UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

OR

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

For the transition period from                      to                     

Commission		Exact Name of Registrant as Specified in its Charter,		State of		I.R.S. Employer
File Number		Principal Office Address and Telephone Number		Incorporation		Identification No
001-06033		UAL Corporation		Delaware		36-2675207
001-11355		United Air Lines, Inc.		Delaware		36-2675206
		77 W. Wacker Drive
		Chicago, Illinois 60601
		(312) 997-8000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

UAL Corporation		Yes þ No o
United Air Lines, Inc.		Yes þ No o

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

UAL Corporation		Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
						(Do not check if a smaller reporting company)
United Air Lines, Inc.		Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
						(Do not check if a smaller reporting company)

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

UAL Corporation		Yes o No þ
United Air Lines, Inc.		Yes o No þ

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

UAL Corporation		Yes þ No o
United Air Lines, Inc.		Yes þ No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of October 17, 2008.

UAL Corporation		128,866,041 shares of common stock ($0.01 par value)
United Air Lines, Inc.		205 (100% owned by UAL Corporation) There is no market for United Air Lines, Inc. common stock.

 

 

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

Report on Form 10-Q

For the Quarter Ended September 30, 2008

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements			3
UAL Corporation:
Condensed Statements of Consolidated Operations (Unaudited)			3
Condensed Statements of Consolidated Financial Position (Unaudited)			5
Condensed Statements of Consolidated Cash Flows (Unaudited)			7
United Air Lines, Inc.:
Condensed Statements of Consolidated Operations (Unaudited)			8
Condensed Statements of Consolidated Financial Position (Unaudited)			10
Condensed Statements of Consolidated Cash Flows (Unaudited)			12
Combined Notes to Condensed Consolidated Financial Statements (Unaudited) (UAL Corporation and United Air Lines, Inc.)			13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
Item 3. Quantitative and Qualitative Disclosures About Market Risk			54
Item 4. Controls and Procedures			55
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			56
Item1A. Risk Factors			57
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			59
Item 6. Exhibits			59
Signatures			60
Exhibit Index			61
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 12.1
Exhibit 12.2
Exhibit 31.1
Exhibit 31.2
Exhibit 31.3
Exhibit 31.4
Exhibit 32.1
Exhibit 32.2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UAL Corporation and Subsidiary Companies

		Three Months Ended
		September 30,
		2008				2007
Operating revenues:
Passenger — United Airlines		$	4,280			$	4,225
Passenger — Regional Affiliates			834				819
Cargo			219				198
Special operating items (Note 5)			—				45
Other operating revenues			232				240
			5,565				5,527
Operating expenses:
Aircraft fuel			2,461				1,324
Salaries and related costs			1,037				1,062
Regional affiliates			882				751
Purchased services			327				344
Aircraft maintenance materials and outside repairs			256				295
Depreciation and amortization			234				245
Landing fees and other rent			222				201
Distribution expenses			181				211
Aircraft rent			115				102
Cost of third party sales			75				68
Other impairments and special items (Notes 4 and 5)			(9	)			(22	)
Other operating expenses			275				290
			6,056				4,871
Income (loss) from operations			(491	)			656
Other income (expense):
Interest expense			(131	)			(161	)
Interest income			24				71
Interest capitalized			6				5
Miscellaneous, net			(186	)			(6	)
			(287	)			(91	)
Income (loss) before income taxes and equity in earnings of affiliates			(778	)			565
Income tax expense (benefit)			2				232
Income (loss) before equity in earnings of affiliates			(780	)			333
Equity in earnings of affiliates, net of tax			1				1
Net income (loss)		$	(779	)		$	334
Earnings (loss) per share, basic		$	(6.13	)		$	2.82
Earnings (loss) per share, diluted		$	(6.13	)		$	2.21

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

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

		Nine Months Ended
		September 30,
		2008				2007
Operating revenues:
Passenger — United Airlines		$	11,924			$	11,457
Passenger — Regional Affiliates			2,346				2,298
Cargo			674				547
Special operating items (Note 5)			—				45
Other operating revenues			703				766
			15,647				15,113
Operating expenses:
Aircraft fuel			5,884				3,571
Salaries and related costs			3,262				3,149
Regional affiliates			2,508				2,176
Purchased services			1,047				980
Aircraft maintenance materials and outside repairs			868				860
Depreciation and amortization			670				694
Landing fees and other rent			651				654
Distribution expenses			558				596
Aircraft rent			314				307
Cost of third party sales			204				238
Goodwill impairment (Note 4)			2,277				—
Other impairments and special items (Notes 4 and 5)			214				(44	)
Other operating expenses			816				831
			19,273				14,012
Income (loss) from operations			(3,626	)			1,101
Other income (expense):
Interest expense			(392	)			(506	)
Interest income			100				191
Interest capitalized			16				14
Miscellaneous, net			(177	)			(7	)
			(453	)			(308	)
Income (loss) before income taxes and equity in earnings of affiliates			(4,079	)			793
Income tax expense (benefit)			(30	)			340
Income (loss) before equity in earnings of affiliates			(4,049	)			453
Equity in earnings of affiliates, net of tax			4				3
Net income (loss)		$	(4,045	)		$	456
Income (loss) per share, basic		$	(32.34	)		$	3.82
Income (loss) per share, diluted		$	(32.34	)		$	3.10

