FORM10-Q
| FORM 10-Q | ||
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number | Exact Name of Registrant as Specified in its Charter, Principal Executive Office Address and Telephone Number |
|
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| 001-06033 | United Continental Holdings, Inc.
| Delaware | 36-2675207 | |||||
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| 233 South Wacker Drive, Chicago, Illinois 60606 | ||||||
| (872)825-4000 | ||||||||
| 001-10323 | United Airlines, Inc. | Delaware | 74-2099724 | |||||
| 233 South Wacker Drive, Chicago, Illinois 60606 | ||||||||
| (872) 825-4000 | ||||||||
| United Continental Holdings, Inc. | Yes | |||||
| o | United Airlines, Inc. | Yes | o | |||
| United Continental Holdings, Inc. | Yes | |||||
| o | United Airlines, Inc. | Yes | o | |||
United Continental Holdings, Inc. | Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | Emerging growth company | |||||
United Airlines, Inc. | Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company | Emerging growth company | |||||
| United Continental Holdings, Inc. | o | |||||
| United Airlines, Inc. | o | |||||
| United Continental Holdings, Inc. | Yes | x | ||||
| United Airlines, Inc. | Yes | x | ||||
United Continental Holdings, Inc. | ||||
United Airlines, Inc. | 1,000 shares of common stock ($0.01 par value) (100% owned by United Continental Holdings, Inc.)
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Operating revenue: Passenger—Mainline Passenger—Regional Total passenger revenue Cargo Other operating revenue Total operating revenue Operating expense: Salaries and related costs Aircraft fuel Landing fees and other rent Regional capacity purchase Depreciation and amortization Aircraft maintenance materials and outside repairs Distribution expenses Aircraft rent Special charges (Note 10) Other operating expenses Total operating expenses Operating income Nonoperating income (expense): Interest expense Interest capitalized Interest income Miscellaneous, net (Note 10) Total nonoperating expense, net Income before income taxes Income tax expense Net income Earnings per share, basic Earnings per share, diluted Revenue from Contracts with Customers (Topic 606) andAccounting Standards Update No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information. Net income Other comprehensive income (loss), net change related to: Fuel derivative financial instruments, net of taxes Employee benefit plans, net of taxes Investments and other, net of taxes Total other comprehensive income (loss), net Total comprehensive income, net Revenue from Contracts with Customers (Topic 606) andAccounting Standards Update No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information. (UNAUDITED) ASSETS Current assets: Cash and cash equivalents Short-term investments Receivables, less allowance for doubtful accounts (2017 — $11; 2016 — $10) Aircraft fuel, spare parts and supplies, less obsolescence allowance (2017 — $342; 2016 — $295) Prepaid expenses and other Total current assets Operating property and equipment: Owned— Flight equipment Other property and equipment Total owned property and equipment Less — Accumulated depreciation and amortization Total owned property and equipment, net Purchase deposits for flight equipment Capital leases— Flight equipment Other property and equipment Total capital leases Less — Accumulated amortization Total capital leases, net Total operating property and equipment, net Other assets: Goodwill Intangibles, less accumulated amortization (2017 — $1,294; 2016 — $1,234) Deferred income taxes Restricted cash Investments in affiliates and other, net Total other assets Total assets (UNAUDITED) LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Advance ticket sales Accounts payable Frequent flyer deferred revenue Accrued salaries and benefits Current maturities of long-term debt Current maturities of capital leases Other Total current liabilities Long-term debt Long-term obligations under capital leases Other liabilities and deferred credits: Frequent flyer deferred revenue Postretirement benefit liability Pension liability Deferred income taxes Advanced purchase of miles Lease fair value adjustment, net Other Total other liabilities and deferred credits 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 Additional capital invested Retained earnings Stock held in treasury, at cost Accumulated other comprehensive loss Total stockholders’ equity Total liabilities and stockholders’ equity Revenue from Contracts with Customers (Topic 606). See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information. Cash Flows from Operating Activities: Net cash provided by operating activities Cash Flows from Investing Activities: Capital expenditures Purchases of short-term and other investments Proceeds from sale of short-term and other investments Proceeds from sale of property and equipment Investment in and loans to affiliates Other, net Net cash used in investing activities Cash Flows from Financing Activities: Proceeds from issuance of long-term debt and airport construction financing Repurchases of common stock Payments of long-term debt Principal payments under capital leases Other, net Net cash used in financing activities Net decrease in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash at beginning of the period Cash, cash equivalents and restricted cash at end of the period (a) Investing and Financing Activities Not Affecting Cash: Property and equipment acquired through the issuance of debt and capital leases Airport construction financing Operating lease conversions to capital lease Reconciliation of cash, cash equivalents and restricted cash: Current assets: Cash and cash equivalents Restricted cash included in Prepaid expenses and other Other assets: Restricted cash Total cash, cash equivalents and restricted cash Operating revenue: Passenger—Mainline Passenger—Regional Total passenger revenue Cargo Other operating revenue Total operating revenue Operating expense: Salaries and related costs Aircraft fuel Landing fees and other rent Regional capacity purchase Depreciation and amortization Aircraft maintenance materials and outside repairs Distribution expenses Aircraft rent Special charges (Note 10) Other operating expenses Total operating expense Operating income Nonoperating income (expense): Interest expense Interest capitalized Interest income Miscellaneous, net (Note 10) Total nonoperating expense, net Income before income taxes Income tax expense Net income Revenue from Contracts with Customers (Topic 606) andAccounting Standards Update No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information. Net income Other comprehensive income (loss), net change related to: Fuel derivative financial instruments, net of taxes Employee benefit plans, net of taxes Investments and other, net of taxes Total other comprehensive income (loss), net Total comprehensive income, net Revenue from Contracts with Customers (Topic 606) andAccounting Standards Update No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information. (UNAUDITED) ASSETS Current assets: Cash and cash equivalents Short-term investments Receivables, less allowance for doubtful accounts (2017 — $11; 2016 — $10) Aircraft fuel, spare parts and supplies, less obsolescence allowance (2017 — $342; 2016 — $295) Prepaid expenses and other Total current assets Operating property and equipment: Owned— Flight equipment Other property and equipment Total owned property and equipment Less — Accumulated depreciation and amortization Total owned property and equipment, net Purchase deposits for flight equipment Capital leases— Flight equipment Other property and equipment Total capital leases Less — Accumulated amortization Total capital leases, net Total operating property and equipment, net Other assets: Goodwill Intangibles, less accumulated amortization (2017 — $1,294; 2016 — $1,234) Deferred income taxes Restricted cash Investments in affiliates and other, net Total other assets Total assets (UNAUDITED) Current liabilities: Advance ticket sales Accounts payable Frequent flyer deferred revenue Accrued salaries and benefits Current maturities of long-term debt Current maturities of capital leases Other Total current liabilities Long-term debt Long-term obligations under capital leases Other liabilities and deferred credits: Frequent flyer deferred revenue Postretirement benefit liability Pension liability Deferred income taxes Advanced purchase of miles Lease fair value adjustment, net Other Total other liabilities and deferred credits Commitments and contingencies Stockholder’s equity: Common stock at par, $0.01 par value; authorized 1,000 shares; issued and outstanding 1,000 shares at both September 30, 2017 and December 31, 2016 Additional capital invested Retained earnings Accumulated other comprehensive loss Receivable from related parties Total stockholder’s equity Total liabilities and stockholder’s equity Revenue from Contracts with Customers (Topic 606). See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information. Cash Flows from Operating Activities: Net cash provided by operating activities Cash Flows from Investing Activities: Capital expenditures Purchases of short-term investments and other investments Proceeds from sale of short-term and other investments Proceeds from sale of property and equipment Investment in and loans to affiliates Other, net Net cash used in investing activities Cash Flows from Financing Activities: Proceeds from issuance of long-term debt and airport construction financing Dividend to UAL Payments of long-term debt Principal payments under capital leases Other, net Net cash used in financing activities Net decrease in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash at beginning of the period Cash, cash equivalents and restricted cash at end of the period (a) Investing and Financing Activities Not Affecting Cash: Property and equipment acquired through the issuance of debt and capital leases Airport construction financing Operating lease conversions to capital lease Reconciliation of cash, cash equivalents and restricted cash: Current assets: Cash and cash equivalents Restricted cash included in Prepaid expenses and other Other assets: Restricted cash Total cash, cash equivalents and restricted cash The primary effect of adopting the new standard will be to record assets and obligations for our operating leases. Balance at June 30, 2017 Changes in value Amounts reclassified to earnings Net change Balance at September 30, 2017 Balance at December 31, 2016 Changes in value Amounts reclassified to earnings Net change Balance at September 30, 2017 Balance at June 30, 2016 Changes in value Amounts reclassified to earnings Net change Balance at September 30, 2016 Balance at December 31, 2015 Changes in value Amounts reclassified to earnings Net change Balance at September 30, 2016 Details about AOCI Components Amortization of unrecognized losses and prior service cost (a) Reclassifications of losses into earnings Reclassifications of gains into earnings Total Total plans, respectively. Share-based compensation expense Unrecognized share-based compensation Cash and cash equivalents Short-term investments: Corporate debt Asset-backed securities Certificates of deposit placed through an account registry service (“CDARS”) U.S. government and agency notes Other fixed-income securities Other investments measured at NAV Long-term investments: Equity securities Enhanced equipment trust certificates (“EETC”) Long-term debt Description Fair Value Methodology Fuel contracts Fuel contracts Aircraft Type Airbus A350 Boeing 737 MAX Boeing777-300ER Boeing 787 2021. Last three months of 2017 2018 2019 2020 2021 After 2021 Other Operating Leases. several new ground and facility leases at Chicago O'Hare, effective May 12, 2018, for hangars, a ground equipment maintenance building, and employee parking with lease terms ranging from 15 years to 30 years. Last three months of 2017 2018 2019 2020 2021 After 2021 of June 30, 2018 (in millions): EETC Date Class Final expected September 2016 September 2016 247 June 2016 June 2016 The table below presents the Last three months of 2017 2018 2019 2020 2021 After 2021 Severance and benefit costs Impairment of assets Labor agreement costs Cleveland airport lease restructuring (Gains) losses on sale of assets and other special charges Special charges Nonoperating: Other (gain) loss Special charges before income taxes Income tax benefit related to special charges Total special charges, net of tax Guam. Balance at December 31, 2016 Accrual Payments Balance at September 30, 2017 Balance at December 31, 2015 Accrual Payments Balance at September 30, 2016 as follows (in millions): Passenger revenue In the three months ended Consolidated traffic increased year to more efficiently use our aircraft and facilities with the objective of driving an increase in profitability. 