First profitable second quarter since 2000
CHICAGO, July 24 /PRNewswire-FirstCall/ -- UAL Corporation (Nasdaq: UAUA),
the holding company whose primary subsidiary is United Airlines, announced
today that preliminary results(1) for the second quarter ended June 30, 2006
indicate that basic earnings per share are expected to be approximately $1.01
and diluted earnings per share $0.93.
The company will release its final second quarter financial results on
Monday, July 31, 2006, and hold its financial conference call that day at
11:00 a.m. EDT. A live, listen-only mode webcast will be available on the
Investor Relations section of www.united.com. (http://united.com/ir) The
webcast will be available on the website until the end of the third quarter
and available for those without internet access as a telephone replay for one
week.
The preliminary results are being announced today in order to provide
investors with guidance on the company's second quarter performance ahead of
the expected issuance by UAL to trusts for the benefit of employees of $726
million of convertible notes pursuant to the company's plan of reorganization.
As previously disclosed, the plan of reorganization requires the issuance of
the employee convertible notes prior to August 1, 2006, which is the six-month
anniversary of the effective date of the plan. The company does not currently
anticipate providing guidance on interim period performance in future
quarters.
"We expect to report results that exceed current second quarter consensus
expectations because of the continuing benefits of our restructuring, strong
revenue growth, and our cost control efforts," said Glenn F. Tilton, United's
president, CEO and chairman. "We will report a profit and continued strong
cash generation. We are making good progress in strengthening our core
business; our focus continues to be on driving down costs, as we enhance
revenues to improve our margin."
The company expects to report operating revenues of $5.1 billion, an
increase of 16 percent compared with the previous year's second quarter of
$4.4 billion. Earnings from operations are expected to total $260 million,
$212 million higher than the previous year's quarter of $48 million.
Operating margin is expected to improve to 5.1 percent from 1.1 percent in the
comparable 2005 quarter. The company has an effective tax rate of zero for the
quarter, making UAL's pretax results the same as its net results. Net income
is expected to be $119 million, $145 million higher than the net loss
excluding reorganization and special items of $26 million reported in the 2005
second quarter. Excluding a $22 million one-time severance expense primarily
related to the company's previously announced reduction of salaried and
administrative staff, net income would be $141 million.
Cash and short-term investments at the end of the second quarter are
estimated at $5.1 billion, of which $0.9 billion is restricted, representing a
total increase of $500 million from the end of the first quarter 2006.
The company expects reported mainline operating revenue per available seat
mile (RASM) to be 12.03 cents, a 12% improvement for the second quarter
compared with the 2005 comparable period. Mainline passenger revenue per
available seat mile (PRASM) is expected to increase to 10.51 cents, an
increase of 12%. In addition, mainline cost per available seat mile (CASM) is
anticipated to have increased in the quarter by 9% year-over-year to 11.43
cents. Excluding fuel, the $22 million one-time severance expense and a
special item recorded in the second quarter of 2005 (Note 2), mainline CASM is
estimated at 7.64 cents, an increase of 1.5% compared with the second quarter
of 2005. See Note 3 for the calculation of certain items in this paragraph.
The company's consolidated financial statements for periods prior to exit
are not comparable to statements presented for periods after exit.
Accordingly, to offer additional information for investors the company has
identified certain items consisting only of major non-cash fresh-start
reporting and exit-related items (Note 1). While it is not practicable for
the company to present information for all items that are not comparable in
the pre- and post-exit periods, the company believes that the items identified
are the material non-cash fresh-start reporting and exit-related items and
that such information is useful to investors in understanding year-over-year
performance. These fresh-start reporting and exit-related items were
discussed in the company's Form 8-K filed with the Securities and Exchange
Commission on May 8, 2006 with respect to the 2006 first quarter results of
operations. In addition, the company believes that including the severance
expense is useful to investors because it is a non-recurring charge not
indicative of the company's ongoing performance. The items are shown in the
following table (Note 1).
