligations"“Debt Obligations and Note 13, "UAL Preferred Stock,"Card Processing Agreements,” in theCombined Notes to Consolidated Financial Statements.

        UAL'sfor further information regarding these instruments.

UAL’s certificate of incorporation authorizes up to one billion shares of common stock. In certain circumstances, UAL can issue shares of common stock without stockholder approval. In the fourth quarter of 2008, the UAL Board of Directors approved the issuance of $200 million of common stock as part of an ongoing equity offering by the Company. UAL issued 11.2 million shares of common stock during 2008 and 4.0 million shares during 2009, resulting in gross proceeds of $172 million, and may issue additional shares during 2009 until it reaches $200 million in proceeds. In addition, the boardUAL Board of directorsDirectors is authorized to issue up to 250 million shares of preferred stock without any action on the part of UAL'sUAL’s stockholders. The UAL Board of Directors also has the power, without stockholder approval, to set the terms of any series of shares of preferred stock that may be issued, including voting rights, conversion rights, dividend rights, preferences over UAL'sUAL’s common stock with respect to dividends or if UAL liquidates, dissolves or winds up its business and other terms. If UAL issues preferred stock in the future that has a preference over its common stock with respect to the payment of dividends or upon its liquidation, dissolution or winding up, or if UAL issues preferred stock with voting rights that dilute the voting power of its common stock, the rights of holders of its common stock or the market price of its common stock could be adversely affected. UAL is also authorized to issue, without stockholder approval, other securities convertible into either preferred stock or, in certain circumstances, common stock. In the future UAL may decide to raise additional capital through offerings of its common stock, securities convertible into its common stock, or rights to acquire these securities or its common stock. The issuance of additional shares of common stock or securities convertible into common stock could result in dilution of existing stockholders'stockholders’ equity interests in UAL. Issuances of substantial amounts of its common stock, or the perception that such issuances could occur, may adversely affect prevailing market prices for UAL'sUAL’s common stock and UAL cannot predict the effect this dilution may have on the price of its common stock.

UAL'sUAL’s certificate of incorporation limits voting rights of certain foreign persons.

        UAL's

UAL’s restated certificate of incorporation limits the voting rightstotal number of persons holding anyshares of UAL's equity securities held by persons who are not "citizens“citizens of the United States,"” as defined in Section 40102(a)(15) of Title 49 United States Code, to no more than 24.9% of the aggregate votes of all equity securities outstanding. This restriction is applied pro rata among all holders of equity securities who fail to qualify as "citizens“citizens of the United States,"” based on the number of votes the underlying securities are entitled to.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.


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ITEM 1B.    UNRESOLVED STAFF COMMENTS.

        None.


ITEM 2.  PROPERTIES.
ITEM 2.    PROPERTIES.

Flight Equipment

During 2008, the Company began implementing operational plans to significantly reduce its operating fleet and capacity. These operational plans include the retirement of the Company’s entire fleet of 94 B737 aircraft and six B747 aircraft by the end of 2009, of which 51 aircraft were removed from serviced during 2008 as discussed in Note 2, “Company Operational Plans,” inCombined Notes to Consolidated Financial Statements.
Details of UAL'sUAL and United's MainlineUnited’s mainline operating fleet as of December 31, 20072008 are provided in the following table:

Aircraft Type
 Average
No. of Seats
 Owned(a)
 Leased
 Total
 Average
Age (Years)
A319-100 120 36 19 55 8
A320-200 148 42 55 97 10
B737-300 123 17 47 64 19
B737-500 108 30 — 30 16
B747-400 347 21 9 30 12
B757-200 172 46 51 97 16
B767-300 213 17 18 35 13
B777-200 267 46 6 52 9
    
 
 
  
Total Operating Fleet—UAL 255 205 460 13
    
 
 
  
Total Operating Fleet—United(b) 254 206 460 13
    
 
 
  
(a)
At December 31, 2007, 142 owned aircraft were encumbered.

(b)
United leases one B737-500 aircraft owned by a subsidiary of UAL.

                     
  Average
           Average
 
Aircraft Type
 Number of Seats  Owned(c)  Leased  Total  Age (Years) 
UAL total operating fleet at December 31, 2007(a)      255   205   460   13 
                     
A319-100  120   37   18   55   9 
A320-200  148   42   55   97   11 
B737-300  123   2   28   30   20 
B737-500  108   16   —   16   17 
B747-400  350   18   9   27   13 
B757-200  172   32   65   97   17 
B767-300  212   17   18   35   14 
B777-200  267   45   7   52   10 
                     
                     
Total operating fleet at December 31, 2008—UAL and United(a)      209   200   409   13 
                     
UAL nonoperating B737s at December 31, 2008(a)(b)      24   12   36   19 
                     
UAL nonoperating B747s at December 31, 2008(b)      3   —   3   12 
                     
(a)At December 31, 2008, United’s operating fleet was the same as UAL’s fleet. In 2007, United leased one aircraft from UAL and therefore had one less owned B737 aircraft and one more leased aircraft as compared to UAL’s fleet. This particular aircraft became nonoperational in 2008.
(b)As of December 31, 2008, B737 and B747 owned, nonoperating aircraft have a combined net book value of $198 million and are classified as Other noncurrent assets in the Company’sStatements of Consolidated Financial Position.
(c)As of December 31, 2008 and 2007, 62 and 113 aircraft were unencumbered, respectively. See Note 12, “Debt Obligations and Card Processing Agreements,” inCombined Notes to Consolidated Financial Statementsfor further information related to assets pledged as collateral.
Details of United Express'Express’ operating fleet that are operated under capacity purchase lease agreements as of December 31, 2007,2008, are provided in the following table:

Aircraft Type
 Average
No. of Seats
 Total
Bombardier CRJ200 50 98
Bombardier CRJ700 66 87
De Havilland Dash 8 37 10
Embraer EMB120 30 28
Embraer ERJ145 50 28
Embraer EMB170 70 28
    
Total Operating Fleet   279
    

         
  Average
    
Aircraft Type
 No. of Seats  Total 
Bombardier CRJ200  50   93 
Bombardier CRJ700  66   89 
De Havilland Dash 8  37   10 
Embraer EMB 120  30   24 
Embraer ERJ 145  50   31 
Embraer EMB170  70   33 
         
Total Operating Fleet      280 
         

All of the Bombardier CRJ700 and Embraer EMB170 aircraft are equipped with explus seating. For additional information on aircraft financingsleases, see Note 12, "Debt Obligations" and Note 16, "Lease15, “Lease Obligations,"” in theCombined Notes to Consolidated Financial Statements.

Ground Facilities

United is a party to various leases relating to its use of airport landing areas, gates, hangar sites, terminal buildings and other airport facilities in most of the municipalities it serves. Major terminal facility leases expire at SFO in 2011 and 2013, Washington Dulles in 2014, O'HareO’Hare in 2018, LAX in 2021


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and Denver in 2025.

The Company also leases approximately 250,000 square feet of office space through 2022 for its corporate headquarters in downtown Chicago.

In January 2009, the Company entered into an amendment to its O’Hare cargo building site lease with the City of Chicago. The Company agreed to vacate its current cargo facility at O’Hare to allow the land to be used for the development of a future runway. In January 2009, the Company received approximately $160 million from O’Hare in accordance with the terms of the lease amendment. In addition, the lease amendment requires that the City of Chicago provide the Company with another site at O’Hare upon which a replacement cargo facility could be constructed.
The Company owns a 66.5-acre complex in suburban Chicago consisting of more than 1 million square feet of office space for its Operations Center, a computer operations facility and a training center. United also owns a flight training center, located in Denver, which accommodates 36 flight simulators and more than 90 computer-based training stations. The Company owns a limited number of other properties, including a crew hotel in Honolulu. All of these facilities areHonolulu which is mortgaged.


During 2007,2008, the Company moved approximately 400 management employees, includingcompleted its senior management, to its new headquarters in downtown Chicago where the Company has contracted to lease approximately 250,000 square feet of office space. In October 2007, the Company exercised its expansion option under this lease, expanding its leased premises from the current six floors to a total of 11 floors with possession phased in over time.

        The Company is continuing the process of relocating employees from several of its other suburban Chicago facilities into either the new headquarters or the Operations Center consistent with the Company'sCompany’s goals of achieving additional cost savings and operational efficiencies.

The Company'sCompany’s Maintenance Operation Center at SFO occupies 130 acres of land, 2.9 million square feet of floor space and 9nine aircraft hangar bays under a lease expiring in 2013.

        United's The Company has options to renew the lease through 2023.

United’s off-airport leased properties historically included a number of ticketing, sales and general office facilities in the downtown and suburban areas of most of the larger cities within the United system. As part of the Company'sCompany’s restructuring and cost containment efforts, United closed, terminated or rejected in bankruptcy all of its former domestic city ticket office leases. United continues to lease and operate a number of administrative, reservations, sales and other support facilities worldwide. United continuously evaluates opportunities to reduce or modify facilities occupied at its airports and off-airport locations.


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ITEM 3.    LEGAL PROCEEDINGS.

ITEM 3.  LEGAL PROCEEDINGS.
In re: UAL Corporation, et. al.

As discussed above, on the Petition Date the Debtors filed voluntary petitions to reorganize their businesses under Chapter 11 of the Bankruptcy Code. On October 20, 2005, the Debtors filed the Debtor'sDebtor’s First Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code and the Disclosure Statement.

Commencing on October 27, 2005, all eligible classes of creditors had the opportunity to vote to accept or reject the Debtors proposed Plan of Reorganization. After a hearing on confirmation, on January 20, 2006, the Bankruptcy Court confirmed the Plan of Reorganization. The Plan of Reorganization became effective and the Debtors emerged from bankruptcy protection on the Effective Date.

Numerous pre-petition claims still await resolution in the Bankruptcy Court due to the Company'sCompany’s objections to either the existence of liability or the amount of the claim. The process of determining whether liability exists and liquidating the amounts is likely tosuch claims will continue through 2008.in 2009. Additionally, certain significant matters remain to be resolved in the Bankruptcy Court. For details see Note 1, "Voluntary4, “Voluntary Reorganization Under Chapter 11,"” in theCombined Notes to Consolidated Financial Statements.

Air Cargo/Passenger Surcharge Investigations

In February 2006, the European Commission (the "Commission"“Commission”) and the DOJU.S. Department of Justice (“DOJ”) commenced an international investigation into what government officials describedescribed as a possible price fixing conspiracy relating to certain surcharges included in tariffs for carrying air cargo. DOJ issued a grand jury subpoena to United and the Commission conducted an inspection at the Company’s offices in Frankfurt. In June 2006, United received a second subpoena from the DOJ requesting information related to certain passenger pricing practices and surcharges applicable to international passenger routes. We are cooperating fully. United is considered a source of information for the DOJ investigation, not a target.

Separately, United has received information requests regarding cargo pricing matters from the competition authorities in Australia, Brazil, the European UnionJapan, Korea and Australia.Switzerland. On December 18, 2007, the Commission issued a Statement of Objections to 26 air carriers setting outcompanies, including United. The Statement of Objections presented evidence related to the utilization of fuel and security surcharges and the exchange of pricing information that the Commission views as supporting the conclusion that an illegal price-fixing cartel had been in operation in the air cargo transportation industry. United has provided written and oral responses vigorously disputing the Commission’s allegations against the Company. On July 31, 2008, state prosecutors in Sao Paulo, Brazil, commenced criminal proceedings against eight individuals, including United’s cargo manager, for allegedly participating in cartel activity. The Company is cooperating withactively participating in the Commission's investigation. United intendsdefense of those allegations. On December 15, 2008, the New Zealand Commerce Commission issued Notices of Proceeding and Statements of Claim to defend itself vigorously against these charges in13 airlines, including United. The Company is currently preparing its formal response to the Commission and in the European Court of Justice if necessary.

these proceedings.

In addition to the government investigations, United and other air cargo carriers were named as defendants in over ninety class action lawsuits alleging civil damages as a result of the purported air cargo pricing conspiracy. Those lawsuits were consolidated for pretrial activities in the United States Federal Court for the Eastern District of New York.York on June 20, 2006. United entered into an agreement with the majority of the private plaintiffs to dismiss United from the class action lawsuits in return for an agreement to cooperate with the plaintiffs'plaintiffs’ factual investigation and United is no longer named as a defendant in the consolidated civil lawsuit. The Company is reviewing whether its receipt of a Statement of Objections from the EU Commission will impact the civil litigation.


30

Multiple putative class actions havewere also been filed alleging violations of the antitrust laws with respect to the passenger pricing practices.practices which were the subject of the DOJ subpoena. Those lawsuits have beenwere consolidated or are pending consolidation for pretrial activities in the United States Federal Court for the Northern District of California ("(“Federal Court"Court”). United has entered into a settlement agreementwas dismissed from the case on October 3, 2008.
The Company is currently cooperating with a numberall ongoing investigations and analyzing whether any potential liability may result from any of the plaintiffsinvestigating bodies. Based on its evaluation of all information currently available, the Company has determined that no reserve for potential liability is required and will continue to defend itself against all allegations that it was aware of or participated in the passenger pricing cases to dismiss United from the class action lawsuits in returncartel activities. However, penalties for an



agreement to cooperate with the plaintiffs' factual investigation. The settlement agreement is subject to review and approval by the Federal Court.

        Penalties for violatingviolation of competition laws can be severe, involving both criminalsubstantial and civil liability. We are cooperating with the grand jury investigations while carrying out our own internal review of our pricing practices, and are not in a position to predict the potential financial impact of this litigation at this time. However, aan ultimate finding that we violated either U.S. antitrust laws or the competition laws of some other jurisdictionCompany engaged in improper activity could have a material adverse impact on our consolidated financial position and results of operations or financial condition.

operations.

United Injunction Against ALPA and Four Individual Defendants for Unlawful Slowdown Activity under the Railway Labor Act
On July 30, 2008, United filed a lawsuit in federal court for the Northern District of Illinois (the “Court”) seeking a preliminary injunction against ALPA and four individual pilot employees also named as defendants for unlawful concerted activity which was disrupting the Company’s operations. The suit focused on ALPA’s nearly two-year campaign to exert unlawful pressure on the Company through work to rule initiatives, junior/senior manning refusals, sick leave usage, pilot driven flight delays, fuel adds and similar measures. The Company alleged all of this activity was a violation of the Railway Labor Act and should immediately be enjoined by the Court. The Court granted a preliminary injunction to United in November 2008. However, the Company intends to seek a permanent injunction to conclude the process. In addition, ALPA appealed the Court’s decision and arguments concerning the appeal were heard on February 24, 2009.
Litigation Associated with September 11 Terrorism

Families of 94 victims of the September 11 terrorist attacks filed lawsuits asserting a variety of claims against the airline industry. United and American Airlines (the “aviation defendants”), as the two carriers whose flights were hijacked, are the central focus of the litigation, but a variety of additional parties have been sued on a number of legal theories ranging from collective responsibility for airport screening and security systems that allegedly failed to prevent the attacks to faulty design and construction of the World Trade Center towers. In excess of 97% of the families of the deceased victims received awards from the September 11th11th Victims Compensation Fund of 2001, which was established by the federal government, and consequently are now barred from making further claims against the airlines.aviation defendants. World Trade Center Properties, Inc., as lessee, has filed claims against the aviation defendants and The Port Authority of New York and New Jersey, the owner of the World Trade Center. The Port Authority has also filed cross-claims against the aviation defendants in both the wrongful death litigation and for property damage sustained in the attacks. The insurers of various tenants at the World Trade Center have filed subrogation claims for damages as well. In the aggregate, September 11th11th claims are estimated to be well in excess of $10 billion. By statute, these matters were consolidated in the U.S. District Court for the Southern District of New York and airlinethe aviation defendants’ exposure was capped at the limit of the liability coverage maintained by each carrier at the time of the attacks. In the personal injury and wrongful death matters, settlement discussions continue and the parties have reached settlement agreements for the majority of the remaining claims. The Company anticipates that any liability it may face arising from the events of September 11, 2001 could be significant, but by statute will be limited to the amount of its insurance coverage.

Environmental Proceedings

        In accordance with an order issued by the California Regional Water Quality Control Board in June 1999, United, along with most of the other tenants of SFO, has been investigating potential environmental contamination at the airport (geographically including United's SFO maintenance center) and conducting monitoring and/or remediation when needed. United's projected costs associated with this order were significantly reduced in 2006; therefore, the Company does not consider this to be a material proceeding.

Other Legal Proceedings

UAL and United are involved in various other claims and legal actions involving passengers, customers, suppliers, employees and government agencies arising in the ordinary course of business. Additionally, from time to time, the Company becomes aware of potential non-compliance with


31

applicable environmental regulations, which have either been identified by the Company (through internal compliance programs such as its environmental compliance audits) or through notice from a governmental entity. In some instances, these matters could potentially become the subject of an administrative or judicial proceeding and could potentially involve monetary sanctions. After considering a number of factors, including (but not limited to) the views of legal counsel, the nature of contingencies to which the Company is subject and prior experience, management believes that the ultimate disposition of these contingencies will not materially affect its consolidated financial position or results of operations.
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.


32

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

        None.


EXECUTIVE OFFICERS OF UAL AND UNITED

The executive officers of UAL and United are listed below, along with their ages, as of December 31, 2007, tenure as officer and business background for at least the last five years.

        Jane Allen.    Age 56. Ms. Allen has been Senior Vice President—Human Resources of United (air transportation) since May 2006. From June 2003 to May 2006, Ms. Allen served as Senior Vice President of Onboard Services for United. Before joining United, Ms. Allen served as the head of American Airlines' Flight Services (air transportation) from 1997 to 2003.

        Graham W. Atkinson.    Age 56. Mr. Atkinson has been Executive Vice President—Chief Customer Officer for UAL and United since September 2006. From January 2004 to September 2006, Mr. Atkinson served as Senior Vice President—Worldwide Sales and Alliances for United. From June 2001 to January 2004, Mr. Atkinson served as Senior Vice President—International for United.

        Frederic F. Brace.    Age 50. Mr. Brace has been Executive Vice President and Chief Financial Officer of UAL and United since August 2002. From September 2001 to August 2002, Mr. Brace served as UAL and United's Senior Vice President and Chief Financial Officer.

        Sara A. Fields.    Age 64. Ms. Fields has been Senior Vice President—Office of the Chairman of United since May 2006. From December 2002 to May 2006, Ms. Fields served as Senior Vice President—People of United. From January to December 2002, Ms. Fields served as United's Senior Vice President—People Services and Engagement. From July 1994—July 2002, Ms. Fields previously served as Senior Vice President—Onboard Service of United.

Paul R. Lovejoy.  Age 53.54. Mr. Lovejoy has been Senior Vice President, General Counsel and Secretary of UAL and United since June 2003. From September 1999 to June 2003, Mr. Lovejoy was a partner with Weil, Gotshal & Manges LLP (law firm).

Peter D. McDonald.  Age 56.57. Mr. McDonald has been Executive Vice President and Chief Administrative Officer of UAL and United since May 2008. From May 2004 to May 2008, Mr. McDonald served as Executive Vice President and Chief Operating Officer of UAL and United since May 2004.United. From September 2002 to May 2004, Mr. McDonald served as Executive Vice President—Operations of UAL and United.
Kathryn A. Mikells.  Age 43. Ms. Mikells has been Senior Vice President and Chief Financial Officer of UAL and United since November 2008. From JanuaryAugust 2007 to September 2002, Mr. McDonaldOctober 2008, Ms. Mikells served as United's Senior Vice President—Airport Operations.

        Rosemary Moore.    Age 57. Ms. Moore has been the Senior Vice President—Corporate and Government AffairsPresident of United since December 2002. From November to December 2002, Ms. Moore was the Senior Vice President—Corporate AffairsInvestor Relations of United. From October 2001August 2006 to October 2002,July 2007 she served as Vice President of Financial Planning and Analysis of United and from January 2005 to August 2006, Ms. Moore was theMikells served as Vice President—PublicPresident and Government AffairsTreasurer of ChevronTexaco Corporation (global energy).

United. Prior to that, Ms. Mikells served as Vice President Corporate Real Estate of United from November 2003 to January 2005.

John P. Tague.  Age 45.46. Mr. Tague has been Executive Vice President—President and Chief Operating Officer of UAL and United since May 2008. From April 2006 to May 2008, Mr. Tague served as Executive Vice President and Chief Revenue Officer of UAL and United since April 2006.United. From May 2004 to April 2006, he served as Executive Vice President—Marketing, Sales and Revenue of UAL and United. From May 2003 to May 2004, Mr. Tague was Executive Vice President—Customer of UAL and United. From 1997 to August 2002, Mr. Tague was the President and Chief Executive Officer of ATA Holdings Corp. (air transportation).

Glenn F. Tilton.  Age 59.60. Mr. Tilton has been Chairman, President and Chief Executive Officer of UAL and United since September 2002. From October 2001 to August 2002, Mr. Tilton served as Vice Chairman of ChevronTexaco Corporation (global energy).

There are no family relationships among the executive officers or the directors of the Company.UAL. The executive officers are elected by the Board of Directors of UAL or United each year and hold office until the organization meeting of the respective Board of Directors in the next subsequent year and until his or her successor is chosen or until his or her earlier death, resignation or removal.



33


PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

        Pursuant to the Plan of Reorganization, UAL issued or reserved for issuance up to 125,000,000 shares of common stock (the "New UAL Common Stock") comprised of: (a) 115,000,000 shares to be distributed to unsecured creditors and employees in accordance with the terms of the Plan of Reorganization; and (b) up to 10,000,000 shares and options (or other rights to acquire shares) pursuant to UAL's share-based management and director compensation plans. On February 1, 2006, the Predecessor UAL Common Stock ceased trading and was canceled pursuant to the terms of the Plan of Reorganization and UAL has no continuing obligations for this stock. Beginning February 2, 2006, the New UAL Common Stock has traded on a NASDAQ market under the symbol UAUA.

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
The following table sets forth the ranges of high and low sales prices per share of the New UAL Common Stockcommon stock, which trades on a NASDAQ market under the symbol “UAUA,” during the last two completed fiscal years.

 
 2007
 2006
 
 High
 Low
 High
 Low
1st quarter(a) $51.57 $36.64 $43.00 $29.51
2nd quarter  44.32  31.62  40.05  26.02
3rd quarter  50.00  35.90  32.17  21.90
4th quarter  51.60  33.48  46.54  26.77
      (a)
      During January 2006, the Predecessor UAL Common Stock traded on the over-the-counter market under the symbol UALAQ.OB between a range of $0.02 and $1.18.

                 
  2008  2007 
  High  Low  High  Low 
 
1st quarter $41.47  $19.71  $51.57  $36.64 
2nd quarter  24.87   5.22   44.32   31.62 
3rd quarter  15.84   2.80   50.00   35.90 
4th quarter  16.73   4.55   51.60   33.48 

There is no trading market for the common stock of United. UAL and United did not pay any dividends during 2006in either 2008 or 2007. In December 2007, UAL'sUAL’s Board of Directors approved a special distribution of $2.15 per common share, or approximately $257 million, which was paid on January 23, 2008 to holders of record of New UAL Common Stockcommon stock as of January 9, 2008. As discussed in Note 22, "Distribution Payable" inCombined Notes to Consolidated Financial Statements, the2008 and is characterized as a return of capital for tax treatment of the special distribution will not be determined until January 2009.purposes. Under the provisions of the Amended Credit Facility the Company'sCompany’s ability to pay distributions on or repurchase New UAL Common Stockcommon stock is restricted. However, the December 2007 prepayment of $500 million and further amendment of the Amended Credit Facility allows the Company tomay undertake an additional $243 million in shareholder initiatives without any additional prepayment of the Amended Credit Facility, provided that all covenants within the agreementAmended Credit Facility are met. In addition, the amendmentagreement provides that the Company can carry out further shareholder initiatives in an amount equal to future term loan prepayments, provided the facility covenants are met. See Note 12, "Debt“Debt Obligations" and Card Processing Agreements,” in theCombined Notes to Consolidated Financial Statementsfor more information related to dividend restrictions under the Amended Credit Facility. Any future determination regarding dividend or distribution payments will be at the discretion of the Board of Directors, subject to applicable limitations under Delaware law.

Based on reports by the Company'sCompany’s transfer agent for the New UAL Common Stock,common stock, there were approximately 1,8901,774 record holders of its New UAL Common Stockcommon stock as of February 22, 2008.

20, 2009.

The following graph shows the cumulative total shareholder return for the New UAL Common Stockcommon stock during the period from February 2, 2006 to December 31, 2007.2008. Five year historical data is not presented as a result of the significant period UAL was in bankruptcy and since the financial results of the Successor UAL are not comparable with the results of the Predecessor UAL, as discussed in Item 6,Selected Financial Data. The graph also shows the cumulative returns of the S&P 500 Index and the AMEX Airline Index ("AAI"(“AAI”) of fourteen13 investor-owned airlines. The comparison assumes $100 was invested on February 2, 2006 (the date UAUA began trading on NASDAQ) in New UAL Common Stock and in each of the indices shown and assumes that all dividends paid, including UAL’s January 2008 $2.15 per share distribution, were reinvested.


34

PERFORMANCE CHART

Note:The stock price performance shown in the graph above should not be considered indicative of potential future stock price performance.

        New

The following table presents repurchases of UAL Common Stock repurchasescommon stock made in the fourth quarter of fiscal year 2007 were as follows:2008:
                 
           Maximum number of
 
        Total number of
  shares (or approximate
 
        shares purchased as
  dollar value) of shares
 
  Total number
  Average price
  part of publicly
  that may yet be
 
  of shares
  paid
  announced plans
  purchased under the
 
Period
 purchased(a)  per share  or programs  plans or programs 
10/01/08-10/31/08  36,111  $14.79   —   (b)
11/01/08-11/30/08  4,000   14.33   —   (b)
12/01/08-12/31/08  —   —   —   (b)
                 
Total  40,111   14.74   —   (b)
                 
(a)Shares withheld from employees to satisfy certain tax obligations due upon the vesting of restricted stock.
(b)Withholding of shares to satisfy tax obligations due upon the vesting of restricted stock in accordance with the Company’s share-based compensation plan. The plan does not specify a maximum number of shares that may be repurchased.


35

Period
 Total number
of shares
purchased(a)
 Average
price paid
per share
 Total number of
shares purchased as
part of publicly
announced
plans or programs
 Maximum number of
shares (or approximate
dollar value) of shares
that may yet be
purchased under the
plans or programs
 
10/01/07-10/31/07 892 $47.79 — (b)
11/01/07-11/30/07 —  — — — 
12/01/07-12/31/07 —  — — — 
  
        
Total 892 $47.79 — (b)
  
        
(a)
Shares withheld from employees to satisfy certain tax obligations due upon the vesting of restricted stock.

(b)
Withholding of shares to satisfy tax obligations due upon the vesting of restricted stock in accordance with the Company's share-based compensation plan. The plan does not specify a maximum number of shares that may be repurchased.

ITEM 6.    SELECTED FINANCIAL DATA.

ITEM 6.  SELECTED FINANCIAL DATA.
In connection with its emergence from Chapter 11 bankruptcy protection, the CompanyUAL adopted fresh-start reporting in accordance withSOP 90-7 and in conformity with accounting principles generally accepted in the United States of America ("GAAP"(“GAAP”). As a result of the adoption of fresh-start reporting, the financial statements prior to February 1, 2006 are not comparable with the financial statements after February 1, 2006. References to "Successor Company"“Successor Company” refer to UAL and United on or after February 1, 2006, after giving effect to the adoption of fresh-start reporting. References to "Predecessor Company"“Predecessor Company” refer to UAL and United prior to February 1, 2006.
                          
  Successor   Predecessor 
        Period from
   Period from
       
        February 1 to
   January 1
       
  Year Ended December 31,  December 31,
   to January 31,
  Year Ended December 31, 
(In millions, except rates)
 2008  2007  2006   2006  2005  2004 
Income Statement Data:
                         
Operating revenues $20,194  $20,143  $17,882   $1,458  $17,379  $16,391 
Operating expenses  24,632   19,106   17,383    1,510   17,598   17,245 
Mainline fuel purchase cost  7,114   5,086   4,436    362   4,032   2,943 
Non-cash fuel hedge (gains) losses  568   (20)  2    —   —   — 
Cash fuel hedge (gains) losses  40   (63)  24    —   —   — 
                          
Total Mainline fuel expense  7,722   5,003   4,462    362   4,032   2,943 
                          
Nonoperating non-cash fuel hedge (gains) losses  279   —   —    —   —   — 
Nonoperating cash fuel hedge (gains) losses  249   —   —    —   —   — 
Goodwill impairment  2,277   —   —    —   —   — 
Other impairments and special operating items  339   (44)  (36)   —   18   — 
Reorganization (income) expense  —   —   —    (22,934)  20,601   611 
Net income (loss)(a)  (5,348)  403   25    22,851   (21,176)  (1,721)
Basic earnings (loss) per share  (42.21)  3.34   0.14    196.61   (182.29)  (15.25)
Diluted earnings (loss) per share  (42.21)  2.79   0.14    196.61   (182.29)  (15.25)
Cash distribution declared per common share(b)  —   2.15   —    —   —   — 
                          
Balance Sheet Data at period-end:
                         
Total assets $19,461  $24,220  $25,369   $19,555  $19,342  $20,705 
Long-term debt and capital lease obligations, including current portion  8,149   8,449   10,600    1,432   1,433   1,204 
Liabilities subject to compromise  —   —   —    36,336   35,016   16,035 
                          
Mainline Operating Statistics(c):
                         
Revenue passengers  63   68   69          (c)   67   71 
Revenue passenger miles (“RPMs”)(d)  110,061   117,399   117,470          (c)   114,272   115,198 
Available seat miles (“ASMs”)(e)  135,861   141,890   143,095          (c)   140,300   145,361 
Passenger load factor(f)  81.0%  82.7%  82.1%         (c)   81.4%   79.2% 
Yield(g)  13.89¢  12.99¢  12.19¢         (c)   11.25¢   10.83¢ 
Passenger revenue per ASM (“PRASM”)(h)  11.29¢  10.78¢  10.04¢         (c)   9.20¢   8.63¢ 
Operating revenue per ASM (“RASM”)(i)  12.58¢  12.03¢  11.49¢         (c)   10.66¢   9.95¢ 
Operating expense per ASM (“CASM”)(j)  15.74¢  11.39¢  11.23¢         (c)   10.59¢   10.20¢ 
Fuel gallons consumed  2,182   2,292   2,290          (c)   2,250   2,349 
Average price per gallon of jet                         
fuel, including tax and hedge impact  353.9¢  218.3¢  210.7¢         (c)   179.2¢   125.3¢ 
(a)Net income (loss) was significantly impacted in the Predecessor periods due to reorganization items related to the bankruptcy restructuring.
(b)Paid in January 2008.
(c)Mainline operations exclude the operations of independent regional carriers operating as United Express. Statistics included in the 2006 Successor period were calculated using the combined results of the Successor period from February 1 to December 31, 2006 and the Predecessor January 2006 period.
(d)RPMs are the number of miles flown by revenue passengers.
(e)ASMs are the number of seats available for passengers multiplied by the number of miles those seats are flown.
(f)Passenger load factor is derived by dividing RPMs by ASMs.
(g)Yield is mainline passenger revenue excluding industry and employee discounted fares per RPM.
(h)PRASM is mainline passenger revenue per ASM.
(i)RASM is operating revenues excluding United Express passenger revenue per ASM.
(j)CASM is operating expenses excluding United Express operating expenses per ASM.


36

 
 Successor
  
 Predecessor
 
 
  
 Period from
February 1 to
December 31,
2006
  
 Period from
January 1 to
January 31,
2006
 Year Ended December 31,
 
 
 Year Ended
December 31,
2007
 




 
(In millions, except rates)
 2005
 2004
 2003
 
Income Statement Data:                     
UAL                     
Operating revenues $20,143 $17,882   $1,458 $17,379 $16,391 $14,928 
Operating expenses  19,106  17,383    1,510  17,598  17,245  16,288 
Fuel expenses—Mainline  5,003  4,462    362  4,032  2,943  2,072 
Reorganization (income) expense  —  —    (22,934) 20,601  611  1,173 
Net income (loss)(a)  403  25    22,851  (21,176) (1,721) (2,808)
Basic earnings (loss) per share  3.34  0.14    196.61  (182.29) (15.25) (27.36)
Diluted earnings (loss) per share  2.79  0.14    196.61  (182.29) (15.25) (27.36)
Cash distribution declared per common
    share(b)		  2.15  —    —  —  —  — 

United
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenues $20,131 $17,880   $1,454 $17,304 $16,413 $14,933 
Operating expenses  19,099  17,369    1,506  17,529  17,217  16,246 
Fuel expenses—Mainline  5,003  4,462    362  4,032  2,943  2,072 
Reorganization (income) expense  —  —    (22,709) 20,432  611  1,174 
Net income (loss)(a)  402  32    22,626  (21,036) (1,679) (2,777)

Balance Sheet Data at period-end:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UAL                     
Total assets $24,220 $25,369   $19,555 $19,342 $20,705 $21,979 
Long-term debt and capital lease obligations,
    including current portion		  8,449  10,600    1,432  1,433  1,204  852 
Liabilities subject to compromise  —  —    36,336  35,016  16,035  13,964 

United
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets $24,236 $25,581   $19,595 $19,396 $20,719 $21,959 
Long-term debt and capital lease obligations,
    including current portion		  8,446  10,596    1,432  1,433  1,204  852 
Liabilities subject to compromise  —  —    36,379  35,060  16,161  14,090 

Mainline Operating Statistics(c):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UAL and United                     
Revenue passengers  68  69    (c) 67  71  66 
RPMs  117,399  117,470    (c) 114,272  115,198  104,464 
ASMs  141,890  143,095    (c) 140,300  145,361  136,630 
Passenger load factor  82.7% 82.1%   (c) 81.4% 79.2% 76.5%
Yield(d)  12.99¢ 12.19¢   (c) 11.25¢ 10.83¢ 10.79¢
Passenger revenue per ASM ("PRASM")(e)  10.78¢ 10.04¢   (c) 9.20¢ 8.63¢ 8.32¢
Operating revenue per ASM ("RASM")(f)  12.03¢ 11.49¢   (c) 10.66¢ 9.95¢ 9.81¢
Operating expense per ASM ("CASM")(g)  11.39¢ 11.23¢   (c) 10.59¢ 10.20¢ 10.52¢
Fuel gallons consumed  2,292  2,290    (c) 2,250  2,349  2,202 
Average price per gallon of jet fuel, including
    tax and hedge impact		  218.3¢ 210.7¢   (c) 179.2¢ 125.3¢ 94.1¢
(a)
Net income (loss) was significantly impacted in the Predecessor periods due to the reorganization items related to the bankruptcy restructuring.

(b)
Paid in January 2008.

(c)
Mainline operations exclude the operations of independent regional carriers operating as United Express. Statistics included in the 2006 Successor period were calculated using the combined results of the Successor period from February 1 to December 31, 2006 and the Predecessor January 2006 period.

(d)
Yield is Mainline passenger revenue excluding industry and employee discounted fares per RPM.

(e)
PRASM is Mainline passenger revenue per ASM.

(f)
RASM is operating revenues excluding United Express passenger revenue per ASM.

(g)
CASM is operating expenses excluding United Express operating expenses per ASM.

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview

As discussed further inabove under Item 1,Business, the Company derives virtually all of its revenues from airline related activities. The most significant source of airline revenues is passenger revenues; however, Mileage Plus, United Cargo and United Services are also significantmajor sources of operating revenues. The airline industry is highly competitive and is characterized by intense price competition. Fare discounting by United'sUnited’s competitors has historically had a negative effect on the Company'sCompany’s financial results because United has generally been required to match competitors'competitors’ fares to maintain passenger traffic. Future competitive fare adjustments may negatively impact the Company'sCompany’s future financial results. The Company'sCompany’s most significant operating expense is jet fuel. Jet fuel prices are extremely volatile and are largely uncontrollable by the Company. UAL 'sThe Company’s historical and future earnings have been and will continue to be significantly impacted by jet fuel prices. The impact
This Annual Report onForm 10-K is a combined report of recent jet fuel price increasesUAL and United. As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted. United’s operating revenues and operating expenses comprise nearly 100% of UAL’s revenues and operating expenses. In addition, United comprises approximately the entire balance of UAL’s assets, liabilities and operating cash flows. Therefore, the following qualitative discussion is discussed below.applicable to both UAL and United, unless otherwise noted. Any significant differences between UAL and United results are separately disclosed and explained. United meets the conditions set forth in General Instruction I(1)(a) and (b) ofForm 10-K

and is therefore filing thisForm 10-K with the reduced disclosure format allowed under that general instruction.

Bankruptcy Matters.  On December 9, 2002, UAL, United and 26 direct and indirect wholly-owned subsidiaries filed voluntary petitions to reorganize its business under Chapter 11 of the Bankruptcy Code. The Company emerged from bankruptcy on February 1, 2006, under a Plan of Reorganization that was approved by the Bankruptcy Court. In connection with its emergence from Chapter 11 bankruptcy protection, the Company adopted fresh-start reporting, which resulted in significant changes in post-emergence financial statements, as compared to the Company'sCompany’s historical financial statements. See the "Financial Results"“Financial Results” section below for further discussion. See Note 1, "Voluntary4, “Voluntary Reorganization Under Chapter 11,"” in theCombined Notes to Consolidated Financial Statements for further information regarding bankruptcy matters.

Recent Developments.  The Company believes its restructuring has made the Company competitive with other U.S. carriers. The Company's financial performance has continued to improve despite significant increasesunprecedented increase in fuel prices as noted below. Average Mainline price per gallon has increased 22% from 2005 to 2007, which has negatively impactedand a worsening global recession have created an extremely challenging environment for the Company's unit costs and operating margins. However, between 2005airline industry. While the Company significantly improved its financial performance in 2006 and 2007, the Company has beenwas not able to mitigatefinancially compensate for the substantial increase in fuel prices during 2008. The Company’s average consolidated fuel price per gallon, including net hedge losses that are classified in fuel expense, increased 59% from 2007 to 2008. The increased cost of fuel purchases and hedging losses drove the $3.1 billion increase in the Company’s consolidated fuel costs. The Company’s fuel hedge losses that are classified in nonoperating expense also had a significant negative impact on its 2008 liquidity and results of operations.
Although the Company was adversely impacted by fuel costs and special items in this recessionary environment, the Company’s commitment to cost reduction was a contributory factor to theyear-over-year reduction in other areas of operating expenses as presented in the table below. The


37

following table presents the unit cost of various components of total operating expenses andyear-over-year changes.
                     
     2008 expense
     2007 expense
    
     per ASM
     per ASM
  % change
 
(In millions, except unit costs)
 2008  (in cents)  2007  (in cents)  per ASM 
Mainline ASMs  135,861       141,890       (4.2)
Mainline fuel expense $7,722   5.68  $5,003   3.53   60.9 
United Aviation Fuel Corporation (“UAFC”)  4   —   36   0.02   (100.0)
Impairments, special items and other charges(a)  2,807   2.07   (44)  (0.03)  — 
Other operating expenses  10,851   7.99   11,170   7.87   1.5 
                     
Total mainline operating expense  21,384   15.74   16,165   11.39   38.2 
Regional affiliate expense  3,248       2,941         
                     
Consolidated operating expense $24,632      $19,106         
                     
(a)These amounts are summarized in the Summary Results of Operations table inFinancial Results, below.
In 2008, the Company focused on mitigating a portion of the negative impact of risinghigher fuel costs and the weakening economy through cost reductions, fleet optimization, generation of higher revenues, executing on initiatives to enhance liquidity and other strategies as discussed below. Overall, the Company has characterized its restructuring accomplishments, improvedbusiness approach as “Focus on Five,” which refers to a comprehensive set of priorities that focus on the fundamentals of running a good airline: one that runs on time, with clean planes and courteous employees, that delivers industry-leading revenues and other means, which have all contributed to UAL operating income of $1.0 billion in 2007, as compared to operating income (losses) of $447 million and $(219) million in 2006 and 2005, respectively. In addition, the Company's operating cash flow improved significantly to $2.1 billion, or 37%, in 2007 as compared to 2006.

        United seeks to continuously improve the delivery of its products and services to its customers, reduce unitcompetitive costs, and increase unit revenues. does so safely. Building on this foundation, United aims to regain its industry-leading position in key metrics reported by the DOT as well as industry-leading revenue driven by products, services, schedules and routes that are valued by the Company’s customers. The goal of this approach is intended to enable United to achievebest-in-class safety performance, exceptional customer satisfaction and experience and industry-leading margin and cash flow. Although results of operations in 2008 were disappointing and economic conditions continue to present a challenge for the Company, we believe we are taking the necessary steps to position the Company for improved financial and operational performance in 2009.

Some of the Company's more significant recent developmentsthese actions include the following:
• The Company significantly reduced its mainline domestic and international capacity in response to high fuel costs and the weakening global economy. Mainline domestic and international capacity decreased 14% and 8%, respectively, during the fourth quarter of 2008 as compared to the year-ago period. Mainline domestic capacity decreased 8% while international capacity increased 1% for the full year of 2008, as compared to 2007. Consolidated capacity was approximately 11% and 4% lower in the fourth quarter and the full year of 2008, respectively, as compared to the year-ago periods. The Company will implement additional capacity reductions in 2009 as it completes the removal of 100 aircraft, as discussed below, of which 51 aircraft had been removed from service as of December 31, 2008.
• The Company is permanently removing 100 aircraft from its fleet, including its entire fleet of 94 B737 aircraft and six B747 aircraft. These aircraft are some of the oldest and least fuel efficient in the Company’s fleet. This reduction reflects the Company’s efforts to eliminate unprofitable capacity and divest the Company of assets that currently do not provide an acceptable return, particularly in the current economic environment with volatile fuel prices and a global economy in recession. The Company continues to review the deployment of all of its aircraft in various markets and the overall composition of its fleet to ensure that we are using our assets appropriately to provide the best available return.


38

    •
    In 2007, UAL 's management and its Board of Directors completed a strategic planning session to discuss the future of United.

• The Company continues to refit its wide body international aircraft with new first and business class premium seats, entertainment systems and other product enhancements. As of December 31, 2008, the Company has completed upgrades on 25 international aircraft with new premium travel equipment featuring , among other improvements,180-degree, lie-flat beds in business class. The Company expects its remaining 66 wide body international aircraft to be upgraded by 2011. The upgrade of this equipment is expected to allow the Company to generate revenue premiums from its first and business class international cabins. This new product will reduce premium seat counts by more than 20%.
• In 2008, the Company ceased operations to Ft. Lauderdale and West Palm Beach, Florida, two markets served by Ted, which uses an all-economy seating configuration to serve primarily leisure markets. In addition, during 2008, as part of its operational plans the Company ceased operations in certain non-Ted markets and also reduced frequencies in several Ted and non-Ted markets. In light of these planned capacity reductions and other factors, the Company also determined that it would eliminate its entire B737 fleet by the end of 2009. With the reduced need for Ted aircraft in leisure markets and an increased need for narrow body aircraft in non-Ted markets due to the elimination of the B737 fleet, the Company decided to reconfigure the entire Ted fleet ofall-economy Airbus aircraft to include first class, as well as Economy Plus and economy seats. The reconfigured Airbus aircraft will provide United a consistent product offering for our customers and employees, and increases our fleet flexibility to redeploy aircraft onto former Ted and other narrow body routes as market conditions change. The reconfiguration of the Ted aircraft will occur in stages with expected completion by the end of 2009.
• The Company was able to pass some of the higher fuel costs in 2008 to customers through passenger and cargo fuel surcharges, among other means. The Company created new revenue streams through unbundling products, offering new a la carte services and expanding choices for customers. The Company’s existing Travel Options, such as Economy Plus and Premium Cabin upsell have been extremely successful and the Company continues to implement new revenue initiatives such as a $15 fee for the first checked bag, as well as a $25 fee to check a second bag on domestic flights. Additional new Travel Options offered by United include Mileage Plus Award Accelerator, which allows customers to multiply their earned miles for each trip by purchasing accelerator miles upon ticket purchase, andDoor-to-Door Baggage, which allows customers to avoid the hassle of taking their luggage to the airport by arranging for the luggage to be picked up from their home and shipped to their final destination. In addition, various ticket change fees have increased, including Mileage Plus close-in fees.
• The Company reduced its capital expenditures in 2008 as compared to 2007 by more than $200 million as discussed inLiquidity,below. In addition, the Company further plans to limit capital spending to $450 million during 2009.
• The Company is streamlining its operations and corporate functions in order to match the size of its workforce to the size of its reduced capacity. The Company expects a total workforce reduction of approximately 9,000 positions by the end of 2009, of which approximately 6,000 positions were eliminated as of December 31, 2008. The total expected reduction will consist of approximately 2,500 salaried and management positions and approximately 6,500 represented positions. The Company has offered furlough-mitigation programs such as voluntary early-out options, primarily to certain union groups, to reduce the required involuntary furloughs. Of the total expected represented workforce reduction, approximately 40% have been through voluntary furloughs through January 2009.
• A transatlantic aviation agreement to replace the existing bilateral arrangements between the U.S. government and the 27 European Union (“EU”) member states became effective in 2008. The future effects of this agreement on our financial position and results of operations cannot be predicted with certainty due to the diverse nature of its potential impacts, including increased competition at London’s Heathrow Airport as well as throughout the EU member states.


39

However, we have already taken actions to capitalize on opportunities under the new agreement. Upon the effective date of the transatlantic aviation agreement, the DOT’s approval of United’s application for antitrust immunity with bmi also became effective, allowing the two airlines to deepen their commercial relationship and adding bmi to the multilateral group of Star Alliance carriers that had already been granted antitrust immunity by the DOT.
• United and Continental Airlines announced their plan to form a new partnership that will link the airlines’ networks and services worldwide to the benefit of customers, employees and shareholders, creating new revenue opportunities, cost savings and other efficiencies.
The Company has developed a five-year plan, the ambition of which isalso took certain actions to position United as the airline of choice for premium customers, employeesmaintain adequate liquidity and investors, while maintaining our fundamental commitment to safety and balancing the needs of all of our stakeholders. The Company's main focus continues to be strengthening our core business, and the plan includes a detailed roadmap of more than 250 initiatives and significant capital investment over the next five years. These investments are targeted to support improvements for customers and employees, and drive revenue growth and efficiency improvements. In addition to strengthening the performance of the airline, our plan also contemplates unlocking the value of business units such as United Services and Mileage Plus. Our goal is to generate returns to stockholders that are competitive with the U.S. industry in general.

      •
      The Company is currently evaluating strategic alternatives to maximize the value ofminimize its MRO business.financing costs during this challenging economic environment. During 2007, the Company met with various third parties and permitted such third parties to conduct due diligence with respect to a potential transaction involving the Company's MRO business (excluding the Company's line maintenance activities). The Company has received proposals and is in the process of evaluating these proposals. As discussed in Item 1A,Risk Factors, there can be no assurance any such transaction will occur, nor can there be any assurances with respect to the form or timing of any such transaction.

      •
      The Company is currently evaluating strategic alternatives to maximize the value of its Mileage Plus business. In early 2008, the Company began the processgenerated unrestricted cash of preparing Mileage Plus/ULS financial reports and analysis as part ofapproximately $1.9 billion through new financing agreements, amendments to our evaluation process that could eventually result in a possible disposition of part or all of a company that owns and operates the Mileage Plus program. As discussed in Item 1A,Risk Factors, there can be no assurance that any such transaction will occur.

      •
      Effective May 5, 2008, United will charge certain customers a $25 service fee to check a second bag. Customers that have a certain status in Mileage Plus or Star Alliance will not be charged to check a second bag. United estimates that thisco-branded credit card agreement and our largest credit card processing agreement and other means. Some of these agreements are summarized below. SeeLiquidity and Capital Resources—Financing Activities, below, for additional information related to these agreements.
    • During the fourth quarter of 2008, UAL began a public offering of up to $200 million of UAL common stock, generating gross proceeds of $172 million in 2008 and January 2009. UAL may issue additional shares during 2009 until it reaches $200 million in proceeds.
    • United completed a $241 million credit agreement secured by 26 of the Company’s currently owned and mortgaged A319 and A320 aircraft. Borrowings under the agreement were at a variable interest rate based on LIBOR plus a margin. The credit agreement requires periodic principal and interest payments through its final maturity in June 2019. The Company may not prepay the loan prior to July 2012. This agreement did not change the number of the Company’s unencumbered aircraft as the Company used available equity in these previously owned and mortgaged aircraft as collateral for this financing.
    • United entered into an $84 million loan agreement secured by three aircraft, including two Airbus A320 and one Boeing B777 aircraft. Borrowings under the agreement were at a variable interest rate based on LIBOR plus a margin. The loan requires principal and interest payments every three months and has a final maturity in June 2015.
    • During 2008 and January 2009, United also entered into three aircraft sale-leaseback agreements. The Company sold these aircraft for approximately $370 million and has leased them back.
    • The Company completed an amendment of its marketing services agreement with its Mileage Plus co-branded bankcard partner and its largest credit card processor to amend the terms of their existing agreements to, among other things, extend the terms of the agreements. These amendments resulted in an immediate increase in the Company’s cash position by approximately $1.0 billion, which included a total of $600 million for the advanced purchase of miles and the licensing extension payment, as well as the release of approximately $357 million in previously restricted cash for reserves required under the credit card processing agreement. Approximately $100 million of additional cash receipts are expected over the next two years based on the amended terms of the co-brand agreement as compared to cash that would have been generated under the terms of the previous co-brand agreement. This amount is less than the Company’s initial estimate primarily due to the severe weakening of the global economy. As part of the transaction, United granted a first lien of specified intangible Mileage Plus assets and a second lien on certain other assets. The term of the amended co-branded agreement is through December 31, 2017. See the discussion below inLiquidityfor additional terms of this agreement.
    The Company also made the following significant changes to its baggage policy will generate more than $100 million annually in cost savings and new revenue.

    •
    The Company's employees earned approximately $170 million in cash payments related to 2007 business performance, comprised of approximately $110 million in profit sharing, $40 million in success sharing awards and $20 million as part of the special distribution to UAL common stockholders. The majority of these payments will be made in the first four months of 2008.

    •
    The Company has announced a $200 million cost reduction program for fiscal year 2008 following successful completion of its $400 million cost reduction program in 2007.

    •
    In 2007, United entered into an agreement to sell its interest in Aeronautical Radio, Inc. ("ARINC"), to Radio Acquisition Corp., an affiliate of The Carlyle Group. ARINC is a provider of transportation communications and systems engineering. The transaction closed on October 25, 2007 and generated proceeds of $128 million and a pre-tax net gain of $41 million.

    •
    In November 2007, the Company showcased the first of 97 international aircraft to be refitted with new first and business class premium seats, entertainment systems and other product enhancements with an inaugural flight from Washington Dulles to Frankfurt. With this flight, United earned the distinction of becoming the first U.S. carrier to offer 180-degree, lie-flat beds in business class on overseas flights. Upgrading of all 97 international aircraft is expected to be completed between late 2007 and early 2010.

    •
    During 2007, the U.S. government and the European Union ("EU") signed a transatlantic aviation agreement to replace the existing bilateral arrangements between the U.S. Government and the 27 EU member states. The agreement will become effective at the end of March 2008. The future effects of this agreement on UAL cannot be predicted with certainty due to the variety of provisions affecting the competitive position of United and other U.S. and EU carriers subject to its terms; however, we have already taken actions to capitalize on opportunities under the new agreement. In September 2007, the DOT granted authority to effectuate antitrust immunity between United and bmi, and to include bmi in the multilateral group of Star Alliance carriers that had already been granted antitrust immunity by the DOT. This immunity goes into effect at the same time as the Open Skies treaty between the U.S. and the EU in March 2008.

              The Company strengthened its balance sheet by reducing on- and off-balance sheet debt by $2.3 billion during 2007. These significant debt reductions and refinancings, which are expected to reduce annual net financing costs by approximately $120 million, included:

        •
        In the second quarter of 2007, United completed the issuance of $694 million of Enhanced Equipment Trust Certificates ("EETC") secured debt financing that included thirteen aircraft, three of which were previously unencumbered. In the third quarter of 2007, in order to refinance certain aircraft at a lower cost United purchased three 747-400 aircraft that had previously been financed by United through operating leases. The lease agreements were simultaneously terminated upon the closing of the acquisition. The Company purchased these aircraft at a total price in excess of $150 million, largely with the proceeds of the EETC transaction executed by the Company in the second quarter of 2007. These two transactions combined did not change the total number of encumbered aircraft.

        •
        In June 2007, the original $261 million principal amount of City and County of Denver, Colorado Special Facilities Airport Revenue Bonds Series 1992A was refinanced with $270 million in new Series 2007A bonds.

        •
        In February 2007, United prepaid $972 million of its February 2006 $3.0 billion credit facility and amended certain terms of this facility creating a new $2.055 billion credit facility (the "Amended Credit Facility"). In December 2007, United prepaid $500 million of the term loan under the Amended Credit Facility. A December 2007 amendment of the Amended Credit Facility allows certain amounts of shareholder initiatives. In addition, in December 2007 UAL's Board of Directors approved a special distribution of $2.15 per common share, or approximately $257 million, that was paid on January 23, 2008.

              The Company improved its passenger and cargo route network throughout 2007 and has announced new services to begin in 2008, including:network:

      • United commenced daily, non-stop service between Washington Dulles and Dubai in October 2008.


      40

        •
        United commenced non-stop daily service between Washington Dulles and Beijing, China in March 2007.

        •
        United commenced daily, non-stop service between LAX and Hong Kong and between Washington Dulles and Rio de Janeiro in October 2007.

        •
        United increased its thrice-weekly Washington Dulles-Kuwait service to daily frequency in December 2007 and a code-sharing agreement with Qatar Airways was also consummated.

        •
        United commenced new daily service between LAX and Frankfurt, Germany in December 2007.

        •
        The Company has announced new daily service from Denver to London Heathrow commencing in March 2008.

        •
        The Company received DOT approval to become the first U.S. carrier to operate daily non-stop service from SFO to Guangzhou, China. This new service will commence in June 2008.

      • The Company announced new daily service from Washington Dulles to Moscow and Geneva, commencing in March and April 2009, respectively.
      • The Company will reinstate daily seasonal service from Denver to London Heathrow effective March 2009.
      Financial Results.  UAL and United adopted fresh-start reporting in accordance withSOP 90-7 upon emerging from bankruptcy. Thus, the consolidated financial statements before February 1, 2006 reflect results based upon the historical cost basis of the Company while the post-emergence consolidated financial statements reflect the new basis of accounting, which incorporates fair value and other adjustments recorded from the application ofSOP 90-7. Therefore, financial statements for the post-emergence periods are not comparable to the pre-emergence period financial statements. References to "Successor Company"“Successor Company” refer to UALand/or United on or after February 1, 2006, after giving effect to the adoption of fresh-start reporting. References to "Predecessor Company"“Predecessor Company” refer to UALand/or United before their exit from bankruptcy on February 1, 2006.


      For purposes of providing management's year-over-year discussionsthe discussion of financial results, management utilizes the combined results of operations, management has compared the Successor Company and Predecessor Company for the twelve months ended December 31, 2006. The combined results for the year ended December 31, 2007 to the combined 2006 annual results, consisting of the Successor Company's results for the eleventwelve months ended December 31, 2006 and the Predecessor Company's January 2006 results, and to the Predecessor Company's annual 2005 results. The presentation of results for the combined twelve month period of 2006 are non-GAAP measures. However,measures; however, management believes that these year-over-year comparisons of the combined results of operations provide management and investors a useful basis ofmore meaningful comparison to the full years of 2007ended December 31, 2008 and 2005. The discussion of financial results below includes a discussion of certain bankruptcy related matters that the Company has classified as special items in itsStatements of Consolidated Operations. These items have been classified as special because they are directly related to the resolution of bankruptcy administrative claims and are not indicative of the Company's ongoing financial performance.

      2007.

      The air travel business is subject to seasonal fluctuations and historically, the Company'sCompany’s results of operations are better in the second and third quarters as compared to the first and fourth quarters of each year, since our first and fourth quarter results normally reflect weaker travel demand. The Company'sCompany’s results of operations can be impacted by adverse weather, air traffic control delays, fuel price volatility and other factors in any period.


      41

      The table below presents certain financial statement items to provide an overview of UAL 's and United'sthe Company’s financial performance for the three years ended December 31, 2007.

       
      		 Successor
      		 Combined
      		 Successor
      		 Predecessor
      		 Predecessor
      		 
      (In millions)
      		 Year Ended
      December 31,
      2007
      		 Twelve Months
      Ended
      December 31,
      2006(a)
      		 Period from
      February 1 to
      December 31,
      2006
      		 Period from
      January 1 to
      January 31,
      2006
      		 Year Ended
      December 31,
      2005
      		 
      Earnings (loss) before reorganization
          items, income taxes and equity
          earnings in affiliates      		 $695 $(45)$43 $(88)$(579)
       Reorganization items, net  —  22,934  —  22,934  (20,601)
       Income taxes  (297) (21) (21) —  — 
       Equity in earnings of affiliates  5  8  3  5  4 
        
      		 
      		 
      		 
      		 
      		 
      UAL net income (loss) $403 $22,876 $25 $22,851 $(21,176)
        
      		 
      		 
      		 
      		 
      		 
      United net income (loss) $402 $22,658 $32 $22,626 $(21,036)
        
      		 
      		 
      		 
      		 
      		 
      (a)
      2008, 2007 and 2006. The combined period includesmost significant contributors to the results for one month ended January 31, 2006 (Predecessor Company)Company’s net loss in 2008 were increased fuel prices and eleven months ended December 31, 2006 (Successor Company).

      asset impairments. The table below also highlights that the Company, through its past and on-going cost reduction initiatives, was able to effectively manage costs in non-fuel and other areas, although the benefits of these cost savings initiatives and higher revenues were not sufficient to offset the dramatic increase in fuel cost.

      UALSUMMARY RESULTS OF OPERATIONS
                           
        Successor  Combined  Predecessor 
                 Period from
      		  Period from
      		 
                 February 1 to
      		  January 1
      		 
      (In millions)
      		          December 31,
      		  to January 31,
      		 
      UAL Information
      		 2008  2007  2006(e)  2006  2006 
      Revenues $20,194  $19,852  $19,340  $17,882  $1,458 
      Special revenue items(a)  —   45   —   —   — 
      Revenues due to Mileage Plus policy change(a)  —   246   —   —   — 
                           
      Total revenues  20,194   20,143   19,340   17,882   1,458 
      Mainline fuel purchase cost  7,114   5,086   4,798   4,436   362 
      Operating non-cash fuel hedge (gain)/loss  568   (20)  2   2   — 
      Operating cash fuel hedge (gain)/loss  40   (63)  24   24   — 
      Regional affiliate fuel expense(b)  1,257   915   834   772   62 
      Reorganization gain  —   —   (22,934)  —   (22,934)
      Goodwill impairment(c)  2,277   —   —   —   — 
      Other impairments and special items(c)  339   (44)  (36)  (36)  — 
      Other charges (see table below)  191   —   —   —   — 
                           
      Total impairments, special items and other charges  2,807   (44)  (36)  (36)  — 
                           
      Other operating expenses  12,846   13,232   13,271   12,185   1,086 
      Nonoperating non-cash fuel hedge (gain)/loss  279   —   —   —   — 
      Nonoperating cash fuel hedge (gain)/loss  249   —   —   —   — 
      Other nonoperating expense(d)  407   337   484   453   31 
      Income tax expense (benefit)  (25)  297   21   21   — 
                           
      Net income (loss) $(5,348) $403  $22,876  $25  $22,851 
                           
      United net income (loss) $(5,306) $402  $22,658  $32  $22,626 
                           
      (a)These significant items affecting the Company’s results of operations are discussed inResults of Operations, below.
      (b)Regional affiliates’ fuel expense is classified as part of Regional affiliates expense in the Company’sStatements of Consolidated Operations.
      (c)As described inResults of Operationsbelow, impairment charges were recorded as a result of interim asset impairment testing performed as of May 31, 2008 and December 31, 2008.
      (d)Includes equity in earnings of affiliates.
      (e)The combined period includes the results for one month ended January 31, 2006 (Predecessor Company) and eleven months ended December 31, 2006 (Successor Company).


      42

              UAL 's 2007 income before reorganization items, income taxes and equity

      Additional details of significant variances in earnings of affiliates improved by $740 million and $1.3 billion2008 as compared to 2006 and 2005, respectively.2007 results, as presented in the table above, include the following:
      • UAL recorded the following impairment and other charges, as further discussed below, during the year ended December 31, 2008:
             
        Year Ended
      		   
        December 31,
      		   
      (In millions)
      		 2008  Income statement classification
      Goodwill impairment $2,277  Goodwill impairment
      Intangible asset impairments  64   
      Aircraft and related deposit impairments  250   
             
      Total other impairments  314   
      Lease termination and other charges  25   
             
      Total other impairments and special items  339  Other impairments and special items
      Severance  106  Salaries and related costs
      Employee benefit obligation adjustment  57  Salaries and related costs
      Litigation-related settlement gain  (29) Other operating expenses
      Charges related to terminated/deferred projects  26  Purchased services
      Net gain on asset sales  (3) Depreciation and amortization
      Accelerated depreciation  34  Depreciation and amortization
             
      Total other charges  191   
      Operating non-cash fuel hedge loss  568  Aircraft fuel
      Nonoperating non-cash fuel hedge loss  279  Miscellaneous, net
      Tax benefit on intangible asset impairments and asset sales  (31) Income tax benefit
             
      Total impairments and other charges $3,623   
             
      • The relatively small income tax benefit in 2008 is related to the impairment and sale of certain indefinite-lived intangible assets, partially offset by the impact of an increase in state tax rates. In 2007, UAL recognized income tax expense of $297 million.
      Liquidity.  The following items highlight sometable provides a summary of the more significant variances in the 2007 period as compared to 2006 and 2005. For a more detailed discussion of these items and additional factors impacting our financial performance seeResults of Operations, below.

        •
        The Company increased its annual mainline passenger unit revenue ("PRASM") by 7% between 2007 and 2006, and by 9% between 2006 and 2005, through continued capacity discipline and revenue execution. Including special items, 2007 passenger revenues increased by $1.1 billion and $3.0 billion as compared to 2006 and 2005, respectively. In 2007, the change in the Mileage Plus expiration period had a significant impact on passenger revenues, as discussed below.

          •
          United Express contributed $122 million to operating income in 2007, as compared to $77 million in 2006 and $317 million of operating losses in 2005. This improvement is due to an improved regional operations cost structure resulting from the bankruptcy reorganization, network optimization similar to that achieved for the mainline operation, and the replacement of some 50-seat regional jets with larger regional jets that are equipped with explus and offer both first class and Economy Plus service, among other factors.

          •
          Mainline fuel costs have significantly increased since 2005, increasing by $179 million from 2006 to 2007, in addition to the $792 million increase from 2005 to 2006. These increases are primarily due to significant increases in market prices for jet fuel. The Company's average cost per gallon for jet fuel, including taxes and hedge impacts, increased from approximately $1.79 in 2005 to $2.11 in 2006 and $2.18 in 2007. Similar increases were experienced in United Express' average cost per gallon of jet fuel, which is classified as Regional affiliates expense in theStatements of Consolidated Operations.

          •
          In 2007 and 2006, the Company recorded approximately $119 million and $9 million, respectively, of employee profit sharing, including related employee taxes, based on annual pre-tax earnings. The rate of profit sharing was increased from 7.5% to 15% between periods, and pre-tax income was significantly higher in 2007. A $110 million decrease in share-based compensation expense offset the increase in the Company's profit sharing plan expense.

          •
          Aircraft maintenance materials and outside repairs expense increased $157 million, or 16%, in 2007 as compared to 2006, and by $128 million, or 15%, in 2006 as compared to 2005. As further discussed in the "Results of Operations" section below, these increases are due to several factors, including higher volumes of heavy maintenance visits, increased rates under certain long-term maintenance contracts and a higher cost of parts.

          •
          Interest expense decreased $109 million in 2007 as compared to 2006 primarily due to $2.2 billion of decreased balance sheet debt outstanding and a credit facility amendment in February 2007 that significantly lowered our interest rate under the credit facility. Interest expense increased $288 million in 2006 as compared to 2005 primarily due to increased debt outstanding of approximately $1.4 billion as a result of the Company's new capital structure resulting from its emergence from bankruptcy on February 1, 2006.

          •
          In 2007 and 2006, UAL recognized income tax expense of $297 million and $21 million, respectively. Income taxes were not recorded in the 2005 period.

                The following items describe the significant and largely non-cash fresh-start reporting impacts effective February 1, 2006 that affect the comparison of 2006 to 2005.

          •
          As part of fresh-start reporting the Company changed its accounting for Mileage Plus from the incremental cost model to the deferred revenue model. This change in accounting negatively impacted the Company's operating revenues by approximately $158 million in 2006 as compared to 2005. The negative revenue impact was partially offset by a reduction in operating expense of approximately $27 million which the Company estimates would have been recorded if the incremental cost method had been continued. Mileage Plus accounting is discussed further in "Critical Accounting Policies," below.

          •
          The Company recorded non-cash share-based compensation expense of $159 million in 2006 in association with its share-based compensation plans. This expense was not recognized in 2005, because prior to 2006 the Company accounted for its share-based compensation plans under the intrinsic method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."

            •
            The Company recognized non-cash depreciation and amortization charges of $74 million on assets that were recorded at fair value as part of fresh-start reporting, including definite-lived intangible assets that were recognized under fresh-start accounting. UAL did not recognize similar asset values or related amortization expense in the preceding annual periods.

            •
            The adjustment of the Company's postretirement plan liabilities to fair value at fresh-start resulted in the elimination of unrecognized prior service credits and actuarial losses for its non-pension postretirement plan. The elimination of these unrecognized items negatively impacted the Company's 2006 expenses by approximately $51 million.

            •
            Aircraft rent was negatively impacted by approximately $101 million. This included an unfavorable impact of $66 million related to deferred gains on pre-emergence sale-leaseback transactions that were eliminated as part of fresh-start reporting. Before fresh-start reporting, these deferred gains were being amortized into earnings over the lease terms as a reduction of the related aircraft rent expense. Also due to the restructuring of aircraft financings in bankruptcy, the Company's operating leases were at average rates below market value; therefore, a deferred charge was recorded to adjust these leases to fair value. Amortization of this deferred charge resulted in additional rent expense of approximately $35 million in 2006.

            •
            The Company recognized additional non-cash interest expense of approximately $51 million for the amortization of debt and capital lease obligation discounts that were recorded upon its emergence from bankruptcy to adjust its debt and capital lease obligations to fair value.

            •
            The January 2006 reorganization income of approximately $22.9 billion and $22.7 billion for UAL and United, respectively, primarily relates to the discharge of liabilities and other fresh-start adjustments recorded in connection with the Company's emergence from bankruptcy. In 2005, reorganization charges of approximately $20.6 billion and $20.4 billion for UAL and United, respectively, were primarily for pension, employee-related, and aircraft claim charges of $8.9 billion, $6.5 billion and $3.0 billion, respectively. For additional information, see Note 1, "Voluntary Reorganization Under Chapter 11—Financial Statement Presentation," in theCombined Notes to Consolidated Financial Statements.

            •
            At the Company's emergence from bankruptcy, there were certain unresolved matters which are considered to be preconfirmation contingencies. The Company initially recorded on the Effective Date an obligation for its best estimate of the amounts it expected to pay to resolve these matters. Adjustments to these initial estimates are recorded in current results of operations. See Note 1, "Voluntary Reorganization Under Chapter 11—Claims Resolution Process," in theCombined Notes to Consolidated Financial Statements for additional information related to these adjustments.

          United

                  From 2006 to 2007, the improvement in United's results was largely consistent with that of UAL with United's 2007 net income improving to $402 million as compared to UAL 's 2007 net income of $403 million. The primary difference between United's and UAL 's net income for the combined twelve months of 2006 was a $225 million variance in reorganization income that was primarily due to $239 million of additional UAL income from the discharge of certain bankruptcy claims and liabilities that existed at UAL, but not at United. In 2005, UAL 's net loss was approximately $140 million greater than United's loss due to a $131 million larger bankruptcy-related impairment charge on lease certificates.

                  Liquidity.    As of December 31, 2007, UAL had totalCompany’s cash, including restricted cash and short-term investments of $4.3 billion. at December 31, 2008 and 2007.

                   
            As of December 31, 
          (In millions)
          		 2008  2007 
          Cash and cash equivalents $2,039  $1,259 
          Short-term investments  —   2,295 
          Restricted cash  272   756 
                   
          Cash, short-term investments & restricted cash $2,311  $4,310 
                   
          The Company's strongdecrease in the Company’s cash, position resultedrestricted cash and short-term investments balances was primarily due to a $3.4 billion unfavorable reduction in cash flows from its recapitalization upon emergence from bankruptcy, together with strongoperations in 2008 as compared to 2007. The operating cash flowsdecrease was primarily due to increased cash expenses, mainly fuel and fuel hedge cash settlements, as discussed below underResults of $2.1 billion in 2007, as



          compared to $1.6 billion in 2006 and $1.1 billion in 2005. UALOperations. Fuel hedge collateral requirements also used operating cash of approximately $257$965 million in the year ended December 31, 2008. This unfavorable variance was partly offset by approximately $600 million of proceeds received from the amendment of the co-brand credit card agreement, as discussed above. Restricted cash


          43

          decreased in 2008 primarily due to an amendment to our largest credit card processing agreement and posting of letters of credit, as further discussed below.
          The increase in net cash used by investing activities was primarily due to a reallocation of excess cash from short-term investments to cash and cash equivalents. Investing cash flows benefited from a reduction in restricted cash of $484 million. This benefit was primarily due to the amendment of the credit card processing agreement in association with the co-branded amendment described above, which decreased restricted cash by $357 million, and the substitution of letters of credit for cash deposits related to workers’ compensation obligations. In addition, UAL financing outflows included approximately $253 million to pay a $2.15 per common share special distribution in January 2008.

          The Company expects its cash flows from operations and its available capital to be sufficient to meet its future operating expenses, lease obligations and debt service requirements in the next twelve months; however, the Company’s future liquidity could be impacted by increases or decreases in fuel prices, fuel hedge collateral requirements, inability to adequately increase revenues to offset high fuel prices, softening revenues resulting from reduced demand, failure to meet future debt covenants and other factors. See theLiquidity and Capital Resourcesand Item 7A,Quantitative and Qualitative Disclosures about Market Risk, below, for a discussion of these factors and the Company’s significant operating, investing and financing cash flows.
          Capital Commitments.  At December 31, 2008, the Company’s future commitments for the purchase of property and equipment include approximately $2.4 billion of nonbinding aircraft commitments and $0.6 billion of binding commitments. The nonbinding commitments of $2.4 billion are related to 42 A319 and A320 aircraft. These orders may be cancelled which would result in the forfeiture of $91 million of advance payments provided to the manufacturer. United believes it is highly unlikely that it will take delivery of the remaining aircraft in the future and therefore believes it will be required to forfeit its $91 million of advance delivery deposits. Based on this determination, the Company recorded an impairment charge in 2008 to decrease the value of the deposits and related capitalized interest of $14 million to zero in the Company’sStatements of Consolidated Financial Position. In addition, the Company’s capital commitments include commitments related to its international premium cabin enhancement program. During 2008, the Company reduced its balance sheet debt during 2007the scope of this project by approximately $2.2 billion. Mostsix aircraft, from the originally disclosed number of 97 aircraft. As of December 31, 2008, the debt reduction related to the Company's credit facility, which was reduced by $1.5 billion in 2007. The Company amended its credit facility twice during 2007 and prepaid debt following its February 2007 and December 2007 amendments. Total debt consisting of on-balance sheet debt, the Denver municipal bonds, estimated off-balance sheet debt related to operating leases and open market debt repurchases decreased by $2.3 billion.

                  The Company has significant noncancelable contractual cash payment obligations associated with debt andhad completed upgrades on 25 aircraft and facility leases, among others. In addition, the Company has aircraft purchase commitments; however, thehad remaining capital commitments are generally cancelable. However, the cancellations could resultto complete enhancements on an additional 66 aircraft. For further details, see Note 14, “Commitments, Contingent Liabilities and Uncertainties,” in forfeiture of the Company's deposits. See the "Liquidity and Capital Resources" section, below, for further information relatedCombined Notes to the credit facility amendments and the Company's contractual obligations.

          Consolidated Financial Statements.

          Contingencies.  During the course of its Chapter 11 proceedings, the Company successfully reached settlements with most of its creditors and resolved most pending claims against the Debtors. The following discussion provides a summary of the material matters yet to be resolved in the Bankruptcy Court, as well as other contingencies. For further information on these matters, see Note 1, "Voluntary Reorganization Under Chapter 11—Significant Matters Remaining to be Resolved in Chapter 11 Cases" and Note 15, "Commitments, Contingent Liabilities and Uncertainties," in theCombined Notes to Consolidated Financial Statements.

                  Municipal Bond Obligation & Off-Balance Sheet Financing. We are a party to numerous long-term agreements to lease certain airport and maintenance facilities that are financed through tax-exempt municipal bonds issued by various local municipalities to build or improve airport and maintenance facilities. United had beenwas advised during its restructuring that these municipal bonds may have been unsecured (or in certain instances, partially secured) pre-petition debt. In 2006, certain of United'sUnited’s LAX municipal bond obligations relating to LAX and SFO were conclusively adjudicated through the Bankruptcy Court as financings and not true leases; however, there remains pending litigation to determine the value of the security interests, if any, that the bondholders at LAX and SFO have in our underlying leaseholds.

          See Note 4, “Voluntary Reorganization Under Chapter 11,” inCombined Notes to Consolidated Financial Statementsfor further information on this matter and the resolution of the separate SFO municipal bond matter in 2008.

          United has guaranteed $270 million of the City and County of Denver, Colorado Special Facilities Airport Revenue Bonds (United Air Lines Project) Series 2007A (the "Denver Bonds"“Denver Bonds”). This guarantee replaces our prior guarantee of $261 million of bonds issued by the City and County of Denver, Colorado in 1992. These bonds are callable by United. The outstanding bonds and related guarantee are not recorded in the Company'sCompany’sStatements of Consolidated Financial Position. However, the related lease


          44

          agreement is accounted for on a straight-line basis resulting in a ratable accrual of the final $270 million payment over the lease term.

          Legal and Environmental.  The Company has certain contingencies resulting from litigation and claims incident to the ordinary course of business. Management believes, after considering a number of factors, including (but not limited to) the information currently available, the views of legal counsel, the nature of contingencies to which the Company is subject and prior experience, that the ultimate disposition of the litigation and claims will not materially affect the Company'sCompany’s consolidated financial position or results of operations. When appropriate, the Company accrues for these matters based on its assessments of the likely outcomes of their eventual disposition. The amounts of these liabilities could increase or decrease in the near term, based on revisions to estimates relating to the various claims.


          The Company anticipates that if ultimately found liable, its damages from claims arising from the events of September 11, 2001, could be significant; however, the Company believes that, under the Air Transportation Safety and System Stabilization Act of 2001, its liability will be limited to its insurance coverage.

          The Company is also currently analyzingcontinues to analyze whether any potential liability may result from air cargo/passenger surcharge cartel investigations following the receipt of a Statement of Objections that the European Commission (the "Commission"“Commission”) issued to 26 carrierscompanies on December 18, 2007. The Statement of Objections sets out evidence related to the utilization of fuel and security surcharges and exchange of pricing information that the Commission views as supporting the conclusion that an illegal price-fixing cartel had been in operation in the air cargo transportation industry. United received a copy of the Statement of Objections and ishas provided written and oral responses vigorously disputing the Commission’s allegations against the Company. Nevertheless, United will continue to cooperate with the Commission’s ongoing investigation. Based on its evaluation of all information currently evaluating the Commission's evidence related toavailable, the Company and its personnel. United is cooperating with the Commission's investigation. United intends to defend itself vigorously against these charges in its formal response to the Commission and in the European Court of Justice if necessary. The Company's evaluation of this matter is still in the early stages, and based upon the information currently availablehas determined that no reserve for potential liability has been recorded asis required and will continue to defend itself against all allegations that it was aware of December 31, 2007.or participated in cartel activities. However, penalties for violation of European competition laws can be substantial and a finding that the Company engaged in improper activity could have a material adverse impact on our consolidated financial position and results of operations.

          Many aspects of United'sUnited’s operations are subject to increasingly stringent federal, state and local laws protecting the environment. Future environmental regulatory developments, such as in regard to climate change, in the U.S. and abroad could adversely affect operations and increase operating costs in the airline industry. For example, potentialThere are a few climate change laws and regulations that have gone into effect that apply to United, including environmental taxes for certain international flights, some limited greenhouse gas reporting requirements and some land-based planning laws which could apply to airports and ultimately impact airlines depending upon the circumstances. In addition, the EU has adopted legislation to include aviation within the EU’s existing greenhouse gas emission trading scheme effective in 2012. There are significant questions that remain as to the legality of applying the scheme to non-EU airlines and the U.S. and other governments are considering filing a legal challenge to the EU’s unilateral inclusion of non-EU carriers. While such a measure could significantly increase the costs of carriers operating in the EU, the precise cost to United is difficult to calculate with certainty due to a number of variables, and it is not clear whether the scheme will withstand legal challenge. There may be future regulatory actions that may be taken by the U.S. government, state governments within the U.S., foreign governments, or the International Civil Aviation Organization, or through a new climate change treaty to limitregulate the emission of greenhouse gases by the aviation industryindustry. Such future regulatory actions are uncertain at this time (in terms of either the regulatory requirements or their applicability to United), but the impact to the Company and its industry would likely be adverse and could be significant, including the potential for increased fuel costs, carbon taxes or fees, or a requirement to purchase carbon credits.

          Results of Operations

                  As described in the "Overview" section above, presentation of the combined twelve month period of 2006 is a non-GAAP measure; however, management believes it is useful for comparison with the full years of 2007 and 2005. United's operating revenues and operating expenses comprise nearly 100% of UAL 's revenues and operating expenses. Therefore, the following qualitative discussion is applicable to both UAL and United, unless otherwise noted. Any significant differences between UAL and United results are separately disclosed and explained.

                  UAL 's earnings from operations of $1.0 billion in 2007 improved by $590 million as compared to earnings from operations of $447 million in 2006. The significant increase in operating earnings was due to increased revenues, cost control and special items as discussed below. UAL 's net income was $403 million in 2007 as compared to $22.9 billion in 2006. The most significant variance is reorganization income of $22.9 billion that was recorded in the 2006 period. Lower interest expense due to debt reductions and refinancings and a gain on the sale of an investment, as discussed below, also benefited 2007 net income as compared to 2006.

                  United's improvement in earnings from operations of $573 million was consistent with UAL 's results. United's net income was $402 million in 2007 as compared to net income of $22.7 billion in 2006, with the difference in net income primarily due to reorganization income that was recorded in the 2006 period.

          See Note 1, "Voluntary Reorganization Under Chapter 11—Financial Statement Presentation"14, “Commitments, Contingent Liabilities and Uncertainties,” inCombined Notes to Consolidated Financial Statementsfor further information on reorganization items.


          discussion of the above contingencies.


          45

          Results of Operations
          Operating Revenues.

          20072008 compared to 20062007

          The table below illustrates theyear-over-year percentage change in UAL and United operating revenues.
                           
            Year Ended
          		       
            December 31,  $
          		  %
          		 
          (In millions)
          		 2008  2007  Change  Change 
          Passenger—United Airlines $15,337  $15,254  $83   0.5 
          Passenger—Regional Affiliates  3,098   3,063   35   1.1 
          Cargo  854   770   84   10.9 
          Special operating items  —   45   (45)  (100.0)
          Other operating revenues  905   1,011   (106)  (10.5)
                           
          UAL total $20,194  $20,143  $51   0.3 
                           
          United total $20,237  $20,131  $106   0.5 
                           
          The 2007 special item of $45 million relates to an adjustment of the estimated obligation associated with certain bankruptcy administrative claims, of which $37 million and $8 million relates to the mainline and United Express reporting units, respectively. The table below presents selected UAL and United passenger revenues and operating data from our mainline segment, broken out by geographic region with an associated allocation of the special item, and from our United Express segment, expressed asyear-over-year changes.
                                
                      United
          		  
          2008
          		 Domestic Pacific Atlantic Latin Mainline Express Consolidated
          Increase (decrease) from 2007:                     
          Passenger revenues (in millions) $(156) $(91) $263 $30 $46 $27 $73
          Passenger revenues  (1.7)%  (2.8)%  11.1%  6.0%  0.3%  0.9%  0.4%
          Available seat miles (“ASMs”)  (7.8)%  (4.8)%  11.0%  (2.8)%  (4.2)%  (0.8)%  (3.9)%
          Revenue passenger miles (“RPMs”)  (8.5)%  (9.4)%  7.9%  (5.5)%  (6.3)%  (3.9)%  (6.0)%
          Passenger revenues per ASM (“PRASM”)  6.7%  2.1%  0.1%  9.0%  4.7%  1.8%  4.5%
          Yield(a)  7.4%  7.2%  2.2%  12.7%  6.9%  5.0%  6.8%
          Passenger load factor (points)  (0.6) pts.  (3.9) pts.  (2.3) pts.  (2.2) pts.  (1.7) pts.  (2.4) pts.  (1.8) pts.
          a)Yield is a measure of average price paid per passenger mile, which is calculated by dividing passenger revenues by RPMs. Yields for geographic regions exclude charter revenue and RPMs.
          In 2008, revenues for both mainline and United Express benefited from yield increases of 6.9% and 5.0%, respectively, as compared to 2007. The yield increases are due to industry capacity reductions and fare increases, including fuel surcharges plus incremental revenues derived from merchandising and fees. However, the benefit of higher yields was partially offset by 6.3% and 3.9% decreases in traffic for the mainline and United Express segments, respectively. Consolidated passenger revenues in 2008 included an unfavorable variance compared to 2007 that was partly due to the change in the Mileage Plus expiration policy for inactive accounts from 36 months to 18 months that provided a consolidated estimated annual benefit of $246 million in 2007. In addition, the weak economic environment negatively impacted demand and passenger revenues, particularly in the fourth quarter of 2008.
          International PRASM was up 2.4%year-over-year with a related capacity increase of 0.9%. While Latin American PRASM growth was strong at 9.0%year-over-year, it is not a significant part of United’s international network. Atlantic performance was driven by lower than average revenue growth in our London and Germany markets, largely due to industry capacity growth of approximately 13% in the U.S. to London Heathrow route and United’s 15% growth in Germany. These markets account for approximately 75% of our Atlantic capacity. The Pacific region was impacted by 7% industry capacity growth between the U.S. and China / Hong Kong, which account for approximately 45% of United’s Pacific capacity.


          46

          Cargo revenues increased by $84 million, or 11%, in 2008 as compared to 2007, primarily due to higher fuel surcharges and improved fleet utilization. In addition, revenues were higher due to increased volume associated with the U.S. domestic mail contract, which commenced in late April 2007, as well as filling new capacity in international markets. A weaker dollar also benefited cargo revenues in 2008 as a significant portion of cargo services are contracted in foreign currencies. However, the Company experienced a significant decline in cargo revenues in the fourth quarter of 2008 due to rationalization of international capacity, falling demand for domestic and international air cargo as the global economy softened, and lower fuel costs driving lower fuel surcharges in late 2008. Decreased cargo revenues resulting from lower demand have a disproportionate impact on our operating results because cargo revenues typically generate higher margins as compared to passenger revenues.
          The full-year 2008 trends in passenger and cargo revenues are not indicative of the Company’s most recent fourth quarter revenue results. In the fourth quarter of 2008, mainline passenger revenues decreased approximately 10% due to lower traffic as a result of the Company’s 12% capacity reduction and lower demand due to the weak global economy. The 2008 capacity reductions, planned 2009 capacity reductions and weak U.S. and global economies are expected to negatively impact revenues in 2009. In late 2008 and early 2009, the Company has experienced decreased travel bookings and lower credit card sales activity which have resulted from the weak global economy and have negatively affected revenues and are expected to continue to negatively impact revenues in 2009. The Company cannot predict the longevity or severity of the current weak global economy and, therefore, cannot accurately estimate the negative impact it will have on future revenues.
          Other revenues decreased approximately 11% in 2008 as compared to 2007. This decrease was primarily due to lower jet fuel sales to third parties. The decrease in third party fuel sales had a negligible impact on our operating margin because the associated cost of sales decreased by a similar amount in 2008 as compared to 2007.
          2007 compared to 2006
          The table below illustrates theyear-over-year percentage changes in UAL and United operating revenues. The primary difference between UAL and United revenues is due to other revenues at UAL, which are generated from minor direct subsidiaries of UAL.
                                   
            Successor  Combined  Successor  Predecessor       
            Period
          		  Period
          		  Period from
          		  Period from
          		       
            Ended
          		  Ended
          		  February 1 to
          		  January 1 to
          		       
            December 31,
          		  December 31,
          		  December 31,
          		  January 31,
          		  $
          		  %
          		 
          (In millions)
          		 2007  2006(a)  2006  2006  Change  Change 
          Passenger—United Airlines $15,254  $14,367  $13,293  $1,074  $887   6.2 
          Passenger—Regional Affiliates  3,063   2,901   2,697   204   162   5.6 
          Cargo  770   750   694   56   20   2.7 
          Special operating items  45   —   —   —   45   — 
          Other operating revenues  1,011   1,322   1,198   124   (311)  (23.5)
                                   
          UAL total $20,143  $19,340  $17,882  $1,458  $803   4.2 
                                   
          United total $20,131  $19,334  $17,880  $1,454  $797   4.1 
                                   
          (a)The combined 2006 period includes the results for one month ended January 31, 2006 (Predecessor Company) and eleven months ended December 31, 2006 (Successor Company).


          47

           
          		 Successor
          		 Combined
          		 Successor
          		 Predecessor
          		  
          		  
          		 
          (Dollars in millions)
          		 Year Ended
          December 31,
          2007
          		 Period
          Ended
          December 31,
          2006(a)
          		 Period from
          February 1 to
          December 31,
          2006
          		 Period from
          January 1 to
          January 31,
          2006
          		 $
          Change
          		 %
          Change
          		 
          Operating revenues:                  
           Passenger—United Airlines $15,254 $14,367 $13,293 $1,074 $887 6 
           Passenger—Regional
              Affiliates          		  3,063  2,901  2,697  204  162 6 
           Cargo  770  750  694  56  20 3 
           Special operating items  45  —  —  —  45 — 
           Other operating revenues  1,011  1,322  1,198  124  (311)(24)
            
          		 
          		 
          		 
          		 
          		   
          UAL total $20,143 $19,340 $17,882 $1,458 $803 4 
            
          		 
          		 
          		 
          		 
          		   
          United total $20,131 $19,334 $17,880 $1,454 $797 4 
            
          		 
          		 
          		 
          		 
          		   

          (a)
          The combined 2006 period includes the results for one month ended January 31, 2006 (Predecessor Company) and eleven months ended December 31, 2006 (Successor Company).

          The table below presents selected UAL and United passenger revenues and operating data from our Mainlinemainline segment, broken out by geographic region, and from our United Express segment, expressed asyear-over-year changes. Passenger revenues presented below include the effects of the $45 million special revenue items on Mainlinemainline ($37 million) and United Express ($8 million) revenue, which resulted directly from the Company'sCompany’s ongoing efforts to resolve certain bankruptcy pre-confirmation contingencies.

          2007
          		 North
          America
          		 Pacific
          		 Atlantic
          		 Latin
          		 Mainline
          		 United
          Express
          		 Consolidated
          		 
          Increase (decrease) from
              2006(a):          		                      
          Passenger revenues
              (in millions)          		 $121 $374 $423 $6 $924 $170 $1,094 
          Passenger revenues  1% 13% 22% 1% 6% 6% 6%
          ASMs  (3)% 3% 7% (10)% (1)% 4% —%
          RPMs  (1)% 1% 8% (11)% —% 3% —%
          Load factor (points)  1.5 pts (1.5) pts 0.6 pts (0.7) pts 0.6 pts (0.3) pts 0.5 pts
          Yield(b)  3% 12% 14% 14% 7% 3% 6%
          (a)
          Variances are from the combined 2006 period that includes the results for the one month period ended January 31, 2006 (Predecessor) and the eleven month period ended December 31, 2006 (Successor).

          (b)
          Yield is a measure of average price paid per passenger mile, which is calculated by dividing passenger revenues by RPMs. Yields for geographic regions exclude charter revenue and RPMs.

                                
                      United
          		  
          2007
          		 Domestic Pacific Atlantic Latin Mainline Express Consolidated
          Increase (decrease) from 2006(a):                     
          Passenger revenues (in millions) $121 $374 $423 $6 $924 $170 $1,094
          Passenger revenues  1.3%  12.9%  21.8%  1.3%  6.4%  5.9%  6.3%
          ASMs  (3.3)%  2.9%  6.8%  (10.2)%  (0.8)%  3.6%  (0.4)%
          RPMs  (1.5)%  1.1%  7.6%  (11.0)%  (0.1)%  3.2%  0.2%
          Yield  3.0%  11.8%  14.0%  13.9%  6.6%  2.6%  6.2%
          Passenger load factor (points)  1.5 pts  (1.5) pts  0.6 pts  (0.7) pts  0.6 pts  (0.3) pts  0.5 pts
          (a)Variances are from the combined 2006 period that includes the results for the one month period ended January 31, 2006 (Predecessor) and the eleven month period ended December 31, 2006 (Successor).
          Including the special revenue items, Mainlinemainline and United Express passenger revenues increased by $924 million and $170 million, respectively, in 2007 as compared to 2006. In 2007, Mainlinemainline revenues benefited from a 0.6 point increase in load factor and a 7% increase in yield as compared to 2006. In the same periods, United Express load factor was relatively flat while yield and traffic both increased



          3% resulting in the 6% increase in revenue. Overall, passenger revenues increased due to a better revenue environment for the industry which was partly due to industry-wide capacity constraint. The Company'sCompany’s shift of some capacity and traffic from domestic to higher yielding international flights also benefited revenues in 2007. In addition, the change in the Mileage Plus expiration period policy also contributed to the increase in revenues in 2007. Mileage Plus revenue, included in passenger revenues, was approximately $169 million higher in 2007. This impact was largely due to a change in the Mileage Plus expiration period policy from 36 months to 18 months, as discussed inCritical Accounting Policies, below. Mileage Plus customer accounts are deactivated after 18 months of inactivity, effective December 31, 2007. Severe winter storms in December 2007 at the Chicago and Denver hubs resulted in the cancellation of approximately 6,400 United and United Express flights at these locations and had the estimated impact of reducing revenue by $25 million and reducing total expenses by $2 million. Similarly winter storms in December 2006 the Chicago and Denver hubs canceled approximately 3,900 United and United Express flights withhad an estimated impact of reducing revenue and total expenses by $40 million and $11 million, respectively.

          million.

          Cargo revenues increased by $20��$20 million, or 3%, in the year ended December 31, 2007 as compared to the same period in 2006. Freight revenue increased due to both higher yields and higher volume. This increase was partially offset by a reduction in mail revenue due to lower 2007 volume as a result of the termination of the U.S. Postal Service ("USPS"(“USPS”) contract on June 30, 2006. United signed a new USPS contract effective April, 2007.

          UAL other operating revenues decreased by $311 million, or 24%, in the year ended December 31, 2007 as compared to the same period in 2006. Lower jet fuel sales to third parties by our subsidiary United Aviation Fuels Corporation ("UAFC")UAFC accounted for $307 million of the other revenue decrease. This decrease in jet fuel sales was due to several factors, including decreased UAFC sales to our regional affiliates, our decision not to renew various low margin supply agreements to other carriers and decreased sales of excess inventory. This decrease had no material impact on the Company'sCompany’s operating margin, because UAFC cost of sales decreased by $306 million in the year ended December 31, 2007 as compared to the prior year.


          48

          Operating Expenses.
          20062008 compared to 20052007

          The following table illustrates the year-over-year dollarbelow includes data related to UAL and percentage changes in major categories of UAL 's and United'sUnited operating revenues.

           
          		 Predecessor
          		 Successor
          		 Combined
          		 Predecessor
          		  
          		  
          (Dollars in millions)
          		 Period from
          January 1 to
          January 31,
          2006
          		 Period from
          February 1 to
          December 31,
          2006
          		 Period
          Ended
          December 31,
          2006(a)
          		 Year
          Ended
          December 31,
          2005
          		 $
          Change
          		 %
          Change
          Operating revenues:                 
           Passenger—United Airlines $1,074 $13,293 $14,367 $12,914 $1,453 11
           Passenger—Regional
              Affiliates          		  204  2,697  2,901  2,429  472 19
           Cargo  56  694  750  729  21 3
           Other operating revenues  124  1,198  1,322  1,307  15 1
            
          		 
          		 
          		 
          		 
          		  
          UAL total $1,458 $17,882 $19,340 $17,379 $1,961 11
            
          		 
          		 
          		 
          		 
          		  
          United total $1,454 $17,880 $19,334 $17,304 $2,030 12
            
          		 
          		 
          		 
          		 
          		  
          (a)
          expenses. Significant fluctuations are discussed below.
                           
            Year Ended
          		       
            December 31,  $
          		  %
          		 
          (In millions)
          		 2008  2007  Change  Change 
          Aircraft fuel $7,722  $5,003  $2,719   54.3 
          Salaries and related costs  4,311   4,261   50   1.2 
          Regional affiliates  3,248   2,941   307   10.4 
          Purchased services  1,375   1,346   29   2.2 
          Aircraft maintenance materials and outside repairs  1,096   1,166   (70)  (6.0)
          Depreciation and amortization  932   925   7   0.8 
          Landing fees and other rent  862   876   (14)  (1.6)
          Distribution expenses  710   779   (69)  (8.9)
          Aircraft rent  409   406   3   0.7 
          Cost of third party sales  272   316   (44)  (13.9)
          Goodwill impairment  2,277   —   2,277   — 
          Other impairment and special items  339   (44)  383   — 
          Other operating expenses  1,079   1,131   (52)  (4.6)
                           
          UAL total $24,632  $19,106  $5,526   28.9 
                           
          United total $24,630  $19,099  $5,531   29.0 
                           
          The combined 2006 period includes the results for one month ended January 31, 2006 (Predecessor Company) and eleven months ended December 31, 2006 (Successor Company).

                  Strong demand, industry capacity restraint, yield improvements, United's resource optimization initiatives, and ongoing airline network optimization all contributed to a $2.0 billion increase in total


          operating revenueaircraft fuel expense and regional affiliates expense was primarily attributable to $19.3 billionincreased market prices for crude oil and related fuel products as highlighted in 2006.table below, which presents several key variances for mainline and regional affiliate aircraft fuel expense in the 2008 period as compared to the year-ago period.