2017 Operating revenue Operating expense Operating income Nonoperating expense Income tax expense Net income Passengers (thousands) (a) Revenue passenger miles (“RPMs”) (millions) (b) Available seat miles (“ASMs”) (millions) (c) Passenger load factor (d) Passenger revenue per available seat mile (“PRASM”) (cents) Average yield per revenue passenger mile (“Yield”) (cents) (e) Cost per available seat mile (“CASM”) (cents) Average price per gallon of fuel, including fuel taxes Fuel gallons consumed (millions) Average full-time equivalent employees The table below shows year-over-year comparisons by type of operating revenue for the three months ended Passenger—Mainline Passenger—Regional Total passenger revenue Cargo Other operating revenue Total operating revenue Increase (decrease) from 2016: Passenger revenue (in millions) Average fare per passenger PRASM RPMs (traffic) Passenger load factor (points) The table below includes data related to the Salaries and related costs Aircraft fuel Landing fees and other rent Regional capacity purchase Depreciation and amortization Aircraft maintenance materials and outside repairs Distribution expenses Aircraft rent Special charges Other operating expenses Total operating expenses employees. Total aircraft fuel purchase cost excluding fuel hedge impacts Hedge losses reported in fuel expense Fuel expense Total fuel consumption (gallons) period primarily due to increased regional flying related to the Company's initiative to improve connectivity at its domestic hubs, as well as rate increases under various capacity purchase agreements with regional carriers. maintenance events. term expirations. Severance and benefit costs Impairment of assets Labor agreement costs (Gains) losses on sale of assets and other special charges Special charges Interest expense Interest capitalized Interest income Miscellaneous, net Total Operating revenue Operating expense Operating income Nonoperating expense Income tax expense Net income Passengers (thousands) (a) RPMs (millions) (b) ASMs (millions) (c) Passenger load factor (d) PRASM (cents) Yield (cents) (e) CASM (cents) Average price per gallon of fuel, including fuel taxes Fuel gallons consumed (millions) Average full-time equivalent employees Passenger—Mainline Passenger—Regional Total passenger revenue Cargo Other operating revenue Total operating revenue Passenger revenue (in millions) Average fare per passenger Yield PRASM Passengers RPMs (traffic) ASMs (capacity) 2017: freight. Salaries and related costs Aircraft fuel Landing fees and other rent Regional capacity purchase Depreciation and amortization Aircraft maintenance materials and outside repairs Distribution expenses Aircraft rent Special charges Other operating expenses Total operating expenses Total fuel consumption (gallons) capacity growth. term expirations. beverages. Severance and benefit costs Impairment of assets Labor agreement costs Cleveland airport lease restructuring (Gains) losses on sale of assets and other special charges Special charges Interest expense Interest capitalized Interest income Miscellaneous, net Total Aircraft Type Airbus A350 Boeing 737 MAX Boeing777-300ER Boeing 787 2021. financing. * The credit agency does not issue corporate credit ratings for subsidiary entities. policies on Revenue Recognition and Frequent Flyer Accounting. Period July 2017 August 2017 September 2017 Total 2018: Exhibit No. /s/ /s/ /s/ /s/ Page 3 45 7 United Airlines, Inc.:891012 13 Management’s Management's Discussion and Analysis of Financial Condition and Results of Operations2537 Item 4.38Item 1.39 Item 1A.39 ITEM 1.FINANCIAL STATEMENTS. Three Months Ended June 30, Six Months Ended June 30, 2018 2017 (a) 2018 2017 (a) Operating revenue: Passenger revenue $ 9,880 $ 9,151 $ 18,030 $ 16,804 Cargo 314 273 607 511 Other operating revenue 583 584 1,172 1,119 Total operating revenue 10,777 10,008 19,809 18,434 Operating expense: Salaries and related costs 2,878 2,842 5,604 5,478 Aircraft fuel 2,390 1,669 4,355 3,229 Regional capacity purchase 681 549 1,300 1,085 Landing fees and other rent 603 541 1,161 1,085 Depreciation and amortization 557 536 1,098 1,054 Aircraft maintenance materials and outside repairs 438 472 878 926 Distribution expenses 393 385 735 704 Aircraft rent 119 152 246 331 Special charges (Note 10) 129 44 169 95 Other operating expenses 1,428 1,381 2,826 2,690 Total operating expenses 9,616 8,571 18,372 16,677 Operating income 1,161 1,437 1,437 1,757 Nonoperating income (expense): Interest expense (177 ) (167 ) (353 ) (329 ) Interest capitalized 14 21 33 44 Interest income 25 13 42 24 Miscellaneous, net (166 ) (27 ) (118 ) (69 ) Total nonoperating expense, net (304 ) (160 ) (396 ) (330 ) Income before income taxes 857 1,277 1,041 1,427 Income tax expense 173 456 210 507 Net income $ 684 $ 821 $ 831 $ 920 Earnings per share, basic $ 2.49 $ 2.67 $ 2.97 $ 2.96 Earnings per share, diluted $ 2.48 $ 2.67 $ 2.96 $ 2.96 Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 $ 7,083 $ 7,017 $ 19,970 $ 19,119 1,445 1,586 4,354 4,577 8,528 8,603 24,324 23,696 257 224 731 626 1,093 1,086 3,243 3,182 9,878 9,913 28,298 27,504 2,812 2,625 8,341 7,707 1,809 1,603 5,038 4,258 585 546 1,670 1,612 567 572 1,652 1,645 556 503 1,610 1,473 451 451 1,377 1,301 352 345 1,021 987 145 168 476 521 50 45 145 669 1,459 1,431 4,199 3,998 8,786 8,289 25,529 24,171 1,092 1,624 2,769 3,333 (164) (150) (472) (466) 20 20 64 48 17 14 41 31 15 2 (3) (11) (112) (114) (370) (398) 980 1,510 2,399 2,935 343 545 848 1,069 $ 637 $ 965 $ 1,551 $ 1,866 $ 2.12 $ 3.02 $ 5.06 $ 5.57 $ 2.12 $ 3.01 $ 5.04 $ 5.57 Three Months Ended June 30, Six Months Ended June 30, 2018 2017 (a) 2018 2017 (a) Net income $ 684 $ 821 $ 831 $ 920 Other comprehensive income (loss), net change related to: Employee benefit plans, net of taxes 12 4 42 (4 ) Investments and other, net of taxes — (12 ) 3 (11 ) Total other comprehensive income (loss), net 12 (8 ) 45 (15 ) Total comprehensive income, net $ 696 $ 813 $ 876 $ 905 Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 $ 637 $ 965 $ 1,551 $ 1,866 — 12 1 123 3 (75) (1) (89) 17 (1) 5 (1) 20 (64) 5 33 $ 657 $ 901 $ 1,556 $ 1,899 (Unaudited)
September 30, 2017 December 31, 2016 $ 1,870 $ 2,179 2,458 2,249 1,603 1,176 937 873 1,009 832 7,877 7,309 29,043 25,873 6,186 5,652 35,229 31,525 (11,358) (9,975) 23,871 21,550 1,044 1,059 1,136 1,319 488 331 1,624 1,650 (910) (941) 714 709 25,629 23,318 4,523 4,523 3,558 3,632 — 655 96 124 882 579 9,059 9,513 $ 42,565 $ 40,140 June 30, 2018 December 31, 2017 (a) ASSETS Current assets: Cash and cash equivalents $ 2,884 $ 1,482 Short-term investments 2,187 2,316 Receivables, less allowance for doubtful accounts (2018 — $7; 2017 — $7) 1,840 1,340 Aircraft fuel, spare parts and supplies, less obsolescence allowance (2018 — $380; 2017 — $354) 942 924 Prepaid expenses and other 1,028 1,071 Total current assets 8,881 7,133 Operating property and equipment: Owned— Flight equipment 30,143 28,692 Other property and equipment 7,481 6,946 Total owned property and equipment 37,624 35,638 Less — Accumulated depreciation and amortization (11,974 ) (11,159 ) Total owned property and equipment, net 25,650 24,479 Purchase deposits for flight equipment 894 1,344 Capital leases— Flight equipment 1,224 1,151 Other property and equipment 11 11 Total capital leases 1,235 1,162 Less — Accumulated amortization (833 ) (777 ) Total capital leases, net 402 385 Total operating property and equipment, net 26,946 26,208 Other assets: Goodwill 4,523 4,523 Intangibles, less accumulated amortization (2018 — $1,346; 2017 — $1,313) 3,399 3,539 Restricted cash 94 91 Investments in affiliates and other, net 848 852 Total other assets 8,864 9,005 Total assets $ 44,691 $ 42,346 June 30, 2018 December 31, 2017 (a) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Advance ticket sales $ 5,826 $ 3,940 Accounts payable 2,703 2,196 Frequent flyer deferred revenue 2,206 2,192 Accrued salaries and benefits 1,782 2,166 Current maturities of long-term debt 887 1,565 Current maturities of capital leases 117 128 Other 571 576 Total current liabilities 14,092 12,763 Long-term debt 12,460 11,703 Long-term obligations under capital leases 1,039 996 Other liabilities and deferred credits: Frequent flyer deferred revenue 2,783 2,591 Postretirement benefit liability 1,585 1,602 Pension liability 1,815 1,921 Deferred income taxes 419 204 Lease fair value adjustment, net 155 198 Other 1,704 1,634 Total other liabilities and deferred credits 8,461 8,150 Commitments and contingencies Stockholders' equity: Preferred stock — — Common stock at par, $0.01 par value; authorized 1,000,000,000 shares; outstanding 273,017,840 and 286,973,195 shares at June 30, 2018 and December 31, 2017, respectively 3 3 Additional capital invested 6,091 6,098 Retained earnings 5,367 4,549 Stock held in treasury, at cost (1,720 ) (769 ) Accumulated other comprehensive loss (1,102 ) (1,147 ) Total stockholders' equity 8,639 8,734 Total liabilities and stockholders' equity $ 44,691 $ 42,346 (Unaudited)
September 30, 2017 December 31, 2016 $ 4,537 $ 3,730 2,231 2,139 1,992 2,135 1,983 2,307 1,516 849 125 116 703 1,010 13,087 12,286 11,334 9,918 968 822 2,793 2,748 1,588 1,581 1,631 1,892 253 — 106 430 219 277 1,616 1,527 8,206 8,455 — — 3 3 6,591 6,569 4,991 3,427 (1,791) (511) (824) (829) 8,970 8,659 $ 42,565 $ 40,140 Nine Months Ended
September 30, 2017 2016 $ 2,685 $ 4,884 (2,900) (2,343) (2,584) (1,989) 2,380 1,957 8 24 — (8) 142 (5) (2,954) (2,364) 2,119 510 (1,291) (2,442) (722) (911) (84) (95) (77) (40) (55) (2,978) (324) (458) 2,303 3,212 $ 1,979 $ 2,754 $ 918 $ 115 41 68 — 12 Six Months Ended June 30, 2018 2017 Cash Flows from Operating Activities: Net cash provided by operating activities $ 4,175 $ 2,108 Cash Flows from Investing Activities: Capital expenditures (1,734 ) (1,780 ) Purchases of short-term and other investments (1,326 ) (1,587 ) Proceeds from sale of short-term and other investments 1,455 1,561 Investment in affiliates (139 ) — Proceeds from sale of property and equipment 20 5 Other, net 7 123 Net cash used in investing activities (1,717 ) (1,678 ) Cash Flows from Financing Activities: Proceeds from issuance of long-term debt and airport construction financing 1,308 1,139 Repurchases of common stock (969 ) (712 ) Payments of long-term debt (1,294 ) (525 ) Principal payments under capital leases (62 ) (59 ) Other, net (41 ) (75 ) Net cash used in financing activities (1,058 ) (232 ) Net increase in cash, cash equivalents and restricted cash 1,400 198 Cash, cash equivalents and restricted cash at beginning of the period 1,591 2,303 Cash, cash equivalents and restricted cash at end of the period (a) $ 2,991 $ 2,501 Investing and Financing Activities Not Affecting Cash: Property and equipment acquired through the issuance of debt and capital leases $ 139 $ 907 Airport construction financing 12 32 $ 1,870 $ 2,630 13 1 96 123 $ 1,979 $ 2,754 Reconciliation of cash, cash equivalents and restricted cash: Current assets: Cash and cash equivalents $ 2,884 $ 2,371 Restricted cash included in Prepaid expenses and other 13 15 Other assets: Restricted cash 94 115 Total cash, cash equivalents and restricted cash $ 2,991 $ 2,501 Three Months Ended June 30, Six Months Ended June 30, 2018 2017 (a) 2018 2017 (a) Operating revenue: Passenger revenue $ 9,880 $ 9,151 $ 18,030 $ 16,804 Cargo 314 273 607 511 Other operating revenue 583 584 1,172 1,119 Total operating revenue 10,777 10,008 19,809 18,434 Operating expense: Salaries and related costs 2,878 2,842 5,604 5,478 Aircraft fuel 2,390 1,669 4,355 3,229 Regional capacity purchase 681 549 1,300 1,085 Landing fees and other rent 603 541 1,161 1,085 Depreciation and amortization 557 536 1,098 1,054 Aircraft maintenance materials and outside repairs 438 472 878 926 Distribution expenses 393 385 735 704 Aircraft rent 119 152 246 331 Special charges (Note 10) 129 44 169 95 Other operating expenses 1,428 1,380 2,825 2,689 Total operating expense 9,616 8,570 18,371 16,676 Operating income 1,161 1,438 1,438 1,758 Nonoperating income (expense): Interest expense (177 ) (167 ) (353 ) (329 ) Interest capitalized 14 21 33 44 Interest income 25 13 42 24 Miscellaneous, net (167 ) (28 ) (119 ) (69 ) Total nonoperating expense, net (305 ) (161 ) (397 ) (330 ) Income before income taxes 856 1,277 1,041 1,428 Income tax expense 172 457 210 508 Net income $ 684 $ 820 $ 831 $ 920 Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 $ 7,083 $ 7,017 $ 19,970 $ 19,119 1,445 1,586 4,354 4,577 8,528 8,603 24,324 23,696 257 224 731 626 1,093 1,086 3,243 3,182 9,878 9,913 28,298 27,504 2,812 2,625 8,341 7,707 1,809 1,603 5,038 4,258 585 546 1,670 1,612 567 572 1,652 1,645 556 503 1,610 1,473 451 451 1,377 1,301 352 345 1,021 987 145 168 476 521 50 45 145 669 1,459 1,431 4,198 3,997 8,786 8,289 25,528 24,170 1,092 1,624 2,770 3,334 (164) (150) (472) (466) 20 20 64 48 17 14 41 31 15 2 (3) (11) (112) (114) (370) (398) 980 1,510 2,400 2,936 343 545 848 1,069 $ 637 $ 965 $ 1,552 $ 1,867 Three Months Ended June 30, Six Months Ended June 30, 2018 2017 (a) 2018 2017 (a) Net income $ 684 $ 820 $ 831 $ 920 Other comprehensive income (loss), net change related to: Employee benefit plans, net of taxes 12 4 42 (4 ) Investments and other, net of taxes — (12 ) 3 (11 ) Total other comprehensive income (loss), net 12 (8 ) 45 (15 ) Total comprehensive income, net $ 696 $ 812 $ 876 $ 905 Three Months Ended
