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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
¥ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2008
OR
nTRANSITION 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
and Telephone Number
State of
Incorporation
I.R.S. Employer
Identification No
001-06033 UAL Corporation Delaware 36-2675207
001-11355 United Air Lines, Inc. Delaware 36-2675206
77 W. Wacker Drive
Chicago, Illinois 60601
(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) of the Act:
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 Corporation Yes ¥No n
United Air Lines, Inc. Yes nNo ¥
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 Corporation Yes nNo ¥
United Air Lines, Inc. Yes nNo ¥
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 Corporation Yes ¥No n
United Air Lines, Inc. Yes ¥No n
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
UAL Corporation ¥
United Air Lines, Inc. ¥
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 accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act. (Check one):
UAL Corporation Large accelerated filer ¥Accelerated filer nNon-accelerated filer nSmaller reporting company n
United Air Lines,Inc. Large accelerated filer nAccelerated filer nNon-accelerated filer ¥Smaller reporting company n
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
UAL Corporation Yes nNo ¥
United Air Lines, Inc. Yes nNo ¥
The aggregate market value of voting stock held by non-affiliates of UAL Corporation was $652,389,214 as of June 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 Corporation Yes ¥No n
United Air Lines, Inc. Yes ¥No n
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of February 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) of Form 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 this Form 10-K are incorporated by reference for UAL
Corporation from its definitive proxy statement for its 2009 Annual Meeting of Stockholders to be held on June 11, 2009.

Table of contents

  • Page 1
    ... or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. UAL Corporation Yes ¥ No n United Air Lines, Inc. Yes ¥ No n Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of February 20...

  • Page 2
    ... about Market Risk ...Item 8. Financial Statements and Supplementary Data ...UAL Corporation and United Air Lines, Inc. Combined Notes to Financial Statements ...Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Item 9A. Controls and Procedures ...Item...

  • Page 3
    ... 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...

  • Page 4
    ... 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...

  • Page 5
    ... 2008, mainline domestic operations served over 80 destinations primarily throughout the U.S. and Canada and operated hubs at Chicago O'Hare International Airport ("O'Hare"), Denver International Airport ("Denver"), Los Angeles International Airport ("LAX"), San Francisco International Airport ("SFO...

  • Page 6
    ... 2008, United Cargo accounted for approximately 4% of the Company's operating revenues by generating $854 million in freight and mail revenue, an 11% increase versus 2007. United Services. United Services is a global airline support business offering customers comprehensive aircraft maintenance...

  • Page 7
    ...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...

  • Page 8
    ..., United Express, Ted, members of the Star Alliance and certain other airlines that participate in the program. Miles can also 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...

  • Page 9
    ... 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's airline seat inventory continues to be distributed through the traditional channels of travel...

  • Page 10
    ... and route networks (see 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...

  • Page 11
    ... higher premiums and more restrictive terms, if it is available at all. See "Increases in insurance costs or reductions in insurance coverage may adversely impact the Company's operations and financial results" in Item 1A, Risk Factors, below. Industry Regulation Domestic Regulation. General. All...

  • Page 12
    ...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...

  • Page 13
    ... policies can lead to the alteration or termination of air service agreements. Depending on the nature of any such change, the value of United's international route authorities and slot rights may be materially enhanced or diminished. The U.S./EU open skies agreement became effective in March 2008...

  • Page 14
    ... employee groups, number of employees and labor organization for each of United's collective bargaining groups were as follows: Employee Group Number of Employees Union(a) Contract Open for Amendment Public Contact/Ramp & Stores/Food Service Employees/Security Officers/Maintenance Instructors/Fleet...

  • Page 15
    ... be read carefully when evaluating the Company'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's business, operating results...

  • Page 16
    ... 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...

  • Page 17
    ... 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...

  • Page 18
    ... aircraft fuel hedges, see Note 13, "Fair Value Measurements and Derivative Instruments," in Combined Notes to Consolidated Financial Statements and Item 7A, Quantitative and Qualitative Disclosures about Market Risk. The Company's current plans to address increased fuel prices and the weak global...

