Document and Entity Information
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6 Months Ended | |
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Jun. 30, 2015
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Jul. 14, 2015
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Document Information [Line Items] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Jun. 30, 2015 | |
Document Fiscal Year Focus | 2015 | |
Document Fiscal Period Focus | Q2 | |
Trading Symbol | UAL | |
Entity Registrant Name | United Continental Holdings, Inc. | |
Entity Central Index Key | 0000100517 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 377,762,286 | |
United Airlines, Inc.
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Document Information [Line Items] | ||
Entity Registrant Name | United Airlines, Inc. | |
Entity Central Index Key | 0000319687 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Non-accelerated Filer | |
Entity Common Stock, Shares Outstanding | 1,000 |
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The end date of the period reflected on the cover page if a periodic report. For all other reports and registration statements containing historical data, it is the date up through which that historical data is presented. If there is no historical data in the report, use the filing date. The format of the date is CCYY-MM-DD. No definition available.
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Indicate number of shares or other units outstanding of each of registrant's classes of capital or common stock or other ownership interests, if and as stated on cover of related periodic report. Where multiple classes or units exist define each class/interest by adding class of stock items such as Common Class A [Member], Common Class B [Member] or Partnership Interest [Member] onto the Instrument [Domain] of the Entity Listings, Instrument. No definition available.
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Statements of Consolidated Operations (USD $)
In Millions, except Per Share data, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2015
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Jun. 30, 2014
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Jun. 30, 2015
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Jun. 30, 2014
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Operating revenue: | ||||
Passenger-Mainline | $ 6,961 | $ 7,148 | $ 12,899 | $ 12,996 |
Passenger-Regional | 1,715 | 1,833 | 3,197 | 3,369 |
Total passenger revenue | 8,676 | 8,981 | 16,096 | 16,365 |
Cargo | 229 | 232 | 471 | 441 |
Other operating revenue | 1,009 | 1,116 | 1,955 | 2,219 |
Total revenue | 9,914 | 10,329 | 18,522 | 19,025 |
Operating expense: | ||||
Salaries and related costs | 2,454 | 2,187 | 4,755 | 4,340 |
Aircraft fuel | 2,106 | 3,101 | 3,970 | 6,018 |
Regional capacity purchase | 583 | 591 | 1,153 | 1,150 |
Landing fees and other rent | 553 | 567 | 1,096 | 1,139 |
Depreciation and amortization | 445 | 417 | 874 | 826 |
Aircraft maintenance materials and outside repairs | 431 | 471 | 828 | 929 |
Distribution expenses | 348 | 346 | 660 | 664 |
Aircraft rent | 194 | 222 | 395 | 446 |
Special charges (Note 10) | 55 | 169 | 119 | 221 |
Other operating expenses | 1,300 | 1,352 | 2,486 | 2,735 |
Total operating expenses | 8,469 | 9,423 | 16,336 | 18,468 |
Operating income | 1,445 | 906 | 2,186 | 557 |
Nonoperating income (expense): | ||||
Interest expense | (167) | (186) | (340) | (373) |
Interest capitalized | 13 | 13 | 25 | 27 |
Interest income | 6 | 4 | 11 | 9 |
Miscellaneous, net (Note 10) | (100) | 54 | (174) | (35) |
Total other expense | (248) | (115) | (478) | (372) |
Income before income taxes | 1,197 | 791 | 1,708 | 185 |
Income tax expense | 4 | 2 | 7 | 5 |
Net income | 1,193 | 789 | 1,701 | 180 |
Earnings per share, basic | $ 3.14 | $ 2.12 | $ 4.46 | $ 0.48 |
Earnings per share, diluted | $ 3.14 | $ 2.01 | $ 4.45 | $ 0.47 |
United Airlines, Inc.
