United Airlines Results

United Airlines Achieves Highest Second-Quarter Pre-Tax Income In Company History

Company also achieves record second-quarter diluted EPS of $4.02; adjusted diluted EPS of $4.21

United Airlines

United Airlines (UAL) yesterday announced that the continued successful implementation of its strategy led to the company delivering two straight quarters of solid pre-tax margin growth - three quarters on an adjusted basis1 - and the highest second-quarter pre-tax income in the airline's history.2

"Thanks to the outstanding and sustained efforts of 95,000 United team members, United is now consistently delivering results for our customers as well as investors as we raise the mid-point of our full-year 2019 adjusted diluted EPS3 guidance with a new range of $10.50 to $12.00," said Oscar Munoz, CEO of United Airlines. "By once again delivering strong EPS over the last three months, top-tier results are now the expectation, not the exception for United."

  • Reported second-quarter net income of $1.1 billion, diluted earnings per share (EPS) of $4.02, pre-tax earnings of $1.4 billion and pre-tax margin of 11.9 percent, expanding pre-tax margin 4.0 points versus the second quarter of 2018.
  • Reported second-quarter adjusted net income of $1.1 billion, adjusted diluted EPS of $4.21, adjusted pre-tax earnings of $1.4 billion and adjusted pre-tax margin of 12.4 percent, expanding adjusted pre-tax margin 2.0 points versus the second quarter of 2018.1
  • Total passenger revenue increased 6.1 percent versus the second quarter of 2018.
  • Consolidated second-quarter passenger revenue per available seat mile (PRASM) increased 2.5 percent year-over-year.
  • Consolidated second-quarter unit cost per available seat mile (CASM) decreased 0.4 percent year-over-year.
  • Consolidated second-quarter CASM, excluding special charges, third-party business expenses, fuel and profit sharing, increased 0.6 percent year-over-year.
  • Repurchased $536 million of its common shares in the second quarter of 2019, at an average purchase price of $84.07 per share.
  • On July 15, 2019, the company's Board of Directors authorized a new $3 billion share repurchase program.

1 Excludes special charges, the mark-to-market impact of financial instruments and imputed interest on certain finance leases. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included in the tables accompanying this release.

2 Airline history defined as post-2010 merger.

3Excludes special charges and the mark-to-market impact of financial instruments, the nature of which are not determined at this time, and imputed interest on certain finance leases.  Accordingly, UAL is not providing earnings guidance on a GAAP basis.

Second-Quarter 2019 Highlights

Customer Experience

  • United Polaris lounge at San Francisco International Airport voted best business class lounge in the world by the 2019 World Airline Awards from Skytrax.
  • Introduced ConnectionSaver, a new tool dedicated to improving the experience for customers connecting from one United flight to the next, while ensuring those who have already boarded the aircraft arrive at their destination on time.
  • Began flight operations at LaGuardia Airport's new Terminal B Eastern Concourse and opened newest United Club - conveniently located inside security with more than 10,500 square feet with sweeping views of the tarmac.
  • Awarded the "People's Voice" Webby Award in the "Business and Finance" category for reimagined mobile app, which debuted earlier this year.
  • Partnered with luxury skincare line Sunday Riley on new United Polaris amenity kits.
  • Awarded the Crystal Cabin Award for Inflight Entertainment and Connectivity for new onboard entertainment.
  • Received IDG's CIO 100 Award for innovative customer volunteer solicitation program.

Operations

  • Served nearly 43 million passengers, the most ever for United in the second quarter.
  • Achieved top-tier on-time departures rate performance versus the major U.S. airlines, despite headwinds caused by unusually high weather and ATC delays.
  • For the second quarter United had the second-best completion factor and the second fewest cancellations among the major U.S. airlines.

Employees

  • Received "Best-of-the-Best" award for commitment to diversity and inclusion by the National LGBT Chamber of Commerce (NGLCC) and the National Business Inclusion Consortium (NBIC), demonstrating the airline's industry-leading results across all diverse segments and its commitment to building a more diverse economy.
  • Honored with the "DiversityInc Top 50" designation, lauding the airline's leadership in promoting diversity through talent development, leadership accountability and a top supplier diversity program.
  • Expect profit sharing for 2019 to be about 20 percent higher per participating employee year-over-year.
  • Hosted more than half of the company's 25,000 flight attendants at 17 separate Backstage 2019 events, which are designed to underscore the important role flight attendants play in delivering great service.

