Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

| --- | --- |

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of

United Continental Holdings, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of United Continental Holdings, Inc. (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), cash flows, and stockholders’ equity for each of the three years in the period ended December 31, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 22, 2018, expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2009.

Chicago, Illinois

February 22, 2018

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholder and the Board of Directors of

United Airlines, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of United Airlines, Inc. (the “Company”) as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income (loss), cash flows, and stockholder’s equity, for each of the three years in the period ended December 31, 2017, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform an audit of the Company’s internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2009.

Chicago, Illinois

February 22, 2018

Table of Contents

UNITED CONTINENTAL HOLDINGS, INC.

STATEMENTS OF CONSOLIDATED OPERATIONS

(In millions, except per share amounts)

		Year Ended December 31,
		2017				2016				2015
Operating revenue:
Passenger—Mainline		$	26,552			$	25,414			$	26,333
Passenger—Regional			5,852				6,043				6,452
Total passenger revenue			32,404				31,457				32,785
Cargo			1,035				876				937
Other operating revenue			4,297				4,223				4,142
Total operating revenue			37,736				36,556				37,864
Operating expense:
Salaries and related costs			11,045				10,275				9,713
Aircraft fuel			6,913				5,813				7,522
Landing fees and other rent			2,240				2,165				2,203
Regional capacity purchase			2,232				2,197				2,290
Depreciation and amortization			2,149				1,977				1,819
Aircraft maintenance materials and outside repairs			1,856				1,749				1,651
Distribution expenses			1,349				1,303				1,342
Aircraft rent			621				680				754
Special charges (Note 14)			176				638				326
Other operating expenses			5,657				5,421				5,078
Total operating expenses			34,238				32,218				32,698
Operating income			3,498				4,338				5,166
Nonoperating income (expense):
Interest expense			(643)				(614)				(669)
Interest capitalized			84				72				49
Interest income			57				42				25
Miscellaneous, net (Note 14)			3				(19)				(352)
Total nonoperating expense, net			(499)				(519)				(947)
Income before income taxes			2,999				3,819				4,219
Income tax expense (benefit) (Note 14)			868				1,556				(3,121)
Net income		$	2,131			$	2,263			$	7,340
Earnings per share, basic		$	7.04			$	6.86			$	19.52
Earnings per share, diluted		$	7.02			$	6.85			$	19.47

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

Table of Contents

UNITED CONTINENTAL HOLDINGS, INC.

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)

(In millions)

		Year Ended December 31,
		2017				2016				2015
Net income		$	2,131			$	2,263			$	7,340
Other comprehensive income (loss), net change related to:
Employee benefit plans, net of taxes			(195)				(313)				70
Fuel derivative financial instruments, net of taxes			1				316				182
Investments and other, net of taxes			(6)				(1)				(4)
Total other comprehensive income (loss), net			(200)				2				248
Total comprehensive income, net		$	1,931			$	2,265			$	7,588

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

Table of Contents

(continued on next page)

UNITED CONTINENTAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares)

		At December 31,
ASSETS		2017				2016
Current assets:
Cash and cash equivalents		$	1,482			$	2,179
Short-term investments			2,316				2,249
Receivables, less allowance for doubtful accounts (2017—$7; 2016—$10)			1,340				1,176
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2017—$354; 2016—$295)			924				873
Prepaid expenses and other			1,051				832
Total current assets			7,113				7,309
Operating property and equipment:
Owned—
Flight equipment			28,692				25,873
Other property and equipment			6,946				5,652
Total owned property and equipment			35,638				31,525
Less—Accumulated depreciation and amortization			(11,159)				(9,975)
Total owned property and equipment, net			24,479				21,550
Purchase deposits for flight equipment			1,344				1,059
Capital leases—
Flight equipment			1,151				1,319
Other property and equipment			11				331
Total capital leases			1,162				1,650
Less—Accumulated amortization			(777)				(941)
Total capital leases, net			385				709
Total operating property and equipment, net			26,208				23,318
Other assets:
Goodwill			4,523				4,523
Intangibles, less accumulated amortization (2017—$1,313; 2016—$1,234)			3,539				3,632
Deferred income taxes			—				655
Restricted cash			91				124
Investments in affiliates and other, net			852				579
Total other assets			9,005				9,513
Total assets		$	42,326			$	40,140

Table of Contents

UNITED CONTINENTAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares)

		At December 31,
LIABILITIES AND STOCKHOLDERS’ EQUITY		2017				2016
Current liabilities:
Advance ticket sales		$	3,876			$	3,730
Frequent flyer deferred revenue			2,176				2,135
Accounts payable			2,196				2,139
Accrued salaries and benefits			2,166				2,307
Current maturities of long-term debt			1,565				849
Current maturities of capital leases			128				116
Other			569				1,010
Total current liabilities			12,676				12,286
Long-term debt			11,703				9,918
Long-term obligations under capital leases			996				822
Other liabilities and deferred credits:
Frequent flyer deferred revenue			2,565				2,748
Postretirement benefit liability			1,602				1,581
Pension liability			1,921				1,892
Advanced purchase of miles			—				430
Deferred income taxes			225				—
Lease fair value adjustment, net			198				277
Other			1,634				1,527
Total other liabilities and deferred credits			8,145				8,455
Commitments and contingencies
Stockholders’ equity:
Preferred stock			—				—
Common stock at par, $0.01 par value; authorized 1,000,000,000 shares; outstanding 286,973,195 and 314,612,744 shares at December 31, 2017 and 2016, respectively			3				3
Additional capital invested			6,098				6,569
Retained earnings			4,621				3,427
Stock held in treasury, at cost			(769)				(511)
Accumulated other comprehensive loss			(1,147)				(829)
Total stockholders’ equity			8,806				8,659
Total liabilities and stockholders’ equity		$	42,326			$	40,140

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

Table of Contents

UNITED CONTINENTAL HOLDINGS, INC.

STATEMENTS OF CONSOLIDATED CASH FLOWS

(In millions)

		Year Ended December 31,
		2017				2016				2015
Operating Activities:
Net income		$	2,131			$	2,263			$	7,340
Adjustments to reconcile net income to net cash provided by operating activities -
Deferred income taxes			945				1,648				(3,177)
Depreciation and amortization			2,149				1,977				1,819
Special charges, non-cash portion			35				391				247
Other operating activities			142				109				115
Changes in operating assets and liabilities -
Decrease in fuel hedge collateral			—				26				551
Decrease in fuel derivatives			—				(20)				(305)
Decrease in other liabilities			(478)				(446)				(180)
Decrease in advanced purchase of miles			(865)				(249)				(224)
Increase (decrease) in frequent flyer deferred revenue			(142)				(60)				6
Increase in other assets			(533)				(298)				(160)
Increase (decrease) in accounts payable			66				239				(77)
Increase (decrease) in advance ticket sales			146				(22)				52
Increase in receivables			(183)				(16)				(15)
Net cash provided by operating activities			3,413				5,542				5,992
Investing Activities:
Capital expenditures			(3,998)				(3,223)				(2,747)
Purchases of short-term and other investments			(3,241)				(2,768)				(2,517)
Proceeds from sale of short-term and other investments			3,177				2,712				2,707
Proceeds from sale of property and equipment			12				28				86
Other, net			120				13				(136)
Net cash used in investing activities			(3,930)				(3,238)				(2,607)
Financing Activities:
Proceeds from issuance of long-term debt and airport construction financing			2,765				808				1,073
Repurchases of common stock			(1,844)				(2,614)				(1,233)
Payments of long-term debt			(901)				(1,215)				(2,178)
Principal payments under capital leases			(124)				(136)				(123)
Capitalized financing costs			(80)				(64)				(37)
Proceeds from the exercise of stock options			2				6				16
Other, net			(13)				2				(13)
Net cash used in financing activities			(195)				(3,213)				(2,495)
Net increase (decrease) in cash, cash equivalents and restricted cash			(712)				(909)				890
Cash, cash equivalents and restricted cash at beginning of year			2,303				3,212				2,322
Cash, cash equivalents and restricted cash at end of year		$	1,591			$	2,303			$	3,212
Investing and Financing Activities Not Affecting Cash:
Property and equipment acquired through the issuance of debt and capital leases		$	935			$	386			$	866
Equity interest in Republic Airways Holdings, Inc. received in consideration for bankruptcy claims			92				—				—
Airport construction financing			42				91				17
Operating lease conversions to capital lease			—				12				285
Exchange of convertible notes for common stock			—				—				202
Cash Paid During the Period for:
Interest		$	571			$	584			$	660
Income taxes			20				14				15

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

Table of Contents

UNITED CONTINENTAL HOLDINGS, INC.

STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY

(In millions)

		Common Stock								Additional Capital Invested				Treasury Stock				Retained Earnings (Accumulated Deficit)				Accumulated Other Comprehensive Income (Loss)				Total
		Shares				Amount
Balance at December 31, 2014			375			$	4			$	7,721			$	(367)			$	(3,883)			$	(1,079)			$	2,396
Net income			—				—				—				—				7,340				—				7,340
Other comprehensive income			—				—				—				—				—				248				248
Convertible debt redemptions			11				—				202				—				—				—				202
Share-based compensation			—				—				7				—				—				—				7
Proceeds from exercise of stock options			—				—				16				—				—				—				16
Repurchases of common stock			(21)				—				—				(1,232)				—				—				(1,232)
Other			—				—				—				(11)				—				—				(11)
Balance at December 31, 2015			365				4				7,946				(1,610)				3,457				(831)				8,966
Net income			—				—				—				—				2,263				—				2,263
Other comprehensive income			—				—				—				—				—				2				2
Share-based compensation			—				—				32				—				—				—				32
Proceeds from exercise of stock options			—				—				6				—				—				—				6
Repurchases of common stock			(50)				—				—				(2,607)				—				—				(2,607)
Treasury stock retired			—				(1)				(1,415)				3,709				(2,293)				—				—
Other			—				—				—				(3)				—				—				(3)
Balance at December 31, 2016			315				3				6,569				(511)				3,427				(829)				8,659
Net income			—				—				—				—				2,131				—				2,131
Other comprehensive loss			—				—				—				—				—				(200)				(200)
Share-based compensation			—				—				56				—				—				—				56
Proceeds from exercise of stock options			—				—				2				—				—				—				2
Repurchases of common stock			(28)				—				—				(1,844)				—				—				(1,844)
Treasury stock retired			—				—				(508)				1,576				(1,068)				—				—
Net treasury stock issued for share-based awards			—				—				(21)				10				(1)				—				(12)
Excess tax benefits from share-based awards			—				—				—				—				14				—				14
Reclassification of stranded tax effects (Note 1)			—				—				—				—				118				(118)				—
Balance at December 31, 2017			287			$	3			$	6,098			$	(769)			$	4,621			$	(1,147)			$	8,806

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

Table of Contents

UNITED AIRLINES, INC.

STATEMENTS OF CONSOLIDATED OPERATIONS

(In millions)

		Year Ended December 31,
		2017				2016				2015
Operating revenue:
Passenger—Mainline		$	26,552			$	25,414			$	26,333
Passenger—Regional			5,852				6,043				6,452
Total passenger revenue			32,404				31,457				32,785
Cargo			1,035				876				937
Other operating revenue			4,297				4,223				4,142
Total operating revenue			37,736				36,556				37,864
Operating expense:
Salaries and related costs			11,045				10,275				9,713
Aircraft fuel			6,913				5,813				7,522
Landing fees and other rent			2,240				2,165				2,203
Regional capacity purchase			2,232				2,197				2,290
Depreciation and amortization			2,149				1,977				1,819
Aircraft maintenance materials and outside repairs			1,856				1,749				1,651
Distribution expenses			1,349				1,303				1,342
Aircraft rent			621				680				754
Special charges (Note 14)			176				638				326
Other operating expenses			5,655				5,418				5,076
Total operating expenses			34,236				32,215				32,696
Operating income			3,500				4,341				5,168
Nonoperating income (expense):
Interest expense			(643)				(614)				(670)
Interest capitalized			84				72				49
Interest income			57				42				25
Miscellaneous, net (Note 14)			3				(19)				(351)
Total nonoperating expense, net			(499)				(519)				(947)
Income before income taxes			3,001				3,822				4,221
Income tax expense (benefit) (Note 14)			852				1,558				(3,080)
Net income		$	2,149			$	2,264			$	7,301

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

Table of Contents

UNITED AIRLINES, INC.

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)

(In millions)

		Year Ended December 31,
		2017				2016				2015
Net income		$	2,149			$	2,264			$	7,301
Other comprehensive income (loss), net change related to:
Employee benefit plans, net of taxes			(195)				(313)				70
Fuel derivative financial instruments, net of taxes			1				316				182
Investments and other, net of taxes			(6)				(1)				(4)
Total other comprehensive income (loss), net			(200)				2				248
Total comprehensive income, net		$	1,949			$	2,266			$	7,549

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

Table of Contents

UNITED AIRLINES, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares)

		At December 31,
ASSETS		2017				2016
Current assets:
Cash and cash equivalents		$	1,476			$	2,173
Short-term investments			2,316				2,249
Receivables, less allowance for doubtful accounts (2017—$7; 2016—$10)			1,340				1,176
Aircraft fuel, spare parts and supplies, less obsolescence allowance (2017—$354; 2016—$295)			924				873
Prepaid expenses and other			1,051				832
Total current assets			7,107				7,303
Operating property and equipment:
Owned—
Flight equipment			28,692				25,873
Other property and equipment			6,946				5,652
Total owned property and equipment			35,638				31,525
Less—Accumulated depreciation and amortization			(11,159)				(9,975)
Total owned property and equipment, net			24,479				21,550
Purchase deposits for flight equipment			1,344				1,059
Capital leases—
Flight equipment			1,151				1,319
Other property and equipment			11				331
Total capital leases			1,162				1,650
Less—Accumulated amortization			(777)				(941)
Total capital leases, net			385				709
Total operating property and equipment, net			26,208				23,318
Other assets:
Goodwill			4,523				4,523
Intangibles, less accumulated amortization (2017—$1,313; 2016—$1,234)			3,539				3,632
Deferred income taxes			—				612
Restricted cash			91				124
Investments in affiliates and other, net			852				579
Total other assets			9,005				9,470
Total assets		$	42,320			$	40,091

(continued on next page)

Table of Contents

UNITED AIRLINES, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except shares)

		At December 31,
LIABILITIES AND STOCKHOLDER’S EQUITY		2017				2016
Current liabilities:
Advance ticket sales		$	3,876			$	3,730
Frequent flyer deferred revenue			2,176				2,135
Accounts payable			2,196				2,144
Accrued salaries and benefits			2,166				2,307
Current maturities of long-term debt			1,565				849
Current maturities of capital leases			128				116
Other			574				1,009
Total current liabilities			12,681				12,290
Long-term debt			11,703				9,918
Long-term obligations under capital leases			996				822
Other liabilities and deferred credits:
Frequent flyer deferred revenue			2,565				2,748
Postretirement benefit liability			1,602				1,581
Pension liability			1,921				1,892
Advanced purchase of miles			—				430
Deferred income taxes			252				—
Lease fair value adjustment, net			198				277
Other			1,634				1,527
Total other liabilities and deferred credits			8,172				8,455
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 December 31, 2017 and 2016			—				—
Additional capital invested			1,787				3,573
Retained earnings			8,218				5,937
Accumulated other comprehensive loss			(1,147)				(829)
Receivable from related parties			(90)				(75)
Total stockholder’s equity			8,768				8,606
Total liabilities and stockholder’s equity		$	42,320			$	40,091

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

Table of Contents

UNITED AIRLINES, INC.