September 30, Nine Months Ended
September 30, 2017 2016 2017 2016 $ 637 $ 965 $ 1,552 $ 1,867 — 12 1 123 3 (75) (1) (89) 17 (1) 5 (1) 20 (64) 5 33 $ 657 $ 901 $ 1,557 $ 1,900 (Unaudited) September 30, 2017 December 31, 2016 $ 1,864 $ 2,173 2,458 2,249 1,603 1,176 937 873 1,008 832 7,870 7,303 29,043 25,873 6,186 5,652 35,229 31,525 (11,358) (9,975) 23,871 21,550 1,044 1,059 1,136 1,319 488 331 1,624 1,650 (910) (941) 714 709 25,629 23,318 4,523 4,523 3,558 3,632 — 612 96 124 882 579 9,059 9,470 $ 42,558 $ 40,091 June 30, 2018 December 31, 2017 (a) ASSETS Current assets: Cash and cash equivalents $ 2,878 $ 1,476 Short-term investments 2,187 2,316 Receivables, less allowance for doubtful accounts (2018 — $7; 2017 — $7) 1,840 1,340 Aircraft fuel, spare parts and supplies, less obsolescence allowance (2018 — $380; 2017 — $354) 942 924 Prepaid expenses and other 1,028 1,071 Total current assets 8,875 7,127 Operating property and equipment: Owned— Flight equipment 30,143 28,692 Other property and equipment 7,481 6,946 Total owned property and equipment 37,624 35,638 Less — Accumulated depreciation and amortization (11,974 ) (11,159 ) Total owned property and equipment, net 25,650 24,479 Purchase deposits for flight equipment 894 1,344 Capital leases— Flight equipment 1,224 1,151 Other property and equipment 11 11 Total capital leases 1,235 1,162 Less — Accumulated amortization (833 ) (777 ) Total capital leases, net 402 385 Total operating property and equipment, net 26,946 26,208 Other assets: Goodwill 4,523 4,523 Intangibles, less accumulated amortization (2018 — $1,346; 2017 — $1,313) 3,399 3,539 Restricted cash 94 91 Investments in affiliates and other, net 848 852 Total other assets 8,864 9,005 Total assets $ 44,685 $ 42,340 June 30, 2018 December 31, 2017 (a) LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Advance ticket sales $ 5,826 $ 3,940 Accounts payable 2,703 2,196 Frequent flyer deferred revenue 2,206 2,192 Accrued salaries and benefits 1,782 2,166 Current maturities of long-term debt 887 1,565 Current maturities of capital leases 117 128 Other 575 581 Total current liabilities 14,096 12,768 Long-term debt 12,460 11,703 Long-term obligations under capital leases 1,039 996 Other liabilities and deferred credits: Frequent flyer deferred revenue 2,783 2,591 Postretirement benefit liability 1,585 1,602 Pension liability 1,815 1,921 Deferred income taxes 446 231 Lease fair value adjustment, net 155 198 Other 1,704 1,634 Total other liabilities and deferred credits 8,488 8,177 Commitments and contingencies Stockholder's equity: Common stock at par, $0.01 par value; authorized 1,000 shares; issued and outstanding 1,000 shares at both June 30, 2018 and December 31, 2017 — — Additional capital invested 841 1,787 Retained earnings 8,971 8,146 Accumulated other comprehensive loss (1,102 ) (1,147 ) Receivable from related parties (108 ) (90 ) Total stockholder's equity 8,602 8,696 Total liabilities and stockholder's equity $ 44,685 $ 42,340 (Unaudited) September 30, 2017 December 31, 2016 LIABILITIES AND STOCKHOLDER’S EQUITY $ 4,537 $ 3,730 2,231 2,144 1,992 2,135 1,983 2,307 1,516 849 125 116 707 1,009 13,091 12,290 11,334 9,918 968 822 2,793 2,748 1,588 1,581 1,631 1,892 297 — 106 430 219 277 1,616 1,527 8,250 8,455 — — 2,325 3,573 7,504 5,937 (824) (829) (90) (75) 8,915 8,606 $ 42,558 $ 40,091 Nine Months Ended
September 30, 2017 2016 $ 2,671 $ 4,878 (2,900) (2,343) (2,584) (1,989) 2,380 1,957 8 24 — (8) 142 (5) (2,954) (2,364) 2,119 510 (1,291) (2,442) (722) (911) (84) (95) (63) (34) (41) (2,972) (324) (458) 2,297 3,206 $ 1,973 $ 2,748 $ 918 $ 115 41 68 — 12 Six Months Ended June 30, 2018 2017 Cash Flows from Operating Activities: Net cash provided by operating activities $ 4,158 $ 2,095 Cash Flows from Investing Activities: Capital expenditures (1,734 ) (1,780 ) Purchases of short-term investments and other investments (1,326 ) (1,587 ) Proceeds from sale of short-term and other investments 1,455 1,561 Investment in affiliates (139 ) — Proceeds from sale of property and equipment 20 5 Other, net 7 123 Net cash used in investing activities (1,717 ) (1,678 ) Cash Flows from Financing Activities: Proceeds from issuance of long-term debt and airport construction financing 1,308 1,139 Dividend to UAL (969 ) (712 ) Payments of long-term debt (1,294 ) (525 ) Principal payments under capital leases (62 ) (59 ) Other, net (24 ) (62 ) Net cash used in financing activities (1,041 ) (219 ) Net increase in cash, cash equivalents and restricted cash 1,400 198 Cash, cash equivalents and restricted cash at beginning of the period 1,585 2,297 Cash, cash equivalents and restricted cash at end of the period (a) $ 2,985 $ 2,495 Investing and Financing Activities Not Affecting Cash: Property and equipment acquired through the issuance of debt and capital leases $ 139 $ 907 Airport construction financing 12 32 $ 1,864 $ 2,624 13 1 96 123 $ 1,973 $ 2,748 Reconciliation of cash, cash equivalents and restricted cash: Current assets: Cash and cash equivalents $ 2,878 $ 2,365 Restricted cash included in Prepaid expenses and other 13 15 Other assets: Restricted cash 94 115 Total cash, cash equivalents and restricted cash $ 2,985 $ 2,495 “UAL”"UAL" or the “Company”"Company") is a holding company and its principal, wholly-owned subsidiary is United Airlines, Inc. (together with its consolidated subsidiaries, “United”"United"). This Quarterly Report on Form10-Q is a combined report of UAL and United, including their respective consolidated financial statements. As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted. United’sUnited's operating revenues and operating expenses comprise nearly 100% of UAL’sUAL's revenues and operating expenses. In addition, United comprises approximately the entire balance of UAL’sUAL's assets, liabilities and operating cash flows. When appropriate, UAL and United are named specifically for their individual contractual obligations and related disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained. We sometimes use the words “we,” “our,” “us,”"we," "our," "us," and the “Company”"Company" in this report for disclosures that relate to all of UAL and United.“SEC”"SEC"). Some information and footnote disclosures normally included in financial statements that comply with accounting principles generally accepted in the United States (“GAAP”("GAAP") have been condensed or omitted as permitted by the SEC. The financial statements include all adjustments, including normal recurring adjustments and other adjustments, which are considered necessary for a fair presentation of the Company’sCompany's financial position and results of operations. The UAL and United financial statements should be read together with the information included in the Company’sCompany's Annual Report on Form10-K for the year ended December 31, 2016.2017. The Company’sCompany's quarterly financial data is subject to seasonal fluctuations and historically its second and third quarter financial results, which reflect higher travel demand, are better than its first and fourth quarter financial results.(“FASB”("FASB") amended the FASB Accounting Standards Codification and created a new Topic 606,Revenue from Contracts with Customers. This amendmentCustomers (the "New Revenue Standard"), effective January 1, 2018 using the full-retrospective method. Topic 606 prescribes that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment supersedesFor the revenue recognition requirements in Topic 605,Revenue Recognition, andCompany, the most industry-specific guidance throughout the Industry Topicssignificant impact of the Accounting Standards Codification. The Company will 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 willare 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 beare now 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 adoptionAdoption 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 aright-of-use asset and a lease liability for all leases (with the exception of short-term leases) at the commencement date and recognize expenses on their income statements similar to the current Topic 840,Leases. It is effective for fiscal years and interim periods beginning after December 15, 2018, and early adoption is permitted. Lessees and lessors are required to adopt Topic 842 using a modified retrospective approach for all leases existing at or commencing after the date of initial application with an option to use certain practical expedients. 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 materialhad no impact on the Company’s results of operations orCompany's consolidated cash flows. flows statements.primary effect of adopting the new standard will be to record assets and obligations for its operating leases.In January 2016, the FASB issuedCompany adopted Accounting Standards UpdateNo. 2016-01,Financial Instruments—Overall (Subtopic825-10) (“ASU2016-01”). This standard makes several changes, including the elimination of theavailable-for-sale classification of equity investments, and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. It is effective for interim and annual periods beginning after December 15, 2017. Based on its portfolio of investments as of September 30, 2017, the Company does not expect the adoption of ASU2016-01 to have a material impact on its consolidated financial statements.In March 2017, the FASB issued Accounting Standards UpdateNo. 2017-07,Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost(“ASU2017-07”the "New Retirement Standard")., effective January 1, 2018 using the full-retrospective method. The updateNew Retirement Standard requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are to be presented outside of any subtotal of operating income. Employers will haveThe Company elected to discloseapply the line(s) usedpractical expedient and use the amounts disclosed in Note 5 to present the other componentsfinancial statements included in Part I, Item 1 of net periodic benefit cost, if the components are not presented separatelyCompany's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017 as the estimation basis for applying the retrospective presentation requirements of the standard. Three Months Ended June 30, 2017 As Previously Reported As Adjusted Passenger revenue $ 8,622 $ 529 $ — $ 9,151 Cargo 254 19 — 273 Other operating revenue 1,124 (540 ) — 584 Total operating revenue 10,000 8 — 10,008 Salaries and related costs 2,868 — (26 ) 2,842 Distribution expenses 362 23 — 385 Other operating expenses 1,408 (27 ) — 1,381 Total operating expenses 8,601 (4 ) (26 ) 8,571 Operating income 1,399 12 26 1,437 Interest expense (158 ) (9 ) — (167 ) Miscellaneous, net (1 ) — (26 ) (27 ) Total nonoperating expense, net (125 ) (9 ) (26 ) (160 ) Income before income taxes 1,274 3 — 1,277 Income tax expense 456 — — 456 Net income 818 3 — 821 Earnings per share, basic 2.67 — — 2.67 Earnings per share, diluted 2.66 0.01 — 2.67 Six Months Ended June 30, 2017 As Previously Reported As Adjusted Passenger revenue $ 15,796 $ 1,008 $ — $ 16,804 Cargo 474 37 — 511 Other operating revenue 2,150 (1,031 ) — 1,119 Total operating revenue 18,420 14 — 18,434 Salaries and related costs 5,529 — (51 ) 5,478 Distribution expenses 669 35 — 704 Other operating expenses 2,740 (50 ) — 2,690 Total operating expenses 16,743 (15 ) (51 ) 16,677 Operating income 1,677 29 51 1,757 Interest expense (308 ) (21 ) — (329 ) Miscellaneous, net (18 ) — (51 ) (69 ) Total nonoperating expense, net (258 ) (21 ) (51 ) (330 ) Income before income taxes 1,419 8 — 1,427 Income tax expense 505 2 — 507 Net income 914 6 — 920 Earnings per share, basic 2.95 0.01 — 2.96 Earnings per share, diluted 2.94 0.02 — 2.96 At December 31, 2017 As Previously Reported As Adjusted Prepaid expenses and other $ 1,051 $ 20 $ 1,071 Total current assets 7,113 20 7,133 Total assets 42,326 20 42,346 Advance ticket sales 3,876 64 3,940 Frequent flyer deferred revenue 2,176 16 2,192 Other 569 7 576 Total current liabilities 12,676 87 12,763 Frequent flyer deferred revenue - long-term 2,565 26 2,591 Deferred income taxes 225 (21 ) 204 Total other liabilities and deferred credits 8,145 5 8,150 Retained earnings 4,621 (72 ) 4,549 Total stockholders' equity 8,806 (72 ) 8,734 Total liabilities and stockholders' equity 42,326 20 42,346 statementstatements similar to the current Topic 840, Leases.ASU2017-07 The new lease standard is effective for fiscal years and interim periods beginning after December 15, 2017,2018, and early adoption is permitted. Lessees and lessors are required to adopt the new lease standard using a modified retrospective approach for all leases existing at or commencing after the date of initial application with an option to use certain practical expedients. We have not finalized our assessment but believe this standard will have a significant impact on our consolidated balance sheets. The Company doesstandard is not expect the adoption of ASU2017-07expected to have a material impact on its consolidated financial statements.the Company's results of operations or cash flows. Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 Total Frequent flyer deferred revenue - beginning balance $ 4,937 $ 4,940 $ 4,783 $ 4,889 Total miles awarded 607 531 1,210 1,019 Travel miles redeemed (Passenger revenue) (519 ) (535 ) (928 ) (933 ) Non-travel miles redeemed (Other operating revenue) (36 ) (45 ) (76 ) (84 ) Total Frequent flyer deferred revenue - ending balance $ 4,989 $ 4,891 $ 4,989 $ 4,891 Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 Mainline $ 4,395 $ 4,043 $ 7,881 $ 7,315 Regional 1,786 1,615 3,269 2,994 Domestic 6,181 5,658 11,150 10,309 Atlantic 1,824 1,615 3,076 2,732 Pacific 1,103 1,064 2,172 2,117 Latin America 772 814 1,632 1,646 International 3,699 3,493 6,880 6,495 Consolidated $ 9,880 $ 9,151 $ 18,030 $ 16,804 Mainline 8,045 7,492 14,661 13,719 Regional 1,835 1,659 3,369 3,085 Consolidated $ 9,880 $ 9,151 $ 18,030 $ 16,804 UAL’sUAL's 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 Three Months Ended
