UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20172018
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number | Exact Name of Registrant as Specified in its Charter, Principal Executive Office Address and Telephone Number | State of Incorporation | I.R.S. Employer Identification No. | |||
001-06033 | United Continental Holdings, Inc. 233 South Wacker Drive, Chicago, Illinois 60606 (872)825-4000 | Delaware | 36-2675207 | |||
001-10323 | United Airlines, Inc. 233 South Wacker Drive, Chicago, Illinois 60606 (872)825-4000 | Delaware | 74-2099724 |
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.
United Continental Holdings, Inc. | Yes ☒ No ☐ | |||||
United Airlines, Inc. | Yes ☒ No ☐ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
United Continental Holdings, Inc. | Yes ☒ No ☐ | |||||
United Airlines, Inc. | Yes ☒ No ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.
United Continental Holdings, Inc. | Large accelerated filer ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company ☐ | Emerging growth company ☐ | |||||
United Airlines, Inc. | Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ | Smaller reporting company ☐ | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
United Continental Holdings, Inc. | ||||||
United Airlines, Inc. |
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).
United Continental Holdings, Inc. | Yes ☐ No ☒ | |||||
United Airlines, Inc. | Yes ☐ No ☒ |
The number of shares outstanding of each of the issuer’s classes of common stock as of April 12, 20172018 is shown below:
United Continental Holdings, Inc. | ||||
United Airlines, Inc. | 1,000 (100% owned by United Continental Holdings, Inc.)
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OMISSION OF CERTAIN INFORMATION
This combined Quarterly Report on Form10-Q is separately filed by United Continental Holdings, Inc. and United Airlines, Inc. United Airlines, Inc. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form10-Q and is therefore filing this form with the reduced disclosure format allowed under that General Instruction.
United Continental Holdings, Inc.
United Airlines, Inc.
Quarterly Report on Form10-Q
For the QuarterQuarterly Period Ended March 31, 20172018
Page | ||||||
PART I. FINANCIAL INFORMATION | ||||||
Item 1. | ||||||
United Continental Holdings, Inc.: | ||||||
3 | ||||||
4 | ||||||
5 | ||||||
7 | ||||||
United Airlines, Inc.: | ||||||
8 | ||||||
9 | ||||||
10 | ||||||
12 | ||||||
Combined Notes to Condensed Consolidated Financial Statements | 13 | |||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
Item 3. | ||||||
Item 4. | ||||||
PART II. OTHER INFORMATION | ||||||
Item 1. | ||||||
Item 1A. | ||||||
Item 2. | ||||||
Item 6. | ||||||
36 |
ITEM 1. | FINANCIAL STATEMENTS. |
UNITED CONTINENTAL HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(In millions, except per share amounts)
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2017 | 2016 | 2018 | 2017 (a) | |||||||||||||
Operating revenue: | ||||||||||||||||
Passenger—Mainline | $ | 5,831 | $ | 5,577 | ||||||||||||
Passenger—Regional | 1,343 | 1,413 | ||||||||||||||
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Total passenger revenue | 7,174 | 6,990 | ||||||||||||||
Passenger revenue | $ | 8,149 | $ | 7,653 | ||||||||||||
Cargo | 220 | 194 | 293 | 238 | ||||||||||||
Other operating revenue | 1,026 | 1,011 | 590 | 535 | ||||||||||||
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Total operating revenue | 8,420 | 8,195 | 9,032 | 8,426 | ||||||||||||
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Operating expense: | ||||||||||||||||
Salaries and related costs | 2,661 | 2,490 | 2,726 | 2,636 | ||||||||||||
Aircraft fuel | 1,560 | 1,218 | 1,965 | 1,560 | ||||||||||||
Regional capacity purchase | 619 | 536 | ||||||||||||||
Landing fees and other rent | 544 | 525 | 558 | 544 | ||||||||||||
Regional capacity purchase | 536 | 522 | ||||||||||||||
Depreciation and amortization | 518 | 479 | 541 | 518 | ||||||||||||
Aircraft maintenance materials and outside repairs | 454 | 402 | 440 | 454 | ||||||||||||
Distribution expenses | 307 | 303 | 342 | 319 | ||||||||||||
Aircraft rent | 179 | 178 | 127 | 179 | ||||||||||||
Special charges (Note 10) | 51 | 190 | 40 | 51 | ||||||||||||
Other operating expenses | 1,332 | 1,239 | 1,398 | 1,309 | ||||||||||||
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Total operating expenses | 8,142 | 7,546 | 8,756 | 8,106 | ||||||||||||
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Operating income | 278 | 649 | 276 | 320 | ||||||||||||
Nonoperating income (expense): | ||||||||||||||||
Interest expense | (150) | (159) | (176) | (162) | ||||||||||||
Interest capitalized | 23 | 14 | 19 | 23 | ||||||||||||
Interest income | 11 | 8 | 17 | 11 | ||||||||||||
Miscellaneous, net (Note 10) | (17) | (18) | ||||||||||||||
Miscellaneous, net | 48 | (42) | ||||||||||||||
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Total nonoperating expense, net | (133) | (155) | (92) | (170) | ||||||||||||
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Income before income taxes | 145 | 494 | 184 | 150 | ||||||||||||
Income tax expense | 49 | 181 | 37 | 51 | ||||||||||||
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Net income | $ | 96 | $ | 313 | $ | 147 | $ | 99 | ||||||||
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Earnings per share, basic | $ | 0.31 | $ | 0.88 | ||||||||||||
Earnings per share, basic and diluted | $ | 0.52 | $ | 0.32 | ||||||||||||
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Earnings per share, diluted | $ | 0.31 | $ | 0.88 | ||||||||||||
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(a) Amounts adjusted due to the adoption of Accounting StandardsUpdate No. 2014-09, Revenue from Contracts with Customers (Topic 606)andAccounting Standards UpdateNo. 2017-07,Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
UNITED CONTINENTAL HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In millions)
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2017 | 2016 | 2018 | 2017 (a) | |||||||||||||
Net income | $ | 96 | $ | 313 | $ | 147 | $ | 99 | ||||||||
Other comprehensive income (loss), net change related to: | ||||||||||||||||
Fuel derivative financial instruments, net of taxes | 1 | 78 | ||||||||||||||
Employee benefit plans, net of taxes | (8) | (24) | 30 | (8) | ||||||||||||
Investments and other, net of taxes | 3 | 1 | ||||||||||||||
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Total other comprehensive income (loss), net | (7) | 54 | 33 | (7) | ||||||||||||
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Total comprehensive income, net | $ | 89 | $ | 367 | $ | 180 | $ | 92 | ||||||||
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(a) Amounts adjusted due to the adoption of Accounting StandardsUpdate No. 2014-09, Revenue from Contracts with Customers (Topic 606)andAccounting Standards UpdateNo. 2017-07,Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
UNITED CONTINENTAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except shares)
(Unaudited) March 31, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 (a) | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 2,164 | $ | 2,179 | $ | 2,404 | $ | 1,482 | ||||||||
Short-term investments | 2,215 | 2,249 | 2,071 | 2,316 | ||||||||||||
Receivables, less allowance for doubtful accounts (2017—$10; 2016—$10) | 1,429 | 1,176 | ||||||||||||||
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2017—$314; 2016—$295) | 900 | 873 | ||||||||||||||
Receivables, less allowance for doubtful accounts (2018 — $7; 2017 — $7) | 1,760 | 1,340 | ||||||||||||||
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2018 — $365; 2017 — $354) | 924 | 924 | ||||||||||||||
Prepaid expenses and other | 1,016 | 832 | 1,128 | 1,071 | ||||||||||||
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Total current assets | 7,724 | 7,309 | 8,287 | 7,133 | ||||||||||||
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Operating property and equipment: | ||||||||||||||||
Owned— | ||||||||||||||||
Flight equipment | 27,187 | 25,873 | 29,651 | 28,692 | ||||||||||||
Other property and equipment | 5,887 | 5,652 | 7,193 | 6,946 | ||||||||||||
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Total owned property and equipment | 33,074 | 31,525 | 36,844 | 35,638 | ||||||||||||
Less—Accumulated depreciation and amortization | (10,403) | (9,975) | ||||||||||||||
Less — Accumulated depreciation and amortization | (11,538) | (11,159) | ||||||||||||||
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Total owned property and equipment, net | 22,671 | 21,550 | 25,306 | 24,479 | ||||||||||||
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Purchase deposits for flight equipment | 922 | 1,059 | 1,025 | 1,344 | ||||||||||||
Capital leases— | ||||||||||||||||
Flight equipment | 1,247 | 1,319 | 1,205 | 1,151 | ||||||||||||
Other property and equipment | 342 | 331 | 11 | 11 | ||||||||||||
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Total capital leases | 1,589 | 1,650 | 1,216 | 1,162 | ||||||||||||
Less—Accumulated amortization | (941) | (941) | ||||||||||||||
Less — Accumulated amortization | (808) | (777) | ||||||||||||||
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Total capital leases, net | 648 | 709 | 408 | 385 | ||||||||||||
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Total operating property and equipment, net | 24,241 | 23,318 | 26,739 | 26,208 | ||||||||||||
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Other assets: | ||||||||||||||||
Goodwill | 4,523 | 4,523 | 4,523 | 4,523 | ||||||||||||
Intangibles, less accumulated amortization (2017—$1,254; 2016—$1,234) | 3,612 | 3,632 | ||||||||||||||
Deferred income taxes | 598 | 655 | ||||||||||||||
Intangibles, less accumulated amortization (2018 — $1,329; 2017 — $1,313) | 3,521 | 3,539 | ||||||||||||||
Restricted cash | 129 | 124 | 95 | 91 | ||||||||||||
Other, net | 618 | 579 | ||||||||||||||
Investments in affiliates and other, net | 853 | 852 | ||||||||||||||
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Total other assets | 9,480 | 9,513 | 8,992 | 9,005 | ||||||||||||
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Total assets | $ | 41,445 | $ | 40,140 | $ | 44,018 | $ | 42,346 | ||||||||
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(continued on next page)
UNITED CONTINENTAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except shares)
(Unaudited) March 31, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 (a) | |||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Advance ticket sales | $ | 5,001 | $ | 3,730 | $ | 5,501 | $ | 3,940 | ||||||||
Accounts payable | 2,135 | 2,139 | 2,399 | 2,196 | ||||||||||||
Frequent flyer deferred revenue | 2,120 | 2,135 | 2,221 | 2,192 | ||||||||||||
Accrued salaries and benefits | 1,569 | 2,307 | 1,637 | 2,166 | ||||||||||||
Current maturities of long-term debt | 716 | 849 | 1,655 | 1,565 | ||||||||||||
Current maturities of capital leases | 113 | 116 | 124 | 128 | ||||||||||||
Other | 1,008 | 1,010 | 646 | 576 | ||||||||||||
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Total current liabilities | 12,662 | 12,286 | 14,183 | 12,763 | ||||||||||||
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Long-term debt | 11,178 | 9,918 | 12,166 | 11,703 | ||||||||||||
Long-term obligations under capital leases | 836 | 822 | 1,019 | 996 | ||||||||||||
Other liabilities and deferred credits: | ||||||||||||||||
Frequent flyer deferred revenue | 2,806 | 2,748 | 2,716 | 2,591 | ||||||||||||
Postretirement benefit liability | 1,608 | 1,581 | 1,593 | 1,602 | ||||||||||||
Pension liability | 1,851 | 1,892 | 1,828 | 1,921 | ||||||||||||
Advanced purchase of miles | 326 | 430 | ||||||||||||||
Deferred income taxes | 250 | 204 | ||||||||||||||
Lease fair value adjustment, net | 256 | 277 | 171 | 198 | ||||||||||||
Other | 1,473 | 1,527 | 1,756 | 1,634 | ||||||||||||
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Total other liabilities and deferred credits | 8,320 | 8,455 | 8,314 | 8,150 | ||||||||||||
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Commitments and contingencies | ||||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred stock | — | — | — | — | ||||||||||||
Common stock at par, $0.01 par value; authorized 1,000,000,000 shares; outstanding 311,130,231 and 314,612,744 shares at March 31, 2017 and December 31, 2016, respectively | 3 | 3 | ||||||||||||||
Common stock at par, $0.01 par value; authorized 1,000,000,000 shares; outstanding 279,410,451 and 286,973,195 shares at March 31, 2018 and December 31, 2017, respectively | 3 | 3 | ||||||||||||||
Additional capital invested | 6,562 | 6,569 | 6,077 | 6,098 | ||||||||||||
Retained earnings | 3,536 | 3,427 | 4,684 | 4,549 | ||||||||||||
Stock held in treasury, at cost | (816) | (511) | (1,314) | (769) | ||||||||||||
Accumulated other comprehensive loss | (836) | (829) | (1,114) | (1,147) | ||||||||||||
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Total stockholders’ equity | 8,449 | 8,659 | 8,336 | 8,734 | ||||||||||||
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Total liabilities and stockholders’ equity | $ | 41,445 | $ | 40,140 | $ | 44,018 | $ | 42,346 | ||||||||
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(a) Amounts adjusted due to the adoption of Accounting StandardsUpdate No. 2014-09, Revenue from Contracts with Customers (Topic 606).See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
UNITED CONTINENTAL HOLDINGS, INC.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In millions)
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net cash provided by operating activities | $ | 547 | $ | 1,199 | ||||
Cash Flows from Investing Activities: | ||||||||
Capital expenditures | (691) | (816) | ||||||
Purchases of short-term and other investments | (774) | (638) | ||||||
Proceeds from sale of short-term and other investments | 810 | 653 | ||||||
Proceeds from sale of property and equipment | 4 | 17 | ||||||
Investment in and loans to affiliates | — | (40) | ||||||
Other | 8 | 1 | ||||||
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Net cash used in investing activities | (643) | (823) | ||||||
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Cash Flows from Financing Activities: | ||||||||
Repurchases of common stock | (258) | (1,392) | ||||||
Payments of long-term debt | (315) | (227) | ||||||
Proceeds from issuance of long-term debt | 755 | 42 | ||||||
Principal payments under capital leases | (31) | (34) | ||||||
Other, net | (65) | (2) | ||||||
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Net cash provided (used) in financing activities | 86 | (1,613) | ||||||
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Net decrease in cash, cash equivalents and restricted cash | (10) | (1,237) | ||||||
Cash, cash equivalents and restricted cash at beginning of the period | 2,303 | 3,212 | ||||||
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Cash, cash equivalents and restricted cash at end of the period (a) | $ | 2,293 | $ | 1,975 | ||||
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Investing and Financing Activities Not Affecting Cash: | ||||||||
Property and equipment acquired through the issuance of debt | $ | 711 | $ | 59 | ||||
Airport construction financing | 21 | 9 | ||||||
Operating lease conversions to capital lease | — | 7 |
(a) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheet:
Three Months Ended March 31, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||
Net cash provided by operating activities | $ | 1,733 | $ | 547 | ||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||
Capital expenditures | (979) | (691) | ||||||||||||||
Purchases of short-term and other investments | (596) | (774) | ||||||||||||||
Proceeds from sale of short-term and other investments | 840 | 810 | ||||||||||||||
Proceeds from sale of property and equipment | 3 | 4 | ||||||||||||||
Other, net | 2 | 8 | ||||||||||||||
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Net cash used in investing activities | (730) | (643) | ||||||||||||||
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Cash Flows from Financing Activities: | ||||||||||||||||
Proceeds from issuance of long-term debt and airport construction financing | 696 | 755 | ||||||||||||||
Repurchases of common stock | (529) | (258) | ||||||||||||||
Payments of long-term debt | (189) | (315) | ||||||||||||||
Principal payments under capital leases | (30) | (31) | ||||||||||||||
Other, net | (32) | (65) | ||||||||||||||
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Net cash provided (used) in financing activities | (84) | 86 | ||||||||||||||
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Net increase (decrease) in cash, cash equivalents and restricted cash | 919 | (10) | ||||||||||||||
Cash, cash equivalents and restricted cash at beginning of the period | 1,591 | 2,303 | ||||||||||||||
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Cash, cash equivalents and restricted cash at end of the period (a) | $ | 2,510 | $ | 2,293 | ||||||||||||