STATEMENTS OF CONSOLIDATED CASH FLOWS

(In millions)

		Year Ended December 31,
		2017				2016				2015
Operating Activities:
Net income		$	2,149			$	2,264			$	7,301
Adjustments to reconcile net income to net cash provided by operating activities -
Deferred income taxes			929				1,650				(3,136)
Depreciation and amortization			2,149				1,977				1,819
Special charges, non-cash portion			35				391				247
Other operating activities			142				108				115
Changes in operating assets and liabilities -
Decrease in fuel hedge collateral			—				26				551
Decrease in fuel derivatives			—				(20)				(305)
Decrease in other liabilities			(479)				(444)				(181)
Decrease in advanced purchase of miles			(865)				(249)				(224)
Increase (decrease) in frequent flyer deferred revenue			(142)				(60)				6
Increase in other assets			(533)				(251)				(160)
Increase (decrease) in accounts payable			66				239				(77)
Increase (decrease) in advance ticket sales			146				(22)				52
Increase in receivables			(183)				(16)				(15)
Increase in intercompany receivables			(15)				(58)				(12)
Net cash provided by operating activities			3,399				5,535				5,981
Investing Activities:
Capital expenditures			(3,998)				(3,223)				(2,747)
Purchases of short-term and other investments			(3,241)				(2,768)				(2,517)
Proceeds from sale of short-term and other investments			3,177				2,712				2,707
Proceeds from sale of property and equipment			12				28				86
Other, net			120				13				(136)
Net cash used in investing activities			(3,930)				(3,238)				(2,607)
Financing Activities:
Dividend to UAL			(1,844)				(2,614)				(1,233)
Payments of long-term debt			(901)				(1,215)				(2,178)
Proceeds from issuance of long-term debt			2,765				808				1,073
Principal payments under capital leases			(124)				(136)				(123)
Capitalized financing costs			(80)				(64)				(37)
UAL contributions related to stock plans			2				6				16
Other, net			1				9				(2)
Net cash used in financing activities			(181)				(3,206)				(2,484)
Net increase (decrease) in cash, cash equivalents and restricted cash			(712)				(909)				890
Cash, cash equivalents and restricted cash at beginning of year			2,297				3,206				2,316
Cash, cash equivalents and restricted cash at end of year		$	1,585			$	2,297			$	3,206
Investing and Financing Activities Not Affecting Cash:
Property and equipment acquired through the issuance of debt and capital leases		$	935			$	386			$	866
Equity interest in Republic Airways Holdings, Inc. received in consideration for bankruptcy claims			92				—				—
Airport construction financing			42				91				17
Operating lease conversions to capital lease			—				12				285
Cash Paid During the Period for:
Interest		$	571			$	584			$	660
Income taxes			20				14				15

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

Table of Contents

UNITED AIRLINES, INC.

STATEMENTS OF CONSOLIDATED STOCKHOLDER’S EQUITY

(In millions)

		Additional Capital Invested				Retained Earnings (Accumulated Deficit)				Accumulated Other Comprehensive Income (Loss)				Receivable from Related Parties, Net				Total
Balance at December 31, 2014		$	7,347			$	(3,628)			$	(1,079)			$	(5)			$	2,635
Net income			—				7,301				—				—				7,301
Other comprehensive income			—				—				248				—				248
Dividend to UAL			(1,232)				—				—				—				(1,232)
Share-based compensation			7				—				—				—				7
UAL contribution related to stock plans			16				—				—				—				16
Other			—				—				—				(12)				(12)
Balance at December 31, 2015			6,138				3,673				(831)				(17)				8,963
Net income			—				2,264				—				—				2,264
Other comprehensive income			—				—				2				—				2
Dividend to UAL			(2,603)				—				—				—				(2,603)
Share-based compensation			32				—				—				—				32
UAL contribution related to stock plans			6				—				—				—				6
Other			—				—				—				(58)				(58)
Balance at December 31, 2016			3,573				5,937				(829)				(75)				8,606
Net income			—				2,149				—				—				2,149
Other comprehensive loss			—				—				(200)				—				(200)
Dividend to UAL			(1,844)				—				—				—				(1,844)
Share-based compensation			56				—				—				—				56
UAL contribution related to stock plans			2				—				—				—				2
Excess tax benefits from share-based awards			—				14				—				—				14
Reclassification of stranded tax effects (Note 1)			—				118				(118)				—				—
Other			—				—				—				(15)				(15)
Balance at December 31, 2017		$	1,787			$	8,218			$	(1,147)			$	(90)			$	8,768

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

Table of Contents

UNITED CONTINENTAL HOLDINGS, INC.

UNITED AIRLINES, INC.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Overview

United Continental 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”). 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.

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

(a)	**Use of Estimates—**The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.

(b)

**Revenue Recognition—**The Company records passenger ticket sales and tickets sold by other airlines for use on United as passenger revenue when the transportation is provided or upon estimated breakage. The value of unused passenger tickets is included in current liabilities as Advance ticket sales. Tickets sold by other airlines are recorded at the estimated values to be billed to the other airlines. Differences between amounts billed and the actual amounts may be rejected and rebilled or written off if the amount recorded was different from the original estimate. When necessary, the Company records a reserve against its interline billings and payables if historical experience indicates that these amounts are different. Non-refundable tickets generally expire on the date of the intended flight, unless the date is extended by notification from the customer on or before the intended flight date. Basic Economy tickets cannot be extended and refunds are not allowed except for ticket cancellations that are within 24 hours of purchase and one week or more prior to the original scheduled departure flight.

Fees charged in association with changes or extensions to non-refundable tickets are recorded as other revenue at the time the fee is incurred. The fare on the changed ticket, including any additional collection of fare, is deferred and recognized in accordance with our transportation revenue recognition policy at the time the transportation is provided. Change fees related to non-refundable tickets are considered a separate transaction from the air transportation because they represent a charge for the Company’s additional service to modify a previous sale. Therefore, the pricing of the change fee and the initial customer order are separately determined and represent distinct earnings processes.

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 and forecasted trends. Refundable tickets expire after one year from the date of issuance.

The Company recognizes cargo and other revenue as service is provided.

Under our capacity purchase agreements (“CPAs”) with regional carriers, we purchase all of the capacity related to aircraft covered by the contracts and are responsible for selling all of the related seat inventory. We record the passenger revenue and related expenses as separate operating revenue and expense in the consolidated statement of operations.

Table of Contents

Accounts receivable primarily consist of amounts due from credit card companies and customers of our aircraft maintenance and cargo transportation services. We provide an allowance for uncollectible accounts equal to the estimated losses expected to be incurred based on historical write-offs and other specific analyses. Bad debt expense and write-offs were not material for the years ended December 31, 2017, 2016 and 2015.

(c)

**Frequent Flyer Accounting—**United’s MileagePlus program builds customer loyalty by offering awards, benefits and services to program participants. Members in this program earn miles for flights on United, United Express, Star Alliance members and certain other airlines that participate in the program. Members can also earn miles by purchasing the goods and services of our network of non-airline partners. We sell miles to these partners, which include domestic and international credit card issuers, retail merchants, hotels, car rental companies and our participating airline partners. Miles can be redeemed for free (other than taxes and government imposed fees), discounted or upgraded air travel and non-travel awards. The Company records its obligation for future award redemptions using a deferred revenue model.

Miles Earned in Conjunction with Flights

When frequent flyers earn miles for flights, the Company recognizes a portion of the ticket sales as revenue when the air transportation occurs and defers a portion of the ticket sale representing the value of the related miles as a multiple-deliverable revenue arrangement. The Company determines the estimated selling price of air transportation and miles as if each element is sold on a separate basis. The total consideration from each ticket sale is then allocated to each of these elements, individually, on a pro rata basis. The miles are recorded in Frequent flyer deferred revenue on the Company’s consolidated balance sheet and recognized into revenue when the transportation is provided.

The Company’s estimated selling price of miles is based on an equivalent ticket value less fulfillment discount, which incorporates the expected redemption of miles, as the best estimate of selling price for these miles. The equivalent ticket value is based on the prior 12 months’ weighted average equivalent ticket value of similar fares as those used to settle award redemptions while taking into consideration such factors as redemption pattern, cabin class, loyalty status and geographic region. The estimated selling price of miles is adjusted by a fulfillment discount that considers a number of factors, including redemption patterns of various customer groups.

Co-branded Credit Card Partner Mileage Sales

United has a significant contract, the Second Amended and Restated Co-Branded Card Marketing Services Agreement (the “Co-Brand Agreement”), to sell MileagePlus miles to its co-branded credit card partner, Chase Bank USA, N.A. (“Chase”). United identified the following significant revenue elements in the Co-Brand Agreement: the air transportation element represented by the value of the mile (generally resulting from its redemption for future air transportation and whose fair value is described above); use of the United brand and access to MileagePlus member lists; advertising; and other travel related benefits.

The fair value of the elements is determined using management’s estimated selling price of each element. The objective of using the estimated selling price based methodology is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. Accordingly, we determine our best estimate of selling price by considering multiple inputs and methods including, but not limited to, discounted cash flows, brand value, volume discounts, published selling prices, number of miles awarded and number of miles redeemed. The Company estimated the selling prices and volumes over the term of the Co-Brand Agreement in order to determine the allocation of proceeds to each of the multiple elements to be delivered. We also evaluate volumes on an annual basis, which may result in a change in the allocation of estimated selling price on a prospective basis.

Table of Contents

The Company records passenger revenue related to the air transportation element when the transportation is delivered. The other elements are generally recognized as Other operating revenue when earned.

Expiration of Miles

The Company accounts for miles sold and awarded that will never be redeemed by program members, which we refer to as breakage. The Company reviews its breakage estimates annually based upon the latest available information regarding redemption and expiration patterns. Miles expire after 18 months of member account inactivity.

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

Other Information

The following table provides additional information related to the frequent flyer program (in millions):

Year Ended December 31,		Cash Proceeds from Miles Sold and Earned				Other Revenue Recognized Upon Award of Miles to Third-Party Customers (a)				Increase in Frequent Flyer Deferred Revenue for Miles Awarded (b)				Decrease in Advanced Purchase of Miles (c)
2017		$	2,343			$	1,183			$	2,025			$	(865)
2016			3,022				1,221				2,050				(249)
2015			2,999				1,050				2,173				(224)
(a) This amount represents other revenue recognized during the period from the sale of miles to third parties, representing the marketing-related deliverable services component of the sale.
(b) This amount represents the increase to Frequent flyer deferred revenue during the period.
(c) This amount represents the net decrease in the advance purchase of miles obligation due to cash payments for the sale of miles less than miles awarded to customers.

(d)	Cash and Cash Equivalents and Restricted Cash— Highly liquid investments with a maturity of three months or less on their acquisition date are classified as cash and cash equivalents.

Restricted cash primarily includes cash collateral for letters of credit and collateral associated with obligations for facility leases and workers’ compensation. Restricted cash is classified as short-term or long-term in the consolidated balance sheets based on the expected timing of return of the assets to the Company.

Table of Contents

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statements of consolidated cash flows:

		UAL												United
		At December 31,												At December 31,
		2017				2016				2015				2017				2016				2015
Current assets:
Cash and cash equivalents		$	1,482			$	2,179			$	3,006			$	1,476			$	2,173			$	3,000
Restricted cash included in Prepaid expenses and other			18				—				2				18				—				2
Other assets:
Restricted cash			91				124				204				91				124				204
Total cash, cash equivalents and restricted cash shown in the statement of consolidated cash flows		$	1,591			$	2,303			$	3,212			$	1,585			$	2,297			$	3,206

(e)	**Short-term Investments—**Short-term investments are classified as available-for-sale and are stated at fair value. Realized gains and losses on sales of investments are reflected in nonoperating income (expense) in the consolidated statements of operations. Unrealized gains and losses on available-for-sale securities are reflected as a component of accumulated other comprehensive income (loss).

(f)	**Aircraft Fuel, Spare Parts and Supplies—**The Company accounts for aircraft fuel, spare parts and supplies at average cost and provides an obsolescence allowance for aircraft spare parts with an assumed residual value of 10% of original cost.

(g)

**Property and Equipment—**The Company records additions to owned operating property and equipment at cost when acquired. Property under capital leases and the related obligation for future lease payments are recorded at an amount equal to the initial present value of those lease payments. Modifications that enhance the operating performance or extend the useful lives of airframes or engines are capitalized as property and equipment. It is the Company’s policy to record compensation from delays in delivery of aircraft as a reduction of the cost of the related aircraft.

