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United Continental Holdings, Inc. 10-Q 2011
Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended June 30, 2011

OR

 

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

For the transition period from              to             

 

 

 

Commission

File Number

 

Exact Name of Registrant

as Specified in its Charter,

Principal Office Address

and Telephone Number

 

State of

Incorporation

 

I.R.S. Employer

Identification No

001-06033   United Continental Holdings, Inc.   Delaware   36-2675207
 

77 W. Wacker

Drive, Chicago,

Illinois 60601

   
  (312) 997-8000    
001-11355   United Air Lines, Inc.   Delaware   36-2675206
 

77 W. Wacker

Drive, Chicago,

Illinois 60601

   
  (312) 997-8000    
001-10323   Continental Airlines, Inc.   Delaware   74-2099724
 

1600 Smith Street,

Dept HQSEO,

Houston, Texas

77002

   
  (713) 324-2950    

 

 

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  ¨       United Air Lines, Inc.    Yes  x    No ¨
Continental Airlines, Inc.    Yes  x    No  ¨         

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

 

United Continental Holdings, Inc.    Yes  x    No  ¨       United Air Lines, Inc.    Yes  x    No  ¨
Continental Airlines, Inc.    Yes  x    No  ¨         

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

 

United Continental Holdings, Inc.   Large accelerated filer  x   Accelerated filer  ¨   Non-accelerated filer  ¨   Smaller reporting company  ¨
United Air Lines, Inc.   Large accelerated filer  ¨   Accelerated filer  ¨   Non-accelerated filer  x   Smaller reporting company  ¨
Continental Airlines, Inc.   Large accelerated filer  ¨   Accelerated filer  ¨   Non-accelerated filer  x   Smaller reporting company  ¨

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  ¨    No  x   
United Air Lines, Inc.    Yes  ¨    No  x   
Continental Airlines, Inc.    Yes  ¨    No  x   

The number of shares outstanding of each of the issuer’s classes of common stock as of July 15, 2011 is shown below:

 

United Continental Holdings, Inc.   330,773,503 shares of common stock ($0.01 par value)
United Air Lines, Inc.  

205 (100% owned by United Continental Holdings, Inc.)

There is no market for United Air Lines, Inc. common stock.

Continental Airlines, Inc.  

1,000 (100% owned by United Continental Holdings, Inc.)

There is no market for Continental Airlines, Inc. common stock.

OMISSION OF CERTAIN INFORMATION

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

 

 

 


Table of Contents

United Continental Holdings, Inc.

United Air Lines, Inc.

Continental Airlines, Inc.

Report on Form 10-Q

For the Quarter Ended June 30, 2011

 

     Page  
PART I. FINANCIAL INFORMATION   

Item 1. Financial Statements

  

United Continental Holdings, Inc.:

  

Statements of Consolidated Operations

     3   

Consolidated Balance Sheets

     4   

Condensed Statements of Consolidated Cash Flows

     6   

United Air Lines, Inc.:

  

Statements of Consolidated Operations

     7   

Consolidated Balance Sheets

     8   

Condensed Statements of Consolidated Cash Flows

     10   

Continental Airlines, Inc.:

  

Statements of Consolidated Operations

     11   

Consolidated Balance Sheets

     12   

Condensed Statements of Consolidated Cash Flows

     14   
Combined Notes to Condensed Consolidated Financial Statements
(United Continental Holdings, Inc., United Air Lines, Inc. and Continental Airlines, Inc.)
     15   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     37   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     53   

Item 4. Controls and Procedures

     53   
PART II. OTHER INFORMATION   

Item 1. Legal Proceedings

     55   

Item 1A. Risk Factors

     55   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     57   

Item 6. Exhibits

     57   

Signatures

     58   

Exhibit Index

     59   


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
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  

Operating revenue:

        

Passenger:

        

Mainline

   $ 6,864      $ 3,532        12,627      $ 6,401   

Regional

     1,742        962        3,166        1,750   
                                

Total passenger revenue

     8,606        4,494        15,793        8,151   

Cargo

     316        190        599        347   

Special revenue item (Note 1)

     107        —          107        —     

Other operating revenue

     780        477        1,512        904   
                                
     9,809        5,161        18,011        9,402   
                                

Operating expenses:

        

Aircraft fuel

     3,227        1,486        5,899        2,693   

Salaries and related costs

     1,916        1,061        3,722        2,051   

Regional capacity purchase

     615        405        1,188        793   

Landing fees and other rent

     502        271        975        528   

Aircraft maintenance materials and outside repairs

     444        245        883        467   

Depreciation and amortization

     385        223        773        444   

Distribution expenses

     375        198        725        370   

Aircraft rent

     252        81        505        162   

Special charges (Note 10)

     146        106        223        124   

Other operating expenses

     1,139        644        2,276        1,253   
                                
     9,001        4,720        17,169        8,885   
                                

Operating income

     808        441        842        517   

Nonoperating income (expense):

        

Interest expense

     (250     (178     (504     (363

Interest income

     5        2        9        3   

Interest capitalized

     8        3        14        5   

Miscellaneous, net

     (29     3        (30     28   
                                
     (266     (170     (511     (327
                                

Income before income taxes

     542        271        331        190   

Income tax expense (benefit)

     4        (2     6        (1
                                

Net income

   $ 538      $ 273      $ 325      $ 191   
                                

Earnings per share, basic

   $ 1.63      $ 1.62      $ 0.98      $ 1.14   
                                

Earnings per share, diluted

   $ 1.39      $ 1.29      $ 0.88      $ 0.96   
                                

See accompanying Combined Notes to Condensed Consolidated Financial Statements.

