01—Abstract
Summary
Summary of the 10-K filed March 6, 1998. Cited figures are marked; the original filing is the authoritative source.
UAL Corporation, the holding company for United Air Lines, Inc., reported 1997 operating revenues of $17.378 billiona, up from $16.362 billion in 1996, and net earnings of $949 million ($8.95 per share diluted), compared with $533 million ($5.06 per share diluted) in 1996.
Earnings from operations rose to $1.259 billionb from $1.123 billion. Results were helped by a $275 million pre-tax gain and a $103 million gain on the sale of the Apollo Travel Services Partnership interest to Galileo International, and were reduced by ESOP compensation expense of $987 million, up from $685 million. Operating expenses were $16.119 billion.
Cash and short-term investments totaled $845 millionc at year-end, operating cash flow was $2.567 billion, and the working capital deficit was $2.300 billion. Total assets were $15.803 billion. Management expects full-year 1998 system revenues to be lower than originally planned, citing a fall-off in Pacific revenue passenger miles tied to the Asian economic downturn.
It projects available seat miles to rise 2.5% and revenue per available seat mile to rise about 1%. Commitments for aircraft and property purchases were about $5.6 billiond at year-end, with about $2.6 billion due in 1998. The company also reports a 55% employee ownership interest arising from the 1994 recapitalization, a Year 2000 remediation effort whose total cost it cannot yet estimate, and labor contracts that raise salary costs faster than major competitors through 2000.
The filing also covers a revised US-Japan aviation agreement, the Star Alliance formed in 1997, the EU's review of transatlantic alliances, and a 1997 change in travel agency commissions that is expected to save about $100 million annually. The company had 271 owned and 304 leased jet aircraft at year-end 1997.
02—Key points
Key Highlights
- Operating revenues rose to $17.378 billion in 1997 from $16.362 billion in 1996.
- Net earnings were $949 million ($8.95 per share diluted), up from $533 million ($5.06 per share diluted) in 1996.
- Results include a $275 million pre-tax gain and a $103 million gain tied to the sale of the Apollo Travel Services Partnership interest to Galileo International.
- ESOP compensation expense increased to $987 million from $685 million, reflecting the higher UAL stock price.
- Operating cash flow was $2.567 billion, while property additions totaled $2.812 billion.
- Management expects lower 1998 system revenues than originally planned because of weakness in Pacific traffic tied to the Asian economic downturn.
- Capital commitments for aircraft and property were about $5.6 billion at December 31, 1997, with about $2.6 billion due in 1998.
03—Questions
Frequently Asked Questions
How did UAL's profitability change in 1997?
Net earnings rose to $949 million ($8.95 per share diluted) from $533 million ($5.06 per share diluted) in 1996. Earnings from operations increased to $1.259 billion from $1.123 billion. The 1997 results include a $275 million pre-tax gain and a $103 million gain related to the Apollo Travel Services sale, along with $9 million of extraordinary losses on early debt extinguishment.
What is the outlook for 1998?
The company expects full-year system revenues to be lower than originally planned because Pacific revenue passenger miles fell in the first two months of the year amid the Asian economic downturn. It expects available seat miles to increase 2.5% and revenue per available seat mile to rise about 1%. It also expects some costs, such as fuel, to come in below earlier estimates.
What are the company's main capital and liquidity commitments?
At December 31, 1997, purchase commitments for property and equipment, principally aircraft, were about $5.6 billion after advance payments, of which about $2.6 billion is due in 1998. Cash and short-term investments were $845 million, and the working capital deficit was $2.300 billion, which the company says is typical for its operations. A new $750 million revolving credit facility is also available to United.
What is the significance of the employee ownership structure?
The 1994 recapitalization gave employees an approximately 55% equity and voting interest in UAL through ESOPs in exchange for wage concessions and work-rule changes. Because shares are allocated over time, employees' current ownership is substantially less than 55%. ESOP compensation expense was $987 million in 1997, and the filing notes that labor agreements could limit management's ability to change strategy.
What are the main risks the filing highlights?
The filing cites jet fuel prices, with each $.01 per gallon change estimated to affect annual fuel costs by about $30 million, and changes in Asian economic conditions. It also highlights a possible European Commission restriction on transatlantic alliances, changes in government aviation policy, airport slot constraints, and Year 2000 remediation costs that management cannot yet estimate.
04—Continue