Other Information
The following table provides additional information related to the frequent flyer program (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
Cash Proceeds
from Miles Sold
and Earned
|
|
|
Other Revenue
Recognized Upon
Award of Miles
to Third-Party
Customers
(a)
|
|
|
Increase in Frequent
Flyer Deferred
Revenue for Miles
Awarded (b)
|
|
|
Decrease in
Advanced
Purchase
of Miles (c)
|
|
|
2016
|
|
$
|
3,022
|
|
|
$
|
1,221
|
|
|
$
|
2,050
|
|
|
$
|
(249)
|
|
|
2015
|
|
|
2,999
|
|
|
|
1,050
|
|
|
|
2,173
|
|
|
|
(224)
|
|
|
2014
|
|
|
2,861
|
|
|
|
882
|
|
|
|
2,178
|
|
|
|
(199)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) This amount represents other revenue recognized during the period from the sale of miles to third parties, representing the marketing-related deliverable services
component of the sale.
|
|
|
(b) This amount represents the increase to Frequent flyer deferred revenue during the period.
|
|
|
(c) This amount represents the net decrease in the advance purchase of miles obligation due to cash payments for the sale of miles less than miles awarded to
customers.
|
|
|
(d)
|
Cash and Cash Equivalents and Restricted Cash—
Highly liquid investments with a maturity of three months or less on their acquisition date are classified as
cash and cash equivalents.
|
Restricted cash primarily includes cash collateral associated with workers’
compensation obligations and reserves for institutions that process credit card ticket sales. Restricted cash is classified as short-term or long-term in the consolidated balance sheets based on the expected timing of return of the assets to the
Company.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the
consolidated balance sheets that sum to the total of the same such amounts shown in the statements of consolidated cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UAL
|
|
|
United
|
|
|
|
|
At December 31,
|
|
|
At December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,179
|
|
|
$
|
3,006
|
|
|
$
|
2,002
|
|
|
$
|
2,173
|
|
|
$
|
3,000
|
|
|
$
|
1,996
|
|
|
Restricted cash included in Prepaid expenses and other
|
|
|
—
|
|
|
|
2
|
|
|
|
44
|
|
|
|
—
|
|
|
|
2
|
|
|
|
44
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
124
|
|
|
|
204
|
|
|
|
276
|
|
|
|
124
|
|
|
|
204
|
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and restricted cash shown in the statement of consolidated cash flows
|
|
$
|
2,303
|
|
|
$
|
3,212
|
|
|
$
|
2,322
|
|
|
$
|
2,297
|
|
|
$
|
3,206
|
|
|
$
|
2,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
(e)
|
Short-term Investments—
Short-term investments are classified as
available-for-sale
and are stated at fair value. Realized gains and losses on sales of investments are reflected in nonoperating income (expense) in the consolidated
statements of operations. Unrealized gains and losses on
available-for-sale
securities are reflected as a component of accumulated other comprehensive income (loss).
|
|
(f)
|
Aircraft Fuel, Spare Parts and Supplies—
The Company accounts for aircraft fuel, spare parts and supplies at average cost and provides an obsolescence
allowance for aircraft spare parts with an assumed residual value of 10% of original cost.
|
|
(g)
|
Property and Equipment—
The Company records additions to owned operating property and equipment at cost when acquired. Property under capital leases and the
related obligation for future lease payments are recorded at an amount equal to the initial present value of those lease payments. Modifications that enhance the operating performance or extend the useful lives of airframes or engines are
capitalized as property and equipment. It is the Company’s policy to record compensation from delays in delivery of aircraft as a reduction of the cost of the related aircraft.
|
Depreciation and amortization of owned depreciable assets is based on the straight-line method over the assets’ estimated useful
lives. Leasehold improvements are amortized over the remaining term of the lease, including estimated facility renewal options when renewal is reasonably assured at key airports, or the estimated useful life of the related asset, whichever is less.
Properties under capital leases are amortized on the straight-line method over the life of the lease or, in the case of certain aircraft, over their estimated useful lives, whichever is shorter. Amortization of capital lease assets is included in
depreciation and amortization expense. The estimated useful lives of property and equipment are as follows:
|
|
|
|
|
|
|
|
|
Estimated Useful Life (in years)
|
|
|
Aircraft and related rotable parts
|
|
|
25 to 30
|
|
|
Buildings
|
|
|
25 to 45
|
|
|
Other property and equipment
|
|
|
3 to 15
|
|
|
Computer software
|
|
|
5
|
|
|
Building improvements
|
|
|
1 to 40
|
|
As of December 31, 2016 and 2015, the Company had a carrying value of computer software of
$356 million and $279 million, respectively. For the years ended December 31, 2016, 2015 and 2014, the Company’s depreciation expense related to computer software was $108 million, $93 million and $81 million,
respectively. Aircraft and aircraft spare parts were assumed to have residual values of approximately 10% of original cost, and other categories of property and equipment were assumed to have no residual value.
|
(h)
|
Maintenance and Repairs—
The cost of maintenance and repairs, including the cost of minor replacements, is charged to expense as incurred, except for costs
incurred under our
power-by-the-hour
(“PBTH”) engine maintenance agreements. PBTH contracts transfer certain risk to
third-party service providers and fix the amount we pay per flight hour or per cycle to the service provider in exchange for maintenance and repairs under a predefined maintenance program. Under PBTH agreements, the Company recognizes expense at a
level rate per engine hour, unless the level of service effort and the related payments during the period are substantially consistent, in which case the Company recognizes expense based on the amounts paid.
|
|
(i)
|
Lease Fair Value Adjustments—
Lease fair value adjustments, which arose from recording operating leases at fair value under fresh start or business
combination accounting, are amortized on a straight-line basis over the related lease term.
|
|
(j)
|
Regional Capacity Purchase—
Payments made to regional carriers under CPAs are reported in Regional capacity purchase in our consolidated statements of
operations.
|
65
|
(k)
|
Advertising—
Advertising costs, which are included in Other operating expenses, are expensed as incurred. Advertising expenses were $220 million,
$201 million and $179 million for the years ended December 31, 2016, 2015 and 2014, respectively.
|
|
(l)
|
Intangibles—
The Company has finite-lived and indefinite-lived intangible assets, including goodwill. Finite-lived intangible assets are amortized over their
estimated useful lives. Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment annually or more frequently if events or circumstances indicate that the asset may be impaired. Goodwill and indefinite-lived
assets are reviewed for impairment on an annual basis as of October 1, or on an interim basis whenever a triggering event occurs. See Note 2 of this report for additional information related to intangibles.
|
|
(m)
|
Long-Lived Asset Impairments—
The Company evaluates the carrying value of long-lived assets subject to amortization whenever events or changes in
circumstances indicate that an impairment may exist. For purposes of this testing, the Company has generally identified the aircraft fleet type as the lowest level of identifiable cash flows. An impairment charge is recognized when the asset’s
carrying value exceeds its net undiscounted future cash flows and its fair market value. The amount of the charge is the difference between the asset’s carrying value and fair market value. See Note 16 of this report for additional information
related to asset impairments.
|
|
(n)
|
Share-Based Compensation—
The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date
fair value of the award. The resulting cost is recognized over the period during which an employee is required to provide service in exchange for the award, usually the vesting period. Obligations for cash-settled restricted stock units
(“RSUs”) are remeasured at fair value throughout the requisite service period on the last day of each reporting period based upon UAL’s stock price. In addition to the service requirement, certain RSUs have performance metrics that
must be achieved prior to vesting. These awards are accrued based on the expected level of achievement at each reporting period. A cumulative adjustment is recorded on the last day of each reporting period to adjust compensation expense based on
both UAL’s stock price and the then current level of expected performance achievement for the performance-based awards. See Note 5 of this report for additional information on UAL’s share-based compensation plans.
|
|
(o)
|
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 (excluded from operating revenue).
|
|
(p)
|
Retirement of Leased Aircraft—
The Company accrues for estimated lease costs over the remaining term of the lease at the present value of future minimum
lease payments, net of estimated sublease rentals (if any), in the period that aircraft are permanently removed from service. When reasonably estimable and probable, the Company estimates maintenance lease return condition obligations for items such
as minimum aircraft and engine conditions specified in leases and accrues these amounts over the lease term while the aircraft are operating, and any remaining unrecognized estimated obligations are accrued in the period that an aircraft is removed
from service.
|
|
(q)
|
Uncertain Income Tax Positions—
The Company has recorded reserves for income taxes and associated interest that may become payable in future
years. Although management believes that its positions taken on income tax matters are reasonable, the Company nevertheless has established tax and interest reserves in recognition that various taxing authorities may challenge certain of the
positions taken by the Company, potentially resulting in additional liabilities for taxes and interest. The Company’s uncertain tax position reserves are reviewed periodically and are adjusted as events occur that affect its estimates, such as
the availability of new information, the lapsing of applicable statutes of limitation, the conclusion of tax audits, the measurement of additional estimated liability, the identification of new tax matters, the release of administrative tax guidance
affecting its estimates of tax liabilities, or the rendering of relevant court decisions. The Company records penalties and interest relating to uncertain tax positions in Other operating expense and Interest expense, respectively, in its
|
66
|
|
consolidated statements of operations. The Company has not recorded any material expense or liabilities related to interest or penalties in its consolidated financial statements.
|
|
(r)
|
Labor Costs—
The Company records expenses associated with amendable labor agreements when the amounts are probable and estimable. These include costs
associated with lump sum cash payments that would be made in conjunction with the ratification of labor agreements. To the extent these upfront costs are in lieu of future pay increases, they would be capitalized and amortized over the term of the
labor agreements. If not, these amounts would be expensed.
|
|
(s)
|
Third-Party Business—
The Company has third-party business revenue that includes fuel sales, catering, ground handling, maintenance services and frequent
flyer award
non-air
redemptions, and third-party business revenue is recorded in Other operating revenue. The Company also incurs third-party business expenses, such as maintenance, ground handling and
catering services for third parties, fuel sales and
non-air
mileage redemptions, and those third-party business expenses are recorded in Other operating expenses.
|
|
(t)
|
Recently Issued Accounting Standards—
The Financial Accounting Standards Board (“FASB”) amended the FASB Accounting Standards Codification and
created a new Topic 606,
Revenue from Contracts with Customers.
This amendment 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 supersedes the revenue recognition requirements in Topic 605,
Revenue Recognition
, and most industry-specific guidance throughout the Industry
Topics of the Accounting Standards Codification. The Company currently plans to use the full-retrospective approach in adopting this standard on January 1, 2018. Under the new standard, certain airline ancillary fees directly related to
passenger revenue tickets, such as ticket change fees and baggage fees, are likely to no longer be considered distinct performance obligations separate from the passenger travel component. In addition, the ticket change fees which were previously
recognized when received and booking fees when paid, will likely be recognized when transportation is provided. The Company has previously recorded ancillary fees and change fees in other operating revenue but will record these in passenger revenue
under the new standard. The Company is evaluating other possible impacts from the new standard on its consolidated financial statements.
|
In 2016, the FASB amended the FASB Accounting Standards Codification and created a new Topic 842,
Leases
(“Topic 842”). The guidance requires lessees to recognize a
right-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 2016, the FASB issued Accounting Standards Update
No. 2016-09,
Improvements to Employee
Share-Based Payment Accounting
(“ASU
2016-09”)
.
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. Under current GAAP, these differences are generally recorded in additional
paid-in
capital
and thus have no impact on net income. The change in treatment of excess tax benefits and tax deficiencies will also impact the computation of diluted earnings per share and the cash flows associated with those items will be classified as operating
activities on the statements of consolidated cash flows. Additionally, entities will be permitted 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 required under current GAAP, or recognized when they occur. The amendments in this update are
67
effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company does not expect the adoption of ASU
2016-09
to have a material impact on its consolidated financial statements.
In 2016, the
FASB issued Accounting Standards Update
No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
(“ASU
2016-15”).
The update amends the guidance in Accounting Standards Codification 230,
Statement of Cash Flows
(“ASC 230”), and clarifies how entities should classify certain cash receipts
and cash payments on the statement of cash flows with the objective of reducing the existing diversity in practice related to eight specific cash flow issues. The Company adopted ASU
2016-15
as of
December 31, 2016 and the standard did not have a material impact on its consolidated financial statements.
In 2016, the
FASB issued Accounting Standards Update
No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
. The update amends ASC 230 to add guidance on the classification and presentation of
restricted cash in the statement of cash flows. Furthermore, a reconciliation between the statement of financial position and the statement of cash flows must be disclosed when the statement of financial position includes more than one line item for
cash, cash equivalents, restricted cash, and restricted cash equivalents. The Company adopted this standard as of December 31, 2016 and included $124 million, $206 million and $320 million of restricted cash in the total of cash,
cash equivalents and restricted cash in its statements of consolidated cash flows for the year ended December 31, 2016, 2015 and 2014, respectively. A reconciliation of restricted cash for each period of the Company’s balance sheet to its
statement of consolidated cash flows is included in Note 1(d) Cash and Cash Equivalents and Restricted Cash of this report.
