Edgar Filing: UAL CORP /DE/

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

o 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 001-06033

UAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		36-2675207
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

Location: 1200 East Algonquin Road, Elk Grove Township, Illinois		60007
Mailing Address: P. O. Box 66919, Chicago, Illinois		60666
(Address of principal executive offices)		(Zip Code)

(847) 700-4000

(Registrant’s telephone number, including area code)

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. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer x Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

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. Yes x No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

	Class				Outstanding at October 31, 2006
Common Stock ($0.01 par value)				110,729,885

UAL Corporation and Subsidiary Companies Report on Form 10-Q
For the Quarter Ended September 30, 2006

Index

			Page No.
PART I.	FINANCIAL INFORMATION
	Item 1. Financial Statements
	Condensed Statements of Consolidated Financial Position (Unaudited)		3
	Condensed Statements of Consolidated Operations (Unaudited)		5
	Condensed Statements of Consolidated Cash Flows (Unaudited)		7
	Condensed Statements of Consolidated Stockholders’ Equity (Deficit) (Unaudited)		8
	Notes to Condensed Consolidated Financial Statements (Unaudited)		9
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	50
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		71
	Item 4. Controls and Procedures		72
PART II.	OTHER INFORMATION
	Item 1. Legal Proceedings		73
	Item 6. Exhibits		74
Signature			75
Exhibit Index			76

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

UAL Corporation and Subsidiary Companies
Condensed Statements of Consolidated Financial Position (Unaudited)
(In Millions, Except Shares)

	Successor				Predecessor
	September 30,				December 31,
	2006				2005
Assets
Current assets:
Cash and cash equivalents		$	4,081			$	1,761
Restricted cash		340				643
Short-term investments		2				77
Receivables, less allowance for doubtful accounts (2006—$32; 2005—$23)		1,040				839
Prepaid fuel		250				258
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2006—$4; 2005—$66)		210				193
Deferred income taxes		127				—
Prepaid expenses and other		502				488
		6,552				4,259
Operating property and equipment:
Owned—
Flight equipment		8,919				13,443
Advances on flight equipment		103				128
Other property and equipment		1,377				3,837
		10,399				17,408
Less—accumulated depreciation and amortization		(364		)		(6,106		)
		10,035				11,302
Capital leases:
Flight equipment		1,538				2,581
Other property and equipment		19				84
		1,557				2,665
Less—accumulated amortization		(59		)		(739		)
		1,498				1,926
		11,533				13,228
Other assets:
Intangibles, less accumulated amortization (2006—$120; 2005—$218)		3,047				371
Goodwill		2,803				17
Aircraft lease deposits		523				477
Restricted cash		520				314
Investments		113				20
Prepaid rent		7				67
Other, net		765				589
		7,778				1,855
		$	25,863			$	19,342

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

UAL Corporation and Subsidiary Companies
Condensed Statements of Consolidated Financial Position (Unaudited)
(In Millions, Except Shares)

	Successor				Predecessor
	September 30,				December 31,
	2006				2005
Liabilities and Stockholders’ Equity
Current liabilities:
Advance ticket sales		$	2,004			$	1,575
Mileage Plus deferred revenue		1,032				681
Accrued salaries, wages and benefits		804				844
Advanced purchase of miles (Note 17)		694				679
Long-term debt maturing within one year (Note 11)		665				13
Accounts payable		637				596
Accrued interest		271				32
Fuel purchase commitments		250				258
Current obligations under capital leases (Note 15)		101				20
Other		804				536
		7,262				5,234
Long-term debt (Note 11)		8,567				1,298
Long-term obligations under capital leases (Note 15)		1,357				102
Other liabilities and deferred credits:
Mileage Plus deferred revenue		2,509				242
Postretirement benefit liability (Note 7)		2,066				1,932
Deferred income taxes		760				428
Deferred pension liability (Note 7)		129				95
Other		768				555
		6,232				3,252
Liabilities subject to compromise		—				35,016
Mandatorily convertible preferred securities (Note 12)		356				—
Commitments and contingent liabilities (Note 14)
Stockholders’ equity (deficit):
Predecessor preferred stock (Note 12)		—				—
Successor preferred stock (Note 12)		—				—
Predecessor Company common stock at par, $0.01 par value; authorized 200,000,000 shares; issued 132,342,405 shares at December 31, 2005		—				1
Successor Company common stock at par, $0.01 par value; authorized 1,000,000,000 shares; issued 110,687,885 shares at September 30, 2006		1				—
Additional capital invested		2,021				5,064
Retained earnings (deficit)		82				(29,122		)
Predecessor Company stock held in treasury, at cost
Preferred, 10,213,519 depositary shares		—				(305		)
Common, 16,121,446 shares		—				(1,162		)
Accumulated other comprehensive loss		(15		)		(36		)
		2,089				(25,560		)
		$	25,863			$	19,342

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

UAL Corporation and Subsidiary Companies
Condensed Statements of Consolidated Operations (Unaudited)
(In Millions, Except per Share Amounts)

	Successor				Predecessor
	Three Months Ended September 30,
	2006				2005
Operating revenues:
Passenger—United Airlines		$	3,916			$	3,467
Passenger—Regional Affiliates		773				662
Cargo		183				174
Other operating revenues		304				352
		5,176				4,655
Operating expenses:
Aircraft fuel		1,368				1,106
Salaries and related costs		1,060				1,008
Regional affiliates		713				722
Purchased services		426				375
Aircraft maintenance materials and outside repairs		252				199
Depreciation and amortization		226				206
Landing fees and other rent		199				235
Cost of third party sales		153				190
Aircraft rent		104				87
Commissions		91				74
Special operating items (Note 18)		(30		)		—
Other operating expenses		279				288
		4,841				4,490
Earnings from operations		335				165
Other income (expense):
Interest expense		(164		)		(129		)
Interest income		72				8
Interest capitalized		3				1
Miscellaneous, net		3				23
		(86		)		(97		)
Earnings before reorganization items, income taxes and equity in earnings of affiliates		249				68
Reorganization items, net		—				(1,840		)
Earnings (loss) before income taxes and equity in earnings of affiliates		249				(1,772		)
Income taxes		60				—
Earnings (loss) before equity in earnings of affiliates		189				(1,772		)
Equity in earnings of affiliates		1				—
Net income (loss)		$	190			$	(1,772	)
Earnings (loss) per share, basic		$	1.62			$	(15.26	)
Earnings (loss) per share, diluted		$	1.30			$	(15.26	)

