The Following Is an Excerpt from the Management Discussion

question 88

Essay

The following is an excerpt from the Management Discussion & Analysis section in United Airlines' 2006 annual report to shareholders:
Bankruptcy Matters. On December 9, 2002, UAL, United and 26 direct and indirect wholly-owned subsidiaries filed voluntary petitions to reorganize its business under Chapter 11 of the Bankruptcy Court. The Company emerged from bankruptcy on February 1, 2006, under a Plan of Reorganization that was approved by the Bankruptcy Court. In connection with its emergence from Chapter 11 bankruptcy protection, the Company adopted fresh-start reporting, which resulted in significant changes in post-emergence financial statements, as compared to United's historical financial statements, as is further discussed in the "Financial Results" section below. Also, see Note 1, "Voluntary Reorganization Under Chapter 11-Bankruptcy Considerations," in the Notes to Consolidated Financial Statements and Item 1. Business for further information regarding bankruptcy matters.
Recent Developments. The Company believes its restructuring has made the Company competitive with its network airline peers. The Company's financial performance has continued to improve despite significant increases in fuel prices, as noted below. Average mainline unit fuel expense has increased 68% from 2004 to 2006, which has negatively impacted the Company's operating margin. However, the Company has been able to overcome rising fuel costs through its restructuring accomplishments, improved revenues and other means, which have contributed to the generation of operating income of $459 million in calendar-year 2006, as compared to operating losses of $225 million and $804 million in 2005 and 2004, respectively.
United seeks to continuously improve the delivery of its products and services to its customers, reduce unit costs, and increase unit revenues. Together with these initiatives, some of the Company's more significant recent developments are noted as follows:
 In February 2007, the Company prepaid $972 million of Credit Facility debt and amended certain terms of the Credit Facility. The Amended Credit Facility requires significantly less collateral as compared to the Credit Facility and is expected to provide net interest expense savings of approximately $70 million annually. This amount represents the net impact of reduced interest expense and interest income as a result of lower cash and debt balances, as well as a more favorable interest rate on the Amended Credit Facility. See the "Liquidity and Capital Resources" section, below, and Note 9, "Debt Obligations," in the Notes to Consolidated Financial Statements for further information related to this new facility.
 In 2006, the Company announced a program to reduce then-projected 2007 expenses by
$400 million. The Company has identified specific programs to realize these savings, and continues to identify and evaluate other savings opportunities. For example, the Company expects to reduce costs by approximately $200 million through savings in such areas as telecommunications, airport services, catering, maintenance materials and aircraft ground handling. The Company also expects to reduce advertising and marketing costs by as much as $60 million. Increased operational efficiencies, through the implementation of such initiatives as a new flight planning system and reduced block times are expected to generate approximately $40 million in savings. In addition, the Company estimates it will achieve a $100 million reduction in general and administrative expenses, which includes a reduction of salaried and management positions. The Company realized approximately $135 million of the projected $400 million of 2007 cost reductions in 2006, and is on track to achieve $265 million of projected cost savings in 2007.
 In the second quarter of 2006, the General Services Administration ("GSA") awarded its annual U.S. government employee travel contracts for its upcoming fiscal year beginning October 1, 2006. The GSA selected United to provide certain air transportation services for which the estimated annual revenue to United will be approximately $540 million, or 27.4% of the total estimated GSA employee travel award. This award level represents a 6.7 point increase over the prior contract year.
Required: Briefly explain how this information provides useful information beyond that in the financial statements of United.

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Definitions:

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A therapist specialized in structural family therapy, focusing on restructuring the family system to improve dynamics.

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In psychotherapy, actively playing out or engaging in specific behaviors or role plays to resolve conflicts or understand complex feelings.

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