The FASB issued Accounting Standards Update
No. 2015-07,
Fair Value Measurement (Topic
820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)
. Under the standard, investments for which fair value is measured at net asset value (“NAV”) per share (or its
equivalent) using the practical expedient are no longer categorized in the fair value hierarchy. The Company adopted this standard on January 1, 2016. As of December 31, 2016, the Company had approximately $182 million of such
investments as part of Short-term investments on its consolidated balance sheets. In addition, pension plan investments measured at NAV per share are no longer categorized within the fair value hierarchy. As of December 31, 2016, the Company
had approximately $1.8 billion of such investments.
68
NOTE 2 - GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents information about the Company’s goodwill and other intangible assets at December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Item
|
|
Asset life (a)
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Goodwill
|
|
|
|
|
|
$
|
4,523
|
|
|
|
|
|
|
$
|
4,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frequent flyer database (b)
|
|
|
22
|
|
|
$
|
1,177
|
|
|
$
|
771
|
|
|
$
|
1,177
|
|
|
$
|
702
|
|
|
Hubs
|
|
|
20
|
|
|
|
145
|
|
|
|
82
|
|
|
|
145
|
|
|
|
74
|
|
|
Contracts
|
|
|
13
|
|
|
|
135
|
|
|
|
95
|
|
|
|
135
|
|
|
|
86
|
|
|
Patents and tradenames
|
|
|
3
|
|
|
|
108
|
|
|
|
108
|
|
|
|
108
|
|
|
|
108
|
|
|
Airport slots and gates
|
|
|
8
|
|
|
|
97
|
|
|
|
97
|
|
|
|
97
|
|
|
|
97
|
|
|
Other
|
|
|
25
|
|
|
|
109
|
|
|
|
81
|
|
|
|
109
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
1,771
|
|
|
$
|
1,234
|
|
|
$
|
1,771
|
|
|
$
|
1,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Route authorities
|
|
|
|
|
|
$
|
1,562
|
|
|
|
|
|
|
$
|
1,570
|
|
|
|
|
|
|
Airport slots and gates
|
|
|
|
|
|
|
536
|
|
|
|
|
|
|
|
942
|
|
|
|
|
|
|
Tradenames and logos
|
|
|
|
|
|
|
593
|
|
|
|
|
|
|
|
593
|
|
|
|
|
|
|
Alliances
|
|
|
|
|
|
|
404
|
|
|
|
|
|
|
|
404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
3,095
|
|
|
|
|
|
|
$
|
3,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Weighted average life expressed in years.
(b) The frequent flyer database is amortized based on an accelerated amortization schedule to
reflect utilization of the assets. Estimated cash flows correlating to the expected attrition rate of customers in the frequent flyer database is considered in the determination of the amortization schedules.
Amortization expense in 2016, 2015 and 2014 was $90 million, $105 million and $128 million, respectively. Projected amortization expense in
2017, 2018, 2019, 2020 and 2021 is $79 million, $70 million, $64 million, $58 million and $53 million, respectively.
See Note 16 of this report for additional information related to impairment of intangible assets.
NOTE 3 - COMMON STOCKHOLDERS’ EQUITY AND PREFERRED SECURITIES
In 2016, UAL repurchased approximately 50 million shares of UAL common stock for $2.6 billion. As of December 31, 2016, the Company had approximately $1.8 billion remaining to purchase
shares under its share 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 may
repurchase shares of UAL common stock subject to prevailing market conditions, and may discontinue such repurchases at any time. See Part II, Item 5, “Market for registrant’s common equity, related stockholder matters and issuer purchases
of equity securities” of this report for additional information.
In 2016, the Company retired 70 million treasury shares that were
originally acquired at an average cost of approximately $53 per share.
At December 31, 2016, approximately 5 million shares of
UAL’s common stock were reserved for future issuance related to the issuance of equity-based awards under the Company’s incentive compensation plans.
As of December 31, 2016, UAL had two shares of junior preferred stock (par value $0.01 per share) outstanding. In addition, UAL is authorized to issue 250 million shares of preferred stock
(without par value) under UAL’s amended and restated certificate of incorporation.
69
NOTE 4 - EARNINGS PER SHARE
The computations of UAL’s basic and diluted earnings per share are set forth below for the years ended December 31 (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings available to common stockholders
|
|
$
|
2,263
|
|
|
$
|
7,340
|
|
|
$
|
1,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
|
|
329.9
|
|
|
|
376.1
|
|
|
|
371.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, basic
|
|
$
|
6.86
|
|
|
$
|
19.52
|
|
|
$
|
3.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings available to common stockholders
|
|
$
|
2,263
|
|
|
$
|
7,340
|
|
|
$
|
1,132
|
|
|
Effect of dilutive securities
|
|
|
—
|
|
|
|
—
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings available to common stockholders including the effect of dilutive securities
|
|
$
|
2,263
|
|
|
$
|
7,340
|
|
|
$
|
1,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
|
|
329.9
|
|
|
|
376.1
|
|
|
|
371.1
|
|
|
Effect of convertible notes
|
|
|
—
|
|
|
|
0.3
|
|
|
|
17.7
|
|
|
Effect of employee stock awards
|
|
|
0.4
|
|
|
|
0.5
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares outstanding
|
|
|
330.3
|
|
|
|
376.9
|
|
|
|
389.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, diluted
|
|
$
|
6.85
|
|
|
$
|
19.47
|
|
|
$
|
2.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The number of antidilutive securities excluded from the computation of diluted earnings per share amounts was not
material.
NOTE 5 - SHARE-BASED COMPENSATION PLANS
UAL maintains several share-based compensation plans. These plans provide for grants of qualified and
non-qualified
stock options, stock appreciation rights,
restricted stock awards, RSUs, performance compensation awards, performance units, cash incentive awards and other types of equity-based and equity-related awards.
All awards are recorded as either equity or a liability in the Company’s consolidated balance sheets. The
share-based
compensation expense is directly recorded
in salaries and related costs or integration-related expense.
During 2016, UAL granted share-based compensation awards pursuant to the United
Continental Holdings, Inc. 2008 Incentive Compensation Plan. These share-based compensation awards include approximately 1.9 million RSUs, 0.4 million shares of restricted stock and 0.4 million stock options. The time-vested RSUs and
the restricted stock awards vest in
one-third
increments over the first three anniversaries of the date of grant. The time-vested RSUs are generally stock-settled for domestic employees and cash-settled for
international employees based on the
20-day
average closing price of UAL common stock immediately prior to the vesting date. The remainder of the RSUs are performance-based and vest based on the Company’s
return on invested capital and the Company’s relative improvement in
pre-tax
margin for the three years ending December 31, 2018. If the applicable performance conditions are achieved, cash payments
will be made after the end of the performance period based on the
20-day
average closing price of UAL common stock immediately prior to the vesting date. The stock options vest in
one-third
increments over either (i) the first three anniversaries of the date of grant (for seven-year term options) or (ii) the fourth, fifth and sixth anniversaries of the date of grant (for
ten-year
term options).
70
The following table provides information related to UAL’s share-based compensation plan cost for the
years ended December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Compensation cost (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs
|
|
$
|
58
|
|
|
$
|
52
|
|
|
$
|
104
|
|
|
Restricted stock
|
|
|
11
|
|
|
|
6
|
|
|
|
10
|
|
|
Stock options
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
70
|
|
|
$
|
58
|
|
|
$
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) All compensation cost is recorded to Salaries and related costs, with the exception of $3 million in 2014 that
was recorded in integration-related costs as a component of special items.
The table below summarizes UAL’s unearned compensation and
weighted-average remaining period to recognize costs for all outstanding share-based awards that are probable of being achieved as of December 31, 2016 (in millions, except as noted):
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
Compensation
|
|
|
Weighted-
Average
Remaining
Period
(in years)
|
|
|
RSUs
|
|
$
|
49
|
|
|
|
1.5
|
|
|
Restricted stock
|
|
|
11
|
|
|
|
1.5
|
|
|
Stock options
|
|
|
5
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs and Restricted Stock
. All performance-based RSUs, as well as a portion of the time-vested RSUs, will be
settled in cash. As of December 31, 2016, UAL had recorded a liability of $70 million related to its RSUs. UAL paid $69 million, $85 million and $86 million related to its RSUs during 2016, 2015 and 2014, respectively.
71
The table below summarizes UAL’s RSUs and restricted stock activity for the years ended
December 31 (shares in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs
|
|
|
Restricted Stock
|
|
|
Weighted-
Average
Grant Price
|
|
|
Non-vested
at December 31, 2013
|
|
|
5.4
|
|
|
|
0.9
|
|
|
$
|
25.02
|
|
|
Granted
|
|
|
0.9
|
|
|
|
0.3
|
|
|
|
43.33
|
|
|
Vested
|
|
|
(2.2)
|
|
|
|
(0.4)
|
|
|
|
24.66
|
|
|
Forfeited
|
|
|
(0.3)
|
|
|
|
(0.1)
|
|
|
|
28.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested
at December 31, 2014
|
|
|
3.8
|
|
|
|
0.7
|
|
|
|
32.55
|
|
|
Granted
|
|
|
1.0
|
|
|
|
0.2
|
|
|
|
66.53
|
|
|
Vested
|
|
|
(1.6)
|
|
|
|
(0.4)
|
|
|
|
31.14
|
|
|
Forfeited
|
|
|
(0.6)
|
|
|
|
(0.2)
|
|
|
|
46.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested
at December 31, 2015
|
|
|
2.6
|
|
|
|
0.3
|
|
|
|
48.68
|
|
|
Granted
|
|
|
1.9
|
|
|
|
0.4
|
|
|
|
50.63
|
|
|
Vested
|
|
|
(1.4)
|
|
|
|
(0.1)
|
|
|
|
41.47
|
|
|
Forfeited
|
|
|
(0.2)
|
|
|
|
(0.1)
|
|
|
|
53.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested
at December 31, 2016
|
|
|
2.9
|
|
|
|
0.5
|
|
|
|
52.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of RSUs and restricted stock that vested in 2016, 2015 and 2014 was $80 million, $92 million and
$97 million, respectively. The fair value of the restricted stock awards was based upon the UAL common stock price on the date of grant. These awards are accounted for as equity awards. The fair value of the RSUs was based on the UAL common
stock price as of the last day preceding the settlement date. These awards were accounted for as either equity or liability awards based on their method of settlement. Restricted stock vesting and the recognition of the expense is similar to the
stock option vesting described below.
Stock Options
. During 2016, UAL granted 0.1 million stock options with exercise prices equal
to the fair market value of UAL’s common stock on the date of grant and an additional 0.3 million stock options with exercise prices at a 25% premium of the grant date fair market value resulting in a weighted-average exercise price of
$56.19 and a weighted-average grant date fair value of approximately $2.3 million. Prior to 2016, UAL had not granted any stock options since 2010. Expense related to each portion of an option grant is recognized on a straight-line basis over
the specific vesting period for those options.
The Company determined the fair value of stock options at the grant date using a Black Scholes
option pricing model, which requires the use of several assumptions. The risk-free interest rate is based on the U.S. treasury yield curve in effect for the expected term of the option at the time of grant. The dividend yield on UAL’s common
stock was assumed to be zero since UAL did not have any plans to pay dividends at the time of the option grants. The volatility assumptions were based upon historical volatilities of UAL using daily stock price returns equivalent to the expected
term of the option. The expected lives of the options were determined based upon a simplified assumption that the option will be exercised evenly from vesting to expiration due to the Company’s lack of relevant historical data.
As of December 31, 2016, there were approximately 0.5 million outstanding stock option awards, 0.1 million of which were exercisable, with
weighted-average exercise prices of $46.83 and $18.58, respectively, intrinsic values of $14 million and $7 million, respectively, and weighted-average remaining contractual lives (in years) of 6.3 and 1.6, respectively.
