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Recently Issued Accounting Standards (Policies) | 9 Months Ended
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Sep. 30, 2019
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] |
Recently Issued Accounting Standards | The Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 842, Leases (the "New Lease Standard"), effective January 1, 2019. The Company used the modified retrospective approach for all leases existing at or commencing after January 1, 2017 and elected the package of transition practical expedients for expired or existing contracts, which does not require reassessment of: (1) whether any of our contracts are or contain leases, (2) lease classification and (3) initial direct costs. The New Lease Standard prescribes that an entity should recognize a right-of-use asset and a lease liability for all leases at the commencement date of each lease and recognize expenses on their income statements similar to the prior FASB Accounting Standards Codification Topic 840, Leases ("Topic 840"). The adoption of the New Lease Standard had the same impact on the financial statements of United as it had on the financial statements of UAL. The table below presents the impact of the adoption of the New Lease Standard on select accounts and captions of UAL's statement of consolidated operations (in millions, except per share amounts):
| Three Months Ended September 30, 2018 |  | Nine Months Ended September 30, 2018
| As Reported |  | New Lease Standard Adjustments |  | As Adjusted |  | As Reported |  | New Lease Standard Adjustments |  | As Adjusted
Regional capacity purchase | $ | 663 |  |  | $ | 13 |  |  | $ | 676 |  |  | $ | 1,963 |  |  | $ | 36 |  |  | $ | 1,999 |
Landing fees and other rent | 596 |  |  | 22 |  |  | 618 |  |  | 1,757 |  |  | 65 |  |  | 1,822 |
Depreciation and amortization | 564 |  |  | (19 | ) |  | 545 |  |  | 1,662 |  |  | (55 | ) |  | 1,607 |
Interest expense | (187 | ) |  | 15 |  |  | (172 | ) |  | (540 | ) |  | 43 |  |  | (497 | )
Interest capitalized | 18 |  |  | (2 | ) |  | 16 |  |  | 51 |  |  | (5 | ) |  | 46 |
Net income | 836 |  |  | (3 | ) |  | 833 |  |  | 1,667 |  |  | (6 | ) |  | 1,661 |
Earnings per share, basic | 3.07 |  |  | (0.01 | ) |  | 3.06 |  |  | 6.02 |  |  | (0.02 | ) |  | 6.00 |
Earnings per share, diluted | 3.06 |  |  | (0.01 | ) |  | 3.05 |  |  | 5.99 |  |  | (0.01 | ) |  | 5.98 |
The expense for leases under the New Lease Standard will continue to be classified in their historical income statement captions (primarily in Aircraft rent, Landing fees and other rent and Regional capacity purchase in our statements of consolidated operations). The adoption of the New Lease Standard resulted in the recharacterization of certain leases from capital leases under Topic 840 to operating leases under the New Lease Standard. This change resulted in less depreciation and amortization and interest expense associated with capital leases offset by higher lease expense associated with operating leases. The recharacterization is associated with leases of certain airport facilities that were derecognized as part of the build-to-suit transition guidance under the New Lease Standard. The reduction in capitalized interest is also associated with the same airport facilities leases. The table below presents the impact of the adoption of the New Lease Standard on UAL's balance sheet accounts and captions (in millions):
| December 31, 2018
| As Reported |  | New Lease Standard Adjustments |  | As Adjusted
Receivables, less allowance for doubtful accounts | $ | 1,346 |  |  | $ | 80 |  |  | $ | 1,426 |
Prepaid expenses and other | 913 |  |  | (180 | ) |  | 733 |
Flight equipment, owned and finance leases (a) | 32,636 |  |  | (37 | ) |  | 32,599 |
Other property and equipment, owned and finance leases (a) | 7,930 |  |  | (1,041 | ) |  | 6,889 |
Accumulated depreciation and amortization, owned and finance leases (a) | (13,414 | ) |  | 148 |  |  | (13,266 | )
Operating lease right-of-use assets | — |  |  | 5,262 |  |  | 5,262 |
Current maturities of finance leases (a) | 149 |  |  | (26 | ) |  | 123 |
Current maturities of operating leases | — |  |  | 719 |  |  | 719 |
Other current liabilities | 619 |  |  | (66 | ) |  | 553 |
Long-term obligations under finance leases (a) | 1,134 |  |  | (910 | ) |  | 224 |
Long-term obligations under operating leases | — |  |  | 5,276 |  |  | 5,276 |
Deferred income taxes | 814 |  |  | 14 |  |  | 828 |
Other long-term liabilities | 1,832 |  |  | (822 | ) |  | 1,010 |
Retained earnings | 6,668 |  |  | 47 |  |  | 6,715 |
(a) Finance leases, under the New Lease Standard, are the equivalent of capital leases under Topic 840. The table below presents the impact of the adoption of the New Lease Standard on select line items of UAL's statement of consolidated cash flows (in millions):
| Nine Months Ended September 30, 2018
| As Reported |  | New Lease Standard Adjustments |  | As Adjusted
Cash Flows from Operating Activities: |  |  |  |  |
Net cash provided by operating activities | $ | 5,080 |  |  | $ | (45 | ) |  | $ | 5,035 |
Cash Flows from Investing Activities: |  |  |  |  |
Capital expenditures | (2,592 | ) |  | 96 |  |  | (2,496 | )
Cash Flows from Financing Activities: |  |  |  |  |
Proceeds from issuance of long-term debt | 1,332 |  |  | (91 | ) |  | 1,241 |
Principal payments under finance leases | (98 | ) |  | 41 |  |  | (57 | )
The adoption of the New Lease Standard primarily resulted in the recording of assets and liabilities of our operating leases on our consolidated balance sheets. Certain amounts recorded for prepaid and accrued rent associated with historical operating leases were reclassified to the newly captioned Operating lease right-of-use assets in the consolidated balance sheets. Also, certain leases designated under Topic 840 as owned assets and capital leases are not considered to be assets under the New Lease Standard and have been removed from the consolidated balance sheets, along with the related capital lease liability, due to the leases having variable lease payments. In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses ("ASU 2016-13"). The main objective is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The new accounting replaces the incurred loss methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. For trade receivables, loans and held-to-maturity debt securities, entities will be required to estimate lifetime expected credit losses. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. The new accounting is effective for fiscal years and interim periods beginning after December 15, 2019 and early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company does not expect the adoption of ASU 2016-13 to have a material impact on its consolidated financial statements.
Fair Value of Financial Instruments | 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 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 or assets.
AVH Derivative Assets | Fair values are calculated using a Monte Carlo simulation approach. Unobservable inputs include expected volatility, expected dividend yield and control and acquisition premiums.
Leases | 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, among other items. Certain of these leases include provisions for variable lease payments which are based on several factors, including, but not limited to, relative leased square footage, available seat miles, enplaned passengers, passenger facility charges, terminal equipment usage fees, departures, and airports' annual operating budgets. Due to the variable nature of the rates, these leases are not recorded on our balance sheet as a right-of-use asset and lease liability. For leases with terms greater than 12 months, we record the related right-of-use asset and lease liability at the present value of lease payments over the lease term. Leases with an initial term of 12 months or less with purchase options or extension options that are not reasonably certain to be exercised are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the term of the lease. We combine lease and non-lease components, such as common area maintenance costs, in calculating the right-of-use assets and lease liabilities for all asset groups except for our capacity purchase agreements ("CPAs"), which contain embedded leases for regional aircraft. In addition to the lease component cost for regional aircraft, our CPAs also include non-lease components primarily related to the regional carriers' operating costs incurred in providing regional aircraft services. We allocate consideration for the lease components and non-lease components of each CPA based on their relative standalone values.

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