UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1995, Commission File Number 1-6033
UAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 36-2675207
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 East Algonquin Road, Elk Grove Township, Illinois 60007
Mailing Address: P. O. Box 66919, Chicago, Illinois 60666
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 952-4000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class October 31, 1995
Common Stock ($0.01 par value) 12,667,272
UAL Corporation and Subsidiary Companies Report on Form 10-Q
For the Quarter Ended September 30, 1995
Index
Part I. Financial Information Page No.
Item 1. Financial statements:
Condensed statement of consolidated 3
financial position - as of September 30, 1995
(unaudited) and December 31, 1994
Statement of consolidated operations 5
(unaudited) - for the three months and
nine months ended September 30, 1995 and 1994
Condensed statement of consolidated 7
cash flows (unaudited) - for the nine
months ended September 30, 1995 and 1994
Notes to consolidated financial 8
statements (unaudited)
Item 2. Management's discussion and analysis 14
of financial condition and results of
operations
Part II. Other Information
Item 1. Legal Proceedings 23
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
Exhibit Index 26
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UAL Corporation and Subsidiary Companies
Condensed Statement of Consolidated Financial Position
(In Millions)
September 30,
1995 December 31,
Assets (Unaudited) 1994
Current assets:
Cash and cash equivalents $ 431 $ 500
Short-term investments 1,198 1,032
Receivables, net 1,120 889
Inventories, net 304 285
Deferred income taxes 135 151
Prepaid expenses and other 348 335
3,536 3,192
Operating property and equipment:
Owned 11,015 10,824
Accumulated depreciation and amortization (5,064) (4,786)
5,951 6,038
Capital leases 1,386 1,132
Accumulated amortization (490) (447)
896 685
6,847 6,723
Other assets:
Intangibles, net 772 814
Deferred income taxes 346 480
Other 569 555
1,687 1,849
$12,070 $11,764
See accompanying notes to consolidated financial statements.
UAL Corporation and Subsidiary Companies
Condensed Statement of Consolidated Financial Position
(In Millions)
September 30,
1995 December 31,
Liabilities and Stockholders' Equity (Unaudited) 1994
Current liabilities:
Short-term borrowings $ - $ 269
Current portions of long-term debt
and capital lease obligations 305 460
Advance ticket sales 1,322 1,020
Accounts payable 719 651
Other 2,575 2,506
4,921 4,906
Long-term debt 3,087 2,887
Long-term obligations under capital leases 922 730
Other liabilities and deferred credits:
Deferred pension liability 251 520
Postretirement benefit liability 1,211 1,148
Deferred gains 1,245 1,363
Other 520 477
3,227 3,508
Minority interest 57 49
Stockholders' equity:
Preferred stock - -
Common stock at par - -
Additional capital invested 1,316 1,287
Retained earnings (deficit) (981) (1,335)
Unearned ESOP preferred stock (285) (83)
Other (194) (185)
(144) (316)
Commitments and contingent liabilities
(See note)
$12,070 $11,764
See accompanying notes to consolidated financial statements.
UAL Corporation and Subsidiary Companies
Statement of Consolidated Operations (Unaudited)
(In Millions, Except Per Share)
Three Months
Ended September 30
1995 1994
Operating revenues:
Passenger $3,694 $3,400
Cargo 197 169
Other operating revenues 236 245
4,127 3,814
Operating expenses:
Salaries and related costs 1,137 1,160
ESOP compensation expense 139 88
Aircraft fuel 435 425
Commissions 409 389
Aircraft rent 258 231
Purchased services 277 244
Depreciation and amortization 182 184
Landing fees and other rent 215 165
Food services 146 141
Aircraft maintenance 100 102
Personnel expenses 76 62
Other operating expenses 286 311
3,660 3,502
Earnings from operations 467 312
Other income (expense):
Interest expense (101) (102)
Interest capitalized 9 12
Interest income 27 21
Equity in earnings of affiliates 14 6
Miscellaneous, net (22) (87)
(73) (150)
Earnings before income taxes 394 162
Provision for income taxes 151 80
Net earnings $ 243 $ 82
Net earnings per share:
Primary $14.06 $ 4.24
Fully-diluted $12.87 $ 4.21
Average shares:
Primary 16.4 14.5
Fully-diluted 18.3 14.6
See accompanying notes to consolidated financial statements.
UAL Corporation and Subsidiary Companies
Statement of Consolidated Operations (Unaudited)
(In Millions, Except Per Share)
Nine Months
Ended September 30
1995 1994
Operating revenues:
Passenger $10,006 $ 9,273
Cargo 557 501
Other operating revenues 713 737
11,276 10,511
Operating expenses:
Salaries and related costs 3,396 3,578
ESOP compensation expense 336 88
Aircraft fuel 1,225 1,174
Commissions 1,115 1,083
Aircraft rent 768 687
Purchased services 782 698
Depreciation and amortization 519 539
Landing fees and other rent 595 464
Food services 400 355
Aircraft maintenance 302 329
Personnel expenses 209 186
Other operating expenses 822 887
10,469 10,068
Earnings from operations 807 443
Other income (expense):
Interest expense (304) (268)
Interest capitalized 31 31
Interest income 75 62
Equity in earnings of affiliates 41 20
Miscellaneous, net 1 (127)
(156) (282)
Earnings before income taxes and
cumulative effect of accounting change 651 161
Provision for income taxes 254 95
Earnings before cumulative
effect of accounting change 397 66
Cumulative effect of accounting change,
net of tax - (26)
Net earnings $ 397 $ 40
Per share, primary:
Earnings before cumulative effect of
accounting change $ 25.89 $ 1.25
Cumulative effect of accounting change - (1.22)
Net earnings $ 25.89 $ 0.03
Net earnings per share, fully-diluted $ 23.82 $ 0.03
Average shares:
Primary 15.4 21.2
Fully-diluted 17.5 21.4
See accompanying notes to consolidated financial statements.
UAL Corporation and Subsidiary Companies
Condensed Statement of Consolidated Cash Flows (Unaudited)
(In Millions)
Nine Months
Ended September 30
1995 1994
Cash and cash equivalents at beginning of
period $ 500 $ 437
Cash flows from operating activities 1,372 1,179
Cash flows from investing activities:
Additions to property and equipment (742) (424)
Proceeds on disposition of property and
equipment 446 419
Decrease (increase) in short-term
investments (167) 283
Other, net (22) 21
(485) 299
Cash flows from financing activities:
Repayment of long-term debt (518) (115)
Issuance of long-term debt - 735
Principal payments under capital
lease obligations (67) (77)
Decrease in short-term borrowings (269) (46)
Dividends paid (39) (31)
Issuance of preferred stock - 400
Recapitalization distribution - (2,068)
Other, net (63) 26
(956) (1,176)
Increase (decrease) in cash
and cash equivalents (69) 302
Cash and cash equivalents at end of period $ 431 $ 739
Cash paid during the period for:
Interest (net of amounts capitalized) $ 253 $ 213
Income taxes $ 63 $ 13
Non-cash transactions:
Capital lease obligations incurred $ 280 $ -
Long-term debt incurred in connection
with additions to equipment $ 23 $ 18
Long-term debt issued in exchange for
Series A preferred stock $ 546 $ -
Unrealized gain on investments $ 4 $ 2
See accompanying notes to consolidated financial statements.
UAL Corporation and Subsidiary Companies
Notes to Consolidated Financial Statements (Unaudited)
The Company
UAL Corporation ("UAL") is a holding company whose principal
subsidiary is United Air Lines, Inc. ("United").
Interim Financial Statements
The consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to or as permitted by such rules and regulations, although UAL
believes that the disclosures are adequate to make the information
presented not misleading. In management's opinion, all adjustments
(which, except for the effects on the 1994 periods of the employee
investment transaction, include only normal recurring adjustments)
necessary for a fair presentation of the results of operations for the
three and nine month periods have been made. These financial statements
should be read in conjunction with the consolidated financial statements
and footnotes thereto included in UAL's Annual Report on Form 10-K for
the year 1994.
ESOP Compensation Expense
"ESOP compensation expense" represents the estimated average fair
value of ESOP convertible preferred stock committed to be released to
employees for the period, net of amounts used to satisfy dividend
requirements for previously allocated ESOP convertible preferred shares,
under Employee Stock Ownership Plans which were created as a part of the
July 1994 employee investment transaction and recapitalization. ESOP
compensation expense is credited directly to stockholders' equity.