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

UAL Corporation and Subsidiary Companies

		September 30,				December 31,
		2008				2007
Assets
Current assets:
Cash and cash equivalents		$	2,931			$	1,259
Short-term investments			—				2,295
Receivables, less allowance for doubtful accounts (2008—$24; 2007—$27)			1,037				888
Prepaid fuel			524				493
Fuel hedge collateral deposits			354				—
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2008—$35; 2007—$25)			283				242
Deferred income taxes			127				78
Restricted cash			91				325
Prepaid expenses and other			623				515
			5,970				6,095
Operating property and equipment:
Owned—
Flight equipment			9,239				9,335
Advances on flight equipment			—				102
Other property and equipment			1,758				1,669
			10,997				11,106
Less—accumulated depreciation and amortization			(1,458	)			(1,062	)
			9,539				10,044
Capital leases:
Flight equipment			1,289				1,449
Other property and equipment			35				34
			1,324				1,483
Less—accumulated amortization			(200	)			(168	)
			1,124				1,315
			10,663				11,359
Other assets:
Intangibles, less accumulated amortization (2008—$316; 2007—$324)			2,726				2,871
Goodwill			—				2,280
Aircraft lease deposits			306				340
Restricted cash			157				431
Investments			92				122
Other, net			817				722
			4,098				6,766
		$	20,731			$	24,220

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

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

		September 30,				December 31,
		2008				2007
Liabilities and Stockholders’ Equity
Current liabilities:
Advance ticket sales		$	2,251			$	1,918
Mileage Plus deferred revenue			1,381				1,268
Accounts payable			821				877
Accrued salaries, wages and benefits			785				896
Long-term debt maturing within one year			749				678
Fuel purchase commitments			524				493
Current obligations under capital leases			116				250
Accrued interest			115				141
Advanced purchase of miles			—				694
Distribution payable			4				257
Other			807				507
			7,553				7,979
Long-term debt			6,145				6,415
Long-term obligations under capital leases			1,049				1,106
Other liabilities and deferred credits:
Mileage Plus deferred revenue			2,635				2,569
Postretirement benefit liability			1,852				1,829
Advanced purchase of miles			1,099				—
Deferred income taxes			660				638
Other			1,020				895
			7,266				5,931
Commitments and contingent liabilities (Note 15)
Mandatorily convertible preferred securities (Note 7)			—				371
Stockholders’ equity (deficit) (Note 7):
Preferred stock			—				—
Common stock at par, $0.01 par value; authorized 1,000,000,000 shares; outstanding 128,836,041 and 116,921,049 shares at September 30, 2008 and December 31, 2007, respectively			1				1
Additional capital invested			2,536				2,139
Retained earnings (deficit)			(3,896	)			152
Stock held in treasury, at cost			(25	)			(15	)
Accumulated other comprehensive income			102				141
			(1,282	)			2,418
		$	20,731			$	24,220

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

UAL Corporation and Subsidiary Companies

		Nine Months Ended
		September 30,
		2008				2007
Cash flows provided (used) by operating activities:
Net income (loss)		$	(4,045	)		$	456
Adjustments to reconcile to net cash provided (used) by operating activities—
Goodwill impairment			2,277				—
Other impairments			214				—
Depreciation and amortization			670				694
Increase in advanced purchase of miles			405				27
Increase in fuel hedge collateral			(378	)			—
Increase in advance ticket sales			333				577
Increase in Mileage Plus deferred revenue			179				187
Increase in receivables			(156	)			(269	)
Deferred income taxes			(29	)			364
Other, net			280				(34	)
			(250	)			2,002
Cash flows provided (used) by investing activities:
Net (purchases) sales of short-term investments			2,295				(2,587	)
Decrease in restricted cash			508				59
Additions to property and equipment			(335	)			(428	)
Proceeds from asset sale leaseback			59				—
Proceeds from the sale of property and equipment			43				14
Proceeds from litigation on advance deposits			41				—
Purchases of EETC securities			—				(76	)
Other, net			(35	)			(39	)
			2,576				(3,057	)
Cash flows provided (used) by financing activities:
Repayment of Credit Facility			(18	)			(995	)
Repayment of other debt			(538	)			(1,149	)
Proceeds from issuance of secured notes			337				694
Special distribution to common shareholders			(253	)			—
Principal payments under capital leases			(209	)			(60	)
Decrease in capital lease deposits			154				—
Increase in deferred financing costs			(118	)			(22	)
Other, net			(9	)			18
			(654	)			(1,514	)
Increase (decrease) in cash and cash equivalents during the period			1,672				(2,569	)
Cash and cash equivalents at beginning of the period			1,259				3,832
Cash and cash equivalents at end of the period		$	2,931			$	1,263

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

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

		Three Months Ended
		September 30,
		2008				2007
Operating revenues:
Passenger — United Airlines		$	4,280			$	4,225
Passenger — Regional Affiliates			834				819
Cargo			219				198
Special operating items (Note 5)			—				45
Other operating revenues			273				243
			5,606				5,530
Operating expenses:
Aircraft fuel			2,461				1,324
Salaries and related costs			1,036				1,059
Regional affiliates			882				751
Purchased services			327				344
Aircraft maintenance materials and outside repairs			256				295
Depreciation and amortization			234				245
Landing fees and other rent			222				201
Distribution expenses			181				211
Aircraft rent			116				102
Cost of third party sales			75				67
Other impairments and special items (Notes 4 and 5)			(9	)			(22	)
Other operating expenses			276				291
			6,057				4,868
Income (loss) from operations			(451	)			662
Other income (expense):
Interest expense			(132	)			(161	)
Interest income			24				70
Interest capitalized			6				5
Miscellaneous, net			(185	)			(6	)
			(287	)			(92	)
Income (loss) before income taxes and equity in earnings of affiliates			(738	)			570
Income tax expense (benefit)			3				234
Income (loss) before equity in earnings of affiliates			(741	)			336
Equity in earnings of affiliates, net of tax			1				1
Net income (loss)		$	(740	)		$	337

