UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report: July 31, 2006

(Date of earliest event reported)

UAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware	1-6033	36-2675207
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

 

1200 East Algonquin Road, Elk Grove Township, Illinois 60007

(Address of principal executive offices)

(847) 700-4000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the obligation of the registrant under any of the following provisions:

o         Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o         Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o         Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o         Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 2.02

Results of Operations and Financial Condition

 

On July 31, 2006, UAL Corporation issued a press release announcing its financial results for the second quarter 2006. The press release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.

 

 

Item 9.01

Financial Statements and Exhibits.

 

Exhibit No.		Description
99.1		Press Release issued by UAL Corporation dated July 31, 2006

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		UAL CORPORATION
By:		/s/ Frederic F. Brace
Name:		Frederic F. Brace
Title:		Executive Vice President and
		Chief Financial Officer
Dated:  July 31, 2006

 

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EXHIBIT INDEX

Exhibit No.		Description
99.1*		Press Release issued by UAL Corporation dated July 31, 2006

*   Filed herewith electronically.

Exhibit 99.1

 

News Release

 

 

 

Worldwide Communications:
Media Relations Office: 847.700.5538
Evenings/Weekends: 847.700.4088

UAL CORPORATION REPORTS
SECOND QUARTER PROFIT

CHICAGO, July 31, 2006 — UAL Corporation (NASDAQ: UAUA), the holding company whose primary subsidiary is United Airlines, today reported financial results for the second quarter ended June 30, 2006, its first full quarter following the company’s exit from bankruptcy.

·                  UAL reported net income of $119 million, an increase of $145 million excluding reorganization and special items over the comparable second quarter of 2005. Basic earnings per share was $1.01 and diluted earnings per share was $0.93.

·                  Excluding the one-time severance charge of $22 million, basic earnings per share was $1.20 and diluted earnings per share was $1.09. (Note 10)

·                  The company reported its first net profit in the second quarter since 2000.

·                  Second quarter operating profit of $260 million was an improvement of $212 million over the comparable quarter in 2005. Excluding the severance charge, operating profit was $282 million. (Note 10)

·                  Strong revenue and productivity improvements more than offset a $344 million increase in fuel expense for mainline and regional operations.

·                  Strong operating cash flow totaled nearly $700 million.

World Headquarters   1200 East Algonquin Road   Elk Grove Township, Illinois 60007   Mailing Address: Box 66100, Chicago, Illinois 60666

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Return to Profitability

United reported basic earnings per share in the second quarter of $1.01 and fully diluted earnings per share of $0.93, using a total estimated number of shares outstanding of 115 million and 130 million respectively. Total revenues for the second quarter increased 16 percent to $5.1 billion compared with $4.4 billion in the second quarter of 2005. Mainline revenue increased 15 percent, reflecting strong demand, industry capacity restraint and yield improvements. Revenue from regional affiliates registered a strong 20 percent increase over the previous quarter, a result of network optimization and a strong revenue environment.

Total operating expenses increased 11 percent over the second quarter of 2005, including a 31 percent increase in fuel costs. Operating margin improved to 5.1 percent from 1.1 percent in the comparable 2005 quarter. Excluding special items and the severance charge, operating margins improved to 5.5 percent from 1.5 percent. Mainline unit earnings, which is mainline revenue per available seat mile (RASM) minus mainline operating cost per available seat mile (CASM), increased to 0.60 cents from 0.29 cents a year ago, and mainline unit earnings excluding fuel expense for the quarter increased 35 percent to 4.04 cents from 3.00 cents.

Regional affiliates contributed $46 million to operating income, an improvement of $99 million compared with the second quarter of 2005. Regional affiliates’ expense increased by only 4 percent, despite a 5 percent increase in capacity and 29 percent increase in fuel expense, as a result of restructured carrier agreements.

“Our focus on strengthening the core business is creating momentum within the company, and the results we have achieved this quarter are a solid step forward. We continue to identify process efficiencies, which improve performance and drive down costs, as we simultaneously enhance revenues to increase our margin,” said Glenn Tilton, UAL’s chairman,

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president and CEO. “Our management team and our employees continue to identify and pursue further opportunities for improvement.”

The company had an effective tax rate of zero for all periods presented, which makes UAL’s pre-tax results the same as its net results.

Solid Cash Position

The company ended the quarter with unrestricted cash and short-term investments of $4.2 billion, and a restricted cash balance of $0.9 billion, for a total cash balance of $5.1 billion. Unrestricted cash and short-term investments increased by $0.5 billion during the quarter as the company generated operating cash flow of nearly $700 million. This represented an increase in operating cash flow of $125 million year-over-year.