Other Income (Expense) - Miscellaneous
"Miscellaneous, net" consisted of the following:
Third Quarter Nine-month Period
1995 1994 1995 1994
Foreign exchange gains
(losses) $(16) $ - $(14) $ 9
Gains on dispositions
of property 7 2 49 8
Minority interests in
Apollo Travel Services (6) (6) (18) (18)
Recapitalization
transaction costs - (80) - (121)
Other (7) (3) (16) (5)
$(22) $(87) $ 1 $(127)
Income Taxes
The provisions for income taxes for the 1995 third quarter and
nine-month period are based on the estimated annual effective tax rate,
which differs from the federal statutory rate of 35% principally due to
state income taxes and certain nondeductible expenses. The provisions
for income taxes for the 1994 third quarter and nine-month period were
based on the actual effective tax rate for the periods, and include the
effects of nondeductible expenses related to the employee investment
transaction and recapitalization. Deferred tax assets are recognized
based upon UAL's history of operating earnings and expectations for
future taxable income.
Accounting Change
UAL adopted Statement of Financial Accounting Standards ("SFAS")
No. 112, "Employers' Accounting for Postemployment Benefits," effective
January 1, 1994. The effect of adopting SFAS No. 112 was a cumulative
charge for recognition of the transition liability of $42 million,
before tax benefits of $16 million.
Per Share Amounts
In April 1995, UAL issued convertible subordinated debentures in
exchange for Series A preferred stock (See Preferred Stock
Transactions). As a result of the exchange, UAL recorded a non-cash
increase of $45 million in additional capital invested representing the
excess of the carrying value of the preferred stock exchanged over the
fair value of the new debentures. In May 1995, UAL repurchased 420
shares of its Series B preferred stock, resulting in a $1.9 million
decrease in equity (See Preferred Stock Transactions). These
transactions had no effect on earnings; however, their net impact on
UAL's equity is included in the computation of earnings per share. The
impact on earnings per share for the nine months ended September 30,
1995 was as follows:
Per share, primary:
Net earnings before preferred
stock transactions $23.09
Preferred stock transactions 2.80
$25.89
Per share, fully-diluted:
Net earnings before preferred
stock transactions $21.36
Preferred stock transactions 2.46
$23.82
Per share amounts were calculated after providing for dividends on
preferred stock of $13 million in the 1995 third quarter, $20 million in
the 1994 third quarter, $42 million in the 1995 nine-month period and
$39 million in the 1994 nine-month period.
Primary per share amounts were based on weighted average common
shares and common equivalents outstanding, including ESOP shares
committed to be released. In addition, fully-diluted per share amounts
assume the conversion of convertible debentures and elimination of
related interest.
In connection with the July 1994 recapitalization, each old common
share was exchanged for one half new common share. As required under
generally accepted accounting principles for transactions of this type,
the historical weighted average shares outstanding have not been
restated. Thus, direct comparisons between per share amounts for the
1995 and 1994 periods presented are not meaningful.
Affiliates
United owns 38% of the Galileo International Partnership
("Galileo") through a wholly-owned subsidiary. United's investment in
Galileo, which owns the Apollo and Galileo computer reservations
systems, is carried on the equity basis. United also owns 77% of the
Apollo Travel Services Partnership and its accounts are consolidated.
Under operating agreements with Galileo, United purchases computer
reservation services from Galileo and provides marketing, sales and
communication services to Galileo. Revenues derived from the sale of
services to Galileo amounted to approximately $59 million in the 1995
third quarter, $60 million in the 1994 third quarter, $183 million in
the 1995 nine-month period and $178 million in the 1994 nine-month
period. The cost to United of services purchased from Galileo amounted
to approximately $28 million in the 1995 third quarter, $24 million in
the 1994 third quarter, $80 million in the 1995 nine-month period and
$70 million in the 1994 nine-month period.
Short-term Borrowings
In the second quarter of 1995, United repaid all $269 million of
its outstanding short-term borrowings. United has the ability to borrow
up to $270 million under this short-term facility, which was recently
extended through February 1996.
Prepayment of Obligations
In September 1995, United retired $91 million of outstanding
Japanese yen-denominated deferred purchase certificates. The remaining
balance of these certificates, amounting to $104 million, will be
retired in the fourth quarter. The certificates were scheduled for
repayment periodically through 1998. In connection with the obligations
referred to above, United had entered into a foreign currency swap
contract, which was designated as a hedge, to reduce exposure to
currency fluctuations. The portion of this swap contract related to the
debt retired in September was terminated at the same time as the
obligations. Similarly, the portion of the swap contract related to the
remaining debt balance will be terminated in the fourth quarter. The
retirement has thus far resulted, and is expected to result in the
aggregate, in an insignificant loss.
In September 1995, United also terminated related operating leases
for 15 aircraft, by exercising its right to acquire the aircraft.
Operating property and equipment increased $200 million as a result of
the acquisition of these aircraft. In the fourth quarter, United will
terminate operating leases for an additional 24 aircraft, acquiring the
aircraft and increasing operating property and equipment by
approximately $200 million. Termination of these leases will reduce
future minimum lease payments, as reported at December 31, 1994, by $130
million in each of 1996 and 1997 and by $166 million in 1998.
In addition to scheduled principal payments, repurchases of
preferred stock (See Preferred Stock Transactions) and the deferred
purchase certificate retirement, United repaid $150 million in principal
amount of debentures and $223 million in principal amount of secured
notes in the first nine months of 1995, resulting in an insignificant
loss.
In October 1995, United repaid prior to maturity an additional $19
million in principal amount of debentures.
Shelf Registration Statement
In May 1995, United issued $246 million of pass through
certificates under an effective shelf registration statement UAL and
United have on file with the Securities and Exchange Commission. The
pass through certificates were issued to finance or refinance certain
aircraft under operating leases. At September 30, 1995, up to $789
million of securities could be issued under the shelf registration
statement, including secured and unsecured debt, equipment trust and
pass through certificates, equity or a combination thereof. UAL's
ability to issue equity securities is limited by its certificate of
incorporation, which was restated in connection with the
recapitalization.
Preferred Stock Transactions
In April 1995, UAL issued $600 million in principal amount of
6 3/8% convertible subordinated debentures due 2025 in exchange for all
outstanding shares of its Series A convertible preferred stock. As a
result of the difference between the carrying value of the preferred
stock exchanged and the fair value of the new debentures, the exchange
resulted in a net decrease in additional capital invested of only $546
million. The debentures are convertible into a combination of $541.90
in cash and approximately 3.192 shares of UAL common stock (equivalent
to a conversion price of $143.50 per share of common stock) for each
$1,000 in principal amount. The debentures are redeemable at any time
on or after May 1, 1996, at UAL's option, initially at a redemption
price of 104.375% of the principal amount, declining ratably to 100% of
the principal amount over seven years. UAL may only exercise this
option if the market value of its common stock exceeds 120% of the
conversion price of the debentures for at least 20 of 30 consecutive
trading days prior to the notice of redemption, subject to certain
conditions. Additionally, UAL has the right to defer the payment of
interest on the debentures for up to 20 consecutive quarters. In August
1995, a holder converted $3 million in principal amount of debentures.
In May 1995, UAL repurchased 420,000 depositary shares,
representing 420 shares of its Series B 12 1/4% preferred stock, at an
aggregate cost of $12 million to be held in treasury. In addition, in
October and November 1995, UAL repurchased 1,550,609 depositary shares
at an aggregate cost of $47 million to be held in treasury.
Contingencies and Commitments
UAL has certain contingencies resulting from litigation and claims
(including environmental issues) incident to the ordinary course of
business. Management believes, after considering a number of factors,
including (but not limited to) the views of legal counsel, the nature of
contingencies to which UAL is subject and its prior experience, that the
ultimate disposition of these contingencies is not expected to
materially affect UAL's consolidated financial position or results of
operations.