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Investing and Financing Activities Not Affecting Cash: | ||||||||||||||||
Property and equipment acquired through the issuance of debt and capital leases | $ | 74 | $ | 711 | ||||||||||||
Airport construction financing | 12 | 21 | ||||||||||||||
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(a) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheet:
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(a) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheet:
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Reconciliation of cash, cash equivalents and restricted cash: | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 2,164 | $ | 1,795 | $ | 2,404 | $ | 2,164 | ||||||||
Restricted cash included in Prepaid expenses and other | — | 18 | 11 | — | ||||||||||||
Other assets: | ||||||||||||||||
Restricted cash | 129 | 162 | 95 | 129 | ||||||||||||
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Total cash, cash equivalents and restricted cash | $ | 2,293 | $ | 1,975 | $ | 2,510 | $ | 2,293 | ||||||||
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The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(In millions)
Three Months EndedMarch 31, | Three Months Ended March 31, | |||||||||||||||
2017 | 2016 | 2018 | 2017 (a) | |||||||||||||
Operating revenue: | ||||||||||||||||
Passenger—Mainline | $ | 5,831 | $ | 5,577 | ||||||||||||
Passenger—Regional | 1,343 | 1,413 | ||||||||||||||
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Total passenger revenue | 7,174 | 6,990 | ||||||||||||||
Passenger revenue | $ | 8,149 | $ | 7,653 | ||||||||||||
Cargo | 220 | 194 | 293 | 238 | ||||||||||||
Other operating revenue | 1,026 | 1,011 | 590 | 535 | ||||||||||||
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Total operating revenue | 8,420 | 8,195 | 9,032 | 8,426 | ||||||||||||
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Operating expense: | ||||||||||||||||
Salaries and related costs | 2,661 | 2,490 | 2,726 | 2,636 | ||||||||||||
Aircraft fuel | 1,560 | 1,218 | 1,965 | 1,560 | ||||||||||||
Regional capacity purchase | 619 | 536 | ||||||||||||||
Landing fees and other rent | 544 | 525 | 558 | 544 | ||||||||||||
Regional capacity purchase | 536 | 522 | ||||||||||||||
Depreciation and amortization | 518 | 479 | 541 | 518 | ||||||||||||
Aircraft maintenance materials and outside repairs | 454 | 402 | 440 | 454 | ||||||||||||
Distribution expenses | 307 | 303 | 342 | 319 | ||||||||||||
Aircraft rent | 179 | 178 | 127 | 179 | ||||||||||||
Special charges (Note 10) | 51 | 190 | 40 | 51 | ||||||||||||
Other operating expenses | 1,332 | 1,238 | 1,397 | 1,309 | ||||||||||||
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Total operating expense | 8,142 | 7,545 | 8,755 | 8,106 | ||||||||||||
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Operating income | 278 | 650 | 277 | 320 | ||||||||||||
Nonoperating income (expense): | ||||||||||||||||
Interest expense | (150) | (159) | (176) | (162) | ||||||||||||
Interest capitalized | 23 | 14 | 19 | 23 | ||||||||||||
Interest income | 11 | 8 | 17 | 11 | ||||||||||||
Miscellaneous, net (Note 10) | (16) | (18) | ||||||||||||||
Miscellaneous, net | 48 | (41) | ||||||||||||||
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Total nonoperating expense, net | (132) | (155) | (92) | (169) | ||||||||||||
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Income before income taxes | 146 | 495 | 185 | 151 | ||||||||||||
Income tax expense | 49 | 181 | 38 | 51 | ||||||||||||
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Net income | $ | 97 | $ | 314 | $ | 147 | $ | 100 | ||||||||
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(a) Amounts adjusted due to the adoption of Accounting StandardsUpdate No. 2014-09, Revenue from Contracts with Customers (Topic 606)andAccounting Standards UpdateNo. 2017-07,Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In millions)
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2017 | 2016 | 2018 | 2017 (a) | |||||||||||||
Net income | $ | 97 | $ | 314 | $ | 147 | $ | 100 | ||||||||
Other comprehensive income (loss), net change related to: | ||||||||||||||||
Fuel derivative financial instruments, net of taxes | 1 | 78 | ||||||||||||||
Employee benefit plans, net of taxes | (8) | (24) | 30 | (8) | ||||||||||||
Investments and other, net of taxes | 3 | 1 | ||||||||||||||
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Total other comprehensive income (loss), net | (7) | 54 | 33 | (7) | ||||||||||||
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Total comprehensive income, net | $ | 90 | $ | 368 | $ | 180 | $ | 93 | ||||||||
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(a) Amounts adjusted due to the adoption of Accounting StandardsUpdate No. 2014-09, Revenue from Contracts with Customers (Topic 606)andAccounting Standards UpdateNo. 2017-07,Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except shares)
(Unaudited) | ||||||||||||||||
March 31, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 (a) | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 2,158 | $ | 2,173 | $ | 2,398 | $ | 1,476 | ||||||||
Short-term investments | 2,215 | 2,249 | 2,071 | 2,316 | ||||||||||||
Receivables, less allowance for doubtful accounts (2017—$10; 2016—$10) | 1,429 | 1,176 | ||||||||||||||
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2017—$314; 2016—$295) | 900 | 873 | ||||||||||||||
Receivables, less allowance for doubtful accounts (2018 — $7; 2017 — $7) | 1,760 | 1,340 | ||||||||||||||
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2018 — $365; 2017 — $354) | 924 | 924 | ||||||||||||||
Prepaid expenses and other | 1,017 | 832 | 1,129 | 1,071 | ||||||||||||
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Total current assets | 7,719 | 7,303 | 8,282 | 7,127 | ||||||||||||
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Operating property and equipment: | ||||||||||||||||
Owned— | ||||||||||||||||
Flight equipment | 27,187 | 25,873 | 29,651 | 28,692 | ||||||||||||
Other property and equipment | 5,887 | 5,652 | 7,193 | 6,946 | ||||||||||||
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Total owned property and equipment | 33,074 | 31,525 | 36,844 | 35,638 | ||||||||||||
Less—Accumulated depreciation and amortization | (10,403) | (9,975) | ||||||||||||||
Less — Accumulated depreciation and amortization | (11,538) | (11,159) | ||||||||||||||
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Total owned property and equipment, net | 22,671 | 21,550 | 25,306 | 24,479 | ||||||||||||
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Purchase deposits for flight equipment | 922 | 1,059 | 1,025 | 1,344 | ||||||||||||
Capital leases— | ||||||||||||||||
Flight equipment | 1,247 | 1,319 | 1,205 | 1,151 | ||||||||||||
Other property and equipment | 342 | 331 | 11 | 11 | ||||||||||||
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Total capital leases | 1,589 | 1,650 | 1,216 | 1,162 | ||||||||||||
Less—Accumulated amortization | (941) | (941) | ||||||||||||||
Less — Accumulated amortization | (808) | (777) | ||||||||||||||
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Total capital leases, net | 648 | 709 | 408 | 385 | ||||||||||||
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Total operating property and equipment, net | 24,241 | 23,318 | 26,739 | 26,208 | ||||||||||||
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Other assets: | ||||||||||||||||
Goodwill | 4,523 | 4,523 | 4,523 | 4,523 | ||||||||||||
Intangibles, less accumulated amortization (2017—$1,254; 2016—$1,234) | 3,612 | 3,632 | ||||||||||||||
Deferred income taxes | 555 | 612 | ||||||||||||||
Intangibles, less accumulated amortization (2018 — $1,329; 2017 — $1,313) | 3,521 | 3,539 | ||||||||||||||
Restricted cash | 129 | 124 | 95 | 91 | ||||||||||||
Other, net | 616 | 579 | ||||||||||||||
Investments in affiliates and other, net | 853 | 852 | ||||||||||||||
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Total other assets | 9,435 | 9,470 | 8,992 | 9,005 | ||||||||||||
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Total assets | $ | 41,395 | $ | 40,091 | $ | 44,013 | $ | 42,340 | ||||||||
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UNITED AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except shares)
(Unaudited) | ||||||||||||||||
March 31, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 (a) | |||||||||||||
LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Advance ticket sales | $ | 5,001 | $ | 3,730 | $ | 5,501 | $ | 3,940 | ||||||||
Accounts payable | 2,141 | 2,144 | 2,399 | 2,196 | ||||||||||||
Frequent flyer deferred revenue | 2,120 | 2,135 | 2,221 | 2,192 | ||||||||||||
Accrued salaries and benefits | 1,569 | 2,307 | 1,637 | 2,166 | ||||||||||||
Current maturities of long-term debt | 716 | 849 | 1,655 | 1,565 | ||||||||||||
Current maturities of capital leases | 113 | 116 | 124 | 128 | ||||||||||||
Other | 1,007 | 1,009 | 652 | 581 | ||||||||||||
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Total current liabilities | 12,667 | 12,290 | 14,189 | 12,768 | ||||||||||||
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Long-term debt | 11,178 | 9,918 | 12,166 | 11,703 | ||||||||||||
Long-term obligations under capital leases | 836 | 822 | 1,019 | 996 | ||||||||||||
Other liabilities and deferred credits: | ||||||||||||||||
Frequent flyer deferred revenue | 2,806 | 2,748 | 2,716 | 2,591 | ||||||||||||
Postretirement benefit liability | 1,608 | 1,581 | 1,593 | 1,602 | ||||||||||||
Pension liability | 1,851 | 1,892 | 1,828 | 1,921 | ||||||||||||
Advanced purchase of miles | 326 | 430 | ||||||||||||||
Deferred income taxes | 277 | 231 | ||||||||||||||
Lease fair value adjustment, net | 256 | 277 | 171 | 198 | ||||||||||||
Other | 1,473 | 1,527 | 1,756 | 1,634 | ||||||||||||
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Total other liabilities and deferred credits | 8,320 | 8,455 | 8,341 | 8,177 | ||||||||||||
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Commitments and contingencies | ||||||||||||||||
Stockholder’s equity: | ||||||||||||||||
Common stock at par, $0.01 par value; authorized 1,000 shares; issued and outstanding 1,000 shares at both March 31, 2017 and December 31, 2016 | — | — | ||||||||||||||
Common stock at par, $0.01 par value; authorized 1,000 shares; issued and outstanding 1,000 shares at both March 31, 2018 and December 31, 2017 | — | — | ||||||||||||||
Additional capital invested | 3,271 | 3,573 | 1,233 | 1,787 | ||||||||||||
Retained earnings | 6,048 | 5,937 | 8,287 | 8,146 | ||||||||||||
Accumulated other comprehensive loss | (836) | (829) | (1,114) | (1,147) | ||||||||||||
Receivable from related parties | (89) | (75) | (108) | (90) | ||||||||||||
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Total stockholder’s equity | 8,394 | 8,606 | 8,298 | 8,696 | ||||||||||||
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Total liabilities and stockholder’s equity | $ | 41,395 | $ | 40,091 | $ | 44,013 | $ | 42,340 | ||||||||
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(a) Amounts adjusted due to the adoption of Accounting StandardsUpdate No. 2014-09, Revenue from Contracts with Customers (Topic 606).See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In millions)
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net cash provided by operating activities | $ | 535 | $ | 1,195 | ||||
Cash Flows from Investing Activities: | ||||||||
Capital expenditures | (691) | (816) | ||||||
Purchases of short-term investments and other investments | (774) | (638) | ||||||
Proceeds from sale of short-term and other investments | 810 | 653 | ||||||
Proceeds from sale of property and equipment | 4 | 17 | ||||||
Investment in and loans to affiliates | — | (40) | ||||||
Other | 8 | 1 | ||||||
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Net cash used in investing activities | (643) | (823) | ||||||
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Cash Flows from Financing Activities: | ||||||||
Dividend to UAL | (258) | (1,392) | ||||||
Payments of long-term debt | (315) | (227) | ||||||
Proceeds from issuance of long-term debt | 755 | 42 | ||||||
Principal payments under capital leases | (31) | (34) | ||||||
Other, net | (53) | 2 | ||||||
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Net cash provided (used) in financing activities | 98 | (1,609) | ||||||
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Net decrease in cash, cash equivalents and restricted cash | (10) | (1,237) | ||||||
Cash, cash equivalents and restricted cash at beginning of the period | 2,297 | 3,206 | ||||||
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Cash, cash equivalents and restricted cash at end of the period (a) | $ | 2,287 | $ | 1,969 | ||||
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Investing and Financing Activities Not Affecting Cash: | ||||||||
Property and equipment acquired through the issuance of debt | $ | 711 | $ | 59 | ||||
Airport construction financing | 21 | 9 | ||||||
Operating lease conversions to capital lease | — | 7 |
(a) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheet:
Three Months Ended March 31, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||
Net cash provided by operating activities | $ | 1,717 | $ | 535 | ||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||
Capital expenditures | (979) | (691) | ||||||||||||||
Purchases of short-term investments and other investments | (596) | (774) | ||||||||||||||
Proceeds from sale of short-term and other investments | 840 | 810 | ||||||||||||||
Proceeds from sale of property and equipment | 3 | 4 | ||||||||||||||
Other, net | 2 | 8 | ||||||||||||||
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Net cash used in investing activities | (730) | (643) | ||||||||||||||
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Cash Flows from Financing Activities: | ||||||||||||||||
Proceeds from issuance of long-term debt and airport construction financing | 696 | 755 | ||||||||||||||
Dividend to UAL | (529) | (258) | ||||||||||||||
Payments of long-term debt | (189) | (315) | ||||||||||||||
Principal payments under capital leases | (30) | (31) | ||||||||||||||
Other, net | (16) | (53) | ||||||||||||||
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Net cash provided (used) in financing activities | (68) | 98 | ||||||||||||||
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Net increase (decrease) in cash, cash equivalents and restricted cash | 919 | (10) | ||||||||||||||
Cash, cash equivalents and restricted cash at beginning of the period | 1,585 | 2,297 | ||||||||||||||
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Cash, cash equivalents and restricted cash at end of the period (a) | $ | 2,504 | $ | 2,287 | ||||||||||||
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Investing and Financing Activities Not Affecting Cash: | ||||||||||||||||
Property and equipment acquired through the issuance of debt and capital leases | $ | 74 | $ | 711 | ||||||||||||
Airport construction financing | 12 | 21 | ||||||||||||||
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(a) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheet:
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(a) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheet:
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Reconciliation of cash, cash equivalents and restricted cash: | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 2,158 | $ | 1,789 | $ | 2,398 | $ | 2,158 | ||||||||
Restricted cash included in Prepaid expenses and other | — | 18 | 11 | — | ||||||||||||
Other assets: | ||||||||||||||||
Restricted cash | 129 | 162 | 95 | 129 | ||||||||||||
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Total cash, cash equivalents and restricted cash | $ | 2,287 | $ | 1,969 | $ | 2,504 | $ | 2,287 | ||||||||
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The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
UNITED CONTINENTAL HOLDINGS, INC. AND UNITED AIRLINES, INC.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
United Continental Holdings, Inc. (together with its consolidated subsidiaries, “UAL” or the “Company”) is a holding company and its principal, wholly-owned subsidiary is United Airlines, Inc. (together with its consolidated subsidiaries, “United”). This Quarterly Report on Form10-Q is a combined report of UAL and United, including their respective consolidated financial statements. As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted. United’s operating revenues and operating expenses comprise nearly 100% of UAL’s revenues and operating expenses. In addition, United comprises approximately the entire balance of UAL’s assets, liabilities and operating cash flows. When appropriate, UAL and United are named specifically for their individual contractual obligations and related disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained. We sometimes use the words “we,” “our,” “us,” and the “Company” in this report for disclosures that relate to all of UAL and United.