Depreciation and amortization of owned depreciable assets is based on the straight-line method over the assets’ estimated useful lives. Leasehold improvements are amortized over the remaining term of the lease, including estimated facility renewal options when renewal is reasonably assured at key airports, or the estimated useful life of the related asset, whichever is less. Properties under capital leases are amortized on the straight-line method over the life of the lease or, in the case of certain aircraft, over their estimated useful lives, whichever is shorter. Amortization of capital lease assets is included in depreciation and amortization expense. The estimated useful lives of property and equipment are as follows:

		Estimated Useful Life (in years)
Aircraft and related rotable parts			25 to 30
Buildings			25 to 45
Other property and equipment			3 to 15
Computer software			5 to 15
Building improvements			1 to 40

As of December 31, 2017 and 2016, the Company had a carrying value of computer software of $345 million and $356 million, respectively. For the years ended December 31, 2017, 2016 and 2015, the Company’s depreciation expense related to computer software was $117 million, $108 million and

Table of Contents

$93 million, respectively. Aircraft and aircraft spare parts were assumed to have residual values of approximately 10% of original cost, and other categories of property and equipment were assumed to have no residual value.

(h)

**Maintenance and Repairs—**The cost of maintenance and repairs, including the cost of minor replacements, is charged to expense as incurred, except for costs incurred under our power-by-the-hour (“PBTH”) engine maintenance agreements. PBTH contracts transfer certain risk to third-party service providers and fix the amount we pay per flight hour or per cycle to the service provider in exchange for maintenance and repairs under a predefined maintenance program. Under PBTH agreements, the Company recognizes expense at a level rate per engine hour, unless the level of service effort and the related payments during the period are substantially consistent, in which case the Company recognizes expense based on the amounts paid.

(i)	**Lease Fair Value Adjustments—**Lease fair value adjustments, which arose from recording operating leases at fair value under fresh start or business combination accounting, are amortized on a straight-line basis over the related lease term.

(j)	**Regional Capacity Purchase—**Payments made to regional carriers under CPAs are reported in Regional capacity purchase in our consolidated statements of operations.

(k)	**Advertising—**Advertising costs, which are included in Other operating expenses, are expensed as incurred. Advertising expenses were $217 million, $220 million and $201 million for the years ended December 31, 2017, 2016 and 2015, respectively.

(l)

**Intangibles—**The Company has finite-lived and indefinite-lived intangible assets, including goodwill. Finite-lived intangible assets are amortized over their estimated useful lives. Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment annually or more frequently if events or circumstances indicate that the asset may be impaired. Goodwill and indefinite-lived assets are reviewed for impairment on an annual basis as of October 1, or on an interim basis whenever a triggering event occurs. See Note 2 of this report for additional information related to intangibles.

(m)

**Long-Lived Asset Impairments—**The Company evaluates the carrying value of long-lived assets subject to amortization whenever events or changes in circumstances indicate that an impairment may exist. For purposes of this testing, the Company has generally identified the aircraft fleet type as the lowest level of identifiable cash flows. An impairment charge is recognized when the asset’s carrying value exceeds its net undiscounted future cash flows and its fair market value. The amount of the charge is the difference between the asset’s carrying value and fair market value. See Note 14 of this report for additional information related to asset impairments.

(n)

**Share-Based Compensation—**The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The resulting cost is recognized over the period during which an employee is required to provide service in exchange for the award, usually the vesting period. Obligations for cash-settled restricted stock units (“RSUs”) are remeasured at fair value throughout the requisite service period on the last day of each reporting period based upon UAL’s stock price. In addition to the service requirement, certain RSUs have performance metrics that must be achieved prior to vesting. These awards are accrued based on the expected level of achievement at each reporting period. A cumulative adjustment is recorded on the last day of each reporting period to adjust compensation expense based on both UAL’s stock price and the then current level of expected performance achievement for the performance-based awards. See Note 5 of this report for additional information on UAL’s share-based compensation plans.

(o)	**Ticket Taxes—**Certain governmental taxes are imposed on the Company’s ticket sales through a fee included in ticket prices. The Company collects these fees and remits them to the appropriate government agency. These fees are recorded on a net basis (excluded from operating revenue).

Table of Contents

(p)

**Retirement of Leased Aircraft—**The Company accrues for estimated lease costs over the remaining term of the lease at the present value of future minimum lease payments, net of estimated sublease rentals (if any), in the period that aircraft are permanently removed from service. When reasonably estimable and probable, the Company estimates maintenance lease return condition obligations for items such as minimum aircraft and engine conditions specified in leases and accrues these amounts over the lease term while the aircraft are operating, and any remaining unrecognized estimated obligations are accrued in the period that an aircraft is removed from service.

(q)

**Uncertain Income Tax Positions—**The Company has recorded reserves for income taxes and associated interest that may become payable in future years. Although management believes that its positions taken on income tax matters are reasonable, the Company nevertheless has established tax and interest reserves in recognition that various taxing authorities may challenge certain of the positions taken by the Company, potentially resulting in additional liabilities for taxes and interest. The Company’s uncertain tax position reserves are reviewed periodically and are adjusted as events occur that affect its estimates, such as the availability of new information, the lapsing of applicable statutes of limitation, the conclusion of tax audits, the measurement of additional estimated liability, the identification of new tax matters, the release of administrative tax guidance affecting its estimates of tax liabilities, or the rendering of relevant court decisions. The Company records penalties and interest relating to uncertain tax positions as part of income tax expense in its consolidated statements of operations. The Company has not recorded any material expense or liabilities related to interest or penalties in its consolidated financial statements.

(r)

**Labor Costs—**The Company records expenses associated with amendable labor agreements when the amounts are probable and estimable. These include costs associated with lump sum cash payments that would be made in conjunction with the ratification of labor agreements. To the extent these upfront costs are in lieu of future pay increases, they would be capitalized and amortized over the term of the labor agreements. If not, these amounts would be expensed.

(s)

**Third-Party Business—**The Company has third-party business revenue that includes fuel sales, catering, ground handling, maintenance services and frequent flyer award non-air redemptions. Third-party business revenue is recorded in Other operating revenue. The Company also incurs third-party business expenses, such as maintenance, ground handling and catering services for third parties, fuel sales and non-air mileage redemptions. The third-party business expenses are recorded in Other operating expenses.

(t)

Recently Issued Accounting Standards— In 2014, the Financial Accounting Standards Board (“FASB”) amended the FASB Accounting Standards Codification and created a new Topic 606, Revenue from Contracts with Customers (“Topic 606”). This amendment prescribes that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Accounting Standards Codification. The Company used the full-retrospective approach in adopting this standard on January 1, 2018. The standard impacts the classification of certain revenue streams and affects the timing of revenue and expense recognition for others. For the Company, the most significant impact of this standard is the reclassification of certain ancillary fees from other operating revenue into passenger revenue on the statement of consolidated operations. These ancillary fees are directly related to passenger travel, such as ticket change fees and baggage fees, and will no longer be considered distinct performance obligations separate from the passenger travel component. In addition, the ticket change fees, which were previously recognized when received, will be recognized when transportation is provided. While the classification of certain transactions within operating revenue and between operating revenue and operating expenses will change, the adoption of the standard will not have a material impact on our earnings. Further, adoption of the standard will have no impact on cash provided by or used in

Table of Contents

	operating, financing, or investing activities in our consolidated cash flows statements. Adoption of Topic 606 is expected to impact our reported results as shown in the table below:

Statements of Consolidated Operations for the Years Ended December 31,

		As Reported								Adjustment								As Adjusted for Adoption of Topic 606
		2017				2016				2017				2016				2017				2016
Operating revenue:
Passenger—Mainline		$	26,552			$	25,414			$	1,707			$	1,615			$	28,259			$	27,029
Passenger—Regional			5,852				6,043				349				357				6,201				6,400
Total passenger revenue			32,404				31,457				2,056				1,972				34,460				33,429
Cargo			1,035				876				79				58				1,114				934
Other operating revenue			4,297				4,223				(2,087)				(2,028)				2,210				2,195
Total operating revenue			37,736				36,556				48				2				37,784				36,558
Operating expenses			34,238				32,218				(21)				(12)				34,217				32,206
Operating income			3,498				4,338				69				14				3,567				4,352
Nonoperating expense, net			(499)				(519)				(28)				(60)				(527)				(579)
Income before income taxes			2,999				3,819				41				(46)				3,040				3,773
Income tax expense (benefit)			868				1,556				28				(17)				896				1,539
Net income		$	2,131			$	2,263			$	13			$	(29)			$	2,144			$	2,234
Earnings per share, basic		$	7.04			$	6.86			$	0.04			$	(0.09)			$	7.08			$	6.77
Earnings per share, diluted		$	7.02			$	6.85			$	0.04			$	(0.09)			$	7.06			$	6.76

Consolidated Balance Sheets as of December 31,

		As Reported								Adjustment								As Adjusted for Adoption of Topic 606
		2017				2016				2017				2016				2017				2016
Current assets:
Prepaid expenses and other		$	1,051			$	832			$	20			$	20			$	1,071			$	852
Other assets:
Deferred income taxes			—				655				—				48				—				703
Current liabilities:
Advance ticket sales			3,876				3,730				64				65				3,940				3,795
Frequent flyer deferred revenue			2,176				2,135				16				14				2,192				2,149
Other			569				1,010				7				79				576				1,089
Other liabilities and deferred credits:
Frequent flyer deferred revenue			2,565				2,748				26				(8	)			2,591				2,740
Advanced purchase of miles			—				430				—				3				—				433
Deferred income taxes			225				—				(21)				—				204				—
Stockholders’ equity:
Retained earnings			4,621				3,427				(72)				(85	)			4,549				3,342

Table of Contents

In 2016, the FASB amended the FASB Accounting Standards Codification and created a new Topic 842, Leases (“Topic 842”). The guidance requires lessees to recognize a right-of-use asset and a lease liability for all leases (with the exception of short-term leases) at the commencement date and recognize expenses on their income statements similar to the current Topic 840, Leases. It is effective for fiscal years and interim periods beginning after December 15, 2018, and early adoption is permitted. Lessees and lessors are required to adopt Topic 842 using a modified retrospective approach for all leases existing at or commencing after the date of initial application with an option to use certain practical expedients. We have not completed our evaluation of the impact of the new standard, but believe that it will have a significant impact on our consolidated balance sheets. The new standard is not expected to have a material impact on the Company’s results of operations or cash flows. The primary effect of adopting the new standard will be to record assets and obligations for its operating leases.

In 2016, the FASB issued Accounting Standards Update No. 2016-01, Financial Instruments—Overall (Subtopic 825-10) (“ASU 2016-01”). This standard makes several changes, including the elimination of the available-for-sale classification of equity investments, and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. It is effective for interim and annual periods beginning after December 15, 2017. Based on its portfolio of investments as of December 31, 2017, the Company does not expect the adoption of ASU 2016-01 to have a material impact on its consolidated financial statements.

In 2017, the FASB issued Accounting Standards Update No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). The update requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including interest cost, expected return on plan assets, amortization of prior service cost/credit and actuarial gain/loss, and settlement and curtailment effects, are to be presented outside of any subtotal of operating income. Employers will have to disclose the line(s) used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement_._ ASU 2017-07 is effective for fiscal years and interim periods beginning after December 15, 2017, and early adoption is permitted. The Company does not expect the adoption of ASU 2017-07 to have a material impact on its consolidated financial statements. Early adoption of ASU 2017-07 would have impacted the statement of consolidated operations as shown in the table below:

Statements of Consolidated Operations for the Years Ended December 31,

		As Reported								Adjustment								As Adjusted for Adoption of ASU 2017-07
		2017				2016				2017				2016				2017				2016
Operating expense:
Salaries and related costs		$	11,045			$	10,275			$	(104)			$	(99	)		$	10,941			$	10,176
Special charges			176				638				—				107				176				745
Nonoperating income (expense):
Miscellaneous, net			3				(19)				(104)				8				(101)				(11)

In February 2018, the FASB issued Accounting Standards Update No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). This standard focuses on a targeted improvement to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) enacted on December 22, 2017 from accumulated other comprehensive income (“AOCI”) to retained earnings (“RE”). The amount of the reclassification would be the difference between the amount initially charged

Table of Contents

or credited directly to other comprehensive income at the previously enacted U.S. federal corporate income tax rate that remains in AOCI and the amount that would have been charged or credited directly to other comprehensive income using the newly enacted U.S. federal corporate income tax rate, excluding the effect of any valuation allowance previously charged to income from continuing operations. ASU 2018-02 is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. We have elected to early adopt this standard for the year ended December 31, 2017. We have reclassified $118 million from AOCI to RE as a result of this adoption. See Note 6 of this report for additional information.

NOTE 2 - GOODWILL AND OTHER INTANGIBLE ASSETS

The following table presents information about the Company’s goodwill and other intangible assets at December 31 (in millions):

						2017								2016
Item		Asset life (a)				Gross Carrying Amount				Accumulated Amortization				Gross Carrying Amount				Accumulated Amortization
Goodwill						$	4,523							$	4,523
Finite-lived intangible assets
Frequent flyer database (b)			22			$	1,177			$	832			$	1,177			$	771
Hubs			20				145				89				145				82
Contracts			13				121				103				135				95
Patents and tradenames			3				108				108				108				108
Airport slots and gates			8				97				97				97				97
Other			25				109				84				109				81
Total						$	1,757			$	1,313			$	1,771			$	1,234
Indefinite-lived intangible assets
Route authorities						$	1,562							$	1,562
Airport slots and gates							536								536
Tradenames and logos							593								593
Alliances							404								404
Total						$	3,095							$	3,095

(a) Weighted average life expressed in years.

(b) The frequent flyer database is amortized based on an accelerated amortization schedule to reflect utilization of the assets. Estimated cash flows correlating to the expected attrition rate of customers in the frequent flyer database is considered in the determination of the amortization schedules.

Amortization expense in 2017, 2016 and 2015 was $79 million, $90 million and $105 million, respectively. Projected amortization expense in 2018, 2019, 2020, 2021 and 2022 is $67 million, $61 million, $55 million, $50 million and $40 million, respectively.

See Note 14 of this report for additional information related to impairment of intangible assets.

NOTE 3 – COMMON STOCKHOLDERS’ EQUITY AND PREFERRED SECURITIES

In 2017, UAL repurchased approximately 28 million shares of UAL common stock for $1.8 billion, completing its July 2016 repurchase authorization. In December 2017, UAL’s Board of Directors authorized a new $3.0 billion share repurchase program to acquire UAL’s common stock. As of December 31, 2017, the Company had approximately $3.0 billion remaining to purchase shares under its existing share repurchase authority. UAL may repurchase shares through the open market, privately negotiated transactions, block trades or accelerated share repurchase transactions from time to time in accordance with applicable securities laws. UAL may repurchase shares of UAL common stock subject to prevailing market conditions, and may discontinue such repurchases at any time. See Part II, Item 5, Market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities, of this report for additional information.