Network

  • Started 34 new domestic and international routes, including brand-new summer service between New York/Newark and Prague, and the only nonstop service between the United States and Naples, Italy.
  • Resumed popular seasonal service on 28 routes offering customers more access than ever before to connect to 54 countries around the world on United's industry-leading global network.
  • Announced the only nonstop service from the United States to Cape Town, South Africa, and announced a second daily nonstop service between San Francisco and Hong Kong.
  • Launched ninth daily nonstop flight between the United States and Germany from its hub at Denver International Airport, becoming the only U.S. airline connecting Denver to Frankfurt nonstop.
  • Tentatively granted a total of four daily nonstop flights to Tokyo Haneda Airport from United's hubs at Newark Liberty International Airport, Chicago O'Hare International Airport, Washington Dulles International Airport and Los Angeles International Airport.
  • Unveiled 2019 college football flying schedule, adding around 10,000 seats between its hubs and popular game destinations and, for the first time, adding several point-to-point flights enabling fans to fly nonstop from one college town to another.
  • Entered into a new alliance agreement with New Delhi-based airline Vistara - further expanding the airline's global route network to more than 20 destinations throughout India and expected to begin in the fall.

Fleet

  • Unveiled next paint design, which brings a refreshed look to its fleet, serving as a visual representation of the airline's ongoing brand evolution while staying true to the history it has developed over the past 93 years of proudly serving customers around the world.
  • Took delivery of two Boeing 787-10 aircraft, two used Airbus A319 aircraft, and seven Embraer E175 aircraft operated by our regional partners.
  • Signed agreement to purchase 19 used Boeing 737-700 aircraft with deliveries expected beginning in December.

Community and Environment

  • Made history with the departure of the "Flight for the Planet," the most eco-friendly commercial flight of its kind in the history of aviation, becoming the first known airline to demonstrate all of the following key actions on a single commercial flight: utilization of sustainable aviation biofuel, zero cabin waste efforts, carbon offsetting, and operational efficiencies.
  • Became the first public company to be inducted into Pride Live's Stonewall Ambassador program in recognition of the airline's commitment to LGBTQ+ equality.
  • Reached a milestone of 1 million meals packed for charity partner Rise Against Hunger, a global nonprofit, working to end hunger by providing food and life-changing aid to the world's most vulnerable and creating a global commitment to mobilize critical resources.
  • Renewed contract with Boston-based World Energy, agreeing to purchase up to 10 million gallons of cost-competitive, commercial-scale, sustainable aviation biofuel over the next two years.
  • Revealed the two winning designs for Her Art Here, a first-of-its-kind contest designed to find and uplift underrepresented women artists by providing a chance to have their work painted on a canvas like no other - a United Airlines aircraft. The painted aircraft will begin flying in the fall.
  • Announced new and exciting opportunities to help customers celebrate Pride Month through MileagePlus Exclusives benefiting United charity partner The Trevor Project.

UNITED AIRLINES HOLDINGS, INC.

STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)

Three Months Ended

June 30,

%

Increase/

Six Months Ended

June 30,

%

Increase/

(In millions, except per share data)

2019

2018

(Decrease)

2019

2018

(Decrease)

Operating revenue:

Passenger

$

10,486

$

9,880

6.1

$

19,211

$

18,030

6.6

Cargo

295

314

(6.1)

581

607

(4.3)

Other operating revenue

621

583

6.5

1,199

1,172

2.3

Total operating revenue

11,402

10,777

5.8

20,991

19,809

6.0

Operating expense:

Salaries and related costs

3,057

2,878

6.2

5,930

5,604

5.8

Aircraft fuel

2,385

2,390

(0.2)

4,408

4,355

1.2

Regional capacity purchase

715

693

3.2

1,403

1,323

6.0

Landing fees and other rent

660

625

5.6

1,248

1,204

3.7

Depreciation and amortization

560

538

4.1

1,107

1,062

4.2

Aircraft maintenance materials and outside repairs

421

438

(3.9)

829

878

(5.6)

Distribution expenses

442

393

12.5

802

735

9.1

Aircraft rent

73

119

(38.7)

154

246

(37.4)

Special charges (B)

71

129

NM

89

169

NM

Other operating expenses

1,546

1,429

8.2

3,054

2,826

8.1

Total operating expense

9,930

9,632

3.1

19,024

18,402

3.4

Operating income

1,472

1,145

28.6

1,967

1,407

39.8

Operating margin

12.9

%

10.6

%

2.3

pts.