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 comply with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted as permitted by the SEC. The financial statements include all adjustments, including normal recurring adjustments and other adjustments, which are considered necessary for a fair presentation of the Company’s financial position and results of operations. The UAL and United financial statements should be read together with the information included in the Company’s Annual Report on Form10-K for the year ended December 31, 2016.2017. The Company’s quarterly financial data is subject to seasonal fluctuations and historically its second and third quarter financial results, which reflect higher travel demand, are better than its first and fourth quarter financial results.
NOTE 1 - RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board (“FASB”) amended theCompany adopted FASB Accounting Standards Codification and created a new Topic 606,Revenue from Contracts with Customers.Customers This amendment(the “New Revenue Standard”), effective January 1, 2018 using the full-retrospective method. Topic 606 prescribes that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment supersedesFor the revenue recognition requirements in Topic 605,Revenue Recognition, andCompany, the most industry-specific guidance throughout the Industry Topicssignificant impact of the Accounting Standards Codification. The Company will usestandard is the full-retrospective approach in adopting this standardreclassification of certain ancillary fees from other operating revenue into passenger revenue on January 1, 2018. Under the new standard, certain airlinestatement of consolidated operations. These ancillary fees are directly related to passenger revenue tickets,travel, such as airlineticket change fees and baggage fees, and are likely to no longer be considered distinct performance obligations separate from the passenger travel component. In addition, the airlineticket change fees, which were previously recognized when received, will likely beare now recognized when transportation is provided. The Company is evaluating other possible impacts fromAdoption of the new standard on its consolidated financial statements.
In February 2016, the FASB amended the FASB Accounting Standards Codification and created a new Topic 842,Leases(“Topic 842”). The guidance requires lessees to recognize aright-of-use asset and a lease liability for all leases (with the exception of short-term leases) at the commencement date and recognize expenses on their income statements similar to the current Topic 840,Leases. It is effective for fiscal years and interim periods beginning after December 15, 2018, and early adoption is permitted. Lessees and lessors are required to adopt Topic 842 using a modified retrospective approach for all leases existing at or commencing after the date of initial application with an option to use certain practical expedients. The Company is evaluating the impact the adoption of this standard will have on its consolidated financial statements and believes this standard will have a significant impact on its consolidated balance sheets.
In January 2016, the FASB issued Accounting Standards UpdateNo. 2016-01,Financial Instruments—Overall (Subtopic825-10) (“ASU2016-01”). This standard makes several changes, including the elimination of theavailable-for-sale classification of equity investments, and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. It is effective for interim and annual periods beginning after December 15, 2017. Based on its portfolio of investments as of March 31, 2017, the Company does not expect the adoption of ASU2016-01 to have a material impact on its consolidated financial statements.
In March 2016, the FASB issued Accounting Standards UpdateNo. 2016-09,Improvements to Employee Share-Based Payment Accounting(“ASU2016-09”).The update requires excess tax benefits and tax deficiencies, which arise due to differences between the measure of compensation expense and the amount deductible for tax purposes, to be recorded directly through earnings as a component of income tax expense. Previously, these differences were generally recorded in additionalpaid-in capital and thus had no impact on net income. The change in treatment of excess tax benefits and tax deficiencies also impacts the computation of diluted
earnings per share, and theCompany’s consolidated cash flows associated with those items are classified as operating activities on the condensed statements of consolidated cash flows. Additionally, ASU 2016-09 permits entities to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as allowed under previous standards, or recognized when they occur. The amendments in this update became effective in the first quarter of 2017. statements.
The Company adopted this standard on January 1, 2017 and the standard did not have a material impact on its consolidated financial statements.
In March 2017, the FASB issued Accounting Standards UpdateNo. 2017-07,Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost(“ASU2017-07”the “New Retirement Standard”)., effective January 1, 2018 using the full-retrospective method. The updateNew Retirement Standard requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are to be presented outside of any subtotal of operating income. Employers willThe Company elected to apply the practical expedient and use the amounts disclosed in Note 5 to the financial statements included in Part I, Item 1 of the Company’s Quarterly Report on Form10-Q for the quarterly period ended March 31, 2017 as the estimation basis for applying the retrospective presentation requirements of the standard.
The new standards had the same impact on the financial statements of United as they had on the financial statements of UAL. The table below presents the impact of the adoption of the New Revenue Standard and the New Retirement Standard on select accounts and captions of the statement of consolidated operations for the first quarter of 2017 (in millions, except per share amounts):
Three Months Ended March 31, 2017 | ||||||||||||||||
As Previously Reported | New Revenue Standard Adjustments | New Retirement Standard Adjustments | As Adjusted | |||||||||||||
Passenger revenue | $ | 7,174 | $ | 479 | $ | — | $ | 7,653 | ||||||||
Cargo | 220 | 18 | — | 238 | ||||||||||||
Other operating revenue | 1,026 | (491) | — | 535 | ||||||||||||
Total operating revenue | 8,420 | 6 | — | 8,426 | ||||||||||||
Salaries and related costs | 2,661 | — | (25) | 2,636 | ||||||||||||
Distribution expenses | 307 | 12 | — | 319 | ||||||||||||
Other operating expenses | 1,332 | (23) | — | 1,309 | ||||||||||||
Total operating expenses | 8,142 | (11) | (25) | 8,106 | ||||||||||||
Operating income | 278 | 17 | 25 | 320 | ||||||||||||
Interest expense | (150) | (12) | — | (162) | ||||||||||||
Miscellaneous, net | (17) | — | (25) | (42) | ||||||||||||
Total nonoperating expense, net | (133) | (12) | (25) | (170) | ||||||||||||
Income before income taxes | 145 | 5 | — | 150 | ||||||||||||
Income tax expense | 49 | 2 | — | 51 | ||||||||||||
Net income | 96 | 3 | — | 99 | ||||||||||||
Earnings per share, basic and diluted | 0.31 | 0.01 | — | 0.32 |
The table below presents the impact of the adoption of the New Revenue Standard on UAL’s balance sheet accounts and captions as of December 31, 2017 (in millions):
At December 31, 2017 | ||||||||||||
As Previously Reported | New Revenue Standard Adjustments | As Adjusted | ||||||||||
Prepaid expenses and other | $ | 1,051 | $ | 20 | $ | 1,071 | ||||||
Total current assets | 7,113 | 20 | 7,133 | |||||||||
Total assets | 42,326 | 20 | 42,346 | |||||||||
Advance ticket sales | 3,876 | 64 | 3,940 | |||||||||
Frequent flyer deferred revenue | 2,176 | 16 | 2,192 | |||||||||
Other | 569 | 7 | 576 | |||||||||
Total current liabilities | 12,676 | 87 | 12,763 | |||||||||
Frequent flyer deferred revenue - long-term | 2,565 | 26 | 2,591 | |||||||||
Deferred income taxes | 225 | (21) | 204 | |||||||||
Total other liabilities and deferred credits | 8,145 | 5 | 8,150 | |||||||||
Retained earnings | 4,621 | (72) | 4,549 | |||||||||
Total stockholders’ equity | 8,806 | (72) | 8,734 | |||||||||
Total liabilities and stockholders’ equity | 42,326 | 20 | 42,346 |
The Company adopted Accounting Standards UpdateNo. 2016-01,Financial Instruments—Overall (Subtopic825-10) (“ASU2016-01”) effective January 1, 2018. This standard makes several changes, including the elimination of theavailable-for-sale classification of equity investments, and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in earnings. The adoption did not have a material impact on our financial statements. See Note 4 and 7 included in this Part I, Item 1 for additional information.
Accounting for Leases.In February 2016, the FASB amended the FASB Accounting Standards Codification and created a new Topic 842,Leases(the “New Lease Standard”). The guidance requires lessees to discloserecognize aright-of-use asset and a lease liability for all leases (with the line(s) usedexception of short-term leases) at the commencement date and recognize expenses on their income statements similar to present the other components of net periodic benefit cost, if the components are not presented separately in the income statementcurrent Topic 840,Leases.ASU2017-07 It is effective for fiscal years and interim periods beginning after December 15, 2017,2018, and early adoption is permitted. The Company doesLessees and lessors are required to adopt the New Lease Standard using a modified retrospective approach for all leases existing at or commencing after the date of initial application with an option to use certain practical expedients. We have not expectcompleted our evaluation of the adoption of ASU2017-07impact but believe this standard will have a significant impact on our consolidated balance sheets but is not expected to have a material impact on the Company’s results of operations or cash flows. The primary effect of adopting the new standard will be to record assets and obligations for its operating leases.
NOTE2 - REVENUE
The Company presents Passenger revenue, Cargo revenue and Other operating revenue on its income statement. Passenger revenue is recognized when transportation is provided and Cargo revenue is recognized when shipments are delivered. Other operating revenue is recognized as the related performance obligations are satisfied.
The Company sells passenger ticket and related ancillary services for mainline and regional flights primarily via credit cards with payments collected by the Company in advance of the performance of related services. The Company initially records ticket sales in its Advance ticket sales liability, deferring revenue recognition until the travel occurs. For travel that has more than one flight segment, the Company deems each segment as a separate performance obligation and recognizes revenue for each segment as travel occurs. Tickets sold by other airlines where the Company provides the transportation are recognized as passenger revenue at the estimated value to be billed to the other airline when travel is provided. Differences between amounts billed and the actual amounts may be rejected and rebilled or written off if the amount recorded was different from the original estimate. When necessary, the Company records a reserve against its billings and payables with other airlines based on historical experience.
The Company sells certain tickets with connecting flights with one or more segments operated by its other airline partners. For segments operated by its other airline partners, the Company has determined that it is acting as an agent on behalf of the other airlines as they are responsible for their portion of the contract (i.e. transportation of the passenger). The Company, as the agent, recognizes revenue within Other operating revenue at the time of the travel for the net amount representing commission to be retained by the Company for any segments flown by other airlines.
Refundable tickets expire after one year from the date of issuance.Non-refundable tickets generally expire on the date of the intended travel, unless the date is extended by notification from the customer on or before the intended travel date. The Company records breakage revenue on the travel date for its estimate of tickets that will expire unused. To determine breakage, the Company uses its historical experience with refundable and non-refundable expired tickets and other facts, such as recent aging trends, program changes and modifications that could affect the ultimate expiration patterns of tickets. Fees charged in association with changes or extensionsto non-refundable tickets are considered part of the Company’s passenger travel obligation. As such, those fees are deferred at the time of collection and recognized at the time the travel is provided.
United initially capitalizes the costs of selling airline travel tickets and then recognizes those costs as Distribution expense at the time of travel. Passenger ticket costs include credit card fees, travel agency and other commissions paid, as well as global distribution systems booking fees.
Ticket Taxes.Certain governmental taxes are imposed on the Company’s ticket sales through a fee included in ticket prices. The Company collects these fees and remits them to the appropriate government agency. These fees are recorded on a net basis and, as a result, are excluded from revenue.
Accounts Receivable. Accounts receivable primarily consist of amounts due from credit card companies,non-airline partners, and cargo transportation customers. We provide an allowance for uncollectible accounts equal to the estimated losses expected to be incurred based on historical write-offs and other specific analyses. Bad debt expense and write-offs were not material for the three months ended March 31, 2018 and 2017.
Advance Ticket Sales. Advance ticket sales represent the Company’s liability to provide air transportation in the future. In both the three months ended March 31, 2018 and 2017, the Company recognized approximately $1.9 billion of passenger revenue for tickets that were included in Advance ticket sales at the beginning of those periods. All tickets sold at any given point of time have travel dates extending up to twelve months. As a result, the balance of the Company’s Advance ticket sales liability represents activity that will be recognized in the next twelve months.
Frequent Flyer Accounting. United’s MileagePlus program builds customer loyalty by offering awards, benefits and services to program participants. Members in this program earn miles for travel on United, United Express, Star Alliance members and certain other airlines that participate in the program. Members can also earn miles by purchasing the goods and services of our networkof non-airline partners. We have contracts to sell miles to these partners with the terms extending from one to eight years. These partners include domestic and international credit card issuers, retail merchants, hotels, car rental companies and our participating airline partners. Miles can be redeemed for free (other than taxes and government imposed fees), discounted or upgraded air traveland non-travel awards. Miles expire after 18 months of member account inactivity.
Miles Earned in Conjunction with Travel. When frequent flyers earn miles for flights, the Company recognizes a portion of the ticket sales as revenue when the travel occurs and defers a portion of the ticket sale representing the value of the related miles as a separate performance obligation. The Company determines the estimated selling price of travel and miles as if each element is sold on a separate basis. The total consideration from each ticket sale is then allocated to each of these elements, individually, on a pro rata basis. At the time of travel, the Company records the portion allocated to the miles to Frequent flyer deferred revenue on the Company’s consolidated financial statements.balance sheet and subsequently recognizes it into revenue when miles are redeemed for air travel andnon-travel awards.
The Company’s estimated selling price of miles is based on an equivalent ticket value less breakage, which incorporates the expected redemption of miles, as the best estimate of selling price for these miles. The equivalent ticket value is based on the prior 12 months’ weighted average equivalent ticket value of similar fares as those used to settle award redemptions while taking into consideration such factors as redemption pattern, cabin class, loyalty status and geographic region. The estimated selling price of miles is adjusted by breakage that considers a number of factors, including redemption patterns of various customer groups. The Company reviews its breakage estimates annually based upon the latest available information regarding redemption and expiration patterns. The Company’s estimate of the expected expiration of miles requires significant management judgment. Current and future changes to expiration assumptions or to the expiration policy, or to program rules and program redemption opportunities, may result in material changes to the deferred revenue balance as well as recognized revenues from the program.
Co-Brand Agreement. United has a significant contract to sell MileagePlus miles to itsco-branded credit card partner Chase Bank USA, N.A. (“Chase”). Chase awards miles to MileagePlus members based on their credit card activity. United identified the following significant separately identifiable performance obligations in theco-brand agreement:
MileagePlus miles awarded - United has a performance obligation to provide MileagePlus cardholders with miles to be used for air travel andnon-travel award redemptions. The Company records Passenger revenue related to the travel awards when the transportation is provided and records Other revenue related to thenon-travel awards when the goods or services are delivered. The Company records the cost associated withnon-travel awards in Other operating revenue.
Marketing - United’s performance obligation is to provide Chase access to its customer list and the use of its brand. United determined access to its customer list and use of the United brand constitute a single performance obligation by virtue of being highly interdependent and interrelated. Marketing revenue is recorded to Other operating revenue over the term of theco-brand agreement based on customer’s use of the MileagePlus credit card.
Advertising - United has a performance obligation to provide advertising in support of the MileagePlus card in various customer contact points such as United’s website, email promotions, direct mail campaigns, airport advertising andin-flight advertising. Advertising revenue is recorded to Other operating revenue as advertising is provided.