  • Page 19
    ... 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's hedging programs may use...

  • Page 20
    ...might limit the number of flights and/or increase costs of operations at certain times or throughout the day. In addition, the Company's operations may be adversely impacted due to the existing outdated air traffic control ("ATC") system utilized by the U.S. government. During peak travel periods in...

  • Page 21
    ... 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...

  • Page 22
    ... 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...

  • Page 23
    ... 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 as telecommunications, airport services, catering, maintenance materials, aircraft...

  • Page 24
    ... 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...

  • Page 25
    ... 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 's restated certificate available on its website...

  • Page 26
    ... 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...

  • Page 27
    .... Holders of these securities may convert them into shares of UAL's common stock according to their terms. See Note 12, "Debt Obligations and Card Processing Agreements," in Combined Notes to Consolidated Financial Statements for further information regarding these instruments. UAL 's certificate of...

  • Page 28
    ... were removed from serviced during 2008 as discussed in Note 2, "Company Operational Plans," in Combined Notes to Consolidated Financial Statements. Details of UAL and United's mainline operating fleet as of December 31, 2008 are provided in the following table: Aircraft Type Average Number of Seats...

  • Page 29
    ... 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's restructuring and cost...

  • Page 30
    ... and Switzerland. On December 18, 2007, the Commission issued a Statement of Objections to 26 companies, 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...

  • Page 31
    ... 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...

  • Page 32
    ...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. None. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 32

  • Page 33
    ... and Chief Financial Officer of UAL and United since November 2008. From August 2007 to October 2008, Ms. Mikells served as Vice President of Investor Relations of United. From August 2006 to July 2007 she served as Vice President of Financial Planning and Analysis of United and from January...

  • Page 34
    ...$36.64 31.62 35.90 33.48 There is no trading market for the common stock of United. UAL and United did not pay any dividends in either 2008 or 2007. In December 2007, UAL's Board of Directors approved a special distribution of $2.15 per common share, or approximately $257 million, which was paid on...

  • Page 35
    ... fiscal year 2008: 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 Period Total number of shares purchased(a) Average price paid per share 10/01...

  • Page 36
    ... share(b) . Balance Sheet Data at period-end: Total assets ...$ 19,461 Long-term debt and capital lease obligations, including current portion...8,149 Liabilities subject to compromise ...- Mainline Operating Statistics(c): Revenue passengers ...Revenue passenger miles ("RPMs")(d) ...Available seat...

  • Page 37
    ... 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...

  • Page 38
    ... 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 DOT as well as industry-leading revenue driven by products, services, schedules and routes that are valued by the Company's customers. The goal...

  • Page 39
    ... 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...

  • Page 40
    ... 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...

  • Page 41
    ... 31, 2006 are non-GAAP measures; however, management believes that the combined results provide a more meaningful comparison to the years ended December 31, 2008 and 2007. The air travel business is subject to seasonal fluctuations and historically, the Company's results of operations are better in...

  • Page 42
    ... 2008 2007 2006(e) Combined Predecessor Period from February 1 to December 31, 2006 Period from January 1 to January 31, 2006 Revenues ...$20,194 Special revenue items(a) ...- Revenues due to Mileage Plus policy change(a) ...- Total revenues ...Mainline fuel purchase cost ...Operating non-cash fuel...

  • Page 43
    ...Salaries and related costs Salaries and related costs Other operating expenses Purchased services Depreciation and amortization Depreciation and amortization Aircraft fuel Miscellaneous, net Income tax benefit • The relatively small income tax benefit in 2008 is related to the impairment and sale...

  • Page 44
    ... Statements for 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...

  • Page 45
    ... 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...

  • Page 46
    ...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...

  • Page 47
    ...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...

  • Page 48
    ... 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") contract on June 30, 2006. United signed a new USPS contract effective April, 2007. UAL other operating revenues decreased...