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

UAL Corporation and Subsidiary Companies
Condensed Statements of Consolidated Operations (Unaudited)
(In Millions, Except Per Share Amounts)

	Successor				Predecessor
	Period from February 1 to September 30, 2006				Period from January 1 to January 31, 2006				Nine Months Ended September 30, 2005
Operating revenues:
Passenger—United Airlines		$	9,904			$	1,074			$	9,684
Passenger—Regional Affiliates		1,999				204				1,818
Cargo		501				56				526
Other operating revenues		892				124				965
		13,296				1,458				12,993
Operating expenses:
Aircraft fuel		3,323				362				2,866
Salaries and related costs		2,857				358				3,093
Regional affiliates		1,896				228				2,052
Purchased services		1,169				134				1,119
Aircraft maintenance materials and outside repairs		688				80				645
Depreciation and amortization		592				68				620
Landing fees and other rent		569				75				693
Cost of third party sales		471				65				480
Aircraft rent		288				30				316
Commissions		224				24				227
Special operating items (Note 18)		(30		)		—				18
Other operating expenses		773				86				901
		12,820				1,510				13,030
Earnings (loss) from operations		476				(52		)		(37		)
Other income (expense):
Interest expense		(516		)		(42		)		(349		)
Interest income		167				6				18
Interest capitalized		10				—				(4		)
Miscellaneous, net		5				—				90
		(334		)		(36		)		(245		)
Earnings (loss) before reorganization items, income taxes and equity in earnings of affiliates		142				(88		)		(282		)
Reorganization items, net		—				22,934				(3,994		)
Earnings (loss) before income taxes and equity in earnings of affiliates		142				22,846				(4,276		)
Income taxes		60				—				—
Earnings (loss) before equity in earnings of affiliates		82				22,846				(4,276		)
Equity in earnings of affiliates		4				5				4
Net income (loss)		$	86			$	22,851			$	(4,272	)
Earnings (loss) per share, basic		$	0.69			$	196.61			$	(36.82	)
Earnings (loss) per share, diluted		$	0.68			$	196.61			$	(36.82	)

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

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

	Successor				Predecessor
	Period from February 1 to September 30,				Period from January 1 to January 31,				Nine Months Ended September 30,
	2006				2006				2005
Cash flows provided (used) by operating activities:
Net income (loss) before reorganization items		$	86			$	(83	)		$	(278	)
Adjustments to reconcile to net cash provided (used) by operating activities—
Depreciation and amortization		592				68				620
Increase in advance ticket sales		339				109				499
Increase (decrease) in accrued liabilities		(246		)		148				126
Mileage Plus deferred revenue		153				14				69
Stock-based compensation		137				—				—
Increase in other current assets		(117		)		(24		)		(287		)
Increase in receivables		(95		)		(88		)		(118		)
Postretirement benefits		73				(9		)		(36		)
Increase in deferred income taxes		60				—				—
Increase (decrease) in accounts payable		8				19				(42		)
Increase (decrease) in accrued aircraft rent		(5		)		6				17
Pension expense		(1		)		8				176
Amortization of deferred gains		—				(6		)		(64		)
Other, net		124				(1		)		120
		1,108				161				802
Cash flows provided (used) by reorganization activities:
Reorganization items, net		—				22,934				(3,994		)
Increase in aircraft rejection liability		—				—				2,067
Increase in other liabilities		—				37				73
Impairment on lease certificates		—				—				134
Increase in non-aircraft claims accrual		—				429				549
Discharge of claims and liabilities		—				(24,628		)		—
Revaluation of Mileage Plus frequent flyer deferred revenue		—				2,399				—
Revaluation of other assets and liabilities		—				(2,106		)		—
Pension curtailment, settlement and employee claims		—				912				1,045
		—				(23		)		(126		)
Cash flows provided (used) by investing activities:
Decrease (increase) in restricted cash		300				(203		)		(77		)
Additions to property and equipment		(222		)		(30		)		(252		)
Decrease in segregated funds		200				—				—
Decrease in short-term investments		72				2				3
Sale of My Points		56				—				—
Proceeds on disposition of property and equipment		20				(1		)		153
Other, net		(37		)		(6		)		(61		)
		389				(238		)		(234		)
Cash flows provided (used) by financing activities:
Proceeds from Credit Facility		2,961				—				—
Repayment of Credit Facility		(175		)		—				—
Proceeds from DIP Financing		—				—				310
Repayment of DIP Financing		(1,157		)		—				(11		)
Repayment of other long-term debt		(545		)		(24		)		(156		)
Principal payments under capital leases		(66		)		(5		)		(70		)
Increase in deferred financing costs		(65		)		(1		)		(26		)
		953				(30		)		47
Increase (decrease) in cash and cash equivalents during the period		2,450				(130		)		489
Cash and cash equivalents at beginning of the period		1,631				1,761				1,223
Cash and cash equivalents at end of the period		$	4,081			$	1,631			$	1,712

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

UAL Corporation and Subsidiary Companies
Condensed Statements of Consolidated Stockholders’ Equity (Deficit) (Unaudited)
(In Millions)