                                   
            $  Average price per gallon (in cents) 
            Year Ended December 31, 
                  %
          		        %
          		 
          (In millions, except per gallon) 2008  2007  Change  2008  2007  Change 
          Mainline fuel purchase cost $7,114  $5,086   39.9   326.0   221.9   46.9 
          Non-cash fuel hedge (gains) losses in mainline fuel  568   (20)  —   26.0   (0.9)  — 
          Cash fuel hedge (gains) losses in mainline fuel  40   (63)  —   1.9   (2.7)  — 
                                   
          Total mainline fuel expense  7,722   5,003   54.3   353.9   218.3   62.1 
          Regional affiliates fuel expense(a)  1,257   915   37.4   338.8   242.7   39.6 
                                   
          UAL system operating fuel expense $8,979  $5,918   51.7   351.7   221.7   58.6 
                                   
          Non-cash fuel hedge (gains) losses in nonoperating income (loss) $279  $—   —             
          Cash fuel hedge (gains) losses in nonoperating income (loss)  249   —   —             
          Mainline fuel consumption (gallons)  2,182   2,292   (4.8)            
          Regional affiliates fuel consumption (gallons)  371   377   (1.6)            
                                   
          Total fuel consumption (gallons)  2,553   2,669   (4.3)            
                                   
          (a)Regional affiliate fuel costs are classified as part of Regional affiliate expense.
          Salaries and related costs increased $50 million in 2008. The 11% mainline passenger revenue increase wasCompany’s costs in 2008 include the negative impact of average wage increases and higher benefits expense, as well as severance expense of $106 million due to both increased trafficthe implementation of the Company’s operating plans, as more fully explained in Note 2, “Company Operational Plans,” inCombined Notes to Consolidated Financial Statements.In addition, the Company recorded $87 million of expense in 2008 from certain benefit obligation


          49

          adjustments, which were primarily due to discount rate changes. These negative impacts were partially offset by lower combined profit and higher average ticket prices; United reported a 3% increase in mainline traffic on a 2% increase in capacity and an 8% increase in yield. Severe winter storms in December 2006 at the Chicago and Denver hubs, which resultedsuccess sharing expense in the cancellation of approximately 3,900 United2008 period as compared to theyear-ago period due to the unfavorable financial results in 2008 as compared to 2007. In addition, 2008 salaries and United Express flights at these locations, hadrelated costs benefited from the estimated impact of reducing revenue by $40workforce reductions completed during the year as discussed inOverviewabove.
          Regional affiliate expense increased $307 million, and reducing total expenses by $11 million. As discussedor 10%, in "Critical Accounting Policies," below,2008 as compared to the Company changed the accounting for its frequent flyer obligation to a deferred revenue model upon its emergence from bankruptcy which negatively impacted revenues by $158 million. This resulted insame period last year. Regional affiliate expense increased deferred revenueprimarily due to a net$342 million, or 37%, increase in miles earnedRegional Affiliate fuel that was driven by Mileage Plus customers that willan increase in market price for fuel as highlighted in the fuel table above. The regional affiliate operating loss was $150 million in 2008 period, as compared to income of $122 million in 2007, due to the aforementioned fuel impacts, which could not be redeemed in future years.

                  In 2005, UAL 's otherfully offset by higher ticket prices, as Regional Affiliate revenues were $75only 1% higher in 2008.

          The Company’s purchased services increased $29 million, more than United'sor 2%, in 2008 as compared to 2007. In 2008, purchased services included a charge of $26 million related to certain projects and transactions being terminated or indefinitely postponed. In 2008, other revenuesareas of purchased services did not change significantly as compared to 2007.
          Aircraft maintenance materials and outside repairs decreased 6% in 2008 as compared to 2007, primarily due to a decrease in engine and airframe maintenance associated with the retirement of the Company’s B737 fleet and more favorable engine maintenance contract rates.
          Depreciation expense in 2008 was adversely impacted by $34 million of accelerated depreciation primarily related to the retirement of certain B737 and B747 aircraft and related parts and a $20 million charge to increase the inventory obsolescence reserve. This adverse impact was partially offset by reduced amortization expense in 2008 related to certain of the Company’s intangible assets that were fully amortized in 2007.
          UAL landing fees and other rent decreased 2% in 2008 due to a reduction in the amount of facilities rented based upon our ongoing efforts to optimize our rented facilities consistent with our operational needs.
          Distribution expenses decreased 9% in 2008 as compared to 2007 largely due to the Company’s reduction of some of its travel agency commission programs in 2008, resulting in an average commission rate reduction. In addition, the Company’s lower passenger revenues generated by UAL 's direct subsidiary MyPoints,due to its capacity reductions in 2008 also contributed to the decrease in related distribution expenses.
          Cost of third party sales decreased 14%year-over-year primarily due to a reduction in UAFC expenses. This decrease is consistent with the reduction in UAFC revenues.
          The Company’s other operating expenses decreased 5% in 2008 compared to the year-ago period. This decrease was partly due to a $29 million litigation-settlement gain, which was sold by UALrecorded in 2006.

                  The 19% increaseother operating expenses, and decreases in regional affiliate revenues was alsoseveral other expense categories which resulted from the Company’s cost reduction program.

          Asset Impairments and Special Items.
          As described inCombined Notes to Consolidated Financial Statements, in accordance with SFAS 142 and SFAS 144, as of May 31, 2008 the Company performed an interim impairment test of its goodwill, all intangible assets and certain of its long-lived assets (principally aircraft pre-delivery deposits, aircraft and related spare engines and spare parts) due to trafficevents and yield improvementschanges in circumstances during the first five months of 2008 that indicated an impairment might have occurred. In addition, the Company also performed an impairment test of certain aircraft fleet types as of December 31, 2008, because unfavorable market conditions for aircraft indicated potential impairment of value. The Company also performed annual indefinite-lived intangible asset impairment testing at October 1, 2008. As a result of all of its impairment testing, the Company recorded asset impairment charges of $2.6 billion as summarized in the table below. All of these impairment charges are within the mainline segment. All of


          50

          the impairments other than the goodwill impairment, which is separately identified, are classified as “Other impairments and special items” in the Company’sStatements of Consolidated Operations.See Note 3, “Asset Impairments and Intangible Assets,” inCombined Notes to Consolidated Financial StatementsandCritical Accounting Policiesfor additional information, including factors considered by management in concluding that a triggering event under SFS 142 and SFAS 144 had occurred and additional details of assets impaired.
          The increaselease termination and other charges of $25 million primarily relate to the accrual of future rents for the B737 leased aircraft that have been removed from service and charges associated with the return of certain of these aircraft to their lessors.
               
          (In millions)
          		   
          Goodwill impairment $2,277 
          Indefinite-lived intangible assets  64 
          Tangible assets  250 
               
          Total impairments  2,591 
          Lease termination and other charges  25 
               
          Total impairments and special items $2,616 
               
          The Company recorded special operating expense credits of $44 million in cargo revenue was primarily due2007. These items have been classified as special because they are directly related to improved yield, which was partially due to higher fuel surcharges between periods.

                  The table below presents selected passenger revenuesthe resolution of bankruptcy administrative claims and operating data by geographic region andare not indicative of the Company's mainline and United Express segments expressed as period-to-period changes:

          2006
          		 North
          America
          		 Pacific
          		 Atlantic
          		 Latin
          		 Mainline
          		 United
          Express
          		 Consolidated
          		 
          Increase (decrease) from
              2005(a):          		                      
          Passenger revenues
              (in millions)          		 $1,022 $234 $118 $79 $1,453 $472 $1,925 
          Passenger revenues  13% 9% 6  % 19% 11% 19% 13%
          ASMs  4% —% (2)% 9% 2% 9% 3%
          RPMs  4% 1% (2)% 13% 3% 13% 4%
          Load factor (points)  0.3 pts 1.4 pts 0.7 pts 2.6 pts 0.7 pts 2.7 pts 0.8 pts
          Yield(b)  9% 8% 9  % 6% 8% 6% 9%
          (a)
          The combined 2006 period includes the results for one month ended January 31, 2006 (Predecessor Company) and eleven months ended December 31, 2006 (Successor Company).

          (b)
          Yields for geographic regions exclude charter revenue and revenue passenger miles.

          Operating Expenses.

          Company’s ongoing financial performance. See2007 compared to 2006, below, for a discussion of these bankruptcy-related special items and Note 4, “Voluntary Reorganization Under Chapter 11 of the United States Bankruptcy Code,” inCombined Notes to Consolidated Financial Statementsfor further information on pending matters related to the Company’s bankruptcy.

          2007 compared to 2006

          The table below includes theyear-over-year dollar and percentage changes in UAL and United operating expenses. Significant fluctuations are discussed below.
                                   
            Successor  Combined  Successor  Predecessor       
            Year
          		  Period
          		  Period from
          		  Period from
          		       
            Ended
          		  Ended
          		  February 1 to
          		  January 1 to
          		       
            December 31,
          		  December 31,
          		  December 31,
          		  January 31,
          		  $
          		  %
          		 
          (In millions)
          		 2007  2006(a)  2006  2006  Change  Change 
          Operating expenses:                        
          Aircraft fuel $5,003  $4,824  $4,462  $362  $179   3.7 
          Salaries and related costs  4,261   4,267   3,909   358   (6)  (0.1)
          Regional affiliates  2,941   2,824   2,596   228   117   4.1 
          Purchased services  1,346   1,246   1,148   98   100   8.0 
          Aircraft maintenance materials and outside repairs  1,166   1,009   929   80   157   15.6 
          Depreciation and amortization  925   888   820   68   37   4.2 
          Landing fees and other rent  876   876   801   75   —   — 
          Distribution expenses  779   798   738   60   (19)  (2.4)
          Aircraft rent  406   415   385   30   (9)  (2.2)
          Cost of third party sales  316   679   614   65   (363)  (53.5)
          Special operating items  (44)  (36)  (36)  —   (8)  22.2 
          Other operating expenses  1,131   1,103   1,017   86   28   2.5 
                                   
          UAL total $19,106  $18,893  $17,383  $1,510  $213   1.1 
                                   
          United total $19,099  $18,875  $17,369  $1,506  $224   1.2 
                                   
          (a)The combined period includes the results for one month ended January 31, 2006 (Predecessor Company) and eleven months ended December 31, 2006 (Successor Company).


          51

           
          		 Successor
          		 Combined
          		 Successor
          		 Predecessor
          		  
          		  
          		 
          (Dollars in millions)
          		 Year
          Ended
          December 31,
          2007
          		 Period Ended
          December 31,
          2006(a)
          		 Period from
          February 1 to
          December 31,
          2006
          		 Period from
          January 1 to
          January 31,
          2006
          		 $
          Change
          		 %
          Change
          		 
          UAL                  
          Operating expenses:                  
           Aircraft fuel $5,003 $4,824 $4,462 $362 $179 4 
           Salaries and related costs  4,261  4,267  3,909  358  (6)— 
           Regional affiliates  2,941  2,824  2,596  228  117 4 
           Purchased services  1,346  1,246  1,148  98  100 8 
           Aircraft maintenance
              materials and outside
              repairs          		  1,166  1,009  929  80  157 16 
           Depreciation and
              amortization          		  925  888  820  68  37 4 
           Landing fees and other rent  876  876  801  75  — — 
           Distribution expenses  779  798  738  60  (19)(2)
           Aircraft rent  406  415  385  30  (9)(2)
           Cost of third party sales  316  679  614  65  (363)(53)
           Special operating items  (44) (36) (36) —  (8)22 
           Other operating expenses  1,131  1,103  1,017  86  28 3 
            
          		 
          		 
          		 
          		 
          		   
            $19,106 $18,893 $17,383 $1,510 $213 1 
            
          		 
          		 
          		 
          		 
          		   

          United
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
          Operating expenses:                  
           Aircraft fuel $5,003 $4,824 $4,462 $362 $179 4 
           Salaries and related costs  4,257  4,265  3,907  358  (8)— 
           Regional affiliates  2,941  2,824  2,596  228  117 4 
           Purchased services  1,346  1,243  1,146  97  103 8 
           Aircraft maintenance
              materials and outside
              repairs          		  1,166  1,009  929  80  157 16 
           Depreciation and
              amortization          		  925  888  820  68  37 4 
           Landing fees and other rent  876  875  800  75  1 — 
           Distribution expenses  779  798  738  60  (19)(2)
           Aircraft rent  409  416  386  30  (7)(2)
           Cost of third party sales  312  667  604  63  (355)(53)
           Special operating items  (44) (36) (36) —  (8)22 
           Other operating expenses  1,129  1,102  1,017  85  27 2 
            
          		 
          		 
          		 
          		 
          		   
            $19,099 $18,875 $17,369 $1,506 $224 1 
            
          		 
          		 
          		 
          		 
          		   
          (a)
          The combined period includes the results for one month ended January 31, 2006 (Predecessor Company) and eleven months ended December 31, 2006 (Successor Company).

                  As discussed in Note 2, "Summary of Significant Accounting Policies" inCombined Notes to Consolidated Financial Statements, distribution expenses include commissions, GDS fees and credit card transaction fees. Prior period information has been reclassified to conform to the current period



          presentation. Previously, GDS and credit card transaction fees were classified as components of purchased services and commissions were reported as a separate expense item in the UAL and United 2006 Annual Reports.

          Mainline aircraft fuel increased $179 million, or 4%, in the year ended December 31, 2007 as compared to 2006. This net fuel variance was due to a 4% increase in the average price per gallon of jet fuel from $2.11 in 2006 to $2.18 in 2007, resulting from unfavorable market conditions. Included in the 2007 average price per gallon was an $83 million net hedge gain; a net fuel hedge loss of $26 million is included in the 2006 average price per gallon.

          UAL salaries and related costs remained relatively flat in 2007 as compared to 2006. The Company recognized $49 million of share-based compensation expense in 2007 as compared to $159 million in 2006. There were no significant grants in 2007 as compared to 2006, which included a large number of grants associated with the Company'sCompany’s emergence from bankruptcy. Additionally, immediate recognition of 100% of the cost of awards granted to retirement-eligible employees on the grant date, together with accelerated vesting of grants within the first twelve months after the grant date, accounted for most of the decrease in share-based compensation expense. Also benefiting the 2007 period was the absence of the $22 million severance charge incurred in 2006. Offsetting the decreased share-based compensation and severance expense was a slight increase in salaries and related costs as a result of certain wage increases as well as a $110 million increase in profit sharing, including related employee taxes, which is based on annual pre-tax earnings. As noted above, this increase is due to increased pre-tax earnings and an increase in the payout percentage from 7.5% in 2006 to 15% in 2007.

          Regional affiliate expense, which includes aircraft fuel, increased $117 million, or 4%, during 2007 as compared to 2006. Regional affiliate capacity increased 4% in 2007, which was a major contributor to the increase in expense. Including the special revenue item of $8 million, our regional affiliate operating income was $53 million higher in the 2007 period as compared to the 2006 period. The margin improvement was due to improved revenue performance, which was due to increased yield and traffic, and cost control. Factors impacting regional affiliate margin include the restructuring of regional carrier capacity agreements, the replacement of some 50-seat regional jets with 70-seat regional jets and regional carrier network optimization. All of these improvements were put in place throughout 2006; therefore, we realized someyear-over-year benefits in 2007. Regional affiliate fuel expense increased $81 million, or 10%, from $834 million in 2006 to $915 million in 2007 due to a 9% increase in the average price of fuel and a 1% increase in consumption.

          Purchased services were upincreased 8% in 2007 as compared to 2006, primarily due to increased information technology and other costs incurred in support of the Company'sCompany’s customer and employee initiatives. Information technology expenses increased due to an increase in non-capitalizable information technology related expenditures, generally occurring during the planning and scoping phases, for new applications in 2007. In addition, airport operations handling and security costs increased due to the new USPS contract and new international routes, among other factors.

          Aircraft maintenance materials and outside repairs expense increased $157 million, or 16%,year-over-year primarily due to inflationary increases related to our V2500 engine maintenance contract and the cost of component parts, as well as the impact of increases in airframe and engine repair volumes.

          A charge of $18 million in 2007 for surplus and obsolete aircraft parts inventory accounted for approximately half of the 4% increase in depreciation and amortization.

          Ongoing efforts to efficiently utilize our rented facilities have offset contractual rent increases, keeping 2007 rent expense in line with 2006 rent expense.

          In 2007, United'sUnited’s mainline revenues increased by 6%. During the same period of time, distribution expenses, which include commissions, GDS fees and credit card fees decreased 2% from $798 million



          in 2006 to $779 million in 2007. This decrease was due to cost savings realized as the Company continues to drive reductions across the full spectrum of costs of sale. Impact areas included renegotiation of contracts with various channel providers, rationalization of commission plans and programs, and continued emphasis on movement of customer purchases toward lower cost channels including online channels. Such efforts resulted in a 9%year-over-year reduction in GDS fees and commissions.


          52

          The decrease in cost of sales in 2007 as compared to 2006 was primarily due to lower UAFC third party fuel sales of $307 million as described in the discussion of revenue variances above.

          Special items of $44 million in the year ended December 31, 2007 include a $30 million benefit due to the reduction in recorded accruals for pending bankruptcy litigation related to our SFO and LAX municipal bond obligations and a $14 million benefit due to the Company'sCompany’s ongoing efforts to resolve certain other bankruptcy pre-confirmation contingencies. In the eleven months ended December 31, 2006, special items of $36 million included a $12 million benefit to adjust the Company'sCompany’s recorded obligation for the SFO and LAX municipal bonds and a $24 million benefit related to pre-confirmation pension matters. The 2007 and 2006 special items resulted from revised estimates of the probable amount to be allowed by the Bankruptcy Court and were recorded in accordance with AICPA Practice Bulletin Bulletin��11,Accounting for Preconfirmation Contingencies in Fresh-Start Reporting. See Note 1, "Voluntary4, “Voluntary Reorganization Under Chapter 11"11” and Note 20, "Special Items"19, “Special Items” in theCombined Notes to Consolidated Financial Statementsfor further information on these special items and pending bankruptcy matters.
          Other Income (Expense).

          20062008 compared to 20052007

          The following table below includesillustrates theyear-over-year dollar and percentage changes in operating expenses. Significant fluctuations are discussed below.

           
          		 Predecessor
          		 Successor
          		 Combined
          		 Predecessor
          		  
          		  
          		 
          (Dollars in millions)
          		 Period from
          January 1 to
          January 31,
          2006
          		 Period from
          February 1 to
          December 31,
          2006
          		 Period
          Ended
          December 31,
          2006(a)
          		 Year
          Ended
          December 31,
          2005
          		 $
          Change
          		 %
          Change
          		 
          UAL                  
          Operating expenses:                  
           Aircraft fuel $362 $4,462 $4,824 $4,032 $792 20 
           Salaries and related costs  358  3,909  4,267  4,027  240 6 
           Regional affiliates  228  2,596  2,824  2,746  78 3 
           Purchased services  98  1,148  1,246  1,054  192 18 
           Aircraft maintenance materials
              and outside repairs          		  80  929  1,009  881  128 15 
           Depreciation and amortization  68  820  888  856  32 4 
           Landing fees and other rent  75  801  876  915  (39)(4)
           Distribution expenses  60  738  798  775  23 3 
           Cost of third party sales  65  614  679  685  (6)(1)
           Aircraft rent  30  385  415  402  13 3 
           Special operating items  —  (36) (36) 18  (54)— 
           Other operating expenses  86  1,017  1,103  1,207  (104)(9)
            
          		 
          		 
          		 
          		 
          		   
            $1,510 $17,383 $18,893 $17,598 $1,295 7 
            
          		 
          		 
          		 
          		 
          		   

           
          		 Predecessor
          		 Successor
          		 Combined
          		 Predecessor
          		  
          		  
          		 
          (Dollars in millions)
          		 Period from
          January 1 to
          January 31,
          2006
          		 Period from
          February 1 to
          December 31,
          2006
          		 Period
          Ended
          December 31,
          2006(a)
          		 Year
          Ended
          December 31,
          2005
          		 $
          Change
          		 %
          Change
          		 
          United                  
           Aircraft fuel $362 $4,462 $4,824 $4,032 $792 20 
           Salaries and related costs  358  3,907  4,265  4,014  251 6 
           Regional affiliates  228  2,596  2,824  2,746  78 3 
           Purchased services  97  1,146  1,243  1,049  194 18 
           Aircraft maintenance materials
              and outside repairs          		  80  929  1,009  881  128 15 
           Depreciation and amortization  68  820  888  854  34 4 
           Landing fees and other rent  75  800  875  915  (40)(4)
           Distribution expenses  60  738  798  775  23 3 
           Cost of third party sales  63  604  667  656  11 2 
           Aircraft rent  30  386  416  404  12 3 
           Special operating items  —  (36) (36) 5  (41)— 
           Other operating expenses  85  1,017  1,102  1,198  (96)(8)
            
          		 
          		 
          		 
          		 
          		   
            $1,506 $17,369 $18,875 $17,529 $1,346 8 
            
          		 
          		 
          		 
          		 
          		   
          (a)
          The combined period includes the results for one month ended January 31, 2006 (Predecessor Company) and eleven months ended December 31, 2006 (Successor Company).

                  In 2006, United implemented a resource optimization initiative that increased the number of mainline ASMs by 1%UAL and United Express ASMs by 3%, for a consolidated ASM growth of 2%, without the use of additional aircraft. In addition to generating increased revenue, this contributed to additional variable expenses such as fuel, salaries, and other income (expense).

                           
               Favorable/
          		 
            Year Ended
          		  (Unfavorable)
          		 
            December 31,  Change 
          (In millions)
          		 2008  2007  $  % 
          Interest expense $(523) $(661) $138   20.9 
          Interest income  112   257   (145)  (56.4)
          Interest capitalized  20   19   1   5.3 
          Gain on sale of investment  —   41   (41)  (100.0)
          Non-cash fuel hedge gain (loss)  (279)  —   (279)  — 
          Cash fuel hedge gain (loss)  (249)  —   (249)  — 
          Miscellaneous, net  (22)  2   (24)  — 
                           
          UAL total $(941) $(342) $(599)  (175.1)
                           
          United total $(941) $(339) $(602)  (177.6)
                           
          UAL interest expense items.

                  In 2006, mainline aircraft fuel expense increased 20% due to an increase in average mainline fuel cost from $1.79 per gallon in 2005 to $2.11 per gallon in 2006, while fuel consumption increased 2% on a similar increase in mainline capacity. The Company recognized a net fuel hedge loss of $26 million in aircraft fuel expense in 2006, which is included in the $2.11 per gallon average cost, whereas in 2005 most fuel hedging gains and losses were recorded in non-operating income and expense. In 2005, the Company recorded $40 million of fuel hedging gains in non-operating income, as discussed below.

                  UAL 's salaries and related costs increased $240decreased $138 million, or 6%21%, in 20062008 as compared to 2007. The 2008 period was favorably impacted by $1.5 billion of total credit facility prepayments and the prior year. In 2006 the Company recorded $159 million ofFebruary 2007 credit facility amendment, which lowered United’s interest rate on these obligations. Scheduled debt obligation repayments throughout 2008 and 2007 also reduced interest expense representing 4% of the increase in salaries and related costs, for Successor UAL 's share-based compensation plans because of the adoption of Statement of Financial Accounting Standards No. 123 (Revised 2004),"Share-Based Payment," effective January 1, 2006. In addition, the Company incurred an additional $26 million related to employee performance incentive programs in 20062008 as compared to 2005.2007. The Company has a significant amount of variable-rate debt. Lower benchmark interest rates on these variable-rate borrowings also recorded $64reduced the Company’s interest expense in 2008 as compared to 2007. Interest expense in 2007 included the write-off of $17 million of previously capitalized debt issuance costs associated with the February 2007 Amended Credit Facility partial prepayment, $6 million of financing costs associated with the February 2007 amendment and a gain of $22 million from a debt extinguishment. The benefit of lower interest expense in higher postretirement expenses and $35 million in higher medical and dental expenses in 2006 than in 2005. Salaries also increased due to merit increases awarded to employees in 2006, which were infrequent throughout bankruptcy. These cost increases were partially2008 was offset by a 6% year-over-year improvement$145 million decrease in labor productivity resulting frominterest income due to lower average cash and short-term investment balances and lower investment yields. SeeLiquidity and Capital Resourcesbelow, for further details related to financing activities.

          Nonoperating fuel hedge gains (losses) relate to hedging instruments that are not classified as economic hedges. These net hedge gains (losses) are presented separately in the Company's continuous improvement efforts, together with selective outsourcingtable above for purposes of certain non-core functions. In 2006, the Company achieved its goaladditional analysis. These hedging gains (losses) are due to reduce 1,000 management and administrative positions.

                  The Company's most significant regional affiliate expenses are capacity paymentsfavorable (unfavorable) movements in crude oil prices relative to the regional carriersfuel hedge instrument terms. See Item 7A,Quantitative and fuel expense. Fuel accounted for 30% of the Company's regional affiliate expenseQualitative Disclosures about Market Riskand Note 13, “Fair Value Measurements and Derivative Instruments,” in 2006, as compared to 26% in 2005. Fuel cost increased due to increased market prices for jet fuel, as discussed above, and increased fuel consumption from higher capacity. The Company's regional affiliate



          expense increased only 3% despite a 9% increase in capacity due to the benefits of restructured regional carrier capacity agreements in 2006 along with regional carrier network optimization and the replacement of some 50-seat regional jets with 70-seat regional jets. The 3% increase in regional affiliates expense includes an 18% increase in fuel costs. See Note 2(j), "Summary of Significant Accounting Policies—United Express," in theCombined Notes to Consolidated Financial Statementsfor further discussion of the Regional affiliates expense.these hedges.


          53

                  The Company's purchased services increased 18%

          There were no significant investment gains or losses in 2006,2008 as compared to 2005,2007 during which the Company recorded a $41 million gain on sale of investment, as discussed below under2007 compared to 2006.
          The $24 million variance in Miscellaneous, net is primarily due to an increase of approximately $120 millionunfavorable foreign exchange rate fluctuations in outsourcing costs for various non-core work activities; as well as a $31 million increase in certain professional fees, which were classified as reorganization expenses by the Predecessor Company. The offsetting benefits of higher outsourcing costs are reflected in a 4% reduction in manpower associated with the 6% labor productivity improvement noted for salaries and related costs.

                  In 2006, aircraft maintenance materials and outside repairs expense increased $128 million, or 15%, from 2005 primarily due to engine-related maintenance rate increases as well as increased repair volume.

          2008.

                  As discussed in Note 1, "Voluntary Reorganization Under Chapter 11—Fresh-Start Reporting," in theCombined Notes to Consolidated Financial Statements, the Company revalued its assets and liabilities to estimated fair values. In 2006, UAL 's amortization expense increased $162 million due to the recognition of $453 million of additional definite-lived intangible assets; however, this increase was offset by decreased depreciation expense from fresh-start reporting adjustments that significantly reduced depreciable tangible asset book values to fair value. The impact of the decrease in tangible asset valuation was significant as depreciation and amortization only increased $32 million despite the $162 million increase in intangible asset amortization and incremental depreciation on post-emergence property additions. The fresh-start impacts on United's depreciation and amortization expense were not materially different than the UAL impacts.

                  The Company's distribution expenses, which include commissions, GDS fees and credit card fees, increased $23 million, or 3%, year-over-year primarily due to a $24 million increase in credit card fees due to higher passenger revenues.

                  UAL 's and United's other operating expenses decreased $104 million and $96 million in 2006, as compared to 2005, respectively. The adoption of fresh-start reporting, which included the revaluation of the Company's frequent flyer obligation to estimated fair value and the change in accounting policy to a deferred revenue model for the Successor Company reduced other expense by an estimated $27 million. For periods on or after February 1, 2006, adjustments to the frequent flyer obligation are recorded to passenger and other operating revenues, whereas periodic adjustments under the Predecessor Company's incremental cost basis were recognized in both operating revenues and other operating expense. See "Critical Accounting Policies," below, for further details. Various cost savings initiatives also reduced the Company's costs in 2006 as compared to 2005.

                  In 2006, the Company recognized a net benefit of $36 million to operating expense resulting from the resolution of preconfirmation contingencies for the estimated liability for SFO and LAX municipal bond obligations, and favorable adjustments to preconfirmation contingencies related to the pilots non-qualified pension plan. In 2005, UAL and United recognized charges of $18 million and $5 million, respectively, for aircraft impairments related to the planned accelerated retirement of certain aircraft.


          Other Income (Expense).

          2007 compared to 2006

          The following table illustrates theyear-over-year dollar and percentage changes in other income (expense).

           
          		 Successor
          		 Combined
          		 Successor
          		 Predecessor
          		  
          		  
          		 
          (Dollars in millions)
          		 Year Ended
          December 31,
          2007
          		 Period
          Ended
          December 31,
          2006(a)
          		 Period from
          February 1 to
          December 31,
          2006
          		 Period from
          January 1 to
          January 31,
          2006
          		 Favorable
          (Unfavorable)
          		 %
          Change
          		 
          UAL                  
          Other income (expense):                  
           Interest expense $(661)$(770)$(728)$(42)$109 14 
           Interest income  257  249  243  6  8 3 
           Interest capitalized  19  15  15  —  4 27 
           Gain on sale of investment  41  —  —  —  41 — 
           Miscellaneous, net  2  14  14  —  (12)(86)
            
          		 
          		 
          		 
          		 
          		   
            $(342)$(492)$(456)$(36)$150 30 
            
          		 
          		 
          		 
          		 
          		   

          United
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
          Other income (expense):                  
           Interest expense $(660)$(771)$(729)$(42)$111 14 
           Interest income  260  256  250  6  4 2 
           Interest capitalized  19  15  15  —  4 27 
           Gain on sale of investment  41  —  —  —  41 — 
           Miscellaneous, net  1  11  11  —  (10)(91)
            
          		 
          		 
          		 
          		 
          		   
            $(339)$(489)$(453)$(36)$150 31 
            
          		 
          		 
          		 
          		 
          		   
          (a)
          The combined period includes the results for one month ended January 31, 2006 (Predecessor Company) and eleven months ended December 31, 2006 (Successor Company).

                                   
            Successor  Combined  Successor  Predecessor       
            Year
          		  Period
          		  Period from
          		  Period from
          		       
            Ended
          		  Ended
          		  February 1 to
          		  January 1 to
          		       
            December 31,
          		  December 31,
          		  December 31,
          		  January 31,
          		  Favorable
          		  %
          		 
          (In millions)
          		 2007  2006(a)  2006  2006  (Unfavorable)  Change 
          Other income (expense):                        
          Interest expense $(661) $(770) $(728) $(42) $109   14.2 
          Interest income  257   249   243   6   8   3.2 
          Interest capitalized  19   15   15   —   4   26.7 
          Gain on sale of investment  41   —   —   —   41   — 
          Miscellaneous, net  2   14   14   —   (12)  (85.7)
                                   
          UAL total $(342) $(492) $(456) $(36) $150   30.5 
                                   
          United total $(339) $(489) $(453) $(36) $150   30.7 
                                   
          (a)The combined period includes the results for one month ended January 31, 2006 (Predecessor Company) and eleven months ended December 31, 2006 (Successor Company).
          UAL interest expense decreased $109 million, or 14%, in 2007 as compared to 2006. The decrease was due to the February and December 2007 amendments and prepayments of the credit facility,Amended Credit Facility, which lowered United'sUnited’s interest rate on these obligations and reduced the total obligations outstanding by approximately $1.5 billion. Repayments of scheduled maturities of debt obligations and other debt refinancings, which are discussed in "Liquidity“Liquidity and Capital Resources,"” below, also reduced interest expense. The 2007 period also included a $22 million reduction in interest expense due to the recognition of a gain on debt extinguishment. These benefits were offset by interest expense of $17 million for expensing previously capitalized debt issuance costs that were associated with the February 2007 prepayment of the credit facility,Amended Credit Facility and $6 million for financing costs incurred in connection with the February amendment of the credit facility.Amended Credit Facility. The $500 million Amended Credit Facility prepayment in December 2007 increased interest expense by a net of $4 million from expensing $6 million of previously capitalized credit facility costs and recording a gain of $2 million to recognize previously deferred interest rate swap gains.

          UAL interest income increased $8 million, or 3%,year-over-year. Interest income increased due to the classification of $6 million of interest income as reorganization items in the January 2006 predecessor period in accordance withSOP 90-7.

          The $41 million gain on sale of investment resulted from the Company'sCompany’s sale of its 21.1% interest in ARINC.

          Aeronautical Radio, Inc. (“ARINC”).

          The unfavorable variances in miscellaneous income (expense) are primarily due to foreign currency transaction gains of $9 million in 2006 as compared to foreign currency transaction losses of $4 million in 2007.

          Income Taxes.
          The relatively small tax benefit recorded in 2008 is related to the impairment and sale of certain indefinite-lived intangible assets, partially offset by the impact of an increase in state tax rates. UAL


          54

                  UAL and United

          recorded income tax expense of $297 million and $296 million (an effective tax rate of 43%), respectively, for the year ended December 31, 2007 as compared to $21 million and $29 million (anbased an estimated effective tax rate of 49% and 50%) for UAL and United, respectively, for the eleven month period ended December 31, 2006. The increase in income tax expense in 2007 was primarily due to a significant increase in pre-tax income in 2007 as compared to the 2006 Successor period. Due to the Company's significant net operating losses in prior periods, cash paid for taxes in 2007 was only $10 million.43%. See Note 6, "Income Taxes"8, “Income Taxes,” in theCombined Notes to Consolidated Financial Statementsfor further discussion of permanent items impacting the effective tax rates.

          additional information.

          2006 compared to 2005

                  The following table illustrates the year-over-year dollar and percentage changes in consolidated other income (expense).

           
          		 Predecessor
          		 Successor
          		 Combined
          		 Predecessor
          		  
          		  
          		 
          (Dollars in millions)
          		 Period from
          January 1 to
          January 31,
          2006
          		 Period from
          February 1 to
          December 31,
          2006
          		 Period
          Ended
          December 31,
          2006(a)
          		 Year
          Ended
          December 31,
          2005
          		 Favorable
          (Unfavorable)
          		 %
          Change
          		 
          UAL                  
          Other income (expense):                  
           Interest expense $(42)$(728)$(770)$(482)$(288)(60)
           Interest income  6  243  249  38  211 555 
           Interest capitalized  —  15  15  (3) 18 — 
           Miscellaneous, net  —  14  14  87  (73)(84)
            
          		 
          		 
          		 
          		 
          		   
            $(36)$(456)$(492)$(360)$(132)(37)
            
          		 
          		 
          		 
          		 
          		   

          United
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
          Other income (expense):                  
           Interest expense $(42)$(729)$(771)$(492)$(279)(57)
           Interest income  6  250  256  36  220 611 
           Interest capitalized  —  15  15  (3) 18 — 
           Miscellaneous, net  —  11  11  76  (65)(86)
            
          		 
          		 
          		 
          		 
          		   
            $(36)$(453)$(489)$(383)$(106)(28)
            
          		 
          		 
          		 
          		 
          		   
          (a)
          The combined period includes the results for one month ended January 31, 2006 (Predecessor Company) and eleven months ended December 31, 2006 (Successor Company).

                  UAL and United incurred $288 million and $279 million, respectively, of increases in interest expense partly due to the higher outstanding principal balance of the credit facility for the Successor Company, as compared to the lower debtor-in-possession credit facility (the "DIP Financing") balance for the Predecessor Company. Interest expense in 2006 was also unfavorably impacted by the associated amortization of various discounts which were recorded on debt instruments and capital leases to record these obligations at fair value upon the adoption of fresh-start reporting. UAL 's and United's 2006 interest income increased $211million and $220 million, respectively, reflecting a higher cash balance in 2006, as well as higher rates of return on certain investments. Interest income also increased due to the



          classification of most interest income in 2005 as a component of reorganization expense in accordance with SOP 90-7. In 2005, the Company recorded $40 million of fuel hedge gains which did not qualify for hedge accounting in non-operating income, while in 2006 the $26 million net realized and unrealized loss from economic fuel hedges was recognized in aircraft fuel expense.

                  See Note 1, "Voluntary Reorganization Under Chapter 11—Financial Statement Presentation," in theCombined Notes to Consolidated Financial Statements for information on Reorganization items, net recognized in January 2006 and during the year ended December 31, 2005.

          Liquidity and Capital Resources

          As of the date of thisForm 10-K, the Company believes it has sufficient liquidity to fund its operations for the next twelve months, including funding for scheduled repayments of debt and capital lease obligations, capital expenditures, cash deposits required under fuel hedge contracts and other contractual obligations. We expect to meet our liquidity needs in 2009 from cash flows from operations, cash and cash equivalents on hand, proceeds from new financing arrangements using unencumbered assets and proceeds from aircraft sales and sales of other assets, among other sources. While the Company expects to meet its future cash requirements in 2009, our ability to do so could be impacted by many factors including, but not limited to, the following:
          • Volatile fuel prices and the cost and effectiveness of hedging fuel prices, as described above in theOverviewandResults of Operationssections, may require the use of significant liquidity in future periods. Crude oil prices have been extremely volatile and unpredictable in recent years and may become more volatile in future periods due to the current severe dislocations in world financial markets.
          • In late 2008, the price of crude oil dramatically fell from its record high in July 2008. Earlier in 2008, the Company entered into derivative contracts (including collar strategies) to hedge the risk of future price increases. As fuel prices have fallen below the floor of the collars, the Company has had, and could continue to have, significant future payment obligations at the settlement dates of these contracts. In addition, the Company has been and may in the future be further required to provide counterparties with additional cash collateral prior to such settlement dates. While the Company’s results of operations should benefit significantly from lower fuel prices on its unhedged fuel consumption, in the near term lower fuel prices could also significantly and negatively impact liquidity based on the amount of cash settlements and collateral that may be required. However, at December 31, 2008 the Company partially mitigated its exposure to further price declines by purchasing put options to effectively cover approximately 55% of its short put positions. In addition, over the longer term, lower crude oil prices will further benefit the Company as the unfavorable hedge contracts terminate and the Company realizes the benefit of lower jet fuel costs on a larger percentage of its fuel consumption. See Note 13, “Fair Value Measurements and Derivative Instruments” inCombined Notes to Consolidated Financial Statements, as well as Item 7A,Quantitative and Qualitative Disclosures Above Market Risk,for further information regarding the Company’s fuel derivative instruments.
          • The Company’s current operational plans to address the severe condition of the global economy may not be successful in improving its results of operations and liquidity:
          • The Company may not achieve expected increases in unit revenue from the capacity reductions announced by the Company and certain of its competitors. Further, certain of the Company’s competitors may not reduce capacity or may increase capacity; thereby diminishing our expected benefit from capacity reductions. The Company may also not achieve expected revenue improvements from merchandising and fee enhancement initiatives.
          • Poor general economic conditions have had, and may in the future continue to have, a significant adverse impact on travel demand, which may result in a negative impact to revenues.
          • The Company is using cash to implement its operational plans for such items as severance payments, lease termination payments, conversion of Ted aircraft and facility closure costs, among others. These cash requirements will reduce the Company’s cash available for its ongoing operations and commitments.


          55

          • While fuel prices decreased significantly from their record high prices, fuel prices remain volatile and could increase significantly.
          • Our level of indebtedness, our non-investment grade credit rating, and general credit market conditions may make it difficult, or impossible, for us to raise capital to meet liquidity needsand/or may increase our cost of borrowing.
          • Due to the factors above, and other factors, we may be unable to comply with our Amended Credit Facility covenant that currently requires the Company to maintain an unrestricted cash balance of $1.0 billion and will also require the Company, beginning in the second quarter of 2009, to maintain a minimum ratio of EBITDAR to fixed charges. If the Company does not comply with these covenants, the lenders may accelerate repayment of these debt obligations, which would have a material adverse impact on the Company’s financial position and liquidity.
          • If a default occurs under our Amended Credit Facility or other debt obligations, the cost to cure any such default may materially and adversely impact our financial position and liquidity, and no assurance can be provided that such a default will be mitigated or cured.
          Although the factors described above may adversely impact the Company’s liquidity, the Company believes it has an adequate available cash position to fund current operations. UAL’s unrestricted and restricted cash balances were $2.0 billion and $0.3 billion, respectively, at December 31, 2008. In addition, the Company has recently taken actions to improve its liquidity and believes it may access additional capital or improve its liquidity further, as described below.
          • During 2008, the Company completed several initiatives that generated unrestricted cash of more than $1.9 billion. These initiatives are described below.
          • The Company has significant additional unencumbered aircraft and other assets that may be used as collateral to obtain additional financing, as discussed below. At December 31, 2008, the Company had 62 unencumbered aircraft. As discussed in Note 23, “Subsequent Events,” inCombined Notes to Consolidated Financial Statements, in January 2009, the Company completed several financing-related transactions which generated approximately $315 million of proceeds.
          • The Company is taking aggressive actions to right-size its business including significant capacity reductions, disposition of underperforming assets and a workforce reduction, among others.
          Cash Position and Liquidity.  As of December 31, 2008, approximately 50% of the Company’s cash and cash equivalents consisted of money market funds directly or indirectly invested in U.S. treasury securities with the remainder largely in money market funds that are covered by the new government money market funds guarantee program. There are no withdrawal restrictions at the present time on any of the money market funds in which the Company has invested. In addition, the Company has no auction rate securities as of December 31, 2008. Therefore, we believe our credit risk is limited with respect to our cash balances. The following table provides a summary of UAL'sUAL’s net cash provided (used)


          56

          by operating, financing, investing and United's cash position atreorganization activities for the years ended December 31, 2008, 2007 and 2006 and nettotal cash provided (used) by operating, financing and investing activities for the year endedposition as of December 31, 2007, the eleven month period ended December 31, 20062008 and the one month period ended January 31, 2006.

           
          		 UAL
          		 United
           
          		 December 31,
          		 December 31,
          (In millions)
          		 2007
          		 2006
          		 2007
          		 2006
          Cash, short-term investments & restricted cash $4,310 $4,991 $4,220 $4,896
          Restricted cash included in total cash  756  847  722  809
           
          		 Successor
          		 Combined
          		 Successor
          		 Predecessor
          		 
           
          		 Year Ended
          December 31,
          2007
          		 Twelve Months
          Ended
          December 31,
          2006(a)
          		 Period from
          February 1 to
          December 31,
          2006
          		 Period from
          January 1 to
          January 31,
          2006
          		 
          UAL             
          Net cash provided by operating activities $2,134 $1,562 $1,401 $161 
          Net cash provided (used) by investing activities  (2,560) (250) (12) (238)
          Net cash provided (used) by financing activities  (2,147) 782  812  (30)

          United
           
           
           
           
           
           
           
           
           
           
           
           
           
          Net cash provided by operating activities $2,127 $1,588 $1,425 $163 
          Net cash provided (used) by investing activities  (2,533) (293) (55) (238)
          Net cash provided (used) by financing activities  (2,134) 783  813  (30)
          (a)
          2007.
                       
            Year Ended December 31, 
          (In millions)
          		 2008  2007  2006 
          Net cash provided (used) by operating activities $(1,239) $2,134  $1,562 
          Net cash provided (used) by investing activities  2,721   (2,560)  (250)
          Net cash provided (used) by financing activities  (702)  (2,147)  782 
          Net cash used by reorganization activities  —   —   (23)
                   
            As of December 31, 
            2008  2007 
           
          Cash and cash equivalents $2,039  $1,259 
          Short-term investments  —   2,295 
          Restricted cash  272   756 
                   
          Cash, short-term investments & restricted cash $2,311  $4,310 
                   
          The combined period includes the results for the one month period ended January 31, 2006 (Predecessor) and the eleven month period ended December 31, 2006 (Successor).

                  The Company's significantCompany’s cash and short-term investment position represents aan important source of liquidity. The Company believes that it should have sufficient liquidity to fund its operating and capital cash requirements for 2008 through cash and cash equivalents, short-term investments, cash generated from operations, and general corporate financings. The change in cash from 20052006 to 20072008 is explained below. Restricted cash primarily represents cash collateral to secure workers'workers’ compensation obligations, security deposits for airport leases and reserves with institutions that process our credit card ticket sales. We may be required to post significant additional cash collateral to meet such obligations in the future.

                  Liquidity.    UAL 's total of cash and cash equivalents, restricted cash and short-term investments was $4.3 billion and $5.0 billion at December 31, 2007 and 2006, respectively, including restricted cash of $756 million and $847 million, respectively. The Company used its strong operating cash flows to reduce its debt balances by approximately $1.5 billion through its credit facility prepayments of $972 million in February 2007 and $500 million in December 2007. The Amended Credit Facility



          consists of an initial $1.8 billion term loan in February 2007, which was paid down to $1.3 billion at December 31, 2007, andhas a $255 million revolving commitment of which $153 million was available at December 31, 2007.

                  Certain terms of the credit facility were amended in February 2007 thereby creating the Amended Credit Facility. A further amendment in December 2007 authorizes certain shareholder initiatives. This enabled UAL to pay a $2.15 per common share special distribution of approximately $257 million on January 23, 2008. At the Company's option, interest payments on theunder its Amended Credit Facility, are based on either a base rate, as defined in the Amended Credit Facility, or at LIBOR plus 2%. This applicable margin on LIBOR rate loans is a significant reduction of 1.75% from the terms of the credit facility. The February 2007 amendment released a significant amount of assets that had been pledged as collateral under the credit facility. See the "Capital Commitmentswhich $254 million and Off-Balance Sheet Arrangements" section, below, for information related to scheduled maturities on the credit facility.

                  In January 2007, the Company decided to terminate the interest rate swap that$102 million had been used for letters of credit as of December 31, 2008 and 2007, respectively. In addition, under a separate agreement, the Company had $27 million of letters of credit issued as of December 31, 2008. The increase of letters of credit issued in 2008 was primarily due to hedge the future interest payments underproviding of alternative collateral in place of restricted cash deposits, thereby providing the original credit facility term loan of $2.45 billion.

                  Restricted cash primarily represents cash collateral to secure workers' compensation obligations, security deposits for airport leases and reservesCompany with institutions that process United's credit card ticket sales. Certain of the credit card processing arrangements are based on the aggregate then-outstanding bank card air traffic liability, the Company's credit rating and its compliance with certain debt covenants. Credit rating downgrades or debt covenant noncompliance could materially increase the Company's reserve requirements.

          additional unrestricted cash.

          Cash Flows from Operating Activities.
          2008 compared to 2007

          UAL’s cash from operations decreased by approximately $3.4 billion in 2008 as compared to 2007. This decrease was primarily due to the increased cash required for fuel purchases and operating and nonoperating cash fuel hedge losses. Mainline and regional affiliate fuel costs increased $3.1 billion in 2008 over 2007 and nonoperating expenses also increased over the same period largely due to cash and non-cash fuel hedge losses. In addition, certain counterparties to our fuel hedge instruments required the Company to provide cash collateral deposits of approximately $965 million in 2008, which negatively impacted our cash flows during this period as compared to 2007 when no similar deposits were required. A decrease in advance ticket sales also negatively impacted operating cash flow in 2008. Partially offsetting the negative impacts were $500 million of proceeds from the advanced purchase of miles by our co-branded credit card partner as part of the amendment of our marketing agreement and $100 million of proceeds from the extension of the license previously granted to our co-branded credit card partner to be the exclusive issuer of Mileage Plus Visa cards through 2017. In 2008, the Company contributed approximately $240 million and $22 million to its defined contribution plans andnon-U.S. pension plans, respectively, as compared to contributions of $236 million and $14 million, respectively, in 2007 for these plans.
          2007 compared to 2006

          The Company'sCompany’s cash from operations improved by more than $500 millionyear-over-year. The Company'sCompany’s improvement in net income excluding primarily non-cash reorganization items, which are primarily non-cash, was a significant factor contributing to the increase in operating cash flows. Operating cash flows for 2007 also include the favorable impact of an increase in non-cash income tax expense of nearly $300 million as compared to 2006. Cash from operations improved due to the Company's improved performance in 2007, as discussed above in the "Results of Operations" section, above. In addition, cash from operations improved due to a reduction of $124 million in cash interest payments in 2007 as compared to 2006 as a result of the financing activities completed in


          57

          2007 to reduce debt and interest rates. The improvement in cash generated from operations that was due to better operating performance was further enhanced by a decrease in operating cash used for working capital. In 2007, the Company contributed approximately $236 million and $14 million to its defined contribution plans andnon-U.S. pension plans, respectively, as compared to contributions of $270 million in 2006 for these plans.

          2006 compared to 2005

                  The Company generated cash from operations of $1.6 billion in 2006 compared to $1.1 billion in 2005. The higher operating cash flow generated in 2006 was due to improved results of operations as discussed above in the "Results of Operation" section, together with differences in the timing and amount of working capital items, and other smaller changes. As discussed in the "Results of Operations" section, above, the Company's 2006 net income includes significant non-cash items.

                  The Company does not have any significant defined benefit pension plan contribution requirements as most of the Company-sponsored plans were replaced with defined contribution plans upon its emergence from bankruptcy. The Company contributed approximately $259 million and



          $11 million to its defined contribution plans and non-U.S. pension plans, respectively, in the eleven months ended December 31, 2006.

          Cash Flows from Investing Activities.
          2008 compared to 2007

          Net sales of short-term investments provided cash of $2.3 billion for UAL in 2008 as compared to cash used for net purchases of short-term investments of $2.0 billion in 2007. In 2008, the Company invested most of its excess cash in money market funds, whereas in 2007, excess cash was largely invested in short-term investments such as commercial paper. During 2008, the Company also received $357 million of cash that was previously restricted cash held by the Company’s largest credit card processor. The release of cash was part of an amendment to the Company’s co-branded credit card agreement and largest credit card processor agreement. SeeCredit Card Processing Agreements, below, for further discussion of the amended agreement and future cash reserve requirements.
          In 2008, cash expenditures for property, equipment and software totaled approximately $455 million. Additions to property in 2008 also included $20 million of capitalized interest. In 2007, cash expenditures for property and equipment, software and capitalized interest were $639 million, $65 million and $19 million, respectively. Thisyear-over-year decrease is primarily due to the Company’s efforts to optimize its available cash and a reduction in cash used to acquire aircraft as the 2007 capital expenditures included cash used to acquire six aircraft that were previously financed as operating leases, as discussed in2007 compared to 2006

                  UAL 's, below.

          During 2008, the Company generated $94 million from various asset sales including the sale of five B737 aircraft, spare parts, engines and United'sslots. Certain previously existing agreements in principle to sell additional aircraft in 2008 have been terminated.
          Investing cash of $274 million was generated from aircraft sold under sale-leaseback financing agreements. In 2008, United entered into a $125 million sale-leaseback involving nine previously unencumbered aircraft and a $149 million sale-leaseback involving 15 aircraft. See Note 15, “Lease Obligations,” and Note 16, “Statement of Consolidated Cash Flows—Supplemental Disclosures,” inCombined Notes to Consolidated Financial Statementsfor additional information related to these transactions. In addition, the Company’s investing cash flows benefited from $41 million of cash proceeds from a litigation settlement resulting in the recognition of a $29 million gain during 2008. The litigation settlement related to pre-delivery advance aircraft deposits.
          2007 compared to 2006
          UAL’s cash released from restricted funds was $91 million and $87 million, respectively, in 2007 as compared to $310 million and $319$357 million that was provided by a decrease in the segregated and restricted funds for UAL and United, respectively, in 2006. The significant cash generated from restricted accounts in 2006 was due to our improved financial position upon our emergence from bankruptcy. Net purchases of short-term investments used cash of $2.0 billion for both UAL and United in 2007 as compared to cash used for net purchases of short-term investments of $0.2 billion in 2006. This change was due to investing additional excess cash in longer-term commercial paper in 2007 to increase investment yields. Investing activities in 2007 also includesincluded the Company'sCompany’s use of $96 million of cash to acquire certain of the Company'sCompany’s previously issued and outstanding debt instruments. The debt instruments repurchased by the Company remain outstanding. See Note 12, "Debt“Debt Obligations" and Card Processing Agreements,” inCombined Notes to Consolidated Financial Statementsfor further information related to the $96 million of purchased debt securities.

          The Company'sCompany’s capital expenditures were $658 million and $362 million in 2007 and 2006, respectively, including the purchase of six aircraft during 2007. In the third quarter of 2007, the


          58

          Company purchased three747-400 aircraft that had previously been financed by United through operating leases which were terminated at closing. The total purchase price for these aircraft was largely financed with certain proceeds from the secured EETC financing described below. These transactions did not result in any change in the Company'sCompany’s fleet count of 460 mainline aircraft, or in the amount of aircraft encumbered by debt or lease agreements.

          During the fourth quarter of 2007, the Company used existing cash to acquire three aircraft that were previously financed under operating lease agreements. The total purchase price of these three aircraft and the three aircraft acquired in the third quarter of 2007 was approximately $200 million. This purchase did not result in any change in the Company'sCompany’s fleet count of 460 mainline aircraft, but did unencumber three aircraft.

          In addition, in the fourth quarter of 2007, the Company utilized existing aircraft deposits pursuant to the terms of the original capital lease to make the final lease payments on three aircraft, resulting in the reclassification of the aircraft from capital leased assets to owned assets. However, the purchase of these three aircraft did not result in a net change in cash because the Company had previously provided cash deposits equal to the purchase price of the aircraft to third party financial institutions for the benefit of the lessor. These transactions resulted in three additional aircraft becoming unencumbered for a total increase of six unencumbered aircraft during the year.

          During 2007, the Company sold its interest in ARINC, generating proceeds of $128 million. In 2006, UAL received $43 million more in cash proceeds from investing activities as compared to United primarily due to $56 million of proceeds from the sale of MyPoints, a former direct subsidiary of UAL.

          2006 compared to 2005

                  Cash released from segregated funds after exit from bankruptcy in 2006 provided $200 million in cash proceeds. UAL 's sale of the subsidiary MyPoints.com, Inc. generated an additional $56 million in cash proceeds in 2006 as compared to 2005. UAL 's and United's cash used for increases in short-term investments in 2006 was $235 million and $231 million, respectively, as compared to no material purchases or sales of short-term investments in 2005. A reduction in restricted cash balances provided $110 million and $119 million of cash proceeds in 2006 for UAL and United, respectively, as compared



          to cash used to increase restricted cash of $80 million and $72 million in 2005 for UAL and United, respectively.

                  The $39 million of cash provided during 2006 from the disposition of property and equipment included $19 million of cash proceeds from the sale of nine non-operating B767-200 aircraft. The Company used $362 million in cash for the acquisition of property and equipment in 2006, as compared to approximately $470 million in 2005.

          Cash Flows from Financing Activities.
          2008 Activity

          2007 compared

          UAL used $253 million for its special distribution to 2006

                  Cash used by financing activitiescommon stockholders (United issued a $257 million dividend to UAL for both UALthis distribution) and United was $2.1 billion in 2007, as compared to $0.8 billion of cash provided by financing activities during 2006. In 2007, cash of approximately $2.9 billion was used to prepay approximately $1.5 billion of credit facility obligations, refinance certain aircraft as discussed below and to make other$919 million for scheduled long-term debt and capital lease payments. United used cash of $109 million in connection with an amendment to its Amended Credit Facility, as further discussed below. In 2008, the Company acquired ten aircraft that were being operated under existing leases. These aircraft were acquired pursuant to existing lease terms. Aircraft lease deposits of $155 million provided financing cash that was primarily utilized by the Company to make the final payments due under these lease obligations. Nine of these aircraft were previously recorded as capital leased assets and are now owned assets.

          United completed a $241 million credit agreement secured by 26 of the Company’s currently owned and mortgaged A319 and A320 aircraft. Borrowings under the agreement were at a variable interest rate based on LIBOR plus a margin. The agreement requires periodic principal and interest payments through its final maturity in June 2019. The Company may not prepay the loan prior to July 2012. This agreement did not change the number of the Company’s unencumbered aircraft as the Company used available equity in these previously owned and mortgaged aircraft as collateral for this financing.
          United also entered into an $84 million loan agreement secured by three aircraft, including two Airbus A320 and one Boeing B777. Borrowings under the agreement were at a variable interest rate based on LIBOR plus a margin. The loan requires principal and interest payments every three months and has a final maturity in June 2015.
          The Company issued 11.2 million shares of UAL common stock as part of a $200 million equity offering during 2008. As of December 31, 2008, the Company had generated net proceeds of $107 million.
          As of December 31, 2008, 62 aircraft with a net book value of approximately $570 million were unencumbered. The unencumbered aircraft at December 31, 2008 exclude nine aircraft which became encumbered with the December 2008 signing of a binding sale-leaseback agreement that closed in January 2009. As of December 31, 2007, the Company had 113 unencumbered aircraft with a net book


          59

          value of $2.0 billion. See Note 12, “Debt Obligations and Card Processing Agreements,” inCombined Notes to Consolidated Financial Statementsfor additional information on assets provided as collateral by the Company.
          See theCash Flows from Investing Activitiessection,above, for a discussion of the Company’s 2008 sale-leaseback transactions.
          2007 Activity
          In 2007, the Company made a $1.0 billion prepayment on its Amended Credit Facility and made $1.1 billion of additional debt payments, which included $590 million related to the early retirement of debt. The Company prepaid an additional $500 million of the Amended Credit Facility in December 2007. In addition, the Company completed a $694 million debt issuance, which effectively refinanced the aforementioned early debt retirement and refinanced three aircraft that had been previously financed through operating lease agreements.
          In 2007, the Company completed financing transactions totaling approximately $964 million which included the $694 million EETC secured financing and the $270 million Denver Airport financing. A portion of the proceeds of the $694 million EETC transaction was used to payoffrepay $590 million of debt obligations that were secured by ten previously mortgaged, owned aircraft and to finance three previously unencumbered owned aircraft. The proceeds of the Denver Airport bonds were used to refinance the former $261 million of Denver Series 1992A bonds.

                  In both February and December 2007, United amended certain terms of its credit facility. The February 2007 amendment resulted in a reduction in the amount of the Amended Credit Facility from $3.0 billion to $2.055 billion, consisting of a $1.8 billion term loan commitment and a $255 million revolving commitment. The December 2007 amendment allowed the Company to pay the January 2008 special distribution of $257 million and provides the Company the ability to undertake an additional $243 million in future shareholder initiatives without any additional prepayment. At December 31, 2007, $153 million was available for loans or standby letters of credit under the Amended Credit Facility. See Note 12, "Debt Obligations" inCombined Notes to Consolidated Financial Statements for further information related to the financing transactions discussed above.

          In 2007, cash from aircraft lease deposits increased $80 million primarily due to the use of the deposits to purchase the three previously leased assets described above in "CashCash Flows from Investing Activities."Activities. This was reported as a financing cash inflow as the prepayment of the initial deposits were recorded as a financing cash outflow.

          2006 Activity
          During 2006, we generated proceeds of $3.0 billion from United'sUnited’s new credit facility, but used approximately $2.1 billion of these proceeds to repay the $1.2 billion DIP Financing and make other scheduled and revolving payments under long-term debt and capital lease agreements.

          2006 compared to 2005Other 2008 and 2009 Financing Matters

                  Cash generated through financing activities was $782 million in 2006 compared to cash used of $110 million in 2005.

          In 2006,January 2009, the Company made principal payments under long-term debt and capital lease obligations totaling $2.1 billion, which included $1.2 billionentered into a sale-leaseback agreement of nine aircraft for the repayment of the DIP Financing.

                  In 2006, the Company obtained access to up to $3.0 billion in secured exit financing which consisted of a $2.45 billion term loan, a $350 million delayed draw term loan and a $200 million revolving credit line. On the Effective Date, $2.45 billion of the $2.8 billion term loan and the entire revolving credit line was drawn and used to repay the DIP Financing and to make other payments required upon exit from bankruptcy, as well as to provide ongoing liquidity to conduct



          post-reorganization operations. Subsequently, the Company repaid borrowings under the revolving credit line and accessed the remaining $350 million on the delayed draw term loan. At December 31, 2006, the Company had a total of $2.8 billion of debt and $63 million in letters of credit outstanding under this credit facility.

                  During 2006, the Company secured control of 14 aircraft that were included in the 1997-1 EETC transaction by remitting $281 million to the 1997-1 EETC trustee on behalf of the holders of the Tranche A certificates. The Company subsequently refinanced the 14 aircraft on March 28, 2006 with the $350 million delayed draw term loan provided under the credit facility. The 14 aircraft are comprised of four B737 aircraft, two B747 aircraft, four B777 aircraft and four A320 aircraft.

                  Significant 2006 non-cash financing and investment activities included the conversion of six B757 aircraft and one B747 aircraft from leased to owned status resulting in additional aircraft assets and debt obligations of $242approximately $95 million. In addition, in January 2009, the Company generated net proceeds of $62 million from the issuance of 4.0 million shares and settlement of unsettled trades at December 31, 2008 under its $200 million common stock distribution agreement. After issuance of these shares, the Company had issued shares for gross proceeds of $172 million of the $200 million available under this stock offering, leaving $28 million available for future issuance under this program.

          In January 2009, the Company entered into an amendment to its O’Hare cargo building site lease with the City of Chicago. The Company agreed to vacate its current cargo facility at O’Hare to allow the land to be used for the development of a future runway. In January 2009, the Company received $160 million from O’Hare in accordance with the lease amendment. In addition, the lease amendment requires that the City of Chicago provide the Company with another site at O’Hare upon which a replacement cargo facility could be constructed.
          Future Financing.  Subject to the restrictions of its Amended Credit Facility, the Company could raise additional capital by issuing unsecured debt, equity or equity-like securities, monetizing or borrowing against certain assets or refinancing existing obligations to generate net cash proceeds. However, the availability and capacity of these funding sources cannot be assured or predicted. General economic conditions, poor credit market conditions and any adverse changes in the Company’s credit ratings could adversely impact the Company’s ability to raise capital, if needed, and could increase the Company’s cost of capital.


          60

          Credit Ratings.  In 2008, both Standard & Poor’s and Moody’s Investors Services lowered the Company’s credit ratings. Standard & Poor’s lowered its ratings from a corporate credit rating of B (outlook stable) to B- (outlook negative) reflecting expected losses and reduced operating cash flow due to volatile fuel prices. Meanwhile, Moody’s Investor Services lowered UAL’s corporate family from “B2” to “Caa1” with a negative outlook and its secured bank rating from “B1” to “B3,” citing record-high fuel prices and the weak U.S. economy. These credit ratings are below investment grade levels. Downgrades from these rating levels, among other things, could restrict the availabilityand/or increase the cost of future financing for the Company.
          Amended Credit Facility Covenants.  The Company’s Amended Credit Facility requires compliance with certain covenants. The Company was in compliance with all of its Amended Credit Facility covenants as of December 31, 2008 and 2007. In May 2008, the Company amended the terms of certain financial covenants of the Amended Credit Facility. A summary of financial covenants, after the May amendment, is included below.
          Beginning with the second quarter of 2009, the Company must maintain a specified minimum ratio of EBITDAR to the sum of the following fixed charges for all applicable periods: (a) cash interest expense and (b) cash aircraft operating rental expense. EBITDAR represents earnings before interest expense net of interest income, income taxes, depreciation, amortization, aircraft rent and certain other cash and non-cash credits and charges as further defined by the Amended Credit Facility. The other adjustments to EBITDAR include items such as foreign currency transaction gains or losses, increases or decreases in our deferred revenue obligation, share-based compensation expense, non-recurring or unusual losses, any non-cash non-recurring charge or non-cash restructuring charge, a limited amount of cash restructuring charges, certain cash transaction costs incurred with financing activities and the cumulative effect of a change in accounting principle.
          The Amended Credit Facility also requires compliance with the following financial covenants: (i) a minimum unrestricted cash balance of $1.0 billion, and (ii) a minimum ratio of market value of collateral to the sum of (a) the aggregate outstanding amount of the loans plus (b) the undrawn amount of outstanding letters of credit, plus (c) the unreimbursed amount of drawings under such letters of credit and (d) the termination value of certain interest rate protection and hedging agreements with the Amended Credit Facility lenders and their affiliates, of 150% at any time, or 200% at any time following the release of Primary Routes having an appraised value in excess of $1 billion (unless the Primary Routes are the only collateral then pledged).
          The requirement to meet a fixed charge coverage ratio was suspended for the four quarters beginning with the second quarter of 2008 and ending with the first quarter of 20062009 and thereafter is determined as set forth below:
          Number of
          		Required
          Preceding Months Covered
          		Period EndingCoverage Ratio
          ThreeJune 30, 20091.0 to 1.0
          SixSeptember 30, 20091.1 to 1.0
          NineDecember 31, 20091.2 to 1.0
          TwelveMarch 31, 20101.3 to 1.0
          TwelveJune 30, 20101.4 to 1.0
          TwelveSeptember 30, 2010 and each quarter ending thereafter1.5 to 1.0
          The Amended Credit Facility contains a cross default provision with respect to other credit arrangements that exceed $50 million. Although the Successor Company completedwas in compliance with all required financial covenants as of December 31, 2008, and the Company is not required to comply with a transactionfixed charge coverage ratio until the three month period ending June 30, 2009, continued compliance depends on many factors, some of which are beyond the Company’s control, including the overall industry revenue environment and the level of fuel costs. There are no assurances that convertedthe Company will continue to comply with its debt covenants. Failure to comply with applicable covenants in any reporting period would result in a default under the Amended Credit Facility, which could have a material adverse impact


          61

          on the Company depending on the Company’s ability to obtain a waiver of, or otherwise mitigate, the impact of the default.
          Credit Card Processing Agreements.  The Company has agreements with financial institutions that process customer credit card transactions for the sale of air travel and other services. Under certain mortgagedof the Company’s card processing agreements, the financial institutions either require, or have the right to require, that United maintain a reserve equal to a portion of advance ticket sales that have been processed by that financial institution, but for which the Company has not yet provided the air transportation (referred to as “relevant advance ticket sales”). As of December 31, 2008, the Company had advance ticket sales of approximately $1.5 billion of which approximately $1.3 billion relates to credit card sales.
          In November 2008, United entered into an amendment for its card processing agreement with Paymentech and JPMorgan Chase Bank (the “Amendment”) that suspends until January 20, 2010 the requirement for United to maintain additional cash reserves with this processor of bank cards (above the current cash reserve of $25 million at December 31, 2008) if United’s month-end balance of unrestricted cash, cash equivalents and short-term investments falls below $2.5 billion. In exchange for this benefit, United has granted the processor a security interest in certain of United’s owned aircraft with a current appraised value of at least $800 million. United also has agreed that such security interest collateralizes not only United’s obligations under the processing agreement, but also United’s obligations under United’s Amended and Restated Co-Branded Card Marketing Services Agreement. United has an option to capital leases for $155 million. See Note 17, "Statement of Consolidated Cash Flows—Supplemental Disclosures,"terminate the Amendment prior to January 20, 2010, in which event the parties’ prior credit card processing reserve arrangements under the processing agreement will go back into effect.
          After January 20, 2010, or in theCombined Notes event United terminates the Amendment, and in addition to Consolidated Financial Statements.certain other risk protections provided to the processor, the amount of any such reserve will be determined based on the amount of unrestricted cash held by the Company as defined under the Amended Credit Facility. If the Company’s unrestricted cash balance is more than $2.5 billion as of any calendar month-end measurement date, its required reserve will remain at $25 million. However, if the Company’s unrestricted cash is less than $2.5 billion, its required reserve will increase to a percentage of relevant advance ticket sales as summarized in the following table:
          Required % of
          Total Unrestricted Cash Balance(a)
          		Relevant Advance Ticket Sales
          Less than $2.5 billion15%
          Less than $2.0 billion25%
          Less than $1.0 billion50%
          (a)Includes unrestricted cash, cash equivalents and short-term investments at month-end, including certain cash amounts already held in reserve, as defined by the agreement.
          If the November 2008 Amendment had not been in effect as of December 31, 2008, the Company would have been required to post an additional $132 million of reserves based on an actual unrestricted cash, cash equivalents and short-term investments balance of between $2.0 billion and $2.5 billion at December 31, 2008.
          United’s card processing agreement with American Express expired on February 28, 2009 and was replaced by a new agreement on March 1, 2009 which has an initial five year term. As of December 31, 2008, there were no required reserves under this card agreement, and no reserves were required up through the date of expiration.
          Under the new agreement, in addition to certain other risk protections provided to American Express, the Company will be required to provide reserves based primarily on its unrestricted cash


          62

          balance and net current exposure as of any calendar month-end measurement date, as summarized in the following table:
          Required % of
          Total Unrestricted Cash Balance(a)
          		Net Current Exposure(b)
          Less than $2.4 billion15%
          Less than $2.0 billion25%
          Less than $1.35 billion50%
          Less than $1.2 billion100%
          (a)Includes unrestricted cash, cash equivalents and short-term investments at month-end, including certain cash amounts already held in reserve, as defined by the agreement.
          (b)Net current exposure equals relevant advance ticket sales less certain exclusions, and as adjusted for specified amounts payable between United and the processor, as further defined by the agreement.
          The new agreement permits the Company to provide certain replacement collateral in lieu of cash collateral, as long as the Company’s unrestricted cash is above $1.35 billion. Such replacement collateral may be pledged for any amount of the required reserve up to the full amount thereof, with the stated value of such collateral determined according to the agreement. Replacement collateral may be comprised of aircraft, slots and routes, real estate or other collateral as agreed between the parties.
          In the near term, the Company will not be required to post reserves under the new American Express agreement as long as unrestricted cash as measured at each month-end, and as defined in the agreement, is equal to or above $2.0 billion.
          If the terms of the new agreement had been in place at December 31, 2008, and ignoring the near term protection in the preceding sentence, the Company would have been required to provide collateral of approximately $40 million.
          An increase in the future reserve requirements as provided by the terms of either or both the Company’s material card processing agreements could materially reduce the Company’s liquidity.
          Capital Commitments and Off-Balance Sheet Arrangements.  The Company'sCompany’s business is very capital intensive, requiring significant amounts of capital to fund the acquisition of assets, particularly aircraft. In the past, the Company has funded the acquisition of aircraft through outright purchase, by issuing debt, by entering into capital or operating leases, or through vendor financings. The Company also often enters into long-term lease commitments with airports to ensure access to terminal, cargo, maintenance and other required facilities.

          The table below provides a summary of the Company'sUAL’s material contractual obligations as of December 31, 2007. Amounts presented are for both UAL and United, except as noted below.

          (In millions)
          		 One year
          or less
          		 Years
          2 and 3
          		 Years
          4 and 5
          		 After
          5 years
          		 Total
          UAL long-term debt, including current portion(a) $678 $1,655 $1,209 $3,802 $7,344
          Interest payments(b)  456  778  561  1,421  3,216
          Capital lease obligations               
           Mainline(c)  328  629  278  587  1,822
           United Express(c)  13  16  9  5  43
          UAL aircraft operating lease obligations               
           Mainline(a)  346  630  604  936  2,516
           United Express(d)  410  868  789  1,380  3,447
          Other operating lease obligations  558  1,051  883  3,284  5,776
          Postretirement obligations(e)  159  315  307  726  1,507
          Capital spending commitments(f)  433  251  700  1,550  2,934
          FIN 48 liability(g)  —  —  —  10  10
            
          		 
          		 
          		 
          		 
           UAL Total $3,381 $6,193 $5,340 $13,701 $28,615
            
          		 
          		 
          		 
          		 
           United Total(a) $3,381 $6,194 $5,343 $13,701 $28,619
            
          		 
          		 
          		 
          		 
          (a)
          United's debt obligations are approximately $3 million lower than UAL 's due to $3 million of debt obligations of a direct subsidiary of UAL. Long-term debt includes $127 million of non-cash obligations as these debt payments are made directly to the creditor by a third party lessee of the aircraft and the creditor's only recourse to United is repossession of the aircraft. United's aircraft lease payments are $7 million higher than UAL's because United leases one aircraft from a direct subsidiary of UAL.

          (b)
          Future interest payments on variable rate debt are estimated using estimated future variable rates based on a yield curve.
          2008.


          63

          (c)
          Mainline includes non-aircraft capital lease payments of $5 million in each of the years 2008 through 2011. United Express payments are all for aircraft. United has lease deposits of $516 million in separate accounts to meet certain of its future capital lease obligations.

          (d)
          Amounts represent lease payments that are made by United under capacity agreements with the regional carriers who operate these aircraft on United's behalf.

          (e)
          Amounts represent postretirement benefit payments, net of subsidy receipts, through 2017. Benefit payments approximate plan contributions as plans are substantially unfunded. Not included in the table above are contributions related to the Company's foreign pension plans. The Company does not have any significant contributions required by government regulations. The Company's expected pension plan contributions for 2008 are $29 million.

          (f)
          Amounts are principally for aircraft and exclude advance payments. The Company has the right to cancel its commitments for the purchase of 42 A319 and A320 aircraft; however, such action could cause the forfeiture of $91 million of advance payments.

          (g)
          Represents estimated uncertain income tax position liabilities in accordance with FIN 48. The settlement period is undeterminable.

                               
            One year
          		  Years
          		  Years
          		  After
          		    
          (In millions)
          		 or less  2 and 3  4 and 5  5 years  Total 
          Long-term debt, including current portion(a) $782  $1,821  $682  $3,743  $7,028 
          Interest payments(b)  336   511   368   1,228   2,443 
          Capital lease obligations                    
          Mainline(c)  231   789   280   520   1,820 
          United Express(c)  6   10   10   —   26 
          Aircraft operating lease obligations                    
          Mainline  351   646   603   655   2,255 
          United Express(d)  441   869   750   1,090   3,150 
          Other operating lease obligations  553   975   801   2,798   5,127 
          Postretirement obligations(e)  146   295   281   701   1,423 
          Legally binding capital purchase commitments(f)  229   332   28   —   589 
                               
          Total $3,075  $6,248  $3,803  $10,735  $23,861 
                               
          (a)Long-term debt includes $113 million of non-cash obligations as these debt payments are made directly to the creditor by a company that leases three aircraft from United. The creditor’s only recourse to United is repossession of the aircraft.
          (b)Future interest payments on variable rate debt are estimated using estimated future variable rates based on a yield curve.
          (c)Mainline includes non-aircraft capital lease payments of approximately $6 million in each of the years 2009 through 2011. United Express payments are all for aircraft. United has lease deposits of $326 million in separate accounts to meet certain of its future lease obligations.
          (d)Amounts represent lease payments that are made by United under capacity agreements with the regional carriers who operate these aircraft on United’s behalf.
          (e)Amounts represent postretirement benefit payments, net of subsidy receipts, through 2018. Benefit payments approximate plan contributions as plans are substantially unfunded. Not included in the table above are contributions related to the Company’s foreign pension plans. The Company does not have any significant contributions required by government regulations. The Company’s expected pension plan contributions for 2009 are $10 million.
          (f)Amounts exclude nonbinding aircraft orders of $2.4 billion. Amounts are excluded because, as discussed further inOverviewabove, these orders are not legally binding purchase orders. The Company may cancel its orders, which would result in forfeiture of its deposits. Amounts include commitments to upgrade international aircraft with our premium travel experience product. These aircraft commitments were not significantly impacted by the Company’s recently announced capacity reductions as the international aircraft are only a small portion of the fleet reductions.
          See Note 2(j)1(i), "Summary“Summary of Significant Accounting Policies—United Express,"” Note 9, "Retirement“Retirement and Postretirement Plans,"” Note 12, "Debt“Debt Obligations" and Card Processing Agreements,” and Note 16, "Lease15, “Lease Obligations,"” in theCombined Notes to Consolidated Financial Statementsfor additional discussion of these items.

          Off-Balance Sheet Arrangements.  An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the company, or that engages in leasing, hedging or research and development arrangements with the company. The Company'sCompany’s off-balance sheet arrangements include operating leases, which are summarized in the contractual obligations table, above, and certain municipal bond obligations, as discussed below, and letters of credit, of which $102$281 million waswere outstanding at December 31, 2007.

          2008.

          Certain municipalities have issued municipal bonds on behalf of United to finance the construction of improvements at airport-related facilities. The Company also leases facilities at airports where municipal bonds funded at least some of the construction of airport-related projects. At December 31, 2007,2008, the Company guaranteed interest and principal payments on $270 million in principal of such bonds that were originally issued in 1992, subsequently refinanced in 2007, and are due in 2032 unless

          64

          the Company elects not to extend its lease in which case the bonds are due in 2023. The outstanding bonds and related guarantee are not recorded in the Company'sCompany’sStatements of Consolidated Financial Positionin accordance with GAAP. The related lease agreement is accounted for as an operating lease andwith the relatedassociated rent expense is recorded on a straight-line basis. The annual lease payments through 2023 and the final payment for the principal amount of the bonds are included in the operating lease payments in the contractual obligations table above. For further details, see Note 15, "Commitments,14, “Commitments, Contingent Liabilities and Uncertainties—Guarantees and Off-Balance Sheet Financing,"” in theCombined Notes to Consolidated Financial Statements.

          Fuel Consortia.  The Company participates in numerous fuel consortia with other carriers at major airports to reduce the costs of fuel distribution and storage. Interline agreements govern the rights and responsibilities of the consortia members and provide for the allocation of the overall costs to operate the consortia based on usage. The consortia (and in limited cases, the participating carriers) have entered into long-term agreements to lease certain airport fuel storage and distribution facilities that are typically financed through tax-exempt bonds (either special facilities lease revenue bonds or general airport revenue bonds), issued by various local municipalities. In general, each consortium lease



          agreement requires the consortium to make lease payments in amounts sufficient to pay the maturing principal and interest payments on the bonds. As of December 31, 2007,2008, approximately $890 million$1.2 billion principal amount of such bonds were secured by significant fuel facility leases in which United participates, as to which United and each of the signatory airlines have provided indirect guarantees of the debt. United'sUnited’s exposure is approximately $195$226 million principal amount of such bonds based on its recent consortia participation. The Company'sCompany’s exposure could increase if the participation of other carriers decreases. The guarantees will expire when the tax-exempt bonds are paid in full, which ranges from 2010 to 2028. The Company did not record a liability at the time these indirect guarantees were made.

                  Debt Covenants.    The Company was in compliance with the Amended Credit Facility covenants as of December 31, 2007. As part of the amendment to the credit facility completed in February 2007, several covenants were amended to provide the Company more flexibility. The Amended Credit Facility contains covenants that may limit the ability of United and the Guarantors to, among other things, incur or guarantee additional indebtedness, create liens, pay dividends on or repurchase stock, make certain types of investments, pay dividends or other payments from United's direct or indirect subsidiaries, enter into transactions with affiliates, sell assets or merge with other companies, modify corporate documents or change lines of business. The Amended Credit Facility also requires compliance with certain financial covenants. Failure to comply with the covenants could result in a default under the Amended Credit Facility unless the Company were to obtain a waiver of, or otherwise mitigate or cure, any such default. Additionally, the Amended Credit Facility contains a cross-default provision with respect to other credit arrangements that exceed $50 million. A payment default could result in a termination of the Amended Credit Facility and a requirement to accelerate repayment of all outstanding facility borrowings. For further details about the Amended Credit Facility and the associated covenants, see Note 12, "Debt Obligations," in the Combined Notes to Consolidated Financial Statements.

                  Future Financing.    Subject to the restrictions of its Amended Credit Facility, the Company could raise additional capital by issuing unsecured debt, equity or equity-like securities, monetizing or borrowing against certain assets or refinancing existing obligations to generate net cash proceeds. However, the availability and capacity of these funding sources cannot be assured or predicted. General economic conditions, poor credit market conditions and any adverse changes in the Company's credit ratings could adversely impact the Company's ability to raise capital, if needed, and could increase the Company's cost of capital.

                  Credit Ratings.    As of December 31, 2007, the Company had a corporate credit rating of B (outlook stable) from Standard & Poor's and a corporate family rating of B2 (outlook stable) from Moody's Investors Services. These ratings are unchanged from the ratings received upon the Company's exit from bankruptcy. These credit ratings are below investment grade levels. Downgrades from these rating levels could restrict the availability and/or increase the cost of future financing for the Company.

          Other Information

          Foreign Operations.  The Company'sCompany’sStatements of Consolidated Financial Positionreflect material amounts of intangible assets related to the Company'sCompany’s Pacific and Latin American route authorities and its operations at London'sLondon’s Heathrow Airport. Because operating authorities in international markets are governed by bilateral aviation agreements between the U.S. and foreign countries, changes in U.S. or foreign government aviation policies can lead to the alteration or termination of existing air service agreements that could adversely impact, and significantly impair, the value of our international route authorities.authorities and other assets. Significant changes in such policies could also have a material impact on the Company'sCompany’s operating revenues and expenses and results of operations. For further information, see Note 8, "Intangibles"3, “Asset Impairments and Intangible Assets” in theCombined Notes to Consolidated Financial Statements,Item 1,Business—International Regulationand Item 7A,Quantitative and Qualitative Disclosures above Market


          Riskfor further information on the Company'sCompany’s foreign currency risks associated with its foreign operations.

          Critical Accounting Policies

          Critical accounting policies are defined as those that are affected by significant judgments and uncertainties which potentially could result in materially different accounting under different assumptions and conditions. The Company has prepared the accompanying financial statements in conformity with GAAP, which requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates under different assumptions or conditions. The Company has identified the following critical accounting policies that impact the preparation of these financial statements.

          Passenger Revenue Recognition.  The value of unused passenger tickets and miscellaneous charge orders ("MCO's"(“MCOs”) is included in current liabilities as advance ticket sales. United records passenger ticket sales and tickets sold by other airlines for use on United as operating revenues when the transportation is provided or when the ticket expires. Tickets sold by other airlines are recorded at the estimated values


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          to be billed to the other airlines. Non-refundable tickets generally expire on the date of the intended flight, unless the date is extended by notification from the customer on or before the intended flight date. Fees charged in association with changes or extensions to non-refundable tickets are recorded as passenger revenue at the time the fee is incurred.collected. Change fees related to non-refundable tickets are considered a separate transaction from the air transportation because they represent a charge for the Company'sCompany’s additional service to modify a previous reservation. Therefore, the pricing of the change fee and the initial customer reservation are separately determined and represent distinct earnings processes. Refundable tickets expire after one year. MCO'sMCOs can be either exchanged for a passenger ticket or refunded after issuance. United records an estimate of tickets that have been used, but not recorded as revenue due to system processing errors, as revenue in the month of sale based on historical results. United also records an estimate of MCO'sMCOs that will not be exchanged or refunded as revenue ratably over the validityredemption period based on historical results. Due to complex industry pricing structures, refund and exchange policies and interline agreements with other airlines, certain amounts are recognized as revenue using estimates both as to the timing of recognition and the amount of revenue to be recognized. These estimates are based on the evaluation of actual historical results.

          Accounting for Frequent Flyer Accounting.Program Miles Sold to Third Parties and the Advanced Purchase of Miles.    In accordance  The Company has an agreement with fresh-start reporting,its co-branded credit card partner that requires our partner to purchase miles in advance of when miles are awarded to the co-branded partner’s cardholders (referred to as “pre-purchased miles”). The pre-purchased miles are deferred when received by United in ourStatements of Consolidated Financial Positionas “Advanced purchase of miles.” The Company revaluedamended its agreement with its co-branded credit card partner in 2008. See Note 17, “Advanced Purchase of Miles,” inCombined Notes to Consolidated Financial Statementsfor a description of this agreement and its 2008 amendment. Subsequently, when our credit card partner awards pre-purchased miles to its cardholders, we transfer the related air transportation element for the awarded miles from “Advanced purchase of miles” to “Mileage Plus deferred revenue” at estimated fair value and record the residual marketing element as “Other operating revenue”. The deferred revenue portion is then subsequently recognized as passenger revenue when transportation is provided in exchange for the miles awarded. Accounting for the Company’s air transportation element and marketing elements are described below:
          Other Frequent Flyer Accounting Policies.
          Air Transportation Element.  The Company defers the portion of the sales proceeds that represents estimated fair value of the air transportation and recognizes that amount as revenue when transportation is provided. The fair value of the air transportation component is determined based upon the equivalent ticket value of similar fares on United and amounts paid to other airlines for miles. The initial revenue deferral is presented as “Mileage Plus deferred revenue” on ourStatements of Consolidated Financial Position.When recognized, the revenue related to the air transportation component is classified as “passenger revenues” in ourStatements of Consolidated Operations.
          Marketing-related element.  The amount of revenue from the marketing-related element is determined by subtracting the fair value of the air transportation from the total sales proceeds. The residual portion of the sales proceeds related to marketing activities is recognized when miles are awarded. This portion is recognized as “Other operating revenues” in ourStatements of Consolidated Operations.
          The Company’s frequent flyer obligation to estimatedwas recorded at fair value at February 1, 2006, the Effective Date, which resulted in a $2.4 billion increase to the frequent flyer obligation. The Successor Company elected to change its accounting policy for its Mileage Plus frequent flyer program to a deferred revenue model. The Company believes that accounting for frequent flyer miles using a deferred revenue model is preferable, as it establishes a consistent valuation methodology for both miles earned by frequent flyers and miles sold to non-airline business partners.

                  Before the Effective Date, the Predecessor Company used the historical industry practice of accounting for frequent flyer miles earned on United flights on an incremental cost basis as an accrued liability and as advertising expense, while miles sold to non-airline business partners were accounted for on a deferred revenue basis. Aseffective date of the Effective Date, the deferred revenue value of all frequent flyer miles are measured using equivalent ticket fair value as described below, and all associated adjustments are made to passenger revenues.

          Company’s emergence from bankruptcy. The deferred revenue measurement method used to record fair value of the frequent flyer obligation on and after the Effective Date wasis to allocate an equivalent weighted-average ticket value to each outstanding mile, based upon projected redemption patterns for available award choices when such miles are consumed. Such value wasis estimated assuming redemptions on both United and other



          participating carriers in the Mileage Plus program and by estimating the relative proportions of awards to be redeemed by class of service within broad geographic regions of the Company'sCompany’s operations, including North America, Atlantic, Pacific and Latin America.


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                  Under the new method of accounting adopted for this program at the Effective Date, the Company reduced operating revenue by approximately $158 million in the eleven months ended December 31, 2006 to account for the effects of the program as compared to the reduction in revenues that would have been recognized using the Predecessor Company's accounting method. The Company's new accounting policy does not continue the use of the former incremental cost method, which impacted revenues and advertising expense under that prior policy. Assuming the use of the Predecessor Company's accounting for this program, for the eleven months ended December 31, 2006, the Company estimates that it would have recorded approximately $27 million of additional advertising expense.

          The estimation of the fair value of each award mile requires the use of several significant assumptions, for which significant management judgment is required. For example, management must estimate how many miles are projected to be redeemed on United, versus on other airline partners. Since the equivalent ticket value of miles redeemed on United and on other carriers can vary greatly, this assumption can materially affect the calculation of the weighted-average ticket value from period to period.

          Management must also estimate the expected redemption patterns of Mileage Plus customers, who have a number of different award choices when redeeming their miles, each of which can have materially different estimated fair values. Such choices include different classes of service (first, business and several coach award levels), as well as different flight itineraries, such as domestic and international routings and different itineraries within domestic and international regions of United'sUnited’s and other participating carriers' flightcarriers’ route networks. Customer redemption patterns may also be influenced by program changes, which occur from time to time and introduce new award choices, or make material changes to the terms of existing award choices. Management must often estimate the probable impact of such program changes on future customer behavior, using limited data, which requires the use of significant judgment. Management uses historical customer redemption patterns as the best single indicator of future redemption behavior in making its estimates, but changes in customer mileage redemption behavior to patterns which are not consistent with historical behavior can result in material changes to deferred revenue balances, and to recognized revenue.

                  Management's

          The Company measures its deferred revenue obligation using all awarded and outstanding miles, regardless of whether or not the customer has accumulated enough miles to redeem an award. Eventually these customers will accumulate enough miles to redeem awards, or their accounts will deactivate after a period of inactivity, in which case the Company will recognize the related revenue through its revenue recognition policy for expired miles.
          The Company recognizes revenue related to expected expired miles over the estimated redemption period. The Company’s estimate of the expected expiration of miles as of the fresh-start date, and for recognition of expiration post-emergence, also requires significant management judgment. For customer accounts which are inactive for a period of 36 consecutive months, it had been United's policy to cancel all miles contained in those accounts at the end of the 36 month period of inactivity. In early 2007, the Company announced that it was reducing the expiration period for inactive accounts from 36 months to 18 months effective December 31, 2007. Under its deferred revenue accounting policy effective in 2006, the Company recognized revenue from expiration of miles by amortizing such estimated expiration over the 36 month expiration period. In 2007, the Company began to amortize revenue from the expiration of miles over an 18 month expiration period. Current and future changes to program rules and program redemption opportunities can significantly alter customer behavior from historical patterns with respect to inactive accounts. The change in the expiration period increased revenues by $246 million in 2007. ChangesCurrent and future changes to expiration assumptions or to the expiration policy, or to program rules and program redemption opportunities, may result in material changes to the deferred revenue balance, as well as recognized revenues from the program. A hypothetical 1%In 2008, the Company updated certain of its assumptions related to the recognition of revenue for expiration of miles. Based on additional analysis of mileage redemption and expiration patterns, the Company revised the estimated number of miles that are expected to expire from 15% to 24% of earned miles, including miles that will expire or go unredeemed for reasons other than account deactivation. In 2008, the Company also extended the total time period over which revenue from its expiration of miles is recognized based upon the estimated period of miles redemption. This change did not materially impact the Company’s Mileage Plus revenue recognition in the Company's estimated expiration rate as2008.
          As of December 31, 2008 and 2007, would have approximately a $21 million effect on the liability.

                  At December 31, 2007 and 2006, the Company'sCompany’s outstanding number of miles was approximately 488.4478.2 billion and 508.8488.4 billion, respectively. The Company estimates that approximately 416.6362.0 billion of



          the outstanding miles at December 31, 20072008 will ultimately be redeemed based on assumptions as of December 31, 2007 and, accordingly, has recorded deferred revenue of $3.8 billion.2008. At December 31, 2007,2008, a hypothetical 1% change in the Company'sCompany’s outstanding number of miles or the weighted-average ticket value has approximately a $43$50 million effect on the liability.

          Impairment Testing.  In accordance with SFAS 142 and SFAS 144 as of May 31, 2008, the Company performed an interim impairment test of its goodwill, all intangible assets and certain of its long-lived assets (principally aircraft and related spare engines and spare parts) due to events and changes in circumstances that indicated an impairment might have occurred. The Company also performed annual impairment testing of indefinite-lived intangible assets as of October 1, 2008 and further tested the potential impairment of certain tangible assets as of December 31, 2008.


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          Factors deemed by management to have collectively constituted a potential impairment triggering event as of May 31, 2008 included record high fuel prices, significant losses in the first and second quarters of 2008, a softening U.S. economy, analyst downgrade of UAUA common stock, rating agency changes in outlook for the Company’s debt instruments from stable to negative, the announcement of the planned removal from UAL’s fleet of 100 aircraft in 2008 and 2009 and a significant decrease in the fair value of the Company’s outstanding equity and debt securities during the first five months of 2008, including a decline in UAL’s market capitalization to significantly below book value. The Company’s consolidated fuel expense increased by more than 50% during this period.
          As a result of the interim impairment testing performed as of May 31, 2008 and December 31, 2008, the Company recorded impairment charges during the year as presented in the table below. All of these impairment charges are within the mainline segment. All of the impairments other than the goodwill impairment, which is separately identified, are classified as “Other impairments and special items” in the Company’sStatements of Consolidated Operations.
               
            Year Ended
          		 
            December 31,
          		 
          (In millions)
          		 2008 
          Goodwill impairment $2,277 
          Indefinite-lived intangible assets:    
          Codeshare agreements  44 
          Tradenames  20 
               
          Intangible asset impairments  64 
          Tangible assets:    
          Pre-delivery advance deposits including related capitalized interest  105 
          B737 aircraft, B737 spare parts and other  145 
               
          Aircraft and related deposit impairments  250 
               
          Total impairments $2,591 
               
          Discussed below is the methodology used for each type of asset impairment shown in the table above.
          Accounting for Long-Lived Assets.    UAL's and United's  The net book value of operating property and equipment for UAL was $11.4 billion and $11.3 billion, respectively, at December 31, 2007 and $11.5$10.3 billion and $11.4 billion respectively, at December 31, 2006.2008 and 2007, respectively. In addition to the original cost of these assets, as adjusted by fresh-start reporting atas of February 1, 2006, their recorded value is impacted by a number of accounting policy elections, including the estimation of useful lives and residual values and, when necessary, the recognition of asset impairment charges.
          For purposes of testing impairment of long-lived assets at May 31, 2008, the Company determined whether the carrying amount of its long-lived assets was recoverable by comparing the carrying amount to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. If the carrying value of the assets exceeded the expected cash flows, the Company estimated the fair value of these assets to determine whether an impairment existed. The Company grouped its aircraft by fleet type to perform this evaluation and used data and assumptions through May 31, 2008. The estimated undiscounted cash flows were dependent on a number of critical management assumptions including estimates of future capacity, passenger yield, traffic, operating costs (including fuel prices) and other relevant assumptions. If estimates of fair value were required, fair value was estimated using the market approach. Asset appraisals, published aircraft pricing guides and recent transactions for similar aircraft were considered by the Company in its market value determination. As of May 31, 2008, based on the results of these tests, the Company determined that an impairment of $36 million existed which was attributable to the Company’s fleet of owned B737 aircraft and related spare parts. As described inOverviewabove, the Company is retiring its entire B737 fleet earlier than originally planned. The Company recorded an additional $2 million of impairment for other assets in the second quarter of 2008. Subsequently in the fourth quarter of 2008, the Company determined it was necessary to perform an impairment test of certain of its operating fleet due to changes in market conditions for aircraft which


          68

          indicated a potential impairment of value. This impairment analysis resulted in an additional fourth quarter impairment charge of $107 million related to the Company’s B737 fleet. This additional impairment charge was due to changes in market conditions and other conditions, including but not limited to the cancellation of multiple letters of intent that the Company had to sell B737 aircraft, that occurred since the impairment testing performed in the second quarter of 2008.
          Due to the unfavorable economic and industry factors described above, the Company also determined in the second quarter of 2008 that it was required to test its $91 million of pre-delivery aircraft deposits for impairment. The Company determined that these aircraft deposits were completely impaired and recorded an impairment charge to write-off their full carrying value and $14 million of related capitalized interest. The Company believes that it is highly unlikely that it will take these future aircraft deliveries and will therefore be required to forfeit the $91 million of deposits, which are not transferable.
          As a result of the impairment testing described above, the Company’s goodwill and certain of its indefinite-lived intangible assets and tangible assets were recorded at fair value. In accordance with FASB Staff PositionNo. 157-2, Effective Date of FASB Statement No. 157, the Company has not applied Statement of Financial Accounting Standards No. 157,Fair Value Measurements(“SFAS 157”) to the determination of the fair value of these assets. However, the provisions of SFAS 157 were applied to the determination of the fair value of financial assets and financial liabilities that were part of the SFAS 142 Step Two goodwill fair value determination.
          Due to extreme fuel price volatility, tight credit markets, uncertain economic environment, as well as other factors and uncertainties, the Company can provide no assurance that a material impairment charge of aircraft or indefinite-lived intangible assets will not occur in a future period. The value of our aircraft could be impacted in future periods by changes in the market for these aircraft. Such changes could result in a greater supply and lower demand for certain aircraft types as other carriers announce plans to retire similar aircraft. The Company will continue to monitor circumstances and events in future periods to determine whether additional interim asset impairment testing is warranted.
          Except for the adoption of fresh-start reporting at February 1, 2006, whereby the Company remeasured long-lived assets at fair value, it is the Company'sCompany’s policy to record assets acquired, including aircraft, at acquisition cost. Depreciable life is determined through economic analysis, such as reviewing existing fleet plans, obtaining appraisals and comparing estimated lives to other airlines that operate similar fleets. Older generation aircraft are assigned lives that are generally consistent with the experience of United and the practice of other airlines. As aircraft technology has improved, useful life has increased and the Company has generally estimated the lives of those aircraft to be 30 years. Residual values are estimated based on historical experience with regard to the sale of both aircraft and spare parts and are established in conjunction with the estimated useful lives of the related fleets. Residual values are based on current dollars when the aircraft are acquired and typically reflect asset values that have not reached the end of their physical life. Both depreciable lives and residual values are revised periodically to recognize changes in the Company'sCompany’s fleet plan and other relevant information. A one year increase in the average depreciable life of our flight equipment would reduce annual depreciation expense on flight equipment by approximately $20$18 million.