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Operating revenue: | ||||
Passenger-Mainline | 6,961 | 7,148 | 12,899 | 12,996 |
Passenger-Regional | 1,715 | 1,833 | 3,197 | 3,369 |
Total passenger revenue | 8,676 | 8,981 | 16,096 | 16,365 |
Cargo | 229 | 232 | 471 | 441 |
Other operating revenue | 1,009 | 1,116 | 1,955 | 2,219 |
Total revenue | 9,914 | 10,329 | 18,522 | 19,025 |
Operating expense: | ||||
Salaries and related costs | 2,454 | 2,187 | 4,755 | 4,340 |
Aircraft fuel | 2,106 | 3,101 | 3,970 | 6,018 |
Regional capacity purchase | 583 | 591 | 1,153 | 1,150 |
Landing fees and other rent | 553 | 567 | 1,096 | 1,139 |
Depreciation and amortization | 445 | 417 | 874 | 826 |
Aircraft maintenance materials and outside repairs | 431 | 471 | 828 | 929 |
Distribution expenses | 348 | 346 | 660 | 664 |
Aircraft rent | 194 | 222 | 395 | 446 |
Special charges (Note 10) | 55 | 169 | 119 | 221 |
Other operating expenses | 1,299 | 1,352 | 2,485 | 2,727 |
Total operating expenses | 8,468 | 9,423 | 16,335 | 18,460 |
Operating income | 1,446 | 906 | 2,187 | 565 |
Nonoperating income (expense): | ||||
Interest expense | (167) | (188) | (340) | (377) |
Interest capitalized | 13 | 13 | 25 | 27 |
Interest income | 6 | 4 | 11 | 9 |
Miscellaneous, net (Note 10) | (101) | 36 | (175) | (30) |
Total other expense | (249) | (135) | (479) | (371) |
Income before income taxes | 1,197 | 771 | 1,708 | 194 |
Income tax expense | 4 | 2 | 6 | 5 |
Net income | $ 1,193 | $ 769 | $ 1,702 | $ 189 |
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Statements of Consolidated Comprehensive Income (Loss) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||||||||
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Jun. 30, 2015
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Jun. 30, 2014
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Jun. 30, 2015
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Jun. 30, 2014
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Net income | $ 1,193 | $ 789 | $ 1,701 | $ 180 | ||||||
Other comprehensive income (loss), net change related to: | ||||||||||
Fuel derivative financial instruments | 147 | 32 | 233 | 25 | ||||||
Employee benefit plans | 28 | (18) | 30 | (39) | ||||||
Investments and other | (10) | (5) | 4 | (5) | ||||||
Comprehensive income (loss) adjustments | 165 | [1] | 9 | [1] | 267 | [1] | (19) | [1] | ||
Total comprehensive income, net | 1,358 | 798 | 1,968 | 161 | ||||||
United Airlines, Inc.
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Net income | 1,193 | 769 | 1,702 | 189 | ||||||
Other comprehensive income (loss), net change related to: | ||||||||||
Fuel derivative financial instruments | 147 | 32 | 233 | 25 | ||||||
Employee benefit plans | 28 | (18) | 30 | (39) | ||||||
Investments and other | (9) | (6) | 5 | (5) | ||||||
Comprehensive income (loss) adjustments | 166 | 8 | 268 | (19) | ||||||
Total comprehensive income, net | $ 1,359 | $ 777 | $ 1,970 | $ 170 | ||||||
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Value of revenue deferred for miles purchased by our business partners that have not been awarded to our frequent flyer loyalty program members. The sale of these miles includes marketing and air transportation components. When our partners award the miles to our program members, the marketing component is recognized as other operating revenue and the air transportation component is transferred to deferred revenue. Used to reflect the noncurrent portion of the liability. No definition available.
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Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified |
Jun. 30, 2015
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Dec. 31, 2014
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Receivables, allowance for doubtful accounts | $ 22 | $ 22 |
Aircraft fuel, spare parts and supplies, obsolescence allowance | 187 | 169 |
Intangibles, accumulated amortization | 1,093 | 1,049 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common shares, authorized | 1,000,000,000 | 1,000,000,000 |
Common shares, outstanding | 378,838,875 | 374,525,916 |
United Airlines, Inc.
