United Continental : Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

to

Commission		Exact Name of Registrant as Specified in its Charter,		State of		I.R.S. Employer
File Number		Principal Executive Office Address and Telephone Number		Incorporation		Identification No.
001-06033		United Continental Holdings, Inc.		Delaware	36-2675207
		233 South Wacker Drive, Chicago, Illinois 60606
	[phone]
001-10323		United Airlines, Inc.		Delaware	74-2099724
		233 South Wacker Drive, Chicago, Illinois 60606
	[phone]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

United Continental Holdings, Inc.

Yes x No o

United Airlines, Inc.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

United Continental Holdings, Inc.

Yes x No o

United Airlines, Inc.

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

United Continental Holdings, Inc.	Large accelerated filer	x	Accelerated filer	o	Non-accelerated filer	o	Smaller reporting company	o	Emerging growth company	o
United Airlines, Inc.	Large accelerated filer	o	Accelerated filer	o	Non-accelerated filer	x	Smaller reporting company	o	Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

United Continental Holdings, Inc.	o
United Airlines, Inc.	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

United Continental Holdings, Inc.	Yes	o	No	x
United Airlines, Inc.	Yes	o	No	x

The number of shares outstanding of each of the issuer's classes of common stock as of April 12, 2019 is shown below:

United Continental Holdings, Inc.	263,129,397 shares of common stock ($0.01 par value)
United Airlines, Inc.	1,000 shares of common stock ($0.01 par value) (100% owned by United Continental Holdings, Inc.)
	OMISSION OF CERTAIN INFORMATION

This combined Quarterly Report on Form 10-Q is separately filed by United Continental Holdings, Inc. and United Airlines, Inc. United Airlines, Inc. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format allowed under that General Instruction.

United Continental Holdings, Inc.
United Airlines, Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended March 31, 2019
	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
United Continental Holdings, Inc.:
Statements of Consolidated Operations	3
Statements of Consolidated Comprehensive Income	4
Consolidated Balance Sheets	5
Condensed Statements of Consolidated Cash Flows	7
Statement of Consolidated Stockholders' Equity	8
United Airlines, Inc.:
Statements of Consolidated Operations	9
Statements of Consolidated Comprehensive Income	10
Consolidated Balance Sheets	11
Condensed Statements of Consolidated Cash Flows	13
Statement of Consolidated Stockholder's Equity	14
Combined Notes to Condensed Consolidated Financial Statements
(United Continental Holdings, Inc. and United Airlines, Inc.)	15
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3. Quantitative and Qualitative Disclosures About Market Risk	32
Item 4. Controls and Procedures	32
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	33
Item 1A. Risk Factors	33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 6. Exhibits	34
Exhibit Index	34
Signatures	35

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

UNITED CONTINENTAL HOLDINGS, INC.

STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED )

(In millions, except per share amounts)

		Three Months Ended March 31,
	2019					2018 (a)
Operating revenue:
Passenger revenue	$		8,725		$	8,149
Cargo			286			293
Other operating revenue			578			590
Total operating revenue			9,589			9,032
Operating expense:
Salaries and related costs			2,873			2,726
Aircraft fuel			2,023			1,965
Regional capacity purchase			688			630
Landing fees and other rent			588			579
Depreciation and amortization			547			524
Aircraft maintenance materials and outside repairs			408			440
Distribution expenses			360			342
Aircraft rent			81			127
Special charges			18			40
Other operating expenses			1,508			1,397
Total operating expenses			9,094			8,770
Operating income			495			262
Nonoperating income (expense):
Interest expense			(188)			(162)
Interest capitalized			22			18
Interest income			29			17
Miscellaneous, net			9			47
Total nonoperating expense, net			(128)			(80)
Income before income taxes			367			182
Income tax expense			75			37
Net income	$		292		$	145
Earnings per share, basic and diluted	$		1.09		$	0.51

(a)Amounts adjusted due to the adoption of Accounting Standards Update No. 2016-02,Leases (Topic 842). See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.

The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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Table of Contents

UNITED CONTINENTAL HOLDINGS, INC.

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (UNAUDITED)

(In millions)

		Three Months Ended March 31,
	2019					2018 (a)
Net income	$		292		$		145
Other comprehensive income, net change related to:
Employee benefit plans, net of taxes			7				30
Investments and other, net of taxes			3				3
Total other comprehensive income, net			10				33
Total comprehensive income, net	$		302	$			178

(a)Amounts adjusted due to the adoption of Accounting Standards Update No. 2016-02,Leases (Topic 842). See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.

The accompanying Combined Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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Table of Contents

UNITED CONTINENTAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In millions, except shares)

		March 31, 2019			December 31, 2018 (a)
ASSETS
Current assets:
Cash and cash equivalents	$	1,848		$	1,694
Short-term investments		2,219			2,256
Receivables, less allowance for doubtful accounts (2019 - $8; 2018 - $8)		1,789			1,426
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2019 - $421; 2018 - $412)		972			985
Prepaid expenses and other		780			733
Total current assets		7,608			7,094
Operating property and equipment:
Flight equipment		33,705			32,599
Other property and equipment		7,165			6,889
Purchase deposits for flight equipment		1,455			1,177
Total operating property and equipment, at cost		42,325			40,665
Less - Accumulated depreciation and amortization		(13,739)			(13,266)
Total operating property and equipment, net		28,586			27,399
Operating lease right-of-use assets		5,065			5,262
Other assets:
Goodwill		4,523			4,523
Intangibles, less accumulated amortization (2019 - $1,395; 2018 - $1,380)		3,144			3,159
Restricted cash		103			105
Notes receivable, net		512			516
Investments in affiliates and other, net		1,098			966
Total other assets		9,380			9,269
Total assets	$	50,639		$	49,024

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