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United Continental Holdings, Inc. 10-Q 2009
form10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
R
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
OR
£
TRANSITION 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        
 
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 R No £
United Air Lines, Inc.
Yes R No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes £ No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
UAL Corporation
Large accelerated filer R
Accelerated filer £
Non-accelerated filer £
Smaller reporting company £
     
(Do not check if a smaller reporting company)
 
United Air Lines, Inc.
Large accelerated filer £
Accelerated filer £
Non-accelerated filer R
Smaller reporting company £
     
(Do not check if a smaller reporting company)
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

UAL Corporation
Yes £ No R
United Air Lines, Inc.
Yes £ No R

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 R No £
United Air Lines, Inc.
Yes R No £

OMISSION OF CERTAIN INFORMATION

United Air Lines, Inc. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format allowed under that General Instruction.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of October 16, 2009.

UAL Corporation
United Air Lines, Inc.
167,040,862 shares of common stock ($0.01 par value)
205 (100% owned by UAL Corporation)
 
There is no market for United Air Lines, Inc. common stock.
 


 
 
 

 

UAL Corporation and Subsidiary Companies and
United Air Lines, Inc. and Subsidiary Companies

Report on Form 10-Q

For the Quarter Ended September 30, 2009

 
Page
PART I. FINANCIAL INFORMATION
   
UAL Corporation:
   
3
 
5
 
7
 
     
United Air Lines, Inc.:
   
8
 
10
 
12
 
     
13
 
(UAL Corporation and United Air Lines, Inc.)
   
     
32
 
49
 
50
 
     
PART II. OTHER INFORMATION
50
 
51
 
51
 
51
 
52
 
53
 
 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
 
UAL Corporation and Subsidiary Companies
Condensed Statements of Consolidated Operations (Unaudited)
(In millions, except per share amounts)

   
Three Months Ended September 30,
 
 
 
2009
   
2008
 
         
(Adjusted)
 
Operating revenues:
           
Passenger — United Airlines
  $ 3,267     $ 4,280  
Passenger — Regional Affiliates
    844       834  
Cargo
    125       219  
Other operating revenues
    197       232  
      4,433       5,565  
Operating expenses:
               
Aircraft fuel
    1,064       2,461  
Salaries and related costs
    954       1,037  
Regional Affiliates
    775       882  
Purchased services
    279       327  
Aircraft maintenance materials and outside repairs
    253       256  
Landing fees and other rent
    226       222  
Depreciation and amortization
    220       234  
Distribution expenses
    145       181  
Aircraft rent
    88       115  
Cost of third party sales
    59       75  
Other impairments and special items (Note 14)
    43       (9 )
Other operating expenses
    239       275  
      4,345       6,056  
Earnings (loss) from operations
    88       (491 )
                 
Other income (expense):
               
Interest expense
    (146 )     (144 )
Interest income
    3       24  
Interest capitalized
    3       6  
Miscellaneous, net
    (10 )     (186 )
      (150 )     (300 )
Loss before income taxes and equity in earnings of affiliates
    (62 )     (791 )
Income tax expense (benefit)
    (4 )     2  
Loss before equity in earnings of affiliates
    (58 )     (793 )
Equity in earnings of affiliates, net of tax
    1       1  
Net loss
  $ (57 )   $ (792 )
Loss per share, basic and diluted
  $ (0.39 )   $ (6.22 )

See accompanying Combined Notes to Condensed Consolidated Financial Statements (Unaudited).