                  In accordance with Statement of Financial Accounting Standards No. 144,

          Accounting for the Impairment or Disposal of Long-Lived Assets, the Company evaluates the carrying value of long-lived assets whenever events or changes in circumstances indicate that an impairment may exist. The Company's policy is to recognize an impairment charge when an asset's carrying value exceeds its net undiscounted future cash flows and its fair market value. The amount of the charge is the difference between the asset's book value and fair market value. The Company estimates the undiscounted future cash flows for its various aircraft with output from financial models used by the Company to make fleet and scheduling decisions. These models utilize projections on passenger yield, fuel costs, labor costs and other relevant factors, many of which require the exercise of significant judgment on the part of management. Changes in these projections may expose the Company to future impairment charges by raising the threshold which future cash flows need to meet. If a triggering event requiring impairment testing occurs, the Company also evaluates the remaining useful lives of these assets to determine whether the lives are still appropriate. Typically, the Company utilizes knowledge from personnel in its fleet planning and maintenance departments, along with other external factors, to determine whether the remaining useful lives are appropriate. See Note 2(g), "Summary of Significant Accounting Policies—Operating Property and Equipment," in theCombined Notes to Consolidated Financial Statements for additional information regarding the Company's policies on accounting for long-lived assets.

          Goodwill and Intangible Assets.    In accordance with Statement of Financial Accounting Standards No. 142,Goodwill and Other Intangible Assets ("SFAS 142"), the Company applies a fair value-based impairment test to the book value of goodwill and indefinite-lived intangible assets on an annual basis and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. An impairment charge could have a material adverse effect on the Company's financial position and results of operations in the period of recognition. The Company performed its annual



          impairment test for its goodwill and other indefinite-lived intangible assets as of October 1, 2007 and 2006. These tests did not indicate any material impairment of these assets.

            Upon the implementation of fresh-start reporting (see Note 1, "Voluntary4, “Voluntary Reorganization Under Chapter 11—Fresh-Start Reporting,"” in theCombined Notes to Consolidated Financial Statements) the Company'sCompany’s assets, liabilities and equity were generally valued at their respective fair values. The excess of reorganization value over the fair value of net tangible and identifiable intangible assets and liabilities was recorded as goodwill in the accompanyingStatements of Consolidated Financial Positionon the Effective Date. As discussed in Note 10, "Segment Information," in theCombined Notes to Consolidated Financial Statements, theThe entire goodwill amount of $2.3 billion and $2.7 billion at December 31, 2007 and 2006, respectively, has beenwas allocated to the mainline reporting segment. In addition, the adoption offresh-start reporting resulted in the recognition of $2.2 billion of indefinite-lived intangible assets.

          In accordance with SFAS 142, requires thatthe Company applies a two-stepfair value-based impairment test beto the book value of goodwill and indefinite-lived intangible assets on an annual basis and, if certain events or


          69

          circumstances indicate that an impairment loss may have been incurred, on an interim basis. An impairment charge could have a material adverse effect on the Company’s financial position and results of operations in the period of recognition. The Company tested its goodwill and other indefinite-lived intangible assets for impairment during its annual impairment test as of October 1, 2007 and as part of its interim test as of May 31, 2008. The interim testing resulted in the total impairment of the Company’s goodwill and partial impairment of other indefinite-lived intangible assets. The Company also performed on goodwill. In the first step,its annual interim test of indefinite-lived intangible assets as of October 1, 2008.
          Goodwill—2008 Interim Impairment Test
          For purposes of testing goodwill, the Company comparesperformed Step One of the SFAS 142 test by estimating the fair value of the mainline reporting unit (to which all goodwill is allocated) utilizing several fair value measurement techniques, including two market estimates and one income estimate, and using relevant data available through and as of May 31, 2008. The market approach is a valuation technique in which fair value is estimated based on observed prices in actual transactions and on asking prices for similar assets. The valuation process is essentially that of comparison and correlation between the subject asset and other similar assets. The income approach is a technique in which fair value is estimated based on the cash flows that an asset could be expected to generate over its carrying value. Ifuseful life, including residual value cash flows. These cash flows are discounted to their present value equivalents using a rate of return that accounts for the relative risk of not realizing the estimated annual cash flows and for the time value of money. Certain variations of the income approach were used to determine certain of the intangible asset fair values.
          Under the market approaches, the fair value of the mainline reporting unit exceeds the carrying value of the net assets of the reporting unit, goodwill is not impaired and the Company is not required to perform further testing. If the carrying value of the net assets of the reporting unit exceedswas estimated based upon the fair value of invested capital for UAL, as well as a separate comparison to revenue and EBITDAR multiples for similar publicly traded companies in the reporting unit, then the Company must perform the second step to determine the impliedairline industry. The fair value of the goodwill and compare it to the carrying value of the goodwill. If the carrying value of goodwill exceeds its implied fair value, then the Company must record an impairment charge equal to such difference.

                  The Company assessed the fair value of its reporting units consideringestimates using both the market and income approaches. Fair value is estimated under each approach andapproaches included a weighted-average fair value is determined by applying an equal weighting to both approaches. The market approach utilizes quoted market prices, adjusted for control premium similar to those observed for historical airline and other factors, and recent transaction values of peer companies to estimate fair value. transportation company market transactions.

          Under the income approach, the fair value of the mainline reporting unit iswas estimated based onupon the present value of estimated future cash flows.flows for UAL. The income approach is dependent on a number of factorscritical management assumptions including estimates of future capacity, passenger yield, traffic, operating costs (including fuel prices), appropriate discount rates and other relevant factors. Toassumptions. The Company estimated its future fuel-related cash flows for the income approach based on thefive-year forward curve for crude oil as of May 31, 2008. The impacts of the Company’s aircraft and other tangible and intangible asset impairments, discussed below, were considered in the fair value estimation of the mainline reporting unit.
          Taking into consideration an equal weighting of the two market estimates and the income estimate, which has been the Company’s practice when performing annual goodwill impairment tests, the indicated fair value of the mainline reporting unit was less than its carrying value, and therefore, the Company was required to perform Step Two of the SFAS 142 goodwill impairment test.
          In Step Two of the impairment test, the Company determined the implied fair value of goodwill of the mainline reporting unit by allocating the fair value of indefinite-livedthe reporting unit determined in Step One to all the assets and liabilities of the mainline reporting unit, including any recognized and unrecognized intangible assets, as if the Company used the marketmainline reporting unit had been acquired in a business combination and income approaches, discussed above, and the cost method, which uses the concept of replacement cost as an indicator of fair value.

                  At December 31, 2007 and 2006, United recorded an indefinite-lived intangible asset of $255 million for its London Heathrow slots, based upon its estimation of the fair value for those slots as of the adoption of fresh-start reporting on February 1, 2006. United, however, determined at fresh-start that its rights relating to its actual route authorities to Heathrow had a fair value of zero. The EU/U.S. open skies agreement is expected to directly impact the future value and expected lives of route authorities to Heathrow; however, there is no direct impact from the open skies agreement on airport slot rights, including those at Heathrow. The open skies agreement is also expected to provide United an opportunity to secure antitrust immunity for certain of its Star Alliance carrier relationships, and to provide United and other carriers with access to new markets in EU countries. In September 2007, the DOT granted United and bmi antitrust immunity. The immunity goes into effect at the same time as the open skies agreement between the U.S. and the EU in March of 2008. Because of the diverse nature of these potential impacts on United's business, the overall future impact of the EU agreement on United's business in the EU region cannot be predicted with certainty. United has concluded that, in certain circumstances, the open skies agreement could indirectly and adversely affect the fair value of its slot rights at Heathrow,the mainline reporting unit was the acquisition price. As a result of the Step Two testing, the Company determined that goodwill was completely impaired and therefore has further concluded thatrecorded an impairment charge to write-off the signingfull value of goodwill.

          Indefinite-lived Intangible Assets
          The Company utilized appropriate valuation techniques to separately estimate the open skies agreementfair values of all of its indefinite-lived intangible assets as of May 31, 2008 and compared those estimates to related carrying values. Tested assets included tradenames, international route authorities, London Heathrow


          70

          slots and codesharing agreements. The Company used a market or income valuation approach, as described above, to estimate fair values. Based on April 30, 2007 constituted an indicatorthe preliminary results of this testing, the Company recorded $80 million of impairment with respect to United's Heathrow slots intangible asset.


                  In addition to the impairment tests discussed above,charges during the second quarter of 2007 United performed an2008 and in the third quarter of 2008 reduced the impairment reviewcharge by $16 million as a result of the Heathrow slots intangible asset and concluded that no impairment was indicated. Furthermore, no change was determined to be required to the fresh-start assignment of an indefinite life to this intangible asset. This interim test was performed due to a potential impairment indicator, as discussed above.

                  The implementationfinalization of the EU/U.S. open skies agreement, however, may result in a future determination that the Heathrow slots are impaired in whole or in part, or in a future determination that they should be reclassified as definite-livedimpairment testing. No impairments of indefinite-lived intangible assets with amortization expense recognized thereon. Such future determination could result in material charges to earnings in those future periods.

          resulted from the Company’s annual impairment test performed as of October 1, 2008.

          Other Postretirement Benefit Accounting.  The Company accounts for other postretirement benefits using Statement of Financial Accounting Standards No. 106,Employers'Employers’ Accounting for Postretirement Benefits Other than Pensions ("(“SFAS 106"106”) and Statement of Financial Accounting Standards No. 158,Employers'Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R) ("(“SFAS 158"158”). For the year ended December 31, 2006, the Company adopted SFAS 158, which requires the Company to recognize the difference between plan assets and obligations, or the plan'splan’s funded status, in itsStatements of Consolidated Financial Position. Under these accounting standards, other postretirement benefit expense is recognized on an accrual basis over employees'employees’ approximate service periods and is generally calculated independently of funding decisions or requirements. The Company has not been required to pre-fund its current and future plan obligations, which hadhas resulted in a significant net obligation, as discussed below.

          The fair value of plan assets at December 31, 2008 and 2007 and 2006 was $56$57 million and $54$56 million, respectively, for the other postretirement benefit plans. The benefit obligation was $2.0 billion and $2.1 billion for the other postretirement benefit plans at both December 31, 20072008 and 2006, respectively.2007. The difference between the plan assets and obligations has been recorded in theStatements of Consolidated Financial Position. Detailed information regarding the Company'sCompany’s other postretirement plans, including key assumptions, is included in Note 9, "Retirement“Retirement and Postretirement Plans,"” in theCombined Notes to Consolidated Financial Statements.

          The following provides a summary of the methodology used to determine the assumptions disclosed in Note 9, "Retirement“Retirement and Postretirement Plans,"” in theCombined Notes to Consolidated Financial Statements. The calculation of other postretirement benefit expense and obligations requires the use of a number of assumptions, including the assumed discount rate for measuring future payment obligations and the expected return on plan assets. The discount rates were based on the construction of theoretical corporate bond portfolios, adjusted according to the timing of expected cash flows for the Company'spayment of the Company’s future postretirement obligations. A yield curve was developed based on a subset of these bonds (those with yields between the 40th10th and 90th percentiles). The projected cash flows were matched to this yield curve and a present value developed, which was then calibrated to develop a single equivalent risk-adjusted discount rate.

          Actuarial gains or losses are triggered by changes in assumptions or experience that differ from the original assumptions. Under the applicable accounting standards, those gains and losses are not required to be recognized currently as other postretirement expense, but instead may be deferred as part of accumulated other comprehensive income and amortized into expense over the average remaining service life of the covered active employees. The Company'sCompany’s accounting policy is to not apply the corridor approach available under SFAS 106 with respect to amortization of amounts included in accumulated other comprehensive income. Under the corridor approach, amortization of any gain or loss in accumulated other comprehensive income is only required if, at the beginning of the year, the accumulated gain or loss exceeds 10% of the greater of the benefit obligation or the fair value of assets. If amortization is required, the minimum amount outside the corridor divided by the average remaining service period of active employees is recognized as expense. The corridor approach is



          intended to reduce volatility of amounts recorded in pension expense each year. Since the Company has elected not to apply the corridor approach, all gains and losses in accumulated other comprehensive income are amortized and included in pension expense each year. At December 31, 20072008 and 2006,2007, the Company had unrecognized actuarial gains of $254$286 million and $120$254 million, respectively, recorded in accumulated other comprehensive income for its other postretirement benefit plans.


          71

          Valuation Allowance for Deferred Tax Assets.  At December 31, 2007, United and UAL each2008, the Company had valuation allowances against theirits deferred tax assets of approximately $1.8$2.9 billion. In accordance with Statement of Financial Accounting Standards No. 109,Accounting for Income Taxes, a valuation allowance is required to be recorded when it is more likely than not that deferred tax assets will not be realized. Future realization depends on the existence of sufficient taxable income within the carry forward period available under the tax law. Sources of future taxable income include future reversals of taxable temporary differences, future taxable income exclusive of reversing taxable differences, taxable income in carry back years and tax planning strategies. These sources of positive evidence of realizability must be weighed against negative evidence, such as cumulative losses in recent years. A recent history of losses would make difficult a determination that a valuation allowance is not needed.

          In forming a judgment about the future realization of our deferred tax assets, management considered both the positive and negative evidence of realizability and gave significant weight to the negative evidence from our cumulative losses for recent years. Management will continue to assess this situation and make appropriate adjustments to the valuation allowance based on its evaluation of the positive and negative evidence existing at that time. We are currently unable to forecast when there will be sufficient positive evidence for us to reverse the remainder of the valuation allowances that we have recorded. Currently,Through December 31, 2008, any reversals of valuation allowance would first reducehave reduced goodwill, andif any, then reduce intangible assets. See Note 2(p)1(p), "Summary“Summary of Significant Accounting Policies—New Accounting Pronouncements,"” for information regarding the effect of changes to this method of accounting for valuation allowance reversals, if any, on the Company'sCompany’s results of operations and financial condition after it is required to adopt SFAS 141R adopts Statement of Financial Accounting Standards No. 141 (revised 2007),Business Combinations,on January 1, 2009. See Note 6, "Income8, “Income Taxes,"” in theCombined Notes to Consolidated Financial Statementsfor additional information.

          New Accounting Pronouncements.  For detailed information, see Note 2(p)1(p), "Summary“Summary of Significant Accounting Policies—New Accounting Pronouncements,"” in theCombined Notes to Consolidated Financial Statements.

          Forward-Looking Information

          Certain statements throughout Item 7,Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operationsand elsewhere in this report are forward-looking and thus reflect the Company'sCompany’s current expectations and beliefs with respect to certain current and future events and financial performance. Such forward-looking statements are and will be subject to many risks and uncertainties relating to United'sUnited’s operations and business environment that may cause actual results to differ materially from any future results expressed or implied in such forward-looking statements. Words such as "expects," "will," "plans," "anticipates," "indicates," "believes," "forecast," "guidance," "outlook"“expects,” “will,” “plans,” “anticipates,” “indicates,” “believes,” “forecast,” “guidance,” “outlook” and similar expressions are intended to identify forward-looking statements.

          Additionally, forward-looking statements include statements which do not relate solely to historical facts, such as statements which identify uncertainties or trends, discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward-looking statements in this report are based upon information available to the Company on the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise.


          The Company'sCompany’s actual results could differ materially from these forward-looking statements due to numerous factors including, without limitation, the following: its ability to comply with the terms of financing arrangements; the costs and availability of financing; its ability to execute its business plan; its ability to realize benefits from its resource optimization efforts and cost reduction initiatives; its ability to utilize its net operating losses; its ability to attract, motivateand/or retain key employees; its ability to attract and retain customers; demand for transportation in the markets in which it operates; general economic conditions (including interest rates, foreign currency exchange rates, crude oil prices, costs of


          72

          aviation fuel and energy refining capacity in relevant markets); its ability to cost-effectively hedge against increases in the price of aviation fuel;fuel, including its ability to meet the liquidity requirements of cash deposits which may be required from time to time under hedge agreements; the effects of any hostilities, act of war or terrorist attack; the ability of other air carriers with whom the Company has alliances or partnerships to provide the services contemplated by the respective arrangements with such carriers; the costs and availability of aircraft insurance; the costs associated with security measures and practices; labor costs; industry consolidation; competitive pressures on pricing and on demand; capacity decisions of Unitedand/or its competitors; U.S. or foreign governmental legislation, regulation and other actions, including open skies agreements; its ability to maintain satisfactory labor relations; any disruptions to operations due to any potential actions by its labor groups; weather conditions; and other risks and uncertainties set forth under Item 1A,Risk Factorsof thisForm 10-K, as well as other risks and uncertainties set forth from time to time in the reports the Company files with the SEC. Consequently, the forward-looking statements should not be regarded as representations or warranties by the Company that such matters will be realized.



          73

          ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
          Interest Rate and Foreign Currency Exchange Rate Risks.    United's  United’s exposure to market risk associated with changes in interest rates relates primarily to its debt obligations and short-term investments. The Company does not use derivative financial instruments in its investment portfolio. United'sUnited’s policy is to manage interest rate risk through a combination of fixed and variable rate debt and by entering into swap agreements, depending upon market conditions. A portion of United'sUnited’s aircraft lease obligations and related accrued interest ($497306 million in equivalent U.S. dollars at December 31, 2007)2008) is denominated in foreign currencies that expose the Company to risks associated with changes in foreign exchange rates. To hedge against some of this risk, United has placed foreign currency deposits (primarily($306 million in equivalent U.S. dollars at December 31, 2008), primarily for euros)euros, to meet foreign currency lease obligations denominated in thosethat respective currencies.currency. Since unrealizedmark-to-market gains or losses on the foreign currency deposits are offset by the losses or gains on the foreign currency obligations, United has hedged its overall exposure to foreign currency exchange rate volatility with respect to its foreign lease deposits and obligations. The fair value of these deposits is determined based on the present value of future cash flows using an appropriate swap rate. The fair value of long-term debt is predominantly based on the present value of future cash flows using a U.S. Treasury rate that matches the remaining life of the instrument, adjusted by a credit spread and, to a lesser extent, on the quoted market prices for the same or similar issues.instruments. The table below presents information as of December 31, 20072008 about certain of the Company'sCompany’s financial instruments that are sensitive to changes in interest and exchange rates. Amounts shown below are the same for both UAL and United, except as noted.

           
          		  
          		  
          		  
          		  
          		  
          		  
          		 2007
           
          		 Expected Maturity Dates
          (In millions)
          		  
          		 Fair
          Value
           2008
          		 2009
          		 2010
          		 2011
          		 2012
          		 Thereafter
          		 Total
          UAL ASSETS(a)                        
          Cash equivalents                        
           Fixed rate $1,259 $— $— $— $— $— $1,259 $1,259
            Avg. interest rate  5.12% —  —  —  —  —  5.12%  
          Short term investments                        
           Fixed rate $2,295 $— $— $— $— $— $2,295 $2,295
            Avg. interest rate  5.04% —  —  —  —  —  5.04%  

          Lease deposits
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           Fixed rate—EUR deposits $147 $24 $241 $16 $— $— $428 $511
            Accrued interest  23  10  29  7  —  —  69   
            Avg. interest rate  4.93% 4.34% 6.66% 4.41% —  —  6.54%  
           Fixed rate—USD deposits $— $— $11 $— $— $— $11 $20
            Accrued interest  —  —  8  —  —  —  8   
            Avg. interest rate  —  —  6.49% —  —  —  6.49%  

          UAL LONG-TERM
              DEBT(a)
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
          U. S. Dollar denominated                        
           Variable rate debt $189 $162 $229 $152 $156 $1,622 $2,510 $2,405
            Avg. interest rate  6.09% 6.12% 6.15% 6.22% 6.26% 6.31% 6.18%  
           Fixed rate debt(a) $489 $576 $689 $672 $228 $2,180 $4,834 $4,391
            Avg. interest rate  6.54% 6.56% 6.44% 6.34% 6.17% 6.07% 6.40%  
          (a)
          Amounts also represent United except that United's carrying value and fair value of variable rate debt is approximately $3 million lower than the reported UAL amounts and United's cash equivalents and short-term investments are approximately $56 million lower than the reported UAL amounts.

                                                   
                              2008  2007 
            Expected Maturity Date     Fair
          		     Fair
          		 
          (Dollars in millions)
          		 2009  2010  2011  2012  2013  Thereafter  Total  Value  Total  Value 
          UAL ASSETS
          		                                        
          Cash equivalents                                        
          Fixed rate(a) $2,039  $—  $—  $—  $—  $—  $2,039  $2,039  $3,554  $3,554 
          Avg. interest rate  1.02%  —   —   —   —   —   1.02%      5.08%    
          Lease deposits                                        
          Fixed rate—EUR deposits $21  $228  $15  $—  $—  $—  $264  $330  $428  $511 
          Accrued interest  7   28   7   —   —   —   42       69     
          Avg. interest rate  3.95%  6.86%  4.41%  —   —   —   6.45%      6.54%    
          Fixed rate—USD deposits $—  $11  $—  $—  $—  $—  $11  $21  $11  $20 
          Accrued interest  —   9   —   —   —   —   9       8     
          Avg. interest rate  —   6.49%  —   —   —   —   6.49%      6.49%    
                                                   
          UAL LONG-TERM DEBT(a)
          		                                        
          U. S. Dollar denominated                                        
          Variable rate debt $205  $262  $186  $186  $207  $1,594  $2,640  $1,524  $2,510  $2,405 
          Avg. interest rate  3.40%  3.34%  3.26%  3.19%  3.11%  3.02%  3.24%      6.18%    
          Fixed rate debt $577  $690  $683  $228  $61  $2,149  $4,388  $2,668  $4,834  $4,391 
          Avg. interest rate  6.38%  6.24%  6.11%  5.89%  5.78%  5.73%  6.09%      6.40%    

          (a)Amounts also represent United except that in 2008, United’s carrying value and fair value of its cash equivalents and debt obligations are approximately $6 million and $2 million, respectively, lower than the reported UAL amounts. The reported 2007 cash equivalents balance includes cash of $1.3 billion with a weighted average rate of 5.12% and short-term investments of $2.3 billion with a weighted average rate of 5.04%. United’s 2007 cash equivalents and debt obligations were approximately $56 million and $3 million, respectively, lower than the amounts reported for UAL.
          In addition to the cash equivalents and short-term investments included in the table above, UAL and United have $325$54 million and $291$50 million of short-term restricted cash, respectively, and each has $431$218 million and $217 million, respectively, of long-term restricted cash. As discussed in Note 2(e)1(d), "Summary“Summary of Significant Accounting Policies—Cash and Cash Equivalents, Short-Term Investments and Restricted Cash"Cash” in theCombined Notes to Consolidated Financial Statements, this cash is being held in restricted accounts primarily for workers'workers’ compensation obligations, security deposits for airport leases and reserves with institutions that process United'sUnited’s credit card ticket sales. Due to the short term nature of these cash balances, thetheir carrying values approximate thetheir fair values. The Company'sCompany’s interest income is exposed to changes in interest rates on these cash balances. During 2007, the Company also repurchased certain of its own debt instruments, which remain outstanding at December 31, 2007, withand have a fair value and carrying value of $91 million.$46 million at


          74

          December 31, 2008. The Company recognizes changes in fair value of these securities through other comprehensive income; however, on a net basis, the Company is not exposed to market risk due to the existence of offsetting changes in the fair value of the Company'sCompany’s related debt obligations.

          The material changes in the amounts reported in the table above for 2008 as compared to 2007 include the following: (1) cash and short-term investments decreased by approximately $1.5 billion primarily due to cash used for operating activities as discussed inLiquidityabove; (2) lease deposits decreased by $190 million due to scheduled payments and aircraft acquisitions under lease agreement terms; and (3) debt obligations decreased by $316 million primarily due to scheduled debt repayments in 2008, which were partially offset by new debt issuances in 2008. The interest rate on the Company’s cash and variable rate debt decreased in 2008, as compared to 2007, primarily due to a decrease in market interest rates.
          Commodity Price Risk (Aircraft(Jet Fuel).  Our results of operations and liquidity have been, and may continue to be, materially impacted by changes in the price of aircraft fuel and other oil-related commodities and related derivative instruments. When market conditions indicate risk reduction is achievable, United enters into fuelmay use commodity option contracts and futures contractsor other derivative instruments to reduce its price risk exposure to jet fuel. These contractsThe Company’s derivative positions are typically comprised of crude oil, heating oil and jet fuel derivatives. The derivative instruments are designed to provide protection against sharp increases in the price of aircraft fuel. TheSome derivative instruments may result in hedging losses if the underlying commodity prices drop below specified floors; however, the negative impact of these losses may be offset by the benefit of lower jet fuel acquisition cost since the Company typically does not hedge all of its fuel consumption. United may updateadjust its hedging strategy in response toprogram based on changes in market conditions. TheAt December 31, 2008, the fair value of the Company's fuel relatedUnited’s fuel-related derivatives was a payable of $867 million, as compared to a receivable of $20 million at December 31, 2007. These instrumentsThe primary reason for this change was due to the dramatic spike in fuel prices through July 2008 and the subsequent fuel price decreases in the latter part of 2008. At December 31, 2008, the fuel derivative payables includes $140 million related to pending settlements for purchased options and expired contracts.
          As of December 31, 2008, the Company had hedged its forecasted consolidated fuel consumption as shown in the table below.
                                               
            Percentage of
          		                         
            Projected
          		  Barrels hedged (in 000s)  Weighted-average price per barrel 
            Fuel
          		              Payment
          		  Payment
          		  Hedge
          		  Hedge
          		 
            Requirements
          		  Purchased
          		  Sold
          		  Purchased
          		  Sold
          		  Obligations
          		  Obligations
          		  Protection
          		  Protection
          		 
            Hedged(a)  Puts  Puts(a)  Calls  Calls  Stop  Begin  Begins  Ends 
           
          First Quarter 2009:   %                  $    $    $    $  
          Calls  14   —   —   1,975   —   NA   NA   83(b)  NA 
          Collars  9 (10)  —   1,425   1,275   —   NA   109   118   NA 
          3-way collars  25 (29)  —   4,125   3,525   3,525   NA   104   118   143 
          4-way collars  2   225   225   225   225   63   78   95   135 
                                               
          Total  50   225   5,775   7,000   3,750                 
                                               
          Purchased puts  35   4,925   —   —   —   57   NA   NA   NA 
          Full Year 2009:                                    
          Calls  9   —   —   5,350   —   NA   NA   81(c)  NA 
          Collars  5  (6)  —   3,450   2,775   —   NA   111   123   NA 
          3-way collars  18 (22)  —   12,525   10,350   10,350   NA   102   118   147 
          4-way collars  2   900   900   900   900   63   78   95   135 
                                               
          Total  34   900   16,875   19,375   11,250                 
                                               
          Purchased puts  17   9,500   —   —   —   54   NA   NA   NA 
          Calls purchased from January 1, 2009 to January 16, 2009:                                    
          First Quarter 2009  4   —   —   525   —   NA   NA   54   NA 
          Full Year 2009  2   —   —   1,350   —   NA   NA   59   NA 


          75

          (a)Percent of expected consumption represents the notional amount of the purchased calls in the hedge structures. Certain3-way collars and collars included in the table above have sold puts with twice the notional amount of the purchased calls. The percentages in parentheses represent the notional amount of sold puts in these hedge structures.
          (b)Call position average includes the following two groupings of positions: 6% of consumption with protection beginning at $47 per barrel and 8% of consumption beginning at $106 per barrel.
          (c)Call position average includes the following two groupings of positions: 4% of consumption with protection beginning at $50 per barrel and 5% of consumption beginning at $106 per barrel.
          As presented in the table above, in 2008 the Company began modifying its fuel hedge portfolio by purchasing put options contracts to effectively cap losses on its short put option positions from further oil price decreases. The Company may take additional actions to reduce potential losses and collateral requirements that could arise from its short put option positions. Certain 3-way collars and collars included in the table above have a maturitysold puts with twice the notional amount of the purchased calls. The Company’s exposure to losses, should the positions settle below the put exercise price, exceeds its potential benefit from price increases above the purchased call exercise price. The Company classifies gains (losses) resulting from these collar structures as nonoperating income (expense). As of December 31, 2008, the Company had hedged less than one year.1% of its 2010 forecasted fuel consumption.
          The above derivative positions are subject to potential counterparty cash collateral requirements in some circumstances. The Company provided counterparties with cash collateral of $965 million as of December 31, 2008. This collateral decreased to $780 million as of January 19, 2009 primarily due to the settlement of the December 2008 contracts. Our counterparties may require greater amounts of collateral when the price of the underlying commodity decreases and lesser amounts when the price of the underlying commodity increases. However, the Company has mitigated some of its exposure to larger collateral requirements by purchasing puts to cover its short put positions as presented in the table above. The following table presents the Company’s actual collateral position as of January 19, 2009 and estimated fuel collateral position at the end of each quarter in 2009 based on the Company’s January 16, 2009 hedge positions and closing forward curve fuel prices:
                               
            Actual
          		  Projected 
            January 19,
          		  March 31,
          		  June 30,
          		  September 30,
          		  December 31,
          		 
          (In millions)
          		 2009  2009  2009  2009  2009 
           
            $780  $615  $315  $110  $25 
          Because United had already posted significant amounts of collateral during 2008, the 2009 net cash impacts of the hedge settlements are not expected to be material based on January 16, 2009 forward curve prices and the Company’s January 16, 2009 hedge position. As hedges settle, this collateral will be returned to cover cash settled losses. The following table presents information regarding estimated fuel purchase cost and estimated cash requirements to meet fuel hedge losses based on the Company’s actual collateral position as of January 19, 2009 using closing forward fuel prices as of January 16, 2009 and other factors.
                               
            2009 
          (Price per gallon)
          		 1st Quarter  2nd Quarter  3rd Quarter  4th Quarter  Full Year 
          Unhedged fuel cost(a) $1.73  $1.79  $1.89  $1.91  $1.83 
          Cash hedge losses(b)  0.49   0.39   0.26   0.09   0.31 
                               
          (In millions)
          		                    
          Cash hedge losses classified in nonoperating expense(c) $81  $111  $53  $52  $297 
          (a)Per gallon amount based on assumed cash requirements for fuel purchases, including related taxes and transportation costs
          (b)Per gallon amount based on assumed cash requirements for settlement of economic hedge contracts that have gains or losses classified within mainline fuel expense.
          (c)Assumed cash requirements for settlement of hedge contracts that are classified in nonoperating expense.


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          Actual collateral requirements, fuel purchase costs and cash requirements for hedge losses will vary depending on changes in forward fuel prices, modifications to the Company’s fuel hedge portfolio and other factors. The table below outlines the Company’s estimated collateral provisions at various crude oil prices, based on the hedge portfolio as of January 16, 2009.
          Approximate Change in Cash Collateral for each
          Price of Crude Oil, in Dollars per Barrel
          		$5 per Barrel Change in the Price of Crude Oil
          Above $105No collateral required
          At or above $85, but below $105$45 million
          At or above $25, but below $85$60 million
          Below $25$40 million
          For example, using the table above, at an illustrative $35 per barrel at January 16, 2009, the Company’s required collateral provision to its derivative counterparties would be approximately $780 million.
          Foreign Currency.  United generates revenues and incurs expenses in numerous foreign currencies. Such expenses include fuel, aircraft leases, commissions, catering, personnel expense, advertising and distribution costs, customer service expenses and aircraft maintenance. Changes in foreign currency exchange rates impact the Company'sCompany’s results of operations through changes in the dollar value of foreign currency-denominated operating revenues and expenses.

          Despite the adverse effects a strengthening foreign currency may have on demand forU.S.-originating traffic, a strengthening of foreign currencies tends to increase reported revenue and operating income because the Company'sCompany’s foreign currency-denominated operating revenue generally exceeds its foreign currency-denominated operating expense for each currency. Likewise, despite the favorable effects a weakening foreign currency may have on demand forU.S.-originating traffic, a weakening of foreign currencies tends to decrease reported revenue and operating income.

          The Company'sCompany’s most significant net foreign currency exposures in 2007,2008, based on exchange rates in effect at December 31, 2007,2008, are presented in the table below:

           
          		 Operating revenue net of operating expense
          (In millions)
          Currency
          		 Foreign
          Currency
          Value
          		 USD Value
          Canadian dollar 323 $324
          Chinese renminbi 2,178  298
          Australian dollar 158  138
          European euro 94  137
          Japanese yen 14,040  126

                  In 2007, the
                   
          (In millions)
          		 Operating revenue net of operating expense 
          Currency
          		 Foreign Currency Value  USD Value 
          Chinese renminbi  2,440  $357 
          Canadian dollar  263   216 
          European euro  71   99 
          Hong Kong dollar  714   92 
          Australian dollar  106   74 

          The Company began usinguses foreign currency forward contracts to hedge a portion of its exposure to changes in foreign currency exchange rates. As of December 31, 2007,2008, the Company hedged a portion of its expected foreign currency cash flows in the Australian dollar, Canadian dollar British pound,and European EuroEuro. As of December 31, 2008, the notional amount of these foreign currencies hedged with the forward contracts in U.S. dollars was approximately $62 million, based on contractual forward rates. These contracts had a fair value of $10 million at December 31, 2008 and Japanese yen.expire at various dates through March 2009. As of December 31, 2007, the notional amount of these foreign currencies hedged with the forward contracts in U.S. dollars terms was approximately $346 million. These contracts hadmillion, with a fair value of $1 million at December 31, 2007 and expire at various dates through December 2008. The Company did not have any outstanding foreign currency derivatives at December 31, 2006.


          million.


          77

          ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
          REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

          To the Board of Directors and Stockholders of
          UAL Corporation
          Chicago, Illinois

          We have audited the accompanying statements of consolidated financial position of UAL Corporation and subsidiaries (the "Company"“Company”) as of December 31, 20072008 and 2006 (Successor Company balance sheets),2007, and the related statements of consolidated operations, consolidated stockholders'stockholders’ equity (deficit), and consolidated cash flows for the yearyears ended December 31, 2008 and 2007 and eleven months ended December 31, 2006 (Successor Company operations) and for the one month ended January 31, 2006 and for the year ended December 31, 2005 (Predecessor Company operations). Our audits also included the financial statement schedule of the Successor Company for the yearyears ended December 31, 2008 and 2007 and eleven months ended December 31, 2006 and the Predecessor Company for the one month ended January 31, 2006 and for the year ended December 31, 2005 as listed in the Index at Item 15. These consolidated financial statements and financial statement schedule are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

          We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

          As discussed in Note 1 to the consolidated financial statements, on January 20, 2006, the Bankruptcy Court entered an order confirming the plan of reorganization which became effective after the close of business on February 1, 2006. Accordingly, the accompanying consolidated financial statements have been prepared in conformity with AICPA Statement of Position90-7, "Financial “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,"” for the Successor Company as a new entity with assets, liabilities and a capital structure having carrying values not comparable with prior periods as described in Note 1.

          In our opinion, the Successor Company consolidated financial statements present fairly, in all material respects, the financial position of UAL Corporation and subsidiaries as of December 31, 20072008 and 2006,2007, and the results of their operations and their cash flows for the yearyears ended December 31, 2008 and 2007 and the eleven month period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the Predecessor Company consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Predecessor Company for the one month ended January 31, 2006, and the year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such Successor Company financial statement schedule and Predecessor Company financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

          As discussed in Note 21 to the consolidated financial statements on January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment"“Share-Based Payment” which changed the method of accounting for share based payments and as discussed in Note 2 to the consolidated financial statements on December 31, 2006, the Company adopted the recognition and related disclosure provisions of Statement of Financial Accounting Standards No. 158, "Employers'payments.


          78



          Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132R," which changed the method of accounting for and the disclosures regarding pension and postretirement benefits.

          We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company'sCompany’s internal control over financial reporting as of December 31, 2007,2008, based on the criteria established in "Internal“Internal Control—Integrated Framework"Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 27, 2008March 2, 2009 expressed an unqualified opinion on the Company'sCompany’s internal control over financial reporting.
          /s/ Deloitte & Touche LLP
          Chicago, Illinois
          March 2, 2009


          79

          /s/ Deloitte & Touche LLP
          Chicago, Illinois
          February 27, 2008


          REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

          To the Board of Directors and Stockholder of
          United Air Lines, Inc.
          Chicago, Illinois

          We have audited the accompanying statements of consolidated financial position of United Air Lines, Inc. and subsidiaries (the "Company"“Company”) as of December 31, 20072008 and 2006 (Successor Company balance sheets),2007, and the related statements of consolidated operations, consolidated stockholder'sstockholder’s equity (deficit), and consolidated cash flows for the yearyears ended December 31, 2008 and 2007 and eleven months ended December 31, 2006 (Successor Company operations) and for the one month ended January 31, 2006 and for the year ended December 31, 2005 (Predecessor Company operations). Our audits also included the financial statement schedule of the Successor Company for the yearyears ended December 31, 2008 and 2007 and eleven months ended December 31, 2006 and the Predecessor Company for the one month ended January 31, 2006 and for the year ended December 31, 2005 as listed in the Index at Item 15. These consolidated financial statements and financial statement schedule are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

          We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company'sCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

          As discussed in Note 1 to the consolidated financial statements, on January 20, 2006, the Bankruptcy Court entered an order confirming the plan of reorganization which became effective after the close of business on February 1, 2006. Accordingly, the accompanying consolidated financial statements have been prepared in conformity with AICPA Statement of Position90-7, "Financial “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,"” for the Successor Company as a new entity with assets, liabilities and a capital structure having carrying values not comparable with prior periods as described in Note 1.

          In our opinion, the Successor Company consolidated financial statements present fairly, in all material respects, the financial position of United Air Lines, Inc. and subsidiaries as of December 31, 20072008 and 2006,2007, and the results of their operations and their cash flows for the yearyears ended December 31, 2008 and 2007 and the eleven month period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the Predecessor Company consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Predecessor Company for the one month ended January 31, 2006, and the year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such Successor Company financial statement schedule and Predecessor Company financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.


          As discussed in Note 21 to the consolidated financial statements on January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment"“Share-Based Payment” which changed the method of accounting for share based payments and as discussed in Notepayments.
          /s/ Deloitte & Touche LLP
          Chicago, Illinois
          March 2, to the consolidated financial statements on December 31, 2006, the Company adopted the recognition and related disclosure provisions of Statement of Financial Accounting Standards No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132R," which changed the method of accounting for and the disclosures regarding pension and postretirement benefits.

          /s/ Deloitte & Touche LLP
          Chicago, Illinois
          February 27, 2008

          2009


          80



          UAL Corporation and Subsidiary Companies

          Statements of Consolidated Operations

          (In millions, except per share amounts)

           
          		  
          		  
          		  
          		  
          		  
          		 
           
          		 Successor
          		  
          		 Predecessor
          		 
           
          		  
          		 Period from
          February 1 to
          December 31,
          2006
          		 
          		 Period from
          January 1 to
          January 31,
          2006
          		  
          		 
           
          		 Year Ended
          December 31,
          2007
          		 




          		 Year Ended
          December 31,
          2005
          		 
          Operating revenues:               
           Passenger—United Airlines $15,254 $13,293   $1,074 $12,914 
           Passenger—Regional Affiliates  3,063  2,697    204  2,429 
           Cargo  770  694    56  729 
           Special operating items (Note 20)  45  —    —  — 
           Other operating revenues  1,011  1,198    124  1,307 
            
          		 
          		   
          		 
          		 
             20,143  17,882    1,458  17,379 
            
          		 
          		   
          		 
          		 
          Operating expenses:               
           Aircraft fuel  5,003  4,462    362  4,032 
           Salaries and related costs  4,261  3,909    358  4,027 
           Regional affiliates  2,941  2,596    228  2,746 
           Purchased services  1,346  1,148    98  1,054 
           Aircraft maintenance materials and
              outside repairs          		  1,166  929    80  881 
           Depreciation and amortization  925  820    68  856 
           Landing fees and other rent  876  801    75  915 
           Distribution expenses (Note 2)  779  738    60  775 
           Aircraft rent  406  385    30  402 
           Cost of third party sales  316  614    65  685 
           Special operating items (Note 20)  (44) (36)   —  18 
           Other operating expenses  1,131  1,017    86  1,207 
            
          		 
          		   
          		 
          		 
             19,106  17,383    1,510  17,598 
            
          		 
          		   
          		 
          		 
          Earnings (loss) from operations  1,037  499    (52) (219)
            
          		 
          		   
          		 
          		 
          Other income (expense):               
           Interest expense  (661) (728)   (42) (482)
           Interest income  257  243    6  38 
           Interest capitalized  19  15    —  (3)
           Gain on sale of investment (Note 7)  41  —    —  — 
           Miscellaneous, net  2  14    —  87 
            
          		 
          		   
          		 
          		 
             (342) (456)   (36) (360)
          Earnings (loss) before reorganization items,
              income taxes and equity in earnings of
              affiliates          		  695  43    (88) (579)
           Reorganization items, net (Note 1)  —  —    22,934  (20,601)
            
          		 
          		   
          		 
          		 
          Earnings (loss) before income taxes and
              equity in earnings of affiliates          		  695  43    22,846  (21,180)
          Income tax expense  297  21    —  — 
            
          		 
          		   
          		 
          		 
          Earnings (loss) before equity in earnings of
              affiliates          		  398  22    22,846  (21,180)
          Equity in earnings of affiliates, net of tax  5  3    5  4 
            
          		 
          		   
          		 
          		 
          Net income (loss) $403 $25   $22,851 $(21,176)
            
          		 
          		   
          		 
          		 
           Earnings (loss) per share, basic $3.34 $0.14   $196.61 $(182.29)
            
          		 
          		   
          		 
          		 
           Earnings (loss) per share, diluted $2.79 $0.14   $196.61 $(182.29)
            
          		 
          		   
          		 
          		 

                            
            Successor   Predecessor 
                  Period from
          		   Period from
          		 
            Year Ended
          		  February 1 to
          		   January 1 to
          		 
            December 31,  December 31,
          		   January 31,
          		 
            2008  2007  2006   2006 
          Operating revenues:                 
          Passenger—United Airlines $15,337  $15,254  $13,293   $1,074 
          Passenger—Regional affiliates  3,098   3,063   2,697    204 
          Cargo  854   770   694    56 
          Special operating items (Note 19)  —   45   —    — 
          Other operating revenues  905   1,011   1,198    124 
                            
             20,194   20,143   17,882    1,458 
                            
          Operating expenses:                 
          Aircraft fuel  7,722   5,003   4,462    362 
          Salaries and related costs  4,311   4,261   3,909    358 
          Regional affiliates  3,248   2,941   2,596    228 
          Purchased services  1,375   1,346   1,148    98 
          Aircraft maintenance materials and outside repairs  1,096   1,166   929    80 
          Depreciation and amortization  932   925   820    68 
          Landing fees and other rent  862   876   801    75 
          Distribution expenses  710   779   738    60 
          Aircraft rent  409   406   385    30 
          Cost of third party sales  272   316   614    65 
          Goodwill impairment (Note 3)  2,277   —   —    — 
          Other impairments and special items (Notes 3 and 19)  339   (44)  (36)   — 
          Other operating expenses  1,079   1,131   1,017    86 
                            
             24,632   19,106   17,383    1,510 
                            
          Earnings (loss) from operations  (4,438)  1,037   499    (52)
                            
          Other income (expense):                 
          Interest expense  (523)  (661)  (728)   (42)
          Interest income  112   257   243    6 
          Interest capitalized  20   19   15    — 
          Gain on sale of investment (Note 20)  —   41   —    — 
          Miscellaneous, net (Note 13)  (550)  2   14    — 
                            
             (941)  (342)  (456)   (36)
          Earnings (loss) before reorganization items, income taxes and equity in earnings of affiliates  (5,379)  695   43    (88)
          Reorganization items, net (Note 4)  —   —   —    22,934 
                            
          Earnings (loss) before income taxes and equity in earnings of affiliates  (5,379)  695   43    22,846 
          Income tax expense (benefit)  (25)  297   21    — 
                            
          Earnings (loss) before equity in earnings of affiliates  (5,354)  398   22    22,846 
          Equity in earnings of affiliates, net of tax  6   5   3    5 
                            
          Net income (loss) $(5,348) $403  $25   $22,851 
                            
          Earnings (loss) per share, basic $(42.21) $3.34  $0.14   $196.61 
                            
          Earnings (loss) per share, diluted $(42.21) $2.79  $0.14   $196.61 
                            
          See accompanyingCombined Notes to Consolidated Financial StatementsStatements..



          81

          UAL Corporation and Subsidiary Companies

          Statements of Consolidated Financial Position

          (In millions, except shares)

           
          		 At December 31,
          		 
           
          		 2007
          		 2006
          		 
          Assets       
          Current assets:       
           Cash and cash equivalents $1,259 $3,832 
           Short-term investments  2,295  312 
           Restricted cash  325  341 
           Receivables, less allowance for doubtful accounts (2007—$27; 2006—$27)  888  820 
           Prepaid fuel  493  283 
           Aircraft fuel, spare parts and supplies, less obsolescence allowance (2007—$25;
              2006—$6)          		  242  218 
           Deferred income taxes  78  122 
           Prepaid expenses and other  515  345 
            
          		 
          		 
             6,095  6,273 
            
          		 
          		 
          Operating property and equipment:       
           Owned—       
            Flight equipment  9,335  8,958 
            Advances on flight equipment  102  103 
            Other property and equipment  1,669  1,441 
            
          		 
          		 
             11,106  10,502 
            Less—Accumulated depreciation and amortization  (1,062) (503)
            
          		 
          		 
             10,044  9,999 
            
          		 
          		 
           Capital leases—       
            Flight equipment  1,449  1,511 
            Other property and equipment  34  34 
            
          		 
          		 
             1,483  1,545 
            Less—Accumulated amortization  (168) (81)
            
          		 
          		 
             1,315  1,464 
            
          		 
          		 
             11,359  11,463 
            
          		 
          		 
          Other assets:       
           Intangibles, less accumulated amortization (Note 8) (2007—$324; 2006—$169)  2,871  3,028 
           Goodwill (Note 8)  2,280  2,703 
           Restricted cash  431  506 
           Aircraft lease deposits  340  539 
           Investments (Note 7)  122  113 
           Other, net  722  744 
            
          		 
          		 
             6,766  7,633 
            
          		 
          		 
            $24,220 $25,369 
            
          		 
          		 

                   
            At December 31, 
            2008  2007 
           
          Assets
          		        
                   
          Current assets:        
          Cash and cash equivalents $2,039  $1,259 
          Short-term investments  —   2,295 
          Restricted cash  54   325 
          Fuel hedge collateral deposits  953   — 
          Receivables, less allowance for doubtful accounts (2008—$24; 2007—$27)  714   888 
          Deferred income taxes  263   78 
          Prepaid fuel  219   493 
          Aircraft fuel, spare parts and supplies, less obsolescence allowance (2008—$48;
          2007—$25)          		  237   242 
          Prepaid expenses and other  382   515 
                   
             4,861   6,095 
                   
          Operating property and equipment:        
          Owned—        
          Flight equipment  8,766   9,335 
          Advances on flight equipment  —   102 
          Other property and equipment  1,751   1,669 
                   
             10,517   11,106 
          Less—Accumulated depreciation and amortization  (1,598)  (1,062)
                   
             8,919   10,044 
                   
          Capital leases—        
          Flight equipment  1,578   1,449 
          Other property and equipment  39   34 
                   
             1,617   1,483 
          Less—Accumulated amortization  (224)  (168)
                   
             1,393   1,315 
                   
             10,312   11,359 
                   
          Other assets:        
          Intangibles, less accumulated amortization (Note 3) (2008—$339; 2007—$324)  2,693   2,871 
          Goodwill (Note 3)  —   2,280 
          Aircraft lease deposits  297   340 
          Restricted cash  218   431 
          Investments (Note 20)  81   122 
          Other, net (Note 3)  999   722 
                   
             4,288   6,766 
                   
            $19,461  $24,220 
                   
          See accompanyingCombined Notes to Consolidated Financial StatementsStatements..


          82


          UAL Corporation and Subsidiary Companies

          Statements of Consolidated Financial Position

          (In millions, except shares)

           
          		 At December 31,
          		 
           
          		 2007
          		 2006
          		 
          Liabilities and Stockholders' Equity       
          Current liabilities:       
           Advance ticket sales $1,918 $1,669 
           Mileage Plus deferred revenue  1,268  1,111 
           Accrued salaries, wages and benefits  896  795 
           Accounts payable  877  667 
           Advanced purchase of miles (Note 18)  694  681 
           Long-term debt maturing within one year (Note 12)  678  1,687 
           Fuel purchase commitments  493  283 
           Distribution payable (Note 22)  257  — 
           Current obligations under capital leases (Note 16)  250  110 
           Accrued interest  141  241 
           Other  507  701 
            
          		 
          		 
             7,979  7,945 
            
          		 
          		 

          Long-term debt (Note 12)
           
           
          6,415
           
           
          7,453
           
          Long-term obligations under capital leases (Note 16)  1,106  1,350 

          Other liabilities and deferred credits:
           
           
           
           
           
           
           
           Mileage Plus deferred revenue  2,569  2,569 
           Postretirement benefit liability (Note 9)  1,829  1,955 
           Deferred income taxes  638  688 
           Other  895  900 
            
          		 
          		 
             5,931  6,112 
            
          		 
          		 

          Commitments and contingent liabilities (Note 15)
           
           
           
           
           
           
           
          Mandatorily convertible preferred securities (Note 13)  371  361 

          Stockholders' equity:
           
           
           
           
           
           
           
           Preferred stock (Note 13)  —  — 
           Common stock at par, $0.01 par value; authorized 1,000,000,000 shares; outstanding
              116,921,049 shares at December 31, 2007 (Note 3)          		  1  1 
           Additional capital invested  2,139  2,053 
           Retained earnings  152  16 
           Stock held in treasury, at cost (Note 3)  (15) (4)
           Accumulated other comprehensive income (Note 11)  141  82 
            
          		 
          		 
             2,418  2,148 
            
          		 
          		 
            $24,220 $25,369 
            
          		 
          		 

                   
            At December 31, 
            2008  2007 
           
          Liabilities and Stockholders’ Equity (Deficit)
          		        
                   
          Current liabilities:        
          Advance ticket sales $1,530  $1,918 
          Mileage Plus deferred revenue  1,414   1,268 
          Accounts payable  829   877 
          Long-term debt maturing within one year (Note 12)  782   678 
          Accrued salaries, wages and benefits  756   896 
          Fuel derivative payable (Note 13)  858   — 
          Fuel purchase commitments  219   493 
          Current obligations under capital leases (Note 15)  168   250 
          Accrued interest  112   141 
          Distribution payable (Note 21)  4   257 
          Advanced purchase of miles (Note 17)  —   694 
          Other  609   507 
                   
             7,281   7,979 
                   
                   
          Long-term debt (Note 12)  6,007   6,415 
          Long-term obligations under capital leases (Note 15)  1,192   1,106 
                   
          Other liabilities and deferred credits:        
          Mileage Plus deferred revenue  2,768   2,569 
          Postretirement benefit liability (Note 9)  1,812   1,829 
          Advanced purchase of miles (Note 17)  1,087   — 
          Deferred income taxes  799   638 
          Other  980   895 
                   
             7,446   5,931 
                   
          Commitments and contingent liabilities (Note 14)        
          Mandatorily convertible preferred securities (Note 5)  —   371 
                   
          Stockholders’ equity (deficit):        
          Preferred stock (Note 5)  —   — 
          Common stock at par, $0.01 par value; authorized 1,000,000,000 shares; outstanding 140,037,928 and 116,921,049 shares at December 31, 2008 and 2007, respectively (Note 5)  1   1 
          Additional capital invested  2,666   2,139 
          Retained earnings (deficit)  (5,199)  152 
          Stock held in treasury, at cost (Note 5)  (26)  (15)
          Accumulated other comprehensive income (Note 11)  93   141 
                   
             (2,465)  2,418 
                   
            $19,461  $24,220 
                   
          See accompanyingCombined Notes to Consolidated Financial StatementsStatements..



          83


          UAL Corporation and Subsidiary Companies

          Statements of Consolidated Cash Flows


          (In millions)

           
          		  
          		  
          		  
          		  
          		  
          		 
           
          		 Successor
          		  
          		 Predecessor
          		 
           
          		  
          		 Period from
          February 1 to
          December 31,
          2006
          		  
          		 Period from
          January 1 to
          January 31,
          2006
          		  
          		 
           
          		 Year Ended
          December 31,
          2007
          		 



          		 Year Ended
          December 31,
          2005
          		 
          Cash flows provided (used) by operating activities:               
           Net income (Successor Company) $403 $25   $— $— 
           Loss before reorganization items (Predecessor Company)  —  —    (83) (575)
           Adjustments to reconcile to net cash provided (used) by operating
              activities—          		               
            Depreciation and amortization  925  820    68  873 
            Deferred income taxes  310  21    —  — 
            Mileage Plus deferred revenue and advanced purchase of miles  170  269    14  329 
            Share-based compensation  49  159    —  — 
            Special items and debt discount amortization  (48) 47    —  18 
            Gain on sale of investments  (41) —    —  (2)
            Postretirement benefit expense, net of contributions  7  76    (9) (41)
            Pension expense (benefit), net of contributions  (5) (4)   8  143 
            Amortization of deferred gains  —  —    (6) (81)
            Other operating activities  54  56    (1) 54 
           Changes in assets and liabilities—               
            Decrease (increase) in other current assets  (269) 14    (24) (75)
            Increase in advance ticket sales  249  4    109  214 
            Increase (decrease) in accounts payable  200  40    19  (40)
            Increase (decrease) in accrued liabilities  189  (257)   154  153 
            Decrease (increase) in receivables  (59) 131    (88) 109 
            
          		 
          		   
          		 
          		 
             2,134  1,401    161  1,079 
            
          		 
          		   
          		 
          		 
          Cash flows provided (used) by reorganization activities:               
           Reorganization items, net  —  —    22,934  (20,601)
           Discharge of claims and liabilities  —  —    (24,628) — 
           Revaluation of Mileage Plus frequent flyer deferred revenue  —  —    2,399  — 
           Revaluation of other assets and liabilities  —  —    (2,106) — 
           Increase in aircraft rejection liability  —  —    —  2,898 
           Impairment on lease certificates  —  —    —  134 
           Increase (decrease) in other liabilities  —  —    37  120 
           Increase in non-aircraft claims accrual  —  —    429  1,220 
           Pension curtailment, settlement and employee claims  —  —    912  16,079 
           Loss on disposition of property  —  —    —  10 
            
          		 
          		   
          		 
          		 
             —  —    (23) (140)
            
          		 
          		   
          		 
          		 
          Cash flows provided (used) by investing activities:               
           Net (purchases) sales of short-term investments  (1,983) (237)   2  1 
           Additions to property and equipment  (658) (332)   (30) (470)
           Proceeds on sale of investments  128  56    —  4 
           Purchases of EETC securities  (96) —    —  — 
           (Increase) decrease in restricted cash  91  313    (203) (80)
           Proceeds on disposition of property and equipment  19  40    (1) 330 
           Decrease in segregated funds  —  200    —  — 
           Other, net  (61) (52)   (6) (76)
            
          		 
          		   
          		 
          		 
             (2,560) (12)   (238) (291)
            
          		 
          		   
          		 
          		 
          Cash flows provided (used) by financing activities:               
           Proceeds from Credit Facility  —  2,961    —  — 
           Repayment of Credit Facility  (1,495) (175)   —  — 
           Proceeds from DIP financing  —  —    —  310 
           Repayment of DIP financing  —  (1,157)   —  (16)
           Repayment of other long-term debt  (1,257) (664)   (24) (285)
           Proceeds from issuance of long-term debt  694  —    —  — 
           Principal payments under capital leases  (177) (99)   (5) (94)
           Decrease in aircraft lease deposits  80  —    —  — 
           Proceeds from exercise of stock options  35  10    —  — 
           Payment of deferred financing costs  (18) (66)   (1) (26)
           Purchases of treasury stock  (11) (4)   —  — 
           Other, net  2  6    —  1 
            
          		 
          		   
          		 
          		 
             (2,147) 812    (30) (110)
            
          		 
          		   
          		 
          		 
          Increase (decrease) in cash and cash equivalents during the period  (2,573) 2,201    (130) 538 
          Cash and cash equivalents at beginning of period  3,832  1,631    1,761  1,223 
            
          		 
          		   
          		 
          		 
          Cash and cash equivalents at end of period $1,259 $3,832   $1,631 $1,761 
            
          		 
          		   
          		 
          		 

                            
            Successor   Predecessor 
                  Period from
          		   Period from
          		 
            Year Ended
          		  February 1 to
          		   January 1 to
          		 
            December 31,  December 31,
          		   January 31,
          		 
            2008  2007  2006   2006 
          Cash flows provided (used) by operating activities:                 
          Net income (loss) before reorganization items $(5,348) $403  $25   $(83)
          Adjustments to reconcile to net cash provided (used) by operating activities—                 
          Goodwill impairment  2,277   —   —    — 
          Other impairments and special items  339   (89)  (36)   — 
          Depreciation and amortization  932   925   820    68 
          Mileage Plus deferred revenue and advanced purchase of miles  738   170   269    14 
          Debt and lease discount amortization  49   41   83    — 
          Share-based compensation  31   49   159    — 
          Deferred income taxes  (26)  310   21    — 
          Pension expense (benefit), net of contributions  (13)  (5)  (4)   8 
          Postretirement benefit expense, net of contributions  1   7   76    (9)
          Gain on sale of investments  —   (41)  —    — 
          Other operating activities  27   54   56    (7)
          Changes in assets and liabilities—                 
          Increase in fuel hedge collateral  (965)  —   —    — 
          Increase in fuel derivative payables  858   —   —    — 
          Increase (decrease) in accrued liabilities  (155)  189   (257)   154 
          Increase (decrease) in advance ticket sales  (388)  249   4    109 
          Decrease (increase) in other current assets  257   (269)  14    (24)
          Decrease (increase) in receivables  195   (59)  131    (88)
          Increase (decrease) in accounts payable  (48)  200   40    19 
                            
             (1,239)  2,134   1,401    161 
                            
          Cash flows provided (used) by reorganization activities:                 
          Reorganization items, net  —   —   —    22,934 
          Discharge of claims and liabilities  —   —   —    (24,628)
          Revaluation of Mileage Plus frequent flyer deferred revenue  —   —   —    2,399 
          Revaluation of other assets and liabilities  —   —   —    (2,106)
          Increase (decrease) in other liabilities  —   —   —    37 
          Increase in non-aircraft claims accrual  —   —   —    429 
          Pension curtailment, settlement and employee claims  —   —   —    912 
                            
             —   —   —    (23)
                            
          Cash flows provided (used) by investing activities:                 
          Net (purchases) sales of short-term investments  2,295   (1,983)  (237)   2 
          (Increase) decrease in restricted cash  484   91   313    (203)
          Additions to property and equipment  (415)  (658)  (332)   (30)
          Additions to deferred software costs  (60)  (65)  (46)   — 
          Proceeds from asset sale-leasebacks  274   —   —    — 
          Proceeds on disposition of property and equipment  94   19   40    (1)
          Proceeds on litigation of advanced deposits  41   —   —    — 
          Proceeds on sale of investments  —   128   56    — 
          Purchases of EETC securities  —   (96)  —    — 
          Decrease in segregated funds  —   —   200    — 
          Other, net  8   4   (6)   (6)
                            
             2,721   (2,560)  (12)   (238)
                            
          Cash flows provided (used) by financing activities:                 
          Proceeds from Credit Facility  —   —   2,961    — 
          Repayment of Credit Facility  (18)  (1,495)  (175)   — 
          Repayment of other long-term debt  (666)  (1,257)  (664)   (24)
          Proceeds from issuance of long-term debt  337   694   —    — 
          Special distribution to common shareholders  (253)  —   —    — 
          Principal payments under capital leases  (235)  (177)  (99)   (5)
          Decrease in aircraft lease deposits  155   80   —    — 
          Payment of deferred financing costs  (120)  (18)  (66)   (1)
          Proceeds from sale of common stock  107   —   —    — 
          Purchases of treasury stock  (11)  (11)  (4)   — 
          Repayment of DIP financing  —   —   (1,157)   — 
          Proceeds from exercise of stock options  —   35   10    — 
          Other, net  2   2   6    — 
                            
             (702)  (2,147)  812    (30)
                            
          Increase (decrease) in cash and cash equivalents during the period  780   (2,573)  2,201    (130)
          Cash and cash equivalents at beginning of period  1,259   3,832   1,631    1,761 
                            
          Cash and cash equivalents at end of period $2,039  $1,259  $3,832   $1,631 
                            
          See accompanyingCombined Notes to Consolidated Financial StatementsStatements..



          84


          UAL Corporation and Subsidiary Companies

          Statements of Consolidated Stockholders'Stockholders’ Equity (Deficit)


          (In millions)

           
          		 Common
          Stock
          		 Additional
          Capital
          Invested
          		 Retained
          Earnings
          (Deficit)
          		 Treasury
          Stock
          		 Accumulated
          Other
          Comprehensive
          Income (Loss)
          		 Total
          		 
          Predecessor Company                   
          Balance at December 31, 2004 $1 $5,064 $(7,946)$(1,467)$(3,332)$(7,680)
            
          		 
          		 
          		 
          		 
          		 
          		 
           Net loss  —  —  (21,176) —  —  (21,176)
           Other comprehensive income (loss), net:                   
            Unrealized losses on derivatives, net  —  —  —  —  (3) (3)
            Minimum pension liability adjustment  —  —  —  —  3,299  3,299 
            
          		 
          		 
          		 
          		 
          		 
          		 
           Total comprehensive income (loss), net  —  —  (21,176) —  3,296  (17,880)
            
          		 
          		 
          		 
          		 
          		 
          		 
          Balance at December 31, 2005  1  5,064  (29,122) (1,467) (36) (25,560)
            
          		 
          		 
          		 
          		 
          		 
          		 
           Net loss before reorganization
              items—January 2006          		  —  —  (83) —  —  (83)
           Reorganization items—January 2006  —  —  (1,401) —  —  (1,401)
            
          		 
          		 
          		 
          		 
          		 
          		 
          Subtotal  1  5,064  (30,606) (1,467) (36) (27,044)
            
          		 
          		 
          		 
          		 
          		 
          		 
          Fresh-start adjustments:                   
           Unsecured claims and debt discharge  —  —  24,628  —  —  24,628 
           Valuation adjustments, net  —  —  (293) —  —  (293)
            
          		 
          		 
          		 
          		 
          		 
          		 
          Balance at January 31, 2006  1  5,064  (6,271) (1,467) (36) (2,709)
            
          		 
          		 
          		 
          		 
          		 
          		 
          Fresh-start adjustments:                   
           Cancellation of preferred and common stock  (1) (5,064) —  1,467  —  (3,598)
           Elimination of accumulated deficit and
              accumulated other comprehensive loss          		  —  —  6,271  —  36  6,307 
           Issuance of new equity interests in connection with
              emergence from Chapter 11          		  1  1,884  —  —  —  1,885 
            
          		 
          		 
          		 
          		 
          		 
          		 
          Successor Company                   
          Balance at February 1, 2006  1  1,884  —  —  —  1,885 
            
          		 
          		 
          		 
          		 
          		 
          		 
           Net income from February 1, 2006 to
              December 31, 2006          		  —  —  25  —  —  25 
           Other comprehensive income (loss), net:                   
            Unrealized loss on derivatives, net  —  —  —  —  (5) (5)
            
          		 
          		 
          		 
          		 
          		 
          		 
           Total comprehensive income, net  —  —  25  —  (5) 20 
            
          		 
          		 
          		 
          		 
          		 
          		 
           Adoption of SFAS 158, net $47 of tax  —  —  —  —  87  87 
           Preferred stock dividends  —  —  (9) —  —  (9)
           Share-based compensation  —  159  —  —  —  159 
           Proceeds from exercise of stock options  —  10  —  —  —  10 
           Treasury stock acquisitions  —  —  —  (4) —  (4)
            
          		 
          		 
          		 
          		 
          		 
          		 
          Balance at December 31, 2006  1  2,053  16  (4) 82  2,148 
            
          		 
          		 
          		 
          		 
          		 
          		 
           Net income  —  —  403  —  —  403 
           Other comprehensive income, net:                   
            Unrealized gains on financial instruments, net  —  —  —  —  5  5 
            Pension and other postretirement plans
              (Note 9)          		                   
             Net gain arising during period, net $63 of
              tax          		  —  —  —  —  102  102 
             Less: amortization of prior period gains, net  —  —  —  —  (8) (8)
            
          		 
          		 
          		 
          		 
          		 
          		 
             Total pension and other postretirement
              plans          		  —  —  —  —  94  94 
            
          		 
          		 
          		 
          		 
          		 
          		 
           Total comprehensive income, net  —  —  403  —  99  502 
            
          		 
          		 
          		 
          		 
          		 
          		 
           Common stock distribution declared  —  —  (257) —  —  (257)
           Preferred stock dividends  —  —  (10) —  —  (10)
           Tax adjustment on SFAS 158 adoption (Note 11)  —  —  —  —  (40) (40)
           Share-based compensation  —  49  —  —  —  49 
           Proceeds from exercise of stock options  —  35  —  —  —  35 
           Adoption of FIN 48  —  2  —  —  —  2 
           Treasury stock acquisitions  —  —  —  (11) —  (11)
            
          		 
          		 
          		 
          		 
          		 
          		 
          Balance at December 31, 2007 $1 $2,139 $152 $(15)$141 $2,418 
            
          		 
          		 
          		 
          		 
          		 
          		 

                                   
                        Accumulated
          		    
                        Other
          		    
               Additional
          		  Retained
          		     Comprehensive
          		    
            Common
          		  Capital
          		  Earnings
          		  Treasury
          		  Income
          		    
            Stock  Invested  (Deficit)  Stock  (Loss)  Total 
           
          Predecessor Company
          		                        
                                   
          Balance at December 31, 2005 $1  $5,064  $(29,122) $(1,467) $(36) $(25,560)
                                   
          Net loss before reorganization items—January 2006  —   —   (83)  —   —   (83)
          Reorganization items—January 2006  —   —   (1,401)  —   —   (1,401)
                                   
          Subtotal  1   5,064   (30,606)  (1,467)  (36)  (27,044)
                                   
          Fresh-start adjustments:                        
          Unsecured claims and debt discharge  —   —   24,628   —   —   24,628 
          Valuation adjustments, net  —   —   (293)  —   —   (293)
                                   
          Balance at January 31, 2006  1   5,064   (6,271)  (1,467)  (36)  (2,709)
                                   
          Fresh-start adjustments:                        
          Cancellation of preferred and common stock  (1)  (5,064)  —   1,467   —   (3,598)
          Elimination of accumulated deficit and accumulated other comprehensive loss  —   —   6,271   —   36   6,307 
          Issuance of new equity interests in connection with emergence from Chapter 11  1   1,884   —   —   —   1,885 
                                   
          Successor Company
          		                        
                                   
          Balance at February 1, 2006  1   1,884   —   —   —   1,885 
                                   
          Net income from February 1, 2006 to December 31, 2006  —   —   25   —   —   25 
          Other comprehensive income (loss), net:                        
          Unrealized loss on derivatives, net  —   —   —   —   (5)  (5)
                                   
          Total comprehensive income, net  —   —   25   —   (5)  20 
                                   
          Adoption of SFAS 158, net $47 of tax  —   —   —   —   87   87 
          Preferred stock dividends  —   —   (9)  —   —   (9)
          Share-based compensation  —   159   —   —   —   159 
          Proceeds from exercise of stock options  —   10   —   —   —   10 
          Treasury stock acquisitions  —   —   —   (4)  —   (4)
                                   
          Balance at December 31, 2006  1   2,053   16   (4)  82   2,148 
                                   
          Net income  —   —   403   —   —   403 
          Other comprehensive income, net:                        
          Unrealized gains on financial instruments, net  —   —   —   —   5   5 
          Pension and other postretirement plans (Note 9)                        
          Net gain arising during period, net $63 of tax  —   —   —   —   102   102 
          Less: amortization of prior period gains, net  —   —   —   —   (8)  (8)
                                   
          Total pension and other postretirement plans  —   —   —   —   94   94 
                                   
          Total comprehensive income, net  —   —   403   —   99   502 
                                   
          Common stock distribution declared  —   —   (257)  —       (257)
          Preferred stock dividends  —   —   (10)  —   —   (10)
          Tax adjustment on SFAS 158 adoption (Note 11)  —   —   —   —   (40)  (40)
          Share-based compensation  —   49   —   —   —   49 
          Proceeds from exercise of stock options  —   35   —   —   —   35 
          Adoption of FIN 48  —   2   —   —   —   2 
          Treasury stock acquisitions  —   —   —   (11)  —   (11)
                                   
          Balance at December 31, 2007  1   2,139   152   (15)  141   2,418 
                                   
          Net loss  —   —   (5,348)  —   —   (5,348)
          Other comprehensive income (loss):                        
          Unrealized losses on financial instruments  —   —   —   —   (37)  (37)
          Pension and other postretirement plans (Note 9)                        
          Net gain arising during period  —   —   —   —   8   8 
          Less: amortization of prior period gains  —   —   —   —   (19)  (19)
                                   
          Total pension and other postretirement plans  —   —   —   —   (11)  (11)
                                   
          Total comprehensive loss, net  —   —   (5,348)  —   (48)  (5,396)
                                   
          Preferred stock dividends  —   —   (3)  —   —   (3)
          Conversion of preferred stock  —   374   —   —   —   374 
          Sale of common stock  —   122   —   —   —   122 
          Share-based compensation  —   31   —   —   —   31 
          Treasury stock acquisitions  —   —   —   (11)  —   (11)
                                   
          Balance at December 31, 2008 $1  $2,666  $(5,199) $(26) $93  $(2,465)
                                   
          See accompanyingCombined Notes to Consolidated Financial StatementsStatements..



          85



          United Air Lines, Inc. and Subsidiary Companies

          Statements of Consolidated Operations

          (In millions)

           
          		  
          		  
          		  
          		  
          		 
           
          		 Successor
          		  
          		 Predecessor
          		 
           
          		  
          		 Period from
          February 1 to
          December 31,
          2006
          		  
          		 Period from
          January 1 to
          January 31,
          2006
          		  
          		 
           
          		 Year Ended
          December 31,
          2007
          		 



          		 Year Ended
          December 31,
          2005
          		 
          Operating revenues:               
           Passenger—United Airlines $15,254 $13,293   $1,074 $12,914 
           Passenger—Regional affiliates  3,063  2,697    204  2,429 
           Cargo  770  694    56  729 
           Special operating items (Note 20)  45  —    —  — 
           Other operating revenues  999  1,196    120  1,232 
            
          		 
          		   
          		 
          		 
             20,131  17,880    1,454  17,304 
            
          		 
          		   
          		 
          		 
          Operating expenses:               
           Aircraft fuel  5,003  4,462    362  4,032 
           Salaries and related costs  4,257  3,907    358  4,014 
           Regional affiliates  2,941  2,596    228  2,746 
           Purchased services  1,346  1,146    97  1,049 
           Aircraft maintenance materials and
              outside repairs          		  1,166  929    80  881 
           Depreciation and amortization  925  820    68  854 
           Landing fees and other rent  876  800    75  915 
           Distribution expenses (Note 2)  779  738    60  775 
           Aircraft rent  409  386    30  404 
           Cost of third party sales  312  604    63  656 
           Special operating items (Note 20)  (44) (36)   —  5 
           Other operating expenses  1,129  1,017    85  1,198 
            
          		 
          		   
          		 
          		 
             19,099  17,369    1,506  17,529 
            
          		 
          		   
          		 
          		 
          Earnings (loss) from operations  1,032  511    (52) (225)
            
          		 
          		   
          		 
          		 

          Other income (expense):
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           Interest expense  (660) (729)   (42) (492)
           Interest income  260  250    6  36 
           Interest capitalized  19  15    —  (3)
           Gain on sale of investment (Note 7)  41  —    —  — 
           Miscellaneous, net  1  11    —  76 
            
          		 
          		   
          		 
          		 
             (339) (453)   (36) (383)

          Earnings (loss) before reorganization items,
              income taxes and equity in earnings of
              affiliates
           
           
          693
           
           
          58
           
           
           
           
          (88
          )
           
          (608
          )
           Reorganization items, net (Note 1)  —  —    22,709  (20,432)
            
          		 
          		   
          		 
          		 
          Earnings (loss) before income taxes and
              equity in earnings of affiliates          		  693  58    22,621  (21,040)
          Income tax expense  296  29    —  — 
            
          		 
          		   
          		 
          		 
          Earnings (loss) before equity in earnings of
              affiliates          		  397  29    22,621  (21,040)
          Equity in earnings of affiliates, net of tax  5  3    5  4 
            
          		 
          		   
          		 
          		 
          Net income (loss) $402 $32   $22,626 $(21,036)
            
          		 
          		   
          		 
          		 

                            
            Successor   Predecessor 
                  Period from
          		   Period from
          		 
            Year Ended
          		  February 1 to
          		   January 1 to
          		 
            December 31,  December 31,
          		   January 31,
          		 
            2008  2007  2006   2006 
          Operating revenues:                 
          Passenger—United Airlines $15,337  $15,254  $13,293   $1,074 
          Passenger—Regional affiliates  3,098   3,063   2,697    204 
          Cargo  854   770   694    56 
          Special operating items (Note 19)  —   45   —    — 
          Other operating revenues  948   999   1,196    120 
                            
             20,237   20,131   17,880    1,454 
                            
          Operating expenses:                 
          Aircraft fuel  7,722   5,003   4,462    362 
          Salaries and related costs  4,312   4,257   3,907    358 
          Regional affiliates  3,248   2,941   2,596    228 
          Purchased services  1,375   1,346   1,146    97 
          Aircraft maintenance materials and outside repairs  1,096   1,166   929    80 
          Depreciation and amortization  932   925   820    68 
          Landing fees and other rent  862   876   800    75 
          Distribution expenses  710   779   738    60 
          Aircraft rent  411   409   386    30 
          Cost of third party sales  269   312   604    63 
          Goodwill impairment (Note 3)  2,277   —   —    — 
          Other impairments and special items (Notes 3 and 19)  339   (44)  (36)   — 
          Other operating expenses  1,077   1,129   1,017    85 
                            
             24,630   19,099   17,369    1,506 
                            
          Earnings (loss) from operations  (4,393)  1,032   511    (52)
                            
          Other income (expense):                 
          Interest expense  (523)  (660)  (729)   (42)
          Interest income  112   260   250    6 
          Interest capitalized  20   19   15    — 
          Gain on sale of investment (Note 20)  —   41   —    — 
          Miscellaneous, net (Note 13)  (550)  1   11    — 
                            
             (941)  (339)  (453)   (36)
          Earnings (loss) before reorganization items, income taxes and equity in earnings of affiliates  (5,334)  693   58    (88)
          Reorganization items, net (Note 4)  —   —   —    22,709 
                            
          Earnings (loss) before income taxes and equity in                 
          earnings of affiliates  (5,334)  693   58    22,621 
          Income tax expense (benefit)  (22)  296   29    — 
                            
          Earnings (loss) before equity in earnings of affiliates  (5,312)  397   29    22,621 
          Equity in earnings of affiliates, net of tax  6   5   3    5 
                            
          Net income (loss) $(5,306) $402  $32   $22,626 
                            
          See accompanyingCombined Notes to Consolidated Financial StatementsStatements..



          86

          United Air Lines, Inc. and Subsidiary Companies

          Statements of Consolidated Financial Position

          (In millions, except shares)

           
          		 December 31,
          		 
           
          		 2007
          		 2006
          		 
          Assets       
          Current assets:       
           Cash and cash equivalents $1,239 $3,779 
           Short-term investments  2,259  308 
           Restricted cash  291  303 
           Receivables, less allowance for doubtful accounts (2007—$27; 2006—$27)  880  814 
           Prepaid fuel  493  283 
           Aircraft fuel, spare parts and supplies, less obsolescence allowance (2007—$25;
              2006—$6)          		  242  218 
           Receivables from related parties  151  154 
           Deferred income taxes  72  114 
           Prepaid expenses and other  513  348 
            
          		 
          		 
             6,140  6,321 
            
          		 
          		 
          Operating property and equipment:       
           Owned—       
            Flight equipment  9,329  8,952 
            Advances on flight equipment  91  91 
            Other property and equipment  1,669  1,441 
            
          		 
          		 
             11,089  10,484 
            Less—accumulated depreciation and amortization  (1,062) (502)
            
          		 
          		 
             10,027  9,982 
            
          		 
          		 
           Capital leases—       
            Flight equipment  1,449  1,511 
            Other property and equipment  34  34 
            
          		 
          		 
             1,483  1,545 
            Less—accumulated amortization  (168) (81)
            
          		 
          		 
             1,315  1,464 
            
          		 
          		 
             11,342  11,446 
            
          		 
          		 
          Other assets:       
           Intangibles, less accumulated amortization (Note 8) (2007—$324; 2006—$169)  2,871  3,028 
           Goodwill (Note 8)  2,280  2,703 
           Restricted cash  431  506 
           Aircraft lease deposits  340  539 
           Investments (Note 7)  122  113 
           Note receivable from affiliates (Note 19)  —  201 
           Other, net  710  724 
            
          		 
          		 
             6,754  7,814 
            
          		 
          		 
            $24,236 $25,581 
            
          		 
          		 

                   
            December 31, 
            2008  2007 
           
          Assets
          		        
                   
          Current assets:        
          Cash and cash equivalents $2,033  $1,239 
          Short-term investments  —   2,259 
          Restricted cash  50   291 
          Fuel hedge collateral deposits  953   — 
          Receivables, less allowance for doubtful accounts (2008—$24; 2007—$27)  704   880 
          Prepaid fuel  219   493 
          Deferred income taxes  260   72 
          Receivables from related parties  214   151 
          Aircraft fuel, spare parts and supplies, less obsolescence allowance (2008—$48; 2007—$25)  237   242 
          Prepaid expenses and other  376   513 
                   
             5,046   6,140 
                   
          Operating property and equipment:        
          Owned—        
          Flight equipment  8,766   9,329 
          Advances on flight equipment  —   91 
          Other property and equipment  1,751   1,669 
                   
             10,517   11,089 
          Less—accumulated depreciation and amortization  (1,598)  (1,062)
                   
             8,919   10,027 
                   
          Capital leases—        
          Flight equipment  1,578   1,449 
          Other property and equipment  39   34 
                   
             1,617   1,483 
          Less—accumulated amortization  (224)  (168)
                   
             1,393   1,315 
                   
             10,312   11,342 
                   
          Other assets:        
          Intangibles, less accumulated amortization (Note 3) (2008—$339; 2007—$324)  2,693   2,871 
          Goodwill (Note 3)  —   2,280 
          Aircraft lease deposits  297   340 
          Restricted cash  217   431 
          Investments (Note 20)  81   122 
          Other, net (Note 3)  986   710 
                   
             4,274   6,754 
                   
            $19,632  $24,236 
                   
          See accompanyingCombined Notes to Consolidated Financial StatementsStatements..


          87


          United Air Lines, Inc. and Subsidiary Companies

          Statements of Consolidated Financial Position

          (In millions, except shares)

           
          		 December 31,
           
          		 2007
          		 2006
          Liabilities and Stockholder's Equity      
          Current liabilities:      
           Advance ticket sales $1,918 $1,669
           Mileage Plus deferred revenue  1,268  1,111
           Accounts payable  882  671
           Accrued salaries, wages and benefits  896  795
           Advanced purchase of miles (Note 18)  694  681
           Long-term debt maturing within one year (Note 12)  678  1,687
           Fuel purchase commitments  493  283
           Current obligations under capital leases (Note 16)  250  110
           Accrued interest  141  241
           Other  723  922
            
          		 
             7,943  8,170
            
          		 

          Long-term debt (Note 12)
           
           
          6,412
           
           
          7,449
          Long-term obligations under capital leases (Note 16)  1,106  1,350

          Other liabilities and deferred credits:
           
           
           
           
           
           
           Mileage Plus deferred revenue  2,569  2,569
           Postretirement benefit liability (Note 9)  1,829  1,955
           Deferred income taxes  555  596
           Other  895  899
            
          		 
             5,848  6,019
            
          		 

          Commitments and contingent liabilities (Note 15)
           
           
           
           
           
           
          Parent company mandatorily convertible preferred securities (Note 13)  371  361

          Stockholder's equity:
           
           
           
           
           
           
           Common stock at par, $5 par value; authorized 1,000 shares; issued 205 shares at
              December 31, 2007          		  —  —
           Additional capital invested  2,000  2,127
           Retained earnings  415  23
           Accumulated other comprehensive income  141  82
            
          		 
             2,556  2,232
            
          		 
            $24,236 $25,581
            
          		 

                   
            December 31, 
            2008  2007 
           
          Liabilities and Stockholder’s Equity (Deficit)
          		        
                   
          Current liabilities:        
          Advance ticket sales $1,530  $1,918 
          Mileage Plus deferred revenue  1,414   1,268 
          Accounts payable  833   882 
          Long-term debt maturing within one year (Note 12)  780   678 
          Accrued salaries, wages and benefits  756   896 
          Fuel derivative payable (Note 13)  858   — 
          Fuel purchase commitments  219   493 
          Current obligations under capital leases (Note 15)  168   250 
          Accrued interest  112   141 
          Advanced purchase of miles (Note 17)  —   694 
          Other  876   723 
                   
             7,546   7,943 
                   
                   
          Long-term debt (Note 12)  6,007   6,412 
          Long-term obligations under capital leases (Note 15)  1,192   1,106 
                   
          Other liabilities and deferred credits:        
          Mileage Plus deferred revenue  2,768   2,569 
          Postretirement benefit liability (Note 9)  1,812   1,829 
          Advanced purchase of miles (Note 17)  1,087   — 
          Deferred income taxes  719   555 
          Other  981   895 
                   
             7,367   5,848 
                   
          Commitments and contingent liabilities (Note 14)        
          Parent company mandatorily convertible preferred securities (Note 5)  —   371 
                   
          Stockholder’s equity (deficit):        
          Common stock at par, $5 par value; authorized 1,000 shares; issued 205 shares at December 31, 2008 and 2007  —   — 
          Additional capital invested  2,578   2,000 
          Retained earnings (deficit)  (5,151)  415 
          Accumulated other comprehensive income  93   141 
                   
             (2,480)  2,556 
                   
            $19,632  $24,236 
                   
          See accompanyingCombined Notes to Consolidated Financial StatementsStatements..



          88



          United Air Lines, Inc. and Subsidiary Companies

          Statements of Consolidated Cash Flows

          (In millions)

           
          		  
          		  
          		  
          		  
          		 
           
          		 Successor
          		  
          		 Predecessor
          		 
           
          		  
          		 Period from
          February 1 to
          December 31,
          2006
          		  
          		 Period from
          January 1 to
          January 31,
          2006
          		  
          		 
           
          		 Year Ended
          December 31,
          2007
          		 



          		 Year Ended
          December 31,
          2005
          		 
          Cash flows provided (used) by operating activities:               
           Net income (Successor Company) $402 $32   $— $— 
           Loss before reorganization items (Predecessor Company)  —  —    (83) (604)
           Adjustments to reconcile to net cash provided (used) by
              operating activities—          		               
            Depreciation and amortization  925  820    68  871 
            Deferred income taxes  318  29    —  (12)
            Mileage Plus deferred revenue and advanced purchase of
              miles          		  170  269    14  329 
            Share-based compensation  49  159    —  — 
            Special items and debt discount amortization  (48) 47    —  5 
            Gain on sale of investment  (41) —    —  — 
            Postretirement benefit expense, net of contributions  7  76    (9) (41)
            Pension expense (benefit), net of contributions  (5) (4)   8  143 
            Amortization of deferred gains  —  —    (6) (81)
            Other operating activities  46  62    9  49 
           Changes in assets and liabilities—               
            Decrease (increase) in other current assets  (269) 13    (26) (83)
            Increase in advance ticket sales  249  4    109  214 
            Increase (decrease) in accounts payable  210  50    25  (39)
            Increase (decrease) in accrued liabilities  172  (263)   152  154 
            Decrease (increase) in receivables  (58) 131    (98) 145 
            
          		 
          		   
          		 
          		 
             2,127  1,425    163  1,050 
            
          		 
          		   
          		 
          		 
          Cash flows provided (used) by reorganization activities:               
            Reorganization items, net  —  —    22,709  (20,432)
            Discharge of claims and liabilities  —  —    (24,389) — 
            Revaluation of Mileage Plus frequent flyer deferred
              revenue          		  —  —    2,399  — 
            Revaluation of other assets and liabilities  —  —    (2,111) — 
            Increase in aircraft rejection liability  —  —    —  2,860 
            Increase (decrease) in other liabilities  —  —    38  124 
            Increase in non-aircraft claims accrual  —  —    421  1,220 
            Pension curtailment, settlement and termination  —  —    912  16,079 
            Loss on disposition of property  —  —    —  10 
            
          		 
          		   
          		 
          		 
             —  —    (21) (139)
            
          		 
          		   
          		 
          		 
          Cash flows provided (used) by investing activities:               
            Net (purchases) sales of short-term investments  (1,951) (233)   2  — 
            Additions to property and equipment  (658) (332)   (30) (469)
            Proceeds on sale of investments  128  —    —  — 
            Purchases of EETC securities  (96) —    —  — 
            (Increase) decrease in restricted cash  87  322    (203) (72)
            Proceeds on disposition of property and equipment  18  40    (1) 331 
            Decrease in segregated funds  —  200    —  — 
            Other, net  (61) (52)   (6) (77)
            
          		 
          		   
          		 
          		 
             (2,533) (55)   (238) (287)
            
          		 
          		   
          		 
          		 
          Cash flows provided (used) by financing activities:               
            Proceeds from Credit Facility  —  2,961    —  — 
            Repayment of Credit Facility  (1,495) (175)   —  — 
            Proceeds from DIP financing  —  —    —  310 
            Repayment of DIP financing  —  (1,157)   —  (16)
            Repayment of other long-term debt  (1,255) (663)   (24) (285)
            Proceeds from issuance of long-term debt  694  —    —  — 
            Principal payments under capital leases  (177) (99)   (5) (94)
            Decrease in aircraft lease deposits  80  —    —  — 
            Proceeds from exercise of stock options  35  10    —  — 
            Payment of deferred financing costs  (18) (66)   (1) (26)
            Other, net  2  2    —  6 
            
          		 
          		   
          		 
          		 
             (2,134) 813    (30) (105)
            
          		 
          		   
          		 
          		 
          Increase (decrease) in cash and cash equivalents during the
              period          		  (2,540) 2,183    (126) 519 
          Cash and cash equivalents at beginning of period  3,779  1,596    1,722  1,203 
            
          		 
          		   
          		 
          		 
          Cash and cash equivalents at end of period $1,239 $3,779   $1,596 $1,722 
            
          		 
          		   
          		 
          		 

                            
            Successor   Predecessor 
                  Period from
          		   Period from
          		 
            Year Ended
          		  February 1 to
          		   January 1 to
          		 
            December 31,  December 31,
          		   January 31,
          		 
            2008  2007  2006   2006 
          Cash flows provided (used) by operating activities:                 
          Net income (loss) before reorganization items $(5,306) $402  $32   $(83)
          Adjustments to reconcile to net cash provided (used) by operating activities—                 
          Goodwill impairment  2,277   —   —    — 
          Other impairments and special items  339   (89)  (36)   — 
          Depreciation and amortization  932   925   820    68 
          Mileage Plus deferred revenue and advanced purchase of miles  738   170   269    14 
          Debt and lease discount amortization  49   41   83    — 
          Share-based compensation  31   49   159    — 
          Deferred income taxes  (26)  318   29    — 
          Pension expense (benefit), net of contributions  (13)  (5)  (4)   8 
          Postretirement benefit expense, net of contributions  1   7   76    (9)
          Gain on sale of investment  —   (41)  —    — 
          Other operating activities  (27)  46   62    3 
          Changes in assets and liabilities—                 
          Increase in fuel hedge collateral  (965)  —   —    — 
          Increase in fuel derivative payables  858   —   —    — 
          Increase (decrease) in accrued liabilities  (128)  172   (263)   152 
          Increase (decrease) in advance ticket sales  (388)  249   4    109 
          Decrease (increase) in other current assets  257   (269)  13    (26)
          Decrease (increase) in receivables  197   (58)  131    (98)
          Increase (decrease) in accounts payable  (49)  210   50    25 
                            
             (1,223)  2,127   1,425    163 
                            
          Cash flows provided (used) by reorganization activities:                 
          Reorganization items, net  —   —   —    22,709 
          Discharge of claims and liabilities  —   —   —    (24,389)
          Revaluation of Mileage Plus frequent flyer deferred revenue  —   —   —    2,399 
          Revaluation of other assets and liabilities  —   —   —    (2,111)
          Increase (decrease) in other liabilities  —   —   —    38 
          Increase in non-aircraft claims accrual  —   —   —    421 
          Pension curtailment, settlement and termination  —   —   —    912 
                            
             —   —   —    (21)
                            
          Cash flows provided (used) by investing activities:                 
          Net (purchases) sales of short-term investments  2,259   (1,951)  (233)   2 
          (Increase) decrease in restricted cash  455   87   322    (203)
          Additions to property and equipment  (415)  (658)  (332)   (30)
          Additions to deferred software costs  (60)  (65)  (46)   — 
          Proceeds from asset sale-leasebacks  274   —   —    — 
          Proceeds on disposition of property and equipment  93   18   40    (1)
          Proceeds from litigation on advanced deposits  41   —   —    — 
          Proceeds on sale of investments  —   128   —    — 
          Purchases of EETC securities  —   (96)  —    — 
          Decrease in segregated funds  —   —   200    — 
          Other, net  9   4   (6)   (6)
                            
             2,656   (2,533)  (55)   (238)
                            
          Cash flows provided (used) by financing activities:                 
          Proceeds from Credit Facility  —   —   2,961    — 
          Repayment of Credit Facility  (18)  (1,495)  (175)   — 
          Repayment of other long-term debt  (664)  (1,255)  (663)   (24)
          Proceeds from issuance of long-term debt  337   694   —    — 
          Dividend to parent  (257)  —   —    — 
          Capital contributions from parent  163   —   —    — 
          Principal payments under capital leases  (235)  (177)  (99)   (5)
          Decrease in aircraft lease deposits  155   80   —    — 
          Payment of deferred financing costs  (120)  (18)  (66)   (1)
          Repayment of DIP financing  —   —   (1,157)   — 
          Proceeds from exercise of stock options  —   35   10    — 
          Other, net  —   2   2    — 
                            
             (639)  (2,134)  813    (30)
                            
          Increase (decrease) in cash and cash equivalents during the period  794   (2,540)  2,183    (126)
          Cash and cash equivalents at beginning of period  1,239   3,779   1,596    1,722 
                            
          Cash and cash equivalents at end of period $2,033  $1,239  $3,779   $1,596 
                            
          See accompanyingCombined Notes to Consolidated Financial Statements.



