UAL Corporation (Nasdaq: UAUA), the holding company whose primary subsidiary is United Airlines, today reported financial results for the third quarter ended September 30, 2006.
* UAL reported after-tax net income of $190 million. Excluding
reorganization and special items, this constituted a year-over-year
improvement of $95 million.
* Basic earnings per share was $1.62 and diluted earnings per share was
$1.30. The company began recording income tax expense which reduced the
quarter's diluted earnings per share by $0.43.
* Third quarter operating profit of $335 million was an improvement of
$170 million over the comparable quarter in 2005. Excluding special
items, the year-over-year improvement was $140 million.
* Continuing revenue and productivity improvements more than offset a $293
million increase in consolidated fuel expense.
* Operating cash flow totaled $131 million. The company's cash position
was $4.9 billion at September 30, 2006, including $860 million of
restricted cash.
Operating Margin Increases
UAL reported third quarter net income of $190 million. This represents basic earnings per share of $1.62 and fully diluted earnings per share of $1.30, with weighted average shares of 115.6 million and 151.1 million, respectively. The company recorded income tax expense in the quarter and the eight months ending September 30th of $60 million, which reduced the quarter's basic earnings per share by $0.52 and diluted earnings per share by $0.43.
In the quarter the company recognized the benefit of ongoing resolutions of several pre-confirmation contingencies, the largest of which was a special gain to operating income of $30 million, related to a reduction in the estimated liability for the secured interest of bondholders in one of United's leaseholds at San Francisco International Airport. In addition, the company recorded a $19 million accrual for year-end employee incentive programs due to improved earnings expectations, and recorded an unrealized $26 million loss for marking-to-market hedge positions in place at the end of the third quarter which will settle in future quarters.
Total revenues for the third quarter increased 11 percent to $5.2 billion compared with $4.7 billion in the third quarter of 2005. Despite a 23 percent increase in mainline and regional affiliate fuel expense, total operating expenses increased by only 8 percent on a 3 percent increase in consolidated capacity as compared to the third quarter of 2005.
Operating margin improved to 6.5 percent from 3.5 percent in the comparable 2005 quarter. Excluding the one-time special operating item, operating margin improved to 5.9 percent in the third quarter of 2006. Mainline unit earnings, which is mainline revenue per available seat mile (RASM) minus mainline operating cost per available seat mile (CASM), increased 19 percent to 0.74 cents from 0.62 cents a year ago despite higher fuel costs. Mainline unit earnings excluding fuel expense and the special item increased 18 percent to 4.34 cents from 3.67 cents.
Regional affiliates contributed $60 million to operating income, an improvement of $120 million compared with the third quarter of 2005. Revenue from regional affiliates continued to grow with a 17 percent increase over the year ago quarter, a result of growth, network optimization and a healthy revenue environment. Regional affiliates' expense declined by 1 percent, despite a 7 percent increase in capacity and 16 percent increase in fuel expense, primarily as a result of restructured regional carrier agreements.
"Our management team and our employees continue to press ahead, executing our core agenda of continuous improvement, controlling costs, optimizing revenue and improving the customer experience," said Glenn Tilton, UAL's chairman, president and CEO. "Our results underscore our progress, and we are building momentum, ensuring that our employees and leadership are completely aligned to deliver value to our customers and shareholders."
For the three and eight months ended September 30, 2006 the successor company recorded income tax expense of $60 million, whereas such expense was not recorded in comparable periods for the predecessor company. Income tax expense was recorded by applying an effective tax rate of 41% to pre-tax income for the eight months ended September 30, 2006. At September 30, UAL and subsidiaries had substantial net operating loss carry-forwards available to reduce tax liabilities of future periods. Therefore, the company does not expect to pay significant amounts of cash taxes in the near term.
Cash Flow Generation Continues To Be Strong
Despite moving into a seasonally slower period, the company generated operating cash flow of $131 million, an increase of $147 million year-over- year. The company ended the quarter with unrestricted cash and short-term investments of $4.1 billion, and a restricted cash balance of $860 million, for a total cash balance of $4.9 billion. Unrestricted cash and short-term investments decreased by $0.1 billion during the quarter due to debt repayment and capital spending.
"By focusing on our core business we have delivered two successive quarters of margin improvement," said Jake Brace, executive vice president and chief financial officer. "We are generating cash, and we are making progress reducing our costs to lessen inflationary pressures."
Strong Unit Revenue Growth
Total mainline passenger revenues increased 13 percent in the third quarter reflecting healthy demand, industry capacity restraint and yield improvements. Strong unit revenue growth in all reportable segments resulted in significant gains over last year's third quarter. Mainline passenger revenue per available seat mile (PRASM) increased by 10 percent, while mainline traffic increased by 2 percent on a 3 percent increase in capacity resulting in a 0.3 point decrease in mainline load factor to 83.6 percent. Mainline yield was 10 percent higher than last year. Mainline RASM increased by 7 percent, and excluding the company's fuel subsidiary (UAFC), increased by 8 percent.
The company posted particularly strong unit revenue increases in its international markets. Strong demand and yield performance led to Pacific PRASM improving by 14 percent while PRASM rose 11 percent in the Atlantic region for the quarter, despite the impact of the London terrorism plot. PRASM for Latin America grew 7 percent over the third quarter of 2005.
