Will common shareholders receive any value from the bankruptcy?

The filing says no assurance can be given as to what values, if any, will be ascribed to each constituency in the bankruptcy proceedings. It states that UAL's equity or other securities may be restructured in a manner that reduces substantially or eliminates any remaining value, and the company urges appropriate caution with respect to investments in its securities and claims.

What are the main risks to the company's ability to exit Chapter 11?

The company must propose and obtain court confirmation of a plan of reorganization, and the filing states there can be no assurance a plan will be confirmed or successfully implemented. The company's DIP financing contains covenants, including earnings thresholds, and the filing says the adverse economic impact of external events, if not offset by savings, could lead to a covenant breach and foreclosure on substantial assets absent a waiver. Exclusivity was extended to October 2003.

How is the company reducing costs?

The filing describes wage reductions for management and salaried employees, the tentative pilot agreement, interim wage reductions for other unions, a 6% capacity reduction in 2003 with an additional 8% schedule reduction effective April 6, 2003, closing all U.S. city ticket offices, renegotiating aircraft lease and mortgage agreements for approximately $500 million in estimated savings by 2005, and a best practices program expected to yield $400 million in cost reductions by 2005.

What was the company's liquidity position at year-end 2002?

Cash, cash equivalents and short-term investments, including restricted cash, totaled $1.9 billion at December 31, 2002, compared with $2.6 billion a year earlier. Operating cash flow was negative $1.1 billion, including $130 million of government grant money. The company also reported $578 million of restricted cash, and it notes that the DIP financing requires a minimum unrestricted cash balance of $300 million.

UAL 10-K FY2003 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 28, 2003. Cited figures are marked; the original filing is the authoritative source.

UAL Corporation, now United Airlines Holdings, Inc., filed this Form 10-K on March 28, 2003, after its subsidiary United Air Lines, Inc. and 26 other subsidiaries filed voluntary Chapter 11 petitions on December 9, 2002.

The filing reports a 2002 net loss of $3.2 billion^a ($53.55 per share) on operating revenues of $14.29 billion, compared with a net loss of $2.1 billion in 2001. Total assets were $23.66 billion at year-end, and liabilities subject to compromise were $13.83 billion. The financial statements are prepared on a going-concern basis, but the auditors state that substantial doubt exists about the company's ability to continue as a going concern.

The company says it expects to file a plan of reorganization that provides for emergence as a going concern, but there is no assurance of confirmation. The exclusivity period was extended to October 2003. The company operates under $1.5 billion^b of debtor-in-possession financing, with covenants tied to EBITDAR and a $300 million minimum unrestricted cash balance.

The filing describes a plan for transformation that targets labor and non-labor cost reductions and a low-cost offering. The company has reached a tentative agreement with the Air Line Pilots Association on a restructured contract, which the filing says would reduce pay and benefits by an average of approximately $1.1 billion^c per year, and has filed a motion to reject its other collective bargaining agreements under Section 1113(c). The company also did not make certain municipal bond debt service payments due March 1, 2003, and does not intend to make payments due on or after April 1, 2003.

The NYSE has initiated delisting procedures, with the last expected trading day on April 2, 2003. For investors, the filing emphasizes that existing common stock and other securities may be restructured in a way that substantially reduces or eliminates remaining value, and it urges caution with respect to such investments.

02—Key points

Key Highlights

2002 net loss of $3.2 billion ($53.55 per share), versus a net loss of $2.1 billion in 2001; operating revenues of $14.29 billion versus $16.14 billion in 2001.
Chapter 11 filing on December 9, 2002 by UAL, United and 26 other subsidiaries; $1.5 billion of DIP financing approved on an interim basis, with final approval on December 30, 2002.
Auditors' report includes a going-concern paragraph citing substantial doubt about the company's ability to continue as a going concern.
Liabilities subject to compromise of $13.83 billion at December 31, 2002, against total assets of $23.66 billion.
Tentative pilot agreement reached March 26, 2003, which the filing says would reduce pay and benefits by an average of approximately $1.1 billion per year versus the current contract; the company also filed to reject its CBAs under Section 1113(c) on March 17, 2003.
Common stock was below the NYSE's $1 average-price criterion, and the NYSE has initiated delisting procedures, with the last expected trading day on April 2, 2003.
Did not make municipal bond debt service payments due March 1, 2003, and does not intend to pay debt service on or after April 1, 2003; the company suspended common dividends and has not paid dividends in 2002.

03—Questions

Frequently Asked Questions

Will common shareholders receive any value from the bankruptcy?
The filing says no assurance can be given as to what values, if any, will be ascribed to each constituency in the bankruptcy proceedings. It states that UAL's equity or other securities may be restructured in a manner that reduces substantially or eliminates any remaining value, and the company urges appropriate caution with respect to investments in its securities and claims.
What are the main risks to the company's ability to exit Chapter 11?
The company must propose and obtain court confirmation of a plan of reorganization, and the filing states there can be no assurance a plan will be confirmed or successfully implemented. The company's DIP financing contains covenants, including earnings thresholds, and the filing says the adverse economic impact of external events, if not offset by savings, could lead to a covenant breach and foreclosure on substantial assets absent a waiver. Exclusivity was extended to October 2003.
How is the company reducing costs?
The filing describes wage reductions for management and salaried employees, the tentative pilot agreement, interim wage reductions for other unions, a 6% capacity reduction in 2003 with an additional 8% schedule reduction effective April 6, 2003, closing all U.S. city ticket offices, renegotiating aircraft lease and mortgage agreements for approximately $500 million in estimated savings by 2005, and a best practices program expected to yield $400 million in cost reductions by 2005.
What was the company's liquidity position at year-end 2002?
Cash, cash equivalents and short-term investments, including restricted cash, totaled $1.9 billion at December 31, 2002, compared with $2.6 billion a year earlier. Operating cash flow was negative $1.1 billion, including $130 million of government grant money. The company also reported $578 million of restricted cash, and it notes that the DIP financing requires a minimum unrestricted cash balance of $300 million.

04—Continue

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