“United’s ability to generate cash is strong. The cash generation power is masked somewhat by the non-cash, exit-related charges included in our reported earnings, and our operating earnings show improvement in our underlying performance,” said Jake Brace, UAL’s executive vice president and chief financial officer. “We delivered better-than-expected second quarter CASM results, and we are working hard to bring a significant piece of the $400 million in targeted 2007 cost savings into 2006.”

Strong Unit Revenue Growth

Total passenger revenues increased 16 percent in the second quarter. Strong growth in all reportable segments was a major contributor to the gains over last year’s second quarter. RASM increased 12 percent, while mainline traffic increased by 5 percent on a 3 percent increase in capacity and a 1.5 point increase in load factor. Mainline yield was 10 percent higher than last year. This resulted in mainline passenger revenue per available seat mile (PRASM) increasing by 12 percent.

 

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Comparison of 2006 versus 2005 Second Quarter

 

(1)             ASM (available seat miles)

(2)             For Form 10-Q segment reporting purposes, the company aggregates Regional Affiliates results within the North America segment in accordance with Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information.”

Regional affiliate passenger unit revenue was 15 percent higher than last year, driven by a 9 percent increase in yield and a 4.3 point increase in load factor.

The company is implementing several new initiatives that are expected to improve revenue performance. In May, United launched Choices, an enhancement to its Mileage Plus credit card program. Customer reaction has been positive, and two months after launching Choices, the company is encouraged by the early results in cardholder acquisitions and spending. United also announced plans for a new international premium cabin product, the first of which will debut in 2007. In addition, United’s Economy Plus premium coach product is expected to generate more than $50 million this year from up-sales at the time of passenger check-in, and plans are in place to grow up-sale revenue to more than $100 million in 2007. Finally, United continues to optimize its route structure — improving economic performance while broadening its customer offering in key hubs. The company recently announced plans to replace the

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John F. Kennedy International Airport (JFK) to Tokyo Narita service with new service from Washington Dulles to Tokyo Narita. The company also sold its JFK to London route authority. Those two actions will enable the company to reintroduce non-stop service to Taipei from its strong San Francisco gateway. In addition, the company will be the first U.S. carrier to serve Kuwait, with service beginning in October from Washington Dulles.

“Our revenue results are competitive, and we are particularly pleased with our domestic RASM improvement given our capacity growth relative to the industry,” said John Tague, UAL’s executive vice president and chief revenue officer. “We are implementing a wide range of initiatives that we believe will deliver industry-leading revenue performance. We are optimizing our network to increase profitability, and we are committed to providing a superior customer experience that sets us apart from the rest of the industry and that we believe will generate a revenue premium.”

Controlling Operating Expenses

CASM increased by 9 percent from the year-ago quarter, primarily driven by a 27 percent increase in mainline fuel prices. Excluding fuel, a $22 million one-time severance charge related to the company’s previously announced manpower reductions and a special item recorded in the second quarter of 2005, mainline CASM was 7.64 cents, an increase of 1.5% compared with the second quarter of 2005.

 

(3)             For Mainline and Consolidated, also excludes UAFC, a one-time severance expense and special items

As previously announced, the company is engaged in a multi-year cost reduction program. For 2006, United’s business plan includes $300 million in benefits over 2005, and the

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company has committed to an additional $400 million in cost savings starting in 2007 on top of those already included in the business plan. To generate these additional cost savings, the company is focused on fundamental improvements to its core business. United has cut advertising and marketing costs by $60 million, is reducing purchased services costs by $200 million, and will reduce general and administrative costs by $100 million and will secure $40 million from operational efficiency improvements.

Improving Productivity

As a result of the company’s resource optimization, continuous improvement efforts across its operations and the outsourcing of certain non-core functions, productivity continued to increase in the second quarter. Employee productivity (available seat miles divided by employee equivalents) improved 7 percent for the quarter compared to the same period in 2005 while full-time equivalent employees decreased by 4 percent. Aircraft productivity, as measured by fleet utilization, improved 3 percent during the quarter to an average of approximately 11 hours, 16 minutes per day.

The company continues to implement its resource optimization efforts throughout the United system. One goal is to reduce average turn times by eight minutes system-wide by the end of 2006. The first phase was initiated in San Francisco in January, followed by all Ted markets in February. In the second quarter, optimization efforts expanded to Denver and Los Angeles and turn times were reduced by four minutes. The company expects to capture the remaining benefits in the second half of the year as the company implements another round of tighter turns in Washington Dulles and Chicago.