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

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

		Nine Months Ended
		September 30,
		2008				2007
Operating revenues:
Passenger — United Airlines		$	11,924			$	11,457
Passenger — Regional Affiliates			2,346				2,298
Cargo			674				547
Special operating items (Note 5)			—				45
Other operating revenues			744				776
			15,688				15,123
Operating expenses:
Aircraft fuel			5,884				3,571
Salaries and related costs			3,262				3,145
Regional affiliates			2,508				2,176
Purchased services			1,047				980
Aircraft maintenance materials and outside repairs			868				860
Depreciation and amortization			670				694
Landing fees and other rent			651				654
Distribution expenses			558				596
Aircraft rent			316				308
Cost of third party sales			203				235
Goodwill impairment (Note 4)			2,277				—
Other impairments and special items (Notes 4 and 5)			214				(44	)
Other operating expenses			844				831
			19,302				14,006
Income (loss) from operations			(3,614	)			1,117
Other income (expense):
Interest expense			(392	)			(506	)
Interest income			100				194
Interest capitalized			16				14
Miscellaneous, net			(177	)			(7	)
			(453	)			(305	)
Income (loss) before income taxes and equity in earnings of affiliates			(4,067	)			812
Income tax expense (benefit)			(30	)			348
Income (loss) before equity in earnings of affiliates			(4,037	)			464
Equity in earnings of affiliates, net of tax			4				3
Net income (loss)		$	(4,033	)		$	467

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

United Air Lines, Inc. and Subsidiary Companies

		September 30,				December 31,
		2008				2007
Assets
Current assets:
Cash and cash equivalents		$	2,868			$	1,239
Short-term investments			—				2,259
Receivables, less allowance for doubtful accounts (2008 — $24; 2007 — $27)			1,031				880
Prepaid fuel			524				493
Fuel hedge collateral deposits			354				—
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2008 — $35; 2007 — $25)			283				242
Receivables from related parties			211				151
Deferred income taxes			119				72
Restricted cash			91				291
Prepaid expenses and other			618				513
			6,099				6,140
Operating property and equipment:
Owned —
Flight equipment			9,233				9,329
Advances on flight equipment			—				91
Other property and equipment			1,759				1,669
			10,992				11,089
Less — accumulated depreciation and amortization			(1,458	)			(1,062	)
			9,534				10,027
Capital leases:
Flight equipment			1,289				1,449
Other property and equipment			35				34
			1,324				1,483
Less — accumulated amortization			(200	)			(168	)
			1,124				1,315
			10,658				11,342
Other assets:
Intangibles, less accumulated amortization (2008 — $316; 2007 — $324)			2,726				2,871
Goodwill			—				2,280
Aircraft lease deposits			306				340
Restricted cash			152				431
Investments			92				122
Other, net			807				710
			4,083				6,754
		$	20,840			$	24,236

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

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

		September 30,				December 31,
		2008				2007
Liabilities and Stockholder’s Equity
Current liabilities:
Advance ticket sales		$	2,251			$	1,918
Mileage Plus deferred revenue			1,381				1,268
Accounts payable			820				882
Accrued salaries, wages and benefits			785				896
Long-term debt maturing within one year			748				678
Fuel purchase commitments			524				493
Current obligations under capital leases			116				250
Accrued interest			115				141
Advanced purchase of miles			—				694
Other			1,104				723
			7,844				7,943
Long-term debt			6,144				6,412
Long-term obligations under capital leases			1,049				1,106
Other liabilities and deferred credits:
Mileage Plus deferred revenue			2,635				2,569
Postretirement benefit liability			1,852				1,829
Advanced purchase of miles			1,099				—
Deferred income taxes			576				555
Other			1,020				895
			7,182				5,848
Commitments and contingent liabilities (Note 15)
Parent company mandatorily convertible preferred securities (Note 7)			—				371
Stockholder’s equity (deficit) (Note 7):
Common stock at par, $5 par value; authorized 1,000 shares; outstanding 205 at both September 30, 2008 and December 31, 2007			—				—
Additional capital invested			2,396				2,000
Retained earnings (deficit)			(3,877	)			415
Accumulated other comprehensive income			102				141
			(1,379	)			2,556
		$	20,840			$	24,236

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

United Air Lines, Inc. and Subsidiary Companies

		Nine Months Ended
		September 30,
		2008				2007
Cash flows provided (used) by operating activities:
Net income (loss)		$	(4,033	)		$	467
Adjustments to reconcile to net cash provided (used) by operating activities—
Goodwill impairment			2,277				—
Other impairments			214				—
Depreciation and amortization			670				694
Increase in advanced purchase of miles			405				27
Increase in fuel hedge collateral			(378	)			—
Increase in advance ticket sales			333				577
Increase in Mileage Plus deferred revenue			179				187
Increase in receivables			(158	)			(271	)
Deferred income taxes			(28	)			372
Other, net			326				(65	)
			(193	)			1,988
Cash flows provided (used) by investing activities:
Net (purchases) sales of short-term investments			2,259				(2,552	)
Decrease in restricted cash			479				54
Additions to property and equipment			(335	)			(428	)
Proceeds from asset sale leaseback			59				—
Proceeds from the sale of property and equipment			42				13
Purchases of EETC securities			—				(76	)
Other, net			(34	)			(39	)
			2,470				(3,028	)
Cash flows provided (used) by financing activities:
Repayment of Credit Facility			(18	)			(995	)
Repayment of other debt			(537	)			(1,148	)
Proceeds from issuance of secured notes			337				694
Dividend to parent			(258	)			—
Principal payments under capital leases			(209	)			(60	)
Decrease in capital lease deposits			154				—
Increase in deferred financing costs			(118	)			(22	)
Other, net			1				38
			(648	)			(1,493	)
Increase (decrease) in cash and cash equivalents during the period			1,629				(2,533	)
Cash and cash equivalents at beginning of the period			1,239				3,779
Cash and cash equivalents at end of the period		$	2,868			$	1,246