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Receivables, allowance for doubtful accounts | 22 | 22 |
Aircraft fuel, spare parts and supplies, obsolescence allowance | 187 | 169 |
Intangibles, accumulated amortization | $ 1,093 | $ 1,049 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common shares, authorized | 1,000 | 1,000 |
Common shares, issued | 1,000 | 1,000 |
Common shares, outstanding | 1,000 | 1,000 |
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Condensed Statements of Consolidated Cash Flows (USD $)
In Millions, unless otherwise specified |
6 Months Ended | |
---|---|---|
Jun. 30, 2015
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Jun. 30, 2014
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Cash Flows from Operating Activities: | ||
Net cash provided by operating activities | $ 3,577 | $ 2,158 |
Cash Flows from Investing Activities: | ||
Capital expenditures | (1,311) | (953) |
Purchases of short-term and other investments | (1,202) | (2,076) |
Proceeds from sale of short-term and other investments | 1,397 | 1,602 |
Investment in affiliates | (130) | |
Proceeds from sale of property and equipment | 36 | 43 |
Other, net | 37 | 52 |
Net cash used in investing activities | (1,173) | (1,332) |
Cash Flows from Financing Activities: | ||
Payments of long-term debt | (1,319) | (912) |
Repurchases of common stock | (445) | |
Proceeds from issuance of long-term debt | 228 | 395 |
Principal payments under capital leases | (53) | (58) |
Other, net | (21) | (47) |
Net cash used in financing activities | (1,610) | (622) |
Net increase in cash and cash equivalents | 794 | 204 |
Cash and cash equivalents at beginning of the period | 2,002 | 3,220 |
Cash and cash equivalents at end of the period | 2,796 | 3,424 |
Investing and Financing Activities Not Affecting Cash: | ||
Property and equipment acquired through the issuance of debt and capital leases | 776 | 658 |
Conversion of convertible notes to UAL common stock | 201 | 202 |
United Airlines, Inc.
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Cash Flows from Operating Activities: | ||
Net cash provided by operating activities | 3,568 | 2,149 |
Cash Flows from Investing Activities: | ||
Capital expenditures | (1,311) | (953) |
Purchases of short-term and other investments | (1,202) | (2,076) |
Proceeds from sale of short-term and other investments | 1,397 | 1,602 |
Investment in affiliates | (130) | |
Proceeds from sale of property and equipment | 36 | 43 |
Other, net | 37 | 52 |
Net cash used in investing activities | (1,173) | (1,332) |
Cash Flows from Financing Activities: | ||
Payments of long-term debt | (1,319) | (912) |
Dividend to UAL | (445) | |
Proceeds from issuance of long-term debt | 228 | 395 |
Principal payments under capital leases | (53) | (58) |
Other, net | (12) | (38) |
Net cash used in financing activities | (1,601) | (613) |
Net increase in cash and cash equivalents | 794 | 204 |
Cash and cash equivalents at beginning of the period | 1,996 | 3,214 |
Cash and cash equivalents at end of the period | 2,790 | 3,418 |
Investing and Financing Activities Not Affecting Cash: | ||
Property and equipment acquired through the issuance of debt and capital leases | 776 | 658 |
Transfer of UAL subsidiaries to United | 186 | |
Conversion of convertible notes to UAL common stock | $ 156 |
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Significant Accounting Policies
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6 Months Ended |
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Jun. 30, 2015
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Significant Accounting Policies | NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES 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 Codification, and is effective for annual reporting periods beginning after December 15, 2017. The FASB also approved permitting early adoption of the standard, but not before January 1, 2017. The Company is evaluating the impact on its financial statements and whether to adopt this standard early. The FASB issued Accounting Standards Update No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This standard amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. As of June 30, 2015, the Company had approximately $185 million of unamortized debt issuance costs recorded as an asset on its balance sheet classified as Other, net. The Company will reclassify the unamortized debt issuance costs and present debt net of those unamortized costs on its balance sheet upon adoption of this standard. The FASB issued Accounting Standards Update No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). Under the standard, investments for which fair value is measured at net asset value per share (or its equivalent) using the practical expedient will no longer be categorized in the fair value hierarchy. It is effective for fiscal years and interim periods beginning after December 15, 2015, but early adoption is permitted. As of June 30, 2015, the Company had approximately $200 million of such investments as part of its Short-term investments balance sheet total. In addition, pension plan investments measured at net asset value per share, if any, will no longer be categorized within the fair value hierarchy beginning with the Company’s Annual Report on Form 10-K for the year ending December 31, 2015. The Company is evaluating the impact the adoption of this standard will have on its financial statements for both Short-term investments and pension plan investment balance sheet totals. |