Table of Contents

In 2017, the Company retired 25 million treasury shares that were originally acquired at an average cost of approximately $63 per share.

At December 31, 2017, approximately 10 million shares of UAL’s common stock were reserved for future issuance related to the issuance of equity-based awards under the Company’s incentive compensation plans.

As of December 31, 2017, UAL had two shares of junior preferred stock (par value $0.01 per share) outstanding. In addition, UAL is authorized to issue 250 million shares of preferred stock (without par value) under UAL’s amended and restated certificate of incorporation.

NOTE 4 - EARNINGS PER SHARE

The computations of UAL’s basic and diluted earnings per share are set forth below for the years ended December 31 (in millions, except per share amounts):

		2017				2016				2015
Earnings available to common stockholders		$	2,131			$	2,263			$	7,340
Basic weighted-average shares outstanding			302.7				329.9				376.1
Effect of convertible notes			—				—				0.3
Effect of employee stock awards			0.9				0.4				0.5
Diluted weighted-average shares outstanding			303.6				330.3				376.9
Earnings per share, basic		$	7.04			$	6.86			$	19.52
Earnings per share, diluted		$	7.02			$	6.85			$	19.47

The number of antidilutive securities excluded from the computation of diluted earnings per share amounts was not material.

NOTE 5 - SHARE-BASED COMPENSATION PLANS

UAL maintains several share-based compensation plans. In May 2017, UAL’s Board of Directors and stockholders approved the United Continental Holdings, Inc. 2017 Incentive Compensation Plan (the “2017 Plan”). The 2017 Plan is an incentive compensation plan that allows the Company to use different forms of long-term equity incentives to attract, retain, and reward officers and employees (including prospective officers and employees). The 2017 Plan replaced the United Continental Holdings, Inc. 2008 Incentive Compensation Plan (the “2008 Plan”). Any awards granted under the 2008 Plan prior to the approval of the 2017 Plan remain in effect pursuant to their terms. Awards may not be granted under the 2017 Plan after May 24, 2027. Under the 2017 Plan, the Company may grant: non-qualified stock options, incentive stock options (within the meaning of Section 422 of the Internal Revenue Code of 1986), stock appreciation rights, restricted shares, RSUs, performance compensation awards, performance units, cash incentive awards, other equity-based and equity-related awards, and dividends and dividend equivalents.

All awards are recorded as either equity or a liability in the Company’s consolidated balance sheets. The share-based compensation expense is recorded in salaries and related costs.

During 2017, UAL granted share-based compensation awards pursuant to both the 2008 Plan and the 2017 Plan. These share-based compensation awards include approximately 1.6 million RSUs, consisting of 1.0 million time-vested RSUs and 0.6 million performance-based RSUs, and approximately 36,000 stock options. The time-vested RSUs vest pro-rata, a majority of which vest on February 28th of each year over a three year period from the date

Table of Contents

of grant. These RSUs are generally equity awards settled in stock for domestic employees and liability awards settled in cash for international employees. The cash payments are based on the 20-day average closing price of UAL common stock immediately prior to the vesting date. The performance-based RSUs vest based on the Company’s relative improvement in pre-tax margin compared to a group of airline industry peers for the three years ending December 31, 2019. If the 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 and based on the level, if any, of the performance goal achieved. The Company accounts for the performance-based RSUs as liability awards. The stock options have a ten-year term and vest pro-rata over the third, fourth and fifth anniversaries of the date of grant.

The following table provides information related to UAL’s share-based compensation plan cost for the years ended December 31 (in millions):

		2017				2016				2015
Compensation cost:
RSUs		$	63			$	58			$	52
Restricted stock			8				11				6
Stock options			2				1				—
Total		$	73			$	70			$	58

The table below summarizes UAL’s unearned compensation and weighted-average remaining period to recognize costs for all outstanding share-based awards that are probable of being achieved as of December 31, 2017 (in millions, except as noted):

		Unearned Compensation				Weighted- Average Remaining Period (in years)
RSUs		$	46				1.9
Stock options			4				3.9
Restricted stock			3				1.2
Total		$	53

RSUs and Restricted Stock. All performance-based RSUs, as well as a portion of the outstanding time-vested RSUs, will be settled in cash. As of December 31, 2017, UAL had recorded a liability of $38 million related to its RSUs. UAL paid $50 million, $69 million and $85 million related to its RSUs during 2017, 2016 and 2015, respectively.

Table of Contents

The table below summarizes UAL’s RSUs and restricted stock activity for the years ended December 31 (shares in millions):

		RSUs				Restricted Stock				Weighted- Average Grant Price
Outstanding at December 31, 2014			3.8				0.7			$	32.55
Granted			1.0				0.2				66.53
Vested			(1.6)				(0.4)				31.14
Forfeited			(0.6)				(0.2)				46.23
Outstanding at December 31, 2015			2.6				0.3				48.68
Granted			1.9				0.4				50.63
Vested			(1.4)				(0.1)				41.47
Forfeited			(0.2)				(0.1)				53.42
Outstanding at December 31, 2016			2.9				0.5				52.00
Granted			1.6				—				—
Vested			(1.0)				(0.2)				51.60
Forfeited			(0.3)				—				51.88
Outstanding at December 31, 2017			3.2				0.3				52.30

The fair value of RSUs and restricted stock that vested in 2017, 2016 and 2015 was $76 million, $80 million and $92 million, respectively. The fair value of the restricted stock and the stock-settled RSUs was based upon the UAL common stock price on the date of grant. These awards are accounted for as equity awards. The fair value of the cash-settled RSUs was based on the UAL common stock price as of the last day preceding the settlement date. These awards are accounted for as liability awards. Restricted stock vesting and the recognition of the expense is similar to the stock option vesting described below.

Stock Options. During 2017, UAL granted approximately 36,000 stock options with exercise prices equal to the fair market value of UAL’s common stock on the date of grant with a weighted-average exercise price of $77.56 and a weighted-average grant date fair value of approximately $0.7 million. In 2016, UAL granted approximately 0.1 million stock options with exercise prices equal to the fair market value of UAL’s common stock on the date of grant and an additional approximately 0.3 million stock options with exercise prices at a 25% premium of the grant date fair market value resulting in a weighted-average exercise price of $56.19 and a weighted-average grant date fair value of approximately $2.3 million. UAL did not grant any stock options in 2015. Expense related to each portion of an option grant is recognized on a straight-line basis over the specific vesting period for those options.

The Company determined the grant date fair value of stock options using a Black Scholes option pricing model, which requires the use of several assumptions. The risk-free interest rate is based on the U.S. treasury yield curve in effect for the expected term of the option at the time of grant. The dividend yield on UAL’s common stock was assumed to be zero since UAL did not have any plans to pay dividends at the time of the option grants. The volatility assumptions were based upon historical volatilities of UAL using daily stock price returns equivalent to the expected term of the option. The expected term of the options was determined based upon a simplified assumption that the option will be exercised evenly from vesting to expiration due to the Company’s lack of relevant historical data related to stock options.

Table of Contents

As of December 31, 2017, there were approximately 0.5 million outstanding stock option awards, 0.1 million of which were exercisable, with weighted-average exercise prices of $51.67 and $34.74, respectively, intrinsic values of $8 million and $5 million, respectively, and weighted-average remaining contractual lives (in years) of 6.3 and 3.7, respectively.

NOTE 6 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The tables below present the components of the Company’s AOCI, net of tax (in millions):

		Pension and Other Postretirement Liabilities				Fuel Derivatives Contracts				Investments and Other				Deferred Taxes				Total
Balance at December 31, 2014		$	(472)			$	(499)			$	8			$	(116)			$	(1,079)
Other comprehensive income (loss) before reclassifications			78	(a)			(320)				(5)				88				(159)
Amounts reclassified from accumulated other comprehensive income			31				604				—				(228)				407
Net other comprehensive income (loss)			109				284				(5)				(140)				248
Balance at December 31, 2015		$	(363)			$	(215)			$	3			$	(256)			$	(831)
Other comprehensive income (loss) before reclassifications			(517)	(a)			(4)				—				187				(334)
Amounts reclassified from accumulated other comprehensive income			26				217				(2)				95				336
Net other comprehensive income (loss)			(491)				213				(2)				282				2
Balance at December 31, 2016		$	(854)			$	(2)			$	1			$	26			$	(829)
Other comprehensive income (loss) before reclassifications			(306)	(a)			—				(7)				74				(239)
Amounts reclassified from accumulated other comprehensive income			58				2				—				(21)				39
Reclassification of stranded tax effects			—				—				—				(118)	(b)			(118)
Net other comprehensive income (loss)			(248)				2				(7)				(65)				(318)
Balance at December 31, 2017		$	(1,102)			$	—			$	(6)			$	(39)	(c)		$	(1,147)

Table of Contents

Details about AOCI Components		Amount Reclassified from AOCI to Income												Affected Line Item in the Statement Where Net Income is Presented
		Year Ended December 31,
		2017				2016				2015
Fuel derivative contracts
Fuel contracts-reclassifications of losses into earnings (d)		$	2			$	217			$	604				Aircraft fuel
Pension and Postretirement liabilities
Amortization of unrecognized (gains) losses and prior service cost (e)			58				26				31				Salaries and related costs
Investments and other
Available-for-sale securities—reclassifications of gains into earnings			—				(2	)			—				Miscellaneous, net

(a) Prior service credits increased by $0 million, $30 million and $0 million and actuarial losses increased by approximately $306 million, $560 million and $78 million for 2017, 2016 and 2015, respectively.

(b) This amount represents the reclassification from AOCI to RE of the stranded tax effects resulting from the enactment of the Tax Act.

(c) Deferred tax balance relates mainly to Pension and Other Postretirement Liabilities.

(d) The last of the Company’s fuel hedge derivatives designated for cash flow hedge accounting expired in December 2016. The 2017 amount reclassified from AOCI into fuel expense represents hedge losses on December 2016 settled trades, but for which the associated fuel purchased in December 2016 was not consumed until January 2017. The Company’s current strategy is to not enter into transactions to hedge its fuel consumption, although the Company regularly reviews its strategy based on market conditions and other factors.

(e) This AOCI component is included in the computation of net periodic pension and other postretirement costs (see Note 8 of this report for additional information).

Prior to the release of the deferred income tax valuation allowance in the third quarter of 2015, the Company recorded approximately $465 million of valuation allowance adjustments in AOCI. Subsequent to the release of the deferred income tax valuation allowance in 2015, the $465 million debit remained within AOCI, of which $180 million related to losses on fuel hedges designated for hedge accounting and $285 million related to pension and other postretirement liabilities. Accounting rules required the adjustments to remain in AOCI as long as the Company had fuel derivatives designated for cash flow hedge accounting and the Company continues to provide pension and postretirement benefits. In 2016, the Company settled all of its fuel hedges and has not entered into any new fuel derivative contracts for hedge accounting. Accordingly, the Company reclassified the $180 million to income tax expense in 2016.

Table of Contents

NOTE 7 - INCOME TAXES

The income tax provision (benefit) differed from amounts computed at the statutory federal income tax rate and consisted of the following significant components, as follows (in millions):

UAL		2017				2016				2015
Income tax provision at statutory rate		$	1,050			$	1,337			$	1,477
State income taxes, net of federal income tax benefit			29				38				38
Foreign tax rate differential			(43)				—				—
Foreign income taxes			3				3				4
Nondeductible employee meals			17				16				15
Impact of Tax Act			(192)				—				—
Income tax adjustment from AOCI			—				180				—
State rate change			12				(12)				—
Valuation allowance			(16)				20				(4,662)
Other, net			8				(26)				7
		$	868			$	1,556			$	(3,121)
Current		$	(77)			$	(92)			$	56
Deferred			945				1,648				(3,177)
		$	868			$	1,556			$	(3,121)
United		2017				2016				2015
Income tax provision at statutory rate		$	1,051			$	1,338			$	1,477
State income taxes, net of federal income tax			29				38				38
Foreign tax rate differential			(43)				—				—
Foreign income taxes			3				3				4
Nondeductible employee meals			17				16				15
Impact of Tax Act			(209)				—				—
Income tax adjustment from AOCI			—				180				—
State rate change			12				(12)				—
Valuation allowance			(16)				20				(4,621)
Other, net			8				(25)				7
		$	852			$	1,558			$	(3,080)
Current		$	(77)			$	(92)			$	56
Deferred			929				1,650				(3,136)
		$	852			$	1,558			$	(3,080)

The Company’s effective tax rate for the year ended December 31, 2017 differed from the federal statutory rate of 35% primarily because of the provisional one-time income tax benefit of $192 million as a result of the enactment of the Tax Act. This provisional benefit is the result of the remeasurement of deferred tax assets and liabilities, partially offset by a write-down of the employee benefit deferred tax asset for future non-deductible compensation, and a one-time transition tax on foreign earnings and profits. The Company’s effective tax rate for the year ended December 31, 2016 differed from the federal statutory rate of

Table of Contents

35% primarily because of the non-cash income tax expense of $180 million that was related to losses on fuel derivatives designated for hedge accounting. Subsequent to the release of the valuation allowance in 2015, this deferred income tax expense of $180 million remained in AOCI until all fuel derivatives were settled in December 2016.

Total income tax expense in 2017 includes the provisional one-time transition tax of $19 million on previously deferred foreign earnings. The undistributed cumulative earnings of foreign subsidiaries contributing to the one-time transition tax were $122 million. The Company expects to repatriate these earnings in 2018.

As of December 31, 2017, we had not completed our analysis of all aspects of the Tax Act. However, we have made a provisional estimate for its effect on our existing deferred tax balances and the one-time transition tax. We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. We are still analyzing certain aspects of the Tax Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.