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

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

Combined Notes to Condensed Consolidated Financial Statements (Unaudited)

(1) Basis of Presentation

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

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

Interim Financial Statements. The UAL and United unaudited condensed consolidated financial statements shown here have been prepared as required by the U.S. Securities and Exchange Commission (the “SEC”). Some information and footnote disclosures normally included in financial statements that meet accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted as permitted by the SEC. UAL and United believe that the disclosures presented here are not misleading. The financial statements include all adjustments, including asset impairments, severance and normal recurring adjustments, which are considered necessary for a fair presentation of the financial position and results of operations of UAL and United. These financial statements should be read together with the information included in the combined UAL and United Annual Report on Form 10-K for the year ended December 31, 2007 (the “2007 Annual Report”).

(2) Updates to Significant Accounting Policies

The following provides additional information related to the Company’s accounting policy for its frequent flyer program. Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 for additional information.

Accounting for Frequent Flyer Program Miles Sold to Third Parties and the Advanced Purchase of Miles.

The Company has an agreement with its co-branded credit card partner that requires its partner to purchase miles in advance of when miles are awarded to the co-branded partner’s cardholders (referred to as “pre-purchased miles”). These sales are deferred when received by United in our Condensed Statements of Consolidated Financial Position (Unaudited) as “Advanced purchase of miles.” The Company amended its agreement with its co-branded credit card partner in September 2008, as described in Note 17, “Co-branded Credit Card Agreement.”

Subsequently, when our credit card partner awards pre-purchased miles to its cardholders, we transfer the related air transportation element for the awarded miles from “Advanced purchase of miles” to “Mileage Plus deferred revenue” at estimated fair value, and record the residual marketing element as “Other operating revenue.” The Mileage Plus deferred revenue portion is then subsequently recognized as passenger revenue when transportation is provided in exchange for the miles awarded, or when the miles expire.

Air Transportation Element. The Company defers the portion of the sales proceeds that represents the estimated fair value of the air transportation and recognizes that amount as revenue when transportation is provided. The fair value of the air transportation component is determined based upon the equivalent ticket value of similar fares on United and amounts paid to other airlines for miles. The initial revenue deferral is presented as “Mileage Plus deferred revenue” in our Condensed Statements of Consolidated Financial Position (Unaudited). When recognized, the revenue related to the air transportation component is classified as “passenger revenues” in our Condensed Statements of Consolidated Operations (Unaudited).

Marketing-related element. The amount of revenue from the marketing-related element is determined by subtracting the fair value of the air transportation element from the total sales proceeds. The residual portion of the sales proceeds related to marketing activities is recognized when miles are awarded. These revenues are classified as “Other operating revenues” in our Condensed Statements of Consolidated Operations (Unaudited).

Other Frequent Flyer Accounting Policies.

The Company measures its deferred revenue obligation using all awarded and outstanding miles, regardless of whether or not the customer has accumulated enough miles to redeem an award. Eventually these customers will accumulate enough miles to redeem awards, or their accounts will deactivate after a period of inactivity, in which case the Company will recognize the related revenue through its revenue recognition policy for expired miles.

The Company recognizes revenue related to expected expired miles over the estimated redemption period. In 2008, the Company updated certain of its assumptions related to the recognition of revenue for expiration of miles. Based on additional analysis of mileage redemption and expiration patterns, the Company revised the estimated number of miles that are expected to expire from 15% to 24% of earned miles, including miles that will expire or go unredeemed for reasons other than account deactivation. In 2008, the Company also extended the total period of time over which revenue from the expiration of miles is recognized taking into consideration the estimated period of miles redemption. The Company does not expect these changes in estimate to materially affect its Mileage Plus revenue recognition in 2008.

In 2007, the Company’s estimate of expired miles was limited to miles that were expected to deactivate after an 18 month period of account inactivity as defined in the Mileage Plus program rules (“deactivated miles”). Effective December 31, 2007, the Mileage Plus program rule changed to an 18 month inactivity period from a 36 month inactivity period. This change provided an estimated revenue benefit of $50 million and $125 million in the three and nine months ended September 30, 2007, respectively.

Cash and Cash Equivalents, Short-Term Investments, Restricted Cash.

In 2008 and 2007, restricted cash includes cash collateral to secure workers’ compensation obligations and reserves for institutions that process credit card ticket sales. The Company classifies changes in restricted cash balances as an investing activity in its statement of consolidated cash flows, because we consider restricted cash similar to an investment. Certain other companies within our industry also classify certain of their restricted cash transactions as investing activities in their statement of cash flows, while others classify certain of their restricted cash transactions as operating activities in their statement of cash flows. If UAL had classified all changes in its restricted cash balances as operating activities in the nine months ended September 30, 2008 and 2007, its cash provided (used) by operating activities of $(250) million and $2,002 million, respectively, would have been reported as $258 million and $2,061 million, respectively. Additionally, cash provided (used) by investing activities for the nine months ended September 30, 2008 and 2007 of $2,576 million and $(3,057) million, respectively, would have been reported as $2,068 and $(3,116) million, respectively.