  • Page 49
    ... includes data related to UAL and United operating expenses. Significant fluctuations are discussed below. (In millions) Year Ended December 31, 2008 2007 $ Change % Change Aircraft fuel...Salaries and related costs ...Regional affiliates ...Purchased services ...Aircraft maintenance materials and...

  • Page 50
    ... 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...

  • Page 51
    ... United States Bankruptcy Code," in Combined Notes to Consolidated Financial Statements for further information on pending matters related to the Company's bankruptcy. 2007 compared to 2006 The table below includes the year-over-year dollar and percentage changes in UAL and United operating expenses...

  • Page 52
    ... 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...

  • Page 53
    ... Statements for further information on these special items and pending bankruptcy matters. Other Income (Expense). 2008 compared to 2007 The following table illustrates the year-over-year dollar and percentage changes in UAL and United other income (expense). Year Ended December 31, 2008 2007...

  • Page 54
    ...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

  • Page 55
    ... 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...

  • Page 56
    ...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...

  • Page 57
    ... 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 and non-U.S. pension plans, respectively, as compared to contributions...

  • Page 58
    ... remain outstanding. See Note 12, "Debt Obligations and Card Processing Agreements," in Combined Notes to Consolidated Financial Statements for further information related to the $96 million of purchased debt securities. The Company's capital expenditures were $658 million and $362 million in 2007...

  • Page 59
    ... to UAL for this distribution) and $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...

  • Page 60
    ...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. Other 2008 and 2009 Financing Matters In January 2009, the Company entered into a sale...

  • Page 61
    ... 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 availability and/or increase the cost of future financing for the Company. Amended Credit Facility Covenants...

  • Page 62
    ... 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...

  • Page 63
    ... 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...

  • Page 64
    ...reductions as the international aircraft are only a small portion of the fleet reductions. (d) (e) (f) See Note 1(i), "Summary of Significant Accounting Policies-United Express," Note 9, "Retirement and Postretirement Plans," Note 12, "Debt Obligations and Card Processing Agreements," and Note 15...

  • Page 65
    ... and related guarantee are not recorded in the Company's Statements of Consolidated Financial Position in accordance with GAAP. The related lease agreement is accounted for as an operating lease with the associated rent expense recorded on a straight-line basis. The annual lease payments through...

  • Page 66
    ... fee is 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's additional service to modify a previous reservation. Therefore, the pricing of the change fee and the initial customer...

  • Page 67
    ...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 2008. As of December 31, 2008 and 2007, the Company's outstanding number of...

  • Page 68
    ... 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...

  • Page 69
    ... long-lived assets at fair value, it is the Company'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...

  • Page 70
    ... 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...

  • Page 71
    ...the other postretirement benefit plans at both December 31, 2008 and 2007. 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...

  • Page 72
    ... "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's results of operations and financial condition after it adopts Statement of Financial...

  • Page 73
    ... 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...

  • Page 74
    ... accounts primarily for workers' compensation obligations, security deposits for airport leases and reserves with institutions that process United's credit card ticket sales. Due to the short term nature of these cash balances, their carrying values approximate their fair values. The Company...

  • Page 75
    ... 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...

  • Page 76
    ... (c) 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...

  • Page 77
    .... 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's results of operations through changes in the dollar value...

  • Page 78
    ... 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") as of December 31, 2008 and 2007, and the related statements...

  • Page 79
    ... with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2008, based on the criteria established in "Internal Control-Integrated Framework" issued by the Committee of...

  • Page 80
    ...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") as of December 31, 2008 and 2007, and the related statements...

  • Page 81
    ...: Passenger-United Airlines ...$15,337 Passenger-Regional affiliates ...3,098 Cargo ...854 Special operating items (Note 19) ...- Other operating revenues ...905 20,194 Operating expenses: Aircraft fuel ...7,722 Salaries and related costs ...4,311 Regional affiliates ...3,248 Purchased services...

  • Page 82
    UAL Corporation and Subsidiary Companies Statements of Consolidated Financial Position (In millions, except shares) At December 31, 2008 2007 Assets Current assets: Cash and cash equivalents ...$ 2,039 Short-term investments ...- Restricted cash ...54 Fuel hedge collateral deposits ...953 ...