Unfavorable / (Favorable) to Earnings
One-Time Non-Cash Fresh-
Severance Start and Exit- Total
(In millions) Expense Related Items Adjustments
Revenue $ - $26 $26
Severance $22 $ - $22
Stock-based compensation $ - $40 $40
Mileage Plus Marketing
Expense $ - $(4) $(4)
Postretirement welfare costs $ - $14 $14
Depreciation and
amortization $ - $14 $14
Deferred gain $ - $18 $18
Total Operating Expense $22 $82 $104
Non-Operating Expense $ - $34 $34
Excluding these non-cash expenses, fuel, the $22 million in severance
expense and a special item recorded in the second quarter of 2005 (Note 2),
mainline CASM for the second quarter would total an estimated 7.41 cents or
1.6% lower than the comparable quarter last year (Note 3). As previously
announced, the company is engaged in a multi-year cost reduction program. As a
result of improvement initiatives already underway, the company expects to
achieve a portion of the planned 2007 savings ahead of schedule in 2006.
Including the effects of these initiatives, the company estimates that
mainline CASM excluding fuel for 2006 will be as follows:
Percentage Change Year-over-Year
Full Year
Q1 Q2E Q3E Q4E Estimate
Actual (Note 4) (Note 4) (Note 4)
Mainline
CASM
excluding
fuel and
special
charges
(Note 3) 3.3% 2.3% 1.5% to 2.5% 0.0% to 0.9% 1.7% to 2.3%
Mainline CASM
excluding fuel,
special
charges, and
severance
(Note 3) 3.3% 1.5% 1.5% to 2.5% 0.0% to 0.9% 1.5% to 2.0%
Mainline CASM
excluding fuel,
special
charges,
severance, and
certain
non-cash exit
related
charges
(Note 3) (0.4)% (1.6)% (1.3)% to (2.4)% to (1.5)% to
(0.3)% (1.5)% (0.9)%
Average costs for jet fuel in the second quarter are estimated at $2.16
per gallon, an increase of 27% compared with $1.71 in last year's second
quarter. The company has 28% of its fuel consumption hedged for the third
quarter of 2006 at an average price of $1.66 per gallon, excluding taxes,
using crude oil swaps.
United has issued the following capacity guidance for the third quarter
and lowered its full-year 2006 consolidated capacity guidance:
Capacity (ASMs) Third Quarter Full Year
Mainline +2.5 to 3.0 percent +2.0 to 2.5 percent
Regional Affiliates +6.0 to 7.0 percent +9.0 to 10.0 percent
Consolidated +3.0 to 3.5 percent +2.5 to 3.0 percent
The total estimated number of shares used to calculate fully diluted
earnings per share for the second quarter is 130.0 million. For more
information on diluted share calculations, please see the Form 8-K filed today
regarding the anticipated issuance of employee convertible notes.
(1) These results are preliminary and may differ from final second quarter
results to be issued separately.
About United
United Airlines (Nasdaq: UAUA) operates more than 3,700* flights a day on
United, United Express and Ted to more than 210 U.S. domestic and
international destinations from its hubs in Chicago, Denver, Los Angeles, San
Francisco and Washington, D.C. With key flight operations in the Asia-Pacific
region, Europe and Latin America, United is one of the largest international
carriers based in the United States. United is also a founding member of Star
Alliance, which provides connections for our customers to 842 destinations in
152 countries worldwide. United's 57,000 employees reside in every U.S. state
and in many countries around the world. News releases and other information
about United can be found at the company's Web site at united.com.