(3) Company Operational Plans

The volatility of and increases in crude oil prices, a weakening economic environment and a highly competitive industry with excess capacity have created an extremely challenging environment for the Company. Although crude oil prices have recently fallen from a record high of approximately $145 per barrel in July 2008 to $100 per barrel at September 30, 2008, current prices are still higher as compared to average prices in 2007 and earlier years. The Company’s cash flows and results of operations have been adversely impacted by these factors as indicated by its $4.0 billion of cumulative net losses incurred during the nine months ended September 30, 2008. The Company’s results in the nine months ended September 30, 2008 included asset impairment charges of approximately $2.5 billion that resulted primarily from these unfavorable market and economic conditions as discussed in Note 4, “Impairments.” As previously disclosed, the Company is implementing a plan to address its increased operating costs. Highlights of this plan include the following:

•

The Company is significantly reducing mainline domestic and consolidated capacity. By the fourth quarter of 2008, the Company expects mainline domestic and consolidated capacity to be down approximately 15% and 11% year-over-year, respectively. For the full year of 2009, mainline domestic and consolidated capacity are expected to be approximately 13% and 9% lower than 2008, respectively.

•

The capacity reductions are being made through reductions in frequencies of routes and the elimination of unprofitable routes. These actions have resulted in the closure of a small number of airport operations where United cannot operate profitably at current fuel prices. Additional airport operations may be closed in future periods.

•

The Company previously announced plans to permanently remove 100 aircraft from its mainline fleet, including its entire B737 fleet and six B747 aircraft, by the end of 2009. The B737 aircraft being retired are some of the oldest and least fuel efficient in the Company’s fleet. This planned reduction reflects the Company’s efforts to eliminate unprofitable capacity and divest the Company of assets that currently do not provide an acceptable return.

•

United is eliminating its Ted product for leisure markets and will reconfigure that fleet’s 56 A320s to include United First seating. The reconfiguration of the Ted aircraft will occur in stages, with expected completion by year-end 2009. We will continue to review the deployment of all of our aircraft in various markets and the overall composition of our fleet to ensure that we are using our assets appropriately to provide the best available return.

•

In connection with the capacity reductions, the Company is further streamlining its operations and corporate functions in order to reduce the size of its workforce to match the size of its operations as further discussed below.

•

The Company also recently entered into an alliance partnership with Continental Airlines that is expected to create revenue enhancements, costs savings and operational efficiencies.

The following is a discussion of expenses associated with implementing the Company’s plans. In addition, see Note 4, “Impairments,” for a discussion of the impairment charges recorded during the nine months ended September 30, 2008.

Severance. During the second and third quarters of 2008, the Company reduced its workforce in operations and corporate functions through attrition and both voluntary and involuntary furloughs. The Company is streamlining its workforce to match the reduced capacity of its operations. The Company is planning a workforce reduction of approximately 7,000 employees by the end of 2009. Workforce reductions include salaried and management employee positions and certain of the Company’s unionized workforce. The Company’s standard severance policies provide the affected employees with salary continuation as well as certain insurance benefits for a specified period of time. The Company recognizes its severance obligations in accordance with Statement of Financial Accounting Standards No. 112 (As Amended), Employers’ Accounting for Postemployment Benefits—an amendment of FASB Statements No. 5 and 43, except for voluntary programs which are accounted for under Statement of Financial Accounting Standards No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.

The Company initially recorded an $82 million severance accrual during the second quarter of 2008. Severance expense related to the operational plans discussed above was $6 million and $88 million in the three and nine months ended September 30, 2008, respectively. The following is a reconciliation of severance accrual activity since inception:

(In millions)
Initial accrual at June 30, 2008		$	82
Accruals			6
Payments			(15	)
Balance at September 30, 2008		$	73

In addition to furloughs, the Company is currently offering furlough-mitigation programs, such as voluntary early-out options, to certain union groups. Termination benefits expected to be paid under such voluntary programs are not recognized until the employees accept the termination benefit offer. Therefore, as the Company continues to implement its reductions in force during the remainder of 2008 and 2009, additional severance costs may be incurred. Severance expense is classified within salaries and related costs in the Company’s Condensed Statements of Consolidated Operations (Unaudited). Severance charges are expected to be primarily within the Mainline segment where the fleet reductions will occur.

Aircraft. The following table provides additional information regarding UAL and United’s operating fleet at September 30, 2008, given the previously announced fleet reductions discussed above.

		B737s (Mainline)												All Other Mainline												Total				Regional
		Owned				Leased				Total				Owned				Leased				Total				Mainline				Affiliates				Total
Aircraft at December 31, 2007 (a)			47				47				94				208				158				366				460				279				739
Removed from operating fleet			(21	)			(5	)			(26	)			(1	)			—				(1	)			(27	)			(4	)			(31	)
Transferred from leased to owned (b)			—				—				—				10				(10	)			—				—				—				—
Aircraft at September 30, 2008 — UAL (c)			26				42				68				217				148				365				433				275				708
Aircraft at September 30, 2008 — United			25				43				68				217				148				365				433				275				708
Nonoperating at September 30, 2008 (d)			19				3				22				1				—				1				23				—				23
Contracted for sale/delivery in future periods at September 30, 2008			6				—				6				—				—				—				6				—				6
Agreements in principle for aircraft sales at September 30, 2008			14				—				14				—				—				—				14				—				14

Other costs. As the Company continues to implement the operational plans discussed above, it may incur additional costs related to its conversion of the Company’s fleet of Ted aircraft, costs to exit additional facilities such as airports no longer served, lease termination costs, additional severance costs and asset impairment charges, among others. Such future costs and charges may be material.

(4) Impairments

In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), and Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”), as of May 31, 2008 the Company performed an interim impairment test of its goodwill, all intangible assets and certain of its long-lived assets (principally aircraft and related spare engines and spare parts) due to events and changes in circumstances during the first and second quarters of 2008 that indicated an impairment might have occurred.