Comparison of 2006 Third Quarter versus 2005 Third Quarter
3Q 2006 Passenger
Passenger Revenues PRASM ASM(1)
Reportable Revenue (% Increase) (% Increase) (% Increase)
Segments (millions)
North America $ 2,436 13.1% 8.5% 4.2%
Pacific 792 11.5% 14.1% (2.2%)
Atlantic 566 11.6% 10.8% 0.9%
Latin America 122 25.8% 7.3% 17.7%
Total Mainline $ 3,916 13.0% 9.9% 2.7%
Regional Affiliates(2) $ 773 16.8% 9.2% 6.9%
Total Consolidated $ 4,689 13.6% 10.2% 3.1%
(1) ASM (available seat miles)
(2) For Form 10-Q segment reporting purposes, the company aggregates
Regional Affiliates results within the North America segment in
accordance with Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
Regional affiliate passenger unit revenue was 9 percent higher than last year, driven by a 6 percent increase in yield and a 2 point increase in load factor as compared to the third quarter of 2005.
The company continues to optimize the network to maximize revenue opportunities. United is in the process of increasing departures out of Washington Dulles by 14 percent this fall strengthening its international gateway position on the East Coast. New international flights from the hub include service to Kuwait, United's first service to the Middle East, and new service to Tokyo and to Rome. United is also seeking to provide the first- ever nonstop capital-to-capital service between Washington, D.C. and Beijing.
"We are pleased with the company's unit revenue improvements during the quarter, which compare quite favorably to our peers in the industry and represent solid progress toward our performance expectations," said John Tague, executive vice president and chief revenue officer.
Controlling Operating Expenses
Mainline CASM increased by 7 percent from the year-ago quarter, primarily driven by a 21 percent increase in mainline fuel prices. Excluding fuel and special operating items, mainline CASM was 7.29 cents, an increase of 2.5 percent compared with the third quarter of 2005.
Third Quarter
Mainline Consolidated
2006 2005 % Chg. 2006 2005 % Chg.
CASM (cents) 11.13 10.43 6.7 11.74 11.23 4.5%
CASM ex fuel
and special
items (cents)(3) 7.29 7.11 2.5 7.74 7.74 -
CASM ex fuel,
special items
and major
non-cash fresh
start and exit
related charges
(cents)(4) 7.08 7.11 (0.4%) 7.56 7.74 (2.3%)
(3) For Mainline and Consolidated, also excludes UAFC
(4) See Note 10 for detail of these charges
The company is on track to capture $300 million in benefits targeted for 2006 as well as the additional $400 million in 2007 initiatives.
Cost savings and the recognition of a rent credit previously expected in the fourth quarter helped to mitigate unanticipated expenses. The company estimates the London terrorism plot increased the quarter's expenses by $4 million, and it also recorded a $19 million accrual for year-end incentive programs for improved earnings expectations. Additionally, the company is experiencing increasing maintenance expenses driven by increasing materials expense, work content changes on airframes, and engine aging. The company continues to focus on the implementation of its continuous improvement programs to mitigate inflationary pressures.
Excluding fuel, special items and major non-cash fresh-start and exit- related items, mainline CASM decreased by 0.4 percent from the comparable quarter in 2005 (Note 9). The company believes that excluding these items is useful to investors in understanding year-over-year performance and depicting the results of the company's cost reduction efforts.
The company has entered into various fuel hedging positions and has designated them as economic hedges. In the third quarter, the company recognized a realized gain of $8 million related to hedges. The company also recognized an unrealized mark-to-market loss of $26 million related to hedge positions in place at the end of the third quarter which will settle in future quarters. These transactions are more fully described in the "Outlook" section of this release. United's mainline fuel procurement process generally sets the price for fuel approximately three to four weeks prior to consumption. Fuel expense is incurred during the period of consumption and reflects the lag described above. Accordingly, at any point of time there is a delay between prevailing spot prices for jet fuel and the price paid by the company.
Improving Productivity and Operating Performance
United is focused on systematically improving the customer experience and the efficiency of its operations while simultaneously reducing costs. The company is rolling out continuous improvement tools and techniques throughout the organization and has put its top 400 managers through a two-day session on continuous improvement best practices. The implementation of standard work processes and a continuous improvement culture has enabled resource optimization initiatives, such as tighter aircraft turns, to be implemented smoothly. This is apparent in the progress the company is making in enhancing its operational execution and customer service, as measured by the U.S. Department of Transportation. In spite of the operational and security related impacts of the London terrorism plot and continued implementation of tighter turn times, the company's on-time arrival performance improved compared to the first two quarters of 2006. While third quarter mishandled baggage performance declined from the first and second quarters, this was largely due to a 20 percent increase in baggage volume driven by the Transportation Security Administration's new security procedures.
As a result of ongoing initiatives and continued outsourcing, productivity continued to increase in the third quarter. Employee productivity (available seat miles divided by employee equivalents) improved 6 percent for the quarter compared to the same period in 2005 while average full-time equivalent employees decreased by 3 percent. Aircraft productivity, as measured by fleet utilization, improved 3 percent during the quarter to an average of approximately 11 hours, 25 minutes per day -- the highest in the company's history.
Operational efficiency will be further improved by the next round of resource optimization efforts at its Chicago hub. The recently implemented October flight schedule reduces turn times in Chicago by an average of 3 percent for mainline aircraft and 16 percent for United Express aircraft.
"We are continuing our focus on turning our aircraft more quickly, which is enabling us to add additional flights while reducing our unit costs," said Pete McDonald, UAL's executive vice president and chief operating officer. "We improved our operational performance during a period of extremely high load factors and heightened security measures, which is a testament to the tremendous work being done by our employees worldwide."
