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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
 
 
 
 
 
ualogoa01a19.jpg
 
Commission
File Number
 
Exact Name of Registrant as Specified in its Charter, 
Principal Executive Office Address and Telephone Number
 
State of
Incorporation
 
I.R.S. Employer
Identification No.
 
001-06033
 
United Airlines Holdings, Inc.
 
Delaware
 
36-2675207
 
 
 
233 South Wacker Drive,
Chicago,
Illinois
60606
 
 
 
 
 
 
 
(872)
825-4000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
001-10323
 
United Airlines, Inc.
 
Delaware
 
74-2099724
 
 
 
233 South Wacker Drive,
Chicago,
Illinois
60606
 
 
 
 
 
 
 
(872)
825-4000
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities registered pursuant to Section 12(b) of the Act
Registrant
 
Title of Each Class
 
Trading Symbol
 
Name of Each Exchange on Which Registered
United Airlines Holdings, Inc.
 
Common Stock,
$0.01 par value
 
UAL
 
The Nasdaq Stock Market LLC
United Airlines, Inc.
 
None
 
 
None
 
None
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 Airlines Holdings, Inc.
 
Yes
No
 
United Airlines, Inc.
 
Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 
United Airlines Holdings, Inc.
 
Yes
No
 
United Airlines, Inc.
 
Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
United Airlines Holdings, Inc.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
United Airlines, Inc.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
United Airlines Holdings, Inc.
 
United Airlines, Inc.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
United Airlines Holdings, Inc.
 
Yes    
No
United Airlines, Inc.
  
Yes
No
The number of shares outstanding of each of the issuer's classes of common stock as of April 30, 2020 is shown below:
United Airlines Holdings, Inc.
 
290,432,163

shares of common stock ($0.01 par value)
United Airlines, Inc.
  
1,000

shares of common stock ($0.01 par value) (100% owned by United Airlines Holdings, Inc.)
OMISSION OF CERTAIN INFORMATION
This combined Quarterly Report on Form 10-Q is separately filed by United Airlines Holdings, Inc. and United Airlines, Inc. United Airlines, Inc. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format allowed under that General Instruction.



United Airlines Holdings, Inc.
United Airlines, Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended March 31, 2020

Table of Contents
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

UNITED AIRLINES HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(In millions, except per share amounts)
 
Three Months Ended March 31,
 
2020
 
2019
Operating revenue:
 
 
 
Passenger revenue
$
7,065

 
$
8,725

Cargo
264

 
286

Other operating revenue
650

 
578

Total operating revenue
7,979

 
9,589

 
 
 
 
Operating expense:
 
 
 
Salaries and related costs
2,955

 
2,873

Aircraft fuel
1,726

 
2,023

Regional capacity purchase
737

 
688

Landing fees and other rent
623

 
588

Depreciation and amortization
615

 
547

Aircraft maintenance materials and outside repairs
434

 
408

Distribution expenses
295

 
360

Aircraft rent
50

 
81

Special charges
63

 
18

Other operating expenses
1,453

 
1,508

Total operating expenses
8,951

 
9,094

Operating income (loss)
(972
)
 
495

 
 
 
 
Nonoperating income (expense):
 
 
 
Interest expense
(171
)
 
(188
)
Interest capitalized
21

 
22

Interest income
26

 
29

Unrealized gains (losses) on investments, net
(319
)
 
17

Miscellaneous, net
(699
)
 
(8
)
Total nonoperating expense, net
(1,142
)
 
(128
)
Income (loss) before income taxes
(2,114
)
 
367

Income tax expense (benefit)
(410
)
 
75

Net income (loss)
$
(1,704
)
 
$
292

Earnings (loss) per share, basic and diluted
$
(6.86
)
 
$
1.09




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



3


UNITED AIRLINES HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In millions)

 
Three Months Ended March 31,
 
2020
 
2019
Net income (loss)
$
(1,704
)
 
$
292

 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
Employee benefit plans
(41
)
 
7

Investments and other
(12
)
 
3

Total other comprehensive income (loss), net of tax
(53
)
 
10

 
 
 
 
Total comprehensive income (loss), net
$
(1,757
)
 
$
302




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




4


UNITED AIRLINES HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except shares)
 