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Earnings Per Share
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Jun. 30, 2015
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Earnings Per Share | NOTE 2 - EARNINGS PER SHARE The table below represents the computation of UAL’s basic and diluted earnings per share amounts and the number of securities that have been excluded from the computation of diluted earnings per share amounts because they were antidilutive (in millions, except per share amounts):
In January 2015, the holders of substantially all of the remaining $202 million principal amount of United’s 4.5% Convertible Notes due 2015 (the “4.5% Convertible Notes”) exercised their conversion option resulting in the issuance of 11 million shares of UAL common stock. There is no convertible debt outstanding as of June 30, 2015. In 2014, UAL’s Board of Directors authorized a share repurchase program to acquire up to $1 billion of UAL’s common stock. UAL spent $250 million and $450 million to repurchase approximately 4.4 million and 7.3 million shares of UAL common stock in open market transactions in the three and six months ended June 30, 2015, respectively. As of June 30, 2015, the Company has $230 million remaining to spend under the share repurchase program.On July 21, 2015, UAL’s Board of Directors authorized a new $3 billion share repurchase program, which the Company expects to complete by December 31, 2017.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 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. |
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Accumulated Other Comprehensive Income (Loss)
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Jun. 30, 2015
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Accumulated Other Comprehensive Income (Loss) | NOTE 3 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The tables below present the components of the Company’s accumulated other comprehensive income (loss), net of tax (“AOCI”) (in millions):
(a) UAL and United amounts are substantially the same except for additional gains (losses) related to investments and other of $1 million at United for the three and six months ended June 30, 2015 and $(1) million at United for the three months ended June 30, 2014. (b) Income tax expense for these items was offset by the Company’s valuation allowance. (c) 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). |
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Income Taxes
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Jun. 30, 2015
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Income Taxes | NOTE 4 - INCOME TAXES Our effective tax rates are lower than the federal statutory rate of 35% primarily because of the impact of changes to existing valuation allowances. We continue to provide a valuation allowance for our deferred tax assets in excess of deferred tax liabilities because we have concluded that it is more likely than not that such deferred tax assets will ultimately not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (including the reversals of deferred tax liabilities) during the periods in which those deferred tax assets will become deductible. The Company’s management assesses available positive and negative evidence regarding the Company’s ability to realize its deferred tax assets and records a valuation allowance when it is more likely than not that deferred tax assets will not be realized. To form a conclusion, management considers positive evidence in the form of reversing temporary differences, projections of future taxable income and tax planning strategies and negative evidence such as historical losses. Although the Company is not in a three-year cumulative loss position at June 30, 2015, management has determined that the low level of cumulative pre-tax income, combined with the Company’s history of operating losses resulted in a determination that a valuation allowance is still necessary. Management will continue to evaluate future financial performance to determine whether such performance is both sustained and significant enough to provide sufficient evidence to support reversal of the valuation allowance. The valuation allowance balance at June 30, 2015 was $4.1 billion. |
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Employee Benefit Plans
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Jun. 30, 2015
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Employee Benefit Plans | NOTE 5 - EMPLOYEE BENEFIT PLANS Defined Benefit Pension and Other Postretirement Benefit Plans. The Company’s net periodic benefit cost includes the following components (in millions):
