Annual Reports

 
Quarterly Reports

  • 10-Q (Oct 19, 2017)
  • 10-Q (Jul 19, 2017)
  • 10-Q (Apr 18, 2017)
  • 10-Q (Oct 17, 2016)
  • 10-Q (Jul 19, 2016)
  • 10-Q (Apr 21, 2016)

 
8-K

 
Other

United Continental Holdings, Inc. 10-Q 2012
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 September 30, 2012

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 a 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 October 15, 2012 is shown below:

 

United Continental Holdings, Inc.

  332,426,868 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 September 30, 2012

 

     Page  

PART I. FINANCIAL INFORMATION

  

Item 1. Financial Statements

     3   

United Continental Holdings, Inc.:

  

Statements of Consolidated Operations

     3   

Statements of Consolidated Comprehensive Income (Loss)

     4   

Consolidated Balance Sheets

     5   

Condensed Statements of Consolidated Cash Flows

     7   

United Air Lines, Inc.:

  

Statements of Consolidated Operations

     8   

Statements of Consolidated Comprehensive Income (Loss)

     9   

Consolidated Balance Sheets

     10   

Condensed Statements of Consolidated Cash Flows

     12   

Continental Airlines, Inc.:

  

Statements of Consolidated Operations

     13   

Statements of Consolidated Comprehensive Income (Loss)

     14   

Consolidated Balance Sheets

     15   

Condensed Statements of Consolidated Cash Flows

     17   

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

     18   

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

     36   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     49   

Item 4. Controls and Procedures

     49   

PART II. OTHER INFORMATION

  

Item 1. Legal Proceedings

     50   

Item 1A. Risk Factors

     50   

Item 6. Exhibits

     51   

Signatures

     52   

Exhibit Index

     53   


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
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Operating revenue:

        

Passenger—Mainline

   $ 6,993      $ 7,237      $ 19,891      $ 19,780   

Passenger—Regional

     1,781        1,772        5,159        4,916   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total passenger revenue

     8,774        9,009        25,050        24,696   

Cargo

     246        283        775        882   

Special revenue item (Note 10)

     —          —          —          107   

Other operating revenue

     889        879        2,625        2,497   
  

 

 

   

 

 

   

 

 

   

 

 

 
     9,909        10,171        28,450        28,182   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense:

        

Aircraft fuel

     3,406        3,371        10,043        9,270   

Salaries and related costs

     2,038        2,020        5,959        5,742   

Regional capacity purchase

     628        619        1,887        1,807   

Landing fees and other rent

     504        476        1,476        1,451   

Aircraft maintenance materials and outside repairs

     469        447        1,308        1,330   

Depreciation and amortization

     379        384        1,137        1,157   

Distribution expenses

     356        377        1,038        1,102   

Aircraft rent

     245        255        747        760   

Special charges (Note 10)

     514        120        884        343   

Other operating expenses

     1,170        1,167        3,467        3,443   
  

 

 

   

 

 

   

 

 

   

 

 

 
     9,709        9,236        27,946        26,405   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     200        935        504        1,777   

Nonoperating income (expense):

        

Interest expense

     (202     (227     (631     (731

Interest capitalized

     9        10        26        24   

Interest income

     4        6        16        15   

Miscellaneous, net

     4        (64     (7     (94
  

 

 

   

 

 

   

 

 

   

 

 

 
     (185     (275     (596     (786
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     15        660        (92     991   

Income tax expense

     9        7        11        13   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 6      $ 653      $ (103   $ 978   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share, basic

   $ 0.02      $ 1.97      $ (0.31   $ 2.96   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share, diluted

   $ 0.02      $ 1.69      $ (0.31   $ 2.59   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

3


Table of Contents

UNITED CONTINENTAL HOLDINGS, INC.

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(In millions)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012      2011     2012     2011  

Net income (loss)

   $ 6       $ 653      $ (103   $ 978   

Other comprehensive income (loss), net:

         

Fuel derivative financial instruments:

         

Reclassification into earnings

     38         (94     107        (526

Change in fair value

     133         (181     (36     112   

Employee benefit plans:

         

Amortization of net actuarial items

     4         (5     13        (18

Investments and other

     5         (5     14        —     
  

 

 

    

 

 

   

 

 

   

 

 

 
     180         (285     98        (432
  

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss), net

   $ 186       $ 368      $ (5   $ 546   
  

 

 

    

 

 

   

 

 

   

 

 

 

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

 

4


Table of Contents

UNITED CONTINENTAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares)

 

     (Unaudited)        
     September 30, 2012     December 31, 2011  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 5,129      $ 6,246   

Short-term investments

     1,551        1,516   
  

 

 

   

 

 

 

Total unrestricted cash, cash equivalents and short-term investments

     6,680        7,762   

Restricted cash

     79        40   

Receivables, less allowance for doubtful accounts (2012 — $12; 2011 — $7)

     1,862        1,358   

Aircraft fuel, spare parts and supplies, less obsolescence allowance (2012 — $111;  2011 — $89)

     675        615   

Deferred income taxes

     641        615   

Prepaid expenses and other

     837        607   
  

 

 

   