 
March 31, 2020
 
December 31, 2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,442

 
$
2,762

Short-term investments
1,779

 
2,182

Receivables, less allowance for credit losses (2020 — $30; 2019 — $9)
792

 
1,364

Aircraft fuel, spare parts and supplies, less obsolescence allowance (2020 — $446; 2019 — $425)
1,070

 
1,072

Prepaid expenses and other
822

 
814

Total current assets
7,905

 
8,194

Operating property and equipment:
 
 
 
Flight equipment
36,763

 
35,421

Other property and equipment
8,200

 
7,926

Purchase deposits for flight equipment
1,859

 
1,360

Total operating property and equipment
46,822

 
44,707

Less — Accumulated depreciation and amortization
(15,011
)
 
(14,537
)
Total operating property and equipment, net
31,811

 
30,170

 
 
 
 
Operating lease right-of-use assets
4,853

 
4,758

 
 
 
 
Other assets:
 
 
 
Goodwill
4,523

 
4,523

Intangibles, less accumulated amortization (2020 — $1,454; 2019 — $1,440)
2,945

 
3,009

Restricted cash
106

 
106

Notes receivable, less allowance for credit losses (2020 — $549)
149

 
671

Investments in affiliates and other, net
763

 
1,180

Total other assets
8,486

 
9,489

Total assets
$
53,055

 
$
52,611

(continued on next page)


















5


UNITED AIRLINES HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except shares)
 
March 31, 2020
 
December 31, 2019
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Advance ticket sales
$
5,309

 
$
4,819

Accounts payable
2,436

 
2,703

Frequent flyer deferred revenue
1,355

 
2,440

Accrued salaries and benefits
1,647

 
2,271

Current maturities of long-term debt
4,055

 
1,407

Current maturities of finance leases
59

 
46

Current maturities of operating leases
688

 
686

Other
538

 
566

Total current liabilities
16,087

 
14,938

 
 
 
 
Long-term debt
13,198

 
13,145

Long-term obligations under finance leases
369

 
220

Long-term obligations under operating leases
5,060

 
4,946

 
 
 
 
Other liabilities and deferred credits:
 
 
 
Frequent flyer deferred revenue
4,133

 
2,836

Postretirement benefit liability
775

 
789

Pension liability
1,514

 
1,446

Deferred income taxes
1,322

 
1,736

Other
1,179

 
1,024

Total other liabilities and deferred credits
8,923

 
7,831

Commitments and contingencies

 

Stockholders' equity:
 
 
 
Preferred stock

 

Common stock at par, $0.01 par value; authorized 1,000,000,000 shares; outstanding 247,256,855 and 251,216,381 shares at March 31, 2020 and December 31, 2019, respectively
3

 
3

Additional capital invested
6,096

 
6,129

Retained earnings
7,991

 
9,716

Stock held in treasury, at cost
(3,901
)
 
(3,599
)
Accumulated other comprehensive loss
(771
)
 
(718
)
Total stockholders' equity
9,418

 
11,531

Total liabilities and stockholders' equity
$
53,055

 
$
52,611



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





6


UNITED AIRLINES HOLDINGS, INC.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In millions)
 
Three Months Ended March 31,
 
2020
 
2019
Cash Flows from Operating Activities:
 
 
 
Net cash provided by operating activities
$
63

 
$
1,915

 
 
 
 
Cash Flows from Investing Activities:
 
 
 
Capital expenditures
(1,959
)
 
(1,609
)
Purchases of short-term and other investments
(541
)
 
(724
)
Proceeds from sale of short-term and other investments
927

 
768

Other, net
1

 
(15
)
Net cash used in investing activities
(1,572
)
 
(1,580
)
 
 
 
 
Cash Flows from Financing Activities:
 
 
 
Proceeds from issuance of short-term debt
2,500

 

Proceeds from issuance of long-term debt
348

 
646

Payments of long-term debt
(235
)
 
(250
)
Repurchases of common stock
(353
)
 
(513
)
Principal payments under finance leases
(18
)
 
(20
)
Capitalized financing costs
(35
)
 
(17
)
Other, net
(18
)
 
(29
)
Net cash provided (used) in financing activities
2,189

 
(183
)
Net increase in cash, cash equivalents and restricted cash
680

 
152

Cash, cash equivalents and restricted cash at beginning of the period
2,868

 
1,799

Cash, cash equivalents and restricted cash at end of the period (a)
$
3,548

 
$
1,951

 
 