During the three and six months ended June 30, 2015, the Company contributed $620 million and $800 million, respectively, to its U.S. domestic tax-qualified defined benefit pension plans. Share-Based Compensation. The Company generally grants incentive compensation awards, including long-term equity based awards, during the first quarter of the calendar year. During the first quarter of 2015, UAL granted share-based compensation awards pursuant to the United Continental Holdings, Inc. 2008 Incentive Compensation Plan. These share-based compensation awards include approximately 0.2 million shares of restricted stock and 0.3 million restricted stock units (“RSUs”) that vest pro-rata over three years on the anniversary of the grant date. The time-vested RSUs are cash-settled based on the 20-day average closing price of UAL common stock immediately prior to the vesting date. The Company also granted 0.6 million performance-based RSUs that will vest based on the Company’s return on invested capital and the Company’s relative improvement in pre-tax margin for the three years ending December 31, 2017. If these performance conditions are achieved, cash payments will be made after the end of the performance period based on the 20-day average closing price of UAL common stock immediately prior to the vesting date. The Company accounts for the RSUs as liability awards. The table below presents information related to share-based compensation (in millions):
Profit Sharing Plans. Substantially all employees participate in profit sharing, which varies from 5% to 20% of pre-tax earnings, excluding special items, profit sharing expense and share-based compensation, depending on the work group and at varying percentages of the Company’s earnings. Eligible U.S. co-workers in each participating work group receive a profit sharing payout using a formula based on the ratio of each qualified co-worker’s annual eligible earnings to the eligible earnings of all qualified co-workers in all domestic work groups. Eligible non-U.S. co-workers receive profit sharing based on the calculation under the U.S. profit sharing plan for management and administrative employees. Profit sharing expense is recorded as a component of Salaries and related costs in the Company’s statements of consolidated operations. |
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Financial Instruments and Fair Value Measurements
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Jun. 30, 2015
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Financial Instruments and Fair Value Measurements | NOTE 6 - FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS The table below presents disclosures about the financial assets and financial liabilities measured at fair value on a recurring basis in the Company’s financial statements (in millions):
United’s debt-related derivatives presented in the tables above related to (a) supplemental indentures that provided that United’s convertible debt was convertible into shares of UAL common stock upon the terms and conditions specified in the indentures, and (b) the embedded conversion options in United’s convertible debt that were required to be separated and accounted for as though they were free-standing derivatives as a result of the United debt becoming convertible into the common stock of a different reporting entity. The derivatives described above related to the 4.5% Convertible Notes. Gains (losses) on these derivatives were recorded in Nonoperating income (expense): Miscellaneous, net in United’s statements of consolidated operations. These derivatives along with their gains (losses) were reported in United’s separate financial statements and were eliminated in consolidation for UAL. In January 2015, the holders of substantially all of the remaining $202 million principal amount of the 4.5% Convertible Notes exercised their conversion option resulting in the issuance of 11 million shares of UAL common stock. The derivative assets and liabilities associated with the 4.5% Convertible Notes were settled in connection with the retirement of the related convertible debt, and the final accounting did not materially impact UAL’s or United’s statements of consolidated operations.
Available-for-sale investment maturities - The short-term investments shown in the table above are classified as available-for-sale. As of June 30, 2015, asset-backed securities have remaining maturities of less than one year to approximately 40 years, corporate debt securities have remaining maturities of less than one year to approximately seven years and CDARS have maturities of less than one year. U.S. government and other securities have maturities of less than one year to approximately three years. The EETC securities mature in 2019. Derivative instruments and investments presented in the tables 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 the financial instruments included in the tables above was determined as follows:
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Hedging Activities
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Hedging Activities | NOTE 7 - HEDGING ACTIVITIES Fuel Derivatives The Company routinely hedges a portion of its expected aircraft fuel requirements to protect against increases in the price of fuel. The Company may restructure hedges in response to market conditions prior to their original settlement dates which may result in changes in hedge coverage levels and the potential recognition of gains or losses on such hedge contracts. As of June 30, 2015, the Company had hedged approximately 22% and 5% of its projected fuel requirements (442 million gallons and 180 million gallons, respectively) for the remainder of 2015 and 2016, respectively, with commonly used financial hedge instruments based on aircraft fuel or crude oil. As of June 30, 2015, the Company had fuel hedges expiring through March 2016.