																Accumulated
					Additional				Retained							Other
	Common				Capital				Earnings			Treasury				Comprehensive
	Stock				Invested				(Deficit)			Stock				Loss				Total
Balance at December 31, 2005 (Predecessor Company)		$	1			$	5,064		$	(29,122	)		$	(1,467	)		$	(36	)	$	(25,560	)
Net loss before reorganization items—January 2006		—				—			(83		)		—				—			(83		)
Reorganization items—January 2006		—				—			(1,401		)		—				—			(1,401		)
Subtotal (Predecessor Company)		1				5,064			(30,606		)		(1,467		)		(36		)	(27,044		)
Fresh-start adjustments:
Unsecured claims and debt discharge		—				—			24,628				—				—			24,628
Valuation adjustments, net		—				—			(293		)		—				—			(293		)
Balance at January 31, 2006 (Predecessor Company)		1				5,064			(6,271		)		(1,467		)		(36		)	(2,709		)
Fresh-start adjustments:
Cancellation of Predecessor preferred and common stock		(1		)		(5,064		)	—				1,467				—			(3,598		)
Elimination of Predecessor accumulated deficit and accumulated other comprehensive loss		—				—			6,271				—				36			6,307
Issuance of new equity interests in connection with emergence from Chapter 11		1				1,884			—				—				—			1,885
Balance at February 1, 2006 (Successor Company)		1				1,884			—				—				—			1,885
Net income from February 1 to September 30, 2006		—				—			86				—				—			86
Preferred stock dividends (Note 12)		—				—			(4		)		—				—			(4		)
Unrealized loss on derivatives		—				—			—				—				(15		)	(15		)
Stock-based compensation		—				137			—				—				—			137
Balance at September 30, 2006 (Successor Company)		$	1			$	2,021		$	82			$	—			$	(15	)	$	2,089

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

UAL Corporation and Subsidiary Companies
Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company

UAL Corporation is a holding company and its principal, wholly-owned subsidiary is United Air Lines, Inc., a Delaware corporation (“United”). We sometimes collectively refer to UAL Corporation, together with its consolidated subsidiaries, as “we,” “our,” “us,” “UAL” or the “Company.”

Interim Financial Statements

The Company has prepared the unaudited condensed consolidated financial statements shown here as required by the Securities and Exchange Commission (the “SEC”). Some information and footnote disclosures normally included in financial statements that meet generally accepted accounting principles (“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 (which include only normal recurring adjustments, adjustments required by fresh-start reporting and reorganization items described below) that are considered necessary for a fair presentation of its financial position and operating results. These financial statements should be read together with the information included in UAL’s most recent Annual Report on Form 10-K for the year 2005.

As a result of the adoption of fresh-start reporting 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”), the financial statements prior to February 1, 2006 are not comparable with the financial statements for periods on or after February 1, 2006. References to “Successor Company” refer to UAL on or after February 1, 2006, after giving effect to the adoption of fresh-start reporting. References to “Predecessor Company” refer to UAL prior to February 1, 2006. See Note 1, “Voluntary Reorganization Under Chapter 11 - Fresh-Start Reporting” for further details.

(1) Voluntary Reorganization Under Chapter 11

Bankruptcy Considerations. The following discussion provides general background information regarding the Company’s Chapter 11 cases, and is not intended to be an exhaustive summary. Detailed information pertaining to the bankruptcy filings may be obtained at www.pd-ual.com.

On December 9, 2002 (the “Petition Date”), UAL, United and 26 direct and indirect wholly-owned subsidiaries (collectively, the “Debtors”) filed voluntary petitions to reorganize their businesses under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the “Bankruptcy Court”). On January 20, 2006, the Bankruptcy Court confirmed the Debtors’ Second Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code (the “Plan of Reorganization”). The Plan of Reorganization became effective and the Debtors emerged from bankruptcy protection on February 1, 2006 (the “Effective Date”). On the Effective Date, UAL implemented fresh-start reporting.

The Plan of Reorganization generally provided for the full payment or reinstatement of allowed administrative claims, priority claims and secured claims, and the distribution of new equity and debt securities to the Debtors’ creditors and employees in satisfaction of allowed unsecured and deemed claims. The Plan of Reorganization contemplated UAL issuing up to 125 million shares of common stock (out of the one billion shares of new common stock authorized under its certificate of incorporation). The new common stock was listed on the NASDAQ National Market and began trading under the symbol “UAUA” on February 2, 2006. The distributions of common stock, subject to certain holdbacks as described in the Plan of Reorganization, will be as follows:

· Approximately 115 million shares of common stock to unsecured creditors and employees;

· Up to 9.825 million shares of common stock (or options or other rights to acquire shares) under the management equity incentive plan approved by the Bankruptcy Court; and

· Up to 175,000 shares of common stock (or options or other rights to acquire shares) under the director equity incentive plan approved by the Bankruptcy Court.

The Plan of Reorganization also provided for the issuance of the following securities:

· 5 million shares of 2% mandatorily convertible preferred stock, which were issued to the Pension Benefit Guaranty Corporation (“PBGC”) shortly after the Effective Date;

· Approximately $150 million in aggregate principal amount of 5% senior convertible notes, which were issued to holders of certain municipal bonds shortly after the Effective Date;

· $726 million in aggregate principal amount of 4.5% senior limited-subordination convertible notes, which were issued in July 2006 to certain irrevocable trusts established for the benefit of certain employees (the “Limited-Subordination Notes”);

· $500 million in aggregate principal amount of 6% senior notes, which were issued to the PBCG shortly after the Effective Date; and

· $500 million in aggregate principal amount of 8% senior contingent notes (in up to eight equal tranches of $62.5 million) issuable to the PBGC upon the satisfaction of certain contingencies.

Pursuant to the Company’s Plan of Reorganization, the Limited-Subordination Notes were required to be issued within 180 days of the Effective Date with a conversion price equal to 125% of the average closing price for the 60 consecutive trading days following February 1, 2006, and an interest rate established so the notes would trade at par upon issuance. In July 2006, the Company reached agreement with five of the seven eligible employee groups to modify the conversion price to instead be based upon the volume-weighted average price of the common stock over the two trading days ending on July 25, 2006, the date the notes were issued to the trusts. The modification in terms resulted in a new conversion price of $34.84, instead of $46.86 which was the conversion price under the initial terms of the notes. Since the reduction in the conversion price resulted in a benefit to noteholders, the Company issued the notes at an interest rate of 4.5%, which is a lower rate of interest than would have been required under the initial terms in order for the notes to trade at par upon issuance. The Company reached agreement with the two other employee groups to pay them cash totaling approximately $0.4 million rather than issuing additional notes of similar value. See Note 11, “Debt Obligations” for further information.