 
 
Investing and Financing Activities Not Affecting Cash:
 
 
 
Property and equipment acquired through the issuance of debt
$
109

 
$
92

Lease modifications and lease conversions
439

 
36

Right-of-use assets acquired through operating leases
30

 
51

Property and equipment acquired through finance leases
19

 
8



(a) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheet:
Cash and cash equivalents
$
3,442

 
$
1,848

Restricted cash
106

 
103

Total cash, cash equivalents and restricted cash
$
3,548

 
$
1,951



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

7


UNITED AIRLINES HOLDINGS, INC.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (UNAUDITED)
(In millions)
 
Common
Stock
 
Additional
Capital Invested
 
Treasury Stock
 
Retained Earnings
 
Accumulated
Other Comprehensive Income (Loss)
 
Total
 
Shares
 
Amount
 
 
 
 
 
Balance at December 31, 2019
251.2

 
$
3

 
$
6,129

 
$
(3,599
)
 
$
9,716

 
$
(718
)
 
$
11,531

Net loss

 

 

 

 
(1,704
)
 

 
(1,704
)
Other comprehensive loss

 

 

 

 

 
(53
)
 
(53
)
Stock settled share-based compensation

 

 
22

 

 

 

 
22

Repurchases of common stock
(4.4
)
 

 

 
(342
)
 

 

 
(342
)
Net treasury stock issued for share-based awards
0.5

 

 
(55
)
 
40

 
(4
)
 

 
(19
)
Adoption of new accounting standard (a)

 

 

 

 
(17
)
 

 
(17
)
Balance at March 31, 2020
247.3

 
$
3

 
$
6,096

 
$
(3,901
)
 
$
7,991

 
$
(771
)
 
$
9,418

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
269.9

 
$
3

 
$
6,120

 
$
(1,993
)
 
$
6,715

 
$
(803
)
 
$
10,042

Net income

 

 

 

 
292

 

 
292

Other comprehensive income

 

 

 

 

 
10

 
10

Stock settled share-based compensation

 

 
14

 

 

 

 
14

Repurchases of common stock
(6.1
)
 

 

 
(527
)
 

 

 
(527
)
Net treasury stock issued for share-based awards
0.5

 

 
(54
)
 
33

 
(8
)
 

 
(29
)
Balance at March 31, 2019
264.3

 
$
3

 
$
6,080

 
$
(2,487
)
 
$
6,999

 
$
(793
)
 
$
9,802


(a) Transition adjustment due to the adoption of Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses. See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.

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

8



UNITED AIRLINES, INC.
STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(In millions)
 
Three Months Ended March 31,
 
2020
 
2019
Operating revenue:
 
 
 
Passenger revenue
$
7,065

 
$
8,725

Cargo
264

 
286

Other operating revenue
650

 
578

Total operating revenue
7,979

 
9,589

 
 
 
 
Operating expense:
 
 
 
Salaries and related costs
2,955

 
2,873

Aircraft fuel
1,726

 
2,023

Regional capacity purchase
737

 
688

Landing fees and other rent
623

 
588

Depreciation and amortization
615

 
547

Aircraft maintenance materials and outside repairs
434

 
408

Distribution expenses
295

 
360

Aircraft rent
50

 
81

Special charges
63

 
18

Other operating expenses
1,453

 
1,507

Total operating expense
8,951

 
9,093

Operating income (loss)
(972
)
 
496

 
 
 
 
Nonoperating income (expense):
 
 
 
Interest expense
(171
)
 
(188
)
Interest capitalized
21

 
22

Interest income
26

 
29

Unrealized gains (losses) on investments, net
(319
)
 
17

Miscellaneous, net
(698
)
 
(8
)
Total nonoperating expense, net
(1,141
)
 
(128
)
Income (loss) before income taxes
(2,113
)
 
368

Income tax expense (benefit)
(409
)
 
75

Net income (loss)
$
(1,704
)
 
$
293


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




9


UNITED AIRLINES, INC.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In millions)

 
Three Months Ended March 31,
 
2020
 
2019
Net income (loss)
$
(1,704
)
 
$
293

 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
Employee benefit plans
(41
)
 
