ITEM 1.
|
FINANCIAL STATEMENTS.
|
UNITED CONTINENTAL HOLDINGS, INC.
STATEMENTS OF
CONSOLIDATED OPERATIONS (UNAUDITED)
(In millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Operating revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PassengerMainline
|
|
$
|
7,083
|
|
|
$
|
7,017
|
|
|
$
|
19,970
|
|
|
$
|
19,119
|
|
PassengerRegional
|
|
|
1,445
|
|
|
|
1,586
|
|
|
|
4,354
|
|
|
|
4,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total passenger revenue
|
|
|
8,528
|
|
|
|
8,603
|
|
|
|
24,324
|
|
|
|
23,696
|
|
Cargo
|
|
|
257
|
|
|
|
224
|
|
|
|
731
|
|
|
|
626
|
|
Other operating revenue
|
|
|
1,093
|
|
|
|
1,086
|
|
|
|
3,243
|
|
|
|
3,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
|
|
9,878
|
|
|
|
9,913
|
|
|
|
28,298
|
|
|
|
27,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and related costs
|
|
|
2,812
|
|
|
|
2,625
|
|
|
|
8,341
|
|
|
|
7,707
|
|
Aircraft fuel
|
|
|
1,809
|
|
|
|
1,603
|
|
|
|
5,038
|
|
|
|
4,258
|
|
Landing fees and other rent
|
|
|
585
|
|
|
|
546
|
|
|
|
1,670
|
|
|
|
1,612
|
|
Regional capacity purchase
|
|
|
567
|
|
|
|
572
|
|
|
|
1,652
|
|
|
|
1,645
|
|
Depreciation and amortization
|
|
|
556
|
|
|
|
503
|
|
|
|
1,610
|
|
|
|
1,473
|
|
Aircraft maintenance materials and outside repairs
|
|
|
451
|
|
|
|
451
|
|
|
|
1,377
|
|
|
|
1,301
|
|
Distribution expenses
|
|
|
352
|
|
|
|
345
|
|
|
|
1,021
|
|
|
|
987
|
|
Aircraft rent
|
|
|
145
|
|
|
|
168
|
|
|
|
476
|
|
|
|
521
|
|
Special charges (Note 10)
|
|
|
50
|
|
|
|
45
|
|
|
|
145
|
|
|
|
669
|
|
Other operating expenses
|
|
|
1,459
|
|
|
|
1,431
|
|
|
|
4,199
|
|
|
|
3,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
8,786
|
|
|
|
8,289
|
|
|
|
25,529
|
|
|
|
24,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,092
|
|
|
|
1,624
|
|
|
|
2,769
|
|
|
|
3,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(164)
|
|
|
|
(150)
|
|
|
|
(472)
|
|
|
|
(466)
|
|
Interest capitalized
|
|
|
20
|
|
|
|
20
|
|
|
|
64
|
|
|
|
48
|
|
Interest income
|
|
|
17
|
|
|
|
14
|
|
|
|
41
|
|
|
|
31
|
|
Miscellaneous, net (Note 10)
|
|
|
15
|
|
|
|
2
|
|
|
|
(3)
|
|
|
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonoperating expense, net
|
|
|
(112)
|
|
|
|
(114)
|
|
|
|
(370)
|
|
|
|
(398)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
980
|
|
|
|
1,510
|
|
|
|
2,399
|
|
|
|
2,935
|
|
Income tax expense
|
|
|
343
|
|
|
|
545
|
|
|
|
848
|
|
|
|
1,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
637
|
|
|
$
|
965
|
|
|
$
|
1,551
|
|
|
$
|
1,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, basic
|
|
$
|
2.12
|
|
|
$
|
3.02
|
|
|
$
|
5.06
|
|
|
$
|
5.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, diluted
|
|
$
|
2.12
|
|
|
$
|
3.01
|
|
|
$
|
5.04
|
|
|
$
|
5.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of
these statements.
3
UNITED CONTINENTAL HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net income
|
|
$
|
637
|
|
|
$
|
965
|
|
|
$
|
1,551
|
|
|
$
|
1,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net change related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel derivative financial instruments, net of taxes
|
|
|
|
|
|
|
12
|
|
|
|
1
|
|
|
|
123
|
|
Employee benefit plans, net of taxes
|
|
|
3
|
|
|
|
(75)
|
|
|
|
(1)
|
|
|
|
(89)
|
|
Investments and other, net of taxes
|
|
|
17
|
|
|
|
(1)
|
|
|
|
5
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss), net
|
|
|
20
|
|
|
|
(64)
|
|
|
|
5
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income, net
|
|
$
|
657
|
|
|
$
|
901
|
|
|
$
|
1,556
|
|
|
$
|
1,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of
these statements.
4
UNITED CONTINENTAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except shares)
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
September 30, 2017
|
|
|
December 31, 2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,870
|
|
|
$
|
2,179
|
|
Short-term investments
|
|
|
2,458
|
|
|
|
2,249
|
|
Receivables, less allowance for doubtful accounts (2017 $11; 2016 $10)
|
|
|
1,603
|
|
|
|
1,176
|
|
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2017 $342; 2016 $295)
|
|
|
937
|
|
|
|
873
|
|
Prepaid expenses and other
|
|
|
1,009
|
|
|
|
832
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
7,877
|
|
|
|
7,309
|
|
|
|
|
|
|
|
|
|
|
Operating property and equipment:
|
|
|
|
|
|
|
|
|
Owned
|
|
|
|
|
|
|
|
|
Flight equipment
|
|
|
29,043
|
|
|
|
25,873
|
|
Other property and equipment
|
|
|
6,186
|
|
|
|
5,652
|
|
|
|
|
|
|
|
|
|
|
Total owned property and equipment
|
|
|
35,229
|
|
|
|
31,525
|
|
Less Accumulated depreciation and amortization
|
|
|
(11,358)
|
|
|
|
(9,975)
|
|
|
|
|
|
|
|
|
|
|
Total owned property and equipment, net
|
|
|
23,871
|
|
|
|
21,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase deposits for flight equipment
|
|
|
1,044
|
|
|
|
1,059
|
|
|
|
|
|
|
|
|
|
|
Capital leases
|
|
|
|
|
|
|
|
|
Flight equipment
|
|
|
1,136
|
|
|
|
1,319
|
|
Other property and equipment
|
|
|
488
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
Total capital leases
|
|
|
1,624
|
|
|
|
1,650
|
|
Less Accumulated amortization
|
|
|
(910)
|
|
|
|
(941)
|
|
|
|
|
|
|
|
|
|
|
Total capital leases, net
|
|
|
714
|
|
|
|
709
|
|
|
|
|
|
|
|
|
|
|
Total operating property and equipment, net
|
|
|
25,629
|
|
|
|
23,318
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
4,523
|
|
|
|
4,523
|
|
Intangibles, less accumulated amortization (2017 $1,294; 2016 $1,234)
|
|
|
3,558
|
|
|
|
3,632
|
|
Deferred income taxes
|
|
|
|
|
|
|
655
|
|
Restricted cash
|
|
|
96
|
|
|
|
124
|
|
Investments in affiliates and other, net
|
|
|
882
|
|
|
|
579
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
9,059
|
|
|
|
9,513
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
42,565
|
|
|
$
|
40,140
|
|
|
|
|
|
|
|
|
|
|
(continued
on next page)
5
UNITED CONTINENTAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except shares)
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
September 30, 2017
|
|
|
December 31, 2016
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Advance ticket sales
|
|
$
|
4,537
|
|
|
$
|
3,730
|
|
Accounts payable
|
|
|
2,231
|
|
|
|
2,139
|
|
Frequent flyer deferred revenue
|
|
|
1,992
|
|
|
|
2,135
|
|
Accrued salaries and benefits
|
|
|
1,983
|
|
|
|
2,307
|
|
Current maturities of long-term debt
|
|
|
1,516
|
|
|
|
849
|
|
Current maturities of capital leases
|
|
|
125
|
|
|
|
116
|
|
Other
|
|
|
703
|
|
|
|
1,010
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
13,087
|
|
|
|
12,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
11,334
|
|
|
|
9,918
|
|
Long-term obligations under capital leases
|
|
|
968
|
|
|
|
822
|
|
|
|
|
|
|
|
|
|
|
Other liabilities and deferred credits:
|
|
|
|
|
|
|
|
|
Frequent flyer deferred revenue
|
|
|
2,793
|
|
|
|
2,748
|
|
Postretirement benefit liability
|
|
|
1,588
|
|
|
|
1,581
|
|
Pension liability
|
|
|
1,631
|
|
|
|
1,892
|
|
Deferred income taxes
|
|
|
253
|
|
|
|
|
|
Advanced purchase of miles
|
|
|
106
|
|
|
|
430
|
|
Lease fair value adjustment, net
|
|
|
219
|
|
|
|
277
|
|
Other
|
|
|
1,616
|
|
|
|
1,527
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities and deferred credits
|
|
|
8,206
|
|
|
|
8,455
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
Common stock at par, $0.01 par value; authorized 1,000,000,000 shares; outstanding 296,252,431 and 314,612,744 shares at September 30, 2017 and
December 31, 2016, respectively
|
|
|
3
|
|
|
|
3
|
|
Additional capital invested
|
|
|
6,591
|
|
|
|
6,569
|
|
Retained earnings
|
|
|
4,991
|
|
|
|
3,427
|
|
Stock held in treasury, at cost
|
|
|
(1,791)
|
|
|
|
(511)
|
|
Accumulated other comprehensive loss
|
|
|
(824)
|
|
|
|
(829)
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
8,970
|
|
|
|
8,659
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
42,565
|
|
|
$
|
40,140
|
|
|
|
|
|
|
|
|
|
|
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of
these statements.
6
UNITED CONTINENTAL HOLDINGS, INC.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In millions)
|
|
|
|
|
|
|
|
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
2,685
|
|
|
$
|
4,884
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2,900)
|
|
|
|
(2,343)
|
|
Purchases of short-term and other investments
|
|
|
(2,584)
|
|
|
|
(1,989)
|
|
Proceeds from sale of short-term and other investments
|
|
|
2,380
|
|
|
|
1,957
|
|
Proceeds from sale of property and equipment
|
|
|
8
|
|
|
|
24
|
|
Investment in and loans to affiliates
|
|
|
|
|
|
|
(8)
|
|
Other, net
|
|
|
142
|
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,954)
|
|
|
|
(2,364)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt and airport construction financing
|
|
|
2,119
|
|
|
|
510
|
|
Repurchases of common stock
|
|
|
(1,291)
|
|
|
|
(2,442)
|
|
Payments of long-term debt
|
|
|
(722)
|
|
|
|
(911)
|
|
Principal payments under capital leases
|
|
|
(84)
|
|
|
|
(95)
|
|
Other, net
|
|
|
(77)
|
|
|
|
(40)
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(55)
|
|
|
|
(2,978)
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash, cash equivalents and restricted cash
|
|
|
(324)
|
|
|
|
(458)
|
|
Cash, cash equivalents and restricted cash at beginning of the period
|
|
|
2,303
|
|
|
|
3,212
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash at end of the period (a)
|
|
$
|
1,979
|
|
|
$
|
2,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing and Financing Activities Not Affecting Cash:
|
|
|
|
|
|
|
|
|
Property and equipment acquired through the issuance of debt and capital leases
|
|
$
|
918
|
|
|
$
|
115
|
|
Airport construction financing
|
|
|
41
|
|
|
|
68
|
|
Operating lease conversions to capital lease
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
(a) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported
within the consolidated balance sheet:
|
|
|
|
|
|
|
|
|
Reconciliation of cash, cash equivalents and restricted cash:
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,870
|
|
|
$
|
2,630
|
|
Restricted cash included in Prepaid expenses and other
|
|
|
13
|
|
|
|
1
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
96
|
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
1,979
|
|
|
$
|
2,754
|
|
|
|
|
|
|
|
|
|
|
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of
these statements.
7
UNITED AIRLINES, INC.
STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Operating revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PassengerMainline
|
|
$
|
7,083
|
|
|
$
|
7,017
|
|
|
$
|
19,970
|
|
|
$
|
19,119
|
|
PassengerRegional
|
|
|
1,445
|
|
|
|
1,586
|
|
|
|
4,354
|
|
|
|
4,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total passenger revenue
|
|
|
8,528
|
|
|
|
8,603
|
|
|
|
24,324
|
|
|
|
23,696
|
|
Cargo
|
|
|
257
|
|
|
|
224
|
|
|
|
731
|
|
|
|
626
|
|
Other operating revenue
|
|
|
1,093
|
|
|
|
1,086
|
|
|
|
3,243
|
|
|
|
3,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
|
|
9,878
|
|
|
|
9,913
|
|
|
|
28,298
|
|
|
|
27,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and related costs
|
|
|
2,812
|
|
|
|
2,625
|
|
|
|
8,341
|
|
|
|
7,707
|
|
Aircraft fuel
|
|
|
1,809
|
|
|
|
1,603
|
|
|
|
5,038
|
|
|
|
4,258
|
|
Landing fees and other rent
|
|
|
585
|
|
|
|
546
|
|
|
|
1,670
|
|
|
|
1,612
|
|
Regional capacity purchase
|
|
|
567
|
|
|
|
572
|
|
|
|
1,652
|
|
|
|
1,645
|
|
Depreciation and amortization
|
|
|
556
|
|
|
|
503
|
|
|
|
1,610
|
|
|
|
1,473
|
|
Aircraft maintenance materials and outside repairs
|
|
|
451
|
|
|
|
451
|
|
|
|
1,377
|
|
|
|
1,301
|
|
Distribution expenses
|
|
|
352
|
|
|
|
345
|
|
|
|
1,021
|
|
|
|
987
|
|
Aircraft rent
|
|
|
145
|
|
|
|
168
|
|
|
|
476
|
|
|
|
521
|
|
Special charges (Note 10)
|
|
|
50
|
|
|
|
45
|
|
|
|
145
|
|
|
|
669
|
|
Other operating expenses
|
|
|
1,459
|
|
|
|
1,431
|
|
|
|
4,198
|
|
|
|
3,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
8,786
|
|
|
|
8,289
|
|
|
|
25,528
|
|
|
|
24,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,092
|
|
|
|
1,624
|
|
|
|
2,770
|
|
|
|
3,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(164)
|
|
|
|
(150)
|
|
|
|
(472)
|
|
|
|
(466)
|
|
Interest capitalized
|
|
|
20
|
|
|
|
20
|
|
|
|
64
|
|
|
|
48
|
|
Interest income
|
|
|
17
|
|
|
|
14
|
|
|
|
41
|
|
|
|
31
|
|
Miscellaneous, net (Note 10)
|
|
|
15
|
|
|
|
2
|
|
|
|
(3)
|
|
|
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonoperating expense, net
|
|
|
(112)
|
|
|
|
(114)
|
|
|
|
(370)
|
|
|
|
(398)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
980
|
|
|
|
1,510
|
|
|
|
2,400
|
|
|
|
2,936
|
|
Income tax expense
|
|
|
343
|
|
|
|
545
|
|
|
|
848
|
|
|
|
1,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
637
|
|
|
$
|
965
|
|
|
$
|
1,552
|
|
|
$
|
1,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of
these statements.
8
UNITED AIRLINES, INC.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net income
|
|
$
|
637
|
|
|
$
|
965
|
|
|
$
|
1,552
|
|
|
$
|
1,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net change related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel derivative financial instruments, net of taxes
|
|
|
|
|
|
|
12
|
|
|
|
1
|
|
|
|
123
|
|
Employee benefit plans, net of taxes
|
|
|
3
|
|
|
|
(75)
|
|
|
|
(1)
|
|
|
|
(89)
|
|
Investments and other, net of taxes
|
|
|
17
|
|
|
|
(1)
|
|
|
|
5
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss), net
|
|
|
20
|
|
|
|
(64)
|
|
|
|
5
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income, net
|
|
$
|
657
|
|
|
$
|
901
|
|
|
$
|
1,557
|
|
|
$
|
1,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of
these statements.
9
UNITED AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except shares)
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,864
|
|
|
$
|
2,173
|
|
Short-term investments
|
|
|
2,458
|
|
|
|
2,249
|
|
Receivables, less allowance for doubtful accounts (2017 $11; 2016 $10)
|
|
|
1,603
|
|
|
|
1,176
|
|
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2017 $342; 2016 $295)
|
|
|
937
|
|
|
|
873
|
|
Prepaid expenses and other
|
|
|
1,008
|
|
|
|
832
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
7,870
|
|
|
|
7,303
|
|
|
|
|
|
|
|
|
|
|
Operating property and equipment:
|
|
|
|
|
|
|
|
|
Owned
|
|
|
|
|
|
|
|
|
Flight equipment
|
|
|
29,043
|
|
|
|
25,873
|
|
Other property and equipment
|
|
|
6,186
|
|
|
|
5,652
|
|
|
|
|
|
|
|
|
|
|
Total owned property and equipment
|
|
|
35,229
|
|
|
|
31,525
|
|
Less Accumulated depreciation and amortization
|
|
|
(11,358)
|
|
|
|
(9,975)
|
|
|
|
|
|
|
|
|
|
|
Total owned property and equipment, net
|
|
|
23,871
|
|
|
|
21,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase deposits for flight equipment
|
|
|
1,044
|
|
|
|
1,059
|
|
|
|
|
|
|
|
|
|
|
Capital leases
|
|
|
|
|
|
|
|
|
Flight equipment
|
|
|
1,136
|
|
|
|
1,319
|
|
Other property and equipment
|
|
|
488
|
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
Total capital leases
|
|
|
1,624
|
|
|
|
1,650
|
|
Less Accumulated amortization
|
|
|
(910)
|
|
|
|
(941)
|
|
|
|
|
|
|
|
|
|
|
Total capital leases, net
|
|
|
714
|
|
|
|
709
|
|
|
|
|
|
|
|
|
|
|
Total operating property and equipment, net
|
|
|
25,629
|
|
|
|
23,318
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
4,523
|
|
|
|
4,523
|
|
Intangibles, less accumulated amortization (2017 $1,294; 2016 $1,234)
|
|
|
3,558
|
|
|
|
3,632
|
|
Deferred income taxes
|
|
|
|
|
|
|
612
|
|
Restricted cash
|
|
|
96
|
|
|
|
124
|
|
Investments in affiliates and other, net
|
|
|
882
|
|
|
|
579
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
9,059
|
|
|
|
9,470
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
42,558
|
|
|
$
|
40,091
|
|
|
|
|
|
|
|
|
|
|
(continued
on next page)
10
UNITED AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except shares)
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Advance ticket sales
|
|
$
|
4,537
|
|
|
$
|
3,730
|
|
Accounts payable
|
|
|
2,231
|
|
|
|
2,144
|
|
Frequent flyer deferred revenue
|
|
|
1,992
|
|
|
|
2,135
|
|
Accrued salaries and benefits
|
|
|
1,983
|
|
|
|
2,307
|
|
Current maturities of long-term debt
|
|
|
1,516
|
|
|
|
849
|
|
Current maturities of capital leases
|
|
|
125
|
|
|
|
116
|
|
Other
|
|
|
707
|
|
|
|
1,009
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
13,091
|
|
|
|
12,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
11,334
|
|
|
|
9,918
|
|
Long-term obligations under capital leases
|
|
|
968
|
|
|
|
822
|
|
|
|
|
|
|
|
|
|
|
Other liabilities and deferred credits:
|
|
|
|
|
|
|
|
|
Frequent flyer deferred revenue
|
|
|
2,793
|
|
|
|
2,748
|
|
Postretirement benefit liability
|
|
|
1,588
|
|
|
|
1,581
|
|
Pension liability
|
|
|
1,631
|
|
|
|
1,892
|
|
Deferred income taxes
|
|
|
297
|
|
|
|
|
|
Advanced purchase of miles
|
|
|
106
|
|
|
|
430
|
|
Lease fair value adjustment, net
|
|
|
219
|
|
|
|
277
|
|
Other
|
|
|
1,616
|
|
|
|
1,527
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities and deferred credits
|
|
|
8,250
|
|
|
|
8,455
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock at par, $0.01 par value; authorized 1,000 shares; issued and outstanding 1,000 shares at both September 30, 2017 and
December 31, 2016
|
|
|
|
|
|
|
|
|
Additional capital invested
|
|
|
2,325
|
|
|
|
3,573
|
|
Retained earnings
|
|
|
7,504
|
|
|
|
5,937
|
|
Accumulated other comprehensive loss
|
|
|
(824)
|
|
|
|
(829)
|
|
Receivable from related parties
|
|
|
(90)
|
|
|
|
(75)
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
8,915
|
|
|
|
8,606
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
42,558
|
|
|
$
|
40,091
|
|
|
|
|
|
|
|
|
|
|
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of
these statements.
11
UNITED AIRLINES, INC.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In millions)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
2,671
|
|
|
$
|
4,878
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2,900)
|
|
|
|
(2,343)
|
|
Purchases of short-term investments and other investments
|
|
|
(2,584)
|
|
|
|
(1,989)
|
|
Proceeds from sale of short-term and other investments
|
|
|
2,380
|
|
|
|
1,957
|
|
Proceeds from sale of property and equipment
|
|
|
8
|
|
|
|
24
|
|
Investment in and loans to affiliates
|
|
|
|
|
|
|
(8)
|
|
Other, net
|
|
|
142
|
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,954)
|
|
|
|
(2,364)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt and airport construction financing
|
|
|
2,119
|
|
|
|
510
|
|
Dividend to UAL
|
|
|
(1,291)
|
|
|
|
(2,442)
|
|
Payments of long-term debt
|
|
|
(722)
|
|
|
|
(911)
|
|
Principal payments under capital leases
|
|
|
(84)
|
|
|
|
(95)
|
|
Other, net
|
|
|
(63)
|
|
|
|
(34)
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(41)
|
|
|
|
(2,972)
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash, cash equivalents and restricted cash
|
|
|
(324)
|
|
|
|
(458)
|
|
Cash, cash equivalents and restricted cash at beginning of the period
|
|
|
2,297
|
|
|
|
3,206
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash at end of the period (a)
|
|
$
|
1,973
|
|
|
$
|
2,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing and Financing Activities Not Affecting Cash:
|
|
|
|
|
|
|
|
|
Property and equipment acquired through the issuance of debt and capital leases
|
|
$
|
918
|
|
|
$
|
115
|
|
Airport construction financing
|
|
|
41
|
|
|
|
68
|
|
Operating lease conversions to capital lease
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
(a) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported
within the consolidated balance sheet:
|
|
|
|
|
|
|
|
|
Reconciliation of cash, cash equivalents and restricted cash:
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,864
|
|
|
$
|
2,624
|
|
Restricted cash included in Prepaid expenses and other
|
|
|
13
|
|
|
|
1
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
96
|
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
1,973
|
|
|
$
|
2,748
|
|
|
|
|
|
|
|
|
|
|
The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of
these statements.
12
UNITED CONTINENTAL HOLDINGS, INC. AND UNITED AIRLINES, INC.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
United Continental Holdings, Inc. (together with its consolidated subsidiaries, UAL or the Company) is a holding company and its
principal, wholly-owned subsidiary is United Airlines, Inc. (together with its consolidated subsidiaries, United). This Quarterly Report on Form
10-Q
is a combined report of UAL and United,
including their respective consolidated financial statements. As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted. Uniteds operating revenues
and operating expenses comprise nearly 100% of UALs revenues and operating expenses. In addition, United comprises approximately the entire balance of UALs assets, liabilities and operating cash flows. When appropriate, UAL and United
are named specifically for their individual contractual obligations and related disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained. We sometimes use the words
we, our, us, and the Company in this report for disclosures that relate to all of UAL and United.
The UAL and United unaudited condensed consolidated financial statements shown here have been prepared as required by the U.S. Securities and Exchange Commission (the SEC). Some information
and footnote disclosures normally included in financial statements that comply with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted as permitted by the SEC. The financial statements
include all adjustments, including normal recurring adjustments and other adjustments, which are considered necessary for a fair presentation of the Companys financial position and results of operations. The UAL and United financial statements
should be read together with the information included in the Companys Annual Report on Form
10-K
for the year ended December 31, 2016. The Companys quarterly financial data is subject to
seasonal fluctuations and historically its second and third quarter financial results, which reflect higher travel demand, are better than its first and fourth quarter financial results.
NOTE 1 - RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards
Board (FASB) amended 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 will use the full-retrospective approach in adopting this standard on January 1, 2018. We have
reached conclusions on the applicability of the standard on accounting for contracts with customers. The standard impacts the classification of certain revenue streams and affects the timing of revenue and expense recognition for others. The most
significant impact is the reclassification of certain ancillary fees from other operating revenue into passenger revenue on the statement of consolidated operations. For 2016, the amount to be reclassified at adoption of the new standard from other
operating revenue into passenger revenue under Topic 606 is approximately $2.0 billion. These ancillary fees are directly related to passenger travel, such as ticket change fees and baggage fees and will 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, will be recognized when transportation is provided. While the classification of certain
transactions within operating revenue and between operating revenue and operating expenses will change, the Company believes that the adoption of the standard will not have a material impact on its earnings.