 

 

 
     10,774        10,997   
  

 

 

   

 

 

 

Operating property and equipment:

    

Owned—

    

Flight equipment

     16,753        15,786   

Other property and equipment

     3,151        3,126   
  

 

 

   

 

 

 
     19,904        18,912   

Less — Accumulated depreciation and amortization

     (4,750     (4,005
  

 

 

   

 

 

 
     15,154        14,907   
  

 

 

   

 

 

 

Purchase deposits for flight equipment

     613        382   
    

Capital leases—

    

Flight equipment

     1,484        1,458   

Other property and equipment

     235        237   
  

 

 

   

 

 

 
     1,719        1,695   

Less — Accumulated amortization

     (676     (565
  

 

 

   

 

 

 
     1,043        1,130   
  

 

 

   

 

 

 
     16,810        16,419   
  

 

 

   

 

 

 

Other assets:

    

Goodwill

     4,523        4,523   

Intangibles, less accumulated amortization (2012 — $762; 2011 — $670)

     4,650        4,750   

Restricted cash

     392        529   

Other, net

     756        770   
  

 

 

   

 

 

 
     10,321        10,572   
  

 

 

   

 

 

 
   $ 37,905      $ 37,988   
  

 

 

   

 

 

 

(continued on next page)

 

5


Table of Contents

UNITED CONTINENTAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares)

 

     (Unaudited)        
     September 30, 2012     December 31, 2011  

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Current liabilities:

    

Advance ticket sales

   $ 3,849      $ 3,114   

Frequent flyer deferred revenue

     2,405        2,405   

Accounts payable

     2,188        1,998   

Accrued salaries and benefits

     1,328        1,509   

Current maturities of long-term debt

     1,704        1,186   

Current maturities of capital leases

     120        125   

Other

     1,463        1,057   
  

 

 

   

 

 

 
     13,057        11,394   
  

 

 

   

 

 

 

Long-term debt

     9,592        10,496   

Long-term obligations under capital leases

     828        928   
    

Other liabilities and deferred credits:

    

Frequent flyer deferred revenue

     2,839        3,253   

Postretirement benefit liability

     2,461        2,407   

Pension liability

     1,788        1,862   

Advanced purchase of miles

     1,581        1,711   

Deferred income taxes

     1,649        1,603   

Lease fair value adjustment, net

     927        1,133   

Other

     1,356        1,395   
  

 

 

   

 

 

 
     12,601        13,364   
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholders’ equity:

    

Preferred stock

     —          —     

Common stock at par, $0.01 par value; authorized 1,000,000,000 shares; outstanding 332,439,588 and 330,906,192 shares at September 30, 2012 and December 31, 2011, respectively

     3        3   

Additional capital invested

     7,140        7,114   

Retained deficit

     (4,965     (4,863

Stock held in treasury, at cost

     (32     (31

Accumulated other comprehensive loss

     (319     (417
  

 

 

   

 

 

 
     1,827        1,806   
  

 

 

   

 

 

 
   $ 37,905      $ 37,988   
  

 

 

   

 

 

 

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

 

6


Table of Contents

UNITED CONTINENTAL HOLDINGS, INC.

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)

(In millions)

 

     Nine Months Ended
September 30,
 
     2012     2011  

Cash Flows from Operating Activities:

    

Net income (loss)

   $ (103   $ 978   

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

    

Depreciation and amortization

     1,137        1,157   

Debt and lease discount amortization

     (196     (171

Special items, non-cash portion

     61        (15

Other, net

     112        112   

Increase in advance ticket sales

     735        762   

Increase in receivables

     (434     (517

Increase (decrease) in frequent flyer deferred revenue and advanced purchase of miles

     (544     82   

Increase in other current assets

     (452     (209

Increase in accounts payable

     169        1   

Increase in other liabilities

     360        24   

Decrease in fuel hedge collateral

     —          (61
  

 

 

   

 

 

 

Net cash provided by operating activities

     845        2,143   
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

Capital expenditures

     (774     (510

Increase in short-term and other investments, net

     (22     (754

Proceeds from sale of property and equipment

     146        107   

Aircraft purchase deposits paid, net

     (253     (121

(Increase) decrease in restricted cash, net

     98        (4
  

 

 

   

 

 

 

Net cash used in investing activities

     (805     (1,282
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Payments of long-term debt

     (1,158     (1,925

Proceeds from issuance of long-term debt

     86        142   

Principal payments under capital leases

     (89     (199

Other, net

     4        36   
  

 

 

   

 

 

 

Net cash used in financing activities

     (1,157     (1,946
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents during the period

     (1,117     (1,085

Cash and cash equivalents at beginning of the period

     6,246        8,069   
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ 5,129      $ 6,984   
  

 

 

   

 

 

 

Investing and Financing Activities Not Affecting Cash:

    

Property and equipment acquired through the issuance of debt

   $ 526      $ 130   

Special facility payment financing

     101        —     

8% Contingent Senior Unsecured Notes, net of discount

     48        49   

Airport construction financing

     31        —     

Reclassification of debt to advanced purchases of miles

     —          270   

Reclassification of debt discount to other assets

     —          60   

Interest paid in kind on UAL 6% Senior Notes

     —          18   

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

 

7


Table of Contents

UNITED AIR LINES, INC.

STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)

(In millions)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Operating revenue:

        

Passenger—Mainline

   $ 3,734      $ 4,007      $ 10,587      $ 10,812   

Passenger—Regional

     1,027        1,078        2,936        2,995   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total passenger revenue

     4,761        5,085        13,523        13,807   

Cargo

     157        177        505        535   

Special revenue item (Note 10)

     —          —          —          88   

Other operating revenue

     738        595        1,878        1,673   
  

 

 

   

 

 

   

 

 

   

 

 

 
     5,656        5,857        15,906        16,103   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expense:

        

Aircraft fuel

     1,914        1,949        5,685        5,294   

Salaries and related costs

     1,046        1,092        3,166        3,117   

Regional capacity purchase

     387        407        1,152        1,190   

Landing fees and other rent

     271        246        807        773   

Aircraft maintenance materials and outside repairs

     313        299        862        881   

Depreciation and amortization

     232        228        695        684   

Distribution expenses

     172        194        526        580   

Aircraft rent

     78        82        234        243   

Special charges (Note 10)

     332        72        604        236   

Other operating expenses

     912        709        2,400        2,081   
  

 

 

   

 

 

   

 

 

   

 

 

 
     5,657        5,278        16,131        15,079   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (1     579        (225     1,024   

Nonoperating income (expense):

        

Interest expense

     (122     (135     (395     (462

Interest capitalized

     4        6        10        12   

Interest income

     —          2        5        7   

Miscellaneous, net

     (1     (35     (8     (43
  

 

 

   

 

 

   

 

 

   

 

 

 
     (119     (162     (388     (486
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (120     417        (613     538   

Income tax expense

     7        2        8        2   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (127   $ 415      $ (621   $ 536   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

8


Table of Contents

UNITED AIR LINES, INC.

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(In millions)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Net income (loss)

   $ (127   $ 415      $ (621   $ 536   

Other comprehensive income (loss), net:

        

Fuel derivative financial instruments:

        

Reclassification into earnings

     23        (90     55        (427

Change in fair value

     77        (91     (13     145   

Employee benefit plans:

        

Amortization of net actuarial items

     (2     —          (4     (1

Investments and other

     3        (3     7        (4
  

 

 

   

 

 

   

 

 

   

 

 

 
     101        (184     45        (287
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss), net

   $ (26   $ 231      $ (576   $ 249   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

9


Table of Contents

UNITED AIR LINES, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares)

 

     (Unaudited)        
     September 30, 2012     December 31, 2011  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 3,005      $ 3,458   

Short-term investments

     346        275   
  

 

 

   

 

 

 

Total unrestricted cash, cash equivalents and short-term investments

     3,351        3,733   

Restricted cash

     79        40   

Receivables from related parties (Note 11)

     2,708        228   

Receivables, less allowance for doubtful accounts (2012 — $10; 2011 — $5)

     1,686        763   

Deferred income taxes

     316        348   

Aircraft fuel, spare parts and supplies, less obsolescence allowance (2012 — $81;  2011 — $73)

     379        340   

Prepaid expenses and other

     633        447   
  

 

 

   

 

 

 
     9,152        5,899   
  

 

 

   

 

 

 

Operating property and equipment:

    

Owned—

    

Flight equipment

     9,354        9,135   

Other property and equipment

     2,197        2,260   
  

 

 

   

 

 

 
     11,551        11,395   

Less — Accumulated depreciation and amortization

     (3,740     (3,359
  

 

 

   

 

 

 
     7,811        8,036   
  

 

 

   

 

 

 

Purchase deposits for flight equipment

     183        57   

Capital leases—

    

Flight equipment

     1,484        1,458   

Other property and equipment

     65        67   
  

 

 

   

 

 

 
     1,549        1,525   

Less — Accumulated amortization

     (649     (548
  

 

 

   

 

 

 
     900        977   
  

 

 

   

 

 

 
     8,894        9,070   
  

 

 

   

 

 

 

Other assets:

    

Intangibles, less accumulated amortization (2012 — $575; 2011 — $534)

     2,241        2,283   

Receivables from related parties (Note 11)

     448        —     

Restricted cash

     275        393   

Other, net

     595        600   
  

 

 

   

 

 

 
     3,559        3,276   
  

 

 

   

 

 

 
   $ 21,605      $ 18,245   
  

 

 

   

 

 

 

(continued on next page)

 

10


Table of Contents

UNITED AIR LINES, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares)

 

     (Unaudited)        
     September 30, 2012     December 31, 2011  

LIABILITIES AND STOCKHOLDER’S DEFICIT

    

Current liabilities:

    

Advance ticket sales (Note 11)

   $ 3,776      $ 1,652   

Frequent flyer deferred revenue (Note 11)

     2,405        1,484   

Accounts payable

     1,426        1,109   

Accrued salaries and benefits

     760        988   

Current maturities of long-term debt

     978        615   

Current maturities of capital leases

     116        122   

Payables to related parties

     105        104   

Other

     1,270        853   
  

 