7

Investments and other
(12
)
 
3

Total other comprehensive income (loss), net of tax
(53
)
 
10

 
 
 
 
Total comprehensive income (loss), net
$
(1,757
)
 
$
303


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


10


UNITED AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except shares)
 
 
March 31, 2020
 
December 31, 2019
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
3,436

 
$
2,756

Short-term investments
1,779

 
2,182

Receivables, less allowance for credit losses (2020 — $30; 2019 — $9)
792

 
1,364

Aircraft fuel, spare parts and supplies, less obsolescence allowance (2020 — $446; 2019 — $425)
1,070

 
1,072

Prepaid expenses and other
822

 
814

Total current assets
7,899

 
8,188

Operating property and equipment:
 
 
 
Flight equipment
36,763

 
35,421

Other property and equipment
8,200

 
7,926

Purchase deposits for flight equipment
1,859

 
1,360

Total operating property and equipment
46,822

 
44,707

Less — Accumulated depreciation and amortization
(15,011
)
 
(14,537
)
Total operating property and equipment, net
31,811

 
30,170

 
 
 
 
Operating lease right-of-use assets
4,853

 
4,758

 
 
 
 
Other assets:
 
 
 
Goodwill
4,523

 
4,523

Intangibles, less accumulated amortization (2020 — $1,454; 2019 — $1,440)
2,945

 
3,009

Restricted cash
106

 
106

Notes receivable, less allowance for credit losses (2020 — $549)
149

 
671

Investments in affiliates and other, net
763

 
1,180

Total other assets
8,486

 
9,489

Total assets
$
53,049

 
$
52,605


(continued on next page)


11


UNITED AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In millions, except shares)
 
 
March 31, 2020
 
December 31, 2019
LIABILITIES AND STOCKHOLDER'S EQUITY
 
 
 
Current liabilities:
 
 
 
Advance ticket sales
$
5,309

 
$
4,819

Accounts payable
2,436

 
2,703

Frequent flyer deferred revenue
1,355

 
2,440

Accrued salaries and benefits
1,647

 
2,271

Current maturities of long-term debt
4,055

 
1,407

Current maturities of finance leases
59

 
46

Current maturities of operating leases
688

 
686

Other
542

 
571

Total current liabilities
16,091

 
14,943

 
 
 
 
Long-term debt
13,198

 
13,145

Long-term obligations under finance leases
369

 
220

Long-term obligations under operating leases
5,060

 
4,946

 
 
 
 
Other liabilities and deferred credits:
 
 
 
Frequent flyer deferred revenue
4,133

 
2,836

Postretirement benefit liability
775

 
789

Pension liability
1,514

 
1,446

Deferred income taxes
1,350

 
1,763

Other
1,179

 
1,025

Total other liabilities and deferred credits
8,951

 
7,859

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 March 31, 2020 and December 31, 2019

 

Additional capital invested
10

 

Retained earnings
10,302

 
12,353

Accumulated other comprehensive loss
(771
)
 
(718
)
Receivable from related parties
(161
)
 
(143
)
Total stockholder's equity
9,380

 
11,492

Total liabilities and stockholder's equity
$
53,049

 
$
52,605



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






12


UNITED AIRLINES, INC.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In millions)
 
Three Months Ended March 31,
 
2020
 
2019
 
 
 
 
Cash Flows from Operating Activities:
 
 
 
Net cash provided by operating activities
$
45

 
$
1,886

 
 
 
 
Cash Flows from Investing Activities:
 
 
 
Capital expenditures
(1,959
)
 
(1,609
)
Purchases of short-term investments and other investments
(541
)
 
(724
)
Proceeds from sale of short-term and other investments
927

 
768

Other, net
1

 
(15
)
Net cash used in investing activities
(1,572
)
 
(1,580
)
 
 
 
 
Cash Flows from Financing Activities:
 
 
 
Proceeds from issuance of short-term debt
2,500

 

Proceeds from issuance of long-term debt
348

 
646

Payments of long-term debt
(235
)
 
(250
)
Dividend to UAL
(353
)
 
(513
)
Principal payments under finance leases
(18
)
 
(20
)
Capitalized financing costs
(35
)
 