At September 30, 1995, commitments for the purchase of property
and equipment, principally aircraft, approximated $3.8 billion, after
deducting advance payments. An estimated $0.3 billion will be spent
during the remainder of 1995, $1.5 billion in 1996, $1.3 billion in
1997, $0.5 billion in 1998 and $0.2 billion in 1999 and thereafter. The
major commitments are for the purchase of 27 B777 aircraft (11 of which,
beginning in 1997, are longer-range "B" market versions), two B747
aircraft and four B757 aircraft. The B777s are scheduled to be
delivered through 1999 and the B747s and B757s are expected to be
delivered in 1996.
In addition to aircraft orders, United has arrangements with
Airbus Industrie and International Aero Engines to lease an additional
21 A320 aircraft, which are scheduled for delivery through 1998. At
September 30, 1995, United also had options for an additional 144 B737
aircraft, 31 B757 aircraft, 34 B777 aircraft, 43 B747 aircraft, 6 B767
aircraft and 47 A320 aircraft. These option amounts have been reduced
to reflect the recent confirmation of two B747 options, the replacement
of two B767 options with the B757 orders mentioned above and
cancellation of certain options. Under the terms of certain of these
remaining options which are exercisable during 1996 and 1997, United
would forfeit significant deposits on such options it does not exercise.
Sale of Aircraft
During the first six months of 1995, Air Wisconsin, Inc. sold ten
Dash 8 aircraft and related spare parts to Mesa Airlines. The sale
resulted in a pre-tax gain of $41 million. In connection with the sale,
United agreed to a ten-year extension of its United Express marketing
agreement with Mesa Airlines.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
UAL's total of cash and cash equivalents and short-term
investments was $1.629 billion at September 30, 1995, compared to $1.532
billion at December 31, 1994. Cash flows from operating activities
amounted to $1.372 billion. Investing activities, excluding the
increase in short-term investments, resulted in cash outflows of $318
million. Financing activities included principal payments under debt
and capital lease obligations of $518 million and $67 million,
respectively, and the repayment of $269 million of short-term
borrowings. Included in the debt payments above was the retirement of
$453 million of long-term debt prior to maturity.
In April 1995, UAL issued $600 million in principal amount of
convertible subordinated debentures in exchange for all outstanding
shares of its Series A convertible preferred stock. As a result of the
exchange, UAL recorded a non-cash increase of $45 million in additional
capital invested representing the excess of the carrying value of the
preferred stock exchanged over the fair value of the new debentures.
In the first nine months of 1995, United took delivery of eight
A320 aircraft under operating leases. During the period, United also
took delivery of seven B777 aircraft, three under capital leases and
four which were initially purchased. Of the four B777 aircraft
purchased, three were subsequently sold and leased back under operating
leases. In addition, United acquired 15 previously leased aircraft, 9
B727s and 6 DC10s, upon termination of operating leases. Property
additions, including aircraft and spare parts, amounted to $742 million.
Property dispositions, including the sale and leaseback of the three
B777s and the sale of Dash 8 aircraft by Air Wisconsin, Inc., resulted
in proceeds of $446 million.
In the fourth quarter of 1995, United will retire prior to
maturity the remaining balance, $104 million, of Japanese
yen-denominated debt and terminate related operating leases for 24
aircraft by acquiring the aircraft from the lessor. UAL may from time
to time purchase on the open market in privately negotiated purchases or
otherwise debentures or preferred stock as part of its efforts to reduce
its obligations and improve its balance sheet.
At September 30, 1995, commitments for the purchase of property
and equipment, principally aircraft, approximated $3.8 billion, after
deducting advance payments. An estimated $0.3 billion will be spent
during the remainder of 1995, $1.5 billion in 1996, $1.3 billion in
1997, $0.5 billion in 1998 and $0.2 billion in 1999 and thereafter. The
major commitments are for the purchase of 27 B777 aircraft (11 of which,
beginning in 1997, are longer-range "B" market versions), two B747
aircraft and four B757 aircraft. The B777s are scheduled to be
delivered through 1999 and the B747s and B757s are expected to be
delivered in 1996.
In addition to aircraft orders, United has arrangements with
Airbus Industrie and International Aero Engines to lease 21 A320
aircraft, which are scheduled for delivery through 1998. At September
30, 1995, United also had options for an additional 144 B737 aircraft,
31 B757 aircraft, 34 B777 aircraft, 43 B747 aircraft, 6 B767 aircraft
and 47 A320 aircraft. Under the terms of certain of these options which
are exercisable during 1996 and 1997, United would forfeit significant
deposits on such options it does not exercise. Funds necessary to
finance aircraft acquisitions are expected to be obtained from
internally generated funds, irrevocable external financing arrangements
or other external sources.
In April 1995, United announced that, under a revised fleet plan,
it would use most of the new aircraft to be delivered through 1997 to
replace older aircraft in its fleet. As a result, the number of
aircraft in United's operating fleet is expected to increase by 19
during that time, compared to an increase of 48 aircraft called for by
United's previous fleet plan. In October 1995, certain employees of the
Boeing Company ("Boeing") began a labor strike, which will affect
Boeing's ability to deliver as scheduled certain new aircraft which
United has on order. Specifically, three B777 aircraft which were
scheduled for delivery in the fourth quarter of 1995 are now expected to
be delivered in 1996. United expects to make schedule adjustments to
minimize the effects of the strike on its operations; however,
continuation of the strike may impact planned growth in capacity for
1996.
In May 1995, United issued $246 million of pass through
certificates under an effective shelf registration statement UAL and
United have on file with the Securities and Exchange Commission. The
pass through certificates were issued to finance or refinance certain
aircraft under operating leases. At September 30, 1995, up to $789
million of securities could be issued under the shelf registration
statement, including secured and unsecured debt, equipment trust and
pass through certificates, equity or a combination thereof. UAL's
ability to issue equity securities is limited by its certificate of
incorporation, which was restated in connection with the
recapitalization.
In June 1995, the Indianapolis Airport Authority issued $221
million of special facility bonds, guaranteed by United, related to the
maintenance facilities being constructed at its Indianapolis Maintenance
Center. In connection with the construction of the Indianapolis
Maintenance Center, United agreed to reach an $800 million capital
spending target by the year 2001 and employ at least 7,500 individuals
by the year 2004. In the event that such targets are not reached,
United may be required to make certain additional payments under related
agreements.
In October 1995, UAL announced that it is conducting an evaluation
of USAir Group, Inc. ("USAir") to determine whether it should submit a
proposal to acquire USAir's business and operations. UAL expects to
make a decision during the fourth quarter as to whether it will submit
an offer. There can be no assurance that UAL will submit any proposal
to USAir or, if submitted, as to the terms and conditions of any such
proposal, or that any transaction will be consummated. Such an
acquisition of USAir's business could have a significant impact on UAL's
financial position, results of operations and liquidity. Immediately
following this announcement, Standard and Poor's placed UAL and United
securities on CreditWatch with negative implications.
RESULTS OF OPERATIONS
UAL's results of operations for interim periods are not
necessarily indicative of those for an entire year, as a result of
seasonal factors to which United is subject. First and fourth quarter
results are normally affected by reduced travel demand in the fall and
winter and United's operations, particularly at its Chicago and Denver
hubs, are adversely affected by winter weather on occasion.
The results of operations in the airline business historically
fluctuate significantly in response to general economic conditions.
This is because small fluctuations in yield (passenger revenue per
revenue passenger mile) and cost per available seat mile can have a
significant effect on operating results. UAL anticipates industrywide
fare levels, low-cost competition, general economic conditions, fuel
costs, international governmental policies and other factors will
continue to affect its operating results.
The July 1994 employee investment transaction and recapitalization
resulted in wage and benefit reductions and work-rule changes which were
designed to reduce cash operating expenses. These cash expense
reductions are offset by non-cash compensation charges for stock
periodically committed to be released to employees under the ESOPs and
additional interest expense on the debentures issued at the time of the
recapitalization.
As a result of the recapitalization, UAL's capital structure
became more highly leveraged. With the increase in debt and reduction
in equity resulting from the recapitalization, UAL's exposure to certain
industry risks could be greater than might have been the case prior to
the recapitalization. In addition, the transaction resulted in new
labor agreements for certain employee groups and a new corporate
governance structure, which was designed to achieve balance between the
various employee-owner groups and public stockholders. The new labor
agreements and governance structure could inhibit management's ability
to alter strategy in a volatile, competitive industry by restricting
certain operating and financing activities, including the sale of assets
and the issuance of equity securities and the ability to furlough
employees. UAL's ability to react to competition may be hampered
further by the fixed long-term nature of these various agreements. The
continued success of the recapitalization will be dependent upon a
number of factors, including the state of the competitive environment in
the airline industry, competitive responses to United's efforts,
United's ability to achieve enduring cost savings through productivity
improvements and the renegotiation of labor agreements at the end of the
investment period.