  • Page 83
    ... Subsidiary Companies Statements of Consolidated Financial Position (In millions, except shares) At December 31, 2008 2007 Liabilities and Stockholders' Equity (Deficit) Current liabilities: Advance ticket sales ...$ 1,530 Mileage Plus deferred revenue...1,414 Accounts payable ...829 Long-term debt...

  • Page 84
    ...Credit Facility ...Repayment of other long-term debt ...Proceeds from issuance of long-term debt . . Special distribution to common shareholders Principal payments under capital leases ...Decrease in aircraft lease deposits ...Payment of deferred financing costs ...Proceeds from sale of common stock...

  • Page 85
    ... plans . Total comprehensive loss, net ...Preferred stock dividends ...Conversion of preferred stock ...Sale of common stock ...Share-based compensation ...Treasury stock acquisitions ...Balance at December 31, 2008 ... $ See accompanying Combined Notes to Consolidated Financial Statements...

  • Page 86
    United Air Lines, Inc. and Subsidiary Companies Statements of Consolidated Operations (In millions) Successor Year Ended December 31, 2008 2007 Period from February 1 to December 31, 2006 Predecessor Period from January 1 to January 31, 2006 Operating revenues: Passenger-United Airlines ...$15,337 ...

  • Page 87
    United Air Lines, Inc. and Subsidiary Companies Statements of Consolidated Financial Position (In millions, except shares) December 31, 2008 2007 Assets Current assets: Cash and cash equivalents ...$ 2,033 Short-term investments ...- Restricted cash ...50 Fuel hedge collateral deposits ...953 ...

  • Page 88
    ... Companies Statements of Consolidated Financial Position (In millions, except shares) December 31, 2008 2007 Liabilities and Stockholder's Equity (Deficit) Current liabilities: Advance ticket sales ...$ 1,530 Mileage Plus deferred revenue...1,414 Accounts payable ...833 Long-term debt maturing...

  • Page 89
    ... from issuance of long-term debt . . Dividend to parent ...Capital contributions from parent ...Principal payments under capital leases ...Decrease in aircraft lease deposits ...Payment of deferred financing costs ...Repayment of DIP financing...Proceeds from exercise of stock options ...Other, net...

  • Page 90
    ... plans . . Total comprehensive income, net ...Preferred stock dividends (Note 5) ...Adoption of FIN 48 ...Tax adjustment on SFAS 158 adoption (Note 11) . MPI note forgiveness (Note 18) ...Share-based compensation ...Proceeds from exercise of stock options ... ... Balance at December 31, 2007...

  • Page 91
    ... in accordance with American Institute of Certified Public Accountants' Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code ("SOP 90-7") as of February 1, 2006. The Company's emergence from reorganization resulted in a new reporting entity with no...

  • Page 92
    ...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...

  • Page 93
    ... $ (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...

  • Page 94
    ... 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 our Statements of Consolidated Operations. The Company's frequent flyer obligation was...

  • Page 95
    ... 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...

  • Page 96
    ...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...

  • Page 97
    ... 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. APB...

  • Page 98
    ... 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...

  • Page 99
    ... 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...

  • Page 100
    ... within salaries and related costs in the Company's Statements 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...

  • Page 101
    ...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...

  • Page 102
    ... 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...

  • Page 103
    ... 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...

  • Page 104
    ... 2007, respectively: Weighted Average Life of Assets (in years) 2008 Gross Carrying Accumulated Amount Amortization 2007 Gross Carrying Accumulated Amount Amortization (Dollars in millions) Amortized intangible assets Airport slots and gates ...Hubs...Patents ...Mileage Plus database ...Contracts...

  • Page 105
    ... 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...

  • Page 106
    ... other operating expense (credit) ...Total adjustments impacting income ...Balance at December 31, 2008, 2007 and 2006 ...Total charge (credit) to operating income during period from above items ...Additional special operating expense credit ...Total operating income charge (benefit) ...(a) (b) $98...