Other travel-related benefits - United’s performance obligations are comprised of various items such as waived bag fees, seat upgrades, and lounge passes. Lounge passes are recorded to Other operating revenue as customers use the lounge passes. Bag fees and seat upgrades are recorded to Passenger revenue at the time of the associated travel.
The fair value of the separately identifiable performance obligations is determined using management’s estimated selling price of each component. The objective of using the estimated selling price based methodology is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. Accordingly, we determine our best estimate of selling price by considering multiple inputs and methods including, but not limited to, discounted cash flows, brand value, volume discounts, published selling prices, number of miles awarded and number of miles redeemed. The Company estimated the selling prices and volumes over the term of theco-brand agreement in order to determine the allocation of proceeds to each of the components to be delivered. We also evaluate volumes on an annual basis, which may result in a change in the allocation of the estimated consideration from theco-brand agreement on a prospective basis.
Frequent flyer deferred revenue. Miles in MileagePlus members’ accounts are combined into one homogeneous pool and are thus not separately identifiable, for award redemption purposes, between miles earned in the current period and those in their beginning balance. The Company expects the majority of these miles to be redeemed within the first four years with the highest redemption rate in year one. The table below presents a roll forward of Frequent flyer deferred revenue (in millions):
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Total Frequent flyer deferred revenue—beginning balance | $ | 4,783 | $ | 4,889 | ||||
Total miles awarded | 603 | 488 | ||||||
Travel miles redeemed (Passenger revenue) | (409) | (398) | ||||||
Non-travel miles redeemed (Other operating revenue) | (40) | (39) | ||||||
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Total Frequent flyer deferred revenue—ending balance | $ | 4,937 | $ | 4,940 | ||||
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In the three months ended March 31, 2018 and 2017, the Company recognized, in Other operating revenue, $482 million and $403 million, respectively, related to the marketing, advertising and other travel-related benefits of the mileage revenue associated with our various partner agreements including, but not limited to, our Chaseco-brand agreement. The portion related to the MileagePlus miles awarded of the total amounts received is deferred and presented in the table above as an increase to the frequent flyer liability. The Company also recognized, in Other operating revenue, $28 million in costs associated with thenon-travel miles redeemed in the three months ended March 31, 2018 and 2017.
Passenger Revenue by Geography. The Company further disaggregates passenger revenue by geographic regions and by mainline versus regional. The following table presents passenger revenue by geographic region and by mainline versus regional for the three months ended March 31 (in millions):
2018 | 2017 | |||||||
Mainline | $ | 3,485 | $ | 3,272 | ||||
Regional | 1,483 | 1,379 | ||||||
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Domestic | 4,968 | 4,651 | ||||||
Atlantic | 1,252 | 1,117 | ||||||
Pacific | 1,069 | 1,053 | ||||||
Latin America | 860 | 832 | ||||||
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International | 3,181 | 3,002 | ||||||
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Consolidated | $ | 8,149 | $ | 7,653 | ||||
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Mainline | 6,616 | 6,227 | ||||||
Regional | 1,533 | 1,426 | ||||||
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Consolidated | $ | 8,149 | $ | 7,653 | ||||
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Ancillary Fees.The Company charges fees, separately from ticket sales, for certain ancillary services that are directly related to passengers’ travel, such as ticket change fees, baggage fees, inflight amenities fees, and other ticket-related fees. These ancillary fees are part of the travel performance obligation and, as such, are recognized as passenger revenue when the travel occurs. The Company recorded $497 million and $478 million of ancillary fees within passenger revenue in the first three months of 2018 and 2017, respectively.
NOTE 23 - EARNINGS PER SHARE
The computations of UAL’s basic and diluted earnings per share are set forth below (in millions, except per share amounts):
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
Earnings available to common stockholders | $ | 96 | $ | 313 | $ | 147 | $ | 99 | ||||||||
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Basic weighted-average shares outstanding | 313.7 | 354.3 | 283.9 | 313.7 | ||||||||||||
Effect of employee stock awards | 0.9 | 0.3 | 1.0 | 0.9 | ||||||||||||
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Diluted weighted-average shares outstanding | 314.6 | 354.6 | 284.9 | 314.6 | ||||||||||||
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Earnings per share, basic | $ | 0.31 | $ | 0.88 | ||||||||||||
Earnings per share, diluted | $ | 0.31 | $ | 0.88 | ||||||||||||
Earnings per share, basic and diluted | $ | 0.52 | $ | 0.32 |
The number of antidilutive securities excluded from the computation of diluted earnings per share amounts was not material.
In the three months ended March 31, 2017,2018, UAL repurchased approximately 58.4 million shares of UAL common stock in open market transactions for $0.3$0.6 billion. As of March 31, 2017,2018, the Company had approximately $1.5$2.4 billion remaining to purchase shares under its existing share repurchase authority.program. UAL may repurchase shares through the open market, privately negotiated transactions, block trades or accelerated share repurchase transactions from time to time in accordance with applicable securities laws. UAL will repurchase shares of UAL common stock subject to prevailing market conditions, and may discontinue such repurchases at any time. See Part II, Item 2, “UnregisteredUnregistered Sales of Equity Securities and Use of Proceeds”Proceeds of this report for additional information.
NOTE 34 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The tables below present the components of the Company’s accumulated other comprehensive income (loss), net of tax (“AOCI”) (in millions):
Deferred Taxes | ||||||||||||||||||||||||||||||||||||||||
UAL | Pension and Other Postretirement Liabilities | Fuel Derivative Contracts | Investments and Other | Pension and Other Postretirement Liabilities | Fuel Derivative Contracts | Total | Pension and Other Postretirement Liabilities | Investments and Other | Income Taxes | Total | ||||||||||||||||||||||||||||||
Balance at December 31, 2017 | $ | (1,102) | $ | (6) | $ | (39) | $ | (1,147) | ||||||||||||||||||||||||||||||||
Changes in value | 23 | (4) | (6) | 13 | ||||||||||||||||||||||||||||||||||||
Amounts reclassified to earnings | 16 | — | (3) | 13 | ||||||||||||||||||||||||||||||||||||
Amounts reclassified to retained earnings (a) | — | 7 | — | 7 | ||||||||||||||||||||||||||||||||||||
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Net change | 39 | 3 | (9) | 33 | ||||||||||||||||||||||||||||||||||||
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Balance at March 31, 2018 | $ | (1,063) | $ | (3) | $ | (48) | $ | (1,114) | ||||||||||||||||||||||||||||||||
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Balance at December 31, 2016 | $ | (854) | $ | (2) | $ | 2 | $ | 24 | $ | 1 | $ | (829) | $ | (854) | $ | (1) | $ | 26 | $ | (829) | ||||||||||||||||||||
Changes in value | (26) | — | — | 10 | — | (16) | (26) | — | 10 | (16) | ||||||||||||||||||||||||||||||
Amounts reclassified to earnings | 13 | 2 | — | (5) | (1) | 9 | 13 | 2 | (6) | 9 | ||||||||||||||||||||||||||||||
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Net change | (13) | 2 | — | 5 | (1) | (7) | (13) | 2 | 4 | (7) | ||||||||||||||||||||||||||||||
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Balance at March 31, 2017 | $ | (867) | $ | — | $ | 2 | $ | 29 | $ | — | $ | (836) | $ | (867) | $ | 1 | $ | 30 | $ | (836) | ||||||||||||||||||||
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Balance at December 31, 2015 | $ | (363) | $ | (215) | $ | 3 | $ | (154) | $ | (102) | $ | (831) | ||||||||||||||||||||||||||||
Changes in value | (43) | (16) | — | 16 | 6 | (37) | ||||||||||||||||||||||||||||||||||
Amounts reclassified to earnings | 5 | 138 | — | (2) | (50) | 91 | ||||||||||||||||||||||||||||||||||
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Net change | (38) | 122 | — | 14 | (44) | 54 | ||||||||||||||||||||||||||||||||||
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Balance at March 31, 2016 | $ | (401) | $ | (93) | $ | 3 | $ | (140) | $ | (146) | $ | (777) | ||||||||||||||||||||||||||||
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Details about AOCI Components | Amount Reclassified from AOCI to Income | Affected Line Item in the Statements of Consolidated Operations | ||||||||||
Three Months Ended March 31, | ||||||||||||
2017 | 2016 | |||||||||||
Fuel derivative contracts | ||||||||||||
Reclassifications of losses into earnings | $ 2 | $ 138 | Aircraft fuel | |||||||||
Pension and other postretirement liabilities | ||||||||||||
Amortization of unrecognized losses and prior service cost (credit) (a) | 13 | 5 | Salaries and related costs |
(a) This amount represents the unrealized loss on the Company’s investment in Azul, S.A. (“Azul”) which was previously classified as anavailable-for-sale security.
Details for AOCI Components Reclassified to Income | Three Months Ended March 31, | Affected Line Item in the Statements of Consolidated Operations | ||||||||||
2018 | 2017 | |||||||||||
Pension and other postretirement liabilities | ||||||||||||
Amortization of unrecognized losses and prior service cost (a) | $ | 16 | $ | 13 | Miscellaneous, net | |||||||
Investments and Other | ||||||||||||
Reclassifications of losses into earnings related to fuel derivative contracts | — | 2 | Aircraft fuel |
(a) This AOCI component is included in the computation of net periodic pension and other postretirement costs (see Note 5 ofto the financial statements included in this reportPart I, Item 1 for additional information).
NOTE 45 - INCOME TAXES
The Company’s effective tax rate for the three months ended March 31, 2018 and 2017 was 20.3% and 2016 was 33.8% and 36.6%33.6%, respectively, which representedrespectively. The effective tax rate represents a blend of federal, state and foreign taxes and included the impact of certain nondeductible items. The effective tax rate for the three months ended March 31, 20172018 also reflects the impact of discrete events including the recognition of excessreduced federal corporate income tax benefits related to employee stock compensationrate as a result of the adoptionenactment of ASU2016-09, as well asthe Tax Cuts and Jobs Act (the “Tax Act”) in December 2017 and the impact of a change in the Company’s mix of domestic and foreign earnings. We continue to analyze the different aspects of the Tax Act which could potentially affect the provisional estimates that were recorded at December 31, 2017.
NOTE 56 - EMPLOYEE BENEFIT PLANS
Defined Benefit Pension and Other Postretirement Benefit Plans. The Company’s net periodic benefit cost includes the following components for the three months ended March 31 (in millions):
Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||||||||||||||||||
Three Months Ended March 31, | Three Months Ended March 31, | Pension Benefits | Other Postretirement Benefits | Affected Line Item in the Statements of Consolidated Operations | ||||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||||
Service cost | $ | 49 | $ | 28 | $ | 2 | $ | 4 | $ | 57 | $ | 49 | $ | 3 | $ | 2 | Salaries and related costs | |||||||||||||||||||
Interest cost | 55 | 51 | 17 | 22 | 54 | 55 | 15 | 17 | Miscellaneous, net | |||||||||||||||||||||||||||
Expected return on plan assets | (60) | (54) | — | — | (73) | (60) | — | — | Miscellaneous, net | |||||||||||||||||||||||||||
Amortization of unrecognized (gain) loss and prior service cost (credit) | 31 | 18 | (18) | (13) | 33 | 31 | (17) | (18) | Miscellaneous, net | |||||||||||||||||||||||||||
Settlement loss | 1 | 1 | — | — | — | 1 | — | — | Miscellaneous, net | |||||||||||||||||||||||||||
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Total | $ | 76 | $ | 44 | $ | 1 | $ | 13 | $ | 71 | $ | 76 | $ | 1 | $ | 1 | ||||||||||||||||||||
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During the three months ended March 31, 2017,2018, the Company contributed $80$113 million to its U.S. domestictax-qualified defined benefit pension plans.
Share-Based Compensation. DuringIn the three months ended March 31, 2017,2018, UAL granted share-based compensation awards pursuant to the United Continental Holdings, Inc. 20082017 Incentive Compensation Plan. These share-based compensation awards include approximately 1.41.7 million restricted stock units (“RSUs”). A majorityRSUs consisting of the1.0 million time-vested RSUs and 0.7 million performance-based RSUs. The time-vested RSUs vestpro-rata, on February 28th of each year, over a three yearthree-year period from the date of grant. These time-vested RSUs are generally stock-settledequity awards settled in stock for domestic employees and cash-settledliability awards settled in cash for international employees. The cash payments are based on the20-day average closing price of UAL common stock immediately prior to the vesting date. The remainder of theperformance-based RSUs are performance-based and vest based on the Company’s relative improvement inpre-tax margin, as compared to a group of industry peers, for the three years ending December 31, 2019.2020. If this performance condition is achieved, cash payments will be made after the end of the performance period based on the20-day average closing price of UAL common stock immediately prior to the vesting date. The Company accounts for the performance-based RSUs as liability awards.
The table below presents information related to share-based compensation (in millions):
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
Share-based compensation expense | $ | 23 | $ | 10 | ||||
March 31, 2017 | December 31, 2016 | |||||||
Unrecognized share-based compensation | $ | 127 | $ | 65 |
Share-based compensation expense Unrecognized share-based compensationProfit Sharing Plans.Substantially all employees participate in profit sharing based on a percentage ofpre-tax earnings, excluding special items, profit sharing expense and share-based compensation. Profit sharing percentages range from 5% to 20% depending on the work group, and in some cases profit sharing percentages vary above and below certainpre-tax margin thresholds. Eligible U.S.co-workers in each participating work group receive a profit sharing payout using a formula based on the ratio of each qualifiedco-worker’s annual eligible earnings to the eligible earnings of all qualifiedco-workers in all domestic work groups. Eligiblenon-U.S.co-workers receive profit sharing based on the calculation under the U.S. profit sharing plan for management and administrative employees. Profit sharing expense is recorded as a component of Salaries and related costs in the Company’s statements of consolidated operations. Three Months Ended
March 31, 2018 2017 $ 17 $ 23 March 31,
2018 December 31,
2017 $ 102 $ 53
NOTE 67 - FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The table below presents disclosures about the financial assets and liabilities measured at fair value on a recurring basis in the Company’sUAL’s financial statements (in millions):
March 31, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 2,164 | $ | 2,164 | $ | — | $ | — | $ | 2,179 | $ | 2,179 | $ | — | $ | — | $ | 2,404 | $ | 2,404 | $ | — | $ | — | $ | 1,482 | $ | 1,482 | $ | — | $ | — | ||||||||||||||||||||||||||||||||
Short-term investments: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate debt | 804 | — | 804 | — | 835 | — | 835 | — | 945 | — | 945 | — | 958 | — | 958 | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Asset-backed securities | 757 | — | 757 | — | 792 | — | 792 | — | 606 | — | 606 | — | 753 | — | 753 | — | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. government and agency notes | 110 | — | 110 | — | 113 | — | 113 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Certificates of deposit placed through an account registry service (“CDARS”) | 224 | — | 224 | — | 246 | — | 246 | — | 53 | — | 53 | — | 120 | — | 120 | — | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. government and agency notes | 101 | — | 101 | — | 140 | — | 140 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other fixed-income securities | 146 | — | 146 | — | 54 | — | 54 | — | 172 | — | 172 | — | 188 | — | 188 | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Other investments measured at NAV | 183 | — | — | — | 182 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other investments measured at net asset value (“NAV”) | 185 | — | — | — | 184 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted cash | 129 | 129 | — | — | 124 | 124 | — | — | 106 | 106 | — | — | 109 | 109 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Long-term investments: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity securities | 144 | 144 | — | — | 99 | 99 | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Enhanced equipment trust certificates (“EETC”) | 22 | — | — | 22 | 23 | — | — | 23 | 19 | — | — | 19 | 22 | — | — | 22 |
Available-for-sale investment maturities - The short-term investments shown in the table above are classified asavailable-for-sale.available-for-sale, with the exception of investments measured at NAV. As of March 31, 2017,2018, asset-backed securities have remaining maturities of less than one year to approximately 1917 years, corporate debt securities have remaining maturities of less than one year to approximately fivethree years and CDARS have maturities of less than one year. U.S. government and other securities have maturities of less than one year to approximately three years. The EETC securities mature in 2019.