June 30, Six Months Ended
June 30, 2018 2017 2018 2017 Earnings available to common stockholders $ 684 $ 821 $ 831 $ 920 Basic weighted-average shares outstanding 274.7 306.9 279.3 310.3 Effect of employee stock awards 0.9 0.8 0.9 0.8 Diluted weighted-average shares outstanding 275.6 307.7 280.2 311.1 Earnings per share, basic $ 2.49 $ 2.67 $ 2.97 $ 2.96 Earnings per share, diluted $ 2.48 $ 2.67 $ 2.96 $ 2.96 antidilutivepotentially dilutive securities excluded from the computation of diluted earnings per share amounts was not material.ninesix months ended SeptemberJune 30, 2017,2018, UAL repurchased approximately 85.9 million and 1814.3 million shares, respectively, of UAL common stock in open market transactions respectively, for $0.6$0.4 billion and $1.3$1.0 billion, respectively. As of SeptemberJune 30, 2017,2018, the Company had approximately $0.6$2.0 billion remaining to purchase shares under its existing share repurchase authority.program. UAL may repurchase shares through the open market, privately negotiated transactions, block trades or accelerated share repurchase transactions from time to time in accordance with applicable securities laws. UAL will repurchase shares of UAL common stock subject to prevailing market conditions, and may discontinue such repurchases at any time. See Part II, Item 2., “Unregistered2, Unregistered Sales of Equity Securities and Use of Proceeds”Proceeds of this report for additional information.3 4 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)Company’sCompany's accumulated other comprehensive income (loss), net of tax (“AOCI”("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 $ (860) $ — $ (16) $ 26 $ — $ 6 $ (844) (9) — 26 3 — (9) 11 14 — — (5) — — 9 5 — 26 (2) — (9) 20 $ (855) $ — $ 10 $ 24 $ — $ (3) $ (824) $ (854) $ (2) $ 1 $ 24 $ 1 $ 1 $ (829) (42) — 9 15 — (3) (21) 41 2 — (15) (1) (1) 26 (1) 2 9 — (1) (4) 5 $ (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 $ (385) $ (41) $ 3 $ (146) $ (165) $ — $ (734) (124) (6) 1 45 2 (1) (83) 6 24 (2) (2) (8) 1 19 (118) 18 (1) 43 (6) — (64) $ (503) $ (23) $ 2 $ (103) $ (171) $ — $ (798) $ (363) $ (215) $ 3 $ (154) $ (102) $ — $ (831) (157) (5) 1 57 2 (1) (103) 17 197 (2) (6) (71) 1 136 (140) 192 (1) 51 (69) — 33 $ (503) $ (23) $ 2 $ (103) $ (171) $ — $ (798) 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 $ 14 $ 6 $ 41 $ 17 Salaries and related costs Fuel derivative contracts — 24 2 197 Aircraft fuel Investments and other — (2) — (2) Miscellaneous, net UAL Pension and Other Postretirement Liabilities Investments and Other Income Taxes Total Balance at March 31, 2018 $ (1,063 ) $ (3 ) $ (48 ) $ (1,114 ) Changes in value 1 1 — 2 Amounts reclassified to earnings 14 — (4 ) 10 Net change 15 1 (4 ) 12 Balance at June 30, 2018 $ (1,048 ) $ (2 ) $ (52 ) $ (1,102 ) Balance at December 31, 2017 $ (1,102 ) $ (6 ) $ (39 ) $ (1,147 ) Changes in value 24 (3 ) (6 ) 15 Amounts reclassified to earnings 30 — (7 ) 23 Amounts reclassified to retained earnings — 7 — 7 Net change 54 4 (13 ) 45 Balance at June 30, 2018 $ (1,048 ) $ (2 ) $ (52 ) $ (1,102 ) Balance at March 31, 2017 $ (867 ) $ 1 $ 30 $ (836 ) Changes in value (7 ) (17 ) 8 (16 ) Amounts reclassified to earnings 14 — (6 ) 8 Net change 7 (17 ) 2 (8 ) Balance at June 30, 2017 $ (860 ) $ (16 ) $ 32 $ (844 ) Balance at December 31, 2016 $ (854 ) $ (1 ) $ 26 $ (829 ) Changes in value (33 ) (17 ) 18 (32 ) Amounts reclassified to earnings 27 2 (12 ) 17 Net change (6 ) (15 ) 6 (15 ) Balance at June 30, 2017 $ (860 ) $ (16 ) $ 32 $ (844 ) Details for AOCI Components Reclassified to Income Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 Pension and other postretirement liabilities $ 14 $ 14 $ 30 $ 27 Miscellaneous, net Investments and Other Reclassifications of losses into earnings related to fuel derivative contracts — — — 2 Aircraft fuel 5 of6 to the financial statements included in this reportPart I, Item 1 for additional information).45 - INCOME TAXESCompany’sCompany's effective tax rate for the three and ninesix months ended SeptemberJune 30, 20172018 was 35.0% and 35.3%20.2%, respectively, and the effective tax rate for the three and ninesix months ended SeptemberJune 30, 20162017 was 36.1%35.7% and 36.4%35.5%, respectively. The effective tax rates representedrate represents a blend of federal, state and foreign taxes and included the impact of certain nondeductible items. The effective tax rate for the three and ninesix months ended SeptemberJune 30, 20172018 also reflects the reduced federal corporate income tax rate as a result of the enactment of the Tax Cuts and Jobs Act (the "Tax Act") in December 2017 and the impact of a change in the Company's mix of domestic and foreign earnings. We continue to analyze the different aspects of the Tax Act which could potentially affect the provisional estimates that were recorded at December 31, 2017.56 - EMPLOYEE BENEFIT PLANSCompany’sCompany's net periodic benefit cost includes the following components for the three months ended June 30(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) $ 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) $ 229 $ 134 $ 5 $ (8) Pension Benefits Other Postretirement Benefits Affected Line Item
in the Statements of
Consolidated Operations 2018 2017 2018 2017 Service cost $ 57 $ 49 $ 3 $ 4 Salaries and related costs Interest cost 54 55 15 17 Miscellaneous, net Expected return on plan assets (73 ) (61 ) — (1 ) Miscellaneous, net Amortization of unrecognized (gain) loss and prior service cost (credit) 32 32 (18 ) (18 ) Miscellaneous, net Settlement loss — 1 — — Miscellaneous, net Total $ 70 $ 76 $ — $ 2 Pension Benefits Other Postretirement Benefits Affected Line Item
in the Statements of
Consolidated Operations 2018 2017 2018 2017 Service cost $ 114 $ 98 $ 6 $ 6 Salaries and related costs Interest cost 108 110 30 34 Miscellaneous, net Expected return on plan assets (146 ) (121 ) — (1 ) Miscellaneous, net Amortization of unrecognized (gain) loss and prior service cost (credit) 65 63 (35 ) (36 ) Miscellaneous, net Settlement loss — 2 — — Miscellaneous, net Total $ 141 $ 152 $ 1 $ 3 ninesix months ended SeptemberJune 30, 2017,2018, the Company contributed $160$47 million and $400$160 million respectively, to its U.S. domestictax-qualified defined benefit pension plans. During In the first ninesix months of 2017, UAL’s Board of Directors and stockholders approvedended June 30, 2018, UAL granted share-based compensation awards pursuant to 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.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 1.51.8 million RSUs consisting of 0.91.1 million time-vested RSUs and 0.60.7 million performance-based RSUs, and 36,000 stock options.RSUs. The time-vested RSUs vestpro-rata, on February 28th of each year, over a three yearthree-year period from the date of grant. These 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 the20-day average closing price of UAL common stock immediately prior to the vesting date. The performance-based RSUs vest based on the Company’sCompany's relative improvement inpre-tax margin, as compared to a group of industry peers, for the three years ending December 31, 2019.2020. If this performance condition is achieved, cash payments will be made after the end of the performance period based on the20-day average closing price of UAL common stock immediately prior to the vesting date. The Company accounts for the performance-based RSUs as liability awards. Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 $ 10 $ 23 $ 66 $ 36 September 30,
2017 December 31,
2016 $ 90 $ 65 Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 Share-based compensation expense $ 27 $ 33 $ 44 $ 56 June 30, 2018 December 31, 2017 Unrecognized share-based compensation $ 86 $ 53 6 7 - FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTSUAL’sUAL's financial statements (in millions): September 30, 2017 December 31, 2016 Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 $ 1,870 $ 1,870 $ — $ — $ 2,179 $ 2,179 $ — $ — 959 — 959 — 835 — 835 — 891 — 891 — 792 — 792 — 142 — 142 — 246 — 246 — 112 — 112 — 140 — 140 — 171 — 171 — 54 — 54 — 183 — — — 182 — — — Restricted cash 109 109 — — 124 124 — — 114 114 — — — — — — 21 — — 21 23 — — 23 June 30, 2018 December 31, 2017 Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Cash and cash equivalents $ 2,884 $ 2,884 $ — $ — $ 1,482 $ 1,482 $ — $ — Short-term investments: Corporate debt 958 — 958 — 958 — 958 — Asset-backed securities 722 — 722 — 753 — 753 — U.S. government and agency notes 102 — 102 — 113 — 113 — Certificates of deposit placed through an account registry service ("CDARS") 49 — 49 — 120 — 120 — Other fixed-income securities 170 — 170 — 188 — 188 — Other investments measured at net asset value ("NAV") 186 — — — 184 — — — Restricted cash 107 107 — — 109 109 — — Long-term investments: Equity securities 147 147 — — 99 99 — — Enhanced equipment trust certificates ("EETC") 19 — — 19 22 — — 22 available-for-sale. available-for-sale, with the exception of investments measured at NAV. As of SeptemberJune 30, 2017,2018, asset-backed securities have remaining maturities of less than one year to approximately 1716 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 two13 years. The EETC securities mature in 2019.workers’ compensation obligations.obligations for facility leases and workers' compensation.United’sUnited's investment in Azul. In April 2018, through a wholly-owned subsidiary, the Company invested $138 million in Azul thus increasing its preferred equity stake to approximately 8% (approximately 2% of the total capital stock of Azul). The Company recognizes changes to the fair market value of its equity investment in Azul Linhas Aereas Brasileiras S.A. (“Azul”), which was previously accounted for as a cost-method investment. The fair valuein Miscellaneous, net in its statements of Azul’s shares became readily determinable in the second quarter of 2017 upon its initial public offering and is now accounted for as anavailable-for-saleconsolidated operations. investment. 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 $ 12,850 $ 13,217 $ — $ 9,640 $ 3,577 $ 10,767 $ 11,055 $ — $ 8,184 $ 2,871 Fair Value of Debt by Fair Value Hierarchy Level June 30, 2018 December 31, 2017 Carrying Amount Fair Value Carrying Amount Fair Value Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Long-term debt $ 13,347 $ 13,443 $ — $ 9,879 $ 3,564 $ 13,268 $ 13,787 $ — $ 10,115 $ 3,672 Cash and cash equivalents The carrying amounts approximate fair value because of the short-term maturity of these assets. 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. andnon-U.S. public- or private-sector entities. The Company can redeem its shares at any time at NAV subject to athree-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. 7 - HEDGING ACTIVITIESFuel DerivativesAs of September 30, 2017, the Company did not have any fuel hedging contracts outstanding to hedge its fuel consumption. The last of the Company’s fuel hedge derivatives designated for cash flow hedge accounting expired in December 2016. The Company’s current strategy is to not enter into transactions to hedge its fuel consumption, although the Company regularly reviews its strategy based on market conditions and other factors.The following table presents the impact of derivative instruments and their location within the Company’s unaudited statements of consolidated operations (in millions):Derivatives designated as cash flow hedges Amount of Loss
Recognized
in AOCI on Derivatives
(Effective Portion) Loss
Reclassified from
AOCI into