9.4

%

7.1

%

2.3

pts.

Adjusted operating margin (Non-GAAP) (A)

13.5

%

11.8

%

1.7

pts.

9.8

%

8.0

%

1.8

pts.

Nonoperating income (expense):

Interest expense

(191)

(163)

17.2

(379)

(325)

16.6

Interest capitalized

21

12

75.0

43

30

43.3

Interest income

38

25

52.0

67

42

59.5

Miscellaneous, net (B)

14

(164)

NM

23

(117)

NM

Total nonoperating expense

(118)

(290)

(59.3)

(246)

(370)

(33.5)

Income before income taxes

1,354

855

58.4

1,721

1,037

66.0

Pre-tax margin

11.9

%

7.9

%

4.0

pts.

8.2

%

5.2

%

3.0

pts.

Adjusted pre-tax margin (Non-GAAP) (A)

12.4

%

10.4

%

2.0

pts.

8.6

%

6.5

%

2.1

pts.

Income tax expense (D)

302

172

75.6

377

209

80.4

Net income

$

1,052

$

683

54.0

$

1,344

$

828

62.3

Diluted earnings per share

$

4.02

$

2.48

62.1

$

5.07

$

2.95

71.9

Diluted weighted average shares

261.6

275.6

(5.1)

264.9

280.2

(5.5)

NM Not meaningful

UNITED AIRLINES HOLDINGS, INC.

PASSENGER REVENUE INFORMATION AND STATISTICS

Passenger revenue information is as follows:

2Q 2019

Passenger

Revenue

(millions)

Passenger

Revenue

vs.

2Q 2018

PRASM

vs.

2Q 2018

Yield

vs.

2Q 2018

Available

Seat Miles

vs.

2Q 2018

2Q 2019

Available Seat

Miles (millions)

Domestic

$

6,547

5.9%

1.9%

1.5%

4.0%

41,484

Atlantic

1,927

5.6%

0.6%

(1.5%)

5.0%

14,114

Pacific

1,135

2.9%

2.8%

(1.1%)

0.1%

10,753

Latin America

877

13.6%

9.1%

6.5%

4.1%

6,889

International

3,939

6.5%

3.2%

0.4%

3.1%

31,756

Consolidated

$

10,486

6.1%

2.5%

1.0%

3.6%

73,240

Select operating statistics are as follows:

Three Months Ended

June 30,

%

Increase/

(Decrease)

Six Months Ended

June 30,

%

Increase/

(Decrease)

2019

2018

2019

2018

Passengers (thousands)

42,592

41,058

3.7

79,046

75,553

4.6

Revenue passenger miles (millions)

63,001

59,945

5.1

116,098

109,794

5.7

Available seat miles (millions)

73,240

70,702

3.6

138,885

132,679

4.7

Passenger load factor:

Consolidated

86.0

%

84.8

%

1.2

pts.

83.6

%

82.8

%

0.8

pts.

Domestic

87.5

%

87.1

%

0.4

pts.

85.2

%

85.1

%

0.1

pts.

International

84.0

%

81.7

%

2.3

pts.

81.5

%

79.7

%

1.8

pts.

Passenger revenue per available seat mile (cents)

14.32

13.97

2.5

13.83

13.59

1.8

Total revenue per available seat mile (cents)

15.57

15.24

2.2

15.11

14.93

1.2

Average yield per revenue passenger mile (cents)

16.64

16.48

1.0

16.55

16.42

0.8

Cargo ton miles (millions)

831

855

(2.8)

1,636

1,672

(2.2)

Aircraft in fleet at end of period

1,344

1,308

2.8

1,344

1,308

2.8

Average stage length (miles)

1,469

1,460

0.6

1,459

1,452

0.5

Average full-time equivalent employees

90,779

86,743

4.7

89,761

86,157

4.2

Average aircraft fuel price per gallon

$

2.16

$

2.26

(4.4)

$

2.11

$

2.19

(3.7)

Fuel gallons consumed (millions)

1,102

1,058

4.2

2,087

1,990

4.9

Note: See Part II, Item 6, Selected Financial Data, of UAL's Annual Report on Form 10-K for the fiscal year ended December 31, 2018, for definitions of these statistics.