72
NOTE 6 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The tables below present the components of the Company’s accumulated other comprehensive income (loss) (“AOCI”), net of tax (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Taxes
|
|
|
|
|
|
|
|
Pension and
Other
Postretirement
Liabilities
|
|
|
Fuel
Derivatives
Contracts
|
|
|
Investments
and Other
|
|
|
Pension and
Other
Postretirement
Liabilities
|
|
|
Fuel
Derivative
Contracts
|
|
|
Total
|
|
|
Balance at December 31, 2013
|
|
$
|
699
|
|
|
$
|
11
|
|
|
$
|
13
|
|
|
$
|
(115)
|
|
|
$
|
—
|
(c)
|
|
$
|
608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss before reclassifications (a)
|
|
|
(1,106)
|
(b)
|
|
|
(599)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,705)
|
|
|
Amounts reclassified from accumulated other comprehensive income (a)
|
|
|
(65)
|
|
|
|
89
|
|
|
|
(6)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss)
|
|
|
(1,171)
|
|
|
|
(510)
|
|
|
|
(6)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,687)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
$
|
(472)
|
|
|
$
|
(499)
|
|
|
$
|
7
|
|
|
$
|
(115)
|
|
|
$
|
—
|
(c)
|
|
$
|
(1,079)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
78
|
(b)
|
|
|
(320)
|
|
|
|
(4)
|
|
|
|
(28)
|
|
|
|
115
|
|
|
|
(159)
|
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
31
|
|
|
|
604
|
|
|
|
—
|
|
|
|
(11)
|
|
|
|
(217)
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss)
|
|
|
109
|
|
|
|
284
|
|
|
|
(4)
|
|
|
|
(39)
|
|
|
|
(102)
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
$
|
(363)
|
|
|
$
|
(215)
|
|
|
$
|
3
|
|
|
$
|
(154)
|
|
|
$
|
(102)
|
|
|
$
|
(831)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
|
(517)
|
(b)
|
|
|
(4)
|
|
|
|
—
|
|
|
|
186
|
|
|
|
1
|
|
|
|
(334)
|
|
|
Amounts reclassified from accumulated other comprehensive income
|
|
|
26
|
|
|
|
217
|
|
|
|
(1)
|
|
|
|
(8)
|
|
|
|
102
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current-period other comprehensive income (loss)
|
|
|
(491)
|
|
|
|
213
|
|
|
|
(1)
|
|
|
|
178
|
|
|
|
103
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
(854)
|
|
|
$
|
(2)
|
|
|
$
|
2
|
|
|
$
|
24
|
|
|
$
|
1
|
|
|
$
|
(829)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about AOCI Components
|
|
Amount Reclassified from AOCI to
Income
|
|
|
Affected Line Item in
the Statement
Where
Net Income is Presented
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
Fuel derivative contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel contracts-reclassifications of losses into earnings
|
|
$
|
217
|
|
|
$
|
604
|
|
|
$
|
89
|
|
|
|
Aircraft fuel
|
|
|
Pension and Postretirement liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized (gains) losses and prior service cost and the effect of curtailments and settlements
(d)
|
|
|
26
|
|
|
|
31
|
|
|
|
(65)
|
|
|
|
Salaries and related costs
|
|
|
Investments and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities—reclassifications of gains into earnings
|
|
|
(1)
|
|
|
|
—
|
|
|
|
(6)
|
|
|
|
Miscellaneous, net
|
|
(a) Income tax expense for these items was offset by the Company’s valuation allowance.
(b) Prior service credits increased by $30 million, $0 million and $3 million and actuarial gains (losses) increased (decreased) by approximately $560 million, $78 million and
$(1.1) billion for 2016, 2015 and 2014, respectively.
(c) Deferred tax balance was offset by the Company’s valuation allowance.
(d) This AOCI component is included in the computation of net periodic pension and other postretirement costs (see Note 8 of this report for
additional information).
Prior to the release of the deferred income tax valuation allowance in the third quarter of 2015, the Company
recorded approximately $465 million of valuation allowance adjustments in AOCI. Subsequent to the release of
73
the deferred income tax valuation allowance in 2015, the $465 million debit remained within AOCI, of which $180 million related to losses on fuel hedges designated for hedge accounting
and $285 million related to pension and other postretirement liabilities. Accounting rules required the adjustments to remain in AOCI as long as the Company had fuel derivatives designated for cash flow hedge accounting and the Company
continues to provide pension and postretirement benefits. In 2016, we settled all of our fuel hedges and have not entered into any new fuel derivative contracts for hedge accounting. Accordingly, the Company reclassified the $180 million to
income tax expense in 2016.
NOTE 7 - INCOME TAXES
The significant components of the income tax expense (benefit) are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
UAL
|
|
|
United
|
|
|
Current
|
|
$
|
(92)
|
|
|
$
|
(92)
|
|
|
Deferred
|
|
|
1,648
|
|
|
|
1,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,556
|
|
|
$
|
1,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
Current
|
|
$
|
56
|
|
|
$
|
56
|
|
|
Deferred
|
|
|
(3,177)
|
|
|
|
(3,136)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,121)
|
|
|
$
|
(3,080)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
|
|
|
Current
|
|
$
|
(17)
|
|
|
$
|
(17)
|
|
|
Deferred
|
|
|
13
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(4)
|
|
|
$
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
74
The income tax provision differed from amounts computed at the statutory federal income tax rate, as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UAL
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Income tax provision at statutory rate
|
|
$
|
1,337
|
|
|
$
|
1,477
|
|
|
$
|
395
|
|
|
State income taxes, net of federal income tax
|
|
|
38
|
|
|
|
38
|
|
|
|
10
|
|
|
Foreign income taxes
|
|
|
3
|
|
|
|
4
|
|
|
|
2
|
|
|
Nondeductible employee meals
|
|
|
16
|
|
|
|
15
|
|
|
|
15
|
|
|
Income tax adjustment
|
|
|
180
|
|
|
|
—
|
|
|
|
—
|
|
|
State rate change
|
|
|
(12)
|
|
|
|
—
|
|
|
|
—
|
|
|
Valuation allowance
|
|
|
20
|
|
|
|
(4,662)
|
|
|
|
(435)
|
|
|
Other, net
|
|
|
(26)
|
|
|
|
7
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,556
|
|
|
$
|
(3,121)
|
|
|
$
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Income tax provision at statutory rate
|
|
$
|
1,338
|
|
|
$
|
1,477
|
|
|
$
|
388
|
|
|
State income taxes, net of federal income tax
|
|
|
38
|
|
|
|
38
|
|
|
|
10
|
|
|
Foreign income taxes
|
|
|
3
|
|
|
|
4
|
|
|
|
2
|
|
|
Nondeductible employee meals
|
|
|
16
|
|
|
|
15
|
|
|
|
15
|
|
|
Derivative market adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
(7)
|
|
|
Income tax adjustment
|
|
|
180
|
|
|
|
—
|
|
|
|
—
|
|
|
State rate change
|
|
|
(12)
|
|
|
|
—
|
|
|
|
—
|
|
|
Valuation allowance
|
|
|
20
|
|
|
|
(4,621)
|
|
|
|
(421)
|
|
|
Other, net
|
|
|
(25)
|
|
|
|
7
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,558
|
|
|
$
|
(3,080)
|
|
|
$
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s effective tax rate for the year ended December 31, 2016 differed from the federal statutory rate
of 35% primarily because of the
non-cash
income tax expense of $180 million that was related to losses on fuel derivatives designated for hedge accounting. Subsequent to the release of the valuation
allowance in 2015, this deferred income tax expense of $180 million remained in AOCI until all fuel derivatives were settled in December 2016. The change in the effective tax rate each period is impacted by a number of factors, including the
relative mix of domestic and state income tax expense in the U.S., adjustments to the valuation allowances and discrete items.
75
Temporary differences and carryforwards that give rise to deferred tax assets and liabilities at
December 31, 2016 and 2015 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UAL
|
|
|
United
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Deferred income tax asset (liability):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal and state net operating loss (“NOL”) carryforwards
|
|
$
|
1,613
|
|
|
$
|
2,897
|
|
|
$
|
1,571
|
|
|
$
|
2,855
|
|
|
Deferred revenue
|
|
|
2,096
|
|
|
|
2,160
|
|
|
|
2,096
|
|
|
|
2,160
|
|
|
Employee benefits, including pension, postretirement and medical
|
|
|
1,662
|
|
|
|
1,662
|
|
|
|
1,662
|
|
|
|
1,662
|
|
|
Alternative minimum tax (“AMT”) credit carryforwards
|
|
|
116
|
|
|
|
232
|
|
|
|
116
|
|
|
|
232
|
|
|
Other
|
|
|
523
|
|
|
|
566
|
|
|
|
522
|
|
|
|
566
|
|
|
Less: Valuation allowance
|
|
|
(68)
|
|
|
|
(48)
|
|
|
|
(68)
|
|
|
|
(48)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
5,942
|
|
|
$
|
7,469
|
|
|
$
|
5,899
|
|
|
$
|
7,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
(3,961)
|
|
|
$
|
(3,921)
|
|
|
$
|
(3,961)
|
|
|
$
|
(3,921)
|
|
|
Intangibles
|
|
|
(1,326)
|
|
|
|
(1,511)
|
|
|
|
(1,326)
|
|
|
|
(1,511)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
$
|
(5,287)
|
|
|
$
|
(5,432)
|
|
|
$
|
(5,287)
|
|
|
$
|
(5,432)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
655
|
|
|
$
|
2,037
|
|
|
$
|
612
|
|
|
$
|
1,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United and its domestic consolidated subsidiaries file a consolidated federal income tax return with UAL. Under an
intercompany tax allocation policy, United and its subsidiaries compute, record and pay UAL for their own tax liability as if they were separate companies filing separate returns. In determining their own tax liabilities, United and each of its
subsidiaries take into account all tax credits or benefits generated and utilized as separate companies and they are each compensated for the aforementioned tax benefits only if they would be able to use those benefits on a separate company basis.
The Company’s federal and state NOL carryforwards relate to prior years’ NOLs, which may be used to reduce tax liabilities in future
years. These tax benefits are mostly attributable to federal
pre-tax
NOL carryforwards of $4.4 billion for UAL. If not utilized these federal
pre-tax
NOLs will
expire as follows (in billions): $0.5 in 2026, $1.4 in 2027 and $2.5 after 2028. In addition, the majority of tax benefits of the state net operating losses of $56 million, net of a valuation allowance of $36 million, for UAL will expire
over a five to
20-year
period. Additionally, the Company has $108 million of AMT credit carryforwards, net of a valuation allowance of $8 million, which do not expire.
The Company periodically assesses whether it is more likely than not that it will generate sufficient taxable income to realize its deferred income tax
assets. The Company establishes valuation allowances if it is not likely it will realize its deferred income tax assets. In making this determination, the Company considers all available positive and negative evidence and makes certain assumptions.
The Company considers, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, the Company’s historical financial results and tax planning strategies. In evaluating
the likelihood of utilizing the Company’s net deferred income tax assets, the significant factors that the Company considers include (1) the Company’s recent history and forecasted profitability; (2) growth in the U.S. and global
economies; and (3) future impact of taxable temporary differences. In 2015, the Company concluded that its deferred income tax assets were more likely than not to be realized and released almost all of its valuation allowance in 2015, resulting
in a $3.1 billion benefit in its provision for income taxes. The valuation allowance recorded in AOCI in prior years was released through the income statement.
76
The Company has a valuation allowance of $68 million for certain state and local NOLs and credit
carryforwards. The Company expects these NOLs and credits will expire unused due to limited carryforward periods. The ability to utilize these state NOLs and credits will be evaluated on a quarterly basis to determine if there are any
significant events or any prudent and feasible tax planning strategies that would affect the Company’s ability to realize these deferred tax assets.
The Company’s unrecognized tax benefits related to uncertain tax positions were $74 million, $24 million and $9 million at 2016, 2015 and 2014, respectively. Included in the ending
balance at 2016 is $20 million that would affect the Company’s effective tax rate if recognized. The changes in unrecognized tax benefits relating to settlements with taxing authorities, unrecognized tax benefits as a result of tax
positions taken during a prior period and unrecognized tax benefits relating from a lapse of the statute of limitations were immaterial during 2016, 2015 and 2014. The Company does not expect significant increases or decreases in their unrecognized
tax benefits within the next 12 months.
There are no material amounts included in the balance at December 31, 2016 for tax positions for
which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.
The
Company’s federal income tax returns for tax years after 2002 remain subject to examination by the Internal Revenue Service (“IRS”) and state taxing jurisdictions. Currently, there are no ongoing examinations of the Company’s
prior year tax returns being conducted by the IRS.
NOTE 8 - PENSION AND OTHER POSTRETIREMENT PLANS
The following summarizes the significant pension and other postretirement plans of United:
Pension Plans
United maintains two primary defined benefit pension plans, one covering
certain pilot employees and another covering certain U.S.
non-pilot
employees. Each of these plans provide benefits based on a combination of years of benefit accruals service and an employee’s final
average compensation. Additional benefit accruals are frozen under the plan covering certain pilot employees and management and administrative employees. Benefit accruals for certain
non-pilot
employees
continue. United maintains additional defined benefit pension plans, which cover certain international employees.
Other Postretirement
Plans
United maintains postretirement medical programs which provide medical benefits to certain retirees and eligible dependents, as well
as life insurance benefits to certain retirees participating in the plan. Benefits provided are subject to applicable contributions,
co-payments,
deductibles and other limits as described in the specific plan
documentation.
Actuarial assumption changes are reflected as a component of the net actuarial gains/(losses) during 2016 and 2015. These
amounts will be amortized over the average remaining service life of the covered active employees or the average life expectancy of inactive participants and will impact 2016 and 2015 pension and retiree medical expense as described below.