 

   

 

 

 
     10,836        6,927   
  

 

 

   

 

 

 

Long-term debt

     4,191        5,130   

Long-term obligations under capital leases

     652        735   

Other liabilities and deferred credits:

    

Frequent flyer deferred revenue (Note 11)

     2,839        2,018   

Postretirement benefit liability

     2,156        2,115   

Advanced purchase of miles (Note 11)

     1,581        1,442   

Deferred income taxes

     692        707   

Pension liability

     84        92   

Other

     1,044        983   
  

 

 

   

 

 

 
     8,396        7,357   
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholder’s deficit:

    

Common stock at par, $5 par value; authorized 1,000 shares; issued and outstanding 205 shares at both September 30, 2012 and December 31, 2011

     —          —     

Additional capital invested

     3,442        3,432   

Retained deficit

     (5,829     (5,208

Accumulated other comprehensive loss

     (83     (128
  

 

 

   

 

 

 
     (2,470     (1,904
  

 

 

   

 

 

 
   $ 21,605      $ 18,245   
  

 

 

   

 

 

 

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

 

11


Table of Contents

UNITED AIR LINES, INC.

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)

(In millions)

 

     Nine Months Ended
September 30,
 
     2012     2011  

Cash Flows from Operating Activities:

    

Net income (loss)

   $ (621   $ 536   

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

    

Depreciation and amortization

     695        684   

Debt and lease discount amortization

     26        11   

Special charges, non-cash portion

     59        (19

Other, net

     78        109   

Increase in advance ticket sales

     2,124        579   

Increase in receivables

     (885     (144

Decrease in frequent flyer deferred revenue and advanced purchase of miles

     (506     (150

Increase in other current assets

     (392     (88

Increase in accounts payable

     296        113   

Increase (decrease) in other liabilities

     390        (38

Decrease in fuel hedge collateral

     —          (61

Increase in receivables from related parties

     (543     (93

Increase (decrease) in payables to related parties

     2        (1
  

 

 

   

 

 

 

Net cash provided by operating activities

     723        1,438   
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

Capital expenditures

     (391     (332

Increase in short-term and other investments, net

     (64     (180

Proceeds from sale of property and equipment

     56        15   

Aircraft purchase deposits paid, net

     (126     (6

(Increase) decrease in restricted cash, net

     79        (28
  

 

 

   

 

 

 

Net cash used in investing activities

     (446     (531
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Payments of long-term debt

     (634     (1,316

Principal payments under capital leases

     (88     (198

Other, net

     (8     12   
  

 

 

   

 

 

 

Net cash used in financing activities

     (730     (1,502
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (453     (595

Cash and cash equivalents at beginning of the period

     3,458        4,665   
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ 3,005      $ 4,070   
  

 

 

   

 

 

 

Investing and Financing Activities Not Affecting Cash:

    

Transfer of OnePass frequent flyer liability and advanced purchase of miles from Continental (Note 11)

   $ 2,387      $ —     

8% Contingent Senior Unsecured Notes, net of discount

     48        49   

Interest paid in kind on UAL 6% Senior Notes

     —          18   

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

 

12


Table of Contents

CONTINENTAL AIRLINES, INC.

STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)

(In millions, except per share amounts)

 

     Three Months  Ended
September 30,
    Nine Months  Ended
September 30,
 
     2012     2011     2012     2011  

Operating revenue:

        

Passenger – Mainline

   $ 3,259      $ 3,227      $ 9,304      $ 8,962   

Passenger – Regional

     754        695        2,223        1,922   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total passenger revenue

     4,013        3,922        11,527        10,884   

Cargo

     89        105        270        346   

Special revenue item (Note 10)

     —          —          —          19   

Other operating revenue

     411        345        1,226        965   
  

 

 

   

 

 

   

 

 

   

 

 

 
     4,513        4,372        13,023        12,214   

Operating expense:

        

Aircraft fuel

     1,493        1,422        4,359        3,976   

Salaries and related costs

     943        906        2,692        2,575   

Regional capacity purchase

     240        211        735        617   

Landing fees and other rent

     234        230        670        678   

Aircraft maintenance materials and outside repairs

     171        152        479        455   

Depreciation and amortization

     147        156        442        473   

Distribution expenses

     184        183        512        523   

Aircraft rent

     167        171        513        516   

Special charges (Note 10)

     182        48        280        107   

Other operating expenses

     549        533        1,604        1,531   
  

 

 

   

 

 

   

 

 

   

 

 

 
     4,310        4,012        12,286        11,451   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     203        360        737        763   

Nonoperating income (expense):

        

Interest expense

     (81     (88     (241     (259

Interest capitalized

     5        4        16        12   

Interest income

     5        3        11        7   

Miscellaneous, net

     (28     (41     14        (76
  

 

 

   

 

 

   

 

 

   

 

 

 
     (99     (122     (200     (316
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     104        238        537        447   

Income tax expense

     2        2        3        6   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 102      $ 236      $ 534      $ 441   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

13


Table of Contents

CONTINENTAL AIRLINES, INC.

