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United Airlines Holdings Annual Report, Year Ended Dec 31, 2006

Filing Date
Filed March 16, 2007
Period End
December 31, 2006
Security
UAL
In the record · 2016–202610-K1110-Q338-K265

UAL filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 265 current reports (8-K) between 2016 and 2026.

  1. Material agreement8-K · Apr ’17Apr ’17
  2. Material agreement8-K · May ’19May ’19
  3. Leadership change8-K · Jul ’21Jul ’21
  4. Leadership change8-K · May ’25May ’25

01—Abstract

Summary

Summary of the 10-K filed March 16, 2007. Cited figures are marked; the original filing is the authoritative source.

UAL Corporation, the holding company for United Air Lines, Inc., filed this Form 10-K for 2006 after emerging from Chapter 11 bankruptcy on February 1, 2006.

The company reports that its restructuring has made United competitive with network airline peers. Operating income was $499 milliona for the eleven months ended December 31, 2006 (Successor Company), and the combined 2006 period showed earnings from operations of $447 million, compared with operating losses of $219 million in 2005 and $854 million in 2004. Net income for the Successor period was $25 million, while the one-month Predecessor period reported net income of $22.85 billion, driven by reorganization items tied to the bankruptcy discharge.

Fuel remained the largest expense, with mainline fuel expense of $4.46 billionb for the Successor period, and the average price per gallon rose to $2.11 in 2006 from $1.79 in 2005. The balance sheet changed substantially after emergence. Total assets were $25.37 billion at December 31, 2006, and long-term debt including current portion was $10.6 billion, largely driven by the $3.0 billion Credit Facility and newly issued notes.

In February 2007 the company prepaid $972 millionc of Credit Facility debt and amended the facility to a $2.055 billion commitment, which management expects to save approximately $70 million in net interest expense annually. The company held $5.0 billion of total cash, restricted cash and short-term investments at year-end. Management disclosed a material weakness in internal control over income tax accounting, which Deloitte & Touche described as an adverse opinion on internal control effectiveness.

Key risks include continued high fuel costs, intense competition from low-cost carriers (about 82% of United's domestic revenue is exposed to LCC competition), unresolved bankruptcy claims and litigation (including pension plan termination appeals and an air cargo and passenger pricing antitrust investigation), and a high level of fixed obligations. The company also notes that its net operating loss carryforward of approximately $2.7 billiond is subject to limitation if an ownership change occurs under Section 382.

02—Key points

Key Highlights

  1. Operating income of $499 million for the eleven months ended December 31, 2006 (Successor Company), versus an operating loss of $2.8 billion in 2002, the year of the bankruptcy filing.
  2. Mainline fuel expense was $4.46 billion for the Successor period; average mainline fuel price rose to $2.11 per gallon in 2006 from $1.79 in 2005.
  3. Emerged from Chapter 11 on February 1, 2006, with fresh-start reporting; Predecessor January 2006 net income of $22.85 billion reflects reorganization gains.
  4. Total operating revenues of $19.3 billion for the combined 2006 period, up $2.0 billion from 2005, with mainline passenger revenue up 11%.
  5. February 2007 prepayment of $972 million on the Credit Facility and an amendment to a $2.055 billion facility, expected to save about $70 million in annual net interest expense.
  6. Management identified a material weakness in income tax accounting, and Deloitte & Touche issued an adverse opinion on internal control over financial reporting as of December 31, 2006.
  7. Ended 2006 with $5.0 billion in total cash, restricted cash and short-term investments; the company is rated below investment grade (B by S&P, B2 by Moody's).

03—Questions

Frequently Asked Questions

  1. Why did UAL report such a large net income figure for early 2006?

    The Predecessor Company's January 2006 net income of $22.85 billion reflects a $22.9 billion reorganization income item, primarily from the discharge of liabilities subject to compromise under the Plan of Reorganization. This non-cash gain is excluded from the company's core results; excluding reorganization items, the combined 2006 net loss was $58 million.

  2. How significant is fuel cost to UAL's results?

    Fuel is the company's largest operating expense. Mainline fuel expense was $4.46 billion for the Successor period and $362 million for January 2006. The average price per gallon, including tax and hedge impact, rose to $2.11 in 2006 from $1.79 in 2005, and the company says it can offset only some, but not all, future fuel increases through fares and hedging.

  3. What is the status of the company's debt after emergence from bankruptcy?

    At December 31, 2006, total debt was $9.39 billion before a $247 million unamortized discount. In February 2007, the company prepaid $972 million of its Credit Facility and amended the remaining facility to $2.055 billion, which reduces collateral requirements and is expected to save about $70 million in annual net interest expense. The company was in compliance with its covenants at year-end.

  4. What material risks did management disclose that could affect investors?

    Key risks include high and volatile fuel prices, intense competition from low-cost carriers, the possibility of further terrorist attacks, labor relations (all U.S. labor agreements become amendable in January 2010), unresolved bankruptcy claims and pension litigation, a material weakness in tax accounting controls, and the risk of an ownership change limiting the approximately $2.7 billion net operating loss carryforward.

04—Continue

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