United Airlines 2008 Annual Report Download - page 115

(In millions) 2008 2007 2008 2007
UAL
December 31,
United
December 31,
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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