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (UNAUDITED)

(In millions)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012      2011     2012     2011  

Net income

   $ 102       $ 236      $ 534      $ 441   

Other comprehensive income (loss), net:

         

Fuel derivative financial instruments:

         

Reclassification into earnings

     15         (4     52        (99

Change in fair value

     56         (90     (23     (33

Employee benefit plans:

         

Amortization of net actuarial items

     6         (5     17        (17

Investments and other

     3         (2     8        2   
  

 

 

    

 

 

   

 

 

   

 

 

 
     80         (101     54        (147
  

 

 

    

 

 

   

 

 

   

 

 

 

Total comprehensive income, net

   $ 182       $ 135      $ 588      $ 294   
  

 

 

    

 

 

   

 

 

   

 

 

 

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

 

14


Table of Contents

CONTINENTAL AIRLINES, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares)

 

     (Unaudited)        
     September 30, 2012     December 31, 2011  

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 2,119      $ 2,782   

Short-term investments

     1,205        1,241   
  

 

 

   

 

 

 

Total unrestricted cash, cash equivalents and short-term investments

     3,324        4,023   

Receivables, less allowance for doubtful accounts (2012 — $2; 2011 — $2)

     176        595   

Aircraft fuel, spare parts and supplies, less obsolescence allowance (2012 — $30; 2011 — $16)

     296        275   

Deferred income taxes

     331        267   

Prepaid expenses and other

     193        165   
  

 

 

   

 

 

 
     4,320        5,325   
  

 

 

   

 

 

 

Operating property and equipment:

    

Owned—

    

Flight equipment

     7,399        6,651   

Other property and equipment

     954        866   
  

 

 

   

 

 

 
     8,353        7,517   

Less — Accumulated depreciation and amortization

     (1,009     (646
  

 

 

   

 

 

 
     7,344        6,871   
  

 

 

   

 

 

 

Purchase deposits for flight equipment

     430        324   

Capital leases — Other property and equipment

     170        170   

Less — Accumulated amortization

     (27     (17
  

 

 

   

 

 

 
     143        153   
  

 

 

   

 

 

 
     7,917        7,348   
  

 

 

   

 

 

 

Other assets:

    

Goodwill

     4,523        4,523   

Intangibles, less accumulated amortization (2012 — $187; 2011 — $136)

     2,411        2,469   

Restricted cash

     116        135   

Other, net

     364        364   
  

 

 

   

 

 

 
     7,414        7,491   
  

 

 

   

 

 

 
   $ 19,651      $ 20,164   
  

 

 

   

 

 

 

(continued on next page)

 

15


Table of Contents

CONTINENTAL AIRLINES, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares)

 

     (Unaudited)        
     September 30, 2012     December 31, 2011  

LIABILITIES AND STOCKHOLDER’S EQUITY

    

Current liabilities:

    

Payables to related parties (Note 11)

   $ 2,486      $ 11   

Advance ticket sales (Note 11)

     73        1,462   

Accounts payable

     767        894   

Current maturities of long-term debt

     726        571   

Accrued salaries and benefits

     568        521   

Current maturities of capital leases

     4        3   

Frequent flyer deferred revenue (Note 11)

     —          921   

Other

     249        279   
  

 

 

   

 

 

 
     4,873        4,662   
  

 

 

   

 

 

 

Long-term debt

     4,998        4,957   

Long-term obligations under capital leases

     176        193   

Other liabilities and deferred credits:

    

Pension liability

     1,704        1,770   

Payables to related parties (Note 11)

     448        —     

Lease fair value adjustment, net

     927        1,133   

Deferred income taxes

     887        820   

Postretirement benefit liability

     304        292   

Frequent flyer deferred revenue (Note 11)

     —          1,235   

Advanced purchase of miles (Note 11)

     —          270   

Other

     404        507   
  

 

 

   

 

 

 
     4,674        6,027   
  

 

 

   

 

 

 

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, 2012 and December 31, 2011

     —          —     

Additional capital invested

     4,165        4,148   

Retained earnings

     1,008        474   

Accumulated other comprehensive loss

     (243     (297
  

 

 

   

 

 

 
     4,930        4,325   
  

 

 

   

 

 

 
   $ 19,651      $ 20,164   
  

 

 

   

 

 

 

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

 

16


Table of Contents

CONTINENTAL AIRLINES, INC.

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)

(In millions)

 

     Nine Months Ended
September 30,
 
     2012     2011  

Cash Flows from Operating Activities:

    

Net income

   $ 534      $ 441   

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

    

Depreciation and amortization

     442        473   

Debt and lease discount amortization

     (222     (182

Special charges, non-cash portion

     2        4   

Other, net

     49        30   

Increase (decrease) in advance ticket sales

     (1,389     183   

(Increase) decrease in receivables

     451        (373

Increase (decrease) in frequent flyer deferred revenue and advanced purchase of miles

     (39     233   

Increase in other current assets

     (72     (83

Decrease in accounts payable

     (127     (113

Increase (decrease) in other liabilities

     (44     23   

Decrease in receivables from related parties

     —          3   

Increase in payables to related parties

     536        66   
  

 

 

   

 

 

 