Operational Highlights
* United Airlines, the world's largest transpacific passenger carrier, was
voted the "Best North American Airline" for the sixth consecutive year
in Business Traveler Asia Pacific's 2006 annual travel awards.
* In September 2006, the U.S. State Department granted United Airlines
approval to offer the first American flight from the U.S. to Kuwait
City, which began October 28th.
* United's aircraft productivity was the highest in the company's history.
Fresh Start Reporting
Upon emergence from its Chapter 11 reorganization in February 2006, the company adopted fresh-start reporting in accordance with SOP 90-7 as of February 1, 2006. The company's emergence resulted in a new reporting entity with no retained earnings or accumulated deficit as of February 1, 2006. Accordingly, the company's financial information shown for periods prior to February 1, 2006 is not comparable to consolidated financial statements presented on or after that date. For further discussion on fresh-start reporting, please refer to the company's 2006 quarterly reports on Form 10-Q as filed with the Securities and Exchange Commission.
To offer additional information for investors, the company has identified certain items consisting only of major non-cash fresh-start reporting and exit-related credits and charges (Note 10). While it is not practicable for the company to present information for all items that are not comparable in the pre- and post-exit periods, the company believes that the items identified in the following table are the material non-cash fresh-start reporting and exit-related items and that such information is useful to investors in understanding year-over-year performance. These fresh-start and exit-related items were discussed in the company's Form 8-K filed with the Securities and Exchange Commission on May 8, 2006 with respect to the 2006 first quarter results of operations and in the company's 2006 second quarter 10-Q. In addition, the company believes that highlighting the special item recorded in the third quarter of 2006 is useful to investors because it is a non-recurring benefit not indicative of the company's ongoing performance. These items are shown in the following table:
Unfavorable / (Favorable) to Third Quarter 2006 Earnings
Non-Cash
(In millions) Fresh-Start
Special and Exit- Total
Item Related Items Adjustments
Revenue Impact
Prepaid miles 6 6
Other Mileage Plus 11 11
Mileage Plus revenue 17 17
Operating expense impact
Resolution of pre-confirmation
contingencies (30) (30)
Stock-based compensation 28 28
Mileage Plus Marketing Expense (6) (6)
Postretirement welfare costs 14 14
Depreciation and amortization 23 23
Deferred gain 18 18
Total Operating Expense (30) 77 47
Non-Operating Expense Impact
Prepaid Miles-Imputed Interest (30) (30)
Other Non-cash and fresh-start
interest expense 13 13
Total Non-Operating Expense (17) (17)
Excluding these non-cash expenses, special items, and fuel, mainline CASM for the third quarter would total an estimated 7.08 cents, or 0.4 percent lower than the comparable quarter last year (Note 9).
Outlook
As a result of improvement initiatives already underway, the company expects to achieve a portion of the planned 2007 savings ahead of schedule in 2006. Including the effects of these initiatives, the company estimates that mainline CASM excluding fuel for 2006 will be as follows:
Percentage Change Year-over-Year
Increase/(Decrease)
Q1 Q2 Q3 Full Year
Actual Actual Actual Q4E Estimate
(Note 9) (Note 9) (Note 9) (Note 11) (Note 11)
Mainline CASM
excluding fuel
and special
charges 3.3% 2.3% 2.5% 0.5% to 1.5% 2.1% to 2.4%
Mainline CASM
excluding
fuel,
severance,
and special
charges 3.3% 1.5% 2.5% 0.5% to 1.5% 1.9% to 2.1%
Mainline CASM
excluding fuel,
special
charges,
severance,
and certain
non-cash
exit
related
items (0.4)% (1.6)% (0.4)% (1.9)% to (0.9)% (1.1)% to (0.8)%
United is issuing the following capacity guidance for the fourth quarter, full-year 2006, and full-year 2007:
Capacity (ASMs) Fourth Quarter 2006 2007
Mainline +2.0 to 2.5 percent +2.0 to 2.5 percent +1 percent
Regional
Affiliates +15.5 to 16.5 percent +9.5 to 10.5 percent +3 percent
Consolidated +3.0 to 3.5 percent +2.5 to 3.0 percent +1 percent
2007 capacity increases are expected to be driven by the full year effect of higher aircraft utilization as a result of the company's 2006 resource optimization efforts. The company does not expect its fleet will increase in 2007.
As of October 30, 2006, United had hedged 34 percent of forecasted fuel consumption for the fourth quarter of 2006 through crude oil collars and swaps. On a weighted average basis, hedge protection begins if crude exceeds $69 per barrel. Conversely, payment obligations begin if crude, on a weighted average basis drops below the same $69 per barrel.
As of October 30, 2006, United had hedged 25 percent of forecasted fuel consumption for the first quarter of 2007 predominantly through crude oil three way collars with upside protection on a weighted average basis beginning from $65 per barrel and capped at $74 per barrel. Payment obligations on a weighted average basis begin if crude drops below $59 per barrel.
The company expects mainline jet fuel price per gallon to average $2.02 per gallon in the fourth quarter of 2006.
Note 9 to the attached Statements of Consolidated Operations provides a reconciliation of net income or loss reported under GAAP to net income or loss excluding reorganization items for all periods presented, as well as a reconciliation of other non-GAAP financial measures, including special items.