*Based on the flight schedule between May 1, 2006 and Dec. 31, 2006
Worldwide Communications:
Media Relations Office: 847.700-5538
Evenings/Weekends: 847.700-4088
Safe Harbor Statement under the Private Securities Litigation Reform Act
of 1995: Certain statements included in this press release are forward-
looking and thus reflect the Company's current expectations and beliefs with
respect to certain current and future events and financial performance. Such
forward-looking statements are and will be subject to many risks and
uncertainties relating to the operations and business environments of the
Company that may cause actual results to differ materially from any future
results expressed or implied in such forward-looking statements. Factors that
could significantly affect net earnings, revenues, expenses, costs, load
factor and capacity include, without limitation, the following: the Company's
ability to comply with the terms of its credit facility; the costs and
availability of financing; the Company's ability to execute its business plan;
the Company's ability to attract, motivate and/or retain key employees; the
Company's ability to attract and retain customers; demand for transportation
in the markets in which the Company operates; general economic conditions
(including interest rates, foreign currency exchange rates, crude oil prices
and refining capacity in relevant markets); the effects of any hostilities or
act of war or any terrorist attack; the ability of other air carriers with
whom the Company has alliances or partnerships to provide the services
contemplated by the respective arrangements with such carriers; the costs and
availability of aircraft insurance; the costs of jet fuel; our ability to
cost-effectively hedge against increases in the price of jet fuel; the costs
associated with security measures and practices; labor costs; competitive
pressures on pricing (particularly from lower-cost competitors) and on demand;
capacity decisions of our competitors, U.S. or foreign governmental
legislation, regulation and other actions; the ability of the Company to
maintain satisfactory labor relations and our ability to avoid any disruptions
to operations due to any potential actions by our labor groups; weather
conditions; and other risks and uncertainties set forth from time to time in
UAL's reports to the United States Securities and Exchange Commission.
Consequently, the forward-looking statements should not be regarded as
representations or warranties by the Company that such matters will be
realized. The Company disclaims any intent or obligation to update or revise
any of the forward-looking statements, whether in response to new information,
unforeseen events, changed circumstances or otherwise.
Notes to Accompanying Preliminary Earnings Release for Second Quarter 2006
[1] Increase (Decrease)
1Q 2Q 3Q 4Q FY
Estimate Estimate Estimate Estimate Estimate
(In millions)
Revenue Impact:
Mileage Plus revenue $(20) $(26) $1 $(8) $(53)[a]
Operating Expense Impact:
Stock-based compensation 69 40 27 20 156 [b]
Mileage Plus marketing
expense (3) (4) (6) (6) (19)[a]
Postretirement welfare cost 9 14 14 14 51 [c]
Depreciation and
amortization 12 14 21 19 66 [d]
Deferred gain 12 18 18 18 66 [e]
Total operating expense
impact 99 82 74 65 320
Non-Operating Expense Impact:
Non-cash and fresh-start
interest expense 25 34 30 27 116 [f]
(a) In connection with its emergence from Chapter 11 protection effective
February 1, 2006, the Company adopted fresh-start reporting.
Accordingly, the Company elected to change its accounting policy from
an incremental cost basis to a deferred revenue model to measure the
obligation for the Mileage Plus Frequent Flyer program. Adjustments
to the obligation are recorded to operating revenues. Historically,
adjustments were based upon incremental costs and were recorded in
both operating revenues and advertising expense.
(b) In accordance with the plan of reorganization, the Company implemented
stock-based compensation plans for certain management employees and
non-employee directors. The Company adopted SFAS 123R effective
January 1, 2006 and recorded compensation expense for such plans.
(c) In accordance with fresh-start reporting, the Company revalued its
liabilities effective February 1, 2006 to fair value. As a result,
all prior period service credits related to postretirement costs were
eliminated.
(d) In accordance with fresh-start reporting, the Company revalued its
assets to fair value effective February 1, 2006. As a result,
definite lived intangible asset values increased substantially which
results in higher associated amortization expense. In addition, the
value of the Company's operating property and equipment was
significantly reduced which results in lower depreciation expense.
The Company has estimated the net impact of changes in asset values at
fresh-start on net depreciation and amortization.