Pursuant to the Plan of Reorganization, UAL common stock, preferred stock and Trust Originated Preferred Securities issued prior to the Petition Date were canceled on the Effective Date, and no distribution was made to holders of those securities.

On the Effective Date, the Company secured access to $3.0 billion in secured exit financing (the “Credit Facility”) which consists of a $2.45 billion term loan, a $350 million delayed draw term loan and a $200 million revolving credit line. On the Effective Date, the $2.45 billion term loan and the entire

revolving credit line, consisting of $161 million in cash and $39 million of letters of credit, were drawn and used to repay the Debtor-In-Possession credit facility (the “DIP Financing”) and to make other payments required upon exit from bankruptcy, as well as to provide ongoing liquidity to conduct post-reorganization operations. Subsequently, during the first quarter of 2006, the Company repaid the entire outstanding balance on the revolving credit line and accessed the $350 million delayed draw term loan.

Significant Matters Resolved Since Emergence from Bankruptcy. During the course of the Chapter 11 proceedings, the Company successfully reached settlements with most of its creditor constituencies and resolved most pending claims against the Debtors. The following material matters have been resolved in the Bankruptcy Court since the Effective Date:

(a) 1997 EETC Aircraft Financings. The Company had an ongoing dispute with respect to a group of mostly-public financiers (the “Public Debt Group”) involving 14 aircraft financed under the Series 1997-1 Enhanced Equipment Trust Certificates (“1997-1 EETC”). During the first quarter of 2006, the Company resolved the dispute and entered into a settlement agreement that was approved by the Bankruptcy Court. The settlement agreement resolved all pending litigation in connection with the 1997-1 EETC transaction and aircraft and provided for a permanent mutual release of all related claims. The Company remitted $281 million to the 1997-1 EETC trustee as final payment to the holders of the Tranche A certificates. The Company previously acquired the 1997-1 EETC Tranche B and Tranche C certificates as a precursor to utilizing the transaction par buyout mechanism to purchase the Tranche A certificates. Following shortly thereafter in the first quarter of 2006, the Company refinanced the 14 aircraft with the $350 million delayed draw term loan provided under the Credit Facility. The Company recorded the 1997-1 EETC debt at fair market value upon its emergence from bankruptcy in accordance with fresh-start reporting. As a result, no gain or loss was realized on the extinguishment of debt.

(b) Wells Fargo Appeal of Confirmation Order. Wells Fargo Bank Northwest, N.A., not individually but in its capacity as a trustee, filed a notice of appeal of the confirmation order to the United States District Court for the Northern District of Illinois (“District Court”). The parties subsequently filed a stipulation agreeing to voluntarily dismiss the appeal, and the appeal has been dismissed.

(c) Pre- and Post-1997 EETC Aircraft Financings. In August 2005, United entered into term sheets to restructure the three post-1997 Enhanced Equipment Trust Certificate (“EETC”) transactions, financing 80 aircraft in United’s fleet that were controlled by the Public Debt Group. In May 2006, the Company reached a settlement with the Public Debt Group with respect to these financing transactions. In conjunction with the settlement, the Company and the EETC trustees agreed to cooperate and to use reasonable efforts to complete definitive documentation. The settlement was approved by the Bankruptcy Court in June 2006. The Company completed definitive documentation on the three post-1997 EETC transactions in July 2006 and met its obligations to have the transactions rated by both Standard and Poor’s and Moody’s.

In addition, in August 2005, United entered into term sheets to restructure the pre-1997 transactions financing 19 aircraft that are controlled by the Public Debt Group. United has subsequently closed transactions covering all of the associated aircraft.

(d) Municipal Bond Litigation at DEN, JFK, SFO and LAX. United is a party to numerous long-term agreements to lease certain airport and maintenance facilities that are financed through tax-exempt municipal bonds that are issued by various local municipalities to build or improve airport and maintenance facilities. During 2003, the Company filed four complaints for declaratory judgment and corresponding motions for temporary restraining orders concerning United’s municipal bond obligations for facilities at Denver International Airport (“DEN”), John F. Kennedy International Airport (“JFK”), San Francisco International Airport (“SFO”), and

Los Angeles International Airport (“LAX”). In each case, United sought clarification of its obligations to pay principal and interest under the applicable municipal bonds, and the protection of its rights concerning related airport lease agreements at the applicable airports. With respect to SFO, LAX and JFK, the Bankruptcy Court ruled in United’s favor. With respect to DEN, the Bankruptcy Court ruled against United. The Bankruptcy Court’s rulings with respect to each of the four matters were subsequently appealed to the District Court. The District Court reversed the Bankruptcy Court’s rulings with respect to SFO and LAX but upheld the Bankruptcy Court’s rulings with respect to JFK and DEN. All four of the District Court’s rulings in turn were appealed to the United States Court of Appeals for the Seventh Circuit (“Court of Appeals”). The Court of Appeals reversed the District Court’s ruling against the Company with respect to the SFO adversary proceeding and the SFO defendants’ petition for a rehearing was denied. The defendants in the SFO matter petitioned the United States Supreme Court (“Supreme Court”) for a writ of certiorari, which was denied in March 2006. As a result of this final non-appealable order in favor of United, approximately $24 million in interim payments made by United into an escrow account, plus interest, were returned to United in April 2006. In addition, see “Significant Matters Remaining to be Resolved in Chapter 11 Cases, item (a)” for details on the security interest claim filed by the trustee of the SFO municipal bonds as a result of United’s success in this matter. In May 2006, the Court of Appeals also reversed the District Court’s ruling against the Company with respect to the LAX matter. The deadline for the defendants to file a writ of certiorari has now passed. Nonetheless, even though the LAX obligations have been determined to be financings and not true leases, there remains an issue regarding the extent to which those financings are considered to have a security interest in the underlying leasehold or the value thereof, as discussed in “Significant Matters Remaining to be Resolved in Chapter 11 Cases, item (b)”. The Court of Appeals affirmed the District Court’s ruling with respect to the JFK adversary proceeding. The defendants in the JFK matter filed a petition for rehearing with the Court of Appeals, which was denied. The time for filing a petition for writ of certiorari in the JFK matter has expired. In July 2006, the Court of Appeals also affirmed the District Court’s ruling against the Company with respect to the DEN matter. The Company has accepted the ruling and the deadline to file a writ of certiorari to the Supreme Court has now passed.