Fuel Expense Three Months Ended
September 30, Three Months Ended
September 30, 2017 2016 2017 2016 $ — $ (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 $ — $ (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.NOTE8 - COMMITMENTS AND CONTINGENCIESCommitments.As of SeptemberJune 30, 2017,2018, United had firm commitments and options to purchase aircraft from The Boeing Company (“Boeing”("Boeing"), and Airbus S.A.S. (“Airbus”), and Embraer S.A. (“Embraer”("Airbus") presented in the table below: Number of Firm
Commitments (a) 45 155 161 1 4 18 Embraer E1755(a) United also has options, purchase and purchaseother rights for additional aircraft.Company’sCompany's future capital commitments could change. For the remainder of 2017, United2018, the Company expects to take delivery of fivethree Boeing 787 aircraft, four Boeing 737 MAX aircraft, one Boeing 777-300ER aircraft and three used Boeing 767-300ER aircraft. In July 2018, United entered into an agreement to purchase 25 new Embraer E175 aircraft. Additionally, the Companyaircraft with expected delivery dates scheduled in 2019. United also currently expectshas an agreement to take delivery of fourpurchase 20 used Airbus A319sA319 aircraft with expected delivery dates scheduled in 2020 and two used Airbus A320s for the remainder of 2017.United’sUnited's commitments as of SeptemberJune 30, 2017,2018, which primarily relate to the acquisition of aircraft and related spare engines, aircraft improvements and include other capital purchase commitments. Any new firm aircraft orders, including through the exercise of purchase options and purchase rights, will increase the total future capital commitments of the Company. (in billions) $ 0.9 3.0 3.1 2.2 1.4 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 Company’s capital commitments for its firm order aircraft (in billions) Last six months of 2018 $ 1.7 2019 3.3 2020 3.0 2021 2.8 2022 1.8 After 2022 9.8 $ 22.4 other related capital expenditures.Regional CPAs.In February 2017,March 2018, United entered into a five-year capacity purchase agreement (“CPA”new Airline Use and Lease Agreement at Chicago O'Hare International Airport ("Chicago O'Hare") with Air Wisconsin Airlines for regional service under the United Express brand to operate up to 65 CRJ 200 aircraft.In the third quarterCity of 2017, United reached agreementsChicago 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 thea lease term of up to approximately 125 aircraft under an existing CPA15 years, effective May 12, 2018 through December 31, 2022. The future commitments have been incorporated2033. In the second quarter of 2018, United entered into the table below.Company’sCompany's scheduled future minimum lease payments through the end of theunder facility operating leases having initial or remaining noncancelable lease terms of our CPAs, excluding variable pass-through costs suchmore than one year as fuel and landing fees, among others. (in billions) $ 0.5 2.0 1.8 1.6 1.5 4.6 $ 12.0 Facility and Other Operating Leases Last six months of 2018 $ 689 2019 1,244 2020 1,338 2021 1,104 2022 966 After 2022 7,934 $ 13,275 SeptemberJune 30, 2017,2018, United is the guarantor of approximately $1.8$2.0 billion in aggregate principal amount oftax-exempt special facilities revenue bonds and interest thereon. These bonds, issued by various airport municipalities, are payable solely from rentals paid under long-term agreements with the respective governing bodies. The leasing arrangements associated with approximately $1.4 billion of these obligations are accounted for as operating leases with the associated expense recorded on a straight-line basis resulting in ratable accrual of the lease obligation over the expected lease term. The leasing arrangements associated with approximately $441$454 million of these obligations are accounted for as capital leases. All of these bonds are due between 2019 and 2038.Company’sCompany's financing transactions that include loans, the Company typically agrees to reimburse lenders for any reduced returns with respect to the loans due to any change in capital requirements and, in the case of loans in which the interest rate is based on the London Interbank Offered Rate, (“LIBOR”), for certain other increased costs that the lenders incur in carrying these loans as a result of any change in law, subject, in most cases, to obligations of the lenders to take certain limited steps to mitigate the requirement for, or the amount of, such increased costs. At SeptemberJune 30, 2017,2018, the Company had $3.3 billion of floating rate debt and $68$44 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 fromnon-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 tonon-U.S. entities to withholding taxes, subject to customary exclusions.SeptemberJune 30, 2017, United is the guarantor of $159 million of aircraft mortgage debt issued by one of United’s regional carriers. The aircraft mortgage debt is subject to similar increased cost provisions as described above for the Company’s debt and the Company would potentially be responsible for those costs under the guarantees.Labor Negotiations. As of September 30, 2017,2018, United had approximately 89,70091,400 employees, of whom approximately 80% were represented by various U.S. labor organizations. UNITE HERE is attempting to organize United's Catering Operations employees, who are currently unrepresented, and filed an application to do so with the National Mediation Board on January 24, 2018.SeptemberJune 30, 2017,2018, a substantial portion of the Company’sCompany's assets, principally aircraft, certain route authorities and airport slots, and loyalty program intangible assets, was pledged under various loan and other agreements. As of SeptemberJune 30, 2017,2018, UAL and United were in compliance with their respective debt covenants.2017 Credit and Guaranty Agreement. On March 29, 2017, United and UAL, as borrower and guarantor, respectively, entered into an In May 2018, the Company's 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"2017 Credit Agreement”Agreement"), and (ii) increased was amended to reduce the interest rate on 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.0.25%. As of SeptemberJune 30, 2017,2018, United had its entire capacity of $2.0 billion available under the revolving credit facility. The obligations of United under the 2017 Credit Agreement are secured by liens on certain international route authorities, certaintake-off and landing rights and related assets of United.Borrowings under the 2017 Credit Agreement bear interest at a variable rate equal to LIBOR, subject to a 0% floor, plus a margin of 2.25% per annum, or another rate based on certain market interest rates, plus a margin of 1.25% per annum. The principal 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 provisionsfacility of the 2017 Credit Agreement, UAL’s ability to make investmentsAgreement.to pay dividends on, or repurchase, UAL’s common stock is restricted.EETCs. In September 2016 and June 2016,May 2018, United created three new EETC pass-through trusts, each of which issued pass-through certificates. The proceeds of the issuance of the pass-through certificates are used to purchase equipment notes issued by United and secured by its aircraft. The Company records the debt obligation upon issuance of the equipment notes rather than upon the initial issuance of the pass-through certificates. The pass-through certificates represent fractional undivided interests in the respective pass-through trusts and are not obligations of United. The payment obligations under the equipment notes are those of United. Proceeds received from the sale of pass-through certificates are initially held by a depositary in escrow for the benefit of the certificate holders until United issues equipment notes to the trust, which purchases such notes with a portion of the escrowed funds. These escrowed funds are not guaranteed by United and are not reported as debt on our consolidated balance sheet because the proceeds held by the depositary are not United’sUnited's assets. Certain details of the pass-through trusts with proceeds received from issuance of debt in 20172018 are as follows (in millions, except stated interest rate): Principal
distribution date Stated
interest
rate Total debt
recorded
as of September 30,
2017 Proceeds
received
from
issuance of
debt during
2017 AA $ 637 October 2028 2.875% $ 637 $ 557 A 283 October 2028 3.10% 283 AA 729 July 2028 3.10% 729 319 A 324 July 2028 3.45% 324 142 $ 1,973 $ 1,973 $ 1,265 EETC Date Class Principal Final expected distribution date Stated interest rate February 2018 AA $ 677 March 2030 3.50% $ 677 February 2018 A 258 March 2030 3.70% 258 May 2018 B 226 March 2026 4.60% 226 $ 1,161 $ 1,161 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.Company’sCompany's contractual principal payments (not including debt discount or debt issuance costs) at SeptemberJune 30, 20172018 under then-outstanding long-term debt agreements (in millions): $ 184 1,527 1,115 1,120 1,107 7,963 $ 13,016 Last six months of 2018 $ 394 2019 1,244 2020 1,242 2021 1,230 2022 1,565 After 2022 7,838 $ 13,513 ninesix months ended SeptemberJune 30, special charges consisted of the following (in millions): Three Months Ended
September 30, Nine Months Ended
September 30, Operating: 2017 2016 2017 2016 $ 23 $ 13 $ 101 $ 27 15 — 15 412 — 14 — 124 — — — 74 12 18 29 32 50 45 145 669 — — — (1) 50 45 145 668 (18) (16) (52) (241) $ 32 $ 29 $ 93 $ 427 During Three Months Ended
June 30, Six Months Ended
June 30,Operating: 2018 2017 2018 2017 Impairment of assets $ 111 $ — $ 134 $ — Severance and benefit costs 11 41 25 78 (Gains) losses on sale of assets and other special charges 7 3 10 17 Special charges 129 44 169 95 Income tax benefit related to special charges (29 ) (16 ) (38 ) (34 ) Total special charges, net of tax $ 100 $ 28 $ 131 $ 61 ninesix months ended SeptemberJune 30, 2017,2018, the Company also recorded $16$6 million ($105 million net of taxes) and $73$29 million ($4722 million net of taxes), respectively, of fair value adjustments related to aircraft purchased off lease and other impairments related to certain fleet types and international slots no longer in use.(the “IBT”).of $6 million ($4 million net of taxes) and $14 million ($11 million net of taxes), respectively. In the first quarter of 2017, approximately 1,000 technicians and related employees elected to voluntarily separate from the Company and will receive a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through early 2019.2018. Also during the three and ninesix months ended SeptemberJune 30, 2018, the Company recorded other management severance of $5 million ($4 million net of taxes) and $11 million ($8 million net of taxes), respectively.$28$10 million ($188 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 voluntaryearly-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 FAA’s action impaired the entire value of its Newark slots because the slots are no longer the mechanism that governstake-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 related primarily for paymentsto contract termination of regional aircraft operations 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 aone-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 Company’s lease, which runs through 2029, associated with certain excess airport terminal space (principally Terminal D) and related facilities at Hopkins International Airport. The Company recorded an accrual for remaining payments under the lease for facilities that the Companyno 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.The accrual balance for severance and benefits was $31 million as of September 30, 2017, compared to $34 million as of September 30, 2016. ActivitySeptemberJune 30, 20172018 is primarily related to severance and other compensation expense associated with voluntary employee early retirement programs and is expected to be mostly paid through early 2019.in the second half of 2018. The accrual balance for future lease payments on permanently grounded aircraft was $28 million as of SeptemberJune 30, 2017, compared to $41 million as of September 30, 2016. The grounded aircraft related accrual as of September 30, 20172018 is expected to be mostly paid through 2025. The followingActivity related to these accruals is a reconciliation of severance and permanently grounded aircraft accrual activity for the nine months ended September 30: Severance and
Benefits Permanently
Grounded
Aircraft $ 14 $ 41 101 — (84) (13) $ 31 $ 28 Severance and
Benefits Permanently
Grounded