Performance Goals Target Productivity and Customer Satisfaction

Customer service, as measured by the U.S. Department of Transportation, improved slightly over the performance in the first quarter of 2006. Second quarter mishandled baggage

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performance has improved from the first quarter and is on par with last year. On-time arrival performance was up slightly against the first quarter of 2006 but below last year’s performance. As noted earlier, the company set goals to further reduce aircraft turn-times and achieve higher levels of productivity. These goals, along with record load factors and severe weather in the Midwest and the East Coast, challenged operations. While improving productivity, United is committed to enriching the customer experience, and the company continues to focus on enhancing its operational execution.

“We are achieving improvements in turn times for our aircraft despite extremely high load factors. These successes are due in large part to the tremendous work being done by our employees worldwide,” said Pete McDonald, UAL’s executive vice president and chief operating officer. “While the changes we are making to our processes are having an impact on our operational performance in the near term, they will make us more efficient and enable us to meet our increased operational goals. We are pleased with the progress we have made on reducing costs, and we expect continuous improvement efforts to lower costs even further.”

Operational Highlights: Voted Best Economy/Coach Class in the World

·                  United Airlines won Best Economy/Coach Class in the world, at the annual OAG Airline of the Year Awards held in London in May. Separately, readers of Business Traveler magazine also voted United as the best premium economy class in the world.

·                  During the quarter, United and TACA GROUP announced the inception of their new code-share agreement, which significantly expands international destination options and frequent flyer opportunities for customers of both carriers. TACA serves 35 cities in 19 countries in the Americas, with hubs in San Salvador, El Salvador; San Jose, Costa Rica; and Lima, Peru.

·                  United, a founding member of the Star Alliance, moved into the new South Wing of Tokyo’s Narita Airport Terminal 1 at the beginning of June. This is Star Alliance’s largest co-location project and the global alliance’s most ambitious project to date. It

 

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offers some of the fastest connection times for Star Alliance travelers and provides world-class airport facilities and innovative customer services.

Fresh Start Reporting

Upon emergence from its Chapter 11 proceedings in February 2006, the company adopted fresh-start reporting in accordance with SOP 90-7 as of February 1, 2006. The company’s emergence resulted in a new reporting entity with no retained earnings or accumulated deficit as of February 1, 2006. Accordingly, the company’s financial information shown for periods prior to February 1, 2006 is not comparable to consolidated financial statements presented on or after that date. For further discussion on fresh-start reporting, please refer to the company’s filings with the Securities and Exchange Commission, particularly the first and second quarter 2006 Form-10Qs.

To offer additional information for investors the company has identified certain items consisting only of major non-cash fresh-start reporting and exit-related charges (Note 11). While it is not practicable for the company to present information for all items that are not comparable in the pre- and post-exit periods, the company believes that the items identified are the material non-cash fresh-start reporting and exit-related items and that such information is useful to investors in understanding year-over-year performance.  These fresh-start and exit-related items were discussed in the company’s Form 8-K filed with the Securities and Exchange Commission on May 8, 2006 with respect to the 2006 first quarter results of operations. In addition, the company believes that highlighting the severance expense is useful to investors because it is a non-recurring charge not indicative of the company’s ongoing performance. These items are shown in the following table:

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Unfavorable / (Favorable) to Earnings
		One-Time			Non-Cash Fresh-
		Severance			Start and Exit-			Total
		Expense			Related Items			Adjustments
		(In millions)
Revenue		$	—		$	26		$	26
Severance		$	22		$	—		$	22
Stock-based compensation		$	—		$	40		$	40
Mileage Plus Marketing Expense		$	—		$	(4	)	$	(4	)
Postretirement welfare costs		$	—		$	14		$	14
Depreciation and amortization		$	—		$	14		$	14
Deferred gain		$	—		$	18		$	18
Total Operating Expense		$	22		$	82		$	104
Non-Operating Expense		$	—		$	34		$	34

 

Excluding these non-cash expenses, fuel, the $22 million in severance expense and a special item recorded in the second quarter of 2005 (Note 5), mainline CASM for the second quarter would total an estimated 7.41 cents, or 1.6% lower than the comparable quarter last year (Note 10).