Upon proper qualification, the Company accounts for certain fuel derivative instruments as cash flow hedges. All derivatives designated as hedges that meet certain requirements are granted hedge accounting treatment. Instruments that qualify for hedge accounting treatment typically include swaps, call options, collars (which consist of a purchased call option and a sold put option) and four-way collars (a collar with a higher strike sold call option and a lower strike purchased put option). Generally, utilizing hedge accounting, all periodic changes in fair value of the derivatives designated as hedges that are considered to be effective are recorded in AOCI until the underlying fuel is consumed and recorded in fuel expense. The Company is exposed to the risk that its hedges may not be effective in offsetting changes in the cost of fuel and that its hedges may not continue to qualify for hedge accounting. Hedge ineffectiveness results when the change in the fair value of the cash flow hedge exceeds the change in the value of the Company’s expected future cash outlay to purchase fuel. To the extent that the periodic changes in the fair value of the derivatives are not effective, that ineffectiveness is classified as Nonoperating income (expense): Miscellaneous, net in the statements of consolidated operations. The Company also uses certain combinations of derivative contracts that are economic hedges but do not qualify for hedge accounting under GAAP. Additionally, the Company may enter into contracts at different times and later combine those contracts into structures designated for hedge accounting. As with derivatives that qualify for hedge accounting, the economic hedges and individual contracts are part of the Company’s program to mitigate the adverse financial impact of potential increases in the price of fuel. The Company records changes in the fair value of these various contracts that are not designated for hedge accounting to Nonoperating income (expense): Miscellaneous, net in the statements of consolidated operations. If the Company settles a derivative prior to its contractual settlement date, then the cumulative gain or loss recognized in AOCI at the termination date remains in AOCI until the forecasted transaction occurs. In a situation where it becomes probable that a hedged forecasted transaction will not occur, any gains and/or losses that have been recorded to AOCI would be required to be immediately reclassified into earnings. All cash flows associated with purchasing and settling derivatives are classified as operating cash flows in the condensed statements of consolidated cash flows. The Company records each derivative instrument as a derivative asset or liability (on a gross basis) in its consolidated balance sheets, and, accordingly, records any related collateral on a gross basis. The table below presents the fair value amounts of fuel derivative assets and liabilities and the location of amounts recognized in the Company’s financial statements.
The Company’s derivatives were reported in its consolidated balance sheets as follows (in millions):
Derivative Credit Risk and Fair Value The Company is exposed to credit losses in the event of nonperformance by counterparties to its derivative instruments. While the Company records derivative instruments on a gross basis, the Company monitors its net derivative position with each counterparty to monitor credit risk. Based on the fair value of our fuel derivative instruments, our counterparties may require us to post collateral when the price of the underlying commodity decreases, and we may require our counterparties to provide us with collateral when the price of the underlying commodity increases. The Company posted $181 million and $577 million of collateral with fuel derivative counterparties as of June 30, 2015 and December 31, 2014, respectively. The collateral is recorded as Fuel hedge collateral deposits on the Company’s balance sheet. We have master trading agreements with all of our fuel hedging counterparties that allow us to net our fuel hedge derivative positions. We have elected not to net the fair value positions recorded on our consolidated balance sheets. The following table shows the potential net fair value positions (including fuel derivatives and related collateral) had we elected to offset. The table reflects offset at the counterparty level (in millions):
The following tables present the impact of derivative instruments and their location within the Company’s unaudited statements of consolidated operations (in millions): Derivatives designated as cash flow hedges
Derivatives designated as cash flow hedges
Derivatives not designated for hedge accounting Fuel contracts
Foreign Currency Derivatives The Company generates revenues and incurs expenses in numerous foreign currencies. Changes in foreign currency exchange rates impact the Company’s results of operations through changes in the dollar value of foreign currency-denominated operating revenues and expenses. Some of the Company’s more significant foreign currency exposures include the Canadian dollar, Chinese renminbi, European euro, British pound and Japanese yen. At times, the Company uses derivative financial instruments, such as options collars and forward contracts, to hedge its exposure to foreign currency. The Company does not enter into derivative instruments for non-risk management purposes. At June 30, 2015, the Company had foreign currency derivative contracts in place to hedge 38% and 22% of its projected European euro denominated net cash inflows for the remainder of 2015 and 2016, respectively, and 11% of its British pound denominated net cash inflows for the remainder of 2015. Net cash relates primarily to passenger ticket sales inflows partially offset by expenses paid in local currencies. At June 30, 2015, the fair value of the Company’s foreign currency derivatives was an asset of $6 million. |
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Commitments and Contingencies
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Commitments and Contingencies | NOTE 8 - COMMITMENTS AND CONTINGENCIES Commitments. As of June 30, 2015, United had firm commitments and options to purchase aircraft from The Boeing Company (“Boeing”), Embraer S.A. (“Embraer”) and Airbus S.A.S. (“Airbus”) presented in the table below:
The aircraft listed in the table above are scheduled for delivery through 2024. For the remainder of 2015, United expects to take delivery of eight Boeing 737NG aircraft and seven Boeing 787-9 aircraft. The 10 Embraer E175 aircraft are all scheduled for delivery through 2016. As of June 30, 2015, United had financing commitments from banks to fund two Boeing 737-900ER aircraft and four Embraer E175 aircraft. These aircraft were delivered to United during the second quarter of 2015 and the financings were completed in July 2015. In addition, United has 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 will be necessary to satisfy the Company’s capital commitments for its firm order aircraft and other related capital expenditures. See Note 9 of this report for additional information on aircraft financing. The table below summarizes United’s commitments as of June 30, 2015 (including those assigned from UAL), which primarily relate to the acquisition of aircraft and related spare engines, aircraft improvements and include other commitments primarily to acquire information technology services and assets. Any incremental firm aircraft orders, including through the exercise of purchase options and purchase rights, will increase the total future capital commitments of the Company.