About United
United Airlines (Nasdaq: UAUA) operates more than 3,700* flights a day on United, United Express and Ted to more than 210 U.S. domestic and international destinations from its hubs in Chicago, Denver, Los Angeles, San Francisco and Washington, D.C. With key flight operations in the Asia-Pacific region, Europe and Latin America, United is one of the largest international carriers based in the United States. United is also a founding member of Star Alliance, which provides connections for our customers to 841 destinations in 157 countries worldwide. United's more than 55,000 employees reside in every U.S. state and in many countries around the world. News releases and other information about United can be found at the company's Web site at united.com.
*Based on the flight schedule between May 1, 2006 and Dec. 31, 2006
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Certain statements included in this press release are forward- looking and thus reflect the Company's current expectations and beliefs with respect to certain current and future events and financial performance. Such forward-looking statements are and will be subject to many risks and uncertainties relating to the operations and business environments of the Company that may cause actual results to differ materially from any future results expressed or implied in such forward-looking statements. Factors that could significantly affect net earnings, revenues, expenses, costs, load factor and capacity include, without limitation, the following: the Company's ability to comply with the terms of its credit facility; the costs and availability of financing; the Company's ability to execute its business plan; the Company's ability to attract, motivate and/or retain key employees; the Company's ability to attract and retain customers; demand for transportation in the markets in which the Company operates; general economic conditions (including interest rates, foreign currency exchange rates, crude oil prices and refining capacity in relevant markets); the effects of any hostilities or act of war or any terrorist attack; the ability of other air carriers with whom the Company has alliances or partnerships to provide the services contemplated by the respective arrangements with such carriers; the costs and availability of aircraft insurance; the costs of jet fuel; our ability to cost-effectively hedge against increases in the price of jet fuel; the costs associated with security measures and practices; labor costs; competitive pressures on pricing (particularly from lower-cost competitors) and on demand; capacity decisions of our competitors, U.S. or foreign governmental legislation, regulation and other actions; the ability of the Company to maintain satisfactory labor relations and our ability to avoid any disruptions to operations due to any potential actions by our labor groups; weather conditions; and other risks and uncertainties set forth from time to time in UAL's reports to the United States Securities and Exchange Commission. Consequently, the forward-looking statements should not be regarded as representations or warranties by the Company that such matters will be realized. The Company disclaims any intent or obligation to update or revise any of the forward-looking statements, whether in response to new information, unforeseen events, changed circumstances or otherwise.
Worldwide Communications:
Media Relations Office: 847.700.5538
Evenings/Weekends: 847.700.4088
UAL CORPORATION AND SUBSIDIARY COMPANIES
COMBINED SUCCESSOR AND PREDECESSOR COMPANY STATEMENTS OF CONSOLIDATED
OPERATIONS (UNAUDITED)
(In millions, except per share amounts)
Successor Predecessor
Three Three
Months Months
Ended Ended
September September
30, 30, %
(In accordance with GAAP) 2006 2005 Change
Operating revenues:
Passenger - United Airlines $3,916 $3,467 13.0
- Regional Affiliates 773 662 16.8
Cargo 183 174 5.2
Other operating revenues 304 352 (13.6)
5,176 4,655 11.2
Operating expenses:
Aircraft fuel 1,368 1,106 23.7
Salaries and related costs 1,060 1,008 5.2
Regional affiliates 713 722 (1.2)
Purchased services 426 375 13.6
Aircraft maintenance materials and
outside repairs 252 199 26.6
Landing fees and other rent 199 235 (15.3)
Depreciation and amortization 226 206 9.7
Cost of third party sales 153 190 (19.5)
Aircraft rent 104 87 19.5
Commissions 91 74 23.0
Special operating items (30) - -
Other operating expenses 279 288 (3.1)
4,841 4,490 7.8
Earnings from operations 335 165 103.0
Other income (expense):
Interest expense (164) (129) 27.1
Interest income 72 8 800.0
Interest capitalized 3 1 200.0
Miscellaneous, net 3 23 (87.0)
(86) (97) (11.3)
Earnings before reorganization items,
income taxes and equity in earnings
of affiliates 249 68 266.2
Reorganization items, net - (1,840) -
Earnings (loss) before income taxes
and equity in earnings of affiliates 249 (1,772) -
Income taxes 60 - -
Earnings (loss) before equity in
earnings of affiliates 189 (1,772) -
Equity in earnings of affiliates 1 - -
Net income (loss) $190 $(1,772) -
Earnings (loss) per share, basic $1.62 $(15.26)
Earnings (loss) per share, diluted $1.30 $(15.26)
Weighted average shares, basic 115.6 116.2
Weighted average shares, diluted 151.1 116.2
See accompanying notes.