UNITED AIRLINES HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 (In millions)

June 30, 2019

December 31, 2018

ASSETS

Current assets:

Cash and cash equivalents

$

3,221

$

1,694

Short-term investments

2,223

2,256

Receivables, less allowance for doubtful accounts

1,762

1,426

Aircraft fuel, spare parts and supplies, less obsolescence allowance

996

985

Prepaid expenses and other

708

733

Total current assets

8,910

7,094

Total operating property and equipment, net

28,918

27,399

Operating lease right-of-use assets

4,908

5,262

Other assets:

Goodwill

4,523

4,523

Intangibles, less accumulated amortization

3,129

3,159

Restricted cash

105

105

Notes receivable, net

518

516

Investments in affiliates and other, net

1,139

966

Total other assets

9,414

9,269

Total assets

$

52,150

$

49,024

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Advance ticket sales

$

6,126

$

4,381

Accounts payable

3,033

2,363

Frequent flyer deferred revenue

2,435

2,286

Accrued salaries and benefits

1,871

2,184

Current maturities of long-term debt

1,255

1,230

Current maturities of finance leases

117

123

Current maturities of operating leases

637

719

Other

604

553

Total current liabilities

16,078

13,839

Long-term debt and other long-term liabilities and deferred credits:

Long-term debt

12,938

12,215

Long-term obligations under finance leases

202

224

Long-term obligations under operating leases

5,034

5,276

Frequent flyer deferred revenue

2,763

2,719

Postretirement benefit liability

1,277

1,295

Pension liability

1,366

1,576

Deferred income taxes

1,192

828

Other

980

1,010

              Total long-term debt and other long-term liabilities and deferred credits:

25,752

25,143

Stockholders' equity

10,320

10,042

Total liabilities and stockholders' equity

$

52,150

$

49,024

UNITED AIRLINES HOLDINGS, INC.

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)

 (In millions)

Six Months Ended

June 30,

2019

2018

Cash Flows from Operating Activities:

Net cash provided by operating activities

$

4,625

$

4,152

Cash Flows from Investing Activities:

Capital expenditures

(2,467)

(1,671)

Purchases of short-term and other investments

(1,443)

(1,326)

Proceeds from sale of short-term and other investments

1,484

1,455

Investment in affiliates

(27)

(139)

Loans made to others

(10)

Other, net

17

38

Net cash used in investing activities

(2,436)

(1,653)

Cash Flows from Financing Activities:

Proceeds from issuance of long-term debt

996

1,241

Payments of long-term debt

(473)

(1,294)

Repurchases of common stock

(1,062)

(969)

Principal payments under finance leases

(63)

(35)

Capitalized financing costs

(30)

(25)

Other, net

(30)

(17)

Net cash used in financing activities

(662)

(1,099)

Net increase in cash, cash equivalents and restricted cash

1,527

1,400

Cash, cash equivalents and restricted cash at beginning of the period

1,799

1,591

Cash, cash equivalents and restricted cash at end of the period

$

3,326

$

2,991

Investing and Financing Activities Not Affecting Cash:

Property and equipment acquired through the issuance of debt

$

220

$

125

Operating lease conversions to finance lease

36

Right-of-use assets acquired through operating leases

99

103

Property and equipment acquired through finance leases

8

UNITED AIRLINES HOLDINGS, INC.

RETURN ON INVESTED CAPITAL (ROIC)—Non-GAAP

ROIC is a non-GAAP financial measure that UAL believes provides useful supplemental information for management and investors by measuring the effectiveness of the company's operations' use of invested capital to generate profits.

