United Airlines 2007 Annual Report Download - page 92

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's Statements 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
accompanying Statements 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 adjustment 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's Statements 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
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Source: UNITED AIR LINES INC, 10-K, February 29, 2008