In February 2016, the FASB amended the FASB Accounting Standards Codification and created a new Topic 842,
Leases
(Topic 842). The
guidance requires lessees to recognize 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. We have not completed our evaluation of the impact
but believe this standard will have a significant impact on our consolidated balance sheets but is not expected to have a material impact on the Companys results of operations or cash flows. The primary effect of adopting the new standard will
be to record assets and obligations for its operating leases.
13
In January 2016, the FASB issued Accounting Standards Update
No. 2016-01,
Financial InstrumentsOverall
(Subtopic
825-10)
(ASU
2016-01).
This standard makes
several changes, including the elimination of the
available-for-sale
classification of equity investments, and requires equity investments with readily determinable fair
values to be measured at fair value with changes in fair value recognized in net income. It is effective for interim and annual periods beginning after December 15, 2017. Based on its portfolio of investments as of September 30, 2017, the
Company does not expect the adoption of ASU
2016-01
to have a material impact on its consolidated financial statements.
In March 2017, the FASB issued Accounting Standards Update
No. 2017-07,
Improving the Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost
(ASU
2017-07).
The update requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other
employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and
settlement and curtailment effects, are to be presented outside of any subtotal of operating income. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented
separately in the income statement
.
ASU
2017-07
is effective for fiscal years and interim periods beginning after December 15, 2017, and early adoption is permitted. The Company does not expect the
adoption of ASU
2017-07
to have a material impact on its consolidated financial statements.
NOTE
2 - EARNINGS
PER SHARE
The computations of UALs basic and diluted earnings per share are
set forth below (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Earnings available to common stockholders
|
|
$
|
637
|
|
|
$
|
965
|
|
|
$
|
1,551
|
|
|
$
|
1,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
|
|
299.8
|
|
|
|
320.0
|
|
|
|
306.8
|
|
|
|
334.9
|
|
Effect of employee stock awards
|
|
|
0.8
|
|
|
|
0.4
|
|
|
|
0.8
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares outstanding
|
|
|
300.6
|
|
|
|
320.4
|
|
|
|
307.6
|
|
|
|
335.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, basic
|
|
$
|
2.12
|
|
|
$
|
3.02
|
|
|
$
|
5.06
|
|
|
$
|
5.57
|
|
Earnings per share, diluted
|
|
$
|
2.12
|
|
|
$
|
3.01
|
|
|
$
|
5.04
|
|
|
$
|
5.57
|
|
The number of antidilutive securities excluded from the computation of diluted earnings per share amounts was not
material.
In the three and nine months ended September 30, 2017, UAL repurchased approximately 8 million and 18 million shares
of UAL common stock in open market transactions, respectively, for $0.6 billion and $1.3 billion, respectively. As of September 30, 2017, the Company had approximately $0.6 billion remaining to purchase shares under its existing
share repurchase authority. UAL may repurchase shares through the open market, privately negotiated transactions, block trades or accelerated share repurchase transactions from time to time in accordance with applicable securities laws. UAL will
repurchase shares of UAL common stock subject to prevailing market conditions, and may discontinue such repurchases at any time. See Part II, Item 2., Unregistered Sales of Equity Securities and Use of Proceeds of this report for
additional information.
14
NOTE
3 - ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS)
The tables below present the components of the Companys accumulated other comprehensive income (loss), net of tax
(AOCI) (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Taxes
|
|
|
|
|
UAL
|
|
|
|
Pension and
Other
Postretirement
Liabilities
|
|
|
Fuel
Derivative
Contracts
|
|
|
Investments
and Other
|
|
|
Pension and
Other
Postretirement
Liabilities
|
|
|
Fuel
Derivative
Contracts
|
|
|
Investments
and Other
|
|
|
Total
|
|
Balance at June 30, 2017
|
|
|
|
$
|
(860)
|
|
|
$
|
|
|
|
$
|
(16)
|
|
|
$
|
26
|
|
|
$
|
|
|
|
$
|
6
|
|
|
$
|
(844)
|
|
Changes in value
|
|
|
|
|
(9)
|
|
|
|
|
|
|
|
26
|
|
|
|
3
|
|
|
|
|
|
|
|
(9)
|
|
|
|
11
|
|
Amounts reclassified to earnings
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change
|
|
|
|
|
5
|
|
|
|
|
|
|
|
26
|
|
|
|
(2)
|
|
|
|
|
|
|
|
(9)
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2017
|
|
|
|
$
|
(855)
|
|
|
$
|
|
|
|
$
|
10
|
|
|
$
|
24
|
|
|
$
|
|
|
|
$
|
(3)
|
|
|
$
|
(824)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
|
$
|
(854)
|
|
|
$
|
(2)
|
|
|
$
|
1
|
|
|
$
|
24
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
(829)
|
|
Changes in value
|
|
|
|
|
(42)
|
|
|
|
|
|
|
|
9
|
|
|
|
15
|
|
|
|
|
|
|
|
(3)
|
|
|
|
(21)
|
|
Amounts reclassified to earnings
|
|
|
|
|
41
|
|
|
|
2
|
|
|
|
|
|
|
|
(15)
|
|
|
|
(1)
|
|
|
|
(1)
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change
|
|
|
|
|
(1)
|
|
|
|
2
|
|
|
|
9
|
|
|
|
|
|
|
|
(1)
|
|
|
|
(4)
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2017
|
|
|
|
$
|
(855)
|
|
|
$
|
|
|
|
$
|
10
|
|
|
$
|
24
|
|
|
$
|
|
|
|
$
|
(3)
|
|
|
$
|
(824)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Taxes
|
|
|
|
|
UAL
|
|
|
|
Pension and
Other
Postretirement
Liabilities
|
|
|
Fuel
Derivative
Contracts
|
|
|
Investments
and Other
|
|
|
Pension and
Other
Postretirement
Liabilities
|
|
|
Fuel
Derivative
Contracts
|
|
|
Investments
and Other
|
|
|
Total
|
|
Balance at June 30, 2016
|
|
|
|
$
|
(385)
|
|
|
$
|
(41)
|
|
|
$
|
3
|
|
|
$
|
(146)
|
|
|
$
|
(165)
|
|
|
$
|
|
|
|
$
|
(734)
|
|
Changes in value
|
|
|
|
|
(124)
|
|
|
|
(6)
|
|
|
|
1
|
|
|
|
45
|
|
|
|
2
|
|
|
|
(1)
|
|
|
|
(83)
|
|
Amounts reclassified to earnings
|
|
|
|
|
6
|
|
|
|
24
|
|
|
|
(2)
|
|
|
|
(2)
|
|
|
|
(8)
|
|
|
|
1
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change
|
|
|
|
|
(118)
|
|
|
|
18
|
|
|
|
(1)
|
|
|
|
43
|
|
|
|
(6)
|
|
|
|
|
|
|
|
(64)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2016
|
|
|
|
$
|
(503)
|
|
|
$
|
(23)
|
|
|
$
|
2
|
|
|
$
|
(103)
|
|
|
$
|
(171)
|
|
|
$
|
|
|
|
$
|
(798)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
|
$
|
(363)
|
|
|
$
|
(215)
|
|
|
$
|
3
|
|
|
$
|
(154)
|
|
|
$
|
(102)
|
|
|
$
|
|
|
|
$
|
(831)
|
|
Changes in value
|
|
|
|
|
(157)
|
|
|
|
(5)
|
|
|
|
1
|
|
|
|
57
|
|
|
|
2
|
|
|
|
(1)
|
|
|
|
(103)
|
|
Amounts reclassified to earnings
|
|
|
|
|
17
|
|
|
|
197
|
|
|
|
(2)
|
|
|
|
(6)
|
|
|
|
(71)
|
|
|
|
1
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change
|
|
|
|
|
(140)
|
|
|
|
192
|
|
|
|
(1)
|
|
|
|
51
|
|
|
|
(69)
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2016
|
|
|
|
$
|
(503)
|
|
|
$
|
(23)
|
|
|
$
|
2
|
|
|
$
|
(103)
|
|
|
$
|
(171)
|
|
|
$
|
|
|
|
$
|
(798)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about AOCI Components
|
|
Amount Reclassified
from AOCI to
Income
|
|
|
Affected Line Item
in the Statements
of
Consolidated Operations
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
Pension and other postretirement liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized losses and prior service cost (a)
|
|
|
$ 14
|
|
|
|
$ 6
|
|
|
|
$ 41
|
|
|
|
$ 17
|
|
|
|
Salaries and related costs
|
|
Fuel derivative contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications of losses into earnings
|
|
|
|
|
|
|
24
|
|
|
|
2
|
|
|
|
197
|
|
|
|
Aircraft fuel
|
|
Investments and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications of gains into earnings
|
|
|
|
|
|
|
(2)
|
|
|
|
|
|
|
|
(2)
|
|
|
|
Miscellaneous, net
|
|
(a) This
AOCI component is included in the computation of net periodic pension and other postretirement costs (see Note 5 of this report for additional information).
15
NOTE 4 - INCOME TAXES
The Companys effective tax rate for the three and nine months ended September 30, 2017 was 35.0% and 35.3%, respectively, and the effective tax rate for the three and nine months ended
September 30, 2016 was 36.1% and 36.4%, respectively. The effective tax rates represented a blend of federal, state and foreign taxes and included the impact of certain nondeductible items. The effective tax rate for the three and nine months
ended September 30, 2017 also reflects the impact of a change in the mix of domestic and foreign earnings.
NOTE 5 - EMPLOYEE BENEFIT
PLANS
Defined Benefit Pension and Other Postretirement Benefit Plans.
The Companys net periodic benefit cost includes
the following components (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Postretirement
Benefits
|
|
|
|
Three Months
Ended
September 30,
|
|
|
Three Months
Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Service cost
|
|
$
|
48
|
|
|
$
|
29
|
|
|
$
|
4
|
|
|
$
|
4
|
|
Interest cost
|
|
|
55
|
|
|
|
50
|
|
|
|
16
|
|
|
|
22
|
|
Expected return on plan assets
|
|
|
(61)
|
|
|
|
(54)
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized (gain) loss and prior service cost (credit)
|
|
|
32
|
|
|
|
19
|
|
|
|
(18)
|
|
|
|
(13)
|
|
Settlement loss
|
|
|
3
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Curtailment gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
77
|
|
|
$
|
46
|
|
|
$
|
2
|
|
|
$
|
(34)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Postretirement
Benefits
|
|
|
|
Nine Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Service cost
|
|
$
|
146
|
|
|
$
|
84
|
|
|
$
|
10
|
|
|
$
|
14
|
|
Interest cost
|
|
|
165
|
|
|
|
151
|
|
|
|
50
|
|
|
|
66
|
|
Expected return on plan assets
|
|
|
(182)
|
|
|
|
(162)
|
|
|
|
(1)
|
|
|
|
(1)
|
|
Amortization of unrecognized (gain) loss and prior service cost (credit)
|
|
|
95
|
|
|
|
57
|
|
|
|
(54)
|
|
|
|
(40)
|
|
Settlement loss
|
|
|
5
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Curtailment gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(47)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
229
|
|
|
$
|
134
|
|
|
$
|
5
|
|
|
$
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three and nine months ended September 30, 2017, the Company contributed $160 million and
$400 million, respectively, to its U.S. domestic
tax-qualified
defined benefit pension plans.
Share-Based Compensation.
During the first nine months of 2017, UALs Board of Directors and stockholders approved the United
Continental Holdings, Inc. 2017 Incentive Compensation Plan (the 2017 Plan). The 2017 Plan is an incentive compensation plan that allows the Company to use different forms of long-term equity incentives to attract, retain, and reward
officers and employees (including prospective officers and employees). The 2017 Plan replaced the United Continental Holdings, Inc. 2008 Incentive Compensation Plan (the 2008 Plan). Any awards granted under the 2008 Plan prior to the
approval of the 2017 Plan remain in effect pursuant to their terms. Awards may not be granted under the 2017 Plan after May 24, 2027. Under the 2017 Plan, the Company may grant:
non-qualified
stock
options, incentive stock options (within the meaning of Section 422 of the Internal Revenue Code of 1986), stock appreciation rights, restricted shares, restricted share units (RSUs), performance compensation awards, performance
units, cash incentive awards, other equity-based and equity-related awards, and dividends and dividend equivalents.
16
In the nine months ended September 30, 2017, UAL granted share-based compensation awards pursuant to
both the 2008 Plan and the 2017 Plan. These share-based compensation awards include 1.5 million RSUs, consisting of 0.9 million time-vested RSUs and 0.6 million performance-based RSUs, and 36,000 stock options. The time-vested RSUs
vest
pro-rata,
on February 28th of each year, over a three year period from the date of grant. These RSUs are generally equity awards settled in stock for domestic employees and liability awards settled in
cash for international employees. The cash payments are based on the
20-day
average closing price of UAL common stock immediately prior to the vesting date. The performance-based RSUs vest based on the
Companys relative improvement in
pre-tax
margin for the three years ending December 31, 2019. If this performance condition is 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 Company accounts for the performance-based RSUs as liability awards.