 

3


Table of Contents

UNITED CONTINENTAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares)

 

     (Unaudited)        
     June 30,
2011
    December 31,
2010
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 7,519      $ 8,069   

Short-term investments

     1,060        611   
                

Total unrestricted cash, cash equivalents and short-term investments

     8,579        8,680   

Restricted cash

     46        37   

Receivables, less allowance for doubtful accounts (2011 — $6; 2010 — $6)

     1,863        1,613   

Aircraft fuel, spare parts and supplies, less obsolescence allowance (2011 — $74; 2010 — $64)

     508        466   

Deferred income taxes

     622        591   

Prepaid expenses and other

     773        658   
                
     12,391        12,045   
                

Operating property and equipment:

    

Owned—

    

Flight equipment

     15,618        15,181   

Other property and equipment

     2,993        2,890   
                
     18,611        18,071   

Less — accumulated depreciation and amortization

     (3,421     (2,858
                
     15,190        15,213   
                

Purchase deposits for flight equipment

     304        230   

Capital leases—

    

Flight equipment

     1,474        1,741   

Other property and equipment

     221        217   
                
     1,695        1,958   

Less — accumulated amortization

     (499     (456
                
     1,196        1,502   
                
     16,690        16,945   
                

Other assets:

    

Goodwill

     4,523        4,523   

Intangibles, less accumulated amortization (2011 — $587; 2010 — $504)

     4,815        4,917   

Restricted cash, cash equivalents and investments

     358        350   

Investments

     101        103   

Other, net

     816        715   
                
     10,613        10,608   
                
   $ 39,694      $ 39,598   
                

 

(continued on next page)

 

4


Table of Contents

UNITED CONTINENTAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares)

 

     (Unaudited)        
     June 30,
2011
    December 31,
2010
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Advance ticket sales

   $ 4,497      $ 2,998   

Frequent flyer deferred revenue

     2,491        2,582   

Accounts payable

     1,999        1,805   

Accrued salaries and benefits

     1,229        1,470   

Current maturities of long-term debt

     1,389        2,411   

Current maturities of capital leases

     138        252   

Other

     1,019        1,127   
                
     12,762        12,645   
                

Long-term debt

     11,101        11,434   

Long-term obligations under capital leases

     970        1,036   

Other liabilities and deferred credits:

    

Frequent flyer deferred revenue

     3,355        3,491   

Postretirement benefit liability

     2,383        2,344   

Pension liability

     1,458        1,473   

Advanced purchase of miles

     1,545        1,159   

Deferred income taxes

     1,618        1,585   

Lease fair value adjustment, net

     1,246        1,371   

Other

     1,314        1,333   
                
     12,919        12,756   
                

Commitments and contingencies

    

Stockholders’ equity:

    

Preferred stock

     —          —     

Common stock at par, $0.01 par value; authorized 1,000,000,000 shares; outstanding 330,766,357 and 327,922,565 shares at June 30, 2011 and December 31, 2010, respectively

     3        3   

Additional capital invested

     7,106        7,071   

Accumulated deficit

     (5,378     (5,703

Stock held in treasury, at cost

     (31     (31

Accumulated other comprehensive income

     242        387   
                
     1,942        1,727   
                
   $ 39,694      $ 39,598   
                

See accompanying Combined Notes to Condensed Consolidated Financial Statements.

 

5


Table of Contents

UNITED CONTINENTAL HOLDINGS, INC.

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)

(In millions)

 

     Six Months Ended
June 30,
 
     2011     2010  

Cash Flows from Operating Activities:

    

Net income

   $ 325      $ 191   

Adjustments to reconcile net income to net cash provided (used) by operating activities —

    

Depreciation and amortization

     773        444   

Amortization of debt and lease fair value adjustment

     (119     8   

Special items, non-cash portion (Notes 1 and 10)

     (48     90   

Increase in advance ticket sales

     1,499        808   

Decrease in frequent flyer deferred revenue and advanced purchase of miles

     (89     (60

Increase in receivables

     (387     (324

Increase in accounts payable

     202        123   

Increase in other current assets

     (251     (83

Increase (decrease) in other accrued liabilities

     (224     90   

Net change in fuel hedge cash collateral

     (29     4   

Other, net

     106        65   
                

Net cash provided by operating activities

     1,758        1,356   
                

Cash Flows from Investing Activities:

    

Capital expenditures

     (350     (124

Aircraft purchase deposits paid, net

     (70     (42

(Increase) decrease in restricted cash

     (20     43   

Proceeds from sale of property and equipment

     54        25   

Purchases of short-term investments, net

     (443     —     

Other, net

     —          3   
                

Net cash used in investing activities

     (829     (95
                

Cash Flows from Financing Activities:

    

Proceeds from issuance of long-term debt

     142        1,995   

Payments of long-term debt

     (1,477     (1,274

Principal payments under capital leases

     (176     (93

Other, net

     32        (25
                

Net cash provided by (used in) financing activities

     (1,479     603   
                

Increase (decrease) in cash and cash equivalents during the period

     (550     1,864   

Cash and cash equivalents at beginning of the period

     8,069        3,042   
                

Cash and cash equivalents at end of the period

   $ 7,519      $ 4,906   
                

Investing and Financing Activities Not Affecting Cash:

    

Property and equipment acquired through the issuance of debt

   $ 97      $ —     

Reclassification of debt to advanced purchases of miles

     (270     —     

Reclassification of debt discount to other assets

     60        —     

8% Contingent Senior Unsecured Notes, net of discount

     49        —     

Interest paid in kind on UAL 6% Senior Notes

     18        17   

See accompanying Combined Notes to Condensed Consolidated Financial Statements.

 

6


Table of Contents

UNITED AIR LINES, INC.

STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)

(In millions)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  

Operating revenue:

        

Passenger:

        

Mainline

   $ 3,745      $ 3,532      $ 6,884      $ 6,401   

Regional

     1,046        962        1,937        1,750   
                                

Total passenger revenue

     4,791        4,494        8,821        8,151   

Cargo

     191        190        358        347   

Special revenue item (Note 1)

     88        —          88        —     

Other operating revenue

     500        479        979        908   
                                
     5,570        5,163        10,246        9,406   
                                

Operating expenses:

        

Aircraft fuel

     1,833        1,486        3,345        2,693   

Salaries and related costs

     1,038        1,061        2,025        2,051   

Regional capacity purchase

     401        405        783        793   

Landing fees and other rent

     275        271        527        528   

Aircraft maintenance materials and outside repairs

     290        245        582        467   

Depreciation and amortization

     229        223        456        444   

Distribution expenses

     199        198        386        370   

Aircraft rent

     80        81        161        162   

Special charges (Note 10)

     90        106        164        124   

Other operating expenses

     698        644        1,372        1,252   
                                
     5,133        4,720        9,801        8,884   
                                

Operating income

     437        443        445        522   

Nonoperating income (expense):

        

Interest expense

     (159     (173     (327     (353

Interest income

     3        2        5        3   

Interest capitalized

     3        3        6        5   

Miscellaneous, net

     (3     4        (8     29   
                                
     (156     (164     (324     (316
                                

Income before income taxes

     281        279        121        206   

Income tax benefit

     —          (2     —          (1
                                

Net income

   $ 281      $ 281      $ 121      $ 207   
                                

See accompanying Combined Notes to Condensed Consolidated Financial Statements.

 

7


Table of Contents

UNITED AIR LINES, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares)

 

     (Unaudited)        
     June 30,
2011
    December 31,
2010
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 4,107      $ 4,665   

Short-term investments

     155        —     
                

Total unrestricted cash, cash equivalents and short-term investments

     4,262        4,665   

Restricted cash

     46        37   

Receivables, net of allowance for doubtful accounts (2011 — $5; 2010 — $5)

     1,103        1,004   

Aircraft fuel, spare parts and supplies, less obsolescence allowance (2011 — $67; 2010 — $61)

     243        321   

Receivables from related parties

     193        135   

Deferred income taxes

     350        373   

Prepaid expenses and other

     513        366   
                
     6,710        6,901   
                

Operating property and equipment:

    

Owned—

    

Flight equipment

     9,021        8,718   

Other property and equipment

     2,161        2,086   
                
     11,182        10,804   

Less — accumulated depreciation and amortization

     (3,032     (2,717
                
     8,150        8,087   
                

Purchase deposits for flight equipment

     54        51   

Capital leases—

    

Flight equipment

     1,474        1,741   

Other property and equipment

     52        49   
                
     1,526        1,790   

Less — accumulated amortization

     (489     (453
                
     1,037        1,337   
                
     9,241        9,475   
                

Other assets:

    

Intangibles, less accumulated amortization (2011 — $503; 2010 — $473)

     2,313        2,343   

Restricted cash

     198        190   

Investments

     96        97   

Other, net

     602        622   
                
     3,209        3,252   
                
   $ 19,160      $ 19,628   
                

 

(continued on next page)

 

8


Table of Contents

UNITED AIR LINES, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares)

 

     (Unaudited)        
     June 30,
2011
    December 31,
2010
 

LIABILITIES AND STOCKHOLDER’S DEFICIT

    

Current liabilities:

    

Advance ticket sales

   $ 2,451      $ 1,536   

Frequent flyer deferred revenue

     1,540        1,703   

Accounts payable

     1,161        907   

Accrued salaries and benefits

     772        938   

Current maturities of long-term debt

     635        1,546   

Current maturities of capital leases

     135        249   

Related party payables

     61        63   

Other

     751        950   
                
     7,506        7,892   
                

Long-term debt

     5,468        5,480   

Long-term obligations under capital leases

     792        858   

Other liabilities and deferred credits:

    

Frequent flyer deferred revenue

     2,184        2,321   

Postretirement benefit liability

     2,121        2,091   

Pension liability

     100        101   

Advanced purchase of miles

     1,275        1,159   

Deferred income taxes

     708        731   

Other

     956        972   
                
     7,344        7,375   
                

Commitments and contingencies

    

Stockholder’s deficit:

    

Common stock at par, $5 par value; authorized 1,000 shares; outstanding 205 shares at both June 30, 2011 and December 31, 2010

     —          —     

Additional capital invested

     3,428        3,421   

Accumulated deficit

     (5,368     (5,489

Accumulated other comprehensive income (loss)

     (10     91   
                
     (1,950     (1,977
                
   $ 19,160      $ 19,628   
                

See accompanying Combined Notes to Condensed Consolidated Financial Statements.

 

9


Table of Contents

UNITED AIR LINES, INC.

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)

(In millions)

 

     Six Months Ended
June 30,
 
     2011     2010  

Cash Flows from Operating Activities:

    

Net income

   $ 121      $ 207   

Adjustments to reconcile net income to net cash provided (used) by operating activities—

    

Depreciation and amortization

     456        444   

Amortization of debt and lease fair value adjustment

     8        8   

Special items, non-cash portion (Notes 1 and 10)

     (28     90   

Increase in advance ticket sales

     915        808   

Decrease in frequent flyer deferred revenue and advanced purchase of miles

     (180     (60

Increase in receivables

     (257     (324

Increase in accounts payable

     251        123   

Increase in other current assets

     (77     (100

Increase (decrease) in other accrued liabilities

     (231     88   

Net change in fuel hedge cash collateral

     (29     4   

Other, net

     93        64   
                

Net cash provided by operating activities

     1,042        1,352   
                

Cash Flows from Investing Activities:

    

Capital expenditures

     (222     (124

Purchases of short-term investments, net

     (153     —     

Aircraft purchase deposits paid, net

     (3     (42

(Increase) decrease in restricted cash

     (20     43   

Proceeds from sale of property and equipment

     1        25   

Other, net

     —          3   
                

Net cash used in investing activities

     (397     (95
                

Cash Flows from Financing Activities:

    

Proceeds from issuance of long-term debt

     —          1,995   

Payments of long-term debt

     (1,037     (1,273

Principal payments under capital leases

     (175     (93

Other, net

     9        (22
                

Net cash provided by (used in) financing activities

     (1,203     607   
                

Increase (decrease) in cash and cash equivalents during the period

     (558     1,864   

Cash and cash equivalents at beginning of the period

     4,665        3,036   
                

Cash and cash equivalents at end of the period

   $ 4,107      $ 4,900   
                

Investing and Financing Activities Not Affecting Cash:

    

8% Contingent Senior Unsecured Notes, net of discount

   $ 49      $ —     

Interest paid in kind on UAL 6% Senior Notes

     18        17   

See accompanying Combined Notes to Condensed Consolidated Financial Statements.