In July 2015, the Company exercised its options for five additional Embraer E175 aircraft and all are scheduled for delivery in 2016. The Company is currently negotiating with certain regional carriers to own and/or sublease and operate all the outstanding firm Embraer E175 aircraft on order. Aircraft Operating Leases During the second quarter of 2015, the Company reached an agreement with AerCap Holdings N.V., a major aircraft leasing company, to lease used Airbus A319s. Eleven aircraft will be delivered over the next two years beginning in early 2016. In addition, up to 14 more aircraft may be delivered over the next five years subject to certain conditions. Guarantees. United is the guarantor of approximately $2.0 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 $1.5 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 $294 million of these obligations are accounted for as capital leases. All of these bonds are due between 2015 and 2038.
In the Company’s financing transactions that include loans, the Company typically agrees to reimburse lenders for any reduced returns with respect to the loans due to any change in capital requirements and, in the case of loans in which the interest rate is based on the London Interbank Offered Rate, 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 June 30, 2015, the Company had $2.2 billion of floating rate debt and $130 million of fixed rate debt, with remaining terms of up to 12 years, that are subject to these increased cost provisions. In several financing transactions involving loans or leases from non-U.S. entities, with remaining terms of up to 12 years and an aggregate balance of $2.3 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. Labor Negotiations. As of June 30, 2015, United had approximately 84,000 active employees, of whom approximately 80% were represented by various labor organizations. We are in the process of negotiating joint collective bargaining agreements with our technicians and flight attendants. |
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Debt
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Debt | NOTE 9 - DEBT As of June 30, 2015, a substantial portion of our assets is pledged as collateral for our debt. These assets principally consist of aircraft, route authorities and loyalty program intangible assets. As of June 30, 2015, the Company was in compliance with its debt covenants. 4.5% Convertible Notes due 2015. At December 31, 2014, the remaining balance of these notes was $202 million. In January 2015, the holders of substantially all of the remaining $202 million principal amount of the 4.5% Convertible Notes exercised their conversion option resulting in the issuance of 11 million shares of UAL common stock. 6% Notes due 2026. In the first quarter of 2015, UAL used cash to repurchase $18 million par value 6% Notes due 2026 (the “2026 Notes”) in market transactions. On April 1, 2015, UAL used cash to redeem, at par, the remaining $303 million balance of the 2026 Notes. 6% Notes due 2028. In the first quarter of 2015, UAL used cash to repurchase $13 million par value 6% Notes due 2028 (the “2028 Notes”) in market transactions. On May 1, 2015, UAL used cash to redeem, at par, the remaining $298 million balance of the 2028 Notes. In the second quarter of 2015, the Company recorded a nonoperating special charge of $128 million for the extinguishment of the 2026 Notes and the 2028 Notes. The nonoperating special charge is related to the write off of unamortized non-cash debt discounts. See Note 10 of this report for additional information. 2013 Credit and Guaranty Agreement. As of June 30, 2015, United had its entire capacity of $1.35 billion available under the revolving credit facility of the Company’s Credit and Guaranty Agreement.
