01—Abstract
Summary
Summary of the 10-K filed February 22, 2011. Cited figures are marked; the original filing is the authoritative source.
United Continental Holdings, Inc. (UAL), formed by the October 1, 2010 merger of UAL Corporation and Continental Airlines, reported net income of $253 milliona for 2010, compared with a net loss of $651 million in 2009.
Excluding special items, net income was $942 millionb versus a net loss of $1.1 billion in 2009. Operating revenues rose to $23.23 billion from $16.34 billion, and operating income was $976 million. The filing attributes the improvement primarily to stronger global economic conditions following the 2008 and 2009 recession, with passenger revenue up 43% as higher fares and business traffic recovered.
Continental's results were included only from October 1, 2010. Liquidity improved substantially, with unrestricted cash, cash equivalents and short-term investments reaching a record $8.7 billionc, up from $3.0 billion, driven by $4.2 billion of cash acquired from Continental and $1.9 billion of operating cash flow. Total debt and capital lease obligations rose to $15.1 billion, and the company remains below investment grade (B/B2/B-).
Management expects the merger to deliver $1.0 billion to $1.2 billiond in annual run-rate net synergies by 2013, and it cites significant ongoing merger-related charges of $733 million in 2010. Key risks highlighted include covenant compliance under the Amended Credit Facility and senior notes, exposure to fuel prices (a $1 per barrel change affects annual fuel expense by approximately $99 million), unresolved union contract negotiations with ALPA and other groups, an $11.6 billion federal NOL carryforward subject to Section 382 limits, and potential issuance of up to $500 million of 8% Contingent Senior Notes to the PBGC if EBITDAR triggers are met.
02—Key points
Key Highlights
- Net income of $253 million in 2010 versus a net loss of $651 million in 2009; excluding special items, net income was $942 million.
- Operating revenues of $23.23 billion, up from $16.34 billion, with passenger revenue increasing 43% on higher fares and business traffic.
- Unrestricted cash, cash equivalents and short-term investments of a record $8.7 billion at December 31, 2010, versus $3.0 billion a year earlier.
- Total debt and capital lease obligations of $15.1 billion; corporate credit ratings are below investment grade (S&P B, Moody's B2, Fitch B-).
- Merger with Continental expected to yield $1.0 billion to $1.2 billion in net annual run-rate synergies by 2013, with $733 million of merger-related costs and special charges recorded in 2010.
- Fuel expense of $6.69 billion, or 31% of total operating expenses, with an average price of $2.35 per gallon excluding hedges.
- Federal NOL carryforwards of approximately $11.6 billion, subject to Section 382 limitations, and a 5% ownership transfer restriction in the certificate of incorporation.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 22, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $23.32B$16.34B | +42.8% |
| Operating Expenses | $22.35B$16.50B | +35.5% |
| Operating Income | $976.00M-$161.00M | +706.2% |
| Interest Expense | $798.00M$577.00M | +38.3% |
| Net Income | $253.00M-$651.00M | +138.9% |
| EPS (Basic) | $1.22$-4.32 | +128.2% |
| EPS (Diluted) | $1.08$-4.32 | +125.0% |
| Shares Outstanding (Basic) | 207.00M151.00M | +37.1% |
| Shares Outstanding (Diluted) | 253.00M151.00M | +67.5% |
05—Questions
Frequently Asked Questions
Why did UAL swing from a loss to a profit in 2010?
The filing attributes the improvement primarily to improving global economic conditions following the 2008 and 2009 recession, which drove higher fares, stronger business and premium cabin demand, and higher passenger revenue. Operating income rose to $976 million from a loss of $161 million in 2009.
How much debt does the company carry and what are the main covenant constraints?
Debt and capital lease obligations totaled $15.1 billion at year-end 2010. The Amended Credit Facility requires a minimum unrestricted cash balance of $1.0 billion, a minimum collateral ratio, and a minimum fixed charge coverage ratio of 1.5 to 1.0. Failure to comply could trigger acceleration of debt.
What is the financial exposure to fuel prices?
The filing estimates that a $1 per barrel change in crude oil prices would change annual fuel expense by approximately $99 million based on 2011 projected consumption. Fuel hedges at December 31, 2010 had an asset fair value of $375 million, and a 10% decline in forward prices would reduce that value by $274 million.
What labor and legal issues could affect results?
About 72% of UAL's employees are unionized, and joint contract negotiations with ALPA for pilots are ongoing. United's collective bargaining agreements are amendable, and the filing states the company cannot yet assess the timing or magnitude of the financial impact. Legal matters include air cargo investigations, a Brazilian criminal proceeding and September 11 litigation, which management believes will not materially affect results.
Could the company have to issue additional securities?
Yes. UAL may be obligated to issue up to $500 million of 8% Contingent Senior Notes to the PBGC if EBITDAR exceeds $3.5 billion in specified periods, and the company has $1.7 billion of convertible debt outstanding that could dilute existing stockholders. The filing also notes the PBGC has taken a position that the Merger constituted a fundamental change under its indenture, which the company disputes.
06—Continue