United generates revenues and incurs expenses in numerous foreign
currencies. These expenses include reservation and ticket office
services, customer service, aircraft maintenance, catering, commissions,
aircraft leases and personnel costs. Changes in foreign currency
exchange rates impact operating income through changes in foreign
currency-denominated operating revenues and expenses. Despite the
adverse (favorable) effects a strengthening (weakening) foreign currency
will have on U.S. originating traffic, a strengthening (weakening) of
foreign currencies tends to increase (decrease) reported revenue and
operating income because United's foreign currency-denominated operating
revenue generally exceeds its foreign currency-denominated operating
expense for each currency. United's biggest net exposures are for
Japanese yen and Australian dollars. During the first nine months of
1995, yen-denominated operating revenue net of yen-denominated operating
expense was approximately 26.4 billion yen (approximately $296 million),
and Australian dollar-denominated operating revenue net of Australian
dollar-denominated operating expense was approximately 134 million
Australian dollars (approximately $99 million).
Other non-operating income (expense) is also affected as a result
of transaction gains and losses resulting from rate fluctuation. The
foreign exchange gains and losses recorded by United result from the
impact of exchange rate changes on foreign currency denominated assets
and liabilities. To the extent yen-denominated liability balances are
predictable, United attempts to minimize transaction gains and losses by
investing in yen-denominated time deposits to offset the impact of rate
changes. In addition, United entered into a foreign currency swap
contract in 1994 to reduce exposure to currency fluctuations in
connection with other long-term yen-denominated obligations. Where no
significant liability exists to offset, United mitigates its exposure to
foreign exchange rate fluctuations by converting excess local currencies
generated to U.S. dollars. At September 30, 1995, yen-denominated
assets in excess of yen-denominated liabilities were used to hedge
certain operating lease obligations.
United expects that it will continue to be affected by the above
mentioned factors, but cannot predict how foreign currency exchange
rates will move in the future.
The Omnibus Budget Reconciliation Act of 1993 signed into law on
August 10, 1993, imposes a 4.3 cent per gallon tax on commercial
aviation jet fuel purchased for use in domestic operations. This new
fuel tax became effective October 1, 1995. Based on United's 1994
domestic fuel consumption of 1.7 billion gallons, the new fuel tax is
expected to increase United's operating expenses by approximately $75
million annually.
In the first quarter of 1995, United implemented a new travel
agency commission payment plan that offers a maximum of $50 for
round-trip domestic tickets and a maximum of $25 for one-way domestic
tickets. The new commission plan resulted in a reduction of
approximately $60 million in United's commission expense for the first
nine months of 1995 and United estimates the reduction of commission
expense to be between $20 million and $30 million per quarter on an
on-going basis. Litigation challenging this payment plan has been filed
against United and other airlines who adopted similar payment plans. In
the third quarter of 1995, the defendant airlines' motion for summary
judgment was denied, as was the plaintiff travel agencies' motion for
preliminary injunction. (See Part II, Item 1. Legal Proceedings)
Summary of Results and Impact of Recapitalization
UAL's earnings from operations were $807 million in the first nine
months of 1995, compared to operating earnings of $443 million in the
first nine months of 1994. UAL's net earnings in the 1995 nine-month
period were $397 million ($25.89 per share, primary; $23.82 per share,
fully diluted), compared to net earnings of $40 million in the same
period of 1994 ($0.03 per share). The 1994 earnings include a $26
million after tax charge for the cumulative effect of adopting Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits," which UAL adopted effective January 1, 1994.
In the third quarter of 1995, UAL's earnings from operations were
$467 million, compared to $312 million in the third quarter of 1994.
UAL's net earnings in the third quarter of 1995 were $243 million
($14.06 per share, primary; $12.87 per share, fully diluted), compared
to net earnings of $82 million in the third quarter of 1994 ($4.24 per
share, primary; $4.21 per share, fully diluted).
The per share amounts for the 1995 nine-month period above include
the effects on equity of the exchange of convertible debentures for
Series A convertible preferred stock, which had the effect of increasing
additional capital invested by $45 million, and the repurchase of Series
B preferred stock, which decreased equity by $2 million. See "Per Share
Amounts" in the notes to consolidated financial statements. Excluding
the preferred stock transactions, UAL's earnings per share were $23.09,
primary, and $21.36, fully diluted, for the 1995 nine-month period.
In connection with the July 1994 recapitalization, each share of
old common stock was converted to one half share of new common stock
(and cash in lieu of fractional shares) and $84.81 in cash. As a
result, the number of outstanding shares was reduced proportionately.
Accordingly, the weighted average shares in the earnings per share
calculations are based on the number of old common shares outstanding
prior to the recapitalization and the reduced number of new common
shares outstanding subsequent to the transaction. Thus, direct
comparisons between per share amounts for the 1995 and 1994 periods
presented are not meaningful.
Management believes that a more complete understanding of UAL's
results can be gained by viewing them on a pro forma, "fully
distributed" basis. This approach considers all ESOP shares which will
ultimately be distributed to employees throughout the ESOP (rather than
just the shares committed to be released) to be immediately outstanding
and thus fully distributed. Consistent with this method, the ESOP
compensation expense is excluded from fully distributed net earnings and
ESOP convertible preferred stock dividends are not deducted from
earnings attributable to common stockholders. On a fully distributed
basis, UAL's net earnings for the 1995 third quarter would have been
$334 million compared to $243 million as reported under generally
accepted accounting principles. On a fully distributed basis, UAL's net
earnings for the 1995 nine-month period would have been $607 million
compared to $397 million as reported under generally accepted accounting
principles. Per share amounts would be as follows:
Three Months Ended Nine Months Ended
September 30, 1995 September 30, 1995
GAAP Fully GAAP Fully
(Primary) Distributed (Primary) Distributed
Earnings before
preferred stock
transactions $ 14.06 $ 10.11 $ 23.09 $ 18.23
Preferred stock
transactions - - 2.80 1.32
$ 14.06 $ 10.11 $ 25.89 $ 19.55
Specific factors affecting UAL's consolidated operations for the
third quarter and first nine months of 1995 are described below.
Third Quarter 1995 Compared with Third Quarter 1994.
Operating revenues increased $313 million (8%). United's revenue
per available seat mile increased 4% to 9.79 cents. Passenger revenues
increased $294 million (9%) due to an 8% increase in yield to 11.87
cents and a 1% increase in revenue passenger miles. Pacific revenue
passenger miles increased 5% and Latin America increased 1%. Atlantic
revenue passenger miles decreased 5% and Domestic was relatively
unchanged. Available seat miles increased 4% systemwide, as increases
of 7% and 6% on Pacific and Domestic routes, respectively, were
partially offset by a 6% decrease in the Atlantic. Latin American
available seat miles were unchanged. The system passenger load factor
decreased 2.9 points to 73.7%.
Cargo revenues increased $28 million (17%), as both freight and
mail revenues increased due to higher cargo volumes. Other operating
revenues decreased $9 million (4%) due mainly to lower fuel sales.
Operating expenses increased $158 million (5%); however, United's
cost per available seat mile increased only slightly, from 8.66 cents to
8.67 cents, including ESOP compensation expense. Without the ESOP
compensation expense, United's cost per available seat mile would have
increased from 8.32 cents to 8.34 cents. ESOP compensation expense
increased $51 million (58%), reflecting the increase in the estimated
average fair value of ESOP stock committed to be released to employees,
and a shorter expense period in 1994, as the employee investment
transaction took place on July 12, 1994. Landing fees and other rent
increased $50 million (30%) due to increased facilities rent,
particularly due to new facilities at Denver International Airport.
Purchased services increased $33 million (14%) due principally to
volume-related increases in computer reservations fees and credit card
discounts. Aircraft rent increased $27 million (12%) as a result of new
aircraft acquired on operating leases. Personnel expenses increased $14
million (23%), reflecting increased layover costs incurred principally
in support of international operations. Aircraft fuel expense increased
$10 million (2%) due to a 4% increase in consumption, partially offset
by a 2% decrease in the average price per gallon of fuel to 58.3 cents.