UAL Corporation and Subsidiary Companies
Condensed Statements of Consolidated Operations (Unaudited)
(In millions, except per share amounts)

   
Nine Months Ended September 30,
 
 
 
2009
   
2008
 
         
(Adjusted)
 
Operating revenues:
           
Passenger — United Airlines
  $ 8,909     $ 11,924  
Passenger — Regional Affiliates
    2,252       2,346  
Cargo
    370       674  
Other operating revenues
    611       703  
      12,142       15,647  
Operating expenses:
               
Salaries and related costs
    2,838       3,262  
Aircraft fuel
    2,528       5,884  
Regional Affiliates
    2,154       2,508  
Purchased services
    852       1,047  
Aircraft maintenance materials and outside repairs
    718       868  
Landing fees and other rent
    676       651  
Depreciation and amortization
    675       670  
Distribution expenses
    402       558  
Aircraft rent
    265       314  
Cost of third party sales
    172       204  
Goodwill impairment (Note 14)
    -       2,277  
Other impairments and special items (Note 14)
    250       214  
Other operating expenses
    699       816  
      12,229       19,273  
Loss from operations
    (87 )     (3,626 )
                 
Other income (expense):
               
Interest expense
    (415 )     (428 )
Interest income
    15       100  
Interest capitalized
    8       16  
Miscellaneous, net
    19       (177 )
      (373 )     (489 )
Loss before income taxes and equity in earnings of affiliates
    (460 )     (4,115 )
Income tax benefit
    (46 )     (30 )
Loss before equity in earnings of affiliates
    (414 )     (4,085 )
Equity in earnings of affiliates, net of tax
    3       4  
Net loss
  $ (411 )   $ (4,081 )
Loss per share, basic and diluted
  $ (2.83 )   $ (32.62 )

See accompanying Combined Notes to Condensed Consolidated Financial Statements (Unaudited).


UAL Corporation and Subsidiary Companies
Condensed Statements of Consolidated Financial Position (Unaudited)
(In millions, except shares)

   
September 30, 2009
   
December 31, 2008
 
         
(Adjusted)
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 2,525     $ 2,039  
Restricted cash
    99       54  
Receivables, less allowance for doubtful accounts (2009—$14; 2008—$24)
    843       714  
Prepaid fuel
    285       219  
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2009—$70; 2008—$48)
    216       237  
Deferred income taxes
    92       268  
Fuel hedge collateral deposits
    62       953  
Prepaid expenses and other
    404       382  
      4,526       4,866  
Operating property and equipment:
               
Owned—
               
Flight equipment
    8,414       8,766  
Other property and equipment
    1,722       1,751  
      10,136       10,517  
Less—accumulated depreciation and amortization
    (1,932 )     (1,598 )
      8,204       8,919  
Capital leases:
               
Flight equipment
    1,795       1,578  
Other property and equipment
    43       39  
      1,838       1,617  
Less—accumulated amortization
    (310 )     (224 )
      1,528       1,393  
      9,732       10,312  
Other assets:
               
Intangibles, less accumulated amortization (2009—$391; 2008—$339)
    2,472       2,693  
Aircraft lease deposits
    307       297  
Restricted cash
    210       218  
Investments
    90       81  
Other, net
    1,010       998  
      4,089       4,287  
    $ 18,347     $ 19,465  

See accompanying Combined Notes to Condensed Consolidated Financial Statements (Unaudited).


UAL Corporation and Subsidiary Companies
Condensed Statements of Consolidated Financial Position (Unaudited)
(In millions, except shares)

   
September 30, 2009
   
December 31, 2008
 
         
(Adjusted)
 
Liabilities and Stockholders’ Deficit
           
Current liabilities:
           
Advance ticket sales
  $ 1,675     $ 1,530  
Mileage Plus deferred revenue
    1,428       1,414  
Accounts payable
    807       833  
Accrued salaries, wages and benefits
    731       756  
Long-term debt maturing within one year
    651       782  
Fuel purchase commitments
    285       219  
Current obligations under capital leases
    177       168  
Accrued interest
    120       112  
Derivative instruments
    76       718  
Other
    687       749  
      6,637       7,281  
Long-term debt
    5,767       5,862  
Long-term obligations under capital leases
    1,212       1,192  
                 
Other liabilities and deferred credits:
               