77
The following table sets forth the reconciliation of the beginning and ending balances of the benefit
obligation and plan assets, the funded status and the amounts recognized in these financial statements for the defined benefit and other postretirement plans (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
Year Ended
December 31, 2016
|
|
|
Year Ended
December 31, 2015
|
|
|
Accumulated benefit obligation:
|
|
$
|
4,158
|
|
|
$
|
3,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
4,473
|
|
|
$
|
4,803
|
|
|
Service cost
|
|
|
112
|
|
|
|
124
|
|
|
Interest cost
|
|
|
200
|
|
|
|
200
|
|
|
Actuarial (gain) loss
|
|
|
738
|
|
|
|
(298)
|
|
|
Gross benefits paid and settlements
|
|
|
(243)
|
|
|
|
(343)
|
|
|
Other
|
|
|
(27)
|
|
|
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
$
|
5,253
|
|
|
$
|
4,473
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
2,975
|
|
|
$
|
2,562
|
|
|
Actual gain (loss) on plan assets
|
|
|
230
|
|
|
|
(59)
|
|
|
Employer contributions
|
|
|
421
|
|
|
|
824
|
|
|
Gross benefits paid and settlements
|
|
|
(243)
|
|
|
|
(343)
|
|
|
Other
|
|
|
(28)
|
|
|
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
3,355
|
|
|
$
|
2,975
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status—Net amount recognized
|
|
$
|
(1,898)
|
|
|
$
|
(1,498)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
|
|
|
Noncurrent asset
|
|
$
|
2
|
|
|
$
|
2
|
|
|
Current liability
|
|
|
(8)
|
|
|
|
(12)
|
|
|
Noncurrent liability
|
|
|
(1,892)
|
|
|
|
(1,488)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liability
|
|
$
|
(1,898)
|
|
|
$
|
(1,498)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss consist of:
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
(1,482)
|
|
|
$
|
(844)
|
|
|
Prior service loss
|
|
|
(1)
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss
|
|
$
|
(1,483)
|
|
|
$
|
(845)
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits
|
|
|
|
|
Year Ended
December 31, 2016
|
|
|
Year Ended
December 31, 2015
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
2,002
|
|
|
$
|
2,052
|
|
|
Service cost
|
|
|
19
|
|
|
|
21
|
|
|
Interest cost
|
|
|
86
|
|
|
|
82
|
|
|
Plan participants’ contributions
|
|
|
69
|
|
|
|
68
|
|
|
Benefits paid
|
|
|
(191)
|
|
|
|
(205)
|
|
|
Actuarial gain
|
|
|
(165)
|
|
|
|
(22)
|
|
|
Plan amendments
|
|
|
(138)
|
|
|
|
—
|
|
|
Other
|
|
|
5
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
1,687
|
|
|
$
|
2,002
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
56
|
|
|
$
|
57
|
|
|
Actual return on plan assets
|
|
|
2
|
|
|
|
1
|
|
|
Employer contributions
|
|
|
119
|
|
|
|
135
|
|
|
Plan participants’ contributions
|
|
|
69
|
|
|
|
68
|
|
|
Benefits paid
|
|
|
(191)
|
|
|
|
(205)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
55
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status—Net amount recognized
|
|
$
|
(1,632)
|
|
|
$
|
(1,946)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
|
|
|
Current liability
|
|
$
|
(51)
|
|
|
$
|
(64)
|
|
|
Noncurrent liability
|
|
|
(1,581)
|
|
|
|
(1,882)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liability
|
|
$
|
(1,632)
|
|
|
$
|
(1,946)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income consist of:
|
|
|
|
|
|
|
|
|
|
Net actuarial gain
|
|
$
|
384
|
|
|
$
|
236
|
|
|
Prior service credit
|
|
|
245
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
|
|
$
|
629
|
|
|
$
|
482
|
|
|
|
|
|
|
|
|
|
|
|
The following information relates to all pension plans with an accumulated benefit obligation and a projected benefit
obligation in excess of plan assets at December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Projected benefit obligation
|
|
$
|
5,025
|
|
|
$
|
4,292
|
|
|
Accumulated benefit obligation
|
|
|
3,985
|
|
|
|
3,655
|
|
|
Fair value of plan assets
|
|
|
3,164
|
|
|
|
2,794
|
|
79
Net periodic benefit cost for the years ended December 31 included the following components (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
Pension
Benefits
|
|
|
Other
Postretirement
Benefits
|
|
|
Pension
Benefits
|
|
|
Other
Postretirement
Benefits
|
|
|
Pension
Benefits
|
|
|
Other
Postretirement
Benefits
|
|
|
Service cost
|
|
$
|
112
|
|
|
$
|
19
|
|
|
$
|
124
|
|
|
$
|
21
|
|
|
$
|
98
|
|
|
$
|
19
|
|
|
Interest cost
|
|
|
200
|
|
|
|
86
|
|
|
|
200
|
|
|
|
82
|
|
|
|
201
|
|
|
|
88
|
|
|
Expected return on plan assets
|
|
|
(216)
|
|
|
|
(2)
|
|
|
|
(194)
|
|
|
|
(2)
|
|
|
|
(180)
|
|
|
|
(2)
|
|
|
Curtailment gain
|
|
|
—
|
|
|
|
(107)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Amortization of unrecognized actuarial (gain) loss
|
|
|
76
|
|
|
|
(19)
|
|
|
|
85
|
|
|
|
(22)
|
|
|
|
12
|
|
|
|
(47)
|
|
|
Amortization of prior service credits
|
|
|
—
|
|
|
|
(31)
|
|
|
|
—
|
|
|
|
(32)
|
|
|
|
—
|
|
|
|
(31)
|
|
|
Other
|
|
|
5
|
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
177
|
|
|
$
|
(54)
|
|
|
$
|
219
|
|
|
$
|
47
|
|
|
$
|
132
|
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As part of the ratified contract with the Association of Flight Attendants (“AFA”) in 2016, the Company amended
two of its flight attendant postretirement medical plans. The amendments triggered curtailment accounting, resulting in the recognition of a
one-time
$47 million gain for accelerated recognition of a
prior service credit in one of the plans. Also, as part of the ratified contract with the International Brotherhood of Teamsters (the “IBT”) in 2016, the Company amended some of its technicians and related employees’ postretirement
medical plans. The amendments triggered curtailment accounting, resulting in the recognition of a
one-time
$60 million gain for accelerated recognition of a prior service credit in one of the plans.
The estimated amounts that will be amortized in 2017 out of accumulated other comprehensive income (loss) into net periodic benefit cost are
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
|
Other
Postretirement
Benefits
|
|
|
Actuarial (gain) loss
|
|
$
|
127
|
|
|
$
|
(36)
|
|
|
Prior service credit
|
|
|
—
|
|
|
|
(37)
|
|
The assumptions used for the benefit plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Assumptions used to determine benefit
obligations
|
|
|
2016
|
|
|
|
2015
|
|
|
Discount rate
|
|
|
4.18%
|
|
|
|
4.58%
|
|
|
Rate of compensation increase
|
|
|
3.54%
|
|
|
|
3.66%
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used to determine net
expense
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.58%
|
|
|
|
4.20%
|
|
|
Expected return on plan assets
|
|
|
7.04%
|
|
|
|
7.40%
|
|
|
Rate of compensation increase
|
|
|
3.53%
|
|
|
|
3.51%
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits
|
|
|
Assumptions used to determine benefit obligations
|
|
2016
|
|
|
2015
|
|
|
Discount rate
|
|
|
4.07%
|
|
|
|
4.49%
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used to determine net
expense
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.49%
|
|
|
|
4.07%
|
|
|
Expected return on plan assets
|
|
|
3.00%
|
|
|
|
3.00%
|
|
|
Health care cost trend rate assumed for next year
|
|
|
6.50%
|
|
|
|
6.75%
|
|
|
Rate to which the cost trend rate is assumed to decline (ultimate trend rate in 2023)
|
|
|
5.00%
|
|
|
|
5.00%
|
|
The Company used the Society of Actuaries’ 2014 mortality tables, modified to reflect the Social Security
Administration Trustee’s Report on current projections regarding expected longevity improvements.
The Company selected the 2016 discount
rate for substantially all of its plans by using a hypothetical portfolio of high quality bonds at December 31, 2016, that would provide the necessary cash flows to match projected benefit payments.
We develop our expected long-term rate of return assumption for our defined benefit plans based on historical experience and by evaluating input from the
trustee managing the plans’ assets.
Our expected long-term rate of return on plan assets for these plans is based on a target allocation of assets, which is based on our goal of earning the highest rate of return while maintaining
risk at acceptable levels. The plans strive to have assets sufficiently diversified so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio. Plan fiduciaries
regularly review our actual asset allocation and the pension plans’ investments are periodically rebalanced to our targeted allocation when considered appropriate. United’s plan assets are allocated within the following guidelines:
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Total
|
|
|
Expected Long-Term
Rate of Return
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
30-40 %
|
|
|
|
9.5 %
|
|
|
Fixed-income securities
|
|
|
34-44
|
|
|
|
5.0
|
|
|
Alternatives
|
|
|
14-27
|
|
|
|
7.3
|
|
|
Other
|
|
|
0-10
|
|
|
|
7.0
|
|
One-hundred
percent of other postretirement plan assets are invested in a deposit
administration fund.
Assumed health care cost trend rates have a significant effect on the amounts reported for the other postretirement
plans. A 1% change in the assumed health care trend rate for the Company would have the following additional effects (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
1% Increase
|
|
|
1% Decrease
|
|
|
Effect on total service and interest cost for the year ended December 31, 2016
|
|
$
|
13
|
|
|
$
|
(11)
|
|
|
Effect on postretirement benefit obligation at December 31, 2016
|
|
|
169
|
|
|
|
(149)
|
|
A one percentage point decrease in the weighted average discount rate would increase the postretirement benefit liability
by approximately $181 million and increase the estimated 2016 benefits expense by approximately $11 million.
81
Fair Value Information.
Accounting standards require us to use valuation techniques to measure
fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:
|
|
|
|
|
Level 1
|
|
Unadjusted quoted prices in active markets for assets or liabilities identical to those to be reported at fair value
|
|
Level 2
|
|
Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborated inputs
|
|
Level 3
|
|
Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or
liabilities
|
Assets and liabilities measured at fair value are based on the valuation techniques identified in the tables below. The
valuation techniques are as follows:
(a)
Market approach.
Prices and other relevant information generated by market transactions
involving identical or comparable assets and liabilities; and
(b)
Income approach.
Techniques to convert future amounts to a single
current value based on market expectations (including present value techniques, option-pricing and excess earnings models).
The following
tables present information about United’s pension and other postretirement plan assets at December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
2015
|
|
|
Pension Plan Assets:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets
Measured
at NAV(a)
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets
Measured
at NAV(a)
|
|
|
Equity securities funds
|
|
$
|
1,173
|
|
|
$
|
230
|
|
|
$
|
111
|
|
|
$
|
—
|
|
|
$
|
832
|
|
|
|
|
|
|
$
|
1,135
|
|
|
$
|
254
|
|
|
$
|
135
|
|
|
$
|
—
|
|
|
$
|
746
|
|
|
Fixed-income securities
|
|
|
1,298
|
|
|
|
—
|
|
|
|
824
|
|
|
|
11
|
|
|
|
463
|
|
|
|
|
|
|
|
1,109
|
|
|
|
—
|
|
|
|
877
|
|
|
|
9
|
|
|
|
223
|
|
|
Alternatives
|
|
|
586
|
|
|
|
—
|
|
|
|
—
|
|
|
|
134
|
|
|
|
452
|
|
|
|
|
|
|
|
527
|
|
|
|
—
|
|
|
|
1
|
|
|
|
125
|
|
|
|
401
|
|
|
Other investments
|
|
|
298
|
|
|
|
47
|
|
|
|
68
|
|
|
|
87
|
|
|
|
96
|
|
|
|
|
|
|
|
204
|
|
|
|
37
|
|
|
|
56
|
|
|
|
18
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,355
|
|
|
$
|
277
|
|
|
$
|
1,003
|
|
|
$
|
232
|
|
|
$
|
1,843
|
|
|
|
|
|
|
$
|
2,975
|
|
|
$
|
291
|
|
|
$
|
1,069
|
|
|
$
|
152
|
|
|
$
|
1,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement
Benefit
Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit administration fund
|
|
$
|
55
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
55
|
|
|
$
|
—
|
|
|
|
|
|
|
$
|
56
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
56
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) In
accordance with the relevant accounting standards, certain investments that are measured at fair value using the NAV per share (or its equivalent) have not been classified in the fair value hierarchy. These investments are commingled funds that
invest in fixed-income instruments including bonds, debt securities, and other similar instruments issued by various U.S. and
non-U.S.
public- or private-sector entities. Redemption periods for these
investments range from daily to annually.
Equity and Fixed-Income.
Equities include investments in both developed market and emerging
market equity securities. Fixed-income includes primarily U.S. and
non-U.S.
government fixed-income securities and U.S. and
non-U.S
corporate fixed-income securities.
Deposit Administration Fund.
This investment is a stable value investment product structured to provide investment income.
Alternatives.