 

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CONTINENTAL AIRLINES, INC.

STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)

(In millions, except per share amounts)

 

     Successor     Predecessor     Successor     Predecessor  
     Three Months
Ended
June 30, 2011
    Three Months
Ended
June 30, 2010
    Six Months
Ended
June 30, 2011
    Six Months
Ended
June 30, 2010
 

Operating revenue:

        

Passenger:

        

Mainline

   $ 3,118      $ 2,635      $ 5,741      $ 4,892   

Regional

     696        616        1,229        1,117   
                                

Total passenger revenue

     3,814        3,251        6,970        6,009   

Cargo

     126        111        241        213   

Special revenue item (Note 1)

     19        —          19        —     

Other operating revenue

     325        329        612        632   
                                
     4,284        3,691        7,842        6,854   
                                

Operating expenses:

        

Aircraft fuel

     1,394        992        2,554        1,865   

Salaries and related costs

     864        822        1,669        1,618   

Regional capacity purchase

     214        205        406        402   

Landing fees and other rent

     228        215        448        428   

Aircraft maintenance materials and outside repairs

     154        131        303        273   

Depreciation and amortization

     156        122        317        256   

Distribution expenses

     177        161        340        306   

Aircraft rent

     173        230        345        459   

Special charges (Note 10)

     56        24        59        34   

Other operating expenses

     494        460        998        934   
                                
     3,910        3,362        7,439        6,575   
                                

Operating income

     374        329        403        279   
   

Nonoperating income (expense):

        

Interest expense

     (88     (92     (171     (187

Interest income

     2        2        4        4   

Interest capitalized

     4        6        8        13   

Miscellaneous, net

     (28     (12     (35     (21
                                
     (110     (96     (194     (191
                                
   

Income before income taxes

     264        233        209        88   

Income taxes

     2        —          4        1   
                                

Net income

   $ 262      $ 233      $ 205      $ 87   
                                
   

Earnings per share, basic

     $ 1.67        $ 0.62   
                    

Earnings per share, diluted

     $ 1.46        $ 0.60   
                    

See accompanying Combined Notes to Condensed Consolidated Financial Statements.

 

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CONTINENTAL AIRLINES, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares)

 

     Successor  
     (Unaudited)        
     June 30,
2011
    December 31,
2010
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 3,406      $ 3,398   

Short-term investments

     904        611   
                

Total unrestricted cash, cash equivalents and short-term investments

     4,310        4,009   

Receivables, net of allowance for doubtful accounts (2011 — $1; 2010 — $1)

     760        609   

Aircraft fuel, spare parts and supplies, less obsolescence allowance (2011 — $7; 2010 — $3)

     265        246   

Deferred income taxes

     273        225   

Receivables from related parties

     —          3   

Prepaid expenses and other

     262        185   
                
     5,870        5,277   
                

Operating property and equipment:

    

Owned—

    

Flight equipment

     6,597        6,463   

Other property and equipment

     832        804   
                
     7,429        7,267   

Less — accumulated depreciation and amortization

     (389     (141
                
     7,040        7,126   

Purchase deposits for flight equipment

     250        178   

Capital leases — other property and equipment

     168        168   

Less — accumulated amortization

     (10     (3
                
     158        165   
                
     7,448        7,469   
                

Other assets:

    

Goodwill

     4,523        4,523   

Intangibles, less accumulated amortization (2011 — $84; 2010 — $31)

     2,504        2,575   

Restricted cash, cash equivalents and investments

     160        160   

Other, net

     413        375   
                
     7,600        7,633   
                
   $ 20,918      $ 20,379   
                

 

(continued on next page)

 

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CONTINENTAL AIRLINES, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares)

 

     Successor  
     (Unaudited)         
     June 30,
2011
     December 31,
2010
 

LIABILITIES AND STOCKHOLDER’S EQUITY

     

Current liabilities:

     

Advance ticket sales

   $ 2,046       $ 1,463   

Frequent flyer deferred revenue

     951         879   

Accounts payable

     840         902   

Accrued salaries and benefits

     457         532   

Current maturities of long-term debt

     754         865   

Related party payables

     42         —     

Current maturities of capital leases

     3         3   

Other

     285         236   
                 
     5,378         4,880   
                 

Long-term debt

     5,219         5,536   

Long-term obligations under capital leases

     178         178   

Other liabilities and deferred credits:

     

Frequent flyer deferred revenue

     1,170         1,170   

Postretirement benefit liability

     262         253   

Pension liability

     1,357         1,372   

Lease fair value adjustment, net

     1,250         1,374   

Advanced purchase of miles

     270         —     

Deferred income taxes

     834         784   

Other

     500         522   
                 
     5,643         5,475   
                 

Commitments and contingencies

     

Stockholder’s equity:

     

Common stock at par, $0.01 par value; authorized and outstanding 1,000 shares at both June 30, 2011 and December 31, 2010

     —           —     

Additional capital invested

     4,144         4,115   

Retained earnings (accumulated deficit)

     110         (95

Accumulated other comprehensive income

     246         290   
                 
     4,500         4,310   
                 
   $ 20,918       $ 20,379   
                 

See accompanying Combined Notes to Condensed Consolidated Financial Statements.