Net cash provided by operating activities

     121        705   
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

Capital expenditures

     (383     (178

(Increase) decrease in short-term investments, net

     43        (574

Aircraft purchase deposits paid, net

     (127     (116

Proceeds from sale of property and equipment

     90        92   

Decrease in restricted cash, net

     19        25   
  

 

 

   

 

 

 

Net cash used in investing activities

     (358     (751

Cash Flows from Financing Activities:

    

Payments of long-term debt

     (524     (609

Proceeds from issuance of long-term debt

     86        142   

Other, net

     12        23   
  

 

 

   

 

 

 

Net cash used in financing activities

     (426     (444
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (663     (490

Cash and cash equivalents at beginning of the period

     2,782        3,398   
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ 2,119      $ 2,908   
  

 

 

   

 

 

 

Investing and Financing Activities Not Affecting Cash:

    

Transfer of frequent flyer liability and advanced purchase of miles to United (Note 11)

   $ 2,387      $ —     

Property and equipment acquired through the issuance of debt

     526        130   

Special facility payment financing

     101        —     

Airport construction financing

     31        —     

Reclassification of debt to advanced purchases of miles

     —          270   

Reclassification of debt discount to other assets

     —          60   

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

 

17


Table of Contents

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 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. As UAL consolidates United and Continental for financial statement purposes, disclosures that relate to United and Continental activities also apply to UAL. When appropriate, UAL, United and Continental are named specifically for their related activities and disclosures.

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. These reclassifications were made to conform the financial statement presentation of UAL, United and Continental. The UAL, United and Continental financial statements should be read together with the information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Annual Report”). UAL’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.

NOTE 1—FREQUENT FLYER AND PASSENGER REVENUE ACCOUNTING

Frequent Flyer Awards. Effective January 1, 2012, the Company updated its estimated selling price for miles to the contractual rate at which we sell miles to our Star Alliance partners participating in reciprocal frequent flyer programs. This change in estimate has been applied prospectively effective January 1, 2012.

United and Continental account for miles sold and awarded that will never be redeemed by program members, which the Company refers to as “breakage,” using the redemption method. UAL reviews its breakage estimates annually based upon the latest available information regarding redemption and expiration patterns. The Company re-evaluated its population breakage estimates for Continental OnePass miles, which were previously not subject to an expiration policy, and increased the estimate of miles in the population expected to ultimately expire. As a result, the rate at which we recognize redeemed miles has increased.

The Company’s estimate of the expected expiration of miles requires significant management judgment. Current and future changes to expiration assumptions, the expiration policy, program rules or program redemption opportunities may result in material changes to the deferred revenue balance as well as recognized revenues from the Company’s frequent flyer program.

For the three and nine months ended September 30, 2012, the combined net impact of these changes to UAL, United and Continental were not material.

Passenger Revenue Accounting. The Company records an estimate of breakage revenue on the flight date for tickets that will expire unused. These estimates are based on the evaluation of actual historical results. During the three months ended September 30, 2012, Continental revised its estimate of breakage resulting in a reduction of passenger revenue of approximately $60 million.

NOTE 2—NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-04 (“ASU 2011-04”), Fair Value Measurement: Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS. Some of the key amendments to the fair value measurement guidance include the highest and best use and valuation premise for nonfinancial assets, application to financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk, premiums or discounts in fair value measurement and fair value of an instrument classified in a reporting entity’s shareholders’ equity. Additional disclosures for fair value measurements categorized in Level 3 of the fair value hierarchy include a quantitative disclosure of the unobservable inputs and assumptions used in the measurement, a description of the valuation processes in place, a narrative description of the sensitivity of the fair value to changes in unobservable inputs and interrelationships between those inputs and the level in the fair value hierarchy of

 

18


Table of Contents

items that are not measured at fair value in the consolidated balance sheet but whose fair value must be disclosed. ASU 2011-04 became effective for the Company’s annual and interim periods beginning January 1, 2012, and the required disclosures are disclosed in Note 6 of this report.

NOTE 3—EARNINGS (LOSS) PER SHARE

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

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012      2011     2012     2011  

UAL basic earnings (loss) per share:

         

Net income (loss)

   $ 6       $ 653      $ (103   $ 978   

Less: Income allocable to participating securities

     —           (2     —          (3
  

 

 

    

 

 

   

 

 

   

 

 

 

Earnings (loss) available to common stockholders

   $ 6       $ 651      $ (103   $ 975   
  

 

 

    

 

 

   

 

 

   

 

 

 

Basic weighted average shares outstanding

     331         330        331        329   
  

 

 

    

 

 

   

 

 

   

 

 

 

Earnings (loss) per share, basic

   $ 0.02       $ 1.97      $ (0.31   $ 2.96   
  

 

 

    

 

 

   

 

 

   

 

 

 

UAL diluted earnings (loss) per share:

         

Earnings (loss) available to common stockholders

   $ 6       $ 651      $ (103   $ 975   

Effect of UAL 4.5% Senior Limited-Subordination Convertible Notes

     —           2        —          31   

Effect of Continental 4.5% Convertible Notes

     —           2        —          7   

Effect of Continental 6% Convertible Junior Subordinated Debentures

     —           4        —          —     

Effect of UAL 6% Senior Convertible Notes

     —           4        —          13   
  

 