          89



          United Air Lines, Inc. and Subsidiary Companies

          Statements of Consolidated Stockholder'sStockholder’s Equity (Deficit)

          (In millions)

           
          		 Receivable
          from
          Affiliates
          		 Common
          Stock
          		 Additional
          Capital
          Invested
          		 Retained
          Earnings
          (Deficit)
          		 Accumulated
          Other
          Comprehensive
          Income (Loss)
          		 Total
          		 
          Predecessor Company                   
          Balance at December 31, 2004 $(1,237)$— $4,213 $(7,773)$(3,331)$(8,128)
            
          		 
          		 
          		 
          		 
          		 
          		 
           Net loss  —  —  —  (21,036) —  (21,036)
           Other comprehensive income (loss), net:                   
            Other  —  —  —  —  (1) (1)
            Unrealized losses on derivatives, net  —  —  —  —  (3) (3)
            Minimum pension liability adjustment  —  —  —  —  3,299  3,299 
            
          		 
          		 
          		 
          		 
          		 
          		 
           Total comprehensive income (loss), net  —  —  —  (21,036) 3,295  (17,741)
            
          		 
          		 
          		 
          		 
          		 
          		 
          Balance at December 31, 2005  (1,237) —  4,213  (28,809) (36) (25,869)
            
          		 
          		 
          		 
          		 
          		 
          		 
           Net loss before reorganization
              items—January 2006          		  —  —  —  (83) —  (83)
           Reorganization items—January 2006  —  —  —  (1,392) —  (1,392)
            
          		 
          		 
          		 
          		 
          		 
          		 
          Subtotal  (1,237) —  4,213  (30,284) (36) (27,344)
          Fresh start adjustments:                   
           Unsecured claims and debt discharge  —  —  —  24,389  —  24,389 
           Valuation adjustments, net  —  —  —  (288) —  (288)
            
          		 
          		 
          		 
          		 
          		 
          		 
          Balance at January 31, 2006  (1,237) —  4,213  (6,183) (36) (3,243)
            
          		 
          		 
          		 
          		 
          		 
          		 
          Fresh start adjustments:                   
           Elimination of accumulated deficit and
              accumulated other comprehensive loss          		  —  —  —  6,183  36  6,219 
           Cancellation of receivable from affiliates and
              additional capital invested          		  1,237  —  (4,213) —  —  (2,976)
           Issuance of new equity interests in connection
              with emergence from Chapter 11          		  —  —  1,952  —  —  1,952 
            
          		 
          		 
          		 
          		 
          		 
          		 
          Successor Company                   
          Balance at February 1, 2006  —  —  1,952  —  —  1,952 
            
          		 
          		 
          		 
          		 
          		 
          		 
           Net income from February 1 to December 31,
              2006          		  —  —  —  32  —  32 
           Other comprehensive income (loss), net:                   
            Unrealized loss on derivatives, net  —  —  —  —  (5) (5)
            
          		 
          		 
          		 
          		 
          		 
          		 
           Total comprehensive income, net  —  —  —  32  (5) 27 
            
          		 
          		 
          		 
          		 
          		 
          		 
           Adoption of SFAS 158, net $47 of tax  —  —  —  —  87  87 
           Preferred stock dividends (Note 13)  —  —  —  (9) —  (9)
           Asset contribution from parent  —  —  6  —  —  6 
           Share-based compensation  —  —  159  —  —  159 
           Proceeds from exercise of stock options  —  —  10  —  —  10 
            
          		 
          		 
          		 
          		 
          		 
          		 
          Balance at December 31, 2006  —  —  2,127  23  82  2,232 
            
          		 
          		 
          		 
          		 
          		 
          		 
           Net income  —  —  —  402  —  402 
           Other comprehensive income, net:                   
            Unrealized gains on financial instruments, net  —  —  —  —  5  5 
            Pension and other postretirement plans
              (Note 9)          		                   
             Net gain arising during period, net $63 of
              tax          		  —  —  —  —  102  102 
             Less: amortization of prior period gains,
              net          		  —  —  —  —  (8) (8)
            
          		 
          		 
          		 
          		 
          		 
          		 
             Total pension and other postretirement
              plans          		  —  —  —  —  94  94 
            
          		 
          		 
          		 
          		 
          		 
          		 
            Total comprehensive income, net  —  —  —  402  99  501 
            
          		 
          		 
          		 
          		 
          		 
          		 
           Preferred stock dividends (Note 13)  —  —  —  (10) —  (10)
           Adoption of FIN 48  —  —  2  —  —  2 
           Tax adjustment on SFAS 158 adoption (Note 11)  —  —  —  —  (40) (40)
           MPI Note forgiveness (Note 19)  —  —  (213) —  —  (213)
           Share-based compensation  —  —  49  —  —  49 
           Proceeds from exercise of stock options  —  —  35  —  —  35 
            
          		 
          		 
          		 
          		 
          		 
          		 
          Balance at December 31, 2007 $— $— $2,000 $415 $141 $2,556 
            
          		 
          		 
          		 
          		 
          		 
          		 

                                   
                        Accumulated
          		    
            Receivable
          		     Additional
          		  Retained
          		  Other
          		    
            from
          		  Common
          		  Capital
          		  Earnings
          		  Comprehensive
          		    
            Affiliates  Stock  Invested  (Deficit)  Income (Loss)  Total 
           
          Predecessor Company
          		                        
                                   
          Balance at December 31, 2005 $(1,237) $—  $4,213  $(28,809) $(36) $(25,869)
                                   
          Net loss before reorganization items—January 2006  —   —   —   (83)  —   (83)
          Reorganization items—January 2006  —   —   —   (1,392)  —   (1,392)
                                   
          Subtotal  (1,237)  —   4,213   (30,284)  (36)  (27,344)
          Fresh start adjustments:                        
          Unsecured claims and debt discharge  —   —   —   24,389   —   24,389 
          Valuation adjustments, net  —   —   —   (288)  —   (288)
                                   
          Balance at January 31, 2006  (1,237)  —   4,213   (6,183)  (36)  (3,243)
                                   
          Fresh start adjustments:                        
          Elimination of accumulated deficit and accumulated other comprehensive loss  —   —   —   6,183   36   6,219 
          Cancellation of receivable from affiliates and additional capital invested  1,237   —   (4,213)  —   —   (2,976)
          Issuance of new equity interests in connection with emergence from Chapter 11  —   —   1,952   —   —   1,952 
                                   
          Successor Company
          		                        
                                   
          Balance at February 1, 2006  —   —   1,952   —   —   1,952 
                                   
          Net income from February 1 to December 31, 2006  —   —   —   32   —   32 
          Other comprehensive income (loss), net:                        
          Unrealized loss on derivatives, net  —   —   —   —   (5)  (5)
                                   
          Total comprehensive income, net  —   —   —   32   (5)  27 
                                   
          Adoption of SFAS 158, net $47 of tax  —   —   —   —   87   87 
          Preferred stock dividends (Note 5)  —   —   —   (9)  —   (9)
          Asset contribution from parent  —   —   6   —   —   6 
          Share-based compensation  —   —   159   —   —   159 
          Proceeds from exercise of stock options  —   —   10   —   —   10 
                                   
          Balance at December 31, 2006  —   —   2,127   23   82   2,232 
                                   
          Net income  —   —   —   402   —   402 
          Other comprehensive income, net:                        
          Unrealized gains on financial instruments, net  —   —   —   —   5   5 
          Pension and other postretirement plans (Note 9)                        
          Net gain arising during period, net $63 of tax  —   —   —   —   102   102 
          Less: amortization of prior period gains, net  —   —   —   —   (8)  (8)
                                   
          Total pension and other postretirement plans  —   —   —   —   94   94 
                                   
          Total comprehensive income, net  —   —   —   402   99   501 
                                   
          Preferred stock dividends (Note 5)  —   —   —   (10)  —   (10)
          Adoption of FIN 48  —   —   2   —   —   2 
          Tax adjustment on SFAS 158 adoption (Note 11)  —   —   —   —   (40)  (40)
          MPI note forgiveness (Note 18)  —   —   (213)  —   —   (213)
          Share-based compensation  —   —   49   —   —   49 
          Proceeds from exercise of stock options  —   —   35   —   —   35 
                                   
          Balance at December 31, 2007  —   —   2,000   415   141   2,556 
                                   
          Net loss  —   —   —   (5,306)  —   (5,306)
          Other comprehensive income (loss):                        
          Unrealized losses on financial instruments  —   —   —   —   (37)  (37)
          Pension and other postretirement plans (Note 9)                        
          Net gain arising during period  —   —   —   —   8   8 
          Less: amortization of prior period gains  —   —   —   —   (19)  (19)
                                   
          Total pension and other postretirement plans  —   —   —   —   (11)  (11)
                                   
          Total comprehensive loss, net  —   —   —   (5,306)  (48)  (5,354)
                                   
          Dividend to parent  —   —   —   (257)  —   (257)
          Preferred stock dividends (Note 5)  —   —   —   (3)  —   (3)
          Conversion of preferred stock  —   —   374   —   —   374 
          Capital contributions from parent (Note 18)  —   —   173   —   —   173 
          Share-based compensation  —   —   31   —   —   31 
                                   
          Balance at December 31, 2008 $—  $—  $2,578  $(5,151) $93  $(2,480)
                                   
          See accompanyingCombined Notes to Consolidated Financial StatementsStatements..



          90


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements

          The Company

          UAL Corporation (together with its consolidated subsidiaries, "UAL"“UAL”) is a holding company whose principal, wholly-owned subsidiary is United Air Lines, Inc. (together with its consolidated subsidiaries, "United"“United”). We sometimes use the words "we," "our," "us"“we,” “our,” “us” and the "Company"“Company” in this Annual Report onForm 10-K for disclosures that relate to both UAL and United.

          This Annual Report onForm 10-K is a combined report of UAL and United. Therefore, theseCombined Notes to Consolidated Financial Statementsapply to both UAL and United, unless otherwise noted. As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL.

                  As a result

          (1) Summary of Significant Accounting Policies
          (a) Basis of Presentation—UAL is a holding company whose principal subsidiary is United. The Company’s consolidated financial statements include the accounts of its majority-owned affiliates. All significant intercompany transactions are eliminated. Certain prior year amounts have been reclassified to conform to the current year’s presentation. Reclassifications in theStatements of Consolidated Cash Flowsinclude reclassifications of “Other impairments and special items” and “Additions to deferred software costs” which are currently classified as a separate line items and were historically classified within “Other operating activities” and “Other investing activities,” respectively.
          Upon emergence from its Chapter 11 proceedings, the adoption ofCompany adopted fresh-start reporting in accordance with American Institute of Certified Public Accountants'Accountants’ Statement of Position90-7,Financial Reporting by Entities in Reorganization under the Bankruptcy Code ("(“SOP 90-7"90-7”), as of February 1, 2006. The Company’s emergence from reorganization resulted in a new reporting entity with no retained earnings or accumulated deficit as of February 1, 2006 (the “Effective Date”). Accordingly, the Company’s consolidated financial statements for periods before February 1, 2006 are not comparable with theto consolidated financial statements for periodspresented on or after February 1, 2006. References to "Successor Company"“Successor Company” refer to UAL and United on or after February 1, 2006, after giving effect to the adoption of fresh-start reporting. References to "Predecessor Company"“Predecessor Company” refer to UAL and United before February 1, 2006. See Note 1, "Voluntary4, “Voluntary Reorganization Under Chapter 11—Fresh-Start Reporting,"” for further details.
          (b) Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
          The Company estimates fair value of its financial instruments and its reporting units and indefinite-lived intangible assets for testing impairment of indefinite-lived intangible assets, including goodwill. These estimates and assumptions are inherently subject to significant uncertainties and contingencies beyond the control of the Company. Accordingly, the Company cannot provide assurance that the estimates, assumptions and values reflected in the valuations will be realized, and actual results could vary materially.
          (c) Airline Revenues—The value of unused passenger tickets and miscellaneous charge orders (“MCOs”) are included in current liabilities as advance ticket sales. United records passenger ticket sales and tickets sold by other airlines for use on United as operating revenues when the transportation is provided or when the ticket expires. Tickets sold by other airlines are recorded at the estimated values to be billed to the other airlines. Non-refundable tickets generally expire on the date of the intended flight, unless the date is extended by notification from the customer


          91

          on or before the intended flight date. Fees charged in association with changes or extensions to non-refundable tickets are recorded as passenger revenue at the time the fee is incurred. Change fees related to non-refundable tickets are considered a separate transaction from the air transportation because they represent a charge for the Company’s additional service to modify a previous order. Therefore, the pricing of the change fee and the initial customer order are separately determined and represent distinct earnings processes. Refundable tickets expire after one year.
          MCOs can be exchanged for a passenger ticket or refunded after issuance. United estimates the amount of MCOs that will not be exchanged or refunded and recognizes revenue for these MCOs ratably over the redemption period, based on historical experience.
          United records an estimate of tickets that have been used, but not recorded as revenue due to system processing errors, as revenue in the month of sale based on historical results. Due to complex industry pricing structures, refund and exchange policies and interline agreements with other airlines, certain amounts are recognized as revenue using estimates both as to the timing of recognition and the amount of revenue to be recognized. These estimates are based on the evaluation of actual historical results. United recognizes cargo and mail revenue as service is provided.
          (d) Cash and Cash Equivalents, Short-Term Investments, Restricted Cash—Cash in excess of operating requirements is invested in short-term, highly liquid investments. Investments with a maturity of three months or less on their acquisition date are classified as cash and cash equivalents. Other investments are classified as short-term investments. Investments classified asheld-to-maturity are stated at amortized cost, which approximates market due to their short-term maturities. Investments in debt securities classified asavailable-for-sale are stated at fair value. The gains or losses from sales ofavailable-for-sale securities are included in other comprehensive income.
          As of December 31, 2008, approximately 50% of the Company’s cash and cash equivalents consisted of money market funds directly or indirectly invested in U.S. treasury securities with the remainder largely in money market funds that are covered by the new government money market funds guarantee program. There are no withdrawal restrictions at the present time on any of the money market funds in which the Company has invested. In addition, the Company has no auction rate securities as of December 31, 2008. At December 31, 2007, UAL’s and United’s investments in debt securities classified as(1) Voluntary Reorganization held-to-maturity included $1.3 billion and $1.2 billion, respectively, recorded in cash and cash equivalents and $2.3 billion recorded in short-term investments for both UAL and United.
          In 2008 and 2007, restricted cash includes cash collateral to secure workers’ compensation obligations and reserves for institutions that process credit card ticket sales. The Company classifies changes in restricted cash balances as an investing activity in its statement of consolidated cash flows, because we consider restricted cash similar to an investment. Certain other companies within our industry also classify certain of their restricted cash transactions as investing activities in their statement of cash flows, while others classify certain of their restricted cash transactions as operating activities in their statement of cash flows. The pro-forma impact of UAL classifying all changes in its restricted cash balances as operating activities in the years ended December 31, 2008 and 2007, the eleven month period from February 1, 2006 to


          92

          December 31, 2006 and the one month period ended January 31, 2006 is shown in the table below:
                            
            Successor   Predecessor 
                  Period from
          		   Period from
          		 
            Year Ended
          		  February 1 to
          		   January 1 to
          		 
            December 31,  December 31,
          		   January 31,
          		 
          (In millions)
          		 2008  2007  2006   2006 
          Cash flows provided (used) from operating activities $(1,239) $2,134  $1,401   $161 
          Adjustment for (increase) decrease in restricted cash  484   91   313    (203)
                            
          Pro-forma cash flows provided (used) from operating activities $(755) $2,225  $1,714   $(42)
                            
          Cash flows provided (used) from investing activities $2,721  $(2,560) $(12)  $(238)
          Adjustment for increase (decrease) in restricted cash  (484)  (91)  (313)   203 
                            
          Pro-forma cash flows provided (used) from investing activities $2,237  $(2,651) $(325)  $(35)
                            
          See Note 20, “Investments,” for information related to the Company’s investments in noncurrent debt securities.
          (e)  Aircraft Fuel, Spare Parts and Supplies—The Company records fuel, maintenance, operating supplies and aircraft spare parts at cost when acquired and provides an obsolescence allowance for aircraft spare parts.
          (f)  Operating Property and Equipment—The Company records additions to owned operating property and equipment at cost when acquired. Property under capital leases and the related obligation for future lease payments are recorded at an amount equal to the initial present value of those lease payments. Owned operating property and equipment, and equipment under capital leases, were stated at fair value as of February 1, 2006 upon the adoption of fresh-start reporting.
          Depreciation and amortization of owned depreciable assets is based on the straight-line method over the assets’ estimated service lives. Leasehold improvements are amortized over the remaining term of the lease, including estimated facility renewal options when renewal is reasonably assured at key airports, or the estimated service life of the related asset, whichever is less. Properties under capital leases are amortized on the straight-line method over the life of the lease or, in the case of certain aircraft, over their estimated service lives. Amortization of capital leases is included in depreciation and amortization expense. The estimated useful lives of our property and equipment are as follows:
          Estimated Useful Life (in years)
          Aircraft27 to 30
          Buildings25 to 45
          Other property and equipment4 to 15
          Software (a)5
          Aircraft lease terms3 to 17
          Building lease terms40
          (a)The carrying amount of computer software, which is classified as noncurrent other assets in ourStatements of Consolidated Financial Position,was $182 million and $157 million at December 31, 2008 and 2007, respectively.
          Maintenance and repairs, including the cost of minor replacements, are charged to maintenance expense as incurred, except for costs incurred under ourpower-by-the-hour engine maintenance agreements, which are expensed based upon the number of hours flown. Costs of additions to and renewals of units of property are capitalized as property and equipment additions.


          93

          (g) Mileage Plus Awards—The Company has an agreement with its co-branded credit card partner that requires our partner to purchase miles in advance of when miles are awarded to theco-branded partner’s cardholders (referred to as “pre-purchased miles”). These sales are deferred when received by United in ourStatements of Consolidated Financial Positionas “Advanced purchase of miles.” Subsequently, when our credit card partner awardspre-purchased miles to its cardholders, we transfer the related air transportation element for the awarded miles from “Advanced purchase of miles” to “Mileage Plus deferred revenue” at estimated fair value and record the residual marketing element as “Other operating revenue.” The deferred revenue portion is then subsequently recognized as passenger revenue when transportation is provided in exchange for the miles awarded. Additional information on accounting for each of these elements is as follows:
          Air Transportation Element.  The Company defers the portion of the sales proceeds that represents estimated fair value of the air transportation and recognizes that amount as revenue when transportation is provided. The fair value of the air transportation component is determined based upon the equivalent ticket value of similar fares on United and amounts paid to other airlines for miles. The initial revenue deferral is presented as “Mileage Plus deferred revenue” on ourStatements of Consolidated Financial Position. When recognized, the revenue related to the air transportation component is classified as “passenger revenues” in ourStatements of Consolidated Operations.
          Marketing-related element.  The amount of revenue from the marketing-related element is determined by subtracting the fair value of the air transportation from the total sales proceeds. The residual portion of the sales proceeds related to marketing activities is recognized when miles are awarded. This portion is recognized as “Other operating revenues” in ourStatements of Consolidated Operations.
          The Company’s frequent flyer obligation was recorded at fair value at February 1, 2006, the effective date of the Company’s emergence from bankruptcy. The deferred revenue measurement method used to record fair value of the frequent flyer obligation on and after the Effective Date is to allocate an equivalent weighted-average ticket value to each outstanding mile, based upon projected redemption patterns for available award choices when such miles are consumed. Such value is estimated assuming redemptions on both United and other participating carriers in the Mileage Plus program and by estimating the relative proportions of awards to be redeemed by class of service within broad geographic regions of the Company’s operations, including North America, Atlantic, Pacific and Latin America.
          The estimation of the fair value of each award mile requires the use of several significant assumptions, for which significant management judgment is required. For example, management must estimate how many miles are projected to be redeemed on United, versus on other airline partners. Since the equivalent ticket value of miles redeemed on United and on other carriers can vary greatly, this assumption can materially affect the calculation of the weighted-average ticket value from period to period.
          Management must also estimate the expected redemption patterns of Mileage Plus customers, who have a number of different award choices when redeeming their miles, each of which can have materially different estimated fair values. Such choices include different classes of service (first, business and several coach award levels), as well as different flight itineraries, such as domestic and international routings and different itineraries within domestic and international regions of United’s and other participating carriers’ route networks. Customer redemption patterns may also be influenced by program changes, which occur from time to time and introduce new award choices, or make material changes to the terms of existing award choices. Management must often estimate the probable impact of such program changes on future customer behavior, which requires the use of significant judgment. Management uses historical customer redemption patterns as the best single indicator of future redemption behavior in


          94

          making its estimates, but changes in customer mileage redemption behavior to patterns which are not consistent with historical behavior can result in material changes to deferred revenue balances, and to recognized revenue.
          The Company measures its deferred revenue obligation using all awarded and outstanding miles, regardless of whether or not the customer has accumulated enough miles to redeem an award. Eventually these customers will accumulate enough miles to redeem awards, or their accounts will deactivate after a period of inactivity, in which case the Company will recognize the related revenue through its revenue recognition policy for expired miles.
          The Company recognizes revenue related to expected expired miles over the estimated redemption period. Management’s estimate of the expected expiration of miles requires significant management judgment. In early 2007, the Company announced that it was reducing the expiration period for inactive accounts from 36 months to 18 months effective December 31, 2007. The change in the expiration period increased revenues by $246 million in 2007. Current and future changes to expiration assumptions or to the expiration policy, or to program rules and program redemption opportunities, may result in material changes to the deferred revenue balance, as well as recognized revenues from the program. In 2008, the Company updated certain of its assumptions related to the recognition of revenue for expiration of miles. Based on additional analysis of mileage redemption and expiration patterns, the Company revised the estimated number of miles that are expected to expire from 15% to 24% of earned miles, including miles that will expire or go unredeemed for reasons other than account deactivation. In 2008, the Company also extended the total time period over which revenue from the expiration of miles is recognized based upon the estimated period of miles redemption. This change did not materially impact the Company’s Mileage Plus revenue recognition in 2008.
          See Note 17, “Advanced Purchase of Miles,” for additional information related to the Mileage Plus program.
          (h) Deferred Gains (Losses)—Gains and losses on aircraft sale and leaseback transactions are deferred and amortized over the terms of the related leases as an adjustment to aircraft rent expense.
          (i)  United Express—United has agreements under which independent regional carriers, flying under the United Express name, connect passengers to other United Expressand/or United flights (the latter of which we also refer to as “mainline” operations, to distinguish them from United Express regional operations). The vast majority of United Express flights are operated under capacity agreements, while a relatively smaller number are operated under prorate agreements.
          United Express operating revenues and expenses are classified as “Passenger—Regional affiliates” and “Regional affiliates,” respectively, in theStatements of Consolidated Operations. Regional affiliate expense includes both allocated and direct costs. Direct costs represent expenses that are specifically and exclusively related to United Express flying activities, such as capacity agreement payments, commissions, booking fees, fuel expenses and dedicated staffing. The capacity agreement payments are based on specific rates for various operating expenses of the United Express carriers, such as crew expenses, maintenance and aircraft ownership, some of which are multiplied by specific operating statistics (e.g., block hours, departures) while others are fixed per month. Allocated costs represent United Express’s portion of shared expenses and include charges for items such as airport operating costs, reservation-related costs, credit card discount fees and facility rents. For each of these expense categories, the Company estimates United Express’s portion of total expense and allocates the applicable portion of expense to the United Express carrier.
          United has the right to exclusively operate and direct the operations of these aircraft and accordingly the minimum future lease payments for these aircraft are included in the Company’s


          95

          lease obligations. See Note 10, “Segment Information” and Note 15, “Lease Obligations,” for additional information related to United Express.
          The Company recognizes revenue as flown on a net basis for flights on United Express covered by prorate agreements.
          As of December 31, 2008, United has call options on 159 regional jet aircraft currently being operated by certain United Express carriers. At December 31, 2008, none of the call options were exercisable because none of the required conditions to make an option exercisable by the Company were met.
          (j)  Advertising—Advertising costs, which are included in other operating expenses, are expensed as incurred.
          (k) Intangibles—Goodwill was determined to be completely impaired in 2008. Goodwill represented the excess of the reorganization value of the Successor Company over the fair value of net tangible assets and identifiable intangible assets and liabilities resulting from the application ofSOP 90-7. Indefinite-lived intangible assets are not amortized but are reviewed for impairment annually or more frequently if events or circumstances indicate that the asset may be impaired. The Mileage Plus customer database is amortized on an accelerated basis utilizing cash flows correlating to the expected attrition rate of the Mileage Plus database. The other customer relationships, which are included in “Contracts,” are amortized in a manner consistent with the timing and amount of revenues that the Company expects to generate from these customer relationships. All other definite-lived intangible assets are amortized on a straight-line basis over the estimated lives of the related assets.
          In accordance with Statement of Financial Accounting Standards No. 142,Goodwill and Other Intangible Assets(“SFAS 142”), the Company applies a fair value-based impairment test to the net book value of goodwill and indefinite-lived intangible assets on an annual basis as of October 1, or on an interim basis whenever a triggering event occurs. SFAS 142 requires that a two-step impairment test be performed on goodwill. In the first step, the Company compares the fair value of each reporting unit to its carrying value. If the fair value of a reporting unit exceeds the carrying value of the net assets of the reporting unit, goodwill is not impaired and the Company is not required to perform further testing. If the carrying value of the net assets of a reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step to determine the implied fair value of the goodwill and compare it to the carrying value of the goodwill. If the carrying value of goodwill exceeds its implied fair value, then the Company must record an impairment charge equal to such difference.
          See Note 3, “Asset Impairments and Intangible Assets,” for additional information related to intangibles, including impairments recognized in 2008.
          (l)  Measurement of Impairments—In accordance with Statement of Financial Accounting Standards No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets(“SFAS 144”) and SFAS 142, the Company evaluates the carrying value of long-lived assets and intangible assets subject to amortization whenever events or changes in circumstances indicate that an impairment may exist. An impairment charge is recognized when the asset’s carrying value exceeds its net undiscounted future cash flows and its fair market value. The amount of the charge is the difference between the asset’s carrying value and fair market value. See Note 3, “Asset Impairments and Intangible Assets,” for information related to asset impairments recognized in 2008.
          (m) Share-Based Compensation—Stock-based compensation is accounted for in accordance with Statement of Financial Accounting Standards No. 123 (Revised 2004),Share-Based Payment(“SFAS 123R”) effective January 1, 2006. SFAS 123R requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The resulting cost is recognized over the period during which


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          an employee is required to provide service in exchange for the award, usually the vesting period. See Note 7, “Share-Based Compensation Plans,” for additional information.
          (n) Ticket Taxes—Certain governmental taxes are imposed on United’s ticket sales through a fee included in ticket prices. United collects these fees and remits them to the appropriate government agency. These fees are recorded on a net basis (excluded from operating revenues).
          (o) Early Retirement of Leased Aircraft—The Company accrues for the present value of future minimum lease payments, net of estimated sublease rentals (if any) in the period aircraft are removed from service. When reasonably estimable and probable, the Company estimates maintenance lease return condition obligations for items such as minimum aircraft and engine conditions specified in leases and accrues these amounts as contingent rent ratably over the lease term while the aircraft are operating, and any remaining unrecognized estimated obligations are accrued in the period an aircraft is removed from service. In addition, the Company accrues for an early termination lease penalty in the period that the Company executes an early return agreement with a lessor.
          (p) New Accounting Pronouncements—In May 2008, the FASB issued FASB Staff Position (“FSP”) No. APB14-1,Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)(“APB14-1”). APB14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. APB14-1, which is applied retrospectively, is effective for the Company beginning January 1, 2009. The Company estimates that the fair value of the equity component of its two convertible debt instruments that may be cash settled was approximately $250 million at the time of issuance of these instruments. This discount will be applied retrospectively to the Company’s financial statements from the date of adoption of fresh-start reporting and amortized over the expected five-year life of the notes resulting in increased interest expense in historical and future periods.
          In June 2008, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) issued EITF Issue07-5,Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock,(“EITF 07-5”) which is effective for the Company beginning January 1, 2009.EITF 07-5 provides additional guidance as to the phrase “indexed to an entity’s own stock” for purposes of determining whether certain instruments or embedded features qualify for a scope exception in Statement of Financial Accounting Standards No. 133,Accounting for Derivative Instruments and Hedging Activities(“SFAS 133”). The Company is still evaluating the impact, if any, that the adoption ofEITF 07-5 will have on its results of operations and financial position based on its current financial instruments. The impact, if any, would be recorded as a cumulative adjustment to beginning retained earnings.
          In June 2008, the FASB issued FSPNo. EITF 03-6-1,Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities(“EITF 03-6-1”).EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation under the two-class method of calculating earnings per share.EITF 03-6-1, which will be applied retrospectively to the date of fresh-start reporting, is effective for the Company beginning January 1, 2009. The Company expects that the retrospective application ofEITF 03-6-1 will result in increases in the basic shares outstanding used to compute basic earnings per share of approximately 1.4 million, 2.0 million and 2.7 million shares for the years ended December 31, 2008 and 2007 and eleven month period ended December 31, 2006, respectively. The Company does not expect thatEITF 03-6-1 will change its previously reported diluted earnings per share.
          In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161,Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133(“SFAS 161”). This Statement changes the disclosure requirements for


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          derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for the Company for periods beginning January 1, 2009. The Company will incorporate the additional disclosures required under SFAS 161 into its future consolidated financial statements.
          In February 2008, the FASB issued FSPNo. 157-2, Effective Date of FASB Statement No. 157(“FSP 157-2”). This FSP delayed the effective date of Statement of Financial Accounting Standards No. 157,Fair Value Measurements(“SFAS 157”) for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until periods beginning January 1, 2009. The Company is currently evaluating the impact of SFAS 157 on the reporting and disclosure of its nonfinancial assets and nonfinancial liabilities.
          In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007),Business Combinations(“SFAS 141R”). This statement replaces Statement of Financial Accounting Standards No. 141,Business Combinations(“SFAS 141”). SFAS 141R retains the fundamental requirements in Statement No. 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. In addition, SFAS 141R provides new guidance intended to improve reporting by creating greater consistency in the accounting and financial reporting of business combinations, resulting in more complete, comparable and relevant information for users of financial statements. SFAS 141R is effective for the Company for any business combinations with an acquisition date on or after January 1, 2009. In accordance with the provisions of SFAS 141R that amended Statement of Financial Accounting Standards No. 109,Accounting for Income Taxes(“SFAS 109”), beginning January 1, 2009, the Company will be required to recognize any changes in the valuation allowance for deferred tax assets, which was established as part of fresh-start reporting, to be recognized as an adjustment to income tax expense. This reflects a change from current practice which requires changes in the valuation allowance to first reduce goodwill to zero and then to reduce intangible assets to zero.
          In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51(“SFAS 160”). This statement amends Accounting Research Bulletin 51,Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest (also known as minority interest) in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for the Company for periods beginning January 1, 2009. The Company does not expect the adoption of SFAS 160 to have a significant impact on its consolidated financial statements.
          (q) Income Tax Contingencies—The Company has recorded reserves for income taxes and associated interest that may become payable in future years. Certain of these reserves are for uncertain income tax positions which are accounted for in accordance with FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes(“FIN 48”), effective January 1, 2007. Although management believes that its positions taken on income tax matters are reasonable, the Company nevertheless has established tax and interest reserves in recognition that various taxing authorities may challenge certain of the positions taken by the Company, potentially resulting in additional liabilities for taxes and interest. The Company’s tax contingency reserves are reviewed periodically and are adjusted as events occur that affect its estimates, such as the availability of new information, the lapsing of applicable statutes of limitations, the conclusion of tax audits, the measurement of additional estimated liability, the identification of new tax contingencies, the release of administrative tax guidance affecting its estimates of tax liabilities,


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          or the rendering of relevant court decisions. See Note 8, “Income Taxes,” for further information related to uncertain income tax positions and the adoption of FIN 48.
          (2) Company Operational Plans
          The volatility of and increases in crude oil prices, a weakening economic environment and a highly competitive industry with excess capacity have created an extremely challenging environment for the Company. The Company’s cash flows and results of operations have been adversely impacted by these factors as indicated by its net loss of $5.3 billion during the year ended December 31, 2008. The Company’s results in 2008 include asset impairment charges of approximately $2.6 billion that resulted primarily from unfavorable market and economic conditions as discussed in Note 3, “Asset Impairments and Intangible Assets.” These factors have had a significant negative impact on the Company’s liquidity as unrestricted cash and short-term investments decreased by $1.5 billion in 2008 to $2.0 billion at December 31, 2008. In addition, the Company may not be able to improve its liquidity position with cash from operations in 2009 because of lower demand for air travel during 2009 and a weak global economy. The Company is implementing certain operational plans to address its increased operating costs and its liquidity needs in 2009. In addition, the Company continues to evaluate the most cost-effective alternatives to raise additional capital, including asset sales and financings. Highlights of the Company’s operational plans and financings include the following:
          • The Company is significantly reducing mainline domestic and consolidated capacity. Fourth quarter 2008 mainline domestic and consolidated capacity were down approximately 14% and 11%year-over-year, respectively. The Company is planning to further decrease mainline domestic and consolidated capacity in 2009.
          • The capacity reductions are being made through reductions in frequencies of routes and the elimination of unprofitable routes. These actions have resulted in the closure of a small number of airport operations where United cannot operate profitably in the current economic environment. Additional airport operations may be closed in future periods.
          • The Company has announced plans to permanently remove 100 aircraft from its mainline fleet, including its entire B737 fleet and six B747 aircraft, by the end of 2009. The B737 aircraft being retired are some of the oldest and least fuel efficient in the Company’s fleet. This planned reduction reflects the Company’s efforts to eliminate unprofitable capacity and divest the Company of assets that currently do not provide an acceptable return.
          • United is eliminating its Ted product for leisure markets and will reconfigure that fleet’s 56 A320s to include United First seating. The reconfiguration of the Ted aircraft will occur in stages, with expected completion by year-end 2009. We will continue to review the deployment of all of our aircraft in various markets and the overall composition of our fleet to ensure that we are using our assets appropriately to provide the best available return.
          • In connection with the capacity reductions, the Company is further streamlining its operations and corporate functions in order to reduce the size of its workforce to match the size of its operations.
          • The Company also recently entered into an alliance partnership with Continental Airlines that is expected to create revenue enhancements, costs savings and operational efficiencies.
          • The Company is managing its liquidity by investing only in those projects that are considered high-value, such as the international premium product. The Company has $0.2 billion of binding commitments for the purchase of property in 2009 and $0.8 billion of long-term debt obligations in 2009.
          • As of December 31, 2008, the Company has 62 unencumbered aircraft and other assets that may be used as collateral to obtain additional financing. The Company could also sell certain of these assets to generate liquidity.


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          • As discussed in Note 23, “Subsequent Events,” in January 2009, the Company completed several financing-related transactions which generated approximately $315 million of proceeds.
          The following is a discussion of expenses associated with implementing the Company’s plans. In addition, see Note 3, “Asset Impairments and Intangible Assets,” for a discussion of the impairment charges recorded during the year ended December 31, 2008.
          Severance.  During 2008, the Company reduced its workforce in operations and corporate functions through attrition and both voluntary and involuntary furloughs. The Company is streamlining its workforce to match the reduced capacity of its operations. The Company reduced its workforce in 2008 and plans to further reduce its workforce in 2009. Workforce reductions include salaried and management positions and certain of the Company’s unionized workforce. The Company’s standard severance policies provide the affected employees with salary continuation as well as certain insurance benefits for a specified period of time. The Company recognizes its severance obligations in accordance with Statement of Financial Accounting Standards No. 112 (As Amended),Employers’ Accounting for Postemployment Benefits—an amendment of FASB Statements No. 5 and 43, except for voluntary programs which are accounted for under Statement of Financial Accounting Standards No. 88,Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.
          The following is a reconciliation of the Company’s severance accrual activity:
               
          (In millions)
          		   
          Balance at January 1, 2008 $— 
          Accruals  106 
          Payments  (25)
               
          Balance at December 31, 2008 $81 
               
          In addition to involuntary furloughs, the Company is currently offering furlough-mitigation programs, such as voluntary early-out options, primarily to certain union groups. Termination benefits expected to be paid under such voluntary programs are not recognized until the employees accept the termination benefit offer. Therefore, as the Company continues to implement its reductions in force during 2009, additional severance costs may be incurred. Severance expense is classified within salaries and related costs in the Company’sStatements of Consolidated Operations.Severance charges are expected to be primarily within the mainline segment where the fleet reductions will occur.
          Aircraft.  The following table provides additional information regarding UAL and United aircraft including the impacts of the fleet reductions discussed above.
                                                
            B737s (Mainline)   All Other Mainline          
                               Total
          		  Regional
          		    
            Owned  Leased  Total   Owned  Leased  Total  Mainline  Affiliates  Total 
          Operating:                                     
          Aircraft at December 31, 2007 (a)  47   47   94    208   158   366   460   279   739 
          Added (removed) from operating fleet  (29)  (19)  (48)   (3)  —   (3)  (51)  1   (50)
          Converted from owned to leased (b)  —   —   —    (24)  24   —   —   —   — 
          Converted from leased to owned (c)  —   —   —    10   (10)  —   —   —   — 
                                                
          Aircraft at December 31, 2008 (d)  18   28   46    191   172   363   409   280   689 
                                                
          Removed from operating fleet in 2008 (e)  29   19   48    3   —   3   51   —   51 
          Sold/returned to lessor during 2008  (5)  (7)  (12)   —   —   —   (12)  —   (12)
                                                
          Nonoperating at December 31, 2008 (a) (e)  24   12   36    3   —   3   39   —   39 
                                                
          (a)At December 31, 2007, the Company had 113 unencumbered aircraft. In 2007, United leased one operating aircraft from UAL and therefore had one less owned B737 aircraft and one more leased aircraft as compared to UAL’s fleet. This particular aircraft became nonoperational in 2008; therefore, United has one less nonoperating owned B737 aircraft and one more leased aircraft as compared to UAL’s fleet at December 31, 2008.


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          (b)During 2008, the Company sold 24 aircraft and leased them back. See Note 15, “Lease Obligations,” for additional information related to these sale-leaseback transactions.
          (c)During 2008, the Company acquired certain aircraft under existing lease terms.
          (d)At December 31, 2008, United’s operating fleet was the same as UAL’s fleet and included 62 unencumbered aircraft. The unencumbered aircraft at December 31, 2008 exclude nine aircraft which became encumbered with the December 2008 signing of a binding sale-leaseback agreement that closed in January 2009. See Note 12, “Debt Obligations and Card Processing Agreements,” and Note 23, “Subsequent Events,” for additional information.
          (e)As of December 31, 2008, the owned nonoperating aircraft and engines are classified as Other non-current assets in the Company’sStatements of Consolidated Financial Position.These aircraft are not classified as assets held for sale because the assets may not be sold within one year. As a result of the impairment testing discussed in Note 3, “Asset Impairments and Intangible Assets,” these assets have been recorded at their net realizable value of $198 million at December 31, 2008.
          During 2008, the Company expensed $24 million related to the retirement of leased aircraft, of which $16 million remained accrued and unpaid at December 31, 2008. These amounts consist of the present value of future lease payments for aircraft that have been removed from service in advance of their lease termination dates as of December 31, 2008, estimated payments for lease return maintenance conditions related to B737 aircraft and the write-off of fresh-start lease fair value adjustments. Periodic lease payments will be made over the lease terms of these aircraft unless early return agreements are reached with the lessors; and, lease return maintenance condition payments, if any, will be made upon return of the aircraft to the lessors. The total expected payments for leased aircraft that were grounded at December 31, 2008 and that are expected to be grounded in 2009 are $132 million, payable through 2013. These estimated payments are future lease payments and estimated lease maintenance return condition payments. Actual lease payments may be less if the Company is able to negotiate early termination of any of its leases.
          Other costs.  As the Company continues to implement the operational plans discussed above, it may incur additional costs related to its conversion of the Company’s fleet of Ted aircraft, costs to exit additional facilities such as airports no longer served, lease termination costs, additional severance costs and asset impairment charges, among others. Such future costs and charges may be material.
          (3) Asset Impairments and Intangible Assets
          Asset Impairments
          In accordance with SFAS 142 and SFAS 144, as of May 31, 2008 the Company performed an interim impairment test of its goodwill, all intangible assets and certain of its long-lived assets (principally aircraft and related spare engines and spare parts) due to events and changes in circumstances that indicated an impairment might have occurred. In addition, the Company also performed an interim impairment test on certain of its aircraft fleet types as of December 31, 2008 due to management’s determination that unfavorable market conditions indicated potential impairment of value. Factors deemed by management to have collectively constituted an impairment triggering event included record high fuel prices, significant losses in the first and second quarters of 2008, a softening U.S. economy, analyst downgrade of UAL common stock, rating agency changes in outlook for the Company’s debt instruments from stable to negative, the announcement of the planned removal from UAL’s fleet of 100 aircraft in 2008 and 2009 and a significant decrease in the fair value of UAL’s outstanding equity and debt securities during the first five months of 2008, including a decline in UAL’s market capitalization to significantly below book value. The Company’s consolidated fuel expense increased by more than 50% during this period.
          As a result of this impairment testing, for which certain estimates made in the second quarter of 2008 were adjusted to final values in the third quarter of 2008, the Company recorded impairment charges during the year ended December 31, 2008, as presented in the table below. All of these impairment charges are within the mainline segment. All of the impairments other than the goodwill impairment, which is separately identified, are classified within “Other impairments and special items” in the Company’sStatements of Consolidated Operations.


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            Year Ended
          		 
          (In millions)
          		 December 31, 2008 
          Goodwill impairment $2,277 
               
          Indefinite-lived intangible assets:    
          Codeshare agreements  44 
          Tradenames  20 
               
          Intangible asset impairments  64 
               
          Tangible assets:    
          Pre-delivery advance deposits including related capitalized interest  105 
          B737 aircraft, B737 spare parts and other  145 
               
          Aircraft and related deposit impairments  250 
               
          Total impairments $2,591 
               
          Goodwill
          For purposes of testing goodwill, the Company performed Step One of the SFAS 142 test by estimating the fair value of the mainline reporting unit (to which all goodwill is allocated) utilizing several fair value measurement techniques, including two market estimates and one income estimate and using relevant data available through and as of May 31, 2008. The market approach is a valuation technique in which fair value is estimated based on observed prices in actual transactions and on asking prices for similar assets. The valuation process is essentially that of comparison and correlation between the subject asset and other similar assets. The income approach is a technique in which fair value is estimated based on the cash flows that an asset could be expected to generate over its useful life, including residual value cash flows. These cash flows are discounted to their present value equivalents using a rate of return that accounts for the relative risk of not realizing the estimated annual cash flows and for the time value of money. Variations of the income approach were used to determine certain of the intangible asset fair values.
          Under Chapter 11the market approaches, the fair value of the mainline reporting unit was estimated based upon the fair value of invested capital for UAL, as well as a separate comparison to revenue and EBITDAR multiples for similar publicly traded companies in the airline industry. The fair value estimates using both market approaches included a control premium similar to those observed for historical airline and transportation company market transactions.
          Under the income approach, the fair value of the mainline reporting unit was estimated based upon the present value of estimated future cash flows for UAL. The income approach is dependent on a number of critical management assumptions including estimates of future capacity, passenger yield, traffic, operating costs (including fuel prices), appropriate discount rates and other relevant assumptions. The Company estimated its future fuel-related cash flows for the income approach based on thefive-year forward curve for crude oil as of May 31, 2008. The impacts of the Company’s aircraft and other tangible and intangible asset impairments were considered in the fair value estimation of the mainline reporting unit.
          Taking into consideration an equal weighting of the two market estimates and the income estimate, which has been the Company’s practice when performing annual goodwill impairment tests, the indicated fair value of the mainline reporting unit was less than its carrying value, and therefore, the Company was required to perform Step Two of the SFAS 142 goodwill impairment test.

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          In Step Two of the impairment test, the Company determined the implied fair value of goodwill of the mainline reporting unit by allocating the fair value of the reporting unit determined in Step One to all the assets and liabilities of the mainline reporting unit, including any recognized and unrecognized intangible assets, as if the mainline reporting unit had been acquired in a business combination and the fair value of the mainline reporting unit was the acquisition price. As a result of the Step Two testing, the Company determined that goodwill was completely impaired and therefore recorded an impairment charge during the second quarter of 2008 to write-off the full value of goodwill.
          Indefinite-lived intangible assets
          2008 Interim Impairment Test
          The Company utilized appropriate valuation techniques to separately estimate the fair values of all of its indefinite-lived intangible assets as of May 31, 2008 and compared those estimates to related carrying values. Tested assets included tradenames, international route authorities, London Heathrow slots and codesharing agreements. The Company used a market or income valuation approach, as described above, to estimate fair values. Based on the results of this testing, the Company recorded a $64 million impairment charge to indefinite-lived intangible assets for the year ended December 31, 2008.
          Annual Impairment Tests
          United performed annual impairment reviews of its indefinite-lived intangible assets as of October 1, 2008 and 2007 and of its goodwill as of October 1, 2007 and determined that no impairment was indicated.
          Long-lived assets
          For purposes of testing impairment of long-lived assets at May 31, 2008, the Company determined whether the carrying amount of its long-lived assets was recoverable by comparing the carrying amount to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. If the carrying value of the assets exceeded the expected cash flows, the Company estimated the fair value of these assets to determine whether an impairment existed. The Company grouped its aircraft by fleet type to perform this evaluation and used data and assumptions through May 31, 2008. The estimated undiscounted cash flows were dependent on a number of critical management assumptions including estimates of future capacity, passenger yield, traffic, operating costs (including fuel prices) and other relevant assumptions. If estimates of fair value were required, fair value was estimated using the market approach. Asset appraisals, published aircraft pricing guides and recent transactions for similar aircraft were considered by the Company in its market value determination. Based on the results of these tests, the Company determined that an impairment of $38 million existed which was attributable to the Company’s fleet of owned B737 aircraft and related spare parts. In addition, as of December 31, 2008, the Company performed an impairment test of its B737 aircraft. Based on this analysis, the Company recorded an additional charge of $107 million to reduce the carrying value of the B737 aircraft. As described in Note 2, “Company Operational Plans,” the Company is retiring its entire B737 fleet earlier than originally planned.
          Due to the unfavorable economic and industry factors described above, the Company also determined in the second quarter of 2008 that it was required to perform an impairment test of its $105 million of pre-delivery aircraft deposits and related capitalized interest. The Company determined that these aircraft deposits were completely impaired and wrote off their full carrying value. The Company believes that it is highly unlikely that it will take these future aircraft deliveries and, therefore, the Company will be required to forfeit the deposits, which are also not transferable.
          As a result of the impairment testing described above, the Company’s goodwill and certain of its indefinite-lived intangible assets and tangible assets were recorded at fair value. In accordance withFSP 157-2,the Company has not applied SFAS 157 to the determination of the fair value of these assets.


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          However, the provisions of SFAS 157 were applied to the determination of the fair value of financial assets and financial liabilities that were part of the SFAS 142 Step Two goodwill fair value determination.
          The carrying value of the Company’s intangible assets or tangible long-lived assets as of December 31, 2008 may decrease in future periods as a result of factors such as decreased demand for aircraft, decreases in revenues, fuel price volatility and adverse economic conditions, among others.
          Intangibles
          The following table presents information about the intangible assets, including goodwill, at December 31, 2008 and 2007, respectively:
                               
            Weighted
          		             
            Average Life of
          		  2008  2007 
            Assets
          		  Gross Carrying
          		  Accumulated
          		  Gross Carrying
          		  Accumulated
          		 
          (Dollars in millions) (in years)  Amount  Amortization  Amount  Amortization 
           
          Amortized intangible assets                    
          Airport slots and gates  9  $72  $30  $72  $22 
          Hubs  20   145   22   145   14 
          Patents  3   70   68   70   45 
          Mileage Plus database  7   521   179   521   137 
          Contracts  13   140   35   216   101 
          Other  7   13   5   18   5 
                               
             10  $961  $339  $1,042  $324 
                               
          Unamortized intangible assets                    
          Goodwill     $—      $2,280     
          Airport slots and gates      237       255     
          Route authorities      1,146       1,146     
          Tradenames      688       752     
                               
                $2,071      $4,433     
                               
          During 2008, the Company wrote off its entire goodwill balance as discussed above. The Company initially recorded goodwill of $2,756 million upon its exit from bankruptcy. Unamortized intangible assets, other than goodwill, decreased by $82 million during 2008 as a result of a $64 million impairment of codeshare agreements and the Company’s tradenames and an $18 million decrease in airport slots and gates related to the sale of assets. During the year ended December 31, 2007, goodwill decreased by $423 million due to a $414 million reduction of the valuation allowance for the deferred tax assets established at fresh-start, $6 million due to the adoption of FIN 48 and $3 million due to a change in estimate of tax accruals existing at the Effective Date.
          Total amortization expense recognized was $92 million and $155 million for the years ended December 31, 2008 and 2007, $169 million for the eleven month period ended December 31, 2006 and $1 million for the one month period ended January 31, 2006. The Company expects to record amortization expense of $69 million, $63 million, $58 million, $55 million and $52 million for 2009, 2010, 2011, 2012 and 2013, respectively.
          (4) Voluntary Reorganization Under Chapter 11
          Bankruptcy Considerations.  The following discussion provides general background information regarding the Company'sCompany’s Chapter 11 cases and is not intended to be an exhaustive summary. Detailed information pertaining to the bankruptcy filings may be obtained atwww.pd-ual.com.

          On December 9, 2002 (the "Petition Date"“Petition Date”), UAL, United and 26 direct and indirect wholly-owned subsidiaries (collectively, the "Debtors"“Debtors”) filed voluntary petitions to reorganize their businesses under


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          Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the "Bankruptcy Court"“Bankruptcy Court”). On January 20, 2006, the Bankruptcy Court confirmed the Debtors'Debtors’ Second Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code (the "Plan“Plan of Reorganization"Reorganization”). The Plan of Reorganization became effective and the Debtors emerged from bankruptcy protection on February 1, 2006 (the "Effective Date"“Effective Date”). Pursuant to the Plan of Reorganization, UAL issued new debt and equity securities to certain of its creditors. On the Effective Date, the Company implemented fresh-start reporting.

                  The Plan of Reorganization generally provided for the full payment or reinstatement of allowed administrative claims, priority claims and secured claims, and the distribution of new equity and debt securities to the Debtors' creditors and employees in satisfaction of allowed unsecured and deemed claims. The Plan of Reorganization contemplated UAL issuing up to 125 million shares of common stock (out of the one billion shares of new common stock authorized under its certificate of incorporation), including approximately 115 million shares of common stock to unsecured creditors and employees, up to 9.825 million shares of common stock (or options or other rights to acquire shares) under the management equity incentive plan approved by the Bankruptcy Court; and up to 175,000 shares of common stock (or options or other rights to acquire shares) under the director equity incentive plan approved by the Bankruptcy Court. The new common stock was listed on the NASDAQ National Market and began trading under the symbol "UAUA" on February 2, 2006.

                  Pursuant to the Plan of Reorganization, UAL issued 5 million shares of 2% mandatorily convertible preferred stock to the Pension Benefit Guaranty Corporation ("PBGC"), approximately $150 million in aggregate principal amount of 5% senior convertible notes issued to holders of certain


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (1) Voluntary Reorganization Under Chapter 11 (Continued)


          municipal bonds, $726 million in aggregate principal amount of 4.5% senior limited-subordination convertible notes issued in July 2006 to certain irrevocable trusts established for the benefit of certain employees, and $500 million in aggregate principal amount of 6% senior notes issued to the PBGC. Pursuant to the Plan of Reorganization, UAL may also be obligated to issue up to $500 million of 8% senior unsecured notes to the PBGC contingent upon UAL's future financial performance. See Note 12, "Debt Obligations," for further information.

          Significant Bankruptcy Matters Resolved in 2007.2008.  During 2007, matters2008, the San Francisco International Airport (“SFO”) municipal bond secured interest matter was resolved. HSBC Bank Inc. (“HSBC”), as trustee for the 1997 municipal bonds related to SFO, had filed a complaint against United asserting a security interest in United’s leasehold for portions of its maintenance base at SFO. HSBC alleged that it was entitled to be paid the terminationvalue of that security interest, which HSBC had once claimed was as much as $257 million. HSBC and United went to trial in April 2006 and the Bankruptcy Court rejected as a matter of law HSBC’s $257 million claim. HSBC subsequently alleged that it was entitled to $154 million, or at a minimum, approximately $93 million. The parties tried the case and filed post-trial briefs which were heard by the Bankruptcy Court. In October 2006, the Bankruptcy Court issued its written opinion holding that the value of the security interest is approximately $27 million. United Airlines Pilot Defined Benefit Pension Plan (the "Pilot Plan") were resolved inhas accrued this amount as its estimated obligation at December 31, 2008. During 2008, HSBC withdrew its appeal to the Company's favor. The matters generally involved (a) whether the Pilot Plan should have been involuntary terminated under the Employee Retirement Income Security Act, and (b) the obligationSeventh Circuit Court of Appeals of the CompanyDistrict Court’s affirmance of the October 2006 Bankruptcy Court ruling. The matter is now final and United expects to make benefit payments underpay the plan pending the resolution of such termination. These matters were resolved during 2007 as a result of favorable rulings by the applicable courts and exhaustion of all avenues available for appeal.

          amount due to HSBC in 2009.

          Significant Matters Remaining to be Resolved in Chapter 11 Cases.    The following matters remain to be resolved in  There is pending litigation before the Bankruptcy Court or another court.regarding the extent to which the Los Angeles International Airport (“LAX”) municipal bond debt is entitled to secured status under Section 506(a) of the Bankruptcy Code. At December 31, 2006, United had accrued $60 million for this matter. Trial on this matter occurred during April 2007 and the two parties filed post-trial briefs in the second quarter of 2007. In August 2007, the Bankruptcy Court issued its written opinion holding that the value of the security interest is approximately $33 million, which United had accrued at December 31, 2007 and 2008. The District Court affirmed the Bankruptcy Court’s rulings and the trustee for the bondholders has appealed the matter to the Seventh Circuit Court of Appeals, which is pending. SeeClaims Resolution ProcessShare-Based Payment, below,(“SFAS 123R”) effective January 1, 2006. SFAS 123R requires companies to measure the cost of employee services received in exchange for detailsan award of special items recognized inequity instruments based on theStatements of Consolidated Operations for these matters.

            (a)
            SFO Municipal Bond Secured Interest.    HSBC Bank Inc. ("HSBC"), as trustee for the 1997 municipal bonds related to San Francisco International Airport ("SFO"), filed a complaint against United asserting a security interest in United's leasehold for portions of its maintenance base at SFO. Pursuant to Section 506(a) of the Bankruptcy Code, HSBC alleges that it is entitled to be paid the value of that security interest, which HSBC had claimed was as much as $257 million. HSBC and United went to trial in April 2006 and the Bankruptcy Court rejected as a matter of law HSBC's $257 million claim. HSBC subsequently alleged that it was entitled to $154 million, or at a minimum, approximately $93 million. The parties tried the case and filed post-trial briefs which were heard by the Bankruptcy Court. In October 2006, the Bankruptcy Court issued its written opinion holding that the grant-date fair value of the security interestaward. The resulting cost is approximately $27 million.recognized over the period during which


            96

          an employee is required to provide service in exchange for the award, usually the vesting period. See Note 7, “Share-Based Compensation Plans,” for additional information.
          (n) Ticket Taxes—Certain governmental taxes are imposed on United’s ticket sales through a fee included in ticket prices. United has accrued this amount as its estimated obligation at December 31, 2007. After the Bankruptcy Court denied various post-trial motions, both parties have appealedcollects these fees and remits them to the District Courtappropriate government agency. These fees are recorded on a net basis (excluded from operating revenues).
          (o) Early Retirement of Leased Aircraft—The Company accrues for the present value of future minimum lease payments, net of estimated sublease rentals (if any) in the period aircraft are removed from service. When reasonably estimable and those appealsprobable, the Company estimates maintenance lease return condition obligations for items such as minimum aircraft and engine conditions specified in leases and accrues these amounts as contingent rent ratably over the lease term while the aircraft are pending.

          (b)
          LAX Municipal Bond Secured Interest.    Thereoperating, and any remaining unrecognized estimated obligations are accrued in the period an aircraft is pending litigation beforeremoved from service. In addition, the Bankruptcy Court regardingCompany accrues for an early termination lease penalty in the extentperiod that the Company executes an early return agreement with a lessor.
          (p) New Accounting Pronouncements—In May 2008, the FASB issued FASB Staff Position (“FSP”) No. APB14-1,Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)(“APB14-1”). APB14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to whichseparately account for the Los Angeles International Airport ("LAX") municipal bond debt is entitled to secured status under Section 506(a)liability (debt) and equity (conversion option) components of the Bankruptcy Code. At December 31, 2006, United had accrued $60 millioninstrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. APB14-1, which is applied retrospectively, is effective for this matter. Trial on this matter occurred during April 2007 and the two parties filed post-trial briefs in the second quarter of 2007. In August 2007, the Bankruptcy Court issued its written opinion holdingCompany beginning January 1, 2009. The Company estimates that the fair value of the security interest isequity component of its two convertible debt instruments that may be cash settled was approximately $33$250 million which United has accrued at December 31, 2007. Both parties have appealedthe time of issuance of these instruments. This discount will be applied retrospectively to the District CourtCompany’s financial statements from the date of adoption of fresh-start reporting and those appealsamortized over the expected five-year life of the notes resulting in increased interest expense in historical and future periods.
          In June 2008, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) issued EITF Issue07-5,Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock,(“EITF 07-5”) which is effective for the Company beginning January 1, 2009.EITF 07-5 provides additional guidance as to the phrase “indexed to an entity’s own stock” for purposes of determining whether certain instruments or embedded features qualify for a scope exception in Statement of Financial Accounting Standards No. 133,Accounting for Derivative Instruments and Hedging Activities(“SFAS 133”). The Company is still evaluating the impact, if any, that the adoption ofEITF 07-5 will have on its results of operations and financial position based on its current financial instruments. The impact, if any, would be recorded as a cumulative adjustment to beginning retained earnings.
          In June 2008, the FASB issued FSPNo. EITF 03-6-1,Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities(“EITF 03-6-1”).EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation under the two-class method of calculating earnings per share.EITF 03-6-1, which will be applied retrospectively to the date of fresh-start reporting, is effective for the Company beginning January 1, 2009. The Company expects that the retrospective application ofEITF 03-6-1 will result in increases in the basic shares outstanding used to compute basic earnings per share of approximately 1.4 million, 2.0 million and 2.7 million shares for the years ended December 31, 2008 and 2007 and eleven month period ended December 31, 2006, respectively. The Company does not expect thatEITF 03-6-1 will change its previously reported diluted earnings per share.
          In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161,Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133(“SFAS 161”). This Statement changes the disclosure requirements for


          97

          derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for the Company for periods beginning January 1, 2009. The Company will incorporate the additional disclosures required under SFAS 161 into its future consolidated financial statements.
          In February 2008, the FASB issued FSPNo. 157-2, Effective Date of FASB Statement No. 157(“FSP 157-2”). This FSP delayed the effective date of Statement of Financial Accounting Standards No. 157,Fair Value Measurements(“SFAS 157”) for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until periods beginning January 1, 2009. The Company is currently evaluating the impact of SFAS 157 on the reporting and disclosure of its nonfinancial assets and nonfinancial liabilities.
          In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007),Business Combinations(“SFAS 141R”). This statement replaces Statement of Financial Accounting Standards No. 141,Business Combinations(“SFAS 141”). SFAS 141R retains the fundamental requirements in Statement No. 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. In addition, SFAS 141R provides new guidance intended to improve reporting by creating greater consistency in the accounting and financial reporting of business combinations, resulting in more complete, comparable and relevant information for users of financial statements. SFAS 141R is effective for the Company for any business combinations with an acquisition date on or after January 1, 2009. In accordance with the provisions of SFAS 141R that amended Statement of Financial Accounting Standards No. 109,Accounting for Income Taxes(“SFAS 109”), beginning January 1, 2009, the Company will be required to recognize any changes in the valuation allowance for deferred tax assets, which was established as part of fresh-start reporting, to be recognized as an adjustment to income tax expense. This reflects a change from current practice which requires changes in the valuation allowance to first reduce goodwill to zero and then to reduce intangible assets to zero.
          In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51(“SFAS 160”). This statement amends Accounting Research Bulletin 51,Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest (also known as minority interest) in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for the Company for periods beginning January 1, 2009. The Company does not expect the adoption of SFAS 160 to have a significant impact on its consolidated financial statements.
          (q) Income Tax Contingencies—The Company has recorded reserves for income taxes and associated interest that may become payable in future years. Certain of these reserves are pending.

                  Claims Resolution Process.    As permitted under the bankruptcy process, the Debtors' creditors filed proofs of claimfor uncertain income tax positions which are accounted for in accordance with the Bankruptcy Court. Through the claims resolution process,FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes(“FIN 48”), effective January 1, 2007. Although management believes that its positions taken on income tax matters are reasonable, the Company identified many claims which were disallowednevertheless has established tax and interest reserves in recognition that various taxing authorities may challenge certain of the positions taken by the Bankruptcy CourtCompany, potentially resulting in additional liabilities for taxes and interest. The Company’s tax contingency reserves are reviewed periodically and are adjusted as events occur that affect its estimates, such as the availability of new information, the lapsing of applicable statutes of limitations, the conclusion of tax audits, the measurement of additional estimated liability, the identification of new tax contingencies, the release of administrative tax guidance affecting its estimates of tax liabilities,


          98

          or the rendering of relevant court decisions. See Note 8, “Income Taxes,” for further information related to uncertain income tax positions and the adoption of FIN 48.
          (2) Company Operational Plans
          The volatility of and increases in crude oil prices, a weakening economic environment and a highly competitive industry with excess capacity have created an extremely challenging environment for the Company. The Company’s cash flows and results of operations have been adversely impacted by these factors as indicated by its net loss of $5.3 billion during the year ended December 31, 2008. The Company’s results in 2008 include asset impairment charges of approximately $2.6 billion that resulted primarily from unfavorable market and economic conditions as discussed in Note 3, “Asset Impairments and Intangible Assets.” These factors have had a significant negative impact on the Company’s liquidity as unrestricted cash and short-term investments decreased by $1.5 billion in 2008 to $2.0 billion at December 31, 2008. In addition, the Company may not be able to improve its liquidity position with cash from operations in 2009 because of lower demand for air travel during 2009 and a weak global economy. The Company is implementing certain operational plans to address its increased operating costs and its liquidity needs in 2009. In addition, the Company continues to evaluate the most cost-effective alternatives to raise additional capital, including asset sales and financings. Highlights of the Company’s operational plans and financings include the following:
          • The Company is significantly reducing mainline domestic and consolidated capacity. Fourth quarter 2008 mainline domestic and consolidated capacity were down approximately 14% and 11%year-over-year, respectively. The Company is planning to further decrease mainline domestic and consolidated capacity in 2009.
          • The capacity reductions are being made through reductions in frequencies of routes and the elimination of unprofitable routes. These actions have resulted in the closure of a small number of reasons, such as claims that were duplicative, amended or supersededairport operations where United cannot operate profitably in the current economic environment. Additional airport operations may be closed in future periods.
          • The Company has announced plans to permanently remove 100 aircraft from its mainline fleet, including its entire B737 fleet and six B747 aircraft, by later filed claims, were without merit, or were otherwise overstated. Throughout the Chapter 11 proceedings,end of 2009. The B737 aircraft being retired are some of the oldest and least fuel efficient in the Company’s fleet. This planned reduction reflects the Company’s efforts to eliminate unprofitable capacity and divest the Company resolved many claims


          UAL Corporationof assets that currently do not provide an acceptable return.

          • United is eliminating its Ted product for leisure markets and Subsidiary Companies

          Combined Noteswill reconfigure that fleet’s 56 A320s to Consolidated Financial Statements (Continued)

          (1) Voluntary Reorganization Under Chapter 11 (Continued)


          through settlement or objections orderedinclude United First seating. The reconfiguration of the Ted aircraft will occur in stages, with expected completion by the Bankruptcy Court. The Companyyear-end 2009. We will continue to settle claimsreview the deployment of all of our aircraft in various markets and file additional objectionsthe overall composition of our fleet to ensure that we are using our assets appropriately to provide the best available return.

          • In connection with the Bankruptcy Court.

                  With respectcapacity reductions, the Company is further streamlining its operations and corporate functions in order to unsecured claims, once a claimreduce the size of its workforce to match the size of its operations.

          • The Company also recently entered into an alliance partnership with Continental Airlines that is deemedexpected to be valid, either through the Bankruptcy Court process or through other means, the claimantcreate revenue enhancements, costs savings and operational efficiencies.
          • The Company is entitled to a distribution of common stockmanaging its liquidity by investing only in Successor UAL. Pursuant to the terms of the Plan of Reorganization, 115 million shares of common stock in Successor UAL have been authorized to be issued to satisfy valid unsecured claims. The Bankruptcy Court confirmed the Plan of Reorganization and established January 20, 2006those projects that are considered high-value, such as the record dateinternational premium product. The Company has $0.2 billion of binding commitments for purposesthe purchase of establishing the persons that are claimholdersproperty in 2009 and $0.8 billion of record to receive distributions. Approximately 112.2 million common shares have been issued and distributed to holders of valid unsecured claims between February 2, 2006, the first distribution date establishedlong-term debt obligations in the Plan of Reorganization, and December 31, 2007. 2009.
          • As of December 31, 2007, approximately 46,000 valid unsecured claims aggregating to approximately $29.2 billion in claim value had received those common shares to satisfy those claims. There are 2,802,797 remaining shares of UAL common stock held in reserve to satisfy all of the remaining disputed and undisputed unsecured claim values, once the remaining claim disputes are resolved. The final distributions of shares will not occur until 2008, or later, pending resolution of bankruptcy matters.

                  The Company's current estimate of the probable range of unsecured claims to be allowed by the Bankruptcy Court is between $29.3 billion and $29.6 billion. Differences between claim amounts filed and the Company's estimates continue to be investigated and will be resolved in connection with the claims resolution process. However, there will be no further financial impact to the Company associated with the settlementhas 62 unencumbered aircraft and other assets that may be used as collateral to obtain additional financing. The Company could also sell certain of such unsecured claims, as the holders of all allowed unsecured claims will receive under the Plan of Reorganization no more than their pro rata share of the distribution of the 115 million shares of common stock of Successor UAL, together with the previously-agreed issuance of certain securities.

                  With respectthese assets to valid administrative and priority claims, pursuant to the terms of the Plan of Reorganization these claims will be satisfied with cash. Many asserted administrative and priority claims still remain unpaid, andgenerate liquidity.


          99

          • As discussed in Note 23, “Subsequent Events,” in January 2009, the Company will continue to settle claims and file objections with the Bankruptcy Court to eliminate or reduce such claims. In addition, certain disputes, the most significantcompleted several financing-related transactions which generated approximately $315 million of which are discussed in "Significant Matters Remaining to be Resolved in Chapter 11 Cases," above, still remain with respect to the valuation of certain claims. The Company accrued an obligation for claims it believed were reasonably estimable and probable at the Effective Date. However, the claims resolution process is uncertain and adjustments to claims estimates could result in material adjustments to the Successor Company's financial statements in future periods as a result of court rulings, the receipt of new or revised information or the finalization of these matters.

                  The table below includes activity related to the administrative and priority claims and other bankruptcy-related claim reserves including reserves related to legal, professional and tax matters, among others, for the Successor Company for the twelve and eleven monthsproceeds.

          The following is a discussion of expenses associated with implementing the Company’s plans. In addition, see Note 3, “Asset Impairments and Intangible Assets,” for a discussion of the impairment charges recorded during the year ended December 31, 2008.
          Severance.  During 2008, the Company reduced its workforce in operations and corporate functions through attrition and both voluntary and involuntary furloughs. The Company is streamlining its workforce to match the reduced capacity of its operations. The Company reduced its workforce in 2008 and plans to further reduce its workforce in 2009. Workforce reductions include salaried and management positions and certain of the Company’s unionized workforce. The Company’s standard severance policies provide the affected employees with salary continuation as well as certain insurance benefits for a specified period of time. The Company recognizes its severance obligations in accordance with Statement of Financial Accounting Standards No. 112 (As Amended),Employers’ Accounting for Postemployment Benefits—an amendment of FASB Statements No. 5 and 43, except for voluntary programs which are accounted for under Statement of Financial Accounting Standards No. 88,Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.
          The following is a reconciliation of the Company’s severance accrual activity:
               
          (In millions)
          		   
          Balance at January 1, 2008 $— 
          Accruals  106 
          Payments  (25)
               
          Balance at December 31, 2008 $81 
               
          In addition to involuntary furloughs, the Company is currently offering furlough-mitigation programs, such as voluntary early-out options, primarily to certain union groups. Termination benefits expected to be paid under such voluntary programs are not recognized until the employees accept the termination benefit offer. Therefore, as the Company continues to implement its reductions in force during 2009, additional severance costs may be incurred. Severance expense is classified within salaries and related costs in the Company’sStatements of Consolidated Operations.Severance charges are expected to be primarily within the mainline segment where the fleet reductions will occur.
          Aircraft.  The following table provides additional information regarding UAL and United aircraft including the impacts of the fleet reductions discussed above.
                                                
            B737s (Mainline)   All Other Mainline          
                               Total
          		  Regional
          		    
            Owned  Leased  Total   Owned  Leased  Total  Mainline  Affiliates  Total 
          Operating:                                     
          Aircraft at December 31, 2007 (a)  47   47   94    208   158   366   460   279   739 
          Added (removed) from operating fleet  (29)  (19)  (48)   (3)  —   (3)  (51)  1   (50)
          Converted from owned to leased (b)  —   —   —    (24)  24   —   —   —   — 
          Converted from leased to owned (c)  —   —   —    10   (10)  —   —   —   — 
                                                
          Aircraft at December 31, 2008 (d)  18   28   46    191   172   363   409   280   689 
                                                
          Removed from operating fleet in 2008 (e)  29   19   48    3   —   3   51   —   51 
          Sold/returned to lessor during 2008  (5)  (7)  (12)   —   —   —   (12)  —   (12)
                                                
          Nonoperating at December 31, 2008 (a) (e)  24   12   36    3   —   3   39   —   39 
                                                
          (a)At December 31, 2007, the Company had 113 unencumbered aircraft. In 2007, United leased one operating aircraft from UAL and 2006, respectively. These reservestherefore had one less owned B737 aircraft and one more leased aircraft as compared to UAL’s fleet. This particular aircraft became nonoperational in 2008; therefore, United has one less nonoperating owned B737 aircraft and one more leased aircraft as compared to UAL’s fleet at December 31, 2008.


          100

          (b)During 2008, the Company sold 24 aircraft and leased them back. See Note 15, “Lease Obligations,” for additional information related to these sale-leaseback transactions.
          (c)During 2008, the Company acquired certain aircraft under existing lease terms.
          (d)At December 31, 2008, United’s operating fleet was the same as UAL’s fleet and included 62 unencumbered aircraft. The unencumbered aircraft at December 31, 2008 exclude nine aircraft which became encumbered with the December 2008 signing of a binding sale-leaseback agreement that closed in January 2009. See Note 12, “Debt Obligations and Card Processing Agreements,” and Note 23, “Subsequent Events,” for additional information.
          (e)As of December 31, 2008, the owned nonoperating aircraft and engines are primarily classified in other current liabilitiesas Other non-current assets in the Company’sStatements of Consolidated Financial PositionPosition.. Certain of the accrual adjustments identified belowThese aircraft are a direct result of the Company's ongoing efforts to resolve certain bankruptcy pre-confirmation


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (1) Voluntary Reorganization Under Chapter 11 (Continued)


          contingencies and do not relate directly to the Company's ongoing performance; therefore, the Company considers these adjustments to be special.

          (In millions)
          		 2007
          		 2006
          		 
          Balance at January 1, 2007 and February 1, 2006 $325 $583 
           Payments  (83) (193)
           Accruals reclassified  (31) — (a)
           Adjustments impacting income:       
            Accrual adjustments classified as special revenue credits  (45) — (b)
            Other changes in contingent liabilities classified as revenues  (26) — (c)
            Accrual adjustments classified as special expense credits  (30) (36)(d)
            Accrual adjustments classified as other operating expense credits  (12) (29)(e)
            
          		 
          		 
           Total adjustments impacting income  (113) (65)
            
          		 
          		 
          Balance at December 31, 2007 and 2006 $98 $325 
            
          		 
          		 
          Total credit to operating income during period from above items $(113)$(65)
          Additional special operating expense credit  (14) — (f)
            
          		 
          		 
          Total operating income benefit $(127)$(65)
            
          		 
          		 
          (a)
          This amount relates to accruals that are still recognized in the Company'sStatements of Consolidated Financial Position; however, these accruals are now deemed to be no longer directly related to bankruptcy proceedings; therefore, the accruals are no longer classified as part of bankruptcy administrative and priority claims.

          (b)
          Inassets held for sale because the third quarter of 2007, the Company recorded a change in estimate for certain liabilities relating to bankruptcy administrative claims. This adjustment resulted directly from the progression of the Company's ongoing efforts to resolve certain bankruptcy pre-confirmation contingencies; therefore, it was classified as a special operating revenue credit of $45 million that relates to both Mainline passenger revenues ($37 million) and United Express revenues ($8 million).

          (c)
          The Company separately recorded a $26 million benefit from a change in estimate to certain other contingent liabilities based largely on changes in underlying facts and circumstances occurring during the third quarter. This benefit was recorded as a credit to mainline passenger revenues of $22 million, and to regional affiliate revenues of $4 million.

          (d)
          The 2007 amount relates to special operating expense credits of $30 million relating to ongoing litigation for San Francisco and Los Angeles facility lease secured interests as discussed above. For 2006, the $36 million benefit consists of a $12 million net benefit related to SFO and LAX lease litigation and a $24 million benefit related to pension matters, as discussed in Note 20, "Special Items."

          (e)
          This amount relates to accrual adjustments impacting various operating expense line items that the Company recorded due to a change in estimate for certain liabilities relating to bankruptcy administrative claims. These adjustments resulted directly from the progression of the Company's ongoing efforts to resolve certain bankruptcy pre-confirmation contingencies.

          (f)
          This amount relates to an accrual adjustment that the Company recorded due to a change in estimate for certain liabilities relating to bankruptcy administrative claims. This adjustment, which was recorded as a credit to other operating expense, resulted directly from the progression of the Company's ongoing efforts to resolve certain bankruptcy pre-confirmation contingencies.

          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (1) Voluntary Reorganization Under Chapter 11 (Continued)

                  Financial Statement Presentation.    The Company has prepared the accompanying consolidated financial statements in accordance with SOP 90-7 and on a going-concern basis, which assumes continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business.

                  SOP 90-7 requires that the financial statements for periods after a Chapter 11 filing separate transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, all transactions (including, but not limited to, all professional fees, realized gains and losses and provisions for losses) directly associated with the reorganization and restructuring of the business are reported separately in the financial statements as reorganization items, net. For the month ended January 31, 2006 and the year ended December 31, 2005, the Predecessor Company recognized the following primarily non-cash reorganization income (expense) in its financial statements:

           
          		 Period from January 1 to January 31, 2006
          		 Year Ended December 31, 2005
          		 
          (In millions)
          		 
           UAL
          		 United
          		 UAL
          		 United
          		 
          Discharge of claims and liabilities $24,628 $24,389 $— $— (a)
          Revaluation of frequent flyer obligations  (2,399) (2,399) —  — (b)
          Revaluation of other assets and liabilities  2,106  2,111  —  — (c)
          Employee-related charges  (898) (898) (6,529) (6,529)(d)
          Contract rejection charges  (429) (421) (523) (523)(e)
          Professional fees  (47) (47) (230) (230)
          Pension-related charges  (14) (14) (8,925) (8,925)(f)
          Aircraft claim charges  —  —  (3,005) (2,967)(g)
          Municipal bond charges  —  —  (688) (688)(h)
          Retiree-related charges  —  —  (652) (652)(i)
          Impairment on lease certificates  —  —  (134) (3)(j)
          Aircraft refinance adjustments  —  —  60  60 (j)
          Other  (13) (12) 25  25 
            
          		 
          		 
          		 
          		 
            $22,934 $22,709 $(20,601)$(20,432)
            
          		 
          		 
          		 
          		 
          (a)
          The discharge of claims and liabilities primarily relates to those unsecured claims arising during the bankruptcy process, such as those arising from the termination and settlement of the Company's U.S. defined benefit pension plans and other employee claims; aircraft-related claims, such as those arising as a result of aircraft rejections; other unsecured claims due to the rejection or modification of executory contracts, unexpired leases and regional carrier contracts; and claims associated with certain municipal bond obligations based upon their rejection, settlement or the estimated impact of the outcome of pending litigation. In accordance with the Plan of Reorganization, the Company discharged its obligations to unsecured creditors in exchange for the distribution of 115 million common shares of Successor UAL and the issuance of certain other UAL securities. Accordingly, UAL and United recognized a non-cash reorganization gain of $24.6 billion and $24.4 billion, respectively.

          (b)
          The Company revalued its Mileage Plus Frequent Flyer Program ("Mileage Plus") obligations at fair value as a result of fresh-start reporting, which resulted in a $2.4 billion non-cash reorganization charge.

          (c)
          In accordance with fresh-start reporting, the Company revalued its assets at their estimated fair value and liabilities at estimated fair value or the present value of amounts to be paid. This resulted in a non-cash reorganization gain of $2.1 billion, primarily as a result of newly recognized intangible assets, offset partly by reductions in the fair value of tangible property and equipment.

          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (1) Voluntary Reorganization Under Chapter 11 (Continued)

          (d)
          In exchange for employees' contributions to the successful reorganization of the Company, including agreeing to reductions in pay and benefits, the Company agreed in the Plan of Reorganization to provide each employee group a deemed claim which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each employee group received a deemed claim amount based upon a portion of the value of cost savings provided by that group through reductions to pay and benefits as well as through certain work rule changes. The total value of this deemed claim was approximately $7.4 billion. As of December 31, 2005, the Company recorded a non-cash reorganization charge of $6.5 billion for the deemed claim amount for all union-represented employees. The remaining $0.9 billion associated with non-represented salaried and management employees was recorded as a reorganization charge in January 2006, upon confirmation of the Plan of Reorganization.

          (e)
          Contract rejection charges are non-cash costs that include estimated claim values resulting from the Company's rejection or negotiated modification of certain contractual obligations such as executory contracts, unexpired leases and regional carrier contracts.

          (f)
          Upon termination and settlement of the Pension Plans, the Company recognized non-cash curtailment charges of $640 million in 2005, associated with actions taken by the PBGC to involuntarily terminate United Air Lines, Inc. Ground Employees' Retirement Plan (the "Ground Employees Plan"), United Airlines Flight Attendant Defined Benefit Pension Plan (the "Flight Attendant Plan") and United Airlines Management, Administrative and Public Contact Defined Benefit Pension Plan ("MAPC Plan"). The PBGC was appointed trustee for the Ground Employees Plan effective May 23, 2005 and the MAPC Plan and the Flight Attendant Plan, both effective June 30, 2005, and the Pilot Plan effective October 26, 2005, assuming all rights and powers over the pension assets and obligations of each plan. Upon termination and settlement of these plans, the Company recognized non-cash net settlement losses of approximately $1.1 billion in 2005 in accordance with Statement of Financial Accounting Standards No. 88,Employer's Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits ("SFAS 88"). Further, the Company recognized a non-cash charge of $7.2 billion related to a final settlement with the PBGC as a result of the termination of the defined benefit pension plans. In addition, the Company recognized a non-cash settlement loss in the amount of $10 million during 2005 for the termination of the non-qualified supplemental retirement plan for management employees who had benefits under the tax-qualified pension plan that couldmay not be paid under the qualified plan due to Internal Revenue Code limitations.

          (g)
          Aircraft claim charges include the Company's estimate of claims incurred as a result of the rejection of certain aircraft leases and return of aircraft as part of the bankruptcy process, together with certain claims resulting from the modification of other aircraft financings in bankruptcy.

          (h)
          Municipal bond obligations include the Company's best estimate of unsecured claims incurred as a result of certain restructured municipal bond obligations, together with certain claims expected to result from the rejection and litigation of other municipal bond obligations. The ultimate disposition of the SFO and LAX security interests remain subject to the uncertain outcome of pending litigation.

          (i)
          In 2004, the Company reached agreement with representatives of its retirees to modify medical and life insurance benefits for individuals who had retired from United before July of 2003, as provided under Section 1114 of the Bankruptcy Code ("retiree welfare benefit claims"). As a result, the Company proposed, as part of the approved Plan of Reorganization, a general unsecured claim for these changes to retiree benefits for each of the eligible individuals. The aggregate amount of retiree welfare benefit claims allowed by the Bankruptcy Court pursuant to these agreements and the Company's confirmed Plan of Reorganization was approximately $652 million.

          (j)
          In accordance with the term sheets reached with the Public Debt Group, UAL agreed to cancel certain 1997-1 EETC certificates that were held by a related party. Accordingly, in 2005, UAL recorded a non-cash charge in the amount of $134 million for the principal and interest on such certificates. In addition, the Company recorded adjustments retroactively for aircraft rent and interest expense in the amount of $60 million to reflect the revised aircraft financing terms.

                  Fresh-Start Reporting.    Upon emergence from its Chapter 11 proceedings on February 1, 2006, the Company adopted fresh-start reporting in accordance with SOP 90-7. The Company's emergence from Chapter 11 resulted in a new reporting entity with no retained earnings or accumulated deficit.


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (1) Voluntary Reorganization Under Chapter 11 (Continued)


          Accordingly, the Company's consolidated financial statements on or after February 1, 2006 are not comparable to its pre-emergence consolidated financial statements because they are, in effect, those of a new entity. See the Company'sStatements of Consolidated Financial Position, below.

                  Fresh-start reporting reflects the value of the Company as determined in the confirmed Plan of Reorganization. Under fresh-start reporting, the Company's asset values are remeasured using fair value, and are allocated in conformity with Statement of Financial Accounting Standards No. 141,Business Combinations ("SFAS 141"). The excess of reorganization value over the fair value of net tangible and identifiable intangible assets and liabilities is recorded as goodwill in the accompanyingStatements of Consolidated Financial Position. In addition, fresh-start reporting also requires that all liabilities, other than deferred taxes, should be stated at fair value or at the present values of the amounts to be paid using appropriate market interest rates. Deferred taxes are determined in conformity with Statement of Financial Accounting Standards No. 109,Accounting for Income Taxes ("SFAS 109"). In accordance with SOP 90-7, the Company was required to adopt on February 1, 2006 all accounting guidance that was going to become effective within the subsequent twelve-month period. In accordance with SFAS 141, the preliminary allocation of the reorganization value was subject to additional adjustmentsold within one year after emergence from bankruptcy to provide the Company with the time to complete the valuation of its assets and liabilities. See (c) "Revaluation of Assets and Liabilities," below, for further information about adjustments recorded by the Company after the Effective Date.

                  Estimates of fair value represent the Company's best estimates, which are based on industry data and trends and by reference to relevant market rates and transactions, and discounted cash flow valuation methods, among other factors. To facilitate the calculation of the enterprise value of the Successor Company, the Company developed a set of financial projections. Based on these financial projections, the equity value was determined by the Company, using various valuation methods, including (i) a comparison of the Company and its projected performance to the market values of comparable companies; (ii) a review and analysis of several recent transactions of companies in similar industries to the Company; and (iii) a calculation of the present value of the future cash flows of the Company under its projections. The estimated enterprise value, and corresponding equity value, is highly dependent upon achieving the future financial results set forth in the projections as well as the realization of certain other assumptions. The estimated equity value of the Company was calculated to be approximately $1.9 billion. The estimates and assumptions made in this valuation are inherently subject to significant uncertainties and the resolution of contingencies beyond the reasonable control of the Company. Accordingly, there can be no assurance that the estimates, assumptions, and amounts reflected in the valuations will be realized, and actual results could vary materially. Moreover, the market value of UAL's common stock may differ materially from the equity valuation.

                  The implementation of the Plan of Reorganization and the effects of the consummation of the transactions contemplated therein, which included settlement of various liabilities, issuance of certain securities, incurrence of new indebtedness, repayment of old indebtedness, and other cash payments and the adoption of fresh-start reporting in the Company'sStatements of Consolidated Financial Position are presented below. As discussed in Note 12, "Debt Obligations," certain instruments issued by UAL have been pushed down to United and are reflected as obligations of United. As the UAL and United


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (1) Voluntary Reorganization Under Chapter 11 (Continued)


          amounts are substantially identical, the table below provides detail of UAL amounts and summarized United amounts.

           
          		  
          		 Fresh-Start Adjustments
          		  
           
          		  
          		 (a)
          		 (b)
          		 (c)
          		  
          (In millions, except shares)
          		 Predecessor
          		 Settlement of
          Unsecured
          Claims
          		 Reinstatement
          of Liabilities
          		 Revaluation
          of Assets and
          Liabilities
          		 Successor
          UAL Assets               
          Current assets:               
           Cash and cash equivalents $1,631 $— $— $— $1,631
           Restricted cash  847  —  —  1  848
           Short-term investments  75  —  —  —  75
           Receivables, net  935  —  —  10  945
           Prepaid fuel  280  —  —  —  280
           Aircraft fuel, spare parts and supplies, net  195  —  —  (24) 171
           Deferred income taxes  27  —  —  102  129
           Prepaid expenses and other  499  —  —  105  604
            
          		 
          		 
          		 
          		 
             4,489  —  —  194  4,683
            
          		 
          		 
          		 
          		 
          Operating property and equipment:               
           Owned—               
            Flight equipment  13,446  —  —  (4,842) 8,604
            Advances on flight equipment  128  (25) —  —  103
            Other property and equipment  3,838  —  —  (2,545) 1,293
            
          		 
          		 
          		 
          		 
             17,412  (25) —  (7,387) 10,000
            Less—Accumulated depreciation and
              amortization          		  (6,158) —  —  6,158  —
            
          		 
          		 
          		 
          		 
             11,254  (25) —  (1,229) 10,000
            
          		 
          		 
          		 
          		 
           Capital leases—               
            Flight equipment  2,581  —  —  (1,145) 1,436
            Other property and equipment  84  —  —  (69) 15
            
          		 
          		 
          		 
          		 
             2,665  —  —  (1,214) 1,451
            Less—Accumulated amortization  (747) —  —  747  —
            
          		 
          		 
          		 
          		 
             1,918  —  —  (467) 1,451
            
          		 
          		 
          		 
          		 
             13,172  (25) —  (1,696) 11,451
            
          		 
          		 
          		 
          		 
          Other assets:               
           Intangibles, net  350  —  —  2,842  3,192
           Goodwill  17  14  —  2,734  2,765
           Aircraft lease deposits  492  —  —  —  492
           Restricted cash  315  —  —  —  315
           Investments  25  —  —  87  112
           Prepaid rent  66  —  —  (58) 8
           Pension assets  10  —  —  (9) 1
           Other, net  619  —  —  201  820
            
          		 
          		 
          		 
          		 
             1,894  14  —  5,797  7,705
            
          		 
          		 
          		 
          		 
           UAL total assets $19,555 $(11)$— $4,295 $23,839
            
          		 
          		 
          		 
          		 
           United total assets $19,595 $(11)$— $4,416 $24,000
            
          		 
          		 
          		 
          		 

          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (1) Voluntary Reorganization Under Chapter 11 (Continued)

           
          		  
          		 Fresh-Start Adjustments
          		  
           
          		  
          		 (a)
          		 (b)
          		 (c)
          		  
          (In millions, except shares)
          		 Predecessor
          		 Settlement of
          Unsecured
          Claims
          		 Reinstatement
          of Liabilities
          		 Revaluation
          of Assets and
          Liabilities
          		 Successor
          UAL Liabilities & Stockholders' Equity
              (Deficit)          		               
          Current liabilities:               
           Long-term debt maturing within one year $13 $— $519 $— $532
           Advance ticket sales  1,679  —  —  (14) 1,665
           Mileage Plus deferred revenue  709  —  —  356  1,065
           Accrued salaries, wages and benefits  927  37  —  —  964
           Advanced purchase of miles  686  —  —  —  686
           Accounts payable  614  —  —  3  617
           Fuel purchase commitments  280  —  —  —  280
           Current obligations under capital leases  20  —  77  (5) 92
           Other  617  90  546  (18) 1,235
            
          		 
          		 
          		 
          		 
             5,545  127  1,142  322  7,136
            
          		 
          		 
          		 
          		 
          Long-term debt:               
           DIP Financing  1,157  —  —  —  1,157
           Limited-Subordination Notes  —  708  —  —  708
           Other  141  424  5,115  (143) 5,537
            
          		 
          		 
          		 
          		 
             1,298  1,132  5,115  (143) 7,402
            
          		 
          		 
          		 
          		 
          Long-term obligations under capital leases  101  —  1,209  (35) 1,275
            
          		 
          		 
          		 
          		 
          Other liabilities and deferred credits:               
           Mileage Plus deferred revenue  276  —  —  2,065  2,341
           Postretirement benefit liability  1,918  —  —  66  1,984
           Deferred income taxes  478  —  —  218  696
           Deferred pension liability  95  —  —  29  124
           Other  552  1  79  12  644
            
          		 
          		 
          		 
          		 
             3,319  1  79  2,390  5,789
            
          		 
          		 
          		 
          		 
          Liabilities subject to compromise  36,336  (28,136) (7,545) (655) —
            
          		 
          		 
          		 
          		 
          Mandatorily convertible preferred stock  —  352  —  —  352
            
          		 
          		 
          		 
          		 
          Stockholders' equity (deficit):               
           Preferred stock  —  —  —  —  —
           ESOP preferred stock  —  —  —  —  —
           Common stock at par  1  1  —  (1) 1
           Additional capital invested  5,064  1,884  —  (5,064) 1,884
           Retained earnings (deficit)  (30,606) 24,628  —  5,978  —
           Stock held in treasury, at cost               
            Preferred, 10,213,519 depositary
              shares          		  (305) —  —  305  —
            Common, 16,121,446 shares  (1,162) —  —  1,162  —
           Accumulated other comprehensive
              income (loss)          		  (36) —  —  36  —
            
          		 
          		 
          		 
          		 
             (27,044) 26,513  —  2,416  1,885
            
          		 
          		 
          		 
          		 
          UAL total liabilities & stockholders'
              equity (deficit)          		 $19,555 $(11)$— $4,295 $23,839
            
          		 
          		 
          		 
          		 
          United total liabilities & stockholder's
              equity (deficit)          		 $19,595 $(11)$— $4,416 $24,000
            
          		 
          		 
          		 
          		 
          (a)
          Settlement of Unsecured Claims.    This column reflects a discharge of $28.1 billion and $28.0 billion of liabilities subject to compromise pursuant to the terms of the Plan of Reorganization for UAL and United, respectively. Along with other

          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (1) Voluntary Reorganization Under Chapter 11 (Continued)

            creditor and employee claims incurred through the bankruptcy proceedings (i.e., by the rejection of aircraft, executory contracts, etc.), discharged liabilities include claims related to termination of the Debtors' defined benefit pension plans. Pursuant to the Plan of Reorganization, the unsecured creditors will receive 115 million common shares of Successor UAL in satisfaction of such claims, together with certain UAL debt securities and UAL preferred stock. UAL and United recorded $24.6 billion and $24.4 billion, respectively, of non-cash reorganization gains on the discharge of unsecured claims net of newly-issued securities. See "Financial Statement Presentation," above for further details.

          (b)
          Reinstatement of Liabilities.    This column reflects the reinstatement of certain secured liabilities pursuant to the terms of the Plan of Reorganization.year. As a result of the reinstatement of liabilities, the Company reclassified $7.5 billion of liabilities subject to compromise.

          •
          $7.1 billion represents the reinstatement of secured debt plus accrued interest.

          •
          $0.4 billion represents accruals for administrativeimpairment testing discussed in Note 3, “Asset Impairments and priority payments, reinstatement of certain municipal bond obligations, and other accruals of payments required under the Plan of Reorganization.

          (c)
          Revaluation ofIntangible Assets, and Liabilities.    Fresh-start adjustments were made to reflect asset values” these assets have been recorded at their estimated fair value and liabilities at estimated fair value or the presentnet realizable value of amounts to be paid, including:

          •
          Recognition of additional estimated fair value of $2.8 billion for international route authorities, airport slots, trade names and other separately-identifiable intangible assets,

          •
          Recognition of additional estimated fair value of $2.4 billion for the Mileage Plus frequent flyer obligation,

          •
          Adjustments of $1.3 billion to reduce the values of operating property and equipment, including owned assets and assets under capital leases, to their estimated fair market value,

          •
          Adjustments of $0.4 billion to reduce recorded flight equipment net book value as a result of refinancing certain aircraft from mortgage and capital lease financing to operating lease financing,

          •
          The elimination of the Predecessor Company's equity accounts, and establishment of the opening equity of the Successor Company, and

          •
          Net changes in deferred tax assets and liabilities, together with other miscellaneous adjustments.

                  Additionally, the Company recorded goodwill of $2.8 billion upon exit from bankruptcy to reflect the excess of the Successor Company's reorganization value over the estimated fair value of net tangible and identifiable intangible assets and liabilities. In addition, deferred tax assets and liabilities were adjusted based upon additional information, including adjustments to fair value estimates of underlying assets and liabilities.

                  Post-Emergence Items.    Certain additional Successor Company transactions occurred on or after February 2, 2006 and have been reflected in the accompanyingStatements of Consolidated Financial Position$198 million at December 31, 2006.2008.

          During 2008, the Company expensed $24 million related to the retirement of leased aircraft, of which $16 million remained accrued and unpaid at December 31, 2008. These amounts consist of the present value of future lease payments for aircraft that have been removed from service in advance of their lease termination dates as of December 31, 2008, estimated payments for lease return maintenance conditions related to B737 aircraft and the write-off of fresh-start lease fair value adjustments. Periodic lease payments will be made over the lease terms of these aircraft unless early return agreements are reached with the lessors; and, lease return maintenance condition payments, if any, will be made upon return of the aircraft to the lessors. The total expected payments for leased aircraft that were grounded at December 31, 2008 and that are expected to be grounded in 2009 are $132 million, payable through 2013. These estimated payments are future lease payments and estimated lease maintenance return condition payments. Actual lease payments may be less if the Company is able to negotiate early termination of any of its leases.
          Other costs.  As the Company continues to implement the operational plans discussed above, it may incur additional costs related to its conversion of the Company’s fleet of Ted aircraft, costs to exit additional facilities such as airports no longer served, lease termination costs, additional severance costs and asset impairment charges, among others. Such future costs and charges may be material.
          (3)         Release of Segregated Funds.    The Company reclassified $271 million for the release of cash previously restricted by a certain credit card processor. Additionally, $200 million of cash segregated for the payment of certain tax liabilitiesAsset Impairments and recorded as other current assets before the Effective Date, was released and reclassified to unrestricted cash.Intangible Assets

                  Goodwill.    During the eleven months ended December 31, 2006, goodwill was decreased by $62 million as a result of reversing the valuation allowance for deferred tax assets. See Note 8, "Intangibles," for further information.

          Asset Impairments
          In accordance with SFAS 142 and SFAS 144, as of May 31, 2008 the Company performed an interim impairment test of its goodwill, all intangible assets and certain of its long-lived assets (principally aircraft and related spare engines and spare parts) due to events and changes in circumstances that indicated an impairment might have occurred. In addition, the Company also performed an interim impairment test on certain of its aircraft fleet types as of December 31, 2008 due to management’s determination that unfavorable market conditions indicated potential impairment of value. Factors deemed by management to have collectively constituted an impairment triggering event included record high fuel prices, significant losses in the first and second quarters of 2008, a softening U.S. economy, analyst downgrade of UAL common stock, rating agency changes in outlook for the Company’s debt instruments from stable to negative, the announcement of the planned removal from UAL’s fleet of 100 aircraft in 2008 and 2009 and a significant decrease in the fair value of UAL’s outstanding equity and debt securities during the first five months of 2008, including a decline in UAL’s market capitalization to significantly below book value. The Company’s consolidated fuel expense increased by more than 50% during this period.
          As a result of this impairment testing, for which certain estimates made in the second quarter of 2008 were adjusted to final values in the third quarter of 2008, the Company recorded impairment charges during the year ended December 31, 2008, as presented in the table below. All of these impairment charges are within the mainline segment. All of the impairments other than the goodwill impairment, which is separately identified, are classified within “Other impairments and special items” in the Company’sStatements of Consolidated Operations.

                  DIP and Credit Facility Financing Transactions.    On the Effective Date, the Company received $1.4 billion in net proceeds from the credit facility, consisting of borrowings of $2.6 billion under the credit facility which includes $161 million borrowed under the revolving credit facility, and the simultaneous repayment of the Company's $1.2 billion debtor-in-possession credit facility (the "DIP Financing"). For further details, see Note 12, "Debt Obligations."


          101

               
            Year Ended
          		 
          (In millions)
          		 December 31, 2008 
          Goodwill impairment $2,277 
               
          Indefinite-lived intangible assets:    
          Codeshare agreements  44 
          Tradenames  20 
               
          Intangible asset impairments  64 
               
          Tangible assets:    
          Pre-delivery advance deposits including related capitalized interest  105 
          B737 aircraft, B737 spare parts and other  145 
               
          Aircraft and related deposit impairments  250 
               
          Total impairments $2,591 
               
          Goodwill
          For purposes of testing goodwill, the Company performed Step One of the SFAS 142 test by estimating the fair value of the mainline reporting unit (to which all goodwill is allocated) utilizing several fair value measurement techniques, including two market estimates and one income estimate and using relevant data available through and as of May 31, 2008. The market approach is a valuation technique in which fair value is estimated based on observed prices in actual transactions and on asking prices for similar assets. The valuation process is essentially that of comparison and correlation between the subject asset and other similar assets. The income approach is a technique in which fair value is estimated based on the cash flows that an asset could be expected to generate over its useful life, including residual value cash flows. These cash flows are discounted to their present value equivalents using a rate of return that accounts for the relative risk of not realizing the estimated annual cash flows and for the time value of money. Variations of the income approach were used to determine certain of the intangible asset fair values.
          Under the market approaches, the fair value of the mainline reporting unit was estimated based upon the fair value of invested capital for UAL, as well as a separate comparison to revenue and EBITDAR multiples for similar publicly traded companies in the airline industry. The fair value estimates using both market approaches included a control premium similar to those observed for historical airline and transportation company market transactions.
          Under the income approach, the fair value of the mainline reporting unit was estimated based upon the present value of estimated future cash flows for UAL. The income approach is dependent on a number of critical management assumptions including estimates of future capacity, passenger yield, traffic, operating costs (including fuel prices), appropriate discount rates and other relevant assumptions. The Company estimated its future fuel-related cash flows for the income approach based on thefive-year forward curve for crude oil as of May 31, 2008. The impacts of the Company’s aircraft and other tangible and intangible asset impairments were considered in the fair value estimation of the mainline reporting unit.
          Taking into consideration an equal weighting of the two market estimates and the income estimate, which has been the Company’s practice when performing annual goodwill impairment tests, the indicated fair value of the mainline reporting unit was less than its carrying value, and therefore, the Company was required to perform Step Two of the SFAS 142 goodwill impairment test.