Salaries and related costs decreased $23 million (2%) primarily
due to $48 million of one-time ESOP related costs recorded in 1994,
partially offset by higher average wage rates for employee groups not
participating in the ESOPs and increased staffing in certain
customer-oriented positions. Aircraft maintenance decreased $2 million
(2%) due principally to the timing of maintenance cycles. Other
operating expenses decreased $25 million (8%) due mainly to lower costs
of fuel sales.
Other expense amounted to $73 million in the third quarter of 1995
compared to $150 million in the third quarter of 1994. Interest income
increased $6 million (29%) due to higher average interest rates on
investments. Equity in earnings of affiliates increased $8 million due
primarily to higher Galileo earnings resulting from increased booking
revenues. Included in "Miscellaneous, net" in the 1995 third quarter
was a $5 million gain on the disposition of a B747 aircraft. Included
in the 1994 third quarter was a charge of $80 million for costs incurred
in connection with the employee investment transaction. In addition,
the 1995 third quarter included foreign exchange losses of $16 million,
while foreign exchange gains in the 1994 third quarter were
insignificant.
Nine Months 1995 Compared with Nine Months 1994.
Operating revenues increased $765 million (7%). Revenue per
available seat mile increased 3% to 9.45 cents. Passenger revenues
increased $733 million (8%) due principally to a 4% increase in revenue
passenger miles and a 4% increase in yield to 11.81 cents. Domestic,
Pacific and Latin American revenue passenger miles increased 5%, 6% and
1%, respectively. Atlantic revenue passenger miles decreased 4%.
Available seat miles increased 5% systemwide, as increases of 11% and 4%
on Pacific and Domestic routes, respectively, were partially offset by a
5% decrease in the Atlantic. As a result, United's system passenger
load factor decreased 0.4 points to 71.0%.
Cargo revenues increased $56 million (11%), as both freight and
mail revenues increased due to higher cargo volumes. Other operating
revenues decreased $24 million (3%) due primarily to a decrease in fuel
sales.
Operating expenses increased $401 million (4%); however, United's
cost per available seat mile decreased from 8.81 cents to 8.77 cents,
including ESOP compensation expense. Without the ESOP compensation
expense, United's 1995 nine month cost per available seat mile would
have been 8.49 cents, a decrease of 2% from 8.69 cents in 1994. ESOP
compensation expense increased $248 million, reflecting primarily a
shorter expense period in 1994, as the employee investment transaction
took place on July 12, 1994. Landing fees and other rent increased $131
million (28%) due to increased facilities rent, primarily due to new
facilities at Denver, and increased landing fees as the number of
systemwide departures increased 9%. Aircraft rent increased $81 million
(12%) as a result of new A320 and B777 aircraft on operating leases.
Purchased services increased $84 million (12%) due principally to
volume-related increases in computer reservations fees and credit card
discounts. Aircraft fuel expense increased $51 million (4%) as fuel
consumption increased 5% and the average price per gallon of fuel
remained relatively unchanged at 58.0 cents. Food services increased
$45 million (13%) due to the new catering arrangements resulting from
the 1994 sale of flight kitchens and increased passenger volumes.
Salaries and related costs decreased $182 million (5%) primarily
due to savings resulting from wage and benefit concessions made by
employees participating in the ESOPs, partially offset by higher average
wage rates for other employee groups and increased staffing in certain
customer-oriented positions. Aircraft maintenance decreased $27 million
(8%) due principally to the removal of certain older aircraft from
United's operating fleet and the timing of maintenance cycles.
Depreciation and amortization expense decreased $20 million (4%), as
certain assets, principally B727 aircraft, are now fully depreciated.
Other operating expenses decreased $65 million (7%) due mainly to lower
fuel sales.
Other expense amounted to $156 million in the first nine months of
1995 compared to $282 million in the same period of 1994. Interest
expense increased $36 million (13%) due primarily to interest on the
debentures issued in connection with the recapitalization and the
convertible debentures issued in exchange for the Series A preferred
stock. Included in "Miscellaneous, net" in the 1995 nine-month period
was a $41 million gain on the disposition of ten Dash 8 aircraft and
spare parts owned by Air Wisconsin, Inc. Included in the 1994
nine-month period was a charge of $121 million for costs incurred in
connection with the employee investment transaction. In addition, the
1995 and 1994 periods included foreign exchange gains (losses) of $(14)
million and $9 million, respectively.
The income tax provision for the first nine months of 1994 was
significantly impacted by the nondeductibility of certain
recapitalization costs.
Part II
Other Information
Item 1. Legal Proceedings.
Travel Agency Commission Litigation - On February 13, 1995
and dates thereafter United Air Lines, Inc. and six other airlines
were sued in various courts around the nation by travel agents and
ASTA claiming as a class action that the carriers acted
collusively in violation of federal antitrust laws when they
imposed a cap on ticket sales commissions payable to travel
agencies by the carriers. As a result of an order by the multi-
district panel, the suits are now consolidated before the federal
courts in Minneapolis. The court, on August 23, 1995, denied the
plaintiffs' motion for preliminary injunction as well as the
defendants' motion for summary judgment. The airlines filed an
interlocutory appeal on the denial for summary judgment, which was
also denied. As relief, the plaintiffs seek an order declaring
the carriers' commission cap action to be illegal and the recovery
of damages (trebled) to the agencies resulting from that action.
Summers et al. v. State Street Bank and Trust Company et al.
On April 14, 1995, plaintiffs filed a class action complaint
against State Street Bank and Trust Company ("State Street"), the
UAL Corporation Employee Stock Ownership Plan and the UAL
Corporation Supplemental Employee Stock Ownership Plan (together,
the "Plans") in the United States District Court for the Northern
District of Illinois. The complaint is brought on behalf of a
putative class of all persons who are, or were as of July 12,
1994, participants or beneficiaries of the Plans. Plaintiffs
allege that State Street breached various fiduciary duties under
the Employee Retirement Income Security Act of 1974 ("ERISA") in
connection with the 1994 purchase of UAL preferred stock by the
Plans. The Plans are nominal defendants; no relief is sought from
them. The complaint seeks a declaration that State Street
violated ERISA, restoration to the Plans by State Street of the
amount of an alleged "overpayment" for the stock, and other
relief. United is obligated, subject to certain exceptions, to
indemnify State Street for part or all of an adverse judgment and
State Street's defense costs. On July 12, 1995, the defendants
filed a motion to dismiss the complaint in its entirety.
Fry v. UAL - This stockholder action, filed in February 1990
in U.S. District Court for the Northern District of Illinois,
Eastern Division, alleges violation by UAL of the anti-fraud
provisions of the federal securities laws and common law fraud
because of UAL's alleged failure to provide proper notice to
stockholders about the manner and timing of the distribution of
the proceeds of sales of non-airline businesses resulting from the
breakup of Allegis. On August 11, 1995, upon UAL's motion for
summary judgment, the court dismissed the complaint. The
plaintiff has filed a notice of appeal to the Seventh Circuit.
Mileage Plus Class Actions - On December 10, 1993, January
18, 1994, November 3, 1994 and February 9, 1995 class actions were
brought in the Circuit Court of Cook County, Illinois, Chancery
Division, on behalf of members of the Mileage Plus Program. The
actions, as amended, claimed that various changes instituted by
United in the Mileage Plus Program breached United's contracts
with its program members. On October 13, 1995, the court granted
United's motion to dismiss the cases with prejudice.
Item 5. Other Information.
On October 2, 1995, UAL Corporation announced that it is
conducting an evaluation of USAir to determine whether it should
submit a proposal to acquire USAir's business and operations.
There can be no assurance that UAL Corporation will submit any
proposal to USAir, or, if submitted, as to the terms and
conditions of any such proposal, or that any transaction will be
consummated. UAL expects to make a decision during the fourth
quarter as to whether it will submit an offer.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 10.1 - Second Amendment to UAL Corporation
Employee Stock Ownership Plan, dated as of August 17,
1995 and effective as of July 12, 1994.
Exhibit 10.2 - Second Amendment to UAL Corporation
Supplemental ESOP, dated as of August 17, 1995 and
effective as of July 12, 1994.
