UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 22, 2010
UNITED CONTINENTAL HOLDINGS, INC.
UNITED AIR LINES, INC.
CONTINENTAL AIRLINES, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-06033 | 36-2675207 | ||
| Delaware | 001-11355 | 36-2675206 | ||
| Delaware | 001-10323 | 74-2099724 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification Number) | ||
| 77 W. Wacker Drive, Chicago, IL 77 W. Wacker Drive, Chicago, IL 1600 Smith Street, Dept. HQSEO, Houston, Texas |
60601 60601 77002 | |||
| (Address of principal executive offices) | (Zip Code) | |||
(312) 997-8000
(312) 997-8000
(713) 324-2950
Registrant’s telephone number, including area code
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 7.01 | Regulation FD Disclosure |
On November 22, 2010, United Continental Holdings, Inc. (“UAL”), the holding company whose primary subsidiaries are United Air Lines, Inc. and Continental Airlines, Inc. (“Continental”), issued an investor update providing unaudited pro forma condensed financial information year-to-date 2010 and 2009 for UAL to reflect UAL’s current estimates of the adjustments under the acquisition method of accounting related to the merger transaction between Continental and a wholly-owned subsidiary of UAL and UAL’s determination of the classification of certain items on its income statement. A copy of the investor update is attached as Exhibit 99.1 and is incorporated herein by reference.
The information in this Item 7.01, including Exhibit 99.1, is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section and shall not be deemed incorporated by reference into any registration statement or other document filed pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
| Item 9.01 | Financial Statements and Exhibits. |
| Exhibit |
Description | |
| 99.1 | Investor Update issued by United Continental Holdings, Inc. dated November 22, 2010 | |
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 hereunto duly authorized.
| UNITED CONTINENTAL HOLDINGS, INC. | ||
| UNITED AIR LINES, INC. | ||
| CONTINENTAL AIRLINES, INC. | ||
| By: | /s/ Chris Kenny | |
| Name: | Chris Kenny | |
| Title: | Vice President and Controller | |
Date: November 22, 2010
EXHIBIT INDEX
| Exhibit |
Description | |
| 99.1* | Investor Update issued by United Continental Holdings, Inc. dated November 22, 2010 | |
| * | Furnished herewith electronically. |
Exhibit 99.1
Issue Date: Nov. 22, 2010
Investor Update
This investor update provides forward-looking information about United Continental Holdings, Inc. (“the Company”) for the fourth quarter and full year 2010.
Combined Company (United and Continental) Outlook Highlights
based on unaudited pro forma purchase accounting adjustments
Pro-Forma Financial Statement Update
Included in this investor update are pro forma financial statements for the combined Company from first quarter 2009 through third quarter 2010. These pro forma financial statements have been adjusted to reflect new income statement classifications for certain items that the Company will use going forward, as well as estimates of the impact of purchase accounting on earnings in the fourth quarter of 2010.
The unaudited quarterly pro forma income statements have been prepared to give effect to the merger as if it had been consummated on different dates (Jan. 1, 2008, Oct. 1, 2008, Jan. 1, 2009, Oct. 1, 2009 or Oct. 1, 2010) depending on the particular purchase accounting adjustment, in order to facilitate the most meaningful year over year comparison. The unaudited quarterly pro forma income statements were prepared using the acquisition method of accounting with the Company considered the acquirer of Continental Airlines, Inc. (“Continental”). The estimates of these purchase accounting adjustments as of Oct. 1, 2010 are estimates and will be finalized in the fourth quarter of 2010.
Income Statement Classification Impact – Revenue
The pro-forma financial statements have been adjusted to reflect the decision of the Company to classify ticketing and change fees as well as baggage fees as other revenue, consistent with the historical presentation of Continental. In this update, the Company has provided both quarterly pro-forma passenger revenue results, and monthly year over year PRASM information based on the final income statement classifications. Additional information on the reclassifications can be found in Note 1.
Income Statement Classification Impact – Operating Expense
The pro-forma financial statements have been adjusted to reflect the decision of the Company to only include expenses paid to third party flying partners for regional flying in the contract carrier expense line item, consistent with the historical Continental income statement presentation. As such, expenses that had been classified in the Regional Affiliates line in the historical United Air Lines Inc. (“United”) presentation now reside in Aircraft Fuel, Salaries and Related costs, Aircraft Rentals, Landing Fees and Other Rentals and Other Operating Expenses. Additional information on the reclassifications can be found in Note 1.
Non-Fuel Expense Guidance
Based on the purchase accounting impacts and income statement reclassifications, fourth quarter consolidated cost per ASM (CASM), excluding fuel, profit sharing, certain accounting charges and merger-related expenses for the Company is expected to be up 2.5% to 3.5%. For the full year, the Company estimates consolidated CASM excluding fuel, profit sharing, certain accounting charges and merger-related expenses will be up 2.5% to 2.8%. This guidance only reflects the impacts of the new income statement classifications and updated estimates of purchase accounting impacts; the underlying outlook for core non-fuel costs is unchanged.
As we disclosed in our October Investor Update, the Company expects to implement a revenue sharing structure for its trans-Atlantic joint venture during the fourth quarter 2010, which will be retroactive to January 1, 2010. The Company will account for the revenue sharing obligations for the first nine months of 2010 related to this revenue sharing agreement as other operating expense in the fourth quarter. The Company estimates the impact of this obligation to be approximately $100 million, which accounts for 2 points of year over year growth in Consolidated CASM excluding fuel in the fourth quarter and is included in its guidance. This estimated revenue sharing payment is substantially less than the additional passenger revenue United and Continental receive from the joint marketing, scheduling and pricing efforts of the joint venture. Current quarter and future adjustments related to revenue share payments will be booked as an adjustment to passenger revenue.
Fuel Expense
The Company estimates its consolidated fuel price, including the impact of settled hedges, to be $2.44 per gallon for the fourth quarter and $2.34 per gallon for the full year.
Profit Sharing
United and Continental have separate employee profit sharing plans for the employees of each respective subsidiary. The Company’s profit sharing plan for United pays 15% of total GAAP pre-tax profits, excluding special items and stock compensation expense, to the employees of United when pre-tax profit excluding special items, profit sharing expense and stock-based compensation program expense exceeds $10 million. The Company currently expects that stock compensation program expense for United to be $28 million in the fourth quarter, and $58 million for the full year which should be added back to earnings when calculating profit sharing expense.
The Company’s profit sharing plan for Continental creates an award pool of 15% of annual pre-tax income excluding special, unusual or non-recurring items.
For both United and Continental, profit sharing expense is accrued on a year-to-date basis.
Non-Operating Income/Expense
Non-operating expense for the Company is estimated to be between $245 million and $255 million for the fourth quarter, and between $970 million and $980 million for the full year. Non-operating income/(expense) includes interest expense, capitalized interest, interest income and other non-operating income/(expense).
Pension Expense and Contributions
United does not have any tax-qualified defined benefit pension plans. The Company estimates that its non-cash pension expense for the pro-forma combined Company will be approximately $107 million for 2010 including the impact of purchase accounting. This amount excludes non-cash settlement charges related to lump-sum distributions. Settlement charges are possible during 2010, but the Company is not able at this time to estimate the amount of these charges.
Selected Balance Sheet Measures
The Company estimates that, as of October 1, 2010, it had total Debt and Capital Lease obligations of approximately $15.8 billion. The Company also estimates that it had, as of the same date, $6 billion in frequent flyer deferred revenue and advance purchase of miles, a $3.7 billion liability for Advance Ticket Sales, a $2.2 billion Postretirement Benefit Liability and a $1.7 billion Accrued Pension Liability.