(in millions)

Twelve Months Ended

June 30, 2019

Net Operating Profit After Tax ("NOPAT")

Pre-tax income

$

3,332

Adjustments:

  Special charges and mark-to-market ("MTM") gains on financial instruments:

    Impairment of assets

312

    Termination of a maintenance service agreement

64

    Severance and benefit costs

28

    MTM gains on financial instruments

(136)

    (Gains) losses on sale of assets and other special charges

3

Pre-tax income excluding special charges and MTM gains on financial instruments (Non-GAAP)

3,603

    add: Interest expense  (net of income tax benefit) (a)

721

    add: Interest component of capitalized aircraft rent  (net of income tax benefit) (a)

195

    add: Net interest on pension (net of income tax benefit) (a)

(11)

    less: Income taxes paid

(13)

NOPAT (Non-GAAP)

$

4,495

Average Invested Capital (five-quarter average)

Total assets

$

50,076

less: Non-interest bearing liabilities (b)

(17,495)

Average invested capital (Non-GAAP)

$

32,581

ROIC (Non-GAAP)

13.8

%

(a)

Income tax benefit measured based on the effective cash tax rate. The effective cash tax rate is calculated by dividing cash taxes paid by pre-tax income excluding special charges and MTM gains and losses on financial instruments. For the twelve months ended June 30, 2019, the effective cash tax rate was 0.4%.

(b)

Non-interest bearing liabilities include advance ticket sales, frequent flyer deferred revenue, deferred income taxes and other non-interest bearing liabilities.

UNITED AIRLINES HOLDINGS, INC.

NON-GAAP FINANCIAL RECONCILIATION

(A)  UAL evaluates its financial performance utilizing various accounting principles generally accepted in the United States of America (GAAP) and Non-GAAP financial measures, including adjusted operating income (loss), adjusted operating margin, adjusted pre-tax income (loss), adjusted pre-tax margin, adjusted net income (loss), adjusted diluted earnings (loss) per share and CASM, excluding special charges, third-party business expenses, fuel, and profit sharing, among others. UAL believes that adjusting for special charges is useful to investors because special charges are not indicative of UAL's ongoing performance. UAL believes that adjusting for MTM gains and losses on financial instruments is useful to investors because those unrealized gains or losses may not ultimately be realized on a cash basis. UAL believes that adjusting for interest expense related to finance leases of Embraer ERJ 145 aircraft is useful to investors because of the accelerated recognition of interest expense.

CASM is a common metric used in the airline industry to measure an airline's cost structure and efficiency. UAL reports CASM excluding special charges, third-party business expenses, fuel and profit sharing. UAL believes that adjusting for special charges is useful to investors because special charges are not indicative of UAL's ongoing performance. UAL also believes that excluding third-party business expenses, such as maintenance, ground handling and catering services for third parties and fuel sales, provides more meaningful disclosure because these expenses are not directly related to UAL's core business. UAL also believes that excluding fuel costs from certain measures is useful to investors because it provides an additional measure of management's performance excluding the effects of a significant cost item over which management has limited influence. UAL excludes profit sharing because this exclusion allows investors to better understand and analyze our operating cost performance and provides a more meaningful comparison of our core operating costs to the airline industry.

Reconciliations of reported non-GAAP financial measures to the most directly comparable GAAP financial measures are included below.     

Three Months Ended

June 30,

%

Increase/

Six Months Ended

June 30,

%

Increase/

2019

2018

(Decrease)

2019

2018

(Decrease)

CASM (cents)

Cost per available seat mile (CASM) (GAAP)

13.56

13.62

(0.4)

13.70

13.87

(1.2)

Special charges (B)

0.10

0.18

NM

0.07

0.13

NM

Third-party business expenses

0.05

0.04

25.0

0.05

0.05

Fuel expense

3.26

3.38

(3.6)

3.17

3.28

(3.4)

Profit sharing, including taxes

0.22

0.15

46.7

0.14

0.09

55.6

CASM, excluding special charges, third-party business expenses, fuel, and profit sharing (Non-GAAP)

9.93

9.87

0.6

10.27

10.32

(0.5)

NM Not Meaningful

UNITED AIRLINES HOLDINGS, INC.