 

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CONTINENTAL AIRLINES, INC.

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)

(In millions)

 

     Successor           Predecessor  
     Six Months
Ended
June 30, 2011
          Six Months
Ended
June 30, 2010
 

Cash Flows from Operating Activities:

         

Net income

   $ 205           $ 87   

Adjustments to reconcile net income to net cash provided (used) by operating activities—

         

Depreciation and amortization

     317             256   

Special items, non-cash portion (Notes 1 and 10)

     (20          16   

Amortization of debt and lease fair value adjustment

     (127          —     

Increase in advance ticket sales

     583             654   

Increase in frequent flyer deferred revenue and advanced purchase of miles

     91             98   

Increase in receivables

     (185          (180

Increase (decrease) in accounts payable

     (11          116   

Increase in other current assets

     (133          (184

Increase (decrease) in other accrued liabilities

     (34          118   

Other, net

     30             20   
                     

Net cash provided by operating activities

     716             1,001   
 

Cash Flows from Investing Activities:

         

Capital expenditures

     (127          (148

Aircraft purchase deposits paid, net

     (67          (84

Proceeds from sale of property and equipment

     52             25   

Purchases of short-term investments, net

     (291          (124

Other, net

     1             (3
                     

Net cash used in investing activities

     (432          (334
 

Cash Flows from Financing Activities:

         

Proceeds from issuance of long-term debt

     142             225   

Payments of long-term debt

     (440          (411

Other, net

     22             20   
                     

Net cash used in financing activities

     (276          (166
                     

Increase in cash and cash equivalents during the period

     8             501   

Cash and cash equivalents at beginning of the period

     3,398             2,546   
                     

Cash and cash equivalents at end of the period

   $ 3,406           $ 3,047   
                     
 

Investing and Financing Activities Not Affecting Cash:

         

Property and equipment acquired through the issuance of debt

   $ 97           $ —     

Reclassification of debt to advanced purchases of miles

     (270          —     

Reclassification of debt discount to other assets

     60             —     

See accompanying Combined Notes to Condensed Consolidated Financial Statements.

 

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UNITED CONTINENTAL HOLDINGS, INC.,

UNITED AIR LINES, INC. AND CONTINENTAL AIRLINES, INC.

COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

United Continental Holdings, Inc. (together with its consolidated subsidiaries, “UAL”) is a holding company and its principal, wholly-owned subsidiaries are United Air Lines, Inc. (together with its consolidated subsidiaries, “United”) and, effective October 1, 2010, Continental Airlines, Inc. (together with its consolidated subsidiaries, “Continental”). All significant intercompany transactions are eliminated.

This Quarterly Report on Form 10-Q is a combined report of UAL, United and Continental. We sometimes use the words “we,” “our,” “us,” and the “Company” for disclosures that relate to all of UAL, United and Continental Successor (defined below). As UAL consolidates United for financial statement purposes, disclosures that relate to United activities also apply to UAL; and, effective October 1, 2010, disclosures that relate to Continental Successor activities also apply to UAL. When appropriate, UAL, United and Continental are named specifically for their related activities and disclosures.

Continental Acquisition Accounting. As a result of the application of the acquisition method of accounting, Continental’s financial statements prior to October 1, 2010 are not comparable with Continental’s financial statements for periods on or after October 1, 2010. References to “Successor” refer to Continental on or after October 1, 2010, after giving effect to the application of acquisition accounting. References to “Predecessor” refer to Continental prior to October 1, 2010.

Interim Financial Statements. The UAL, United and Continental unaudited condensed consolidated financial statements shown here have been prepared as required by the U.S. Securities and Exchange Commission (the “SEC”). Some information and footnote disclosures normally included in financial statements that comply with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted as permitted by the SEC. The financial statements include all adjustments, including normal recurring adjustments and other adjustments, which are considered necessary for a fair presentation of the Company’s financial position and results of operations. Certain prior year amounts have been reclassified to conform to the current year’s presentation. The significant reclassifications are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (the “2010 Annual Report”). These reclassifications were made to conform the financial statement presentation of United and Continental. These financial statements should be read together with the information included in the 2010 Annual Report.

NOTE 1 - NEW ACCOUNTING PRONOUNCEMENTS

Multiple-Deliverable Revenue Arrangements

Frequent Flyer Awards. United and Continental have loyalty programs to increase customer loyalty. Program participants earn mileage credits (“miles”) by flying on United, Continental and certain other participating airlines. Program participants can also earn miles through purchases from other non-airline partners that participate in the Company’s loyalty programs. We sell miles to these partners, which include retail merchants, credit card issuers, hotels and car rental companies, among others. Miles can be redeemed for free, discounted or upgraded air travel and non-travel awards. The Company records its obligation for future award redemptions using a deferred revenue model.

In the case of the sale of air transportation services, the Company recognizes a portion of the ticket sales as revenue when the air transportation occurs and defers a portion of the ticket sale that represents the fair value of the miles, as described further below. In the case of miles sold to third parties, historically we have had two primary revenue elements: marketing and air transportation.

The adoption of the Accounting Standards Update 2009-13, “Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging Issues Task Force” (“ASU 2009-13”), as described below, resulted in the revision of the accounting for certain aspects of the frequent flyer accounting.

Passenger Tickets

Effective January 1, 2011, the Company began applying the provisions of ASU 2009-13, which resulted in a change to the Company’s accounting for passenger ticket sales that include the issuance of miles that may be redeemed for free travel or other products or services at a future date. Under the Company’s accounting policy prior to January 1, 2011, the Company estimated the weighted average fair value of miles that were issued in connection with the sale of air transportation. The fair value of the miles was deferred and the residual amount of ticket proceeds was recognized as revenue at the time the air transportation was provided.