Mileage Plus deferred revenue
    2,823       2,768  
Postretirement benefit liability
    1,808       1,812  
Advanced purchase of miles
    1,087       1,087  
Deferred income taxes
    576       804  
Other
    1,082       980  
      7,376       7,451  
Commitments and contingent liabilities (Note 12)
               
                 
Stockholders’ deficit:
               
Preferred stock
           
Common stock at par, $0.01 par value; authorized 1,000,000,000 shares; outstanding 148,032,041 and 140,037,928 shares at September 30, 2009 and December 31, 2008, respectively
    2       1  
Additional capital invested
    3,001       2,919  
Retained deficit
    (5,719 )     (5,308 )
Stock held in treasury, at cost
    (28 )     (26 )
Accumulated other comprehensive income
    99       93  
      (2,645 )     (2,321 )
    $ 18,347     $ 19,465  

See accompanying Combined Notes to Condensed Consolidated Financial Statements (Unaudited).


UAL Corporation and Subsidiary Companies
Condensed Statements of Consolidated Cash Flows (Unaudited)
(In millions)

 
 
Nine Months Ended September 30,
 
 
 
2009
   
2008
 
         
(Adjusted)
 
Cash flows provided (used) by operating activities:
           
Net loss
  $ (411 )   $ (4,081 )
Adjustments to reconcile to net cash provided (used) by operating activities—
               
Goodwill impairment
    -       2,277  
Other impairments and special items
    250       214  
Depreciation and amortization
    675       670  
Proceeds from lease amendment
    160        
Increase in Mileage Plus deferred revenue and advanced purchase of miles
    140       584  
Increase in advance ticket sales
    145       333  
Net change in fuel derivative instruments and related pending settlements
    (870 )     272  
(Increase) decrease in fuel hedge collateral
    903       (378 )
Increase in receivables
    (44 )     (166 )
Other, net
    (70 )     25  
      878       (250 )
Cash flows provided (used) by investing activities:
               
Net sales of short-term investments
    -       2,295  
(Increase) decrease in restricted cash
    (37 )     508  
Proceeds from asset sale-leasebacks
    135       59  
Proceeds from litigation on advance deposits
    -       41  
Additions to property, equipment and deferred software
    (230 )     (384 )
Proceeds from asset dispositions
    77       43  
Other, net
    3       14  
      (52 )     2,576  
Cash flows provided (used) by financing activities:
               
Proceeds from issuance of long-term debt
    321       337  
Proceeds from issuance of common stock
    90        
Decrease in lease deposits
    22       154  
Repayment of Credit Facility
    (18 )     (18 )
Repayment of other debt
    (615 )     (538 )
Special distribution to common shareholders
    -       (253 )
Principal payments under capital leases
    (129 )     (209 )
Increase in deferred financing costs
    (9 )     (118 )
Other, net
    (2 )     (9 )
      (340 )     (654 )
Increase in cash and cash equivalents during the period
    486       1,672  
Cash and cash equivalents at beginning of the period
    2,039       1,259  
Cash and cash equivalents at end of the period
  $ 2,525     $ 2,931  

See accompanying Combined Notes to Condensed Consolidated Financial Statements (Unaudited).


United Air Lines, Inc. and Subsidiary Companies
Condensed Statements of Consolidated Operations (Unaudited)
(In millions)

 
 
Three Months Ended September 30,
 
 
 
2009
   
2008
 
         
(Adjusted)
 
Operating revenues:
           
Passenger — United Airlines
  $ 3,267     $ 4,280  
Passenger — Regional Affiliates
    844       834  
Cargo
    125       219  
Other operating revenues
    199       273  
      4,435       5,606  
Operating expenses:
               