Combined Company Outlook
based on unaudited pro forma purchase accounting adjustments
| PRO-FORMA | ||||||||||||||||||||||||||||||||||||||||||||||||
| Estimated Fourth Quarter 2010 |
Year-Over-Year % Change Higher/(Lower) |
Estimated Full Year 2010 |
Year-Over-Year % Change Higher/(Lower) |
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| Capacity (Million ASMs) |
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| Mainline Capacity |
||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic Capacity |
28,086 | — | 28,369 | (1.1 | )% | — | (0.1 | )% | 114,369 | — | 114,652 | (2.4 | )% | — | (2.2 | )% | ||||||||||||||||||||||||||||||||
| Atlantic Capacity |
11,670 | — | 11,778 | 9.0 | % | — | 10.0 | % | 48,117 | — | 48,225 | 2.0 | % | — | 2.2 | % | ||||||||||||||||||||||||||||||||
| Pacific Capacity |
9,429 | — | 9,519 | 5.0 | % | — | 6.0 | % | 37,752 | — | 37,842 | 0.9 | % | — | 1.2 | % | ||||||||||||||||||||||||||||||||
| Latin America Capacity |
4,505 | — | 4,547 | 7.5 | % | — | 8.5 | % | 19,233 | — | 19,275 | 4.8 | % | — | 5.0 | % | ||||||||||||||||||||||||||||||||
| Total Mainline Capacity |
53,690 | — | 54,213 | 2.7 | % | — | 3.7 | % | 219,471 | — | 219,994 | (0.3 | )% | — | (0.1 | )% | ||||||||||||||||||||||||||||||||
| Regional Affiliates & Other Capacity* |
8,028 | — | 8,104 | 5.1 | % | — | 6.1 | % | 32,913 | — | 32,989 | 9.3 | % | — | 9.5 | % | ||||||||||||||||||||||||||||||||
| Consolidated Capacity |
||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic Capacity |
35,728 | — | 36,087 | (0.2 | )% | — | 0.8 | % | 145,749 | — | 146,108 | (0.3 | )% | — | (0.1 | )% | ||||||||||||||||||||||||||||||||
| International Capacity |
25,990 | — | 26,230 | 7.7 | % | — | 8.7 | % | 106,635 | — | 106,875 | 2.5 | % | — | 2.7 | % | ||||||||||||||||||||||||||||||||
| Total Consolidated Capacity |
61,718 | — | 62,317 | 3.0 | % | — | 4.0 | % | 252,384 | — | 252,983 | 0.8 | % | — | 1.1 | % | ||||||||||||||||||||||||||||||||
| Traffic (Million RPMs) |
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| Mainline System Traffic |
|
Fourth Quarter Traffic Outlook To Be Provided Later In The Quarter |
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| Domestic System Traffic |
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| Latin America System Traffic |
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| Atlantic System Traffic |
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| Pacific System Traffic |
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| Total Mainline System Traffic |
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| Regional Affiliates & Other System Traffic* |
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| Consolidated System Traffic |
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| Domestic System Traffic |
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| International System Traffic |
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| Total Consolidated System Traffic |
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| Load Factor |
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| Mainline Load Factor |
|
Fourth Quarter Load Factor Outlook To Be Provided Later In The Quarter |
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| Domestic Load Factor |
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| Latin America Load Factor |
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| Atlantic Load Factor |
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| Pacific Load Factor |
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| Total Mainline Load Factor |
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| Regional Affiliates & Other Load Factor* |
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| Consolidated Load Factor |
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| Domestic Load Factor |
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| International Load Factor |
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| Total Consolidated Load Factor |
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| * | Regional & Other outlook reflect flights operated under capacity purchase agreements, flights operated as part of our joint venture with Aer Lingus and charter operations. |
2
Combined Company Outlook
based on unaudited pro forma purchase accounting adjustments
| PRO-FORMA | ||||||||||||||||||||||||||||||||||||||||||||||||
| Estimated Fourth Quarter 2010 |
Year-Over-Year
% Change Higher/(Lower) |
Estimated Full Year 2010 |
Year-Over-Year
% Change Higher/(Lower) |
|||||||||||||||||||||||||||||||||||||||||||||
| Revenue |
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| Mainline Passenger Unit Revenue (¢/ASM) |
|
Fourth Quarter Revenue Outlook To Be Provided Later In The Quarter |
| |||||||||||||||||||||||||||||||||||||||||||||
| Regional Affiliates & Other Passenger Unit Revenue (¢/ASM) |
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| Consolidated Passenger Unit Revenue (¢/ASM) |
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| Mainline Passenger Unit Revenue (¢/ASM) |
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| Cargo, Mail and Other Revenue |
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| Operating Expenses* |
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| Mainline Unit Cost Excluding Profit Sharing and Non-Cash Net Mark-to-Market (MTM) Impacts (¢/ASM) |
12.20 | — | 12.28 | 7.4 | % | — | 8.2 | % | 11.57 | — | 11.59 | 7.8 | % | — | 7.9 | % | ||||||||||||||||||||||||||||||||
| Regional Affiliates & Other Unit Cost (¢/ASM) |
18.02 | — | 18.14 | 5.3 | % | — | 6.0 | % | 17.36 | — | 17.39 | 4.9 | % | — | 5.1 | % | ||||||||||||||||||||||||||||||||
| Consolidated Unit Cost Excluding Profit Sharing and Non-Cash Net MTM Impacts (¢/ASM) |
12.95 | — | 13.04 | 7.1 | % | — | 7.9 | % | 12.32 | — | 12.34 | 7.7 | % | — | 7.9 | % | ||||||||||||||||||||||||||||||||
| Non-Fuel Expense* |
||||||||||||||||||||||||||||||||||||||||||||||||
| Mainline Unit Cost Excluding Fuel and Profit Sharing (¢/ASM) |
8.49 | — | 8.57 | 3.0 | % | — | 4.0 | % | 8.03 | — | 8.05 | 3.0 | % | — | 3.3 | % | ||||||||||||||||||||||||||||||||
| Regional Affiliates & Other Unit Cost Excluding Fuel (¢/ASM) |
12.25 | — | 12.37 | 1.0 | % | — | 2.0 | % | 11.97 | — | 12.00 | (2.0 | )% | — | (1.7 | )% | ||||||||||||||||||||||||||||||||
| Consolidated Unit Cost Excluding Fuel and Profit Sharing (¢/ASM) |
8.97 | — | 9.06 | 2.5 | % | — | 3.5 | % | 8.54 | — | 8.56 | 2.5 | % | — | 2.8 | % | ||||||||||||||||||||||||||||||||
| Select Expense Measures |
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| Aircraft Rent ($MM) |
$260 | $1,025 | ||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and Amortization ($MM) |
$400 | $1,525 | ||||||||||||||||||||||||||||||||||||||||||||||
| Fuel Expense |
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| Mainline Fuel Consumption (Million Gallons) |
830 | 3,350 | ||||||||||||||||||||||||||||||||||||||||||||||
| Mainline Fuel Price Excluding Hedges |
$2.42 / Gallon | $2.28 / Gallon | ||||||||||||||||||||||||||||||||||||||||||||||
| Mainline Fuel Price Including Cash Settled Hedges |
$2.41 / Gallon | $2.32 / Gallon | ||||||||||||||||||||||||||||||||||||||||||||||
| Mainline Fuel Price Including Cash Settled Hedges and Non-Cash Net MTM Gains/(Losses) (GAAP fuel expense per gallon) |
$2.43 / Gallon | $2.33 / Gallon | ||||||||||||||||||||||||||||||||||||||||||||||
| Regional Affiliates & Other Fuel Consumption (Million Gallons) |
180 | 730 | ||||||||||||||||||||||||||||||||||||||||||||||
| Regional Affiliates & Other Fuel Price |
$2.58 / Gallon | $2.45 / Gallon | ||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated Fuel Price Including Cash Settled Hedges |
$2.44 / Gallon | $2.34 / Gallon | ||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated Fuel Price Including Cash Settled Hedges and Non-Cash Net MTM Gains/(Losses) (GAAP fuel expense per gallon) |
$2.46 / Gallon | $2.35 / Gallon | ||||||||||||||||||||||||||||||||||||||||||||||
| * | Excludes special items and certain accounting charges and merger-related expenses |
3
Combined Company Outlook
based on unaudited pro forma purchase accounting adjustments
Share Count
| 4Q 2010 | ||||||||||||
| (Estimated) | ||||||||||||
| Basic Share Count | Diluted Share Count | Interest Add-back | ||||||||||
| Net Income |
(in millions) | (in millions) | (in millions) | |||||||||
| Less than or equal to $0 |
322.7 | 322.7 | $ | — | ||||||||
| $1 million - $35 million |
322.7 | 325.6 | $ | — | ||||||||
| $36 million - $60 million |
322.7 | 365.3 | $ | 4 | ||||||||
| $61 million - $280 million |
322.7 | 377.4 | $ | 7 | ||||||||
| $281 million - $297 million |
322.7 | 381.6 | $ | 10 | ||||||||
| $298 million - $365 million |
322.7 | 403.9 | $ | 28 | ||||||||
| $366 million - $408 million |
322.7 | 408.2 | $ | 32 | ||||||||
| $409 million or greater |
322.7 | 411.6 | $ | 36 | ||||||||
| Full Year 2010 - PRO-FORMA | ||||||||||||
| (Estimated) | ||||||||||||
| Basic Share Count | Diluted Share Count | Interest Add-back | ||||||||||
| Net Income |
(in millions) | (in millions) | (in millions) | |||||||||
| Less than or equal to $0 |
316.7 | 316.7 | $ | — | ||||||||
| $1 million - $140 million |
316.7 | 320.4 | $ | — | ||||||||
| $141 million - $239 million |
316.7 | 360.1 | $ | 17 | ||||||||
| $240 million - $544 million |
316.7 | 372.3 | $ | 26 | ||||||||
| $545 million - $1,175 million |
316.7 | 380.2 | $ | 38 | ||||||||
| $1,176 million - $1,459 million |
316.7 | 402.4 | $ | 109 | ||||||||
| $1,460 million - $1,614 million |
316.7 | 406.8 | $ | 126 | ||||||||
| $1,615 million or greater |
316.7 | 410.2 | $ | 141 | ||||||||
These share count charts are based upon several assumptions including market stock price and number of shares outstanding. The number of shares used in the actual EPS calculation will likely be different from those set forth above.