Restricted Cashcash - Restricted cash primarily includes cash collateral associated with workers’ compensation obligations and collateral for letters of credit.credit and collateral associated with obligations for facility leases and workers’ compensation.
Equity securities - Equity securities represent United’s investment in Azul. The Company recognizes changes in Azul’s fair market value in Miscellaneous, net in its statements of consolidated operations.
Investments presented in the table above have the same fair value as their carrying value. The table below presents the carrying values and estimated fair values of financial instruments not presented in the tables above (in millions):
Fair Value of Debt by Fair Value Hierarchy Level | ||||||||||||||||||||||||||||||||||||||||
March 31, 2017 | December 31, 2016 | |||||||||||||||||||||||||||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||||
Long-term debt | $ | 11,894 | $ | 12,321 | $ | — | $ | 9,040 | $ | 3,281 | $ | 10,767 | $ | 11,055 | $ | — | $ | 8,184 | $ | 2,871 |
Fair Value of Debt by Fair Value Hierarchy Level | ||||||||||||||||||||||||||||||||||||||||
March 31, 2018 | December 31, 2017 | |||||||||||||||||||||||||||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||||
Long-term debt | $ | 13,821 | $ | 14,068 | $ | — | $ | 10,377 | $ | 3,691 | $ | 13,268 | $ | 13,787 | $ | — | $ | 10,115 | $ | 3,672 |
Fair value of the financial instruments included in the tables above was determined as follows:
Description | Fair Value Methodology | |
Cash and cash equivalents | The carrying amounts approximate fair value because of the short-term maturity of these assets. | |
Short-term investments, Equity securities, EETC and Restricted cash | Fair value is based on (a) the trading prices of the investment or similar instruments, (b) an income approach, which uses valuation techniques to convert future amounts into a single present amount based on current market expectations about those future amounts when observable trading prices are not available, or (c) broker quotes obtained by third-party valuation services. | |
Other investments measured at NAV | In accordance with the relevant accounting standards, certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in | |
Long-term debt | Fair values were based on either market prices or the discounted amount of future cash flows using our current incremental rate of borrowing for similar liabilities. |
NOTE 7 - HEDGING ACTIVITIES
Fuel Derivatives
As of March 31, 2017, the Company did not have any fuel hedging contracts outstanding to hedge its fuel consumption. The last of the Company’s fuel hedge derivatives designated for cash flow hedge accounting expired in December 2016. The Company’s current strategy is to not enter into transactions to hedge its fuel consumption, although the Company regularly reviews its strategy based on market conditions and other factors.
The following table presents the impact of derivative instruments and their location within the Company’s unaudited statements of consolidated operations (in millions):
Derivatives designated as cash flow hedges
Amount of Loss Recognized in AOCI on Derivatives (Effective Portion) | Loss Reclassified from AOCI into Fuel Expense (a) | |||||||||||||||
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Fuel contracts | $ | — | $ | (16) | $ | (2) | $ | (138) |
(a) The 2017 loss reclassified from AOCI into fuel expense represents hedge losses on December 2016 settled trades, but for which the associated fuel purchased in December was not consumed until January 2017.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Commitments.As of March 31, 2017,2018, United had firm commitments and options to purchase aircraft from The Boeing Company (“Boeing”), and Airbus S.A.S. (“Airbus”), and Embraer S.A. (“Embraer”) presented in the table below:
Aircraft Type | Number of Firm Commitments (a) | ||||||
Airbus A350 | |||||||
Boeing | |||||||
Boeing777-300ER | |||||||
Boeing 787 | |||||||
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(a) United also has options and purchase rights for additional aircraft. |
The aircraft listed in the table above are scheduled for delivery through 2027. To the extent the Company and the aircraft manufacturers with whom the Company has existing orders for new aircraft agree to modify the contracts governing those orders, the amount and timing of the Company’s future capital commitments could change. For the remainder of 2017,2018, United expects to take delivery of four Boeing 737NG aircraft, one Boeing787-9 aircraft, sixtwo Boeing777-300ER aircraft, three Boeing 787 aircraft, 10 Boeing 737 MAX aircraft and 24 Embraer E175. Additionally, the Company also currently expectsthree usedBoeing 767-300ER aircraft. In March 2018, United entered into an agreement to take delivery of fivepurchase 20 used Airbus A319sA319 aircraft with expected delivery dates scheduled in 2017. During the three months ended March 31, 2017, the Company also purchased 12 Boeing 737NG aircraft which were previously leased by United.2020 and 2021.
The table below summarizes United’s commitments as of March 31, 2017,2018, which primarily relate to the acquisition of aircraft and related spare engines, aircraft improvements and include other capital purchase commitments. Any new firm aircraft orders, including through the exercise of purchase options and purchase rights, will increase the total future capital commitments of the Company.
(in billions) | (in billions) | |||||||
Last nine months of 2017 | $ | 2.9 | ||||||
2018 | 2.8 | |||||||
Last nine months of 2018 | $ | 2.4 | ||||||
2019 | 3.5 | 3.7 | ||||||
2020 | 3.1 | 2.0 | ||||||
2021 | 2.2 | 2.7 | ||||||
After 2021 | 8.7 | |||||||
2022 | 1.8 | |||||||
After 2022 | 9.8 | |||||||
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$ | 23.2 | $ | 22.4 | |||||
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As of March 31, 2017, United had $555 million in financing available through EETC transactions for the financing of all of its aircraft deliveries scheduled for the first half of 2017. See Note 9 of this report for additional information on aircraft financing. The Company has also secured backstop financing commitments from certain of its aircraft manufacturers for a limited number of its future aircraft deliveries, subject to certain customary conditions. Financing may be necessary to satisfy the Company’s capital commitments for its firm order aircraft and other related capital expenditures.
Regional CPAs.Facility and Other Operating Leases.In February 2017,March 2018, United entered intoexecuted a five-year capacity purchase agreement (“CPA”)new Airline Use and Lease Agreement at O’Hare International Airport with Air Wisconsin Airlines for regional service under the United Express brand commencing no later than February 2018. Air Wisconsin will operate no less than 50 and up to 65 CRJ 200s.City of Chicago with a lease term of approximately 15 years effective May 12, 2018 through December 31, 2033.
The table below summarizes the Company’s scheduled future minimum lease payments through the end of theunder facility operating leases having initial or remaining noncancelable lease terms of our CPAs, excluding variable pass-through costs suchmore than one year as fuel and landing fees, among others.
(in billions) | Facility and Other Operating Leases | |||||||
Last nine months of 2017 | $ | 1.3 | ||||||
2018 | 1.9 | |||||||
Last nine months of 2018 | $ | 1,010 | ||||||
2019 | 1.4 | 1,209 | ||||||
2020 | 1.1 | 1,302 | ||||||
2021 | 1.0 | 1,068 | ||||||
After 2021 | 4.0 | |||||||
2022 | 930 | |||||||
After 2022 | 7,576 | |||||||
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$ | 10.7 | $ | 13,095 | |||||
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Guarantees.As of March 31, 2017,2018, United is the guarantor of approximately $1.9$2.0 billion in aggregate principal amount oftax-exempt special facilities revenue bonds and interest thereon. These bonds, issued by various airport municipalities, are payable solely from rentals paid under long-term agreements with the respective governing bodies. The leasing arrangements associated with approximately $1.4 billion of these obligations are accounted for as operating leases with the associated expense recorded on a straight-line basis resulting in ratable accrual of the lease obligation over the expected lease term. The leasing arrangements associated with approximately $421$454 million of these obligations are accounted for as capital leases. All of these bonds are due between 20172019 and 2038.
Increased Cost Provisions.In the Company’s financing transactions that include loans, the Company typically agrees to reimburse lenders for any reduced returns with respect to the loans due to any change in capital requirements and, in the case of loans in which the interest rate is based on the London Interbank Offered Rate, (“LIBOR”), for certain other increased costs that the lenders incur in carrying these loans as a result of any change in law, subject, in most cases, to obligations of the lenders to take certain limited steps to mitigate the requirement for, or the amount of, such increased costs. At March 31, 2017,2018, the Company had $3.0$3.4 billion of floating rate debt and $83$52 million of fixed rate debt with remaining terms of up to 1211 years that are subject to these increased cost provisions. In several financing transactions involving loans or leases fromnon-U.S. entities, with remaining terms of up to 1211 years and an aggregate balance of $3.0$3.3 billion, the Company bears the risk of any change in tax laws that would subject loan or lease payments thereunder tonon-U.S. entities to withholding taxes, subject to customary exclusions.
As of March 31, 2017,2018, United is the guarantor of $166$154 million of aircraft mortgage debt issued by one of United’s regional carriers. The aircraft mortgage debt is subject to similar increased cost provisions as described above for the Company’s debt, and the Company would potentially be responsible for those costs under the guarantees.
Labor Negotiations. As of March 31, 2017,2018, United had approximately 88,400 active90,800 employees, of whom approximately 80%79% were represented by various U.S. labor organizations. UNITE HERE is attempting to organize United’s Catering Operations employees, who are currently unrepresented, and filed an application to do so with the National Mediation Board on January 24, 2018.
NOTE 9 - DEBT
As of March 31, 2017,2018, a substantial portion of the Company’s assets, principally aircraft, route authorities, airport slots and loyalty program intangible assets, was pledged under various loan and other agreements. As of March 31, 2017,2018, UAL and United were in compliance with their respective debt covenants.
2017 Credit and Guaranty Agreement. On March 29, 2017, United and UAL, as borrower and guarantor, respectively, entered into an Amended and Restated Credit and Guaranty Agreement (the “2017 Credit Agreement”). The 2017 Credit Agreement consists of a $1.5 billion term loan due April 1, 2024, which (i) was used to retire the entire principal balance of the term loans under the credit and guaranty agreement, dated March 27, 2013 (as amended, the “2013 Credit Agreement”), and (ii) increased the term loan balance by approximately $440 million, and a $2.0 billion revolving credit facility available for drawing until April 1, 2022, which increased the available capacity under the revolving credit facility of the 2013 Credit Agreement. As of March 31, 2017,2018, United had its entire capacity of $2.0 billion available under the revolving credit facility. The obligations of United under the 2017 Credit Agreement are secured by liens on certain international route authorities, certaintake-off and landing rights and related assets of United.
Borrowings under the 2017 Credit Agreement bear interest at a variable rate equal to LIBOR, subject to a 0% floor, plus a margin of 2.25% per annum, or another rate based on certain market interest rates, plus a margin of 1.25% per annum. The principal amountfacility of the term loan must be repaid in consecutive quarterly installments of 0.25% ofCompany’s Amended and Restated Credit and Guaranty Agreement (as amended, the original principal amount thereof, commencing on June 30, 2017, with any unpaid balance due on April 1, 2024. United may prepay all or a portion of the loan from time to time, at par plus accrued and unpaid interest. United pays a commitment fee equal to 0.75% per annum on the undrawn amount available under the revolving credit facility.
The 2017“2017 Credit Agreement includes covenants that, among other things, require the Company to maintain at least $2.0 billion of unrestricted liquidity and a minimum ratio of appraised value of collateral to the outstanding obligations under the Credit Agreement of 1.60 to 1.0. The 2017 Credit Agreement contains events of default customary for this type of financing, including a cross default and cross acceleration provision to certain other material indebtedness of the Company. Under the provisions of the 2017 Credit Agreement, UAL’s ability to make investments and to pay dividends on, or repurchase, UAL’s common stock is restricted.Agreement”).
EETCs. In September 2016 and June 2016,February 2018, United created two new EETC pass-through trusts, each of which issued pass-through certificates. The proceeds of the issuance of the pass-through certificates are used to purchase equipment notes issued by United and secured by its aircraft. The Company records the debt obligation upon issuance of the equipment notes rather than upon the initial issuance of the pass-through certificates. The pass-through certificates represent fractional undivided interests in the respective pass-through trusts and are not obligations of United. The payment obligations under the equipment notes are those of United. Proceeds received from the sale of pass-through certificates are initially held by a depositary in escrow for the benefit of the certificate holders until United issues equipment notes to the trust, which purchases such notes with a portion of
the escrowed funds. These escrowed funds are not guaranteed by United and are not reported as debt on our consolidated balance sheet because the proceeds held by the depositary are not United’s assets. Certain details of the pass-through trusts with proceeds received from issuance of debt in 20172018 are as follows (in millions, except stated interest rate):
EETC Date | Class | Principal | Final expected | Stated interest rate | Total debt recorded as of March 31, 2017 | Proceeds received from issuance of debt during 2017 | Remaining proceeds from issuance of debt to be received in future periods | |||||||||||||||||
September 2016 | AA | $ 637 | October 2028 | 2.875% | $ 253 | $ 173 | $ 384 | |||||||||||||||||
September 2016 | A | 283 | October 2028 | 3.10% | 112 | 76 | 171 | |||||||||||||||||
June 2016 | AA | 729 | July 2028 | 3.10% | 729 | 319 | — | |||||||||||||||||
June 2016 | A | 324 | July 2028 | 3.45% | 324 | 142 | — | |||||||||||||||||
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$ 1,973 | $ 1,418 | $ 710 | $ 555 | |||||||||||||||||||||
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5% Senior Notes due 2024.In January 2017, United issued $300 million aggregate principal amount of 5% Senior Notes due February 1, 2024 (the “5% Senior Notes due 2024”). These notes are fully and unconditionally guaranteed and recorded by United on its balance sheet as debt. The indenture for the 5% Senior Notes due 2024 requires UAL to offer to repurchase the notes for cash at a purchase price equal to 101% of the principal amount of notes repurchased plus accrued and unpaid interest if certain changes of control of UAL occur.