Aircraft fuel
    1,064       2,461  
Salaries and related costs
    954       1,036  
Regional Affiliates
    775       882  
Purchased services
    279       327  
Aircraft maintenance materials and outside repairs
    253       256  
Landing fees and other rent
    226       222  
Depreciation and amortization
    220       234  
Distribution expenses
    145       181  
Aircraft rent
    88       116  
Cost of third party sales
    58       75  
Other impairments and special items (Note 14)
    43       (9 )
Other operating expenses
    240       276  
      4,345       6,057  
Earnings (loss) from operations
    90       (451 )
                 
Other income (expense):
               
Interest expense
    (145 )     (144 )
Interest income
    3       24  
Interest capitalized
    3       6  
Miscellaneous, net
    (11 )     (185 )
      (150 )     (299 )
Loss before income taxes and equity in earnings of affiliates
    (60 )     (750 )
Income tax expense (benefit)
    (4 )     3  
Loss before equity in earnings of affiliates
    (56 )     (753 )
Equity in earnings of affiliates, net of tax
    1       1  
Net loss
  $ (55 )   $ (752 )

See accompanying Combined Notes to Condensed Consolidated Financial Statements (Unaudited).


United Air Lines, Inc. and Subsidiary Companies
Condensed Statements of Consolidated Operations (Unaudited)
(In millions)
   
Nine Months Ended September 30,
 
 
 
2009
   
2008
 
         
(Adjusted)
 
Operating revenues:
           
Passenger — United Airlines
  $ 8,909     $ 11,924  
Passenger — Regional Affiliates
    2,252       2,346  
Cargo
    370       674  
Other operating revenues
    618       744  
      12,149       15,688  
Operating expenses:
               
Salaries and related costs
    2,838       3,262  
Aircraft fuel
    2,528       5,884  
Regional Affiliates
    2,154       2,508  
Purchased services
    852       1,047  
Aircraft maintenance materials and outside repairs
    718       868  
Landing fees and other rent
    676       651  
Depreciation and amortization
    675       670  
Distribution expenses
    402       558  
Aircraft rent
    267       316  
Cost of third party sales
    171       203  
Goodwill impairment (Note 14)
    -       2,277  
Other impairments and special items (Note 14)
    250       214  
Other operating expenses
    699       844  
      12,230       19,302  
Loss from operations
    (81 )     (3,614 )
                 
Other income (expense):
               
Interest expense
    (414 )     (427 )
Interest income
    15       100  
Interest capitalized
    8       16  
Miscellaneous, net
    18       (177 )
      (373 )     (488 )
Loss before income taxes and equity in earnings of affiliates
    (454 )     (4,102 )
Income tax benefit
    (46 )     (30 )
Loss before equity in earnings of affiliates
    (408 )     (4,072 )
Equity in earnings of affiliates, net of tax
    3       4  
Net loss
  $ (405 )   $ (4,068 )

See accompanying Combined Notes to Condensed Consolidated Financial Statements (Unaudited).


United Air Lines, Inc. and Subsidiary Companies
Condensed Statements of Consolidated Financial Position (Unaudited)
(In millions, except shares)

 
 
September 30, 2009
   
December 31, 2008
 
         
(Adjusted)
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 2,519     $ 2,033  
Restricted cash
    99       50  
Receivables, less allowance for doubtful accounts (2009 — $14; 2008 — $24)
    843       704  
Prepaid fuel
    285       219  
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2009 — $70; 2008 — $48)
    216       237  
Deferred income taxes
    87       265  
Fuel hedge collateral deposits
    62       953  
Receivables from related parties
    56       214  
Prepaid expenses and other
    382       376  
      4,549       5,051  
Operating property and equipment:
               
Owned —
               
Flight equipment
    8,414       8,766  
Other property and equipment
    1,722       1,751  
      10,136       10,517  
Less — accumulated depreciation and amortization
    (1,932 )     (1,598 )
      8,204       8,919  
Capital leases:
               
Flight equipment
    1,795       1,578  
Other property and equipment
    43       39  
      1,838       1,617  
Less — accumulated amortization
    (310 )     (224 )
      1,528       1,393  
      9,732       10,312  
Other assets:
               
Intangibles, less accumulated amortization (2009 — $391; 2008 — $339)
    2,472       2,693  
Aircraft lease deposits
    307       297  
Restricted cash
    210       217  
Investments
    90       81  
Other, net
    997       984  
      4,076       4,272  
    $ 18,357     $ 19,635  

See accompanying Combined Notes to Condensed Consolidated Financial Statements (Unaudited).