UAL CORPORATION AND SUBSIDIARY COMPANIES
COMBINED SUCCESSOR AND PREDECESSOR COMPANY STATEMENTS OF CONSOLIDATED
OPERATIONS (UNAUDITED)
(In millions, except per share amounts)
Predecessor Successor Predecessor
Period Period
from from Combined Nine
January February Periods Months
1 to 1 to Ended Ended
January September September September
31, 30, 30, 30, %
(In accordance with GAAP) 2006 2006 2006 [a] 2005 Change
Operating revenues:
Passenger - United
Airlines $1,074 $9,904 $10,978 $9,684 13.4
- Regional
Affiliates 204 1,999 2,203 1,818 21.2
Cargo 56 501 557 526 5.9
Other operating revenues 124 892 1,016 965 5.3
1,458 13,296 14,754 12,993 13.6
Operating expenses:
Aircraft fuel 362 3,323 3,685 2,866 28.6
Salaries and related costs 358 2,857 3,215 3,093 3.9
Regional affiliates 228 1,896 2,124 2,052 3.5
Purchased services 134 1,169 1,303 1,119 16.4
Aircraft maintenance
materials and
outside repairs 80 688 768 645 19.1
Landing fees and
other rent 75 569 644 693 (7.1)
Depreciation and
amortization 68 592 660 620 6.5
Cost of third party sales 65 471 536 480 11.7
Aircraft rent 30 288 318 316 0.6
Commissions 24 224 248 227 9.3
Special operating items - (30) (30) 18 -
Other operating expenses 86 773 859 901 (4.7)
1,510 12,820 14,330 13,030 10.0
Earnings (loss) from
operations (52) 476 424 (37) -
Other income (expense):
Interest expense (42) (516) (558) (349) 59.9
Interest income 6 167 173 18 861.1
Interest capitalized - 10 10 (4) -
Miscellaneous, net - 5 5 90 (94.4)
(36) (334) (370) (245) 51.0
Earnings (loss) before
reorganization items,
income taxes and
equity in earnings
of affiliates (88) 142 54 (282) -
Reorganization items, net 22,934 - 22,934 (3,994) -
Earnings (loss) before
income taxes and
equity in earnings
of affiliates 22,846 142 22,988 (4,276) -
Income taxes - 60 60 - -
Earnings (loss) before
equity in earnings
of affiliates 22,846 82 22,928 (4,276) -
Equity in earnings
of affiliates 5 4 9 4 125.0
Net income (loss) $22,851 $86 $22,937 $(4,272) -
Earnings (loss) per
share, basic $196.61 $0.69 $(36.82)
Earnings (loss) per
share, diluted $196.61 $0.68 $(36.82)
Weighted average
shares, basic 116.2 115.3 116.2
Weighted average
shares, diluted 116.2 126.6 116.2
See accompanying notes.
[a] The combined periods include the results for one month ended
January 31, 2006 (Predecessor Company) and eight months ended
September 30, 2006 (Successor Company).
CONSOLIDATED NOTES (UNAUDITED)
(1) UAL Corporation ("UAL" or the "Company") is a holding company whose
principal subsidiary is United Air Lines, Inc. ("United"). On
December 9, 2002, UAL, United and twenty-six direct and indirect
wholly owned subsidiaries filed Chapter 11 petitions for relief in
the U.S. Bankruptcy Court for the Northern District of Illinois. On
February 1, 2006, the Company emerged from Chapter 11.
(2) In connection with its emergence from Chapter 11 bankruptcy
protection, the Company implemented fresh-start reporting in
accordance with American Institute of Certified Public Accountants'
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code." As a result of the
application of fresh-start reporting, the financial statements prior
to February 1, 2006 are not comparable with the financial statements
post February 1, 2006. However, the pre-emergence periods have been
compared to the post-emergence periods for the quarter ended
September 30, 2006 and the first nine months of 2006 have been
combined and compared to the first nine months of 2005. The Company
believes that these comparisons provide management and investors a
better perspective of the Company's on-going financial and
operational performance and trends. References to "Successor
Company" refer to UAL on or after February 1, 2006, after giving the
effect to the application of fresh-start reporting. References to
"Predecessor Company" refer to UAL prior to February 1, 2006.
(3) In connection with its bankruptcy proceedings, the Company recorded
the following largely non-cash reorganization items:
Period
from Three Nine
January 1 Months Months
to Ended Ended
January September September
31, 30, 30,
(In millions) 2006 2005 2005
Discharge of claims and liabilities $24,628 $- $- [a]
Revaluation of frequent flyer
obligations (2,399) - - [b]
Revaluation of other assets and
liabilities 2,106 - - [c]
Employee-related charges (898) (10) (23) [d]
Contract rejection charges (429) (34) (543) [e]
Professional fees (47) (42) (134)
Pension-related charges (14) - (1,045) [f]
Aircraft claim charges - (1,689) (2,195) [g]
Other (13) (65) (54)
Reorganization items, net $22,934 $(1,840) $(3,994)
[a] The discharge of claims and liabilities primarily relates to those
unsecured claims arising during the bankruptcy process, such as the
termination and settlement of the Company's U.S. defined benefit
pension plans and other employee claims; aircraft-related claims,
such as those arising as a result of aircraft rejections; other
unsecured claims due to the rejection or modification of executory
contracts, unexpired leases and regional carrier contracts; and
claims associated with certain municipal bond obligations based upon
their rejection, settlement or the estimated impact of the outcome of
pending litigation. In accordance with the plan of reorganization,
the Company discharged its obligations to unsecured creditors and
employees in exchange for the distribution of 115 million common
shares of the Successor Company and the issuance of certain other
securities. Accordingly, the Company recognized a non-cash
reorganization gain of $24.6 billion.
[b] The Company revalued its frequent flyer obligations to estimated fair
value as a result of fresh-start reporting, which resulted in a
$2.4 billion non-cash reorganization charge.
[c] In accordance with fresh-start reporting, the Company revalued its
assets at their estimated fair value and liabilities at estimated
fair value or the present value of amounts to be paid. This resulted
in a non-cash reorganization gain of $2.1 billion, primarily as a
result of newly recognized intangible assets, offset partly by
reductions in the fair value of tangible property and equipment.