EETC Date | Class | Principal | Final expected | Stated interest rate | Total proceeds received from issuance of debt during 2018 and recorded as debt as of March 31, 2018 | Remaining proceeds from issuance of debt to be received in future periods | ||||||||||||||
February 2018 | AA | $ | 677 | March 2030 | 3.50% | $ | 476 | $ | 201 | |||||||||||
February 2018 | A | 258 | March 2030 | 3.70% | 181 | 77 | ||||||||||||||
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$ | 935 | $ | 657 | $ | 278 | |||||||||||||||
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The table below presents the Company’s contractual principal payments (not including debt discount or debt issuance costs) at March 31, 20172018 under then-outstanding long-term debt agreements in each of the next five calendar years (in millions):
Last nine months of 2017 | $ | 537 | ||
2018 | 1,466 | |||
2019 | 1,054 | |||
2020 | 1,058 | |||
2021 | 1,043 | |||
After 2021 | 6,873 | |||
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$ | 12,031 | |||
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Last nine months of 2018 2019 2020 2021 2022 After 2022 $ 1,380 1,218 1,207 1,194 1,529 7,457 $ 13,985
NOTE 10 - SPECIAL ITEMSCHARGES
For the three months ended March 31, special itemscharges consisted of the following (in millions):
Three Months Ended March 31, | ||||||||
Operating: | 2017 | 2016 | ||||||
Severance and benefit costs | $ | 37 | $ | 8 | ||||
Labor agreement costs | — | 100 | ||||||
Cleveland airport lease restructuring | — | 74 | ||||||
(Gains) losses on sale of assets and other special charges | 14 | 8 | ||||||
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Special charges | 51 | 190 | ||||||
Nonoperating: | ||||||||
Foreign currency loss | — | 8 | ||||||
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Special items before income taxes | 51 | 198 | ||||||
Income tax benefit related to special items | (18) | (72) | ||||||
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Total special items, net of tax | $ | 33 | $ | 126 | ||||
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Three Months Ended March 31, | ||||||||
Operating: | 2018 | 2017 | ||||||
Severance and benefit costs | $ | 14 | $ | 37 | ||||
Impairment of assets | 23 | — | ||||||
(Gains) losses on sale of assets and other special charges | 3 | 14 | ||||||
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Special charges | 40 | 51 | ||||||
Income tax benefit related to special charges | (9) | (18) | ||||||
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Total special charges, net of tax | $ | 31 | $ | 33 | ||||
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During the three months ended March 31, 2018 and 2017, the Company recorded $21 million ($14 million net of taxes) of severance and benefit costs primarily related to a voluntaryearly-out program for its technicians and related employees represented by the International Brotherhood of Teamsters.Teamsters (the “IBT”) of $8 million ($7 million net of taxes) and $21 million ($14 million net of taxes) respectively. In the first quarter of 2017, approximately 1,000 technicians and related employees elected to voluntarily separate from the Company and will receive a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through early 2019. TheAlso during the three months ended March 31, 2018 and 2017, the Company also recorded severance primarily related to its management reorganization initiative of $6 million ($4 million net of taxes) and $16 million ($10 million net of taxes) of severance related to its management reorganization initiative.respectively.
During the three months ended March 31, 2016, the Company recorded $8 million ($5 million net of taxes) of severance and benefit costs primarily related to a voluntaryearly-out program for its flight attendants.
In April 2016, the fleet service, passenger service, storekeeper and other employees represented by the International Association of Machinists and Aerospace Workers (the “IAM”) ratified seven new contracts with the Company which extended the contracts through 2021. During the three months ended March 31, 2016, the Company recorded $100 million ($64 million net of taxes) of special charges primarily for bonus payments in conjunction with the IAM agreements.
During the three months ended March 31, 2016,2018, the City of Cleveland agreed to amend the Company’s lease, which runs through 2029, associated with certain excess airport terminal space (principally Terminal D) and related facilities at Hopkins International Airport. The Company recorded an accrual for remaining payments under the lease for facilities that the Company no longer uses and will continue to incur costs under the lease without economic benefit to the Company. This liability was measured and recorded at its fair value when the Company ceased its right to use such facilities leased to it pursuant to the lease. The Company recorded a net charge of $74$23 million ($4717 million net of taxes) fair value adjustment for aircraft purchased off lease and impairments related to the amended lease.certain fleet types and certain international slots no longer in use.
During the three months ended March 31, 2017 and 2016, the Company recorded gains and losses on sale of assets and other special charges of $14 million ($9 million net of taxes) and $8 million ($5 million net of taxes) respectively.
During the three months ended March 31, 2016, the Company recorded $8 million ($5 million net of taxes) of losses due to exchange rate changes in Venezuela applicable to funds held in local currency.
AccrualsAccrual Activity
The accrual balance for severance and benefits was $28 million as of March 31, 2017, compared to $29 million as of March 31, 2016. The severance-related accrual as of March 31, 20172018 is primarily related to severance and other compensation expense associated with voluntary employee early retirement programs and is expected to be mostly paid through 2017.early 2019. The accrual balance for future lease payments on permanently grounded aircraft was $40 million as of March 31, 2017, compared to $49 million as of March 31, 2016. The grounded aircraft related accrual as of March 31, 20172018 is expected to be mostly paid through 2025. The followingActivity related to these accruals is a reconciliation of severance and permanently grounded aircraft accrual activity for the period:as follows (in millions):
Severance and Benefits | Permanently Grounded Aircraft | |||||||||||||||
Balance at December 31, 2017 | $ | 37 | $ | 22 | ||||||||||||
Accrual | 14 | — | ||||||||||||||
Payments | (19) | (1) | ||||||||||||||
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Balance at March 31, 2018 | $ | 32 | $ | 21 | ||||||||||||
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Severance and Benefits | Permanently Grounded Aircraft | Severance and Benefits | Permanently Grounded Aircraft | |||||||||||||
Balance at December 31, 2016 | $ | 14 | $ | 41 | $ | 14 | $ | 41 | ||||||||
Accrual | 37 | — | 37 | — | ||||||||||||
Payments | (23) | (1) | (23) | (1) | ||||||||||||
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Balance at March 31, 2017 | $ | 28 | $ | 40 | $ | 28 | $ | 40 | ||||||||
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Overview
United Continental Holdings, Inc. (together with its consolidated subsidiaries, “UAL” or the “Company”) is a holding company and its principal, wholly-owned subsidiary is United Airlines, Inc. (together with its consolidated subsidiaries, “United”). This Quarterly Report on Form10-Q is a combined report of UAL and United including their respective consolidated financial statements. As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted. United’s operating revenues and operating expenses comprise nearly 100% of UAL’s revenues and operating expenses. In addition, United comprises approximately the entire balance of UAL’s assets, liabilities and operating cash flows. When appropriate, UAL and United are named specifically for their individual contractual obligations and related disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained. We sometimes use the words “we,” “our,” “us,” and the “Company” in this report for disclosures that relate to all of UAL and United.
The Company transports people and cargo through its mainline operations, which utilize jet aircraft with at least 118 seats, and regional operations, which utilize smaller aircraft that are operated under contract by United Express carriers. The Company serves virtually every major market around the world, either directly or through participation in Star Alliance®, the world’s largest airline alliance. UAL, through United and its regional carriers, operates approximately 4,5004,600 flights a day to 337354 airports across five continents.
First Quarter Financial Highlights
First quarter 20172018 net income was $96$147 million, or $0.31$0.52 diluted earnings per share, as compared to net income of $313$99 million, or diluted earnings per share of $0.88,$0.32, in the first quarter of 2016.2017.
Passenger revenue increased 2.6%6.5% to $7.2$8.1 billion during the first quarter of 20172018 as compared to the first quarter of 2016.2017.
First quarter 20172018 aircraft fuel cost increased $342$405 million, 28.1%26.0% year-over-year.
Unrestricted liquidity at March 31, 20172018 was $6.4$6.5 billion, including $2.0 billion of undrawn commitments under the Company’s revolving credit facility.
In the three months ended March 31, 2017,2018, UAL repurchased approximately 58.4 million shares of its common stock in open market transactions for $0.3$0.6 billion. As of March 31, 2017,2018, the Company had $1.5approximately $2.4 billion remaining to purchase shares under its existing share repurchase authority.
First Quarter Operational Highlights
United achieved 25zero-cancellation days for mainline operations.program.
Consolidated traffic increased 2.2%4.7% and consolidated capacity increased 2.6%3.6% during the first quarter of 20172018 as compared to the first quarter of 2016.2017. The Company’s load factor for the first quarter of 20172018 was 79.6%80.4%.
The Company took delivery of twofour Boeing787-9 aircraft sixand two Boeing777-300ER and one used Airbus A319 aircraft during the first quarter of 2017.2018.
Outlook
TheIn 2018, the Company expects full-year 2017its consolidated capacityavailable seat miles to increasegrow between 2.5%4.5% and 3.5%5.5% year-over-year. Domestic capacityMost of this growth will be concentrated in our domestic network, especially in ourmid-continent hubs. We believe greater scale and connectivity at our hubs reinforces our relevance and value proposition to our customers. Rebanking at our hubs is expected to increase between 3.5% and 4.5% year-over-year and international capacity is expected to increase between 1.0% and 2.0% year-over-year.
As outlined at our November 2016 Investor Day presentation, the Company expects to drive significant incremental value by 2020 relative to 2015. United anticipates capturing this value through a variety of initiatives including aadditional connection opportunities. We will also expand flights inre-fleetingnon-peak and upgauge program, additional customer choice through segmentation, improvements to the revenue management systems, ongoing sensible cost management, realizing our full network potential through improved schedule quality and enhancements to the MileagePlus program. In addition, the Company will continue to focus on improving reliability while increasing the efficiencytimes of the operation.year to more efficiently use our aircraft and facilities with the objective of driving an increase in profitability.
The price of jet fuel remains volatile. Based on projected fuel consumption in 2017,2018, a one dollar change in the price of a barrel of crude oil would change the Company’s annual fuel expense by approximately $95$97 million.
RESULTS OF OPERATIONS
The following discussion provides an analysis of our results of operations and reasons for material changes therein for the three months ended March 31, 20172018 as compared to the corresponding period in 2016.2017.
First Quarter 20172018 Compared to First Quarter 20162017
The Company recorded net income of $96$147 million in the first quarter of 20172018 as compared to net income of $313$99 million in the first quarter of 2016.2017. The Company considers a key measure of its performance to be operating income, which was $278$276 million for the first quarter of 2018, as compared to $320 million for the first quarter of 2017, as compared to $649 million for the first quarter of 2016, a $371$44 million decrease year-over-year. Significant components of the Company’s operating results for the three months ended March 31 are as follows (in millions, except percentage changes):
2017 | 2016 | Increase (Decrease) | % Increase (Decrease) | |||||||||||||
Operating revenue | $ | 8,420 | $ | 8,195 | $ | 225 | 2.7 | |||||||||
Operating expense | 8,142 | 7,546 | 596 | 7.9 | ||||||||||||
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Operating income | 278 | 649 | (371) | (57.2) | ||||||||||||
Nonoperating expense | (133) | (155) | (22) | (14.2) | ||||||||||||
Income tax expense | 49 | 181 | (132) | (72.9) | ||||||||||||
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Net income | $ | 96 | $ | 313 | $ | (217) | (69.3) | |||||||||
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Certain consolidated statistical information for the Company’s operations for the three months ended March 31 is as follows:
2018 | 2017 | Increase (Decrease) | % Change | |||||||||||||||||||||||||||||
Operating revenue | $ | 9,032 | $ | 8,426 | $ | 606 | 7.2 | |||||||||||||||||||||||||
Operating expense | 8,756 | 8,106 | 650 | 8.0 | ||||||||||||||||||||||||||||
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Operating income | 276 | 320 | (44) | (13.8) | ||||||||||||||||||||||||||||
Nonoperating expense | (92) | (170) | (78) | (45.9) | ||||||||||||||||||||||||||||
Income tax expense | 37 | 51 | (14) | (27.5) | ||||||||||||||||||||||||||||
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Net income | $ | 147 | $ | 99 | $ | 48 | 48.5 | |||||||||||||||||||||||||
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Certain consolidated statistical information for the Company’s operations for the three months ended March 31 is as follows:
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Certain consolidated statistical information for the Company’s operations for the three months ended March 31 is as follows:
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2017 | 2016 | Increase (Decrease) | % Increase (Decrease) | 2018 | 2017 | Increase (Decrease) | % Change | |||||||||||||||||||||||||
Passengers (thousands) (a) | 33,105 | 32,087 | 1,018 | 3.2 | 34,495 | 33,105 | 1,390 | 4.2 | ||||||||||||||||||||||||
Revenue passenger miles (“RPMs”) (millions) (b) | 47,611 | 46,582 | 1,029 | 2.2 | 49,849 | 47,611 | 2,238 | 4.7 | ||||||||||||||||||||||||
Available seat miles (“ASMs”) (millions) (c) | 59,808 | 58,273 | 1,535 | 2.6 | 61,977 | 59,808 | 2,169 | 3.6 | ||||||||||||||||||||||||
Passenger load factor (d) | 79.6 % | 79.9 % | (0.3) pts. | N/A | 80.4% | 79.6% | 0.8 | pts. | N/A | |||||||||||||||||||||||
Passenger revenue per available seat mile (“PRASM”) (cents) | 12.00 | 12.00 | — | — | 13.15 | 12.80 | 0.35 | 2.7 | ||||||||||||||||||||||||
Average yield per revenue passenger mile (“Yield”) (cents) (e) | 15.07 | 15.01 | 0.06 | 0.4 | 16.35 | 16.07 | 0.28 | 1.7 | ||||||||||||||||||||||||
Cost per available seat mile (“CASM”) (cents) | 13.61 | 12.95 | 0.66 | 5.1 | 14.13 | 13.55 | 0.58 | 4.3 | ||||||||||||||||||||||||
Average price per gallon of fuel, including fuel taxes | $ | 1.71 | $ | 1.37 | $ | 0.34 | 24.8 | $ | 2.11 | $ | 1.71 | $ | 0.40 | 23.4 | ||||||||||||||||||
Fuel gallons consumed (millions) | 910 | 890 | 20 | 2.2 | 932 | 910 | 22 | 2.4 | ||||||||||||||||||||||||
Average full-time equivalent employees | 85,200 | 82,500 | 2,700 | 3.3 | 85,600 | 85,200 | 400 | 0.5 |
(a) The number of revenue passengers measured by each flight segment flown.
(b) The number of scheduled miles flown by revenue passengers.
(c) The number of seats available for passengers multiplied by the number of scheduled miles those seats are flown.
(d) Revenue passenger miles divided by available seat miles.
(e) The average passenger revenue received for each revenue passenger mile flown.
Operating RevenueRevenue.