Alternative investments consist primarily of investments in hedge funds, real estate and private equity interests.
Other investments.
Other investments consist of cash, insurance contracts and other funds.
82
The reconciliation of United’s defined benefit plan assets measured at fair value using unobservable
inputs (Level 3) for the years ended December 31, 2016 and 2015 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Balance at beginning of year
|
|
$
|
208
|
|
|
$
|
188
|
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
|
|
|
Sold during the year
|
|
|
4
|
|
|
|
8
|
|
|
Held at year end
|
|
|
3
|
|
|
|
(1)
|
|
|
Purchases, sales, issuances and settlements (net)
|
|
|
72
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
287
|
|
|
$
|
208
|
|
|
|
|
|
|
|
|
|
|
|
Funding requirements for
tax-qualified
defined benefit pension plans are
determined by government regulations. United’s contributions reflected above have satisfied its required contributions through the 2016 calendar year. In 2017, employer anticipated contributions to all of United’s pension and
postretirement plans are at least $400 million and approximately $108 million, respectively.
The estimated future benefit payments,
net of expected participant contributions, in United’s pension plans and other postretirement benefit plans as of December 31, 2016 are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Other
Postretirement
|
|
|
Other Postretirement—
subsidy receipts
|
|
|
2017
|
|
$
|
303
|
|
|
$
|
112
|
|
|
$
|
6
|
|
|
2018
|
|
|
300
|
|
|
|
117
|
|
|
|
6
|
|
|
2019
|
|
|
310
|
|
|
|
122
|
|
|
|
7
|
|
|
2020
|
|
|
319
|
|
|
|
126
|
|
|
|
7
|
|
|
2021
|
|
|
337
|
|
|
|
130
|
|
|
|
8
|
|
|
Years 2022 – 2026
|
|
|
1,782
|
|
|
|
682
|
|
|
|
44
|
|
Defined Contribution Plans
Depending upon the employee group, employer contributions consist of matching contributions and/or
non-elective
employer contributions. United’s employer
contribution percentages vary from 1% to 16% of eligible earnings depending on the terms of each plan. United recorded contributions to its defined contribution plans of $592 million, $522 million and $503 million in the years ended
December 31, 2016, 2015 and 2014, respectively.
83
Multi-Employer Plans
United’s participation in the IAM National Pension Plan (“IAM Plan”) for the annual period ended December 31, 2016 is outlined in the table below. There have been no significant
changes that affect the comparability 2016 and 2015 contributions. The risks of participating in these multi-employer plans are different from single-employer plans, as United may be subject to additional risks that others do not meet their
obligations, which in certain circumstances could revert to United. The IAM Plan reported $395 million in employers’ contributions for the year ended December 31, 2015. For 2015, the Company’s contributions to the IAM Plan
represented more than 5% of total contributions to the IAM Plan.
|
|
|
|
|
Pension Fund
|
|
IAM National Pension Fund
|
|
EIN/ Pension Plan Number
|
|
51-6031295
- 002
|
|
Pension Protection Act Zone Status (2016 and 2015)
|
|
Green Zone. Plans in the green zone are at least 80 percent funded.
|
|
FIP/RP Status Pending/Implemented
|
|
No
|
|
United’s Contributions
|
|
$41 million, $40 million and $39 million in the years ended December 31, 2016, 2015 and 2014, respectively
|
|
Surcharge Imposed
|
|
No
|
|
Expiration Date of Collective Bargaining Agreement
|
|
N/A
|
At the date the financial statements were issued, Forms 5500 were not available for the plan year ending in 2016.
Profit Sharing
Substantially
all employees participate in profit sharing based on a percentage of
pre-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 certain
pre-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 qualified
co-worker’s
annual eligible earnings to the eligible earnings of all qualified
co-workers
in all domestic work groups. Eligible
non-U.S.
co-workers
receive profit sharing based on the calculation under the U.S.
profit sharing plan for management and administrative employees. The Company recorded profit sharing and related payroll tax expense of $628 million, $698 million and $235 million in 2016, 2015 and 2014, respectively. Profit sharing
expense is recorded as a component of Salaries and related costs in the Company’s statements of consolidated operations.
84
NOTE 9 - FAIR VALUE MEASUREMENTS
Fair Value Information.
Accounting standards require us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable
inputs. These inputs are described in Note 8 of this report. The table below presents disclosures about the fair value of financial assets and liabilities measured at fair value on a recurring basis in the Company’s financial statements as
of December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
UAL
|
|
|
Cash and cash equivalents
|
|
$
|
2,179
|
|
|
$
|
2,179
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,006
|
|
|
$
|
3,006
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
|
835
|
|
|
|
—
|
|
|
|
835
|
|
|
|
—
|
|
|
|
891
|
|
|
|
—
|
|
|
|
891
|
|
|
|
—
|
|
|
Asset-backed securities
|
|
|
792
|
|
|
|
—
|
|
|
|
792
|
|
|
|
—
|
|
|
|
710
|
|
|
|
—
|
|
|
|
710
|
|
|
|
—
|
|
|
Certificates of deposit placed through an account registry service (“CDARS”)
|
|
|
246
|
|
|
|
—
|
|
|
|
246
|
|
|
|
—
|
|
|
|
281
|
|
|
|
—
|
|
|
|
281
|
|
|
|
—
|
|
|
U.S. government and agency notes
|
|
|
140
|
|
|
|
—
|
|
|
|
140
|
|
|
|
—
|
|
|
|
72
|
|
|
|
—
|
|
|
|
72
|
|
|
|
—
|
|
|
Auction rate securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9
|
|
|
Other fixed-income securities
|
|
|
54
|
|
|
|
—
|
|
|
|
54
|
|
|
|
—
|
|
|
|
26
|
|
|
|
—
|
|
|
|
26
|
|
|
|
—
|
|
|
Other investments measured at NAV (a)
|
|
|
182
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
201
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Restricted cash
|
|
|
124
|
|
|
|
124
|
|
|
|
—
|
|
|
|
—
|
|
|
|
206
|
|
|
|
206
|
|
|
|
—
|
|
|
|
—
|
|
|
Enhanced equipment trust certificates (“EETC”)
|
|
|
23
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23
|
|
|
|
26
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26
|
|
|
Fuel derivatives liability, net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
124
|
|
|
|
—
|
|
|
|
124
|
|
|
|
—
|
|
(a) 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 this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. The investments measured using NAV are shares of mutual funds that invest in fixed-income
instruments including bonds, debt securities, and other similar instruments issued by various U.S. and
non-U.S.
public- or private-sector entities. The Company can redeem its shares at any time at NAV subject
to a
three-day
settlement period.
Available-for-sale
investment maturities
—The short-term
investments shown in the table above are classified as
available-for-sale.
As of December 31, 2016, asset-backed securities have remaining maturities of less than
one year to approximately 30 years, corporate debt securities have remaining maturities of less than one year to approximately five 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.
Derivative instruments and 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 as of December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Debt by Fair Value Hierarchy Level
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
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
|
|
$
|
10,767
|
|
|
$
|
11,055
|
|
|
$
|
—
|
|
|
$
|
8,184
|
|
|
$
|
2,871
|
|
|
$
|
10,897
|
|
|
$
|
11,371
|
|
|
$
|
—
|
|
|
$
|
8,646
|
|
|
$
|
2,725
|
|
85
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
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, (c) internally-developed models of the expected future cash flows related to the securities, or
(d) broker quotes obtained by third-party valuation services.
|
|
|
|
|
Fuel derivatives
|
|
Derivative contracts are privately negotiated contracts and are not exchange traded. Fair value measurements are estimated with option pricing models that employ observable inputs.
Inputs to the valuation models include contractual terms, market prices, yield curves, fuel price curves and measures of volatility, among others.
|
|
|
|
|
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 10—HEDGING ACTIVITIES
Fuel Derivatives
As of December 31, 2016, 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 Company records each derivative instrument as a derivative asset or liability (on a gross basis) in its consolidated balance sheets
,
and,
accordingly, records any related collateral on a gross basis. The table below presents the fair value amounts of fuel derivative assets and liabilities and the location of amounts recognized in the Company’s financial statements.
At December 31, the Company’s derivatives were reported in its consolidated balance sheets as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
Balance Sheet Location
|
|
2016
|
|
|
2015
|
|
|
Derivatives designated as cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Fuel contracts due within one year
|
|
Fuel derivative instruments
|
|
$
|
—
|
|
|
$
|
119
|
|
|
Derivatives not designated for hedge accounting
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Fuel contracts due within one year
|
|
Fuel derivative instruments
|
|
$
|
—
|
|
|
$
|
5
|
|
|
Total derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
$
|
—
|
|
|
$
|
124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
The following tables present the fuel hedge gains (losses) recognized during the periods presented and their
classification in the financial statements (in millions):
Derivatives designated as cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
Loss
Recognized
in AOCI on Derivatives
(Effective Portion)
|
|
|
Loss Reclassified from
AOCI into Income
(Fuel Expense)
(Effective Portion)
|
|
|
Amount of Loss
Recognized in
Nonoperating income
(expense):
Miscellaneous,
net (Ineffective Portion)
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Fuel contracts
|
|
$
|
(4)
|
|
|
$
|
(320)
|
|
|
$
|
(217)
|
|
|
$
|
(604)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivatives not designated for hedge accounting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Loss Recognized
in Nonoperating income (expense):
Miscellaneous,
net
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
Fuel contracts
|
|
$
|
—
|
|
|
$
|
(80
|
)
|
|
$
|
(462)
|
|
|
|
Foreign Currency Derivatives
As of December 31, 2016, the Company did not have any foreign currency contracts outstanding to hedge its foreign currency sales. The last of the Company’s foreign currency 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 foreign currency sales, although the Company regularly reviews its strategy based on market
conditions and other factors.
NOTE 11 - DEBT
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
At December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Secured
|
|
|
|
|
|
|
|
|
|
Notes payable, fixed interest rates of 1.42% to 9.75% (weighted average rate of 4.85% as of December 31, 2016), payable through 2028
|
|
$
|
7,586
|
|
|
$
|
7,971
|
|
|
Notes payable, floating interest rates of the London Interbank Offered Rate (“LIBOR”) plus 0.20% to 2.85%, payable through 2028
|
|
|
1,546
|
|
|
|
1,302
|
|
|
Term loan, LIBOR subject to a 0.75% floor, plus 2.50%, or alternative rate based on certain market rates plus 1.50%, due 2019
|
|
|
866
|
|
|
|
875
|
|
|
Term loan, LIBOR subject to a 0.75% floor, plus 2.75%, or alternative rate based on certain market rates plus 1.75%, due 2021
|
|
|
192
|
|
|
|
194
|
|
|
Unsecured
|
|
|
|
|
|
|
|
|
|
6% Senior Notes due 2020 (a)
|
|
|
300
|
|
|
|
300
|
|
|
6.375% Senior Notes due 2018 (a)
|
|
|
300
|
|
|
|
300
|
|
|
Other
|
|
|
101
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,891
|
|
|
|
11,042
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: unamortized debt discount, premiums and debt issuance costs
|
|
|
(124)
|
|
|
|
(145)
|
|
|
Less: current portion of long-term debt
|
|
|
(849)
|
|
|
|
(1,224)
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net
|
|
$
|
9,918
|
|
|
$
|
9,673
|
|
|
|
|
|
|
|
|
|
|
|
(a) UAL
is the issuer of this debt. United is a guarantor.
87
The table below presents the Company’s contractual principal payments at December 31, 2016 under
then-outstanding long-term debt agreements in each of the next five calendar years (in millions):
|
|
|
|
|
|
|
2017
|
|
$
|
849
|
|
|
2018
|
|
|
1,427
|
|
|
2019
|
|
|
1,852
|
|
|
2020
|
|
|
1,007
|
|
|
2021
|
|
|
1,174
|
|
|
After 2021
|
|
|
4,582
|
|
|
|
|
|
|
|
|
|
|
$
|
10,891
|
|
|
|
|
|
|
|
As of December 31, 2016, 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 December 31, 2016, UAL and United were in compliance with their respective debt covenants. Continued compliance depends on many
factors, some of which are beyond the Company’s control, including the overall industry revenue environment and the level of fuel costs.
Secured debt
2013 Credit
and Guaranty Agreement.
United and UAL are parties to a Credit and Guaranty Agreement (the “Credit Agreement”) as the borrower and guarantor, respectively. The Credit Agreement consists of a $900 million term loan due April
2019 (of which $866 million was outstanding as of December 31, 2016) (the “Term Loan due 2019”), a $500 million term loan due September 2021 (of which $192 million was outstanding as of December 31, 2016) (the
“Term Loan due 2021”) and a $1.35 billion revolving credit facility, with $1.35 billion being available for drawing until April 2018 and $1.315 billion being available for drawing until January 2019.