          102

          In Step Two of the impairment test, the Company determined the implied fair value of goodwill of the mainline reporting unit by allocating the fair value of the reporting unit determined in Step One to all the assets and liabilities of the mainline reporting unit, including any recognized and unrecognized intangible assets, as if the mainline reporting unit had been acquired in a business combination and the fair value of the mainline reporting unit was the acquisition price. As a result of the Step Two testing, the Company determined that goodwill was completely impaired and therefore recorded an impairment charge during the second quarter of 2008 to write-off the full value of goodwill.
          Indefinite-lived intangible assets
          2008 Interim Impairment Test
          The Company utilized appropriate valuation techniques to separately estimate the fair values of all of its indefinite-lived intangible assets as of May 31, 2008 and compared those estimates to related carrying values. Tested assets included tradenames, international route authorities, London Heathrow slots and codesharing agreements. The Company used a market or income valuation approach, as described above, to estimate fair values. Based on the results of this testing, the Company recorded a $64 million impairment charge to indefinite-lived intangible assets for the year ended December 31, 2008.
          Annual Impairment Tests
          United performed annual impairment reviews of its indefinite-lived intangible assets as of October 1, 2008 and 2007 and of its goodwill as of October 1, 2007 and determined that no impairment was indicated.
          Long-lived assets
          For purposes of testing impairment of long-lived assets at May 31, 2008, the Company determined whether the carrying amount of its long-lived assets was recoverable by comparing the carrying amount to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. If the carrying value of the assets exceeded the expected cash flows, the Company estimated the fair value of these assets to determine whether an impairment existed. The Company grouped its aircraft by fleet type to perform this evaluation and used data and assumptions through May 31, 2008. The estimated undiscounted cash flows were dependent on a number of critical management assumptions including estimates of future capacity, passenger yield, traffic, operating costs (including fuel prices) and other relevant assumptions. If estimates of fair value were required, fair value was estimated using the market approach. Asset appraisals, published aircraft pricing guides and recent transactions for similar aircraft were considered by the Company in its market value determination. Based on the results of these tests, the Company determined that an impairment of $38 million existed which was attributable to the Company’s fleet of owned B737 aircraft and related spare parts. In addition, as of December 31, 2008, the Company performed an impairment test of its B737 aircraft. Based on this analysis, the Company recorded an additional charge of $107 million to reduce the carrying value of the B737 aircraft. As described in Note 2, “Company Operational Plans,” the Company is retiring its entire B737 fleet earlier than originally planned.
          Due to the unfavorable economic and industry factors described above, the Company also determined in the second quarter of 2008 that it was required to perform an impairment test of its $105 million of pre-delivery aircraft deposits and related capitalized interest. The Company determined that these aircraft deposits were completely impaired and wrote off their full carrying value. The Company believes that it is highly unlikely that it will take these future aircraft deliveries and, therefore, the Company will be required to forfeit the deposits, which are also not transferable.
          As a result of the impairment testing described above, the Company’s goodwill and certain of its indefinite-lived intangible assets and tangible assets were recorded at fair value. In accordance withFSP 157-2,the Company has not applied SFAS 157 to the determination of the fair value of these assets.


          103

          However, the provisions of SFAS 157 were applied to the determination of the fair value of financial assets and financial liabilities that were part of the SFAS 142 Step Two goodwill fair value determination.
          The carrying value of the Company’s intangible assets or tangible long-lived assets as of December 31, 2008 may decrease in future periods as a result of factors such as decreased demand for aircraft, decreases in revenues, fuel price volatility and adverse economic conditions, among others.
          Intangibles
          The following table presents information about the intangible assets, including goodwill, at December 31, 2008 and 2007, respectively:
                               
            Weighted
          		             
            Average Life of
          		  2008  2007 
            Assets
          		  Gross Carrying
          		  Accumulated
          		  Gross Carrying
          		  Accumulated
          		 
          (Dollars in millions) (in years)  Amount  Amortization  Amount  Amortization 
           
          Amortized intangible assets                    
          Airport slots and gates  9  $72  $30  $72  $22 
          Hubs  20   145   22   145   14 
          Patents  3   70   68   70   45 
          Mileage Plus database  7   521   179   521   137 
          Contracts  13   140   35   216   101 
          Other  7   13   5   18   5 
                               
             10  $961  $339  $1,042  $324 
                               
          Unamortized intangible assets                    
          Goodwill     $—      $2,280     
          Airport slots and gates      237       255     
          Route authorities      1,146       1,146     
          Tradenames      688       752     
                               
                $2,071      $4,433     
                               
          During 2008, the Company wrote off its entire goodwill balance as discussed above. The Company initially recorded goodwill of $2,756 million upon its exit from bankruptcy. Unamortized intangible assets, other than goodwill, decreased by $82 million during 2008 as a result of a $64 million impairment of codeshare agreements and the Company’s tradenames and an $18 million decrease in airport slots and gates related to the sale of assets. During the year ended December 31, 2007, goodwill decreased by $423 million due to a $414 million reduction of the valuation allowance for the deferred tax assets established at fresh-start, $6 million due to the adoption of FIN 48 and $3 million due to a change in estimate of tax accruals existing at the Effective Date.
          Total amortization expense recognized was $92 million and $155 million for the years ended December 31, 2008 and 2007, $169 million for the eleven month period ended December 31, 2006 and $1 million for the one month period ended January 31, 2006. The Company expects to record amortization expense of $69 million, $63 million, $58 million, $55 million and $52 million for 2009, 2010, 2011, 2012 and 2013, respectively.

          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)(4) 

          		(1) Voluntary Reorganization Under Chapter 11 (Continued)

                  Adjustments of Preconfirmation Contingencies.    The Company recorded its best estimates for certain preconfirmation contingent liabilities that were not resolved at the Effective Date. In accordance with AICPA Practice Bulletin 11,Accounting for Preconfirmation Contingencies in Fresh-Start Reporting, ("Practice Bulletin 11"), the Company has recorded the impact of revisions to these estimates in current results of operations as discussed in the "Claims Resolution Process" section above and in Note 20, "Special Items."

          (2) Summary of Significant Accounting Policies

                  (a)   Basis of Presentation—UAL is a holding company whose principal subsidiary is United. The Company's consolidated financial statements include the accounts of its majority-owned affiliates. All significant intercompany transactions are eliminated. Certain prior year amounts have been reclassified to conform to the current year's presentation.

          Bankruptcy Considerations.  The following discussion provides general background information regarding the Company’s Chapter 11 cases and is not intended to be an exhaustive summary.
          On December 9, 2002 (the “Petition Date”), UAL, United and 26 direct and indirect wholly-owned subsidiaries (collectively, the “Debtors”) filed voluntary petitions to reorganize their businesses under


          104

                  Upon emergence from its Chapter 11 proceedings, the Company adopted fresh-start reporting in accordance with SOP 90-7 as of February 1, 2006. The Company's emergence from reorganization resulted in a new reporting entity with no retained earnings or accumulated deficit as of February 1, 2006. Accordingly, the Company's consolidated financial statements for periods before February 1, 2006 are not comparable to consolidated financial statements presented on or after February 1, 2006.

                  (b)   Reclassifications—In 2007, UAL and United changed their classification of certain distribution-related costs, previously included in purchased services and commissions, to classify these costs as distribution expenses in theStatements of Consolidated Operations. Prior to 2007, "Commissions" were reported as a separate expense item and credit card transaction fees and global distribution systems ("GDS") transaction expenses were part of the "Purchased services" line item. The distribution expenses previously reported for the month of January 2006, the eleven months ended December 31, 2006 and the year ended December 31, 2005 were reclassified to provide a comparable presentation with results for the year ended December 31, 2007. Amounts originally reported in the Company's 2006 Annual Report on Form 10-K as "Commissions" and amounts reported as part of "Purchased services"


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (2) Summary of Significant Accounting Policies (Continued)


          that have been reclassified to "Distribution expenses" in the Company's 2007 Annual Report on Form 10-K are shown below:

           
          		 Successor
          		 
          		 Predecessor
          		 
          (In millions)
          		 Period from
          February 1 to
          December 31,
          2006
          		  
          		 Period from
          January 1 to
          January 31,
          2006
          		 Year Ended
          December 31,
          2005
          		 
          UAL and United            
          Commissions (historical) $291   $24 $305 
          Purchased services (historical)  447    36  470 
            
          		   
          		 
          		 
          Distribution expenses (new) $738   $60 $775 
            
          		   
          		 
          		 
          UAL            
          Purchased services (historical) $1,595   $134 $1,524 
          Reclassed to distribution expense  (447)   (36) (470)
            
          		   
          		 
          		 
          Purchased services (new) $1,148   $98 $1,054 
            
          		   
          		 
          		 
          United            
          Purchased services (historical) $1,593   $133 $1,519 
          Reclassed to distribution expense  (447)   (36) (470)
            
          		   
          		 
          		 
          Purchased services (new) $1,146   $97 $1,049 
            
          		   
          		 
          		 

                  (c)   Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

                  Under fresh-start reporting, the Company's asset values were remeasured using fair value, which was allocated using the purchase method of accounting in conformity with SFAS 141. In addition, fresh-start reporting also requires that all liabilities, other than deferred taxes, should be stated at fair value, or at the present values of the amounts to be paid using appropriate market interest rates. Deferred taxes are determined in conformity with SFAS 109.

                  Estimates of the fair value of assets and liabilities were determined based on the Company's best estimates as discussed in Note 1, "Voluntary Reorganization Under Chapter 11—Fresh-Start Reporting," above. The Company also estimates fair value of its financial instruments and its reporting units and indefinite-lived intangible assets for testing impairment of indefinite-lived intangible assets, including goodwill. These estimates and assumptions are inherently subject to significant uncertainties and contingencies beyond the control of the Company. Accordingly, the Company cannot provide assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially.

                  (d)   Airline Revenues—The value of unused passenger tickets and miscellaneous charge orders ("MCO's") are included in current liabilities as advance ticket sales. United records passenger ticket sales and tickets sold by other airlines for use on United as operating revenues when the transportation is provided or when the ticket expires. Tickets sold by other airlines are recorded at the estimated values to be billed to the other airlines. Non-refundable tickets generally expire on the date of the


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (2) Summary of Significant Accounting Policies (Continued)

          intended flight, unless the date is extended by notification from the customer on or before the intended flight date. Fees charged in association with changes or extensions to nonrefundable tickets are recorded as passenger revenue at the time the fee is incurred. Change fees related to non-refundable tickets are considered a separate transaction from the air transportation because they represent a charge for the Company's additional service to modify a previous order. Therefore, the pricing of the change fee and the initial customer order are separately determined and represent distinct earnings processes. Refundable tickets expire after one year.

                  MCO's can be either exchanged for a passenger ticket or refunded after issuance. United also records an estimate of MCO's that will not be exchanged or refunded as revenue ratably over the validity period based on historical results.

                  United records an estimate of tickets that have been used, but not recorded as revenue due to system processing errors, as revenue in the month of sale based on historical results. Due to complex industry pricing structures, refund and exchange policies, and interline agreements with other airlines, certain amounts are recognized as revenue using estimates both as to the timing of recognition and the amount of revenue to be recognized. These estimates are based on the evaluation of actual historical results. United recognizes cargo and mail revenue as service is provided.

                  (e)   Cash and Cash Equivalents, Short-Term Investments, Restricted Cash—Cash in excess of operating requirements is invested in short-term, highly liquid, income-producing investments. Investments with a maturity of three months or less on their acquisition date are classified as cash and cash equivalents. Other investments are classified as short-term investments. Investments classified as held-to-maturity are stated at amortized cost, which approximates market due to their short-term maturities. Investments in debt securities classified as available-for-sale are stated at fair value. The gains or losses from sales of available-for-sale securities are included in interest income.

                  At December 31, 2007, UAL's and United's investments in debt securities classified as held-to-maturity included $1.3 billion and $1.2 billion, respectively, recorded in cash and cash equivalents and $2.3 billion recorded in short-term investments for both UAL and United. At December 31, 2006, UAL and United both had investments in debt securities classified as held-to-maturity of $3.8 billion and recorded in cash and cash equivalents and $312 million and $308 million, respectively, recorded in short-term investments.

                  Short-term and long-term restricted cash in the Company'sStatements of Consolidated Financial Position represents security for workers' compensation obligations, security deposits for airport leases and reserves with institutions that process our credit card ticket sales. Financial and other institutions with which the Company conducts its business may require additional levels of security deposits or reserve holdbacks.

          Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the “Bankruptcy Court”). On January 20, 2006, the Bankruptcy Court confirmed the Debtors’ Second Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code (the “Plan of Reorganization”). The Plan of Reorganization became effective and the Debtors emerged from bankruptcy protection on February 1, 2006 (the “Effective Date”). Pursuant to the Plan of Reorganization, UAL issued new debt and equity securities to certain of its creditors. On the Effective Date, the Company implemented fresh-start reporting.
          Significant Bankruptcy Matters Resolved in 2008.  During 2008, the San Francisco International Airport (“SFO”) municipal bond secured interest matter was resolved. HSBC Bank Inc. (“HSBC”), as trustee for the 1997 municipal bonds related to SFO, had filed a complaint against United asserting a security interest in United’s leasehold for portions of its maintenance base at SFO. HSBC alleged that it was entitled to be paid the value of that security interest, which HSBC had once claimed was as much as $257 million. HSBC and United went to trial in April 2006 and the Bankruptcy Court rejected as a matter of law HSBC’s $257 million claim. HSBC subsequently alleged that it was entitled to $154 million, or at a minimum, approximately $93 million. The parties tried the case and filed post-trial briefs which were heard by the Bankruptcy Court. In October 2006, the Bankruptcy Court issued its written opinion holding that the value of the security interest is approximately $27 million. United has accrued this amount as its estimated obligation at December 31, 2008. During 2008, HSBC withdrew its appeal to the Seventh Circuit Court of Appeals of the District Court’s affirmance of the October 2006 Bankruptcy Court ruling. The matter is now final and United expects to pay the amount due to HSBC in 2009.
          Significant Matters Remaining to be Resolved in Chapter 11 Cases.  There is pending litigation before the Bankruptcy Court regarding the extent to which the Los Angeles International Airport (“LAX”) municipal bond debt is entitled to secured status under Section 506(a) of the Bankruptcy Code. At December 31, 2006, United had accrued $60 million for this matter. Trial on this matter occurred during April 2007 and the two parties filed post-trial briefs in the second quarter of 2007. In August 2007, the Bankruptcy Court issued its written opinion holding that the value of the security interest is approximately $33 million, which United had accrued at December 31, 2007 and 2008. The District Court affirmed the Bankruptcy Court’s rulings and the trustee for the bondholders has appealed the matter to the Seventh Circuit Court of Appeals, which is pending. See Note 7, "Investments," for information related to the Company's investments in non-current debt securities.

                  (f)    Aircraft Fuel, Spare Parts and Supplies—The Company records fuel, maintenance, operating supplies, and aircraft spare parts at cost when acquired, and provides an obsolescence allowance for aircraft spare parts.

                  (g)   Operating Property and Equipment—Owned operating property and equipment, and equipment under capital leases, were stated at fair value as of February 1, 2006. The Company records additions


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (2) Summary of Significant Accounting Policies (Continued)


          to owned operating property and equipment at cost when acquired. Property under capital leases, and the related obligation for future lease payments, is recorded at an amount equal to the initial present value of those lease payments.

                  Depreciation and amortization of owned depreciable assets is based on the straight-line method over the assets' estimated service lives. Leasehold improvements are amortized over the remaining term of the lease, including estimated facility renewal options when renewal is reasonably assured at key airports, or the estimated service life of the related asset, whichever is less. Aircraft are depreciated to estimated salvage values, generally over lives of 27 to 30 years; buildings are depreciated over lives of 25 to 45 years; and other property and equipment are depreciated over lives of 4 to 15 years.

                  Properties under capital leases are amortized on the straight-line method over the life of the lease or, in the case of certain aircraft, over their estimated service lives. Lease terms are 5 to 17 years for aircraft and 40 years for buildings. Amortization of capital leases is included in depreciation and amortization expense.

                  Maintenance and repairs, including the cost of minor replacements, are charged to maintenance expense as incurred, except for costs incurred under our power-by-the-hour engine maintenance agreements, which are expensed based upon the number of hours flown. Costs of additions to and renewals of units of property are capitalized as property and equipment additions.

                  (h)   Mileage Plus Awards—As a result of the adoption of fresh-start reporting, the Mileage Plus frequent flyer obligation was revalued at the Effective Date to reflect the estimated fair value of miles to be redeemed in the future. Outstanding miles earned by flying United or its partner carriers were revalued using a weighted-average per-mile equivalent ticket value, taking into account such factors as historical redemption patterns, differing classes of service and domestic and international ticket itineraries, which can be reflected in awards chosen by Mileage Plus members.

                  The Successor Company also elected to change its accounting policy as of the Effective Date from an incremental cost basis to a deferred revenue model, to measure its obligation for miles to be redeemed based upon the equivalent ticket value of similar fares on United or amounts paid to Star Alliance partners, as applicable. Effective December 31, 2007, United's policy for customer accounts which are inactive for a period of 18 consecutive months is to cancel all miles contained in those accounts at the end of the 18 month period of inactivity. The Company recognizes revenue from the expiration of miles in such deactivated accounts by amortizing such expiration over the 18 month expiration period.

                  Prior to December 31, 2007, the expiration period was 36 months and revenue from expiration was amortized over the 36 month expiration period. This change in the expiration period provided a benefit to United's operating revenues of $246 million for the year ended December 31, 2007. The pre-tax diluted per share benefit to UAL was approximately $1.60 for the year ended December 31, 2007. Additional future changes to program rules and program redemption opportunities can significantly alter customer behavior from historical patterns, which may result in material changes to the deferred revenue balance, as well as passenger revenues.

                  See Note 18, "Advanced Purchase of Miles," for additional information related to the Mileage Plus program.


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (2) Summary of Significant Accounting Policies (Continued)

                  (i)    Deferred Gains—Gains on aircraft sale and leaseback transactions are deferred and amortized over the terms of the related leases as a reduction of aircraft rent expense.

                  (j)    United Express—United has agreements under which independent regional carriers, flying under the United Express name, connect passengers to other United Express and/or United flights (the latter of which we also refer to as "mainline" operations, to distinguish them from United Express regional operations). The vast majority of United Express flights are operated under capacity agreements, while a relatively smaller number are operated under prorate agreements.

                  United Express operating revenues and expenses are classified as "Passenger—Regional Affiliates" and "Regional affiliates," respectively, in theStatements of Consolidated Operations, the latter includes both allocated and direct costs. Direct costs represent expenses that are specifically and exclusively related to United Express flying activities, such as capacity agreement payments, commissions, booking fees, fuel expenses and dedicated staffing. The capacity agreement payments are based on specific rates for various operating expenses of the United Express carriers, such as crew expenses, maintenance and aircraft ownership, some of which are multiplied by specific operating statistics (e.g., block hours, departures) while others are fixed per month. Allocated costs represent United Express's portion of shared expenses and include charges for items such as airport operating costs, reservation-related costs, credit card discount fees and facility rents. For each of these expense categories, the Company estimates United Express's portion of total expense and allocates the applicable portion of expense to the United Express carrier.

                  United has the right to exclusively operate and direct the operations of these aircraft, and accordingly the minimum future lease payments for these aircraft are included in the Company's lease obligations. See Note 10, "Segment Information" and Note 16, "Lease Obligations," for additional information related to United Express.

                  The Company recognizes revenue as flown on a net basis for flights on United Express covered by prorate agreements.

                  United has call options on 152 regional jet aircraft currently being operated by certain United Express carriers. At December 31, 2007, none of the call options were exercisable because none of the required conditions to make an option exercisable by the Company were met.

                  (k)   Advertising—Advertising costs, which are included in other operating expenses, are expensed as incurred.

                  (l)    Intangibles—Goodwill represents the excess of the reorganization value of the Successor Company over the fair value of net tangible assets and identifiable intangible assets and liabilities resulting from the application of SOP 90-7. Indefinite-lived intangible assets are not amortized but are reviewed for impairment annually or more frequently if events or circumstances indicate that the asset may be impaired. The Mileage Plus customer database is amortized on an accelerated basis utilizing cash flows correlating to the expected attrition rate of the Mileage Plus database. The other customer relationships, which are included in "Contracts," are amortized in a manner consistent with the timing and amount of revenues that the Company expects to generate from these customer relationships. All other definite-lived intangible assets are amortized on a straight-line basis over the estimated lives of the related assets.


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (2) Summary of Significant Accounting Policies (Continued)

                  In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), the Company applies a fair value-based impairment test to the net book value of goodwill and indefinite-lived intangible assets on an annual basis as of October 1, or on an interim basis whenever a triggering event occurs. SFAS 142 requires that a two-step impairment test be performed on goodwill. In the first step, the Company compares the fair value of each reporting unit to its carrying value. If the fair value of a reporting unit exceeds the carrying value of the net assets of the reporting unit, goodwill is not impaired and the Company is not required to perform further testing. If the carrying value of the net assets of a reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step to determine the implied fair value of the goodwill and compare it to the carrying value of the goodwill. If the carrying value of goodwill exceeds its implied fair value, then the Company must record an impairment charge equal to such difference.

                  The Company assesses the fair value of its reporting units considering both the market and income approaches. Under the market approach, fair value is based on a comparison of similar publicly traded companies. Under the income approach, fair value is based on the present value of estimated future cash flows. The income approach is dependent on a number of assumptions including estimates of future capacity, passenger yield, traffic, operating costs including jet fuel prices, appropriate discount rates and other relevant assumptions.

                  No impairments of goodwill or indefinite-lived assets have been identified since the Effective Date. See Note 8, "Intangibles" for additional information.

                  (m)  Measurement of Impairments—In accordance with Statement of Financial Accounting Standards No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets and SFAS 142, the Company evaluates the carrying value of long-lived assets and intangible assets subject to amortization whenever events or changes in circumstances indicate that an impairment may exist. An impairment charge is recognized when the asset's carrying value exceeds its net undiscounted future cash flows and its fair market value. The amount of the charge is the difference between the asset's carrying value and fair market value.

                  (n)   Share-Based Compensation—The Company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004),Share-Based Payment ("(“SFAS 123R"123R”) effective January 1, 2006. This pronouncementSFAS 123R requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The resulting cost is recognized over the period during which


          96

          an employee is required to provide service in exchange for the award, usually the vesting period.

                  Before the adoption of SFAS 123R, the Company accounted for these plans under Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees, ("APB 25") and disclosed the pro forma compensation expense as required under Statement of Financial Accounting Standards No. 123,Accounting for Stock Based Compensation, ("SFAS 123"). No stock-based employee compensation cost for stock options is reflected in the Company's financial statements for 2005, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. If compensation cost for stock-based employee compensation plans had been determined using the fair value recognition provisions of SFAS 123, the Company's 2005 net loss and loss per share would have increased by $4 million and four cents, respectively. See Note 5, "Share-Based7, “Share-Based Compensation Plans,"” for additional information.


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (2) Summary of Significant Accounting Policies (Continued)

                  (o)   
          (n) Ticket Taxes—Taxes—Certain governmental taxes are imposed on United'sUnited’s ticket sales through a fee included in ticket prices. United collects these fees and remits them to the appropriate government agency. These fees are recorded on a net basis (excluded from operating revenues).

          (o) Early Retirement of Leased Aircraft—The Company accrues for the present value of future minimum lease payments, net of estimated sublease rentals (if any) in the period aircraft are removed from service. When reasonably estimable and probable, the Company estimates maintenance lease return condition obligations for items such as minimum aircraft and engine conditions specified in leases and accrues these amounts as contingent rent ratably over the lease term while the aircraft are operating, and any remaining unrecognized estimated obligations are accrued in the period an aircraft is removed from service. In addition, the Company accrues for an early termination lease penalty in the period that the Company executes an early return agreement with a lessor.
          (p) New Accounting Pronouncements—Pronouncements—In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,Fair Value Measurements ("SFAS 157"), which defines fair value, establishes a framework for measuring fair value, and expands disclosure about fair value measurements. SFAS 157 does not require any new fair value measurements; rather it specifies valuation methods and disclosures to be applied when fair value measurements are required under existing or future accounting pronouncements. As originally issued, SFAS 157 is effective for fiscal years beginning January 1, 2008. The Company does not expect the adoption of SFAS 157 with respect to its financial assets and financial liabilities to have a material impact on its results of operations or financial position.

                  In FebruaryMay 2008, the FASB issued FASB Staff Position ("FSP"(“FSP”) No. FAS 157-b. This FSP delayedAPB14-1,Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)(“APB14-1”). APB14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. APB14-1, which is applied retrospectively, is effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until periodsCompany beginning January 1, 2009. The Company is currently evaluatingestimates that the impactfair value of SFAS 157 on the reporting and disclosureequity component of its nonfinancial assets and nonfinancial liabilities.

                  In February 2007,two convertible debt instruments that may be cash settled was approximately $250 million at the FASB issued Statementtime of Financial Accounting Standards No. 159,The Fair Value Option for Financial Assets and Financial Liabilities Including an amendmentissuance of FASB Statement No. 115 ("SFAS 159").these instruments. This statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective of SFAS 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This statement does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value. This statement is effective for the Company as of January 1, 2008. The Company did not elect to apply the provisions of SFAS 159 to any of its existing financial assets or financial liabilities at January 1, 2008.

                  In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007),Business Combinations ("SFAS 141R"). This statement replaces Statement of Financial Accounting Standards No. 141,Business Combinations. SFAS 141R retains the fundamental requirements in Statement No. 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. In addition, SFAS 141R provides new guidance intended to improve reporting by creating greater consistency in the accounting and financial reporting of business combinations, resulting in more complete, comparable, and relevant information for investors and other users of financial statements. SFAS 141R is effective for the Company for any business combinations with an acquisition date on or after January 1, 2009. The Company will apply the provisions of SFAS 141R to any business combinations within the scope of SFAS 141R after its effective date. In accordance with the provisions of SFAS 141R that amended SFAS 109, beginning January 1, 2009, the Companydiscount will be requiredapplied retrospectively to recognize any changes in the valuation allowance for deferred tax assets, which was established as partCompany’s financial statements from the date of adoption of fresh-start reporting to be recognized as an adjustment to income tax expense. This reflects a change from current practice which


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (2) Summaryamortized over the expected five-year life of Significant Accounting Policies (Continued)


          requires changesthe notes resulting in the valuation allowance to first reduce goodwill to zeroincreased interest expense in historical and then to reduce intangible assets to zero.

                  In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 ("SFAS 160"). This statement amends Accounting Research Bulletin 51, "Consolidated Financial Statements," to establish accounting and reporting standards for the noncontrolling interest (also known as minority interest) in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for the Company for periods beginning January 1, 2009. The Company is currently evaluating the impact of SFAS 160 on its consolidated financial statements.

                  In 2006, the Company adopted FASB Statement of Financial Accounting Standards No. 158,Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132R ("SFAS 158").

          future periods.

          In June 2008, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) issued EITF Issue07-5,Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock,(“EITF 07-5”) which is effective for the Company beginning January 1, 2009.EITF 07-5 provides additional guidance as to the phrase “indexed to an entity’s own stock” for purposes of determining whether certain instruments or embedded features qualify for a scope exception in Statement of Financial Accounting Standards No. 133,Accounting for Derivative Instruments and Hedging Activities(“SFAS 133”). The Company is still evaluating the impact, if any, that the adoption ofEITF 07-5 will have on its results of operations and financial position based on its current financial instruments. The impact, if any, would be recorded as a cumulative adjustment to beginning retained earnings.
          In June 2008, the FASB issued FSPNo. EITF 03-6-1,Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities(“EITF 03-6-1”).EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation under the two-class method of calculating earnings per share.EITF 03-6-1, which will be applied retrospectively to the date of fresh-start reporting, is effective for the Company beginning January 1, 2009. The Company expects that the retrospective application ofEITF 03-6-1 will result in increases in the basic shares outstanding used to compute basic earnings per share of approximately 1.4 million, 2.0 million and 2.7 million shares for the years ended December 31, 2008 and 2007 and eleven month period ended December 31, 2006, respectively. The Company does not expect thatEITF 03-6-1 will change its previously reported diluted earnings per share.
          In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161,Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133(“SFAS 161”). This Statement changes the disclosure requirements for


          97

          derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for the Company for periods beginning January 1, 2009. The Company will incorporate the additional disclosures required under SFAS 161 into its future consolidated financial statements.
          In February 2008, the FASB issued FSPNo. 157-2, Effective Date of FASB Statement No. 157(“FSP 157-2”). This FSP delayed the effective date of Statement of Financial Accounting Standards No. 157,Fair Value Measurements(“SFAS 157”) for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until periods beginning January 1, 2009. The Company is currently evaluating the impact of SFAS 157 on the reporting and disclosure of its nonfinancial assets and nonfinancial liabilities.
          In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007),Business Combinations(“SFAS 141R”). This statement replaces Statement of Financial Accounting Standards No. 141,Business Combinations(“SFAS 141”). SFAS 141R retains the fundamental requirements in Statement No. 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. In addition, SFAS 141R provides new guidance intended to improve reporting by creating greater consistency in the accounting and financial reporting of business combinations, resulting in more complete, comparable and relevant information for users of financial statements. SFAS 141R is effective for the Company for any business combinations with an acquisition date on or after January 1, 2009. In accordance with the provisions of SFAS 141R that amended Statement of Financial Accounting Standards No. 109,Accounting for Income Taxes(“SFAS 109”), beginning January 1, 2009, the Company will be required to recognize any changes in the valuation allowance for deferred tax assets, which was established as part of fresh-start reporting, to be recognized as an adjustment to income tax expense. This reflects a change from current practice which requires changes in the valuation allowance to first reduce goodwill to zero and then to reduce intangible assets to zero.
          In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51(“SFAS 160”). This statement amends Accounting Research Bulletin 51,Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest (also known as minority interest) in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for the Company for periods beginning January 1, 2009. The Company does not expect the adoption of SFAS 160 to have a significant impact on its consolidated financial statements.
          (q) Income Tax Contingencies—ContingenciesUAL and United have—The Company has recorded reserves for income taxes and associated interest that may become payable in future years as a result of audits by tax authorities.years. Certain of these reserves are for uncertain income tax positions taken on income tax returns which are accounted for in accordance with FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes(“FIN 48,48”), effective January 1, 2007. Although management believes that theits positions taken on previously filedincome tax returnsmatters are reasonable, UAL and Unitedthe Company nevertheless havehas established tax and interest reserves in recognition that various taxing authorities may challenge certain of the positions taken by the Company, potentially resulting in additional liabilities for taxes and interest. The Company'sCompany’s tax contingency reserves are reviewed periodically and are adjusted as events occur that affect its estimates, such as the availability of new information, the lapsing of applicable statutes of limitations, the conclusion of tax audits, the measurement of additional estimated liability, based on current calculations, the identification of new tax contingencies, the release of administrative tax guidance affecting its estimates of tax liabilities,


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          or the rendering of relevant court decisions. See Note 6, "Income8, “Income Taxes,"” for further information related to uncertain income tax positions and the adoption of FIN 48.
          (2) 

          		(3)Company Operational Plans
          The volatility of and increases in crude oil prices, a weakening economic environment and a highly competitive industry with excess capacity have created an extremely challenging environment for the Company. The Company’s cash flows and results of operations have been adversely impacted by these factors as indicated by its net loss of $5.3 billion during the year ended December 31, 2008. The Company’s results in 2008 include asset impairment charges of approximately $2.6 billion that resulted primarily from unfavorable market and economic conditions as discussed in Note 3, “Asset Impairments and Intangible Assets.” These factors have had a significant negative impact on the Company’s liquidity as unrestricted cash and short-term investments decreased by $1.5 billion in 2008 to $2.0 billion at December 31, 2008. In addition, the Company may not be able to improve its liquidity position with cash from operations in 2009 because of lower demand for air travel during 2009 and a weak global economy. The Company is implementing certain operational plans to address its increased operating costs and its liquidity needs in 2009. In addition, the Company continues to evaluate the most cost-effective alternatives to raise additional capital, including asset sales and financings. Highlights of the Company’s operational plans and financings include the following:
          • The Company is significantly reducing mainline domestic and consolidated capacity. Fourth quarter 2008 mainline domestic and consolidated capacity were down approximately 14% and 11%year-over-year, respectively. The Company is planning to further decrease mainline domestic and consolidated capacity in 2009.
          • The capacity reductions are being made through reductions in frequencies of routes and the elimination of unprofitable routes. These actions have resulted in the closure of a small number of airport operations where United cannot operate profitably in the current economic environment. Additional airport operations may be closed in future periods.
          • The Company has announced plans to permanently remove 100 aircraft from its mainline fleet, including its entire B737 fleet and six B747 aircraft, by the end of 2009. The B737 aircraft being retired are some of the oldest and least fuel efficient in the Company’s fleet. This planned reduction reflects the Company’s efforts to eliminate unprofitable capacity and divest the Company of assets that currently do not provide an acceptable return.
          • United is eliminating its Ted product for leisure markets and will reconfigure that fleet’s 56 A320s to include United First seating. The reconfiguration of the Ted aircraft will occur in stages, with expected completion by year-end 2009. We will continue to review the deployment of all of our aircraft in various markets and the overall composition of our fleet to ensure that we are using our assets appropriately to provide the best available return.
          • In connection with the capacity reductions, the Company is further streamlining its operations and corporate functions in order to reduce the size of its workforce to match the size of its operations.
          • The Company also recently entered into an alliance partnership with Continental Airlines that is expected to create revenue enhancements, costs savings and operational efficiencies.
          • The Company is managing its liquidity by investing only in those projects that are considered high-value, such as the international premium product. The Company has $0.2 billion of binding commitments for the purchase of property in 2009 and $0.8 billion of long-term debt obligations in 2009.
          • As of December 31, 2008, the Company has 62 unencumbered aircraft and other assets that may be used as collateral to obtain additional financing. The Company could also sell certain of these assets to generate liquidity.


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          • As discussed in Note 23, “Subsequent Events,” in January 2009, the Company completed several financing-related transactions which generated approximately $315 million of proceeds.
          The following is a discussion of expenses associated with implementing the Company’s plans. In addition, see Note 3, “Asset Impairments and Intangible Assets,” for a discussion of the impairment charges recorded during the year ended December 31, 2008.
          Severance.  During 2008, the Company reduced its workforce in operations and corporate functions through attrition and both voluntary and involuntary furloughs. The Company is streamlining its workforce to match the reduced capacity of its operations. The Company reduced its workforce in 2008 and plans to further reduce its workforce in 2009. Workforce reductions include salaried and management positions and certain of the Company’s unionized workforce. The Company’s standard severance policies provide the affected employees with salary continuation as well as certain insurance benefits for a specified period of time. The Company recognizes its severance obligations in accordance with Statement of Financial Accounting Standards No. 112 (As Amended),Employers’ Accounting for Postemployment Benefits—an amendment of FASB Statements No. 5 and 43, except for voluntary programs which are accounted for under Statement of Financial Accounting Standards No. 88,Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.
          The following is a reconciliation of the Company’s severance accrual activity:
               
          (In millions)
          		   
          Balance at January 1, 2008 $— 
          Accruals  106 
          Payments  (25)
               
          Balance at December 31, 2008 $81 
               
          In addition to involuntary furloughs, the Company is currently offering furlough-mitigation programs, such as voluntary early-out options, primarily to certain union groups. Termination benefits expected to be paid under such voluntary programs are not recognized until the employees accept the termination benefit offer. Therefore, as the Company continues to implement its reductions in force during 2009, additional severance costs may be incurred. Severance expense is classified within salaries and related costs in the Company’sStatements of Consolidated Operations.Severance charges are expected to be primarily within the mainline segment where the fleet reductions will occur.
          Aircraft.  The following table provides additional information regarding UAL and United aircraft including the impacts of the fleet reductions discussed above.
                                                
            B737s (Mainline)   All Other Mainline          
                               Total
          		  Regional
          		    
            Owned  Leased  Total   Owned  Leased  Total  Mainline  Affiliates  Total 
          Operating:                                     
          Aircraft at December 31, 2007 (a)  47   47   94    208   158   366   460   279   739 
          Added (removed) from operating fleet  (29)  (19)  (48)   (3)  —   (3)  (51)  1   (50)
          Converted from owned to leased (b)  —   —   —    (24)  24   —   —   —   — 
          Converted from leased to owned (c)  —   —   —    10   (10)  —   —   —   — 
                                                
          Aircraft at December 31, 2008 (d)  18   28   46    191   172   363   409   280   689 
                                                
          Removed from operating fleet in 2008 (e)  29   19   48    3   —   3   51   —   51 
          Sold/returned to lessor during 2008  (5)  (7)  (12)   —   —   —   (12)  —   (12)
                                                
          Nonoperating at December 31, 2008 (a) (e)  24   12   36    3   —   3   39   —   39 
                                                
          (a)At December 31, 2007, the Company had 113 unencumbered aircraft. In 2007, United leased one operating aircraft from UAL Common Stockholders' Equityand therefore had one less owned B737 aircraft and one more leased aircraft as compared to UAL’s fleet. This particular aircraft became nonoperational in 2008; therefore, United has one less nonoperating owned B737 aircraft and one more leased aircraft as compared to UAL’s fleet at December 31, 2008.


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          (b)During 2008, the Company sold 24 aircraft and leased them back. See Note 15, “Lease Obligations,” for additional information related to these sale-leaseback transactions.
          (c)During 2008, the Company acquired certain aircraft under existing lease terms.
          (d)At December 31, 2008, United’s operating fleet was the same as UAL’s fleet and included 62 unencumbered aircraft. The unencumbered aircraft at December 31, 2008 exclude nine aircraft which became encumbered with the December 2008 signing of a binding sale-leaseback agreement that closed in January 2009. See Note 12, “Debt Obligations and Card Processing Agreements,” and Note 23, “Subsequent Events,” for additional information.
          (e)As of December 31, 2008, the owned nonoperating aircraft and engines are classified as Other non-current assets in the Company’sStatements of Consolidated Financial Position.These aircraft are not classified as assets held for sale because the assets may not be sold within one year. As a result of the Planimpairment testing discussed in Note 3, “Asset Impairments and Intangible Assets,” these assets have been recorded at their net realizable value of $198 million at December 31, 2008.
          During 2008, the Company expensed $24 million related to the retirement of leased aircraft, of which $16 million remained accrued and unpaid at December 31, 2008. These amounts consist of the present value of future lease payments for aircraft that have been removed from service in advance of their lease termination dates as of December 31, 2008, estimated payments for lease return maintenance conditions related to B737 aircraft and the write-off of fresh-start lease fair value adjustments. Periodic lease payments will be made over the lease terms of these aircraft unless early return agreements are reached with the lessors; and, lease return maintenance condition payments, if any, will be made upon return of the aircraft to the lessors. The total expected payments for leased aircraft that were grounded at December 31, 2008 and that are expected to be grounded in 2009 are $132 million, payable through 2013. These estimated payments are future lease payments and estimated lease maintenance return condition payments. Actual lease payments may be less if the Company is able to negotiate early termination of any of its leases.
          Other costs.  As the Company continues to implement the operational plans discussed above, it may incur additional costs related to its conversion of the Company’s fleet of Ted aircraft, costs to exit additional facilities such as airports no longer served, lease termination costs, additional severance costs and asset impairment charges, among others. Such future costs and charges may be material.
          (3) Asset Impairments and Intangible Assets
          Asset Impairments
          In accordance with SFAS 142 and SFAS 144, as of May 31, 2008 the Company performed an interim impairment test of its goodwill, all intangible assets and certain of its long-lived assets (principally aircraft and related spare engines and spare parts) due to events and changes in circumstances that indicated an impairment might have occurred. In addition, the Company also performed an interim impairment test on certain of its aircraft fleet types as of December 31, 2008 due to management’s determination that unfavorable market conditions indicated potential impairment of value. Factors deemed by management to have collectively constituted an impairment triggering event included record high fuel prices, significant losses in the first and second quarters of 2008, a softening U.S. economy, analyst downgrade of UAL common stock, rating agency changes in outlook for the Company’s debt instruments from stable to negative, the announcement of the planned removal from UAL’s fleet of 100 aircraft in 2008 and 2009 and a significant decrease in the fair value of UAL’s outstanding equity and debt securities during the first five months of 2008, including a decline in UAL’s market capitalization to significantly below book value. The Company’s consolidated fuel expense increased by more than 50% during this period.
          As a result of this impairment testing, for which certain estimates made in the second quarter of 2008 were adjusted to final values in the third quarter of 2008, the Company recorded impairment charges during the year ended December 31, 2008, as presented in the table below. All of these impairment charges are within the mainline segment. All of the impairments other than the goodwill impairment, which is separately identified, are classified within “Other impairments and special items” in the Company’sStatements of Consolidated Operations.


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            Year Ended
          		 
          (In millions)
          		 December 31, 2008 
          Goodwill impairment $2,277 
               
          Indefinite-lived intangible assets:    
          Codeshare agreements  44 
          Tradenames  20 
               
          Intangible asset impairments  64 
               
          Tangible assets:    
          Pre-delivery advance deposits including related capitalized interest  105 
          B737 aircraft, B737 spare parts and other  145 
               
          Aircraft and related deposit impairments  250 
               
          Total impairments $2,591 
               
          Goodwill
          For purposes of testing goodwill, the Company performed Step One of the SFAS 142 test by estimating the fair value of the mainline reporting unit (to which all goodwill is allocated) utilizing several fair value measurement techniques, including two market estimates and one income estimate and using relevant data available through and as of May 31, 2008. The market approach is a valuation technique in which fair value is estimated based on observed prices in actual transactions and on asking prices for similar assets. The valuation process is essentially that of comparison and correlation between the subject asset and other similar assets. The income approach is a technique in which fair value is estimated based on the cash flows that an asset could be expected to generate over its useful life, including residual value cash flows. These cash flows are discounted to their present value equivalents using a rate of return that accounts for the relative risk of not realizing the estimated annual cash flows and for the time value of money. Variations of the income approach were used to determine certain of the intangible asset fair values.
          Under the market approaches, the fair value of the mainline reporting unit was estimated based upon the fair value of invested capital for UAL, as well as a separate comparison to revenue and EBITDAR multiples for similar publicly traded companies in the airline industry. The fair value estimates using both market approaches included a control premium similar to those observed for historical airline and transportation company market transactions.
          Under the income approach, the fair value of the mainline reporting unit was estimated based upon the present value of estimated future cash flows for UAL. The income approach is dependent on a number of critical management assumptions including estimates of future capacity, passenger yield, traffic, operating costs (including fuel prices), appropriate discount rates and other relevant assumptions. The Company estimated its future fuel-related cash flows for the income approach based on thefive-year forward curve for crude oil as of May 31, 2008. The impacts of the Company’s aircraft and other tangible and intangible asset impairments were considered in the fair value estimation of the mainline reporting unit.
          Taking into consideration an equal weighting of the two market estimates and the income estimate, which has been the Company’s practice when performing annual goodwill impairment tests, the indicated fair value of the mainline reporting unit was less than its carrying value, and therefore, the Company was required to perform Step Two of the SFAS 142 goodwill impairment test.

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          In Step Two of the impairment test, the Company determined the implied fair value of goodwill of the mainline reporting unit by allocating the fair value of the reporting unit determined in Step One to all the assets and liabilities of the mainline reporting unit, including any recognized and unrecognized intangible assets, as if the mainline reporting unit had been acquired in a business combination and the fair value of the mainline reporting unit was the acquisition price. As a result of the Step Two testing, the Company determined that goodwill was completely impaired and therefore recorded an impairment charge during the second quarter of 2008 to write-off the full value of goodwill.
          Indefinite-lived intangible assets
          2008 Interim Impairment Test
          The Company utilized appropriate valuation techniques to separately estimate the fair values of all of its indefinite-lived intangible assets as of May 31, 2008 and compared those estimates to related carrying values. Tested assets included tradenames, international route authorities, London Heathrow slots and codesharing agreements. The Company used a market or income valuation approach, as described above, to estimate fair values. Based on the results of this testing, the Company recorded a $64 million impairment charge to indefinite-lived intangible assets for the year ended December 31, 2008.
          Annual Impairment Tests
          United performed annual impairment reviews of its indefinite-lived intangible assets as of October 1, 2008 and 2007 and of its goodwill as of October 1, 2007 and determined that no impairment was indicated.
          Long-lived assets
          For purposes of testing impairment of long-lived assets at May 31, 2008, the Company determined whether the carrying amount of its long-lived assets was recoverable by comparing the carrying amount to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. If the carrying value of the assets exceeded the expected cash flows, the Company estimated the fair value of these assets to determine whether an impairment existed. The Company grouped its aircraft by fleet type to perform this evaluation and used data and assumptions through May 31, 2008. The estimated undiscounted cash flows were dependent on a number of critical management assumptions including estimates of future capacity, passenger yield, traffic, operating costs (including fuel prices) and other relevant assumptions. If estimates of fair value were required, fair value was estimated using the market approach. Asset appraisals, published aircraft pricing guides and recent transactions for similar aircraft were considered by the Company in its market value determination. Based on the results of these tests, the Company determined that an impairment of $38 million existed which was attributable to the Company’s fleet of owned B737 aircraft and related spare parts. In addition, as of December 31, 2008, the Company performed an impairment test of its B737 aircraft. Based on this analysis, the Company recorded an additional charge of $107 million to reduce the carrying value of the B737 aircraft. As described in Note 2, “Company Operational Plans,” the Company is retiring its entire B737 fleet earlier than originally planned.
          Due to the unfavorable economic and industry factors described above, the Company also determined in the second quarter of 2008 that it was required to perform an impairment test of its $105 million of pre-delivery aircraft deposits and related capitalized interest. The Company determined that these aircraft deposits were completely impaired and wrote off their full carrying value. The Company believes that it is highly unlikely that it will take these future aircraft deliveries and, therefore, the Company will be required to forfeit the deposits, which are also not transferable.
          As a result of the impairment testing described above, the Company’s goodwill and certain of its indefinite-lived intangible assets and tangible assets were recorded at fair value. In accordance withFSP 157-2,the Company has not applied SFAS 157 to the determination of the fair value of these assets.


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          However, the provisions of SFAS 157 were applied to the determination of the fair value of financial assets and financial liabilities that were part of the SFAS 142 Step Two goodwill fair value determination.
          The carrying value of the Company’s intangible assets or tangible long-lived assets as of December 31, 2008 may decrease in future periods as a result of factors such as decreased demand for aircraft, decreases in revenues, fuel price volatility and adverse economic conditions, among others.
          Intangibles
          The following table presents information about the intangible assets, including goodwill, at December 31, 2008 and 2007, respectively:
                               
            Weighted
          		             
            Average Life of
          		  2008  2007 
            Assets
          		  Gross Carrying
          		  Accumulated
          		  Gross Carrying
          		  Accumulated
          		 
          (Dollars in millions) (in years)  Amount  Amortization  Amount  Amortization 
           
          Amortized intangible assets                    
          Airport slots and gates  9  $72  $30  $72  $22 
          Hubs  20   145   22   145   14 
          Patents  3   70   68   70   45 
          Mileage Plus database  7   521   179   521   137 
          Contracts  13   140   35   216   101 
          Other  7   13   5   18   5 
                               
             10  $961  $339  $1,042  $324 
                               
          Unamortized intangible assets                    
          Goodwill     $—      $2,280     
          Airport slots and gates      237       255     
          Route authorities      1,146       1,146     
          Tradenames      688       752     
                               
                $2,071      $4,433     
                               
          During 2008, the Company wrote off its entire goodwill balance as discussed above. The Company initially recorded goodwill of $2,756 million upon its exit from bankruptcy. Unamortized intangible assets, other than goodwill, decreased by $82 million during 2008 as a result of a $64 million impairment of codeshare agreements and the Company’s tradenames and an $18 million decrease in airport slots and gates related to the sale of assets. During the year ended December 31, 2007, goodwill decreased by $423 million due to a $414 million reduction of the valuation allowance for the deferred tax assets established at fresh-start, $6 million due to the adoption of FIN 48 and $3 million due to a change in estimate of tax accruals existing at the Effective Date.
          Total amortization expense recognized was $92 million and $155 million for the years ended December 31, 2008 and 2007, $169 million for the eleven month period ended December 31, 2006 and $1 million for the one month period ended January 31, 2006. The Company expects to record amortization expense of $69 million, $63 million, $58 million, $55 million and $52 million for 2009, 2010, 2011, 2012 and 2013, respectively.
          (4) Voluntary Reorganization becomingUnder Chapter 11
          Bankruptcy Considerations.  The following discussion provides general background information regarding the Company’s Chapter 11 cases and is not intended to be an exhaustive summary.
          On December 9, 2002 (the “Petition Date”), UAL, United and 26 direct and indirect wholly-owned subsidiaries (collectively, the “Debtors”) filed voluntary petitions to reorganize their businesses under


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          Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the “Bankruptcy Court”). On January 20, 2006, the Bankruptcy Court confirmed the Debtors’ Second Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code (the “Plan of Reorganization”). The Plan of Reorganization became effective and the Debtors emerged from bankruptcy protection on February 1, 2006 (the “Effective Date”). Pursuant to the Plan of Reorganization, UAL issued new debt and equity securities to certain of its creditors. On the Effective Date, the Company implemented fresh-start reporting.
          Significant Bankruptcy Matters Resolved in 2008.  During 2008, the San Francisco International Airport (“SFO”) municipal bond secured interest matter was resolved. HSBC Bank Inc. (“HSBC”), as trustee for the 1997 municipal bonds related to SFO, had filed a complaint against United asserting a security interest in United’s leasehold for portions of its maintenance base at SFO. HSBC alleged that it was entitled to be paid the value of that security interest, which HSBC had once claimed was as much as $257 million. HSBC and United went to trial in April 2006 and the Bankruptcy Court rejected as a matter of law HSBC’s $257 million claim. HSBC subsequently alleged that it was entitled to $154 million, or at a minimum, approximately $93 million. The parties tried the case and filed post-trial briefs which were heard by the Bankruptcy Court. In October 2006, the Bankruptcy Court issued its written opinion holding that the value of the security interest is approximately $27 million. United has accrued this amount as its estimated obligation at December 31, 2008. During 2008, HSBC withdrew its appeal to the Seventh Circuit Court of Appeals of the District Court’s affirmance of the October 2006 Bankruptcy Court ruling. The matter is now final and United expects to pay the amount due to HSBC in 2009.
          Significant Matters Remaining to be Resolved in Chapter 11 Cases.  There is pending litigation before the Bankruptcy Court regarding the extent to which the Los Angeles International Airport (“LAX”) municipal bond debt is entitled to secured status under Section 506(a) of the Bankruptcy Code. At December 31, 2006, United had accrued $60 million for this matter. Trial on this matter occurred during April 2007 and the two parties filed post-trial briefs in the second quarter of 2007. In August 2007, the Bankruptcy Court issued its written opinion holding that the value of the security interest is approximately $33 million, which United had accrued at December 31, 2007 and 2008. The District Court affirmed the Bankruptcy Court’s rulings and the trustee for the bondholders has appealed the matter to the Seventh Circuit Court of Appeals, which is pending. SeeClaims Resolution Process, below, for details of special items recognized in theStatements of Consolidated Operations for the SFO and LAX matters.
          Claims Resolution Process.  As permitted under the bankruptcy process, the Debtors’ creditors filed proofs of claim with the Bankruptcy Court. Through the claims resolution process, the Company identified many claims which were disallowed by the Bankruptcy Court for a number of reasons, such as claims that were duplicative, amended or superseded by later filed claims, were without merit, or were otherwise overstated. Throughout the Chapter 11 proceedings, the Company resolved many claims through settlement or objections ordered by the Bankruptcy Court. The Company will continue to settle claims and file additional objections with the Bankruptcy Court.
          With respect to unsecured claims, once a claim is deemed to be valid, either through the Bankruptcy Court process or through other means, the claimant is entitled to a distribution of common stock in UAL. Pursuant to the terms of the Plan of Reorganization, 115 million shares of common stock in UAL have been authorized to be issued to satisfy valid unsecured claims. The Bankruptcy Court confirmed the Plan of Reorganization and established January 20, 2006 as the record date for purposes of establishing the persons that are claimholders of record to receive distributions. Approximately 113 million common shares have been issued and distributed to holders of valid unsecured claims between February 2, 2006, the first distribution date established in the Plan of Reorganization, and December 31, 2008. As of December 31, 2008, approximately 46,000 valid unsecured claims aggregating to approximately $29.3 billion in claim value had received those common shares to satisfy those claims. There are 2.0 million remaining shares of UAL common stock held in reserve to satisfy all of the remaining disputed and undisputed unsecured claim values, once the remaining claim disputes are


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          resolved. The final distributions of shares will not occur until 2009 or later, pending resolution of bankruptcy matters.
          The Company’s current estimate of the probable range of unsecured claims to be allowed by the Bankruptcy Court is between $29.3 billion and $29.6 billion. Differences between claim amounts filed and the Company’s estimates continue to be investigated and will be resolved in connection with the claims resolution process. However, there will be no further financial impact to the Company associated with the settlement of such unsecured claims, as the holders of all allowed unsecured claims will receive under the Plan of Reorganization no more than their pro rata share of the distribution of the 115 million shares of common stock of UAL, together with the previously-agreed issuance of certain securities.
          With respect to valid administrative and priority claims, pursuant to the terms of the Plan of Reorganization these claims have been or will be satisfied with cash. Many asserted administrative and priority claims still remain unpaid and the Company will continue to settle claims and file objections with the Bankruptcy Court to eliminate or reduce such claims. In addition, certain disputes, the most significant of which is discussed in “Significant Matters Remaining to be Resolved in Chapter 11 Cases,” above, still remain with respect to the valuation of certain claims. The Company accrued an obligation for claims it believed were reasonably estimable and probable at the Effective Date. However, the claims resolution process is uncertain and adjustments to claims estimates could result in material adjustments to the Successor Company’s financial statements in future periods as a result of court rulings, the receipt of new or revised information or the finalization of these matters. In accordance with AICPA Practice Bulletin 11,Accounting for Preconfirmation Contingencies in Fresh-Start Reporting,(“Practice Bulletin 11”), the Company has recorded the impact of revisions to these estimates in current results of operations.
          The table below includes activity related to the administrative and priority claims and other bankruptcy-related claim reserves including reserves related to legal, professional and tax matters, among others, for the Successor Company for the years ended December 31, 2008 and 2007 and the eleven months ended December 31, 2006, respectively. These reserves are primarily classified in other current liabilities in theStatements of Consolidated Financial Position. Certain of the accrual adjustments identified below are a direct result of the Company’s ongoing efforts to resolve certain bankruptcypre-confirmation contingencies and do not relate directly to the Company’s ongoing performance; therefore, the Company considers these adjustments to be special.
                           
          (In millions)
          		 2008  2007  2006    
          Balance at January 1, 2008 and 2007 and February 1, 2006 $98  $325  $583     
          Payments  (7)  (83)  (193)    
          Accruals reclassified  —   (31)  —  (a)    
          Adjustments impacting income:                
          Accrual adjustments classified as special revenue credits  —   (45)  —  (b)    
          Other changes in contingent liabilities classified as revenues  —   (26)  —  (c)    
          Accrual adjustments classified as special expense credits  —   (30)  (36)(d)    
          Accrual adjustments classified as other operating expense (credit)  5   (12)  (29)(e)    
                           
          Total adjustments impacting income  5   (113)  (65)    
                           
          Balance at December 31, 2008, 2007 and 2006 $96  $98  $325     
                           
          Total charge (credit) to operating income during period from above items $5  $(113) $(65)    
          Additional special operating expense credit  —   (14)  —  (f)    
                           
          Total operating income charge (benefit) $5  $(127) $(65)    
                           
          (a)These accruals were deemed to be no longer directly related to bankruptcy proceedings; therefore, the accruals were reclassified to non-bankruptcy accruals.
          (b)In the third quarter of 2007, the Company recorded a change in estimate for certain liabilities relating to bankruptcy administrative claims. This adjustment resulted directly from the progression of the Company’s ongoing efforts to resolve


          106

          certain bankruptcy pre-confirmation contingencies; therefore, it was classified as a special operating revenue credit of $45 million that relates to both mainline passenger revenues ($37 million) and Regional affiliates revenues ($8 million).
          (c)The Company separately recorded a $26 million benefit from a change in estimate to certain other contingent liabilities based largely on changes in underlying facts and circumstances occurring during the third quarter of 2007. This benefit was recorded as a credit to mainline passenger revenues of $22 million and to Regional affiliates revenues of $4 million.
          (d)The 2007 amount relates to special operating expense credits of $30 million relating to ongoing litigation for San Francisco and Los Angeles facility lease secured interests as discussed above. For 2006, the then-outstanding equity securities$36 million benefit consists of a $12 million net benefit related to SFO and LAX lease litigation and a $24 million benefit related to pension matters, as welldiscussed in Note 19, “Special Items.”
          (e)This amount relates to accrual adjustments impacting various operating expense line items that the Company recorded due to a change in estimate for certain liabilities relating to bankruptcy administrative claims. These adjustments resulted directly from the progression of the Company’s ongoing efforts to resolve certain bankruptcy pre-confirmation contingencies.
          (f)This amount relates to an accrual adjustment that the Company recorded due to a change in estimate for certain liabilities relating to bankruptcy administrative claims. This adjustment, which was recorded as a credit to other operating expense, resulted directly from the shares held in treasuryprogression of Predecessor UAL were canceled. New UAL common stock began trading on the NASDAQ market on February 2, 2006 underCompany’s ongoing efforts to resolve certain bankruptcy pre-confirmation contingencies.
          Financial Statement Presentation.  SOP 90-7 requires that the financial statements for periods after a Chapter 11 filing separate transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, all transactions (including, but not limited to, all professional fees, realized gains and losses and provisions for losses) directly associated with the reorganization and restructuring of the business are reported separately in the financial statements as reorganization items, net. For the month ended January 31, 2006, the Predecessor Company recognized the following primarily non-cash reorganization income (expense) in its financial statements:
                   
            Period from
          		 
            January 1 to
          		 
            January 31,
          		 
            2006 
          (In millions)
          		 UAL  United 
          Discharge of claims and liabilities $24,628  $24,389  (a)
          Revaluation of frequent flyer obligations  (2,399)  (2,399) (b)
          Revaluation of other assets and liabilities  2,106   2,111  (c)
          Employee-related charges  (898)  (898) (d)
          Contract rejection charges  (429)  (421) (e)
          Professional fees  (47)  (47)
          Pension-related charges  (14)  (14)
          Other  (13)  (12)
                   
            $22,934  $22,709 
                   
          (a)The discharge of claims and liabilities primarily relates to those unsecured claims arising during the symbol "UAUA."bankruptcy process, such as those arising from the termination and settlement of the Company’s U.S. defined benefit pension plans and other employee claims; aircraft-related claims, such as those arising as a result of aircraft rejections; other unsecured claims due to the rejection or modification of executory contracts, unexpired leases and regional carrier contracts; and claims associated with certain municipal bond obligations based upon their rejection, settlement or the estimated impact of the outcome of pending litigation. In accordance with the Plan of Reorganization, Successorthe Company discharged its obligations to unsecured creditors in exchange for the distribution of 115 million common shares of UAL and the issuance of certain other UAL securities. Accordingly, UAL and United recognized a non-cash reorganization gain of $24.6 billion and $24.4 billion, respectively.
          (b)The Company revalued its Mileage Plus Frequent Flyer Program (“Mileage Plus”) obligations at fair value as a result of fresh-start reporting, which resulted in a $2.4 billion non-cash reorganization charge.
          (c)In accordance with fresh-start reporting, the Company revalued its assets at their estimated fair value and liabilities at estimated fair value or the present value of amounts to be paid. This resulted in a non-cash reorganization gain of $2.1 billion, primarily as a result of newly recognized intangible assets, offset partly by reductions in the fair value of tangible property and equipment.
          (d)In exchange for employees’ contributions to the successful reorganization of the Company, including agreeing to reductions in pay and benefits, the Company agreed in the Plan of Reorganization to provide each employee group a deemed claim which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each


          107

          employee group received a deemed claim amount based upon a portion of the value of cost savings provided by that group through reductions to pay and benefits as well as through certain work rule changes. The total value of this deemed claim was approximately $7.4 billion. As of December 31, 2005, the Company recorded a non-cash reorganization charge of $6.5 billion for the deemed claim amount for all union-represented employees. The remaining $0.9 billion associated withnon-represented salaried and management employees was recorded as a reorganization charge in January 2006, upon confirmation of the Plan of Reorganization.
          (e)Contract rejection charges are non-cash costs that include estimated claim values resulting from the Company’s rejection or negotiated modification of certain contractual obligations such as executory contracts, unexpired leases and regional carrier contracts.
          (5) Common Stockholders’ Equity and Preferred Securities
          As a result of the Plan of Reorganization becoming effective on February 1, 2006, thethen-outstanding equity securities as well as the shares held in treasury of Predecessor UAL were canceled. New UAL common stock began trading on the NASDAQ market on February 2, 2006 under the symbol “UAUA.” In accordance with the Plan of Reorganization, UAL established the equity structure in the table below upon emergence and, on February 2, 2006, began distributing portions of the shares of new common stock to certain general unsecured creditors and employees and certain management employees and non-employee directors.
          Shares of
          UAL
          Party of Interest
          		Common Stock
          General unsecured creditors and employees and certain management employees and non-employee directors.

          Party of Interest
          		Shares of
          Successor UAL
          Common Stock
          General unsecured creditors and employees 115,000,000
          Management equity incentive plan (“MEIP”)9,825,000
          Director equity incentive plan (“DEIP”)175,000
          125,000,000
          Changes in the number of shares of UAL common stock outstanding during the years ended December 31, 2008 and 2007, the eleven month period ended December 31, 2006 and the one month period ended January 31, 2006 were as follows:
                            
            Successor   Predecessor 
                  Period from
          		   Period from
          		 
                  February 1
          		   January 1
          		 
            Year Ended
          		  to
          		   to
          		 
            December 31,  December 31,
          		   January 31,
          		 
          UAL 2008  2007  2006   2006 
          Shares outstanding at beginning of period  116,921,049   112,280,629   116,220,959    116,220,959 
          Cancellation of Predecessor UAL stock  —   —   (116,220,959)   — 
          Issuance of UAL stock under equity offering  11,208,438   —   —    — 
          Issuance of UAL stock upon conversion of preferred stock  11,145,812   —   —    — 
          Issuance of UAL stock to creditors  765,780   3,849,389   108,347,814    — 
          Issuance of UAL stock to employees  418,664   1,155,582   4,240,526    — 
          Issuance of UAL stock to directors  —   —   100,000    — 
          Forfeiture of non-vested UAL stock  (110,926)  (104,733)  (270,934)   — 
          Shares acquired for treasury  (310,889)  (259,818)  (136,777)   — 
                            
          Shares outstanding at end of period  140,037,928   116,921,049   112,280,629    116,220,959 
                            
          Treasury shares at beginning of period  396,595   136,777   —    — 
          Shares acquired for treasury  310,889   259,818   136,777    — 
                            
          Treasury shares at end of period  707,484   396,595   136,777    —  
                            


          108

          At December 31, 2008, 2.0 million of the initial 115 million shares authorized remain to be distributed to employees and holders of previously allowed claims and disputed claims that are pending final resolution. All treasury shares were acquired either for tax withholding obligations related to UAL’s share-based compensation plan or as consideration under an employment agreement. See Note 7, “Share-Based Compensation Plans” for additional information related to the remaining grants available to be awarded under the UAL’s share-based compensation plans and outstanding option awards, neither of which are included in outstanding shares above.
          UAL is authorized to issue 250 million shares of preferred stock (without par value). UAL was also authorized to issue two shares of junior preferred stock (par value $0.01 per share) which were issued in 2006 and remained outstanding at December 31, 2008.
          UAL issued 5 million shares of 2% convertible preferred stock to the PBGC on the Effective Date. The shares were issued at a liquidation value of $100 per share, convertible at any time following the second anniversary of the issuance date into common stock of UAL at an initial conversion price of $46.86 per common share; with dividends payable in kind semi-annually (in the form of increases to the liquidation value of the issued and outstanding shares). The preferred stock ranked pari passu with all current and future UAL or United preferred stock and was redeemable at any time at the then-current liquidation value (plus accrued and unpaid dividends) at the option of the issuer. At December 31, 2007, 5 million shares of UAL 2% convertible preferred stock were outstanding with an aggregate liquidation value of $519 million, which included $19 million of accrued and paid in kind dividends. The preferred stock had been pushed down to United and was reflected on United’s books as part of fresh-start reporting. At December 31, 2007, the carrying value of the 2% convertible preferred stock was $371 million, which included the $19 million of accrued and paid in kind dividends.
          As reflected in the table above, 11.1 million shares of UAL common stock were issued upon preferred stockholders’ elections to exercise their conversion option of all 5 million shares of 2% mandatorily convertible preferred stock during 2008. As a result of these conversions, there are currently no outstanding shares of 2% convertible preferred stock and this class of stock was retired in October 2008. The Company increased additional paid in capital by $374 million and decreased the mandatorily convertible preferred stock by the same amount to record the impact of these conversions.
          In addition, as indicated in the table above, during 2008 the Company issued 11.2 million shares of common stock as part of a $200 million equity offering generating net proceeds of $122 million, of which $107 million was received in 2008 and $15 million was received in January 2009 upon settlement of shares sold during the last three days of 2008. In January 2009, an additional 4.0 million shares were issued generating net proceeds of $47 million. After the January 2009 issuances, the Company had issued shares for gross proceeds of $172 million leaving $28 million of remaining capacity available to issue additional shares in 2009.
          Management equity incentive plan ("MEIP")9,825,000
          Director equity incentive plan ("DEIP")175,000
          125,000,000

          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)(6) 

          		(3) UAL Common Stockholders' Equity (Continued)

                  Changes in the number of shares of UAL common stock outstanding during the year ended December 31, 2007, the eleven month period ended December 31, 2006, the one month period ended January 31, 2006 and the year ended December 31, 2005 were as follows:

           
          		 Successor
          		  
          		 Predecessor
          UAL
          		 Year Ended
          December 31, 2007
          		 Period from
          February 1 to
          December 31, 2006
          		  
          		 Period from
          January 1 to
          January 31, 2006
          		 Year Ended
          December 31, 2005
          Shares outstanding at beginning of period, net
              of treasury shares          		 112,280,629 116,220,959   116,220,959 116,220,959
           Cancellation of Predecessor UAL stock — (116,220,959)  — —
           Issuance of Successor UAL stock to
              creditors          		 3,849,389 108,347,814   — —
           Issuance of Successor UAL stock to
              employees          		 1,155,582 4,240,526   — —
           Issuance of Successor UAL stock to
              directors          		 — 100,000   — —
           Forfeiture of non-vested Successor
              UAL stock          		 (104,733)(270,934)  — —
           Shares acquired for treasury (259,818)(136,777)  — —
            
          		 
          		   
          		 
          Shares outstanding at end of period 116,921,049 112,280,629   116,220,959 116,220,959
            
          		 
          		   
          		 
          Treasury shares at beginning of period 136,777 —      
           Shares acquired for treasury 259,818 136,777      
            
          		 
          		      
          Treasury shares at end of period 396,595 136,777      
            
          		 
          		      

                  At December 31, 2007, 2.8 million of the initial 115 million shares authorized remain to be distributed to employees and holders of previously allowed claims and disputed claims that are pending final resolution. All treasury shares were MEIP shares acquired either for tax withholding obligations or as consideration under an employment agreement. Forfeited MEIP shares or MEIP shares that are settled for cash or stock are automatically available again for issuance under the MEIP. See Note 5, "Share-Based Compensation Plans" for additional information related to the remaining grants available to be awarded under the MEIP and DEIP and outstanding option awards, neither of which are included in outstanding shares above.

          (4) UAL Per Share Amounts

          In accordance with Statement of Financial Accounting Standards No. 128,Earnings per Share ("SFAS 128"), basic per share amounts were computed by dividing earnings (loss) available to common stockholders by the weighted-average number of shares of UAL common stock outstanding. Approximately 2.0 million, 2.8 million and 6.7 million UAL shares remaining to be issued to unsecured creditors and employees under the Plan of Reorganization are included in outstanding basic shares for 2008, 2007 and the eleven month period ended December 31, 2006, respectively, as the necessary conditions for issuance have been satisfied. UAL's $500UAL’s $546 million of 6% senior notes are callable at any time at 100% of par value, and can be redeemed with either cash or UAL common stock at UAL'sUAL’s option. These notes


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (4) UAL Per Share Amounts (Continued)


          are not included in the diluted earnings per share calculation, as it is UAL'sUAL’s intent to redeem these notes with cash. In January 2009, the Company issued additional common shares as discussed in Note 5, “Common Stockholders’ Equity and Preferred Securities,” above. The table below represents the reconciliation of the basic earnings (loss) per share to diluted earnings (loss) per share.


          109

           
          		 Successor
          		  
          		 Predecessor
          		 
          (In millions, except per share)
          		 Year Ended
          December 31,
          2007
          		 Period from
          February 1 to
          December 31,
          2006
          		  
          		 Period from
          January 1 to
          January 31,
          2006
          		 Year Ended
          December 31,
          2005
          		 
          UAL               
          Basic earnings per share:               
           Net income (loss) $403 $25   $22,851 $(21,176)
           Preferred stock dividend requirements  (10) (9)   (1) (10)
            
          		 
          		   
          		 
          		 
           Earnings (loss) available to common
              stockholders          		 $393 $16   $22,850 $(21,186)
            
          		 
          		   
          		 
          		 
           Basic weighted-average shares
              outstanding          		  117.4  115.5    116.2  116.2 
            
          		 
          		   
          		 
          		 
           Earnings (loss) per share, basic $3.34 $0.14   $196.61 $(182.29)
            
          		 
          		   
          		 
          		 
          Diluted earnings per share:               
           Earnings (loss) available to common
              stockholders          		 $393 $16   $22,850 $(21,186)
           Effect of 2% preferred securities  10  —    —  — 
           Effect of 4.5% senior
              limited-subordination convertible
              notes          		  20  —    —  — 
           Effect of 5% convertible notes  5  —    —  — 
            
          		 
          		   
          		 
          		 
           Earnings available to common
              stockholders including the effect of
              dilutive securities          		 $428 $16   $22,850 $(21,186)
            
          		 
          		   
          		 
          		 
           Basic weighted-average shares
              outstanding          		  117.4  115.5    116.2  116.2 
           Effect of non-vested stock options  0.2  —    —  — 
           Effect of non-vested restricted shares  1.1  0.7    —  — 
           Effect of 2% preferred securities  11.0  —    —  — 
           Effect of 4.5% senior
              limited-subordination convertible
              notes          		  20.8  —    —  — 
           Effect of 5% convertible notes  3.2  —    —  — 
            
          		 
          		   
          		 
          		 
           Diluted weighted-average shares
              outstanding          		  153.7  116.2    116.2  116.2 
            
          		 
          		   
          		 
          		 
           Earnings (loss) per share, diluted $2.79 $0.14   $196.61 $(182.29)
            
          		 
          		   
          		 
          		 
          Potentially dilutive shares excluded from
              diluted per share amounts:          		               
          Stock options  4.0  5.0    9.0  9.0 
          Restricted shares  0.9  2.0    —  — 
          2% preferred securities  —  10.8    —  — 
          4.5% senior limited-subordination
              convertible notes          		  —  20.8    —  — 
          5% convertible notes  —  3.2    —  — 
            
          		 
          		   
          		 
          		 
             4.9  41.8    9.0  9.0 
            
          		 
          		   
          		 
          		 

          (5) Share-Based Compensation Plans

                                
            Successor   Predecessor    
                  Period from
          		   Period from
          		    
                  February 1
          		   January 1
          		    
            Year Ended
          		  to
          		   to
          		    
          (In millions, except per share) December 31,  December 31,
          		   January 31,
          		    
          UAL 2008  2007  2006   2006    
          Basic earnings per share:
          		                     
          Net income (loss) $(5,348) $403  $25   $22,851     
          Preferred stock dividend requirements  (3)  (10)  (9)   (1)    
                                
          Earnings (loss) available to common stockholders $(5,351) $393  $16   $22,850     
                                
          Basic weighted-average shares outstanding  126.8   117.4   115.5    116.2     
                                
          Earnings (loss) per share, basic $(42.21) $3.34  $0.14   $196.61     
                                
          Diluted earnings per share:
          		                     
          Earnings (loss) available to common stockholders $(5,351) $393  $16   $22,850     
          Effect of 2% preferred securities  —   10   —    —     
          Effect of 4.5% senior limited-subordination convertible notes  —   20   —    —     
          Effect of 5% convertible notes  —   5   —    —     
                                
          Earnings available to common stockholders including the effect of dilutive securities $(5,351) $428  $16   $22,850     
                                
          Basic weighted-average shares outstanding  126.8   117.4   115.5    116.2     
          Effect of non-vested stock options  —   0.2   —    —     
          Effect of non-vested restricted shares  —   1.1   0.7    —     
          Effect of 2% preferred securities  —   11.0   —    —     
          Effect of 4.5% senior limited-subordination convertible notes  —   20.8   —    —     
          Effect of 5% convertible notes  —   3.2   —    —     
                                
          Diluted weighted-average shares outstanding  126.8   153.7   116.2    116.2     
                                
          Earnings (loss) per share, diluted $(42.21) $2.79  $0.14   $196.61     
                                
          Potentially dilutive shares excluded from diluted per share amounts:
          		                     
          Stock options  4.4   4.0   5.0    9.0     
          Restricted shares  1.4   0.9   2.0    —     
          2% preferred securities  3.1   —   10.8    —     
          4.5% senior limited-subordination convertible notes  22.2   —   20.8    —     
          5% convertible notes  3.4   —   3.2    —     
                                
             34.5   4.9   41.8    9.0     
                                
          (7) Share-Based Compensation Plans
          Compensation expense associated with the UAL share-based compensation plans has been pushed down to United. See Note 2(n), "Summary of Significant Accounting Policies—Share-Based


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (5) Share-Based Compensation Plans (Continued)


          Compensation," for information regarding the Company's adoption of SFAS 123R effective January 1, 2006 and pro forma compensation expense for 2005.

          Predecessor Company—Company—As of January 31, 2006, a total of 9nine million stock options were outstanding. The Company did not issue any stock-based awards during 2005. Under the Company'sCompany’s Plan of Reorganization, these stock options were canceled on the Effective Date. No material share-based compensation expense was incurred as a result of these outstanding options for the month of January 2006.

          Successor Company—CompanyAs part of the Plan of Reorganization and as described in more detail below, the Bankruptcy Court approved UAL's share-based compensation plans known as the MEIP and the DEIP which became effective on February 1, 2006. —The following table summarizes the number of awards authorized, issued and available for future grants under each planthe Company’s share-based compensation plans for management employees and directors as of December 31, 2007:

          2008:
                      
           Employees Directors Total 

          		 MEIP
          		 DEIP
          		 Total
          		 
          Authorized 9,825,000 175,000 10,000,000   8,339,284   175,000   8,514,284 
          Granted (10,354,250)(101,229)(10,455,479)  (633,750)  (113,111)  (746,861)
          Canceled awards available for reissuance 1,183,716 — 1,183,716   336,365   —   336,365 
           
          		 
          		 
          		        
          Available for future grants 654,466 73,771 728,237   8,041,899   61,889   8,103,788 
           
          		 
          		 
          		        

          110

          The following table provides information related to our share-based compensation plans.

          (In millions)
          		 Year Ended
          December 31,
          2007
          		 Period from
          February 1 to
          December 31,
          2006
          Compensation cost:    
          MEIP restricted stock $25 $84            
          MEIP stock options 24 72     Period from
          		 
          DEIP unrestricted stock — 3 Year Ended
          		 February 1 to
          		 
           
          		 
          		 December 31, December 31,
          		 
          (In millions)
          		 2008 2007 2006 
          Total compensation cost $49 $159
          Compensation cost:            
          Management plan restricted stock $18  $25  $84 
          Management plan stock options  13   24   72 
          DEIP unrestricted stock  —   —   3 
           
          		 
          		       
          Total compensation cost $31  $49  $159 
                 
          The unrecognized compensation cost related to unvested awards at December 31, 2008 and 2007 was $18 million and $41 million, respectively, which is expected to be recognized over a weighted-average period of 1.6 and 2.2 years.years, respectively. During the second quarter of 2006, the Company revised its initial estimated award forfeiture rate of 7.5% to 15% based upon actual attrition. As a result, theshare-based compensation expense was reduced by approximately $7 million for the eleven month period ended December 31, 2006.

          2008 Incentive Compensation Plan.  In 2008, UAL’s Board of Directors and stockholders approved the UAL Corporation 2008 Incentive Compensation Plan (the “2008 Plan”). The 2008 Plan is an incentive compensation plan that allows the Company to use different forms of compensation awards to attract, retain and reward eligible participants. This approval by stockholders also allows for the issuance of up to 8,000,000 additional shares pursuant to awards granted under the 2008 Plan. The 2008 Plan replaced the UAL Corporation 2006 Management Equity Incentive Plan, ("MEIP").which was automatically terminated with respect to future grants and otherwise replaced and superseded by the 2008 Plan. Any awards granted under the MEIP remain in effect pursuant to their terms.
          Any officer or employee of UAL or its affiliates is eligible to participate in the 2008 Plan. The Human Resources Subcommittee2008 Plan allows for the grant of options intended to qualify as incentive stock options (“ISOs”) under Section 422 of the UAL Board of Directors (the "HR Subcommittee") is authorized under the plan to grant equity-based and other performance-based awards ("Award(s)") to executive officers and other key management employees of the Company and its subsidiaries.

                  All executive officers and other key management employees of the Company and its subsidiaries are eligible to become participants in the MEIP. The HR Subcommittee will select from time to time, from among all eligible individuals, the persons who will be granted an Award. The MEIP authorizes


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (5) Share-Based Compensation Plans (Continued)


          the HR Subcommittee to grant any of a variety of incentive Awards to participants, including the following:

            •
            Code, non-qualified stock options including both tax qualified and non-qualified options,

            •
            (“NSOs”), stock appreciation rights which provide the participant the right to receive the excess (if any) of the fair market value of a specified number of(“SARs”), restricted share awards, restricted stock units (“RSUs”), performance compensation awards, performance units, cash incentive awards and other equity-based and equity-related awards. Any shares of our common stock atissued under the time2008 Plan will consist, in whole or in part, of exercise over the grant price of the stock appreciation right,

            •
            stock awards to be granted at no cost to the participant, including grants in the form of (i) an immediate transfer of shares which are subject to forfeiture and certain transfer restrictions ("Restricted Stock"); and (ii) an immediate transfer of shares which are not subject to forfeiture or a deferred transfer of shares if and when the conditions specified by the HR Subcommittee are met ("Unrestricted Stock"), and

            •
            performance-based awards, in which the HR Subcommittee may grant a stock award that will entitle the holder to receive a specified number of shares of common stock, or the cash value thereof, if certain performance goals are met.

                  The shares may be issued from authorized and unissued shares or of UAL common stock or from UAL's treasury stock. shares.

          The exercise price for each underlying share of UAL common stock under all options and stock appreciation rights awarded under2008 Plan provides that, unless otherwise provided in an award agreement, in the MEIP will not be less than the fair market valueevent of a sharechange of common stock oncontrol of the date of grant or as otherwise determined byCompany (as defined in the HR Subcommittee. Each instrument granted under the MEIP will generally expire 10 years after its date of grant.2008 Plan):
          • any options and SARs outstanding as of the date the change of control is determined to have occurred become fully exercisable and vested, as of immediately prior to the change of control.
          • all performance units, cash incentive awards and other awards designated as performance compensation awards will be paid out at the “target” performance level on a prorated basis based on the number of days elapsed from the beginning of the performance period up to and including the change of control.
          • all other outstanding awards are automatically deemed exercisable or vested and all restrictions and forfeiture provisions related thereto lapse as of immediately prior to such change of control.


          111

          The table below summarizes stock option activity pursuant to UAL's MEIPUAL’s Management Plan stock options for the year ended December 31, 2007:

           
          		 Options
          		 Weighted-
          Average
          Exercise Price
          		 Weighted-
          Average
          Remaining
          Contractual
          Life (in years)
          		 Aggregate
          Intrinsic Value
          (in millions)
          Outstanding at beginning of year 5,064,672 $35.13     
          Granted 256,866  44.26     
          Exercised(a) (989,848) 35.18   $11
          Canceled (177,646) 35.78     
          Expired (3,951) 35.25     
            
          		        
          Outstanding at end of year 4,150,093  35.66     
            
          		        

          Vested and expected to vest at end of period
           
          3,669,884
           
           
          37.09
           
          8.2
           
          $
          2
          Exercisable at end of period(b) 948,698  35.40 8.1  —
          (a)
          The aggregate intrinsic value of shares exercised in 2006 was $3 million.

          (b)
          Options represent the number of vested options at December 31, 2007. Aggregate intrinsic value is based only on vested options that have an exercise price less than the UAUA stock price at December 31, 2007.
          2008:

          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (5) Share-Based Compensation Plans (Continued)

                           
                  Weighted-
          		    
                  Average
          		    
               Weighted-
          		  Remaining
          		  Aggregate
          		 
               Average
          		  Contractual
          		  Intrinsic Value
          		 
            Options  Exercise Price  Life (in years)  (in millions) 
           
          Outstanding at beginning of year  4,150,093  $35.66         
          Granted  615,900   12.94         
          Exercised(a)  (6,864)  33.88      $— 
          Canceled  (142,536)  34.87         
          Expired  (262,921)  33.77         
                           
          Outstanding at end of year  4,353,672   32.80         
                           
          Vested and expected to vest at end of period  4,005,308   32.97   7.4  $1 
          Exercisable at end of period(b)  2,031,242   35.14   7.0   — 

          (a)The aggregate intrinsic value of shares exercised in 2008, 2007 and 2006 was less than $1 million, $11 million and $3 million, respectively.
          (b)Options represent the number of vested options at December 31, 2008. Aggregate intrinsic value is based only on vested options that have an exercise price less than the UAL stock price at December 31, 2008.
          The following table provides additional information for options granted in each period:

                      
               Period from
          		 
           Year Ended
          		 February 1
          		 
           December 31, to December 31,
          		 
          Weighted-average fair value assumptions:
          		 Year Ended
          December 31,
          2007
          		 Period from
          February 1 to
          December 31, 2006
          		  2008 2007 2006 
          Risk-free interest rate 3.4 - 5.0% 4.4 - 5.1%  1.9-3.6%  3.4-5.0%  4.4-5.1%
          Dividend yield 0% 0%  0%  0%  0%
          Expected market price volatility of UAL common
          stock          		 55% 55 - 57%  55%  55%  55-57%
          Expected life of options (years) 5.8 - 6.2 5.0 - 6.2   5.0-6.3   5.8-6.2   5.0-6.2 

          Weighted-average fair value
           
          $
          25.13
           
          $
          21.37
                     		 $7.86  $25.13  $21.37 
          The fair value of options was determined at the grant date using a Black-ScholesBlack Scholes option pricing model, which requires the Company to make several assumptions. The risk-free interest rate is based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant. The dividend yield on UAL'sUAL’s common stock was assumed to be zero since UAL did not have any plans to pay dividends at the time of the option grants.

          The volatility assumptions were based upon historical volatilities of comparable airlines whose shares are traded using daily stock price returns equivalent to the contractual term of the option. In addition, implied volatility data for both UAL and comparable airlines, using current exchange-traded options, was utilized. Since the new UAL common stock only began trading in February 2006, the historical volatility data for UAL was not considered adequate to determine expected volatility. The Company did consider implied volatility data for both UAL and comparable airlines, using current exchange-traded options.

          The expected life of the options was determined based upon a simplified assumption that the option will be exercised evenly from vesting to expiration under the transitional guidance of Staff Accounting Bulletin No. 107, Topic 14,Share-Based PaymentsAccounting for Uncertainty in Income Taxes.(“FIN 48”), effective January 1, 2007. Although management believes that its positions taken on income tax matters are reasonable, the Company nevertheless has established tax and interest reserves in recognition that various taxing authorities may challenge certain of the positions taken by the Company, potentially resulting in additional liabilities for taxes and interest. The stock options typically vest overCompany’s tax contingency reserves are reviewed periodically and are adjusted as events occur that affect its estimates, such as the availability of new information, the lapsing of applicable statutes of limitations, the conclusion of tax audits, the measurement of additional estimated liability, the identification of new tax contingencies, the release of administrative tax guidance affecting its estimates of tax liabilities,


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          or the rendering of relevant court decisions. See Note 8, “Income Taxes,” for further information related to uncertain income tax positions and the adoption of FIN 48.
          (2) Company Operational Plans
          The volatility of and increases in crude oil prices, a weakening economic environment and a highly competitive industry with excess capacity have created an extremely challenging environment for the Company. The Company’s cash flows and results of operations have been adversely impacted by these factors as indicated by its net loss of $5.3 billion during the year ended December 31, 2008. The Company’s results in 2008 include asset impairment charges of approximately $2.6 billion that resulted primarily from unfavorable market and economic conditions as discussed in Note 3, “Asset Impairments and Intangible Assets.” These factors have had a significant negative impact on the Company’s liquidity as unrestricted cash and short-term investments decreased by $1.5 billion in 2008 to $2.0 billion at December 31, 2008. In addition, the Company may not be able to improve its liquidity position with cash from operations in 2009 because of lower demand for air travel during 2009 and a weak global economy. The Company is implementing certain operational plans to address its increased operating costs and its liquidity needs in 2009. In addition, the Company continues to evaluate the most cost-effective alternatives to raise additional capital, including asset sales and financings. Highlights of the Company’s operational plans and financings include the following:
          • The Company is significantly reducing mainline domestic and consolidated capacity. Fourth quarter 2008 mainline domestic and consolidated capacity were down approximately 14% and 11%year-over-year, respectively. The Company is planning to further decrease mainline domestic and consolidated capacity in 2009.
          • The capacity reductions are being made through reductions in frequencies of routes and the elimination of unprofitable routes. These actions have resulted in the closure of a four year period, exceptsmall number of airport operations where United cannot operate profitably in the current economic environment. Additional airport operations may be closed in future periods.
          • The Company has announced plans to permanently remove 100 aircraft from its mainline fleet, including its entire B737 fleet and six B747 aircraft, by the end of 2009. The B737 aircraft being retired are some of the oldest and least fuel efficient in the Company’s fleet. This planned reduction reflects the Company’s efforts to eliminate unprofitable capacity and divest the Company of assets that currently do not provide an acceptable return.
          • United is eliminating its Ted product for awardsleisure markets and will reconfigure that fleet’s 56 A320s to retirement-eligible employees, whichinclude United First seating. The reconfiguration of the Ted aircraft will occur in stages, with expected completion by year-end 2009. We will continue to review the deployment of all of our aircraft in various markets and the overall composition of our fleet to ensure that we are using our assets appropriately to provide the best available return.
          • In connection with the capacity reductions, the Company is further streamlining its operations and corporate functions in order to reduce the size of its workforce to match the size of its operations.
          • The Company also recently entered into an alliance partnership with Continental Airlines that is expected to create revenue enhancements, costs savings and operational efficiencies.
          • The Company is managing its liquidity by investing only in those projects that are considered vestedhigh-value, such as the international premium product. The Company has $0.2 billion of binding commitments for the purchase of property in 2009 and $0.8 billion of long-term debt obligations in 2009.
          • As of December 31, 2008, the Company has 62 unencumbered aircraft and other assets that may be used as collateral to obtain additional financing. The Company could also sell certain of these assets to generate liquidity.


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          • As discussed in Note 23, “Subsequent Events,” in January 2009, the Company completed several financing-related transactions which generated approximately $315 million of proceeds.
          The following is a discussion of expenses associated with implementing the Company’s plans. In addition, see Note 3, “Asset Impairments and Intangible Assets,” for a discussion of the impairment charges recorded during the year ended December 31, 2008.
          Severance.  During 2008, the Company reduced its workforce in operations and corporate functions through attrition and both voluntary and involuntary furloughs. The Company is streamlining its workforce to match the reduced capacity of its operations. The Company reduced its workforce in 2008 and plans to further reduce its workforce in 2009. Workforce reductions include salaried and management positions and certain of the Company’s unionized workforce. The Company’s standard severance policies provide the affected employees with salary continuation as well as certain insurance benefits for a specified period of time. The Company recognizes its severance obligations in accordance with Statement of Financial Accounting Standards No. 112 (As Amended),Employers’ Accounting for Postemployment Benefits—an amendment of FASB Statements No. 5 and 43, except for voluntary programs which are accounted for under Statement of Financial Accounting Standards No. 88,Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.
          The following is a reconciliation of the Company’s severance accrual activity:
               
          (In millions)
          		   
          Balance at January 1, 2008 $— 
          Accruals  106 
          Payments  (25)
               
          Balance at December 31, 2008 $81 
               
          In addition to involuntary furloughs, the Company is currently offering furlough-mitigation programs, such as voluntary early-out options, primarily to certain union groups. Termination benefits expected to be paid under such voluntary programs are not recognized until the employees accept the termination benefit offer. Therefore, as the Company continues to implement its reductions in force during 2009, additional severance costs may be incurred. Severance expense is classified within salaries and related costs in the Company’sStatements of Consolidated Operations.Severance charges are expected to be primarily within the mainline segment where the fleet reductions will occur.
          Aircraft.  The following table provides additional information regarding UAL and United aircraft including the impacts of the fleet reductions discussed above.
                                                
            B737s (Mainline)   All Other Mainline          
                               Total
          		  Regional
          		    
            Owned  Leased  Total   Owned  Leased  Total  Mainline  Affiliates  Total 
          Operating:                                     
          Aircraft at December 31, 2007 (a)  47   47   94    208   158   366   460   279   739 
          Added (removed) from operating fleet  (29)  (19)  (48)   (3)  —   (3)  (51)  1   (50)
          Converted from owned to leased (b)  —   —   —    (24)  24   —   —   —   — 
          Converted from leased to owned (c)  —   —   —    10   (10)  —   —   —   — 
                                                
          Aircraft at December 31, 2008 (d)  18   28   46    191   172   363   409   280   689 
                                                
          Removed from operating fleet in 2008 (e)  29   19   48    3   —   3   51   —   51 
          Sold/returned to lessor during 2008  (5)  (7)  (12)   —   —   —   (12)  —   (12)
                                                
          Nonoperating at December 31, 2008 (a) (e)  24   12   36    3   —   3   39   —   39 
                                                
          (a)At December 31, 2007, the Company had 113 unencumbered aircraft. In 2007, United leased one operating aircraft from UAL and therefore had one less owned B737 aircraft and one more leased aircraft as compared to UAL’s fleet. This particular aircraft became nonoperational in 2008; therefore, United has one less nonoperating owned B737 aircraft and one more leased aircraft as compared to UAL’s fleet at December 31, 2008.


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          (b)During 2008, the grant date.Company sold 24 aircraft and leased them back. See Note 15, “Lease Obligations,” for additional information related to these sale-leaseback transactions.
          (c)During 2008, the Company acquired certain aircraft under existing lease terms.
          (d)At December 31, 2008, United’s operating fleet was the same as UAL’s fleet and included 62 unencumbered aircraft. The unencumbered aircraft at December 31, 2008 exclude nine aircraft which became encumbered with the December 2008 signing of a binding sale-leaseback agreement that closed in January 2009. See Note 12, “Debt Obligations and Card Processing Agreements,” and Note 23, “Subsequent Events,” for additional information.
          (e)As of December 31, 2008, the owned nonoperating aircraft and engines are classified as Other non-current assets in the Company’sStatements of Consolidated Financial Position.These aircraft are not classified as assets held for sale because the assets may not be sold within one year. As a result of the impairment testing discussed in Note 3, “Asset Impairments and Intangible Assets,” these assets have been recorded at their net realizable value of $198 million at December 31, 2008.
          During 2008, the Company expensed $24 million related to the retirement of leased aircraft, of which $16 million remained accrued and unpaid at December 31, 2008. These amounts consist of the present value of future lease payments for aircraft that have been removed from service in advance of their lease termination dates as of December 31, 2008, estimated payments for lease return maintenance conditions related to B737 aircraft and the write-off of fresh-start lease fair value adjustments. Periodic lease payments will be made over the lease terms of these aircraft unless early return agreements are reached with the lessors; and, lease return maintenance condition payments, if any, will be made upon return of the aircraft to the lessors. The total expected payments for leased aircraft that were grounded at December 31, 2008 and that are expected to be grounded in 2009 are $132 million, payable through 2013. These estimated payments are future lease payments and estimated lease maintenance return condition payments. Actual lease payments may be less if the Company is able to negotiate early termination of any of its leases.
          Other costs.  As the Company continues to implement the operational plans discussed above, it may incur additional costs related to its conversion of the Company’s fleet of Ted aircraft, costs to exit additional facilities such as airports no longer served, lease termination costs, additional severance costs and asset impairment charges, among others. Such future costs and charges may be material.
          (3) Asset Impairments and Intangible Assets
          Asset Impairments
          In accordance with SFAS 142 and SFAS 144, as of May 31, 2008 the Company performed an interim impairment test of its goodwill, all intangible assets and certain of its long-lived assets (principally aircraft and related spare engines and spare parts) due to events and changes in circumstances that indicated an impairment might have occurred. In addition, the Company also performed an interim impairment test on certain of its aircraft fleet types as of December 31, 2008 due to management’s determination that unfavorable market conditions indicated potential impairment of value. Factors deemed by management to have collectively constituted an impairment triggering event included record high fuel prices, significant losses in the first and second quarters of 2008, a softening U.S. economy, analyst downgrade of UAL common stock, rating agency changes in outlook for the Company’s debt instruments from stable to negative, the announcement of the planned removal from UAL’s fleet of 100 aircraft in 2008 and 2009 and a significant decrease in the fair value of UAL’s outstanding equity and debt securities during the first five months of 2008, including a decline in UAL’s market capitalization to significantly below book value. The Company’s consolidated fuel expense increased by more than 50% during this period.
          As a result of this impairment testing, for which certain estimates made in the second quarter of 2008 were adjusted to final values in the third quarter of 2008, the Company recorded impairment charges during the year ended December 31, 2008, as presented in the table below. All of these impairment charges are within the mainline segment. All of the impairments other than the goodwill impairment, which is separately identified, are classified within “Other impairments and special items” in the Company’sStatements of Consolidated Operations.


