01—Abstract
Summary
Summary of the 10-K filed February 22, 2012. Cited figures are marked; the original filing is the authoritative source.
United Continental Holdings, Inc. (UAL), together with its wholly-owned subsidiaries United Air Lines, Inc. and Continental Airlines, Inc., filed this combined 10-K for fiscal 2011.
UAL reported 2011 operating revenue of $37.11 billiona, operating income of $1.82 billion, and net income of $840 million, compared with operating revenue of $23.33 billion, operating income of $976 million, and net income of $253 million in 2010. Excluding special items, net income was $1.32 billion in 2011 versus $942 million in 2010. Unrestricted cash, cash equivalents and short-term investments declined to $7.76 billion from $8.68 billion, and total debt and capital lease obligations were $12.7 billion, with $1.3 billion due within 12 months.
The company's credit ratings (S&P B, Moody's B2, Fitch B) remain below investment grade. The filing describes integration progress following the October 1, 2010 Merger, including receipt of a single FAA operating certificate, a planned migration to a single passenger service system in early March 2012, and an expected MileagePlus loyalty program beginning in 2012. Management expects the Merger to deliver $1.0 billion to $1.2 billionb in net annual run-rate synergies in 2013, and an estimated $400 million of synergies were realized in 2011.
Integration-related cash costs were approximately $450 millionc in 2011 and are expected to be similar in 2012. Fuel was the largest operating expense at $12.38 billion, with an average price of $3.06 per gallon, and a $1 per barrel change in crude oil price would change annual fuel expense by approximately $95 million.
Key risks highlighted include high fuel costs, labor (about 72%d of employees are unionized and most contracts are in negotiation), a substantial leverage and covenant structure, pension funding exposure at Continental, the EU Emissions Trading Scheme dispute, and litigation including the Brazil air cargo investigation and claims related to September 11, 2001. The company disclosed no dividends in 2010 or 2011 and no active share repurchase program.
02—Key points
Key Highlights
- Operating revenue rose to $37.11 billion in 2011 from $23.33 billion in 2010, and operating income rose to $1.82 billion from $976 million.
- Net income was $840 million in 2011 versus $253 million in 2010; excluding special items, net income was $1.32 billion versus $942 million.
- Unrestricted cash, cash equivalents and short-term investments were $7.76 billion at December 31, 2011, down from $8.68 billion a year earlier; a $500 million revolving credit facility was undrawn.
- Total debt and capital lease obligations were $12.7 billion, including $1.3 billion due within 12 months; the company reduced debt and capital lease obligations by $2.6 billion in 2011.
- Merger synergies: an estimated $400 million realized in 2011, with a target of $1.0 billion to $1.2 billion in net annual run-rate synergies in 2013.
- Fuel was the largest expense at $12.38 billion, with an average price of $3.06 per gallon (versus $2.39 in 2010); a $1 per barrel crude price change would affect annual fuel expense by about $95 million.
- Credit ratings are B (S&P), B2 (Moody's) and B (Fitch), all below investment grade; about 72% of employees are represented by unions.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 22, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $37.11B$23.32B | +59.1% |
| Operating Expenses | $35.29B$22.35B | +57.9% |
| Operating Income | $1.82B$976.00M | +86.7% |
| Interest Expense | $949.00M$798.00M | +18.9% |
| Net Income | $840.00M$253.00M | +232.0% |
| EPS (Basic) | $2.54$1.22 | +108.2% |
| EPS (Diluted) | $2.26$1.08 | +109.3% |
| Shares Outstanding (Basic) | 329.00M207.00M | +58.9% |
| Shares Outstanding (Diluted) | 383.00M253.00M | +51.4% |
05—Questions
Frequently Asked Questions
How did the company's profitability change in 2011?
Operating income increased to $1.82 billion from $976 million, and net income increased to $840 million from $253 million. The filing attributes the improvement to higher fares driven by industry capacity discipline, with passenger revenue up 9.3% on a combined basis. Special items reduced 2011 results by $483 million, mainly merger and integration-related costs of $517 million.
What is the status of the United and Continental integration?
The company received a single FAA operating certificate in 2011, announced MileagePlus as the single loyalty program starting in 2012, and rebranded more than 800 aircraft. It expects to migrate to a single passenger service system in early March 2012 and estimates integration-related cash costs of about $450 million in 2012, similar to 2011.
What are the main financial risks to investors?
The filing highlights high leverage with fixed obligations, below-investment-grade credit ratings, and covenants in financing agreements such as a $1.0 billion minimum unrestricted cash requirement in the Amended Credit Facility and a $3.0 billion minimum liquidity requirement in the Revolving Credit Facility. Fuel price volatility, labor negotiations for roughly 72% unionized employees, and potential Continental pension funding requirements of about $184 million in 2012 are also cited.
Does the company pay dividends or repurchase shares?
No. The company did not pay dividends in 2010 or 2011, does not anticipate paying dividends in the foreseeable future, and did not repurchase any common stock in the fourth quarter of 2011. It has no active share repurchase program, and debt agreements restrict dividend payments.
What is the outlook for capacity and capital spending?
The company expects 2012 capacity (ASMs) to be relatively flat compared with 2011. Capital expenditures were $700 million in 2011, and the company has firm aircraft commitments including 50 new aircraft for United and 82 for Continental, with financing for Continental's Boeing deliveries not yet in place.
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