(e) In accordance with fresh-start reporting, the Company revalued its
liabilities effective February 1, 2006 to fair value. As a result,
all deferred aircraft gains were eliminated.
(f) As a result of fresh-start reporting, the Company recognizes certain
non-cash interest expenses, including the amortization of mark-to-
market discounts on all debt and operating and capital leases.
[2] During the second quarter of 2005, the Company recognized a charge of
$18 million for aircraft impairments related to the planned
accelerated retirement of certain aircraft currently operated by Air
Wisconsin Airlines Corporation.
[3] Pursuant to SEC Regulation G, the Company has included the following
reconciliation of reported non-GAAP financial measures to comparable
financial measures reported on a GAAP basis. The Company's
consolidated financial statements for the periods prior to exit are
not comparable to the statements presented after exit. Accordingly, to
offer additional information for investors, the Company has identified
certain items consisting only of major non-cash fresh-start reporting
and exit-related items. In addition, the Company believes that
excluding fuel costs from certain measures is useful to investors
because it provides an additional measure of management's performance
excluding the effects of a significant cost item over which management
has limited influence. The Company also believes that adjusting for
special items and the severance charge is useful to investors because
they are non-recurring charges not indicative of the Company's
on-going performance.
Actual Estimated
Three Months Ending Three Months Ending
March 31, % June 30, %
2006 2005 Change 2006 2005 Change
CASM (in millions)
Consolidated
operating expenses $4,636 $4,165 11.3 $4,853 $4,375 10.9
Less: Regional
Affiliates 696 645 7.9 715 685 4.4
Mainline operating
expenses $3,940 $3,520 11.9 $4,138 $3,690 12.1
Mainline available
seat miles 34,488 34,259 36,191 35,132 3.0
Mainline CASM (in
cents) 11.42 10.28 11.1 11.43 10.50 8.9
Mainline operating
expense $3,940 $3,520 11.9 $4,138 $3,690 12.1
Less: fuel expense 1,067 805 32.5 1,250 955 30.9
Less: cost of sales -
UAFC 105 54 94.4 101 73 38.4
Adjusted mainline
operating expense $2,768 $2,661 4.0 $2,787 $2,662 4.7
Adjusted mainline
CASM (in cents) 8.03 7.77 3.3 7.70 7.58 1.6
Mainline operating
expense excluding
fuel and UAFC $2,768 $2,661 4.0 $2,787 $2,662 4.7
Less: special items - - - - 18 -
Adjusted mainline
operating expense $2,768 $2,661 4.0 $2,787 $2,644 5.4
Adjusted mainline
CASM (in cents) 8.03 7.77 3.3 7.70 7.53 2.3
Mainline operating
expense excluding
fuel, UAFC and
special items $2,768 $2,661 4.0 $2,787 $2,644 5.4
Less: severance
charge - - - 22 - -
Adjusted mainline
operating expense $2,768 $2,661 4.0 $2,765 $2,644 4.6
Adjusted mainline
CASM (in cents) 8.03 7.77 3.3 7.64 7.53 1.5
Mainline operating
expense excluding
fuel, UAFC, special
items and severance
charge $2,768 $2,661 4.0 $2,765 $2,644 4.6
Less: estimated exit-
related and fresh-
start impacts 99 - - 82 - -
Adjusted mainline
operating expense $2,669 $2,661 0.3 $2,683 $2,644 1.5
Adjusted mainline
CASM (in cents) 7.74 7.77 (0.4) 7.41 7.53 (1.6)
RASM (in millions)
Consolidated
operating revenues $5,113 $4,423 15.6
Less: Passenger -
Regional Affiliates 761 632 20.4
Mainline operating
revenues $4,352 $3,791 14.8
Mainline RASM (in
cents) 12.03 10.79 11.5
Adjusted earnings (loss)
(In millions)
Net income (loss) $119 $(1,430)
Adjusted for:
Reorganization
items, net - (1,386)
Special items - (18)
Adjusted earnings
(loss) $119 $(26)
Adjusted for:
Severance charge (22) -
Adjusted earnings
(loss) $141 $(26)
[4] Pursuant to SEC Regulation G, the Company has included the following
reconciliation of reported non-GAAP financial measures to comparable
financial measures reported on a GAAP basis. The Company's
consolidated financial statements for the periods prior to exit are
not comparable to the statements presented after exit. Accordingly, to
offer additional information for investors, the Company has identified
certain items consisting only of major non-cash fresh-start reporting
and exit-related items. In addition, the Company believes that
excluding fuel costs from certain measures is useful to investors
because it provides an additional measure of management's performance
excluding the effects of a significant cost item over which management
has limited influence. The Company also believes that adjusting for
special items and the severance charge is useful to investors because
they are non-recurring charges not indicative of the Company's
on-going performance.