(e) O’Hare Airport Use Agreement. In 2003, United filed a complaint for declaratory judgment for all of its municipal bond issues relating to its facilities at O’Hare International Airport (“O’Hare”), seeking a declaration that a certain cross-default provision in the O’Hare airport lease was unenforceable. In 2005, the Bankruptcy Court approved an agreement (“O’Hare Settlement Agreement”) resolving the disputes between United, the trustees and the bondholders. The City of Chicago, a party to these adversary proceedings, was not a party to the O’Hare Settlement Agreement. Subsequently, the Company announced that it had reached an agreement in principle with the City of Chicago, with respect to all unresolved disputes relating to our facilities at O’Hare. However, the parties were unable to finalize the terms of this settlement as the City of Chicago continued to maintain that it could revoke United’s exclusive rights to terminals in place of “preferential” rights if United did not meet the terms of the cross-default provision (the O’Hare Airport Use Agreement (“AUA”) did not define or provide for any usage rights, other than exclusive rights).

In July 2006, the Bankruptcy Court held that the AUA is a self-contained agreement, governing United’s use of O’Hare and providing the full consideration for that use. To realize the full value of United’s estate, the Bankruptcy Code allows United to assume the AUA free from obligations imposed under the separate bond payment agreements, notwithstanding the cross-default provisions. The time for the City of Chicago to appeal this ruling has expired.

(f) ALPA Agreement Approval. In January 2005, United filed a motion seeking approval of an agreement to restructure the Air Line Pilots Association (“ALPA”) collective bargaining agreement pursuant to Section 363(b) of the Bankruptcy Code. The Bankruptcy Court approved the ALPA agreement over the objections of various parties. The active pilots ratified the agreement, and the Bankruptcy Court entered an order approving the ALPA agreement (the “ALPA Order”). In February 2005, the United Retired Pilots Benefit Protection Association and seven retired pilots (collectively, “URPBPA”) filed its notice of appeal of the ALPA Order based principally on the allegation that the ALPA Order unfairly failed to provide for the distribution of the Limited-Subordination Notes to the retired pilots as provided to the active pilots pursuant to the ALPA agreement. The ALPA Order was approved by the District Court and, in March 2006, by the Court of Appeals. In June 2006, URPBPA filed a petition for a writ of certiorari from the Supreme Court to review the Court of Appeals’ ruling with respect to this matter. In October 2006, the Supreme Court denied the petition for a writ of certiorari, which effectively concluded this matter.

Significant Matters Remaining to be Resolved in Chapter 11 Cases. The following material matters remain to be resolved in the Bankruptcy Court or another court:

(a) SFO Municipal Bond Secured Interest. HSBC Bank Inc. (“HSBC”), as trustee for the 1997 municipal bonds related to SFO, filed a complaint against United asserting a security interest in United’s leasehold for portions of its maintenance base at SFO. Pursuant to Section 506(a) of the Bankruptcy Code, HSBC alleges that it is entitled to be paid the value of that security interest, which HSBC had claimed was as much as $257 million. HSBC and United went to trial in April 2006 and the Bankruptcy Court rejected as a matter of law HSBC’s $257 million claim. HSBC subsequently alleged that it was entitled to $154 million, or at a minimum, approximately $93 million. The parties tried the case and filed post-trial briefs which were heard by the Bankruptcy Court. In October 2006, the Bankruptcy Court issued its written opinion holding that the value of the security interest is approximately $27 million. Both parties have filed additional post-trial motions, and, accordingly, time periods to appeal have not yet expired.

(b) LAX Municipal Bond Secured Interest. In addition, there is pending litigation before the Bankruptcy Court regarding the extent to which the LAX municipal bond debt is entitled to secured status under Section 506(a) of the Bankruptcy Code. In July 2006, the Bankruptcy Court entered an order setting discovery deadlines and scheduling a trial for January 2007. The Company has recorded its best estimate of this liability, which may change based on future developments.

(c) Pilot Plan Termination Order. In December 2004, the PBGC filed an involuntary termination proceeding against United, as plan administrator for the United Airlines Pilot Defined Benefit Pension Plan (the “Pilot Plan”), in the District Court. In January 2005, the District Court granted a motion filed by the Company and referred the involuntary termination proceeding to the Bankruptcy Court. ALPA and URPBPA were later granted leave to intervene in the involuntary termination proceeding.

After several months, the Bankruptcy Court conducted a trial and determined that the Pilot Plan should be involuntarily terminated under the Employee Retirement Income Security Act (“ERISA”) Section 4042 with a termination date of December 30, 2004. Subsequently, the Bankruptcy Court entered an order authorizing termination of the Pilot Plan.

The PBGC, ALPA and URPBPA filed notices of appeal with the District Court. In February 2006, the District Court reversed and remanded the Bankruptcy Court’s termination order on the grounds that the matter was not a core proceeding in which it could issue a final order, but rather, could only issue proposed findings of fact and conclusions of law for

consideration by the District Court. Upon remand and after the Bankruptcy Court made proposed findings of fact and conclusions of law, in June 2006, the District Court entered an order approving the termination of the Pilot Plan. ALPA and URPBPA filed an appeal with the Court of Appeals. In July 2006, the Court of Appeals granted United’s motion to consolidate this termination appeal with URPBPA’s appeal of the District Court’s dismissal of URPBPA’s appeal of the Plan of Reorganization confirmation order, as discussed in (e) below. Briefing on both appeals was completed in August 2006 and oral argument occurred in September 2006. On October 25, 2006, the Court of Appeals affirmed the District Court’s order approving the termination of the Pilot Plan effective December 30, 2004. The parties may seek rehearing or petition the Supreme Court for a writ of certiorari on or before November 9, 2006 (December 9, 2006 for PBGC) or January 23, 2007, respectively. If the termination order was ultimately reversed on appeal, it could have a materially adverse effect on the Company’s financial performance, should such determination result in the reversal of the termination of one or more defined benefit pension plans.