 

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Effective January 1, 2011, the Company began applying the new guidance to determine the estimated selling price of the air transportation and miles as if each element were sold on a separate basis and allocating the total consideration to each of these elements on a pro rata basis. The estimated selling price of miles is computed using an estimated weighted average equivalent ticket value that is adjusted by a sales discount that considers a number of factors, including ultimate fulfillment expectations associated with miles sold in flight transactions to various customer groups.

As a result of the prospective adoption, the new accounting policy was only applied to new sales of air transportation in 2011. Generally, as compared to the historical accounting policy, for passenger tickets sold with miles earned, the new accounting policy decreases the value of miles that the Company records as deferred revenue and increases the passenger revenue recorded at the time air transportation is provided. Due to the average period from purchase of air transportation to the provision of air transportation, the new accounting policy was only applicable to a portion of the Company’s multiple element ticket transactions recorded during the three and six months ended June 30, 2011. The application of the new accounting method resulted in the following increases to revenue (in millions, except per share amounts):

 

     Three Months Ended
June 30, 2011
     Six Months Ended
June 30, 2011
 
     UAL      United      Continental      UAL      United      Continental  

Revenue

   $ 106       $ 66       $ 40       $ 161       $ 104       $ 57   

Per basic share

   $ 0.32             $ 0.49         

Per diluted share

   $ 0.27             $ 0.42         

We estimate that application of the new accounting method in the remaining half of 2011 will increase UAL’s revenue as compared to revenue that would have been recorded under the historical method of accounting. The Company cannot reliably estimate the impact of ASU 2009-13 on its future revenue, because the impact depends on many factors, including the volume of air transportation sales with mileage credit components.

Co-branded Credit Card Partner Mileage Sales

United and Continental each had significant contracts to sell frequent flyer miles to their co-branded credit card partner, Chase Bank USA, N.A. (“Chase”). Miles can be redeemed for free, discounted or upgraded air travel and non-travel awards. On June 9, 2011, these contracts were modified and the Company entered into one agreement with Chase (the “Co-Brand Agreement”). The Company applied the provisions of ASU 2009-13 to the Co-Brand Agreement as a materially modified contract.

Under the Co-Brand Agreement and ASU 2009-13, we have identified five elements in the agreement: air transportation; use of the United brand and access to frequent flyer member lists; advertising; baggage services; and airport lounge usage. The fair value of the elements is determined using management’s estimated selling price of each element. The objective of using estimated selling price based methodology is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. Accordingly, we determine our best estimate of selling price considering multiple inputs and methods including, but not limited to, discounted cash flows, brand value, volume discounts, published selling prices, number of miles awarded and number of miles redeemed. The Company estimated the selling prices and volumes over the term of the modified agreement in order to determine the allocation of proceeds to each of the multiple elements to be delivered.

The new guidance changed the allocation of arrangement consideration to the number of units of accounting; however, the pattern and timing of revenue recognition for those units did not change. The Company records passenger revenue related to the air transportation element when the transportation is delivered. The other elements are generally recognized as other operating revenue when earned.

The application of the new accounting standard decreases the value of the air transportation deliverables related to the Co-Brand Agreement that the Company records as deferred revenue (and ultimately passenger revenue when redeemed awards are flown) and increases the value primarily of the marketing-related deliverables recorded in other revenue at the time these marketing-related deliverables are provided. Other than the effects disclosed in the “Special Revenue Item” section below, the impact of adoption of ASU 2009-13 did not have a significant impact on revenue during the second quarter of 2011 as compared to revenue that would have been recognized under the Company’s historical accounting method.

While revenue recognition is subject to fluctuation based on credit card sale volumes and frequent flyer redemption patterns, the Company expects, as a result of the Co-Brand Agreement, that other revenue will increase by approximately $70 million per quarter, with passenger revenue reduced by approximately $20 million per quarter for the remainder of the year. These estimates are subject to variability primarily depending on the volume of future transactions.

 

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Pending new or materially modified contracts after January 1, 2011, certain other non-airline partners who participate in the loyalty programs and to which we sell miles remain subject to our historical residual accounting method.

Special Revenue Item

The transition provisions of ASU 2009-13 require that the Company’s existing deferred revenue balance be adjusted retroactively to reflect the value of any undelivered element remaining at the date of contract modification as if we had been applying ASU 2009-13 since the Co-Brand Agreement contract initiation. We applied this transition provision by revaluing the undelivered transportation element using its new estimated selling price as determined in connection with the contract modification. This estimated selling price was lower than the rate at which the undelivered element had been deferred under the previous contracts and recorded the following one-time non-cash adjustment to decrease frequent flyer deferred revenue and increase special revenue (in millions):

 

     Three Months Ended
June 30, 2011
     Six Months Ended
June 30, 2011
 
     UAL      United      Continental      UAL      United      Continental  

Special revenue item

   $ 107       $ 88       $ 19       $ 107       $ 88       $ 19   

Per basic share

   $ 0.32             $ 0.33         

Per diluted share

   $ 0.27             $ 0.28         

 

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NOTE 2 - EARNINGS PER SHARE

The table below represents the computation of UAL basic and diluted earnings per share amounts and the number of securities that have been excluded from the computation of diluted earnings per share amounts, because they were antidilutive (in millions, except per share amounts):

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2011     2010      2011     2010  

UAL basic earnings per share:

         

Net income

   $ 538      $ 273       $ 325      $ 191   

Less: Income allocable to participating securities

     (2     —           (1     —     
                                 

Earnings available to common stockholders

   $ 536      $ 273       $ 324      $ 191   
                                 

Basic weighted average shares outstanding

     330        168         329        168   
                                 

Earnings per share, basic

   $ 1.63      $ 1.62       $ 0.98      $ 1.14   
                                 

UAL diluted earnings per share:

         