Aircraft $ 27 $ 78 27 (17) (20) (20) $ 34 $ 41 Severance and Benefits Permanently Grounded Aircraft Balance at December 31, 2017 $ 37 $ 22 Accrual 25 — Payments (34 ) (2 ) Balance at June 30, 2018 $ 28 $ 20 Severance and Benefits Permanently Grounded Aircraft Balance at December 31, 2016 $ 14 $ 41 Accrual 78 — Payments (65 ) (12 ) Balance at June 30, 2017 $ 27 $ 29 ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.“UAL”"UAL" or the “Company”"Company") is a holding company and its principal, wholly-owned subsidiary is United Airlines, Inc. (together with its consolidated subsidiaries, “United”"United"). This Quarterly Report on Form10-Q is a combined report of UAL and United including their respective consolidated financial statements. As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted. United’sUnited's operating revenues and operating expenses comprise nearly 100% of UAL’sUAL's revenues and operating expenses. In addition, United comprises approximately the entire balance of UAL’sUAL's assets, liabilities and operating cash flows. When appropriate, UAL and United are named specifically for their individual contractual obligations and related disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained. We sometimes use the words “we,” “our,” “us,”"we," "our," "us," and the “Company”"Company" in this report for disclosures that relate to all of UAL and United.world’sworld's largest airline alliance. UAL, through United and its regional carriers, operates approximately 4,5004,600 flights a day to 337357 airports across five continents.ThirdFinancial HighlightsThirdSecond quarter 20172018 net income was $637$684 million, or $2.12$2.48 diluted earnings per share, as compared to net income of $965$821 million, or diluted earnings per share of $3.01,$2.67, in the thirdsecond 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.decreased 0.9%increased 8.0% to $8.5$9.9 billion during the thirdsecond quarter of 20172018 as compared to the thirdsecond quarter of 2016. Revenue was impacted by an estimated $210 million due to the operational disruption.ThirdSecond quarter 20172018 aircraft fuel cost increased $206$721 million, 12.9%43.2% year-over-year.Unrestricted liquidity at September 30, 2017 was $6.3 billion, including $2.0 billion of undrawn commitments under the Company’s revolving credit facility.SeptemberJune 30, 2017,2018, UAL repurchased approximately 85.9 million shares of its common stock in open market transactions for $0.6 billion.$407 million. As of SeptemberJune 30, 2017,2018, the Company had $0.6approximately $2.0 billion remaining to purchase shares under its existing share repurchase authority.Third Quarter Operational HighlightsUnited achieved the best-ever third-quarter consolidatedon-time departures in its history.1.7%6.4% and consolidated capacity increased 3%4.8% during the thirdsecond quarter of 20172018 as compared to the thirdsecond quarter of 2016.2017. The Company’sCompany's load factor for the thirdsecond quarter of 20172018 was 84.4%84.8%.The Company took delivery of one Boeing787-9 aircraft, four Boeing737-800 aircraft and nine Embraer E175 aircraft duringCompleted the third quarter of 2017.Thefull-year 2017its consolidated capacityavailable seat miles to increase approximately 3.5%grow between 4.5% and 5.0% year-over-year. Domestic capacityMost of this growth will be concentrated in our domestic network, especially in our mid-continent hubs. We believe greater scale and connectivity at our hubs reinforces our relevance and value proposition to our customers. Rebanking at our hubs is expected to increase 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 are-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 Companyconnection opportunities. We will continue to focus on improving reliability while increasing the efficiencyalso expand flights in non-peak times of the operation.2017,2018, a one dollar change in the price of a barrel of crude oil would change the Company’sCompany's annual fuel expense by approximately $95$98 million.SeptemberJune 30, 20172018 as compared to the corresponding period in 2016.Third2017. 20172018 Compared to ThirdSecond Quarter 2016$637$684 million in the thirdsecond quarter of 20172018 as compared to net income of $965$821 million in the thirdsecond quarter of 2016.2017. The Company considers a key measure of its performance to be operating income, which was $1.1$1.2 billion for the thirdsecond quarter of 2018, as compared to $1.4 billion for the second quarter of 2017, as compared to $1.6 billion for the third quarter of 2016, a $532$276 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 Company’sCompany's operating results for the three months ended SeptemberJune 30 are as follows (in millions, except percentage changes): 2017 2016 Increase
(Decrease) % Increase
(Decrease) $ 9,878 $ 9,913 $ (35) (0.4) 8,786 8,289 497 6.0 1,092 1,624 (532) (32.8) (112) (114) (2) (1.8) 343 545 (202) (37.1) $ 637 $ 965 $ (328) (34.0) 2018 2017 Increase (Decrease) % Change Operating revenue $ 10,777 $ 10,008 $ 769 7.7 Operating expense 9,616 8,571 1,045 12.2 Operating income 1,161 1,437 (276 ) (19.2 ) Nonoperating expense (304 ) (160 ) 144 90.0 Income tax expense 173 456 (283 ) (62.1 ) Net income $ 684 $ 821 $ (137 ) (16.7 ) Company’sCompany's operations for the three months ended SeptemberJune 30 is as follows: 2017 2016 Increase
(Decrease) % Increase
(Decrease) 39,302 38,651 651 1.7 59,145 58,172 973 1.7 70,083 68,074 2,009 3.0 84.4% 85.5% (1.1) pts. N/A 12.17 12.64 (0.47) (3.7) 14.42 14.79 (0.37) (2.5) 12.54 12.18 0.36 3.0 $ 1.70 $ 1.52 $ 0.18 11.8 1,065 1,057 8 0.8 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. 2018 2017 Increase (Decrease) % Change Passengers (thousands) (a) 41,058 38,247 2,811 7.3 Revenue passenger miles ("RPMs") (millions) (b) 59,945 56,356 3,589 6.4 Available seat miles ("ASMs") (millions) (c) 70,702 67,467 3,235 4.8 Passenger load factor (d) 84.8 % 83.5 % 1.3 pts. N/A Passenger revenue per available seat mile ("PRASM") (cents) 13.97 13.56 0.41 3.0 Average yield per revenue passenger mile ("Yield") (cents) (e) 16.48 16.24 0.24 1.5 Cost per available seat mile ("CASM") (cents) 13.60 12.70 0.90 7.1 Average price per gallon of fuel, including fuel taxes $ 2.26 $ 1.63 $ 0.63 38.7 Fuel gallons consumed (millions) 1,058 1,023 35 3.4 Average full-time equivalent employees 86,700 86,000 700 0.8 (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. RevenueRevenue. SeptemberJune 30 (in millions, except for percentage changes): 2017 2016 Increase
(Decrease) % Change $ 7,083 $ 7,017 $ 66 0.9 1,445 1,586 (141) (8.9) 8,528 8,603 (75) (0.9) 257 224 33 14.7 1,093 1,086 7 0.6 $ 9,878 $ 9,913 $ (35) (0.4) 2018 2017 Increase (Decrease) % Change Passenger revenue $ 9,880 $ 9,151 $ 729 8.0 Cargo 314 273 41 15.0 Other operating revenue 583 584 (1 ) (0.2 ) Total operating revenue $ 10,777 $ 10,008 $ 769 7.7 thirdsecond 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 $ (2) $ 3 $ (109) $ 33 $ (75) $ 66 $ (141) Passenger revenue — % 0.2 % (9.3)% 4.7 % (0.9)% 0.9 % (8.9)% (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 % (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)% 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)% (1.1) 0.4 (3.5) — (1.1) (0.9) (3.0) Consolidated passenger Domestic Atlantic Pacific Latin Consolidated Increase (decrease) from 2017: Passenger revenue (in millions) $ 523 $ 209 $ 39 $ (42 ) $ 729 Passenger revenue 9.2 % 12.9 % 3.7 % (5.2 )% 8.0 % Average fare per passenger — % 1.3 % 12.7 % 0.4 % 0.6 % Yield 1.3 % 0.9 % 4.3 % (4.2 )% 1.5 % PRASM 1.7 % 7.9 % 3.4 % (2.9 )% 3.0 % Passengers 9.2 % 11.5 % (8.0 )% (5.5 )% 7.3 % RPMs (traffic) 7.8 % 11.9 % (0.6 )% (1.0 )% 6.4 % ASMs (capacity) 7.4 % 4.7 % 0.2 % (2.3 )% 4.8 % Passenger load factor (points) 0.3 5.2 (0.7) 1.1 1.3 thirdsecond quarter of 2017 decreased $752018 increased $729 million, or 0.9%8.0%, as compared to theyear-ago period primarily due to a 1.1 percentage6.4% increase in traffic and a 1.3 point decreaseincrease in load factor. ThirdSecond quarter 2017 consolidated2018 PRASM and consolidated yield decreased 3.7%increased 3.0% and 2.5%1.5%, respectively, compared to the third quarter of 2016. The Pacific region experienced a 10.4% decline in PRASM in the thirdsecond quarter of 2017, primarily as a result of improved close in demand in the domestic markets and overall demand improvements in the Atlantic markets. 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 theyear-ago period due to severe weather in southeast Texas, Florida, and parts of the Caribbean, uncompetitive Basic Economy pricing, and competitive pricing environment withultra-low-cost carriers.Cargo revenue increased $33 million, or 14.7%, in the third quarter of 2017 as compared to theyear-ago period primarily due to higher yields and higher international freight volume.ExpensesExpenses. Company’sCompany's operating expenses for the three months ended SeptemberJune 30 (in millions, except for percentage changes): 2017 2016 Increase
(Decrease) % Change $ 2,812 $ 2,625 $ 187 7.1 1,809 1,603 206 12.9 585 546 39 7.1 567 572 (5) (0.9) 556 503 53 10.5 451 451 — — 352 345 7 2.0 145 168 (23) (13.7) 50 45 5 NM 1,459 1,431 28 2.0 $ 8,786 $ 8,289 $ 497 6.0 2018 2017 Increase (Decrease) % Change Salaries and related costs $ 2,878 $ 2,842 $ 36 1.3 Aircraft fuel 2,390 1,669 721 43.2 Regional capacity purchase 681 549 132 24.0 Landing fees and other rent 603 541 62 11.5 Depreciation and amortization 557 536 21 3.9 Aircraft maintenance materials and outside repairs 438 472 (34 ) (7.2 ) Distribution expenses 393 385 8 2.1 Aircraft rent 119 152 (33 ) (21.7 ) Special charges 129 44 85 NM Other operating expenses 1,428 1,381 47 3.4 Total operating expenses $ 9,616 $ 8,571 $ 1,045 12.2 $187$36 million, or 7.1%1.3%, in the thirdsecond quarter of 20172018 as compared to theyear-ago period primarily due to contractually higher pay rates and benefit expenses driven by collective bargaining agreements, finalized in 2016, and a 2.6%0.8% increase in average full-time equivalent employees, partially offset by a decrease in profit sharing and other employee incentive programs expense.$206$721 million, or 12.9%43.2%, year-over-yearin the second quarter of 2018 as compared to the year-ago period primarily due to an 11.8%a 38.7% increase in the average price per gallon of aircraft fuel and a 4.8% increase in capacity.thirdsecond quarter of 2017 compared to theyear-ago period. The table below presents the significant changes in aircraft fuel cost per gallon in the three month period ended September 30, 20172018 as compared to theyear-ago period: (In millions) Average price per gallon 2017 2016 %
Change 2017 2016 %
Change $ 1,809 $ 1,579 14.6 $ 1.70 $ 1.49 14.1 — 24 NM — 0.03 NM $ 1,809 $ 1,603 12.9 $ 1.70 $ 1.52 11.8 1,065 1,057 0.8 $39$62 million, or 7.1%11.5%, in the thirdsecond quarter of 20172018 as compared to theyear-ago period due to higher rentalincreased rates and a 3% increase in consolidated capacity.Depreciationcapacity growth.amortization increased $53outside repairs decreased $34 million, or 10.5%7.2%, in the thirdsecond quarter of 20172018 as compared to theyear-ago period primarily due to additionslower rates and volume mix of new aircraft, aircraft improvements and increases in information technology assets.$23$33 million, or 13.7%21.7%, in the thirdsecond quarter of 20172018 as compared to theyear-ago period, primarily due to the purchase of leased aircraft and lower lease renewal rates.Company’sCompany's special charges include the following for the three months ended SeptemberJune 30 (in millions): 2017 2016 $ 23 $ 13 15 — — 14 12 18 $ 50 $ 45 2018 2017 Impairment of assets $ 111 $ — Severance and benefit costs 11 41 (Gains) losses on sale of assets and other special charges 7 3 Special charges $ 129 $ 44 (Expense)(Expense).The following table illustrates the year-over-year dollar and percentage changes in the Company’sCompany's nonoperating income (expense) for the three months ended SeptemberJune 30 (in millions, except for percentage changes): 2017 2016 Increase
(Decrease) %
Change $ (164) $ (150) $ 14 9.3 20 20 — — 17 14 3 21.4 15 2 13 NM $ (112) $ (114) $ (2) (1.8) 2018 2017 Increase (Decrease) % Change Interest expense $ (177 ) $ (167 ) $ 10 6.0 Interest capitalized 14 21 (7 ) (33.3 ) Interest income 25 13 12 92.3 Miscellaneous, net (166 ) (27 ) 139 NM Total $ (304 ) $ (160 ) $ 144 90.0 IncomeIncome Taxes.See Note 45 to the financial statements included in Part I, Item 1 of this report for information related to income taxes.NineSix Months 20172018 Compared to First NineSix Months 20162017$1.6 billion$831 million in the first ninesix months of 20172018 as compared to net income of $1.9 billion$920 million in the first ninesix months of 2016.2017. The Company considers a key measure of its performance to be operating income, which was $2.8$1.4 billion for the first ninesix months of 20172018, as compared to $3.3$1.8 billion for the first nine months of 2016, a $564 million decrease year-over-year. Income before income taxes for the first ninesix months of 2017, was negatively impacted by an estimated $185a $320 million as a result of severe weather in southeast Texas, Florida and parts of the Caribbean.decrease year-over-year. Significant components of the Company’sCompany's operating results for the ninesix months ended SeptemberJune 30 are as 2017 2016 Increase