[d] Employee-related charges include the value of the deemed claim that
the salaried and management group received upon confirmation of the
plan of reorganization. The deemed claim was based upon the cost
savings provided by this employee group during the bankruptcy
process.
[e] Contract rejection charges are non-cash costs that include our
estimate of claims resulting from the Company's rejection or
negotiated modification of certain contractual obligations such as
executory contracts, unexpired leases and regional carrier contracts.
[f] In the first and second quarters of 2005, the Company recognized
pension curtailment charges of $433 million and $207 million,
respectively, associated with actions taken by the Pension Benefit
Guaranty Corporation to involuntarily terminate three of the
Company's defined benefit pension plans for covered members of
certain ground and management employees, as well as flight
attendants. During the second quarter of 2005, the Company
recognized net settlement losses of $395 million as a result of the
termination of several defined benefit pension plans and a
$10 million settlement loss related to the termination of a
management non-qualified supplemental retirement plan.
[g] Aircraft claim charges include the Company's estimate of claims
incurred as a result of the rejection of certain aircraft leases and
return of aircraft as part of the bankruptcy process, together with
certain claims resulting from the modification of other aircraft
financings in bankruptcy.
(4) In accordance with the plan of reorganization, the Company may issue
up to 125 million shares (out of the one billion shares of new common
stock authorized under its certificate of incorporation). The new
common stock was listed on the NASDAQ National Market and began
trading under the symbol "UAUA" on February 2, 2006. The
distributions of common stock, subject to certain holdbacks as
described in the plan of reorganization, will be as follows:
- Approximately 115 million shares of common stock to unsecured
creditors and employees;
- Up to 9.825 million shares of common stock and options (or rights
to acquire shares) under the management equity incentive plan
("MEIP") approved by the Bankruptcy Court; and
- Up to 175,000 shares of common stock and options (or rights to
acquire shares) under the director equity incentive plan ("DEIP")
approved by the Bankruptcy Court.
In accordance with Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128"), basic per share amounts were
computed by dividing income (loss) available to common shareholders
by the weighted-average number of shares of common stock outstanding.
SFAS 128 requires that the entire 115 million shares to be issued to
unsecured creditors and employees be considered outstanding, although
the Company in fact has not issued all 115 million shares at
September 30, 2006. The table below presents the reconciliation of
the basic earnings per share to diluted earnings per share.
Successor Predecessor Predecessor Successor Predecessor
Period Period
Three Three from from Nine
Months Months January February Months
Ended Ended 1 to 1 to Ended
(In millions, September September January September September
except per share) 30, 30, 31, 30, 30,
2006 2005 2006 2006 2005
Basic earnings
per share:
Net income (loss) $190 $(1,772) $22,851 $86 $(4,272)
Preferred dividends (3) (2) (1) (7) (7)
Earnings (loss)
available to
common shareholders $187 $(1,774) $22,850 $79 $(4,279)
Basic weighted-average
common shares
outstanding 115.6 116.2 116.2 115.3 116.2
Earnings (loss)
per share -
basic $1.62 $(15.26) $196.61 $0.69 $(36.82)
Diluted earnings
per share:
Earnings (loss)
available to
common shareholders $187 $(1,774) $22,850 $79 $(4,279)
Effect of 2%
preferred
securities 3 - - 7 -
Effect of 4.5%
convertible notes 5 - - - -
Effect of 5%
convertible notes 1 - - - -
Earnings (loss)
available to
common shareholders
including the effect
of dilutive
securities $196 $(1,774) $22,850 $86 $(4,279)
Basic weighted-average
common shares
outstanding 115.6 116.2 116.2 115.3 116.2
Effect of
non-vested
restricted
shares 0.7 - - 0.5 -
Effect of 2%
preferred
securities 10.8 - - 10.8 -
Effect of 4.5%
convertible notes 20.8 - - - -
Effect of 5%
convertible notes 3.2 - - - -
Diluted weighted-average
common shares
outstanding 151.1 116.2 116.2 126.6 116.2
Earnings (loss)
per share -
diluted $1.30 $(15.26) $196.61 $0.68 $(36.82)
(5) In the third quarter of 2006, the Company recorded a benefit to
income from continuing operations relating to the resolution of
pre-confirmation contingencies, the largest of which was a special
item of $30 million to reduce the Company's recorded obligation for
the SFO municipal bonds to the amount the Company now estimates is
probable to be allowed by the Bankruptcy Court, in accordance with
AICPA Practice Bulletin 11, "Accounting for Preconfirmation
Contingencies in Fresh-Start Reporting."
In the second quarter of 2005, the Company recognized a charge of
$18 million for aircraft impairments related to the planned
accelerated retirement of certain aircraft.
(6) Included in UAL's operating earnings (loss) are the results of
United's wholly-owned subsidiary United Aviation Fuels Corporation
("UAFC").
Successor Predecessor Predecessor
Three Three Combined Nine
Months Months Periods Months
Ended Ended Ended Ended
September September September September
30, 30, % 30, 30, %
UAFC (in millions) 2006 2005 Change 2006 2005 Change
Other operating
revenues $88 $98 (10.2) $298 $226 31.9
Cost of third
party sales 85 94 (9.6) 291 221 31.7
Income from
operations $3 $4 (25.0) $7 $5 40.0
(7) UAL's results of operations include aircraft fuel expense for both
United mainline jet operations and regional affiliates. Aircraft
fuel expense incurred as a result of the Company's regional
affiliates' operations is reflected in Regional Affiliates operating
expense. In accordance with UAL's agreement with its regional
affiliates, these costs are incurred by the Company.
