01—Abstract
Summary
Summary of the 10-K filed February 26, 2010. Cited figures are marked; the original filing is the authoritative source.
UAL Corporation and its principal subsidiary United Air Lines, Inc. filed this combined annual report for the fiscal year ended December 31, 2009.
The company reported an operating loss of $161 milliona on operating revenues of $16.34 billion in 2009, compared with an operating loss of $4.44 billion on revenues of $20.19 billion in 2008, and a net loss of $651 million, or $(4.32) per share, versus a net loss of $5.40 billion in 2008. Revenue declined as the global recession reduced passenger demand, with passenger revenue at United Airlines falling $3.43 billion, or 22.3%, and yields down 15.4% in the Domestic region. Management cut costs sharply, with aircraft fuel expense falling to $3.41 billion from $7.72 billion, removing 100 aircraft from the fleet and reducing the workforce by about 9,000 positions over 2008 and 2009.
Liquidity improved during 2009: the company reported unrestricted cash of more than $1.5 billionb generated from stock and debt issuances and aircraft sale-leasebacks, and cash and cash equivalents rose to $3.04 billion at year-end. The company stated it expects its cash flows and available capital to be sufficient for the next twelve months, but it reported total debt and capital lease obligations of $8.9 billion, pledged assets with a net carrying value of $8.0 billion, a corporate credit rating of B- from S&P, and a Caa1 rating from Moody's. The company was in compliance with its Amended Credit Facility covenants at year-end, which require a $1.0 billion minimum unrestricted cash balance and rising fixed charge coverage ratios through 2010.
Key risks include fuel price volatility, labor negotiations with all six U.S. unions (contracts became amendable in January 2010), antitrust investigations into air cargo pricing, and the pending open skies agreement with Japan. Subsequent to year-end, the company issued $700 millionc of Senior Secured and Senior Second Lien Notes in January 2010 and completed EETC refinancings. It also announced an order for 25 Boeing 787-8 Dreamliner aircraft, with a purchase agreement signed in February 2010, and a planned order for 25 Airbus A350 XWB aircraft.
02—Key points
Key Highlights
- Operating revenues fell to $16.34 billion in 2009 from $20.19 billion in 2008, while the operating loss narrowed to $161 million from $4.44 billion, which included a $2.28 billion goodwill impairment in 2008.
- Net loss was $651 million, or $(4.32) per share, in 2009, compared with a net loss of $5.40 billion, or $(42.59) per share, in 2008.
- Aircraft fuel expense fell to $3.41 billion from $7.72 billion, with the average Mainline fuel price per gallon declining to 175.3 cents from 353.9 cents.
- Cash and cash equivalents were $3.04 billion at December 31, 2009, up from $2.04 billion, after liquidity initiatives generated more than $1.5 billion of unrestricted cash.
- Total debt and capital lease obligations were $8.9 billion, and the company had a $1.0 billion minimum unrestricted cash covenant under its Amended Credit Facility.
- Credit ratings remained below investment grade, with a B- corporate rating from S&P (negative outlook), a Caa1 corporate family rating from Moody's, and a CCC issuer default rating from Fitch.
- All six U.S. labor contracts became amendable in January 2010, and the company has filed for mediation with four unions, creating a risk of future labor disruption.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 26, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $16.34B$20.19B | −19.1% |
| Operating Expenses | $16.50B$24.63B | −33.0% |
| Operating Income | -$161.00M-$4.44B | +96.4% |
| Interest Expense | $577.00M$571.00M | +1.1% |
| Net Income | -$651.00M-$5.40B | +87.9% |
| EPS (Basic) | $-4.32$-42.59 | +89.9% |
| EPS (Diluted) | $-4.32$-42.59 | +89.9% |
| Shares Outstanding (Basic) | 151.00M— | — |
| Shares Outstanding (Diluted) | 151.00M— | — |
05—Questions
Frequently Asked Questions
Why did the company report a smaller loss in 2009 than in 2008?
The 2008 results included a $2.28 billion goodwill impairment and $339 million of other impairments and special items, while 2009 included no goodwill impairment. Fuel expense also fell by $4.32 billion year over year, outweighing a $3.86 billion decline in operating revenues.
How much liquidity does the company have, and is it enough to meet its obligations?
At December 31, 2009, the company had $3.04 billion in cash and cash equivalents and $341 million in restricted cash. Management stated that cash flows from operations and available capital are expected to be sufficient to meet operating expenses, lease obligations and debt service for the next twelve months, though future liquidity could be affected by fuel prices, revenue declines and covenant compliance.
What covenant risks does the company face under its debt agreements?
The Amended Credit Facility requires a minimum unrestricted cash balance of $1.0 billion and a fixed charge coverage ratio that rises from 1.2 to 1.0 for the nine months ended December 31, 2009, to 1.5 to 1.0 from September 30, 2010 onward. The company stated it may be unable to continue complying, which could lead to acceleration of debt or higher credit card processor cash reserve requirements.
What is the company's exposure to fuel prices?
Fuel is one of the largest operating expenses. As of December 31, 2009, the company had hedged about 36% of its 2010 consolidated fuel consumption using purchased call options and swaps, with a notional amount of 9.7 million barrels of calls at a weighted-average strike of $76 per barrel and 9.9 million barrels of swaps at $77 per barrel. The company also may need to post cash collateral if fuel prices fall.
What major events occurred after the end of 2009?
In January 2010, the company issued $500 million of 9.875% Senior Secured Notes and $200 million of 12.0% Senior Second Lien Notes, and completed EETC refinancings that reduced 2010 and 2011 debt obligations. In February 2010, it signed a purchase agreement with Boeing for 25 787-8 Dreamliner aircraft, and an Airbus A350 XWB order was pending a definitive agreement.
06—Continue