Earnings available to common stockholders

   $ 536      $ 273         324      $ 191   

Effect of UAL 4.5% Senior Limited-Subordination Convertible Notes

     11        21         —          —     

Effect of Continental 4.5% Convertible Notes

     2        —           4        —     

Effect of UAL 5% Senior Convertible Notes

     —          4         —          —     

Effect of Continental 6% Convertible Junior Subordinated Debentures

     4        —           —          —     

Effect of UAL 6% Senior Convertible Notes

     5        5         9        10   
                                 

Earnings available to common stockholders including the effect of dilutive securities

   $ 558      $ 303       $ 337      $ 201   
                                 

UAL diluted shares outstanding:

         

Basic weighted average shares outstanding

     330        168         329        168   

Effect of employee stock options

     1        2         2        1   

Effect of UAL 4.5% Senior Limited-Subordination Convertible Notes

     13        22         —          —     

Effect of Continental 4.5% Convertible Notes

     12        —           12        —     

Effect of UAL 5% Senior Convertible Notes

     —          3         —          —     

Effect of Continental 6% Convertible Junior Subordinated Debentures

     4        —           —          —     

Effect of UAL 6% Senior Convertible Notes

     40        40         40        40   
                                 

Diluted weighted average shares outstanding

     400        235         383        209   
                                 

Earnings per share, diluted

   $ 1.39      $ 1.29       $ 0.88      $ 0.96   
                                 

UAL potentially dilutive shares excluded from diluted per share amounts:

         

Restricted stock and stock options

     7        5         6        6   

UAL 4.5% Senior Limited-Subordination Convertible Notes

     —          —           18        22   

Continental 6% Convertible Junior Subordinated Debentures

     —          —           4        —     

UAL 5% Senior Convertible Notes (Note 9)

     —          —           —          3   

UAL’s 6% Senior Notes due 2031, with a principal amount of $633 million as of June 30, 2011, are callable at any time at 100% of par value and can be redeemed with either cash or shares of UAL common stock, or a combination thereof, at UAL’s option. These notes are not included in the diluted earnings per share calculation as it is UAL’s intent to redeem these notes with cash, if UAL were to redeem the notes. During the second quarter of 2011, UAL repurchased at par value approximately $570 million of the $726 million outstanding principal amount of its 4.5% Senior Limited-Subordination Convertible Notes due 2021 with cash after the notes were put to UAL by the noteholders. The dilutive effect of the 4.5% Senior Limited-Subordination Convertible Notes due 2021 was excluded in the diluted earnings per share calculations for the three and six months ended June 30, 2011 from the date notice was given of the Company’s intent to pay the notes put to it in cash up to the repurchase date.

 

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The table below represents the computation of Continental Predecessor’s basic and diluted earnings per share amounts (in millions, except per share amounts):

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2010      2010  

Continental Predecessor basic earnings per share:

     

Earnings available to common stockholders

   $ 233       $ 87   
                 

Basic weighted average shares outstanding

     140         139   
                 

Earnings per share, basic

   $ 1.67       $ 0.62   
                 

Continental Predecessor diluted earnings per share:

     

Earnings available to common stockholders

   $ 233       $ 87   

Effect of 5% Convertible Notes

     4         —     

Effect of 6% Convertible Junior Subordinated Debentures

     3         —     

Effect of 4.5% Convertible Notes

     3         5   
                 

Earnings available to common stockholders including the effect of dilutive securities

   $ 243       $ 92   
                 

Continental Predecessor diluted shares outstanding:

     

Basic weighted average shares outstanding

     140         139   

5% Convertible Notes

     9         —     

6% Convertible Junior Subordinated Debentures

     4         —     

4.5% Convertible Notes

     12         12   

Employee stock options

     2         2   
                 

Diluted weighted average shares outstanding

     167         153   
                 

Earnings per share, diluted

   $ 1.46       $ 0.60   
                 

Continental Predecessor potentially dilutive shares excluded from diluted per share amounts:

     

5% Convertible Notes

     —           9   

6% Convertible Junior Subordinated Debentures

     —           4   

Employee stock options

     1         1   

NOTE 3 - INCOME TAXES

Our effective tax rates differ from the federal statutory rate of 35% primarily due to the following: changes in the valuation allowance, expenses that are not deductible for federal income tax purposes, and foreign and state income taxes. We are required to provide a valuation allowance for our deferred tax assets in excess of deferred tax liabilities because we have concluded that it is more likely than not that such deferred tax assets will ultimately not be realized.

 

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NOTE 4 - EMPLOYEE BENEFIT PLANS

Defined Benefit Pension and Other Postretirement Benefit Plans. The Company’s net periodic benefit cost includes the following components (in millions):

 

     Pension Benefits
Three Months Ended
June 30,
    Other Postretirement
Benefits
Three Months Ended
June 30,
 
     2011     2010     2011     2010  

UAL

        

Service cost

   $ 23      $ 2      $ 12      $ 8   

Interest cost

     45        3        32        29   

Expected return on plan assets

     (35     (3     —          (1

Amortization of unrecognized gain and prior service cost

     (7     (1     (1     (3
                                

Net periodic benefit costs

   $ 26      $ 1      $ 43      $ 33   
                                

United

        

Service cost

   $ 2      $ 2      $ 8      $ 8   

Interest cost

     3        3        28        29   

Expected return on plan assets

     (3     (3     —          (1

Amortization of unrecognized gain and prior service cost

     (1     (1     —          (3
                                

Net periodic benefit costs

   $ 1      $ 1      $ 36      $ 33   
                                

Continental (a)

        

Service cost

   $ 21      $ 16      $ 4      $ 3   

Interest cost

     42        40        4        3   

Expected return on plan assets

     (32     (28     —          —     

Amortization of unrecognized (gain) loss and prior service cost

     (6     25        (1     4   
                                

Net periodic benefit costs

   $ 25      $ 53      $ 7      $ 10   
                                

 

(a) For Continental, the 2011 period represents Successor and the 2010 period represents Predecessor.