The table below presents information related to share-based compensation (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Share-based compensation expense
|
|
$
|
10
|
|
|
$
|
23
|
|
|
$
|
66
|
|
|
$
|
36
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
Unrecognized share-based compensation
|
|
$
|
90
|
|
|
$
|
65
|
|
|
|
|
|
|
|
|
|
NOTE
6 - FINANCIAL
INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The table below presents disclosures about the financial assets and liabilities measured at fair value on a recurring basis in UALs
financial statements (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Cash and cash equivalents
|
|
$
|
1,870
|
|
|
$
|
1,870
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,179
|
|
|
$
|
2,179
|
|
|
$
|
|
|
|
$
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
|
959
|
|
|
|
|
|
|
|
959
|
|
|
|
|
|
|
|
835
|
|
|
|
|
|
|
|
835
|
|
|
|
|
|
Asset-backed securities
|
|
|
891
|
|
|
|
|
|
|
|
891
|
|
|
|
|
|
|
|
792
|
|
|
|
|
|
|
|
792
|
|
|
|
|
|
Certificates of deposit placed through an account registry service (CDARS)
|
|
|
142
|
|
|
|
|
|
|
|
142
|
|
|
|
|
|
|
|
246
|
|
|
|
|
|
|
|
246
|
|
|
|
|
|
U.S. government and agency notes
|
|
|
112
|
|
|
|
|
|
|
|
112
|
|
|
|
|
|
|
|
140
|
|
|
|
|
|
|
|
140
|
|
|
|
|
|
Other fixed-income securities
|
|
|
171
|
|
|
|
|
|
|
|
171
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
Other investments measured at NAV
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
109
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
124
|
|
|
|
124
|
|
|
|
|
|
|
|
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
114
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enhanced equipment trust certificates (EETC)
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
Available-for-sale
investment
maturities
- The short-term investments shown in the table above are classified as
available-for-sale.
As of September 30, 2017, asset-backed securities have
remaining maturities of less than one year to approximately 17 years, corporate debt securities have remaining maturities of less than one year to approximately three 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 two years. The EETC securities mature in 2019.
Restricted cash
- Restricted
cash primarily includes collateral for letters of credit and collateral associated with workers compensation obligations.
17
Equity securities
- Equity securities represent Uniteds investment in Azul Linhas Aereas
Brasileiras S.A. (Azul), which was previously accounted for as a cost-method investment. The fair value of Azuls shares became readily determinable in the second quarter of 2017 upon its initial public offering and is now accounted
for as an
available-for-sale
investment.
Investments
presented in the table above have the same fair value as their carrying value. The table below presents the carrying values and estimated fair values of financial instruments not presented in the tables above (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Debt by Fair Value Hierarchy Level
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Long-term debt
|
|
$
|
12,850
|
|
|
$
|
13,217
|
|
|
$
|
|
|
|
$
|
9,640
|
|
|
$
|
3,577
|
|
|
$
|
10,767
|
|
|
$
|
11,055
|
|
|
$
|
|
|
|
$
|
8,184
|
|
|
$
|
2,871
|
|
Fair value of the financial instruments included in the tables above was determined as follows:
|
|
|
Description
|
|
Fair Value Methodology
|
Cash and cash equivalents
|
|
The carrying amounts approximate fair value because of the short-term maturity of these assets.
|
|
|
Short-term investments,
Equity securities, EETC and
Restricted cash
|
|
Fair value is based on (a) the trading prices of the investment or similar instruments, (b) an income approach, which uses valuation techniques to convert future amounts
into a single present amount based on current market expectations about those future amounts when observable trading prices are not available, or (c) broker quotes obtained by third-party valuation services.
|
|
|
Other investments measured at NAV
|
|
In accordance with the relevant accounting standards, certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not
been classified in the fair value hierarchy. The fair value amounts presented in the table above 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.
|
|
|
Long-term debt
|
|
Fair values were based on either market prices or the discounted amount of future cash flows using our current incremental rate of borrowing for similar
liabilities.
|
NOTE
7 - HEDGING
ACTIVITIES
Fuel Derivatives
As of
September 30, 2017, the Company did not have any fuel hedging contracts outstanding to hedge its fuel consumption. The last of the Companys fuel hedge derivatives designated for cash flow hedge accounting expired in December 2016. The
Companys 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.
18
The following table presents the impact of derivative instruments and their location within the
Companys unaudited statements of consolidated operations (in millions):
Derivatives designated as cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
Loss
Recognized
in AOCI on Derivatives
(Effective Portion)
|
|
|
Loss
Reclassified
from
AOCI into
Fuel Expense
|
|
|
|
Three Months Ended
September 30,
|
|
|
Three Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Fuel contracts
|
|
$
|
|
|
|
$
|
(6)
|
|
|
$
|
|
|
|
$
|
(24)
|
|
|
|
|
|
|
Amount of
Loss
Recognized
in AOCI on
Derivatives
(Effective Portion)
|
|
|
Loss
Reclassified
from
AOCI into
Fuel Expense (a)
|
|
|
|
Nine Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Fuel contracts
|
|
$
|
|
|
|
$
|
(5)
|
|
|
$
|
(2)
|
|
|
$
|
(197)
|
|
(a) The 2017 loss reclassified from AOCI into fuel expense represents hedge losses on December 2016 settled trades, but for which the associated fuel
purchased in December was not consumed until January 2017.
NOTE
8 - COMMITMENTS
AND
CONTINGENCIES
Commitments.
As of September 30, 2017, United had firm commitments and options to purchase aircraft from
The Boeing Company (Boeing), Airbus S.A.S. (Airbus), and Embraer S.A. (Embraer) presented in the table below:
|
|
|
|
|
Aircraft Type
|
|
Number of Firm
Commitments (a)
|
|
Airbus A350
|
|
|
45
|
|
Boeing 737 MAX
|
|
|
161
|
|
Boeing
777-300ER
|
|
|
4
|
|
Boeing 787
|
|
|
18
|
|
Embraer E175
|
|
|
5
|
|
(a) United also has options and purchase rights for additional aircraft.
|
|
The aircraft listed in the table above are scheduled for delivery through 2027. To the extent the Company and the
aircraft manufacturers with whom the Company has existing orders for new aircraft agree to modify the contracts governing those orders, the amount and timing of the Companys future capital commitments could change. For the remainder of 2017,
United expects to take delivery of five Embraer E175 aircraft. Additionally, the Company also currently expects to take delivery of four used Airbus A319s and two used Airbus A320s for the remainder of 2017.
19
The table below summarizes Uniteds commitments as of September 30, 2017, which primarily relate
to the acquisition of aircraft and related spare engines, aircraft improvements and include other capital purchase commitments. Any new firm aircraft orders, including through the exercise of purchase options and purchase rights, will increase the
total future capital commitments of the Company.
|
|
|
|
|
|
|
(in billions)
|
|
Last three months of 2017
|
|
$
|
0.9
|
|
2018
|
|
|
3.0
|
|
2019
|
|
|
3.1
|
|
2020
|
|
|
2.2
|
|
2021
|
|
|
1.4
|
|
After 2021
|
|
|
11.4
|
|
|
|
|
|
|
|
|
$
|
22.0
|
|
|
|
|
|
|
United secured individual bank financing for five Embraer E175 aircraft to be delivered in the last three months of 2017.
See Note 9 of this report for additional information on aircraft financing. The Company has also secured backstop financing commitments from certain of its aircraft manufacturers for a limited number of its future aircraft deliveries, subject to
certain customary conditions. Financing may be necessary to satisfy the Companys capital commitments for its firm order aircraft and other related capital expenditures.
Regional CPAs.
In February 2017, United entered into a five-year capacity purchase agreement (CPA) with Air Wisconsin Airlines for regional service under the United Express brand
to operate up to 65 CRJ 200 aircraft.
In the third quarter of 2017, United reached agreements with certain of its regional air partners to
accelerate the retirement of 21 turboprop aircraft from service, modify some aircraft service entry and exit dates, as well as extend the term of up to approximately 125 aircraft under an existing CPA through December 31, 2022. The future
commitments have been incorporated into the table below.
The table below summarizes the Companys future payments through the end of the
terms of our CPAs, excluding variable pass-through costs such as fuel and landing fees, among others.
|
|
|
|
|
|
|
(in billions)
|
|
Last three months of 2017
|
|
$
|
0.5
|
|
2018
|
|
|
2.0
|
|
2019
|
|
|
1.8
|
|
2020
|
|
|
1.6
|
|
2021
|
|
|
1.5
|
|
After 2021
|
|
|
4.6
|
|
|
|
|
|
|
|
|
$
|
12.0
|
|
|
|
|
|
|
Guarantees.
As of September 30, 2017, United is the guarantor of approximately $1.8 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. The leasing arrangements associated with approximately $441 million of these obligations are accounted for as capital leases. All of these bonds are due between 2019 and 2038.
In the Companys financing transactions that include loans, the Company typically agrees to reimburse lenders for any reduced returns
with respect to the loans due to any change in capital requirements and, in the case of loans in which the interest rate is based on the London Interbank Offered Rate (LIBOR), for certain other increased costs that the lenders incur in
carrying these loans as a result of any change in law, subject, in most cases, to obligations of the lenders to take certain limited steps to mitigate the requirement for, or the amount of, such increased costs. At September 30, 2017, the
Company had $3.3 billion of floating rate debt and $68 million of fixed rate debt, with remaining terms of up to 11 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 11 years and an aggregate balance of $3.2 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.
20
As of September 30, 2017, United is the guarantor of $159 million of aircraft mortgage debt issued
by one of Uniteds regional carriers. The aircraft mortgage debt is subject to similar increased cost provisions as described above for the Companys debt and the Company would potentially be responsible for those costs under the
guarantees.
Labor Negotiations.
As of September 30, 2017, United had approximately 89,700 employees, of whom approximately
80% were represented by various U.S. labor organizations.
NOTE
9 - DEBT
As of September 30, 2017, a substantial portion of the Companys assets, principally aircraft, route authorities, airport slots and loyalty
program intangible assets, was pledged under various loan and other agreements. As of September 30, 2017, UAL and United were in compliance with their debt covenants.
2017 Credit and Guaranty Agreement.
On March 29, 2017, United and UAL, as borrower and guarantor, respectively, entered into an Amended and Restated Credit and
Guaranty Agreement (the 2017 Credit Agreement). The 2017 Credit Agreement consists of a $1.5 billion term loan due April 1, 2024, which (i) was used to retire the entire principal balance of the term loans under the credit
and guaranty agreement, dated March 27, 2013 (as amended, the 2013 Credit Agreement), and (ii) increased the term loan balance by approximately $440 million, and a $2.0 billion revolving credit facility available for
drawing until April 1, 2022, which increased the available capacity under the revolving credit facility of the 2013 Credit Agreement. As of September 30, 2017, United had its entire capacity of $2.0 billion available under the
revolving credit facility. The obligations of United under the 2017 Credit Agreement are secured by liens on certain international route authorities, certain
take-off
and landing rights and related assets of
United.
Borrowings under the 2017 Credit Agreement bear interest at a variable rate equal to LIBOR, subject to a 0% floor, plus a margin of
2.25% per annum, or another rate based on certain market interest rates, plus a margin of 1.25% per annum. The principal amount of the term loan must be repaid in consecutive quarterly installments of 0.25% of the original principal amount
thereof, commencing on June 30, 2017, with any unpaid balance due on April 1, 2024. United may prepay all or a portion of the loan from time to time, at par plus accrued and unpaid interest. United pays a commitment fee equal to
0.75% per annum on the undrawn amount available under the revolving credit facility.
The 2017 Credit Agreement includes covenants that,
among other things, require the Company to maintain at least $2.0 billion of unrestricted liquidity and a minimum ratio of appraised value of collateral to the outstanding obligations under the Credit Agreement of 1.60 to 1.0. The 2017 Credit
Agreement contains events of default customary for this type of financing, including a cross default and cross acceleration provision to certain other material indebtedness of the Company. Under the provisions of the 2017 Credit Agreement,
UALs ability to make investments and to pay dividends on, or repurchase, UALs common stock is restricted.
EETCs
.