Temporary differences and carryforwards that give rise to deferred tax assets and liabilities at December 31, 2017 and 2016 were as follows (in millions):

		UAL								United
		2017				2016				2017				2016
Deferred income tax asset (liability):
Federal and state net operating loss (“NOL”) carryforwards		$	601			$	1,613			$	574			$	1,571
Deferred revenue			1,069				2,096				1,069				2,096
Employee benefits, including pension, postretirement and medical			1,051				1,662				1,051				1,662
Alternative minimum tax credit carryforwards			—				116				—				116
Other			351				523				351				522
Less: Valuation allowance			(63)				(68)				(63)				(68)
Total deferred tax assets		$	3,009			$	5,942			$	2,982			$	5,899
Depreciation		$	(2,431)			$	(3,961)			$	(2,431)			$	(3,961)
Intangibles			(803)				(1,326)				(803)				(1,326)
Total deferred tax liabilities		$	(3,234)			$	(5,287)			$	(3,234)			$	(5,287)
Net deferred tax asset (liability)		$	(225)			$	655			$	(252)			$	612

United and its domestic consolidated subsidiaries file a consolidated federal income tax return with UAL. Under an intercompany tax allocation policy, United and its subsidiaries compute, record and pay UAL for their own tax liability as if they were separate companies filing separate returns. In determining their own tax liabilities, United and each of its subsidiaries take into account all tax credits or benefits generated and utilized as separate companies and they are each compensated for the aforementioned tax benefits only if they would be able to use those benefits on a separate company basis.

The Company’s federal and state NOL carryforwards relate to prior years’ NOLs, which may be used to reduce tax liabilities in future years. These tax benefits are mostly attributable to federal pre-tax NOL carryforwards of $2.4 billion for UAL. If not utilized these federal pre-tax NOLs will expire as follows (in billions): $0.2 in 2026, $0.5 in 2028 and $1.7 thereafter. In addition, for UAL the majority of tax benefits of the state NOLs of $49 million, net of a valuation allowance of $52 million, will expire over a five to 20-year period.

The Company periodically assesses whether it is more likely than not that it will generate sufficient taxable income to realize its deferred income tax assets. The Company establishes valuation allowances if it is not more

Table of Contents

likely than not that it will realize its deferred income tax assets. In making this determination, the Company considers all available positive and negative evidence and makes certain assumptions. The Company considers, among other things, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, the Company’s historical financial results and tax planning strategies. In evaluating the likelihood of utilizing the Company’s net deferred income tax assets, the significant factors that the Company considers include (1) the Company’s recent history and forecasted profitability; (2) growth in the U.S. and global economies; and (3) the future impact of taxable temporary differences. In 2015, the Company concluded that its deferred income tax assets were more likely than not to be realized and released almost all of its valuation allowance in 2015, resulting in a $3.1 billion benefit in its provision for income taxes.

The Company has a valuation allowance of $63 million for certain state and local NOLs and credit carryforwards. The Company expects these NOLs and credits will expire unused due to limited carryforward periods. The ability to utilize these state NOLs and credits will be evaluated on a quarterly basis to determine if there are any significant events or any prudent and feasible tax planning strategies that would affect the Company’s ability to realize these deferred tax assets.

The Company’s unrecognized tax benefits related to uncertain tax positions were $21 million, $74 million and $24 million at December 31, 2017, 2016 and 2015, respectively. Included in the ending balance at December 31, 2017 is $21 million that would affect the Company’s effective tax rate if recognized. The changes in unrecognized tax benefits relating to settlements with taxing authorities, unrecognized tax benefits as a result of tax positions taken during a prior period and unrecognized tax benefits relating from a lapse of the statute of limitations were immaterial during 2017, 2016 and 2015. The Company does not expect significant increases or decreases in their unrecognized tax benefits within the next 12 months.

There are no material amounts included in the balance at December 31, 2017 for tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

The Company’s federal income tax returns for tax years after 2001 remain subject to examination by the Internal Revenue Service (“IRS”) and state taxing jurisdictions. Currently, there are no ongoing examinations of the Company’s prior year tax returns being conducted by the IRS.

NOTE 8 - PENSION AND OTHER POSTRETIREMENT PLANS

The following summarizes the significant pension and other postretirement plans of United:

Pension Plans

United maintains two primary defined benefit pension plans, one covering certain pilot employees and another covering certain U.S. non-pilot employees. Each of these plans provide benefits based on a combination of years of benefit accruals service and an employee’s final average compensation. Additional benefit accruals are frozen under the plan covering certain pilot employees and management and administrative employees. Benefit accruals for certain non-pilot employees continue. United maintains additional defined benefit pension plans, which cover certain international employees.

Other Postretirement Plans

United maintains postretirement medical programs which provide medical benefits to certain retirees and eligible dependents, as well as life insurance benefits to certain retirees participating in the plan. Benefits provided are subject to applicable contributions, co-payments, deductibles and other limits as described in the specific plan documentation.

Actuarial assumption changes are reflected as a component of the net actuarial gains/(losses) during 2017 and 2016. These amounts will be amortized over the average remaining service life of the covered active employees or the average life expectancy of inactive participants and will impact 2017 and 2016 pension and retiree medical expense as described below.

Table of Contents

The following table sets forth the reconciliation of the beginning and ending balances of the benefit obligation and plan assets, the funded status and the amounts recognized in these financial statements for the defined benefit and other postretirement plans (in millions):

		Pension Benefits
		Year Ended December 31, 2017				Year Ended December 31, 2016
Accumulated benefit obligation:		$	4,739			$	4,158
Change in projected benefit obligation:
Projected benefit obligation at beginning of year		$	5,253			$	4,473
Service cost			195				112
Interest cost			220				200
Actuarial loss			525				738
Gross benefits paid and settlements			(366)				(243)
Other			25				(27)
Projected benefit obligation at end of year		$	5,852			$	5,253
Change in plan assets:
Fair value of plan assets at beginning of year		$	3,355			$	2,975
Actual return on plan assets			510				230
Employer contributions			419				421
Gross benefits paid and settlements			(366)				(243)
Other			14				(28)
Fair value of plan assets at end of year		$	3,932			$	3,355
Funded status—Net amount recognized		$	(1,920)			$	(1,898)

		Pension Benefits
		December 31, 2017				December 31, 2016
Amounts recognized in the consolidated balance sheets consist of:
Noncurrent asset		$	9			$	2
Current liability			(8)				(8)
Noncurrent liability			(1,921)				(1,892)
Total liability		$	(1,920)			$	(1,898)
Amounts recognized in accumulated other comprehensive loss consist of:
Net actuarial loss		$	(1,610)			$	(1,482)
Prior service cost			(1)				(1)
Total accumulated other comprehensive loss		$	(1,611)			$	(1,483)

Table of Contents

		Other Postretirement Benefits
		Year Ended December 31, 2017				Year Ended December 31, 2016
Change in benefit obligation:
Benefit obligation at beginning of year		$	1,687			$	2,002
Service cost			13				19
Interest cost			66				86
Plan participants’ contributions			68				69
Benefits paid			(178)				(191)
Actuarial loss (gain)			40				(165)
Plan amendments			—				(138)
Other			14				5
Benefit obligation at end of year		$	1,710			$	1,687
Change in plan assets:
Fair value of plan assets at beginning of year		$	55			$	56
Actual return on plan assets			1				2
Employer contributions			108				119
Plan participants’ contributions			68				69
Benefits paid			(178)				(191)
Fair value of plan assets at end of year			54				55
Funded status—Net amount recognized		$	(1,656)			$	(1,632)

		Other Postretirement Benefits
		December 31, 2017				December 31, 2016
Amounts recognized in the consolidated balance sheets consist of:
Current liability		$	(54)			$	(51)
Noncurrent liability			(1,602)				(1,581)
Total liability		$	(1,656)			$	(1,632)
Amounts recognized in accumulated other comprehensive income consist of:
Net actuarial gain		$	301			$	384
Prior service credit			208				245
Total accumulated other comprehensive income		$	509			$	629

The following information relates to all pension plans with an accumulated benefit obligation and a projected benefit obligation in excess of plan assets at December 31 (in millions):

		2017				2016
Projected benefit obligation		$	5,637			$	5,025
Accumulated benefit obligation			4,567				3,985
Fair value of plan assets			3,709				3,164

Table of Contents

Net periodic benefit cost for the years ended December 31 included the following components (in millions):

		2017								2016								2015
		Pension Benefits				Other Postretirement Benefits				Pension Benefits				Other Postretirement Benefits				Pension Benefits				Other Postretirement Benefits
Service cost		$	195			$	13			$	112			$	19			$	124			$	21
Interest cost			220				66				200				86				200				82
Expected return on plan assets			(243)				(2)				(216)				(2)				(194)				(2)
Curtailment gain			—				—				—				(107)				—				—
Amortization of unrecognized actuarial (gain) loss			128				(33)				76				(19)				85				(22)
Amortization of prior service credits			—				(37)				—				(31)				—				(32)
Other			5				—				5				—				4				—
Net periodic benefit cost (credit)		$	305			$	7			$	177			$	(54)			$	219			$	47

See Note 14 of this report for additional information related to the curtailment gain recorded in 2016.

The estimated amounts that will be amortized in 2018 out of accumulated other comprehensive income (loss) into net periodic benefit cost are as follows (in millions):

		Pension Benefits				Other Postretirement Benefits
Actuarial (gain) loss		$	132			$	(32)
Prior service (credit) cost			—				(37)

The assumptions used for the benefit plans were as follows:

			Pension Benefits
Assumptions used to determine benefit obligations			2017				2016
Discount rate			3.65%				4.18%
Rate of compensation increase			3.89%				3.54%
Assumptions used to determine net expense
Discount rate			4.19%				4.58%
Expected return on plan assets			7.02%				7.04%
Rate of compensation increase			3.54%				3.53%

Table of Contents

		Other Postretirement Benefits
Assumptions used to determine benefit obligations		2017				2016
Discount rate			3.63%				4.07%
Assumptions used to determine net expense
Discount rate			4.07%				4.49%
Expected return on plan assets			3.00%				3.00%
Health care cost trend rate assumed for next year			6.25%				6.50%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate in 2023)			5.00%				5.00%

The Company used the Society of Actuaries’ 2014 mortality tables, modified to reflect the Social Security Administration Trustee’s Report on current projections regarding expected longevity improvements.

The Company selected the 2017 discount rate for substantially all of its plans by using a hypothetical portfolio of high quality bonds at December 31, 2017, that would provide the necessary cash flows to match projected benefit payments.

We develop our expected long-term rate of return assumption for our defined benefit plans based on historical experience and by evaluating input from the trustee managing the plans’ assets. Our expected long-term rate of return on plan assets for these plans is based on a target allocation of assets, which is based on our goal of earning the highest rate of return while maintaining risk at acceptable levels. The plans strive to have assets sufficiently diversified so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio. Plan fiduciaries regularly review our actual asset allocation and the pension plans’ investments are periodically rebalanced to our targeted allocation when considered appropriate. United’s plan assets are allocated within the following guidelines:

		Percent of Total				Expected Long-Term Rate of Return
Equity securities			27-42 %				9.5 %
Fixed-income securities			30-40				5.5
Alternatives			10-25				7.3
Other			0-10				7.3

One-hundred percent of other postretirement plan assets are invested in a deposit administration fund.

Assumed health care cost trend rates have a significant effect on the amounts reported for the other postretirement plans. A 1% change in the assumed health care trend rate for the Company would have the following additional effects (in millions):

		1% Increase				1% Decrease
Effect on total service and interest cost for the year ended December 31, 2017		$	11			$	(8)
Effect on postretirement benefit obligation at December 31, 2017			170				(149)

A one percentage point decrease in the weighted average discount rate would increase the Company’s postretirement benefit liability by approximately $185 million and increase the estimated 2017 benefits expense by approximately $8 million.

Table of Contents

Fair Value Information. Accounting standards require us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:

Level 1		Unadjusted quoted prices in active markets for assets or liabilities identical to those to be reported at fair value
Level 2		Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborated inputs
Level 3		Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or liabilities

Assets and liabilities measured at fair value are based on the valuation techniques identified in the tables below. The valuation techniques are as follows:

(a) Market approach. Prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities; and

(b) Income approach. Techniques to convert future amounts to a single current value based on market expectations (including present value techniques, option-pricing and excess earnings models).

The following tables present information about United’s pension and other postretirement plan assets at December 31 (in millions):

		2017																								2016
Pension Plan Assets:		Total				Level 1				Level 2				Level 3				Assets Measured at NAV(a)								Total				Level 1				Level 2				Level 3				Assets Measured at NAV(a)
Equity securities funds		$	1,406			$	269			$	133			$	—			$	1,004							$	1,173			$	230			$	111			$	—			$	832
Fixed-income securities			1,470				—				834				18				618								1,298				—				824				11				463
Alternatives			637				—				—				139				498								586				—				—				134				452
Other investments			419				32				124				172				91								298				47				68				87				96
Total		$	3,932			$	301			$	1,091			$	329			$	2,211							$	3,355			$	277			$	1,003			$	232			$	1,843
Other Postretirement Benefit Plan Assets:
Deposit administration fund		$	54			$	—			$	—			$	54			$	—							$	55			$	—			$	—			$	55			$	—

(a) In accordance with the relevant accounting standards, certain investments that are measured at fair value using the net asset value (“NAV”) per share (or its equivalent) have not been classified in the fair value hierarchy. These investments are commingled funds that invest in fixed-income instruments including bonds, debt securities, and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities. Redemption periods for these investments range from daily to annually.

Equity and Fixed-Income. Equities include investments in both developed market and emerging market equity securities. Fixed-income includes primarily U.S. and non-U.S. government fixed-income securities and U.S. and non-U.S corporate fixed-income securities.

Deposit Administration Fund. This investment is a stable value investment product structured to provide investment income.

Alternatives. Alternative investments consist primarily of investments in hedge funds, real estate and private equity interests.

Other investments. Other investments consist of cash, insurance contracts and other funds.

Table of Contents

The reconciliation of United’s defined benefit plan assets measured at fair value using unobservable inputs (Level 3) for the years ended December 31, 2017 and 2016 is as follows (in millions):

		2017				2016
Balance at beginning of year		$	287			$	208
Actual return on plan assets:
Sold during the year			7				4
Held at year end			16				3
Purchases, sales, issuances and settlements (net)			73				72
Balance at end of year		$	383			$	287

Funding requirements for tax-qualified defined benefit pension plans are determined by government regulations. United’s contributions reflected above have satisfied its required contributions through the 2017 calendar year. In 2018, employer anticipated contributions to all of United’s pension and postretirement plans are at least $420 million and approximately $109 million, respectively.