United Air Lines, Inc. and Subsidiary Companies
Condensed Statements of Consolidated Financial Position (Unaudited)
(In millions, except shares)

   
September 30, 2009
   
December 31, 2008
 
         
(Adjusted)
 
Liabilities and Stockholder’s Deficit
           
Current liabilities:
           
Advance ticket sales
  $ 1,675     $ 1,530  
Mileage Plus deferred revenue
    1,428       1,414  
Accounts payable
    807       833  
Accrued salaries, wages and benefits
    731       756  
Long-term debt maturing within one year
    650       780  
Fuel purchase commitments
    285       219  
Current obligations under capital leases
    177       168  
Accrued interest
    120       112  
Derivative instruments
    76       718  
Other
    770       1,016  
      6,719       7,546  
Long-term debt
    5,768       5,861  
Long-term obligations under capital leases
    1,212       1,192  
                 
Other liabilities and deferred credits:
               
Mileage Plus deferred revenue
    2,823       2,768  
Postretirement benefit liability
    1,808       1,812  
Advanced purchase of miles
    1,087       1,087  
Deferred income taxes
    494       724  
Other
    1,082       981  
      7,294       7,372  
Commitments and contingent liabilities (Note 12)
               
                 
Stockholder’s deficit:
               
Common stock at par, $5 par value; authorized 1,000 shares; outstanding 205 at both September 30, 2009 and December 31, 2008
           
Additional capital invested
    2,929       2,831  
Retained deficit
    (5,664 )     (5,260 )
Accumulated other comprehensive income
    99       93  
      (2,636 )     (2,336 )
    $ 18,357     $ 19,635  

See accompanying Combined Notes to Condensed Consolidated Financial Statements (Unaudited).


United Air Lines, Inc. and Subsidiary Companies
Condensed Statements of Consolidated Cash Flows (Unaudited)
(In millions)

 
 
Nine Months Ended September 30,
 
 
 
2009
   
2008
 
         
(Adjusted)
 
Cash flows provided (used) by operating activities:
           
Net loss
  $ (405 )   $ (4,068 )
Adjustments to reconcile to net cash provided (used) by operating activities—
               
Goodwill impairment
    -       2,277  
Other impairments and special items
    250       214  
Depreciation and amortization
    675       670  
Proceeds from lease amendment
    160        
Increase in Mileage Plus deferred revenue and advanced purchase of miles
    140       584  
Increase in advance ticket sales
    145       333  
Net change in fuel derivative instruments and related pending settlements
    (870 )     272  
(Increase) decrease in fuel hedge collateral
    903       (378 )
Increase in receivables
    (38 )     (168 )
Other, net
    (80 )     71  
      880       (193 )
Cash flows provided (used) by investing activities:
               
Net sales of short-term investments
    -       2,259  
Proceeds from asset sale-leasebacks
    135       59  
(Increase) decrease in restricted cash
    (42 )     479  
Additions to property, equipment and deferred software
    (230 )     (384 )
Proceeds from asset dispositions
    77       42  
Other, net
    4       15  
      (56 )     2,470  
Cash flows provided (used) by financing activities:
               
Proceeds from issuance of long-term debt
    321       337  
Capital contribution from parent
    89        
Decrease in lease deposits
    22       154  
Dividend to parent
    -       (258 )
Repayment of Credit Facility
    (18 )     (18 )
Repayment of other debt
    (614 )     (537 )
Principal payments under capital leases
    (129 )     (209 )
Increase in deferred financing costs
    (9 )     (118 )
Other, net
    -       1  
      (338 )     (648 )
Increase in cash and cash equivalents during the period
    486       1,629  
Cash and cash equivalents at beginning of the period
    2,033       1,239  
Cash and cash equivalents at end of the period
  $ 2,519     $ 2,868  

See accompanying Combined Notes to Condensed Consolidated Financial Statements (Unaudited).


