01—Abstract
Summary
Summary of the 10-K filed February 29, 2008. Cited figures are marked; the original filing is the authoritative source.
UAL Corporation, the holding company for United Air Lines, Inc., reported 2007 operating revenues of $20.14 billiona and net income of $403 million, compared with net income of $22.9 billion in 2006 that was driven almost entirely by reorganization income from emergence from Chapter 11 on February 1, 2006.
Earnings from operations rose to $1.04 billionb in 2007 from $447 million on a combined 2006 basis, and operating cash flow improved to $2.1 billion. The filing attributes the improvement to higher revenues, cost control and special items, while Mainline fuel expense rose to $5.0 billion as the average price per gallon increased to $2.18 from $2.11. The company reduced balance-sheet debt by about $2.3 billion during 2007, including $1.5 billion of credit facility repayments, and ended the year with cash, restricted cash and short-term investments of $4.3 billion.
A $2.15c per share special distribution totaling about $257 million was paid in January 2008. United also announced a five-year plan with more than 250 initiatives, is evaluating possible sales of its MRO and Mileage Plus businesses, and is refitting 97 international aircraft with lie-flat business seats. The filing also flags significant risks.
Its credit ratings are below investment grade (S&P B, Moody's B2), it has pledged most of its assets as collateral, and it faces a pending European Commission air cargo cartel investigation with no reserve recorded. Unresolved bankruptcy claims and September 11 litigation remain open, and all six U.S. labor agreements become amendable in January 2010.
02—Key points
Key Highlights
- Operating revenues of $20.143 billion in 2007, up from $19.340 billion on a combined 2006 basis; earnings from operations of $1.037 billion versus $447 million in 2006.
- Net income of $403 million in 2007, compared with $22.9 billion in 2006 driven by reorganization income tied to emergence from bankruptcy on February 1, 2006.
- Diluted earnings per share of $2.79 for 2007; the company declared a $2.15 per share special distribution (about $257 million), paid January 23, 2008.
- Mainline aircraft fuel expense of $5.0 billion, with average price per gallon of $2.18 versus $2.11 in 2006; fuel is the largest operating expense.
- Operating cash flow of $2.1 billion in 2007 versus $1.6 billion in 2006; cash, restricted cash and short-term investments totaled $4.3 billion at year-end.
- Debt reduced by about $2.3 billion in 2007 on a total basis, including a $1.5 billion reduction in credit facility borrowings; the Amended Credit Facility was reduced to $2.055 billion.
- Credit ratings remain below investment grade (S&P B, Moody's B2), and a substantial majority of available assets is pledged as collateral.
03—Questions
Frequently Asked Questions
How did UAL's profitability change in 2007?
Net income was $403 million in 2007, compared with $22.9 billion in 2006. The 2006 figure was dominated by a $22.9 billion reorganization gain from emerging from Chapter 11, so the more meaningful comparison is operating results: earnings from operations rose to $1.04 billion from $447 million on a combined 2006 basis, which the filing attributes to higher revenues, cost control and special items.
What are the main cost pressures the company faces?
Fuel is the largest operating expense. Mainline fuel expense was $5.0 billion in 2007, with the average price per gallon rising to $2.18 from $2.11 in 2006. The filing notes that fare increases may not fully offset fuel price increases and that hedging may not succeed in controlling costs.
What is the status of the company's debt and liquidity?
The company reduced balance-sheet debt by about $2.3 billion in 2007 and ended the year with $4.3 billion in cash, restricted cash and short-term investments. Its credit ratings remain below investment grade, and most available assets are pledged as collateral. The company says it should have sufficient liquidity to fund 2008 operating and capital needs.
What significant legal or regulatory matters could affect investors?
The company faces a European Commission Statement of Objections in an air cargo surcharge investigation, with no reserve recorded; penalties could be substantial. Unresolved bankruptcy claims and September 11 litigation remain open, and any liability from September 11 is expected to be limited to insurance coverage by statute.
What strategic actions is management pursuing?
Management has a five-year plan with more than 250 initiatives and significant capital investment. The company is evaluating strategic alternatives for its MRO business and its Mileage Plus program, which could include a sale, though the filing says there is no assurance any transaction will occur. A $200 million cost reduction program for 2008 has also been announced.
04—Continue