United Airlines 2008 Annual Report Download - page 50

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adjustments, which were primarily due to discount rate changes. These negative impacts were partially
offset by lower combined profit and success sharing expense in the 2008 period as compared to the
year-ago period due to the unfavorable financial results in 2008 as compared to 2007. In addition, 2008
salaries and related costs benefited from the workforce reductions completed during the year as
discussed in Overview above.
Regional affiliate expense increased $307 million, or 10%, in 2008 as compared to the same period
last year. Regional affiliate expense increased primarily due to a $342 million, or 37%, increase in
Regional Affiliate fuel that was driven by an 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 fully offset by
higher ticket prices, as Regional Affiliate revenues were only 1% higher in 2008.
The Company’s purchased services increased $29 million, or 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 areas 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 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 recorded in other
operating expenses, and decreases in several other expense categories which resulted from the
Company’s cost reduction program.
Asset Impairments and Special Items.
As described in Combined 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 events and changes 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
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