UAL Corporation and Subsidiary Companies and
United Air Lines, Inc. and Subsidiary Companies
Combined Notes to Condensed Consolidated Financial Statements (Unaudited)

(1)   Basis of Presentation

UAL Corporation (together with its consolidated subsidiaries, “UAL”), is a holding company and its principal, wholly-owned subsidiary is United Air Lines, Inc. (together with its consolidated subsidiaries, “United”). We sometimes use the words “we,” “our,” “us,” and the “Company” in this Form 10-Q for disclosures that relate to both UAL and United.

This Quarterly Report on Form 10-Q is a combined report of UAL and United. Therefore, these Combined Notes to Condensed Consolidated Financial Statements (Unaudited) (the “Footnotes”), apply to both UAL and United, unless otherwise noted. As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL.

Interim Financial Statements. >The UAL and United unaudited condensed consolidated financial statements (the “Financial Statements”) shown here have been prepared as required by the U.S. Securities and Exchange Commission (the “SEC”). Some information and footnote disclosures normally included in financial statements that meet accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted as permitted by the SEC. The Company believes that the disclosures presented here are not misleading. The Financial Statements include all adjustments, including asset impairments, severance and normal recurring adjustments, which are considered necessary for a fair presentation of the Company’s financial position and results of operations. Certain historical amounts have been reclassified to conform to the current year’s presentation, including reclassification of December 31, 2008 derivative counterparty settlement payables of $140 million from Fuel derivative instruments to Other current liabilities in the Company’s Financial Statements. These Financial Statements should be read together with the information included in the combined UAL and United Annual Report on Form 10-K for the year ended December 31, 2008 as updated by the Current Report on Form 8-K dated May 1, 2009 (the “2008 Annual Report”).

Restricted Cash.> For the 2009 and 2008 periods, restricted cash primarily includes cash collateral to secure workers’ compensation obligations and reserves for institutions that process credit card ticket sales. Industry practice includes classification of restricted cash flows as operating cash flows by some airlines and investing cash flows by others. The Company classifies changes in restricted cash balances associated with workers’ compensation obligations and credit card reserves as an investing activity in its Financial Statements because it considers restricted cash arising from these activities similar to an investment. If UAL had classified these changes in its restricted cash balances as operating activities in the nine months ended September 30, 2009 and 2008, its cash provided (used) by operating activities of $878 million and $(250) million, respectively, would have been reported as $841 million and $258 million, respectively. Additionally, cash provided (used) by investing activities for the nine months ended September 30, 2009 and 2008 of $(52) million and $2,576 million, respectively, would have been reported as $(15) million and $2,068 million, respectively.

(2)   New Accounting Pronouncements

In the third quarter of 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The ASC is the single official source of authoritative, nongovernmental GAAP, other than guidance issued by the SEC. The adoption of the ASC did not have any impact on the financial statements included herein.

In October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements – A Consensus of the FASB Emerging Issues Task Force.” This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011; however, earlier application is permitted. The Company has not determined the impact that this update may have on its financial statements.

In August 2009, the FASB issued Accounting Standards Update No. 2009-05 (“ASC Update 2009-05”), an update to ASC 820, Fair Value Measurements and Disclosures. This update provides amendments to reduce potential ambiguity in financial reporting when measuring the fair value of liabilities. Among other provisions, this update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the valuation techniques described in ASC Update 2009-05. ASC Update 2009-05 will become effective for the Company’s annual financial statements for the year ended December 31, 2009. The Company has not determined the impact that this update may have on its financial statements.