(17
)
Net cash provided (used) in financing activities
2,207

 
(154
)
Net increase in cash, cash equivalents and restricted cash
680

 
152

Cash, cash equivalents and restricted cash at beginning of the period
2,862

 
1,793

Cash, cash equivalents and restricted cash at end of the period (a)
$
3,542

 
$
1,945

 
 
 
 
Investing and Financing Activities Not Affecting Cash:
 
 
 
Property and equipment acquired through the issuance of debt
$
109

 
$
92

Lease modifications and lease conversions
439

 
36

Right-of-use assets acquired through operating leases
30

 
51

Property and equipment acquired through finance leases
19

 
8



(a) The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts reported within the consolidated balance sheet:
Cash and cash equivalents
$
3,436

 
$
1,842

Restricted cash
106

 
103

Total cash, cash equivalents and restricted cash
$
3,542

 
$
1,945



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

13


UNITED AIRLINES, INC.
STATEMENTS OF CONSOLIDATED STOCKHOLDER'S EQUITY (UNAUDITED)
(In millions)
 
 
Additional
Capital Invested
 
Retained Earnings
 
Accumulated
Other Comprehensive Income (Loss)
 
Receivable from Related Parties, Net
 
Total
 
 
Balance at December 31, 2019
$

 
$
12,353

 
$
(718
)
 
$
(143
)
 
$
11,492

 
Net loss

 
(1,704
)
 

 

 
(1,704
)
 
Other comprehensive loss

 

 
(53
)
 

 
(53
)
 
Dividend to UAL
(12
)
 
(330
)
 

 

 
(342
)
 
Share-based compensation
22

 

 

 

 
22

 
Adoption of new accounting standard (a)

 
(17
)
 

 

 
(17
)
 
Other

 

 

 
(18
)
 
(18
)
 
Balance at March 31, 2020
$
10

 
$
10,302

 
$
(771
)
 
$
(161
)
 
$
9,380

 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
598

 
$
10,319

 
$
(803
)
 
$
(110
)
 
$
10,004

 
Net income

 
293

 

 

 
293

 
Other comprehensive income

 

 
10

 

 
10

 
Dividend to UAL
(528
)
 

 

 

 
(528
)
 
Share-based compensation
14

 

 

 

 
14

 
Other

 

 

 
(30
)
 
(30
)
 
Balance at March 31, 2019
$
84

 
$
10,612

 
$
(793
)
 
$
(140
)
 
$
9,763


(a) Transition adjustment due to the adoption of Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses. See Note 1 to the financial statements contained in Part I, Item 1 of this report for additional information.