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Outlook

As a result of improvement initiatives already underway, the company expects to achieve a portion of the planned 2007 savings ahead of schedule in 2006. Including the effects of these initiatives, the company estimates that mainline CASM excluding fuel for 2006 will be as follows:

Percentage Change Year-over-Year

Increase/(Decrease)

 

		Q1		Q2						Full Year
		Actual		Actual		Q3E		Q4E		Estimate
		(Note 10)		(Note 10)		(Note 12)		(Note 12)		(Note 12)
Mainline CASM excluding fuel and special charges		3.3	%	2.3	%	1.5% to 2.5%		0.0% to 0.9%		1.7% to 2.3%
Mainline CASM excluding fuel, special charges, and severance		3.3	%	1.5	%	1.5% to 2.5%		0.0% to 0.9%		1.5% to 2.0%
Mainline CASM excluding fuel, special charges, severance, and certain non-cash exit related charges		(0.4	)%	(1.6	)%	(1.3)% to (0.3)%		(2.4)% to (1.5)%		(1.5)% to (0.9)%

 

United has issued the following capacity guidance for the third quarter and lowered its full-year 2006 consolidated capacity guidance:

 

Capacity increases are driven by higher aircraft utilization as a result of the company’s resource optimization efforts.

As of July 24, 2006 the company had 28 percent of its mainline fuel consumption hedged for the third quarter of 2006 at an average price of $69.84 per barrel, excluding taxes, using crude oil swaps.

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Note 10 to the attached Statements of Consolidated Operations provides a reconciliation of net income or loss reported under GAAP to net income or loss excluding reorganization items for all periods presented, as well as a reconciliation of other non-GAAP financial measures, including and excluding special items.

About United

United Airlines (NASDAQ: UAUA) operates more than 3,700* flights a day on United, United Express and Ted to more than 210 U.S. domestic and international destinations from its hubs in Chicago, Denver, Los Angeles, San Francisco and Washington, D.C.  With key flight operations in the Asia-Pacific region, Europe and Latin America, United is one of the largest international carriers based in the United States.  United is also a founding member of Star Alliance, which provides connections for our customers to 842 destinations in 152 countries worldwide.  United’s 57,000 employees reside in every U.S. state and in many countries around the world.  News releases and other information about United can be found at the company’s Web site at united.com.

*Based on the flight schedule between May 1, 2006 and Dec. 31, 2006

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:  Certain statements included in this press release are forward-looking and thus reflect the Company’s current expectations and beliefs with respect to certain current and future events and financial performance.  Such forward-looking statements are and will be subject to many risks and uncertainties relating to the operations and business environments of the Company that may cause actual results to differ materially from any future results expressed or implied in such forward-looking statements.  Factors that could significantly affect net earnings, revenues, expenses, costs, load factor and capacity include, without limitation, the following: the Company’s ability to comply with the terms of its credit facility; the costs and availability of financing; the Company’s ability to execute its business plan; the Company’s ability to attract, motivate and/or retain key employees; the Company’s ability to attract and retain customers; demand for transportation in the markets in which the Company operates; general economic conditions (including interest rates, foreign currency exchange rates, crude oil prices and refining capacity in relevant markets); the effects of  any hostilities or act of war or any terrorist attack; the ability of other air carriers with whom the Company has alliances or partnerships to provide the services contemplated by the respective arrangements with such carriers; the costs and availability of aircraft insurance; the costs of jet fuel; our ability to cost-effectively hedge against increases in the price of jet fuel; the costs associated with security measures and practices; labor costs; competitive pressures on pricing (particularly from lower-cost competitors) and on demand; capacity decisions of our competitors, U.S. or foreign governmental legislation, regulation and other actions; the ability of the Company to maintain satisfactory labor relations and our ability to avoid any disruptions to operations due to any potential actions by our labor groups; weather conditions; and other risks and uncertainties set forth from time to time in UAL’s reports to the United States Securities and Exchange Commission. Consequently, the forward-looking statements should not be regarded as representations or warranties by the Company that such matters will be realized.  The Company disclaims any intent or obligation to update or revise any of the forward-looking statements, whether in response to new information, unforeseen events, changed circumstances or otherwise.