In September 2016 and June 2016, United created EETC pass-through trusts, each of which issued pass-through certificates. The
proceeds of the issuance of the pass-through certificates are used to purchase equipment notes issued by United and secured by its aircraft. The Company records the debt obligation upon issuance of the equipment notes rather than upon the initial
issuance of the pass-through certificates. The pass-through certificates represent fractional undivided interests in the respective pass-through trusts and are not obligations of United. The payment obligations under the equipment notes are those of
United. Proceeds received from the sale of pass-through certificates are initially held by a depositary in escrow for the benefit of the certificate holders until United issues equipment notes to the trust, which purchases such notes with a portion
of the escrowed funds. These escrowed funds are not guaranteed by United and are not reported as debt on our consolidated balance sheet because the proceeds held by the depositary are not Uniteds assets. Certain details of the pass-through
trusts with proceeds received from issuance of debt in 2017 are as follows (in millions, except stated interest rate):
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EETC Date
|
|
Class
|
|
Principal
|
|
|
Final expected
distribution date
|
|
Stated
interest
rate
|
|
|
Total
debt
recorded
as of September 30,
2017
|
|
|
Proceeds
received
from
issuance of
debt during
2017
|
|
September 2016
|
|
AA
|
|
$
|
637
|
|
|
October 2028
|
|
|
2.875%
|
|
|
$
|
637
|
|
|
$
|
557
|
|
September 2016
|
|
A
|
|
|
283
|
|
|
October 2028
|
|
|
3.10%
|
|
|
|
283
|
|
|
|
247
|
|
June 2016
|
|
AA
|
|
|
729
|
|
|
July 2028
|
|
|
3.10%
|
|
|
|
729
|
|
|
|
319
|
|
June 2016
|
|
A
|
|
|
324
|
|
|
July 2028
|
|
|
3.45%
|
|
|
|
324
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,973
|
|
|
|
|
|
|
|
|
$
|
1,973
|
|
|
$
|
1,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured Notes Payable.
In the first nine months of 2017, United borrowed approximately $392 million
aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2017. The notes evidencing these borrowings, which are secured by the related aircraft, mature in 2027 and each has an interest
rate comprised of LIBOR plus a specified margin.
4.25% Senior Notes due 2022.
In September 2017, UAL issued $400 million
aggregate principal amount of 4.25% Senior Notes due October 1, 2022 (the 4.25% Senior Notes due 2022). These notes are fully and unconditionally guaranteed and recorded by United on its balance sheet as debt. The indenture for the
4.25% Senior Notes due 2022 requires UAL to offer to repurchase the notes for cash at a purchase price equal to 101% of the principal amount of notes repurchased plus accrued and unpaid interest if certain changes of control of UAL occur.
5% Senior Notes due 2024.
In January 2017, UAL issued $300 million aggregate principal amount of 5% Senior Notes due
February 1, 2024 (the 5% Senior Notes due 2024). These notes are fully and unconditionally guaranteed and recorded by United on its balance sheet as debt. The indenture for the 5% Senior Notes due 2024 requires UAL to offer to
repurchase the notes for cash at a purchase price equal to 101% of the principal amount of notes repurchased plus accrued and unpaid interest if certain changes of control of UAL occur.
The table below presents the Companys contractual principal payments (not including debt discount or debt issuance costs) at September 30, 2017 under then-outstanding long-term debt agreements
(in millions):
|
|
|
|
|
Last three months of 2017
|
|
$
|
184
|
|
2018
|
|
|
1,527
|
|
2019
|
|
|
1,115
|
|
2020
|
|
|
1,120
|
|
2021
|
|
|
1,107
|
|
After 2021
|
|
|
7,963
|
|
|
|
|
|
|
|
|
$
|
13,016
|
|
|
|
|
|
|
22
NOTE 10 - SPECIAL CHARGES
For the three and nine months ended September 30, special charges consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
Operating:
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Severance and benefit costs
|
|
$
|
23
|
|
|
$
|
13
|
|
|
$
|
101
|
|
|
$
|
27
|
|
Impairment of assets
|
|
|
15
|
|
|
|
|
|
|
|
15
|
|
|
|
412
|
|
Labor agreement costs
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
124
|
|
Cleveland airport lease restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
|
|
(Gains) losses on sale of assets and other special charges
|
|
|
12
|
|
|
|
18
|
|
|
|
29
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special charges
|
|
|
50
|
|
|
|
45
|
|
|
|
145
|
|
|
|
669
|
|
Nonoperating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (gain) loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special charges before income taxes
|
|
|
50
|
|
|
|
45
|
|
|
|
145
|
|
|
|
668
|
|
Income tax benefit related to special charges
|
|
|
(18)
|
|
|
|
(16)
|
|
|
|
(52)
|
|
|
|
(241)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total special charges, net of tax
|
|
$
|
32
|
|
|
$
|
29
|
|
|
$
|
93
|
|
|
$
|
427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three and nine months ended September 30, 2017, the Company recorded $16 million
($10 million net of taxes) and $73 million ($47 million net of taxes), respectively, of severance and benefit costs related to a voluntary
early-out
program for its technicians and related
employees represented by the International Brotherhood of Teamsters (the IBT). In the first quarter of 2017, approximately 1,000 technicians and related employees elected to voluntarily separate from the Company and will receive a
severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through early 2019. Also during the three and nine months ended September 30, 2017, the Company recorded $7 million
($5 million net of taxes) and $28 million ($18 million net of taxes), respectively, of severance primarily related to its management reorganization initiative.
During the three and nine months ended September 30, 2016, the Company recorded $13 million ($8 million net of taxes) and $27 million ($17 million net of taxes), respectively, of
severance and benefit costs primarily related to a voluntary
early-out
program for its flight attendants.
During the three months ended September 30, 2017, the Company recorded a $15 million ($10 million net of taxes) intangible asset impairment charge related to a maintenance service
agreement.
In April 2016, the Federal Aviation Administration (FAA) announced that, effective October 30, 2016, it would
designate Newark Liberty International Airport (Newark) as a Level 2 schedule-facilitated airport under the International Air Transport Association Worldwide Slot Guidelines. The designation was associated with an updated demand and
capacity analysis of Newark by the FAA. In the second quarter of 2016, the Company determined that the FAAs 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.
During the nine months ended September 30, 2016, the fleet service, passenger service, storekeeper and other employees represented by the
International Association of Machinists and Aerospace Workers (the IAM) ratified seven new contracts with the Company which extended the contracts through 2021. The Company also reached a tentative agreement with the IBT during the same
time period. During the three and nine months ended September 30, 2016, the Company recorded $61 million ($39 million net of taxes) and $171 million ($109 million net of taxes), respectively, of special charges primarily for
payments in conjunction with the IAM and IBT agreements described above. Also, as part of its contract with the Association of Flight Attendants, 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 the nine months ended September 30, 2016, the City of Cleveland agreed to amend the Companys lease, which runs through 2029, associated
with certain excess airport terminal space (principally Terminal D) and related facilities at Hopkins International Airport. The Company recorded an accrual for remaining payments under the lease for facilities that the Company
23
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 special charge of $74 million ($47 million net of taxes) related to the amended lease.
Accrual
The accrual balance for severance and benefits was $31 million as of
September 30, 2017, compared to $34 million as of September 30, 2016. The severance-related accrual as of September 30, 2017 is expected to be mostly paid through early 2019. The accrual balance for future lease payments on
permanently grounded aircraft was $28 million as of September 30, 2017, compared to $41 million as of September 30, 2016. The grounded aircraft related accrual as of September 30, 2017 is expected to be mostly paid through
2025. The following is a reconciliation of severance and permanently grounded aircraft accrual activity for the nine months ended September 30:
|
|
|
|
|
|
|
|
|
|
|
Severance and
Benefits
|
|
|
Permanently
Grounded
Aircraft
|
|
Balance at December 31, 2016
|
|
$
|
14
|
|
|
$
|
41
|
|
Accrual
|
|
|
101
|
|
|
|
|
|
Payments
|
|
|
(84)
|
|
|
|
(13)
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2017
|
|
$
|
31
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and
Benefits
|
|
|
Permanently
Grounded
Aircraft
|
|
Balance at December 31, 2015
|
|
$
|
27
|
|
|
$
|
78
|
|
Accrual
|
|
|
27
|
|
|
|
(17)
|
|
Payments
|
|
|
(20)
|
|
|
|
(20)
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2016
|
|
$
|
34
|
|
|
$
|
41
|
|
|
|
|
|
|
|
|
|
|
24
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|
Overview
United Continental Holdings,
Inc. (together with its consolidated subsidiaries, UAL or the Company) is a holding company and its principal, wholly-owned subsidiary is United Airlines, Inc. (together with its consolidated subsidiaries,
United). This Quarterly Report on Form
10-Q
is a combined report of UAL and United including their respective consolidated financial statements. As UAL consolidates United for financial statement
purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted. Uniteds operating revenues and operating expenses comprise nearly 100% of UALs revenues and operating expenses. In addition, United
comprises approximately the entire balance of UALs assets, liabilities and operating cash flows. When appropriate, UAL and United are named specifically for their individual contractual obligations and related disclosures and any significant
differences between the operations and results of UAL and United are separately disclosed and explained. We sometimes use the words we, our, us, and the Company in this report for disclosures that
relate to all of UAL and United.
The Company transports people and cargo through its mainline operations, which utilize
jet aircraft with at least 118 seats, and regional operations, which utilize smaller aircraft that are operated under contract by United Express carriers. The Company serves virtually every major market around the world, either directly or through
participation in Star Alliance
®
, the worlds largest airline alliance. UAL, through United and its regional
carriers, operates approximately 4,500 flights a day to 337 airports across five continents.
Third Quarter Financial
Highlights
|
|
|
Third quarter 2017 net income was $637 million, or $2.12 diluted earnings per share, as compared to net income of $965 million, or diluted
earnings per share of $3.01, in the third quarter of 2016.
|
|
|
|
During the quarter, the Company canceled approximately 8,300 flights as a result of severe weather in southeast Texas, Florida and parts of the
Caribbean. The operational disruption reduced third quarter income before income taxes by an estimated $185 million.
|
|
|
|
Passenger revenue decreased 0.9% to $8.5 billion during the third quarter of 2017 as compared to the third quarter of 2016. Revenue was impacted
by an estimated $210 million due to the operational disruption.
|
|
|
|
Third quarter 2017 aircraft fuel cost increased $206 million, 12.9% year-over-year.
|
|
|
|
Unrestricted liquidity at September 30, 2017 was $6.3 billion, including $2.0 billion of undrawn commitments under the Companys
revolving credit facility.
|
|
|
|
In the three months ended September 30, 2017, UAL repurchased approximately 8 million of its common stock in open market transactions for
$0.6 billion. As of September 30, 2017, the Company had $0.6 billion remaining to purchase shares under its existing share repurchase authority.
|
Third Quarter Operational Highlights
|
|
|
United achieved the best-ever third-quarter consolidated
on-time
departures in its history.
|
|
|
|
Consolidated traffic increased 1.7% and consolidated capacity increased 3% during the third quarter of 2017 as compared to the third quarter of 2016.
The Companys load factor for the third quarter of 2017 was 84.4%.
|
|
|
|
The Company took delivery of one Boeing
787-9
aircraft, four Boeing
737-800
aircraft and nine Embraer E175 aircraft during the third quarter of 2017.
|
25
Outlook
The Company expects full-year 2017 consolidated capacity to increase approximately 3.5% year-over-year. Domestic capacity is expected to increase approximately 4.5% year-over-year and international
capacity is expected to increase approximately 2.0% year-over-year.
As outlined at our November 2016 Investor Day presentation, the Company
expects to drive significant incremental value by 2020 relative to 2015. United anticipates capturing this value through a variety of initiatives including a
re-fleeting
and upgauge program, additional
customer choice through segmentation, improvements to the revenue management systems, ongoing sensible cost management, realizing our full network potential through improved schedule quality and enhancements to the MileagePlus program. In addition,
the Company will continue to focus on improving reliability while increasing the efficiency of the operation.
The price of jet fuel remains
volatile. Based on projected fuel consumption in 2017, a one dollar change in the price of a barrel of crude oil would change the Companys annual fuel expense by approximately $95 million.
RESULTS OF OPERATIONS
The following
discussion provides an analysis of results of operations and reasons for material changes therein for the three months ended September 30, 2017 as compared to the corresponding period in 2016.
