01—Abstract
Summary
Summary of the 10-K filed February 23, 2017. Cited figures are marked; the original filing is the authoritative source.
United Continental Holdings, Inc. (UAL), the holding company for United Airlines, Inc., reported 2016 operating revenue of $36.56 billiona, down from $37.86 billion in 2015, and net income of $2.3 billion, or $6.85 diluted earnings per share, compared with $7.34 billion in 2015.
Operating income was $4.34 billionb, versus $5.17 billion a year earlier. The decline in revenue was driven mainly by passenger revenue, which fell 4.1% to $31.46 billion, with consolidated PRASM down 5.4% on a competitive domestic fare environment, lower surcharges, a strong U.S. dollar and reduced energy-sector corporate travel. Aircraft fuel expense fell 22.7% to $5.81 billion on lower fuel prices, and the company had no outstanding fuel hedges at year end.
The company generated $5.5 billionc of operating cash flow and spent $3.2 billion on capital expenditures. It repurchased about 50 million shares for $2.6 billion and had approximately $1.8 billion remaining under its share repurchase program. Unrestricted cash, cash equivalents and short-term investments were $4.4 billion, and total liquidity was $5.8 billion including the revolving credit facility.
Debt and capital lease obligations totaled about $11.7 billiond, and the company's credit ratings remain below investment grade (BB- from S&P, Ba2 from Moody's, BB from Fitch for UAL). The filing also flags material risks, including labor costs following new contracts with all 11 U.S. employee groups (the company expects about $900 million of additional 2017 costs from these agreements), the Department of Justice antitrust investigation and related class actions over airline capacity, and a $412 million impairment of Newark slots. For 2017, the company expects capacity growth of 1% to 2% and gross capital expenditures of $4.2 billion to $4.4 billion.
02—Key points
Key Highlights
- 2016 net income of $2.26 billion ($6.85 diluted EPS) versus $7.34 billion in 2015, with operating income of $4.34 billion versus $5.17 billion.
- Operating revenue fell to $36.56 billion from $37.86 billion; passenger revenue declined 4.1% and consolidated PRASM decreased 5.4%.
- Aircraft fuel expense decreased 22.7% to $5.81 billion, with an average price of $1.49 per gallon; no fuel hedges were outstanding at December 31, 2016.
- Share repurchases of $2.6 billion (about 50 million shares) in 2016, with roughly $1.8 billion remaining under the program.
- Operating cash flow of $5.5 billion and capital expenditures of $3.2 billion; unrestricted liquidity of $5.8 billion at year end.
- Debt and capital lease obligations of $11.7 billion; credit ratings remain below investment grade.
- Special charges of $638 million in 2016, including a $412 million write-off of Newark slots after an FAA action, and 2017 guidance for ASM growth of 1% to 2%.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 23, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $36.56B$37.86B | −3.5% |
| Operating Expenses | $32.21B$32.70B | −1.5% |
| Operating Income | $4.34B$5.17B | −15.9% |
| Interest Expense | $674.00M$669.00M | +0.7% |
| Net Income | $2.23B$7.34B | −69.6% |
| EPS (Basic) | $6.77$19.52 | −65.3% |
| EPS (Diluted) | $6.76$19.47 | −65.3% |
| Shares Outstanding (Basic) | 329.90M376.10M | −12.3% |
| Shares Outstanding (Diluted) | 330.30M376.90M | −12.4% |
05—Questions
Frequently Asked Questions
Why did UAL's revenue and profit decline in 2016?
Operating revenue fell 3.5% to $36.56 billion, led by a 4.1% drop in passenger revenue. The filing attributes the decline in consolidated PRASM (down 5.4%) to a competitive domestic fare environment, lower surcharges, a strong U.S. dollar and reduced energy-related corporate travel. Net income fell to $2.26 billion from $7.34 billion, which also reflected a 2015 tax benefit from releasing the valuation allowance.
How did fuel costs affect 2016 results?
Aircraft fuel expense decreased 22.7% to $5.81 billion, with the average price per gallon falling to $1.49 from $1.94. The company had no outstanding fuel hedging contracts at December 31, 2016, and its stated strategy is not to enter into fuel hedges, though it reviews this regularly. A $1 change in the price of a barrel of crude oil would change 2017 fuel expense by approximately $95 million.
How is UAL returning cash to shareholders and what is its capital spending outlook?
In 2016 UAL repurchased about 50 million shares for $2.6 billion and had roughly $1.8 billion left under its $2 billion authorization. For 2017, the company expects gross capital expenditures of $4.2 billion to $4.4 billion. UAL did not pay dividends in 2016 or 2015, and its ability to pay dividends is limited by its Credit Agreement and indentures.
What are the main labor and legal risks disclosed?
Approximately 80% of employees are represented by unions, and new or extended agreements were reached with all 11 U.S. employee groups in 2016. The company expects these agreements to add about $900 million of costs in 2017. The filing also discloses a DOJ antitrust investigation into airline capacity, with consolidated class action lawsuits alleging collusion on capacity affecting airfares, which the company intends to vigorously defend.
What is the company's liquidity and debt position?
At December 31, 2016, UAL had $4.4 billion in unrestricted cash, cash equivalents and short-term investments, and $5.8 billion of unrestricted liquidity including its revolving credit facility. Debt and capital lease obligations were about $11.7 billion, including $1.0 billion due within 12 months. Current liabilities exceeded current assets by about $5.0 billion, but the company states that about $5.9 billion of current liabilities are advance ticket sales and frequent flyer deferred revenue rather than cash outlays.
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