The estimated future benefit payments, net of expected participant contributions, in United’s pension plans and other postretirement benefit plans as of December 31, 2017 are as follows (in millions):

		Pension				Other Postretirement				Other Postretirement— subsidy receipts
2018		$	305			$	113			$	6
2019			326				118				6
2020			331				121				6
2021			357				124				7
2022			369				126				7
Years 2023 – 2027			1,912				646				43

Defined Contribution Plans

Depending upon the employee group, employer contributions consist of matching contributions and/or non-elective employer contributions. United’s employer contribution percentages vary from 1% to 16% of eligible earnings depending on the terms of each plan. United recorded contributions to its defined contribution plans of $656 million, $592 million and $522 million in the years ended December 31, 2017, 2016 and 2015, respectively.

Table of Contents

Multi-Employer Plans

United’s participation in the IAM National Pension Plan (“IAM Plan”) for the annual period ended December 31, 2017 is outlined in the table below. There have been no significant changes that affect the comparability of 2017 and 2016 contributions. The risks of participating in these multi-employer plans are different from single-employer plans, as United may be subject to additional risks that others do not meet their obligations, which in certain circumstances could revert to United. The IAM Plan reported $414 million in employers’ contributions for the year ended December 31, 2016. For 2016, the Company’s contributions to the IAM Plan represented more than 5% of total contributions to the IAM Plan.

Pension Fund		IAM National Pension Fund
EIN/ Pension Plan Number		51-6031295 - 002
Pension Protection Act Zone Status (2017 and 2016)		Green Zone. Plans in the green zone are at least 80 percent funded.
FIP/RP Status Pending/Implemented		No
United’s Contributions		$50 million, $41 million and $40 million in the years ended December 31, 2017, 2016 and 2015, respectively
Surcharge Imposed		No
Expiration Date of Collective Bargaining Agreement		N/A

At the date the Consolidated Financial Statements were issued, Forms 5500 were not available for the plan year ending in 2017.

Profit Sharing

Substantially all employees participate in profit sharing based on a percentage of pre-tax earnings, excluding special charges, profit sharing expense and share-based compensation. Profit sharing percentages range from 5% to 20% depending on the work group, and in some cases profit sharing percentages vary above and below certain pre-tax margin thresholds. 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 work groups. Eligible non-U.S. co-workers receive profit sharing based on the calculation under the U.S. profit sharing plan for management and administrative employees. The Company recorded profit sharing and related payroll tax expense of $349 million, $628 million and $698 million in 2017, 2016 and 2015, respectively. Profit sharing expense is recorded as a component of Salaries and related costs in the Company’s statements of consolidated operations.

Table of Contents

NOTE 9 - FAIR VALUE MEASUREMENTS AND INVESTMENTS

Fair Value Information. Accounting standards require us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are described in Note 8 of this report. The table below presents disclosures about the fair value of financial assets and liabilities measured at fair value on a recurring basis in the Company’s financial statements as of December 31 (in millions):

		2017																2016
		Total				Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3
Cash and cash equivalents		$	1,482			$	1,482			$	—			$	—			$	2,179			$	2,179			$	—			$	—
Short-term investments:
Corporate debt			958				—				958				—				835				—				835				—
Asset-backed securities			753				—				753				—				792				—				792				—
Certificates of deposit placed through an account registry service (“CDARS”)			120				—				120				—				246				—				246				—
U.S. government and agency notes			113				—				113				—				140				—				140				—
Other fixed-income securities			188				—				188				—				54				—				54				—
Other investments measured at NAV			184				—				—				—				182				—				—				—
Restricted cash			109				109				—				—				124				124				—				—
Long-term investments:
Equity securities			99				99				—				—				—				—				—				—
Enhanced equipment trust certificates (“EETC”)			22				—				—				22				23				—				—				23

Available-for-sale investment maturities—The short-term investments shown in the table above are classified as available-for-sale. As of December 31, 2017, asset-backed securities have remaining maturities of less than one year to approximately 17 years, corporate debt securities have remaining maturities of less than one year to approximately three years and CDARS have maturities of less than one year. U.S. government and other securities have maturities of less than one year to approximately three years. The EETC securities mature in 2019.

Restricted cash—Restricted cash primarily includes cash collateral for letters of credit and collateral associated with obligations for facility leases and workers’ compensation.

Equity securities—Equity securities represent United’s investment in Azul Linhas Aereas Brasileiras S.A. (“Azul”), which was previously accounted for as a cost-method investment. The fair value of Azul’s shares became readily determinable in the second quarter of 2017 upon its initial public offering and the investment is now accounted for as available-for-sale.

Table of Contents

Investments presented in the table above have the same fair value as their carrying value. The table below presents the carrying values and estimated fair values of financial instruments not presented in the tables above as of December 31 (in millions):

		Fair Value of Debt by Fair Value Hierarchy Level
		2017																				2016
		Carrying Amount				Fair Value																Carrying Amount				Fair Value
						Total				Level 1				Level 2				Level 3								Total				Level 1				Level 2				Level 3
Long-term debt		$	13,268			$	13,787			$	—			$	10,115			$	3,672			$	10,767			$	11,055			$	—			$	8,184			$	2,871

Fair value of the financial instruments included in the tables above was determined as follows:

Description		Fair Value Methodology
Cash and cash equivalents		The carrying amounts approximate fair value because of the short-term maturity of these assets.
Short-term investments, Equity securities, EETC and Restricted cash		Fair value is based on (a) the trading prices of the investment or similar instruments, (b) an income approach, which uses valuation techniques to convert future amounts into a single present amount based on current market expectations about those future amounts when observable trading prices are not available, or (c) broker quotes obtained by third-party valuation services.
Other investments measured at NAV		In accordance with the relevant accounting standards, certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the table above are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. The investments measured using NAV are shares of mutual funds that invest in fixed-income instruments including bonds, debt securities, and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities. The Company can redeem its shares at any time at NAV subject to a three-day settlement period.
Long-term debt		Fair values were based on either market prices or the discounted amount of future cash flows using our current incremental rate of borrowing for similar liabilities.

Table of Contents

NOTE 10 - DEBT

(In millions)		At December 31,
		2017				2016
Secured
Notes payable, fixed interest rates of 2.88% to 9.52% (weighted average rate of 4.39% as of December 31, 2017), payable through 2028		$	8,661			$	7,586
Notes payable, floating interest rates of the London interbank offered rate (“LIBOR”) plus 0.2% to 2.25%, payable through 2028			1,880				1,546
Term loan, LIBOR plus 2.00%, or alternative rate based on certain market rates plus 1.00%, due 2024			1,489				—
Term loan, LIBOR subject to a 0.75% floor, plus 2.50%, or alternative rate based on certain market rates plus 1.50%, due 2019			—				866
Term loan, LIBOR subject to a 0.75% floor, plus 2.75%, or alternative rate based on certain market rates plus 1.75%, due 2021			—				192
Unsecured
6.375% Senior Notes due 2018 (a)			300				300
6% Senior Notes due 2020 (a)			300				300
4.25% Senior Notes due 2022 (a)			400				—
5% Senior Notes due 2024 (a)			300				—
Other			101				101
			13,431				10,891
Less: unamortized debt discount, premiums and debt issuance costs			(163)				(124)
Less: current portion of long-term debt			(1,565)				(849)
Long-term debt, net		$	11,703			$	9,918

(a) UAL is the issuer of this debt. United is a guarantor.

The table below presents the Company’s contractual principal payments (not including debt discount or debt issuance costs) at December 31, 2017 under then-outstanding long-term debt agreements in each of the next five calendar years (in millions):

2018		$	1,565
2019			1,165
2020			1,170
2021			1,157
2022			1,492
After 2022			6,882
		$	13,431

Secured debt

2017 Credit and Guaranty Agreement. On March 29, 2017, United and UAL, as borrower and guarantor, respectively, entered into an Amended and Restated Credit and Guaranty Agreement (as amended by the First Amendment to the Amended and Restated Credit and Guaranty Agreement, dated as of November 15, 2017, the “November 2017 Amendment,” and as so amended, the “2017 Credit Agreement”). The 2017 Credit Agreement consists of a $1.5 billion term loan due April 1, 2024, which was used to retire the entire principal balance of the term loans under the credit and guaranty agreement, dated March 27, 2013 (as amended, the “2013 Credit Agreement”), and increased the term loan balance by approximately $440 million. The 2017 Credit Agreement

Table of Contents

also includes a $2.0 billion revolving credit facility available for drawing until April 1, 2022, which increased the available capacity under the revolving credit facility by $650 million as compared to that in the 2013 Credit Agreement. The primary purpose of the November 2017 Amendment was to reduce the interest rate on borrowings by 0.25%. The obligations of United under the amended 2017 Credit Agreement are secured by liens on certain international route authorities, certain take-off and landing rights and related assets of United.

Borrowings under the 2017 Credit Agreement bear interest at a variable rate equal to LIBOR plus a margin of 2.00% per annum, or another rate based on certain market interest rates, plus a margin of 1.00% per annum. The principal amount of the term loan must be repaid in consecutive quarterly installments of 0.25% of the original principal amount thereof, commencing on June 30, 2017, with any unpaid balance due on April 1, 2024. United may prepay all or a portion of the loan from time to time, at par plus accrued and unpaid interest. United pays a commitment fee equal to 0.75% per annum on the undrawn amount available under the revolving credit facility.

As of December 31, 2017, United had its entire capacity of $2.0 billion available under the revolving credit facility of the Company’s 2017 Credit Agreement.

As of December 31, 2017, United had cash collateralized $75 million of letters of credit. United also had $362 million of surety bonds securing various obligations at December 31, 2017. Most of the letters of credit have evergreen clauses and are expected to be renewed on an annual basis. The surety bonds have expiration dates through 2021.

EETCs. As of December 31, 2017, United had $8.6 billion principal amount of equipment notes outstanding issued under EETC financings included in notes payable in the table of outstanding debt above. Generally, the structure of these EETC financings consists of pass-through trusts created by United to issue pass-through certificates, which represent fractional undivided interests in the respective pass-through trusts and are not obligations of United. The proceeds of the issuance of the pass-through certificates are used to purchase equipment notes which are issued by United and secured by its aircraft. The payment obligations under the equipment notes are those of United. Proceeds received from the sale of pass-through certificates are initially held by a depositary in escrow for the benefit of the certificate holders until United issues equipment notes to the trust, which purchases such notes with a portion of the escrowed funds. These escrowed funds are not guaranteed by United and are not reported as debt on United’s consolidated balance sheet because the proceeds held by the depositary are not United’s assets.

In February 2018, November 2017, September 2016 and June 2016, United created separate EETC pass-through trusts, each of which issued pass-through certificates. The proceeds of the issuance of the pass-through certificates are used to purchase equipment notes issued by United and secured by its aircraft. The Company records the debt obligation upon issuance of the equipment notes rather than upon the initial issuance of the pass-through certificates. Certain details of the pass-through trusts with proceeds received from issuance of debt in 2017 are as follows (in millions, except stated interest rate):

EETC Date		Class		Principal				Final expected distribution date		Stated interest rate				Total debt recorded as of December 31, 2017				Proceeds received from issuance of debt during 2017				Remaining proceeds from issuance of debt to be received in future periods
February 2018		AA		$	677			March 2030			3.50%			$	—			$	—			$	677
February 2018		A			258			March 2030			3.70%				—				—				258
November 2017		B			258			January 2026			3.65%				258				258				—
November 2017		B			236			October 2025			3.65%				236				236				—
September 2016		AA			637			October 2028			2.875%				637				557				—
September 2016		A			283			October 2028			3.10%				283				247				—
June 2016		AA			729			July 2028			3.10%				729				319				—
June 2016		A			324			July 2028			3.45%				324				142				—
				$	3,402									$	2,467			$	1,759			$	935

Table of Contents

In 2017, United borrowed approximately $497 million aggregate principal amount from various financial institutions to finance the purchase of several aircraft delivered in 2017. The notes evidencing these borrowings, which are secured by the related aircraft, mature in 2027 and have interest rates comprised of the LIBOR plus a specified margin.

Unsecured debt

4.25% Senior Notes due 2022. In September 2017, UAL issued $400 million aggregate principal amount of 4.25% Senior Notes due October 1, 2022 (the “4.25% Senior Notes due 2022”). These notes are fully and unconditionally guaranteed and recorded by United on its balance sheet as debt. The indenture for the 4.25% Senior Notes due 2022 requires UAL to offer to repurchase the notes for cash if certain changes of control of UAL occur at a purchase price equal to 101% of the principal amount of notes repurchased plus accrued and unpaid interest.

5% Senior Notes due 2024. In January 2017, UAL issued $300 million aggregate principal amount of 5% Senior Notes due February 1, 2024 (the “5% Senior Notes due 2024”). These notes are fully and unconditionally guaranteed and recorded by United on its balance sheet as debt. The indenture for the 5% Senior Notes due 2024 requires UAL to offer to repurchase the notes for cash if certain changes of control of UAL occur at a purchase price equal to 101% of the principal amount of notes repurchased plus accrued and unpaid interest.

Table of Contents

As of December 31, 2017, UAL and United were in compliance with their respective debt covenants. The collateral, covenants and cross default provisions of the Company’s principal debt instruments that contain such provisions are summarized in the table below:

Debt Instrument		Collateral, Covenants and Cross Default Provisions
Various equipment notes and other notes payable		Secured by certain aircraft. The indentures contain events of default that are customary for aircraft financing, including in certain cases cross default to other related aircraft.
Credit Agreement		Secured by certain of United’s international route authorities, specified take-off and landing slots at certain airports and certain other assets. The 2017 Credit Agreement requires the Company to maintain at least $2.0 billion of unrestricted liquidity at all times, which includes unrestricted cash, short-term investments and any undrawn amounts under any revolving credit facility, and to maintain a minimum ratio of appraised value of collateral to the outstanding obligations under the 2017 Credit Agreement of 1.6 to 1.0 at all times. The 2017 Credit Agreement contains covenants that, among other things, restrict the ability of UAL and its restricted subsidiaries (as defined in the 2017 Credit Agreement) to incur additional indebtedness and to pay dividends on or repurchase stock, although the Company currently has ample ability under these restrictions to repurchase stock under the Company’s share repurchase program. The 2017 Credit Agreement contains events of default customary for this type of financing, including a cross default and cross acceleration provision to certain other material indebtedness of the Company.
6.375% Senior Notes due 2018 6% Senior Notes due 2020 4.25% Senior Notes due 2022 5% Senior Notes due 2024		The indentures for these notes contain covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries (as defined in the indentures) to incur additional indebtedness and pay dividends on or repurchase stock, although the Company currently has ample ability under these restrictions to repurchase stock under the Company’s share repurchase program.