Factors deemed by management to have collectively constituted an impairment triggering event included record high fuel prices, significant losses in the first and second quarters of 2008, a softening U.S. economy, analyst downgrade of UAL common stock, rating agency changes in outlook for the Company’s debt instruments from stable to negative, the announcement of the planned removal from UAL’s fleet of 100 aircraft in 2008 and 2009 and a significant decrease in the fair value of the Company’s outstanding equity and debt securities during the first five months of 2008, including a decline in UAL’s market capitalization to significantly below book value. The Company’s consolidated fuel expense increased by more than 50% during this period.

As a result of this impairment testing, for which certain estimates made in the second quarter of 2008 were adjusted to final values in the third quarter of 2008, the Company recorded impairment charges during the three and nine months ended September 30, 2008, as presented in the table below. All of these impairment charges are within the Mainline segment. All of the impairments other than the goodwill impairment, which is separately identified, are classified within “Other impairments and special items” in the Company’s Condensed Statements of Consolidated Operations (Unaudited).

		Period Ended September 30, 2008
(In millions)		Three Months				Nine Months
Goodwill impairment		$	—			$	2,277
Indefinite-lived intangible assets:
Codeshare agreements			(16	)			44
Tradenames			—				20
Intangible asset impairments			(16	)			64
Tangible assets:
Pre-delivery advance deposits including related capitalized interest			—				105
B737 aircraft, B737 spare parts and other			—				38
Aircraft and related deposit impairments			—				143
Total impairments		$	(16	)		$	2,484

Goodwill

For purposes of testing goodwill, the Company performed Step One of the SFAS 142 test by estimating the fair value of the Mainline reporting unit (to which all goodwill is allocated) utilizing several fair value measurement techniques, including two market estimates and one income estimate, and using relevant data available through and as of May 31, 2008. The market approach is a valuation technique in which fair value is estimated based on observed prices in actual transactions and on asking prices for similar assets. The valuation process is essentially that of comparison and correlation between the subject asset and other similar assets. The income approach is a technique in which fair value is estimated based on the cash flows that an asset could be expected to generate over its useful life, including residual value cash flows. These cash flows are discounted to their present value equivalents using a rate of return that accounts for the relative risk of not realizing the estimated annual cash flows and for the time value of money. Variations of the income approach were used to determine certain of the intangible asset fair values.

Under the market approaches, the fair value of the Mainline reporting unit was estimated based upon the fair value of invested capital for UAL, as well as a separate comparison to revenue and EBITDAR multiples for similar publicly traded companies in the airline industry. The fair value estimates using both market approaches included a control premium similar to those observed for historical airline and transportation company market transactions.

Under the income approach, the fair value of the Mainline reporting unit was estimated based upon the present value of estimated future cash flows for UAL. The income approach is dependent on a number of critical management assumptions including estimates of future capacity, passenger yield, traffic, operating costs (including fuel prices), appropriate discount rates and other relevant assumptions. The Company estimated its future fuel-related cash flows for the income approach based on the five-year forward curve for crude oil as of May 31, 2008. The impacts of the Company’s aircraft and other tangible and intangible asset impairments were considered in the fair value estimation of the Mainline reporting unit.

Taking into consideration an equal weighting of the two market estimates and the income estimate, which has been the Company’s practice when performing annual goodwill impairment tests, the indicated fair value of the Mainline reporting unit was less than its carrying value, and therefore, the Company was required to perform Step Two of the SFAS 142 goodwill impairment test.

In Step Two of the impairment test, the Company determined the implied fair value of goodwill of the Mainline reporting unit by allocating the fair value of the reporting unit determined in Step One to all the assets and liabilities of the Mainline reporting unit, including any recognized and unrecognized intangible assets, as if the Mainline reporting unit had been acquired in a business combination and the fair value of the Mainline reporting unit was the acquisition price. As a result of the Step Two testing, the Company determined that goodwill was completely impaired and therefore recorded an impairment charge during the second quarter of 2008 to write-off the full value of goodwill.

Indefinite-lived intangible assets

The Company utilized appropriate valuation techniques to separately estimate the fair values of all of its indefinite-lived intangible assets as of May 31, 2008, and compared those estimates to related carrying values. Tested assets included trade names, international route authorities, London-Heathrow slots and code sharing agreements. The Company used a market or income valuation approach, as described above, to estimate fair values. Based on the preliminary results of this testing in the second quarter of 2008, the Company recorded an $80 million impairment charge which was reduced by $16 million in the third quarter of 2008 as a result of the finalization of the impairment testing.

Long-lived assets

For purposes of testing impairment of long-lived assets at May 31, 2008, the Company determined whether the carrying amount of its long-lived assets was recoverable by comparing the carrying amount to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. If the carrying value of the assets exceeded the expected cash flows, the Company estimated the fair value of these assets to determine whether an impairment existed. The Company grouped its aircraft by fleet type to perform this evaluation and used data and assumptions through May 31, 2008. The estimated undiscounted cash flows were dependent on a number of critical management assumptions including estimates of future capacity, passenger yield, traffic, operating costs (including fuel prices) and other relevant assumptions. If estimates of fair value were required, fair value was estimated using the market approach. Asset appraisals, published aircraft pricing guides and recent transactions for similar aircraft were considered by the Company in its market value determination. As of May 31, 2008, based on the results of these tests, the Company determined that an impairment of $36 million existed which was attributable to the Company’s fleet of owned B737 aircraft and related spare parts. As described in Note 3, “Company Operational Plans,” the Company is retiring its entire B737 fleet earlier than originally planned. The Company recorded an additional $2 million of impairment for other assets in the second quarter of 2008. During the third quarter of 2008, the Company recognized losses of $8 million related to asset sales which are classified in depreciation expense.