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            Year Ended
          		 
          (In millions)
          		 December 31, 2008 
          Goodwill impairment $2,277 
               
          Indefinite-lived intangible assets:    
          Codeshare agreements  44 
          Tradenames  20 
               
          Intangible asset impairments  64 
               
          Tangible assets:    
          Pre-delivery advance deposits including related capitalized interest  105 
          B737 aircraft, B737 spare parts and other  145 
               
          Aircraft and related deposit impairments  250 
               
          Total impairments $2,591 
               
          Goodwill
          For purposes of testing goodwill, the Company performed Step One of the SFAS 142 test by estimating the fair value of the mainline reporting unit (to which all goodwill is allocated) utilizing several fair value measurement techniques, including two market estimates and one income estimate and using relevant data available through and as of May 31, 2008. The market approach is a valuation technique in which fair value is estimated based on observed prices in actual transactions and on asking prices for similar assets. The valuation process is essentially that of comparison and correlation between the subject asset and other similar assets. The income approach is a technique in which fair value is estimated based on the cash flows that an asset could be expected to generate over its useful life, including residual value cash flows. These cash flows are discounted to their present value equivalents using a rate of return that accounts for the relative risk of not realizing the estimated annual cash flows and for the time value of money. Variations of the income approach were used to determine certain of the intangible asset fair values.
          Under the market approaches, the fair value of the mainline reporting unit was estimated based upon the fair value of invested capital for UAL, as well as a separate comparison to revenue and EBITDAR multiples for similar publicly traded companies in the airline industry. The fair value estimates using both market approaches included a control premium similar to those observed for historical airline and transportation company market transactions.
          Under the income approach, the fair value of the mainline reporting unit was estimated based upon the present value of estimated future cash flows for UAL. The income approach is dependent on a number of critical management assumptions including estimates of future capacity, passenger yield, traffic, operating costs (including fuel prices), appropriate discount rates and other relevant assumptions. The Company estimated its future fuel-related cash flows for the income approach based on thefive-year forward curve for crude oil as of May 31, 2008. The impacts of the Company’s aircraft and other tangible and intangible asset impairments were considered in the fair value estimation of the mainline reporting unit.
          Taking into consideration an equal weighting of the two market estimates and the income estimate, which has been the Company’s practice when performing annual goodwill impairment tests, the indicated fair value of the mainline reporting unit was less than its carrying value, and therefore, the Company was required to perform Step Two of the SFAS 142 goodwill impairment test.

          102

          In Step Two of the impairment test, the Company determined the implied fair value of goodwill of the mainline reporting unit by allocating the fair value of the reporting unit determined in Step One to all the assets and liabilities of the mainline reporting unit, including any recognized and unrecognized intangible assets, as if the mainline reporting unit had been acquired in a business combination and the fair value of the mainline reporting unit was the acquisition price. As a result of the Step Two testing, the Company determined that goodwill was completely impaired and therefore recorded an impairment charge during the second quarter of 2008 to write-off the full value of goodwill.
          Indefinite-lived intangible assets
          2008 Interim Impairment Test
          The Company utilized appropriate valuation techniques to separately estimate the fair values of all of its indefinite-lived intangible assets as of May 31, 2008 and compared those estimates to related carrying values. Tested assets included tradenames, international route authorities, London Heathrow slots and codesharing agreements. The Company used a market or income valuation approach, as described above, to estimate fair values. Based on the results of this testing, the Company recorded a $64 million impairment charge to indefinite-lived intangible assets for the year ended December 31, 2008.
          Annual Impairment Tests
          United performed annual impairment reviews of its indefinite-lived intangible assets as of October 1, 2008 and 2007 and of its goodwill as of October 1, 2007 and determined that no impairment was indicated.
          Long-lived assets
          For purposes of testing impairment of long-lived assets at May 31, 2008, the Company determined whether the carrying amount of its long-lived assets was recoverable by comparing the carrying amount to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. If the carrying value of the assets exceeded the expected cash flows, the Company estimated the fair value of these assets to determine whether an impairment existed. The Company grouped its aircraft by fleet type to perform this evaluation and used data and assumptions through May 31, 2008. The estimated undiscounted cash flows were dependent on a number of critical management assumptions including estimates of future capacity, passenger yield, traffic, operating costs (including fuel prices) and other relevant assumptions. If estimates of fair value were required, fair value was estimated using the market approach. Asset appraisals, published aircraft pricing guides and recent transactions for similar aircraft were considered by the Company in its market value determination. Based on the results of these tests, the Company determined that an impairment of $38 million existed which was attributable to the Company’s fleet of owned B737 aircraft and related spare parts. In addition, as of December 31, 2008, the Company performed an impairment test of its B737 aircraft. Based on this analysis, the Company recorded an additional charge of $107 million to reduce the carrying value of the B737 aircraft. As described in Note 2, “Company Operational Plans,” the Company is retiring its entire B737 fleet earlier than originally planned.
          Due to the unfavorable economic and industry factors described above, the Company also determined in the second quarter of 2008 that it was required to perform an impairment test of its $105 million of pre-delivery aircraft deposits and related capitalized interest. The Company determined that these aircraft deposits were completely impaired and wrote off their full carrying value. The Company believes that it is highly unlikely that it will take these future aircraft deliveries and, therefore, the Company will be required to forfeit the deposits, which are also not transferable.
          As a result of the impairment testing described above, the Company’s goodwill and certain of its indefinite-lived intangible assets and tangible assets were recorded at fair value. In accordance withFSP 157-2,the Company has not applied SFAS 157 to the determination of the fair value of these assets.


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          However, the provisions of SFAS 157 were applied to the determination of the fair value of financial assets and financial liabilities that were part of the SFAS 142 Step Two goodwill fair value determination.
          The carrying value of the Company’s intangible assets or tangible long-lived assets as of December 31, 2008 may decrease in future periods as a result of factors such as decreased demand for aircraft, decreases in revenues, fuel price volatility and adverse economic conditions, among others.
          Intangibles
          The following table presents information about the intangible assets, including goodwill, at December 31, 2008 and 2007, respectively:
                               
            Weighted
          		             
            Average Life of
          		  2008  2007 
            Assets
          		  Gross Carrying
          		  Accumulated
          		  Gross Carrying
          		  Accumulated
          		 
          (Dollars in millions) (in years)  Amount  Amortization  Amount  Amortization 
           
          Amortized intangible assets                    
          Airport slots and gates  9  $72  $30  $72  $22 
          Hubs  20   145   22   145   14 
          Patents  3   70   68   70   45 
          Mileage Plus database  7   521   179   521   137 
          Contracts  13   140   35   216   101 
          Other  7   13   5   18   5 
                               
             10  $961  $339  $1,042  $324 
                               
          Unamortized intangible assets                    
          Goodwill     $—      $2,280     
          Airport slots and gates      237       255     
          Route authorities      1,146       1,146     
          Tradenames      688       752     
                               
                $2,071      $4,433     
                               
          During 2008, the Company wrote off its entire goodwill balance as discussed above. The Company initially recorded goodwill of $2,756 million upon its exit from bankruptcy. Unamortized intangible assets, other than goodwill, decreased by $82 million during 2008 as a result of a $64 million impairment of codeshare agreements and the Company’s tradenames and an $18 million decrease in airport slots and gates related to the sale of assets. During the year ended December 31, 2007, goodwill decreased by $423 million due to a $414 million reduction of the valuation allowance for the deferred tax assets established at fresh-start, $6 million due to the adoption of FIN 48 and $3 million due to a change in estimate of tax accruals existing at the Effective Date.
          Total amortization expense recognized was $92 million and $155 million for the years ended December 31, 2008 and 2007, $169 million for the eleven month period ended December 31, 2006 and $1 million for the one month period ended January 31, 2006. The Company expects to record amortization expense of $69 million, $63 million, $58 million, $55 million and $52 million for 2009, 2010, 2011, 2012 and 2013, respectively.
          (4) Voluntary Reorganization Under SFAS 123R,Chapter 11
          Bankruptcy Considerations.  The following discussion provides general background information regarding the Company’s Chapter 11 cases and is not intended to be an exhaustive summary.
          On December 9, 2002 (the “Petition Date”), UAL, United and 26 direct and indirect wholly-owned subsidiaries (collectively, the “Debtors”) filed voluntary petitions to reorganize their businesses under


          104

          Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the “Bankruptcy Court”). On January 20, 2006, the Bankruptcy Court confirmed the Debtors’ Second Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code (the “Plan of Reorganization”). The Plan of Reorganization became effective and the Debtors emerged from bankruptcy protection on February 1, 2006 (the “Effective Date”). Pursuant to the Plan of Reorganization, UAL issued new debt and equity securities to certain of its creditors. On the Effective Date, the Company implemented fresh-start reporting.
          Significant Bankruptcy Matters Resolved in 2008.  During 2008, the San Francisco International Airport (“SFO”) municipal bond secured interest matter was resolved. HSBC Bank Inc. (“HSBC”), as trustee for the 1997 municipal bonds related to SFO, had filed a complaint against United asserting a security interest in United’s leasehold for portions of its maintenance base at SFO. HSBC alleged that it was entitled to be paid the value of that security interest, which HSBC had once claimed was as much as $257 million. HSBC and United went to trial in April 2006 and the Bankruptcy Court rejected as a matter of law HSBC’s $257 million claim. HSBC subsequently alleged that it was entitled to $154 million, or at a minimum, approximately $93 million. The parties tried the case and filed post-trial briefs which were heard by the Bankruptcy Court. In October 2006, the Bankruptcy Court issued its written opinion holding that the value of the security interest is approximately $27 million. United has accrued this amount as its estimated obligation at December 31, 2008. During 2008, HSBC withdrew its appeal to the Seventh Circuit Court of Appeals of the District Court’s affirmance of the October 2006 Bankruptcy Court ruling. The matter is now final and United expects to pay the amount due to HSBC in 2009.
          Significant Matters Remaining to be Resolved in Chapter 11 Cases.  There is pending litigation before the Bankruptcy Court regarding the extent to which the Los Angeles International Airport (“LAX”) municipal bond debt is entitled to secured status under Section 506(a) of the Bankruptcy Code. At December 31, 2006, United had accrued $60 million for this matter. Trial on this matter occurred during April 2007 and the two parties filed post-trial briefs in the second quarter of 2007. In August 2007, the Bankruptcy Court issued its written opinion holding that the value of the security interest is approximately $33 million, which United had accrued at December 31, 2007 and 2008. The District Court affirmed the Bankruptcy Court’s rulings and the trustee for the bondholders has appealed the matter to the Seventh Circuit Court of Appeals, which is pending. SeeClaims Resolution Process, below, for details of special items recognized in theStatements of Consolidated Operations for the SFO and LAX matters.
          Claims Resolution Process.  As permitted under the bankruptcy process, the Debtors’ creditors filed proofs of claim with the Bankruptcy Court. Through the claims resolution process, the Company identified many claims which were disallowed by the Bankruptcy Court for a number of reasons, such as claims that were duplicative, amended or superseded by later filed claims, were without merit, or were otherwise overstated. Throughout the Chapter 11 proceedings, the Company resolved many claims through settlement or objections ordered by the Bankruptcy Court. The Company will continue to settle claims and file additional objections with the Bankruptcy Court.
          With respect to unsecured claims, once a claim is deemed to be valid, either through the Bankruptcy Court process or through other means, the claimant is entitled to a distribution of common stock in UAL. Pursuant to the terms of the Plan of Reorganization, 115 million shares of common stock in UAL have been authorized to be issued to satisfy valid unsecured claims. The Bankruptcy Court confirmed the Plan of Reorganization and established January 20, 2006 as the record date for purposes of establishing the persons that are claimholders of record to receive distributions. Approximately 113 million common shares have been issued and distributed to holders of valid unsecured claims between February 2, 2006, the first distribution date established in the Plan of Reorganization, and December 31, 2008. As of December 31, 2008, approximately 46,000 valid unsecured claims aggregating to approximately $29.3 billion in claim value had received those common shares to satisfy those claims. There are 2.0 million remaining shares of UAL common stock held in reserve to satisfy all of the remaining disputed and undisputed unsecured claim values, once the remaining claim disputes are


          105

          resolved. The final distributions of shares will not occur until 2009 or later, pending resolution of bankruptcy matters.
          The Company’s current estimate of the probable range of unsecured claims to be allowed by the Bankruptcy Court is between $29.3 billion and $29.6 billion. Differences between claim amounts filed and the Company’s estimates continue to be investigated and will be resolved in connection with the claims resolution process. However, there will be no further financial impact to the Company associated with the settlement of such unsecured claims, as the holders of all allowed unsecured claims will receive under the Plan of Reorganization no more than their pro rata share of the distribution of the 115 million shares of common stock of UAL, together with the previously-agreed issuance of certain securities.
          With respect to valid administrative and priority claims, pursuant to the terms of the Plan of Reorganization these claims have been or will be satisfied with cash. Many asserted administrative and priority claims still remain unpaid and the Company will continue to settle claims and file objections with the Bankruptcy Court to eliminate or reduce such claims. In addition, certain disputes, the most significant of which is discussed in “Significant Matters Remaining to be Resolved in Chapter 11 Cases,” above, still remain with respect to the valuation of certain claims. The Company accrued an obligation for claims it believed were reasonably estimable and probable at the Effective Date. However, the claims resolution process is uncertain and adjustments to claims estimates could result in material adjustments to the Successor Company’s financial statements in future periods as a result of court rulings, the receipt of new or revised information or the finalization of these matters. In accordance with AICPA Practice Bulletin 11,Accounting for Preconfirmation Contingencies in Fresh-Start Reporting,(“Practice Bulletin 11”), the Company has recorded the impact of revisions to these estimates in current results of operations.
          The table below includes activity related to the administrative and priority claims and other bankruptcy-related claim reserves including reserves related to legal, professional and tax matters, among others, for the Successor Company for the years ended December 31, 2008 and 2007 and the eleven months ended December 31, 2006, respectively. These reserves are primarily classified in other current liabilities in theStatements of Consolidated Financial Position. Certain of the accrual adjustments identified below are a direct result of the Company’s ongoing efforts to resolve certain bankruptcypre-confirmation contingencies and do not relate directly to the Company’s ongoing performance; therefore, the Company considers these adjustments to be special.
                           
          (In millions)
          		 2008  2007  2006    
          Balance at January 1, 2008 and 2007 and February 1, 2006 $98  $325  $583     
          Payments  (7)  (83)  (193)    
          Accruals reclassified  —   (31)  —  (a)    
          Adjustments impacting income:                
          Accrual adjustments classified as special revenue credits  —   (45)  —  (b)    
          Other changes in contingent liabilities classified as revenues  —   (26)  —  (c)    
          Accrual adjustments classified as special expense credits  —   (30)  (36)(d)    
          Accrual adjustments classified as other operating expense (credit)  5   (12)  (29)(e)    
                           
          Total adjustments impacting income  5   (113)  (65)    
                           
          Balance at December 31, 2008, 2007 and 2006 $96  $98  $325     
                           
          Total charge (credit) to operating income during period from above items $5  $(113) $(65)    
          Additional special operating expense credit  —   (14)  —  (f)    
                           
          Total operating income charge (benefit) $5  $(127) $(65)    
                           
          (a)These accruals were deemed to be no longer directly related to bankruptcy proceedings; therefore, the accruals were reclassified to non-bankruptcy accruals.
          (b)In the third quarter of 2007, the Company recorded a change in estimate for certain liabilities relating to bankruptcy administrative claims. This adjustment resulted directly from the progression of the Company’s ongoing efforts to resolve


          106

          certain bankruptcy pre-confirmation contingencies; therefore, it was classified as a special operating revenue credit of $45 million that relates to both mainline passenger revenues ($37 million) and Regional affiliates revenues ($8 million).
          (c)The Company separately recorded a $26 million benefit from a change in estimate to certain other contingent liabilities based largely on changes in underlying facts and circumstances occurring during the third quarter of 2007. This benefit was recorded as a credit to mainline passenger revenues of $22 million and to Regional affiliates revenues of $4 million.
          (d)The 2007 amount relates to special operating expense credits of $30 million relating to ongoing litigation for San Francisco and Los Angeles facility lease secured interests as discussed above. For 2006, the $36 million benefit consists of a $12 million net benefit related to SFO and LAX lease litigation and a $24 million benefit related to pension matters, as discussed in Note 19, “Special Items.”
          (e)This amount relates to accrual adjustments impacting various operating expense line items that the Company recorded due to a change in estimate for certain liabilities relating to bankruptcy administrative claims. These adjustments resulted directly from the progression of the Company’s ongoing efforts to resolve certain bankruptcy pre-confirmation contingencies.
          (f)This amount relates to an accrual adjustment that the Company recorded due to a change in estimate for certain liabilities relating to bankruptcy administrative claims. This adjustment, which was recorded as a credit to other operating expense, resulted directly from the progression of the Company’s ongoing efforts to resolve certain bankruptcy pre-confirmation contingencies.
          Financial Statement Presentation.  SOP 90-7 requires that the financial statements for periods after a Chapter 11 filing separate transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, all transactions (including, but not limited to, all professional fees, realized gains and losses and provisions for losses) directly associated with the reorganization and restructuring of the business are reported separately in the financial statements as reorganization items, net. For the month ended January 31, 2006, the Predecessor Company recognized the following primarily non-cash reorganization income (expense) in its financial statements:
                   
            Period from
          		 
            January 1 to
          		 
            January 31,
          		 
            2006 
          (In millions)
          		 UAL  United 
          Discharge of claims and liabilities $24,628  $24,389  (a)
          Revaluation of frequent flyer obligations  (2,399)  (2,399) (b)
          Revaluation of other assets and liabilities  2,106   2,111  (c)
          Employee-related charges  (898)  (898) (d)
          Contract rejection charges  (429)  (421) (e)
          Professional fees  (47)  (47)
          Pension-related charges  (14)  (14)
          Other  (13)  (12)
                   
            $22,934  $22,709 
                   
          (a)The discharge of claims and liabilities primarily relates to those unsecured claims arising during the bankruptcy process, such as those arising from the termination and settlement of the Company’s U.S. defined benefit pension plans and other employee claims; aircraft-related claims, such as those arising as a result of aircraft rejections; other unsecured claims due to the rejection or modification of executory contracts, unexpired leases and regional carrier contracts; and claims associated with certain municipal bond obligations based upon their rejection, settlement or the estimated impact of the outcome of pending litigation. In accordance with the Plan of Reorganization, the Company discharged its obligations to unsecured creditors in exchange for the distribution of 115 million common shares of UAL and the issuance of certain other UAL securities. Accordingly, UAL and United recognized a non-cash reorganization gain of $24.6 billion and $24.4 billion, respectively.
          (b)The Company revalued its Mileage Plus Frequent Flyer Program (“Mileage Plus”) obligations at fair value as a result of fresh-start reporting, which resulted in a $2.4 billion non-cash reorganization charge.
          (c)In accordance with fresh-start reporting, the Company revalued its assets at their estimated fair value and liabilities at estimated fair value or the present value of amounts to be paid. This resulted in a non-cash reorganization gain of $2.1 billion, primarily as a result of newly recognized intangible assets, offset partly by reductions in the fair value of tangible property and equipment.
          (d)In exchange for employees’ contributions to the Restricted Stock awardssuccessful reorganization of the Company, including agreeing to reductions in pay and benefits, the Company agreed in the Plan of Reorganization to provide each employee group a deemed claim which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each


          107

          employee group received a deemed claim amount based upon a portion of the volume weighted-averagevalue of cost savings provided by that group through reductions to pay and benefits as well as through certain work rule changes. The total value of this deemed claim was approximately $7.4 billion. As of December 31, 2005, the Company recorded a non-cash reorganization charge of $6.5 billion for the deemed claim amount for all union-represented employees. The remaining $0.9 billion associated withnon-represented salaried and management employees was recorded as a reorganization charge in January 2006, upon confirmation of the Plan of Reorganization.
          (e)Contract rejection charges are non-cash costs that include estimated claim values resulting from the Company’s rejection or negotiated modification of certain contractual obligations such as executory contracts, unexpired leases and regional carrier contracts.
          (5) Common Stockholders’ Equity and Preferred Securities
          As a result of the Plan of Reorganization becoming effective on February 1, 2006, thethen-outstanding equity securities as well as the shares held in treasury of Predecessor UAL were canceled. New UAL common stock began trading on the NASDAQ market on February 2, 2006 under the symbol “UAUA.” In accordance with the Plan of Reorganization, UAL established the equity structure in the table below upon emergence and, on February 2, 2006, began distributing portions of the shares of new common stock to certain general unsecured creditors and employees and certain management employees and non-employee directors.
          Shares of
          UAL
          Party of Interest
          		Common Stock
          General unsecured creditors and employees115,000,000
          Management equity incentive plan (“MEIP”)9,825,000
          Director equity incentive plan (“DEIP”)175,000
          125,000,000
          Changes in the number of shares of UAL common stock outstanding during the years ended December 31, 2008 and 2007, the eleven month period ended December 31, 2006 and the one month period ended January 31, 2006 were as follows:
                            
            Successor   Predecessor 
                  Period from
          		   Period from
          		 
                  February 1
          		   January 1
          		 
            Year Ended
          		  to
          		   to
          		 
            December 31,  December 31,
          		   January 31,
          		 
          UAL 2008  2007  2006   2006 
          Shares outstanding at beginning of period  116,921,049   112,280,629   116,220,959    116,220,959 
          Cancellation of Predecessor UAL stock  —   —   (116,220,959)   — 
          Issuance of UAL stock under equity offering  11,208,438   —   —    — 
          Issuance of UAL stock upon conversion of preferred stock  11,145,812   —   —    — 
          Issuance of UAL stock to creditors  765,780   3,849,389   108,347,814    — 
          Issuance of UAL stock to employees  418,664   1,155,582   4,240,526    — 
          Issuance of UAL stock to directors  —   —   100,000    — 
          Forfeiture of non-vested UAL stock  (110,926)  (104,733)  (270,934)   — 
          Shares acquired for treasury  (310,889)  (259,818)  (136,777)   — 
                            
          Shares outstanding at end of period  140,037,928   116,921,049   112,280,629    116,220,959 
                            
          Treasury shares at beginning of period  396,595   136,777   —    — 
          Shares acquired for treasury  310,889   259,818   136,777    — 
                            
          Treasury shares at end of period  707,484   396,595   136,777    —  
                            


          108

          At December 31, 2008, 2.0 million of the initial 115 million shares authorized remain to be distributed to employees and holders of previously allowed claims and disputed claims that are pending final resolution. All treasury shares were acquired either for tax withholding obligations related to UAL’s share-based compensation plan or as consideration under an employment agreement. See Note 7, “Share-Based Compensation Plans” for additional information related to the remaining grants available to be awarded under the UAL’s share-based compensation plans and outstanding option awards, neither of which are included in outstanding shares above.
          UAL is authorized to issue 250 million shares of preferred stock (without par value). UAL was also authorized to issue two shares of junior preferred stock (par value $0.01 per share) which were issued in 2006 and remained outstanding at December 31, 2008.
          UAL issued 5 million shares of 2% convertible preferred stock to the PBGC on the Effective Date. The shares were issued at a liquidation value of $100 per share, convertible at any time following the second anniversary of the issuance date into common stock of UAL at an initial conversion price of $46.86 per common share; with dividends payable in kind semi-annually (in the form of increases to the liquidation value of the issued and outstanding shares). The preferred stock ranked pari passu with all current and future UAL or United preferred stock and was redeemable at any time at the then-current liquidation value (plus accrued and unpaid dividends) at the option of the issuer. At December 31, 2007, 5 million shares of UAL 2% convertible preferred stock were outstanding with an aggregate liquidation value of $519 million, which included $19 million of accrued and paid in kind dividends. The preferred stock had been pushed down to United and was reflected on United’s books as part of fresh-start reporting. At December 31, 2007, the carrying value of the 2% convertible preferred stock was $371 million, which included the $19 million of accrued and paid in kind dividends.
          As reflected in the table above, 11.1 million shares of UAL common stock were issued upon preferred stockholders’ elections to exercise their conversion option of all 5 million shares of 2% mandatorily convertible preferred stock during 2008. As a result of these conversions, there are currently no outstanding shares of 2% convertible preferred stock and this class of stock was retired in October 2008. The Company increased additional paid in capital by $374 million and decreased the mandatorily convertible preferred stock by the same amount to record the impact of these conversions.
          In addition, as indicated in the table above, during 2008 the Company issued 11.2 million shares of common stock as part of a $200 million equity offering generating net proceeds of $122 million, of which $107 million was received in 2008 and $15 million was received in January 2009 upon settlement of shares sold during the last three days of 2008. In January 2009, an additional 4.0 million shares were issued generating net proceeds of $47 million. After the January 2009 issuances, the Company had issued shares for gross proceeds of $172 million leaving $28 million of remaining capacity available to issue additional shares in 2009.
          (6) UAL Per Share Amounts
          In accordance with Statement of Financial Accounting Standards No. 128,Earnings per Share, basic per share amounts were computed by dividing earnings (loss) available to common stockholders by the weighted-average number of shares of UAL common stock outstanding. Approximately 2.0 million, 2.8 million and 6.7 million UAL shares remaining to be issued to unsecured creditors and employees under the Plan of Reorganization are included in outstanding basic shares for 2008, 2007 and the eleven month period ended December 31, 2006, respectively, as the necessary conditions for issuance have been satisfied. UAL’s $546 million of 6% senior notes are callable at any time at 100% of par value, and can be redeemed with either cash or UAL common stock at UAL’s option. These notes are not included in the diluted earnings per share calculation, as it is UAL’s intent to redeem these notes with cash. In January 2009, the Company issued additional common shares as discussed in Note 5, “Common Stockholders’ Equity and Preferred Securities,” above. The table below represents the reconciliation of the basic earnings (loss) per share to diluted earnings (loss) per share.


          109

                                
            Successor   Predecessor    
                  Period from
          		   Period from
          		    
                  February 1
          		   January 1
          		    
            Year Ended
          		  to
          		   to
          		    
          (In millions, except per share) December 31,  December 31,
          		   January 31,
          		    
          UAL 2008  2007  2006   2006    
          Basic earnings per share:
          		                     
          Net income (loss) $(5,348) $403  $25   $22,851     
          Preferred stock dividend requirements  (3)  (10)  (9)   (1)    
                                
          Earnings (loss) available to common stockholders $(5,351) $393  $16   $22,850     
                                
          Basic weighted-average shares outstanding  126.8   117.4   115.5    116.2     
                                
          Earnings (loss) per share, basic $(42.21) $3.34  $0.14   $196.61     
                                
          Diluted earnings per share:
          		                     
          Earnings (loss) available to common stockholders $(5,351) $393  $16   $22,850     
          Effect of 2% preferred securities  —   10   —    —     
          Effect of 4.5% senior limited-subordination convertible notes  —   20   —    —     
          Effect of 5% convertible notes  —   5   —    —     
                                
          Earnings available to common stockholders including the effect of dilutive securities $(5,351) $428  $16   $22,850     
                                
          Basic weighted-average shares outstanding  126.8   117.4   115.5    116.2     
          Effect of non-vested stock options  —   0.2   —    —     
          Effect of non-vested restricted shares  —   1.1   0.7    —     
          Effect of 2% preferred securities  —   11.0   —    —     
          Effect of 4.5% senior limited-subordination convertible notes  —   20.8   —    —     
          Effect of 5% convertible notes  —   3.2   —    —     
                                
          Diluted weighted-average shares outstanding  126.8   153.7   116.2    116.2     
                                
          Earnings (loss) per share, diluted $(42.21) $2.79  $0.14   $196.61     
                                
          Potentially dilutive shares excluded from diluted per share amounts:
          		                     
          Stock options  4.4   4.0   5.0    9.0     
          Restricted shares  1.4   0.9   2.0    —     
          2% preferred securities  3.1   —   10.8    —     
          4.5% senior limited-subordination convertible notes  22.2   —   20.8    —     
          5% convertible notes  3.4   —   3.2    —     
                                
             34.5   4.9   41.8    9.0     
                                
          (7) Share-Based Compensation Plans
          Compensation expense associated with the UAL share-based compensation plans has been pushed down to United.
          Predecessor Company—As of January 31, 2006, a total of nine million stock options were outstanding. Under the Company’s Plan of Reorganization, these stock options were canceled on the Effective Date. No material share-based compensation expense was incurred as a result of these outstanding options for the month of January 2006.
          Successor Company—The following table summarizes the number of awards authorized, issued and available for future grants under the Company’s share-based compensation plans for management employees and directors as of December 31, 2008:
                       
            Employees  Directors  Total 
           
          Authorized  8,339,284   175,000   8,514,284 
          Granted  (633,750)  (113,111)  (746,861)
          Canceled awards available for reissuance  336,365   —   336,365 
                       
          Available for future grants  8,041,899   61,889   8,103,788 
                       

          110

          The following table provides information related to our share-based compensation plans.
                       
                  Period from
          		 
            Year Ended
          		  February 1 to
          		 
            December 31,  December 31,
          		 
          (In millions)
          		 2008  2007  2006 
           
          Compensation cost:            
          Management plan restricted stock $18  $25  $84 
          Management plan stock options  13   24   72 
          DEIP unrestricted stock  —   —   3 
                       
          Total compensation cost $31  $49  $159 
                       
          The unrecognized compensation cost related to unvested awards at December 31, 2008 and 2007 was $18 million and $41 million, respectively, which is expected to be recognized over a weighted-average period of 1.6 and 2.2 years, respectively. During the second quarter of 2006, the Company revised its initial estimated award forfeiture rate of 7.5% to 15% based upon actual attrition. As a result, theshare-based compensation expense was reduced by approximately $7 million for the eleven month period ended December 31, 2006.
          2008 Incentive Compensation Plan.  In 2008, UAL’s Board of Directors and stockholders approved the UAL Corporation 2008 Incentive Compensation Plan (the “2008 Plan”). The 2008 Plan is an incentive compensation plan that allows the Company to use different forms of compensation awards to attract, retain and reward eligible participants. This approval by stockholders also allows for the issuance of up to 8,000,000 additional shares pursuant to awards granted under the 2008 Plan. The 2008 Plan replaced the UAL Corporation 2006 Management Equity Incentive Plan, which was automatically terminated with respect to future grants and otherwise replaced and superseded by the 2008 Plan. Any awards granted under the MEIP remain in effect pursuant to their terms.
          Any officer or employee of UAL or its affiliates is eligible to participate in the 2008 Plan. The 2008 Plan allows for the grant of options intended to qualify as incentive stock options (“ISOs”) under Section 422 of the Code, non-qualified stock options (“NSOs”), stock appreciation rights (“SARs”), restricted share awards, restricted stock units (“RSUs”), performance compensation awards, performance units, cash incentive awards and other equity-based and equity-related awards. Any shares of our common stock issued under the 2008 Plan will consist, in whole or in part, of authorized and unissued shares or of treasury shares.
          The 2008 Plan provides that, unless otherwise provided in an award agreement, in the event of a change of control of the Company (as defined in the 2008 Plan):
          • any options and SARs outstanding as of the date the change of control is determined to have occurred become fully exercisable and vested, as of immediately prior to the change of control.
          • all performance units, cash incentive awards and other awards designated as performance compensation awards will be paid out at the “target” performance level on a prorated basis based on the datenumber of grant. These awards generally vest over four years. However, if an employee is retirement eligible atdays elapsed from the grant date, the award is immediately vested. In addition, if an employee will become retirement eligible within four yearsbeginning of the grant date,performance period up to and including the award will vest overchange of control.
          • all other outstanding awards are automatically deemed exercisable or vested and all restrictions and forfeiture provisions related thereto lapse as of immediately prior to such change of control.


          111

          The table below summarizes stock option activity pursuant to UAL’s Management Plan stock options for the year ended December 31, 2008:
                           
                  Weighted-
          		    
                  Average
          		    
               Weighted-
          		  Remaining
          		  Aggregate
          		 
               Average
          		  Contractual
          		  Intrinsic Value
          		 
            Options  Exercise Price  Life (in years)  (in millions) 
           
          Outstanding at beginning of year  4,150,093  $35.66         
          Granted  615,900   12.94         
          Exercised(a)  (6,864)  33.88      $— 
          Canceled  (142,536)  34.87         
          Expired  (262,921)  33.77         
                           
          Outstanding at end of year  4,353,672   32.80         
                           
          Vested and expected to vest at end of period  4,005,308   32.97   7.4  $1 
          Exercisable at end of period(b)  2,031,242   35.14   7.0   — 
          (a)The aggregate intrinsic value of shares exercised in 2008, 2007 and 2006 was less than $1 million, $11 million and $3 million, respectively.
          (b)Options represent the remaining period to retirement eligibility. Approximately 1.7 millionnumber of the 2.0 million nonvested restricted stock awardsvested options at December 31, 2007 are expected to vest.

                  The table below summarizes Restricted Stock activity for the twelve months ended December 31, 2007:

           
          		 Restricted Stock
          		 Weighted-
          Average
          Grant Price
          Nonvested at beginning of year 2,712,787 $36.71
          Granted 165,734  43.61
          Vested (755,799) 36.83
          Canceled (104,733) 37.23
            
          		   
          Nonvested at end of year 2,017,989  37.20
            
          		   

          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (5) Share-Based Compensation Plans (Continued)

                  The fair2008. Aggregate intrinsic value of restricted sharesis based only on vested in 2007 was $28 million. The weighted-average grant date price of shares granted in 2006 was $36.78.

                  Director Equity Incentive Plan ("DEIP").    The Nominating/Governance Committee of the UAL Board of Directors (the "Governance Committee") is authorized to grant equity-based awards to non-employee directors of the Company under the plan. The DEIP authorizes the Governance Committee to grant any of a variety of incentive awards to participants, including the following:

            •
            non-qualified stock options

            •
            stock appreciation rights, which provide the participant the right to receive the excess (if any) of the fair market value of a specified number of shares of common stock at the time of exercise over the grant price of the stock appreciation right,

            •
            stock awards to be granted at no cost to the participant, including grants in the form of Restricted Stock and Unrestricted Stock,

            •
            annual compensation in the form of credits to a participant's share account established under the DEIP, and

            •
            UAL common stock in lieu of receipt of all or any portion of cash amounts payable by UAL to a participant including retainer fees, board attendance fees and committee fees (but excluding expense reimbursements and similar items).

                  The shares may be issued from authorized and unissued shares of UAL common stock or from UAL's treasury stock. The that have an exercise price for each underlying share of UAL common stock under all options and stock appreciation rights awarded under the DEIP will not be less than the fair market value of a share of commonUAL stock on the date of grant. Each instrument granted under the DEIP will generally expire 10 years after its date of grant. The 100,000 unrestricted shares issued under the DEIP in the eleven month period ended December 31, 2006 immediately vested on their respective grant dates.

          (6) Income Taxes

                  United and its domestic consolidated subsidiaries, file a consolidated federal income tax return with UAL. Under an intercompany tax allocation policy, United and its subsidiaries compute, record and pay UAL for their own tax liability as if they were separate companies filing separate returns. In determining their own tax liabilities, United and each of its subsidiaries take into account all tax credits or benefits generated and utilized as separate companies, and they are compensated for the aforementioned tax benefits only if they would be able to use those benefits on a separate company basis.

                  In 2007, the Company's current regular taxable income was completely absorbed by utilization of its net operating loss ("NOL") carry forward; however, it did incur an alternative minimum tax ("AMT") liability of $6 million, as indicated in the table below. In 2006 and 2005, the Company incurred both a regular tax loss and an AMT loss.


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (6) Income Taxes (Continued)

                  The significant components of the income tax expense (benefit) are as follows:

           
          		 Successor
          		 
          		 Predecessor
          		 
          (In millions)
          		 Year Ended
          December 31,
          2007
          		 Period from
          February 1 to
          December 31,
          2006
          		 
          		 Period from
          January 1 to
          January 31,
          2006
          		 Year Ended
          December 31,
          2005
          		 
          UAL              
          Current tax expense $6 $—  $— $— 
          Deferred tax expense (benefit) (exclusive of
              the other components listed below)          		  291  21   8,488  (7,830)
          Increase (decrease) in the valuation
              allowance for deferred tax assets          		  —  —   (8,488) 7,830 
            
          		 
          		  
          		 
          		 
            $297 $21  $— $— 
            
          		 
          		  
          		 
          		 
          United              
          Current tax expense $6 $—  $— $— 
          Deferred tax expense (benefit) (exclusive of
              the other components listed below)          		  290  29   8,397  (7,779)
          Increase (decrease) in the valuation
              allowance for deferred tax assets          		  —  —   (8,397) 7,779 
            
          		 
          		  
          		 
          		 
            $296 $29  $— $— 
            
          		 
          		  
          		 
          		 

                  The income tax provision differed from amounts computed at the statutory federal income tax rate, as follows:

           
          		 Successor
          		  
          		 Predecessor
          		 
          (In millions)
          		 Year Ended
          December 31,
          2007
          		 Period from
          February 1 to
          December 31,
          2006
          		  
          		 Period from
          January 1 to
          January 31,
          2006
          		 Year Ended
          December 31,
          2005
          		 
          UAL               
          Income tax provision at statutory rate $243 $15   $7,998 $(7,410)
          State income taxes, net of federal income tax
              benefit          		  13  1    423  (416)
          Nondeductible employee meals  10  9    1  11 
          Nondeductible interest expense  21  —    —  — 
          Medicare Part D Subsidy  (2) (12)   (2) (17)
          Valuation allowance  —  —    (8,488) 7,830 
          Share-based compensation  2  5    —  — 
          Other, net  10  3    68  2 
            
          		 
          		   
          		 
          		 
            $297 $21   $— $— 
            
          		 
          		   
          		 
          		 

          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (6) Income Taxes (Continued)

           
          		 Successor
          		  
          		 Predecessor
          		 
          (In millions)
          		 Year Ended
          December 31,
          2007
          		 Period from
          February 1 to
          December 31,
          2006
          		  
          		 Period from
          January 1 to
          January 31,
          2006
          		 Year Ended
          December 31,
          2005
          		 
          United               
          Income tax provision at statutory rate $243 $20   $7,917 $(7,363)
          State income taxes, net of federal income tax
              benefit          		  13  1    419  (413)
          Nondeductible employee meals  10  9    1  11 
          Nondeductible interest expense  21  —    —  — 
          Medicare Part D Subsidy  (2) (12)   (2) (17)
          Valuation allowance  —  —    (8,397) 7,779 
          Share-based compensation  2  5    —  — 
          Other, net  9  6    62  3 
            
          		 
          		   
          		 
          		 
            $296 $29   $— $— 
            
          		 
          		   
          		 
          		 

                  Temporary differences and carry forwards that give rise to a significant portion of deferred tax assets and liabilitiesprice at December 31, 2007 and 2006 were as follows:

           
          		 UAL
          		 United
          		 
           
          		 December 31,
          		 December 31,
          		 
          (In millions)
          		 
           2007
          		 2006
          		 2007
          		 2006
          		 
          Deferred income tax asset (liability):             
          Employee benefits, including postretirement, medical and ESOP $1,292 $1,416 $1,322 $1,445 
          Federal and state net operating loss carry forwards  2,458  2,709  2,473  2,722 
          Mileage Plus deferred revenue  1,216  1,242  1,220  1,245 
          AMT credit carry forwards  297  291  297  291 
          Restructuring charges  170  223  165  218 
          Other asset  290  1,802  282  1,199 
           Less: Valuation allowance  (1,815) (2,248) (1,757) (2,190)
            
          		 
          		 
          		 
          		 
          Total deferred tax assets $3,908 $5,435 $4,002 $4,930 
            
          		 
          		 
          		 
          		 
          Depreciation, capitalized interest and other $(3,165)$(3,139)$(3,161)$(3,168)
          Gains on sale and leasebacks  (12) (9) (3) — 
          Aircraft rent  (31) (46) (25) (40)
          Intangibles  (913) (964) (959) (1,010)
          Other liability  (347) (1,843) (337) (1,194)
            
          		 
          		 
          		 
          		 
          Total deferred tax liabilities $(4,468)$(6,001)$(4,485)$(5,412)
            
          		 
          		 
          		 
          		 
          Net deferred tax liability $(560)$(566)$(483)$(482)
            
          		 
          		 
          		 
          		 

                  The federal and state NOL carry forwards relate to prior years' NOLs which may be carried forward to reduce the tax liabilities of future years. This tax benefit is mostly attributable to federal pre-tax NOL carry forwards of $6.6 billion. If not utilized, the federal tax benefits of $1.0 billion expire


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (6) Income Taxes (Continued)


          in 2022, $0.4 billion expire in 2023, $0.5 billion expire in 2024 and $0.4 billion expire in 2025. In addition, the state tax benefit of $156 million, if not utilized, expires over a five to twenty year period.

                  At this time, the Company does not believe that the limitations imposed by the Internal Revenue Code on the usage of the NOL carry forward and other tax attributes following an ownership change will have an effect on the Company. Therefore, the Company does not believe its exit from bankruptcy has had any material impact on the utilization of its remaining NOL carry forward and other tax attributes.

                  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (including the reversals of deferred tax liabilities) during the periods in which those temporary differences will become deductible. The Company's management assesses the realizability of its deferred tax assets, and records a valuation allowance for the deferred tax assets when it is more likely than not that a portion, or all of the deferred tax assets, will not be realized. As a result, the Company has a valuation allowance against its deferred tax assets as of December 31, 2007 and 2006, to reflect management's assessment regarding the realizability of those assets. The Company expects to continue to maintain a valuation allowance on deferred tax assets until other positive evidence is sufficient. The current valuation allowance of $1,815 million and $1,757 million for UAL and United, respectively, if reversed in 2008 will be allocated to reduce goodwill and then other intangible assets; if reversed in 2009 or later, it will be allocated to reduce income tax expense as discussed in Note 2(p), "Summary of Significant Accounting Policies—New Accounting Pronouncements."

                  In addition to the deferred tax assets listed above, the Company has an $801 million unrecorded tax benefit at December 31, 2007 attributable to the difference between the amount of the financial statement expense and the allowable tax deduction for UAL common stock issued to certain unsecured creditors and employees pursuant to the Plan of Reorganization. The Company is accounting for this unrecorded tax benefit by analogy to SFAS 123R which requires recognition of the tax benefit to be deferred until it is realized as a reduction of taxes payable.

                  Effective January 1, 2007, we adopted the provisions of FASB Interpretation No. 48,2008.

          The following table provides additional information for options granted in each period:
                       
                  Period from
          		 
            Year Ended
          		  February 1
          		 
            December 31,  to December 31,
          		 
          Weighted-average fair value assumptions:
          		 2008  2007  2006 
          Risk-free interest rate  1.9-3.6%  3.4-5.0%  4.4-5.1%
          Dividend yield  0%  0%  0%
          Expected market price volatility of UAL common stock  55%  55%  55-57%
          Expected life of options (years)  5.0-6.3   5.8-6.2   5.0-6.2 
          Weighted-average fair value $7.86  $25.13  $21.37 
          The fair value of options was determined at the grant date using a Black Scholes option pricing model, which requires the Company to make several assumptions. The risk-free interest rate is based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant. The dividend yield on UAL’s common stock was assumed to be zero since UAL did not have any plans to pay dividends at the time of the option grants.
          The volatility assumptions were based upon historical volatilities of comparable airlines whose shares are traded using daily stock price returns equivalent to the contractual term of the option. In addition, implied volatility data for both UAL and comparable airlines, using current exchange-traded options, was utilized. Since the new UAL common stock only began trading in February 2006, the historical volatility data for UAL was not considered adequate to determine expected volatility.
          The expected life of the options was determined based upon a simplified assumption that the option will be exercised evenly from vesting to expiration under the transitional guidance of Staff Accounting Bulletin No. 107, Topic 14,Accounting for Uncertainty in Income Taxes ("(“FIN 48"48”). Our adoption, effective January 1, 2007. Although management believes that its positions taken on income tax matters are reasonable, the Company nevertheless has established tax and interest reserves in recognition that various taxing authorities may challenge certain of FIN 48 resulted in a $24 million increase in the liability for unrecognized tax benefits ("UTB") which was accounted for as a $6 million decrease in goodwill, a $2 million increasepositions taken by the Company, potentially resulting in additional capital invested,liabilities for taxes and a $32 million increase to deferredinterest. The Company’s tax assets.

                  At December 31, 2007, ourcontingency reserves are reviewed periodically and are adjusted as events occur that affect its estimates, such as the availability of new information, the lapsing of applicable statutes of limitations, the conclusion of tax audits, the measurement of additional estimated liability, for uncertainthe identification of new tax positions was $35 million. UTBcontingencies, the release of $19 million would affect our effectiveadministrative tax rate if recognized. Excluding amounts related toguidance affecting its estimates of tax positions for which the ultimate deductibility is highly certain, there were no significant changes in the components of the liability in the twelve months ending December 31, 2007. Any change in the amount of unrecognized tax benefits within the next twelve months is not expected to result in a significant impact on the results of operations liabilities,


          98

          or the financial positionrendering of the Company.

                  Included in the balance at December 31, 2007 is $16 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the effective tax rate but would cause a reduction to the net operating losses available for utilization.

                  We record penalties and interest relating to uncertain tax positions in the other operating expense and interest expense line items, respectively, within our consolidated statement of income.


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (6) Income Taxes (Continued)

                  The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits related to uncertain tax positions:

          (In millions)
          		  
          		 
          Balance at January 1, 2007 $48 
          ��Increase in unrecognized tax benefits as a result of tax positions taken during the current period  1 
           Decrease in unrecognized tax benefits as a result of tax positions taken during a prior period  (14)
           Decrease in unrecognized tax benefits relating to settlements with taxing authorities  — 
           Reductions to unrecognized tax benefits as a result of a lapse of the statute of limitations  — 
            
          		 
          Balance at December 31, 2007 $35 
            
          		 

                  Our income tax returns for tax years after 2002 remain subject to examination by the Internal Revenue Service and state taxing jurisdictions.

          (7) Investments

                  The Company had investments accounted for using the cost method of accounting of $5 million and $91 million at December 31, 2007 and 2006, respectively. The Company revalued its investments to their estimated fair values as of the Effective Date in accordance with SOP 90-7. Since that time, there have been no triggering events that required the Company to evaluate any of these investments for impairment.

                  In the fourth quarter of 2007, United, along with certain other major air carriers, sold its interests in Aeronautical Radio, Inc. ("ARINC") to Radio Acquisition Corp., an affiliate of The Carlyle Group. ARINC is a provider of transportation communications and systems engineering. The transaction generated proceeds of $128 million and resulted in a pre-tax gain of $41 million.

                  Investments at December 31, 2007 include $91 million of the Company's previously issued EETC debt securities that the Company repurchased in 2007. These securities remain outstanding and are classified as available-for-sale. An unrealized loss of $5 million to record these securities at fair value has been recognized in other comprehensive income during 2007.relevant court decisions. See Note 12, "Debt Obligations," for additional information.

          (8) Intangibles

                  As discussed in Note 10, "Segment Information," in 2006 the Company determined that it has two reporting segments that reflect the management of its business: Mainline and United Express. See Note 2(l), "Summary of Significant Accounting Policies—Intangibles,"8, “Income Taxes,” for further information related to impairment testing.


          UAL Corporationuncertain income tax positions and Subsidiary Companies

          the adoption of FIN 48.

          Combined Notes(2) Company Operational Plans
          The volatility of and increases in crude oil prices, a weakening economic environment and a highly competitive industry with excess capacity have created an extremely challenging environment for the Company. The Company’s cash flows and results of operations have been adversely impacted by these factors as indicated by its net loss of $5.3 billion during the year ended December 31, 2008. The Company’s results in 2008 include asset impairment charges of approximately $2.6 billion that resulted primarily from unfavorable market and economic conditions as discussed in Note 3, “Asset Impairments and Intangible Assets.” These factors have had a significant negative impact on the Company’s liquidity as unrestricted cash and short-term investments decreased by $1.5 billion in 2008 to $2.0 billion at December 31, 2008. In addition, the Company may not be able to improve its liquidity position with cash from operations in 2009 because of lower demand for air travel during 2009 and a weak global economy. The Company is implementing certain operational plans to address its increased operating costs and its liquidity needs in 2009. In addition, the Company continues to evaluate the most cost-effective alternatives to raise additional capital, including asset sales and financings. Highlights of the Company’s operational plans and financings include the following:
          • The Company is significantly reducing mainline domestic and consolidated capacity. Fourth quarter 2008 mainline domestic and consolidated capacity were down approximately 14% and 11%year-over-year, respectively. The Company is planning to Consolidated Financial Statements (Continued)

          (8) Intangibles (Continued)

          further decrease mainline domestic and consolidated capacity in 2009.

          • The following table presents information aboutcapacity reductions are being made through reductions in frequencies of routes and the intangible assetselimination of unprofitable routes. These actions have resulted in the closure of a small number of airport operations where United cannot operate profitably in the current economic environment. Additional airport operations may be closed in future periods.
          • The Company has announced plans to permanently remove 100 aircraft from its mainline fleet, including its entire B737 fleet and six B747 aircraft, by the end of 2009. The B737 aircraft being retired are some of the Successoroldest and Predecessor Companies, including goodwill,least fuel efficient in the Company’s fleet. This planned reduction reflects the Company’s efforts to eliminate unprofitable capacity and divest the Company of assets that currently do not provide an acceptable return.
          • United is eliminating its Ted product for leisure markets and will reconfigure that fleet’s 56 A320s to include United First seating. The reconfiguration of the Ted aircraft will occur in stages, with expected completion by year-end 2009. We will continue to review the deployment of all of our aircraft in various markets and the overall composition of our fleet to ensure that we are using our assets appropriately to provide the best available return.
          • In connection with the capacity reductions, the Company is further streamlining its operations and corporate functions in order to reduce the size of its workforce to match the size of its operations.
          • The Company also recently entered into an alliance partnership with Continental Airlines that is expected to create revenue enhancements, costs savings and operational efficiencies.
          • The Company is managing its liquidity by investing only in those projects that are considered high-value, such as the international premium product. The Company has $0.2 billion of binding commitments for the purchase of property in 2009 and $0.8 billion of long-term debt obligations in 2009.
          • As of December 31, 2008, the Company has 62 unencumbered aircraft and other assets that may be used as collateral to obtain additional financing. The Company could also sell certain of these assets to generate liquidity.


          99

          • As discussed in Note 23, “Subsequent Events,” in January 2009, the Company completed several financing-related transactions which generated approximately $315 million of proceeds.
          The following is a discussion of expenses associated with implementing the Company’s plans. In addition, see Note 3, “Asset Impairments and Intangible Assets,” for a discussion of the impairment charges recorded during the year ended December 31, 2008.
          Severance.  During 2008, the Company reduced its workforce in operations and corporate functions through attrition and both voluntary and involuntary furloughs. The Company is streamlining its workforce to match the reduced capacity of its operations. The Company reduced its workforce in 2008 and plans to further reduce its workforce in 2009. Workforce reductions include salaried and management positions and certain of the Company’s unionized workforce. The Company’s standard severance policies provide the affected employees with salary continuation as well as certain insurance benefits for a specified period of time. The Company recognizes its severance obligations in accordance with Statement of Financial Accounting Standards No. 112 (As Amended),Employers’ Accounting for Postemployment Benefits—an amendment of FASB Statements No. 5 and 43, except for voluntary programs which are accounted for under Statement of Financial Accounting Standards No. 88,Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.
          The following is a reconciliation of the Company’s severance accrual activity:
               
          (In millions)
          		   
          Balance at January 1, 2008 $— 
          Accruals  106 
          Payments  (25)
               
          Balance at December 31, 2008 $81 
               
          In addition to involuntary furloughs, the Company is currently offering furlough-mitigation programs, such as voluntary early-out options, primarily to certain union groups. Termination benefits expected to be paid under such voluntary programs are not recognized until the employees accept the termination benefit offer. Therefore, as the Company continues to implement its reductions in force during 2009, additional severance costs may be incurred. Severance expense is classified within salaries and related costs in the Company’sStatements of Consolidated Operations.Severance charges are expected to be primarily within the mainline segment where the fleet reductions will occur.
          Aircraft.  The following table provides additional information regarding UAL and United aircraft including the impacts of the fleet reductions discussed above.
                                                
            B737s (Mainline)   All Other Mainline          
                               Total
          		  Regional
          		    
            Owned  Leased  Total   Owned  Leased  Total  Mainline  Affiliates  Total 
          Operating:                                     
          Aircraft at December 31, 2007 (a)  47   47   94    208   158   366   460   279   739 
          Added (removed) from operating fleet  (29)  (19)  (48)   (3)  —   (3)  (51)  1   (50)
          Converted from owned to leased (b)  —   —   —    (24)  24   —   —   —   — 
          Converted from leased to owned (c)  —   —   —    10   (10)  —   —   —   — 
                                                
          Aircraft at December 31, 2008 (d)  18   28   46    191   172   363   409   280   689 
                                                
          Removed from operating fleet in 2008 (e)  29   19   48    3   —   3   51   —   51 
          Sold/returned to lessor during 2008  (5)  (7)  (12)   —   —   —   (12)  —   (12)
                                                
          Nonoperating at December 31, 2008 (a) (e)  24   12   36    3   —   3   39   —   39 
                                                
          (a)At December 31, 2007, the Company had 113 unencumbered aircraft. In 2007, United leased one operating aircraft from UAL and therefore had one less owned B737 aircraft and one more leased aircraft as compared to UAL’s fleet. This particular aircraft became nonoperational in 2008; therefore, United has one less nonoperating owned B737 aircraft and one more leased aircraft as compared to UAL’s fleet at December 31, 20072008.


          100

          (b)During 2008, the Company sold 24 aircraft and 2006, respectively:

           
          		 Weighted
          Average Life of
          Assets
          (in years)
          		 Gross Carrying
          Amount
          		 Accumulated
          Amortization
          		 Gross Carrying
          Amount
          		 Accumulated
          Amortization
          (Dollars in millions)
          		 2007
          		 2006
          Amortized intangible assets              
           Airport slots and gates 9 $72 $22 $72 $14
           Hubs 20  145  14  145  7
           Patents 3  70  45  70  21
           Mileage Plus database 7  521  137  521  77
           Contracts 13  216  101  216  48
           Other 7  18  5  18  2
              
          		 
          		 
          		 
            10 $1,042 $324 $1,042 $169
              
          		 
          		 
          		 

          Unamortized intangible assets
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           Goodwill   $2,280    $2,703   
           Airport slots and gates    255     255   
           Route authorities    1,146     1,146   
           Trade-name    752     754   
              
          		    
          		   
              $4,433    $4,858   
              
          		    
          		   
          leased them back. See Note 15, “Lease Obligations,” for additional information related to these sale-leaseback transactions.
          (c)During 2008, the Company acquired certain aircraft under existing lease terms.
          (d)At December 31, 2008, United’s operating fleet was the same as UAL’s fleet and included 62 unencumbered aircraft. The unencumbered aircraft at December 31, 2008 exclude nine aircraft which became encumbered with the December 2008 signing of a binding sale-leaseback agreement that closed in January 2009. See Note 12, “Debt Obligations and Card Processing Agreements,” and Note 23, “Subsequent Events,” for additional information.
          (e)As of December 31, 2008, the owned nonoperating aircraft and engines are classified as Other non-current assets in the Company’sStatements of Consolidated Financial Position.These aircraft are not classified as assets held for sale because the assets may not be sold within one year. As a result of the impairment testing discussed in Note 3, “Asset Impairments and Intangible Assets,” these assets have been recorded at their net realizable value of $198 million at December 31, 2008.
          During 2008, the Company expensed $24 million related to the retirement of leased aircraft, of which $16 million remained accrued and unpaid at December 31, 2008. These amounts consist of the present value of future lease payments for aircraft that have been removed from service in advance of their lease termination dates as of December 31, 2008, estimated payments for lease return maintenance conditions related to B737 aircraft and the write-off of fresh-start lease fair value adjustments. Periodic lease payments will be made over the lease terms of these aircraft unless early return agreements are reached with the lessors; and, lease return maintenance condition payments, if any, will be made upon return of the aircraft to the lessors. The total expected payments for leased aircraft that were grounded at December 31, 2008 and that are expected to be grounded in 2009 are $132 million, payable through 2013. These estimated payments are future lease payments and estimated lease maintenance return condition payments. Actual lease payments may be less if the Company is able to negotiate early termination of any of its leases.
          Other costs.  As the Company continues to implement the operational plans discussed above, it may incur additional costs related to its conversion of the Company’s fleet of Ted aircraft, costs to exit additional facilities such as airports no longer served, lease termination costs, additional severance costs and asset impairment charges, among others. Such future costs and charges may be material.
          (3) Asset Impairments and Intangible Assets
          Asset Impairments
          In accordance with SFAS 142 and SFAS 144, as of May 31, 2008 the Company performed an interim impairment test of its goodwill, all intangible assets and certain of its long-lived assets (principally aircraft and related spare engines and spare parts) due to events and changes in circumstances that indicated an impairment might have occurred. In addition, the Company also performed an interim impairment test on certain of its aircraft fleet types as of December 31, 2008 due to management’s determination that unfavorable market conditions indicated potential impairment of value. Factors deemed by management to have collectively constituted an impairment triggering event included record high fuel prices, significant losses in the first and second quarters of 2008, a softening U.S. economy, analyst downgrade of UAL common stock, rating agency changes in outlook for the Company’s debt instruments from stable to negative, the announcement of the planned removal from UAL’s fleet of 100 aircraft in 2008 and 2009 and a significant decrease in the fair value of UAL’s outstanding equity and debt securities during the first five months of 2008, including a decline in UAL’s market capitalization to significantly below book value. The Company’s consolidated fuel expense increased by more than 50% during this period.
          As a result of this impairment testing, for which certain estimates made in the second quarter of 2008 were adjusted to final values in the third quarter of 2008, the Company recorded impairment charges during the year ended December 31, 2008, as presented in the table below. All of these impairment charges are within the mainline segment. All of the impairments other than the goodwill impairment, which is separately identified, are classified within “Other impairments and special items” in the Company’sStatements of Consolidated Operations.


          101

               
            Year Ended
          		 
          (In millions)
          		 December 31, 2008 
          Goodwill impairment $2,277 
               
          Indefinite-lived intangible assets:    
          Codeshare agreements  44 
          Tradenames  20 
               
          Intangible asset impairments  64 
               
          Tangible assets:    
          Pre-delivery advance deposits including related capitalized interest  105 
          B737 aircraft, B737 spare parts and other  145 
               
          Aircraft and related deposit impairments  250 
               
          Total impairments $2,591 
               
          Goodwill
          For purposes of testing goodwill, the Company performed Step One of the SFAS 142 test by estimating the fair value of the mainline reporting unit (to which all goodwill is allocated) utilizing several fair value measurement techniques, including two market estimates and one income estimate and using relevant data available through and as of May 31, 2008. The market approach is a valuation technique in which fair value is estimated based on observed prices in actual transactions and on asking prices for similar assets. The valuation process is essentially that of comparison and correlation between the subject asset and other similar assets. The income approach is a technique in which fair value is estimated based on the cash flows that an asset could be expected to generate over its useful life, including residual value cash flows. These cash flows are discounted to their present value equivalents using a rate of return that accounts for the relative risk of not realizing the estimated annual cash flows and for the time value of money. Variations of the income approach were used to determine certain of the intangible asset fair values.
          Under the market approaches, the fair value of the mainline reporting unit was estimated based upon the fair value of invested capital for UAL, as well as a separate comparison to revenue and EBITDAR multiples for similar publicly traded companies in the airline industry. The fair value estimates using both market approaches included a control premium similar to those observed for historical airline and transportation company market transactions.
          Under the income approach, the fair value of the mainline reporting unit was estimated based upon the present value of estimated future cash flows for UAL. The income approach is dependent on a number of critical management assumptions including estimates of future capacity, passenger yield, traffic, operating costs (including fuel prices), appropriate discount rates and other relevant assumptions. The Company estimated its future fuel-related cash flows for the income approach based on thefive-year forward curve for crude oil as of May 31, 2008. The impacts of the Company’s aircraft and other tangible and intangible asset impairments were considered in the fair value estimation of the mainline reporting unit.
          Taking into consideration an equal weighting of the two market estimates and the income estimate, which has been the Company’s practice when performing annual goodwill impairment tests, the indicated fair value of the mainline reporting unit was less than its carrying value, and therefore, the Company was required to perform Step Two of the SFAS 142 goodwill impairment test.

          102

          In Step Two of the impairment test, the Company determined the implied fair value of goodwill of the mainline reporting unit by allocating the fair value of the reporting unit determined in Step One to all the assets and liabilities of the mainline reporting unit, including any recognized and unrecognized intangible assets, as if the mainline reporting unit had been acquired in a business combination and the fair value of the mainline reporting unit was the acquisition price. As a result of the Step Two testing, the Company determined that goodwill was completely impaired and therefore recorded an impairment charge during the second quarter of 2008 to write-off the full value of goodwill.
          Indefinite-lived intangible assets
          2008 Interim Impairment Test
          The Company utilized appropriate valuation techniques to separately estimate the fair values of all of its indefinite-lived intangible assets as of May 31, 2008 and compared those estimates to related carrying values. Tested assets included tradenames, international route authorities, London Heathrow slots and codesharing agreements. The Company used a market or income valuation approach, as described above, to estimate fair values. Based on the results of this testing, the Company recorded a $64 million impairment charge to indefinite-lived intangible assets for the year ended December 31, 2008.
          Annual Impairment Tests
          United performed annual impairment reviews of its indefinite-lived intangible assets as of October 1, 2008 and 2007 and of its goodwill as of October 1, 2007 and determined that no impairment was indicated.
          Long-lived assets
          For purposes of testing impairment of long-lived assets at May 31, 2008, the Company determined whether the carrying amount of its long-lived assets was recoverable by comparing the carrying amount to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. If the carrying value of the assets exceeded the expected cash flows, the Company estimated the fair value of these assets to determine whether an impairment existed. The Company grouped its aircraft by fleet type to perform this evaluation and used data and assumptions through May 31, 2008. The estimated undiscounted cash flows were dependent on a number of critical management assumptions including estimates of future capacity, passenger yield, traffic, operating costs (including fuel prices) and other relevant assumptions. If estimates of fair value were required, fair value was estimated using the market approach. Asset appraisals, published aircraft pricing guides and recent transactions for similar aircraft were considered by the Company in its market value determination. Based on the results of these tests, the Company determined that an impairment of $38 million existed which was attributable to the Company’s fleet of owned B737 aircraft and related spare parts. In addition, as of December 31, 2008, the Company performed an impairment test of its B737 aircraft. Based on this analysis, the Company recorded an additional charge of $107 million to reduce the carrying value of the B737 aircraft. As described in Note 2, “Company Operational Plans,” the Company is retiring its entire B737 fleet earlier than originally planned.
          Due to the unfavorable economic and industry factors described above, the Company also determined in the second quarter of 2008 that it was required to perform an impairment test of its $105 million of pre-delivery aircraft deposits and related capitalized interest. The Company determined that these aircraft deposits were completely impaired and wrote off their full carrying value. The Company believes that it is highly unlikely that it will take these future aircraft deliveries and, therefore, the Company will be required to forfeit the deposits, which are also not transferable.
          As a result of the impairment testing described above, the Company’s goodwill and certain of its indefinite-lived intangible assets and tangible assets were recorded at fair value. In accordance withFSP 157-2,the Company has not applied SFAS 157 to the determination of the fair value of these assets.


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          However, the provisions of SFAS 157 were applied to the determination of the fair value of financial assets and financial liabilities that were part of the SFAS 142 Step Two goodwill fair value determination.
          The carrying value of the Company’s intangible assets or tangible long-lived assets as of December 31, 2008 may decrease in future periods as a result of factors such as decreased demand for aircraft, decreases in revenues, fuel price volatility and adverse economic conditions, among others.
          Intangibles
          The following table presents information about the intangible assets, including goodwill, at December 31, 2008 and 2007, respectively:
                               
            Weighted
          		             
            Average Life of
          		  2008  2007 
            Assets
          		  Gross Carrying
          		  Accumulated
          		  Gross Carrying
          		  Accumulated
          		 
          (Dollars in millions) (in years)  Amount  Amortization  Amount  Amortization 
           
          Amortized intangible assets                    
          Airport slots and gates  9  $72  $30  $72  $22 
          Hubs  20   145   22   145   14 
          Patents  3   70   68   70   45 
          Mileage Plus database  7   521   179   521   137 
          Contracts  13   140   35   216   101 
          Other  7   13   5   18   5 
                               
             10  $961  $339  $1,042  $324 
                               
          Unamortized intangible assets                    
          Goodwill     $—      $2,280     
          Airport slots and gates      237       255     
          Route authorities      1,146       1,146     
          Tradenames      688       752     
                               
                $2,071      $4,433     
                               
          During 2008, the Company wrote off its entire goodwill balance as discussed above. The Company initially recorded goodwill of $2,756 million upon its exit from bankruptcy. Unamortized intangible assets, other than goodwill, decreased by $82 million during 2008 as a result of a $64 million impairment of codeshare agreements and the Company’s tradenames and an $18 million decrease in airport slots and gates related to the sale of assets. During the year ended December 31, 2007, goodwill decreased by $423 million due to a $414 million reduction of the valuation allowance for the deferred tax assets established at fresh-start, $6 million due to the adoption of FIN 48 and $3 million due to a change in estimate of tax accruals existing at the Effective Date.
          Total amortization expense recognized was $92 million and $155 million for the years ended December 31, 2008 and 2007, $169 million for the eleven month period ended December 31, 2006 and $1 million for the one month period ended January 31, 2006. The Company expects to record amortization expense of $69 million, $63 million, $58 million, $55 million and $52 million for 2009, 2010, 2011, 2012 and 2013, respectively.
          (4) Voluntary Reorganization Under Chapter 11
          Bankruptcy Considerations.  The following discussion provides general background information regarding the Company’s Chapter 11 cases and is not intended to be an exhaustive summary.
          On December 9, 2002 (the “Petition Date”), UAL, United and 26 direct and indirect wholly-owned subsidiaries (collectively, the “Debtors”) filed voluntary petitions to reorganize their businesses under


          104

          Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the “Bankruptcy Court”). On January 20, 2006, the Bankruptcy Court confirmed the Debtors’ Second Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code (the “Plan of Reorganization”). The Plan of Reorganization became effective and the Debtors emerged from bankruptcy protection on February 1, 2006 (the “Effective Date”). Pursuant to the Plan of Reorganization, UAL issued new debt and equity securities to certain of its creditors. On the Effective Date, the Company implemented fresh-start reporting.
          Significant Bankruptcy Matters Resolved in 2008.  During 2008, the San Francisco International Airport (“SFO”) municipal bond secured interest matter was resolved. HSBC Bank Inc. (“HSBC”), as trustee for the 1997 municipal bonds related to SFO, had filed a complaint against United asserting a security interest in United’s leasehold for portions of its maintenance base at SFO. HSBC alleged that it was entitled to be paid the value of that security interest, which HSBC had once claimed was as much as $257 million. HSBC and United went to trial in April 2006 and the Bankruptcy Court rejected as a matter of law HSBC’s $257 million claim. HSBC subsequently alleged that it was entitled to $154 million, or at a minimum, approximately $93 million. The parties tried the case and filed post-trial briefs which were heard by the Bankruptcy Court. In October 2006, the Bankruptcy Court issued its written opinion holding that the value of the security interest is approximately $27 million. United has accrued this amount as its estimated obligation at December 31, 2008. During 2008, HSBC withdrew its appeal to the Seventh Circuit Court of Appeals of the District Court’s affirmance of the October 2006 Bankruptcy Court ruling. The matter is now final and United expects to pay the amount due to HSBC in 2009.
          Significant Matters Remaining to be Resolved in Chapter 11 Cases.  There is pending litigation before the Bankruptcy Court regarding the extent to which the Los Angeles International Airport (“LAX”) municipal bond debt is entitled to secured status under Section 506(a) of the Bankruptcy Code. At December 31, 2006, United had accrued $60 million for this matter. Trial on this matter occurred during April 2007 and the two parties filed post-trial briefs in the second quarter of 2007. In August 2007, the Bankruptcy Court issued its written opinion holding that the value of the security interest is approximately $33 million, which United had accrued at December 31, 2007 and 2008. The District Court affirmed the Bankruptcy Court’s rulings and the trustee for the bondholders has appealed the matter to the Seventh Circuit Court of Appeals, which is pending. SeeClaims Resolution Process, below, for details of special items recognized in theStatements of Consolidated Operations for the SFO and LAX matters.
          Claims Resolution Process.  As permitted under the bankruptcy process, the Debtors’ creditors filed proofs of claim with the Bankruptcy Court. Through the claims resolution process, the Company identified many claims which were disallowed by the Bankruptcy Court for a number of reasons, such as claims that were duplicative, amended or superseded by later filed claims, were without merit, or were otherwise overstated. Throughout the Chapter 11 proceedings, the Company resolved many claims through settlement or objections ordered by the Bankruptcy Court. The Company will continue to settle claims and file additional objections with the Bankruptcy Court.
          With respect to unsecured claims, once a claim is deemed to be valid, either through the Bankruptcy Court process or through other means, the claimant is entitled to a distribution of common stock in UAL. Pursuant to the terms of the Plan of Reorganization, 115 million shares of common stock in UAL have been authorized to be issued to satisfy valid unsecured claims. The Bankruptcy Court confirmed the Plan of Reorganization and established January 20, 2006 as the record date for purposes of establishing the persons that are claimholders of record to receive distributions. Approximately 113 million common shares have been issued and distributed to holders of valid unsecured claims between February 2, 2006, the first distribution date established in the Plan of Reorganization, and December 31, 2008. As of December 31, 2008, approximately 46,000 valid unsecured claims aggregating to approximately $29.3 billion in claim value had received those common shares to satisfy those claims. There are 2.0 million remaining shares of UAL common stock held in reserve to satisfy all of the remaining disputed and undisputed unsecured claim values, once the remaining claim disputes are


          105

          resolved. The final distributions of shares will not occur until 2009 or later, pending resolution of bankruptcy matters.
          The Company’s current estimate of the probable range of unsecured claims to be allowed by the Bankruptcy Court is between $29.3 billion and $29.6 billion. Differences between claim amounts filed and the Company’s estimates continue to be investigated and will be resolved in connection with the claims resolution process. However, there will be no further financial impact to the Company associated with the settlement of such unsecured claims, as the holders of all allowed unsecured claims will receive under the Plan of Reorganization no more than their pro rata share of the distribution of the 115 million shares of common stock of UAL, together with the previously-agreed issuance of certain securities.
          With respect to valid administrative and priority claims, pursuant to the terms of the Plan of Reorganization these claims have been or will be satisfied with cash. Many asserted administrative and priority claims still remain unpaid and the Company will continue to settle claims and file objections with the Bankruptcy Court to eliminate or reduce such claims. In addition, certain disputes, the most significant of which is discussed in “Significant Matters Remaining to be Resolved in Chapter 11 Cases,” above, still remain with respect to the valuation of certain claims. The Company accrued an obligation for claims it believed were reasonably estimable and probable at the Effective Date. However, the claims resolution process is uncertain and adjustments to claims estimates could result in material adjustments to the Successor Company’s financial statements in future periods as a result of court rulings, the receipt of new or revised information or the finalization of these matters. In accordance with AICPA Practice Bulletin 11,Accounting for Preconfirmation Contingencies in Fresh-Start Reporting,(“Practice Bulletin 11”), the Company has recorded the impact of revisions to these estimates in current results of operations.
          The table below includes activity related to the administrative and priority claims and other bankruptcy-related claim reserves including reserves related to legal, professional and tax matters, among others, for the Successor Company for the years ended December 31, 2008 and 2007 and the eleven months ended December 31, 2006, respectively. These reserves are primarily classified in other current liabilities in theStatements of Consolidated Financial Position. Certain of the accrual adjustments identified below are a direct result of the Company’s ongoing efforts to resolve certain bankruptcypre-confirmation contingencies and do not relate directly to the Company’s ongoing performance; therefore, the Company considers these adjustments to be special.
                           
          (In millions)
          		 2008  2007  2006    
          Balance at January 1, 2008 and 2007 and February 1, 2006 $98  $325  $583     
          Payments  (7)  (83)  (193)    
          Accruals reclassified  —   (31)  —  (a)    
          Adjustments impacting income:                
          Accrual adjustments classified as special revenue credits  —   (45)  —  (b)    
          Other changes in contingent liabilities classified as revenues  —   (26)  —  (c)    
          Accrual adjustments classified as special expense credits  —   (30)  (36)(d)    
          Accrual adjustments classified as other operating expense (credit)  5   (12)  (29)(e)    
                           
          Total adjustments impacting income  5   (113)  (65)    
                           
          Balance at December 31, 2008, 2007 and 2006 $96  $98  $325     
                           
          Total charge (credit) to operating income during period from above items $5  $(113) $(65)    
          Additional special operating expense credit  —   (14)  —  (f)    
                           
          Total operating income charge (benefit) $5  $(127) $(65)    
                           
          (a)These accruals were deemed to be no longer directly related to bankruptcy proceedings; therefore, the accruals were reclassified to non-bankruptcy accruals.
          (b)In the third quarter of 2007, the Company recorded a change in estimate for certain liabilities relating to bankruptcy administrative claims. This adjustment resulted directly from the progression of the Company’s ongoing efforts to resolve


          106

          certain bankruptcy pre-confirmation contingencies; therefore, it was classified as a special operating revenue credit of $45 million that relates to both mainline passenger revenues ($37 million) and Regional affiliates revenues ($8 million).
          (c)The Company separately recorded a $26 million benefit from a change in estimate to certain other contingent liabilities based largely on changes in underlying facts and circumstances occurring during the third quarter of 2007. This benefit was recorded as a credit to mainline passenger revenues of $22 million and to Regional affiliates revenues of $4 million.
          (d)The 2007 amount relates to special operating expense credits of $30 million relating to ongoing litigation for San Francisco and Los Angeles facility lease secured interests as discussed above. For 2006, the $36 million benefit consists of a $12 million net benefit related to SFO and LAX lease litigation and a $24 million benefit related to pension matters, as discussed in Note 19, “Special Items.”
          (e)This amount relates to accrual adjustments impacting various operating expense line items that the Company recorded due to a change in estimate for certain liabilities relating to bankruptcy administrative claims. These adjustments resulted directly from the progression of tax accruals existing at the Effective Date. DuringCompany’s ongoing efforts to resolve certain bankruptcy pre-confirmation contingencies.
          (f)This amount relates to an accrual adjustment that the eleven month period ended December 31, 2006, goodwill was decreased by $62 millionCompany recorded due to Successor Company tax activity that impacteda change in estimate for certain liabilities relating to bankruptcy administrative claims. This adjustment, which was recorded as a credit to other operating expense, resulted directly from the deferred tax asset valuation allowance,progression of the Company’s ongoing efforts to resolve certain bankruptcy pre-confirmation contingencies.
          Financial Statement Presentation.  SOP 90-7 requires that the financial statements for periods after a Chapter 11 filing separate transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, all transactions (including, but not limited to, all professional fees, realized gains and losses and provisions for losses) directly associated with the reorganization and restructuring of the business are reported separately in the financial statements as reorganization items, net. For the month ended January 31, 2006, the Predecessor Company recognized the following primarily non-cash reorganization income (expense) in its financial statements:
                   
            Period from
          		 
            January 1 to
          		 
            January 31,
          		 
            2006 
          (In millions)
          		 UAL  United 
          Discharge of claims and liabilities $24,628  $24,389  (a)
          Revaluation of frequent flyer obligations  (2,399)  (2,399) (b)
          Revaluation of other assets and liabilities  2,106   2,111  (c)
          Employee-related charges  (898)  (898) (d)
          Contract rejection charges  (429)  (421) (e)
          Professional fees  (47)  (47)
          Pension-related charges  (14)  (14)
          Other  (13)  (12)
                   
            $22,934  $22,709 
                   
          (a)The discharge of claims and increased by $9 millionliabilities primarily relates to those unsecured claims arising during the bankruptcy process, such as those arising from the termination and settlement of the Company’s U.S. defined benefit pension plans and other employee claims; aircraft-related claims, such as those arising as a result of aircraft rejections; other unsecured claims due to net adjustmentsthe rejection or modification of executory contracts, unexpired leases and regional carrier contracts; and claims associated with certain municipal bond obligations based upon their rejection, settlement or the estimated impact of the outcome of pending litigation. In accordance with the Plan of Reorganization, the Company discharged its obligations to unsecured creditors in exchange for the fair valuesdistribution of 115 million common shares of UAL and the issuance of certain assetsother UAL securities. Accordingly, UAL and liabilities. Total amortization expenseUnited recognized was $155 million for the year ended December 31, 2007, $1 million for the one month period ended January 31, 2006a non-cash reorganization gain of $24.6 billion and $169 million for the eleven month period ended December 31, 2006. $24.4 billion, respectively.
          (b)The Company expects to record amortization expense of $92 million, $70 million, $64 million, $59 million and $56 million for 2008, 2009, 2010, 2011 and 2012, respectively.

                  Open Skies.    On April 30, 2007, the U.S. government and the European Union ("EU"revalued its Mileage Plus Frequent Flyer Program (“Mileage Plus”) signed a transatlantic aviation agreement to replace the existing bilateral arrangements between the U.S. Government and the 27 EU member states. The agreement is expected to become effectiveobligations at the end of March 2008.

                  The agreement is based on the U.S. open skies model and authorizes U.S. airlines to operate between the United States and any point in the EU and beyond, free from government restrictions on capacity, frequencies and scheduling and provides EU carriers with reciprocal rights in these U.S./EU markets. The agreement also authorizes all U.S. and EU carriers to operate services between the


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (8) Intangibles (Continued)


          United States and London Heathrow, thereby potentially adding new competition to United's Heathrow operation, although Heathrow is currently subject to both slot and facility constraints which may practically limit the extent of new competition in the near term. This agreement does not provide for a reallocation of existing slots among carriers.

                  At December 31, 2007 and 2006, United recorded an indefinite-lived intangible asset of $255 million for its London Heathrow slots, based upon its estimation of the fair value for those slots as of the adoptiona result of fresh-start reporting, on February 1, 2006. United, however, determinedwhich resulted in a $2.4 billion non-cash reorganization charge.

          (c)In accordance with fresh-start reporting, the Company revalued its assets at fresh-start that its rights relating to its actual route authorities to Heathrow had atheir estimated fair value and liabilities at estimated fair value or the present value of zero. The EU/U.S. open skies agreement is expectedamounts to directly impact the future value and expected livesbe paid. This resulted in a non-cash reorganization gain of route authorities to Heathrow; however, there is no direct impact from the open skies agreement on airport slot rights, including those at Heathrow. The open skies agreement is also expected to provide United an opportunity to secure antitrust immunity for certain$2.1 billion, primarily as a result of its Star Alliance carrier relationships, and to provide United and other carriers with access to new marketsnewly recognized intangible assets, offset partly by reductions in EU countries. In September 2007, the DOT granted United and bmi antitrust immunity. The immunity goes into effect at the same time as the open skies agreement between the U.S. and the EU in March of 2008. Because of the diverse nature of these potential impacts on United's business, the overall future impact of the EU agreement on United's business in the EU region cannot be predicted with certainty. United has concluded that, in certain circumstances, the open skies agreement could indirectly and adversely affect the fair value of its slot rights at Heathrow,tangible property and therefore has further concluded thatequipment.
          (d)In exchange for employees’ contributions to the signingsuccessful reorganization of the open skies agreement on April 30, 2007, constituted an indicatorCompany, including agreeing to reductions in pay and benefits, the Company agreed in the Plan of impairmentReorganization to provide each employee group a deemed claim which was used to provide a distribution of a portion of the equity of the reorganized entity to those employees. Each


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          employee group received a deemed claim amount based upon a portion of the value of cost savings provided by that group through reductions to pay and benefits as well as through certain work rule changes. The total value of this deemed claim was approximately $7.4 billion. As of December 31, 2005, the Company recorded a non-cash reorganization charge of $6.5 billion for the deemed claim amount for all union-represented employees. The remaining $0.9 billion associated with respect to United's Heathrow slots intangible asset.

                  United performed annual impairment reviewsnon-represented salaried and management employees was recorded as a reorganization charge in January 2006, upon confirmation of goodwillthe Plan of Reorganization.

          (e)Contract rejection charges are non-cash costs that include estimated claim values resulting from the Company’s rejection or negotiated modification of certain contractual obligations such as executory contracts, unexpired leases and indefinite lived intangible assetsregional carrier contracts.
          (5) Common Stockholders’ Equity and Preferred Securities
          As a result of the Plan of Reorganization becoming effective on February 1, 2006, thethen-outstanding equity securities as well as the shares held in treasury of Predecessor UAL were canceled. New UAL common stock began trading on the NASDAQ market on February 2, 2006 under the symbol “UAUA.” In accordance with the Plan of Reorganization, UAL established the equity structure in the table below upon emergence and, on February 2, 2006, began distributing portions of the shares of new common stock to certain general unsecured creditors and employees and certain management employees and non-employee directors.
          Shares of
          UAL
          Party of Interest
          		Common Stock
          General unsecured creditors and employees115,000,000
          Management equity incentive plan (“MEIP”)9,825,000
          Director equity incentive plan (“DEIP”)175,000
          125,000,000
          Changes in the number of shares of UAL common stock outstanding during the years ended December 31, 2008 and 2007, the eleven month period ended December 31, 2006 and the one month period ended January 31, 2006 were as follows:
                            
            Successor   Predecessor 
                  Period from
          		   Period from
          		 
                  February 1
          		   January 1
          		 
            Year Ended
          		  to
          		   to
          		 
            December 31,  December 31,
          		   January 31,
          		 
          UAL 2008  2007  2006   2006 
          Shares outstanding at beginning of period  116,921,049   112,280,629   116,220,959    116,220,959 
          Cancellation of Predecessor UAL stock  —   —   (116,220,959)   — 
          Issuance of UAL stock under equity offering  11,208,438   —   —    — 
          Issuance of UAL stock upon conversion of preferred stock  11,145,812   —   —    — 
          Issuance of UAL stock to creditors  765,780   3,849,389   108,347,814    — 
          Issuance of UAL stock to employees  418,664   1,155,582   4,240,526    — 
          Issuance of UAL stock to directors  —   —   100,000    — 
          Forfeiture of non-vested UAL stock  (110,926)  (104,733)  (270,934)   — 
          Shares acquired for treasury  (310,889)  (259,818)  (136,777)   — 
                            
          Shares outstanding at end of period  140,037,928   116,921,049   112,280,629    116,220,959 
                            
          Treasury shares at beginning of period  396,595   136,777   —    — 
          Shares acquired for treasury  310,889   259,818   136,777    — 
                            
          Treasury shares at end of period  707,484   396,595   136,777    —  
                            


          108

          At December 31, 2008, 2.0 million of the initial 115 million shares authorized remain to be distributed to employees and holders of previously allowed claims and disputed claims that are pending final resolution. All treasury shares were acquired either for tax withholding obligations related to UAL’s share-based compensation plan or as consideration under an employment agreement. See Note 7, “Share-Based Compensation Plans” for additional information related to the remaining grants available to be awarded under the UAL’s share-based compensation plans and outstanding option awards, neither of which are included in outstanding shares above.
          UAL is authorized to issue 250 million shares of preferred stock (without par value). UAL was also authorized to issue two shares of junior preferred stock (par value $0.01 per share) which were issued in 2006 and remained outstanding at December 31, 2008.
          UAL issued 5 million shares of 2% convertible preferred stock to the PBGC on the Effective Date. The shares were issued at a liquidation value of $100 per share, convertible at any time following the second anniversary of the issuance date into common stock of UAL at an initial conversion price of $46.86 per common share; with dividends payable in kind semi-annually (in the form of increases to the liquidation value of the issued and outstanding shares). The preferred stock ranked pari passu with all current and future UAL or United preferred stock and was redeemable at any time at the then-current liquidation value (plus accrued and unpaid dividends) at the option of the issuer. At December 31, 2007, 5 million shares of UAL 2% convertible preferred stock were outstanding with an aggregate liquidation value of $519 million, which included $19 million of accrued and paid in kind dividends. The preferred stock had been pushed down to United and was reflected on United’s books as part of fresh-start reporting. At December 31, 2007, the carrying value of the 2% convertible preferred stock was $371 million, which included the $19 million of accrued and paid in kind dividends.
          As reflected in the table above, 11.1 million shares of UAL common stock were issued upon preferred stockholders’ elections to exercise their conversion option of all 5 million shares of 2% mandatorily convertible preferred stock during 2008. As a result of these conversions, there are currently no outstanding shares of 2% convertible preferred stock and this class of stock was retired in October 2008. The Company increased additional paid in capital by $374 million and decreased the mandatorily convertible preferred stock by the same amount to record the impact of these conversions.
          In addition, as indicated in the table above, during 2008 the Company issued 11.2 million shares of common stock as part of a $200 million equity offering generating net proceeds of $122 million, of which $107 million was received in 2008 and $15 million was received in January 2009 upon settlement of shares sold during the last three days of 2008. In January 2009, an additional 4.0 million shares were issued generating net proceeds of $47 million. After the January 2009 issuances, the Company had issued shares for gross proceeds of $172 million leaving $28 million of remaining capacity available to issue additional shares in 2009.
          (6) UAL Per Share Amounts
          In accordance with Statement of Financial Accounting Standards No. 128,Earnings per Share, basic per share amounts were computed by dividing earnings (loss) available to common stockholders by the weighted-average number of shares of UAL common stock outstanding. Approximately 2.0 million, 2.8 million and 6.7 million UAL shares remaining to be issued to unsecured creditors and employees under the Plan of Reorganization are included in outstanding basic shares for 2008, 2007 and the eleven month period ended December 31, 2006, respectively, as the necessary conditions for issuance have been satisfied. UAL’s $546 million of 6% senior notes are callable at any time at 100% of par value, and can be redeemed with either cash or UAL common stock at UAL’s option. These notes are not included in the diluted earnings per share calculation, as it is UAL’s intent to redeem these notes with cash. In January 2009, the Company issued additional common shares as discussed in Note 5, “Common Stockholders’ Equity and Preferred Securities,” above. The table below represents the reconciliation of the basic earnings (loss) per share to diluted earnings (loss) per share.


          109

                                
            Successor   Predecessor    
                  Period from
          		   Period from
          		    
                  February 1
          		   January 1
          		    
            Year Ended
          		  to
          		   to
          		    
          (In millions, except per share) December 31,  December 31,
          		   January 31,
          		    
          UAL 2008  2007  2006   2006    
          Basic earnings per share:
          		                     
          Net income (loss) $(5,348) $403  $25   $22,851     
          Preferred stock dividend requirements  (3)  (10)  (9)   (1)    
                                
          Earnings (loss) available to common stockholders $(5,351) $393  $16   $22,850     
                                
          Basic weighted-average shares outstanding  126.8   117.4   115.5    116.2     
                                
          Earnings (loss) per share, basic $(42.21) $3.34  $0.14   $196.61     
                                
          Diluted earnings per share:
          		                     
          Earnings (loss) available to common stockholders $(5,351) $393  $16   $22,850     
          Effect of 2% preferred securities  —   10   —    —     
          Effect of 4.5% senior limited-subordination convertible notes  —   20   —    —     
          Effect of 5% convertible notes  —   5   —    —     
                                
          Earnings available to common stockholders including the effect of dilutive securities $(5,351) $428  $16   $22,850     
                                
          Basic weighted-average shares outstanding  126.8   117.4   115.5    116.2     
          Effect of non-vested stock options  —   0.2   —    —     
          Effect of non-vested restricted shares  —   1.1   0.7    —     
          Effect of 2% preferred securities  —   11.0   —    —     
          Effect of 4.5% senior limited-subordination convertible notes  —   20.8   —    —     
          Effect of 5% convertible notes  —   3.2   —    —     
                                
          Diluted weighted-average shares outstanding  126.8   153.7   116.2    116.2     
                                
          Earnings (loss) per share, diluted $(42.21) $2.79  $0.14   $196.61     
                                
          Potentially dilutive shares excluded from diluted per share amounts:
          		                     
          Stock options  4.4   4.0   5.0    9.0     
          Restricted shares  1.4   0.9   2.0    —     
          2% preferred securities  3.1   —   10.8    —     
          4.5% senior limited-subordination convertible notes  22.2   —   20.8    —     
          5% convertible notes  3.4   —   3.2    —     
                                
             34.5   4.9   41.8    9.0     
                                
          (7) Share-Based Compensation Plans
          Compensation expense associated with the UAL share-based compensation plans has been pushed down to United.
          Predecessor Company—As of January 31, 2006, a total of nine million stock options were outstanding. Under the Company’s Plan of Reorganization, these stock options were canceled on the Effective Date. No material share-based compensation expense was incurred as a result of these outstanding options for the month of January 2006.
          Successor Company—The following table summarizes the number of awards authorized, issued and available for future grants under the Company’s share-based compensation plans for management employees and directors as of December 31, 2008:
                       
            Employees  Directors  Total 
           
          Authorized  8,339,284   175,000   8,514,284 
          Granted  (633,750)  (113,111)  (746,861)
          Canceled awards available for reissuance  336,365   —   336,365 
                       
          Available for future grants  8,041,899   61,889   8,103,788 
                       

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          The following table provides information related to our share-based compensation plans.
                       
                  Period from
          		 
            Year Ended
          		  February 1 to
          		 
            December 31,  December 31,
          		 
          (In millions)
          		 2008  2007  2006 
           
          Compensation cost:            
          Management plan restricted stock $18  $25  $84 
          Management plan stock options  13   24   72 
          DEIP unrestricted stock  —   —   3 
                       
          Total compensation cost $31  $49  $159 
                       
          The unrecognized compensation cost related to unvested awards at December 31, 2008 and 2007 was $18 million and $41 million, respectively, which is expected to be recognized over a weighted-average period of 1.6 and 2.2 years, respectively. During the second quarter of 2006, the Company revised its initial estimated award forfeiture rate of 7.5% to 15% based upon actual attrition. As a result, theshare-based compensation expense was reduced by approximately $7 million for the eleven month period ended December 31, 2006.
          2008 Incentive Compensation Plan.  In 2008, UAL’s Board of Directors and stockholders approved the UAL Corporation 2008 Incentive Compensation Plan (the “2008 Plan”). The 2008 Plan is an incentive compensation plan that allows the Company to use different forms of compensation awards to attract, retain and reward eligible participants. This approval by stockholders also allows for the issuance of up to 8,000,000 additional shares pursuant to awards granted under the 2008 Plan. The 2008 Plan replaced the UAL Corporation 2006 Management Equity Incentive Plan, which was automatically terminated with respect to future grants and otherwise replaced and superseded by the 2008 Plan. Any awards granted under the MEIP remain in effect pursuant to their terms.
          Any officer or employee of UAL or its affiliates is eligible to participate in the 2008 Plan. The 2008 Plan allows for the grant of options intended to qualify as incentive stock options (“ISOs”) under Section 422 of the Code, non-qualified stock options (“NSOs”), stock appreciation rights (“SARs”), restricted share awards, restricted stock units (“RSUs”), performance compensation awards, performance units, cash incentive awards and other equity-based and equity-related awards. Any shares of our common stock issued under the 2008 Plan will consist, in whole or in part, of authorized and unissued shares or of treasury shares.
          The 2008 Plan provides that, unless otherwise provided in an award agreement, in the event of a change of control of the Company (as defined in the 2008 Plan):
          • any options and SARs outstanding as of October 1,the date the change of control is determined to have occurred become fully exercisable and vested, as of immediately prior to the change of control.
          • all performance units, cash incentive awards and other awards designated as performance compensation awards will be paid out at the “target” performance level on a prorated basis based on the number of days elapsed from the beginning of the performance period up to and including the change of control.
          • all other outstanding awards are automatically deemed exercisable or vested and all restrictions and forfeiture provisions related thereto lapse as of immediately prior to such change of control.


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          The table below summarizes stock option activity pursuant to UAL’s Management Plan stock options for the year ended December 31, 2008:
                           
                  Weighted-
          		    
                  Average
          		    
               Weighted-
          		  Remaining
          		  Aggregate
          		 
               Average
          		  Contractual
          		  Intrinsic Value
          		 
            Options  Exercise Price  Life (in years)  (in millions) 
           
          Outstanding at beginning of year  4,150,093  $35.66         
          Granted  615,900   12.94         
          Exercised(a)  (6,864)  33.88      $— 
          Canceled  (142,536)  34.87         
          Expired  (262,921)  33.77         
                           
          Outstanding at end of year  4,353,672   32.80         
                           
          Vested and expected to vest at end of period  4,005,308   32.97   7.4  $1 
          Exercisable at end of period(b)  2,031,242   35.14   7.0   — 
          (a)The aggregate intrinsic value of shares exercised in 2008, 2007 and 2006 was less than $1 million, $11 million and determined$3 million, respectively.
          (b)Options represent the number of vested options at December 31, 2008. Aggregate intrinsic value is based only on vested options that no impairment was indicated. In addition, a 2007 interim impairment review was performed forhave an exercise price less than the Heathrow slots intangible asset, and the Company concluded that no impairment was then indicated and that no change was then required to the fresh-start assignment of an indefinite life to the Heathrow slots.UAL stock price at December 31, 2008.
          The following table provides additional information for options granted in each period:
                       
                  Period from
          		 
            Year Ended
          		  February 1
          		 
            December 31,  to December 31,
          		 
          Weighted-average fair value assumptions:
          		 2008  2007  2006 
          Risk-free interest rate  1.9-3.6%  3.4-5.0%  4.4-5.1%
          Dividend yield  0%  0%  0%
          Expected market price volatility of UAL common stock  55%  55%  55-57%
          Expected life of options (years)  5.0-6.3   5.8-6.2   5.0-6.2 
          Weighted-average fair value $7.86  $25.13  $21.37 
          The fair value of options was determined at the grant date using a Black Scholes option pricing model, which requires the Company to make several assumptions. The risk-free interest rate is based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant. The dividend yield on UAL’s common stock was assumed to be zero since UAL did not have any plans to pay dividends at the time of the option grants.
          The volatility assumptions were based upon historical volatilities of comparable airlines whose shares are traded using daily stock price returns equivalent to the contractual term of the option. In addition, implied volatility data for both UAL and comparable airlines, using current exchange-traded options, was utilized. Since the new UAL common stock only began trading in February 2006, the historical volatility data for UAL was not considered adequate to determine expected volatility.
          The expected life of the options was determined based upon a simplified assumption that the option will be exercised evenly from vesting to expiration under the transitional guidance of Staff Accounting Bulletin No. 107, Topic 14,Share-Based Payments. Under the MEIP and the 2008 Plan, the stock options typically vest over a four year period. Under the MEIP, awards to employees that are retirement eligible either at the grant date or within the vesting period are considered vested at the respective retirement eligibility date.
          Under SFAS 123R, the fair value of the Restricted Stock awards was primarily based upon the share price on the date of grant. Restricted stock vesting under the 2008 Plan and the MEIP is similar to the stock option vesting described above. Approximately 1.2 million of the 1.4 million non-vested restricted stock awards at December 31, 2008 are expected to vest.