  • Page 107
    ...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. The Company revalued its Mileage Plus Frequent Flyer Program ("Mileage Plus") obligations at fair...

  • Page 108
    ... 1, 2006, the then-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...

  • Page 109
    ... 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...

  • Page 110
    ... 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...

  • Page 111
    ...provides information related to our share-based compensation plans. Year Ended December 31, 2008 2007 Period from February 1 to December 31, 2006 (In millions) Compensation cost: Management plan restricted stock ...Management plan stock options ...DEIP unrestricted stock ...Total compensation cost...

  • Page 112
    ... information for options granted in each period: Year Ended December 31, 2008 2007 Period from February 1 to December 31, 2006 Weighted-average fair value assumptions: Risk-free interest rate ...Dividend yield ...Expected market price volatility of UAL common stock...Expected life of options...

  • Page 113
    ..., 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...

  • Page 114
    ... millions) UAL December 31, 2008 2007 United December 31, 2008 2007 Deferred income tax asset (liability): Employee benefits, including postretirement, medical and ESOP ...Federal and state net operating loss carry forwards ...Mileage Plus deferred revenue ...AMT credit carry forwards ...Fuel hedge...

  • Page 115
    ... 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...

  • Page 116
    ... 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...

  • Page 117
    ... 2008 2007 (In millions) Change in Benefit Obligation Benefit obligation at beginning of period ...Service cost ...Interest cost ...Plan participants' contributions ...Amendments ...Actuarial (gain) loss ...Curtailments ...Foreign currency exchange rate changes ...Federal subsidy ...Gross benefits...

  • Page 118
    ... data. The weighted-average assumptions used for the benefit plans were as follows: Pension Benefits At December 31, 2008 2007 Other Benefits At December 31, 2008 2007 Weighted-average assumptions used to determine benefit obligations Discount rate ...Rate of compensation increase ... 3.59% 2.94...

  • Page 119
    ... 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 ...Effect...

  • Page 120
    ... $34 million, $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...

  • Page 121
    ...the one month period ended January 31, 2006: Successor (In millions) UAL Year Ended December 31, 2008 2007 Period from February 1 to December 31, 2006 Predecessor Period from January 1 to January 31, 2006 Revenue: Mainline ...$17,096 United Express...3,098 Special revenue items...- Total ...$20,194...

  • Page 122
    ... the United Express segment in reports used to evaluate segment performance. Therefore, all amounts classified as interest income and interest expense in the Statements of Consolidated Operations relate to the mainline segment. In accordance with SFAS 142, on the Effective Date the Company allocated...

  • Page 123
    ... are reported in the Company's Statements of Consolidated 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 years ended December 31, 2008 and 2007, the eleven month...

  • Page 124
    ... and is reported separately in the Company's Statements of Consolidated Stockholders' Equity (Deficit). (12) Debt Obligations and Card Processing Agreements Long-term debt amounts outstanding at December 31, 2008 and 2007 are shown below: (In millions) At December 31, 2008 2007 United Secured notes...

  • Page 125
    ... 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...

  • Page 126
    ... 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 improved loan-to-value ratios for more senior debt classes. These credit enhancements lower United's total borrowing cost...

  • Page 127
    ... 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...

  • Page 128
    ... 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...

  • Page 129
    ...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...

  • Page 130
    ...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...

  • Page 131
    ... 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...

  • Page 132
    ... 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...

  • Page 133
    ... in the Company's Statements of Consolidated Financial Position based 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...

  • Page 134
    ... using appropriate market rates and the Black-Scholes model to value conversion rights in UAL's convertible preferred stock and debt instruments. The Company's credit risk was considered in estimating fair value. (14) Commitments, Contingent Liabilities and Uncertainties General Guarantees and...

  • Page 135
    ... 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...

  • Page 136
    ... aggregate principal amount of 5.75% premium bonds. The outstanding bonds and related guarantee are not recorded in the Company's Statements of Consolidated Financial Position at December 31, 2008 or 2007. The related lease agreement is recorded on a straight-line basis resulting in ratable accrual...