 # # #

 

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UAL CORPORATION AND SUBSIDIARY COMPANIES
COMBINED SUCCESSOR AND PREDECESSOR COMPANY STATEMENTS OF CONSOLIDATED
OPERATIONS (UNAUDITED)
(In millions, except per share)

 

		Successor			Predecessor
		Three Months			Three Months
		Ended			Ended
		June 30,			June 30,			%
		2006			2005			Change
(In accordance with GAAP)
Operating revenues:
Passenger—United Airlines		$	3,806		$	3,301		15.3
—Regional Affiliates		761			632			20.4
Cargo		194			180			7.8
Other operating revenues		352			310			13.5
		5,113			4,423			15.6
Operating expenses:
Aircraft fuel		1,250			955			30.9
Salaries and related costs		1,071			1,052			1.8
Regional affiliates		715			685			4.4
Purchased services		447			383			16.7
Aircraft maintenance materials and outside repairs		257			227			13.2
Landing fees and other rent		225			225			—
Depreciation and amortization		218			201			8.5
Cost of sales		190			147			29.3
Aircraft rent		109			109			—
Commissions		82			76			7.9
Special operating items		—			18			—
Other operating expenses		289			297			(2.7	)
		4,853			4,375			10.9
Earnings from operations		260			48			441.7
Other income (expense):
Interest expense		(211		)	(111		)	90.1
Interest capitalized		4			—			—
Interest income		67			6			—
Miscellaneous, net		(4		)	9			—
		(144		)	(96		)	50.0
Earnings (loss) before reorganization items, income taxes and equity in earnings of affiliates		116			(48		)	—
Reorganization items, net		—			(1,386		)	—
Earnings (loss) before income taxes and equity in earnings of affiliates		116			(1,434		)	—
Income taxes		—			—			—
Earnings (loss) before equity in earnings of affiliates		116			(1,434		)	—
Equity in earnings of affiliates		3			4			(25.0	)
Net income (loss)		$	119		$	(1,430	)	—
Earnings (loss) per share, basic		$	1.01		$	(12.33	)
Earnings (loss) per share, diluted		$	0.93		$	(12.33	)
Weighted average shares, basic		115.1			116.2
Weighted average shares, diluted		130.0			116.2

See accompanying notes.

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UAL CORPORATION AND SUBSIDIARY COMPANIES
COMBINED SUCCESSOR AND PREDECESSOR COMPANY STATEMENTS OF CONSOLIDATED
OPERATIONS (UNAUDITED)
(In millions, except per share)

 

		Predecessor			Successor						Predecessor
		Period from			Period from			Combined			Six Months
		January 1			February 1			Periods Ended			Ended
		to January 31,			to June 30,			June 30,			June 30,			%
		2006			2006			2006 [a]			2005			Change
(In accordance with GAAP)
Operating revenues:
Passenger—United Airlines		$	1,074		$	5,988		$	7,062		$	6,217		13.6
—Regional Affiliates		204			1,226			1,430			1,156			23.7
Cargo		56			318			374			352			6.3
Other operating revenues		124			588			712			613			16.2
		1,458			8,120			9,578			8,338			14.9
Operating expenses:
Aircraft fuel		362			1,955			2,317			1,760			31.6
Salaries and related costs		358			1,797			2,155			2,085			3.4
Regional affiliates		228			1,183			1,411			1,330			6.1
Purchased services		134			743			877			744			17.9
Aircraft maintenance materials and outside repairs		80			436			516			446			15.7
Landing fees and other rent		75			370			445			458			(2.8	)
Depreciation and amortization		68			366			434			414			4.8
Cost of sales		65			318			383			290			32.1
Aircraft rent		30			184			214			229			(6.6	)
Commissions		24			133			157			153			2.6
Special operating items		—			—			—			18			—
Other operating expenses		86			494			580			613			(5.4	)
		1,510			7,979			9,489			8,540			11.1
Earnings (loss) from operations		(52		)	141			89			(202		)	—
Other income (expense):
Interest expense		(42		)	(352		)	(394		)	(220		)	79.1
Interest capitalized		—			7			7			(5		)	—
Interest income		6			95			101			10			910.0
Miscellaneous, net		—			2			2			67			(97.0	)
		(36		)	(248		)	(284		)	(148		)	91.9
Loss before reorganization items, income taxes and equity in earnings of affiliates		(88		)	(107		)	(195		)	(350		)	(44.3	)
Reorganization items, net		22,934			—			22,934			(2,154		)	—
Earnings (loss) before income taxes and equity in earnings of affiliates		22,846			(107		)	22,739			(2,504		)	—
Income taxes		—			—			—			—			—
Earnings (loss) before equity in earnings of affiliates		22,846			(107		)	22,739			(2,504		)	—
Equity in earnings of affiliates		5			3			8			4			100.0
Net income (loss)		$	22,851		$	(104	)	$	22,747		$	(2,500	)	—
Earnings (loss) per share, basic		$	196.61		$	(0.94	)				$	(21.56	)
Earnings (loss) per share, diluted		$	196.61		$	(0.94	)				$	(21.56	)
Weighted average shares, basic and diluted		116.2			115.1						116.2

See accompanying notes.