Third Quarter 2017 Compared to Third Quarter 2016
The Company recorded net income of $637 million in the third quarter of 2017 as compared to net income of $965 million in the third quarter of 2016. The Company considers a key measure of its
performance to be operating income, which was $1.1 billion for the third quarter of 2017, as compared to $1.6 billion for the third quarter of 2016, a $532 million decrease year-over-year. Third quarter 2017 income before income taxes
was negatively impacted by an estimated $185 million as a result of severe weather in southeast Texas, Florida and parts of the Caribbean. Significant components of the Companys operating results for the three months ended
September 30 are as follows (in millions, except percentage changes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase
(Decrease)
|
|
|
% Increase
(Decrease)
|
|
Operating revenue
|
|
$
|
9,878
|
|
|
$
|
9,913
|
|
|
$
|
(35)
|
|
|
|
(0.4)
|
|
Operating expense
|
|
|
8,786
|
|
|
|
8,289
|
|
|
|
497
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,092
|
|
|
|
1,624
|
|
|
|
(532)
|
|
|
|
(32.8)
|
|
Nonoperating expense
|
|
|
(112)
|
|
|
|
(114)
|
|
|
|
(2)
|
|
|
|
(1.8)
|
|
Income tax expense
|
|
|
343
|
|
|
|
545
|
|
|
|
(202)
|
|
|
|
(37.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
637
|
|
|
$
|
965
|
|
|
$
|
(328)
|
|
|
|
(34.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Certain consolidated statistical information for the Companys operations for the three months ended
September 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase
(Decrease)
|
|
|
%
Increase
(Decrease)
|
|
Passengers (thousands) (a)
|
|
|
39,302
|
|
|
|
38,651
|
|
|
|
651
|
|
|
|
1.7
|
|
Revenue passenger miles (RPMs) (millions) (b)
|
|
|
59,145
|
|
|
|
58,172
|
|
|
|
973
|
|
|
|
1.7
|
|
Available seat miles (ASMs) (millions) (c)
|
|
|
70,083
|
|
|
|
68,074
|
|
|
|
2,009
|
|
|
|
3.0
|
|
Passenger load factor (d)
|
|
|
84.4%
|
|
|
|
85.5%
|
|
|
|
(1.1) pts.
|
|
|
|
N/A
|
|
Passenger revenue per available seat mile (PRASM) (cents)
|
|
|
12.17
|
|
|
|
12.64
|
|
|
|
(0.47)
|
|
|
|
(3.7)
|
|
Average yield per revenue passenger mile (Yield) (cents) (e)
|
|
|
14.42
|
|
|
|
14.79
|
|
|
|
(0.37)
|
|
|
|
(2.5)
|
|
Cost per available seat mile (CASM) (cents)
|
|
|
12.54
|
|
|
|
12.18
|
|
|
|
0.36
|
|
|
|
3.0
|
|
Average price per gallon of fuel, including fuel taxes
|
|
$
|
1.70
|
|
|
$
|
1.52
|
|
|
$
|
0.18
|
|
|
|
11.8
|
|
Fuel gallons consumed (millions)
|
|
|
1,065
|
|
|
|
1,057
|
|
|
|
8
|
|
|
|
0.8
|
|
Average full-time equivalent employees
|
|
|
87,300
|
|
|
|
85,100
|
|
|
|
2,200
|
|
|
|
2.6
|
|
(a) The
number of revenue passengers measured by each flight segment flown.
(b) The number of scheduled miles flown by revenue passengers.
(c) The number of seats available for passengers multiplied by the number of scheduled miles those seats are flown.
(d) Revenue passenger miles divided by available seat miles.
(e) The average passenger revenue received for each revenue passenger mile flown.
27
Operating Revenue
The table below shows year-over-year comparisons by type of operating revenue for the three months ended September 30 (in millions, except for percentage changes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase
(Decrease)
|
|
|
% Change
|
|
PassengerMainline
|
|
$
|
7,083
|
|
|
$
|
7,017
|
|
|
$
|
66
|
|
|
|
0.9
|
|
PassengerRegional
|
|
|
1,445
|
|
|
|
1,586
|
|
|
|
(141)
|
|
|
|
(8.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total passenger revenue
|
|
|
8,528
|
|
|
|
8,603
|
|
|
|
(75)
|
|
|
|
(0.9)
|
|
Cargo
|
|
|
257
|
|
|
|
224
|
|
|
|
33
|
|
|
|
14.7
|
|
Other operating revenue
|
|
|
1,093
|
|
|
|
1,086
|
|
|
|
7
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
|
$
|
9,878
|
|
|
$
|
9,913
|
|
|
$
|
(35)
|
|
|
|
(0.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below presents selected third quarter passenger revenue and operating data, broken out by geographic region,
expressed as year-over-year changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
Atlantic
|
|
|
Pacific
|
|
|
Latin
|
|
|
|
|
|
Total
Consolidated
|
|
|
|
|
|
Mainline
|
|
|
Regional
|
|
Increase (decrease) from 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger revenue (in millions)
|
|
$
|
(2)
|
|
|
$
|
3
|
|
|
$
|
(109)
|
|
|
$
|
33
|
|
|
|
|
|
|
$
|
(75)
|
|
|
|
|
|
|
$
|
66
|
|
|
$
|
(141)
|
|
Passenger revenue
|
|
|
%
|
|
|
|
0.2 %
|
|
|
|
(9.3)%
|
|
|
|
4.7 %
|
|
|
|
|
|
|
|
(0.9)%
|
|
|
|
|
|
|
|
0.9 %
|
|
|
|
(8.9)%
|
|
Average fare per passenger
|
|
|
(2.2)%
|
|
|
|
(0.1)%
|
|
|
|
(6.0)%
|
|
|
|
3.8 %
|
|
|
|
|
|
|
|
(2.5)%
|
|
|
|
|
|
|
|
(4.9)%
|
|
|
|
0.4 %
|
|
Yield
|
|
|
(3.2)%
|
|
|
|
(0.9)%
|
|
|
|
(6.6)%
|
|
|
|
3.4 %
|
|
|
|
|
|
|
|
(2.5)%
|
|
|
|
|
|
|
|
(2.1)%
|
|
|
|
1.9 %
|
|
PRASM
|
|
|
(4.4)%
|
|
|
|
(0.4)%
|
|
|
|
(10.4)%
|
|
|
|
3.5 %
|
|
|
|
|
|
|
|
(3.7)%
|
|
|
|
|
|
|
|
(3.1)%
|
|
|
|
(1.8)%
|
|
Passengers
|
|
|
2.2 %
|
|
|
|
0.3 %
|
|
|
|
(3.5)%
|
|
|
|
0.9 %
|
|
|
|
|
|
|
|
1.7 %
|
|
|
|
|
|
|
|
6.1 %
|
|
|
|
(9.2)%
|
|
RPMs (traffic)
|
|
|
3.3 %
|
|
|
|
1.1 %
|
|
|
|
(2.9)%
|
|
|
|
1.3 %
|
|
|
|
|
|
|
|
1.7 %
|
|
|
|
|
|
|
|
3.2 %
|
|
|
|
(10.6)%
|
|
ASMs (capacity)
|
|
|
4.6 %
|
|
|
|
0.6 %
|
|
|
|
1.2 %
|
|
|
|
1.3 %
|
|
|
|
|
|
|
|
3.0 %
|
|
|
|
|
|
|
|
4.2 %
|
|
|
|
(7.2)%
|
|
Passenger load factor (points)
|
|
|
(1.1)
|
|
|
|
0.4
|
|
|
|
(3.5)
|
|
|
|
|
|
|
|
|
|
|
|
(1.1)
|
|
|
|
|
|
|
|
(0.9)
|
|
|
|
(3.0)
|
|
Consolidated passenger revenue in the third quarter of 2017 decreased $75 million, or 0.9%, as compared to the
year-ago
period primarily due to a 1.1 percentage point decrease in load factor. Third quarter 2017 consolidated PRASM and consolidated yield decreased 3.7% and 2.5%, respectively, compared to the third quarter of
2016. The Pacific region experienced a 10.4% decline in PRASM in the third quarter of 2017 as compared to the
year-ago
period due to unfavorable supply and demand dynamics in China. The Domestic region
experienced a 4.4% and a 3.2% decline in PRASM and yield, respectively, as compared to the
year-ago
period due to severe weather in southeast Texas, Florida, and parts of the Caribbean, uncompetitive Basic
Economy pricing, and competitive pricing environment with
ultra-low-cost
carriers.
Cargo revenue increased $33 million, or 14.7%, in the third quarter of 2017 as compared to the
year-ago
period primarily due to higher international freight
volume.
28
Operating Expenses
The table below includes data related to the Companys operating expenses for the three months ended September 30 (in millions, except for percentage changes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase
(Decrease)
|
|
|
% Change
|
|
Salaries and related costs
|
|
$
|
2,812
|
|
|
$
|
2,625
|
|
|
$
|
187
|
|
|
|
7.1
|
|
Aircraft fuel
|
|
|
1,809
|
|
|
|
1,603
|
|
|
|
206
|
|
|
|
12.9
|
|
Landing fees and other rent
|
|
|
585
|
|
|
|
546
|
|
|
|
39
|
|
|
|
7.1
|
|
Regional capacity purchase
|
|
|
567
|
|
|
|
572
|
|
|
|
(5)
|
|
|
|
(0.9)
|
|
Depreciation and amortization
|
|
|
556
|
|
|
|
503
|
|
|
|
53
|
|
|
|
10.5
|
|
Aircraft maintenance materials and outside repairs
|
|
|
451
|
|
|
|
451
|
|
|
|
|
|
|
|
|
|
Distribution expenses
|
|
|
352
|
|
|
|
345
|
|
|
|
7
|
|
|
|
2.0
|
|
Aircraft rent
|
|
|
145
|
|
|
|
168
|
|
|
|
(23)
|
|
|
|
(13.7)
|
|
Special charges
|
|
|
50
|
|
|
|
45
|
|
|
|
5
|
|
|
|
NM
|
|
Other operating expenses
|
|
|
1,459
|
|
|
|
1,431
|
|
|
|
28
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
8,786
|
|
|
$
|
8,289
|
|
|
$
|
497
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and related costs increased $187 million, or 7.1%, in the third quarter of 2017 as compared to the
year-ago
period primarily due to higher pay rates and benefit expenses driven by collective bargaining agreements finalized in 2016, and a 2.6% increase in average full-time equivalent employees, partially offset by
a decrease in profit sharing and other employee incentive programs expense.
Aircraft fuel expense increased $206 million, or 12.9%,
year-over-year primarily due to an 11.8% increase in the average price per gallon of aircraft fuel in the third quarter of 2017 compared to the
year-ago
period. The table below presents the significant changes
in aircraft fuel cost per gallon in the three month period ended September 30, 2017 as compared to the
year-ago
period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Average price per gallon
|
|
|
|
2017
|
|
|
2016
|
|
|
%
Change
|
|
|
2017
|
|
|
2016
|
|
|
%
Change
|
|
Total aircraft fuel purchase cost excluding fuel hedge impacts
|
|
$
|
1,809
|
|
|
$
|
1,579
|
|
|
|
14.6
|
|
|
$
|
1.70
|
|
|
$
|
1.49
|
|
|
|
14.1
|
|
Hedge losses reported in fuel expense
|
|
|
|
|
|
|
24
|
|
|
|
NM
|
|
|
|
|
|
|
|
0.03
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel expense
|
|
$
|
1,809
|
|
|
$
|
1,603
|
|
|
|
12.9
|
|
|
$
|
1.70
|
|
|
$
|
1.52
|
|
|
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fuel consumption (gallons)
|
|
|
1,065
|
|
|
|
1,057
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Landing fees and other rent increased $39 million, or 7.1%, in the third quarter of 2017 as compared to the
year-ago
period due to higher rental rates and a 3% increase in consolidated capacity.
Depreciation and
amortization increased $53 million, or 10.5%, in the third quarter of 2017 as compared to the
year-ago
period, primarily due to additions of new aircraft, aircraft improvements and increases in
information technology assets.
Aircraft rent decreased $23 million, or 13.7%, in the third quarter of 2017 as compared to the
year-ago
period, primarily due to the purchase of leased aircraft and lower lease renewal rates.
Details of
the Companys special charges include the following for the three months ended September 30 (in millions):
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Severance and benefit costs
|
|
$
|
23
|
|
|
$
|
13
|
|
Impairment of assets
|
|
|
15
|
|
|
|
|
|
Labor agreement costs
|
|
|
|
|
|
|
14
|
|
(Gains) losses on sale of assets and other special charges
|
|
|
12
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Special charges
|
|
$
|
50
|
|
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
29
See Note 10 to the financial statements included in Part I, Item 1 of this report for additional
information.
Nonoperating Income (Expense).
The following table illustrates the year-over-year dollar and percentage changes in the
Companys nonoperating income (expense) for the three months ended September 30 (in millions, except for percentage changes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase
(Decrease)
|
|
|
%
Change
|
|
Interest expense
|
|
$
|
(164)
|
|
|
$
|
(150)
|
|
|
$
|
14
|
|
|
|
9.3
|
|
Interest capitalized
|
|
|
20
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
17
|
|
|
|
14
|
|
|
|
3
|
|
|
|
21.4
|
|
Miscellaneous, net
|
|
|
15
|
|
|
|
2
|
|
|
|
13
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(112)
|
|
|
$
|
(114)
|
|
|
$
|
(2)
|
|
|
|
(1.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Taxes.
