Why did UAL's net earnings fall so sharply in 2000?

Earnings from operations fell to $654 million from $1.391 billion. Net earnings also absorbed a $209 million after-tax cumulative effect of an accounting change for Mileage Plus, a $61 million pre-tax Priceline.com impairment, and a $6 million extraordinary loss, partly offset by a $109 million pre-tax gain on GetThere.com. The filing cites labor-related delays, weather, air traffic control limits, and higher fuel and labor costs.

What is the status of the US Airways acquisition?

UAL agreed to acquire US Airways Group for $4.3 billion in cash, and US Airways stockholders approved the merger on October 12, 2000. The company expects closing in the second quarter of 2001, but the deal remains subject to regulatory clearance and other customary conditions. UAL assumes about $1.7 billion of US Airways net debt and $6.3 billion of operating leases.

How will the US Airways deal be financed?

UAL expects to incur approximately $4.5 billion in additional indebtedness through a combination of bank and public financing, and has not yet determined definitive financing arrangements. The AMR transaction, under which AMR would pay up to $1.2 billion in cash, is expected to reduce the debt needed for the acquisition.

What is the company's outlook for 2001?

Management expects first-quarter 2001 results to be substantially below the First Call consensus of a $2.82 loss per share. It cites a softening U.S. economy, a decline in high-yield near-term bookings, and reduced capacity. Full-year performance is now expected to be below plan levels, although the company reduced planned 2001 spending by $200 million. It declined to provide specific earnings estimates.

What labor risks does United face?

About 80% of United's employees are represented by labor organizations. Contracts with the IAM, covering mechanics and passenger service employees, became amendable in July 2000 and remain under negotiation. The filing notes that slowdown tactics have been observed and that the AFA wage discussions may require arbitration. Under the Railway Labor Act, self-help is limited while mediation proceeds.

UAL 10-K FY2001 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 16, 2001. Cited figures are marked; the original filing is the authoritative source.

UAL Corporation, the holding company for United Air Lines, Inc., reported 2000 operating revenues of $19.35 billion^a, up from $18.03 billion in 1999, but earnings collapsed.

Net earnings were $50 million^b, or $0.04 per diluted share, compared with $1.235 billion ($9.94 per diluted share) in 1999. Earnings from operations fell to $654 million from $1.391 billion. The results include a $209 million after-tax cumulative effect of an accounting change related to Mileage Plus revenue recognition, a $6 million extraordinary loss on debt extinguishment, a $61 million pre-tax investment impairment on Priceline.com warrants, and a $109 million pre-tax gain on the sale of GetThere.com stock.

The filing attributes the 2000 shortfall to operational disruptions, with a revenue impact estimated at $700 to $750 million^c, and to rising costs, including a 40% increase in the average price per gallon of jet fuel. The company is pursuing its acquisition of US Airways in an all-cash transaction valued at $4.3 billion, which it expects to close in the second quarter of 2001, subject to regulatory clearance. UAL expects to incur roughly $4.5 billion in additional indebtedness to finance the deal.

A January 2001 agreement with AMR Corporation provides for American Airlines to pay up to $1.2 billion^d in cash for gates, slots and up to 86 aircraft. Management stated that first-quarter 2001 results will be substantially below the First Call consensus of a $2.82 loss per share, and that full-year 2001 performance is expected to fall below plan because of softer revenues. Labor issues also remain significant: roughly 80% of United's employees are unionized, and contracts with the IAM became amendable in July 2000 and remain under negotiation.

At December 31, 2000, UAL had cash and short-term investments of $2.3 billion and long-term debt of $4.69 billion, with a working capital deficit of $2.0 billion. The company initiated a $1.25 annual dividend ($0.3125 per quarter) during 2000. Governance remains shaped by the 1994 employee ownership recapitalization, under which ESOP-related voting preferred stock carries about 55% of the vote on most matters.

02—Key points

Key Highlights

2000 net earnings fell to $50 million ($0.04 per diluted share) from $1.235 billion ($9.94 per diluted share) in 1999.
Operating revenues rose to $19.35 billion in 2000 from $18.03 billion in 1999, while earnings from operations dropped to $654 million from $1.391 billion.
Pending acquisition of US Airways for $4.3 billion in cash, expected to close in the second quarter of 2001 and subject to regulatory clearance, with about $4.5 billion of additional indebtedness expected.
AMR agreed to pay up to $1.2 billion in cash for surplus gates, slots and up to 86 aircraft tied to the US Airways transaction.
Management expects first-quarter 2001 results to be substantially below the First Call consensus of a $2.82 loss per share and full-year 2001 performance to be below plan.
Average jet fuel price rose 40% in 2000 to 81.0 cents per gallon, and operational disruptions reduced revenue by an estimated $700 to $750 million.
Year-end cash and short-term investments were $2.3 billion, against a working capital deficit of $2.0 billion and long-term debt of $4.69 billion.

03—Questions

Frequently Asked Questions

Why did UAL's net earnings fall so sharply in 2000?
Earnings from operations fell to $654 million from $1.391 billion. Net earnings also absorbed a $209 million after-tax cumulative effect of an accounting change for Mileage Plus, a $61 million pre-tax Priceline.com impairment, and a $6 million extraordinary loss, partly offset by a $109 million pre-tax gain on GetThere.com. The filing cites labor-related delays, weather, air traffic control limits, and higher fuel and labor costs.
What is the status of the US Airways acquisition?
UAL agreed to acquire US Airways Group for $4.3 billion in cash, and US Airways stockholders approved the merger on October 12, 2000. The company expects closing in the second quarter of 2001, but the deal remains subject to regulatory clearance and other customary conditions. UAL assumes about $1.7 billion of US Airways net debt and $6.3 billion of operating leases.
How will the US Airways deal be financed?
UAL expects to incur approximately $4.5 billion in additional indebtedness through a combination of bank and public financing, and has not yet determined definitive financing arrangements. The AMR transaction, under which AMR would pay up to $1.2 billion in cash, is expected to reduce the debt needed for the acquisition.
What is the company's outlook for 2001?
Management expects first-quarter 2001 results to be substantially below the First Call consensus of a $2.82 loss per share. It cites a softening U.S. economy, a decline in high-yield near-term bookings, and reduced capacity. Full-year performance is now expected to be below plan levels, although the company reduced planned 2001 spending by $200 million. It declined to provide specific earnings estimates.
What labor risks does United face?
About 80% of United's employees are represented by labor organizations. Contracts with the IAM, covering mechanics and passenger service employees, became amendable in July 2000 and remain under negotiation. The filing notes that slowdown tactics have been observed and that the AFA wage discussions may require arbitration. Under the Railway Labor Act, self-help is limited while mediation proceeds.

04—Continue

← View all 10-K filings