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          The table below summarizes restricted stock activity for the twelve months ended December 31, 2008:
                   
               Weighted-
          		 
               Average
          		 
            Restricted Stock  Grant Price 
           
          Non-vested at beginning of year  2,017,989  $37.20 
          Granted  413,800   15.76 
          Vested  (886,188)  33.36 
          Canceled  (114,926)  38.98 
                   
          Non-vested at end of year  1,430,675   35.32 
                   
          The fair value of restricted shares vested in 2008, 2007 and 2006 was $30 million, $28 million and $31 million, respectively. The weighted-average grant date price of shares granted in 2007 and 2006 was $43.61 and $36.78.
          (8) Income Taxes
          In 2008, substantially all of the tax benefit of the Company’s net loss was offset by a valuation allowance. In 2008, UAL and United recorded tax benefits of $25 million and $22 million, respectively, primarily due to the impairment and sale of select indefinite-lived intangibles and the impact of an increase in state tax rates. This tax benefit is small relative to the Company’s losses; consequently, the Company’s effective tax rate is insignificant, when compared to the 35% U.S. federal statutory rate. In 2007, the Company’s regular taxable income was completely absorbed by utilization of its net operating loss (“NOL”) carry forward; however, the Company did incur an alternative minimum tax (“AMT”) liability of $6 million.
          The significant components of the income tax expense (benefit) are as follows:
                            
            Successor   Predecessor 
                  Period from
          		   Period from
          		 
            Year Ended
          		  February 1 to
          		   January 1
          		 
          (In millions)
          		 December 31,  December 31,
          		   to January 31,
          		 
          UAL 2008  2007  2006   2006 
          Current tax expense $1  $6  $—   $      — 
          Deferred tax expense (benefit)  (26)  291   21    8,488 
          Increase (decrease) in the valuation allowance for deferred tax assets  —   —   —    (8,488)
                            
            $(25) $297  $21   $— 
                            
          United
          		                 
                            
          Current tax expense $4  $6  $—   $— 
          Deferred tax expense (benefit)  (26)  290   29    8,397 
          Increase (decrease) in the valuation allowance for deferred tax assets  —   —   —    (8,397)
                            
            $(22) $296  $29   $—  
                            


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          The income tax provision differed from amounts computed at the statutory federal income tax rate, as follows:
                            
                  Period from
          		   Period from
          		 
            Year Ended
          		  February 1 to
          		   January 1 to
          		 
          (In millions)
          		 December 31,  December 31,
          		   January 31,
          		 
          UAL 2008  2007  2006   2006 
          Income tax provision at statutory rate $(1,880) $243  $15   $7,998 
          State income taxes, net of federal income tax benefit  (67)  13   1    423 
          Goodwill  798   —   —    — 
          Nondeductible employee meals  7   10   9    1 
          Nondeductible interest expense  10   21   —    — 
          Medicare Part D subsidy  (12)  (2)  (12)   (2)
          Valuation allowance  1,100   —   —    (8,488)
          Share-based compensation  —   2   5    — 
          Rate change beginning deferreds  14   —   —    — 
          Other, net  5   10   3    68 
                            
            $(25) $297  $21   $— 
                            
          United
          		                 
                            
          Income tax provision at statutory rate $(1,865) $243  $20   $7,917 
          State income taxes, net of federal income tax benefit  (66)  13   1    419 
          Goodwill  798   —   —    — 
          Nondeductible employee meals  7   10   9    1 
          Nondeductible interest expense  10   21          
          Medicare Part D subsidy  (12)  (2)  (12)   (2)
          Valuation allowance  1,083   —   —    (8,397)
          Share-based compensation  —   2   5    — 
          Rate change beginning deferreds  14   —   —    — 
          Other, net  9   9   6    62 
                            
            $(22) $296  $29   $—  
                            
          Temporary differences and carry forwards that give rise to a significant portion of deferred tax assets and liabilities at December 31, 2008 and 2007 were as follows:
                           
            UAL
          		  United
          		 
            December 31,  December 31, 
          (In millions)
          		 2008  2007  2008  2007 
          Deferred income tax asset (liability):                
          Employee benefits, including postretirement, medical and ESOP $1,345  $1,292  $1,374  $1,322 
          Federal and state net operating loss carry forwards  2,622   2,458   2,622   2,473 
          Mileage Plus deferred revenue  1,541   1,216   1,545   1,220 
          AMT credit carry forwards  298   297   298   297 
          Fuel hedge unrealized losses  294   —   294   — 
          Restructuring charges  139   170   134   165 
          Other asset  337   290   329   282 
          Less: Valuation allowance  (2,941)  (1,815)  (2,866)  (1,757)
                           
          Total deferred tax assets $3,635  $3,908  $3,730  $4,002 
                           


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            UAL
          		  United
          		 
            December 31,  December 31, 
          (In millions)
          		 2008  2007  2008  2007 
          Depreciation, capitalized interest and other $(2,961) $(3,165) $(2,958) $(3,161)
          Intangibles  (864)  (913)  (910)  (959)
          Fuel hedge unrealized gains  —   (13)  —   (13)
          Other liability  (346)  (377)  (321)  (352)
                           
          Total deferred tax liabilities $(4,171) $(4,468) $(4,189) $(4,485)
                           
          Net deferred tax liability $(536) $(560) $(459) $(483)
                           
          The federal and state NOL carry forwards relate to prior years’ NOLs, which may be used to reduce tax liabilities in future years. This tax benefit is mostly attributable to federal pre-tax NOL carry forwards of $7.0 billion. If not utilized, the federal tax benefits of $1.0 billion expire in 2022, $0.4 billion expire in 2023, $0.5 billion expire in 2024, $0.4 billion expire in 2025, $20 million expire in 2026 and $0.1 billion in 2028. In addition, the state tax benefit of $170 million, if not utilized, expires over a five to twenty year period.
          At this time, the Company does not believe that the limitations imposed by the Internal Revenue Code on the usage of the NOL carry forward and other tax attributes following an ownership change will have an effect on the Company. Therefore, the Company does not believe its exit from bankruptcy has had any material impact on the utilization of its remaining NOL carry forward and other tax attributes.
          The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (including the reversals of deferred tax liabilities) during the periods in which those temporary differences will become deductible. The Company’s management assesses the realizability of its deferred tax assets, and records a valuation allowance for the deferred tax assets when it is more likely than not that a portion, or all of the deferred tax assets, will not be realized. As a result, the Company has a valuation allowance against its deferred tax assets as of December 31, 2008 and 2007, to reflect management’s assessment regarding the realizability of those assets. The Company expects to continue to maintain a valuation allowance on deferred tax assets until there is sufficient positive evidence of future realization. The current valuation allowance of $2,941 million and $2,866 million for UAL and United, respectively, if reversed in future years will be allocated to reduce income tax expense as discussed in Note 1(p), “Summary of Significant Accounting Policies—New Accounting Pronouncements.” The current valuation allowance reflects a change from December 31, 2007 of $1,126 million and $1,109 million for UAL and United, respectively.
          In addition to the deferred tax assets listed above, the Company has an $809 million unrecorded tax benefit at December 31, 2008 attributable to the difference between the amount of the financial statement expense and the allowable tax deduction for UAL common stock issued to certain unsecured creditors and employees pursuant to the Plan of Reorganization. The Company is accounting for this unrecorded tax benefit by analogy to SFAS 123R which requires recognition of the tax benefit to be deferred until it is realized as a reduction of taxes payable. If not utilized, the unrecognized tax benefits of $161 million will expire in 2025, $489 million in 2026 and $159 million over a period from 2027 through 2050.
          Effective January 1, 2007, we adopted the provisions of FIN 48. Our adoption of FIN 48 resulted in a $24 million increase in the liability for unrecognized tax benefits which was accounted for as a $6 million decrease in goodwill, a $2 million increase in additional capital invested and a $32 million increase to deferred tax assets.
          Our liability for uncertain tax positions was $20 million and $35 million at December 31, 2008 and 2007, respectively. Included in the ending balance are unrecognized tax benefits of $15 million that would affect our effective tax rate if recognized. During 2008, uncertain tax positions that were

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          effectively settled amounted to $5 million. Excluding these items and amounts related to tax positions for which the ultimate deductibility is highly certain, there were no other significant changes in the components of the liability in the twelve months ending December 31, 2008. Any change in the amount of unrecognized tax benefits within the next twelve months is not expected to significantly impact the Company’s results of operations or financial position.
          Included in the balance at December 31, 2008, is $4 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the effective tax rate but would cause a reduction to the net operating losses available for utilization.
          The Company records penalties and interest relating to uncertain tax positions in the other operating expense and interest expense line items, respectively, within ourStatements of Consolidated Operations.There are no significant accrued interest or penalties or interest or penalty expense recorded in the accompanying consolidated financial statements.
          The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits related to uncertain tax positions:
                       
          (In millions)
          		 2008  2007    
          Balance at January 1, $35  $48     
          Increase in unrecognized tax benefits as a result of tax positions taken during the current period  1   1     
          Decrease in unrecognized tax benefits as a result of tax positions taken during a prior period  (11)  (14)    
          Decrease in unrecognized tax benefits relating to settlements with taxing authorities  (5)  —     
                       
          Balance at December 31, $20  $35     
                       
          Our income tax returns for tax years after 2003 remain subject to examination by the Internal Revenue Service and state taxing jurisdictions.
          United and its domestic consolidated subsidiaries, file a consolidated federal income tax return with UAL. Under an intercompany tax allocation policy, United and its subsidiaries compute, record and pay UAL for their own tax liability as if they were separate companies filing separate returns. In determining their own tax liabilities, United and each of its subsidiaries take into account all tax credits or benefits generated and utilized as separate companies and they are compensated for the aforementioned tax benefits only if they would be able to use those benefits on a separate company basis.
          (9) Retirement and Postretirement Plans

          The Company maintains various retirement plans, both defined benefit and defined contribution, which cover substantially all employees. As discussed below, most of the Company’s defined benefit plans were terminated and replaced with defined contribution plans as part of the bankruptcy reorganization. The Company also provides certain health care benefits, primarily in the U.S., to retirees and eligible dependents, as well as certain life insurance benefits to certain retirees reflected as “Other Benefits” in the tables below. The Company has reserved the right, subject to collective bargaining agreements, to modify or terminate the health care and life insurance benefits for both current and future retirees.
          The following table sets forth the reconciliation of the beginning and ending balances of the benefit obligation and plan assets, the funded status and the amounts recognized in theStatements of

                  The Company maintains various retirement plans, both defined benefit (qualified and non-qualified) and defined contribution, which cover substantially all employees. As discussed below, most of the Company's defined benefit plans were terminated and replaced with defined contribution plans as part of the bankruptcy reorganization. The Company also provides certain health care benefits, primarily in the U.S., to retirees and eligible dependents, as well as certain life insurance benefits to certain retirees reflected as "Other Benefits" in the tables below. The Company has reserved the right, subject to collective bargaining agreements, to modify or terminate the health care and life insurance benefits for both current and future retirees.

                  Upon emergence from bankruptcy on February 1, 2006, the Company completed a revaluation of the postretirement liabilities resulting in a reduction of the net accumulated benefit obligation of approximately $28 million. In accordance with SOP 90-7 upon emergence, the Company also accelerated the recognition of net unrecognized actuarial gains and losses, prior service costs and transition obligation pertaining to its foreign pension plans and postretirement plans, and recorded a reorganization expense thereon. The unrecognized costs as of January 31, 2006 that were recognized as part of fresh-start reporting are reported in the table below.


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          Consolidated Financial Positionfor the defined benefit and other postretirement plans (“Other Benefits”):
                            
            Pension Benefits   Other Benefits 
            Year Ended
          		   Year Ended
          		 
            December 31,   December 31, 
          (In millions)
          		 2008  2007   2008  2007 
          Change in Benefit Obligation
          		                 
          Benefit obligation at beginning of period $236  $251   $1,987  $2,116 
          Service cost  6   8    32   39 
          Interest cost  8   9    122   121 
          Plan participants’ contributions  1   1    69   56 
          Amendments  —   (16)   —   — 
          Actuarial (gain) loss  (9)  (18)   (46)  (146)
          Curtailments  —   1    (1)  — 
          Foreign currency exchange rate changes  (8)  11    —   — 
          Federal subsidy  —   —    12   8 
          Gross benefits paid  (13)  (11)   (217)  (207)
                            
          Benefit obligation at end of period $221  $236   $1,958  $1,987 
                            
          Change in Plan Assets
          		                 
          Fair value of plan assets at beginning of period $167  $152   $56  $54 
          Actual return on plan assets  (39)  9    3   3 
          Employer contributions  22   14    146   150 
          Plan participants’ contributions  1   1    69   56 
          Foreign currency exchange rate changes  (14)  6    —   — 
          Expected transfer out  —   (4)   —   — 
          Benefits paid  (13)  (11)   (217)  (207)
                            
          Fair value of plan assets at end of period $124  $167   $57  $56 
                            
          Funded status—Net amount recognized $(97) $(69)  $(1,901) $(1,931)
                            
                           
            Year Ended
          		  Year Ended
          		 
            December 31,  December 31, 
            2008  2007  2008  2007 
           
          Amounts recognized in theStatements of Consolidated Financial Position consist of:
          		                
          Noncurrent asset $19  $33  $—  $— 
          Current liability  (4)  (5)  (89)  (102)
          Noncurrent liability  (112)  (97)  (1,812)  (1,829)
                           
          Net amount recognized $(97) $(69) $(1,901) $(1,931)
                           
          Amounts recognized in accumulated other comprehensive income consist of:                
          Net actuarial gain (loss) $—  $43  $286  $254 
          The estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2009 for actuarial gains are $1 million for pension plans and $20 million for other postretirement plans. At exit the Company elected not to apply the corridor approach for amortization of unrecognized amounts included in accumulated other comprehensive income. This policy


          117

          may result in more volatility in the amortization of these unrecognized amounts into net periodic pension cost.
          The following information relates to all pension plans with an accumulated benefit obligation and a projected benefit obligation in excess of plan assets:
                   
            December 31, 
          (In millions)
          		 2008  2007 
           
          Projected benefit obligation $211  $208 
          Accumulated benefit obligation  175   171 
          Fair value of plan assets  94   106 
          The net periodic benefit cost included the following components:
                            
            Successor   Predecessor 
                  Period from
          		   Period from
          		 
            Year Ended
          		  February 1 to
          		   January 1
          		 
            December 31,  December 31,
          		   to January 31,
          		 
          (In millions)
          		 2008  2007  2006   2006 
          Pension Benefits
          		                 
          Service cost $6  $8  $9   $1 
          Interest cost  8   9   8    1 
          Expected return on plan assets  (10)  (9)  (8)   (1)
          Recognized actuarial (gain) loss  (2)  (1)  —    — 
                            
          Net periodic benefit costs $2  $7  $9   $1 
                            
          Other Benefits,
          		                 
          Service cost $32  $39  $33   $3 
          Interest cost  122   121   116    11 
          Expected return on plan assets  (4)  (3)  (6)   (1)
          Amortization of prior service cost          including transition obligation  —   —   —    (13)
          Curtailment gain  (1)  —   —      
          Recognized actuarial (gain) loss  (17)  (11)  —    8 
                            
          Net periodic benefit costs $132  $146  $143   $8 
                            
          The assumptions below are based on country-specific bond yields and other economic data. The weighted-average assumptions used for the benefit plans were as follows:
                            
            Pension Benefits
          		   Other Benefits
          		 
            At
          		   At
          		 
            December 31,   December 31, 
            2008  2007   2008  2007 
          Weighted-average assumptions used to determine benefitobligations
          		                 
          Discount rate  3.59%  4.16%   5.97%  6.27%
          Rate of compensation increase  2.94%  3.22%   —   —  


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            Pension Benefits   Other Benefits 
            Year Ended   Year Ended
          		 
            December 31,   December 31, 
            2008  2007   2008  2007 
          Weighted-average assumptions used to determine netexpense
          		                 
          Discount rate  4.16%  3.88%   6.27%  5.93%
          Expected return on plan assets  6.31%  6.38%   6.50%  6.50%
          Rate of compensation increase  3.22%  3.15%   —   —  
          The expected return on plan assets is based on an evaluation of the historical behavior of the broad financial markets and the Company’s investment portfolio.
                   
            2008  2007 
           
          Health care cost trend rate assumed for next year  8.00%  8.50%
          Rate to which the cost trend rate is assumed to decline (ultimate trend rate in 2015)  5.00%  4.50%
          Assumed health care cost trend rates have a significant effect on the amounts reported for the Other Benefits plan. A 1% change in the assumed health care trend rate for the Successor Company would have the following additional effects:
                   
          (In millions)
          		 1% Increase  1% Decrease 
          Effect on total service and interest cost for the          year ended December 31, 2008 $19  $(13)
          Effect on postretirement benefit obligation at          December 31, 2008  290   (226)
          The weighted-average asset allocations for the plans at December 31, 2008 and 2007, by asset category are as follows:
                           
            Pension Assets
          		  Other Benefit Assets
          		 
            at December 31  at December 31 
          Asset Category
          		 2008  2007  2008  2007 
           
          Equity securities  52%  70%  —%  —%
          Fixed income  10   25   100   100 
          Other  38   5   —   — 
                           
          Total  100%  100%  100%  100%
          The Company believes that the long-term asset allocations on average will approximate the targeted allocations and regularly reviews the actual asset allocations to periodically rebalance the investments to the targeted allocations when appropriate. The target asset allocations are established with the objective of achieving the plans’ expected return on assets without undue investment risk.
          Expected 2009 contributions are $10 million for the pension plans and $158 million for the other postretirement benefit plans. The following benefit payments are expected to be made in future years for the Company’s retirement plans:
                       
                Other
                Benefits—
              Other
          		 subsidy
          (In millions)
          		 Pension Benefits receipts
           
          2009 $11  $159  $13 
          2010  11   162   14 
          2011  11   163   16 
          2012  12   160   18 
          2013  12   159   20 
          Years 2014—2018  58   826   125 

          119

          Defined Contribution Plans
          In place of the domestic defined benefit pension plans that were terminated during bankruptcy, the Company enhanced its contributions to the defined contribution plans for most employee groups. Depending upon the employee group, contributions consist of matching contributionsand/ornon-elective employer contributions. The Company’s contribution percentages vary from 1 to 16% of eligible earnings depending on the terms of each plan.
          Effective March 1, 2006, an International Association of Machinists (“IAM”) replacement plan was implemented. The IAM replacement plan is a multi-employer plan whereby the assets contributed by the Company (based on hours worked) may be used to provide benefits to employees of other participating companies, since assets contributed by all participating companies are not segregated or restricted to provide benefits specifically to employees of one participating company. In accordance with the applicable accounting for multi-employer plans, the Company would only recognize a withdrawal obligation if it becomes probable it would withdraw from the plan. The Predecessor Company recorded expense from defined contribution plans of $16 million for the month of January 2006. The Successor Company recognized $248 million, $232 million and $206 million of expense for the years ended December 31, 2008 and 2007 and the eleven months ended December 31, 2006, respectively, for all of the Company’s defined contribution employee retirement plans, of which $34 million, $28 million and $21 million, respectively, related to the IAM multi-employer plan.

          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (9) Retirement and Postretirement Plans (Continued)

                  In April 2005, United and the PBGC entered into a global settlement agreement which provided for the settlement and compromise of various disputes and controversies with respect to the Company's domestic pension plans. In May 2005, the Bankruptcy Court approved the settlement agreement, including modifications requested by certain creditors. The PBGC assumed responsibility for the assets of the Ground Plan effective May 23, 2005 (with a termination date of March 11, 2005), the Flight Attendant and the MAPC Plans effective June 30, 2005 and the Pilot Plan effective October 26, 2005, and the Company has no further duties or rights with respect to these plans. In 2005, the Company recorded $640 million in curtailment charges related to these pension plans and reclassified $1.9 billion of pension obligations to Liabilities subject to compromise. The Company recorded approximately $7.2 billion of PBGC allowable claims in Liabilities subject to compromise in accordance with the confirmed Plan of Reorganization. In addition, the Company recognized net settlement losses of approximately $1.1 billion in 2005 in accordance with SFAS 88. See Note 1, "Voluntary Reorganization Under Chapter 11" for more information.

                  The following table sets forth the reconciliation of the beginning and ending balances of the benefit obligation and plan assets, the funded status and the amounts recognized in theStatements of Consolidated Financial Position for the defined benefit and other postretirement plans ("Other Benefits"):

           
          		  
          		  
          		  
          		 
           
          		 Pension Benefits
          		  
          		 Other Benefits
          		 
           
          		 Successor
          		  
          		 Predecessor
          		  
          		 Successor
          		  
          		 Predecessor
          		 
          (In millions)
          		 Year Ended
          December 31,
          2007
          		 Period from
          February 1 to
          December 31,
          2006
          		 




          		 Period from
          January 1 to
          January 31,
          2006
          		 




          		 Year Ended
          December 31,
          2007
          		 Period from
          February 1 to
          December 31,
          2006
          		 




          		 Period from
          January 1 to
          January 31,
          2006
          		 
          Change in Benefit
              Obligation          		                         
          Benefit obligation at
              beginning of period          		 $251 $247   $241   $2,116 $2,223   $2,256 
          Service cost  8  9    1    39  33    3 
          Interest cost  9  8    1    121  116    11 
          Plan participants'
              contributions          		  1  1    —    56  52    4 
          Amendments  (16) —    —    —  —    — 
          Actuarial (gain) loss  (18) (9)   2    (146) (123)   (32)
          Curtailments  1  —    —    —  —    — 
          Foreign currency
              exchange rate
              changes          		  11  8    3    —  —    — 
          Federal subsidy  —  —    —    8  9    — 
          Gross benefits paid  (11) (13)   (1)   (207) (194)   (19)
            
          		 
          		   
          		   
          		 
          		   
          		 
          Benefit obligation at
              end of period          		 $236 $251   $247   $1,987 $2,116   $2,223 
            
          		 
          		   
          		   
          		 
          		   
          		 

          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (9) Retirement and Postretirement Plans (Continued)

           
          		  
          		  
          		  
          		 
           
          		 Pension Benefits
          		  
          		 Other Benefits
          		 
           
          		 Successor
          		  
          		 Predecessor
          		  
          		 Successor
          		  
          		 Predecessor
          		 
          (In millions)
          		 Year Ended
          December 31,
          2007
          		 Period from
          February 1 to
          December 31,
          2006
          		 




          		 Period from
          January 1 to
          January 31,
          2006
          		 




          		 Year Ended
          December 31,
          2007
          		 Period from
          February 1 to
          December 31,
          2006
          		 




          		 Period from
          January 1 to
          January 31,
          2006
          		 
          Change in Plan Assets                         
          Fair value of plan
              assets at beginning
              of period          		 $152 $136   $132   $54 $116   $116 
          Actual return on plan
              assets          		  9  12    2    3  3    1 
          Employer contributions  14  11    1    150  77    14 
          Plan participants'
              contributions          		  1  1    —    56  52    4 
          Foreign currency
              exchange rate
              changes          		  6  5    2    —  —    — 
          Expected transfer out  (4) —    —    —  —    — 
          Benefits paid  (11) (13)   (1)   (207) (194)   (19)
            
          		 
          		   
          		   
          		 
          		   
          		 
          Fair value of plan
              assets at end of
              period          		 $167 $152   $136   $56 $54   $116 
            
          		 
          		   
          		   
          		 
          		   
          		 

          Funded status
           
          $
          (69
          )
          $
          (99
          )
           
           
          $
          (111
          )
           
           
          $
          (1,931
          )
          $
          (2,062
          )
           
           
          $
          (2,107
          )
          Unrecognized actuarial
              (gains) losses          		  (a) (a)   43    (a) (a)   1,600 
          Unrecognized prior
              service costs          		  (a) (a)   1    (a) (a)   (1,531)
          Unrecognized net
              transition obligation          		  (a) (a)   3    (a) (a)   — 
            
          		 
          		   
          		   
          		 
          		   
          		 
          Net amount recognized $(69)$(99)  $(64)  $(1,931)$(2,062)  $(2,038)
            
          		 
          		   
          		   
          		 
          		   
          		 
          (a)
          Amounts are not applicable due to the adoption of SFAS 158 in 2006, which eliminated the accounting requirements for the recognition of additional minimum liability and intangible assets.

           
          		 Pension Benefits
          		 Other Benefits
          		 
           
          		 Year Ended
          December 31,
          		 Year Ended
          December 31,
          		 
          (In millions)
          		 2007
          		 2006
          		 2007
          		 2006
          		 
          Amounts recognized in theStatements of Consolidated Financial
              Position           consist of:          		             
          Non-current asset $33 $31 $— $— 
          Current liability  (5) —  (102) (107)
          Non-current liability  (97) (130) (1,829) (1,955)
            
          		 
          		 
          		 
          		 
          Net amount recognized $(69)$(99)$(1,931)$(2,062)
            
          		 
          		 
          		 
          		 
          Amounts recognized in accumulated other comprehensive income
              consist of:          		             
          Net actuarial gain $43 $13 $254 $120 

                  The estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2008 for actuarial gains are $1 million for pension plans and $17 million for


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (9) Retirement and Postretirement Plans (Continued)


          other postretirement plans. At exit the Company elected not to apply the corridor approach for amortization of unrecognized amounts included in accumulated other comprehensive income. This policy may result in more volatility in the amortization of these unrecognized amounts into net periodic pension cost.

                  The following information relates to all pension plans with an accumulated benefit obligation and a projected benefit obligation in excess of plan assets:

           
          		 December 31
          (In millions)
          		 2007
          		 2006
          Projected benefit obligation $208 $231
          Accumulated benefit obligation  171  189
          Fair value of plan assets  106  100

                  The net periodic benefit cost included the following components:

           
          		 Successor
          		  
          		 Predecessor
          		 
          (In millions)
          		 Year Ended
          December 31,
          2007
          		 Period from
          February 1 to
          December 31,
          2006
          		  
          		 Period from
          January 1 to
          January 31,
          2006
          		 Year Ended
          December 31,
          2005
          		 
          Pension Benefits               
          Service cost $8 $9   $1 $79 
          Interest cost  9  8    1  464 
          Expected return on plan assets  (9) (8)   (1) (392)
          Amortization of prior service cost including
              transition obligation          		  —  —    —  21 
          Curtailment charge  —  —    —  640 
          Settlement losses, net  —  —    —  1,067 
          Recognized actuarial (gain) loss  (1) —    —  100 
            
          		 
          		   
          		 
          		 
          Net periodic benefit costs $7 $9   $1 $1,979 
            
          		 
          		   
          		 
          		 

          Other Benefits
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
          Service cost $39 $33   $3 $42 
          Interest cost  121  116    11  131 
          Expected return on plan assets  (3) (6)   (1) (9)
          Amortization of prior service cost including
              transition obligation          		  —  —    (13) (149)
          Recognized actuarial (gain) loss  (11) —    8  93 
            
          		 
          		   
          		 
          		 
          Net periodic benefit costs $146 $143   $8 $108 
            
          		 
          		   
          		 
          		 

          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (9) Retirement and Postretirement Plans (Continued)

                  The assumptions below are based on country-specific bond yields and other economic data. The weighted-average assumptions used for the benefit plans were as follows:

           
          		 
           
          		 Pension Benefits
          		  
          		 Other Benefits
          		 
          Weighted-average
              assumptions used to
              determine benefit
              obligations
          		 At December 31,
          		  
          		  
          		 At December 31,
          		  
          		 
           At January 31,
          2006
          		 


          		 At January 31,
          2006
          		 
           2007
          		 2006
          		 2007
          		 2006
          		 
          Discount rate 4.16%3.88%3.63%  6.27%5.93%5.84%
          Rate of
              compensation
              increase          		 3.22%3.15%2.50%  — — — 

          Weighted-average
              assumptions used to
              determine net expense

           
          Year Ended
          December 31,
          2007

           
          Period from
          February 1 to
          December 31,
          2006

           
          Period from
          January 1 to
          January 31,
          2006

           





           
          Year Ended
          December 31,
          2007

           
          Period from
          February 1 to
          December 31,
          2006

           
          Period from
          January 1 to
          January 31,
          2006

           
          Discount rate 3.88%3.63%3.56%  5.93%5.84%5.68%
          Expected return on
              plan assets          		 6.38%6.49%6.49%  6.50%8.00%8.00%
          Rate of compensation
              increase          		 3.15%2.50%2.47%  — — — 

                  The expected return on plan assets is based on an evaluation of the historical behavior of the broad financial markets and the Company's investment portfolio.

           
          		 2007
          		 2006
          		 
          Health care cost trend rate assumed for next year 8.50%8.50%
          Rate to which the cost trend rate is assumed to decline (ultimate trend rate in 2012) 4.50%4.50%

                  Assumed health care cost trend rates have a significant effect on the amounts reported for the Other Benefits plan. A 1% change in the assumed health care trend rate for the Successor Company would have the following additional effects:

          (In millions)
          		 1% Increase
          		 1% Decrease
          		 
          Effect on total service and interest cost for the year ended December 31, 2007 $20 $(15)
          Effect on postretirement benefit obligation at December 31, 2007 $236 $(162)

                  The weighted-average asset allocations for the plans at December 31, 2007 and 2006, by asset category are as follows:

           
          		 Pension Assets
          at December 31
          		 Other
          Benefit Assets
          at December 31
          		 
          Asset Category
          		 
           2007
          		 2006
          		 2007
          		 2006
          		 
          Equity securities 70%71%—%—%
          Fixed income 25 28 100 100 
          Other 5 1 — — 
            
          		 
          		 
          		 
          		 
           Total 100%100%100%100%

          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (9) Retirement and Postretirement Plans (Continued)

                  The Company believes that the long-term asset allocations on average will approximate the targeted allocations and regularly reviews the actual asset allocations to periodically rebalance the investments to the targeted allocations when appropriate. The target asset allocations are established with the objective of achieving the plans' expected return on assets without undue investment risk.

                  Expected 2008 contributions are $29 million for the pension plans and $170 million for the other postretirement benefit plans. The following benefit payments are expected to be made in future years for the Company's retirement plans:

          (In millions)
          		 Pension
          		 Other Benefits
          		 Other Benefits—
          subsidy receipts
          		 
          2008 $12 $171 $(12)
          2009  12  172  (14)
          2010  12  173  (16)
          2011  13  174  (18)
          2012  14  171  (20)
          Years 2013 - 2017  70  853  (127)

            Defined Contribution Plans

                  In place of the domestic defined benefit pension plans that were terminated during bankruptcy, the Company enhanced its contributions to the defined contribution plans for most employee groups. Contributions are based on matching percentages, years of service and/or eligible earnings. The Company's contribution percentages vary from 1 to 15% of eligible earnings depending on the terms of each plan. The Company agreed to contribute to most of its defined contribution plans effective in June and July 2005, although such contributions for 2005 were not funded until shortly after the Effective Date.

                  Effective March 1, 2006, an International Association of Machinists ("IAM") replacement plan was implemented. The IAM replacement plan is a multi-employer plan whereby the assets contributed by the Company (based on hours worked) may be used to provide benefits to employees of other participating companies, since assets contributed by all participating companies are not segregated or restricted to provide benefits specifically to employees of one participating company. In accordance with the applicable accounting for multi-employer plans, the Company would only recognize a withdrawal obligation if it becomes probable it would withdraw from the plan. The Predecessor Company recorded expense from defined contribution plans of $16 million for the month of January 2006 and $122 million for the year ended December 31, 2005. The Successor Company recognized $232 million and $206 million of expense for the year ended December 31, 2007 and the eleven months ended December 31, 2006, respectively, for all of the Company's defined contribution employee retirement plans, of which $28 million and $21 million, respectively, related to the IAM multi-employer plan.

          (10) 

          		Segment Information

                  Segments.    The Company manages its business by two reporting segments: Mainline and United Express. The Company manages its business as an integrated network with assets deployed across various regions.

          Segments.  The Company manages its business by two reporting segments: Mainline and United Express. The Company manages its business as an integrated network with assets deployed across various regions. See Note 1(i), “Summary of Significant Accounting Policies—United Express” for additional information related to United Express expenses.
          The accounting policies for each of these reporting segments are the same as those described in Note 1, “Summary of Significant Accounting Policies,” except that segment financial information has been prepared using a management approach which is consistent with how the Company internally disperses financial information for the purpose of making internal operating decisions. The Company evaluates segment financial performance based on earnings before income taxes, special items, reorganization items and gain on sale of investments. As discussed in the notes to the tables below, the Company does not allocate corporate overhead to its United Express segment; although certain selling and operational costs are allocated to United Express.


          120

          The following table presents UAL segment information for the years ended December 31, 2008 and 2007, the eleven month period ended December 31, 2006, the one month period ended January 31, 2006:
                            
            Successor   Predecessor 
                  Period from
          		   Period from
          		 
            Year Ended
          		  February 1 to
          		   January 1 to
          		 
          (In millions)
          		 December 31,  December 31,
          		   January 31,
          		 
          UAL 2008  2007  2006   2006 
          Revenue:                 
          Mainline $17,096  $17,035  $15,185   $1,254 
          United Express  3,098   3,063   2,697    204 
          Special revenue items  —   45   —    — 
                            
          Total $20,194  $20,143  $17,882   $1,458 
                            
          Depreciation and amortization:                 
          Mainline $932  $925  $820   $68 
          United Express(a)  6   9   7    1 
                            
          Segment earnings (loss) and reconciliation to                 
          Statements of Consolidated Operations:
          		                 
          Mainline $(2,607) $448  $(91)  $(59)
          United Express  (150)  122   101    (24)
          Special revenue items (Note 19)  —   45   —    — 
          Goodwill impairment  (2,277)  —   —    — 
          Other impairments and special items (Note 19)  (339)  44   36    — 
          Gain on sale of investment (Note 20)  —   41   —    — 
          Reorganization items, net  —   —   —    22,934 
          Less: Equity earnings in affiliates(b)  (6)  (5)  (3)   (5)
                            
          Consolidated earnings (loss) before income taxes and equity earnings in affiliates $(5,379) $695  $43   $22,846 
                            

          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (10) Segment Information (Continued)

                  The accounting policies for each of these reporting segments are the same as those described in Note 2, "Summary of Significant Accounting Policies," except that segment financial information has been prepared using a management approach which is consistent with how the Company internally disperses financial information for the purpose of making internal operating decisions. The Company evaluates segment financial performance based on earnings before income taxes, special items, reorganization items, and gain on sale of investments. As discussed in the notes to the tables below, the Company does not allocate corporate overhead expenses to its United Express segment. Certain selling and operational costs are allocated to United Express. See Note 2(j), "Summary of Significant Accounting Policies—United Express" for additional information related to United Express expenses.

                  The following table presents UAL segment information for the year ended December 31, 2007, the eleven month period ended December 31, 2006, the one month period ended January 31, 2006 and the year ended December 31, 2005:

           
          		 Successor
          		  
          		 Predecessor
          		 
          (In millions)
          		 Year
          Ended
          2007
          		 February 1 to
          December 31,
          2006
          		  
          		 January 1 to
          January 31,
          2006
          		 Year
          Ended
          2005
          		 
          UAL               
          Revenue:               
           Mainline $17,035 $15,185   $1,254 $14,950 
           United Express  3,063  2,697    204  2,429 
           Special revenue items  45  —    —  — 
            
          		 
          		   
          		 
          		 
            Total $20,143 $17,882   $1,458 $17,379 
            
          		 
          		   
          		 
          		 
          Depreciation and amortization:               
           Mainline $925 $820   $68 $856 
           United Express(a)  9  7    1  17 

          Segment earnings (loss) and reconciliation to
                        Statements of Consolidated Operations:
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           Mainline $448 $(91)  $(59)$(240)
           United Express  122  101    (24) (317)
           Reorganization items, net  —  —    22,934  (20,601)
           Gain on sale of investment (Note 7)  41  —    —  — 
           Special revenue items (Note 20)  45  —    —  — 
           Special expense items (Note 20)  44  36    —  (18)
           Less: Equity earnings in affiliates(b)  (5) (3)   (5) (4)
            
          		 
          		   
          		 
          		 
            Consolidated earnings (loss) before income taxes
              and equity earnings in affiliates          		 $695 $43   $22,846 $(21,180)
            
          		 
          		   
          		 
          		 
          (a)
          		United Express depreciation expense relates to assets used in United Express operations. This depreciation is included in Regional affiliates expense in the Company'sCompany’sStatements of Consolidated Operations..

          (b)
          		Equity earnings are part of the mainline segment.


          121

          The following table presents United segment information for the years ended December 31, 2008 and 2007, the eleven month period ended December 31, 2006, the one month period ended January 31, 2006:
                            
            Successor   Predecessor 
                  Period from
          		   Period from
          		 
            Year Ended
          		  February 1 to
          		   January 1 to
          		 
          (In millions)
          		 December 31,  December 31,
          		   January 31,
          		 
          United 2008  2007  2006   2006 
          Revenue:                 
          Mainline $17,139  $17,023  $15,183   $1,250 
          United Express  3,098   3,063   2,697    204 
          Special revenue items  —   45   —    — 
                            
          Total $20,237  $20,131  $17,880   $1,454 
                            
          Depreciation and amortization:                 
          Mainline  932  $925  $820   $68 
          United Express(a)  6   9   7    1 
                            
          Segment earnings (loss) and reconciliation to                 
          Statements of Consolidated Operations:
          		                 
          Mainline $(2,562) $446  $(76)  $(59)
          United Express  (150)  122   101    (24)
          Special revenue items (Note 19)  —   45   —    — 
          Goodwill impairment  (2,277)  —   —    — 
          Other impairments and special items (Note 19)  (339)  44   36    — 
          Gain on sale of investment (Note 20)  —   41   —    — 
          Reorganization items, net  —   —   —    22,709 
          Less: Equity earnings in affiliates(b)  (6)  (5)  (3)   (5)
                            
          Consolidated earnings (loss) before income taxes and equity earnings in affiliates $(5,334) $693  $58   $22,621 
                            

          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (10) Segment Information (Continued)

                  The following table presents United segment information for the year ended December 31, 2007, the eleven month period ended December 31, 2006, the one month period ended January 31, 2006 and the year ended December 31, 2005:

           
          		 Successor
          		  
          		 Predecessor
          		 
          (In millions)
          		 Year
          Ended
          2007
          		 February 1 to
          December 31,
          2006
          		  
          		 January 1 to
          January 31,
          2006
          		 Year
          Ended
          2005
          		 
          United               
          Revenue:               
           Mainline $17,023 $15,183   $1,250 $14,875 
           United Express  3,063  2,697    204  2,429 
           Special revenue items  45  —    —  — 
            
          		 
          		   
          		 
          		 
            Total $20,131 $17,880   $1,454 $17,304 
            
          		 
          		   
          		 
          		 
          Depreciation and amortization:               
           Mainline $925 $820   $68 $854 
           United Express(a)  9  7    1  17 

          Segment earnings (loss) and reconciliation to
                        Statements of Consolidated Operations:
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           Mainline $446 $(76)  $(59)$(282)
           United Express  122  101    (24) (317)
           Reorganization items, net  —  —    22,709  (20,432)
           Gain on sale of investments (Note 7)  41  —    —  — 
           Special revenue items (Note 20)  45  —    —  — 
           Special expense items (Note 20)  44  36    —  (5)
           Less: Equity earnings in affiliates(b)  (5) (3)   (5) (4)
            
          		 
          		   
          		 
          		 
            Consolidated earnings (loss) before income taxes
              and equity earnings in affiliates          		 $693 $58   $22,621 $(21,040)
            
          		 
          		   
          		 
          		 
          (a)
          		United Express depreciation expense relates to assets used in United Express operations. This depreciation is included in Regional affiliates expense in the Company'sCompany’sStatements of Consolidated Operations..

          (b)
          		Equity earnings are part of the mainline segment.
          The Company does not allocate interest income or interest expense to the United Express segment in reports used to evaluate segment performance. Therefore, all amounts classified as interest income and interest expense in theStatements of Consolidated Operationsrelate to the mainline segment.
          In accordance with SFAS 142, on the Effective Date the Company allocated goodwill upon adoption of fresh-start reporting in a manner similar to how the amount of goodwill recognized in a business combination is determined. This required the determination of the fair value of each reporting unit to calculate an estimated purchase price for such reporting unit. This purchase price was then allocated to the individual assets and liabilities assumed to be related to that reporting unit. Any excess purchase price is the amount of goodwill assigned to that reporting unit. To the extent that individual assets and liabilities could be assigned directly to specific reporting units, those assets and liabilities were so assigned. As a result of this process, all of the Company’s goodwill has been allocated to the mainline segment. See Note 3, “Asset Impairments and Intangible Assets,” for further information related to goodwill.

                  The Company does not allocate interest income or interest expense to the United Express segment in reports used to evaluate segment performance. Therefore, all amounts classified as interest income and interest expense in theStatements of Consolidated Operations relate to the mainline segment.

                  In accordance with SFAS 142, on the Effective Date the Company allocated goodwill upon adoption of fresh-start reporting in a manner similar to how the amount of goodwill recognized in a business combination is determined. This required the determination of the fair value of each reporting unit to calculate an estimated purchase price for such reporting unit. This purchase price was then allocated to the individual assets and liabilities assumed to be related to that reporting unit. Any excess purchase price is the amount of goodwill assigned to that reporting unit. To the extent that individual assets and liabilities could be assigned directly to specific reporting units, those assets and liabilities


          122

          At December 31, 2008 and 2007, UAL’s and United’s net carrying values of mainline and United Express segment assets were as follows:
                           
            UAL  United 
          (In millions)
          		 2008  2007  2008  2007 
          Mainline segment $19,415  $24,149  $19,586  $24,165 
          United Express segment  46   71   46   71 
                           
          Total assets $19,461  $24,220  $19,632  $24,236 
                           
          United Express assets include only those assets directly associated with its operations. The Company does not allocate corporate assets to the United Express segment. The Company’s capital expenditures are reported in the Company’sStatements of Consolidated Cash Flowsand are related to its mainline operations.
          UAL and United’s operating revenue by principal geographic region (as defined by the U.S. Department of Transportation) for the years ended December 31, 2008 and 2007, the eleven month period ended December 31, 2006 and the one month period ended January 31, 2006 is presented in the table below.
                            
            Successor   Predecessor 
                  Period from
          		   Period from
          		 
            Year Ended
          		  February 1 to
          		   January 1 to
          		 
            December 31,  December 31,
          		   January 31,
          		 
          (In millions)
          		 2008  2007  2006   2006 
          UAL
          		                 
          Domestic (U.S. and Canada) $12,819  $14,006  $11,981   $953 
          Pacific  3,712   3,262   3,214    283 
          Atlantic  3,055   2,365   2,158    167 
          Latin America  608   510   529    55 
                            
          Total UAL $20,194  $20,143  $17,882   $1,458 
          Add (less): UAL other domestic  43   (12)  (2)   (4)
                            
          Total United $20,237  $20,131  $17,880   $1,454 
                            
          The Company attributes revenue among the geographic areas based upon the origin and destination of each flight segment. United’s operations involve an insignificant level of dedicated revenue-producing assets in geographic regions as the overwhelming majority of the Company’s revenue producing assets (primarily U.S. registered aircraft) generally can be deployed in any of its geographic regions, as any given aircraft may be used in multiple geographic regions on any given day.

          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (10) Segment Information (Continued)


          were so assigned. As a result of this process, all of the Company's goodwill has been allocated to the Mainline segment. See Note 8, "Intangibles," for further information related to goodwill.

                  At December 31, 2007 and 2006, UAL's and United's net carrying values of Mainline and United Express segment assets were as follows:

           
          		 UAL
          		 United
          (In millions)
          		 2007
          		 2006
          		 2007
          		 2006
          Mainline segment $24,149 $25,294 $24,165 $25,506
          United Express segment  71  75  71  75
            
          		 
          		 
          		 
           Total assets $24,220 $25,369 $24,236 $25,581
            
          		 
          		 
          		 

                  United Express assets include only those assets directly associated with its operations. The Company does not allocate corporate assets to the United Express segment. The Company's capital expenditures are reported in the Company'sConsolidated Statements of Cash Flows and are related to its Mainline operations.

                  UAL and United's operating revenue by principal geographic region (as defined by the U.S. Department of Transportation) for the year ended December 31, 2007, the eleven month period ended December 31, 2006, the one month period ended January 31, 2006 and the year ended December 31, 2005 is presented in the table below.

           
          		 Successor
          		  
          		 Predecessor
          		 
          (In millions)
          		 Year Ended December 31, 2007
          		 February 1 to December 31, 2006
          		  
          		 January 1 to January 31, 2006
          		 Year Ended December 31, 2005
          		 
          UAL               
          Domestic (U.S. and Canada) $14,006 $11,981   $953 $11,411 
          Pacific  3,262  3,214    283  3,283 
          Atlantic  2,365  2,158    167  2,189 
          Latin America  510  529    55  496 
            
          		 
          		   
          		 
          		 
           Total UAL $20,143 $17,882   $1,458 $17,379 
           Less: UAL other domestic  (12) (2)   (4) (75)
            
          		 
          		   
          		 
          		 
           Total United $20,131 $17,880   $1,454 $17,304 
            
          		 
          		   
          		 
          		 

                  The Company attributes revenue among the geographic areas based upon the origin and destination of each flight segment. United's operations involve an insignificant level of dedicated revenue-producing assets in geographic regions as the overwhelming majority of the Company's revenue producing assets (primarily U.S. registered aircraft) generally can be deployed in any of its geographic regions, as any given aircraft may be used in multiple geographic regions on any given day.


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (11) 

          		Accumulated Other Comprehensive Income (Loss)

                  The table below presents the components of the Company's accumulated other comprehensive income (loss), net of tax. See Note 9, "Retirement

          The table below presents the components of the Company’s accumulated other comprehensive income (loss), net of tax. See Note 9, “Retirement and Postretirement Plans” and Note 13, “Fair Value Measurements and Financial Instruments,” for further information on these items.
                       
            As of December 31, 
          (In millions)
          		 2008  2007  2006 
          Pension and other postretirement gains, net of tax $130  $141  $87 
          Financial instrument losses, net of tax  (37)  —   (5)
                       
          Accumulated other comprehensive income, net of tax $93  $141  $82 
                       
          The 2006 pension-related amounts represent the adoption of Statement of Financial Accounting Standards No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)(“SFAS 158”). During the initial adoption of SFAS 158, the Company recorded deferred taxes on the portion of other comprehensive income associated with the Medicare Part D subsidiary. In 2007, the Company recomputed deferred taxes on the


          123

          portion of the initial other comprehensive balance at the adoption date excluding the amount of comprehensive income attributable to the Medicare Part D subsidiary. This adjustment of $40 million is excluded from comprehensive income and is reported separately in the Company’sStatements of Consolidated Stockholders’ Equity (Deficit).
          (12) Debt Obligations and Postretirement Plans"Card Processing Agreements
          Long-term debt amounts outstanding at December 31, 2008 and 2007 are shown below:
                   
            At December 31, 
          (In millions)
          		 2008  2007 
          United
          		        
                   
          Secured notes, 1.64% to 9.52%, due 2009 to 2022 $4,331  $4,659 
          Credit Facility, 3%, due 2014  1,273   1,291 
          4.5% convertible notes, due 2021(a)  726   726 
          6% senior notes, due 2031(a)  546   515 
          5% senior convertible notes, due 2021(a)  150   150 
                   
          Total debt  7,026   7,341 
          Less: unamortized debt discount  (239)  (251)
          Less: current portion of long-term debt  (780)  (678)
                   
          Long-term debt, net $6,007  $6,412 
                   
          UAL(b)
          		        
                   
          Current portion of long-term debt $782  $678 
          Long-term debt, net  6,007   6,415 
          (a)Instruments were issued by UAL and Note 14, "Financial Instruments and Risk Management," for further information on these items.

           
          		 Successor
          		  
          		 Predecessor
          		 
           
          		 At December 31,
          		 
          (In millions)
          		 
           2007
          		 2006
          		  
          		 2005
          		 
          Pension and other postretirement gains (losses), net of tax $141 $87   $(12)
          Financial instrument losses, net of tax  —  (5)   (24)
            
          		 
          		   
          		 
          Accumulated other comprehensive income (loss), net of tax $141 $82   $(36)
            
          		 
          		   
          		 

                  The 2006 and 2005 pension-related amounts represent the adoption of SFAS 158 and the minimum pension liability under SFAS 87, respectively. During the initial adoption of SFAS 158, the Company recorded deferred taxes on the portion of other comprehensive income associated with the Medicare Part D subsidiary. In 2007, the Company recomputed deferred taxes on the portion of the initial other comprehensive balance at the adoption date excluding the amount of comprehensive income attributablepushed down to the Medicare Part D subsidiary. This adjustment of $40 million is excluded from comprehensive income and is reported separately in the Company'sStatements of Stockholders' Equity.

          (12) Debt Obligations

                  In 2007, the Company prepaid and amended the credit facility and issued, repaid and repurchased various debt instruments,United as discussed below. Previously during 2006, in accordance with the Plan

          (b)A direct subsidiary of Reorganization, the Company issued newUAL had additional debt entered into the credit facility, reinstated certain secured aircraft debt and entered into other debt agreements negotiated during the bankruptcy process (including aircraft financings) in addition to repaying the DIP Financing in its entirety.

                  Long-term debt amounts outstanding at December 31, 2007 and 2006 are shown below:

           
          		 At December 31,
          		 
          (In millions)
          		 
           2007
          		 2006
          		 
          United       
          Secured notes, 5.38% to 9.52%, due 2008 to 2022 $4,659 $5,221 
          Credit Facility, 7.13%, due 2014  1,291  2,786 
          Limited-Subordination Notes, 4.5%, due 2021  726  726 
          6% senior notes, due 2031  515  500 
          5% senior convertible notes, due 2021  150  150 
            
          		 
          		 
          Total debt  7,341  9,383 
           Less: unamortized debt discount  (251) (247)
           Less: current portion  (678) (1,687)
            
          		 
          		 
          Long-term debt, net $6,412 $7,449 
            
          		 
          		 
          UAL       
          Secured notes of direct subsidiary  3  4 
            
          		 
          		 
          Long-term debt, net $6,415 $7,453 
            
          		 
          		 

          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (12) Debt Obligations (Continued)

          2007 Financing Transactions

                  Amended Credit Facility.    In February 2007, the Company prepaid $972 million of its credit facility debt (see 2006 Debt Transactions, below) and entered into an amended and restated revolving credit, term loan and guaranty agreement (the "Amended Credit Facility") that, among other things, reduced the size of the facility from $3.0 billion to $2.055 billion, reduced the applicable interest rates, and provided for a more limited collateral package and a relaxation of certain restrictive covenants. There were no prepayment penalties associated with this debt retirement. In addition, United also incurred financing costs of $10 million of which $6 million was expensed and $4 million was capitalized. The financing costs associated with the credit facility amendment and prepayment, which were expensed, are classified within interest expense. The Company expensed approximately $17 million of deferred financing costs which are related to the portion of the credit facility prepaid in February 2007 and included in other assets on the December 31, 2006 Statements of Consolidated Financial Position.

                  In addition, in December 2007 the Company prepaid an additional $500 million of the term loan under the Amended Credit Facility. In connection with this prepayment, the Company expensed an additional $6 million of previously capitalized debt issuance costs. The Company also recognized a $2 million, credit to interest expense to recognize previously deferred interest rate swap gains.

                  The December 2007 amendment enabled the Company to undertake certain shareholder initiatives. UAL's Board of Directors approvedwhich is classified as a special distribution of $2.15 per share to holders of UAL common stock, or approximately $257 million, which was paid on January 23, 2008. The Company can undertake approximately $243 million in additional shareholder initiatives without any additional prepayment of the Amended Credit Facility. The amendment also provides that the Company can carry out further shareholder initiatives in an amount equal to future term loan prepayments.

                  The Amended Credit Facility provided for a total commitment of up to $2.055 billion, comprised of two separate tranches: (i) a Tranche A consisting of $255 million revolving commitment available for Tranche A loans and standby letters of credit and (ii) a Tranche B consisting of a term loan commitment of $1.8 billion available at the time of closing. The Tranche A loans mature on February 1, 2012, and the Tranche B loans mature on February 1, 2014.

                  Borrowings under the Amended Credit Facility bear interest at a floating rate, which, at the Company's option, can be either a base rate or a LIBOR rate, plus an applicable margin of 1.0% in the case of base rate loans, and 2.0% in the case of LIBOR loans. The Tranche B term loan requires regularly scheduled semi-annual payments of principal equal to $9 million. Interest is payable at least every three months. The Company may prepay some or all of the Tranche B loans from time to time, at a price equal to 100% of the principal amount prepaid plus accrued and unpaid interest, if any, to the date of prepayment, but without penalty or premium. In addition, letters of credit issued under the credit facilitycurrent debt obligation as of December 31, 2007 in an aggregate amount of $1022008, and $3 million were subject to a fee at the rate of 2.0% per annum.

                  United's obligations under the Amended Credit Facility are unconditionally guaranteed by UAL Corporation and certain of its direct and indirect domestic subsidiaries, other than certain immaterial subsidiaries (the "Guarantors"). On the closing date for the Amended Credit Facility, the obligations are secured by a security interest in the following tangible and intangible assets of United and the Guarantors: (i) the Pacific (Narita, China and Hong Kong) and Atlantic (Heathrow) routes (the "Primary Routes") that United had as of February 2, 2007, (ii) primary foreign slots, primary domestic


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (12) Debt Obligations (Continued)


          slots, certain gate interests in domestic airport terminals and certain supporting route facilities, (iii) certain spare engines, (iv) certain quick engine change kits, (v) certain owned real property and related fixtures, and (vi) certain flight simulators (the "Collateral"). After the closing date, and subject to certain conditions, United and the Guarantors may grant a security interest in the following assets, in substitution for certain Collateral (which may be released from the lien in support of the Amended Credit Facility upon the satisfaction of certain conditions): (a) certain aircraft, (b) certain spare parts, (c) certain ground handling equipment, and (d) accounts receivable. In addition, United has the right to remove collateral pledged to the Amended Credit Facility as long as the minimum collateral ratio described in item (iii) below is achieved.

                  The Amended Credit Facility contains covenants that in certain circumstances may limit the ability of United and the Guarantors to, among other things, incur or guarantee additional indebtedness, create liens, pay dividends on or repurchase stock, make certain types of investments, enter into transactions with affiliates, sell assets or merge with other companies, modify corporate documents or change lines of business. The Amended Credit Facility also requires compliance with the following financial covenants: (i) a minimum ratio of EBITDAR to the sum of cash interest expense, aircraft rent and scheduled debt payments, (ii) a minimum unrestricted cash balance of $750 million, and (iii) a minimum ratio of market value of collateral to the sum of (a) the aggregate outstanding amount of the loans plus (b) the undrawn amount of outstanding letters of credit, plus (c) the unreimbursed amount of drawings under such letters of credit and (d) the termination value of certain interest rate protection and hedging agreements with the Amended Credit Facility lenders and their affiliates, of 150% at any time, or 200% at any time following the release of Primary Routes having an appraised value in excess of $1 billion (unless the Primary Routes are the only collateral then pledged). Failure to comply with the Amended Credit Facility covenants could result in a default under the Amended Credit Facility unless the Company were to obtain a waiver of, or otherwise mitigate or cure, the default. Additionally, the Amended Credit Facility contains a cross-default provision with respect to other credit arrangements that exceed $50 million. A default could result in a termination of the Amended Credit Facility and a requirement to accelerate repayment of all outstanding facility borrowings. The Company was in compliance with the Amended Credit Facility covenants at December 31, 2007.

                  EETC Pass Through Certificates, Series 2007-1.    On June 26, 2007, United and Wilmington Trust Company, as subordination agent and pass through trustee under three pass through trusts newly formed by United (the "Trustee") entered into a note purchase agreement, dated as of June 26, 2007 (the "Note Purchase Agreement"). The Note Purchase Agreement provides for the issuance by United of equipment notes (the "Equipment Notes") in the aggregate principal amount of approximately $694 million to finance 13 aircraft owned by United. Ten of these owned aircraft had been financed by pre-existing aircraft mortgages which United repaid in full (approximately $590 million principal amount) with most of the proceeds of the Equipment Notes. The mortgages related to these ten aircraft had been adjusted to fair market value at the adoption of fresh-start reporting on February 1, 2006. The extinguishment of the aircraft mortgages resulted in the recognition of a $22 million gain for the unamortized premium, which was accounted for as a reduction in interest expense in the second quarter of 2007. The remaining three owned aircraft were unencumbered prior to the closing of the Enhanced Equipment Trust Certificates ("EETC") transaction.

                  The payment obligations of United under the Equipment Notes are fully and unconditionally guaranteed by UAL. The Class B and Class C certificates are subject to transfer restrictions. They may


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (12) Debt Obligations (Continued)


          be sold only to qualified institutional buyers, as defined by Rule 144A under the Securities Act of 1933, as amended, for so long as they are outstanding. Pursuant to the Note Purchase Agreement, the Trustee for each pass through trust agreed to purchase Equipment Notes issued under a Trust Indenture and Mortgage (each, an "Indenture" and, collectively, the "Indentures") with respect to each aircraft financing entered into by United and Wilmington Trust Company, as Mortgagee.

                  Each Indenture contemplated the issuance of Equipment Notes in three series: Series A, bearing interest at the rate of 6.636% per annum, Series B, bearing interest at the rate of 7.336% per annum, and Series C, bearing interest at the rate of six-month LIBOR plus 2.25% per annum, in the aggregate principal amount of approximately $694 million divided between the three series as follows: $485 million in the case of Series A Equipment Notes, $107 million in the case of Series B Equipment Notes, and $102 million in the case of Series C Equipment Notes. The Equipment Notes were purchased by the Trustee for each pass through trust using the proceeds from the sale of Pass Through Certificates, Series 2007-1A, Pass Through Certificates, Series 2007-1B, and Pass Through Certificates, Series 2007-1C (collectively, the "Certificates").

                  Interest on the Equipment Notes is payable semiannually on each January 2 and July 2, beginning on January 2, 2008. Principal payments are scheduled on January 2 and July 2 in scheduled years, beginning on January 2, 2008. The final payments will be due on July 2, 2022, in the case of the Series A Equipment Notes, July 2, 2019, in the case of the Series B Equipment Notes, and July 2, 2014, in the case of the Series C Equipment Notes. Maturity of the Equipment Notes may be accelerated upon the occurrence of certain events of default, including failure by United to make payments under the applicable Indenture when due or to comply with certain covenants, as well as certain bankruptcy events involving United. The Equipment Notes issued with respect to each of the 13 aircraft are secured by a lien on each such aircraft and are cross-collateralized by the rest of the 13 aircraft financed pursuant to the Note Purchase Agreement.

                  Distributions on the Certificates are subject to certain subordination provisions whereby Morgan Stanley Senior Funding, Inc. provided a liquidity facility for each of the Class A and Class B certificates. The liquidity facilities are expected to provide an amount sufficient to pay up to three semiannual interest payments on the certificates of the related pass through trust. The Class C certificates do not have the benefit of a liquidity facility.

                  Denver Special Facilities Airport Revenue Refunding Bonds, Series 2007A.    On June 28, 2007, the City and County of Denver issued approximately $270 million of Denver International Airport ("DEN") refunding bonds ("Series 2007A Bonds"). The Series 2007A Bonds are unconditionally guaranteed by United. The Series 2007 A Bonds were issued in two tranches—approximately $170 million aggregate principal amount of 5.25% discount bonds and $100 million aggregate principal amount of 5.75% premium bonds. The weighted average yield to the 2032 maturity is approximately 5.47%.

                  The Series 2007A Bonds were issued to refinance United's guaranteed principal of $261 million, plus accrued interest and new issuance costs relating to the City and County of Denver, Colorado Special Facilities Airport Revenue Bonds (United Air Lines Project) Series 1992A (the "1992 Bonds") that were issued in 1992 to finance certain facilities at the Denver International Airport. The 1992 Bonds were due in 2032 unless United elected not to extend its airport facility lease, in which case they were due in 2023. The Series 2007A Bonds similarly are due in 2032 unless United makes a similar


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (12) Debt Obligations (Continued)


          election not to extend its lease. The outstanding bonds and related guarantee are not recorded in the Company'sStatements of Consolidated Financial Position at December 31, 2006 and 2007. See Note 15, "Commitments, Contingent Liabilities and Uncertainties" for additional information related to these bonds.

                  EETC Repurchases.    In addition, the Company purchased certain of its previously issued and outstanding EETC securities in open market transactions during 2007. The Company purchased EETC securities, including accrued interest, for $96 million and adjusted these securities to a fair value of $91 million at December 31, 2007. These EETC securities were issued by third-party pass-through trusts that are not consolidated by the Company. The pass-through trusts' only investments are equipment notes issued by United. The acquisition of the EETC securities does not legally extinguish the corresponding equipment notes; therefore, the certificates are classified as a non-current investment.

                  Interest Rate Swap.    In January 2007, the Company terminated the interest rate swap that had been used to hedge the future interest payments under the original credit facility debt. For further details, see Note 14, "Financial Instruments and Risk Management—Interest Rate Swap."

                  6% senior notes.    In accordance with the provisions of the 6% senior notes issued in 2006 (see discussion below), UAL elected to pay interest in kind for one semi-annual interest payment in 2007. Accordingly, the notes have increased by $15 million reflecting this in kind interest payment.

          2006 Debt Transactions

                  Credit Facility.    On the Effective Date, United obtained a credit facility that provided for a total commitment of up to $3.0 billion that comprised two separate tranches: (i) Tranche A consisted of up to $200 million revolving commitment available for Tranche A loans and for standby letters of credit to be issued in the ordinary course of business of United or one of its subsidiary guarantors; and (ii) Tranche B consisted of a term loan commitment of up to $2.45 billion available at the time of closing and additional delayed draw term loan commitments of up to $350 million available upon, among other things, United's acquiring unencumbered title to some or all of the 14 airframes and related engines that were subject to United's 1997-1 EETC financing. The credit facility would have matured on February 1, 2012 but was amended in February 2007, as explained above.

                  Borrowings under the credit facility were at a floating interest rate based on either a base rate, or at our option, a LIBOR rate, plus an applicable margin of 2.75% in the case of the base rate loans and 3.75% in the case of the LIBOR loans. The Tranche B term loan required regularly scheduled semi-annual payments of principal equal to 0.5% of the original principal amount of the Tranche B term loan. Interest was payable on the last day of the applicable interest period but in no event less than quarterly.

                  United's obligations under the credit facility were unconditionally guaranteed by UAL and certain of the direct and indirect domestic subsidiaries of the Company, other than certain immaterial subsidiaries (the "Original Guarantors"), and were secured by a security interest in substantially all of the tangible and intangible assets of the Original Guarantors. The obligations under the credit facility were also secured by a pledge of the capital stock of United and the direct and indirect subsidiaries of UAL Corporation and United, except that a pledge of any first-tier foreign subsidiary was limited to


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (12) Debt Obligations (Continued)


          65% of the stock of such subsidiary and such foreign subsidiaries were not required to pledge the stock of their subsidiaries.

                  As of December 31, 2006, the Company had outstanding borrowings of $2.8 billion of which $2.438 billion was subject to an interest rate of 9.12% with the remaining balance of $348 million at 9.125%. In addition, letters of credit were issued under the credit facilitylong-term debt obligation as of December 31, 2006 in an aggregate amount of $63 million subject to an interest rate of 3.75%. The Company was in compliance with the credit facility covenants at December 31, 2006.

          2007.

          The Company has a $255 million revolving loan commitment available under Tranche A of its credit facility. As of December 31, 2008 and 2007, the Company used $254 million and $102 million, respectively, of the Tranche A commitment capacity for letters of credit. In addition, under a separate agreement, the Company had $27 million of letters of credit issued as of December 31, 2008.
          At December 31, 2008, UAL’s contractual principal payments under then-outstanding long-term debt agreements in each of the next five calendar years are as follows: 2009—$782 million; 2010—$952 million; 2011—$869 million; 2012—$414 million; 2013—$268 million and thereafter—$3,743 million.
          As of December 31, 2008, assets with a net carrying value of $7.9 billion, principally aircraft, route authorities and Mileage Plus intangible assets were pledged under various loan and other agreements.
          Aircraft-related Transactions
          In June 2008, United entered into an $84 million credit agreement secured by three aircraft, including two Airbus A320s and one Boeing B777. Borrowings under the agreement are at a variable interest rate based on LIBOR plus a margin. The loan has a final maturity in June 2015.
          In July 2008, United completed a $241 million credit agreement secured by 26 of the Company’s owned A319 and A320 aircraft. Borrowings under the agreement were at a variable interest rate based on LIBOR plus a margin. Periodic principal and interest payments are required until the final maturity in June 2019. The Company may not prepay the loan prior to July 2012. This agreement did not change


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          the number of the Company’s unencumbered aircraft as the Company used available equity in these previously mortgaged aircraft as collateral for this financing.
          EETC Pass Through Certificates,Series 2007-1.  On June 26, 2007, United and Wilmington Trust Company, as subordination agent and pass through trustee under three pass through trusts newly formed by United (the “Trustee”) entered into a note purchase agreement, dated as of June 26, 2007 (the “Note Purchase Agreement”). The Note Purchase Agreement provides for the issuance by United of equipment notes (the “Equipment Notes”) in the aggregate principal amount of approximately $694 million to finance 13 aircraft owned by United. Ten of these owned aircraft had been financed by pre-existing aircraft mortgages which United repaid in full (approximately $590 million principal amount) with most of the proceeds of the Equipment Notes. The mortgages related to these ten aircraft had been adjusted to fair market value at the adoption of fresh-start reporting on February 1, 2006. The extinguishment of the aircraft mortgages resulted in the recognition of a $22 million gain for the unamortized premium, which was accounted for as a reduction in interest expense in the second quarter of 2007. The remaining three owned aircraft were unencumbered prior to the closing of the Enhanced Equipment Trust Certificates (“EETC”) transaction.
          The payment obligations of United under the Equipment Notes are fully and unconditionally guaranteed by UAL. The Class B and Class C certificates are subject to transfer restrictions. They may be sold only to qualified institutional buyers, as defined by Rule 144A under the Securities Act of 1933, as amended, for so long as they are outstanding. Pursuant to the Note Purchase Agreement, the Trustee for each pass through trust agreed to purchase Equipment Notes issued under a Trust Indenture and Mortgage (each, an “Indenture” and, collectively, the “Indentures”) with respect to each aircraft financing entered into by United and Wilmington Trust Company, as Mortgagee.
          Each Indenture contemplated the issuance of Equipment Notes in three series: Series A, bearing interest at the rate of 6.636% per annum, Series B, bearing interest at the rate of 7.336% per annum, and Series C, bearing interest at the rate of six-month LIBOR plus 2.25% per annum, in the aggregate principal amount of approximately $694 million divided between the three series as follows: $485 million in the case of Series A Equipment Notes, $107 million in the case of Series B Equipment Notes and $102 million in the case of Series C Equipment Notes. The Equipment Notes were purchased by the Trustee for each pass through trust using the proceeds from the sale of Pass Through Certificates,Series 2007-1A, Pass Through Certificates,Series 2007-1B and Pass Through Certificates,Series 2007-1C (collectively, the “Certificates”).
          Interest on the Equipment Notes is payable semiannually on each January 2 and July 2, beginning on January 2, 2008. Principal payments are scheduled on January 2 and July 2 in scheduled years, beginning on January 2, 2008. The final payments will be due on July 2, 2022, in the case of the Series A Equipment Notes, July 2, 2019, in the case of the Series B Equipment Notes and July 2, 2014, in the case of the Series C Equipment Notes. Maturity of the Equipment Notes may be accelerated upon the occurrence of certain events of default, including failure by United to make payments under the applicable Indenture when due or to comply with certain covenants, as well as certain bankruptcy events involving United. The Equipment Notes issued with respect to each of the 13 aircraft are secured by a lien on each such aircraft and are cross-collateralized by the rest of the 13 aircraft financed pursuant to the Note Purchase Agreement.
          Distributions on the Certificates are subject to certain subordination provisions whereby Morgan Stanley Senior Funding, Inc. provided a liquidity facility for each of the Class A and Class B certificates. The liquidity facilities are expected to provide an amount sufficient to pay up to three semiannual interest payments on the certificates of the related pass through trust. The Class C certificates do not have the benefit of a liquidity facility.
          The Company evaluated whether the trusts formed for the above EETC financing are variable interest entities (“VIEs”) required to be consolidated by the Company under FASB Interpretation No. 46 (revised December 2003),Consolidation of Variable Interest Entities, (“FIN 46R”). Additionally, the Company considered the guidance in FASB Staff PositionFIN 46R-6,Determining the Variability to


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          Be Considered in Applying FASB interpretation No. 46(R). Based on this evaluation the Company determined that the trusts are VIEs and are not excluded from the scope of FIN 46R. The Company evaluated whether there is an implicit or explicit arrangement that absorbs variability from the trusts. Based on the Company’s analysis as described below, the Company determined that it does not absorb variability of the trusts and that it does not have a variable interest in the trusts.
          The Company evaluated the design of the trusts, including (1) the nature of the risk in the trusts and (2) the purpose for which the trusts were created and the variability that the trusts are designed to create and pass along to their variable interest holders. The primary risk of the trusts is credit risk (i.e. the risk that United, the issuer of the equipment notes, may be unable to make its principal and interest payments). The purpose of the trusts is to enhance the credit worthiness of United’s debt obligation through certain bankruptcy protection provisions, a liquidity facility and improvedloan-to-value ratios for more senior debt classes. These credit enhancements lower United’s total borrowing cost. The other purpose of the trust is to receive principal and interest payments on the equipment notes purchased by the trusts from United and remit these proceeds to the trusts’ certificate holders.
          United did not invest in or obtain a financial interest in the trusts. Rather United has an obligation to make its interest and principal payments on its equipment notes held by the trusts. By design, United was not intended to have any voting or non-voting equity interest in the trusts or to absorb variability from the trusts. Based on this analysis, the Company determined that it is not required to consolidate the trusts under FIN 46R.
          EETC Repurchases.  In addition, the Company purchased certain of its previously issued and outstanding EETC securities in open market transactions during 2007. The Company purchased EETC securities, including accrued interest, for $96 million and adjusted these securities to a fair value of $91 million at December 31, 2007. At December 31, 2008, the fair value of these securities was $46 million. These EETC securities were issued by third-party pass-through trusts that are not consolidated by the Company. The pass-through trusts’ only investments are equipment notes issued by United. The acquisition of the EETC securities does not legally extinguish the corresponding equipment notes; therefore, the certificates are classified as a non-current investment.
          See Note 14, “Commitments, Contingent Liabilities and Uncertainties” for a discussion of the Company’s municipal bond guarantees.
          Other Debt
          Push Down of UAL Securities.  The following instruments issued by UAL have been pushed down to United and are reflected as debt of United as part of fresh-start reporting.
          4.5% convertible notes.  These notes are unsecured, mature on June 30, 2021 and do not require any payment of principal before maturity. Interest is payable semi-annually, in arrears. These notes may be converted into common stock of UAL. The conversion price, which was initially $34.84, is subject to adjustment for certain dilutive items and events. Effective January 10, 2008, the conversion price was changed to $32.64 due to UAL’s January 23, 2008 special distribution to holders of UAL common stock. The notes are junior, in right of payment upon liquidation, to the Company’s obligations under the 5% senior convertible notes and 6% senior notes discussed below. The notes are callable in cashand/or UAL common stock beginning in 2011, except that UAL may elect to pay in common stock only if the common stock has traded at not less than 125% of the conversion price for the 60 consecutive trading days immediately before the redemption date. In addition, on each of June 30, 2011 and June 30, 2016, holders have the option to require UAL to repurchase its notes, which UAL may elect to do through the payment of cash or UAL common stock, or a combination of both. These notes are guaranteed by United.
          5% senior convertible notes.  The notes are unsecured, have a term of 15 years from the date of issuance and do not require any payment of principal before maturity. Interest is payable semi-annually, in arrears. These 5% senior convertible notes may be converted, at the holder’s option, into UAL


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          common stock at any time at an initial conversion price of $46.86. Effective January 10, 2008, the conversion price was adjusted to $43.90 due to the UAL special distribution to holders of UAL common stock on January 23, 2008. This conversion price is subject to adjustment for certain dilutive items and events. These notes are callable, at UAL’s option, in cash or UAL common stock, under certain conditions, beginning five years after the issuance date. In the case of any such redemption, the Company may only redeem these notes with shares of common stock if UAL common stock has traded at no less than 125% of the conversion price for the 60 consecutive trading days prior to the redemption date. The holders have the option to require UAL to repurchase their notes on the 5th and 10th anniversary of the date of issuance, which UAL may elect to do through the payment of cash, common stock or a combination of both.
          6% senior notes.  These notes are unsecured, mature 25 years from the issuance date and do not require any payment of principal before maturity. Interest is payable semi-annually, in arrears. Interest may be paid with cash, in kind notes or UAL common stock through 2011 and thereafter in cash. These notes are callable at any time at 100% of par value and can be redeemed with either cash or UAL common stock at UAL’s option. Upon a change in control or other event as defined in the agreement, UAL has an obligation to redeem the notes. In the case of such mandatory redemption, UAL may elect to redeem the notes in cash, in shares of UAL common stock or a combination thereof. The Company paid interest in-kind of approximately $31 million and $15 million on the 6% senior notes during the years ended December 31, 2008 and 2007, respectively.
          Contingent Senior Unsecured Notes.  In addition to the debt issued as noted above, UAL is obligated to issue to the PBGC 8% senior unsecured notes with an aggregate $500 million principal amount in up to eight equal tranches of $62.5 million (with no more than two tranches issued on a single date) upon the occurrence of certain financial triggering events. Any required tranche will be issued no later than 45 days following the end of any fiscal year in which there is an issuance-triggering event        Push Down of UAL Securities.    The following instruments issued by UAL have been pushed down to United and are reflected as debt of United as part of fresh-start reporting.

                  Limited-Subordination Notes.    In July 2006, UAL issued $726 million aggregate principal amount of 4.5% senior limited-subordination convertible notes to irrevocable trusts established for the benefit of certain of its employees, including employees under collective bargaining agreements. The notes are unsecured, mature on June 30, 2021 and do not require any payment of principal before maturity. Interest is payable semi-annually, in arrears. These notes may be converted into common stock of Successor UAL at any time after October 23, 2006. The conversion price, which was initially $34.84, is subject to adjustment for certain dilutive items and events. Effective January 10, 2008, the conversion price was changed to $32.64 due to UAL's January 23, 2008 special distribution to holders of Successor UAL common stock. The notes are junior, in right of payment upon liquidation, to the Company's obligations under the 5% senior convertible notes and 6% senior notes discussed below. The notes are callable in cash and/or Successor UAL common stock beginning approximately five years after the issuance date, except that UAL may elect to pay in common stock only if the common stock has traded at not less than 125% of the conversion price for the 60 consecutive trading days immediately before the redemption date. In addition, on each of June 30, 2011 and June 30, 2016, holders have the option to require UAL to repurchase its notes, which UAL may elect to do through the payment of cash or Successor UAL common stock, or a combination of both.

                  Pursuant to the Plan of Reorganization, the notes were to have been issued at a conversion price of $46.86, which was calculated as 125% of the average closing common stock price for the 60 consecutive trading days following February 1, 2006. The Plan of Reorganization also required that the notes bear interest at a rate so that the notes would trade at par upon issuance. Since the original conversion option was priced significantly out of the money as of the note issuance date of July 25, 2006, UAL agreed with employee groups to modify the conversion price to make the notes more marketable and to provide UAL with a more favorable interest rate. This modification did not alter or eliminate the requirement that an interest rate be selected so that the notes would trade at par upon issuance. Had UAL not modified the conversion price, the interest rate required to meet the par trading requirement would have been significantly higher than 4.5%.

                  The Company accounted for the July 25, 2006 modification of debt in accordance with EITF Issue No. 96-19, "Debtor's Accounting for a Modification or Exchange of Debt Instruments" and EITF Issue No. 05-7, "Accounting for Modifications to Conversion Options Embedded in Debt Instruments and Related Issues." The Company evaluated the original and modified terms of this debt instrument (including performing a fair valuation of the conversion feature before and after the modification), and determined that the modification qualified to be accounted for as an extinguishment of debt. As a result, the modified Limited-Subordination Notes were recorded at fair market value on their date of


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (12) Debt Obligations (Continued)


          issuance, which approximated the book value of the original extinguished notes, and no gain or loss was realized on the extinguishment. The Company had recorded the original obligation to issue the Limited-Subordination Notes at fair market value upon its emergence from bankruptcy in accordance with fresh-start reporting.

                  After the issuance of the modified notes in July 2006, the trusts sold the notes to third parties and remitted the proceeds to the employee beneficiaries.

                  5% senior convertible notes.    On the Effective Date, UAL issued these notes to certain holders of the O'Hare municipal bonds on the Effective Date. The notes are unsecured, have a term of 15 years from the date of issuance and do not require any payment of principal before maturity. Interest is payable semi-annually, in arrears. These 5% senior convertible notes may be converted, at the holder's option, into Successor UAL common stock at any time at an initial conversion price of $46.86. Effective January 10, 2008, the conversion price was adjusted to $43.90 due to the UAL special distribution to holders of Successor UAL common stock on January 23, 2008. This conversion price is subject to adjustment for certain dilutive items and events. These notes are callable, at UAL's option, in cash or Successor UAL common stock, under certain conditions, beginning five years after the issuance date. In the case of any such redemption, the Company may only redeem these notes with shares of common stock if Successor UAL common stock has traded at no less than 125% of the conversion price for the 60 consecutive trading days prior to the redemption date. The holders have the option to require UAL to repurchase their notes on the 5th and 10th anniversary of the date of issuance, which UAL may elect to do through the payment of cash, common stock or a combination of both.

                  6% senior notes.    On the Effective Date, UAL issued these notes to the PBGC. These notes are unsecured, mature 25 years from the issuance date and do not require any payment of principal before maturity. Interest is payable semi-annually, in arrears. Interest may be paid with cash, in kind notes or Successor UAL common stock through 2011 and thereafter in cash. These notes are callable at any time at 100% of par value, and can be redeemed with either cash or Successor UAL common stock at UAL's option. Upon a change in control or other event as defined in the agreement, UAL has an obligation to redeem the notes. In the case of such mandatory redemption, UAL may elect to redeem the notes in cash, in shares of Successor UAL common stock or a combination thereof.

                  Contingent Senior Unsecured Notes.    In addition to the debt issued as noted above, UAL is obligated to issue to the PBGC 8% senior unsecured notes with an aggregate $500 million principal amount in up to eight equal tranches of $62.5 million (with no more than two tranches issued on a single date) upon the occurrence of certain financial triggering events. Any required tranche will be issued no later than 45 days following the end of any fiscal year in which there is an issuance trigger event, starting with the fiscal year ending December 31, 2009 through fiscal year ending December 31, 2017. An issuance trigger event occurs when, among other things, the Company’s EBITDAR exceeds $3.5 billion over the prior twelve months ending June 30 or December 31 of any applicable fiscal year, beginning with the fiscal year ending December 31, 2009. However, if the issuance of a tranche would cause a default under any other securities then existing, UAL may satisfy its obligations with respect to such tranche by issuing UAL common stock having a market value equal to $62.5 million. Each issued tranche will mature 15 years from its respective issuance date, with interest payable in cash in semi-annual installments, and will be callable at any time at 100% of par value, plus accrued and unpaid interest.

          Amended Credit Facility
          In February 2007, the Company prepaid $972 million of its then outstanding credit facility debt and entered into an Amended and Restated Revolving Credit, Term Loan and Guaranty Agreement dated as of February 2, 2007 with JPMorgan Chase Bank, N.A, Citicorp USA, Inc., J.P. Morgan Securities Inc., Citigroup Global Markets, Inc. and Credit Suisse Securities (USA) LLC (the “Amended Credit Facility”) that, among other things, reduced the size of the facility from $3.0 billion to $2.055 billion, reduced the applicable interest rates and provided for a more limited collateral package and a relaxation of certain restrictive covenants. There were no prepayment penalties associated with this debt retirement. In addition, United also incurred financing costs of $10 million of which $6 million was expensed and $4 million was capitalized. The financing costs associated with the credit facility amendment and prepayment, which were expensed, are classified within interest expense. The Company expensed approximately $17 million of deferred financing costs which are related to the portion of the credit facility prepaid in February 2007 and included in other assets on the December 31, 2006Statements of Consolidated Financial Position.
          The Amended Credit Facility provided for a total commitment of up to $2.055 billion, comprised of two separate tranches: (i) a Tranche A consisting of $255 million revolving commitment available for Tranche A loans and standby letters of credit and (ii) a Tranche B consisting of a term loan commitment


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          of $1.8 billion available at the time of closing. The Tranche A loans mature on February 1, 2012 and the Tranche B loans mature on February 1, 2014.
          Borrowings under the Amended Credit Facility bear interest at a floating rate, which, at the Company’s option, can be either a base rate or a LIBOR rate, plus an applicable margin of 1.0% in the case of base rate loans and 2.0% in the case of LIBOR loans. The Tranche B term loan requires regularly scheduled semi-annual payments of principal equal to $9 million. Interest is payable at least every three months. The Company may prepay some or all of the Tranche B loans from time to time, at a price equal to 100% of the principal amount prepaid plus accrued and unpaid interest, if any, to the date of prepayment, but without penalty or premium.
          In December 2007 the Company prepaid an additional $500 million of the term loan under the Amended Credit Facility. In connection with this prepayment, the Company expensed an additional $6 million of previously capitalized debt issuance costs. The Company also recognized a $2 million credit to interest expense to recognize previously deferred interest rate swap gains. The December 2007 amendment enabled the Company to undertake certain shareholder initiatives. UAL’s Board of Directors approved a special distribution of $2.15 per share to holders of UAL common stock, or approximately $257 million, which was paid on January 23, 2008. The Company can undertake approximately $243 million in additional shareholder initiatives without any additional prepayment of the Amended Credit Facility. The amendment also provides that the Company can carry out further shareholder initiatives in an amount equal to future term loan prepayments.
          Amended Credit Facility Collateral.  United’s obligations under the Amended Credit Facility are unconditionally guaranteed by UAL Corporation and certain of its direct and indirect domestic subsidiaries, other than certain immaterial subsidiaries (the “Guarantors”). On February 2, 2007, the closing date of the Amended Credit Facility, the obligations were secured by a security interest in the following tangible and intangible assets of United and the Guarantors: (i) the Pacific (Narita, China and Hong Kong) and Atlantic (Heathrow) routes (the “Primary Routes”) that United had as of February 2, 2007, (ii) primary foreign slots, primary domestic slots, certain gate interests in domestic airport terminals and certain supporting route facilities, (iii) certain spare engines, (iv) certain quick engine change kits, (v) certain owned real property and related fixtures, and (vi) certain flight simulators (the “Collateral”). After the closing date, and subject to certain conditions, United and the Guarantor were able to grant a security interest in the following assets, in substitution for certain Collateral (which may be released from the lien in support of the Amended Credit Facility upon the satisfaction of certain conditions): (a) certain aircraft, (b) certain spare parts, (c) certain ground handling equipment and (d) accounts receivable. In addition, United had the right to remove collateral pledged to the Amended Credit Facility as long as the minimum collateral ratio described below is achieved.
          In March 2008, in accordance with the terms of its the Amended Credit Facility, United provided notice to the lenders of its intent to remove certain assets from the collateral securing its outstanding loans. The release of such collateral was effective as of April 16, 2008. The release of collateral, which was valued at approximately $650 million, was facilitated, in part, by the reduction in outstanding loans under the Amended Credit Facility following United’s $500 million prepayment in December 2007. United’s assets released from the Amended Credit Facility collateral included all domestic slots, spare engines, flight simulators, owned real property and related fixtures previously securing the Amended Credit Facility. Following such release of collateral, the Amended Credit Facility is secured by certain of United’s international route authorities, international slots, related gate interests and associated rights.
          Amended Credit Facility Covenants.  The Amended Credit Facility contains covenants that in certain circumstances may limit the ability of United and the Guarantors to, among other things, incur or guarantee additional indebtedness, create liens, pay dividends on or repurchase stock, make certain types of investments, enter into transactions with affiliates, sell assets or merge with other companies, modify corporate documents or change lines of business. The Company was in compliance with all of its Amended Credit Facility covenants as of December 31, 2008 and 2007. In May 2008, the Company amended the terms of certain financial covenants of the Amended Credit Facility. The Company paid


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          $109 million to amend the credit facility. These costs are being deferred and amortized over the remaining life of the agreement. The following is a summary of the financial covenants after the May amendment.
          Beginning with the second quarter of 2009, the Company must maintain a specified minimum ratio of EBITDAR to the sum of the following fixed charges for all applicable periods: (a) cash interest expense and (b) cash aircraft operating rental expense. EBITDAR represents earnings before interest expense net of interest income, income taxes, depreciation, amortization, aircraft rent and certain other cash and non-cash credits and charges as further defined by the Amended Credit Facility. The other adjustments to EBITDAR include items such as foreign currency transaction gains or losses, increases or decreases in our deferred revenue obligation, share-based compensation expense, non-recurring or unusual losses, any non-cash non-recurring charge or non-cash restructuring charge, a limited amount of cash restructuring charges, certain cash transaction costs incurred with financing activities and the cumulative effect of a change in accounting principle.
          The Amended Credit Facility also requires compliance with the following financial covenants: (i) a minimum unrestricted cash balance of $1.0 billion and (ii) a minimum ratio of market value of collateral to the sum of (a) the aggregate outstanding amount of the loans plus (b) the undrawn amount of outstanding letters of credit plus (c) the unreimbursed amount of drawings under such letters of credit plus (d) the termination value of certain interest rate protection and hedging agreements with the Amended Credit Facility lenders and their affiliates, of 150% at any time, or 200% at any time following the release of Primary Routes having an appraised value in excess of $1 billion (unless the Primary Routes are the only collateral then pledged).
          The requirement to meet a fixed charge coverage ratio was suspended for the four quarters beginning with the second quarter of 2008 and ending with the first quarter of 2009 and thereafter is determined as set forth below:
          Number of
          		Required
          Preceding Months Covered
          		Period Ending
          Coverage Ratio
          ThreeJune 30, 20091.0 to 1.0
          SixSeptember 30, 20091.1 to 1.0
          NineDecember 31, 2009 and ending with the fiscal year ending December1.2 to 1.0
          TwelveMarch 31, 2017. An issuance trigger event occurs when, among other things, the Company's EBITDAR exceeds $3.5 billion over the prior twelve months ending 20101.3 to 1.0
          TwelveJune 30, or December 31 of any applicable fiscal year, beginning with the fiscal year20101.4 to 1.0
          TwelveSeptember 30, 2010 and each quarter ending December 31, 2009. However, if the issuance of a tranche would cause a default under any other securities then existing, UAL may satisfy its obligations with respectthereafter1.5 to such tranche by issuing Successor UAL common stock having a market value equal to $62.5 million. Each issued tranche will mature 15 years from its respective issuance date, with interest payable in cash in semi-annual installments, and will be callable at any time at 100% of par value, plus accrued and unpaid interest.


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (12) Debt Obligations (Continued)

                  At December 31, 2007, UAL's contractual principal payments under then-outstanding long-term debt agreements in each of the next five calendar years are as follows: 2008—$678 million; 2009—$737million; 2010—$918 million; 2011—$824 million; 2012—$385 million and thereafter—$3,802 million. At December 31, 2007, United's contractual principal payments under then-outstanding long-term debt agreements in each of the next five calendar years are as follows: 2008—$678 million; 2009—$736 million; 2010—$917 million; 2011—$824 million; 2012—$385 million and thereafter—$3,801 million.

                  In addition to the Amended Credit Facility collateral described above, aircraft having an aggregate book value of $5.6 billion at December 31, 2007 were pledged as security under various loan agreements. As of December 31, 2007, 113 aircraft with a net book1.0

          Failure to comply with any applicable covenants in effect for any reporting period could result in a default under the Amended Credit Facility unless the Company obtains a waiver of, or otherwise mitigates or cures, any such default. A default could result in a termination of the Amended Credit Facility and a requirement to accelerate repayment of all outstanding facility borrowings. Additionally, the Amended Credit Facility contains a cross default provision with respect to other credit arrangements that exceed $50 million. Although the Company was in compliance with all required financial covenants as of December 31, 2008 and the Company is not required to comply with a fixed charge coverage ratio until the three month period ending June 30, 2009, continued compliance depends on many factors, some of which are beyond the Company’s control, including the overall industry revenue environment and the level of fuel costs.
          Credit Card Processing Agreement Covenants
          The Company has agreements with financial institutions that process customer credit card transactions for the sale of air travel and other services. Under certain of the Company’s card processing agreements, the financial institutions either require, or have the right to require, that United maintain a reserve equal to a portion of advance ticket sales that have been processed by that financial institution, but for which the Company has not yet provided the air transportation (referred to as “relevant advance


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          ticket sales”). As of December 31, 2008, the Company had advance ticket sales of approximately $1.5 billion of which approximately $1.3 billion relates to credit card sales.
          In November 2008, United entered into an amendment for its card processing agreement with Paymentech and JPMorgan Chase Bank (the “Amendment”) that suspends until January 20, 2010 the requirement for United to maintain additional cash reserves with this processor of bank cards (above the current cash reserve of $25 million at December 31, 2008) if United’s month-end balance of unrestricted cash, cash equivalents and short-term investments falls below $2.5 billion. In exchange for this benefit, United has granted the processor a security interest in certain of United’s owned aircraft with a current appraised value of at least $800 million. United also has agreed that such security interest collateralizes not only United’s obligations under the processing agreement, but also United’s obligations under United’s Amended and Restated Co-Branded Card Marketing Services Agreement. United has an option to terminate the Amendment prior to January 20, 2010, in which event the parties’ prior credit card processing reserve arrangements under the processing agreement will go back into effect.
          After January 20, 2010, or in the event United terminates the Amendment, and in addition to certain other risk protections provided to the processor, the amount of any such reserve will be determined based on the amount of unrestricted cash held by the Company as defined under the Amended Credit Facility. If the Company’s unrestricted cash balance is more than $2.5 billion as of any calendar month-end measurement date, its required reserve will remain at $25 million. However, if the Company’s unrestricted cash is less than $2.5 billion, its required reserve will increase to a percentage of relevant advance ticket sales as summarized in the following table:
          Required % of
          Total Unrestricted Cash Balance(a)
          		Relevant Advance Ticket Sales
          Less than $2.5 billion15%
          Less than $2.0 billion were unencumbered.

          (13) UAL Preferred Stock

                  The following instrument has been pushed down

          		25%
          Less than $1.0 billion50%
          (a)Includes unrestricted cash, cash equivalents and short-term investments at month-end, including certain cash amounts already held in reserve, as defined by the agreement.
          If the November 2008 Amendment had not been in effect as of December 31, 2008, the Company would have been required to post an additional $132 million of reserves based on an actual unrestricted cash, cash equivalents and short-term investments balance of between $2.0 billion and $2.5 billion at December 31, 2008.
          United’s card processing agreement with American Express expired on February 28, 2009 and was replaced by a new agreement on March 1, 2009 which has an initial five year term. As of December 31, 2008, there were no required reserves under this card agreement, and no reserves were required up through the date of expiration.
          Under the new agreement, in addition to certain other risk protections provided to American Express, the Company will be required to provide reserves based primarily on its unrestricted cash balance and net current exposure as of any calendar month-end measurement date, as summarized in the following table:
          Required % of
          Total Unrestricted Cash Balance(a)
          		Net Current Exposure(b)
          Less than $2.4 billion15%
          Less than $2.0 billion25%
          Less than $1.35 billion50%
          Less than $1.2 billion100%
          (a)Includes unrestricted cash, cash equivalents and short-term investments at month-end, including certain cash amounts already held in reserve, as defined by the agreement.


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          (b)Net current exposure equals relevant advance ticket sales less certain exclusions, and as adjusted for specified amounts payable between United and is reflected on United's booksthe processor, as part of fresh-start reporting.

                  UAL is authorized to issue 250 million shares of preferred stock (without par value), 5 million shares of 2% convertible preferred stock (par value $0.01 per share) and two shares of junior preferred stock (par value $0.01 per share).

                  The 2% convertible preferred stock was issued to the PBGC on the Effective Date. The shares were issued at a liquidation value of $100 per share, convertible at any time following the second anniversary of the issuance date into common stock of Successor UAL at an initial conversion price of $46.86 per common share; with dividends payable in kind semi-annually (in the form of increases to the liquidation value of the issued and outstanding shares). The preferred stock ranks pari passu with all current and future UAL or United preferred stock and is redeemable at any time at the then-current liquidation value (plus accrued and unpaid dividends) at the option of the issuer. The preferred stock is mandatorily convertible 15 years from the date of issuance. Upon a fundamental change or a change in ownership asfurther defined in UAL's restated certificate of incorporation, holders of shares of the preferred stock are also entitled to receive payment equal to the amount they would receive in an actual liquidation of UAL. At December 31, 2007 and 2006, 5 million shares of 2% convertible preferred stock were outstanding with an aggregate liquidation value of $519 million and $509 million, respectively, which includes $19 million and $9 million, respectively, of accrued and paid in kind dividends. At December 31, 2007 and 2006, the carrying value of the 2% convertible preferred stock was $371 million and $361 million, respectively. The carrying value includes $19 million and $9 million of accrued and paid in kind dividends at December 31, 2007 and 2006, respectively. In addition, the two shares of junior preferred stock were issued in 2006. In February 2008, 1.0 million preferred shares were converted into approximately 2.2 million common shares.

          (14) Financial Instruments and Risk Management

                  Instruments designated as cash flow hedges are accounted for under Statement of Financial Accounting Standards No. 133,Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), as long as the hedge is highly effective and the underlying transaction is probable. If both factors are present, the effective portion of the changes in fair value of these contracts is recorded in accumulated other comprehensive income (loss) until earnings are affected by the cash flows beingagreement.

          The new agreement permits the Company to provide certain replacement collateral in lieu of cash collateral, as long as the Company’s unrestricted cash is above $1.35 billion. Such replacement collateral may be pledged for any amount of the required reserve up to the full amount thereof, with the stated value of such collateral determined according to the agreement. Replacement collateral may be comprised of aircraft, slots and routes, real estate or other collateral as agreed between the parties.
          In the near term, the Company will not be required to post reserves under the new American Express agreement as long as unrestricted cash as measured at each month-end, and as defined in the agreement, is equal to or above $2.0 billion.
          If the terms of the new agreement had been in place at December 31, 2008, and ignoring the near term protection in the preceding sentence, the Company would have been required to provide collateral of approximately $40 million.
          An increase in the future reserve requirements as provided by the terms of either or both the Company’s material card processing agreements could materially reduce the Company’s liquidity.
          (13) 


          		UAL CorporationFair Value Measurements and Subsidiary CompaniesDerivative Instruments

          Combined Notes to Consolidated Financial Statements (Continued)

          (14) Financial Instruments and Risk Management (Continued)


          hedged. To the extent that the designated cash flow hedges are ineffective, gain or loss is recognized currently in earnings. The Company offsets the fair value of derivative instruments executed with the same counterparty when netting agreements exist.

          Instruments designated as cash flow hedges are accounted for under SFAS 133, as long as the hedge is highly effective and the underlying transaction is probable. If both factors are present, the effective portion of the changes in fair value of these contracts is recorded in accumulated other comprehensive income (loss) until earnings are affected by the cash flows being hedged. To the extent that the designated cash flow hedges are ineffective, gain or loss is recognized currently in earnings. The Company offsets the fair value of derivative instruments executed with the same counterparty when netting agreements exist.
          Instruments classified as economic hedges do not qualify for hedge accounting under SFAS 133. Under this classification all changes in the fair value of these contracts are recorded currently in income, with the offset to either current assets or liabilities each reporting period. Economic fuel hedge gains and losses are classified as part of aircraft fuel expense and fuel hedge gains and losses from instruments that are not deemed economic hedges are classified as part of nonoperating income. Foreign currency hedge gains and losses are classified as part of nonoperating income.
          Aircraft Fuel Hedges.
          The Company has a risk management strategy to hedge a portion of its price risk related to projected jet fuel requirements. As presented in the table below, the Company utilizes various types of hedging instruments including purchased calls, collars, 3-way collars and 4-way collars. A collar involves the purchase of fuel call options with the simultaneous sale of fuel put options with identical expiration dates. Derivative gains (losses) from economic hedges are included in fuel expense while gains (losses) from other hedges are recorded in nonoperating income (expense).
          The following table presents the fuel hedge (gains) losses recognized during the periods presented and their classification in theStatements of Consolidated Operations.
                                   