(Decrease) % Increase
(Decrease) $ 28,298 $ 27,504 $ 794 2.9 25,529 24,171 1,358 5.6 2,769 3,333 (564) (16.9) (370) (398) (28) (7.0) 848 1,069 (221) (20.7) $ 1,551 $ 1,866 $ (315) (16.9) 2018 2017 Increase (Decrease) % Increase (Decrease) Operating revenue $ 19,809 $ 18,434 $ 1,375 7.5 Operating expense 18,372 16,677 1,695 10.2 Operating income 1,437 1,757 (320 ) (18.2 ) Nonoperating expense (396 ) (330 ) 66 20.0 Income tax expense 210 507 (297 ) (58.6 ) Net income $ 831 $ 920 $ (89 ) (9.7 ) Company’sCompany's operations for the ninesix months ended SeptemberJune 30 is as follows: 2017 2016 Increase
(Decrease) % Increase
(Decrease) 110,654 107,154 3,500 3.3 163,112 158,771 4,341 2.7 197,358 191,072 6,286 3.3 82.6% 83.1% (0.5) pts. N/A 12.32 12.40 (0.08) (0.6) 14.91 14.92 (0.01) (0.1) 12.94 12.65 0.29 2.3 $ 1.68 $ 1.45 $ 0.23 15.9 2,998 2,942 56 1.9 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. 2018 2017 Increase (Decrease) Passengers (thousands) (a) 75,553 71,352 4,201 5.9 RPMs (millions) (b) 109,794 103,967 5,827 5.6 ASMs (millions) (c) 132,679 127,275 5,404 4.2 Passenger load factor (d) 82.8 % 81.7 % 1.1 pts. N/A PRASM (cents) 13.59 13.20 0.39 3.0 Yield (cents) (e) 16.42 16.16 0.26 1.6 CASM (cents) 13.85 13.10 0.75 5.7 Average price per gallon of fuel, including fuel taxes $ 2.19 $ 1.67 $ 0.52 31.1 Fuel gallons consumed (millions) 1,990 1,933 57 2.9 Average full-time equivalent employees 86,200 85,600 600 0.7 (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. ninesix months ended SeptemberJune 30 (in millions, except for percentage changes): 2017 2016 Increase
(Decrease) % Change $ 19,970 $ 19,119 $ 851 4.5 4,354 4,577 (223) (4.9) 24,324 23,696 628 2.7 731 626 105 16.8 3,243 3,182 61 1.9 $ 28,298 $ 27,504 $ 794 2.9 2018 2017 Increase (Decrease) % Change Passenger revenue $ 18,030 $ 16,804 $ 1,226 7.3 Cargo 607 511 96 18.8 Other operating revenue 1,172 1,119 53 4.7 Total operating revenue $ 19,809 $ 18,434 $ 1,375 7.5 ninesix months ended SeptemberJune 30, 20172018 compared to the ninesix months ended SeptemberJune 30, 2016: Domestic Atlantic Pacific Latin Total
Consolidated Mainline Regional Increase (decrease) from 2016: $ 523 $ 37 $ (84) $ 152 $ 628 $ 851 $ (223) Passenger revenue 3.7 % 0.9 % (2.7)% 7.2 % 2.7 % 4.5 % (4.9)% (0.2)% 1.2 % (1.6)% 4.1 % (0.6)% (2.9)% 2.1 % (0.6)% 0.7 % (3.2)% 4.7 % (0.1)% 0.4 % 2.7 % (0.8)% 1.5 % (6.8)% 4.5 % (0.6)% — % 0.5 % 3.8 % (0.3)% (1.1)% 2.9 % 3.3 % 7.5 % (6.9)% 4.3 % 0.1 % 0.5 % 2.3 % 2.7 % 4.0 % (7.4)% 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) Domestic Atlantic Pacific Latin Consolidated Increase (decrease) from 2017: Passenger revenue (in millions) $ 841 $ 344 $ 55 $ (14 ) $ 1,226 Passenger revenue 8.2 % 12.6 % 2.6 % (0.9 )% 7.3 % Average fare per passenger 0.8 % 1.3 % 8.8 % 2.9 % 1.3 % Yield 1.7 % 1.0 % 1.3 % (0.6 )% 1.6 % PRASM 1.7 % 8.2 % 0.9 % 1.1 % 3.0 % Passengers 7.3 % 11.1 % (5.7 )% (3.7 )% 5.9 % RPMs (traffic) 6.3 % 11.5 % 1.3 % (0.3 )% 5.6 % ASMs (capacity) 6.4 % 4.0 % 1.6 % (1.9 )% 4.2 % Passenger load factor (points) (0.1) 5.2 (0.2) 1.5 1.1 ninesix months of 20172018 increased $628 million,$1.2 billion, or 2.7%7.3%, as compared to theyear-ago period primarily due to a 2.7%5.6% increase in traffic. Consolidated PRASM and consolidated yield for the first ninesix months of 2017 decreased 0.6%2018 increased 3.0% and 0.1%1.6%, respectively, as compared to the first nine months of 2016. The Pacific region experienced a 6.8% decline in PRASM in the first ninesix months of 2017 as compared toa result of improved close in demand in theyear-ago period due to unfavorable supply domestic markets and overall demand dynamicsimprovements in China. The Domestic region experienced a 0.8% and a 0.6% declinethe Atlantic markets.PRASM and yield, respectively,the first six months of 2018 as compared to theyear-ago period due to severe weather in southeast Texas, Florida and parts of the Caribbean, uncompetitive Basic Economy pricing, and competitive pricing environment withultra-low-cost carriers.Cargo revenue increased $105 million, or 16.8%, in the first nine months of 2017 as compared to theyear-ago period primarily due to higher volumes and yield on international freight volume.Company’sCompany's operating expenses for the ninesix months ended SeptemberJune 30 (in millions, except for percentage changes): 2017 2016 Increase
(Decrease) % Change $ 8,341 $ 7,707 $ 634 8.2 5,038 4,258 780 18.3 1,670 1,612 58 3.6 1,652 1,645 7 0.4 1,610 1,473 137 9.3 1,377 1,301 76 5.8 1,021 987 34 3.4 476 521 (45) (8.6) 145 669 (524) NM 4,199 3,998 201 5.0 $ 25,529 $ 24,171 $ 1,358 5.6 2018 2017 Increase (Decrease) % Change Salaries and related costs $ 5,604 $ 5,478 $ 126 2.3 Aircraft fuel 4,355 3,229 1,126 34.9 Regional capacity purchase 1,300 1,085 215 19.8 Landing fees and other rent 1,161 1,085 76 7.0 Depreciation and amortization 1,098 1,054 44 4.2 Aircraft maintenance materials and outside repairs 878 926 (48 ) (5.2 ) Distribution expenses 735 704 31 4.4 Aircraft rent 246 331 (85 ) (25.7 ) Special charges 169 95 74 NM Other operating expenses 2,826 2,690 136 5.1 Total operating expenses $ 18,372 $ 16,677 $ 1,695 10.2 $634$126 million, or 8.2%2.3%, in the first ninesix months of 20172018 as compared to theyear-ago period primarily due to higher pay rates and benefit expenses driven by collective bargaining agreements, finalized in 2016, and a 3.1%0.7% increase in average full-time equivalent employees, partially offset by a decrease in profit sharing and other employee incentive programs expense.expense increased $780 million,$1.1 billion, or 18.3%34.9%, year-over-yearin the first six months of 2018 as compared to the year-ago period primarily due to a 15.9%31.1% increase in the average price per gallon of aircraft fuel and a 4.2% increase in capacity.ninesix months of 2017 compared to theyear-ago period. The table below presents the significant changes in aircraft fuel cost per gallon in the nine months ended September 30, 20172018 as compared to theyear-ago period: (In millions) Average price per gallon 2017 2016 %
Change 2017 2016 %
Change Total aircraft fuel purchase cost excluding fuel hedge impacts $ 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 2,998 2,942 1.9 Depreciation period primarily due to increased regional flying related to the Company's initiative to improve connectivity at its domestic hubs, as well as rate increases under various capacity purchase agreements with regional carriers.amortizationother rent increased $137$76 million, or 9.3%7.0%, in the first ninesix months of 20172018 as compared to theyear-ago period, primarily due to additions of new aircraft, aircraft improvements, accelerated depreciation of assets related to certain fleet typesincreased rates and increases in information technology assets.maintenance materials and outside repairs increased $76rent decreased $85 million, or 5.8%25.7%, in the first ninesix months of 20172018 as compared to theyear-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 theyear-ago period, primarily due to the purchase of leased aircraft and lower lease renewal rates.$201$136 million, or 5.0%5.1%, in the first ninesix months of 20172018 as compared to theyear-ago period primarily due to increases in purchased services andrelated to our airport operations, technology initiatives, as well as increases intrucking and handling of cargo shipments, and increased volumes of onboard food and other amenities associated with the Company’s customer experience initiatives.Company’sCompany's special charges include the following for the ninesix months ended SeptemberJune 30 (in millions): 2017 2016 $ 101 $ 27 15 412 — 124 — 74 29 32 $ 145 $ 669 2018 2017 Impairment of assets $ 134 $ — Severance and benefit costs 25 78 (Gains) losses on sale of assets and other special charges 10 17 Special charges $ 169 $ 95 Company’sCompany's nonoperating income (expense) for the ninesix months ended SeptemberJune 30 (in millions, except for percentage changes): 2017 2016 Increase
(Decrease) %
Change $ (472) $ (466) $ 6 1.3 64 48 16 33.3 41 31 10 32.3 (3) (11) (8) (72.7) $ (370) $ (398) $ (28) (7.0) 2018 2017 Increase (Decrease) % Change Interest expense $ (353 ) $ (329 ) $ 24 7.3 Interest capitalized 33 44 (11 ) (25.0 ) Interest income 42 24 18 75.0 Miscellaneous, net (118 ) (69 ) 49 71.0 Total $ (396 ) $ (330 ) $ 66 20.0 45 to the financial statements included in Part I, Item 1 of this report for information related to income taxes.SeptemberJune 30, 2017,2018, the Company had $4.3$5.1 billion in unrestricted cash, cash equivalents and short-term investments, as compared to $4.4$3.8 billion at December 31, 2016.2017. The Company had its entire commitment capacity of $2.0 billion under the revolving credit facility of the the Amended and Restated Credit and Guaranty Agreement (as amended, the "2017 Credit Agreement") available for borrowings. In May 2018, the 2017 Credit Agreement was amended to reduce the interest rate on the term loan by 0.25%. At SeptemberJune 30, 2017,2018, the Company also had $109$107 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 creditcollateral associated with obligations for facility of the Company’s Amendedleases 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. workers' compensation.SeptemberJune 30, 2017,2018, the Company had approximately $13.9$14.5 billion of debt and capital lease obligations, including $1.6$1.0 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 SeptemberJune 30, 2017,2018, our current liabilities exceeded our current assets by approximately $5.2 billion. However, approximately $6.5$8.0 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.SeptemberJune 30, 2017,2018, United had firm commitments and options to purchase aircraft from The Boeing Company (“Boeing”("Boeing"), and Airbus S.A.S. (“Airbus”) and Embraer S.A. (“Embraer”("Airbus") presented in the table below: Number of Firm
Commitments (a) 45 155 161 1 4 18 Embraer E1755 (a) United also has options, purchase and purchaseother rights for additional aircraft.Company’sCompany's future capital commitments could change. For the remainder of 2017, United2018, the Company expects to take delivery of fivethree Boeing 787 aircraft, four Boeing 737 MAX aircraft, one Boeing 777-300ER aircraft and three used Boeing 767-300ER aircraft. In July 2018, United entered into an agreement to purchase 25 new Embraer E175 aircraft. Additionally, the Companyaircraft with expected delivery dates scheduled in 2019. United also currently expectshas an agreement to take delivery of fourpurchase 20 used Airbus A319sA319 aircraft with expected delivery dates scheduled in 2020 and two used Airbus A320s for the remainder of 2017.SeptemberJune 30, 2017,2018, UAL and United have total capital commitments primarily related to the acquisition of aircraft and related spare engines, aircraft improvements and include other capital purchase commitments for approximately $22.0$22.4 billion, of which approximately $0.9$1.7 billion, $3.3 billion, $3.0 billion, $3.1$2.8 billion, $2.2 billion, $1.4$1.8 billion and $11.4$9.8 billion are due in the last threesix months of 20172018 and for the full year for 2018, 2019, 2020, 2021, 2022 and thereafter, respectively. Any new firm aircraft orders, including through the exercise of purchase options and purchase rights, will increase the total future capital commitments of the Company.United secured individual bank financingfive Embraer E175its firm order 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.and other related capital expenditures. 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 necessarySee Note 9 to satisfy the Company’s capital commitmentsfinancial statements included in Part I, Item 1 of this report for its firm orderadditional information on aircraft and other related capital expenditures.SeptemberJune 30, 2017,2018, a substantial portion of the Company’sCompany's assets, principally aircraft, certain route authorities and 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. S&P Moody’sMoody's Fitch UAL BB-BB Ba2 BB United BB-BB * BB $2.7$4.2 billion for the ninesix months ended SeptemberJune 30, 20172018 compared to $4.9$2.1 billion in the same period in 2016.2017. Operating income for the first ninesix months of 20172018 was $2.8$1.4 billion, compared to $3.3$1.8 billion versus theyear-ago period. Excluding thenon-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 changesin 2017. Changes in working capital items primarily related toincreased $2.3 billion year-over-year, which accounted for the increase in cash flow from operations, including a $0.5 billion decrease in advanced purchase of miles due to increased utilization ofpre-purchased miles, $0.4 billion increase in prepayments for maintenance contracts, and $0.2advance ticket sales associated with our overall traffic growth, a $0.5 billion decreaseincrease in mileage sales to our co-branded credit card partner due to full utilization of the pre-purchased miles in 2017, a $0.4 billion increase related to timing of accounts payable.payable, a $0.3 billion decrease in employee incentive payments in the first six months of 2018 as compared to the year-ago period, a $0.2 billion increase in prepayments in the first six months of 2017 and $0.4 billion increase in other accrued liabilities.