 

    

 

 

   

 

 

   

 

 

 

Earnings (loss) available to common stockholders including the effect of dilutive securities

   $ 6       $ 663      $ (103   $ 1,026   
  

 

 

    

 

 

   

 

 

   

 

 

 

UAL diluted shares outstanding:

         

Basic weighted average shares outstanding

     331         330        331        329   

Effect of stock options

     1         1        —          2   

Effect of UAL 4.5% Senior Limited-Subordination Convertible Notes

     —           5        —          13   

Effect of Continental 4.5% Convertible Notes

     —           12        —          12   

Effect of Continental 6% Convertible Junior Subordinated Debentures

     —           4        —          —     

Effect of UAL 6% Senior Convertible Notes

     —           40        —          40   
  

 

 

    

 

 

   

 

 

   

 

 

 

Diluted weighted average shares outstanding

     332         392        331        396   
  

 

 

    

 

 

   

 

 

   

 

 

 

Earnings (loss) per share, diluted

   $ 0.02       $ 1.69      $ (0.31   $ 2.59   
  

 

 

    

 

 

   

 

 

   

 

 

 

UAL potentially dilutive shares excluded from diluted per share amounts:

         

Restricted stock and stock options

     5         7        6        6   

UAL 4.5% Senior Limited-Subordination Convertible Notes

     5         —          5        —     

Continental 4.5% Convertible Notes

     12         —          12        —     

Continental 6% Convertible Junior Subordinated Debentures

     4         —          4        4   

UAL 6% Senior Convertible Notes

     40         —          40        —     

UAL’s 6% Senior Notes due 2031 (the “6% Senior Notes”), with a principal amount of $652 million as of September 30, 2012, and the $125 million of UAL’s 8% Contingent Senior Notes (the “8% Notes”) issued by UAL in January 2012, are redeemable with either cash or shares of UAL common stock, or in the case of mandatory redemption, a combination thereof, at UAL’s option. The Company is obligated to issue an additional $62.5 million of the 8% Notes by February 2013, which are also redeemable on the same terms as the 6% Senior Notes and the other 8% Notes. These notes are not included in the diluted earnings (loss) per share calculation because it is UAL’s intent to redeem these notes with cash if UAL were to decide to redeem these notes.

 

19


Table of Contents

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 (the “4.5% Notes”) with cash after the 4.5% Notes were put to UAL by the noteholders. For the three and nine months ended September 30, 2011, the dilutive effect of the 4.5% Notes was excluded from the diluted earnings per share calculations from the date that notice was given of the Company’s intent to pay the notes put to it in cash up to the June 30, 2011 repurchase date.

NOTE 4—INCOME TAXES

Our effective tax rates are lower than the federal statutory rate of 35% primarily because of the impact of changes to existing valuation allowances. We continue to provide a valuation allowance for our deferred tax assets in excess of deferred tax liabilities because we have concluded that it is more likely than not that such deferred tax assets will ultimately not be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (including the reversals of deferred tax liabilities) during the periods in which those deferred tax assets will become deductible. The Company’s management assesses available positive and negative evidence regarding the realizability of its deferred tax assets, and records a valuation allowance when it is more likely than not that all or a portion of the deferred tax assets will not be realized. To form a conclusion, management considers positive evidence in the form of reversing temporary differences, projections of future taxable income and tax planning strategies, and negative evidence such as recent history of losses. Although the Company was no longer in a three-year cumulative loss position at the end of 2011, management determined that the size and frequency of financial losses in recent years and the uncertainty associated with projecting future taxable income supported the conclusion that the valuation allowance was still needed on net deferred tax assets. If UAL achieves significant profitability in 2012 and the economic and industry outlook supports a continued expectation of profitability, then management will evaluate whether its recent history of profitability constitutes sufficient positive evidence to support a reversal of a portion, or all, of the remaining valuation allowance.

NOTE 5—EMPLOYEE BENEFIT PLANS

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

 

     Pension Benefits     Other Postretirement Benefits  
     Three Months Ended
September 30,
    Three Months Ended
September 30,
 
      2012     2011     2012     2011  

UAL

        

Service cost

   $ 25      $ 22      $ 11      $ 11   

Interest cost

     45        44        30        32   

Expected return on plan assets

     (33     (36     —          (1

Amortization of unrecognized (gain) loss and prior service cost

     4        (5     —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit costs

   $ 41      $ 25      $ 41      $ 42   
  

 

 

   

 

 

   

 

 

   

 

 

 

United

        

Service cost

   $ 2      $ 2      $ 8      $ 8   

Interest cost

     2        2        27        29   

Expected return on plan assets

     (2     (3     —          (1

Amortization of unrecognized gain and prior service cost

     (1     —          (1     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit costs

   $ 1      $ 1      $ 34      $ 36   
  

 

 

   

 

 

   

 

 

   

 

 

 

Continental

        

Service cost

   $ 23      $ 20      $ 3      $ 3   

Interest cost

     43        42        3        3   

Expected return on plan assets

     (31     (33     —          —     

Amortization of unrecognized (gain) loss and prior service cost

     5        (5     1        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit costs