4
2009 and Year-to-date 2010 Quarterly Pro Forma Operating Statistics
| 1Q 2009 | 2Q 2009 | 3Q 2009 | 4Q 2009 | 1Q 2010 | 2Q 2010 | 3Q 2010 | ||||||||||||||||||||||
| Capacity (Million ASMs) |
||||||||||||||||||||||||||||
| Mainline Capacity |
||||||||||||||||||||||||||||
| Domestic |
28,147 | 29,794 | 30,824 | 28,393 | 27,034 | 29,062 | 30,162 | |||||||||||||||||||||
| Atlantic |
10,960 | 12,630 | 12,846 | 10,683 | 10,589 | 12,182 | 13,668 | |||||||||||||||||||||
| Pacific |
8,895 | 9,611 | 9,798 | 8,967 | 8,677 | 9,707 | 9,935 | |||||||||||||||||||||
| Latin America |
5,191 | 4,468 | 4,501 | 4,191 | 5,231 | 4,879 | 4,615 | |||||||||||||||||||||
| Total Mainline Capacity |
53,193 | 56,503 | 57,969 | 52,234 | 51,531 | 55,830 | 58,380 | |||||||||||||||||||||
| Regional Affiliate & Other Capacity* |
7,224 | 7,517 | 8,048 | 7,742 | 7,804 | 8,511 | 8,774 | |||||||||||||||||||||
| Consolidated Capacity |
||||||||||||||||||||||||||||
| Domestic |
34,949 | 37,023 | 38,573 | 35,844 | 34,559 | 37,129 | 38,497 | |||||||||||||||||||||
| International |
25,468 | 26,997 | 27,444 | 24,132 | 24,776 | 27,212 | 28,657 | |||||||||||||||||||||
| Total Consolidated Capacity |
60,417 | 64,020 | 66,017 | 59,976 | 59,335 | 64,341 | 67,154 | |||||||||||||||||||||
| Traffic (Million RPMs) |
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| Mainline Traffic |
||||||||||||||||||||||||||||
| Domestic Traffic |
22,344 | 25,703 | 26,863 | 23,704 | 22,067 | 25,172 | 26,298 | |||||||||||||||||||||
| Atlantic Traffic |
7,545 | 10,356 | 11,125 | 8,896 | 8,106 | 10,340 | 11,891 | |||||||||||||||||||||
| Pacific Traffic |
6,527 | 7,168 | 7,975 | 7,208 | 7,202 | 8,085 | 8,598 | |||||||||||||||||||||
| Latin America Traffic |
4,045 | 3,559 | 3,757 | 3,364 | 4,231 | 3,869 | 3,832 | |||||||||||||||||||||
| Total Mainline Traffic |
40,461 | 46,786 | 49,720 | 43,172 | 41,606 | 47,466 | 50,619 | |||||||||||||||||||||
| Regional Affiliates & Other Traffic* |
5,153 | 5,899 | 6,354 | 5,942 | 5,846 | 6,831 | 7,086 | |||||||||||||||||||||
| Consolidated Traffic |
— | — | ||||||||||||||||||||||||||
| Domestic Traffic |
27,200 | 31,384 | 32,962 | 29,422 | 27,697 | 31,662 | 33,019 | |||||||||||||||||||||
| International Traffic |
18,414 | 21,301 | 23,112 | 19,692 | 19,755 | 22,635 | 24,686 | |||||||||||||||||||||
| Total Consolidated Traffic |
45,614 | 52,685 | 56,074 | 49,114 | 47,452 | 54,297 | 57,705 | |||||||||||||||||||||
| Load Factor |
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| Mainline Load Factor |
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| Domestic Load Factor |
79.4 | % | 86.3 | % | 87.2 | % | 83.5 | % | 81.6 | % | 86.6 | % | 87.2 | % | ||||||||||||||
| Latin America Load Factor |
77.9 | % | 79.7 | % | 83.5 | % | 80.3 | % | 80.9 | % | 79.3 | % | 83.0 | % | ||||||||||||||
| Atlantic Load Factor |
68.8 | % | 82.0 | % | 86.6 | % | 83.3 | % | 76.6 | % | 84.9 | % | 87.0 | % | ||||||||||||||
| Pacific Load Factor |
73.4 | % | 74.6 | % | 81.4 | % | 80.4 | % | 83.0 | % | 83.3 | % | 86.5 | % | ||||||||||||||
| Total Mainline Load Factor |
76.1 | % | 82.8 | % | 85.8 | % | 82.6 | % | 80.7 | % | 85.0 | % | 86.7 | % | ||||||||||||||
| Regional Affiliates & Other Load Factor* |
71.3 | % | 78.5 | % | 78.9 | % | 76.8 | % | 74.9 | % | 80.3 | % | 80.7 | % | ||||||||||||||
| Consolidated Load Factor |
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| Domestic Load Factor |
77.8 | % | 84.8 | % | 85.5 | % | 82.1 | % | 80.1 | % | 85.3 | % | 85.7 | % | ||||||||||||||
| International Load Factor |
72.3 | % | 78.9 | % | 84.2 | % | 81.6 | % | 79.7 | % | 83.2 | % | 86.1 | % | ||||||||||||||
| Total Consolidated Load Factor |
75.5 | % | 82.3 | % | 84.9 | % | 81.9 | % | 80.0 | % | 84.4 | % | 85.9 | % | ||||||||||||||
| * | Regional Affiliates & Other results only reflect flights operated under capacity purchase agreements, flights operated as part of our joint venture with Aer Lingus and charter operations. |
5
Year-to-date 2010 Quarterly Unaudited Pro Forma Income Statement
based on unaudited pro forma purchase accounting adjustments
| (in $ millions, except per share data) |
1Q 2010 | 2Q 2010 | 3Q 2010 | |||||||||
| Operating Revenue |
||||||||||||
| Passenger: |
||||||||||||
| Mainline |
$ | 5,123 | $ | 6,196 | $ | 6,619 | ||||||
| Regional Affiliates & Other |
1,308 | 1,601 | 1,644 | |||||||||
| Total Passenger |
6,431 | 7,797 | 8,263 | |||||||||
| Cargo |
259 | 301 | 290 | |||||||||
| Other operating revenue |
692 | 768 | 779 | |||||||||
| Total operating revenue |
7,382 | 8,866 | 9,332 | |||||||||
| Operating Expenses |
||||||||||||
| Aircraft fuel |
2,081 | 2,478 | 2,540 | |||||||||
| Salaries and related costs |
1,758 | 1,881 | 2,028 | |||||||||
| Regional Capacity Purchase |
584 | 610 | 624 | |||||||||
| Depreciation and amortization |
386 | 372 | 383 | |||||||||
| Aircraft maintenance materials and outside repairs |
358 | 370 | 382 | |||||||||
| Landing fees and other rents |
475 | 491 | 501 | |||||||||
| Aircraft rent |
254 | 255 | 256 | |||||||||
| Distribution expenses |
317 | 359 | 373 | |||||||||
| Other impairments, merger-related costs and special items |
28 | 84 | 21 | |||||||||
| Other operating expenses |
1,083 | 1,104 | 1,143 | |||||||||
| Total operating expenses |