Due to the unfavorable economic and industry factors described above, the Company also determined in the second quarter of 2008 that it was required to perform an impairment test of its $105 million of pre-delivery aircraft deposits and related capitalized interest. The Company estimated that these aircraft deposits were completely impaired and wrote off their full carrying value. The Company believes that it is highly unlikely that it will take these future aircraft deliveries and, therefore, the Company will be required to forfeit the deposits, which are also not transferable.

As a result of the impairment testing described above, the Company’s goodwill and certain of its indefinite-lived intangible assets and tangible assets were recorded at fair value. In accordance with FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157, the Company has not applied Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”) to the determination of the fair value of these assets. However, the provisions of SFAS 157 were applied to the determination of the fair value of financial assets and financial liabilities that were part of the SFAS 142 Step Two goodwill fair value determination.

Due to extreme fuel price volatility, tight credit markets, the uncertain economic environment, as well as other factors and uncertainties, the Company can provide no assurance that a material impairment charge of aircraft or indefinite-lived intangible assets will not occur in a future period. The value of our aircraft could be impacted in future periods by changes in the market for these aircraft. Such changes could result in a greater supply and lower demand for certain aircraft types as other carriers announce plans to retire similar aircraft.

The Company determined that no new indicators of asset impairments occurred during the third quarter of 2008, and it will continue to monitor circumstances and events in future periods to determine whether additional interim asset impairment testing is warranted.

(5) Voluntary Reorganization Under Chapter 11 of the United States Bankruptcy Code

Bankruptcy Considerations. UAL and United emerged from bankruptcy protection on February 1, 2006 (the “Effective Date”), the effective date of the Debtors’ Second Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code (the “Plan of Reorganization”) confirmed by the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the “Bankruptcy Court”). The following discussion provides general background information regarding the Company’s pending claims and litigation related to the bankruptcy reorganization, and is not intended to be an exhaustive summary. Detailed information pertaining to the bankruptcy filings may be obtained at www.pd-ual.com.

Significant Matters Remaining to be Resolved in Chapter 11 Cases. The following 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 San Francisco International Airport (“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. United has accrued $27 million plus accrued interest as its estimated obligation as of September 30, 2008 and December 31, 2007. After the Bankruptcy Court denied various post-trial motions, both parties appealed to the U.S. District Court for the Northern District of Illinois (“the District Court”) and on March 27, 2008, the District Court affirmed the Bankruptcy Court decision in all respects. HSBC has appealed the District Court’s judgment to the U.S. Court of Appeals for the Seventh Circuit.

(b)

LAX Municipal Bond Secured Interest. There is pending litigation before the District Court regarding the extent to which the Los Angeles International Airport (“LAX”) municipal bond debt is entitled to secured status under Section 506(a) of the Bankruptcy Code. In 2007, the Bankruptcy Court issued its written opinion holding that the value of the security interest is approximately $33 million. An appeal by both parties to the District Court resulted in an affirmation of this value on June 13, 2008. United has accrued this amount plus accrued interest as its estimated obligation at both September 30, 2008 and December 31, 2007. The District Court’s ruling has been appealed to the U.S. Court of Appeals for the Seventh Circuit.

The total special expense credits of $22 million and $44 million in the three and nine months ended September 30, 2007, respectively, include $8 million and $30 million, respectively, related to accrual reductions for pending SFO and LAX litigation and $14 million of benefit in both periods related to changes in estimate for other bankruptcy matters. In addition, the three and nine months ended September 30, 2007 include a $45 million benefit to operating revenues classified as “Special operating items” in the Company’s Condensed Statements of Consolidated Operations (Unaudited) related to changes in estimate for certain other bankruptcy administrative claims.

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 that 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.

Approximately 113 million shares of UAL common stock were issued and distributed to holders of valid unsecured claims between February 2, 2006, the first distribution date established in the Company’s Plan of Reorganization, and September 30, 2008. As of September 30, 2008, there are approximately 2.0 million remaining shares of UAL common stock being held in reserve to satisfy all of the remaining disputed and undisputed unsecured claim values. The final distributions of shares will not occur until late 2008 or later, pending resolution of bankruptcy matters such as those discussed above. UAL and United currently estimate that the probable range of unsecured claims to be ultimately allowed by the Bankruptcy Court will be between $29.3 billion and $29.6 billion.

The table below includes the Company’s estimated obligations related to the administrative and priority claims and other bankruptcy-related claim reserves including reserves related to the SFO and LAX litigation and other legal, professional and tax matters, among others, for the nine months ended September 30, 2008. These reserves are primarily classified in other current liabilities in the Condensed Statements of Consolidated Financial Position (Unaudited).

(In millions)
Balance at December 31, 2007		$	98
Payments			(5	)
Accruals			4
Balance at September 30, 2008		$	97

(6) New Accounting Pronouncements

In June 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“EITF 03-6-1”). EITF 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation under the two-class method of calculating earnings per share. EITF 03-6-1, which is applied retrospectively, is effective for the Company beginning January 1, 2009. The Company is currently evaluating the potential impact of EITF 03-6-1 on its consolidated financial statements.

In May 2008, the FASB issued FSP No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“APB 14-1”). APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s nonconvertible debt borrowing rate. APB 14-1, which is applied retrospectively, is effective for the Company beginning January 1, 2009. The Company is currently evaluating the potential impact of APB 14-1 on its consolidated financial statements.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133 (“SFAS 161”). This Statement changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”) and its related interpretations and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for the Company for periods beginning January 1, 2009, although early adoption is allowed. The Company will not adopt SFAS 161 prior to January 1, 2009, and does not currently expect that the additional disclosures required under SFAS 161 will materially affect its consolidated financial statements.