NOTE 11 - LEASES AND CAPACITY PURCHASE AGREEMENTS

United leases aircraft, airport passenger terminal space, aircraft hangars and related maintenance facilities, cargo terminals, other airport facilities, other commercial real estate, office and computer equipment and vehicles.

Table of Contents

At December 31, 2017, United’s scheduled future minimum lease payments under operating leases having initial or remaining noncancelable lease terms of more than one year, aircraft leases, including aircraft rent under CPAs and capital leases (substantially all of which are for aircraft) were as follows (in millions):

		Capital Leases (a)				Facility and Other Operating Leases				Aircraft Operating Leases
2018		$	200			$	1,234			$	1,038
2019			133				1,075				855
2020			113				1,169				628
2021			110				935				510
2022			105				797				388
After 2022			1,156				6,109				1,513
Minimum lease payments		$	1,817			$	11,319			$	4,932
Imputed interest			(693)
Present value of minimum lease payments			1,124
Current portion			(128)
Long-term obligations under capital leases		$	996

(a) Includes airport construction projects managed by United in which United has construction risk, including project cost overruns. The Company recorded an asset for project costs and a related liability equal to project costs funded by parties other than United. As of December 31, 2017, United had an asset balance of $814 million recorded in operating property and equipment and $777 million recorded in current and long-term obligations under capital leases for these airport construction projects.

As of December 31, 2017, United’s aircraft capital lease minimum payments relate to leases of 31 mainline and 43 regional aircraft as well as to leases of nonaircraft assets. Imputed interest rate ranges are 3.5% to 20.8%.

Aircraft operating leases have initial terms of five to 26 years, with expiration dates ranging from 2018 through 2029. Under the terms of most leases, United has the right to purchase the aircraft at the end of the lease term, in some cases, at fair market value, and in others, at fair market value or a percentage of cost.

During 2015, the Company reached an agreement with AerCap Holdings N.V., a major aircraft leasing company, to lease used Airbus S.A.S (“Airbus”) A319s. Eleven aircraft have been delivered since the inception of this agreement, and seven more aircraft are expected to be delivered between 2019 and 2020. In addition, United has options for seven more A319 aircraft, subject to certain conditions.

United is the lessee of real property under long-term operating leases at a number of airports where we are also the guarantor of approximately $1.4 billion of underlying debt and interest thereon as of December 31, 2017. These leases are typically with municipalities or other governmental entities, which are excluded from the consolidation requirements concerning a variable interest entity (“VIE”). To the extent United’s leases and related guarantees are with a separate legal entity other than a governmental entity, United is not the primary beneficiary because the lease terms are consistent with market terms at the inception of the lease and the lease does not include a residual value guarantee, fixed-price purchase option, or similar feature. United has facility operating leases that extend to 2054.

United’s nonaircraft rent expense was approximately $1.3 billion, $1.2 billion and $1.3 billion for the years ended December 31, 2017, 2016 and 2015, respectively.

In addition to nonaircraft rent and aircraft rent, which is separately presented in the consolidated statements of operations, United had aircraft rent related to regional aircraft operating leases, which is included as part of Regional capacity purchase expense in United’s consolidated statement of operations, of $458 million, $439 million and $461 million for the years ended December 31, 2017, 2016 and 2015, respectively.

In connection with UAL Corporation’s and United Air Lines, Inc.’s (predecessors to UAL and United) fresh-start reporting requirements upon their exit from Chapter 11 bankruptcy protection in 2006 and the Company’s

Table of Contents

acquisition accounting adjustments related to the Company’s merger transaction in 2010, lease valuation adjustments for operating leases were initially recorded in the consolidated balance sheet, representing the net present value of the differences between contractual lease rates and the fair market lease rates for similar leased assets at the time. An asset (liability) results when the contractual lease rates are more (less) favorable than market lease terms at the valuation date. The lease valuation adjustment is amortized on a straight-line basis as an increase (decrease) to rent expense over the individual applicable remaining lease terms, resulting in recognition of rent expense as if United had entered into the leases at market rates. The related remaining lease terms, primarily related to aircraft which make up the majority of the fair value lease adjustment balance, are one to seven years for United. The lease valuation adjustments are classified within other noncurrent liabilities and the net accretion amounts are $79 million, $82 million and $107 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Regional CPAs

United has contractual relationships with various regional carriers to provide regional aircraft service branded as United Express. Under these CPAs, the Company pays the regional carriers contractually agreed fees (carrier costs) for operating these flights plus a variable reimbursement (incentive payment for operational performance) based on agreed performance metrics, subject to annual inflation adjustments. The fees for carrier costs are based on specific rates for various operating expenses of the regional carriers, such as crew expenses, maintenance and aircraft ownership, some of which are multiplied by specific operating statistics (e.g., block hours, departures), while others are fixed monthly amounts. Under these CPAs, the Company is responsible for all fuel costs incurred, as well as landing fees and other costs, which are either passed through by the regional carrier to the Company without any markup or directly incurred by the Company. United’s CPAs are for 518 regional aircraft as of December 31, 2017, and the CPAs have terms expiring through 2029. Aircraft operated under CPAs include aircraft leased directly from the regional carriers and those owned by United or leased from third-party lessors and operated by the regional carriers. See Part I, Item 2, Properties, of this report for additional information.

In 2017, United entered into a five-year CPA with Air Wisconsin Airlines for regional service under the United Express brand to operate up to 65 CRJ200 aircraft. In addition, United extended the term of its existing CPA with ExpressJet Airlines to operate up to approximately 125 aircraft through December 31, 2022. In January 2018, United removed all Bombardier Q200 turboprop aircraft and Embraer ERJ 135 aircraft from service.

United holds a minority equity interest in two of its regional carriers, Champlain Enterprises, Inc. and Republic Airways Holdings, Inc. The contracts with these related parties are executed in the ordinary course of business. United recorded approximately $538 million, $486 million and $366 million in expenses related to its capacity purchase agreements with these regional carriers for the years ended December 31, 2017, 2016 and 2015, respectively. There were approximately $24 million and $32 million in accounts payable due to these companies as of December 31, 2017 and December 31, 2016, respectively. There were no material accounts receivable due from these companies as of December 31, 2017 and December 31, 2016.

Our future commitments under our CPAs are dependent on numerous variables, and are, therefore, difficult to predict. The most important of these variables is the number of scheduled block hours. Although we are not required to purchase a minimum number of block hours under certain of our CPAs, we have set forth below estimates of our future payments under the CPAs based on our assumptions. United’s estimates of its future payments under all of the CPAs do not include the portion of the underlying obligation for any aircraft leased to a regional carrier or deemed to be leased from other regional carriers and facility rent that are disclosed as part of aircraft and nonaircraft operating leases. For purposes of calculating these estimates, we have assumed (1) the number of block hours flown is based on our anticipated level of flight activity or at any contractual minimum utilization levels if applicable, whichever is higher, (2) that we will reduce the fleet as rapidly as contractually allowed under each CPA, (3) that aircraft utilization, stage length and load factors will remain constant, (4) that each carrier’s operational performance will remain at historic levels and (5) an annual projected inflation rate. These amounts exclude variable pass-through costs such as fuel and landing fees, among others. Based on these

Table of Contents

assumptions as of December 31, 2017, our future payments through the end of the terms of our CPAs are presented in the table below (in billions):

2018		$	2.0
2019			1.8
2020			1.6
2021			1.5
2022			1.4
After 2022			3.2
		$	11.5

The actual amounts we pay to our regional operators under CPAs could differ materially from these estimates. For example, a 10% increase or decrease in scheduled block hours for all of United’s regional operators (whether as a result of changes in average daily utilization or otherwise) in 2018 would result in a corresponding change in annual cash obligations under the CPAs of approximately $147 million.

NOTE 12 - VARIABLE INTEREST ENTITIES

Variable interests are contractual, ownership or other monetary interests in an entity that change with fluctuations in the fair value of the entity’s net assets exclusive of variable interests. A VIE can arise from items such as lease agreements, loan arrangements, guarantees or service contracts. An entity is a VIE if (a) the entity lacks sufficient equity or (b) the entity’s equity holders lack power or the obligation and right as equity holders to absorb the entity’s expected losses or to receive its expected residual returns. Therefore, if the equity owners as a group do not have the power to direct the entity’s activities that most significantly impact its economic performance, the entity is a VIE.

If an entity is determined to be a VIE, the entity must be consolidated by the primary beneficiary. The primary beneficiary is the holder of the variable interests that has the power to direct the activities of a VIE that (i) most significantly impact the VIE’s economic performance and (ii) has the obligation to absorb losses of or the right to receive benefits from the VIE that could potentially be significant to the VIE. Therefore, the Company must identify which activities most significantly impact the VIE’s economic performance and determine whether it, or another party, has the power to direct those activities.

The Company’s evaluation of its association with VIEs is described below:

Aircraft Leases. We are the lessee in a number of operating leases covering the majority of our leased aircraft. The lessors are trusts established specifically to purchase, finance and lease aircraft to us. These leasing entities meet the criteria for VIEs. We are generally not the primary beneficiary of the leasing entities if the lease terms are consistent with market terms at the inception of the lease and do not include a residual value guarantee, fixed-price purchase option or similar feature that obligates us to absorb decreases in value or entitles us to participate in increases in the value of the aircraft. This is the case for many of our operating leases; however, leases of 38 mainline jet aircraft contain a fixed-price purchase option that allow United to purchase the aircraft at predetermined prices on specified dates during the lease term. Additionally, leases covering 158 leased regional jet aircraft contain an option to purchase the aircraft at the end of the lease term at prices that, depending on market conditions, could be below fair value. United has not consolidated the related trusts because, even taking into consideration these purchase options, United is still not the primary beneficiary. United’s maximum exposure under these leases is the remaining lease payments, which are reflected in future lease commitments in Note 11 of this report.

EETCs. United evaluated whether the pass-through trusts formed for its EETC financings, treated as either debt or aircraft operating leases, are VIEs required to be consolidated by United under applicable accounting guidance, and determined that the pass-through trusts are VIEs. Based on United’s analysis as described below, United determined that it does not have a variable interest in the pass-through trusts.

Table of Contents

The primary risk of the pass-through trusts is credit risk (i.e. the risk that United, the issuer of the equipment notes, may be unable to make its principal and interest payments). The primary purpose of the pass-through trust structure is to enhance the credit worthiness of United’s debt obligation through certain bankruptcy protection provisions, a liquidity facility (in certain of the EETC structures) and improved loan-to-value ratios for more senior debt classes. These credit enhancements lower United’s total borrowing cost. Pass-through trusts are established to receive principal and interest payments on the equipment notes purchased by the pass-through trusts from United and remit these proceeds to the pass-through trusts’ certificate holders.

United does not invest in or obtain a financial interest in the pass-through trusts. Rather, United has an obligation to make interest and principal payments on its equipment notes held by the pass-through trusts. United did not intend to have any voting or non-voting equity interest in the pass-through trusts or to absorb variability from the pass-through trusts. Based on this analysis, the Company determined that it is not required to consolidate the pass-through trusts.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

Commitments. As of December 31, 2017, United had firm commitments and options to purchase aircraft from The Boeing Company (“Boeing”) and Airbus presented in the table below:

Aircraft Type		Number of Firm Commitments (a)
Airbus A350			45
Boeing 737 MAX			161
Boeing 777-300ER			4
Boeing 787			18
(a) United also has options and purchase rights for additional aircraft.

The aircraft listed in the table above are scheduled for delivery from 2018 through 2027. In 2018, United expects to take delivery of 10 Boeing 737 MAX aircraft, seven Boeing 787 aircraft and four Boeing 777-300ER aircraft. To the extent the Company and the aircraft manufacturers with whom the Company has existing orders for new aircraft agree to modify the contracts governing those orders, the amount and timing of the Company’s future capital commitments could change. Additionally, the Company has entered into a contract to purchase three used Boeing 767-300ER aircraft from Hawaiian Airlines, Inc. with expected delivery dates in the second half of 2018.

The table below summarizes United’s commitments as of December 31, 2017, which primarily relate to the acquisition of aircraft and related spare engines, aircraft improvements and include other capital purchase commitments for the years ended December 31 (in billions). Any new firm aircraft orders, including through the exercise of purchase options and purchase rights, will increase the total future capital commitments of the Company.

2018		$	3.2
2019			2.9
2020			2.1
2021			2.4
2022			1.8
After 2022			9.8
		$	22.2

In February 2018, the Company secured $935 million of EETC financing to finance certain aircraft deliveries in 2017 and the first half of 2018. The Company has also secured backstop financing commitments from certain of its aircraft manufacturers for a limited number of its future aircraft deliveries, subject to certain customary

Table of Contents

conditions. Financing may be necessary to satisfy the Company’s capital commitments for its firm order aircraft and other related capital expenditures.

Legal and Environmental. The Company has certain contingencies resulting from litigation and claims incident to the ordinary course of business. As of December 31, 2017, management believes, after considering a number of factors, including (but not limited to) the information currently available, the views of legal counsel, the nature of contingencies to which the Company is subject and prior experience, that the ultimate disposition of the litigation and claims will not materially affect the Company’s consolidated financial position or results of operations. The Company records liabilities for legal and environmental claims when a loss is probable and reasonably estimable. These amounts are recorded based on the Company’s assessments of the likelihood of their eventual disposition.

Guarantees and Indemnifications. In the normal course of business, the Company enters into numerous real estate leasing and aircraft financing arrangements that have various guarantees included in the contracts. These guarantees are primarily in the form of indemnities under which the Company typically indemnifies the lessors and any tax/financing parties against tort liabilities that arise out of the use, occupancy, operation or maintenance of the leased premises or financed aircraft. Currently, the Company believes that any future payments required under these guarantees or indemnities would be immaterial, as most tort liabilities and related indemnities are covered by insurance (subject to deductibles). Additionally, certain leased premises such as fueling stations or storage facilities include indemnities of such parties for any environmental liability that may arise out of or relate to the use of the leased premises.