7,324 | 8,004 | 8,251 | |||||||||
| Earnings from operations |
58 | 862 | 1,081 | |||||||||
| Other Income/(Expense) |
||||||||||||
| Interest expense, net |
(254 | ) | (244 | ) | (252 | ) | ||||||
| Miscellaneous, net |
13 | (11 | ) | 22 | ||||||||
| Total other income (expense), net |
(241 | ) | (255 | ) | (230 | ) | ||||||
| Income/(Loss) before income taxes and equity in earnings of affiliates |
(183 | ) | 607 | 851 | ||||||||
| Income tax benefit/(expense) |
(1 | ) | 2 | — | ||||||||
| Income/(Loss) before equity in earnings of affiliates |
(184 | ) | 609 | 851 | ||||||||
| Equity in earnings of affiliates, net of tax |
1 | 2 | 1 | |||||||||
| Net Income/(Loss) |
$ | (183 | ) | $ | 611 | $ | 852 | |||||
| Earnings/(Loss) per share, basic |
$ | (0.58 | ) | $ | 1.94 | $ | 2.70 | |||||
| Earnings/(Loss) per share, diluted |
(0.58 | ) | 1.57 | 2.16 | ||||||||
| Weighted average shares outstanding, basic |
313 | 315 | 316 | |||||||||
| Weighted average shares outstanding, diluted |
313 | 410 | 411 | |||||||||
6
Year-to-date 2010 Quarterly Selected Statistics
based on unaudited pro forma purchase accounting adjustments
| 1Q 2010 | 2Q 2010 | 3Q 2010 | ||||||||||
| Passenger Revenue per Available Seat Mile (PRASM) |
||||||||||||
| Mainline PRASM (¢/ASM) |
9.94 | 11.10 | 11.34 | |||||||||
| Consolidated PRASM (¢/ASM) |
10.84 | 12.12 | 12.30 | |||||||||
| Cost per Available Seat Mile (CASM) |
||||||||||||
| Mainline CASM (¢/ASM) |
11.58 | 11.69 | 11.61 | |||||||||
| Special Items (¢/ASM)1 |
(0.05 | ) | (0.18 | ) | (0.05 | ) | ||||||
| Profit Sharing (¢/ASM) |
— | (0.20 | ) | (0.29 | ) | |||||||
| Net non-cash mark-to-market impact (“MTM”) (¢/ASM) |
0.06 | (0.07 | ) | (0.02 | ) | |||||||
| Mainline CASM excluding profit sharing, MTM impact and special items (¢/ASM) |
11.59 | 11.24 | 11.25 | |||||||||
| Aircraft fuel (¢/ASM)3 |
(3.32 | ) | (3.54 | ) | (3.54 | ) | ||||||
| Mainline CASM excluding fuel, profit sharing, special items and MTM impact (¢/ASM) |
8.27 | 7.70 | 7.71 | |||||||||
| Consolidated CASM |
12.34 | 12.43 | 12.29 | |||||||||
| Special Items (¢/ASM)1 |
(0.05 | ) | (0.16 | ) | (0.05 | ) | ||||||
| Profit Sharing (¢/ASM) |
— | (0.18 | ) | (0.25 | ) | |||||||
| Net non-cash mark-to-market impact per ASM |
0.05 | (0.06 | ) | (0.02 | ) | |||||||
| Consolidated CASM excluding profit sharing, MTM impact and special items (¢/ASM) |
12.34 | 12.03 | 11.97 | |||||||||
| Aircraft fuel (¢/ASM)2 |
(3.56 | ) | (3.79 | ) | (3.76 | ) | ||||||
| Consolidated CASM excluding fuel, profit sharing, MTM impact and special items (¢/ASM) |
8.78 | 8.24 | 8.21 | |||||||||
| Fuel cost per Gallon (Cents) |
||||||||||||
| Mainline average price per gallon of jet fuel |
216.8 | 236.9 | 233.4 | |||||||||
| Mainline average price per gallon of jet fuel excluding MTM impact |
220.8 | 232.6 | 232.0 | |||||||||
| Consolidated average price per gallon of jet fuel |
220.0 | 238.7 | 233.7 | |||||||||
| Consolidated average price per gallon of jet fuel excluding MTM impact |
223.3 | 235.2 | 232.6 | |||||||||
| Non-Operating Income/(Expense) ($ Millions) |
||||||||||||
| Total Non-Operating Income/(Expense) |
(241 | ) | (255 | ) | (230 | ) | ||||||
| Non-Cash Net Mark To Market Gains/(Losses) |
— | — | — | |||||||||
| Total Non-Operating Income/(Expense) Excluding MTM Gains/(Losses) |
(241 | ) | (255 | ) | (230 | ) | ||||||
| Net Income/(Loss) ($ Millions) |
||||||||||||
| Net Income/(Loss) (GAAP) |
(183 | ) | 611 | 852 | ||||||||
| Special items1 |
— | (135 | ) | 44 | ||||||||
| Net Income/(Loss) excluding special items(Non-GAAP) |
(183 | ) | 746 | 896 | ||||||||
| Weighted Averages Shares Outstanding (Millions) |
||||||||||||
| Basic |
313 | 315 | 316 | |||||||||
| Diluted |
313 | 410 | 411 | |||||||||
| Earnings (Loss) per Share (“EPS”) ($) |
||||||||||||
| Diluted EPS |
$ | (0.58 | ) | $ | 1.57 | $ | 2.16 | |||||
| Special Items per share1 |
— | (0.33 | ) | (0.10 | ) | |||||||
| Diluted EPS excluding special items |
(0.58 | ) | 1.90 | 2.26 | ||||||||
| 1 | Special items include merger-related costs, impairments, non-cash MTM and other one-time accounting charges (See Note 2 – Special Items) |
| 2 | Includes aircraft fuel and related taxes (excluding net non-cash mark-to-market impact) |
7
2009 Quarterly Unaudited Pro Forma Income Statement
based on unaudited pro forma purchase accounting adjustments
| (in $ millions, except per share data) |
1Q 2009 | 2Q 2009 | 3Q 2009 | 4Q 2009 | FY 2009 1 | |||||||||||||||
| Operating Revenue |
||||||||||||||||||||
| Passenger: |
||||||||||||||||||||
| Mainline |
$ | 4,607 | $ | 4,960 | $ | 5,485 | $ | 5,079 | $ | 20,131 | ||||||||||
| Regional Affiliates & Other |
1,081 | 1,215 | 1,349 | 1,320 | 4,966 | |||||||||||||||
| Total Passenger |
5,688 | 6,175 | 6,834 | 6,399 | 25,097 | |||||||||||||||
| Cargo |
209 | 203 | 217 | 273 | 902 | |||||||||||||||
| Other operating revenue |
625 | 660 | 665 | 660 | 2,609 | |||||||||||||||
| Total operating revenue |
6,522 | 7,038 | 7,716 | 7,332 | 28,608 | |||||||||||||||
| Operating Expenses |
||||||||||||||||||||
| Aircraft fuel |
1,588 | 1,534 | 2,137 | 1,942 | 7,201 | |||||||||||||||
| Salaries and related costs |
1,688 | 1,763 | 1,750 | 1,743 | 6,944 | |||||||||||||||
| Regional Capacity Purchase |
570 | 589 | 602 | 589 | 2,349 | |||||||||||||||