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

14


UNITED AIRLINES HOLDINGS, INC. AND UNITED AIRLINES, INC.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
United Airlines Holdings, Inc. (together with its consolidated subsidiaries, "UAL" or the "Company") is a holding company and its principal, wholly-owned subsidiary is United Airlines, Inc. (together with its consolidated subsidiaries, "United"). This Quarterly Report on Form 10-Q is a combined report of UAL and United, including their respective consolidated financial statements. As UAL consolidates United for financial statement purposes, disclosures that relate to activities of United also apply to UAL, unless otherwise noted. United's operating revenues and operating expenses comprise nearly 100% of UAL's revenues and operating expenses. In addition, United comprises approximately the entire balance of UAL's assets, liabilities and operating cash flows. When appropriate, UAL and United are named specifically for their individual contractual obligations and related disclosures and any significant differences between the operations and results of UAL and United are separately disclosed and explained. We sometimes use the words "we," "our," "us," and the "Company" in this report for disclosures that relate to all of UAL and United.
The UAL and United 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. The UAL and United financial statements should be read together with the information included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the "2019 Form 10-K"). The Company's quarterly financial data is subject to seasonal fluctuations. Historically its second and third quarter financial results have reflected higher travel demand, and were better than its first and fourth quarter financial results; however, see Part I, Item 2 of this report for additional discussion regarding trends associated with the matters discussed in the "Recent Developments" section below.
Recent Developments
In December 2019, a novel strain of coronavirus ("COVID-19") was reported in Wuhan, China, and the World Health Organization (the "WHO") subsequently declared COVID-19 a "Public Health Emergency of International Concern." As a result of COVID-19, the U.S. Department of State issued a Level 4 "do not travel" advisory for China and subsequently issued multiple Level 3 "reconsider travel" advisories for other jurisdictions, including Italy and South Korea.
On March 11, 2020, the WHO declared COVID-19 a "pandemic" and the U.S. Department of State issued a global Level 3 "reconsider travel" advisory for all travel abroad. On March 13, 2020, the U.S. government declared a national emergency. On March 19, 2020, the U.S. Department of State issued a global Level 4 "do not travel" advisory advising U.S. citizens to avoid all international travel due to the global impact of COVID-19. The U.S. government has also implemented enhanced screenings, mandatory 14-day quarantine requirements and other travel restrictions in connection with the COVID-19 pandemic, including restrictions on travel from Europe, Mexico and Canada, and many foreign and U.S. state governments have instituted similar measures (including travel restrictions to and within the European Union) and declared states of emergency.
As of April 15, 2020, approximately 316 million people in at least 42 states, the District of Columbia and Puerto Rico were under instructions to stay home or "shelter in place," and to avoid any non-essential travel. In the United States and other locations around the world, public events, such as conferences, sporting events and concerts, have been canceled, attractions, including theme parks and museums, have been closed, cruise lines have suspended operations and schools and businesses are operating with remote attendance, among other actions. Other governmental restrictions and regulations in the future in response to COVID-19 could include additional travel restrictions (including restrictions on domestic air travel within the United States), quarantines of additional populations (including our personnel), restrictions on our ability to access our facilities or aircraft or requirements to collect additional passenger data. In addition, governments, non-governmental organizations and entities in the private sector have issued and may continue to issue non-binding advisories or recommendations regarding air travel or other social distancing measures, including limitations on the number of persons that should be present at public gatherings.
The Company began experiencing a significant decline in international and domestic demand related to COVID-19 during the first quarter of 2020, and this reduction in demand has continued through the date of this report. The decline in demand caused a material deterioration in our revenues in the first quarter, resulting in a first quarter net loss of $1.7 billion. The full extent of the ongoing impact of COVID-19 on the Company's longer-term operational and financial performance will depend on future developments, many of which are outside of our control, and all of which are highly uncertain and cannot be predicted; however, the Company currently expects our results of operations for full-year 2020 to be materially impacted and that we will

15


incur a net loss for full-year 2020. For planning purposes, the Company has assumed that demand will remain suppressed for the remainder of 2020 and likely into 2021.
In response to decreased demand, the Company cut, relative to 2019 scheduled capacity, approximately 80% of its scheduled capacity for April 2020 and approximately 90% of its scheduled capacity for May 2020, with similar cuts expected for June 2020. The Company plans to proactively evaluate and cancel flights on a rolling 60-day basis until it sees signs of a recovery in demand.
The Company has taken a number of actions in response to decreased demand. In addition to the schedule reductions discussed above, the Company has:
reduced its planned capital expenditures and reduced operating expenditures for the remainder of 2020 (including by postponing projects deemed non-critical to the Company's operations);
suspended share repurchases under its share repurchase program on February 24, 2020 and subsequently terminated its share repurchase program on April 24, 2020;
entered into approximately $3.0 billion in secured term loan facilities and new aircraft financings;
raised approximately $1.1 billion in cash proceeds in an underwritten public offering of 43,175,000 shares of UAL common stock;
entered into an agreement to finance certain aircraft currently subject to purchase agreements through a sale and leaseback transaction;
temporarily grounded certain of its mainline fleet; and
taken a number of human capital management actions, including, among other items, the Company's Chief Executive Officer and President temporarily waived 100% of their respective base salaries, other officers temporarily waived 50% of their base salaries, the Company's non-employee directors waived 100% of their cash compensation for the second and third quarters of 2020, the Company suspended merit salary increases for management and administrative employees and the Company offered voluntary unpaid leaves of absence.
The Company continues to focus on reducing expenses and managing its liquidity. We expect to continue to modify our cost management structure, liquidity-raising efforts and capacity as the timing of demand recovery becomes more certain.
On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). The CARES Act is intended to respond to the COVID-19 pandemic and its impact on the economy, public health, state and local governments, individuals, and businesses. The CARES Act also provides supplemental appropriations for federal agencies to respond to the COVID-19 pandemic.
On April 20, 2020, United entered into a Payroll Support Program Agreement (the "PSP Agreement") with the U.S. Treasury Department providing the Company with total funding of approximately $5.0 billion pursuant to the Payroll Support Program under the CARES Act. These funds will be used to pay for the salaries and benefits of United employees. Approximately $3.5 billion of the $5.0 billion will be a direct grant and approximately $1.5 billion will be in the form of a 10-year senior unsecured promissory note (the "PSP Note").
Under the PSP Agreement, the Company and its business are subject to certain restrictions, including, but not limited to, restrictions on the payment of dividends and the ability to repurchase UAL's equity securities, requirements to maintain certain levels of scheduled service, requirements to maintain U.S. employment levels through September 30, 2020 and certain limitations on executive compensation.
In connection with entering into the PSP Agreement, on April 20, 2020, UAL issued the PSP Note to the U.S. Treasury Department evidencing senior unsecured indebtedness of UAL in the initial principal amount of approximately $714.0 million. The principal amount of the PSP Note will increase in an amount equal to 30% of any disbursement made by the U.S. Treasury Department to United under the PSP Agreement after the initial issuance date. The PSP Note is guaranteed by United and will mature ten years after issuance on April 20, 2030. If any subsidiary of UAL (other than United) guarantees other unsecured indebtedness of UAL with a principal balance in excess of a specified amount, or if certain subsidiaries are formed or acquired, then such subsidiary shall be required to guarantee the obligations of UAL under the PSP Note. UAL may, at its option, prepay the PSP Note, at any time, and from time to time, at par. UAL is required to prepay the PSP Note upon the occurrence of certain change of control triggering events. The PSP Note does not require any amortization and is to be repaid in full on the maturity date.
Interest on the PSP Note is payable semi-annually in arrears on the last business day of March and September of each year beginning on September 30, 2020 at a rate of 1.00% in years one through five, and at the Secured Overnight Financing Rate (SOFR) plus 2.00% in years six through ten.