 

[a]             The combined periods include the results for one month ended January 31, 2006 (Predecessor Company) and five months ended June 30, 2006 (Successor Company).

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CONSOLIDATED NOTES (UNAUDITED)

(1)             UAL Corporation (“UAL” or the “Company”) is a holding company whose principal subsidiary is United Air Lines, Inc. (“United”).  On December 9, 2002, UAL, United and twenty-six direct and indirect wholly owned subsidiaries filed Chapter 11 petitions for relief in the U.S. Bankruptcy Court for the Northern District of Illinois.  On February 1, 2006, the Company emerged from Chapter 11.

(2)             In connection with its emergence from Chapter 11 bankruptcy protection, the Company implemented 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.”  As a result of the application of fresh-start reporting, the financial statements prior to February 1, 2006 are not comparable with the financial statements post February 1, 2006.  However, the pre-emergence periods have been compared to the post-emergence periods for the quarter ended June 30, 2006 and the first six months of 2006 have been combined and compared to the first six months of 2005.  The Company believes that these comparisons provide management and investors a better perspective of the Company’s on-going financial and operational performance and trends.  References to “Successor Company” refer to UAL on or after February 1, 2006, after giving the effect to the application of fresh-start reporting.  References to “Predecessor Company” refer to UAL prior to February 1, 2006.

(3)             In connection with its bankruptcy proceedings, the Company recorded the following largely non-cash reorganization items:

 

		Period from			Three Month			Six Month
		January 1			Period Ended			Period Ended
		to January 31,			June 30,			June 30,
		2006			2005			2005
		(In millions)
Discharge of claims and liabilities		$	24,628		$	—		$	—	[a]
Revaluation of frequent flyer obligation		(2,399		)	—			—		[b]
Revaluation of other assets and liabilities		2,106			—			—		[c]
Employee-related charges		(898		)	(6		)	(13		)[d]
Contract rejection charges		(429		)	(509		)	(509		)[e]
Professional fees		(47		)	(48		)	(92		)
Pension-related charges		(14		)	(612		)	(1,045		)[f]
Aircraft claim charges		—			(212		)	(506		)[g]
Other		(13		)	1			11
Total reorganization income (expense)		$	22,934		$	(1,386	)	$	(2,154	)

[a]             The discharge of claims and liabilities primarily relates to those unsecured claims arising during the bankruptcy process, such as 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 frequent flyer miles to estimated 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]            Employee-related charges include 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 our estimate of claims resulting from the Company’s rejection or negotiated modification of certain contractual obligations such as executory contracts, unexpired leases and regional carrier contracts.

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[f]               In the first and second quarters of 2005, the Company recognized pension curtailment charges of $433 million and $207 million, respectively, associated with actions taken by the Pension Benefit Guaranty Corporation to involuntarily terminate three of the Company’s defined benefit pension plan for covered members of certain ground and management employees, as well as flight attendants.  During the second quarter of 2005, the Company recognized net settlement losses of $395 million as a result of the termination of several defined benefit pension plans and a $10 million settlement loss related to the termination of a management non-qualified supplemental retirement plan.

[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.

(4)             In accordance with the plan of reorganization, the Company may issue up to 125 million shares (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 and options (or rights to acquire shares) under the management equity incentive plan (“MEIP”) approved by the Bankruptcy Court; and

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

In accordance with Statement of Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS 128”), basic per share amounts were computed by dividing income (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding.  SFAS 128 requires that the entire 115 million shares to be issued to unsecured creditors and employees be considered outstanding, although the Company in fact has not issued all 115 million shares at June 30, 2006.  The table below represents the reconciliation of the basic earnings per share to diluted earnings per share.

 