(d) Pilot Plan Non-Qualified Pension Benefits. After the PBGC commenced its involuntary termination proceeding and sought a December 30, 2004 termination date, the Company suspended payment of non-qualified pension benefits under the Pilot Plan pending the setting of such a termination date. In the first quarter of 2005, the Bankruptcy Court required the Company to continue paying non-qualified pension benefits to retired pilots pending a termination in the involuntary termination proceeding, notwithstanding the possibility that the Pilot Plan might be terminated retroactively to December 30, 2004. Then, on October 6, 2005, despite its oral ruling terminating the Pilot Plan, the Bankruptcy Court entered an order requiring the Company to continue paying non-qualified pension benefits until entry of a written order. However, United appealed that order and placed approximately $6 million necessary to pay non-qualified benefits for the month of October 2005 in a segregated account. Following the entry of the Bankruptcy Court’s termination order on October 28, 2005, United ceased paying non-qualified benefits. Subsequently, during the first quarter of 2006, the District Court dismissed the Company’s appeal of the Bankruptcy Court’s October 6, 2005 order in light of its earlier decision reversing the Bankruptcy Court’s termination order. The Company filed a notice of appeal of the District Court’s ruling regarding the October 6, 2005 order to the Court of Appeals. Briefing on the Company’s appeal was completed in August 2006 and oral argument on this matter occurred in September 2006. On October 25, 2006, the Court of Appeals reversed the District Court’s order dismissing for lack of ripeness the Company’s appeal of the Bankruptcy Court’s October 6, 2005 order and remanded the case with instructions to reverse the Bankruptcy Court’s order compelling payment of non-qualified benefits for October 2005 or later months. The parties may seek rehearing or petition the Supreme Court for a writ of certiorari on or before November 9, 2006 or January 23, 2007, respectively. On November 6, 2006, ALPA filed a petition for rehearing on the Court of Appeals reversal of the October 6, 2005 order.

In March 2006, the Bankruptcy Court ruled that the Company was obligated to make payment of all non-qualified pension benefits for the months of November and December 2005 and January 2006. The Bankruptcy Court also ruled that the Company’s obligation to pay non-qualified pension benefits ceased as of January 31, 2006. The Company filed a notice of appeal of the Bankruptcy Court’s ruling to the District Court. URPBPA and ALPA also filed notices of appeal with respect to the Bankruptcy Court’s order, which were subsequently consolidated with the Company’s appeal. United agreed with URPBPA and ALPA to pay the disputed non-qualified pension benefits for the months of November and December 2005 and January 2006, an aggregate amount totaling approximately $17 million, into an escrow account. The District Court affirmed the Bankruptcy Court’s ruling in September 2006. The Company filed a notice of appeal of the District Court’s ruling to the Court of Appeals. URPBPA and ALPA also appealed the

District Court’s decision. The Company subsequently filed a motion to consolidate its appeal from the Bankruptcy Court’s October 2005 non-qualified benefits order with the three appeals from the Bankruptcy Court’s March 2006 non-qualified benefits order. The Court of Appeals denied the Company’s motion, but issued an order staying briefing on the March 2006 non-qualified benefits order until further order of the Court of Appeals. In light of the Court of Appeals’ October 25, 2006 decision described above, the Company is reasonably optimistic of a successful outcome of its appeal in this matter, although there can be no assurances that the ultimate outcome of this appeal will be favorable to the Company.

(e) URPBPA Appeal of Confirmation Order. In January 2006, URPBPA filed a notice and brief supporting an appeal of the order confirming the Plan of Reorganization. In February 2006, United filed a motion to dismiss the appeal based on the substantial consummation of the Plan of Reorganization. In June 2006, the District Court dismissed URPBPA’s appeal for lack of ripeness. Subsequently, URPBPA filed a notice of appeal of the decision to the Court of Appeals. In July 2006, the Court of Appeals granted United’s motion to consolidate URPBPA’s appeal with URPBPA and ALPA’s Pilot Plan termination appeal, as discussed in (c) above. Briefing on both appeals was completed in August 2006 and oral argument occurred in September 2006. On October 25, 2006, the Court of Appeals reversed the District Court’s order dismissing for lack of ripeness URPBPA’s appeal of the confirmation order and remanded the case to the District Court with instructions to affirm the confirmation order. The parties may seek rehearing or petition the Supreme Court for a writ of certiorari on or before November 9, 2006 or January 23, 2007, respectively. If the confirmation order was ultimately reversed on appeal, it could have a materially adverse effect on the Company’s financial performance.

Claims Resolution Process. As permitted under the bankruptcy process, the Debtors’ creditors filed proofs of claim with the Bankruptcy Court. Through the claims resolution process, the Company identified many claims which were disallowed by the Bankruptcy Court for a number of reasons, such as claims that were duplicative, amended or superseded by later filed claims, were without merit, or were otherwise overstated. Throughout the Chapter 11 proceedings, the Company resolved many claims through settlement or objections ordered by the Bankruptcy Court. The Company will continue to settle claims and file additional objections with the Bankruptcy Court.

With respect to unsecured claims, once a claim is deemed to be valid, either through the Bankruptcy Court process or through other means, the claimant is entitled to a distribution of common stock in the Successor Company. Pursuant to the terms of the Plan of Reorganization, 115 million shares of common stock in the Successor Company have been authorized to satisfy valid unsecured claims. The Bankruptcy Court confirmed the Plan of Reorganization and established January 20, 2006 as the record date for purposes of establishing the persons that are claimholders of record to receive distributions. Approximately 107 million shares have been issued and distributed to holders of valid unsecured claims between February 2, 2006, the first distribution date established in the Plan of Reorganization, and September 30, 2006. As of September 30, 2006, approximately 45,000 valid unsecured claims aggregating to approximately $29 billion in claim value had received those common shares to partially satisfy those claims. The approximate 8 million remaining shares are being held in reserve to satisfy all of the remaining disputed and undisputed unsecured claim values, once the remaining claim disputes are resolved.