  • Page 137
    ... 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 1(i), "Summary of Significant Accounting Policies-United Express," for additional information related to United Express contracts and Note 2, "Company Operational Plans," for...

  • Page 138
    ... 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's total aircraft operating leases only 11 of these aircraft leases...

  • Page 139
    ...' Equity and Preferred Securities," Note 12, "Debt Obligations and Card Processing Agreements," and Note 15, "Lease Obligations." (17) Advanced Purchase of Miles In September 2008, the Company amended certain terms of its agreement with its co-branded credit card partner (the "Amendment"). In...

  • Page 140
    ...of miles" obligation in our Statements 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...

  • Page 141
    ... 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 SFO Municipal Bonds Security Interest. In October 2006, the Bankruptcy Court issued an order declaring that the...

  • Page 142
    ... during 2008 and 2007, respectively. See Note 12, "Debt Obligations and Card Processing Agreements," for 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...

  • Page 143
    ... 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...

  • Page 144
    ... 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, 2008, disclosure controls and procedures were effective. Changes in Internal Control over Financial...

  • Page 145
    ...Financial Officer concluded that our internal controls over financial reporting were effective as of December 31, 2008. Our independent registered public accounting firm, Deloitte & Touche LLP, who audited UAL's consolidated financial statements included in this Form 10-K, has issued a report on UAL...

  • Page 146
    ...Stockholder of United Air Lines, Inc. Chicago, Illinois The management of United Air Lines, Inc. ("United") is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Our internal control over financial...

  • Page 147
    ... 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") as of December 31, 2008, based on criteria established in Internal Control...

  • Page 148
    ... 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, 2008 of the Company and our report dated March 2, 2009 expressed an unqualified opinion on those...

  • Page 149
    ITEM 9B. OTHER INFORMATION. None. 149

  • Page 150
    ... UAL's definitive proxy statement for its 2009 Annual Meeting of Stockholders. Information required by this item with respect to United is omitted pursuant to General Instruction I(2)(c) of Form 10-K. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. The Audit Committee of the UAL Board of Directors...

  • Page 151
    ...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...

  • Page 152
    ... Accounts for the years ended December 31, 2008 and 2007, the month ended January 31, 2006 and the eleven month period ended December 31, 2006. All other schedules are omitted because they are not applicable, not required or the required information is shown in the consolidated financial statements...

  • Page 153
    ...by the undersigned, thereunto duly authorized. 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, this Form 10...

  • Page 154
    ... of the Securities Exchange Act of 1934, this Form 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...

  • Page 155
    ... Charged to Costs and Expenses Balance at End of Period Deductions(a) Reserves deducted from assets to which they apply: Allowance for doubtful accounts (UAL): 2008 (Successor) ...2007 (Successor) ...2006 (Successor) ...January 2006 (Predecessor) ...Allowance for doubtful accounts (United): 2008...

  • Page 156
    ... filed December 7, 2007, Commission file number 1-6033, and incorporated herein by reference) 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...

  • Page 157
    ... Severance Plan Amendment No. 1 dated January 1, 2008 (filed as Exhibit 10.5 to UAL's Form 10-K for the year ended December 31, 2007, Commission file number 1-6033, and incorporated herein by reference) Employment Agreement dated September 5, 2002 by and among United Air Lines, Inc., UAL Corporation...

  • Page 158
    ... by and among UAL Corporation, United Air Lines, Inc. and Peter D. McDonald Separation Agreement dated October 9, 2008 by and among UAL Corporation, United Air Lines, Inc. and Frederic F. Brace Description of Officer Benefits UAL Corporation 2006 Management Equity Incentive Plan (filed as Exhibit 10...

  • Page 159
    ... 31.3 31.4 32.1 32.2 * †Consent of Independent Registered Public Accounting Firm for UAL Corporation Consent of Independent Registered Public Accounting Firm for United Air Lines, Inc. Certification of the Principal Executive Officer of UAL Pursuant to 15 U.S.C. 78m(a) or 78o(d) (Section 302 of...