| Depreciation and amortization |
378 | 370 | 375 | 422 | 1,545 | |||||||||||||||
| Aircraft maintenance materials and outside repairs |
367 | 389 | 401 | 380 | 1,540 | |||||||||||||||
| Landing fees and other rents |
458 | 479 | 479 | 456 | 1,872 | |||||||||||||||
| Aircraft rent |
269 | 268 | 265 | 254 | 1,056 | |||||||||||||||
| Distribution expenses |
284 | 302 | 321 | 300 | 1,207 | |||||||||||||||
| Other impairments, merger-related costs and special items |
123 | 132 | 63 | 172 | 490 | |||||||||||||||
| Other operating expenses |
1,088 | 1,086 | 1,102 | 1,146 | 4,421 | |||||||||||||||
| Total operating expenses |
6,813 | 6,912 | 7,495 | 7,404 | 28,625 | |||||||||||||||
| Earnings/(Loss) from operations |
(291 | ) | 126 | 221 | (72 | ) | (17 | ) | ||||||||||||
| Other Income/(Expense) |
||||||||||||||||||||
| Interest expense, net |
(192 | ) | (193 | ) | (208 | ) | (226 | ) | (818 | ) | ||||||||||
| Miscellaneous, net |
(7 | ) | 52 | (10 | ) | 28 | 62 | |||||||||||||
| Total other income (expense), net |
(199 | ) | (141 | ) | (218 | ) | (198 | ) | (756 | ) | ||||||||||
| Income/(Loss) before income taxes and equity in earnings of affiliates |
(490 | ) | (15 | ) | 3 | (270 | ) | (773 | ) | |||||||||||
| Income tax benefit/(expense) |
29 | 13 | 4 | 3 | 49 | |||||||||||||||
| Income/(Loss) before equity in earnings of affiliates |
(461 | ) | (2 | ) | 7 | (267 | ) | (724 | ) | |||||||||||
| Equity in earnings of affiliates, net of tax |
1 | 2 | 2 | 1 | 6 | |||||||||||||||
| Net Income/(Loss) |
$ | (460 | ) | $ | — | $ | 9 | $ | (266 | ) | $ | (718 | ) | |||||||
| Earnings/(Loss) per share, basic |
$ | (1.68 | ) | $ | — | $ | 0.03 | $ | (0.85 | ) | $ | (2.51 | ) | |||||||
| Earnings/(Loss) per share, diluted |
(1.68 | ) | — | 0.03 | (0.85 | ) | (2.51 | ) | ||||||||||||
| Weighted average shares outstanding, basic |
274 | 275 | 284 | 312 | 286 | |||||||||||||||
| Weighted average shares outstanding, diluted |
274 | 275 | 284 | 312 | 286 | |||||||||||||||
| 1 | Quarterly amounts may not sum to the annual amounts due to rounding |
8
2009 Quarterly Selected Statistics
based on unaudited pro forma purchase accounting adjustments
| 1Q 2009 | 2Q 2009 | 3Q 2009 | 4Q 2009 | FY 2009 | ||||||||||||||||
| Passenger Revenue per Available Seat Mile (PRASM) |
||||||||||||||||||||
| Mainline PRASM (¢/ASM) |
8.66 | 8.78 | 9.46 | 9.72 | 9.15 | |||||||||||||||
| Consolidated PRASM (¢/ASM) |
9.41 | 9.65 | 10.35 | 10.67 | 10.02 | |||||||||||||||
| Cost per Available Seat Mile (CASM) |
||||||||||||||||||||
| Mainline CASM (¢/ASM) |
10.57 | 10.06 | 10.65 | 11.61 | 10.71 | |||||||||||||||
| Special Items (¢/ASM)1 |
(0.20 | ) | (0.26 | ) | (0.13 | ) | (0.34 | ) | (0.23 | ) | ||||||||||
| Profit Sharing (¢/ASM) |
— | — | — | (0.04 | ) | (0.01 | ) | |||||||||||||
| Net non-cash mark-to-market impact (“MTM”) (¢/ASM) |
0.35 | 0.54 | 0.05 | 0.12 | 0.27 | |||||||||||||||
| Mainline CASM excluding profit sharing, MTM impact and special items (¢/ASM) |
10.72 | 10.34 | 10.57 | 11.35 | 10.74 | |||||||||||||||
| Aircraft fuel (¢/ASM)2 |
(2.82 | ) | (2.73 | ) | (3.10 | ) | (3.11 | ) | (2.94 | ) | ||||||||||
| Mainline CASM excluding fuel, profit sharing, special items and MTM impact (¢/ASM) |
7.90 | 7.61 | 7.47 | 8.24 | 7.80 | |||||||||||||||
| Consolidated CASM |
11.28 | 10.80 | 11.35 | 12.35 | 11.43 | |||||||||||||||
| Special Items (¢/ASM)1 |
(0.18 | ) | (0.23 | ) | (0.12 | ) | (0.32 | ) | (0.21 | ) | ||||||||||
| Profit Sharing (¢/ASM) |
— | — | — | (0.04 | ) | (0.01 | ) | |||||||||||||
| Net non-cash mark-to-market impact per ASM |
0.31 | 0.47 | 0.04 | 0.11 | 0.23 | |||||||||||||||
| Consolidated CASM excluding profit sharing, MTM impact and special items (¢/ASM) |
11.41 | 11.04 | 11.27 | 12.10 | 11.44 | |||||||||||||||
| Aircraft fuel (¢/ASM)2 |
(2.94 | ) | (2.87 | ) | (3.27 | ) | (3.35 | ) | (3.11 | ) | ||||||||||
| Consolidated CASM excluding fuel, profit sharing, MTM impact and special items (¢/ASM) |
8.47 | 8.17 | 7.99 | 8.75 | 8.33 | |||||||||||||||
| Fuel cost per Gallon (Cents) |
||||||||||||||||||||
| Mainline average price per gallon of jet fuel |
163.0 | 144.3 | 201.1 | 195.6 | 176.0 | |||||||||||||||
| Mainline average price per gallon of jet fuel excluding MTM impact |
186.8 | 179.9 | 204.0 | 203.8 | 193.5 | |||||||||||||||
| Consolidated average price per gallon of jet fuel |
164.6 | 149.5 | 201.8 | 200.4 | 179.2 | |||||||||||||||
| Consolidated average price per gallon of jet fuel excluding MTM impact |
184.4 | 179.2 | 204.2 | 207.1 | 193.8 | |||||||||||||||
| Non-Operating Income/(Expense) ($ Millions) |
||||||||||||||||||||
| Total Non-Operating Income/(Expense) |
(199 | ) | (141 | ) | (218 | ) | (198 | ) | (756 | ) | ||||||||||
| Non-Cash Net Mark To Market Gains/(Losses) |
72 | 135 | 34 | 38 | 279 | |||||||||||||||
| Total Non-Operating Income/(Expense) Excluding MTM Gains/(Losses) |
(271 | ) | (276 | ) | (252 | ) | (236 | ) | (1,035 | ) | ||||||||||
| Net Income/(Loss) ($ Millions) |
||||||||||||||||||||
| Net Income/(Loss) (GAAP) |
(460 | ) | — | 9 | (266 | ) | (718 | ) | ||||||||||||
| Special items1 |
185 | 305 | (17 | ) | (79 | ) | 394 | |||||||||||||
| Net Income/(Loss) excluding special items(Non-GAAP) |
(645 | ) | (305 | ) | 26 | (187 | ) | (1,112 | ) | |||||||||||
