United Airlines 2015 Annual Report Download - page 47

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.
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.
The following table summarizes information related to the Company’s Frequent flyer deferred revenue liability:
Frequent flyer deferred revenue at December 31, 2015 (in millions) $4,943
% of miles earned expected to expire 16%
Impact of 1% change in outstanding miles or weighted average ticket value on deferred revenue (in millions) $ 60
Effective March 1, 2015, the Company modified its MileagePlus program for most tickets from a model in which members earned redeemable miles based on
distance traveled to one based on ticket price (including base fare and carrier imposed surcharges). Members now earn between five and eleven miles per
dollar spent based on their MileagePlus status. The updated program enhances the rewards for customers who spend more with United and gives them
improved mileage-earning opportunities. This modification had no material impact to the Frequent flyer deferred revenue on the Company’s consolidated
balance sheet.
Long-Lived Assets. The net book value of operating property and equipment for the Company was $22 billion and $19 billion at December 31, 2015 and
December 31, 2014, respectively. The assets’ recorded value is impacted by a number of accounting policy elections, including the estimation of useful lives
and residual values and, when necessary, the recognition of asset impairment charges.
The Company records assets acquired, including aircraft, at acquisition cost. Depreciable life is determined through economic analysis, such as reviewing
existing fleet plans, obtaining appraisals and comparing estimated lives to other airlines that operate similar fleets. As aircraft technology has improved,
useful life has increased and the Company has generally estimated the lives of those aircraft to be 30 years. Residual values are estimated based on historical
experience with regard to the sale of both aircraft and spare parts and are established in conjunction with the estimated useful lives of the related fleets.
Residual values are based on when the aircraft are acquired and typically reflect asset values that have not reached the end of their physical life. Both
depreciable lives and residual values are revised periodically as facts and circumstances arise to recognize changes in the Company’s fleet plan and other
relevant information. A one-year increase in the average depreciable life of the Company’s flight equipment would reduce annual depreciation expense on
flight equipment by approximately $50 million.
The Company evaluates the carrying value of long-lived assets and intangible 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 for purposes of testing aircraft for impairment. 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.
Defined Benefit Plan Accounting. We sponsor defined benefit pension plans for eligible employees and retirees. The most critical assumptions impacting our
defined benefit pension plan obligations and expenses are the weighted average discount rate and the expected long-term rate of return on the plan assets.
United’s pension plans’ under-funded status was $1.5 billion at December 31, 2015. Funding requirements for tax-qualified defined benefit pension plans are
determined by government regulations. In 2016, we anticipate contributing at least $400 million to our pension plans. The fair value of the plans’ assets was
$3.0 billion at December 31, 2015.
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Source: United Continental Holdings, Inc., 10-K, February 18, 2016 Powered by Morningstar® Document Research℠
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