How did UAL perform financially in 1994?

UAL reported net earnings of $51 million for 1994, compared with a net loss of $50 million in 1993. After preferred stock dividends, the company reported a loss of $0.61 per share. Operating revenues were $13.95 billion, and earnings from operations were $521 million. The Company notes that per-share comparisons with 1993 are not meaningful because of the recapitalization's effect on share count.

What was the employee investment transaction and what does it mean for shareholders?

Approved by shareholders on July 12, 1994, the recapitalization gives employees an approximately 55% equity and voting interest, which could rise to as much as 63%. Holders of old common stock received about $2.1 billion in cash plus the remaining 45% (subject to a possible reduction to not less than 37%) of the equity as new common stock. The filing states that the transaction could limit management's ability to alter strategy by restricting certain operating and financing activities, including asset sales, equity issuance and furloughs.

What are the main financial risks highlighted in the filing?

The filing cites higher leverage after the recapitalization, a working capital deficit of $1.714 billion, and sensitivity to fuel prices, where each $.01 per gallon change in the average jet fuel price changes annual fuel costs by about $27 million. It also notes a new federal jet fuel tax of 4.3 cents per gallon effective October 1, 1995, expected to add about $75 million annually to operating expenses, and industry competition from low-cost carriers and fare wars.

Does UAL pay dividends, and what are its ongoing capital commitments?

No dividends have been declared on common stock since 1987, and future dividends will depend on earnings, financial condition and other factors. The company paid $59 million in preferred stock dividends in 1994. Commitments for property and equipment purchases, principally aircraft, approximated $3.9 billion after advance payments, with about $1.2 billion expected to be spent in 1995.

UAL 10-K FY1994 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 8, 1995. Cited figures are marked; the original filing is the authoritative source.

UAL Corporation, the holding company for United Air Lines, Inc., reported 1994 net earnings of $51 million^a, or a loss of $0.61 per share after preferred dividends, compared with a 1993 net loss of $50 million ($3.40 per share).

Operating revenues rose to $13.95 billion^b from $13.33 billion, and earnings from operations improved to $521 million from $263 million. Results were affected by $169 million of pretax recapitalization costs and a $26 million after-tax charge for adopting SFAS No. 112. The Company states that the 1994 employee investment transaction and recapitalization put in place a lower cost structure, with the Shuttle by United low-cost short-haul service a key part of its response to low-cost competitors.

The recapitalization gave employees, through ESOPs, an approximately 55% equity and voting interest (up to 63% depending on future market value) in exchange for wage concessions and work-rule changes. Holders of old common stock received about $2.1 billion^c in cash plus 45% of the equity in new common stock. The transaction left the company more highly leveraged: equity decreased by about $1.7 billion and debt increased $741 million at the time of the transaction.

Liquidity was $1.532 billion^d in cash and short-term investments at year end, against a working capital deficit of $1.714 billion. No dividends have been declared on common stock since 1987. The filing also highlights exposure factors that investors should weigh: fuel price sensitivity (each $.01 per gallon change in jet fuel price changes annual fuel costs by about $27 million), a 4.3 cent per gallon federal fuel tax effective October 1, 1995, a purchase commitment of about $3.9 billion for aircraft, principally 34 B777s, and the planned Denver hub relocation and related airport rent increases expected to add about $140 million to 1995 operating expenses.

02—Key points

Key Highlights

Operating revenues of $13.95 billion in 1994, up from $13.33 billion in 1993.
Net earnings of $51 million in 1994 versus a net loss of $50 million in 1993; after preferred dividends, the 1994 loss was $0.61 per share.
Earnings from operations were $521 million in 1994, up from $263 million in 1993, despite $169 million of pretax recapitalization costs.
The employee investment transaction gave employees an approximately 55% equity and voting interest (up to 63%) in exchange for wage concessions and work-rule changes; holders of old common stock received about $2.1 billion in cash.
Leverage increased: UAL's equity decreased by about $1.7 billion and debt increased $741 million as a result of the recapitalization.
Cash and short-term investments totaled $1.532 billion at December 31, 1994, with a working capital deficit of $1.714 billion.
Aircraft purchase commitments were about $3.9 billion at year end, principally for 34 B777 aircraft expected to be delivered between 1995 and 1999.

03—Questions

Frequently Asked Questions

How did UAL perform financially in 1994?
UAL reported net earnings of $51 million for 1994, compared with a net loss of $50 million in 1993. After preferred stock dividends, the company reported a loss of $0.61 per share. Operating revenues were $13.95 billion, and earnings from operations were $521 million. The Company notes that per-share comparisons with 1993 are not meaningful because of the recapitalization's effect on share count.
What was the employee investment transaction and what does it mean for shareholders?
Approved by shareholders on July 12, 1994, the recapitalization gives employees an approximately 55% equity and voting interest, which could rise to as much as 63%. Holders of old common stock received about $2.1 billion in cash plus the remaining 45% (subject to a possible reduction to not less than 37%) of the equity as new common stock. The filing states that the transaction could limit management's ability to alter strategy by restricting certain operating and financing activities, including asset sales, equity issuance and furloughs.
What are the main financial risks highlighted in the filing?
The filing cites higher leverage after the recapitalization, a working capital deficit of $1.714 billion, and sensitivity to fuel prices, where each $.01 per gallon change in the average jet fuel price changes annual fuel costs by about $27 million. It also notes a new federal jet fuel tax of 4.3 cents per gallon effective October 1, 1995, expected to add about $75 million annually to operating expenses, and industry competition from low-cost carriers and fare wars.
Does UAL pay dividends, and what are its ongoing capital commitments?
No dividends have been declared on common stock since 1987, and future dividends will depend on earnings, financial condition and other factors. The company paid $59 million in preferred stock dividends in 1994. Commitments for property and equipment purchases, principally aircraft, approximated $3.9 billion after advance payments, with about $1.2 billion expected to be spent in 1995.

04—Continue

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