The table below shows year-over-year comparisons by type of operating revenue for the three months ended March 31 (in millions, except for percentage changes):
2017 | 2016 | Increase (Decrease) | % Change | |||||||||||||
Passenger—Mainline | $ | 5,831 | $ | 5,577 | $ | 254 | 4.6 | |||||||||
Passenger—Regional | 1,343 | 1,413 | (70) | (5.0) | ||||||||||||
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Total passenger revenue | 7,174 | 6,990 | 184 | 2.6 | ||||||||||||
Cargo | 220 | 194 | 26 | 13.4 | ||||||||||||
Other operating revenue | 1,026 | 1,011 | 15 | 1.5 | ||||||||||||
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$ | 8,420 | $ | 8,195 | $ | 225 | 2.7 | ||||||||||
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2018 | 2017 | Increase (Decrease) | % Change | |||||||||||||
Passenger revenue | 8,149 | 7,653 | 496 | 6.5 | ||||||||||||
Cargo | 293 | 238 | 55 | 23.1 | ||||||||||||
Other operating revenue | 590 | 535 | 55 | 10.3 | ||||||||||||
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Total operating revenue | $ | 9,032 | $ | 8,426 | $ | 606 | 7.2 | |||||||||
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The table below presents selected first quarter passenger revenue and operating data, broken out by geographic region, expressed as year-over-year changes:
Domestic | Atlantic | Pacific | Latin | Total Consolidated | Mainline | Regional | Domestic | Atlantic | Pacific | Latin | Total | |||||||||||||||||||||||||||||||||||||
Increase (decrease) from 2016: | ||||||||||||||||||||||||||||||||||||||||||||||||
Increase (decrease) from 2017: | ||||||||||||||||||||||||||||||||||||||||||||||||
Passenger revenue (in millions) | $ | 126 | $ | 8 | $ | 35 | $ | 15 | $ | 184 | $ | 254 | $ | (70) | $ | 317 | $ | 135 | $ | 16 | $ | 28 | $ | 496 | ||||||||||||||||||||||||
Passenger revenue | 3.0 % | 0.8 % | 3.7 % | 2.0 % | 2.6 % | 4.6 % | (5.0)% | 6.8 % | 12.1 % | 1.5 % | 3.4 % | 6.5 % | ||||||||||||||||||||||||||||||||||||
Average fare per passenger | (1.0)% | 4.1 % | 3.3 % | 1.3 % | (0.5)% | (2.2)% | 0.5 % | 1.6 % | 1.4 % | 5.0 % | 5.3 % | 2.2 % | ||||||||||||||||||||||||||||||||||||
Yield | (0.6)% | 3.7 % | (0.1)% | 2.3 % | 0.4 % | 1.2 % | 0.2 % | 2.2 % | 1.0 % | (1.9)% | 2.9 % | 1.7 % | ||||||||||||||||||||||||||||||||||||
PRASM | (0.1)% | 2.1 % | (3.5)% | 2.8 % | — % | 0.8 % | — % | 1.6 % | 8.8 % | (1.5)% | 5.1 % | 2.7 % | ||||||||||||||||||||||||||||||||||||
Passengers | 4.0 % | (3.2)% | 0.4 % | 0.6 % | 3.2 % | 6.9 % | (5.4)% | 5.1 % | 10.5 % | (3.4)% | (1.9)% | 4.2 % | ||||||||||||||||||||||||||||||||||||
RPMs (traffic) | 3.6 % | (2.8)% | 3.8 % | (0.3)% | 2.2 % | 3.2 % | (5.2)% | 4.5 % | 11.0 % | 3.4 % | 0.4 % | 4.7 % | ||||||||||||||||||||||||||||||||||||
ASMs (capacity) | 3.1 % | (1.3)% | 7.4 % | (0.8)% | 2.6 % | 3.7 % | (5.0)% | 5.2 % | 3.1 % | 3.0 % | (1.6)% | 3.6 % | ||||||||||||||||||||||||||||||||||||
Passenger load factor (points) | 0.4 | (1.1) | (2.8) | 0.4 | (0.3) | (0.4) | (0.1) | (0.5) | 5.2 | 0.3 | 1.7 | 0.8 |
Consolidated passengerPassenger revenue in the first quarter of 20172018 increased $184$496 million, or 2.6%6.5%, as compared to theyear-ago period.period primarily due to a 4.7% increase in traffic and 0.8 points increase in load factor. First quarter 2017 consolidated2018 PRASM remained flatand yield increased 2.7% and 1.7%, respectively, compared to the first quarter of 2016, as the higher2017.
close-in business travel in March 2017 was partially offset by higher capacity growthCargo revenue increased $55 million, or 23.1%, in the quarter.first quarter of 2018 as compared to theyear-ago period primarily due to higher yield and volume.
Other operating revenue increased $55 million, or 10.3%, in the first quarter of 2018 as compared to theyear-ago period primarily due to an approximately $50 millionone-time payment of MileagePlus related revenue.
Operating ExpensesExpenses.
The table below includes data related to the Company’s operating expenses for the three months ended March 31 (in millions, except for percentage changes):
2017 | 2016 | Increase (Decrease) | % Change | 2018 | 2017 | Increase (Decrease) | % Change | |||||||||||||||||||||||||
Salaries and related costs | $ | 2,661 | $ | 2,490 | $ | 171 | 6.9 | $ | 2,726 | $ | 2,636 | $ | 90 | 3.4 | ||||||||||||||||||
Aircraft fuel | 1,560 | 1,218 | 342 | 28.1 | 1,965 | 1,560 | 405 | 26.0 | ||||||||||||||||||||||||
Regional capacity purchase | 619 | 536 | 83 | 15.5 | ||||||||||||||||||||||||||||
Landing fees and other rent | 544 | 525 | 19 | 3.6 | 558 | 544 | 14 | 2.6 | ||||||||||||||||||||||||
Regional capacity purchase | 536 | 522 | 14 | 2.7 | ||||||||||||||||||||||||||||
Depreciation and amortization | 518 | 479 | 39 | 8.1 | 541 | 518 | 23 | 4.4 | ||||||||||||||||||||||||
Aircraft maintenance materials and outside repairs | 454 | 402 | 52 | 12.9 | 440 | 454 | (14) | (3.1) | ||||||||||||||||||||||||
Distribution expenses | 307 | 303 | 4 | 1.3 | 342 | 319 | 23 | 7.2 | ||||||||||||||||||||||||
Aircraft rent | 179 | 178 | 1 | 0.6 | 127 | 179 | (52) | (29.1) | ||||||||||||||||||||||||
Special charges | 51 | 190 | (139) | NM | 40 | 51 | (11) | NM | ||||||||||||||||||||||||
Other operating expenses | 1,332 | 1,239 | 93 | 7.5 | 1,398 | 1,309 | 89 | 6.8 | ||||||||||||||||||||||||
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Total operating expenses | $ | 8,756 | $ | 8,106 | $ | 650 | 8.0 | |||||||||||||||||||||||||
$ | 8,142 | $ | 7,546 | $ | 596 | 7.9 |
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Salaries and related costs increased $171$90 million, or 6.9%3.4%, in the first quarter of 20172018 as compared to theyear-ago period primarily due to contractually higher pay rates and benefit expenses driven by new and extended collective bargaining agreements and a 3.3%0.5% increase in average full-time equivalent employees, partially offset by a decrease in profit sharing expense and other employee incentive programs expense.employees.
Aircraft fuel expense increased $342$405 million, or 28.1%26.0%, year-over-year primarily due to a 24.8%23.4% increase in the average price per gallon of aircraft fuel in the first quarter of 20172018 compared to theyear-ago period. The table below presents the significant changes in aircraft fuel cost per gallon in the three month period ended March 31, 2017 as compared to theyear-ago period:
(In millions) | Average price per gallon | |||||||||||||||||||||||
2017 | 2016 | % Change | 2017 | 2016 | % Change | |||||||||||||||||||
Total aircraft fuel purchase cost excluding fuel hedge impacts | $ | 1,558 | $ | 1,080 | 44.3 | $ | 1.71 | $ | 1.21 | 41.3 | ||||||||||||||
Hedge losses reported in fuel expense | 2 | 138 | NM | — | 0.16 | NM | ||||||||||||||||||
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Fuel expense | $ | 1,560 | $ | 1,218 | 28.1 | $ | 1.71 | $ | 1.37 | 24.8 | ||||||||||||||
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Total fuel consumption (gallons) | 910 | 890 | 2.2 |
Depreciation and amortizationRegional capacity purchase increased $39$83 million, or 8.1%15.5%, in the first quarter of 20172018 as compared to theyear-ago period due to a 6.3% increase in regional capacity related to the Company’s initiative to improve connectivity at its domestic hubs.
Aircraft rent decreased $52 million, or 29.1%, in the first quarter of 2018 as compared to theyear-ago period, primarily due to additionsthe purchase of newleased aircraft aircraft improvements, accelerated depreciation of assets related to certain fleet types and increases in information technology assets.lease term expirations.
Aircraft maintenance materials and outside repairsOther operating expenses increased $52$89 million, or 12.9%6.8%, in the first quarter of 20172018 as compared to theyear-ago period primarily due to an increase in airframe maintenance visits.
Other operating expenses increased $93 million, or 7.5%, in the first quarter of 2017 as compared to theyear-ago period primarily due to increases in purchased services related to our airport operations, technology initiatives, trucking and handling of cargo shipments, and due to increased volumes of onboard food and other amenities associated with the Company’s customer experience initiatives and increases in other purchased services and technology initiatives’ contractor costs.beverages.
Details of the Company’s special charges include the following for the three months ended March 31 (in millions):
2017 | 2016 | 2018 | 2017 | |||||||||||||
Severance and benefit costs | $ | 37 | $ | 8 | $ | 14 | $ | 37 | ||||||||
Labor agreement costs | — | 100 | ||||||||||||||
Cleveland airport lease restructuring | — | 74 | ||||||||||||||
Impairment of assets | 23 | — | ||||||||||||||
(Gains) losses on sale of assets and other special charges | 14 | 8 | 3 | 14 | ||||||||||||
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Special charges | $ | 51 | $ | 190 | $ | 40 | $ | 51 | ||||||||
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See Note 10 to the financial statements included in Part I, Item 1 of this report for additional information.
Nonoperating Income (Expense)(Expense).The following table illustrates the year-over-year dollar and percentage changes in the Company’s nonoperating income (expense) for the three months ended March 31 (in millions, except for percentage changes):
2017 | 2016 | Increase (Decrease) | % Change | 2018 | 2017 | Increase (Decrease) | % Change | |||||||||||||||||||||||||
Interest expense | $ | (150) | $ | (159) | $ | (9) | (5.7) | $ | (176) | $ | (162) | $ | 14 | 8.6 | ||||||||||||||||||
Interest capitalized | 23 | 14 | 9 | 64.3 | 19 | 23 | (4) | (17.4) | ||||||||||||||||||||||||
Interest income | 11 | 8 | 3 | 37.5 | 17 | 11 | 6 | 54.5 | ||||||||||||||||||||||||
Miscellaneous, net | (17) | (18) | (1) | (5.6) | 48 | (42) | (90) | NM | ||||||||||||||||||||||||
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Total | $ | (133) | $ | (155) | $ | (22) | (14.2) | $ | (92) | $ | (170) | $ | (78) | (45.9) | ||||||||||||||||||
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Miscellaneous, net includes, in the first quarter of 2018, a $45 million gain for the change in market value of the Company’s equity investment in Azul, S.A. and $12 million ofnon-service cost component of the pension and postretirement net periodic benefit cost as compared to $26 million in theyear-ago period.
IncomeIncome Taxes.See Note 45 to the financial statements included in Part I, Item 1 of this report for information related to income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Current Liquidity
As of March 31, 2017 and at December 31, 2016,2018, the Company had $4.4$4.5 billion in unrestricted cash, cash equivalents and short-term investments.investments, as compared to $3.8 billion at December 31, 2017. The Company had its entire commitment capacity of $2.0 billion under the revolving credit facility of the Company’s Amended and Restated Credit and Guaranty Agreement available for borrowings. At March 31, 2017,2018, the Company also had $129$106 million of restricted cash and cash equivalents, which is primarily collateral for letters of credit and estimated futurecollateral associated with obligations for facility leases and workers’ compensation claims. As of March 31, 2017, the Company had its entire commitment capacity of $2 billion under the revolving credit facility of the Company’s Amended and Restated Credit and Guaranty Agreement, dated as of March 29, 2017 (the “2017 Credit Agreement”) available for borrowings.
As is the case with many of our principal competitors, we have a high proportion of debt compared to capital and a deficit in working capital. We have a significant amount of fixed obligations, including debt, aircraft leases and financings, leases of airport property and other facilities, and pension funding obligations. At March 31, 2017,2018, the Company had approximately $12.8$15.0 billion of debt and capital lease obligations, including $829 million$1.8 billion that will become due in the next 12 months. In addition, we have substantial noncancelable commitments for capital expenditures, including the acquisition of certain new aircraft and related spare engines. As of March 31, 2017,2018, our current liabilities exceeded our current assets by approximately $5$5.9 billion. However, approximately $7$7.7 billion of our current liabilities are related to our advance ticket sales and frequent flyer deferred revenue, both of which largely represent revenue to be recognized for travel in the near future and not actual cash outlays. The deficit in working capital does not have an adverse impact to our cash flows, liquidity or operations.
As of March 31, 2017,2018, United had firm commitments and options to purchase aircraft from The Boeing Company (“Boeing”), and Airbus S.A.S. (“Airbus”) and Embraer S.A. (“Embraer”) presented in the table below:
Aircraft Type | Number of Firm Commitments (a) | ||||||
Airbus A350 | |||||||
Boeing | |||||||
Boeing777-300ER | |||||||
Boeing 787 | |||||||
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(a) United also has options and purchase rights for additional aircraft. |
The aircraft listed in the table above are scheduled for delivery through 2027. To the extent the Company and the aircraft manufacturers with whom the Company has existing orders for new aircraft agree to modify the contracts governing those orders, the amount and timing of the Company’s future capital commitments could change. For the remainder of 2017,2018, United expects to take delivery of four Boeing 737NG aircraft, one Boeing787-9 aircraft, sixtwo Boeing777-300ER aircraft, three Boeing 787 aircraft, 10 Boeing 737 MAX aircraft and 24 Embraer E175. Additionally, the Company also currently expectsthree usedBoeing 767-300ER aircraft. In March 2018, United entered into an agreement to takepurchase 20 used Airbus A319 aircraft with expected delivery of five used A319sdates scheduled in 2017. During the three months ended March 31, 2017, the Company also purchased 12 Boeing 737NG aircraft which were previously leased by United.2020 and 2021.
As of March 31, 2017,2018, UAL and United have total capital commitments primarily related to the acquisition of aircraft and related spare engines, aircraft improvements and include other capital purchase commitments for approximately $23.2$22.4 billion, of which approximately $2.9$2.4 billion, $2.8$3.7 billion, $3.5$2.0 billion, $3.1$2.7 billion, $2.2$1.8 billion and $8.7$9.8 billion are due in the last nine months of 20172018 and for the full year for 2018, 2019, 2020, 2021, 2022 and thereafter, respectively. Any new firm aircraft orders, including through the exercise of purchase options and purchase rights, will increase the total future capital commitments of the Company.
As of March 31, 2017, United has $0.6 billion in financing available through enhanced equipment trust certificates (“EETC”) transactions for the financing of all of its aircraft deliveries scheduled for the first half of 2017. See Note 9 to the financial statements included in Part I, Item 1 of this report for additional information on aircraft financing. The Company has also secured backstop financing commitments from certain of its aircraft manufacturers for a limited number of its future aircraft deliveries, subject to certain customary conditions. Financing may be necessary to satisfy the Company’s capital commitments for its firm order aircraft and other related capital expenditures.
As of March 31, 2017,2018, a substantial portion of the Company’s assets, principally aircraft, route authorities, airport slots and loyalty program intangible assets, was pledged under various loan and other agreements. We must sustain our profitability and/or access the capital markets to meet our significant long-term debt and capital lease obligations and future commitments for capital expenditures, including the acquisition of aircraft and related spare engines.
Credit Ratings. As of the filing date of this report, UAL and United had the following corporate credit ratings:
S&P | Moody’s | Fitch | ||||
UAL | Ba2 | BB | ||||
United | * | BB | ||||
* The credit agency does not issue corporate credit ratings for subsidiary entities. |
These credit ratings are below investment grade levels. Downgrades from these rating levels, among other things, could restrict the availability or increase the cost of future financing for the Company.
Sources and Uses of Cash
Operating Activities.Cash flow provided by operations was $0.5$1.7 billion for the three months ended March 31, 20172018 compared to $1.2$0.5 billion in the same period in 2016.2017. Operating income for the first three months of 2018 and 2017 decreasedwas $0.3 billion. Working capital items changed by approximately $0.4$1.2 billion versusyear-over-year primarily due to a $0.3 billion increase in advance ticket sales associated with our overall traffic growth, a $0.3 billion decrease in employee incentive payments in the first three months of 2018 as compared to theyear-ago period. Changes in working capital items included an approximatelyperiod, a $0.2 billion decreaseincrease in advanced purchase of milesmileage sales to ourco-branded credit card partner due to increasedfull utilization of thepre-purchased miles miles.in 2017, and a $0.3 billion increase related to timing of accounts payable.