$2.9approximately $1.7 billion and $2.3$1.8 billion in the ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, respectively. Capital expenditures for the ninesix months ended SeptemberJune 30, 20172018 were primarily attributable to additions of new aircraft, aircraft improvements, and increases in facility and information technology assets.ninesix months ended SeptemberJune 30, 2017,2018, the Company made debt and capital lease payments of $0.8$1.4 billion.On March 29, 2017,UAL,recorded $1.2 billion of proceeds as borrowerdebt from the EETC pass-through trusts established in February 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, certaintake-off and landing rights and related assets of United.May 2018. 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.ninethree and six months ended SeptemberJune 30, 2017,2018, UAL repurchased approximately 185.9 million and 14.3 million shares, respectively, of UAL common stock in open market transactions for $1.3 billion.$0.4 billion and $1.0 billion, respectively. As of SeptemberJune 30, 2017,2018, the Company had approximately $0.6$2.0 billion remaining to purchase shares under its existing share repurchase authority.program.“UnregisteredUnregistered Sales of Equity Securities and Use of Proceeds”Proceeds of this report for additional information.Company’sCompany's Annual Report on Form10-K for the fiscal year ended December 31, 2016 (“20162017 (the "2017 Annual Report”Report"), the Company’sCompany's liquidity may be adversely impacted by a variety of factors, including, but not limited to, pension funding obligations, reserve requirements associated with credit card processing agreements, guarantees, commitments and contingencies.20162017 Annual Report and Notes 5, 7,6, 8, and 9 to the financial statements contained in Part I, Item 1 of this report for additional information.“Critical"Critical Accounting Policies”Policies" in Management’sPart II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in the 20162017 Annual Report andReport. Also see Note 12 to the financial statements contained in Part 1,I, Item 1 of this report for a discussion of the Company’s criticalCompany's updated accounting policies.Management’sPart I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report are forward-looking and thus reflect ourthe Company's current expectations and beliefs with respect to certain current and future events and anticipated financial and operating performance. Such forward-looking statements are and will be subject to many risks and uncertainties relating to ourthe Company's operations and business environment that may cause actual results to differ materially from any future results expressed or implied in such forward-looking statements. Words such as “expects,” “will,” “plans,” “anticipates,” “indicates,” “believes,” “forecast,” “guidance,” “outlook,” “goals”"expects," "will," "plans," "anticipates," "indicates," "believes," "estimates," "forecast," "guidance," "outlook," "goals" and similar expressions are intended to identify forward-looking statements. our ability to comply with the terms of our various financing arrangements; the costs and availability of financing; our ability to maintain adequate liquidity; our ability to execute our operational plans and revenue-generating initiatives, including optimizing our revenue; our ability to control our costs, including realizing benefits from our resource optimization efforts, cost reduction initiatives and fleet replacement programs; costs associated with any modification or termination of our aircraft orders; our ability to utilize our net operating losses; our ability to attract and retain customers; potential reputational or other impact from adverse events in our operations; demand for transportation in the markets in which we operate; an outbreak of a disease that affects travel demand or travel behavior; demand for travel and the impact that global economic and political conditions have on customer travel patterns; excessive taxation and the inability to offset future taxable income; general economic conditions (including interest rates, foreign currency exchange rates, investment or credit market conditions, crude oil prices, costs of aircraft fuel and energy refining capacity in relevant markets); economic and political instability and other risks of doing business globally;globally, including political developments that may impact our operations in certain countries; demand for travel and the impact that global economic and political conditions have on customer travel patterns; competitive pressures on pricing and on demand; demand for transportation in the markets in which we operate; our capacity decisions and the capacity decisions of our competitors; the effects of any hostilities, act of war or terrorist attack; the effects of any technology failures or cybersecurity breaches; the impact of regulatory, investigative and legal proceedings and legal compliance risks; disruptions to our regional network; the ability of other air carriers with whom we have alliances or partnerships to provide the services contemplated by the respective arrangements with such carriers; costs associated with any modification or termination of our aircraft orders; potential reputational or other impact from adverse events in our operations, the operations of our regional carriers or the operations of our code share partners; our ability to attract and retain customers; our ability to execute our operational plans and revenue-generating initiatives, including optimizing our revenue; our ability to the effects of any hostilities, act of war or terrorist attack; the ability of other air carriers with whom we have alliances or partnerships to provide the services contemplated by the respective arrangements with such carriers; the effects of any technology failures or cybersecurity breaches; disruptions to our regional network; the costs and availability of aviation and other insurance; industry consolidation or changes in airline alliances; the success of our investments in airlines in other parts of the world; competitive pressures on pricing and on demand; our capacity decisions and the capacity decisions of our competitors; U.S. or foreign governmental legislation, regulation and other actions (including Open Skies agreements and environmental regulations); the impact of regulatory, investigative and legal proceedings and legal compliance risks; the impact of any management changes; labor costs; our ability to maintain satisfactory labor relations and the results of any collective bargaining agreement process with our union groups; any disruptions to operations due to any potential actions by our labor groups; an outbreak of a disease that affects travel demand or travel behavior; U.S. or foreign governmental legislation, regulation and other actions (including Open Skies agreements and environmental regulations); industry consolidation or changes in airline alliances; our ability to comply with the terms of our various financing arrangements; the costs and availability of financing; our ability to maintain adequate liquidity; the costs and availability of aviation and other insurance; weather conditions; our ability to utilize our net operating losses to offset future taxable income; the impact of changes in tax laws; the success of our investments in airlines in other parts of the world; and other risks and uncertainties set forth under Part I, Item 1A., “Risk Factors”Risk Factors, of our 20162017 Annual Report, as well as other risks and uncertainties set forth from time to time in the reports we file with the U.S. Securities and Exchange Commission (the “SEC”"SEC").ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.7A. “Quantitative7A, Quantitative and Qualitative Disclosures About Market Risk”Risk, in our 20162017 Annual Report.ITEM 4.CONTROLS AND PROCEDURES.The Company maintainsSEC’sSEC's rules and forms, and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management of UAL and United, including the Chief Executive Officer and Chief Financial Officer, performed an evaluation to conclude with reasonable assurance that UAL’sUAL's and United’sUnited's disclosure controls and procedures were designed and operating effectively to report the information each company is required to disclose in the reports they file with the SEC on a timely basis. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer of UAL and United have concluded that as of SeptemberJune 30, 2017,2018, disclosure controls and procedures of each of UAL and United were effective.SeptemberJune 30, 20172018SeptemberJune 30, 2017,2018, there were no changes in UAL’sUAL's or United’sUnited's internal control over financial reporting that materially affected, or are reasonably likely to materially affect, their internal control over financial reporting (as defined in rules13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934).ITEM 1.LEGAL PROCEEDINGS3., “Legal Proceedings”3, Legal Proceedings, of the 20162017 Annual Report for a description of legal proceedings.Item 1A.RISK FACTORS1A., “Risk1A, Risk Factors,” of the 20162017 Annual Report for a detailed discussion of the risk factors affecting UAL and United.ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.thirdsecond quarter of fiscal year 2017: Total number of
shares
purchased (a)(b) Average price paid
per share (b)(c) Total number of
shares purchased as
part of publicly
announced plans or
programs (a) Approximate dollar
value of shares that
may yet be purchased
under the plans or
programs (in millions) (a) 2,537,939 $ 73.35 2,537,939 $ 923 3,592,802 66.80 3,592,802 683 2,159,408 60.20 2,159,408 553 8,290,149 8,290,149 Period April 2018 3,224,922 $ 68.11 3,224,922 $ 2,212 May 2018 1,789,844 68.42 1,789,844 2,089 June 2018 916,248 71.15 916,248 2,024 Total 5,931,014 5,931,014 July 2016, UAL’sDecember 2017, UAL's Board of Directors authorized a $2$3.0 billion share repurchase program.program to acquire UAL's common stock. As of SeptemberJune 30, 2017,2018, the Company had approximately $0.6$2.0 billion remaining to purchase shares under its share repurchase program. UAL may repurchase shares through the open market, privately negotiated transactions, block trades or accelerated share repurchase transactions from time to time in accordance with applicable securities laws.which replacedand the United Continental Holdings, Inc. 2008 Incentive Compensation Plan on May 24, 2017, provideseach provide for the withholding of shares to satisfy tax obligations due upon the vesting of restricted stock. However, this plan doesthese plans do not specify a maximum number of shares that may be withheld for this purpose. A total of 8,4571,226 shares were withheld under this planthese plans in the thirdsecond quarter of 20172018 at an average price per share price of $67.88.$69.17. These shares of common stock withheld to satisfy tax withholding obligations may be deemed to be “issuer purchases”"issuer purchases" of shares that are required to be disclosed pursuant to this Item.ITEM 6.EXHIBITS.Registrant Exhibit RegistrantExhibit *4.110.1UAL United^ 10.110.2UAL United 12.1 ^10.3 12.1 UAL 12.2 12.2 United 31.1 31.1 UAL 31.2 31.2 UAL 31.3 31.3 United 31.4 31.4 United 32.1 32.1 UAL 32.2 32.2 United 101.1 XBRL Instance Document 101.2 UALUnited101.2 XBRL Taxonomy Extension Schema Document 101.3 UALUnited101.3 XBRL Taxonomy Extension Calculation Linkbase Document 101.4 UALUnited101.4 XBRL Taxonomy Extension Definition Linkbase Document 101.5 UALUnited101.5 XBRL Taxonomy Extension Labels Linkbase Document 101.6 UALUnited101.6 XBRL Taxonomy Extension Presentation Linkbase Document * Previously Filed The signature for each undersigned company shall be deemed to relate only to matters having reference to such company or its subsidiaries. United Continental Holdings, Inc. (Registrant) Date: October 19, 2017 Date: July 18, 2018 By: Andrew C. Levy Gerald Laderman
Senior Vice President Finance and acting Chief Financial Officer
(Principal Financial Officer) Andrew C. LevyDate: Executive Vice President and Chief Financial Officer (principal financial officer)Date: October 19, 2017July 18, 2018 By: Chris KennyChris Kenny principal accounting officer)Principal Accounting Officer) United Airlines, Inc. (Registrant) Date: October 19, 2017 Date: July 18, 2018 By: Andrew C. Levy Andrew C. LevyExecutiveGerald Laderman
Senior Vice President Finance and acting Chief Financial Officer
(principal financial officer)Principal Financial Officer)Date: October 19, 2017 Date: July 18, 2018 By: Chris KennyChris Kenny principal accounting officer)Principal Accounting Officer)41