NON-GAAP FINANCIAL RECONCILIATION (Continued)

Three Months Ended

June 30,

$

Increase/

%

Increase/

Six Months Ended

June 30,

$

Increase/

%

Increase/

(in millions)

2019

2018

(Decrease)

(Decrease)

2019

2018

(Decrease)

(Decrease)

Operating expenses (GAAP)

$

9,930

$

9,632

$

298

3.1

$

19,024

$

18,402

$

622

3.4

Special charges (B)

71

129

(58)

NM

89

169

(80)

NM

Operating expenses, excluding special charges

9,859

9,503

356

3.7

18,935

18,233

702

3.9

Adjusted to exclude:

Third-party business expenses

41

29

12

41.4

71

60

11

18.3

Fuel expense

2,385

2,390

(5)

(0.2)

4,408

4,355

53

1.2

Profit sharing, including taxes

161

108

53

49.1

194

125

69

55.2

Adjusted operating expenses (Non-GAAP)

$

7,272

$

6,976

$

296

4.2

$

14,262

$

13,693

$

569

4.2

Operating income (GAAP)

$

1,472

$

1,145

$

327

28.6

$

1,967

$

1,407

$

560

39.8

Adjusted to exclude:

Special charges (B)

71

129

(58)

NM

89

169

(80)

NM

Adjusted operating income (Non-GAAP)

$

1,543

$

1,274

$

269

21.1

$

2,056

$

1,576

$

480

30.5

Pre-tax income (GAAP)

$

1,354

$

855

$

499

58.4

$

1,721

$

1,037

$

684

66.0

Adjusted to exclude:

Special charges (B)

71

129

(58)

NM

89

169

(80)

NM

MTM (gains) losses on financial instruments (B)

(34)

135

(169)

NM

(51)

90

(141)

NM

Interest expense on ERJ 145 finance leases (C)

25

25

NM

46

46

NM

Adjusted pre-tax income (Non-GAAP)

$

1,416

$

1,119

$

297

26.5

$

1,805

$

1,296

$

509

39.3

  Net income (GAAP)

$

1,052

$

683

$

369

54.0

$

1,344

$

828

$

516

62.3

Adjusted to exclude:

Special charges (B)

71

129

(58)

NM

89

169

(80)

NM

MTM (gains) losses on financial instruments (B)

(34)

135

(169)

NM

(51)

90

(141)

NM

Interest expense on ERJ 145 finance leases (C)

25

25

NM

46

46

NM

Income tax benefit related to adjustments above

(14)

(59)

45

NM

(19)

(58)

39

NM

Adjusted net income (Non-GAAP)

$

1,100

$

888

$

212

23.9

$

1,409

$

1,029

$

380

36.9

  Diluted earnings per share (GAAP)

$

4.02

$

2.48

$

1.54

62.1

$

5.07

$

2.95

$

2.12

71.9

Adjusted to exclude:

Special charges (B)

0.27

0.47

(0.20)

NM

0.34

0.60

(0.26)

NM

MTM (gains) losses on financial instruments (B)

(0.13)

0.49

(0.62)

NM

(0.19)

0.32

(0.51)

NM

Interest expense on ERJ 145 finance leases (C)

0.10

0.10

NM

0.17

0.17

NM

Income tax benefit related to adjustments

(0.05)

(0.22)

0.17

NM

(0.07)

(0.20)

0.13

NM

Adjusted diluted earnings per share (Non-GAAP)

$

4.21

$

3.22

$

0.99

30.7

$

5.32

$

3.67

$

1.65

45.0

NM Not Meaningful

UNITED AIRLINES HOLDINGS, INC.

NON-GAAP FINANCIAL RECONCILIATION (Continued)

UAL believes that adjusting capital expenditures for assets acquired through the issuance of debt and finance leases is useful to investors in order to appropriately reflect the total amounts spent on capital expenditures. UAL also believes that adjusting net cash provided by operating activities for capital expenditures and adjusted capital expenditures is useful to allow investors to evaluate the company's ability to generate cash that is available for debt service or general corporate initiatives.

Three Months Ended

June 30,

Six Months Ended

June 30,

Capital Expenditures (in millions)

2019

2018

2019

2018

Capital expenditures (GAAP)

$

858

$

727

$

2,467

$

1,671

Property and equipment acquired through the issuance of debt

128

65

220

125

Property and equipment acquired through finance leases

8

Adjusted capital expenditures (Non-GAAP)

$

986

$

792

$

2,695

$

1,796

Free Cash Flow (in millions)

Net cash provided by operating activities (GAAP)

$

2,710

$

2,443

$

4,625

$

4,152

Less capital expenditures

858

727

2,467

1,671

Free cash flow, net of financings (Non-GAAP)

$

1,852

$

1,716

$

2,158

$

2,481

Net cash provided by operating activities (GAAP)

$

2,710

$

2,443

$

4,625

$

4,152

Less adjusted capital expenditures (Non-GAAP)

986

792

2,695

1,796

Free cash flow (Non-GAAP)

$

1,724

$

1,651

$

1,930

$

2,356

UNITED AIRLINES HOLDINGS, INC.