The Company’s current estimate of the probable range of unsecured claims to be allowed by the Bankruptcy Court is between $29 and $30 billion. Differences between claim amounts filed and the Company’s estimates are being investigated and will be resolved in connection with the claims resolution process. However, there will be no further financial impact to the Company associated with the settlement of such unsecured claims, as the holders of all allowed unsecured claims will receive under the Plan of Reorganization only their pro rata share of the distribution of the 115 million shares of common stock of the Successor Company, together with the previously-agreed issuance of certain securities.

With respect to valid administrative and priority claims, pursuant to the terms of the Plan of Reorganization these claims will be satisfied with cash. Many asserted administrative and priority claims still remain unpaid, and the Company will continue to settle claims and file objections with the Bankruptcy Court to eliminate or reduce such claims. An estimate of these claims has been accrued by the Successor Company based upon the best available evidence of amounts to be paid. However, it should be noted that the claims resolution process is uncertain and adjustments to claims estimates could result in material adjustments to the Successor Company’s financial statements in future periods.

Additionally, secured claims were deemed unimpaired under the Plan of Reorganization, pursuant to which these claims were satisfied by reinstatement of the obligations in the Successor Company, surrendering the collateral to the secured party, or by making full payment in cash. However, certain disputes, the most significant of which are discussed in “Significant Matters Remaining to be Resolved in Chapter 11 Cases,” above, still remain with respect to the valuation of certain claims. Revisions to the Company’s estimates of its liability for these claims due to the receipt of new information or final court rulings on these claims may result in material future adjustments to the Company’s financial statements.

The following is a reconciliation of activity related to the administrative and priority claims and other bankruptcy-related claim reserves for the Successor Company for the eight months ended September 30, 2006:

(In millions)
Balance at February 1, 2006	$	583
Accruals	11
Accrual adjustments	(56		)
Payments	(181		)
Balance at September 30, 2006	$	357

Financial Statement Presentation. The Company has prepared the accompanying consolidated financial statements in accordance with SOP 90-7 and on a going-concern basis, which assumes continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business.

SOP 90-7 requires that the financial statements for periods subsequent to a Chapter 11 filing separate transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, all transactions (including, but not limited to, all professional fees, realized gains and losses and provisions for losses) directly associated with the reorganization and restructuring of the business are reported separately in the financial statements as reorganization items, net. For the month ended January 31, 2006 and the three and nine months ended September 30, 2005, the Predecessor Company recognized the following primarily non-cash reorganization income (expense) in its financial statements:

	Period from January 1 to 31,				Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2006				2005				2005
Discharge of claims and liabilities		$	24,628			$	—			$	—		[a]
Revaluation of frequent flyer obligations		(2,399		)		—				—			[b]
Revaluation of other assets and liabilities		2,106				—				—			[c]
Employee-related charges		(898		)		(10		)		(23		)	[d]
Contract rejection charges		(429		)		(34		)		(543		)	[e]
Professional fees		(47		)		(42		)		(134		)
Pension-related charges		(14		)		—				(1,045		)	[f]
Aircraft claim charges		—				(1,689		)		(2,195		)	[g]
Impairment on lease certificates		—				(134		)		(134		)	[h]
Aircraft refinance adjustments		—				59				59			[h]
Other		(13		)		10				21
		$	22,934			$	(1,840	)		$	(3,994	)

(a) The discharge of claims and liabilities primarily relates to those unsecured claims arising during the bankruptcy process, such as those arising from the termination and settlement of the Company’s U.S. defined benefit pension plans and other employee claims; aircraft-related claims, such as those arising as a result of aircraft rejections; other unsecured claims due to the rejection or modification of executory contracts, unexpired leases and regional carrier contracts; and claims associated with certain municipal bond obligations based upon their rejection, settlement or the estimated impact of the outcome of pending litigation. In accordance with the Plan of Reorganization, the Company discharged its obligations to unsecured creditors in exchange for the distribution of 115 million common shares of the Successor Company and the issuance of certain other securities. Accordingly, the Company recognized a non-cash reorganization gain of $24.6 billion.

(b) The Company revalued its Mileage Plus frequent flyer obligations at fair value as a result of fresh-start reporting, which resulted in a $2.4 billion non-cash reorganization charge.

(c) In accordance with fresh-start reporting, the Company revalued its assets at their estimated fair value and liabilities at estimated fair value or the present value of amounts to be paid. This resulted in a non-cash reorganization gain of $2.1 billion, primarily as a result of newly recognized intangible assets, offset partly by reductions in the fair value of tangible property and equipment.

(d) In January 2006, the Company recorded the value of the deemed claim that the salaried and management group received upon confirmation of the Plan of Reorganization. The deemed claim was based upon the cost savings provided by this employee group during the bankruptcy process.

(e) Contract rejection charges are non-cash costs that include estimated claim values resulting from the Company’s rejection or negotiated modification of certain contractual obligations such as executory contracts, unexpired leases and regional carrier contracts.

(f) In the first and second quarters of 2005, the Company recognized non-cash pension curtailment charges of $433 million and $207 million, respectively, associated with actions taken by the PBGC to involuntarily terminate United Air Lines, Inc. Ground Employees’ Retirement Plan (the “Ground Employees Plan”), United Airlines Flight Attendant Defined Benefit Pension Plan (the “Flight Attendant Plan”) and United Airlines Management, Administrative and Public Contact Defined Benefit Pension Plan (“MAPC Plan”). The PBGC was appointed trustee for the Ground Employees Plan effective May 23, 2005 and the MAPC Plan and the Flight Attendant Plan effective June 30, 2005, assuming all rights and powers over the pension assets and obligations of each plan. Upon termination and settlement of these plans in the second quarter of 2005, the Company recognized a non-cash net settlement loss of approximately $395 million in accordance with SFAS No. 88, “Employer’s Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits” (“SFAS 88”). In addition, the Company recognized a non-cash settlement loss in the amount of $10 million for the termination of the non-qualified supplemental retirement plan for management employees who have benefits under the tax-qualified pension plan that cannot be paid due to Internal Revenue Code limits on compensation or benefits.