Year-Over-Year Impact of Fuel Expense
United Mainline and Regional Affiliate Operations
Successor Predecessor Predecessor
Three Three Combined Nine
Months Months Periods Months
Ended Ended Ended Ended
September September September September
(in millions, 30, 30, % 30, 30, %
except per gallon) 2006 2005 Change 2006 2005 Change
GAAP mainline
fuel expense $1,368 $1,106 23.7 $3,685 $2,866 28.6
Regional affiliates
fuel expense 224 193 16.1 638 506 26.1
United system
fuel expense $1,592 $1,299 22.6 $4,323 $3,372 28.2
Mainline fuel
consumption
(gallons) 596 582 2.4 1,723 1,692 1.8
Mainline average
jet fuel price
per gallon
(in cents) 229.7 190.1 20.8 213.9 169.4 26.3
Regional affiliates
fuel consumption
(gallons) 95 93 2.2 279 266 4.9
Regional affiliates
average jet fuel
price per gallon
(in cents) 233.4 208.2 12.1 228.2 190.0 20.1
(8) The tables below set forth certain operating statistics for United's
mainline, regional affiliates and consolidated operations:
[a] [a]
Three months
ended
September 30, North Regional Consol-
2006 America Pacific Atlantic Latin Mainline Affiliates idated
ASM (in
millions) 22,632 8,012 5,141 1,316 37,101 4,145 41,246
RPM (in
millions) 18,716 6,735 4,504 1,076 31,031 3,248 34,279
Passenger
revenues
(in millions) $2,436 $792 $566 $122 $3,916 $773 $4,689
PRASM (in
cents) 10.76 9.89 11.02 9.29 10.55 18.65 11.37
Yield (in
cents) [b] 12.93 11.74 12.41 11.19 12.58 23.80 13.64
Load Factor
(percent) 82.7 84.1 87.6 81.9 83.6 78.4 83.1
[a] [a]
Three months
ended
September 30, North Regional Consol-
2005 America Pacific Atlantic Latin Mainline Affiliates idated
ASM (in
millions) 21,710 8,195 5,094 1,118 36,117 3,878 39,995
RPM (in
millions) 18,187 6,800 4,404 915 30,306 2,956 33,262
Passenger
revenues
(in millions) $2,153 $710 $507 $97 $3,467 $662 $4,129
PRASM (in
cents) 9.92 8.67 9.95 8.66 9.60 17.08 10.32
Yield (in
cents) [b] 11.78 10.41 11.45 10.42 11.39 22.41 12.37
Load Factor
(percent) 83.8 83.0 86.5 81.9 83.9 76.2 83.2
[a] [a]
Nine months
ended
September 30, North Regional Consol-
2006 America Pacific Atlantic Latin Mainline Affiliates idated
ASM (in
millions) 65,502 23,673 14,255 4,350 107,780 11,767 119,547
RPM (in
millions) 53,986 19,753 11,972 3,525 89,236 9,220 98,456
Passenger
revenues
(in millions) $6,951 $2,177 $1,468 $382 $10,978 $2,203 $13,181
PRASM (in
cents) 10.61 9.20 10.30 8.78 10.19 18.72 11.03
Yield (in
cents) [b] 12.82 11.00 12.16 10.64 12.26 23.90 13.35
Load Factor
(percent) 82.4 83.4 84.0 81.1 82.8 78.4 82.4
[a] [a]
Nine months
ended
September 30, North Regional Consol-
2005 America Pacific Atlantic Latin Mainline Affiliates idated
ASM (in
millions) 62,921 23,807 14,888 3,892 105,508 10,901 116,409
RPM (in
millions) 51,560 19,415 12,354 3,062 86,391 8,206 94,597
Passenger
revenues
(in millions) $5,983 $1,986 $1,396 $319 $9,684 $1,818 $11,502
PRASM (in
cents) 9.51 8.34 9.38 8.19 9.18 16.68 9.88
Yield (in
cents) [b] 11.56 10.18 11.11 10.13 11.16 22.15 12.11
Load Factor
(percent) 81.9 81.6 83.0 78.7 81.9 75.3 81.3
[a] For Form 10-Q segment reporting purposes, the Company aggregates
Regional Affiliates results within the North America segment in
accordance with Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related
Information."
[b] Segment yields exclude charter revenue and revenue passenger miles.
(9) Pursuant to SEC Regulation G, the Company has included the following
reconciliation of reported non-GAAP financial measures to comparable
financial measures reported on a GAAP basis. The Company's
consolidated financial statements for the periods prior to exit are
not comparable to the statements presented after exit. In addition,
to offer additional information for investors, the Company has
identified and described certain items affecting reported earnings
consisting of major non-cash fresh-start reporting and exit-related
items. Further, the Company believes that excluding fuel costs from
certain measures is useful to investors because it provides an
additional measure of management's performance excluding the effects
of a significant cost item over which management has limited
influence. The Company also believes that adjusting for special
items and the severance charge is useful to investors because they
are non-recurring charges not indicative of the Company's on-going
performance.
The tables below set forth the reconciliation of non-GAAP financial
measures for certain operating statistics that are used in
determining key indicators such as adjusted passenger revenue per
revenue passenger mile ("Yield"), operating revenue per available
seat mile ("RASM"), operating margin, net income (loss) and operating
expense per available seat mile ("CASM").