Borrowings under the revolving credit facility of the Credit Agreement bear interest at a variable rate equal to LIBOR plus a margin of 3.0% per annum, or
another rate based on certain market interest rates, plus a margin of 2.0% per annum. The principal amount of the term loans must be repaid in consecutive quarterly installments of 0.25% of the original principal amount thereof, with any unpaid
balance due, in the case of the Term Loan due 2019, on April 1, 2019 and, in the case of the Term Loan due 2021, on September 15, 2021. United may prepay all or a portion of the term loans 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 Term Loan due 2021 ranks pari passu with the Term Loan due 2019 that United originally borrowed under the Credit Agreement. The Credit Agreement requires United to repay the term loans and any other
outstanding borrowings under the Credit Agreement at par plus accrued and unpaid interest if certain changes of control of UAL occur.
As of
December 31, 2016, United had its entire capacity of $1.35 billion available under the revolving credit facility of the Company’s Credit Agreement.
As of December 31, 2016, United had cash collateralized $72 million of letters of credit. United also had $383 million of surety bonds securing various obligations at December 31,
2016. Most of the letters of credit have evergreen clauses and are expected to be renewed on an annual basis and the surety bonds have expiration dates through 2021.
EETCs.
United has $7.5 billion principal amount of equipment notes outstanding issued under EETC financings included in notes payable in the table of outstanding debt above. Generally,
the structure of these EETC financings consists of pass-through trusts created by United to issue pass-through certificates, which represent fractional undivided interests in the respective pass-through trusts and are not obligations of United. The
proceeds of the issuance of the pass-through certificates are used to purchase equipment notes which are issued
88
by United and secured by its aircraft. 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 United’s consolidated balance sheet because the proceeds held by the depositary are not United’s assets.
In September
2016 and June 2016, United created separate 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. United expects to receive all proceeds from the September 2016 and June 2016
pass-through trusts by the end of the second quarter of 2017. Certain details of the pass-through trusts with proceeds received from issuance of debt in 2016 are as follows (in millions, except stated interest rate):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EETC Date
|
|
Class
|
|
Principal
|
|
|
Final expected
distribution
date
|
|
Stated
interest
rate
|
|
|
Total
debt
recorded
as of December 31,
2016
|
|
|
Proceeds
received from
issuance of
debt during
2016
|
|
|
Remaining
proceeds from
issuance of debt
to be received
in
future
periods
|
|
|
September 2016
|
|
AA
|
|
$
|
637
|
|
|
October 2028
|
|
|
2.875%
|
|
|
$
|
80
|
|
|
$
|
80
|
|
|
$
|
557
|
|
|
September 2016
|
|
A
|
|
|
283
|
|
|
October 2028
|
|
|
3.10%
|
|
|
|
36
|
|
|
|
36
|
|
|
|
247
|
|
|
June 2016
|
|
AA
|
|
|
729
|
|
|
July 2028
|
|
|
3.10%
|
|
|
|
410
|
|
|
|
410
|
|
|
|
319
|
|
|
June 2016
|
|
A
|
|
|
324
|
|
|
July 2028
|
|
|
3.45%
|
|
|
|
182
|
|
|
|
182
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,973
|
|
|
|
|
|
|
|
|
$
|
708
|
|
|
$
|
708
|
|
|
$
|
1,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2016, United borrowed approximately $369 million aggregate principal amount from various financial institutions to
finance the purchase of several aircraft delivered in 2016. The notes evidencing these borrowings, which are secured by the related aircraft, have maturity dates ranging from 2026 to 2028 and have interest rates comprised of the LIBOR plus a
specified margin.
Unsecured debt
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 if certain changes of control of UAL
occur at a purchase price equal to 101% of the principal amount of notes repurchased plus accrued and unpaid interest.
89
The collateral, covenants and cross default provisions of the Company’s principal debt instruments that
contain such provisions are summarized in the table below:
|
|
|
|
|
Debt Instrument
|
|
Collateral, Covenants and Cross
Default Provisions
|
|
Various equipment notes and other notes
payable
|
|
Secured by certain aircraft. The indentures contain events of default that are
customary for aircraft financing, including in certain cases cross default to other related aircraft.
|
|
Credit Agreement
|
|
Secured by certain of United’s
international route authorities, specified
take-off
and landing slots at certain airports and certain other assets.
The Credit Agreement requires the Company to maintain at least $3.0 billion of unrestricted liquidity at all times, which includes unrestricted cash,
short-term investments and any undrawn amounts under any revolving credit facility, and to maintain a minimum ratio of appraised value of collateral to the outstanding obligations under the Credit Agreement of 1.67 to 1.0 at all times. The Credit
Agreement contains covenants that, among other things, restrict the ability of UAL and its restricted subsidiaries (as defined in the Credit Agreement) to incur additional indebtedness and to pay dividends on or repurchase stock, although the
Company currently has ample ability under these restrictions to repurchase stock under the Company’s share repurchase program.
The 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.
|
|
6.375%
Senior Notes due 2018
6% Senior
Notes due 2020
5% Senior Notes due 2024
|
|
The indentures for these notes contain covenants that, among other things, restrict the
ability of the Company and its restricted subsidiaries (as defined in the indenture) to incur additional indebtedness and pay dividends on or repurchase stock, although the Company currently has ample ability under these restrictions to repurchase
stock under the Company’s share repurchase program.
|
NOTE 12 - ADVANCED PURCHASE OF MILES
United previously sold MileagePlus miles to Chase which United recorded as Advanced purchase of miles. The remaining balance of
pre-purchased
miles is eligible to
be allocated by Chase to MileagePlus members’ accounts in 2017. The Company has recorded these amounts as Advanced purchase of miles in the liabilities section of the Company’s consolidated balance sheets. The
Co-Brand
Agreement contains termination penalties that may require United to make certain payments and repurchase outstanding
pre-purchased
miles in cases such as
United’s insolvency, bankruptcy or other material breaches.
90
NOTE 13 - LEASES AND CAPACITY PURCHASE AGREEMENTS
United leases aircraft, airport passenger terminal space, aircraft hangars and related maintenance facilities, cargo terminals, other airport facilities,
other commercial real estate, office and computer equipment and vehicles.
At December 31, 2016, United’s scheduled future minimum
lease payments under operating leases having initial or remaining noncancelable lease terms of more than one year, aircraft leases, including aircraft rent under CPAs and capital leases (substantially all of which are for aircraft) were as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Leases
|
|
|
Facility and Other
Operating Leases
|
|
|
Aircraft Operating
Leases
|
|
|
2017
|
|
$
|
183
|
|
|
$
|
1,256
|
|
|
$
|
1,271
|
|
|
2018
|
|
|
170
|
|
|
|
1,106
|
|
|
|
1,074
|
|
|
2019
|
|
|
105
|
|
|
|
991
|
|
|
|
894
|
|
|
2020
|
|
|
85
|
|
|
|
1,104
|
|
|
|
669
|
|
|
2021
|
|
|
84
|
|
|
|
888
|
|
|
|
551
|
|
|
After 2021
|
|
|
915
|
|
|
|
6,702
|
|
|
|
2,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum lease payments
|
|
$
|
1,542
|
|
|
$
|
12,047
|
|
|
$
|
6,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest
|
|
|
(604)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
938
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
(116)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations under capital leases
|
|
$
|
822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016, United’s aircraft capital lease minimum payments relate to leases of 38 mainline and 29
regional aircraft as well as to leases of nonaircraft assets. Imputed interest rate ranges are 3.5% to 20.8%.
Aircraft operating leases have
initial terms of five to 26 years, with expiration dates ranging from 2017 through 2028. Under the terms of most leases, United has the right to purchase the aircraft at the end of the lease term, in some cases at fair market value, and in others,
at fair market value or a percentage of cost. United has facility operating leases that extend to 2041.
During 2015, the Company reached an
agreement with AerCap Holdings N.V., a major aircraft leasing company, to lease used Airbus S.A.S (“Airbus”) A319s. Five such aircraft are expected to be delivered in 2017. In addition, up to 14 more aircraft may be delivered over the next
four years subject to certain conditions.
United is the lessee of real property under long-term operating leases at a number of airports where
we are also the guarantor of approximately $1.4 billion of underlying debt and interest thereon as of December 31, 2016. These leases are typically with municipalities or other governmental entities, which are excluded from the
consolidation requirements concerning a variable interest entity (“VIE”). To the extent United’s leases and related guarantees are with a separate legal entity other than a governmental entity, United is not the primary
beneficiary because the lease terms are consistent with market terms at the inception of the lease and the lease does not include a residual value guarantee, fixed-price purchase option, or similar feature.
In 2016, United signed a seven year lease extension through 2024 with the Metropolitan Washington Airports Authority to continue its use of terminals at
Washington Dulles International Airport.
United’s nonaircraft rent expense was approximately $1.2 billion, $1.3 billion and
$1.4 billion for the years ended December 31, 2016, 2015 and 2014, respectively.
In addition to nonaircraft rent and aircraft rent,
which is separately presented in the consolidated statements of operations, United had aircraft rent related to regional aircraft operating leases, which is included as part of Regional capacity purchase expense in United’s consolidated
statement of operations, of $439 million, $461 million and $442 million for the years ended December 31, 2016, 2015 and 2014, respectively.
91
In connection with UAL Corporation’s and United Air Lines, Inc.’s fresh-start reporting
requirements upon their exit from Chapter 11 bankruptcy protection in 2006 and the Company’s acquisition accounting adjustments related to the Company’s merger transaction in 2010, lease valuation adjustments for operating leases were
initially recorded in the consolidated balance sheet, representing the net present value of the differences between contractual lease rates and the fair market lease rates for similar leased assets at the time. An asset (liability) results when the
contractual lease rates are more (less) favorable than market lease terms at the valuation date. The lease valuation adjustment is amortized on a straight-line basis as an increase (decrease) to rent expense over the individual applicable remaining
lease terms, resulting in recognition of rent expense as if United had entered into the leases at market rates. The related remaining lease terms, primarily related to aircraft which make up the majority of the fair value lease adjustment balance,
are one to eight years for United. The lease valuation adjustments are classified within other noncurrent liabilities and the net accretion amounts are $82 million, $107 million and $160 million for the years ended
December 31, 2016, 2015 and 2014, respectively.
Regional CPAs
United has CPAs with certain regional carriers. We purchase all of the capacity from the flights covered by the CPA at a negotiated price. We pay the regional carrier a predetermined rate, subject to
annual inflation adjustments, primarily for block hours flown (the hours from gate departure to gate arrival) and other operating factors and reimburse the regional carrier for various pass-through expenses related to the flights. Under the CPAs, we
are responsible for the cost of providing fuel for all flights and for paying aircraft rent for all of the aircraft covered by the CPAs. Generally, the CPAs contain incentive bonus and rebate provisions based upon each regional carrier’s
operational performance. United’s CPAs are for 494 regional aircraft, and the CPAs have terms expiring through 2029. Aircraft operated under CPAs include aircraft leased directly from the regional carriers and those owned by United or leased
from third-party lessors and operated by the regional carriers. See Part I, Item 2, “Properties” of this report for additional information.
In 2016 and 2015, Republic Airline Inc. (“Republic”), a wholly-owned subsidiary of Republic Airways Holdings (“Republic Airways”), purchased and took delivery of 16 new
76-seat
Embraer S.A. (“Embraer”) E175 aircraft, and placed these aircraft into service under the United Express brand. Subsequent to the Chapter 11 bankruptcy filing by Republic Airways and certain of its
subsidiaries in the first quarter of 2016, United entered into amendments to its CPA with Republic in 2016 for Republic to operate a total of 28 Embraer E175 aircraft, 16 of which were delivered as previously described and 12 of which remain to be
delivered in 2017. In connection with the amended CPA, United will own the 12 remaining Embraer E175 aircraft.
In 2016, United agreed to
purchase 12 new Embraer E175 aircraft that were previously expected to be purchased by one of its United Express operators, and in the first quarter of 2017, United entered into a CPA amendment with Mesa Air Group, Inc. (“Mesa Air Group”)
and Mesa Airlines, Inc. (“Mesa”), a wholly-owned subsidiary of Mesa Air Group, for Mesa to operate these 12 additional Embraer E175 aircraft under the United Express brand. As of December 31, 2016, all 12 of these aircraft are
expected to be delivered in 2017.
In 2015, United entered into amendments to the CPA with SkyWest Airlines, Inc. (“SkyWest”), a
wholly-owned subsidiary of SkyWest, Inc., to operate an additional 25 new
76-seat
Embraer E175 aircraft under the United Express brand. SkyWest purchased all of these
76-seat
aircraft directly from the manufacturer with seven deliveries remaining in 2017.
In 2015,
United entered into a new CPA with Champlain Enterprises, LLC d/b/a CommutAir (“CommutAir”), pursuant to which CommutAir will operate 40 used Embraer ERJ145 aircraft under the United Express brand that are currently being operated by a
different United Express regional carrier, with transfers that are continuing through 2018. As of December 31, 2016, 28 aircraft are still pending transfer.