Three Months Ending
September 30,
2006 Estimate 2005 YOY
Cost per ASM (in cents) Low High Actual % Change
Mainline operating expense 10.98 11.05 10.43 5.3 5.9
Less: fuel expense & UAFC 3.76 3.76 3.32 13.3 13.3
Mainline excluding fuel
& UAFC 7.22 7.29 7.11 1.5 2.5
Less: special items - - - - -
Mainline excluding fuel,
UAFC and special items 7.22 7.29 7.11 1.5 2.5
Less: severance charge - - - - -
Mainline excluding fuel, UAFC,
special items and severance
charge 7.22 7.29 7.11 1.5 2.5
Less: estimated exit-related
and fresh-start impacts 0.20 0.20 - - -
Mainline excluding fuel, UAFC,
special items, severance and
exit-related & fresh-start
impacts 7.02 7.09 7.11 -1.3 -0.3
Three Months Ending
December 31,
2006 Estimate 2005 YOY
Cost per ASM (in cents) Low High Actual % Change
Mainline operating expense 11.29 11.36 11.13 1.4 2.1
Less: fuel expense & UAFC 3.84 3.84 3.68 4.3 4.3
Mainline excluding fuel & UAFC 7.45 7.52 7.45 0.0 0.9
Less: special items - - - - -
Mainline excluding fuel,
UAFC and special items 7.45 7.52 7.45 0.0 0.9
Less: severance charge - - - - -
Mainline excluding fuel, UAFC,
special items and severance
charge 7.45 7.52 7.45 0.0 0.9
Less: estimated exit-related
and fresh-start impacts 0.18 0.18 - - -
Mainline excluding fuel, UAFC,
special items, severance and
exit-related & fresh-start
impacts 7.27 7.34 7.45 -2.4 -1.5
Twelve Months Ending
December 31,
2006 Estimate 2005 YOY
Cost per ASM (in cents) Low High Actual % Change
Mainline operating expense 11.28 11.32 10.59 6.5 6.9
Less: fuel expense & UAFC 3.69 3.69 3.12 18.3 18.3
Mainline excluding fuel & UAFC 7.59 7.63 7.47 1.6 2.1
Less: special items - - 0.01 - -
Mainline excluding fuel,
UAFC and special items 7.59 7.63 7.46 1.7 2.3
Less: severance charge 0.02 0.02 - - -
Mainline excluding fuel, UAFC,
special items and severance
charge 7.57 7.61 7.46 1.5 2.0
Less: estimated exit-related
and fresh-start impacts 0.22 0.22 - - -
Mainline excluding fuel, UAFC,
special items, severance and
exit-related & fresh-start
impacts 7.35 7.39 7.46 -1.5 -0.9
SOURCE UAL Corporation
07/24/2006
CONTACT: Worldwide Communications - Media Relations Office,
+1-847-700-5538, or Evenings/Weekends, +1-847-700-4088
8797 07/24/2006 07:00 EDT http://www.prnewswire.com