Exhibit 11 - Calculation of fully diluted net
earnings per share.
Exhibit 12.1 - Computation of Ratio of
Earnings to Fixed Charges.
Exhibit 12.2 - Computation of Ratio of
Earnings to Fixed Charges and Preferred Stock
Dividend Requirements.
Exhibit 27 - Financial Data Schedule.
(b) Form 8-K dated October 2, 1995 to report a press release
issued regarding USAir.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
UAL CORPORATION
By: /s/ Gerald Greenwald
Gerald Greenwald
Chairman and Chief
Executive Officer
By: /s/ Douglas A. Hacker
Douglas A. Hacker
Senior Vice President-Finance
(Principal Financial and
Accounting Officer)
Dated: November 9, 1995
Exhibit Index
Exhibit No. Description
10.1 Second Amendment to UAL Corporation Employee Stock
Ownership Plan, dated as of August 17, 1995 and
effective as of July 12, 1994.
10.2 Second Amendment to UAL Corporation Supplemental ESOP,
dated as of August 17, 1995 and effective as of July
12, 1994.
11 Calculation of fully diluted net earnings per share.
12.1 Computation of Ratio of Earnings to Fixed Charges.
12.2 Computation of Ratio of Earnings to Fixed
Charges and Preferred Stock Dividend Requirements.
27 Financial Data Schedule.
Exhibit 10.1
SECOND AMENDMENT
UAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
(Effective as of July 12, 1994)
By virtue and in exercise of the amending power reserved
to UAL Corporation (the "Company") under Section 13.1(a) of the
UAL Corporation Employee Stock Ownership Plan (effective as of
July 12, 1994) (the "Plan"), which amending power thereunder is
subject to the approval of the Air Line Pilots Association
International ("ALPA") and the International Association of
Machinists and Aerospace Workers (the "IAM"), the Company hereby
amends the Plan, subject to the approval of ALPA and the IAM, as
follows, effective January 1, 1995. The amendments to Section
l(p) and 1(yy) as set forth below are intended to document the
previously-existing interpretation of the Plan, rather than to
accomplish a substantive change to the Plan.
1. The following is hereby inserted as a new paragraph
at the end of the material labelled "Part A" which precedes
Section 1:
"Solely for the Plan Year beginning on January 1, 1995, the
allocation which would be made under the foregoing
percentages is amended to take into account the participation
by certain members of the IAM Employee Group in the
allocation of Class 2 Non-Voting Preferred Stock under the
Supplemental Plan pursuant to the Special Annual Allocation
for 1995. Accordingly, the shares of Class 1 Non-Voting
Preferred Stock allocated for the Plan Year commencing
January 1, 1995 which would be allocated to the members of
the IAM Employee Group under the forgoing percentages will be
reduced by the number of shares of Class 2 Non-Voting
Preferred Stock to be included in the hypothetical share
number as a result of the Special Annual Allocation for 1995
for the members of the IAM Employee Group who did not have
any compensation for purposes of Code Section 415 for the
1995 Plan Year. Correspondingly, (1) the number of shares of
Class 1 Non-Voting Preferred Stock which would be allocated
for the Plan Year commencing January 1, 1995 to the members
of the ALPA Employee Group under the forgoing percentages
will be increased by the same number of shares, and (2) the
number of shares of Class 2 Non-Voting Preferred Stock which
would be allocated for the Plan Year commencing January 1,
1995 to the members of the ALPA Employee Group as set forth
in the Supplemental Plan will be reduced by the same number
of shares."
2. The first clause (i) of Section 1(p) is amended to
read as follows:
"(i) the total cash compensation (and any in-kind
compensation which the Participant could have elected to
receive as cash) paid to the Participant for services while a
Participant and an Eligible Employee, during the Plan Year
for services rendered to his Employer, including bonuses and
overtime pay, plus"
3. Section 1(p) is amended by adding the following to
the end of the section:
"With respect to a Participant who is a member of the ALPA
Employee Group, Compensation shall include pay received for
vacation time in the year paid (whether before or after
termination of employment)."
4. The following new Section l(oo)A is hereby added
after Section l(oo) and before Section l(pp):
"(oo)A 'Special Annual Allocation' means the allocation
referred to in Section 5.4(f)."
5. Section 1(yy) is amended by adding the following to
the end of the section:
"A Participant's Wage Investment shall be calculated with
respect to vacation pay in the year paid (whether before or
after termination of employment)."
6. Section 5.4(a)(i)(A) is amended by adding the
following to the end of the section:
"The shares of Class 1 Non-Voting Preferred Stock allocated
for the Plan Year commencing January 1, 1995 which would be
allocated to the members of the IAM Employee Group under the
forgoing percentages will be reduced by the number of shares
of Class 2 Non-Voting Preferred Stock to be included in the
hypothetical share number as a result of the Special Annual
Allocation for 1995 for the members of the IAM Employee Group
who did not have any compensation for purposes of Code
Section 415 for the 1995 Plan Year. Correspondingly, the
number of shares of Class 1 Non-voting Preferred Stock which
would be allocated for the Plan Year commencing January 1,
1995 to the members of the ALPA Employee Group under the
forgoing percentages will be increased by the same number of
shares."
7. The following is hereby added to the end of Section
5.4(a)(iii):
"Notwithstanding the foregoing, for each Plan Year beginning
on or after January 1, 1995, the Employer Contributions
tentatively allocated under this clause (iii) shall be the
Employer Contributions remaining after the allocation of the
Special Annual Allocation (if any) for such Plan Year
pursuant to Section 5.4(f). Accordingly, a Participant's
tentative allocation under this subsection shall be the sum
of the Special Annual Allocation (if any) allocated to the
Participant for the Plan Year, plus the allocation under the
preceding portions of this clause of the Employer
Contributions remaining after the Special Annual Allocation."
8. The second sentence of Section 5.4(c)(ii) is
amended by inserting the following after "Such number shall equal"
and before "the number of shares that would have been allocated to
the Participant...":
"the sum of the number of shares set forth as the
hypothetical allocation to the Participant in the Special
Annual Allocation for that Plan Year (if any), plus"
9. Section 5.4(c)(ii) is amended by adding the
following to the end of the section:
"For Plan Years beginning on or after January 1, 1995, the
hypothetical share number shall be calculated by taking into
account the Special Annual Allocation applicable to that Plan
Year (if any). By way of illustration, assume that for the
1995 Plan Year, a total of 1,110,456.695 shares are to be
allocated to members of the ALPA Employee Group, and that
5,000 of those shares are to be allocated in the Special
Annual Allocation applicable to members of the ALPA Employee
Group. Under this example, the hypothetical share number of
a member of the ALPA Employee Group for 1995 shall equal the
sum of (x) the portion of the 5,000 shares set forth as the
hypothetical allocation to the employee pursuant to the
Special Annual Allocation for 1995, plus (y) the employee's
ratable portion (based upon Compensation as modified under
this clause (ii)) of the remaining 1,105,455.695 shares."
10. Section 5.4(c) is amended, for Plan Years
beginning on or after January 1, 1995, by adding the following to
the end of the Section:
"Solely for the Plan Year commencing January 1, 1995, IAM
members may to the extent required to implement the Special
Annual Allocation for 1995, participate in all of the
allocations under this subsection (c). For all other Plan
Years, participation by member of the IAM Employee Group in
the allocations under this subsection (c) shall be limited by
the provisions of this Plan as they existed prior to this
amendment."
11. The following new Section 5.4(f) is added to the
Plan:
"(f) Special Annual Allocations. For each Plan Year
beginning on or after January 1, 1995, the Special Annual
Allocation described in Appendix A applicable to the Plan
Year (if any) shall be made after the application of clauses
(i) and (ii) of Section 5.4(a), but prior to the application
of clause (iii) of Section 5.4(a) and the clauses subsequent
to clause (iii), and the hypothetical allocation set forth in
the Special Annual Allocation applicable to the Plan Year
shall be made as a part of the calculation of the
hypothetical share number as set forth in clause (ii) of
Section 5.4(c). If Appendix A does not set forth a Special
Annual Allocation applicable to a particular Plan Year, then
there shall be no Special Annual Allocation for that Plan
Year."