Investing Activities.Capital expenditures were $0.7approximately $1.0 billion and $0.8$0.7 billion in the three months ended March 31, 20172018 and 2016,2017, respectively. Capital expenditures for the three months ended March 31, 20172018 were primarily attributable to the purchaseadditions of new aircraft, aircraft improvements, and increases in facility and fleet-related costs.information technology assets.
Financing Activities.During the three months ended March 31, 2017,2018, the Company made debt and capital lease payments of $0.3$0.2 billion.
On March 29, 2017, United and UAL, as borrower and guarantor, respectively, entered into the 2017 Credit Agreement. The 2017 Credit Agreement consists of a $1.5 billion term loan due April 1, 2024, which (i) was used to retire the entire principal balance of the term loans under the credit and guaranty agreement, dated March 27, 2013 (as amended, the “2013 Credit Agreement”), and (ii) increased the term loan balance by approximately $440 million, and a $2.0 billion revolving credit facility available for drawing until April 1, 2022, which increased the available capacity under the revolving credit facility of the 2013 Credit Agreement. As of March 31, 2017, United had its entire capacity of $2.0 billion available under the revolving credit facility. The obligations of United under the 2017 Credit Agreement are secured by liens on certain international route authorities, certaintake-off and landing rights and related assets of United.
Borrowings under the 2017 Credit Agreement bear interest at a variable rate equal to the London Interbank Offered Rate (“LIBOR”), subject to a 0% floor, plus a margin of 2.25% per annum, or another rate based on certain market interest rates, plus a margin of 1.25% per annum. The principal amount of the term loan must be repaid in consecutive quarterly installments of 0.25% of the original principal amount thereof, commencing on June 30, 2017, with any unpaid balance due on April 1, 2024. United may prepay all or a portion of the loan from time to time, at par plus accrued and unpaid interest. United pays a commitment fee equal to 0.75% per annum on the undrawn amount available under the revolving credit facility.
The 2017 Credit Agreement includes covenants that, among other things, require the Company to maintain at least $2.0 billion of unrestricted liquidity and a minimum ratio of appraised value of collateral to the outstanding obligations under the Credit Agreement of 1.60 to 1.0. The 2017 Credit Agreement contains events of default customary for this type of financing, including a cross default and cross acceleration provision to certain other material indebtedness of the Company. Under the provisions of the 2017 Credit Agreement, UAL’s ability to make investments and to pay dividends on, or repurchase, UAL’s common stock is restricted.
In the three months ended March 31, 2017,2018, United received and recorded $710 million$0.7 billion of proceeds as debt from the two EETC pass-through trusts established in 2016. United expects to receive all proceeds from the pass-through trusts by the end of the second quarter of 2017.February 2018. See Note 9 to the financial statements included in Part I, Item 1 of this report for additional information.
In the three months ended March 31, 2017, United received and recorded $300 million proceeds of the 5% Senior Notes.
Share Repurchase Programs.In the three months ended March 31, 2017,2018, UAL repurchased approximately 58.4 million shares of UAL common stock in open market transactions for $0.3$0.6 billion. As of March 31, 2017,2018, the Company had approximately $1.5$2.4 billion remaining to purchase shares under its existing share repurchase authority.program.
UAL may repurchase shares through the open market, privately negotiated transactions, block trades or accelerated share repurchase transactions from time to time in accordance with applicable securities laws. UAL will repurchase shares of UAL common stock subject to prevailing market conditions, and may discontinue such repurchases at any time. See Part II, Item 2, “UnregisteredUnregistered Sales of Equity Securities and Use of Proceeds”Proceeds of this report for additional information.
Commitments, Contingencies and Liquidity Matters.As described in the Company’s Annual Report on Form10-K for the fiscal year ended December 31, 2016 (“20162017 (the “2017 Annual Report”), the Company’s liquidity may be adversely impacted by a variety of factors, including, but not limited to, pension funding obligations, reserve requirements associated with credit card processing agreements, guarantees, commitments and contingencies.
See the 20162017 Annual Report and Notes 5, 7,6, 8, and 9 to the financial statements contained in Part I, Item 1 of this report for additional information.
CRITICAL ACCOUNTING POLICIES
See “Critical Accounting Policies” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 20162017 Annual Report andReport. Also see Note 12 to the financial statements contained in Part I, Item 1 of this report for a discussion of the Company’s criticalupdated accounting policies.policies on Revenue Recognition and Frequent Flyer Accounting.
FORWARD-LOOKING INFORMATION
Certain statements throughout Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report are forward-looking and thus reflect ourthe Company’s current expectations and beliefs with respect to certain current and future events and anticipated financial and operating performance. Such forward-looking statements are and will be subject to many risks and uncertainties relating to ourthe Company’s operations and business environment that may cause actual results to differ materially from any future results expressed or implied in such forward-looking statements. Words such as “expects,” “will,” “plans,” “anticipates,” “indicates,” “believes,” “estimates,” “forecast,” “guidance,” “outlook,” “goals” and similar expressions are intended to identify forward-looking statements.
Additionally, forward-looking statements include statements that do not relate solely to historical facts, such as statements which identify uncertainties or trends, discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward-looking statements in this report are based upon information available to us on the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except as required by applicable law.
Our actual results could differ materially from these forward-looking statements due to numerous factors including, without limitation, the following: our ability to comply with the terms of our various financing arrangements; the costs and availability of financing; our ability to maintain adequate liquidity; our ability to execute our operational plans and revenue-generating initiatives, including optimizing our revenue; our ability to control our costs, including realizing benefits from our resource optimization efforts, cost reduction initiatives and fleet replacement programs; costs associated with any modification or termination of our aircraft orders; our ability to utilize our net operating losses; our ability to attract and retain customers; potential reputational or other impact from adverse events in our operations; demand for transportation in the markets in which we operate; an outbreak of a disease that affects travel demand or travel behavior; demand for travel and the impact that global economic and political conditions have on customer travel patterns; excessive taxation and the inability to offset future taxable income; general economic conditions (including interest rates, foreign currency exchange rates, investment or credit market conditions, crude oil prices, costs of aircraft fuel and energy refining capacity in relevant markets); economic and political instability and other risks of doing business globally;globally, including political developments that may impact our operations in certain countries; demand for travel and the impact that global economic and political conditions have on customer travel patterns; competitive pressures on pricing and on demand; demand for transportation in the markets in which we operate; our capacity decisions and the capacity decisions of our competitors; the effects of any hostilities, act of war or terrorist attack; the effects of any technology failures or cybersecurity breaches; the impact of regulatory, investigative and legal proceedings and legal compliance risks; disruptions to our regional network; the ability of other air carriers with whom we have alliances or partnerships to provide the services contemplated by the respective arrangements with such carriers; costs associated with any modification or termination of our aircraft orders; potential reputational or other impact from adverse events in our operations, the operations of our regional carriers or the operations of our code share partners; our ability to attract and retain customers; our ability to execute our operational plans and revenue-generating initiatives, including optimizing our revenue; our ability to control our costs, including realizing benefits from our resource optimization efforts, cost reduction initiatives and fleet replacement programs; the impact of any management changes; our ability to cost-effectively hedge against increases in the price of aircraft fuel if we decide to do so; any potential realized or unrealized gains or losses related to any fuel or currency hedging programs; the effects of any hostilities, act of war or terrorist attack; the ability of other air carriers with whom we have alliances or partnerships to provide the services contemplated by the respective arrangements with such carriers; the effects of any technology failures or cybersecurity breaches; disruptions to our regional network; the costs and availability of aviation and other insurance; industry consolidation or changes in airline alliances; the success of our investments in airlines in other parts of the world; competitive pressures on pricing and on demand; our capacity decisions and the capacity decisions of our competitors; U.S. or foreign governmental legislation, regulation and other actions (including Open Skies agreements and environmental regulations); the impact of regulatory, investigative and legal proceedings and legal compliance risks; the impact of any management changes; labor costs; our ability to maintain satisfactory labor relations and the results of any collective bargaining agreement process with our union groups; any disruptions to operations due to any potential actions by our labor groups; an outbreak of a disease that affects travel demand or travel behavior; U.S. or foreign governmental legislation, regulation and other actions (including Open Skies agreements and environmental regulations); industry consolidation or changes in airline alliances; our ability to comply with the terms of our various financing arrangements; the costs and availability of financing; our ability to maintain adequate liquidity; the costs and availability of aviation and other insurance; weather conditions; our ability to utilize our net operating losses to offset future taxable income; the impact of changes in tax laws; the success of our investments in airlines in other parts of the world; and other risks and uncertainties set forth under Part I, Item 1A., “Risk Factors”Risk Factors, of our 20162017 Annual Report, as well as other risks and uncertainties set forth from time to time in the reports we file with the U.S. Securities and Exchange Commission (the “SEC”).
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
There have been no material changes in market risk from the information provided in Part II, Item 7A. “Quantitative7A, Quantitative and Qualitative Disclosures About Market Risk”Risk, in our 20162017 Annual Report.
ITEM 4. | CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Control and Procedures
The Company maintainsUAL and United each maintain controls and procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted by UAL and United to the SEC is recorded, processed, summarized and reported, within the time periods specified by the SEC’s rules and forms, and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management of UAL and United, including the Chief Executive Officer and Chief Financial Officer, performed an evaluation to conclude with reasonable assurance that UAL’s and United’s disclosure controls and procedures were designed and operating effectively to report the information each company is required to disclose in the reports they file with the SEC on a timely basis. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer of UAL and United have concluded that as of March 31, 2017,2018, disclosure controls and procedures of each of UAL and United were effective.
Changes in Internal Control over Financial Reporting duringDuring the Quarter Ended March 31, 20172018
During the three months ended March 31, 2017,2018, there were no changes in UAL’s or United’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, their internal control over financial reporting (as defined in rulesrules 13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934).
ITEM 1. | LEGAL PROCEEDINGS |
See Part I, Item 3., “Legal Proceedings”3, Legal Proceedings, of the 20162017 Annual Report for a description of legal proceedings.
ITEM 1A. | RISK FACTORS |
See Part I, Item 1A., “Risk1A, Risk Factors,” of the 20162017 Annual Report for a detailed discussion of the risk factors affecting UAL and United.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
(a) None
(b) None
(c) The following table presents repurchases of UAL common stock made in the first quarter of fiscal year 2017:2018:
Period | Total number of shares purchased (a)(b) | Average price paid per share (b)(c) | Total number of shares purchased as part of publicly announced plans or programs (a) | Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions) (a) | ||||||||||||
January 1, 2017 through January 31, 2017 | — | $ | — | — | $ | 1,844 | ||||||||||
February 1, 2017 through February 28, 2017 | — | — | — | 1,844 | ||||||||||||
March 1, 2017 through March 31, 2017 | 4,578,448 | 68.41 | 4,578,448 | 1,531 | ||||||||||||
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Total | 4,578,448 | 4,578,448 | ||||||||||||||
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Period | Total number of shares purchased (a)(b) | Average price paid per share (b)(c) | Total number of shares purchased as part of publicly announced plans or programs (a) | Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions) (a) | ||||||||||||
January 2018 | 1,051,444 | $ | 66.57 | 1,051,444 | $ | 2,930 | ||||||||||
February 2018 | 3,101,048 | 66.27 | 3,101,048 | 2,725 | ||||||||||||
March 2018 | 4,255,515 | 68.89 | 4,255,515 | 2,431 | ||||||||||||
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Total | 8,408,007 | 8,408,007 | ||||||||||||||
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(a) In the three months ended March 31,December 2017, UAL repurchased approximately 5 million shares of UAL common stock in open market transactions, for $0.3 billion. In July 2016, UAL’s Board of Directors authorized a $2$3.0 billion share repurchase program.program to acquire UAL’s common stock. As of March 31, 2017,2018, the Company had approximately $1.5$2.4 billion remaining to purchase shares under its share repurchase program. UAL may repurchase shares through the open market, privately negotiated transactions, block trades or accelerated share repurchase transactions from time to time in accordance with applicable securities laws.
(b) The table does not include shares withheld from employees to satisfy certain tax obligations due upon the vesting of restricted stock awards and restricted stock units. The United Continental Holdings, Inc. 2017 Incentive Compensation Plan and the United Continental Holdings, Inc. 2008 Incentive Compensation Plan provideseach provide for the withholding of shares to satisfy tax obligations due upon the vesting of restricted stock. However, this plan doesthese plans do not specify a maximum number of shares that may be withheld for this purpose. A total of 169,556243,003 shares were withheld under this planthese plans in the first quarter of 20172018 at an average price per share price of $74.28.$67.72. These shares of common stock withheld to satisfy tax withholding obligations may be deemed to be “issuer purchases” of shares that are required to be disclosed pursuant to this Item.
(c) Average price paid per share is calculated on a settlement basis and excludes commission.
ITEM 6. |
A list of exhibits included as part of this Form10-Q is set forth in an Exhibit Index that immediately precedes the exhibits.
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries.
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Exhibit No. | Registrant | Exhibit | ||
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12.1 | UAL | United Continental Holdings, Inc. and Subsidiary Companies Computation of Ratio of Earnings to Fixed Charges | ||
12.2 | United | United Airlines, Inc. and Subsidiary Companies Computation of Ratio of Earnings to Fixed Charges | ||
31.1 | UAL | Certification of the Principal Executive Officer of United Continental Holdings, Inc. Pursuant to 15 U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-Oxley Act of 2002) | ||
31.2 | UAL | Certification of the Principal Financial Officer of United Continental Holdings, Inc. Pursuant to 15 U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-Oxley Act of 2002) | ||
31.3 | United | Certification of the Principal Executive Officer of United Airlines, Inc. Pursuant to 15 U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-Oxley Act of 2002) | ||
31.4 | United | Certification of the Principal Financial Officer of United Airlines, Inc. Pursuant to 15 U.S.C. 78m(a) or 78o(d) (Section 302 of the Sarbanes-Oxley Act of 2002) | ||
32.1 | UAL | Certification of the Chief Executive Officer and Chief Financial Officer of United Continental Holdings, Inc. Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) | ||
32.2 | United | Certification of the Chief Executive Officer and Chief Financial Officer of United Airlines, Inc. Pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) | ||
101.1 | UAL United | XBRL Instance Document | ||
101.2 | UAL United | XBRL Taxonomy Extension Schema Document | ||
101.3 | UAL United | XBRL Taxonomy Extension Calculation Linkbase Document | ||
101.4 | UAL United | XBRL Taxonomy Extension Definition Linkbase Document | ||
101.5 | UAL United | XBRL Taxonomy Extension Labels Linkbase Document | ||
101.6 | UAL United | XBRL Taxonomy Extension Presentation Linkbase Document |
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
^ Confidential portion of this exhibit has been omitted and filed separately with the SEC pursuant to a request for confidential treatment.
* Previously filed.
United Continental Holdings, Inc. | ||||||
(Registrant) | ||||||
Date: April 18, 2018 | By: | /s/ Andrew C. Levy | ||||
Andrew C. Levy Executive Vice President and Chief Financial Officer (Principal Financial Officer) | ||||||
Date: April 18, 2018 | By: | /s/ Chris Kenny | ||||
Chris Kenny Vice President and Controller (Principal Accounting Officer) | ||||||
United Airlines, Inc. | ||||||
(Registrant) | ||||||
Date: April 18, 2018 | By: | /s/ Andrew C. Levy | ||||
Andrew C. Levy Executive Vice President and Chief Financial Officer (Principal Financial Officer) | ||||||
Date: April 18, 2018 | By: | /s/ Chris Kenny | ||||
Chris Kenny Vice President and Controller (Principal Accounting Officer) |
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