NOTES (UNAUDITED)

(B)     Special charges and MTM (gains) losses on financial instruments include the following:

Three Months Ended

June 30,

Six Months Ended

June 30,

(In millions)

2019

2018

2019

2018

Operating:

Impairment of assets

$

61

$

111

$

69

$

134

Severance and benefit costs

6

11

12

25

(Gains) losses on sale of assets and other special charges

4

7

8

10

Total special charges

71

129

89

169

Nonoperating MTM (gains) losses on financial instruments

(34)

135

(51)

90

Total special charges and MTM (gains) losses on financial instruments

37

264

38

259

Income tax benefit

(8)

(59)

(8)

(58)

Total special charges and MTM (gains) losses on financial instruments, net of income tax

$

29

$

205

$

30

$

201

Impairment of assets:  During the three months ended June 30, 2019, the company recorded a $47 million impairment for aircraft engines removed from operations, a $6 million charge for the early termination of several regional aircraft finance leases and $8 million in other miscellaneous impairments. During the six months ended June 30, 2019, in addition to the charges described above, the company recorded an $8 million fair value adjustment for aircraft purchased off lease.

In May 2018, the Brazil–United States open skies agreement was ratified, which provides air carriers with unrestricted access between the United States and Brazil. The company determined that the approval of the open skies agreement impaired the entire value of its Brazil route authorities because the agreement removes all limitations or reciprocity requirements for flights between the United States and Brazil. Accordingly, the company recorded a $105 million special charge to write off the entire value of the intangible asset associated with its Brazil routes. For the three and six months ended June 30, 2018, the company also recorded $6 million and $29 million, respectively, of fair value adjustments related to aircraft purchased off lease and other impairments related to certain fleet types and international slots no longer in use.

Severance and benefit costs: During the three and six months ended June 30, 2019, the company recorded $6 million and $10 million, respectively, of management severance. During the six months ended June 30, 2019, the company recorded $2 million of severance and benefit costs primarily related to a voluntary early-out program for its technicians and related employees represented by the International Brotherhood of Teamsters. In the first quarter of 2017, approximately 1,000 technicians and related employees elected to voluntarily separate from the company and received a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through early 2019.

During the three and six months ended June 30, 2018, the company recorded $6 million and $14 million, respectively, of severance and benefit costs related to the voluntary early-out program for its technicians and related employees, and $5 million and $11 million, respectively, of management severance.

MTM gains and losses on financial instruments:  During the three and six months ended June 30, 2019, the company recorded gains of $38 million and $52 million, respectively, for the change in market value of its investment in Azul Linhas Aéreas Brasileiras S.A. ("Azul"). During the three and six months ended June 30, 2019, the company recorded losses of $4 million and $1 million, respectively, for the change in fair value of certain derivative assets related to equity of Avianca Holdings S.A. For equity investments and derivative assets subject to MTM accounting, the company records gains and losses as part of Nonoperating income (expense): Miscellaneous, net in its statements of consolidated operations.

During the three and six months ended June 30, 2018, the company recorded losses of $135 million and $90 million, respectively, for the change in market value of its investment in Azul.

(C)    Interest expense related to finance leases of Embraer ERJ 145 aircraft

During the third quarter of 2018, United entered into an agreement with the lessor of 54 Embraer ERJ 145 aircraft to purchase those aircraft in 2019. The provisions of the new lease agreement resulted in a change in accounting classification of these new leases from operating leases to finance leases up until the purchase date. The company recognized $25 million and $46 million of additional interest expense in the three and six months ended June 30, 2019, respectively, as a result of this change.

(D)    Effective tax rate

The company's effective tax rate for the three and six months ended June 30, 2019 was 22.3% and 21.9%, respectively. The effective tax rate for the three and six months ended June 30, 2018 was 20.1% and 20.2%, respectively. The effective tax rate represents a blend of federal, state and foreign taxes and includes the impact of certain nondeductible items and the impact of a change in the company's mix of domestic and foreign earnings.

SOURCE United Airlines



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