(g) Aircraft claim charges include the Company’s estimate of claims incurred as a result of the rejection of certain aircraft leases and return of aircraft as part of the bankruptcy process, together with certain claims resulting from the modification of other aircraft financings in bankruptcy.

(h) In accordance with the term sheets reached with the Public Debt Group, the Company agreed to cancel certain 1997-1 EETC certificates that were held by a related party. Accordingly, the Company recorded a non-cash charge in the amount of $134 million for principal and interest on such certificates. In addition, the Company recorded adjustments retroactively for aircraft rent and interest expense in the amount of $59 million to reflect the revised financing terms.

The Condensed Statements of Consolidated Financial Position (Unaudited) distinguish pre-petition liabilities subject to compromise from both those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities subject to compromise were reported at the amounts expected to be allowed by the Bankruptcy Court, even if they were settled for lesser amounts.

At December 31, 2005, we had liabilities subject to compromise consisting of the following:

(In millions)
Employee claims and deemed claims	$	18,007
Long-term debt, including accrued interest	6,624
Aircraft-related obligations and deferred gains	6,104
Capital lease obligations, including accrued interest	1,631
Municipal bond obligations and claims	1,344
Accounts payable	261
Early termination fees	162
Other	883
	$	35,016

DIP Financing. At January 31, 2006, the Company’s outstanding balance of its DIP Financing was $1.2 billion. On the Effective Date, the proceeds from the Credit Facility were drawn and used to repay the DIP Financing. For further details on the Credit Facility, see Note 11, “Debt Obligations.”

Fresh-Start Reporting. Upon emergence from its Chapter 11 proceedings on February 1, 2006, the Company adopted fresh-start reporting in accordance with SOP 90-7. The Company’s emergence from Chapter 11 resulted in a new reporting entity with no retained earnings or accumulated deficit. Accordingly, the Company’s consolidated financial statements for periods prior to February 1, 2006 are not comparable to consolidated financial statements presented on or after February 1, 2006.

Fresh-start reporting reflects the value of the Company as determined in the confirmed Plan of Reorganization. Under fresh-start reporting, the Company’s asset values are remeasured using fair value, and are allocated in conformity with Statement of Financial Accounting Standards No. 141, “Business

Combinations” (“SFAS 141”). The excess of reorganization value over the fair value of tangible and identifiable intangible assets is recorded as goodwill in the accompanying Condensed Statements of Consolidated Financial Position (Unaudited). In addition, fresh-start reporting also requires that all liabilities, other than deferred taxes, should be stated at fair value or at the present values of the amounts to be paid using appropriate market interest rates. Deferred taxes are determined in conformity with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”).

Estimates of fair value represent the Company’s best estimates based on independent appraisals and valuations and, where the foregoing have not yet been completed or are not available, industry data and trends and by reference to relevant market rates and transactions. The foregoing estimates and assumptions are inherently subject to significant uncertainties and contingencies beyond the control of the Company. Accordingly, we cannot provide assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially. In accordance with SFAS 141, the preliminary allocation of the reorganization value is subject to additional adjustment within one year after emergence from bankruptcy when additional or improved information on asset and liability valuations becomes available. The Company expects that adjustments to recorded fair values may include those relating to:

· Completion of valuation reports associated with long-lived tangible and newly identified intangible assets, and certain liabilities, such as the Mileage Plus frequent flyer liability, and debt discounts which may change based on the consideration of new or improved information by the Company and its valuation consultants;

· Deferred tax assets and liabilities, which may be adjusted based upon additional information, including adjustments to fair value estimates of underlying assets or liabilities and the determination of cancellation of indebtedness income; and

· Adjustments to recorded fair values and deferred tax assets and liabilities which could change the amount of recorded goodwill, as well as the allocation of such goodwill to reportable segments.

To facilitate the calculation of the enterprise value of the Successor Company, the Company developed a set of financial projections. Based on these financial projections and with the assistance of financial advisors, the equity value was determined by the Company, using various valuation methods, including (i) a comparison of the Company and its projected performance to the market values of comparable companies; (ii) a review and analysis of several recent transactions of companies in similar industries to the Company; and (iii) a calculation of the present value of the future cash flows of the Company under its projections.

The estimated enterprise value, and corresponding equity value, is highly dependent upon achieving the future financial results set forth in the projections as well as the realization of certain other assumptions. The estimated equity value of the Company was calculated to be approximately $1.9 billion. The estimates and assumptions made in this valuation are inherently subject to significant uncertainties and the resolution of contingencies beyond the reasonable control of the Company. Accordingly, there can be no assurance that the estimates, assumptions, and amounts reflected in the valuations will be realized, and actual results could vary materially. Moreover, the market value of the Company’s common stock may differ materially from the equity valuation.

In accordance with SOP 90-7, the Company was required to adopt on February 1, 2006 all accounting guidance that was going to become effective within the subsequent twelve-month period. See Note 2(m), “Summary of Significant Accounting Policies—New Accounting Pronouncements”.

The following fresh-start balance sheet illustrates the financial effects of the implementation of the Plan of Reorganization and the adoption of fresh-start reporting. In addition, it reflects the effect of the consummation of the transactions contemplated in the Plan of Reorganization, including settlement of various liabilities, issuance of certain securities, incurrence of new indebtedness, repayment of old indebtedness, and other cash payments.

As a result of the adoption of fresh-start reporting, the Company’s financial statements on or after February 1, 2006 are not comparable with its pre-emergence financial statements because they are, in effect, those of a new entity. The effects of the Plan of Reorganization and fresh-start reporting on the Company’s Condensed Statements of Consolidated Financial Position (Unaudited) are as follows (in millions, except shares):

	Fresh-Start Adjustments
	Predecessor			(a) Settlement of Unsecured Claims			(b) Reinstatement of Liabilities			(c) Revaluation of Assets and Liabilities			Successor
Assets
Current assets:
Cash and cash equivalents		$	1,631		$	—		$	—		$	—		$	1,631
Restricted cash		847			—			—			1			848
Short-term investments		75			—			—			—			75
Receivables, net		935			—			—			10			945
Prepaid fuel		280			—			—			—			280
Deferred income taxes		1			—			—			102