		Successor			Predecessor			Predecessor			Successor			Predecessor
		Three Months			Three Months			Period from			Period from			Six Month
		Ended			Ended			January 1			February 1			Period Ended
		June 30,			June 30,			to January 31,			to June 30,			June 30,
		2006			2005			2006			2006			2005
		(In millions, except per share)
Basic earnings per share:
Net income (loss)		$	119		$	(1,430	)	$	22,851		$	(104	)	$	(2,500	)
Preferred dividends		(2		)	(3		)	(1		)	(4		)	(5		)
Earnings (loss) available to common shareholders		$	117		$	(1,433	)	$	22,850		$	(108	)	$	(2,505	)
Basic weighted-average common shares outstanding		115.1			116.2			116.2			115.1			116.2
Earnings (loss) per share - basic		$	1.01		$	(12.33	)	$	196.61		$	(0.94	)	$	(21.56	)
Diluted earnings per share:
Earnings (loss) available to common shareholders		$	117		$	(1,433	)	$	22,850		$	(108	)	$	(2,505	)
Effect of 2% preferred securities		2			—			—			—			—
Effect of 5% convertible debt		2			—			—			—			—
Earnings (loss) available to common shareholders including the effect of dilutive securities		$	121		$	(1,433	)	$	22,850		$	(108	)	$	(2,505	)
Basic weighted-average common shares outstanding		115.1			116.2			116.2			115.1			116.2
Effect of non-vested restricted shares		0.9			—			—			—			—
Effect of 2% preferred securities		10.8			—			—			—			—
Effect of 5% convertible debt		3.2			—			—			—			—
Diluted weighted-average common shares outstanding		130.0			116.2			116.2			115.1			116.2
Earnings (loss) per share - diluted		$	0.93		$	(12.33	)	$	196.61		$	(0.94	)	$	(21.56	)

 

(5)             During the second quarter of 2005, the Company recognized a charge of $18 million for aircraft impairments related to the planned accelerated retirement of certain aircraft currently operated by Air Wisconsin Airlines Corporation.

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(6)             Included in UAL’s operating earnings (loss) are the results of United’s wholly owned subsidiary United Aviation Fuels Corporation (“UAFC”).

 

		Successor			Predecessor								Predecessor
		Three Months			Three Months					Combined			Six Month
		Ended			Ended					Periods Ended			Period Ended
		June 30,			June 30,			%		June 30,			June 30,			%
UAFC (in millions)		2006			2005			Change		2006			2005			Change
Other operating revenues		$	104		$	73		42.5		$	210		$	128		64.1
Cost of sales		101			73			38.4		206			127			62.2
Income from operations		$	3		$	—		—		$	4		$	1		300.0

 

(7)             UAL’s results of operations include aircraft fuel expense for both United mainline jet operations and regional affiliates.  Aircraft fuel expense incurred as a result of the Company’s regional affiliates’ operations is reflected in the Regional Affiliates operating expenses.  In accordance with UAL’s agreement with its regional affiliates, these costs are incurred by the Company.

 

		Year-Over-Year Impact of Fuel Expense
		United Mainline and Regional Affiliate Jet Operations
		Three Months			Three Months					Combined			Six Month
		Ended			Ended					Periods Ended			Period Ended
		June 30,			June 30,			%		June 30,			June 30,			%
		2006			2005			Change		2006			2005			Change
GAAP mainline fuel expense (in millions)		$	1,250		$	955		30.9		$	2,317		$	1,760		31.6
Regional affiliates fuel expense (in millions)		219			170			28.8		414			313			32.3
United system fuel expense (in millions)		$	1,469		$	1,125		30.6		$	2,731		$	2,073		31.7
Mainline fuel consumption (in millions of gallons)		579			559			3.6		1,127			1,109			1.6
Mainline average jet fuel price per gallon (in cents)		215.8			170.5			26.6		205.5			158.6			29.6

 

(8)   The tables below set forth certain operating statistics for United’s mainline, regional affiliates and consolidated operations:

 

		[a]										[a]
		North										Regional
Three months ended June 30, 2006		America		Pacific		Atlantic		Latin		Mainline		Affiliates		Consolidated
ASM (in millions)		22,051		8,025		4,797		1,318		36,191		3,888		40,079
RPM (in millions)		18,699		6,754		4,178		1,112		30,743		3,148		33,891
Passenger revenues (in millions)		2,445		728		510		123		3,806		761		4,567
PRASM (in cents)		11.09		9.07		10.63		9.30		10.51		19.57		11.39
Yield (in cents)[b]		13.02		10.75		12.18		10.82		12.34		24.17		13.44
Load Factor (percent)		84.8		84.2		87.1		84.4		84.9		81.0		84.6

 

		[a]										[a]
		North										Regional
Three months ended June 30, 2005		America		Pacific		Atlantic		Latin		Mainline		Affiliates		Consolidated
ASM (in millions)		21,001		7,955		4,882		1,294		35,132		3,712		38,844
RPM (in millions)		17,600		6,487		4,218		996		29,301		2,846		32,147
Passenger revenues (in millions)		2,042		671		482		106		3,301		632		3,933
PRASM (in cents)		9.72		8.44		9.88		8.17		9.40		17.02		10.13
Yield (in cents)[b]		11.55		10.31		11.32		10.38		11.22		22.21		12.19
Load Factor (percent)		83.8		81.5		86.4		77.0		83.4		76.7		82.8