| Weighted Averages Shares Outstanding (Million) |
||||||||||||||||||||
| Basic |
274 | 275 | 284 | 312 | 286 | |||||||||||||||
| Diluted |
274 | 275 | 284 | 312 | 286 | |||||||||||||||
| Earnings/(Loss) per Share (“EPS”) ($) |
||||||||||||||||||||
| Diluted EPS |
$ | (1.68 | ) | $ | — | $ | 0.03 | $ | (0.85 | ) | $ | (2.51 | ) | |||||||
| Special Items per share1 |
0.68 | 1.11 | (0.06 | ) | (0.25 | ) | 1.38 | |||||||||||||
| Diluted EPS excluding special items |
(2.36 | ) | (1.11 | ) | 0.09 | (0.60 | ) | (3.89 | ) | |||||||||||
| 1 | Special items include merger-related costs, impairments, non-cash MTM and other one-time accounting charges (See Note 2 – Special Items) |
| 2 | Includes aircraft fuel and related taxes (excluding net non-cash mark-to-market impact) |
9
Year-over-Year Monthly Passenger Unit Revenue Statistics
based on pro forma purchase accounting adjustments
| 2009 vs. 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Jan. | Feb. | March | April | May | June | July | August | Sept. | Oct. | Nov. | Dec. | |||||||||||||||||||||||||||||||||||||
| Passenger Revenue per ASM (PRASM) |
|
|||||||||||||||||||||||||||||||||||||||||||||||
| Mainline | (6.4 | %) | (13.8 | %) | (17.5 | %) | (15.3 | %) | (20.5 | %) | (21.5 | %) | (18.1 | %) | (17.7 | %) | (16.2 | %) | (12.8 | %) | (5.4 | %) | 0.0 | % | ||||||||||||||||||||||||
| Regional Affiliates & Other* |
(12.1 | %) | (20.5 | %) | (23.2 | %) | (16.8 | %) | (17.6 | %) | (20.9 | %) | (11.6 | %) | (13.2 | %) | (12.2 | %) | (7.8 | %) | (3.4 | %) | (0.9 | %) | ||||||||||||||||||||||||
| Consolidated PRASM | (6.9 | %) | (14.2 | %) | (17.8 | %) | (15.3 | %) | (19.8 | %) | (20.9 | %) | (16.7 | %) | (16.5 | %) | (15.0 | %) | (11.6 | %) | (4.5 | %) | 0.4 | % | ||||||||||||||||||||||||
| 2010 vs. 2009 | ||||||||||||||||||||||||||||||||||||
| Jan. | Feb. | March | April | May | June | July | August | Sept. | ||||||||||||||||||||||||||||
| Passenger Revenue per ASM (PRASM) | ||||||||||||||||||||||||||||||||||||
| Mainline | 6.3 | % | 16.4 | % | 23.4 | % | 22.1 | % | 28.0 | % | 28.6 | % | 22.9 | % | 19.8 | % | 17.0 | % | ||||||||||||||||||
| Regional Affiliates & Other* | 2.6 | % | 11.0 | % | 20.0 | % | 12.6 | % | 13.7 | % | 20.9 | % | 12.9 | % | 13.2 | % | 7.4 | % | ||||||||||||||||||
| Consolidated PRASM | 6.2 | % | 16.1 | % | 23.4 | % | 21.5 | % | 26.3 | % | 27.9 | % | 21.7 | % | 19.1 | % | 15.6 | % | ||||||||||||||||||
| * | Regional Affiliates & Other results only reflect flights operated under capacity purchase agreements, flights operated as part of our joint venture with Aer Lingus and charter operations |
10
Note 1
Details regarding the adjustments included in the pro-forma financial statements in this document are provided below and reflect the adjustments made to the combined Company’s financial statements to align with the new income statement presentation.
| (in $ millions) | ||||||||||||||||||||||||||||
| Increase/(Decrease) |
1Q 2009 | 2Q 2009 | 3Q 2009 | 4Q 2009 | 1Q 2010 | 2Q 2010 | 3Q 2010 | |||||||||||||||||||||
| Passenger Revenue |
||||||||||||||||||||||||||||
| Mainline |
(221 | ) | (235 | ) | (231 | ) | (222 | ) | (237 | ) | (272 | ) | (288 | ) | ||||||||||||||
| Regional Affiliates & Other |
18 | 10 | (2 | ) | 7 | (16 | ) | (28 | ) | (25 | ) | |||||||||||||||||
| Other Revenue |
||||||||||||||||||||||||||||
| Other Operating Revenue |
216 | 233 | 245 | 218 | 247 | 283 | 295 | |||||||||||||||||||||
| Total Revenue |
13 | 8 | 12 | 3 | (6 | ) | (17 | ) | (18 | ) | ||||||||||||||||||
| Operating Expense |
||||||||||||||||||||||||||||
| Aircraft Fuel |
183 | 200 | 245 | 256 | 269 | 312 | 314 | |||||||||||||||||||||
| Salaries & Related Costs |
36 | 35 | 36 | 39 | 42 | 41 | 44 | |||||||||||||||||||||
| Regional Affiliates |
(314 | ) | (336 | ) | (384 | ) | (402 | ) | (432 | ) | (512 | ) | (502 | ) | ||||||||||||||
| Depreciation & Amortization |
3 | 3 | 4 | 5 | 8 | 8 | 8 | |||||||||||||||||||||
| Aircraft Maintenance & Outside Repairs |
(5 | ) | (6 | ) | (5 | ) | (5 | ) | (5 | ) | (5 | ) | (5 | ) | ||||||||||||||
| Landing Fees & Other Rent |
23 | 29 | 26 | 28 | 29 | 30 | 28 | |||||||||||||||||||||
| Distribution Expense |
10 | 13 | 16 | 11 | 9 | 15 | 19 | |||||||||||||||||||||
| Other Operating Expense |
76 | 69 | 73 | 71 | 66 | 86 | 69 | |||||||||||||||||||||
| Total Operating Expense |
12 | 7 | 11 | 3 | (14 | ) | (25 | ) | (25 | ) | ||||||||||||||||||
| Operating Earnings Impact |
1 | 1 | 1 | — | 8 | 8 | 7 | |||||||||||||||||||||
| Non-Operating Expense |
1 | 2 | 2 | — | 8 | 10 | 7 | |||||||||||||||||||||
| Income Before Income Taxes & Equity in Earnings of Affiliates |
— | (1 | ) | (1 | ) | — | — | (2 | ) | — | ||||||||||||||||||
| Income Tax Benefit/(Expense) |
— | — | — | — | — | — | — | |||||||||||||||||||||
| Income Before Equity in Earnings of Affiliates |
— | (1 | ) | (1 | ) | — | — | (2 | ) | — | ||||||||||||||||||
| Equity in Earnings of Affiliates, Net of Tax |
— | 1 | 1 | — | — | 2 | — | |||||||||||||||||||||
| Net Income/(Loss) |
— | — | — | — | — | — | — | |||||||||||||||||||||
Details regarding the income statement adjustments due to purchase accounting included in both the pro-forma financial statements and the guidance provided for the Fourth Quarter in this document are provided below.