Our future commitments under our CPAs are dependent on numerous variables, and are therefore difficult to predict. The most important of these variables is the number of scheduled block
hours. Although we are not required to purchase a minimum number of block hours under certain of our CPAs, we have set forth below estimates of our future payments under the CPAs based on our assumptions. United’s estimates of its
future
92
payments under all of the CPAs do not include the portion of the underlying obligation for any aircraft leased to a regional carrier or deemed to be leased from other regional carriers and
facility rent that are disclosed as part of aircraft and nonaircraft operating leases. For purposes of calculating these estimates, we have assumed (1) the number of block hours flown is based on our anticipated level of flight activity or
at any contractual minimum utilization levels if applicable, whichever is higher, (2) that we will reduce the fleet as rapidly as contractually allowed under each CPA, (3) that aircraft utilization, stage length and load factors will
remain constant, (4) that each carrier’s operational performance will remain at historic levels and (5) an annual projected inflation rate. These amounts exclude variable pass-through costs such as fuel and landing fees, among others.
Based on these assumptions as of December 31, 2016, our future payments through the end of the terms of our CPAs are presented in the table below (in billions):
|
|
|
|
|
|
|
2017
|
|
$
|
1.9
|
|
|
2018
|
|
|
1.9
|
|
|
2019
|
|
|
1.3
|
|
|
2020
|
|
|
1.0
|
|
|
2021
|
|
|
1.0
|
|
|
After 2021
|
|
|
4.3
|
|
|
|
|
|
|
|
|
|
|
$
|
11.4
|
|
|
|
|
|
|
|
The actual amounts we pay to our regional operators under CPAs could differ materially from these estimates. For
example, a 10% increase or decrease in scheduled block hours for all of United’s regional operators (whether as a result of changes in average daily utilization or otherwise) in 2017 would result in a corresponding change in annual cash
obligations under the CPAs of approximately $147 million.
NOTE 14 - VARIABLE INTEREST ENTITIES
Variable interests are contractual, ownership or other monetary interests in an entity that change with fluctuations in the fair value of the
entity’s net assets exclusive of variable interests. A VIE can arise from items such as lease agreements, loan arrangements, guarantees or service contracts. An entity is a VIE if (a) the entity lacks sufficient equity or (b) the
entity’s equity holders lack power or the obligation and right as equity holders to absorb the entity’s expected losses or to receive its expected residual returns. Therefore, if the equity owners as a group do not have the power to direct
the entity’s activities that most significantly impact its economic performance, the entity is a VIE.
If an entity is determined to be a
VIE, the entity must be consolidated by the primary beneficiary. The primary beneficiary is the holder of the variable interests that has the power to direct the activities of a VIE that (i) most significantly impact the VIE’s economic
performance and (ii) has the obligation to absorb losses of or the right to receive benefits from the VIE that could potentially be significant to the VIE. Therefore, the Company must identify which activities most significantly impact the
VIE’s economic performance and determine whether it, or another party, has the power to direct those activities.
The Company’s
evaluation of its association with VIEs is described below:
Aircraft Leases
. We are the lessee in a number of operating
leases covering the majority of our leased aircraft. The lessors are trusts established specifically to purchase, finance and lease aircraft to us. These leasing entities meet the criteria for VIEs. We are generally not the primary
beneficiary of the leasing entities if the lease terms are consistent with market terms at the inception of the lease and do not include a residual value guarantee, fixed-price purchase option or similar feature that obligates us to absorb decreases
in value or entitles us to participate in increases in the value of the aircraft. This is the case for many of our operating leases; however, leases of 37 mainline jet aircraft contain a fixed-price purchase option that allow United to purchase
the aircraft at predetermined prices on specified dates during the lease term. Additionally, leases covering 192 leased
93
regional jet aircraft contain an option to purchase the aircraft at the end of the lease term at prices that, depending on market conditions, could be below fair value. United has not
consolidated the related trusts because, even taking into consideration these purchase options, United is still not the primary beneficiary. United’s maximum exposure under these leases is the remaining lease payments, which are reflected
in future lease commitments in Note 13 of this report.
EETCs.
United evaluated whether the pass-through trusts formed for its
EETC financings, treated as either debt or aircraft operating leases, are VIEs required to be consolidated by United under applicable accounting guidance, and determined that the pass-through trusts are VIEs. Based on United’s analysis as
described below, United determined that it does not have a variable interest in the pass-through trusts.
The primary risk of the pass-through
trusts is credit risk (i.e. the risk that United, the issuer of the equipment notes, may be unable to make its principal and interest payments). The primary purpose of the pass-through trust structure is to enhance the credit worthiness of
United’s debt obligation through certain bankruptcy protection provisions, a liquidity facility (in certain of the EETC structures) and improved
loan-to-value
ratios for more senior debt classes. These credit enhancements lower United’s total borrowing cost. Pass-through trusts are established to receive principal and interest payments on the equipment notes purchased by the pass-through trusts from
United and remit these proceeds to the pass-through trusts’ certificate holders.
United does not invest in or obtain a financial interest
in the pass-through trusts. Rather, United has an obligation to make interest and principal payments on its equipment notes held by the pass-through trusts. United did not intend to have any voting or
non-voting
equity interest in the pass-through trusts or to absorb variability from the pass-through trusts. Based on this analysis, the Company determined that it is not required to consolidate the
pass-through trusts.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
Commitments.
As of December 31, 2016, United had firm commitments and options to purchase aircraft from The Boeing Company (“Boeing”), Embraer and Airbus presented in the
table below:
|
|
|
|
|
|
|
Aircraft Type
|
|
Number of Firm
Commitments (a)
|
|
|
Airbus A350-1000
|
|
|
35
|
|
|
Boeing 737NG/737MAX
|
|
|
165
|
|
|
Boeing
777-300ER
|
|
|
12
|
|
|
Boeing
787-8/-9/-10
|
|
|
21
|
|
|
Embraer E175
|
|
|
24
|
|
|
(a) United also has options and purchase rights for additional aircraft.
|
|
The aircraft listed in the table above are scheduled for delivery from 2017 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.
94
The table below summarizes United’s commitments as of December 31, 2016, which primarily relate to
the acquisition of aircraft and related spare engines, aircraft improvements and include other capital purchase commitments for the years ended December 31 (in billions). 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.
|
|
|
|
|
|
|
2017
|
|
$
|
4.5
|
|
|
2018
|
|
|
3.2
|
|
|
2019
|
|
|
3.1
|
|
|
2020
|
|
|
2.5
|
|
|
2021
|
|
|
2.2
|
|
|
After 2021
|
|
|
7.8
|
|
|
|
|
|
|
|
|
|
|
$
|
23.3
|
|
|
|
|
|
|
|
In the first quarter of 2017, the Company announced that it will retire its fleet of Boeing 747 aircraft from scheduled
service by the end of 2017. The Company does not expect there to be a material impact to depreciation and amortization expense.
As of
December 31, 2016, United had $1.3 billion in financing available through EETC transactions for the financing of all of its aircraft deliveries scheduled in the first half of 2017. See Note 11 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.
Legal and
Environmental.
The Company has certain contingencies resulting from litigation and claims incident to the ordinary course of business. As of December 31, 2016, management believes, after considering a number of factors, including (but
not limited to) the information currently available, the views of legal counsel, the nature of contingencies to which the Company is subject and prior experience, that the ultimate disposition of the litigation and claims will not materially affect
the Company’s consolidated financial position or results of operations. The Company records liabilities for legal and environmental claims when a loss is probable and reasonably estimable. These amounts are recorded based on the Company’s
assessments of the likelihood of their eventual disposition.
Guarantees and Indemnifications.
In the normal course of business,
the Company enters into numerous real estate leasing and aircraft financing arrangements that have various guarantees included in the contracts. These guarantees are primarily in the form of indemnities under which the Company typically indemnifies
the lessors and any tax/financing parties against tort liabilities that arise out of the use, occupancy, operation or maintenance of the leased premises or financed aircraft. Currently, the Company believes that any future payments required under
these guarantees or indemnities would be immaterial, as most tort liabilities and related indemnities are covered by insurance (subject to deductibles). Additionally, certain leased premises such as fueling stations or storage facilities include
indemnities of such parties for any environmental liability that may arise out of or relate to the use of the leased premises.
As of
December 31, 2016, United is the guarantor of approximately $1.9 billion in aggregate principal amount of
tax-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 $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. These
tax-exempt
special facilities revenue bonds are
included in our lease commitments disclosed in Note 13 of this report. The leasing arrangements associated with $400 million of these obligations are accounted for as capital leases. All of these bonds are due between 2017 and 2038.
95
In United’s financing transactions that include loans, United 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 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 December 31, 2016, the Company had $2.6 billion of
floating rate debt and $90 million of fixed rate debt, with remaining terms of up to 12 years, that are subject to these increased cost provisions. In several financing transactions involving loans or leases from
non-U.S.
entities, with remaining terms of up to 12 years and an aggregate balance of $2.6
billion, the Company bears the risk of any change in tax laws that would subject loan or lease payments
thereunder to
non-U.S.
entities to withholding taxes, subject to customary exclusions.
As of
December 31, 2016, United is the guarantor of $168 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.
Fuel Consortia.
United participates in numerous fuel consortia with other air carriers at major airports to reduce the costs of fuel distribution and storage. Interline agreements govern the rights and responsibilities of the consortia members and provide
for the allocation of the overall costs to operate the consortia based on usage. The consortia (and in limited cases, the participating carriers) have entered into long-term agreements to lease certain airport fuel storage and distribution
facilities that are typically financed through
tax-exempt
bonds (either special facilities lease revenue bonds or general airport revenue bonds), issued by various local municipalities. In general, each
consortium lease agreement requires the consortium to make lease payments in amounts sufficient to pay the maturing principal and interest payments on the bonds. As of December 31, 2016, approximately $1.5 billion principal amount of such
bonds were secured by significant fuel facility leases in which United participates, as to which United and each of the signatory airlines has provided indirect guarantees of the debt. As of December 31, 2016, the Company’s contingent
exposure was approximately $234 million principal amount of such bonds based on its recent consortia participation. The Company’s contingent exposure could increase if the participation of other air carriers decreases. The guarantees will
expire when the
tax-exempt
bonds are paid in full, which ranges from 2017 to 2049. The Company did not record a liability at the time these indirect guarantees were made.
Regional Capacity Purchase.
As of December 31, 2016, United had 223 call options to purchase regional jet aircraft being operated by
certain regional carriers. At December 31, 2016, none of the call options were exercisable because none of the required conditions to make an option exercisable by United was met.
Credit Card Processing Agreements.
The Company has agreements with financial institutions that process customer credit card transactions for the sale of air travel and other services. Under
certain of the Company’s credit card processing agreements, the financial institutions in certain circumstances have the right to require that the Company maintain a reserve equal to a portion of advance ticket sales that has been processed by
that financial institution, but for which the Company has not yet provided the air transportation. Such financial institutions may require additional cash or other collateral reserves to be established or additional withholding of payments related
to receivables collected if the Company does not maintain certain minimum levels of unrestricted cash, cash equivalents and short-term investments (collectively, “Unrestricted Liquidity”). The Company’s current level of Unrestricted
Liquidity is substantially in excess of these minimum levels.
Labor Negotiations.
As of December 31, 2016, United,
including its subsidiaries, had approximately 88,000 employees. Approximately 80% of United’s employees were represented by various U.S. labor organizations as of December 31, 2016
.
In January 2016, United’s pilots, represented
by the Air Line Pilots Association, International (“ALPA”), agreed to extend their contract through January 31, 2019. In March 2016, the Company’s dispatchers, represented by the Professional Airline Flight Control Association,
agreed to extend their current contract through 2021. In April 2016, the fleet service, passenger service, storekeeper and other employees represented by the International Association of Machinists and Aerospace Workers (“IAM”) ratified
seven new contracts with the Company which extended the contracts through 2021. In August 2016, United’s
96
flight attendants, represented by the AFA, ratified a five-year joint collective bargaining agreement through 2021. In December 2016, the technicians and related employees, represented by the
IBT, ratified a
six-year
joint collective bargaining agreement which extended the contract through 2022. The agreements with ALPA and IBT contain provisions that require the Company to align contract terms
with other airlines’ workgroups under certain conditions.