            Mainline Fuel
          		  Nonoperating income (expense)
          		 
            Year Ended
          		  Year Ended
          		 
            December 31,  December 31, 
          (In millions)
          		 2008  2007  2006  2008  2007  2006 
          Fuel hedges(a):                        
          Cash fuel hedge (gains) losses $40  $(63) $24  $249  $—  $— 
          Non-cash fuel hedge (gains) losses  568   (20)  2   279   —   — 
                                   
          Total fuel hedge (gains) losses $608  $(83) $26  $528  $—  $— 
                                   


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          (a)Fuel hedge gains (losses) are not allocated to Regional affiliates expense.
          As of December 31, 2008, the Company had hedged its forecasted consolidated fuel consumption as shown in the table below.
                                               
            Percentage
          		                
            ofProjected
          		 Barrels hedged (in 000s) Weighted-average price per barrel
            Fuel
          		         Payment
          		 Payment
          		 Hedge
          		 Hedge
            Requirements
          		 Purchased
          		 Sold
          		 Purchased
          		 Sold
          		 Obligations
          		 Obligations
          		 Protection
          		 Protection
            Hedged(a) Puts Puts(a) Calls Calls Stop Begin Begins Ends
           
          First Quarter 2009:  %                  $    $    $    $  
          Calls  14   —   —   1,975   —   NA   NA   83(b)  NA 
          Collars  9(10)  —   1,425   1,275   —   NA   109   118   NA 
          3-way collars  25(29)  —   4,125   3,525   3,525   NA   104   118   143 
          4-way collars  2   225   225   225   225   63   78   95   135 
                                               
          Total  50   225   5,775   7,000   3,750                 
                                               
          Purchased puts  35   4,925   —   —   —   57   NA   NA   NA 
                                               
          Full Year 2009:                                    
          Calls  9   —   —   5,350   —   NA   NA   81(c)  NA 
          Collars  5  (6)  —   3,450   2,775   —   NA   111   123   NA 
          3-way collars  18 (22)  —   12,525   10,350   10,350   NA   102   118   147 
          4-way collars  2   900   900   900   900   63   78   95   135 
                                               
          Total  34   900   16,875   19,375   11,250                 
                                               
          Purchased puts  17   9,500   —   —   —   54   NA   NA   NA 
          (a)Percent of expected consumption represents the notional amount of the purchased calls in the hedge structures. Certain3-way collars and collars included in the table above have sold puts with twice the notional amount of the purchased calls. The percentages in parentheses represent the notional amount of sold puts in these hedge structures.
          (b)Call position average includes the following two groupings of positions: 6% of consumption with protection beginning at $47 per barrel and 8% of consumption beginning at $106 per barrel.
          (c)Call position average includes the following two groupings of positions: 4% of consumption with protection beginning at $50 per barrel and 5% of consumption beginning at $106 per barrel.
          Foreign Currency Derivatives.
          The Company hedges a portion of its remaining foreign currency risk exposure using foreign currency forward contracts. As of December 31, 2008, the Company hedged a portion of its expected foreign currency cash flows in the Australian dollar, Canadian dollar, British pound, European Euro and Japanese yen. As of December 31, 2008, the notional amount of these foreign currencies hedged with the forward contracts in U.S. dollars terms was approximately $62 million. These contracts expire at various dates through December 2009. For the years ended December 31, 2008 and 2007, there were no material gains or losses from these derivative positions.
          Fair Value Information.  Effective January 1, 2008, the Company adopted SFAS 157. SFAS 157 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). This


          132

          hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
          Level 1Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
          Level 2Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
          Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
          The table below presents disclosures about the fair value of financial assets and financial liabilities recognized in the Company’sStatements of Consolidated Financial Position.
                               
               Fair Value Measurements at Reporting Date Using 
               Quoted Prices in
          		          
               Active Markets
          		  Significant Other
          		  Significant
          		  Total
          		 
               for
          		  Observable
          		  Unobservable
          		  Gains/
          		 
            December 31,
          		  Identical Assets
          		  Inputs
          		  Inputs
          		  (Losses)
          		 
          (In millions)
          		 2008  (Level 1)  (Level 2)  (Level 3)  (Level 3)(b) 
          Assets and Liabilities Measured at Fair Value on a Recurring Basis:                    
          EETCavailable-for-sale securities
          		 $46  $—  $—  $46  $(37)
          Foreign currency receivables  10   —   10   —   — 
                               
          Total financial assets $56  $—  $10  $46  $(37)
                               
          Total financial liabilities—Fuel derivative payables(a) $(867) $—  $(867) $—  $— 
                               
          (a)The fair value of the fuel hedge derivatives is recorded in other current and noncurrent assets and other current and noncurrent liabilities in the Company’sStatements of Consolidated Financial Positionbased on the timing of the contract settlement dates. As of December 31, 2008, $9 million of the total fuel derivative payable was classified as a noncurrent liability. The current fuel trade payable includes $140 million related to counterparty payables for pending settlements of purchased options and expired contracts. See below for further discussion of fuel derivative gains and losses.
          (b)During the year ended December 31, 2008, changes in the fair value of these contracts are recorded currently in income, with the offset to either current assets or liabilities each reporting period. Economic fuel hedge gains and lossesLevel 3 EETC securities are classified as part of aircraft fuel expense, and foreign currency hedge gains and losses are classified as part of nonoperating income.

          Aircraft Fuel Hedges.

                  The Company has a risk management strategy to hedge a portion of its price risk related to projected jet fuel requirements primarily through collar options. The collars involvewithin “Accumulated other comprehensive income” in the purchase of fuel call options with the simultaneous sale of fuel put options with identical expiration dates. In the year ended December 31, 2007 and the eleven months ended December 31, 2006, the Successor Company entered into and settled various derivative positions for its mainline operations that were classified as economic hedges.

                  In the year ended December 31, 2007, the Company's Mainline fuel expense included income of $83 million from net gains on economic hedges. The net hedge gains recorded in 2007 included $20 million of unrealized mark-to-market gains for contracts settling after December 31, 2007. In the eleven months ended December 31, 2006, the Successor Company recognized a net loss of $26 million which included a $24 million realized loss on settled contracts and $2 million of unrealized mark-to-market losses for contracts settling after December 31, 2006, all of which were classified as mainline fuel expense in theCompany’sStatements of Consolidated Operations. In 2005, the Predecessor Company recognized income of $40 million in non-operating income primarily due to non-designated hedges.

                  As of December 31, 2007, the Company had hedged 13% of forecasted first quarter 2008 fuel consumption of which 82% is through three-way collars with upside protection, on a weighted-average basis, beginning from $90 per barrel and capped at $100 per barrel with payment obligations, on a weighted-average basis, beginning if crude oil drops below $85 per barrel. The remaining 18% is hedged through collars with upside protection beginning, on a weighted-average basis, at a crude oil equivalent price of $101 per barrel with payment obligations, on a weighted- average basis, beginning if crude oil drops below $91 per barrel.

                  As of December 31, 2007, the Company had hedged 13% of forecasted fuel consumption for 2008, of which 67% is through three-way collars with upside protection, on a weighted-average basis, beginning from $87 per barrel and capped at $100 per barrel with payment obligations, on a weighted-average basis, beginning if crude oil drops below $81 per barrel. The remaining 33% is hedged through collars with upside protection beginning, on a weighted-average, at a crude oil equivalent price of $94 per barrel with payment obligations, on a weighted-average, beginning if crude oil drops below $81 per barrel.

          Interest Rate Swap.

                  From time to time, the Company uses interest rate swap agreements to effectively limit exposure to interest rate movements within the parameters of the Company's interest rate hedging policy. In


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)Position.

               
            Available-
          Level 3 Financial Assets and Liabilities
          		 for-sale
          (In millions)
          		 securities
          Balance at January 1, 2008 $91 
          Unrealized gains (losses) relating to instruments held at reporting date  (37)
          Return of principal  (8)
               
          Balance at December 31, 2008 $46 
               
          The Company considered counterparty credit risk in determining the fair value of the financial instruments shown in the table above. Credit risk did not have a significant impact on the fair values of fuel derivatives because the Company was required to post $965 million of cash collateral with certain of its fuel derivative counterparties at December 31, 2008. The current portion of the collateral, $953 million, is classified as “Fuel hedge collateral deposits” and the noncurrent portion is classified as “Other assets” in the accompanyingStatements of Consolidated Financial Position.The Company routinely reviews the credit risk associated with its counterparties and believes its collateral is fully recoverable from its counterparties as of December 31, 2008. Based on the fair value of the Company’s


          133

          fuel derivative instruments, our counterparties may require the Company to post additional amounts of collateral when the price of the underlying commodity decreases and lesser amounts when the price of the underlying commodity increases.
          Derivative instruments and investments presented in the table above have the same fair value as their carrying value. The table below presents the carrying values and estimated fair values of the Company’s financial instruments not presented in the table above:
                           
            2008  2007 
            Carrying
          		  Fair
          		  Carrying
          		  Fair
          		 
          (In millions)
          		 Amount  Value  Amount  Value 
          Long-tem debt (including current portion) $6,789  $4,192  $7,093  $6,796 
          Preferred stock  —   —   371   401 
          Lease deposits  326   351   516   531 
          Fair value of the above financial instruments was determined as follows:
          Description

          		(14) Financial Instruments and Risk Management (Continued)


          February 2006, the Successor Company entered into an interest rate swap with an initial notional amount of $2.45 billion that would have decreased to $1.8 billion over the term of the swap. The swap would have expired in February 2012 and required that the Company pay a fixed rate of 5.14% and receive a floating rate based on the three-month LIBOR rate.

                  The Company initially applied hedge accounting for the swap but subsequently discontinued hedge accounting in 2006 as the Company determined that it was no longer probable that a portion of the forecasted cash flows hedged by the swap would occur, in light of the Company's developing plans to retire a portion of the credit facility in advance of scheduled maturities. Any gains and losses related to interest rate swap agreements, if any, that are included in earnings are classified as interest expense. In January 2007, the Company terminated the interest rate swap that had been used to hedge the future interest payments under the original credit facility.

          Foreign Currency Derivatives.

                  During 2007, the Company began hedging a portion of its remaining 2007 foreign currency risk exposure using foreign currency forward contracts. As of December 31, 2007, the Company hedged a portion of its expected foreign currency cash flows in the Australian dollar, Canadian dollar, British pound, European Euro and Japanese yen. As of December 31, 2007, the notional amount of these foreign currencies hedged with the forward contracts in U.S. dollars terms was approximately $346 million. These contracts expire at various dates through December 2008. For the year ended December 31, 2007, there were no material gains or losses from these derivative positions.

          Fair Value of Financial Instruments.Methodology

                  The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which such estimates can be made:

          Cash and Cash Equivalents,Short-term Investments and Restricted Cash and Short-term Investments.

          		The carrying amounts approximate fair value because of theshort-term maturity of these investments.

          Derivative Financial Instruments.Enhanced Equipment Trust Certificates (“EETCs”)

                  Market prices used to determine fair

          		The EETCs are not actively traded on an exchange. Fair value fuel-related and foreign currency derivatives are primarilyis based on the trading prices obtained from counterparties or broker-dealers.

          of similar EETC instruments issued by other airlines. The Company uses internal models and observable and unobservable inputs to corroborate third party quotes. Because certain inputs are unobservable, the Company categorized the EETCs as Level 3.

          Fuel Derivative Instruments
          		Derivative contracts are privately negotiated contracts and are not exchange traded. Fair value measurements are estimated with option pricing models that employ observable and unobservable inputs.
          Foreign Currency Derivative Instruments
          		Fair value is determined with a formula utilizing observable inputs.
          Preferred Stock and Long-Term Debt.Debt

          		The fair value is based on the quoted market prices for the same or similar issues, discounted cash flow models using appropriate market rates and the Black-Scholes model to value conversion rights in UAL'sUAL’s convertible preferred stock and debt instruments.

          The following table presents the carrying amounts and estimatedCompany’s credit risk was considered in estimating fair values of the Company's financial instruments at December 31, 2007 and 2006. Amounts shown below are applicable to both UAL and United except that long-term debt is presented on a UAL consolidated basis, which is approximately $3 million and $4 million higher than both the carrying value and fair value of United's


          value.

          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (14) Financial Instruments and Risk Management (Continued)


          long-term debt at December 31, 2007 and 2006, respectively, as disclosed in Note 12, "Debt Obligations."

           
          		 2007
          		 2006
          		 
          (In millions)
          		 Carrying Amount
          		 Fair Value
          		 Carrying Amount
          		 Fair Value
          		 
          Long-term debt (including current portion) $7,093 $6,796 $9,140 $9,510 
          Preferred stock  371  401  361  443 
          Fuel derivative contracts—gains (losses)  20  20  (2) (2)
          Interest rate swap loss  —  —  12  12 
          Foreign currency derivative contract gains  1  1  —  — 
          Lease deposits  516  531  539  574 

          		(15) Commitments, Contingent Liabilities and Uncertainties

          General Guarantees and Indemnifications.  In the normal course of business, the Company enters into numerous real estate leasing and aircraft financing arrangements that have various guarantees included in the contracts. These guarantees are primarily in the form of indemnities. In both leasing and financing transactions, the Company typically indemnifies the lessors and any tax/financing parties, against tort liabilities that arise out of the use, occupancy, operation or maintenance of the leased premises or financed aircraft. Currently, the Company believes that any future payments required under these guarantees or indemnities would be immaterial, as most tort liabilities and related indemnities are covered by insurance (subject to deductibles). Additionally, certain leased premises such as fueling stations or storage facilities include indemnities of such parties for any environmental liability that may arise out of or relate to the use of the leased premises.


          134

          Legal and Environmental Contingencies.  The Company has certain contingencies resulting from litigation and claims (including environmental issues) incident to the ordinary course of business. Management believes, after considering a number of factors, including (but not limited to) the information currently available, the views of legal counsel, the nature of contingencies to which the Company is subject and prior experience, that the ultimate disposition of these contingencies will not materially affect the Company’s consolidated financial position or results of operations.
          The Company records liabilities for legal and environmental claims when a loss is probable and reasonably estimable. These amounts are recorded based on the Company’s assessments of the likelihood of their eventual disposition. The amounts of these liabilities could increase or decrease in the near term, based on revisions to estimates relating to the various claims.
          The Company anticipates that if ultimately found liable, its damages from claims arising from the events of September 11, 2001 could be significant; however, the Company believes that, under the Air Transportation Safety and System Stabilization Act of 2001, its liability will be limited to its insurance coverage.
          The Company continues to analyze whether any potential liability may result from air cargo/passenger surcharge cartel investigations following the receipt of a Statement of Objections that the European Commission (the “Commission”) issued to 26 companies on December 18, 2007. The Statement of Objections sets out evidence related to the utilization of fuel and security surcharges and exchange of pricing information that the Commission views as supporting the conclusion that an illegal price-fixing cartel had been in operation in the air cargo transportation industry. United received a copy of the Statement of Objections and has provided written and oral responses vigorously disputing the Commission’s allegations against the Company. Nevertheless, United will continue to cooperate with the Commission’s ongoing investigation. Based on its evaluation of all information currently available, the Company has determined that no reserve for potential liability is required and will continue to defend itself against all allegations that it was aware of or participated in cartel activities. However, penalties for violation of European competition laws can be substantial and a finding that the Company engaged in improper activity could have a material adverse impact on our consolidated financial position and results of operations.
          Contingent Senior Unsecured Notes.  UAL is obligated to issue up to $500 million of 8% senior unsecured notes to the PBGC in up to eight equal tranches of $62.5 million upon the occurrence of certain financial triggering events. Beginning with fiscal year ending December 31, 2009 and through fiscal year ending December 31, 2017, a triggering event may occur when, among other things, the Company’s EBITDAR exceeds $3.5 billion over a prior twelve month period. In certain circumstances, UAL common stock may be issued in lieu of issuance of the notes. See Note 12, “Debt Obligations and Card Processing Agreements,” for further information.
          Commitments.  At December 31, 2008, future commitments for the purchase of property and equipment, principally aircraft, include approximately $0.6 billion of binding commitments and $2.4 billion of nonbinding commitments. The nonbinding commitments of $2.4 billion are related to 42 A319 and A320 aircraft. These orders may be cancelled which would result in the forfeiture of $91 million of advance payments provided to the manufacturer. The Company also reached an agreement with the engine manufacturer eliminating all provisions pertaining to firm commitments and support for future Airbus aircraft. While this permits future negotiations on engine pricing with any engine manufacturer, restructured aircraft manufacturer commitments have assumed that aircraft will be delivered with installed engines at list price. As discussed in Note 3, “Asset Impairments and Intangible Assets,” in 2008 the Company determined these aircraft deposits were completely impaired andwrote-off their entire carrying value because it is highly unlikely that the Company will take these aircraft deliveries, which will require forfeiture of these deposits. The Company’s current commitments would require the payment of an estimated $0.2 billion in 2009, $0.7 billion for the combined years of 2010 and 2011, $1.4 billion for the combined years of 2012 and 2013 and $0.7 billion thereafter.


          135

          Guarantees and Off-Balance Sheet Financing.
          Fuel Consortia.  The Company participates in numerous fuel consortia with other carriers at major airports to reduce the costs of fuel distribution and storage. Interline agreements govern the rights and responsibilities of the consortia members and provide for the allocation of the overall costs to operate the consortia based on usage. The consortium (and in limited cases, the participating carriers) have entered into long-term agreements to lease certain airport fuel storage and distribution facilities that are typically financed through tax-exempt bonds (either special facilities lease revenue bonds or general airport revenue bonds), issued by various local municipalities. In general, each consortium lease agreement requires the consortium to make lease payments in amounts sufficient to pay the maturing principal and interest payments on the bonds. As of December 31, 2008, approximately $1.2 billion principal amount of such bonds were secured by significant fuel facility leases in which United participates, as to which United and each of the signatory airlines has provided indirect guarantees of the debt. As of December 31, 2008, United’s contingent exposure was approximately $226 million principal amount of such bonds based on its recent consortia participation. The Company’s contingent exposure could increase if the participation of other carriers decreases. The guarantees will expire when the tax-exempt bonds are paid in full, which ranges from 2010 to 2028. The Company did not record a liability at the time these indirect guarantees were made.
          Municipal Bond Guarantees.  The Company has guaranteed interest and principal payments on $270 million of the Denver International Airport bonds, which were originally issued in 1992, but were subsequently redeemed and reissued in 2007 and are due in 2032 unless the Company elects not to extend its lease in which case the bonds are due in 2023. The bonds were issued in two tranches — approximately $170 million aggregate principal amount of 5.25% discount bonds and $100 million aggregate principal amount of 5.75% premium bonds. The outstanding bonds and related guarantee are not recorded in the Company’sStatements of Consolidated Financial Positionat December 31, 2008 or 2007. The related lease agreement is recorded on a straight-line basis resulting in ratable accrual of the final $270 million lease obligation over the lease term. See Note 12, “Debt Obligations and Card Processing Agreements,” for additional information.
          There remains an issue as to whether the LAX bondholders have a secured interest in certain of the Company’s leasehold improvements. The Company has accrued an amount which it estimates is probable to be approved by the Bankruptcy Court for this matter. See Note 4, “Voluntary Reorganization Under Chapter 11 — Significant Matters Remaining to be Resolved in Chapter 11 Cases,” for a discussion of ongoing litigation with respect to certain of this obligation.
          Collective Bargaining Agreements.
          Approximately 83% of United’s employees are represented by various U.S. labor organizations. During 2005, United reached new agreements with its labor unions for new collective bargaining agreements which became effective in January 2005. These agreements are not amendable until January 2010. The Company expects to begin negotiations in 2009.
                  General Guarantees and Indemnifications.    In the normal course of business, the Company enters into numerous real estate leasing and aircraft financing arrangements that have various guarantees included in the contracts. These guarantees are primarily in the form of indemnities. In both leasing and financing transactions, the Company typically indemnifies the lessors, and any tax/financing parties, against tort liabilities that arise out of the use, occupancy, operation or maintenance of the leased premises or financed aircraft. Currently, the Company believes that any future payments required under these guarantees or indemnities would be immaterial, as most tort liabilities and related indemnities are covered by insurance (subject to deductibles). Additionally, certain leased premises such as fueling stations or storage facilities include indemnities of such parties for any environmental liability that may arise out of or relate to the use of the leased premises.

                  Legal and Environmental Contingencies.    The Company has certain contingencies resulting from litigation and claims (including environmental issues) incident to the ordinary course of business. Management believes, after considering a number of factors, including (but not limited to) the information currently available, the views of legal counsel, the nature of contingencies to which the Company is subject and prior experience, that the ultimate disposition of these contingencies will not materially affect the Company's consolidated financial position or results of operations.

                  The Company records liabilities for legal and environmental claims when a loss is probable and reasonably estimatable. These amounts are recorded based on the Company's assessments of the likelihood of their eventual disposition. The amounts of these liabilities could increase or decrease in the near term, based on revisions to estimates relating to the various claims.

                  The Company anticipates that if ultimately found liable, its damages from claims arising from the events of September 11, 2001 could be significant; however, the Company believes that, under the Air Transportation Safety and System Stabilization Act of 2001, its liability will be limited to its insurance coverage.

                  The Company is also currently analyzing whether any potential liability may result from air cargo/passenger surcharge cartel investigations following the receipt of a Statement of Objections that the European Commission (the "Commission") issued to 26 carriers on December 18, 2007. The Statement of Objections sets out evidence related to the utilization of fuel and security surcharges and exchange of pricing information that the Commission views as supporting the conclusion that an illegal price-


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (15) Commitments, Contingent Liabilities and Uncertainties (Continued)


          fixing cartel had been in operation in the air cargo transportation industry. United received a copy of the Statement of Objections and is currently evaluating the Commission's evidence related to the Company and its personnel. United is cooperating with the Commission's investigation. United intends to defend itself vigorously against these charges in its formal response to the Commission and in the European Court of Justice if necessary. The Company's evaluation of this matter is still in the early stages, and based upon the information currently available no reserve for potential liability has been recorded as of December 31, 2007. However, penalties for violation of European competition laws can be substantial and a finding that the Company engaged in improper activity could have a material adverse impact on our consolidated financial position and results of operations.

          		        Contingent Senior Unsecured Notes.    UAL is obligated to issue up to $500 million of 8% senior unsecured notes to the PBGC in up to eight equal tranches of $62.5 million upon the occurrence of certain financial triggering events. Beginning with fiscal year ending December 31, 2009 and ending with fiscal year December 31, 2017, a triggering event may occur when, among other things, the Company's EBITDAR exceeds $3.5 billion over a prior twelve month period. In certain circumstances, UAL common stock may be issued in lieu of issuance of the notes. See Note 12, "Debt Obligations" for further information.

                  Commitments.    At December 31, 2007, future commitments for the purchase of property and equipment, principally aircraft, approximated $2.9 billion, after deducting advance payments. The Company's current commitments are primarily for the purchase of, in the aggregate, 42 A319 and A320 aircraft. In January 2006, United reached an agreement with the airframe manufacturer to delay, with the right to cancel these future orders. Such action could cause the forfeiture of $91 million of advance payments if United does not take future delivery of these aircraft. The Company also reached an agreement with the engine manufacturer eliminating all provisions pertaining to firm commitments and support for future Airbus aircraft. While this permits future negotiations on engine pricing with any engine manufacturer, restructured aircraft manufacturer commitments have assumed that aircraft will be delivered with installed engines at list price. The Company's current commitments would require the payment of an estimated $0.4 billion in 2008, $0.3 billion for the combined years of 2009 and 2010, $0.7 billion for the combined years of 2011 and 2012 and $1.5 billion thereafter.

          Guarantees and Off-Balance Sheet Financing.

                  Fuel Consortia.    The Company participates in numerous fuel consortia with other carriers at major airports to reduce the costs of fuel distribution and storage. Interline agreements govern the rights and responsibilities of the consortia members and provide for the allocation of the overall costs to operate the consortia based on usage. The consortium (and in limited cases, the participating carriers) have entered into long-term agreements to lease certain airport fuel storage and distribution facilities that are typically financed through tax-exempt bonds (either special facilities lease revenue bonds or general airport revenue bonds), issued by various local municipalities. In general, each consortium lease agreement requires the consortium to make lease payments in amounts sufficient to pay the maturing principal and interest payments on the bonds. As of December 31, 2007, approximately $890 million principal amount of such bonds were secured by significant fuel facility leases in which United participates, as to which United and each of the signatory airlines has provided indirect guarantees of the debt. United's contingent exposure is approximately $195 million principal amount of such bonds based on its recent consortia participation. The Company's contingent exposure could increase if the


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (15) Commitments, Contingent Liabilities and Uncertainties (Continued)

          participation of other carriers decreases. The guarantees will expire when the tax-exempt bonds are paid in full, which ranges from 2010 to 2028. The Company did not record a liability at the time these indirect guarantees were made.

                  Municipal Bond Guarantees.    The Company has entered into long-term agreements to lease certain airport and maintenance facilities that are financed through tax-exempt municipal bonds. These bonds were issued by various local municipalities to build or improve airport and maintenance facilities. Under these lease agreements, United is required to make rental payments in amounts sufficient to pay the maturing principal and interest payments on the bonds. However, as a result of the bankruptcy filing, United was not permitted to make payments on unsecured pre-petition debt. The Company was advised that these municipal bonds may be unsecured (or in certain instances, partially secured). In 2006, as a result of the final Bankruptcy Court decisions, certain leases (SFO and LAX) were considered to be financings resulting in the Company's guarantees being discharged in bankruptcy. The DEN lease related to the 1992 bonds, as discussed in Note 12, "Debt Obligations," was not rejected. The Company has guaranteed interest and principal payments on $270 million of the DEN bonds, which were originally issued in 1992, redeemed and reissued in 2007 and are due in 2032 unless the Company elects not to extend its lease in which case the bonds are due in 2023. The outstanding bonds and related guarantee are not recorded in the Company'sStatements of Consolidated Financial Position at December 31, 2007 or 2006. The related lease agreement is recorded on a straight-line basis resulting in ratable accrual of the final $270 million lease obligation over the lease term. The annual lease payments through 2023 and the final payment for the principal amount of the bonds are included in the future operating lease payments disclosed in Non-aircraft lease payments in Note 16, "Lease Obligations." There remains an issue as to whether the LAX and SFO bondholders have a secured interest in certain of the Company's leasehold improvements. The Company has accrued an amount which it estimates is probable to be approved by the Bankruptcy Court for these secured interests. See Note 1, "Voluntary Reorganization Under Chapter 11—Significant Matters Remaining to be Resolved in Chapter 11 Cases," for a discussion of ongoing litigation with respect to certain of these obligations.

          Collective Bargaining Agreements.

                  Approximately 81% of United's employees are represented by various U.S. labor organizations. During 2005, United reached new agreements with its labor unions for new collective bargaining agreements which became effective in January 2005. These agreements are not amendable until January 2010.

          (16) Lease Obligations

                  The Company leases aircraft, airport passenger terminal space, aircraft hangars and related maintenance facilities, cargo terminals, other airport facilities, other commercial real estate, office and computer equipment and vehicles. As allowed under Section 365 of the Bankruptcy Code, during its reorganization the Company assumed, assumed and assigned, or rejected certain executory contracts and unexpired leases, including leases of real property, aircraft and aircraft engines, subject to the approval of the Bankruptcy Court and certain other conditions. During bankruptcy, the Company also entered into numerous aircraft financing term sheets with financiers, some of which were implemented before the Effective Date, and others of which were implemented on the Effective Date.


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (16) Lease Obligations (Continued)

          The Company leases aircraft, airport passenger terminal space, aircraft hangars and related maintenance facilities, cargo terminals, other airport facilities, other commercial real estate, office and computer equipment and vehicles.
          In connection with fresh-start reporting requirements, aircraft operating leases were adjusted to fair value and a net deferred asset of $263 million was recorded in theStatement of Consolidated Financial Positionon the Effective Date, representing the net present value of the differences between stated lease rates in agreed term sheets and the fair market lease rates for similar aircraft. As of December 31, 2008, the balance of the net deferred asset was $153 million. These deferred amounts are amortized on a straight-line basis as an adjustment to aircraft rent expense over the individual applicable remaining lease terms, generally from one to 1716 years.


          136

          At December 31, 2007,2008, the Company'sCompany’s leased aircraft, scheduled future minimum lease payments under capital leases (substantially all of which are for aircraft) and operating leases having initial or remaining noncancelable lease terms of more than one year were as follows:

           
          		 Operating Leases
          		 
          		  
          		 
          (In millions)
          		 Mainline Aircraft
          		 United Express Aircraft
          		 Non-aircraft
          		 
          		 Capital Leases(b)
          		 
          Number of Aircraft              
          United  162  251  —   72 
          UAL  161  251  —   72 

          Payable during(a)
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           2008 $346 $410 $558  $341 
           2009  323  435  535   180 
           2010  307  433  516   465 
           2011  307  417  461   168 
           2012  297  372  422   119 
           After 2012  936  1,380  3,284   592 
            
          		 
          		 
          		  
          		 
          UAL minimum lease payments $2,516 $3,447 $5,776   1,865 
            
          		 
          		 
          		     
          Imputed interest (at rates of 1.0% to 8.9%)            (509)
                      
          		 
          Present value of minimum lease payments            1,356 
          Current portion            (250)
                      
          		 
          Long-term obligations under capital leases           $1,106 
                      
          		 
          (a)
                            
            Operating Leases     
            Mainline
          		  United Express
          		      Capital
          		 
            Aircraft  Aircraft  Non-aircraft   Leases(b) 
          Number of Leased Aircraft in Operating Fleet
          		                 
          United and UAL  142   269   —    69 
                            
          (In millions)
          		                 
          Payable during(a)
          		                 
          2009 $351  $441  $553   $237 
          2010  323   441   518    509 
          2011  323   428   457    290 
          2012  312   383   415    149 
          2013  291   367   386    141 
          After 2013  655   1,090   2,798    520 
                            
          UAL minimum lease payments $2,255  $3,150  $5,127    1,846 
                            
          Imputed interest (at rates of 2.1% to 16.0%)               (486)
                            
          Present value of minimum lease payments               1,360 
          Current portion               (168)
                            
          Long-term obligations under capital leases              $1,192 
                            
          (a)Amounts apply to both UAL and United except that United leases one nonoperating aircraft from UAL, resulting in total United mainline aircraft operating lease payments of $2,258 million. The operating lease payments presented above also include future payments for 12 additional nonoperating aircraft as of December 31, 2008.
          (b)Aircraft capital lease obligations are for 58 mainline and 11 United Express aircraft. Includes non-aircraft capital lease payments aggregating $19 million in years 2009 through 2013 and United Express capital lease obligations of $6 million in 2009 and $5 million in each of the years 2010 through 2013.
          A portion of United’s aircraft from UAL, resulting in total United mainline aircraft operating lease payments of $2,523 million.

          (b)
          Aircraft lease obligations are for 44 Mainline and 28 United Express aircraft. Includes non-aircraft capital lease payments aggregating $19related accrued interest ($306 million in years 2008 through 2011,equivalent U.S. dollars at December 31, 2008) is denominated in foreign currencies that expose the Company to risks associated with changes in foreign exchange rates. To hedge against this risk, United has placed foreign currency deposits ($306 million in equivalent U.S. dollars at December 31, 2008), primarily for euros, to meet foreign currency lease obligations denominated in that respective currency. Since unrealizedmark-to-market gains or losses on the foreign currency deposits are offset by the losses or gains on the foreign currency obligations, United has hedged its overall exposure to foreign currency exchange rate volatility with respect to its foreign lease deposits and United Expressobligations. In addition, the Company has $20 million of U.S. dollar denominated deposits to meet U.S. dollar denominated lease obligations. These deposits will be used to repay an equivalent amount of recorded capital lease obligations and are classified as aircraft lease deposits in theStatements of $13 million in 2008, $11 million in 2009, $5 million each in years 2010, 2011 and 2012 and $4 million thereafter.

          Consolidated Financial Position.

          Aircraft operating leases have initial terms of 1five to 26 years, with expiration dates ranging from 20082009 through 2024. The Company has facility operating leases that extend to 2030.2032. Under the terms of most leases, the Company has the right to purchase the aircraft at the end of the lease term, in some cases at fair market value and in others, at fair market value or a percentage of cost. See Note 2(j)1(i), "Summary“Summary of Significant Accounting Policies—United Express"Express,” for additional information related to United Express contracts.


          UAL Corporationcontracts and Subsidiary Companies

          Combined NotesNote 2, “Company Operational Plans,” for information related to Consolidated Financial Statements (Continued)

          (16) Lease Obligations (Continued)

          accrued rent related to the Company’s fleet reductions.

          Certain of the Company'sCompany’s aircraft lease transactions contain provisions such as put options giving the lessor the right to require us to purchase the aircraft at lease termination for a certain amount resulting in residual value guarantees. Leases containing this or similar provisions are recorded as capital


          137

          leases on the balance sheet and, accordingly, all residual value guarantee amounts contained in the Company'sCompany’s aircraft leases are fully reflected as capital lease obligations in theStatements of Consolidated Financial Position.

                  In connection with certain euro-denominated aircraft financings accounted for as capital leases, United had on deposit in certain banks at December 31, 2007 an aggregate 338 million euros ($497 million) and $19 million in U.S. denominated deposits, and had pledged an irrevocable security interest in such deposits to certain of the aircraft lessors. These deposits will be used to repay an equivalent amount of recorded capital lease obligations, and are classified as aircraft lease deposits in theStatements of Consolidated Financial Position.

                  Amounts charged to rent expense, net of minor amounts of sublease rentals, were $934 million and $936 million for UAL and United, respectively, for the year ended December 31, 2007; $833 million and $834 million for UAL and United, respectively, for the eleven months ended December 31, 2006; $76 million for both UAL and United for the month ended January 31, 2006; and $1.0 billion for the year ended December 31, 2005 for both UAL and United. Included in Regional affiliates expense in theStatements of Consolidated Operations were operating rents for United Express aircraft of $425 million and $403 million for the Successor Company for the year ended December 31, 2007 and the eleven months ended December 31, 2006, respectively; and $35 million and $449 million for the month ended January 31, 2006 and the year ended December 31, 2005, respectively, for the Predecessor Company.

          The Company has various operating leases for 121119 aircraft in which the lessors are trusts established specifically to purchase, finance and lease aircraft to United. These leasing entities related to 108 of these aircraft meet the criteria for VIEs; however, the Company does not hold a significant variable interest in and is not considered the primary beneficiary of the leasing entities since the lease terms are consistent with market terms at the inception of the lease and do not include a residual value guarantee, fixed-price purchase option or similar feature that obligates us to absorb decreases in value, or entitles the Company to participate in increases in the value of the financed aircraft. In addition, of the Company'sCompany’s total aircraft operating leases only 1011 of these aircraft leases have leasing entities that meet the criteria for VIEs and allow the Company to purchase the aircraft at other than fair market value; thesevalue. These leases have fixed price buy outpurchase options specified in the lease agreements.

          agreements which at the inception of the lease approximated the aircraft’s expected fair market value at the option date.

          In October 2008, United entered into a $125 million sale-leaseback involving nine previously unencumbered aircraft. This financing agreement terminates in 2010; however, United has the option to extend the financing agreement for one year provided it meets the minimum loan to asset value requirement. Interest payments are based on LIBOR plus a margin. The lease is considered a capital lease resulting in non-cash increases to capital lease assets and capital lease obligations.
          In December 2008, United entered into a $149 million sale-leaseback involving 15 previously unencumbered aircraft. The final maturities of the leases under this agreement vary and have an average term of seven years. Two of the leased aircraft are being accounted for as operating leases, with the remaining 13 accounted for as capital leases.
          Amounts charged to rent expense, net of minor amounts of sublease rentals, were $926 million and $928 million and $934 million and $936 million for UAL Corporation and Subsidiary Companies

          United, respectively, for the years ended December 31, 2008 and 2007, respectively; $833 million and $834 million for UAL and United, respectively, for the eleven months ended December 31, 2006; $76 million for both UAL and United for the month ended January 31, 2006. Included in Regional affiliates expense in theCombined Notes to Consolidated Financial Statements (Continued)

          (17) Statement of Consolidated Cash Flows—Supplemental DisclosuresOperationswere operating rents for United Express aircraft of $413 million, $425 million and $403 million for the Successor Company for the years ended December 31, 2008 and 2007 and the eleven months ended December 31, 2006, respectively; and $35 million for the month ended January 31, 2006 for the Predecessor Company.


          138

          (16) Statement of Consolidated Cash Flows—Supplemental Disclosures
          Supplemental disclosures of cash flow information and non-cash investing and financing activities for both UAL and United, except as noted, are as follows:

           
          		 Successor
          		  
          		 Predecessor
          		 
          (In millions)
          		 Year Ended December 31, 2007
          		 Period from February 1 to December 31, 2006
          		  
          		 Period from January 1 to January 31, 2006
          		 Year Ended December 31, 2005
          		 
          Cash paid during the period for:               
           Interest (net of amounts capitalized) $614 $703   $35 $456 
           Income taxes  10  —    —  — 
          Non-cash transactions:               
           Long-term debt incurred to acquire assets $— $242   $— $— 
           Capital lease obligations incurred to acquire assets  —  155    —  — 
           Pension and other postretirement changes recorded
              in other comprehensive income (loss)          		  —  87    (4) (661)
           Accrued special distribution on UAL common
              stock (UAL only)          		  257  —    —  — 
           Interest paid in kind on 6% senior notes  15  —    —  — 
           Net unrealized gain (loss) on financial instruments
              recorded in other comprehensive income (loss)          		  5  (5)   24  — 

                            
            Successor   Predecessor 
                  Period from
          		   Period from
          		 
            Year Ended
          		  February 1 to
          		   January 1 to
          		 
            December 31,  December 31,
          		   January 31,
          		 
          (In millions)
          		 2008  2007  2006   2006 
          Cash paid during the period for:                 
          Interest (net of amounts capitalized) $412  $614  $703   $35 
          Income taxes  3   10   —    — 
                            
          Non-cash transactions:                 
          Long-term debt incurred to acquire assets $—  $—  $242   $— 
          Capital lease obligations incurred to acquire assets  281   —   155    — 
          Pension and other postretirement changes recorded in other comprehensive income (loss)  (11)  —   87    (4)
          Accrued special distribution on UAL common stock (UAL only)  —   257   —    — 
          Interest paid in kind on 6% senior notes  31   15   —    — 
          Net unrealized gain (loss) on financial instruments recorded in other comprehensive income (loss)  (37)  5   (5)   24 
          Receivable from unsettled stock sales as of December 31, 2008  15   —   —    —  
          In addition to the above non-cash transactions, see Note 1, "Voluntary4, “Voluntary Reorganization Under Chapter 11,"” Note 5, “Common Stockholders’ Equity and Preferred Securities,” Note 12, "Debt Obligations"“Debt Obligations and Card Processing Agreements,” and Note 13, "Preferred Stock."

          (18) Advanced Purchase of Miles

          15, “Lease Obligations.”

          (17) Advanced Purchase of Miles
          In October 2005,September 2008, the Company entered into an amendment toamended certain terms of its agreement with Chase regarding the Mileage Plus Visaits co-branded credit card under which Chase pays in advance for frequent flyer miles to be earned by Mileage Plus members for making purchases using the Mileage Plus Visa card. The existing agreement includes an annual guaranteed payment for the purchase of frequent flyer miles.

          partner (the “Amendment”). In connection with the Chase Mileage Plus agreement,Amendment, the Company provided Chasesold an additional $500 million of pre-purchased miles to its co-branded credit card partner and extended the term of the agreement to December 31, 2017. Prior to the Amendment, our Advanced purchase of miles obligation to our co-branded credit card partner was approximately $600 million, which represented pre-purchased miles purchased by our co-branded credit card partner. As a junior lien upon, and security interest in, all collateral pledged or in which security interestresult of the additional $500 million purchase of miles, our co-branded credit card partner has a remaining pre-purchase miles balance of approximately $1.1 billion as of December 31, 2008. As part of the Amendment, our co-branded credit card partner cannot use the pre-purchased miles for issuance to its cardholders prior to 2011; accordingly, the $1.1 billion of deferred revenue at December 31, 2008 for the pre-purchased miles is granted,classified as security“Advanced purchase of miles” in the non-current liabilities section of the Company’sStatements of Consolidated Financial Position. The Amendment specifies the maximum amount of the pre-purchased miles that our co-branded credit facility. The security interest was juniorcard partner can award to other credit facility debt, and appliedits cardholders each year from 2011 to no more than $850 million in total advance purchases at any time. In February 2007, the Company amended the agreement with Chase whereby Chase released their junior security interest in the collateral pledged2017.

          Prior to the Amended Credit Facility. However under certain circumstances,Amendment, the Company is obligatedpre-purchased miles were reflected as a current liability because the miles pre-purchased by our co-branded credit card partner were generally awarded to reinstate Chase's junior security interest in the assets pledged to the Amended Credit Facility.cardholders within one year of purchase. As of December 31, 2007, and 2006, the total advancedAdvanced purchase of miles was $694 millionmillion.
          United has the right, but is not required, to repurchase the pre-purchased miles from its co-branded credit card partner during the term of the agreement. The Amendment contains termination penalties that may require United to make certain payments and $681 million, respectively.repurchase outstanding pre-purchased miles in cases such as the Company’s insolvency, bankruptcy false representations or other material breaches.


          139


          UAL Corporation

          The Amendment requires that our co-branded credit card partner make annual guaranteed payments to United between 2008 and Subsidiary Companies

          2017. Between 2008 and 2012, our co-branded credit card partner’s annual guaranteed payment is satisfied through the purchase of a specified minimum amount of miles. Afterwards, our co-branded credit card partner’s annual guaranteed payment is satisfied through awarding pre-purchased miles, purchasing miles and through other contractual payments. Between 2008 and 2012, our co-branded credit card partner is allowed to carry forward those miles purchased subject to the annual guarantee that have not been awarded to its cardholders. Any miles carried forward subject to this provision will result in a net increase to our “Advance purchase of miles” obligation in ourCombined Notes toStatements of Consolidated Financial Position.

          In connection with the Amendment, the Company received a payment of $100 million in exchange for the extension of the license previously granted to its co-branded credit card partner to be the exclusive issuer of Mileage Plus Visa cards through 2017. This amount is reflected as Mileage Plus deferred revenue in ourStatements (Continued)of Consolidated Financial Position

          (19) Related Party Transactions

          and is being recognized as revenue over the period the fees are earned.

          As part of the Amendment, the Company granted its co-branded credit card partner a first lien in specified Mileage Plus assets and a second lien on those assets that are provided as collateral under our credit facility. See Note 12, “Debt Obligations and Card Processing Agreements,” for additional information regarding these assets. The Amendment may be terminated by either party upon the occurrence of certain events as defined, including but not limited to a change in law that has a material adverse impact, insolvency of one of the parties, or failure of the parties to perform their obligations. The security interest is released if the Company repurchases the full balance of the pre-purchased miles or the Company achieves a certain fixed charge coverage ratio.
          In November 2008, the Company further amended its largest credit card processing agreement to allow for the temporary substitution of aircraft collateral in lieu of cash collateral. United also agreed that such security interest collateralizes not only United’s obligations under this processing agreement, but also United’s obligations under United’s Amended and Restated Co-Branded Card Marketing Services Agreement. See Note 12, “Debt Obligations and Card Processing Agreements,”—Credit Card Processing Agreement Covenants,” for further discussion of the substitution agreement.
          (18) Related Party Transactions
          In 2008, United contributed cash of $257 million to UAL for use in UAL’s payment of its January 2008 special distribution to its common shareholders. In addition, UAL made capital contributions of $173 million to United during 2008 consisting of the following:
          • In December 2008, UAL contributed 100% of the capital stock United BizJet Holdings, Inc. (“Bizjet”) to United, which had a book value of $10 million. In accordance with SFAS 141, United’s results of operations reflect the results of operations of Bizjet as though the contribution from UAL occurred on January 1, 2006, the earliest period presented. Subsequently, United and Bizjet entered into a merger agreement under which Bizjet was merged with and into United, with United being the surviving company. This merger was effective December 31, 2008. The only impact that this contribution will have on United’s previously reported results of operations in 2008 is an increase to income of $29 million in the three and six month periods ended June 30, 2008 and the nine month period ended September 30, 2008.
          • In addition, UAL contributed cash of $163 million to United. This contribution included $107 million of proceeds that UAL generated from the issuance and sale of UAL common stock.
          At December 31, 2006, United, through one of its wholly-owned subsidiaries, Mileage Plus, Inc. ("MPI"(“MPI”), had a $200 million note receivable from UAL. During 2007, UAL, United and MPI executed a note payment agreement to pay and thereby cancel this note payable (plus accrued interest). This transaction had no effect in the UAL consolidated financial statements and was treated as a forgiveness


          140

          of debt in United'sUnited’s financial statements, resulting in a decrease in paid in capital equal to the total decrease in notes and interest receivable.

          (19) Special Items
          (20) Special Items2008

          See Note 3, “Asset Impairments and Intangible Assets,” for a discussion of the asset impairments and other special charges recorded in 2008.
          2007
          2007—Successor Company

          SFO Municipal Bonds Security Interest.  In the first quarter of 2007, the Company recorded a $3 million benefit to operating income as a special item to reduce the Company'sCompany’s recorded obligation for the SFO municipal bonds to the amount considered probable of being allowed by the Bankruptcy Court.

          LAX Municipal Bonds Security Interest.  In the first and third quarters of 2007, the Company recorded special items of $19 million and $8 million, respectively, as favorable adjustments to operating income to adjust the Company'sCompany’s recorded obligation for the LAX municipal bonds to the amount considered probable of being allowed by the Bankruptcy Court. See Note 1, "Voluntary4, “Voluntary Reorganization Under Chapter 11—Significant Matters Remaining to be Resolved in Chapter 11 Cases"Cases” for further information related to the SFO and LAX litigation.

          Change in Estimate.  In the third quarter of 2007, the Company recorded a change in estimate of $59 million for certain liabilities relating to bankruptcy administrative claims. This adjustment resulted directly from the progression of the Company'sCompany’s ongoing efforts to resolve certain bankruptcypre-confirmation contingencies. Therefore, the Company recorded a special operating revenue credit of $45 million and a special operating expense credit of $14 million for these changes in estimate.
          2006

          2006—Successor Company

          SFO Municipal Bonds Security Interest.  In October 2006, the Bankruptcy Court issued an order declaring that the owners of certain municipal bonds, issued before the Petition Date to finance construction of certain leasehold improvements at SFO, should be allowed a secured claim of approximately $27 million, based upon the court-determined fair value of the Company'sCompany’s underlying leasehold. After the denial of post-trial motions, both parties have appealed to the District Court. In accordance withSOP 90-7, as of the Effective Date, the Company recorded $60 million as its best estimate of the probable security interest to be awarded in this unresolved litigation. In the third quarter of 2006 the Company recorded a special item of $30 million benefit to operating income, to reduce the Company'sCompany’s recorded obligation for the SFO municipal bonds to the amount the Company estimated liability at that time.

          ALPA Non-Qualified Pension Plan.  In the fourth quarter of 2006, the Company recorded a special item of $24 million as a benefit to operating income to reduce the Company'sCompany’s recorded obligation for this matter. This adjustment was based on the receipt of a favorable court ruling in ongoing litigation and the Company'sCompany’s determination that it was probable the Company would not be required to satisfy this obligation.


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          (20) Special Items (Continued)

          LAX Municipal Bonds Security Interest.  In the fourth quarter of 2006, based on litigation developments, the Company recorded a special item of $18 million as a charge to operating income to adjust the Company'sCompany’s recorded obligation for the LAX municipal bonds to the amount the Company estimated was probable to be allowed by the Bankruptcy Court.

          2005—Predecessor Company

                  Aircraft Impairment.    During

          (20) Investments
          In the secondfourth quarter of 2005, UAL2007, United, along with certain other major air carriers, sold its interests in Aeronautical Radio, Inc. (“ARINC”) to Radio Acquisition Corp., an affiliate of The Carlyle Group.


          141

          ARINC is a provider of transportation communications and United recognized chargessystems engineering. The transaction generated proceeds of $18$128 million and resulted in a pre-tax gain of $41 million.
          Investments at December 31, 2008 and 2007 include $46 million and $91 million of the Company’s previously issued EETC debt securities that the Company repurchased in 2007. These securities remain outstanding and are classified asavailable-for-sale. An unrealized loss of $37 million and $5 million respectively,to record these securities at fair value has been recognized in other comprehensive income during 2008 and 2007, respectively. See Note 12, “Debt Obligations and Card Processing Agreements,” for aircraft impairments related to the planned accelerated retirement of certain aircraft.

          (21) Severance Accrual

                  The Company has implemented several cost saving initiatives that have resulted in a reduction in workforce such as the outsourcing of administrative functions, the closing of certain call centers and its announcement of the elimination of certain salaried and management positions through attrition and layoffs. The Company's severance policy provides the affected employees salary continuation as well as certain insurance benefits for a specified period of time. The Company recognizes its severance obligations in accordance with Statement of Financial Accounting Standards No. 112 (As Amended),Employers' Accounting for Postemployment Benefits—an amendment of FASB Statements No. 5 and 43. In 2006, the Company accrued $30 million, which was substantially paid in 2006, for severance primarily due to a significant restructuring program that resulted in the elimination of a significant number of positions.

          (22) Distribution Payable

          additional information.

          (21) Distribution Payable
          In December 2007, the UAL Corporation Board of Directors approved a special distribution of $2.15 per share to holders of UAL common stock. The distribution, of approximately $257 million, was paid on January 23, 2008 to the holders of record of UAL common stock on January 9, 2008. The distribution, has beenwhich is characterized as a return of capital for income tax purposes, was accrued at December 31, 2007 in UAL'sUAL’sConsolidated Statements of Consolidated Financial Position.

          In January 2008, United'sUnited’s Board of Directors approved a dividend of up to $260 million to UAL to fund the January 23, 2008 special distribution to UAL common stockholders. As such, United did not accrue the distribution at December 31, 2007.

                  The determination2007 in itsStatements of whether the $2.15 per share distribution is characterized as a return of capital or a dividend for income tax purposes will not be finalized until January 2009 after UAL determines the amount of its 2008 taxable profit. If all, or a portion of, the distribution exceeds UAL's accumulated or 2008 profits, the excess will be taxed as a return of capital rather than a dividend.


          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)Position

          (23) UAL Selected Quarterly Financial Data (Unaudited)

           
          		  
          		 Successor
          		 
           
          		 Predecessor
          		 
           
          		  
          		 Quarter Ended
          		 
          (In millions, except per share amounts)
          		 Period from January 1 to January 31
          		 Period from February 1 to March 31
          		 
           March 31
          		 June 30
          		 September 30
          		 December 31
          		 
          2007:                   
          Operating revenues  (b) (b)$4,373 $5,213 $5,527 $5,030 
          Earnings (loss) from operations  (b) (b) (92) 537  656  (64)
          Net income (loss)  (b) (b) (152) 274  334  (53)
          Basic earnings (loss) per share  (b) (b)$(1.32)$2.31 $2.82 $(0.47)
          Diluted earnings (loss) per
              share(a)          		  (b) (b)$(1.32)$1.83 $2.21 $(0.47)

          2006:
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
           
          Operating revenues $1,458 $3,007  (b)$5,113 $5,176 $4,586 
          Earnings (loss) from operations  (52) (119) (b) 260  335  23 
          Net income (loss)  22,851  (223) (b) 119  190  (61)
          Basic earnings (loss) per share $196.61 $(1.95) (b)$1.01 $1.62 $(0.55)
          Diluted earnings (loss) per
              share(a)          		 $196.61 $(1.95) (b)$0.93 $1.30 $(0.55)
          (a)
          Diluted EPS was significantly impacted in certain quarters by the Limited-Subordination Notes, including the modification of the conversion price from $46.86 to $34.84 in July 2006. See Note 4, "UAL Per Share Amounts" and Note 12, "Debt Obligations," for further information.

          (b)
          Not applicable.

                  UAL's.

          (22) UAL Selected Quarterly Financial Data (Unaudited)
                           
            Quarter Ended 
          (In millions, except per share amounts) March 31  June 30  September 30  December 31 
          2008:                
          Operating revenues $4,711  $5,371  $5,565  $4,547 
          Loss from operations  (441)  (2,694)  (491)  (812)
          Net loss  (537)  (2,729)  (779)  (1,303)
          Basic and diluted loss per share $(4.45) $(21.47) $(6.13) $(9.91)
                           
          2007:                
          Operating revenues $4,373  $5,213  $5,527  $5,030 
          Earnings (loss) from operations  (92)  537   656   (64)
          Net income (loss)  (152)  274   334   (53)
          Basic earnings (loss) per share $(1.32) $2.31  $2.82  $(0.47)
          Diluted earnings (loss) per share $(1.32) $1.83  $2.21  $(0.47)
          UAL’s quarterly financial data is subject to seasonal fluctuations and historically, its results in the second and third quarters are better as compared to the first and fourth quarters of each year since the latter quarters normally reflect weaker demand. UAL'sUAL’s quarterly results were impacted by the following significant items:
          2008
          • The second quarter was negatively impacted by impairment charges of $2.5 billion related to the Company’s interim impairment testing of its intangible assets. In addition, the Company incurred $110 million of severance and employee benefit charges, as well as $26 million of purchased services charges. Offsetting these impacts was a $29 million gain from a litigation-related settlement gain.
          • The third quarter included reversals of $16 million of intangible asset impairments recorded during the second quarter. The Company also recorded an additional $6 million of severance


          142

          2007

            •
            The first and third quarters include $22 million and $8 million, respectively, of favorable adjustments to operating income for the SFO and LAX municipal bonds.

            •
            The third quarter was impacted by a special operating revenue credit of $45 million and a special operating expense credit of $14 million for changes in estimates for certain liabilities relating to bankruptcy administrative claims.

            •
            The fourth quarter includes a gain of $41 million from the sale of ARINC.

            •
            The Company's change in the expiration period for unused frequent flier miles increased revenues by approximately $28 million, $47 million, $50 million and $121 million in each quarter of 2007, respectively.

          2006

            •
            The January period includes reorganization income of $22.9 billion.

          UAL Corporation and Subsidiary Companies

          Combined Notes to Consolidated Financial Statements (Continued)

          charges, as well as $8 million of losses on the sale of assets and $7 million of lease termination and other charges.
          • During the fourth quarter, the Company recorded $107 million of impairment charges, $18 million of severance, $53 million of employee benefit charges, $34 million of accelerated depreciation related to aircraft groundings and $18 million of lease termination and other special charges. In addition, an $11 million net gain on asset sales partially offset these unfavorable expenses.
          (23) UAL Selected Quarterly Financial Data (Unaudited) (Continued)2007

              •
              The third quarter includes income of $30 million from a special item as discussed in Note 20, "Special Items."

              •
              The third quarter was favorably impacted by the reversal of accrued interest of $30 million while the first and second quarters were adversely affected by interest accruals related to the Chase agreement as discussed in Note 18, "Advanced Purchase of Miles."

            • The first and third quarters include $22 million and $8 million, respectively, of favorable adjustments to operating income for the SFO and LAX municipal bonds.
            • The third quarter was impacted by a special operating revenue credit of $45 million and a special operating expense credit of $14 million for changes in estimates for certain liabilities relating to bankruptcy administrative claims.
            • The fourth quarter includes a gain of $41 million from the sale of ARINC.
            • The Company’s change in the expiration period for unused frequent flyer miles increased revenues by approximately $28 million, $47 million, $50 million and $121 million in each quarter of 2007, respectively.
            See Note 1, "Voluntary4, “Voluntary Reorganization Under Chapter 11"11” and Note 20, "Special19, “Special Items,"” for further discussion of these items.

            (23) Subsequent Events
            (24) Subsequent Event2009 Financing Initiatives

            In February 2008, 1.0January 2009, the Company completed a $95 million sale-leaseback agreement for nine aircraft. The Company expects this transaction to be treated as a capital lease.
            In January 2009, the Company generated net proceeds of $62 million from the issuance of 4.0 million shares and settlement of 2% convertible preferredunsettled trades at December 31, 2008 under its $200 million common stock were converteddistribution agreement. After issuance of these shares, the Company had issued shares for gross proceeds of $172 million of the $200 million available under this stock offering, leaving $28 million available for future issuance under this program, as further discussed in Note 5, “Common Stockholders’ Equity and Preferred Securities.”
            In January 2009, the Company entered into an amendment to its Chicago O’Hare International Airport cargo building site lease with the City of Chicago. The Company agreed to vacate its current cargo facility at O’Hare to allow the land to be used for the development of a future runway. In January 2009, the Company received approximately 2.2$160 million UAL common shares.

            from O’Hare in accordance with the lease amendment. In addition, the lease amendment requires that the City of Chicago provide the Company with another site at O’Hare upon which a replacement cargo facility could be constructed.

            United’s card processing agreement with American Express expired on February 28, 2009 and was replaced by a new agreement on March 1, 2009 as discussed in Note 12, “Debt Obligations and Card Processing Agreements.”


            143

            ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

                    None.

            ITEM 9A.    CONTROLS AND PROCEDURES.

            ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
            None.
            ITEM 9A. CONTROLS AND PROCEDURES.
            UAL and United each maintain controls and procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted by UAL and United to the Securities and Exchange Commission ("SEC"(“SEC”) is recorded, processed, summarized and reported, within the time periods specified by the SEC'sSEC’s rules and forms, and is accumulated and communicated to management including the Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure. The management of UAL and United, including the Chief Executive Officer and Chief Financial Officer, performed an evaluation to conclude with reasonable assurance that UAL'sUAL’s and United'sUnited’s disclosure controls and procedures were designed and operating effectively to report the information each company is required to disclose in the reports they file with the SEC on a timely basis. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer of UAL and United have concluded that as of December 31, 2007,2008, disclosure controls and procedures were effective.

            Changes in Internal Control over Financial Reporting during the Quarter Ended December 31, 20072008

            There were no changes in UAL'sUAL’s or United'sUnited’s internal control over financial reporting during their most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, their internal control over financial reporting, except that UAL and United designed and implemented procedures that resulted in remediation of the income tax accounting material weakness previously reported in their 2006 Annual Reports on Form 10-K and 2007 Quarterly Reports on Form 10-Q. These remediation steps were developed following investigation and review of the processes and activities surrounding the material weakness and include changes to these processes to prevent or detect similar future occurrences.reporting.


            144

                    In response to the identified material weakness, our management, with oversight from our Audit Committee, implemented a plan of remediation. As a result of this plan, the following control improvements were made during 2007:

              •
              Recruited experienced, permanent tax professionals who have significant tax accounting and reporting experience;

              •
              Implemented programs designed to reduce staff turnover;

              •
              Enhanced processes and controls related to income tax accounting and reporting; and

              •
              Provided additional and ongoing training to our tax staff on the application of technical accounting literature to the Company's transactions.

              UAL Corporation Management Report on Internal Control Over Financial Reporting

              February 27, 2008

              March 2, 2009
              To the Stockholders of UAL Corporation
              Chicago, Illinois

              The management of UAL Corporation and subsidiaries ("UAL"(“UAL”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange ActRules 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

              Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the design and operating effectiveness of our internal control over financial reporting as of December 31, 2007.2008. In making this assessment, management used the framework set forth inInternal Control—Integrated Framework issued by the Committee of the Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal controls over financial reporting were effective as of December 31, 2007.

                      During the fiscal year ended December 31, 2007, management designed and implemented remediation steps over an income tax accounting material weakness previously reported in our Annual Report on Form 10-K dated March 16, 2007, as described within Item 9A.

              2008.

              Our independent registered public accounting firm, Deloitte & Touche LLP, who audited UAL'sUAL’s consolidated financial statements included in thisForm 10-K, has issued a report on UAL'sUAL’s internal control over financial reporting, which is included herein.


              145


              United Air Lines, Inc. Management Report on Internal Control Over Financial Reporting

              February 27, 2008

              March 2, 2009
              To the Stockholder of United Air Lines, Inc.
              Chicago, Illinois

              The management of United Air Lines, Inc. ("United"(“United”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange ActRules 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

              Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the design and operating effectiveness of our internal control over financial reporting as of December 31, 2007.2008. In making this assessment, management used the framework set forth inInternal Control—Integrated Framework issued by the Committee of the Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal controls over financial reporting were effective as of December 31, 2007.2008.
              This annual report does not include an attestation report of United’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by United’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit United to provide only management’s report in this annual report.


              146

                      During the fiscal year ended December 31, 2007, management designed and implemented remediation steps over an income tax accounting material weakness previously reported in our Annual Report on Form 10-K dated March 29, 2007, as described within Item 9A.


              REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

              To the Board of Directors and Stockholders of
              UAL Corporation
              Chicago, Illinois

              We have audited the internal control over financial reporting of UAL Corporation and subsidiaries (the "Company"“Company”) as of December 31, 2007,2008, based on criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company'sCompany’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting in Item 9A. Our responsibility is to express an opinion on the Company'sCompany’s internal control over financial reporting based on our audit.

              We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

              A company'scompany’s internal control over financial reporting is a process designed by, or under the supervision of, the company'scompany’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company'scompany’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.

              Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

              In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007,2008, based on the criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.


              147

              We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 20072008 of the Company and our report dated February 27, 2008March 2, 2009 expressed an unqualified opinion on those financial statements and financial statement schedule.
              /s/  Deloitte & Touche LLP
              Chicago, Illinois
              March 2, 2009


              148

              /s/ Deloitte & Touche LLP
              Chicago, Illinois
              February 27, 2008
              ITEM 9B. OTHER INFORMATION.
              None.


              149

              ITEM 9B.    OTHER INFORMATION.

                      None.



              PART III

              ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

              ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
              Certain information required by this item with respect to UAL is incorporated by reference from UAL'sUAL’s definitive proxy statement for its 20082009 Annual Meeting of Stockholders. Certain informationInformation regarding the executive officers of UAL is included in Part I of thisForm 10-K under the caption “Executive Officers of the Registrant.”
              Information required by this item with respect to United is incorporated by reference from United's definitive information statementomitted pursuant to be filed within 120 daysGeneral Instruction I(2)(c) of December 31, 2007. Information regarding the executive officers of UAL and United is included in Part I of this Form 10-K under the caption "Executive Officers of the Registrant."

              ITEM 11.    EXECUTIVE COMPENSATION.
              10-K.

              ITEM 11. EXECUTIVE COMPENSATION.
              Information required by this item with respect to UAL is incorporated by reference from UAL'sUAL’s definitive proxy statement for its 20082009 Annual Meeting of Stockholders. Certain information
              Information required by this item with respect to United is incorporated by reference from United's definitive information statementomitted pursuant to be filed within 120 daysGeneral Instruction I(2)(c) of December 31, 2007.

              ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
              Form 10-K.

              ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
              Information required by this item with respect to UAL is incorporated by reference from UAL'sUAL’s definitive proxy statement for its 20082009 Annual Meeting of Stockholders. Certain information
              Information required by this item with respect to United is incorporated by reference from United's definitive information statementomitted pursuant to be filed within 120 daysGeneral Instruction I(2)(c) of December 31, 2007.

              ITEM 13.    CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
              Form 10-K.

              ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
              Information required by this item with respect to UAL is incorporated by reference from UAL'sUAL’s definitive proxy statement for its 20082009 Annual Meeting of Stockholders. Certain information
              Information required by this item with respect to United is incorporated by reference from United's definitive information statementomitted pursuant to General Instruction I(2)(c) ofForm 10-K.
              ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
              The Audit Committee of the UAL Board of Directors adopted a policy on pre-approval of services of independent accountants in October 2002. The policy provides that the Audit Committee shallpre-approve all audit and non-audit services to be filed within 120 daysprovided to the Company and its subsidiaries and affiliates by its auditors. The process by which this is carried out is as follows:
              For recurring services, the Audit Committee reviews and pre-approves Deloitte & Touche LLP’s annual audit services and employee benefit plan audits in conjunction with the Committee’s annual appointment of December 31, 2007.the outside auditors. The materials include a description of the services along with related fees. The Committee also reviews and pre-approves other classes of recurring services along with fee thresholds for pre-approved services. In the event that the pre-approval fee thresholds are met and additional services are required prior to the next scheduled Committee meeting, pre-approvals of additional services follow the process described below.
              Any requests for audit, audit-related, tax and other services not contemplated with the recurring services approval described above must be submitted to the Audit Committee for specific pre-approval and cannot commence until such approval has been granted. Normally, pre-approval is provided at regularly scheduled meetings. However, the authority to grant specific pre-approval between meetings, as necessary, has been delegated to the Chairman of the Audit Committee. The Chairman must update the


              150

              Committee at the next regularly scheduled meeting of any services that were granted specificpre-approval.
              On a periodic basis, the Audit Committee reviews the status of services and fees incurredyear-to-date and a list of newly pre-approved services since its last regularly scheduled meeting. Our Audit Committee has considered whether the 2008 non-audit services provided by Deloitte & Touche LLP are compatible with maintaining auditor independence.
              The aggregate fees billed for professional services rendered by Deloitte & Touche LLP in 2008 and 2007 are as follows:
                       
              Service
              		 2008  2007 
              Audit Fees $3,807,300  $3,420,740 
              Audit-Related Fees  2,065,479   1,266,400 
              Tax Fees  384,850   546,005 
              All Other Fees  165,800   165,800 
                       
              Total $6,423,429  $5,398,945 
                       
              AUDIT FEES
              Fees for audit services related to 2008 and 2007 consist of audits of the Company’s consolidated financial statements, limited reviews of the Company’s consolidated quarterly financial statements, statutory audits of the Schedule of Passenger Facility Charges and statutory audits of certain subsidiaries’ financial statements. The 2008 and 2007 audit fees also include the impact of the attestation work performed by Deloitte & Touche related to Sarbanes-Oxley.
              AUDIT-RELATED FEES
              Fees for audit-related services billed in 2008 and 2007 consisted of audits of the maintenance operation center, employee benefit plans and the United Airlines Foundation.
              TAX FEES
              Fees for tax services in 2008 and 2007 consisted of assistance with tax issues in certain foreign jurisdictions, tax consultation and bankruptcy tax assistance.
              ALL OTHER FEES
              Fees for all other services billed in 2008 and 2007 consisted of the preparation of employee payroll tax filings.
              All of the services in 2008 and 2007 under the Audit Related, Tax and All Other Fees categories above have been approved by the Audit Committee pursuant to paragraph (c)(7)(i)(c) ofRule 2-01 ofRegulation S-X of the Exchange Act.


              151

              ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES.

                      Information required by this item with respect to UAL is incorporated by reference from UAL's definitive proxy statement for its 2008 Annual Meeting of Stockholders. Certain information required by this item with respect to United is incorporated by reference from United's definitive information statement to be filed within 120 days of December 31, 2007.



              PART IV

              ITEM 15.    EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES.

              (a)
              ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES.
              (a)(1) Financial Statements. The financial statements required by this item are listed in Item 8,Financial Statements and Supplementary Dataherein.

               
              (2)
               
              Financial Statement Schedules. The financial statement schedule required by this item is listed below and included in this report after the signature page hereto.

               
               
               

              		Schedule II—Valuation and Qualifying Accounts for the yearyears ended December 31, 2008 and 2007, the month ended January 31, 2006 and the eleven month period ended December 31, 2006 and the year ended December 31, 2005.2006.

               
               
               

              		All other schedules are omitted because they are not applicable, not required or the required information is shown in the consolidated financial statements or notes thereto.

              (b)
               

              Exhibits. The exhibits required by this item are listed in the Exhibit Index which immediately precedes the exhibits filed with this Form 10-K and is incorporated herein by this reference. Each management contract or compensatory plan or arrangement is denoted with a "†"“†” in the Exhibit Index.


              152


              SIGNATURES

              SIGNATURES
              Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each registrant has duly caused thisForm 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

              UAL CORPORATION
              UNITED AIR LINES, INC.
              (Registrants)

              Date: February 28, 2008

              /s/ Glenn F. Tilton
              Glenn F. Tilton
              Chairman of the Board, President
              and Chief Executive Officer

              UAL CORPORATION
              UNITED AIR LINES, INC.
              (Registrants)
              /s/  Glenn F. Tilton
              Glenn F. Tilton
              Chairman of the Board, President
              and Chief Executive Officer
              Date: March 2, 2009
              Pursuant to the requirements of the Securities Exchange Act of 1934, thisForm 10-K has been signed below by the following persons on behalf of UAL Corporation and in the capacities and on the date indicated.

              /s/  Glenn F. Tilton

              Glenn F. Tilton
              Chairman of the Board, President
              and Chief Executive Officer
              (principal executive officer)              		  

              /s/  Frederic F. Brace
              Frederic F. BraceKathryn A. Mikells

              Executive
              /s/  Robert D. Krebs

              Kathryn A. Mikells
              Senior Vice President and
              Chief Financial Officer
              (principal financial and accounting officer)
               
              /s/ Robert D. Krebs
              Robert D. Krebs
              Director

              /s/  Richard J. Almeida
              Richard J. Almeida

              Director

               
              /s/  Robert S. Miller, Jr.

              Richard J. Almeida
              Director              		Robert S. Miller, Jr.
              Director

              /s/  Mary K. Bush

              /s/  James J. O’Connor

              Mary K. Bush
              Director
               
              /s/ James J. O'Connor
              James J. O'ConnorO’Connor
              Director

              /s/  Stephen R. Canale
              Stephen R. Canale

              Director

               
              /s/  David J. Vitale

              Stephen R. Canale
              Director              		David J. Vitale
              Director

              /s/  W. James Farrell
              W. James Farrell

              Director

               
              /s/  John H. Walker

              W. James Farrell
              Director              		John H. Walker
              Director

              /s/  Walter Isaacson
              Walter Isaacson

              Director

               
              /s/  Stephen A. Wallach

              Walter Isaacson
              Director              		Stephen A. Wallach
              Director

              Date: February 28, 2008

              Date: March 2, 2009


              153

              Pursuant to the requirements of the Securities Exchange Act of 1934, thisForm 10-K has been signed below by the following persons on behalf of United Air Lines, Inc. and in the capacities and on the date indicated.

              /s/  Glenn F. Tilton

              Glenn F. Tilton
              Chairman of the Board, President
              and Chief Executive Officer
              (principal executive officer)              		  

              /s/  Frederic F. Brace
              Frederic F. BraceKathryn A. Mikells

              Executive
              Kathryn A. Mikells
              Senior Vice President and
              Chief Financial Officer and Director
              (principal financial officer)
               
               

              /s/  David M. Wing

              David M. Wing
              Vice President and Controller
              (principal accounting officer)
               
               

              /s/  Graham W. Atkinson

              Graham W. Atkinson
              Director
               
               

              /s/  Peter D. McDonald

              Peter D. McDonald
              Director
               
               

              /s/  John P. Tague

              John P. Tague
              Director
               

              Date: February 28, 2008

               

              Date: March 2, 2009


              154


              Schedule II

              Valuation and Qualifying Accounts
              For the YearYears Ended December 31, 2008 and 2007,
              the Eleven Month Period Ended December 31, 2006,
              and the Month Ended January 31, 2006
                               
              (In millions)
              		  Additions
              		       
                Balance at
              		  Charged to
              		     Balance at
              		 
                Beginning of
              		  Costs and
              		     End of
              		 
              Description
              		 Period  Expenses  Deductions(a)  Period 
              Reserves deducted from assets to which they apply:                
                               
                               
              Allowance for doubtful accounts (UAL):
              		                
              2008 (Successor) $27  $25  $28  $24 
              2007 (Successor)  27   21   21   27 
              2006 (Successor)  27   18   18   27 
              January 2006 (Predecessor)  23   6   2   27 
                               
                               
              Allowance for doubtful accounts (United):                
              2008 (Successor) $27  $25  $28  $24 
              2007 (Successor)  27   21   21   27 
              2006 (Successor)  27   18   18   27 
              January 2006 (Predecessor)  22   6   1   27 
                               
                               
              Obsolescence allowance—spare parts                
              (UAL and United):                
              2008 (Successor) $25  $26  $3  $48 
              2007 (Successor)  6   19   —   25 
              2006 (Successor)  —   6   —   6 
              January 2006 (Predecessor)  66   —   66(b)  — 
                               
                               
              Valuation allowance for deferred tax assets (UAL):                
              2008 (Successor) $1,815  $1,126  $—  $2,941 
              2007 (Successor)  2,248   —   433   1,815 
              2006 (Successor)  2,310   —   62   2,248 
              January 2006 (Predecessor)  10,618   180   8,488(b)  2,310 
                               
                               
              Valuation allowance for deferred tax assets (United):                
              2008 (Successor) $1,757  $1,109  $—  $2,866 
              2007 (Successor)  2,190   —   433   1,757 
              2006 (Successor)  2,252   —   62   2,190 
              January 2006 (Predecessor)  10,494   155   8,397(b)  2,252 
              (a)Deduction from reserve for purpose for which reserve was created.
              (b)Amounts include adjustments as required for the adoption of fresh- start reporting on February 1, 2006.


              and
              the Year Ended December 31, 2005
              155

              (In millions)
              		  
              		  
              		  
              		  
                
              		 Additions
              Charged to
              Costs and
              Expenses
              		  
              		  
              Description
              		 Balance at
              Beginning of
              Period
              		 Deductions(a)
              		 Balance at
              End of
              Period
              Reserves deducted from assets to which they apply:            
              Allowance for doubtful accounts (UAL):            
               2007 (Successor) $27 $21 $21 $27
               2006 (Successor)  27  18  18  27
               January 2006 (Predecessor)  23  6  2  27
               2005 (Predecessor)  24  8  9  23

              Allowance for doubtful accounts (United):
               
               
               
               
               
               
               
               
               
               
               
               
               2007 (Successor) $27 $21 $21 $27
               2006 (Successor)  27  18  18  27
               January 2006 (Predecessor)  22  6  1  27
               2005 (Predecessor)  23  8  9  22

              Obsolescence allowance—spare parts
               
               
               
               
               
               
               
               
               
               
               
               
              (UAL and United):            
               2007 (Successor) $6 $19 $— $25
               2006 (Successor)  —  6  —  6
               January 2006 (Predecessor)  66  —  66(b) —
               2005 (Predecessor)  42  44  20  66

              Valuation allowance for deferred tax assets (UAL):
               
               
               
               
               
               
               
               
               
               
               
               
               2007 (Successor) $2,248 $— $433 $1,815
               2006 (Successor)  2,310  —  62  2,248
               January 2006 (Predecessor)  10,618  180  8,488(b) 2,310
               2005 (Predecessor)  2,819  7,830  31  10,618

              Valuation allowance for deferred tax assets (United):
               
               
               
               
               
               
               
               
               
               
               
               
               2007 (Successor) $2,190 $— $433 $1,757
               2006 (Successor)  2,252  —  62  2,190
               January 2006 (Predecessor)  10,494  155  8,397(b) 2,252
               2005 (Predecessor)  2,743  7,779  28  10,494

              (a)
              Deduction from reserve for purpose for which reserve was created.

              (b)
              Amounts include adjustments as required for the adoption of fresh-start reporting on February 1, 2006.


              EXHIBIT INDEX
                   
                   
               3.1 Restated Certificate of Incorporation of UAL Corporation
                   
               *3.2 Restated Certificate of Incorporation of United Air Lines, Inc. (filed as Exhibit 3.1 to United’sForm 8-K filed February 1, 2006, Commission file number 1-11355, and incorporated herein by reference)
                   
               *3.3 Amended and Restated Bylaws of UAL Corporation (filed as Exhibit 3.2 to UAL’sForm 8-K filed February 1, 2006, Commission file number 1-6033, and incorporated herein by reference)
                   
               *3.4 Amended and Restated Bylaws of United Air Lines, Inc. (filed as Exhibit 3.2 to United’sForm 8-K filed February 1, 2006, Commission file number 1-11355, and incorporated herein by reference)
                   
               *4.1 Amended and Restated Revolving Credit, Term Loan and Guaranty Agreement, dated as of February 2, 2007 by and among United Air Lines, Inc., UAL Corporation, certain subsidiaries of United Air Lines, Inc. and UAL Corporation, as named therein, the Lenders named therein, JPMorgan Chase Bank, et al. (filed as Exhibit 4.1 to UAL’sForm 8-K filed February 5, 2007, Commission file number 1-6033, and incorporated herein by reference)
                   
               *4.2 First Amendment to Amended and Restated Revolving Credit, Term Loan and Guaranty Agreement, dated December 5, 2007 by and among United Air Lines, Inc., UAL Corporation and certain subsidiaries of United Air Lines, Inc. and UAL Corporation as named therein, the Lenders named therein, JP Morgan Chase Bank, et al. (filed as Exhibit 4.1 to UAL’sForm 8-K filed December 7, 2007, Commission file number 1-6033, and incorporated herein by reference)
                   
               *4.3 Second Amendment to the Amended and Restated Revolving Credit, Term Loan and Guaranty Agreement, dated May 5, 2008 by and among United Air Lines, Inc., UAL Corporation and certain subsidiaries of United Air Lines, Inc. and UAL Corporation as named therein, the Lenders named therein, JP Morgan Chase Bank, et al. (filed as Exhibit 4.1 to UAL’sForm 8-K filed May 7, 2008, Commission file number 1-6033, and incorporated herein by reference)
                   
               *4.4 Indenture dated as of February 1, 2006 among UAL Corporation as Issuer, United Air Lines, Inc. as Guarantor and the Bank of New York Trust Company, N.A. as Trustee, providing for issuance at 6% Senior Notes due 2031 and 8% Contingent Senior Notes (filed as Exhibit 4.2 to UAL’sForm 8-K filed February 1, 2006, Commission file number 1-6033, and incorporated herein by reference)
                   
               *4.5 ORD Indenture dated as of February 1, 2006 among UAL Corporation as Issuer, United Air Lines, Inc. as Guarantor and the Bank of New York Trust Company, N.A. as Trustee, providing for issuance at 5% Senior Convertible Notes due 2021 (filed as Exhibit 4.3 to UAL’sForm 8-K filed February 1, 2006, Commission file number 1-6033, and incorporated herein by reference)
                   
               *4.6 First Supplement to ORD Indenture dated February 16, 2006 among UAL Corporation, United Air Lines, Inc. as Guarantor and the Bank of New York Trust Company, N.A. as Trustee (filed as Exhibit 99.1 to UAL’sForm 8-K filed February 21, 2006, Commission file number 1-6033, and incorporated herein by reference)
                   
               *4.7 Indenture dated as of July 25, 2006 among UAL Corporation as Issuer, United Air Lines, Inc. as Guarantor and The Bank of New York Trust Company, N.A., as Trustee, providing for issuance of 4.50% Senior Limited-Subordination Convertible Notes due 2021 (filed as Exhibit 4.1 to UAL’sForm 8-K filed July 27, 2006, Commission file number 1-6033, and incorporated herein by reference)
                   
               *†10.1 UAL Corporation Success Sharing Program—Performance Incentive Plan effective January 1, 2007 (filed as Exhibit 99.1 to UAL’sForm 8-K filed March 26, 2007, Commission file number 1-6033, and incorporated herein by reference)


              156

              *3.1 Restated Certificate of Incorporation of UAL Corporation (filed as Exhibit 3.1 to UAL's Form 8-K filed February 1, 2006, Commission file number 1-6033, and incorporated herein by reference)

              *3.2
              *†10
              Restated Certificate of Incorporation of United Air Lines, Inc. (filed as Exhibit 3.1 to United's Form 8-K filed February 1, 2006, Commission file number 1-11355, and incorporated herein by reference)

              *3.3.2
               
              Amended and Restated Bylaws of UAL Corporation (filed as Exhibit 3.2 to UAL's Form 8-K filed February 1, 2006, Commission file number 1-6033, and incorporated herein by reference)

              *3.4

              Amended and Restated Bylaws of United Air Lines, Inc. (filed as Exhibit 3.2 to United's Form 8-K filed February 1, 2006, Commission file number 1-11355, and incorporated herein by reference)

              *4.1

              Amended and Restated Revolving Credit, Term Loan and Guaranty Agreement, dated as of February 2, 2007 by and among United Air Lines, Inc., UAL Corporation, certain subsidiaries of United Air Lines, Inc. and UAL Corporation, as named therein, the Lenders named therein, JPMorgan Chase Bank, et al. (filed as Exhibit 4.1 to UAL's Form 8-K filed February 5, 2007, Commission file number 1-6033, and incorporated herein by reference)

              *4.2

              First Amendment to Amended and Restated Revolving Credit, Term Loan and Guaranty Agreement, dated December 5, 2007, by and among United Air Lines, Inc., UAL Corporation and certain subsidiaries of United Air Lines, Inc. and UAL Corporation as named therein, the Lenders named therein, JP Morgan Chase Bank, et al. (filed as Exhibit 4.1 to UAL's Form 8-K filed December 7, 2007, Commission file number 1-6033, and incorporated herein by reference)

              *4.3

              Indenture dated as of February 1, 2006 among UAL Corporation as Issuer, United Air Lines, Inc. as Guarantor and the Bank of New York Trust Company, N.A. as Trustee, providing for issuance at 6% Senior Notes due 2031 and 8% Contingent Senior Notes (filed as Exhibit 4.2 to UAL's Form 8-K filed February 1, 2006, Commission file number 1-6033, and incorporated herein by reference)

              *4.4

              ORD Indenture dated as of February 1, 2006 among UAL Corporation as Issuer, United Air Lines, Inc. as Guarantor and the Bank of New York Trust Company, N.A. as Trustee, providing for issuance at 5% Senior Convertible notes due 2021 (filed as Exhibit 4.3 to UAL's Form 8-K filed February 1, 2006, Commission file number 1-6033, and incorporated herein by reference)

              *4.5

              First Supplement to Indenture dated February 16, 2006 among UAL Corporation, United Air Lines, Inc. as Guarantor and the Bank of New York Trust Company, N.A. as Trustee (filed as Exhibit 99.1 to UAL's Form 8-K filed February 21, 2006, Commission file number 1-6033, and incorporated herein by reference)

              *4.6

              Indenture dated as of July 25, 2006 among UAL Corporation as Issuer, United Air Lines, Inc. as Guarantor and The Bank of New York Trust Company, N.A., as Trustee, providing for issuance of 4.50% Senior Limited-Subordination Convertible Notes due 2021 (filed as Exhibit 4.1 to UAL's Form 8-K filed July 27, 2006, Commission file number 1-6033, and incorporated herein by reference)

              *†10.1

              UAL Corporation Success Sharing Program—Performance Incentive Plan effective January 1, 2007 (filed as Exhibit 99.1 to UAL's Form 8-K filed March 26, 2007, Commission file number 1-6033, and incorporated herein by reference)


              †10.2

              UAL Corporation Success Sharing Program—Performance Incentive Plan Amendment No. 1 dated January 1, 2008 (filed as Exhibit 10.2 to UAL’sForm 10-K for the year ended December 31, 2007, Commission file number 1-6033, and incorporated herein by reference)

              *†10.310
              .3
              		UAL Corporation Success Sharing Program—Performance Incentive Plan Amendment No. 2 (filed as Exhibit 10.1 to UAL’sForm 10-Q for the quarter ended September 30, 2008, Commission file number 1-6033, and incorporated herein by reference)
              †10.4UAL Corporation 2009 Annual Incentive Plan
              *†10.5UAL Corporation Success Sharing Program—Profit Sharing Plan effective January 1, 2006 (filed as Exhibit 99.2.99.2 to UAL's UAL’sForm 8-K filed March 26, 2007, Commission filenumber 1-6033, and incorporated herein by reference)
              *†10.6UAL Corporation Executive Severance Plan dated April 1, 2007 (filed as Exhibit 10.1 to UAL’sForm 8-K filed March 26, 2007, Commission file number 1-6033, and incorporated herein by reference)

              *†10.410
              .7
              		UAL Corporation Executive Severance Plan Amendment No. 1 dated AprilJanuary 1, 20072008 (filed as Exhibit 10.110.5 to UAL's UAL’sForm 8-K filed March 26,10-K for the year ended December 31, 2007, Commission file number 1-6033, and incorporated herein by reference)

              †10.5
               
              UAL Corporation Executive Severance Plan Amendment No. 1 dated January 1, 2008

              		*†10.610
              .8
              		Employment Agreement dated September 5, 2002 by and among United Air Lines, Inc., UAL Corporation and Glenn F. Tilton (filed as Exhibit 10.3 to UAL's UAL’sForm 10-Q for the quarter ended September 30, 2002, Commission file number 1-6033, and incorporated herein by reference)

              *†10.710
              .9
              		Amendment No. 1 dated December 8, 2002 to the Employment Agreement dated September 5, 2002 by and among United Air Lines, Inc., UAL Corporation and Glenn F. Tilton (filed as Exhibit 10.44 to UAL's UAL’sForm 10-K for the year ended December 31, 2002, Commission file number 1-6033, and incorporated herein by reference)

              *†10.810
              .10
              		Amendment No. 2 dated February 17, 2003 to the Employment Agreement dated September 5, 2002 by and among United Air Lines, Inc., UAL Corporation and Glenn F. Tilton (filed as Exhibit 10.45 to UAL's UAL’sForm 10-K for the year ended December 31, 2002, Commission file number 1-6033, and incorporated herein by reference)

              *†10.910
              .11
              		Amendment No. 3 dated September 29, 2006 to the Employment Agreement dated September 5, 2002, by and among UAL Corporation, United Air Lines, Inc., UAL Corporation, and Glenn F. Tilton (filed as Exhibit 99.2 to UAL's UAL’sForm 8-K filed on September 29, 2006, Commission file number 1-6033, and incorporated herein by reference)

              *†10.1010
              .12
              		Amendment No. 4 dated September 25, 2008 to the Employment Agreement dated September 5, 2002 by and among United Air Lines, Inc., UAL Corporation and Glenn F. Tilton (filed as Exhibit 10.3 to UAL’sForm 10-Q for the quarter ended September 30, 2008, Commission fileno. 1-6033, and incorporated herein by reference)
              *†10.13Employment Agreement dated September 29, 2006 by and among UAL Corporation, United Air Lines, Inc. and Peter D. McDonald (filed as Exhibit 99.3 to UAL's UAL’sForm 8-K filed on September 29, 2006, Commission file number 1-6033, and incorporated herein by reference)

              *†10.1110
              .14
              		Amendment No. 1 dated May 15, 2008 to the Employment Agreement dated September 29, 2006 by and among UAL Corporation, United Air Lines, Inc. and Peter D. McDonald (filed as Exhibit 10.1 to UAL’sForm 10-Q for the quarter ended June 30, 2008, Commission file number 1-6033, and incorporated herein by reference)
              *†10.15Peter D. McDonald Secular Trust Agreement dated September 29, 2006 by and among UAL Corporation, United Air Lines, Inc. and Peter D. McDonald (filed as Exhibit A to Exhibit 99.3 to UAL's UAL’sForm 8-K filed on September 29, 2006, Commission file number 1-6033, and incorporated herein by reference)


              157

                   
               *†10.16 Amendment No. 1 dated March 12, 2007 to the Peter D. McDonald Secular Trust Agreement dated September 29, 2006 by and among UAL Corporation, United Air Lines, Inc. and Peter D. McDonald (filed as Exhibit 10.48 to UAL’sForm 10-K for the year ended December 31, 2006, Commission file number 1-6033, and incorporated herein by reference)
                   
               *†10.17 Amendment No. 2 dated June 4, 2007 to the Peter D. McDonald Secular Trust Agreement dated September 29, 2006 by and among UAL Corporation, United Air Lines, Inc. and Peter D. McDonald (filed as Exhibit 10.1 to UAL’sForm 10-Q for the quarter ended June 30, 2007, Commission file number 1-6033, and incorporated herein by reference)
                   
               *†10.18 Amendment No. 3 dated May 15, 2008 to the Peter D. McDonald Secular Trust Agreement dated September 29, 2006 by and among UAL Corporation, United Air Lines, Inc. and Peter D. McDonald (filed as Exhibit 10.2 to UAL’sForm 10-Q for the quarter ended June 30, 2008, Commission file number 1-6033, and incorporated herein by reference)
                   
               †10.19 Amendment No. 4 dated December 18, 2008 to the Peter D. McDonald Secular Trust Agreement dated September 29, 2006 by and among UAL Corporation, United Air Lines, Inc. and Peter D. McDonald
                   
               †10.20 Separation Agreement dated October 9, 2008 by and among UAL Corporation, United Air Lines, Inc. and Frederic F. Brace
                   
               †10.21 Description of Officer Benefits
                   
               *†10.22 UAL Corporation 2006 Management Equity Incentive Plan (filed as Exhibit 10.1 to UAL’sForm 8-K filed February 1, 2006, Commission file number 1-6033, and incorporated herein by reference)
                   
               *†10.23 UAL Corporation 2008 Incentive Compensation Plan (filed as Appendix A to UAL’s Definitive Proxy filed on April 25, 2008, Commission file number 1-6033, and incorporated herein by reference)
                   
               *†10.24 Form of Restricted Share Award Notice pursuant to the UAL Corporation 2008 Incentive Compensation Plan (filed as Exhibit 10.4 to UAL’sForm 10-Q for the quarter ended June 30, 2008, Commission file number 1-6033, and incorporated herein by reference)
                   
               *†10.25 Form of Stock Option Award Notice pursuant to the UAL Corporation 2008 Incentive Compensation Plan (filed as Exhibit 10.5 to UAL’sForm 10-Q for the quarter ended June 30, 2008, Commission file number 1-6033, and incorporated herein by reference)
                   
               *†10.26 Form of Restricted Stock Unit Award Notice pursuant to the UAL Corporation 2008 Incentive Compensation Plan (filed as Exhibit 10.6 to UAL’sForm 10-Q for the quarter ended June 30, 2008, Commission file number, 1-6033, and incorporated herein by reference)
                   
               †10.27 Description of Benefits for UAL Corporation Directors
                   
               *†10.28 UAL Corporation 2006 Directors Equity Incentive Plan (filed as Exhibit 10.2 to UAL’sForm 8-K dated February 1, 2006, Commission file number 1-6033, and incorporated herein by reference)
                   
               *†10.29 Amendment No. 1 to the UAL Corporation 2006 Directors Equity Incentive Plan (filed as Exhibit 10.2 to UAL’sForm 10-Q for the quarter ended September 30, 2008, Commission file number 1-6033, and incorporated herein by reference)
                   
               *†10.30 Letter Agreement dated April 28, 1994 between UAL Corporation and James J. O’Connor (filed as Exhibit 10.44 to UAL’sForm 10-K for year ended December 31, 2005, Commission file number 1-6033, and incorporated herein by reference)
                   
               12.1 UAL Corporation Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Requirements
                   
               12.2 United Air Lines, Inc. Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Requirements
                   
               21  List of UAL Corporation and United Air Lines, Inc. Subsidiaries


              158

                   
               23.1 Consent of Independent Registered Public Accounting Firm for UAL Corporation
                   
               23.2 Consent of Independent Registered Public Accounting Firm for United Air Lines, Inc.
                   
               31.1 Certification of the Principal Executive Officer of UAL Pursuant to 15 U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-Oxley Act of 2002)
                   
               31.2 Certification of the Principal Financial Officer of UAL Pursuant to 15 U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-Oxley Act of 2002)
                   
               31.3 Certification of the Principal Executive Officer of United Pursuant to 15 U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-Oxley Act of 2002)
                   
               31.4 Certification of the Principal Financial Officer of United Pursuant to 15 U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-Oxley Act of 2002)
                   
               32.1 Certification of the Chief Executive Officer and Chief Financial Officer of UAL Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)
                   
               32.2 Certification of the Chief Executive Officer and Chief Financial Officer of United Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)

              *†10.12

              Amendment No. 1 dated March 12, 2007 to the Peter D. McDonald Secular Trust Agreement dated September 29, 2006 (filed as Exhibit 10.48 to UAL's Form 10-K for the year ended December 31, 2006, Commission file number 1-6033, and incorporated herein by reference)

              †10.13*

              Description of Officer BenefitsPreviously filed

              *†10.14

              UAL Corporation 2006 Management Equity Incentive Plan (filed as Exhibit 10.1 to UAL's Form 8-K filed February 1, 2006, Commission file number 1-6033, and incorporated herein by reference)

              †10.15

              Description of Benefits for UAL Corporation Directors

              *†10.16

              UAL Corporation 2006 Directors Equity Incentive Plan (filed as Exhibit 10.2 to UAL's Form 8-K dated February 1, 2006, Commission file number 1-6033, and incorporated herein by reference)

              *†10.17

              Letter Agreement dated April 28, 1994 between UAL Corporation and James J. O'Connor (filed as Exhibit 10.44 to UAL's Form 10-K for year ended December 31, 2005, Commission file number 1-6033, and incorporated herein by reference)Indicates management contract or compensatory plan or arrangement


              12.1

              UAL Corporation Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Requirements

              12.2

              United Air Lines, Inc. Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Requirements

              21

              List of UAL Corporation and United Air Lines, Inc. Subsidiaries

              23.1

              Consent of Independent Registered Public Accounting Firm for UAL Corporation

              23.2

              Consent of Independent Registered Public Accounting Firm for United Air Lines, Inc.

              31.1

              Certification of the Principal Executive Officer of UAL Pursuant to 15 U.S.C. 78m(a) or 78o(d) Section 302 of the Sarbanes-Oxley Act of 2002)

              31.2

              Certification of the Principal Financial Officer of UAL Pursuant to 15 U.S.C. 78m(a) or 78o(d) Section 302 of the Sarbanes-Oxley Act of 2002)

              31.3

              Certification of the Principal Executive Officer of United Pursuant to 15 U.S.C. 78m(a) or 78o(d) Section 302 of the Sarbanes-Oxley Act of 2002)

              31.4

              Certification of the Principal Financial Officer of United Pursuant to 15 U.S.C. 78m(a) or 78o(d) Section 302 of the Sarbanes-Oxley Act of 2002)

              32.1

              Certification of the Chief Executive Officer and Chief Financial Officer of UAL Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)

              32.2

              Certification of the Chief Executive Officer and Chief Financial Officer of United Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002)
              *
              Previously filed

              †
              Indicates management contract or compensatory plan or arrangement



              QuickLinks
              159

              UAL Corporation and Subsidiary Companies and United Air Lines, Inc. and Subsidiary Companies Report on Form 10-K For the Year Ended December 31, 2007
              PART I
              PART II
              UAL Corporation and Subsidiary Companies Statements of Consolidated Operations (In millions, except per share amounts)
              UAL Corporation and Subsidiary Companies Statements of Consolidated Cash Flows (In millions)
              UAL Corporation and Subsidiary Companies Statements of Consolidated Stockholders' Equity (Deficit) (In millions)
              United Air Lines, Inc. and Subsidiary Companies Statements of Consolidated Operations (In millions)
              United Air Lines, Inc. and Subsidiary Companies Statements of Consolidated Cash Flows (In millions)
              United Air Lines, Inc. and Subsidiary Companies Statements of Consolidated Stockholder's Equity (Deficit) (In millions)
              UAL Corporation and Subsidiary Companies Combined Notes to Consolidated Financial Statements
              PART III
              PART IV
              SIGNATURES
              Schedule II Valuation and Qualifying Accounts For the Year Ended December 31, 2007, the Eleven Month Period Ended December 31, 2006, the Month Ended January 31, 2006 and the Year Ended December 31, 2005
              EXHIBIT INDEX