16


On April 20, 2020, UAL also entered into a warrant agreement with the U.S. Treasury Department, pursuant to which UAL agreed to issue to the U.S. Treasury Department warrants to purchase up to approximately 4.6 million shares of common stock, pro rata in conjunction with increases to the principal amount outstanding under the PSP Note (the "PSP Warrants"), with an initial issuance of warrants to purchase up to approximately 2.3 million shares of common stock. The PSP Warrants will have a strike price of $31.50 per share (which was the closing price of UAL's common stock on The Nasdaq Stock Market on April 9, 2020). The PSP Warrants will expire five years after issuance, and are exercisable either through net share settlement, in cash or in shares of common stock, at UAL's option. The PSP Warrants contain customary anti-dilution provisions and registration rights and are freely transferable. Pursuant to the terms of the PSP Warrants, PSP Warrant holders do not have any voting rights.
On April 21, 2020, the Company received approximately $2.5 billion of the expected $5.0 billion through the Payroll Support Program under the CARES Act.
On April 17, 2020, the Company submitted an application to the Loan Program under the CARES Act. Under the Loan Program, the Company expects to have the ability, through September 30, 2020, to borrow up to approximately $4.5 billion from the U.S. Treasury Department for a term of up to five years. Any loans issued under the Loan Program are expected to be senior secured obligations of the Company, with collateral to be determined. If the Company borrows any amounts under the Loan Program, UAL expects to issue to the U.S. Treasury Department warrants to purchase shares of UAL common stock. For example, if the Company borrows the full amount currently available of $4.5 billion, the Company would issue warrants to purchase approximately 14.2 million shares of UAL common stock at a strike price of $31.50 per share (which was the closing price of UAL's common stock on The Nasdaq Stock Market on April 9, 2020), on the same terms as the PSP Warrants. If the Company borrows less than the full amount, the amount of warrants issued would be reduced by a proportional amount.
In connection with any borrowings under the Loan Program, the Company and its business will be subject to certain restrictions, including, but not limited to, certain of the restrictions described above with respect to the PSP Agreement.
NOTE 1 - RECENTLY ISSUED ACCOUNTING STANDARDS
The Company adopted Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses ("ASU 2016-13") effective January 1, 2020. ASU 2016-13 replaces the incurred loss methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reaso