 

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     Pension Benefits
Six Months Ended
June 30,
    Other Postretirement
Benefits
Six Months Ended
June 30,
 
     2011     2010     2011     2010  

UAL

        

Service cost

   $ 44      $ 3      $ 24      $ 15   

Interest cost

     89        5        63        58   

Expected return on plan assets

     (69     (5     (1     (1

Amortization of unrecognized gain and prior service cost

     (12     (1     (1     (6
                                

Net periodic benefit costs

   $ 52      $ 2      $ 85      $ 66   
                                

United

        

Service cost

   $ 3      $ 3      $ 17      $ 15   

Interest cost

     5        5        56        58   

Expected return on plan assets

     (5     (5     (1     (1

Amortization of unrecognized gain and prior service cost

     (1     (1     —          (6
                                

Net periodic benefit costs

   $ 2      $ 2      $ 72      $ 66   
                                

Continental (a)

        

Service cost

   $ 41      $ 33      $ 7      $ 5   

Interest cost

     84        79        7        7   

Expected return on plan assets

     (64     (55     —          —     

Amortization of unrecognized (gain) loss and prior service cost

     (11     49        (1     8   
                                

Net periodic benefit costs

   $ 50      $ 106      $ 13      $ 20   
                                

 

(a) For Continental, the 2011 period represents Successor and the 2010 period represents Predecessor.

During the six months ended June 30, 2011, Continental contributed $71 million to its tax-qualified defined benefit pension plans. Continental contributed an additional $33 million to its tax-qualified defined benefit pension plans in July 2011.

Share-Based Compensation. In February 2011, UAL granted share-based compensation awards pursuant to the United Continental Holdings, Inc. 2008 Incentive Compensation Plan. These share-based compensation awards include approximately 0.5 million shares of restricted stock that vest pro-rata over three years on the anniversary of the grant date. These awards also include approximately 3.0 million performance-based restricted stock units (“RSUs”) (equivalent to approximately 1.9 million RSUs at the target performance level), consisting of approximately 1.2 million RSUs that vest based on UAL’s return on invested capital for the period beginning January 1, 2011 and ending December 31, 2013 and 1.8 million RSUs that vest based on the achievement of merger-related goals. Vesting of a portion of the merger incentive RSUs is based on the achievement of certain merger-related milestones and vesting of the remainder of the merger incentive RSUs is based on the achievement of revenue and cost synergies over a three-year performance period ending December 31, 2013. The RSUs will be settled in cash. If the specified performance conditions are achieved, cash payments will be made shortly after the end of the performance period or achievement of the specified merger milestone, as applicable, based on the fair market value of UAL common stock. The Company accounts for the performance-based RSUs as liability awards. The table below presents information related to share-based compensation expense (in millions):

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2011      2010      2011      2010  

Share-based compensation expense

   $ 14       $ 8       $ 27       $ 21   

 

     June 30, 2011      December 31, 2010  

Unrecognized share-based compensation expense

   $ 63       $ 43   

 

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Profit Sharing Plans. Effective for 2011, substantially all employees participate in profit sharing plans, which pay 15% of total pre-tax earnings, excluding special items and stock compensation expense, to eligible employees when pre-tax profit excluding special items, profit sharing expense and stock-based compensation program expense exceeds $10 million. Eligible U.S. co-workers in each participating work group will receive a profit sharing payout using a formula based on the ratio of each qualified co-worker’s annual eligible earnings to the eligible earnings of all qualified co-workers in all domestic workgroups. The international profit sharing plan utilizes the same profit sharing payout percentage that is paid out to eligible U.S. co-workers. UAL recorded profit sharing and related payroll tax expense of $90 million in the three and six months ended June 30, 2011. Profit sharing expense is recorded as a component of salaries and related costs in the consolidated statements of operations.

During 2010, United and Continental maintained separate employee profit sharing plans for the employees of each respective subsidiary. During the three and six months ended June 30, 2010, United and Continental Predecessor recorded profit sharing and related payroll tax expense of $63 million and $19 million, respectively.

 

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NOTE 5 - FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

The table below presents disclosures about the financial assets and financial liabilities measured at fair value on a recurring basis in the Company’s financial statements as of June 30, 2011 and December 31, 2010 (in millions):

 

     June 30, 2011     December 31, 2010  
     Total     Level 1      Level 2     Level 3     Total     Level 1      Level 2     Level 3  
     UAL  

Cash and cash equivalents

   $ 7,519      $ 7,519       $ —        $ —        $ 8,069      $ 8,069       $ —        $ —     

Short-term investments:

                  

Auction rate securities

     121        —           —          121        119        —           —          119   

CDARS

     196        196         —          —          45        45         —          —     

Asset-backed securities

     224        224         —          —          258        258         —          —     

Corporate debt

     397        397         —          —          135        135         —          —     

U.S. government and agency notes

     47        47         —          —          39        39         —          —     

Other fixed income securities

     75        75         —          —          15        15         —          —     

EETC

     65        —           —          65        66        —           —          66   

Fuel derivatives, net

     191        —           191        —          375        —           375        —     

Foreign currency derivatives

     (3     —           (3     —          (7     —           (7     —     

Restricted cash (a)

     160        160         —          —          160        160         —          —     
     United (a)  

Cash and cash equivalents

   $ 4,107      $ 4,107       $ —        $ —        $ 4,665      $ 4,665       $ —        $ —     

Short-term investments:

                  

Asset-backed securities

     23        23         —          —          —          —           —          —     

Corporate debt

     124        124         —          —          —            

U.S. government and agency notes

     5        5         —          —          —          —           —          —     

Other fixed income securities

     3        3         —          —              

EETC

     65        —           —          65        66        —           —          66   

Fuel derivatives, net

     138