EETCs. In August 2014, 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 United’s assets. Certain details of the pass-through trusts with proceeds received from issuance of debt in 2015 are as follows (in millions, except stated interest rate):
The table below presents contractual principal payments at June 30, 2015 under then-outstanding long-term debt agreements in each of the next five calendar years (in millions):
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Special Charges
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Special Charges | NOTE 10 - SPECIAL CHARGES For the three and six months ended June 30, special charges consisted of the following (in millions):
During the three and six months ended June 30, 2015, the Company recorded $25 million and $75 million, respectively, of severance and benefits primarily related to a voluntary early-out program for its flight attendants. In 2014, more than 2,500 flight attendants elected to voluntarily separate from the Company and will receive a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through the end of 2015. The Company will record approximately $25 million of additional expense through the remainder of 2015 associated with this program over the remaining required service periods. Integration-related costs include compensation costs related primarily to systems integration and training for employees. During the three and six months ended June 30, 2015, the Company recorded $16 million and $12 million, respectively, for the impairment of assets and other special gains and losses. During the three and six months ended June 30, 2015, the Company recorded $128 million and $134 million, respectively, of losses as part of Nonoperating income (expense): Miscellaneous, net due to the write-off of the unamortized non-cash debt discount related to the extinguishment of the 2026 Notes and the 2028 Notes. During the six months ended June 30, 2014, the Company recorded $52 million of severance and benefits primarily related to reductions of management and front-line employees, including from Hopkins International Airport (“Cleveland”), as part of its cost savings initiatives. The Company reduced its average daily departures from Cleveland by over 60 percent during the second quarter of 2014. The Company is currently evaluating its options regarding its long-term contractual commitments at Cleveland. The capacity reductions at Cleveland may result in further special charges, which could be significant, related to our contractual commitments. During the three months ended June 30, 2014, the Company recorded $66 million for the permanent grounding of 21 of the Company’s Embraer ERJ 135 regional aircraft under lease through 2018, which included an accrual for remaining lease payments and an amount for maintenance return conditions. The Company decided to permanently ground these 21 Embraer ERJ 135 aircraft as a result of new Embraer E175 regional jet deliveries, the impact of pilot shortages at regional carriers and fuel prices. During the six months ended June 30, 2014, the Company recorded $33 million for charges related primarily to the impairment of its flight equipment held for disposal associated with its Boeing 737-300 and 737-500 fleets and incurred losses on sales of aircraft and other assets and other special losses totaling $19 million. During the three months ended March 31, 2014, the Company recorded $21 million of losses due to exchange rate changes in Venezuela applicable to funds held in local currency.
Accruals The accrual balance for severance and benefits was $104 million as of June 30, 2015, compared to $82 million as of June 30, 2014. The severance-related accrual as of June 30, 2015 is expected to be mostly paid through 2015. The following is a reconciliation of severance accrual activity for the period:
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Significant Accounting Policies (Policies)
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Recently Issued Accounting Standards | 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 Codification, and is effective for annual reporting periods beginning after December 15, 2017. The FASB also approved permitting early adoption of the standard, but not before January 1, 2017. The Company is evaluating the impact on its financial statements and whether to adopt this standard early. The FASB issued Accounting Standards Update No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This standard amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. As of June 30, 2015, the Company had approximately $185 million of unamortized debt issuance costs recorded as an asset on its balance sheet classified as Other, net. The Company will reclassify the unamortized debt issuance costs and present debt net of those unamortized costs on its balance sheet upon adoption of this standard. The FASB issued Accounting Standards Update No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). Under the standard, investments for which fair value is measured at net asset value per share (or its equivalent) using the practical expedient will no longer be categorized in the fair value hierarchy. It is effective for fiscal years and interim periods beginning after December 15, 2015, but early adoption is permitted. As of June 30, 2015, the Company had approximately $200 million of such investments as part of its Short-term investments balance sheet total. In addition, pension plan investments measured at net asset value per share, if any, will no longer be categorized within the fair value hierarchy beginning with the Company’s Annual Report on Form 10-K for the year ending December 31, 2015. The Company is evaluating the impact the adoption of this standard will have on its financial statements for both Short-term investments and pension plan investment balance sheet totals. |
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Earnings Per Share (Tables)
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Jun. 30, 2015
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Computation of Earnings Per Share | The table below represents the computation of UAL’s basic and diluted earnings per share amounts and the number of securities that have been excluded from the computation of diluted earnings per share amounts because they were antidilutive (in millions, except per share amounts):
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- Definition
No authoritative reference available. No definition available.
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Accumulated Other Comprehensive Income (Loss) (Tables)
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Jun. 30, 2015
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Components of Accumulated Other Comprehensive Income (Loss), Net of Tax | The tables below present the components of the Company’s accumulated other comprehensive income (loss), net of tax (“AOCI”) (in millions):
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