12. The following Appendix A is hereby added to the
Plan:
"APPENDIX A
SPECIAL ANNUAL ALLOCATIONS
This Appendix A is part of the UAL Corporation Employee
Stock Ownership Plan. The purpose of this Appendix A is to set
forth the terms of the Special Annual Allocation referred to in
Section 5.4(f) of the ESOP. This Appendix A may only be amended
pursuant to Section 13.1 of the ESOP.
Special Annual Allocation for 1995. For the Plan Year
beginning January 1, 1995, there shall be two Special Annual
Allocations. The first Special Annual Allocation is described in
subsection (a) below, and is intended to provide to the accounts
of certain Participants who are members of the IAM Employee Group
the shares of Class 1 Non-Voting Preferred Stock which would have
been provided in 1994, but for the application of the limits of
Code Section 415. The second Special Annual Allocation is
described in subsection (b) below, shall be made to all
individuals who were Participants in 1994, and is intended to
adjust the Accounts of Participants to the levels which had
originally been reported to Participants in the allocation of
shares for 1994, but which were overstated because additional
Compensation and Wage Investments were subsequently reported for
1994. The second Special Annual Allocation is also intended to
adjust the Accounts of Participants whose accounts had not been
overreported so that their allocations will be on a par with the
allocations to the Participants described in the preceding
sentence.
(a) Special Annual Allocation for IAM Employee Group.
A portion of the Employer Contributions allocated to the IAM
Employee Group for 1995 shall be allocated to the Accounts of
those Participants who are members of the IAM Employee Group to
whom Contributions were limited by the application of Code Section
415 for the 1994 Plan Year. For each such Participant, the shares
which would have been allocated but for the application of the
limits of Code Section 415 are referred to as the "1994 Shortfall
Shares." For purposes of calculating the Special 1995 IAM
Allocation, there shall be calculated the "1995 IAM Average
Contribution," which shall be equal to the total Employer
Contributions allocated to the IAM Employee Group for the 1995
Plan Year, divided by the total number of shares of Class 1 Non-
Voting Preferred Stock allocated to the IAM Employee Group for the
1995 Plan Year, excluding, however, the shares allocated to the
IAM Employee Group for the 1995 Plan Year on account of dividends
paid on previously-allocated shares.
(1) Amount to be included in tentative allocation.
The following amount shall be included in the tentative allocation
under Section 5.4(a)(iii) as the Special Annual Allocation to each
affected Participant: the lesser of (i) the sum of (xx) the 1995
IAM Average Contribution times the Participant's 1994 Shortfall
Shares, plus (yy) $8.8872, times the Participant's 1994 Shortfall
Shares, times a fraction the numerator of which is the 1995 IAM
Average Contribution, and the denominator of which is the fair
market value of a share of Class 1 Non-Voting Preferred Stock as
of the end of the 1995 Plan Year, or (ii) the allocation permitted
for 1995 pursuant to Code Section 415.
(2) Shares to be included in hypothetical share number
and hypothetical allocation. The following number of shares is to
be included in the hypothetical share number under Section
5.4(c)(ii) and Section 2.4(a) of the Supplemental Plan as the
Special Annual Allocation for each affected Participant who did
not have any compensation for purposes of Code Section 415 in
1995: the sum of (i) the 1994 Shortfall Shares, plus (ii) $8.8872
times the Participant's 1994 Shortfall Shares divided by the fair
market value of a share of Class 1 Non-Voting Preferred Stock as
of the end of the 1995 Plan Year. No shares are included in the
hypothetical share number or Special Annual Allocation under the
Supplemental Plan for Participants who had any compensation for
purposes of Code Section 415 in 1995.
(b) 1995 Special Annual Allocation for All Employee
Groups. For each individual who was a Participant in 1994 (a
"1994 Participant"), there shall be calculated a number of shares
referred to as the "1995 Make-up Shares." The 1995 Make-up Shares
for each 1994 Participant shall equal the difference between the
number of shares actually allocated to the 1994 Participant for
the 1994 Plan Year (using the final Compensation and Wage
Investment data), and the number of shares which would have been
allocated to the 1994 Participant for the 1994 Plan Year if the
following facts had been correct for the 1994 Plan Year: (1) the
total Compensation of Participants who were members of the ALPA
Employee Group (without respect to the limitations of Code Section
401(a)(17) and the limitation contained in Section l(p) of four
times the dollar limit under Code Section 415(c)(1)(A)) was
$415,308,677.81, (2) the total Compensation of Participants who
were members of the ALPA Employee Group (limited by the limitation
contained in Section l(p) of four times the dollar limitation
under Code Section 415(c)(1)(A)) was $375,772,138.78, (3) the
total Compensation of ALPA Participants (without respect to the
limitation contained in Section l(p) of four times the dollar
limit under Code Section 415(c)(1)(A), but limited by Code Section
401(a)(17)) was $407,265,547.88, (4) the total Wage Investments
were $91,675,662.89, (5) the total Compensation of members of the
Management and Salaried Employee Group (without respect to the
limitation of Code Section 401(a)(17)) was $346,925,400.49, and
(6) the total Compensation of members of the Management and
Salaried Employee Group (limited by Code Section 401(a)(17)) was
$345,997,953.17.
For purposes of calculating the 1995 Special Annual
Allocation, there shall be calculated (x) the "1995 ALPA Average
Contribution," which shall be equal to the total Employer
Contributions allocated to the ALPA Employee Group for the 1995
Plan Year, divided by the total number of shares of Class 1 Non
Voting Preferred Stock allocated to the ALPA Employee Group for
the 1995 Plan Year, excluding, however, the shares allocated to
the ALPA Employee Group for the 1995 Plan Year on account of
dividends paid on previously-allocated shares, and (y) the "1995
M&S Average Contribution," which shall be equal to the total
Employer Contributions allocated to the Management and Salaried
Employee Group for the 1995 Plan Year, divided by the total number
of shares of Class 1 Non-Voting Preferred Stock allocated to the
Management and Salaried Employee Group for the 1995 Plan Year,
excluding, however, the shares allocated to the Management and
Salaried Employee Group for the 1995 Plan Year on account of
dividends paid on previously-allocated shares. The 1995 IAM
Average Contribution, calculated as set forth in subsection (a)
above shall also be used in this subsection (b). For each 1994
Participant, the result of the above calculation which applies his
Employee Group is the "Applicable Average Contribution."
(1) Amount to be included in tentative allocation.
The following amount shall be included in the tentative allocation
under Section 5.4(a)(iii) as the Special 1995 Allocation to each
1994 Participant: the lesser of (i) the sum of (xx) the
Applicable Average Contribution, times the Participant's 1995 Make-
up Shares, plus (yy) $8.8872, times the Participant's 1995 Make-up
Shares, times a fraction the numerator of which is the Applicable
Average Contribution, and the denominator of which is the fair
market value of a share of Class 1 Non-Voting Preferred Stock as
of the end of the 1995 Plan Year, or (ii) the allocation permitted
for 1995 pursuant to Code Section 415.
(2) Shares to be included in hypothetical share number
and hypothetical allocation. The following number of shares is to
be included in the hypothetical share number under Section
5.4(c)(ii) and Section 2.4(a) of the Supplemental Plan as the
Special Annual Allocation for each affected Participant: the sum
of (i) the 1995 Make-up Shares, plus (ii) $8.8872 times the
Participant's 1994 Make-up Shares divided by the fair market value
of a share of Class 1 Non-Voting Preferred Stock as of the end of
the 1995 Plan Year. Notwithstanding the foregoing, for
Participants who are members of the IAM Employee Group, the
inclusion in the hypothetical share number and the Special Annual
Allocation under the Supplemental Plan shall only be made if the
Participant had no compensation for purposes of Code Section 415
in 1995.
(c) In the case of any member of the IAM Employee
Group who is subject to both subsections (a) and (b), the total
1995 Special Annual Allocation shall be the sum of the amounts
determined for such Participant under both subsections."
IN WITNESS WHEREOF, the Company has caused this Second
Amendment to be executed on August 17, 1995.