Successor Predecessor Predecessor
Three Three Combined Nine
Months Months Periods Months
Ended Ended Ended Ended
September September September September
30, 30, % 30, 30, %
2006 2005 Change 2006 2005 Change
[a] Yield (in
millions)
Passenger -
United
Airlines $3,916 $3,467 13.0 $10,978 $9,684 13.4
Less: industry
reduced fares
& passenger
charges 14 14 - 37 43 (14.0)
Mainline adjusted
passenger
revenue $3,902 $3,453 13.0 $10,941 $9,641 13.5
Mainline revenue
passenger
miles 31,031 30,306 2.4 89,236 86,391 3.3
Adjusted mainline
Yield (in cents) 12.58 11.39 10.4 12.26 11.16 9.9
Consolidated
passenger
revenue $4,689 $4,129 13.6 $13,181 $11,502 14.6
Less: industry
reduced fares
& passenger
charges 14 14 - 37 43 (14.0)
Consolidated
adjusted
passenger
revenue $4,675 $4,115 13.6 $13,144 $11,459 14.7
Consolidated
revenue
passenger
miles 34,279 33,262 3.1 98,456 94,597 4.1
Adjusted
consolidated
Yield
(in cents) 13.64 12.37 10.3 13.35 12.11 10.2
[b] RASM (in
millions)
Mainline
Consolidated
operating
revenues $5,176 $4,655 11.2 $14,754 $12,993 13.6
Less:
Passenger -
Regional
Affiliates 773 662 16.8 2,203 1,818 21.2
Mainline
operating
revenues $4,403 $3,993 10.3 $12,551 $11,175 12.3
Mainline
available
seat miles 37,101 36,117 2.7 107,780 105,508 2.2
Mainline RASM
(in cents) 11.87 11.05 7.4 11.65 10.59 10.0
Mainline
operating
revenues $4,403 $3,993 10.3 $12,551 $11,175 12.3
Less: UAFC (i) 88 98 (10.2) 298 226 31.9
Mainline
operating
revenues
excluding UAFC $4,315 $3,895 10.8 $12,253 $10,949 11.9
Mainline RASM
excluding
UAFC (in cents) 11.63 10.78 7.9 11.37 10.38 9.5
Successor Predecessor Predecessor
Three Three Combined Nine
Months Months Periods Months
Ended Ended Ended Ended
September September September September
30, 30, % 30, 30, %
2006 2005 Change 2006 2005 Change
[c] Operating Margin
(in millions)
Consolidated
operating
earnings $335 $165 103.0 $424 $(37) -
Adjusted for:
Special items 30 - - 30 (18) -
Severance charge - - - (22) - -
Adjusted operating
earnings $305 $165 84.8 $416 $(19) -
Consolidated
operating
revenues $5,176 $4,655 11.2 $14,754 $12,993 13.6
Adjusted
operating
margin
(percent) 5.9 3.5 2.4 pts 2.8 (0.1) 2.9 pts
[d] Net income
(loss) (in
millions)
Net income
(loss) $190 $(1,772) - $22,937 $(4,272) -
Adjusted for:
Reorganization
charges, net - (1,840) - 22,934 (3,994) -
Severance charge - - - (22) - -
Special items 30 - - 30 (18) -
Income taxes (1) (3) - - (3) - -
Adjusted net
income (loss) $163 $68 140.3 $(2) $(260) 99.4
(1) The income tax adjustment represents the difference in the income tax
provision between actual Successor Company net income and adjusted
Successor Company net income for the eight month period ended
September 30, 2006, calculated using an effective tax rate of 41%.
[e] CASM (in
millions)
Mainline
Consolidated
operating
expenses $4,841 $4,490 7.8 $14,330 $13,030 10.0
Less: Regional
Affiliates 713 722 (1.2) 2,124 2,052 3.5
Mainline
operating
expenses $4,128 $3,768 9.6 $12,206 $10,978 11.2
Mainline
available seat
miles 37,101 36,117 2.7 107,780 105,508 2.2
Mainline CASM
(in cents) 11.13 10.43 6.7 11.33 10.40 8.9
Mainline
operating
expenses $4,128 $3,768 9.6 $12,206 $10,978 11.2
Less: mainline
fuel expense 1,368 1,106 23.7 3,685 2,866 28.6
Less: cost of
third party
sales - UAFC (i) 85 94 (9.6) 291 221 31.7
Adjusted mainline
operating
expense $2,675 $2,568 4.2 $8,230 $7,891 4.3
Adjusted mainline
CASM (in cents) 7.21 7.11 1.4 7.64 7.48 2.1
Mainline
operating
expenses
excluding
mainline
fuel expense
and UAFC $2,675 $2,568 4.2 $8,230 $7,891 4.3
Less: special
items (30) - - (30) 18 -
Adjusted mainline
operating
expense $2,705 $2,568 5.3 $8,260 $7,873 4.9
Adjusted mainline
CASM (in cents) 7.29 7.11 2.5 7.66 7.46 2.7
Mainline
operating
expenses
excluding
mainline
fuel expense,
UAFC and
special items $2,705 $2,568 5.3 $8,260 $7,873 4.9
Less: severance
charge - - - 22 - -
Adjusted mainline
operating
expense $2,705 $2,568 5.3 $8,238 $7,873 4.6
Adjusted mainline
CASM (in cents) 7.29 7.11 2.5 7.64 7.46 2.4
Mainline
operating
expens