Accrual Accounting and Income Determination - Pearson Learning ...

60 CHAPTER 2 Accrual Accounting and Income DeterminationRECAPstatement [panel (a)] losses related to the terrorists’ attack as both an operating special chargeand a non-operating special charge along with the airline stabilization grant received from thefederal government (see highlighted numbers). Additional details on the effects of the terrorists’attacks on UAL’s operations are provided in footnote (2), shown in panel (b) of Exhibit 2.3 and inthe Management’s Discussion and Analysis section of UAL’s 2001 annual report (not shown).To be categorized as extraordinary and to appear below the “Income from continuingoperations” line, an item must be unusual in nature and occur infrequently. Specialor unusual items that do not meet both criteria, but are considered material, mustbe disclosed separately as part of pre-tax income from continuing operations.EXHIBIT 2.3UAL Footnote on 9-11 AttacksPanel (b)(2) Special Charges Related to the September 11 Terrorist AttacksOn September 11, 2001, two United aircraft were hijacked and destroyed in terrorist attacks onthe World Trade Center in New York City and in a crash near Johnstown, Pennsylvania. On thesame day, two American Airlines aircraft were also hijacked and used in terrorist attacks on theWorld Trade Center and the Pentagon. In addition to the loss of all passengers and crew onboard the aircraft, these attacks resulted in numerous deaths and injuries to persons on theground and massive property damage. In the immediate aftermath of the attacks, the FAAordered all aircraft operating in the U.S. grounded immediately. This grounding effectivelylasted for three days, and the Company was able to operate only a portion of its scheduledflights for several days thereafter. When flights were permitted to resume, passenger traffic andyields were significantly lower than prior to the attacks. In a direct response to the adverseimpact on air travel as a result of the September 11 terrorist attacks, United reduced capacity byas much as 23%, which allowed for the retirement of the entire B727-200 and B737-200 fleets.In addition, on September 19, United announced that it would begin the process of furloughingapproximately 20,000 employees. Since that time, however, due to slightly increased customerdemand, and an increase to the April 2002 schedule, Untied plans to recall 1,200 flight attendantsto active status on April 1, 2002 and to furlough fewer pilots than previously planned.During the third quarter, United recorded a special charge of $1.3 billion in operatingexpense and $49 million in non-operating expense for amounts relating to the September 11terrorist attacks and the resulting impact on the Company’s schedule and operations. In addition,as of December 31, 2001, United had received $652 million in compensation under the AirTransportation Safety and System Stabilization Act (the “Act”). For further information, see“September 11 Terrorist Attacks” in Management’s Discussion and Analysis of financial Conditionand Results of Operations.The Special charge is made up of the following:Amount($ in millions) Amount (net of tax)Special charges:Aircraft groundings and impairment $ 788Reduction in force 217Early termination fees 181Discontinued capital projects 107Miscellaneous 20Total operating special charges $1,313 $834Non-operating special charges 49 31Airline stabilization grant (652) (414)Special charges, net of grant $ 710 $451ISBN: 0-536-06624-8Financial Reporting and Analysis, Third Edition, by Lawrence Revsine, Daniel W. Collins, and W. Bruce Johnson.Copyright © 2005 by Pearson Education, Inc. Published by Prentice Hall.