| (in $ millions) Increase/(Decrease) |
1Q 2009 | 2Q 2009 | 3Q 2009 | 4Q 2009 | 1Q 2010 | 2Q 2010 | 3Q 2010 | 4Q 2010 | ||||||||||||||||||||||||
| Passenger Revenue |
||||||||||||||||||||||||||||||||
| Advance Ticket Sales (a) |
(35 | ) | (41 | ) | (12 | ) | (6 | ) | 15 | 21 | 7 | 4 | ||||||||||||||||||||
| Frequent Flyer Deferred Revenue (b) |
(51 | ) | (16 | ) | 21 | — | — | 32 | 25 | (8 | ) | |||||||||||||||||||||
| Other Revenue |
||||||||||||||||||||||||||||||||
| Frequent Flyer Deferred Revenue (b) |
(49 | ) | (47 | ) | (46 | ) | (30 | ) | (27 | ) | (29 | ) | (19 | ) | (10 | ) | ||||||||||||||||
| Deferred Gains (c) |
(9 | ) | (10 | ) | (9 | ) | (10 | ) | (10 | ) | (10 | ) | (10 | ) | (10 | ) | ||||||||||||||||
| Total Revenue |
(144 | ) | (114 | ) | (46 | ) | (46 | ) | (22 | ) | 14 | 3 | (24 | ) | ||||||||||||||||||
| Aircraft Fuel |
||||||||||||||||||||||||||||||||
| Fuel Hedge Adjustment (d) |
(129 | ) | (222 | ) | (53 | ) | — | — | — | — | 15 | |||||||||||||||||||||
| Salaries & Related Costs |
||||||||||||||||||||||||||||||||
| Pension Liability Adjustment (e) |
(34 | ) | (34 | ) | (34 | ) | (38 | ) | (28 | ) | (29 | ) | (29 | ) | (24 | ) | ||||||||||||||||
| Profit Sharing (f) |
— | — | — | 28 | — | 27 | 19 | — | ||||||||||||||||||||||||
| Depreciation & Amortization |
||||||||||||||||||||||||||||||||
| Revaluation of Assets (g) |
31 | 27 | 27 | 49 | 31 | 27 | 27 | 49 | ||||||||||||||||||||||||
| Aircraft Rent |
||||||||||||||||||||||||||||||||
| Revaluation of Operating Leases (h) |
(58 | ) | (58 | ) | (58 | ) | (58 | ) | (58 | ) | (58 | ) | (58 | ) | (56 | ) | ||||||||||||||||
| Deferred Gains (c) |
2 | 2 | 2 | 2 | 2 | 2 | 2 | 2 | ||||||||||||||||||||||||
| Special Operating Items (i) |
— | — | — | (29 | ) | — | (46 | ) | (55 | ) | — | |||||||||||||||||||||
| All Other Operating Expense |
||||||||||||||||||||||||||||||||
| Other Purchase Accounting (j) |
(1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | (1 | ) | ||||||||||||||||
| Total Operating Expense |
(189 | ) | (286 | ) | (117 | ) | (47 | ) | (54 | ) | (78 | ) | (95 | ) | (15 | ) | ||||||||||||||||
| Operating Earnings Impact |
45 | 172 | 71 | 1 | 32 | 92 | 98 | (9 | ) | |||||||||||||||||||||||
| Non-Operating Expense (k) |
(13 | ) | (13 | ) | (13 | ) | (13 | ) | (13 | ) | (13 | ) | (13 | ) | (13 | ) | ||||||||||||||||
| Pre-Tax Earnings Impact |
58 | 185 | 84 | 14 | 45 | 105 | 111 | 4 | ||||||||||||||||||||||||
| Income Tax Expense (l) |
— | — | — | (125 | ) | — | — | — | — | |||||||||||||||||||||||
| Net Income Impact |
58 | 185 | 84 | (111 | ) | 45 | 105 | 111 | 4 | |||||||||||||||||||||||
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| (a) | Advance Ticket Sales |
A reduction of Continental’s advance ticket sales to conform to UAL’s accounting policy for ticket breakage. Historical periods adjusted to reflect new policy.
| (b) | Frequent Flyer Deferred Revenue |
Adjustments to (i) eliminate the existing liability for Continental’s OnePass frequent flyer program, a portion of which was accounted under the incremental cost method and recorded within the air traffic liability, (ii) record the fair value of Continental’s OnePass liability and (iii) reflect the adoption of deferred revenue accounting to conform to UAL’s frequent flyer accounting policy and financial statement presentation. The frequent flyer adjustment was determined by assuming that the deferred revenue accounting model was adopted on January 1, 2008, and then readopted on October 1, 2008, October 1, 2009 and October 1, 2010 to create meaningful year over year comparisons. The implementation of deferred revenue accounting has a disproportionately negative impact in the first year, as miles that are expected to expire unused are put on the balance sheet at a zero value, depressing the per mile value of all miles outstanding. Therefore, when miles are redeemed or expire unused, they are recognized at a lower per mile rate than when the policy has been implemented for a period of time.
| (c) | Deferred Gains |
An adjustment to reduce Continental’s liabilities related to the elimination of deferred gains associated with certain long–term contracts. Historical periods adjusted to remove deferred gains.
| (d) | Fuel Hedge Adjustment |
As a result of the elimination of all of Continental’s stockholders’ equity, the quarterly unaudited Pro Forma income statement reflect lower aircraft fuel expenses related to Continental’s fuel hedge losses that had previously been deferred in accumulated other comprehensive income (loss) but were eliminated upon the application of the acquisition method of accounting.
| (e) | Pension Liability |
As a result of adjustments to record Continental’s pension assets at fair value, remeasure its pension and postretirement benefit obligations at current discount rates and eliminate unrecognized prior service cost and unrecognized actuarial losses recorded in other comprehensive income (loss). The quarterly unaudited Pro Forma income statement reflect lower salaries and related costs related to the elimination of amortization or settlement charge recognition of pension and postretirement prior service costs and actuarial gains and losses.
| (f) | Profit Sharing |
An adjustment to record the profit sharing expense associated with other pro forma adjustments.
| (g) | Revaluation of Assets |
All assets are revalued as of the date of purchase accounting implementation. The quarterly unaudited Pro Forma income statement reflect the impact of the revaluation of aircraft fuel, spare parts and supplies, property and equipment, capital leases, intangible assets such as Continental’s slots and frequent flyer customer database and other agreements. Historical periods adjusted to reflect expectation of depreciation impact in 4Q10 through 3Q11 to create meaningful year over year comparisons.
| (h) | Revaluation of Aircraft Operating Leases |
Adjustments to (i) eliminate Continental’s aircraft rent leveling accounts and (ii) record the fair value of Continental’s aircraft operating leases. Historical periods adjusted to reflect expectation of aircraft rent impact in 4Q10.
| (i) | Merger–Related Costs |
A reduction of other impairments and special items to remove the effect of one–time costs directly related to the merger. .
| (j) | Other Purchase Accounting |
Other purchase accounting impacts include (i) A decrease in aircraft maintenance, material and outside repair expense to reflect the fair value of a Continental maintenance contract with a third party; (ii) an increase in facility operating lease expense due to the elimination of Continental’s facility rent leveling accounts and revaluation of fair value of facility operating leases. Historical periods adjusted to reflect the expectation of purchase accounting impact on these items in 4Q10.
| (k) | Interest Expense |
A reduction of long–term debt and capital leases to reflect the fair value of Continental’s long–term debt and the elimination of other noncurrent assets primarily associated with deferred debt issuance costs incurred by Continental. The difference between the fair value and the face amount of each borrowing is amortized as interest expense over the remaining term of the borrowings based on the maturity dates. Historical periods adjusted to reflect the expectation of interest expense impact in 4Q10.
| (l) | Income Taxes |
To record the income tax effects of the purchase accounting adjustments.
