United Airlines 2007 Annual Report Download - page 61

In addition to the impairment tests discussed above, during the second quarter of 2007 United performed an impairment review 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 implementation 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-lived intangible assets with amortization expense recognized thereon. Such future
determination could result in material charges to earnings in those future periods.
Other Postretirement Benefit Accounting. The Company accounts for other postretirement benefits using Statement of Financial Accounting Standards
No. 106, Employers' Accounting for Postretirement Benefits Other than Pensions ("SFAS 106") and 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"). 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's funded status, in its Statements of Consolidated Financial Position. Under these accounting standards, other postretirement
benefit expense is recognized on an accrual basis over 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 had resulted in a significant net obligation, as
discussed below.
The fair value of plan assets at December 31, 2007 and 2006 was $56 million and $54 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 December 31, 2007 and 2006, respectively. The difference
between the plan assets and obligations has been recorded in the Statements of Consolidated Financial Position. Detailed information regarding the Company's
other postretirement plans, including key assumptions, is included in Note 9, "Retirement and Postretirement Plans," in the Combined Notes to Consolidated
Financial Statements.
The following provides a summary of the methodology used to determine the assumptions disclosed in Note 9, "Retirement and Postretirement Plans," in
the Combined 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 bond portfolios, adjusted according to the timing of expected cash flows for the Company's future postretirement
obligations. A yield curve was developed based on a subset of these bonds (those with yields between the 40th 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 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'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
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Source: UNITED AIR LINES INC, 10-K, February 29, 2008