See Note 4 to the financial statements included in Part I, Item 1 of this report for information
related to income taxes.
First Nine Months 2017 Compared to First Nine Months 2016
The Company recorded net income of $1.6 billion in the first nine months of 2017 as compared to net income of $1.9 billion in the first nine
months of 2016. The Company considers a key measure of its performance to be operating income, which was $2.8 billion for the first nine months of 2017 as compared to $3.3 billion for the first nine months of 2016, a $564 million
decrease year-over-year. Income before income taxes for the first nine months of 2017 was negatively impacted by an estimated $185 million as a result of severe weather in southeast Texas, Florida and parts of the Caribbean. Significant
components of the Companys operating results for the nine months ended September 30 are as follows (in millions, except percentage changes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase
(Decrease)
|
|
|
% Increase
(Decrease)
|
|
Operating revenue
|
|
$
|
28,298
|
|
|
$
|
27,504
|
|
|
$
|
794
|
|
|
|
2.9
|
|
Operating expense
|
|
|
25,529
|
|
|
|
24,171
|
|
|
|
1,358
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,769
|
|
|
|
3,333
|
|
|
|
(564)
|
|
|
|
(16.9)
|
|
Nonoperating expense
|
|
|
(370)
|
|
|
|
(398)
|
|
|
|
(28)
|
|
|
|
(7.0)
|
|
Income tax expense
|
|
|
848
|
|
|
|
1,069
|
|
|
|
(221)
|
|
|
|
(20.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,551
|
|
|
$
|
1,866
|
|
|
$
|
(315)
|
|
|
|
(16.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Certain consolidated statistical information for the Companys operations for the nine months ended
September 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase
(Decrease)
|
|
|
%
Increase
(Decrease)
|
|
Passengers (thousands) (a)
|
|
|
110,654
|
|
|
|
107,154
|
|
|
|
3,500
|
|
|
|
3.3
|
|
RPMs (millions) (b)
|
|
|
163,112
|
|
|
|
158,771
|
|
|
|
4,341
|
|
|
|
2.7
|
|
ASMs (millions) (c)
|
|
|
197,358
|
|
|
|
191,072
|
|
|
|
6,286
|
|
|
|
3.3
|
|
Passenger load factor (d)
|
|
|
82.6%
|
|
|
|
83.1%
|
|
|
|
(0.5) pts.
|
|
|
|
N/A
|
|
PRASM (cents)
|
|
|
12.32
|
|
|
|
12.40
|
|
|
|
(0.08)
|
|
|
|
(0.6)
|
|
Yield (cents) (e)
|
|
|
14.91
|
|
|
|
14.92
|
|
|
|
(0.01)
|
|
|
|
(0.1)
|
|
CASM (cents)
|
|
|
12.94
|
|
|
|
12.65
|
|
|
|
0.29
|
|
|
|
2.3
|
|
Average price per gallon of fuel, including fuel taxes
|
|
$
|
1.68
|
|
|
$
|
1.45
|
|
|
$
|
0.23
|
|
|
|
15.9
|
|
Fuel gallons consumed (millions)
|
|
|
2,998
|
|
|
|
2,942
|
|
|
|
56
|
|
|
|
1.9
|
|
Average full-time equivalent employees
|
|
|
86,200
|
|
|
|
83,600
|
|
|
|
2,600
|
|
|
|
3.1
|
|
(a) The
number of revenue passengers measured by each flight segment flown.
(b) The number of scheduled miles flown by revenue passengers.
(c) The number of seats available for passengers multiplied by the number of scheduled miles those seats are flown.
(d) Revenue passenger miles divided by available seat miles.
(e) The average passenger revenue received for each revenue passenger mile flown.
31
Operating Revenue
The table below shows year-over-year comparisons by type of operating revenue for the nine months ended September 30 (in millions, except for percentage changes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase
(Decrease)
|
|
|
% Change
|
|
PassengerMainline
|
|
$
|
19,970
|
|
|
$
|
19,119
|
|
|
$
|
851
|
|
|
|
4.5
|
|
PassengerRegional
|
|
|
4,354
|
|
|
|
4,577
|
|
|
|
(223)
|
|
|
|
(4.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total passenger revenue
|
|
|
24,324
|
|
|
|
23,696
|
|
|
|
628
|
|
|
|
2.7
|
|
Cargo
|
|
|
731
|
|
|
|
626
|
|
|
|
105
|
|
|
|
16.8
|
|
Other operating revenue
|
|
|
3,243
|
|
|
|
3,182
|
|
|
|
61
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
|
$
|
28,298
|
|
|
$
|
27,504
|
|
|
$
|
794
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below presents selected passenger revenue and operating data, broken out by geographic region, expressed as
year-over-year changes for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
Atlantic
|
|
|
Pacific
|
|
|
Latin
|
|
|
|
|
Total
Consolidated
|
|
|
|
|
Mainline
|
|
|
Regional
|
|
Increase (decrease) from 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger revenue (in millions)
|
|
$
|
523
|
|
|
$
|
37
|
|
|
$
|
(84)
|
|
|
$
|
152
|
|
|
|
|
$
|
628
|
|
|
|
|
$
|
851
|
|
|
$
|
(223)
|
|
Passenger revenue
|
|
|
3.7 %
|
|
|
|
0.9 %
|
|
|
|
(2.7)%
|
|
|
|
7.2 %
|
|
|
|
|
|
2.7 %
|
|
|
|
|
|
4.5 %
|
|
|
|
(4.9)%
|
|
Average fare per passenger
|
|
|
(0.2)%
|
|
|
|
1.2 %
|
|
|
|
(1.6)%
|
|
|
|
4.1 %
|
|
|
|
|
|
(0.6)%
|
|
|
|
|
|
(2.9)%
|
|
|
|
2.1 %
|
|
Yield
|
|
|
(0.6)%
|
|
|
|
0.7 %
|
|
|
|
(3.2)%
|
|
|
|
4.7 %
|
|
|
|
|
|
(0.1)%
|
|
|
|
|
|
0.4 %
|
|
|
|
2.7 %
|
|
PRASM
|
|
|
(0.8)%
|
|
|
|
1.5 %
|
|
|
|
(6.8)%
|
|
|
|
4.5 %
|
|
|
|
|
|
(0.6)%
|
|
|
|
|
|
%
|
|
|
|
0.5 %
|
|
Passengers
|
|
|
3.8 %
|
|
|
|
(0.3)%
|
|
|
|
(1.1)%
|
|
|
|
2.9 %
|
|
|
|
|
|
3.3 %
|
|
|
|
|
|
7.5 %
|
|
|
|
(6.9)%
|
|
RPMs (traffic)
|
|
|
4.3 %
|
|
|
|
0.1 %
|
|
|
|
0.5 %
|
|
|
|
2.3 %
|
|
|
|
|
|
2.7 %
|
|
|
|
|
|
4.0 %
|
|
|
|
(7.4)%
|
|
ASMs (capacity)
|
|
|
4.5 %
|
|
|
|
(0.6)%
|
|
|
|
4.4 %
|
|
|
|
2.5 %
|
|
|
|
|
|
3.3 %
|
|
|
|
|
|
4.4 %
|
|
|
|
(5.4)%
|
|
Passenger load factor (points)
|
|
|
(0.2)
|
|
|
|
0.6
|
|
|
|
(3.2)
|
|
|
|
(0.1)
|
|
|
|
|
|
(0.5)
|
|
|
|
|
|
(0.3)
|
|
|
|
(1.7)
|
|
Consolidated passenger revenue in the first nine months of 2017 increased $628 million, or 2.7%, as compared to the
year-ago
period primarily due to a 2.7% increase in traffic. Consolidated PRASM and consolidated yield for the first nine months of 2017 decreased 0.6% and 0.1%, respectively, as compared to the first nine months of
2016. The Pacific region experienced a 6.8% decline in PRASM in the first nine months of 2017 as compared to the
year-ago
period due to unfavorable supply and demand dynamics in China. The Domestic region
experienced a 0.8% and a 0.6% decline in PRASM and yield, respectively, as compared to the
year-ago
period due to severe weather in southeast Texas, Florida and parts of the Caribbean, uncompetitive Basic
Economy pricing, and competitive pricing environment with
ultra-low-cost
carriers.
Cargo revenue increased $105 million, or 16.8%, in the first nine months of 2017 as compared to the
year-ago
period primarily due to higher international
freight volume.
32
Operating Expenses
The table below includes data related to the Companys operating expenses for the nine months ended September 30 (in millions, except for percentage changes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase
(Decrease)
|
|
|
% Change
|
|
Salaries and related costs
|
|
$
|
8,341
|
|
|
$
|
7,707
|
|
|
$
|
634
|
|
|
|
8.2
|
|
Aircraft fuel
|
|
|
5,038
|
|
|
|
4,258
|
|
|
|
780
|
|
|
|
18.3
|
|
Landing fees and other rent
|
|
|
1,670
|
|
|
|
1,612
|
|
|
|
58
|
|
|
|
3.6
|
|
Regional capacity purchase
|
|
|
1,652
|
|
|
|
1,645
|
|
|
|
7
|
|
|
|
0.4
|
|
Depreciation and amortization
|
|
|
1,610
|
|
|
|
1,473
|
|
|
|
137
|
|
|
|
9.3
|
|
Aircraft maintenance materials and outside repairs
|
|
|
1,377
|
|
|
|
1,301
|
|
|
|
76
|
|
|
|
5.8
|
|
Distribution expenses
|
|
|
1,021
|
|
|
|
987
|
|
|
|
34
|
|
|
|
3.4
|
|
Aircraft rent
|
|
|
476
|
|
|
|
521
|
|
|
|
(45)
|
|
|
|
(8.6)
|
|
Special charges
|
|
|
145
|
|
|
|
669
|
|
|
|
(524)
|
|
|
|
NM
|
|
Other operating expenses
|
|
|
4,199
|
|
|
|
3,998
|
|
|
|
201
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
25,529
|
|
|
$
|
24,171
|
|
|
$
|
1,358
|
|
|
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and related costs increased $634 million, or 8.2%, in the first nine months of 2017 as compared to the
year-ago
period primarily due to higher pay rates and benefit expenses driven by collective bargaining agreements finalized in 2016, and a 3.1% increase in average full-time equivalent employees, partially offset by
a decrease in profit sharing and other employee incentive programs expense.
Aircraft fuel expense increased $780 million, or 18.3%,
year-over-year primarily due to a 15.9% increase in the average price per gallon of aircraft fuel in the first nine months of 2017 compared to the
year-ago
period. The table below presents the significant
changes in aircraft fuel cost per gallon in the nine months ended September 30, 2017 as compared to the
year-ago
period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Average price per gallon
|
|
|
|
2017
|
|
|
2016
|
|
|
%
Change
|
|
|
2017
|
|
|
2016
|
|
|
%
Change
|
|
Total aircraft fuel purchase cost excluding fuel hedge impacts
|
|
$
|
5,036
|
|
|
$
|
4,061
|
|
|
|
24.0
|
|
|
$
|
1.68
|
|
|
$
|
1.38
|
|
|
|
21.7
|
|
Hedge losses reported in fuel expense
|
|
|
2
|
|
|
|
197
|
|
|
|
NM
|
|
|
|
|
|
|
|
0.07
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel expense
|
|
$
|
5,038
|
|
|
$
|
4,258
|
|
|
|
18.3
|
|
|
$
|
1.68
|
|
|
$
|
1.45
|
|
|
|
15.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fuel consumption (gallons)
|
|
|
2,998
|
|
|
|
2,942
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization increased $137 million, or 9.3%, in the first nine months of 2017 as compared to the
year-ago
period, primarily due to additions of new aircraft, aircraft improvements, accelerated depreciation of assets related to certain fleet types and increases in information technology assets.
Aircraft maintenance materials and outside repairs increased $76 million, or 5.8%, in the first nine months of 2017 as compared to the
year-ago
period, primarily due to an increase in airframe and engine maintenance visits due to the cyclical timing of these events.
Aircraft rent decreased $45 million, or 8.6%, in the first nine months of 2017 as compared to the
year-ago
period, primarily due to the purchase of leased
aircraft and lower lease renewal rates.
Other operating expenses increased $201 million, or 5.0%, in the first nine months of 2017 as
compared to the
year-ago
period primarily due to increases in purchased services and technology initiatives, as well as increases in food and other amenities associated with the Companys customer
experience initiatives.