 

		[a]										[a]
		North										Regional
First six months ended June 30, 2006		America		Pacific		Atlantic		Latin		Mainline		Affiliates		Consolidated
ASM (in millions)		42,870		15,661		9,114		3,034		70,679		7,622		78,301
RPM (in millions)		35,270		13,018		7,468		2,449		58,205		5,972		64,177
Passenger revenues (in millions)		4,515		1,385		902		260		7,062		1,430		8,492
PRASM (in cents)		10.53		8.84		9.89		8.56		9.99		18.77		10.85
Yield (in cents)[b]		12.75		10.61		12.01		10.40		12.09		23.95		13.20
Load Factor (percent)		82.3		83.1		81.9		80.7		82.4		78.4		82.0

 

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		[a]										[a]
		North										Regional
First six months ended June 30, 2005		America		Pacific		Atlantic		Latin		Mainline		Affiliates		Consolidated
ASM (in millions)		41,211		15,612		9,794		2,774		69,391		7,023		76,414
RPM (in millions)		33,373		12,615		7,950		2,147		56,085		5,250		61,335
Passenger revenues (in millions)		3,831		1,275		889		222		6,217		1,156		7,373
PRASM (in cents)		9.29		8.17		9.08		8.01		8.96		16.45		9.65
Yield (in cents)[b]		11.43		10.06		10.91		10.01		11.03		22.01		11.97
Load Factor (percent)		81.0		80.8		81.2		77.4		80.8		74.8		80.3

[a]             For Form 10-Q segment reporting purposes, the Company aggregates Regional Affiliates results within the North America segment in accordance with Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”).

[b]            Segment yields exclude charter revenue and revenue passenger miles.

(9)             For informational purposes, the table below presents 2005 operating statistics for United’s regional affiliates on a quarterly and annual basis:

 

 

(10)       Pursuant to SEC Regulation G, the Company has included the following reconciliation of reported non-GAAP financial measures to comparable financial measures reported on a GAAP basis.  The Company’s consolidated financial statements for the periods prior to exit are not comparable to the statements presented after exit. In addition, to offer additional information for investors, the Company has identified certain items consisting only of major non-cash fresh-start reporting and exit-related items.  Further, the Company believes that excluding fuel costs from certain measures is useful to investors because it provides an additional measure of management’s performance excluding the effects of a significant cost item over which management has limited influence.  The Company also believes that adjusting for special items and the severance charge is useful to investors because they are non-recurring charges not indicative of the Company’s on-going performance.

[a]             Earnings Per Share Adjusted for Reorganization Items, net and Special Items

		Successor			Predecessor			Predecessor			Successor			Predecessor
		Three Months			Three Months			Period from			Period from			Six Month
		Ended			Ended			January 1			February 1			Period Ended
		June 30,			June 30,			to January 31,			to June 30,			June 30,
		2006			2005			2006			2006			2005
		(In millions, except per share)
Earnings (loss) available to common shareholders		$	117		$	(1,433	)	$	22,850		$	(108	)	$	(2,505	)
Adjusted for:
Reorganization items, net		—			(1,386		)	22,934			—			(2,154		)
Special items		—			(18		)	—			—			(18		)
Adjusted earnings (loss) available to common shareholders		$	117		$	(29	)	$	(84	)	$	(108	)	$	(333	)
Effect of 2% preferred securities		2			—			—			—			—
Effect of 5% convertible debt		2			—			—			—			—
Adjusted earnings (loss) available to common shareholders		$	121		$	(29	)	$	(84	)	$	(108	)	$	(333	)
Adjusted basic weighted-average common shares outstanding		115.1			116.2			116.2			115.1			116.2
Effect of non-vested restricted shares		0.9			—			—			—			—
Effect of 2% preferred securities		10.8			—			—			—			—
Effect of 5% convertible debt		3.2			—			—			—			—
Adjusted diluted weighted-average common shares outstanding		130.0			116.2			116.2			115.1			116.2
Adjusted earnings (loss) per share, basic		$	1.01		$	(0.26	)	$	(0.72	)	$	(0.94	)	$	(2.87	)
Adjusted earnings (loss) per share, diluted		$	0.93		$	(0.26	)	$	(0.72	)	$	(0.94	)	$	(2.87	)

 

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