In June 2009, the FASB issued guidance related to accounting for transfers of financial assets. This guidance improves the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and a continuing interest in transferred financial assets. In addition, this guidance amends various ASC concepts with respect to accounting for transfers and servicing of financial assets and extinguishments of liabilities, including removing the concept of qualified special purpose entities. This guidance must be applied to transfers occurring on or after the effective date. The Company will adopt this guidance in its first annual and interim reporting periods beginning after November 15, 2009. The Company has not determined the impact that this guidance may have on its financial statements.

In June 2009, the FASB issued guidance which amends certain ASC concepts related to consolidation of variable interest entities. Among other accounting and disclosure requirements, this guidance replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity. The Company will adopt this guidance in its first annual and interim reporting periods beginning after November 15, 2009. The Company has not determined the impact that this guidance may have on its financial statements.

Adoption of ASC 470 Update. >The Company adopted new accounting guidance related to accounting for convertible debt instruments that may be settled in cash upon conversion (“ASC 470 Update”), effective January 1, 2009, which required retrospective application. This standard requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. The Company has two currently outstanding convertible debt instruments that are impacted by the ASC 470 Update. Upon the original issuance of these two debt instruments in 2006, the Company recorded the net debt obligation as long-term debt in accordance with applicable accounting standards at that time. To adopt this standard effective January 1, 2009, the Company estimated the fair value, as of the date of issuance, of its two applicable convertible debt instruments as if the instruments were issued without the conversion options. The difference between the fair value and the principal amounts of the instruments was $254 million. This amount was retrospectively applied to the Company’s Financial Statements from the issuance date of the debt instruments in 2006, and was retrospectively recorded as a debt discount and as a component of equity. The discount is being amortized over the expected five-year life of the notes resulting in non-cash increases to interest expense in historical and future periods. The full year 2008 interest expense impact is $48 million.

The following tables reflect UAL and United’s previously reported amounts, along with the adjusted amounts after adoption.

(In millions, except per share)
 
UAL
 
United
   
As Reported
 
As Adjusted
 
Effect of Change
 
As Reported
 
As Adjusted
 
Effect of Change
Statement of Consolidated Operations (Unaudited)
Three Months Ended September 30, 2008
Interest expense
  $ (131 )   $ (144 )   $ (13 )     $ (132 )   $ (144 )   $ (12 )
Nonoperating expense
    (287 )     (300 )     (13 )       (287 )     (299 )     (12 )
Loss before income taxes and equity earnings in affiliates
    (778 )     (791 )     (13 )       (738 )     (750 )     (12 )
Net loss
    (779 )     (792 )     (13 )       (740 )     (752 )     (12 )
Loss per share, basic and diluted
    (6.13 )     (6.22 )     (0.09 )    
NA
   
NA
   
NA
 
Total comprehensive loss
    (791 )     (804 )     (13 )     (752 )     (764 )     (12 )

 
Nine months Ended September 30, 2008
Interest expense
  $ (392 )   $ (428 )   $ (36 )   $ (392 )   $ (427 )   $ (35 )
Nonoperating expense
    (453 )     (489 )     (36 )     (453 )     (488 )     (35 )
Loss before income taxes and equity earnings in affiliates
    (4,079 )     (4,115 )     (36 )     (4,067 )     (4,102 )     (35 )
Net loss
    (4,045 )     (4,081 )     (36 )     (4,033 )     (4,068 )     (35 )
Loss per share, basic and diluted
    (32.34 )     (32.62 )     (0.28 )  
NA
   
NA
   
NA
 
Total comprehensive loss
    (4,084 )     (4,120 )     (36 )     (4,072 )     (4,107 )     (35 )
 
Statement of Consolidated Financial Position (Unaudited) (a)
As of December 31, 2008
Long-term debt
  $ 6,007     $ 5,862     $ (145 )   $ 6,007     $ 5,861     $ (146 )
Additional capital invested
    2,666       2,919       253       2,578