   $ 40      $ 24      $ 7      $ 6   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Table of Contents
     Pension Benefits     Other Postretirement Benefits  
     Nine Months Ended
September 30,
    Nine Months Ended
September 30,
 
      2012     2011     2012     2011  

UAL

        

Service cost

   $ 75      $ 66      $ 37      $ 35   

Interest cost

     137        133        93        95   

Expected return on plan assets

     (103     (105     (2     (2

Amortization of unrecognized (gain) loss and prior service cost

     15        (17     (2     (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit costs

   $ 124      $ 77      $ 126      $ 127   
  

 

 

   

 

 

   

 

 

   

 

 

 

United

        

Service cost

   $ 6      $ 5      $ 26      $ 25   

Interest cost

     6        7        82        85   

Expected return on plan assets

     (8     (8     (2     (2

Amortization of unrecognized gain and prior service cost

     (1     (1     (3     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit costs

   $ 3      $ 3      $ 103      $ 108   
  

 

 

   

 

 

   

 

 

   

 

 

 

Continental

        

Service cost

   $ 69      $ 61      $ 11      $ 10   

Interest cost

     131        126        11        10   

Expected return on plan assets

     (95     (97     —          —     

Amortization of unrecognized (gain) loss and prior service cost

     16        (16     1        (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit costs

   $ 121      $ 74      $ 23      $ 19   
  

 

 

   

 

 

   

 

 

   

 

 

 

During the nine months ended September 30, 2012, Continental contributed $167 million to its tax-qualified defined benefit pension plans. Continental contributed an additional $41 million to its tax-qualified defined benefit pension plans in October 2012.

Share-Based Compensation. In February 2012, 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 and 0.6 million restricted stock units (“RSUs”) that vest pro-rata over three years on the anniversary of the grant date. In addition, UAL granted 1.3 million performance-based RSUs that will vest based on UAL’s return on invested capital for the three years ending December 31, 2014. If this performance condition is achieved, cash payments will be made after the end of the performance period based on the 20-day average closing price of UAL common stock immediately prior to the vesting date. The Company accounts for the RSUs as liability awards. The table below presents information related to share-based compensation (in millions):

 

     Three Months
Ended September
30,
     Nine Months
Ended September
30,
 
     2012      2011      2012      2011  

Share-based compensation expense (a)

   $ 18       $ 13       $ 44       $ 40   

 

     September 30, 2012    December 31, 2011

Unrecognized share-based compensation expense

   $43    $43

 

(a) Includes $0 and $7 million of expense recognized in integration-related costs for the three and nine months ended September 30, 2012, respectively. Includes $3 million and $12 million of expense recognized in integration-related costs for the three and nine months ended September 30, 2011, respectively.

Profit Sharing Plans. In 2012, substantially all employees participate in profit sharing, which pays 15% of total pre-tax earnings, excluding special items and share-based compensation expense, to eligible employees when pre-tax profit, excluding special items, profit sharing expense and share-based compensation program expense, exceeds $10 million. Eligible U.S. co-workers in each participating work group receive a profit sharing payout using a formula based on the ratio of each qualified co-worker’s annual eligible earnings to the eligible earnings of all qualified co-workers in all domestic workgroups. The international profit sharing plan pays eligible non-U.S. co-workers the same percentage of eligible pay that is calculated under the U.S. profit sharing plan. Profit sharing expense is recorded as a component of salaries and related costs in the consolidated statements of operations.

 

21


Table of Contents

NOTE 6—FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

The table below presents disclosures about the financial assets and financial liabilities measured at fair value on a recurring basis in the Company’s financial statements as of September 30, 2012 and December 31, 2011 (in millions):

 

     September 30, 2012     December 31, 2011  
     Total     Level 1      Level 2      Level 3     Total     Level 1      Level 2     Level 3  
     UAL  

Cash and cash equivalents

   $ 5,129      $ 5,129       $ —         $ —        $ 6,246      $ 6,246       $ —        $ —     

Short-term investments:

                   

Asset-backed securities

     647        —           647         —          478        —           478        —     

Corporate debt

     340        —           340         —          515        —           515        —     

Certificates of deposit placed through an account registry service (“CDARS”)

     404        —           404         —          355        —           355        —     

Auction rate securities

     115        —           —           115        113        —           —          113   

U.S. government and agency notes

     15        —           15         —          22        —           22        —     

Other fixed income securities

     30        —           30         —          33        —           33        —     

Enhanced equipment trust certificates (“EETC”)

     62        —           —           62        60        —           —          60   

Fuel derivatives, net

     33        —           33         —          73        —           73        —     

Foreign currency derivatives

     —          —           —           —          (1     —           (1     —     

Restricted cash

     471        471         —           —          569        569         —          —     
     United  

Cash and cash equivalents

   $ 3,005      $ 3,005       $ —         $ —        $ 3,458      $ 3,458       $ —        $ —     

Short-term investments:

                   

Asset-backed securities

     16        —           16         —          29        —           29        —     

Corporate debt

     140        —           140         —