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Note 2 – Special Items
The table below details the impact of special items on net income for the pro-forma combined Company:
| (in $ millions) | 1Q 2009 | 2Q 2009 | 3Q 2009 | 4Q 2009 | 1Q 2010 | 2Q 2010 | 3Q 2010 | |||||||||||||||||||||
| Pro Forma Net Income |
(460 | ) | — | 9 | (266 | ) | (183 | ) | 611 | 852 | ||||||||||||||||||
| Special items: |
||||||||||||||||||||||||||||
| UAL Impairments |
110 | 40 | 19 | 74 | 17 | 73 | 22 | |||||||||||||||||||||
| Special charges (net of tax of $0) |
(6 | ) | 63 | 41 | 68 | 3 | 21 | 8 | ||||||||||||||||||||
| Merger-related costs (net of tax of $0) |
— | — | — | — | — | 28 | 44 | |||||||||||||||||||||
| Non-cash, net mark-to-market impact |
(263 | ) | (440 | ) | (59 | ) | (103 | ) | (31 | ) | 37 | 12 | ||||||||||||||||
| Less: income tax adjustments |
(30 | ) | (12 | ) | (4 | ) | 25 | 1 | (2 | ) | — | |||||||||||||||||
| (189 | ) | (349 | ) | (3 | ) | 64 | (10 | ) | 157 | 86 | ||||||||||||||||||
| CAL Impairments |
— | 31 | — | — | — | — | — | |||||||||||||||||||||
| Special charges (net of tax of $0) |
4 | 13 | 20 | 77 | 10 | 6 | 2 | |||||||||||||||||||||
| Merger-related costs (net of tax of $0) |
— | — | — | — | — | 18 | 11 | |||||||||||||||||||||
| Less: income tax adjustments |
— | — | — | (158 | ) | — | — | — | ||||||||||||||||||||
| 4 | 44 | 20 | (81 | ) | 10 | 24 | 13 | |||||||||||||||||||||
| Pro Forma Adj |
||||||||||||||||||||||||||||
| Merger-related costs (net of tax of $0) |
— | — | — | — | — | (46 | ) | (55 | ) | |||||||||||||||||||
| Special charges (net of tax of $0) |
— | — | — | (29 | ) | — | — | — | ||||||||||||||||||||
| Less: income tax adjustments |
— | — | — | 125 | — | — | — | |||||||||||||||||||||
| — | — | — | 96 | — | (46 | ) | (55 | ) | ||||||||||||||||||||
| Adjusted Pro Forma Net Income |
(645 | ) | (305 | ) | 26 | (187 | ) | (183 | ) | 746 | 896 | |||||||||||||||||
| Basic Shares |
274 | 275 | 284 | 312 | 313 | 315 | 316 | |||||||||||||||||||||
| Diluted Shares |
274 | 275 | 284 | 312 | 313 | 410 | 411 | |||||||||||||||||||||
| Adjusted Basic EPS |
(2.35 | ) | (1.11 | ) | 0.09 | (0.60 | ) | (0.58 | ) | 2.37 | 2.84 | |||||||||||||||||
| Adjusted Diluted EPS |
(2.35 | ) | (1.11 | ) | 0.09 | (0.60 | ) | (0.58 | ) | 1.90 | 2.26 | |||||||||||||||||
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:
Certain statements included in this presentation are forward-looking and thus reflect our 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 our operations and business environment that may cause actual results to differ materially from any future results expressed or implied in such forward-looking statements. Words such as “expects,” “will,” “plans,” “anticipates,” “indicates,” “believes,” “forecast,” “guidance,” “outlook” and similar expressions are intended to identify forward-looking statements. Additionally, forward-looking statements include statements which do not relate solely to historical facts, such as statements which identify uncertainties or trends, discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. All forward-looking statements in this presentation are based upon information available to us on the date of this presentation. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except as required by applicable law. Our actual results could differ materially from these forward-looking statements due to numerous factors including, without limitation, the following: our ability to comply with the terms of our various financing arrangements; the costs and availability of financing; our ability to maintain adequate liquidity; our ability to execute our operational plans; our ability to control our costs, including realizing benefits from our resource optimization efforts, cost reduction initiatives and fleet replacement programs; our ability to utilize our net operating losses; our ability to attract and retain customers; demand for transportation in the markets in which we operate; an outbreak of a disease that affects travel demand or travel behavior; demand for travel and the impact that global economic conditions have on customer travel patterns; excessive taxation and the inability to offset future taxable income; general economic conditions (including interest rates, foreign currency exchange rates, investment or credit market conditions, crude oil prices, costs of aviation fuel and energy refining capacity in relevant markets); our ability to cost-effectively hedge against increases in the price of aviation fuel; any potential realized or unrealized gains or losses related to fuel or currency hedging programs; the effects of any hostilities, act of war or terrorist attack; the ability of other air carriers with whom we have alliances or partnerships to provide the services contemplated by the respective arrangements with such carriers; the costs and availability of aviation and other insurance; the costs associated with security measures and practices; industry consolidation or changes in airline alliances; competitive pressures on pricing and on demand; our capacity decisions and the capacity decisions of our competitors; U.S. or foreign governmental legislation, regulation and other actions (including open skies agreements); labor costs; our ability to maintain satisfactory labor relations and the results of the collective bargaining agreement process with our union groups; any disruptions to operations due to any potential actions by our labor groups; weather conditions; the possibility that expected merger synergies will not be realized or will not be realized within the expected time period; and other risks and uncertainties set forth under Item 1A., Risk Factors of Annual Report on Form 10-K, as well as other risks and uncertainties set forth from time to time in the reports we file with the SEC. Consequently, forward-looking statements should not be regarded as representations or warranties by us that such matters will be realized.
For further questions, contact Investor Relations at (312) 997-8610 or investorrelations@united.com
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Non-GAAP To GAAP Reconciliations
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 believes that excluding fuel costs and certain other items from some 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, and the effects of certain other items that would otherwise make analysis of the Company’s operating performance more difficult.
| Q4 2010 Estimate | Full Year 2010 Estimate | |||||||||||||||
| Operating expense per ASM – CASM (cents) | Low | High | Low | High | ||||||||||||
| Mainline operating expense excluding profit sharing |
12.23 | 12.31 | 11.59 | 11.61 | ||||||||||||
| Special items and other exclusions (a) |
— | — | — | — | ||||||||||||
| Mainline operating expense excluding profit sharing and special items(a) |
12.23 | 12.31 | 11.59 | 11.61 | ||||||||||||
| Plus: net non-cash mark-to-market impact (b) |
(0.03 | ) | (0.03 | ) | (0.02 | ) | (0.02 | ) | ||||||||
| Mainline operating expense excluding profit sharing, net non-cash mark-to-market impact and special items (b) |
12.20 | 12.28 | 11.57 | 11.59 | ||||||||||||
| Less: fuel expense (excluding net non-cash mark-to-market impact) (c) |
(3.71 | ) | (3.71 | ) | (3.54 | ) | (3.54 | ) | ||||||||
| Mainline operating expense excluding fuel, profit sharing and special items (c) |
8.49 | 8.57 | 8.03 | 8.05 | ||||||||||||
| Q4 2010 Estimate | Full Year 2010 Estimate | |||||||||||||||
| Regional Affiliates & Other expense per ASM – CASM (cents) | Low | High | Low | High | ||||||||||||
| Regional Affiliates & Other operating expense |
18.02 | 18.14 | 17.36 | 17.39 | ||||||||||||
| Less: Regional Affiliates & Other fuel expense |
(5.77 | ) | (5.77 | ) | (5.39 | ) | (5.39 | ) | ||||||||
| Regional CASM excluding fuel |
12.25 | 12.37 | 11.97 | 12.00 | ||||||||||||
| Q4 2010 Estimate | Full Year 2010 Estimate | |||||||||||||||
| Operating expense per ASM – CASM (cents) | Low | High | Low | High | ||||||||||||
| Consolidated operating expense excluding profit sharing |
12.97 | 13.06 | 12.33 | 12.35 | ||||||||||||
| Special items and other exclusions (a) |
— | — | — | — | ||||||||||||
| Consolidated operating expense excluding profit sharing and special items (b) |
12.97 | 13.06 | 12.33 | 12.35 | ||||||||||||
| Plus: net non-cash mark-to-market impact (b) |
(0.02 | ) | (0.02 | ) | (0.01 | ) | (0.01 | ) | ||||||||
| Consolidated operating expense excluding profit sharing, net non-cash mark-to-market impact and special items |
12.95 | 13.04 | 12.32 | 12.34 | ||||||||||||
| Less: fuel expense (excluding net non-cash mark-to-market impact) (c) |
(3.98 | ) | (3.98 | ) | (3.78 | ) | (3.78 | ) | ||||||||
| Consolidated expense excluding fuel, profit sharing and special items (c) |
8.97 | 9.06 | 8.54 | 8.56 | ||||||||||||
| (a) | Operating expense per ASM – CASM excludes special items, the impact of certain primarily non-cash impairment, severance and other similar accounting charges. While the Company anticipates that it will record such special items and charges throughout the year and may record profit sharing, at this time the Company is unable to provide an estimate of these items with reasonable certainty. |
| (b) | These financial measures provide management and investors the ability to measure and monitor the Company’s performance on a consistent basis. |
| (c) | Both the cost and availability of fuel are subject to many economic and political factors and are therefore beyond the Company’s control. |
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