NOTE 16 - SPECIAL ITEMS
Special items classified as special charges in the statements of consolidated operations consisted of the following for the years ended December 31
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Impairment of assets
|
|
$
|
412
|
|
|
$
|
79
|
|
|
$
|
49
|
|
|
Cleveland airport lease restructuring
|
|
|
74
|
|
|
|
—
|
|
|
|
—
|
|
|
Labor agreement costs
|
|
|
64
|
|
|
|
18
|
|
|
|
—
|
|
|
Severance and benefit costs
|
|
|
37
|
|
|
|
107
|
|
|
|
199
|
|
|
(Gains) losses on sale of assets and other special charges
|
|
|
51
|
|
|
|
122
|
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special charges
|
|
|
638
|
|
|
|
326
|
|
|
|
443
|
|
|
Nonoperating and income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses (gain) on extinguishment of debt and other
|
|
|
(1)
|
|
|
|
202
|
|
|
|
74
|
|
|
Income tax benefit related to special charges
|
|
|
(229)
|
|
|
|
(11)
|
|
|
|
(10)
|
|
|
Income tax adjustments (Notes 6 and 7)
|
|
|
180
|
|
|
|
(3,130
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating and nonoperating special items, net of income taxes
|
|
$
|
588
|
|
|
$
|
(2,613
|
)
|
|
$
|
507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
In April 2016, the Federal Aviation Administration (“FAA”) announced that it will designate Newark Liberty International Airport (“Newark”) as a Level 2 schedule-facilitated
airport under the International Air Transport Association Worldwide Slot Guidelines effective October 30, 2016. The designation was associated with an updated demand and capacity analysis of Newark by the FAA. In 2016, the Company
determined that the FAA’s action impaired the entire value of its Newark slots because the slots are no longer the mechanism that governs
take-off
and landing rights. Accordingly, the Company recorded a
$412 million special charge ($264 million net of taxes) to write off the intangible asset.
In 2016, 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 (“Cleveland”). 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 million ($47 million net of taxes) related to the amended lease.
The fleet service, passenger service, storekeeper and other employees represented by the IAM ratified seven new contracts with the Company which extended
the contracts through 2021. The technicians and related employees represented by the IBT ratified a
six-year
joint collective bargaining agreement which extended the contract through 2022. During 2016, the
Company recorded $171 million ($110 million net of taxes) of special charges primarily for payments in conjunction with the IAM and IBT agreements described above. As part of the ratified
97
contract with the IBT, the Company amended some of its technicians and related employees’ postretirement medical plans. The amendments triggered curtailment accounting, resulting in the
recognition of a
one-time
$60 million gain ($38 million net of taxes) for accelerated recognition of a prior service credit in one of the plans. Also, as part of the ratified contract with the AFA,
the Company amended two of its flight attendant postretirement medical plans. The amendments triggered curtailment accounting, resulting in the recognition of a
one-time
$47 million gain ($30 million
net of taxes) for accelerated recognition of a prior service credit.
During 2016, the Company recorded $37 million ($24 million net
of taxes) of severance and benefit costs related to a voluntary
early-out
program for the Company’s flight attendants and other severance agreements. In 2014, more than 2,500 flight attendants elected to
voluntarily separate from the Company for a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through the end of 2016.
During 2016, the Company recorded gains and losses on sale of assets and other special charges of $51 million ($33 million net of taxes). In addition, 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 and recorded a $9 million ($6 million net of taxes) gain on the sale of an affiliate.
2015
During its annual
assessment in the fourth quarter, the Company recorded $33 million ($22 million net of related income tax benefit) related to the impairment of its indefinite-lived intangible assets (certain domestic slots and international Pacific
routes), $8 million for the
write-off
of unexercised aircraft purchase options and $7 million for inventory held for sale. For the full-year 2015, the Company also recorded other impairments,
including $10 million for discontinued internal software projects and $10 million for the impairment of several engines held for sale.
The Company recorded $107 million of severance and benefit costs primarily related to a voluntary
early-out
program for its flight attendants. In 2014, more than 2,500 flight attendants elected to voluntarily separate from the Company for a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement
dates through the end of 2016.
During 2015, the Company also recorded $18 million related to collective bargaining agreements,
$60 million of integration-related costs primarily related to systems integration and training for employees, $32 million related to charges for settlements in connection with legal matters, $16 million for the cease use of an
aircraft under lease and $14 million for losses on the sale of aircraft and other miscellaneous gains and losses.
The Company recorded
$202 million of losses as part of Nonoperating income (expense): Miscellaneous, net due primarily to the
write-off
of $134 million related to the unamortized
non-cash
debt discount from the extinguishment of the 6% Notes due 2026 and the 6% Notes due 2028. During 2015, the Company also recorded a $61 million foreign exchange loss related to its cash holdings
in Venezuela. The Venezuelan government has maintained currency controls and fixed official exchange rates (i.e. Sistema Complementario de Administracion de Divisas (“SICAD”), and Sistema Marginal de Divisas (“SIMADI”)) for many
years. Previously, airlines were permitted to use the more favorable SICAD rate (13.5 Venezuelan bolivars to one U.S. dollar) if repatriating profits and for payments of local goods and services in Venezuela. During 2015, many of the payments
for local goods and services transitioned to utilizing the SIMADI rate (200 Venezuelan bolivars to one U.S. dollar) or were required to be paid in U.S. dollars. Furthermore, the Venezuelan government has not permitted the exchange and repatriations
of local currency since
mid-2014. As
a result, the Company changed the exchange rate from historical SICAD rates to a combination of SIMADI and SICAD rates based on projections of future cash
payments. Including this adjustment, the Company’s resulting cash balance held in Venezuelan bolivars at December 31, 2015 was approximately $13 million.
98
2014
The Company recorded a charge of $16 million ($10 million net of related income tax benefits) related to its annual assessment of impairment of its indefinite-lived intangible assets (certain
international Pacific routes). The Company also recorded $33 million for charges related primarily to impairment of its flight equipment held for disposal associated with its Boeing
737-300
and
737-500
fleets.
The Company recorded $141 million of severance and benefit costs related primarily to a
voluntary
early-out
program for its flight attendants. More than 2,500 participants elected a
one-time
opportunity to voluntarily separate from the Company for a
severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through the end of 2016. In addition, the Company recorded $58 million of severance and benefits primarily related to
reductions of management and front-line employees, including from Cleveland, as part of its cost savings initiatives.
The Company recorded
$66 million for the permanent grounding of 21 of the Company’s Embraer ERJ 135 regional aircraft under lease through 2018, which included an accrual for remaining lease payments and an amount for maintenance return conditions. The Company
decided to permanently ground these 21 Embraer ERJ 135 aircraft as a result of new Embraer E175 regional jet deliveries, the impact of pilot shortages at regional carriers and fuel prices. The Company also recorded $33 million for losses on the
sale of assets and other special charges. In addition, $96 million of integration-related costs included compensation costs related to systems integration, training, severance and relocation for employees.
United used cash to retire, at par, the entire $248 million principal balance of the 6% Convertible Debentures and the 6% Convertible Preferred
Securities, Term Income Deferrable Equity Securities (TIDES) and incurred $64 million of expense primarily associated with the
write-off
of the related
non-cash
debt discounts. The Company also recorded $10 million of foreign exchange losses in Venezuela in 2014.
Accrual Activity
Activity related to the accruals for severance and medical costs and future lease payments on permanently grounded aircraft is as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance/
Benefit Costs
|
|
|
Permanently
Grounded Aircraft
|
|
|
Balance at December 31, 2013
|
|
$
|
91
|
|
|
$
|
11
|
|
|
Accrual
|
|
|
199
|
|
|
|
102
|
|
|
Payments
|
|
|
(181)
|
|
|
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014
|
|
|
109
|
|
|
|
102
|
|
|
Accrual
|
|
|
107
|
|
|
|
30
|
|
|
Payments
|
|
|
(189)
|
|
|
|
(54)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
27
|
|
|
|
78
|
|
|
Accrual and related adjustments
|
|
|
37
|
|
|
|
(17)
|
|
|
Payments
|
|
|
(50)
|
|
|
|
(20)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
14
|
|
|
$
|
41
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s accrual and payment activity is primarily related to severance and other compensation expense
associated with voluntary employee early retirement programs.
NOTE 17 - SEGMENT INFORMATION
Operating segments are defined as components of an enterprise with separate financial information, which are evaluated regularly by the chief operating
decision maker and are used in resource allocation and performance assessments.
99
The Company deploys its aircraft across its route network through a single route scheduling system to
maximize its value. When making resource allocation decisions, the Company’s chief operating decision maker evaluates flight profitability data, which considers aircraft type and route economics. The Company’s chief operating decision
maker makes resource allocation decisions to maximize the Company’s consolidated financial results. Managing the Company as one segment allows management the opportunity to maximize the value of its route network.
The Company’s operating revenue by principal geographic region (as defined by the U.S. Department of Transportation) for the years ended
December 31 is presented in the table below (in millions):
|
|
|
|
|
|
|
|
|
2016
|
|
|
Domestic (U.S. and Canada)
|
|
$
|
22,202
|
|
|
Pacific
|
|
|
4,959
|
|
|
Atlantic
|
|
|
6,157
|
|
|
Latin America
|
|
|
3,238
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
Domestic (U.S. and Canada)
|
|
$
|
21,931
|
|
|
Pacific
|
|
|
5,498
|
|
|
Atlantic
|
|
|
7,068
|
|
|
Latin America
|
|
|
3,367
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
37,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
|
Domestic (U.S. and Canada)
|
|
$
|
22,320
|
|
|
Pacific
|
|
|
5,767
|
|
|
Atlantic
|
|
|
7,321
|
|
|
Latin America
|
|
|
3,493
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38,901
|
|
|
|
|
|
|
|
The Company attributes revenue among the geographic areas based upon the origin and destination of each flight segment.
The Company’s operations involve an insignificant level of dedicated revenue-producing assets in geographic regions as the overwhelming majority of the Company’s revenue producing assets (primarily U.S. registered aircraft) can be deployed
in any of its geographic regions.
100
NOTE 18 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UAL
|
|
Quarter Ended
|
|
|
(In millions, except per share
amounts)
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
8,195
|
|
|
$
|
9,396
|
|
|
$
|
9,913
|
|
|
$
|
9,052
|
|
|
Income from operations
|
|
|
649
|
|
|
|
1,060
|
|
|
|
1,624
|
|
|
|
1,005
|
|
|
Net income
|
|
|
313
|
|
|
|
588
|
|
|
|
965
|
|
|
|
397
|
|
|
Basic earnings per share
|
|
|
0.88
|
|
|
|
1.78
|
|
|
|
3.02
|
|
|
|
1.26
|
|
|
Diluted earnings per share
|
|
|
0.88
|
|
|
|
1.78
|
|
|
|
3.01
|
|
|
|
1.26
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
8,608
|
|
|
$
|
9,914
|
|
|
$
|
10,306
|
|
|
$
|
9,036
|
|
|
Income from operations
|
|
|
741
|
|
|
|
1,445
|
|
|
|
1,899
|
|
|
|
1,081
|
|
|
Net income
|
|
|
508
|
|
|
|
1,193
|
|
|
|
4,816
|
|
|
|
823
|
|
|
Basic earnings per share
|
|
|
1.33
|
|
|
|
3.14
|
|
|
|
12.83
|
|
|
|
2.24
|
|
|
Diluted earnings per share
|
|
|
1.32
|
|
|
|
3.14
|
|
|
|
12.82
|
|
|
|
2.24
|
|
101
UAL’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. UAL’s quarterly results were impacted by the following significant items (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of assets
|
|
$
|
—
|
|
|
$
|
412
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cleveland airport lease restructuring
|
|
|
74
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Labor agreement costs and related items
|
|
|
100
|
|
|
|
10
|
|
|
|
14
|
|
|
|
(60)
|
|
|
Severance and benefit costs
|
|
|
8
|
|
|
|
6
|
|
|
|
13
|
|
|
|
10
|
|
|
(Gains) losses on sale of assets and other special charges
|
|
|
8
|
|
|
|
6
|
|
|
|
18
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special charges
|
|
|
190
|
|
|
|
434
|
|
|
|
45
|
|
|
|
(31)
|
|
|
Nonoperating and income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses (gain) on extinguishment of debt and other
|
|
|
8
|
|
|
|
(9)
|
|
|
|
—
|
|
|
|
—
|
|
|
Income tax expense (benefit) related to special charges
|
|
|
(72)
|
|
|
|
(153)
|
|
|
|
(16)
|
|
|
|
12
|
|
|
Income tax adjustments (Note 6)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating and nonoperating special items, net of income taxes
|
|
$
|
126
|
|
|
$
|
272
|
|
|
$
|
29
|
|
|
$
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of assets
|
|
$
|
2
|
|
|
$
|
11
|
|
|
$
|
18
|
|
|
$
|
48
|
|
|
Labor agreement costs and related items
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
18
|
|
|
Severance and benefit costs
|
|
|
50
|
|
|
|
25
|
|
|
|
28
|
|
|
|
4
|
|
|
(Gains) losses on sale of assets and other special charges
|
|
|
12
|
|
|
|
19
|
|
|
|
30
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special charges
|
|
|
64
|
|
|
|
55
|
|
|
|
76
|
|
|
|
131
|
|
|
Nonoperating and income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses on extinguishment of debt and other
|
|
|
6
|
|
|
|
128
|
|
|
|
61
|
|
|
|
7
|
|
|
Income tax benefit related to special charges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(11)
|
|
|
Income tax expense (benefit) associated with valuation allowance release
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,218)
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating and nonoperating special items, net of income taxes
|
|
$
|
70
|
|
|
$
|
183
|
|
|
$
|
(3,081)
|
|
|
$
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 16 of this report for additional information of these items.
102