Effective January 1, 2008, the Company adopted SFAS 157 with respect to its financial assets and financial liabilities. SFAS 157 does not require any new fair value measurements; rather it specifies valuation methods and disclosures to be applied when fair value measurements are required under existing or future accounting pronouncements. The adoption of SFAS 157 did not have a material impact on the Company’s financial statements. FASB Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157, issued in February 2008, delayed the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities that are measured on a nonrecurring basis. In October 2008, the FASB issued FASB Staff Position No. FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for that Asset is not Active (“FSP FAS 157-3”), to provide guidance for determining the fair value of a financial asset in an inactive market. The Company considered FSP FAS 157-3 in the determination of the fair value of its financial assets and financial liabilities. The Company has not determined the impact, if any, that the adoption of SFAS 157 will have on its nonfinancial assets and nonfinancial liabilities as of September 30, 2008. The Company will be required to apply SFAS 157 to these nonfinancial assets and nonfinancial liabilities effective January 1, 2009. See Note 14, “Fair Value Measurements and Derivative Instruments,” for SFAS 157 disclosures related to financial assets and financial liabilities.

(7) Common Stockholders’ Equity (Deficit) and Mandatorily Convertible Preferred Securities

Changes in the number of shares of UAL common stock outstanding and held in treasury during the nine months ended September 30, 2008 were as follows:

		Nine Months Ended
UAL		September 30, 2008
UAL common stock outstanding at beginning of period			116,921,049
Issuance of UAL common stock upon conversion of preferred stock			11,145,812
Issuance of UAL common stock to employees			363,664
Issuance of UAL common stock to creditors			765,780
Forfeiture of non-vested UAL restricted stock			(89,486	)
Treasury shares acquired			(270,778	)
UAL common stock outstanding at end of period			128,836,041
Treasury shares at beginning of period			396,595
Shares acquired for treasury			270,778
Treasury shares at end of period			667,373

As reflected in the table above, 11.1 million shares of UAL common stock were issued upon preferred stockholders’ elections to exercise their conversion option of 5.0 million shares of 2% mandatorily convertible preferred stock during the first nine months of 2008. As a result of these conversions, there are currently no outstanding shares of 2% convertible preferred stock and this class of stock will be retired. The Company increased additional paid in capital by $374 million and decreased the mandatorily convertible preferred stock by the same amount to record the impact of these conversions. See Note 5, “Voluntary Reorganization Under Chapter 11 of the United States Bankruptcy Code—Claims Resolution Process” and Note 8, “Per Share Amounts” for information regarding shares of UAL common stock distributed to creditors in 2008 and 2.0 million shares that are reserved as of September 30, 2008 and will be distributed periodically to employees and holders of previously allowed claims and disputed claims that are pending final resolution. All treasury shares acquired during the nine months ended September 30, 2008 were shares acquired for tax withholding obligations under UAL’s share-based compensation plans.

(8) Per Share Amounts (UAL Only)

In accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share (“SFAS 128”), UAL basic per share amounts were computed by dividing earnings (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding. Approximately 2.0 million shares of UAL common stock remaining to be issued to unsecured creditors and employees under the Plan of Reorganization are included in UAL outstanding basic shares, as the necessary conditions for issuance have been satisfied. UAL’s $530 million of 6% senior notes are callable at any time at 100% of par value, and can be redeemed with either cash or UAL common stock at UAL’s option. These notes are not deemed potentially dilutive shares, as it is UAL’s intent to redeem these notes with cash. The table below represents the computation of UAL basic and diluted per share amounts and the number of securities that have been excluded from the computation of diluted per share amounts as they have an anti-dilutive effect.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(In millions)		2008				2007				2008				2007
Basic earnings (loss) per share:
Net income (loss)		$	(779	)		$	334			$	(4,045	)		$	456
Preferred stock dividend requirements			(1	)			(3	)			(3	)			(8	)
Earnings (loss) available to common stockholders		$	(780	)		$	331			$	(4,048	)		$	448
Basic weighted average shares outstanding			127.3				117.5				125.2				117.3
Earnings (loss) per share, basic		$	(6.13	)		$	2.82			$	(32.34	)		$	3.82
Diluted earnings (loss) per share:
Earnings (loss) available to common stockholders		$	(780	)		$	331			$	(4,048	)		$	448
Effect of 2% preferred securities			—				3				—				8
Effect of 4.5% senior limited-subordination convertible notes			—				5				—				15
Effect of 5% convertible notes			—				2				—				4
Earnings (loss) available to common stockholders including the effect of dilutive securities		$	(780	)		$	341			$	(4,048	)		$	475
Basic weighted average shares outstanding			127.3				117.5				125.2				117.3
Effect of non-vested stock options			—				0.4				—				0.1
Effect of non-vested restricted shares			—				1.2				—				1.1
Effect of 2% preferred securities			—				11.0				—				11.0
Effect of 4.5% senior limited-subordination convertible notes			—				20.8				—				20.8
Effect of 5% convertible notes			—				3.2				—				3.2
Diluted weighted average shares outstanding			127.3				154.1				125.2				153.5
Earnings (loss) per share, diluted		$	(6.13	)		$	2.21			$	(32.34	)		$	3.10
Potentially dilutive shares excluded from diluted per share amounts:
Stock options			4.4				3.9				4.4				4.2
Restricted shares			1.5				0.8				1.5				0.9
2% preferred securities			2.1				—				4.1				—
4.5% senior limited-subordination convertible notes			22.2				—				22.2				—
5% convertible notes			3.4				—				3.4				—
			33.6				4.7				35.6				5.1