33
Details of the Companys special charges include the following for the nine months ended
September 30 (in millions):
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Severance and benefit costs
|
|
$
|
101
|
|
|
$
|
27
|
|
Impairment of assets
|
|
|
15
|
|
|
|
412
|
|
Labor agreement costs
|
|
|
|
|
|
|
124
|
|
Cleveland airport lease restructuring
|
|
|
|
|
|
|
74
|
|
(Gains) losses on sale of assets and other special charges
|
|
|
29
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
Special charges
|
|
$
|
145
|
|
|
$
|
669
|
|
|
|
|
|
|
|
|
|
|
See Note 10 to the financial statements included in Part I, Item 1 of this report for additional information.
Nonoperating Income (Expense).
The following table illustrates the year-over-year dollar and percentage changes in the Companys
nonoperating income (expense) for the nine months ended September 30 (in millions, except for percentage changes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Increase
(Decrease)
|
|
|
%
Change
|
|
Interest expense
|
|
$
|
(472)
|
|
|
$
|
(466)
|
|
|
$
|
6
|
|
|
|
1.3
|
|
Interest capitalized
|
|
|
64
|
|
|
|
48
|
|
|
|
16
|
|
|
|
33.3
|
|
Interest income
|
|
|
41
|
|
|
|
31
|
|
|
|
10
|
|
|
|
32.3
|
|
Miscellaneous, net
|
|
|
(3)
|
|
|
|
(11)
|
|
|
|
(8)
|
|
|
|
(72.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(370)
|
|
|
$
|
(398)
|
|
|
$
|
(28)
|
|
|
|
(7.0)
|
|
|
|
|
|
|
|
|
|
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Income Taxes.
See Note 4 to the financial statements included in Part I, Item 1 of this report for information
related to income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Current Liquidity
As of September 30, 2017, the Company had $4.3 billion
in unrestricted cash, cash equivalents and short-term investments, as compared to $4.4 billion at December 31, 2016. At September 30, 2017, the Company also had $109 million of restricted cash and cash equivalents, which is
primarily collateral for letters of credit and estimated future workers compensation claims. As of September 30, 2017, the Company had its entire commitment capacity of $2.0 billion under the revolving credit facility of the
Companys Amended and Restated Credit and Guaranty Agreement, dated as of March 29, 2017 (the 2017 Credit Agreement) available for borrowings.
As is the case with many of our principal competitors, we have a high proportion of debt compared to capital and a deficit in working capital. We have a significant amount of fixed obligations, including
debt, aircraft leases and financings, leases of airport property and other facilities, and pension funding obligations. At September 30, 2017, the Company had approximately $13.9 billion of debt and capital lease obligations, including
$1.6 billion that will become due in the next 12 months. In addition, we have substantial noncancelable commitments for capital expenditures, including the acquisition of certain new aircraft and related spare engines. As of September 30,
2017, our current liabilities exceeded our current assets by approximately $5.2 billion. However, approximately $6.5 billion of our current liabilities are related to our advance ticket sales and frequent flyer deferred revenue, both of
which largely represent revenue to be recognized for travel in the near future and not actual cash outlays. The deficit in working capital does not have an adverse impact to our cash flows, liquidity or operations.
34
As of September 30, 2017, United had firm commitments and options to purchase aircraft from The Boeing
Company (Boeing), Airbus S.A.S. (Airbus) and Embraer S.A. (Embraer) presented in the table below:
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Aircraft Type
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Number of Firm
Commitments (a)
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Airbus A350
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45
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Boeing 737 MAX
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161
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Boeing
777-300ER
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4
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Boeing 787
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18
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Embraer E175
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5
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(a) United also has options and purchase rights for additional aircraft.
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The aircraft listed in the table above are scheduled for delivery through 2027. To the extent the Company and the
aircraft manufacturers with whom the Company has existing orders for new aircraft agree to modify the contracts governing those orders, the amount and timing of the Companys future capital commitments could change. For the remainder of 2017,
United expects to take delivery of five Embraer E175 aircraft. Additionally, the Company also currently expects to take delivery of four used Airbus A319s and two used Airbus A320s for the remainder of 2017.
As of September 30, 2017, UAL and United have total capital commitments primarily related to the acquisition of aircraft and related spare engines,
aircraft improvements and include other capital purchase commitments for approximately $22.0 billion, of which approximately $0.9 billion, $3.0 billion, $3.1 billion, $2.2 billion, $1.4 billion and $11.4 billion
are due in the last three months of 2017 and for the full year for 2018, 2019, 2020, 2021 and thereafter, respectively. Any new firm aircraft orders, including through the exercise of purchase options and purchase rights, will increase the total
future capital commitments of the Company.
United secured individual bank financing for five Embraer E175 aircraft to be delivered in the
last three months of 2017. See Note 9 to the financial statements included in Part I, Item 1 of this report for additional information on aircraft financing. The Company has also secured backstop financing commitments from certain of its aircraft
manufacturers for a limited number of its future aircraft deliveries, subject to certain customary conditions. Financing may be necessary to satisfy the Companys capital commitments for its firm order aircraft and other related capital
expenditures.
As of September 30, 2017, a substantial portion of the Companys assets, principally aircraft, route authorities,
airport slots and loyalty program intangible assets, was pledged under various loan and other agreements. We must sustain our profitability and/or access the capital markets to meet our significant long-term debt and capital lease obligations
and future commitments for capital expenditures, including the acquisition of aircraft and related spare engines.
Credit
Ratings.
As of the filing date of this report, UAL and United had the following corporate credit ratings:
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S&P
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Moodys
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Fitch
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UAL
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BB-
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Ba2
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BB
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United
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BB-
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*
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BB
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* The credit agency does not issue corporate credit ratings for subsidiary entities.
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These credit ratings are below investment grade levels. Downgrades from these rating levels, among other things, could
restrict the availability or increase the cost of future financing for the Company.
Sources and Uses of Cash
Operating Activities.
Cash flow provided by operations was $2.7 billion for the nine months ended September 30, 2017
compared to $4.9 billion in the same period in 2016. Operating income for the first nine months of 2017 was $2.8 billion compared to $3.3 billion versus the
year-ago
period. Excluding the
non-cash
impairment of the Newark slots, operating income for the first nine months of 2017 was approximately $1.0 billion lower than the first nine months of 2016. Additionally, there were approximately
$1.2 billion of changes in working capital items primarily related to $0.5 billion decrease in advanced purchase of miles due to increased utilization of
pre-purchased
miles, $0.4 billion
increase in prepayments for maintenance contracts, and $0.2 billion decrease related to timing of accounts payable.
35
Investing Activities.
Capital expenditures were $2.9 billion and $2.3 billion
in the nine months ended September 30, 2017 and 2016, respectively. Capital expenditures for the nine months ended September 30, 2017 were primarily attributable to additions of new aircraft, aircraft improvements, and increases in
information technology assets.
Financing Activities.
During the nine months ended September 30, 2017, the Company
made debt and capital lease payments of $0.8 billion.
On March 29, 2017, United and UAL, as borrower and guarantor, respectively,
entered into the 2017 Credit Agreement. The 2017 Credit Agreement consists of a $1.5 billion term loan due April 1, 2024, which (i) was used to retire the entire principal balance of the term loans under the credit and guaranty
agreement, dated March 27, 2013 (as amended, the 2013 Credit Agreement), and (ii) increased the term loan balance by approximately $440 million, and a $2.0 billion revolving credit facility available for drawing until
April 1, 2022, which increased the available capacity under the revolving credit facility of the 2013 Credit Agreement. As of September 30, 2017, United had its entire capacity of $2.0 billion available under the revolving credit
facility. The obligations of United under the 2017 Credit Agreement are secured by liens on certain international route authorities, certain
take-off
and landing rights and related assets of United. See Note 9
to the financial statements included in Part I, Item 1 of this report for additional information.
In the nine months ended September 30,
2017, United received and recorded $1.3 billion of proceeds as debt from the two EETC pass-through trusts established in 2016. See Note 9 to the financial statements included in Part I, Item 1 of this report for additional information.
In the nine months ended September 30, 2017, United borrowed approximately $392 million aggregate principal amount from various
financial institutions to finance the purchase of several aircraft delivered in 2017. The notes evidencing these borrowings, which are secured by the related aircraft, mature in 2027 and each has an interest rate comprised of LIBOR plus a specified
margin.
In the nine months ended September 30, 2017, UAL received and recorded $400 million proceeds of the 4.25% Senior Notes due
October 1, 2022, and $300 million proceeds of the 5% Senior Notes due February 1, 2024.
Share Repurchase Programs.
In the nine months ended September 30, 2017, UAL repurchased approximately 18 million shares of UAL common stock in open market transactions for $1.3 billion. As of September 30, 2017, the Company had approximately
$0.6 billion remaining to purchase shares under its existing share repurchase authority.
UAL may repurchase shares through the open
market, privately negotiated transactions, block trades or accelerated share repurchase transactions from time to time in accordance with applicable securities laws. UAL will repurchase shares of UAL common stock subject to prevailing market
conditions, and may discontinue such repurchases at any time. See Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds of this report for additional information.
Commitments, Contingencies and Liquidity Matters.
As described in the Companys Annual Report on Form
10-K
for the year ended December 31, 2016 (2016 Annual Report), the Companys liquidity may be adversely impacted by a variety of factors, including, but not limited to, pension funding
obligations, reserve requirements associated with credit card processing agreements, guarantees, commitments and contingencies.
See the 2016
Annual Report and Notes 5, 7, 8 and 9 to the financial statements contained in Part I, Item 1 of this report for additional information.
CRITICAL ACCOUNTING POLICIES
See
Critical Accounting Policies in Managements Discussion and Analysis of Financial Condition and Results of Operations in the 2016 Annual Report and Note 1 to the financial statements contained in Part 1, Item 1 of this report for a
discussion of the Companys critical accounting policies.
36
FORWARD-LOOKING INFORMATION
Certain statements throughout Managements Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report are forward-looking and thus reflect our current
expectations and beliefs with respect to certain current and future events and anticipated financial and operating performance. Such forward-looking statements are and will be subject to many risks and uncertainties relating to our operations and
business environment that may cause actual results to differ materially from any future results expressed or implied in such forward-looking statements. Words such as expects, will, plans, anticipates,
indicates, believes, forecast, guidance, outlook, goals and similar expressions are intended to identify forward-looking statements.
Additionally, forward-looking statements include statements that do not relate solely to historical facts, such as statements which identify
uncertainties or trends, discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward-looking
statements in this report are based upon information available to us on the date of this report. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed
circumstances or otherwise, except as required by applicable law.
Our actual results could differ materially from these forward-looking
statements due to numerous factors including, without limitation, the following: our ability to comply with the terms of our various financing arrangements; the costs and availability of financing; our ability to maintain adequate liquidity; our
ability to execute our operational plans and revenue-generating initiatives, including optimizing our revenue; our ability to control our costs, including realizing benefits from our resource optimization efforts, cost reduction initiatives and
fleet replacement programs; costs associated with any modification or termination of our aircraft orders; our ability to utilize our net operating losses; our ability to attract and retain customers; potential reputational or other impact from
adverse events in our operations; demand for transportation in the markets in which we operate; an outbreak of a disease that affects travel demand or travel behavior; demand for travel and the impact that global economic and political conditions
have on customer travel patterns; excessive taxation and the inability to offset future taxable income; general economic conditions (including interest rates, foreign currency exchange rates, investment or credit market conditions, crude oil prices,
costs of aircraft fuel and energy refining capacity in relevant markets); economic and political instability and other risks of doing business globally; our ability to cost-effectively hedge against increases in the price of aircraft fuel if we
decide to do so; any potential realized or unrealized gains or losses related to fuel or currency hedging programs; the effects of any hostilities, act of war or terrorist attack; the ability of other air carriers with whom we have alliances or
partnerships to provide the services contemplated by the respective arrangements with such carriers; the effects of any technology failures or cybersecurity breaches; disruptions to our regional network; the costs and availability of aviation and
other insurance; industry consolidation or changes in airline alliances; the success of our investments in airlines in other parts of the world; competitive pressures on pricing and on demand; our capacity decisions and the capacity decisions of our
competitors; U.S. or foreign governmental legislation, regulation and other actions (including Open Skies agreements and environmental regulations); the impact of regulatory, investigative and legal proceedings and legal compliance risks; the impact
of any management changes; labor costs; our ability to maintain satisfactory labor relations and the results of any collective bargaining agreement process with our union groups; any disruptions to operations due to any potential actions by our
labor groups; weather conditions; and other risks and uncertainties set forth under Part I, Item 1A., Risk Factors of our 2016 Annual Report, as well as other risks and uncertainties set forth from time to time in the reports we file
with the U.S. Securities and Exchange Commission (the SEC).