UAL CORPORATION
/s/ Stuart I. Oran
Executive Vice President-
Corporate Affairs and
General Counsel
APPROVED BY:
AIR LINE PILOTS ASSOCIATION,
INTERNATIONAL
/s/ J. Randolph Babbitt
/s/ Harlow B. Osteboe
INTERNATIONAL ASSOCIATION
OF MACHINISTS AND
AEROSPACE WORKERS
/s/ Kenneth W. Thiede
Exhibit 10.2
SECOND AMENDMENT
OF
UAL CORPORATION
SUPPLEMENTAL ESOP
(Effective as of July 12, 1994)
By virtue and in exercise of the amending power
reserved to UAL Corporation (the "Company") under section 5.1 of
the UAL Corporation Supplemental ESOP (effective as of July 12,
1994) (the "Plan"), which amending power thereunder is subject to
the approval of the Air Line Pilots Association, International
("ALPA"), the Company hereby amends the Plan, as follows,
effective January 1, 1995:
1. Section 1.1(c) is amended by adding the following
to the end of the section:
"Solely for the Plan Year commencing January 1, 1995,
Convertible Shares shall be allocated to the IAM Employee
Group pursuant to the Special Annual Allocation. Such
shares shall reduce the number of shares which would
otherwise have been allocated to the ALPA Employee Group."
2. Section 1.1(d) is amended by adding the following
to the end of the section:
"Solely for the 1995 Plan Year, the Class M Voting Shares
resulting from the allocation of shares under the Special
Annual Allocation will be contributed to the ESOP (Part B)
or the Supplemental Trust."
3. Effective upon adoption of this Second Amendment,
Section 1.3(d) is amended by adding the following to the end of
the Section:
"(d) If members of the IAM Employee Group have Convertible
Shares credited to their Accounts under this Plan,
`Committee' means the ESOP Committee."
4. Section 1.3(j) is amended by adding the following
to the end of the Section:
"For purposes of the Special Annual Allocation to be
performed for the 1995 Plan Year, 'Eligible Employee' means
an `eligible employee' as defined in the ESOP."
5. Section 1.3(q) is amended to read as follows:
"(q) `Participant' means an ESOP Participant who has an
Account under this Plan."
6. The second sentence of Section 2.1 is amended to
read as follows:
"Notwithstanding any other provision of this Plan to the
contrary, except for purposes of Sections 2.3(a)(i), 2.4(f)
and the Special Annual Allocation for the 1995 Plan Year, no
ESOP Participant who is a member of the IAM Employee Group
shall become a Participant hereunder or receive any credits,
allocations or benefits pursuant to this Plan."
7. Section 2.4(a)(iv) shall be amended to read as
follows:
"(iv) Allocations under the ESOP (Part A) were made (A)
without regard to the Tax Limitations, (B) without regard to
clauses (ii), (iv), (v), (vi) or (vii) of Section 5.4(a) of
the ESOP, (C) were based on Compensation rather than the
definition of compensation in the ESOP, and (D) for Plan
Years beginning on or after January 1, 1995, by including
the shares designated for inclusion in the Hypothetical
Share Number for the ESOP Participant on account of the
Special Annual Allocation applicable to the Plan Year under
Appendix A to the ESOP; and"
8. The first sentence of Section 2.4(c) is amended to
read as follows:
"For each ESOP Participant, the difference, if any, between
the Hypothetical Share Number and the Actual Share Number
shall be referred to as the Tentative Allocation; provided,
however, that, except for purposes of subsection (f) and the
Special Annual Allocation for the 1995 Plan Year, the
Tentative Allocation for any member of the IAM Employee
Group shall be zero."
9. Section 4.2(i) is amended to read as follows:
"(i) Notwithstanding the above and the definition of
"Committee", clauses (a), (b) and (c) shall be disregarded
with respect to any issue involving Voting Shares and
Convertible Shares allocated to the IAM Employee Group under
this Plan if any Voting Shares or Convertible Shares are
allocated to an Account of a Participant who is a member of
the IAM Employee Group."
10. Section 5.1 is amended to read as follows:
"5.1. Amendment. While the Company expects and intends to
continue the Plan, the Company must necessarily reserve, and
does hereby reserve, the right to amend the Plan at any
time, except that no amendment may be adopted, without the
approval of ALPA, provided, that, with respect to amendments
adopted which are described in Section 13.1(b) or (d) of the
ESOP (which subsections shall be treated as appropriately
modified to the extent necessary to reflect the
circumstances of this Plan) the need for joint approval
shall be modified, and provided further that no amendment
which would affect the allocation of the Class M Voting
Shares or Convertible Preferred Shares to members of the IAM
Employee Group shall be adopted without the approval of the
IAM."
11. The second sentence of Section 5.2 is amended to
read as follows:
"Notwithstanding the preceding sentence, the approval of the
IAM will only be required if Class M Voting Shares reserved
for allocation have been transferred or contributed to the
Supplemental Trust, or if Convertible Preferred Shares are
allocated to Accounts of members of the IAM Employee Group
at the time of termination."
IN WITNESS WHEREOF, the Company has caused this Second
Amendment to be executed on August 17, 1995.
UAL CORPORATION
/s/ Stuart I. Oran
Executive Vice President - Corporate
Affairs and General Counsel
APPROVED BY:
AIR LINE PILOTS ASSOCIATION,
INTERNATIONAL
/s/ J. Randolph Babbitt
/s/ Harlow B. Osteboe
INTERNATIONAL ASSOCIATION OF
MACHINISTS AND AEROSPACE WORKERS
/s/ Kenneth W. Thiede
Exhibit 11
UAL Corporation and Subsidiary Companies
Calculation of Fully Diluted Net Earnings Per Share
(In Millions, Except Per Share)
Three Months Nine Months
Ended September 30 Ended September 30
1995 1994 1995 1994
Earnings or loss:
Earnings before preferred stock
transactions and cumulative
effect of accounting change $ 243 $ 82 $ 397 $ 66
Preferred stock dividends (13) (20) (39) (39)
Interest on convertible debentures 6 - 16 -
Earnings before preferred stock
transactions and cumulative
effect of accounting change for
fully diluted calculation 236 62 374 27
Preferred stock transactions - - 43 -
Cumulative effect of accounting change - - - (26)
Net earnings for fully
diluted calculation $ 236 $ 62 $ 417 $ 1
Shares:
Average number of shares of common stock
outstanding during the period 12.4 14.5 12.4 21.2
Additional shares assumed issued at the
beginning of the period (or at the date
of issuance) for conversion of
preferred stock 3.4 - 2.6 -
Additional shares assumed issued at the
beginning of the period for conversion
of convertible debentures 2.0 - 2.0 -
Additional shares assumed issued at the
beginning of the period (or at the date
of issuance) for exercises of dilutive
stock options and stock award plans
(after deducting shares assumed
purchased under the treasury
stock method) 0.5 0.1 0.5 0.2
Average number of shares for fully
diluted calculation 18.3 14.6 17.5 21.4
Fully diluted per share amounts:
Earnings before preferred stock
transactions and cumulative
effect of accounting change $ 12.87 $ 4.21 $ 21.36 $ 1.25
Preferred stock transactions - - 2.46 -
Cumulative effect of accounting change - - - (1.22)
Net earnings $ 12.87 $ 4.21 $ 23.82 $ 0.03
Exhibit 12.1
UAL Corporation and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
Nine Months Ended
September 30
1995 1994
(In Millions)
Earnings:
Earnings before income taxes $ 651 $ 161
Fixed charges, from below 913 772
Undistributed earnings of affiliates (34) (20)
Interest capitalized (31) (31)
Earnings $ 1,499 $ 882
Fixed charges:
Interest expense $ 304 $ 268
Portion of rental expense
representative of the
interest factor 609 504
Fixed charges $ 913 $ 772
Ratio of earnings to
fixed charges 1.64 1.14
Exhibit 12.2
UAL Corporation and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividend Requirements
Nine Months Ended
September 30
1995 1994
(In Millions)
Earnings:
Earnings before income taxes $ 651 $ 161
Fixed charges, from below 982 868
Undistributed earnings of affiliates (34) (20)
Interest capitalized (31) (31)
Earnings $ 1,568 $ 978
Fixed charges:
Interest expense $ 304 $ 268
Preferred stock dividend
requirements 69 96
Portion of rental expense
representative of the
interest factor 609 504
Fixed charges and preferred
stock dividend requirements $ 982 $ 868
Ratio of earnings to fixed charges
and preferred stock dividend
requirements 1.60 1.13
5