As of December 31, 2017, United is the guarantor of approximately $1.8 billion in aggregate principal amount of tax-exempt special facilities revenue bonds and interest thereon. These bonds, issued by various airport municipalities, are payable solely from rentals paid under long-term agreements with the respective governing bodies. The leasing arrangements associated with $1.4 billion of these obligations are accounted for as operating leases with the associated expense recorded on a straight-line basis resulting in ratable accrual of the lease obligation over the expected lease term. These tax-exempt special facilities revenue bonds are included in our lease commitments disclosed in Note 11 of this report. The leasing arrangements associated with approximately $441 million of these obligations are accounted for as capital leases. All of these bonds are due between 2019 and 2038.

Increased Cost Provisions. In United’s financing transactions that include loans, United typically agrees to reimburse lenders for any reduced returns with respect to the loans due to any change in capital requirements and, in the case of loans in which the interest rate is based on LIBOR, for certain other increased costs that the lenders incur in carrying these loans as a result of any change in law, subject, in most cases, to obligations of the lenders to take certain limited steps to mitigate the requirement for, or the amount of, such increased costs. At December 31, 2017, the Company had $3.4 billion of floating rate debt and $60 million of fixed rate debt, with remaining terms of up to 11 years, that are subject to these increased cost provisions. In several financing transactions involving loans or leases from non-U.S. entities, with remaining terms of up to 11 years and an aggregate balance of $3.3 billion, the Company bears the risk of any change in tax laws that would subject loan or lease payments thereunder to non-U.S. entities to withholding taxes, subject to customary exclusions.

As of December 31, 2017, United is the guarantor of $157 million of aircraft mortgage debt issued by one of United’s regional carriers. The aircraft mortgage debt is subject to similar increased cost provisions as described above for the Company’s debt, and the Company would potentially be responsible for those costs under the guarantees.

Fuel Consortia. United participates in numerous fuel consortia with other air carriers at major airports to reduce the costs of fuel distribution and storage. Interline agreements govern the rights and responsibilities of the consortia members and provide for the allocation of the overall costs to operate the consortia based on usage. The consortia (and in limited cases, the participating carriers) have entered into long-term agreements to lease certain airport fuel storage and distribution facilities that are typically financed through tax-exempt bonds (either special facilities lease revenue bonds or general airport revenue bonds), issued by various local municipalities. In

Table of Contents

general, each consortium lease agreement requires the consortium to make lease payments in amounts sufficient to pay the maturing principal and interest payments on the bonds. As of December 31, 2017, approximately $1.5 billion principal amount of such bonds were secured by significant fuel facility leases in which United participates, as to which United and each of the signatory airlines has provided indirect guarantees of the debt. As of December 31, 2017, the Company’s contingent exposure was approximately $244 million principal amount of such bonds based on its recent consortia participation. The Company’s contingent exposure could increase if the participation of other air carriers decreases. The guarantees will expire when the tax-exempt bonds are paid in full, which ranges from 2022 to 2049. The Company did not record a liability at the time these indirect guarantees were made.

Regional Capacity Purchase. As of December 31, 2017, United had 257 call options to purchase regional jet aircraft being operated by certain of its regional carriers with contract dates extending until 2029. These call options are exercisable upon wrongful termination or breach of contract, among other conditions. None of the call options were exercisable at December 31, 2017.

Credit Card Processing Agreements. The Company has agreements with financial institutions that process customer credit card transactions for the sale of air travel and other services. Under certain of the Company’s credit card processing agreements, the financial institutions in certain circumstances have the right to require that the Company maintain a reserve equal to a portion of advance ticket sales that has been processed by that financial institution, but for which the Company has not yet provided the air transportation. Such financial institutions may require additional cash or other collateral reserves to be established or additional withholding of payments related to receivables collected if the Company does not maintain certain minimum levels of unrestricted cash, cash equivalents and short-term investments (collectively, “Unrestricted Liquidity”). The Company’s current level of Unrestricted Liquidity is substantially in excess of these minimum levels.

Labor Negotiations. As of December 31, 2017, United, including its subsidiaries, had approximately 89,800 employees. Approximately 80% of United’s employees were represented by various U.S. labor organizations as of December 31, 2017. The agreement with the International Brotherhood of Teamsters (the “IBT”) contains provisions that require the Company to align contract terms with other airlines’ workgroups under certain conditions.

UNITE HERE is attempting to organize United’s Catering Operations employees, who are currently unrepresented, and filed an application to do so with the National Mediation Board on January 24, 2018.

Table of Contents

NOTE 14 - SPECIAL CHARGES

Special charges in the statements of consolidated operations consisted of the following for the years ended December 31 (in millions):

Operating:		2017				2016				2015
Severance and benefit costs		$	116			$	37			$	107
Impairment of assets			25				412				79
Cleveland airport lease restructuring			—				74				—
Labor agreement costs			—				64				18
(Gains) losses on sale of assets and other special charges			35				51				122
Total operating special charges			176				638				326
Nonoperating:
(Gains) losses on extinguishment of debt and other			—				(1)				202
Total operating and nonoperating special charges before income taxes			176				637				528
Income tax benefit related to special charges			(63)				(229)				(11)
Income tax adjustments (Notes 6 and 7)			(192)				180				(3,130)
Total operating and nonoperating special charges, net of income taxes and income tax adjustments		$	(79)			$	588			$	(2,613)

2017

During 2017, the Company recorded $83 million ($53 million net of taxes) of severance and benefit costs related to a voluntary early-out program for its technicians and related employees represented by the IBT. In the first quarter of 2017, approximately 1,000 technicians and related employees elected to voluntarily separate from the Company and will receive a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through early 2019. Also during 2017, the Company recorded $33 million ($21 million net of taxes) of severance primarily related to its management reorganization initiative.

During 2017 the Company recorded a $10 million ($6 million net of taxes) impairment charge related to obsolete spare parts inventory and a $15 million ($10 million net of taxes) intangible asset impairment charge related to a maintenance service agreement.

2016

In April 2016, the Federal Aviation Administration (“FAA”) announced that it will designate Newark Liberty International Airport (“Newark”) as a Level 2 schedule-facilitated airport under the International Air Transport Association Worldwide Slot Guidelines. The designation was associated with an updated demand and capacity analysis of Newark by the FAA. In 2016, the Company determined that the FAA’s action impaired the entire value of its Newark slots because the slots are no longer the mechanism that governs take-off and landing rights. Accordingly, the Company recorded a $412 million special charge ($264 million net of taxes) to write off the intangible asset.

In 2016, the City of Cleveland agreed to amend the Company’s lease, which runs through 2029, associated with certain excess airport terminal space (principally Terminal D) and related facilities at Hopkins International Airport (“Cleveland”). The Company recorded an accrual for remaining payments under the lease for facilities

Table of Contents

that the Company no longer uses and will continue to incur costs under the lease without economic benefit to the Company. This liability was measured and recorded at its fair value when the Company ceased its right to use such facilities leased to it pursuant to the lease. The Company recorded a net charge of $74 million ($47 million net of taxes) related to the amended lease.

The fleet service, passenger service, storekeeper and other employees represented by the International Association of Machinists and Aerospace Workers (the “IAM”) ratified seven new contracts with the Company which extended the contracts through 2021. The technicians and related employees represented by the IBT ratified a six-year joint collective bargaining agreement which extended the contract through 2022. During 2016, the Company recorded $171 million ($110 million net of taxes) of special charges primarily for payments in conjunction with the IAM and IBT agreements described above. As part of the ratified contract with the IBT, the Company amended some of its technicians and related employees’ postretirement medical plans. The amendments triggered curtailment accounting, resulting in the recognition of a one-time $60 million gain ($38 million net of taxes) for accelerated recognition of a prior service credit in one of the plans. Also, as part of the ratified contract with the Association of Flight Attendants, the Company amended two of its flight attendant postretirement medical plans. The amendments triggered curtailment accounting, resulting in the recognition of a one-time $47 million gain ($30 million net of taxes) for accelerated recognition of a prior service credit.

During 2016, the Company recorded $37 million ($24 million net of taxes) of severance and benefit costs related to a voluntary early-out program for the Company’s flight attendants and other severance agreements. In 2014, more than 2,500 flight attendants elected to voluntarily separate from the Company for a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through the end of 2016.

2015

During its annual assessment in the fourth quarter, the Company recorded $33 million ($22 million net of related income tax benefit) related to the impairment of its indefinite-lived intangible assets (certain domestic slots and international Pacific routes), $8 million for the write-off of unexercised aircraft purchase options and $7 million for inventory held for sale. For the full-year 2015, the Company also recorded other impairments, including $10 million for discontinued internal software projects and $10 million for the impairment of several engines held for sale.

The Company recorded $107 million of severance and benefit costs primarily related to a voluntary early-out program for its flight attendants. In 2014, more than 2,500 flight attendants elected to voluntarily separate from the Company for a severance payment, with a maximum value of $100,000 per participant, based on years of service, with retirement dates through the end of 2016.

During 2015, the Company also recorded $18 million related to collective bargaining agreements, $60 million of integration-related costs primarily related to systems integration and training for employees, $32 million related to charges for settlements in connection with legal matters, $16 million for the cease use of an aircraft under lease and $14 million for losses on the sale of aircraft and other miscellaneous gains and losses.

The Company recorded $202 million of losses as part of Nonoperating income (expense): Miscellaneous, net due primarily to the write-off of $134 million related to the unamortized non-cash debt discount from the extinguishment of the 6% Notes due 2026 and the 6% Notes due 2028. During 2015, the Company also recorded a $61 million foreign exchange loss related to its cash holdings in Venezuela. The Venezuelan government has maintained currency controls and fixed official exchange rates (i.e. Sistema Complementario de Administracion de Divisas (“SICAD”), and Sistema Marginal de Divisas (“SIMADI”)) for many years. Previously, airlines were permitted to use the more favorable SICAD rate (13.5 Venezuelan bolivars to one U.S. dollar) if repatriating profits and for payments of local goods and services in Venezuela. During 2015, many of the payments for local goods and services transitioned to utilizing the SIMADI rate (200 Venezuelan bolivars to one U.S. dollar) or were required to be paid in U.S. dollars. Furthermore, the Venezuelan government has not permitted the exchange and repatriations of local currency since mid-2014. As a result, the Company changed the exchange

Table of Contents

rate from historical SICAD rates to a combination of SIMADI and SICAD rates based on projections of future cash payments. Including this adjustment, the Company’s resulting cash balance held in Venezuelan bolivars at December 31, 2015 was approximately $13 million.

Accrual Activity

Activity related to the accruals for severance and medical costs and future lease payments on permanently grounded aircraft is as follows (in millions):

		Severance/ Benefit Costs				Permanently Grounded Aircraft
Balance at December 31, 2014		$	109			$	102
Accrual			107				30
Payments			(189)				(54)
Balance at December 31, 2015			27				78
Accrual and related adjustments			37				(17)
Payments			(50)				(20)
Balance at December 31, 2016			14				41
Accrual			116				(4)
Payments			(93)				(15)
Balance at December 31, 2017		$	37			$	22

The Company’s accrual and payment activity is primarily related to severance and other compensation expense associated with voluntary employee early retirement programs.

NOTE 15 - SEGMENT INFORMATION

Operating segments are defined as components of an enterprise with separate financial information, which are evaluated regularly by the chief operating decision maker and are used in resource allocation and performance assessments.

The Company deploys its aircraft across its route network through a single route scheduling system to maximize its value. When making resource allocation decisions, the Company’s chief operating decision maker evaluates flight profitability data, which considers aircraft type and route economics. The Company’s chief operating decision maker makes resource allocation decisions to maximize the Company’s consolidated financial results. Managing the Company as one segment allows management the opportunity to maximize the value of its route network.

The Company’s operating revenue by principal geographic region (as defined by the U.S. Department of Transportation) for the years ended December 31 is presented in the table below (in millions):

		2017				2016				2015
Domestic (U.S. and Canada)		$	23,131			$	22,202			$	21,931
Pacific			4,898				4,959				5,498
Atlantic			6,285				6,157				7,068
Latin America			3,422				3,238				3,367
Total		$	37,736			$	36,556			$	37,864

The Company attributes revenue among the geographic areas based upon the origin and destination of each flight segment. The Company’s operations involve an insignificant level of dedicated revenue-producing assets in

Table of Contents

geographic regions as the overwhelming majority of the Company’s revenue producing assets (primarily U.S. registered aircraft) can be deployed in any of its geographic regions.

NOTE 16 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

UAL		Quarter Ended
(In millions, except per share amounts)		March 31				June 30				September 30				December 31
2017
Operating revenue		$	8,420			$	10,000			$	9,878			$	9,438
Income from operations			278				1,399				1,092				729
Net income			96				818				637				580
Basic earnings per share			0.31				2.67				2.12				1.99
Diluted earnings per share			0.31				2.66				2.12				1.99
2016
Operating revenue		$	8,195			$	9,396			$	9,913			$	9,052
Income from operations			649				1,060				1,624				1,005
Net income			313				588				965				397
Basic earnings per share			0.88				1.78				3.02				1.26
Diluted earnings per share			0.88				1.78				3.01				1.26

Table of Contents

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. UAL’s quarterly results were impacted by the following significant items (in millions):

		Quarter Ended
		March 31				June 30				September 30				December 31
2017
Operating:
Severance and benefit costs		$	37			$	41			$	23			$	15
Impairment of assets			—				—				15				10
(Gains) losses on sale of assets and other special charges			14				3				12				6
Total operating special charges			51				44				50				31
Income taxes:
Income tax benefit related to special charges			(18)				(16)				(18)				(11)
Income tax adjustments (Note 7)			—				—				—				(192)
Total operating special charges, net of income taxes and income tax adjustments		$	33			$	28			$	32			$	(172)
2016
Operating:
Labor agreement costs and related items		$	100			$	10			$	14			$	(60)
Cleveland airport lease restructuring			74				—				—				—
Severance and benefit costs			8				6				13				10
Impairment of assets			—				412				—				—
(Gains) losses on sale of assets and other special charges			8				6				18				19
Total operating special charges			190				434				45				(31)
Nonoperating and income taxes:
Losses (gain) on extinguishment of debt and other			8				(9)				—				—
Income tax expense (benefit) related to special charges			(72)				(153)				(16)				12
Income tax adjustments (Note 6)			—				—				—				180
Total operating and nonoperating special charges, net of income taxes and income tax adjustments		$	126			$	272			$	29			$	161

See Note 14 of this report for additional information of these items.

Table of Contents