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): March 8, 2016
UNITED CONTINENTAL HOLDINGS, INC.
UNITED AIRLINES, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-06033 | 36-2675207 | ||
| Delaware | 001-10323 | 74-2099724 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification Number) |
| 233 S. Wacker Drive, Chicago, IL | 60606 | |
| 233 S. Wacker Drive, Chicago, IL | 60606 | |
| (Address of principal executive offices) | (Zip Code) |
(872) 825-4000
(872) 825-4000
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. |
Gerald Laderman, Senior Vice President Finance and acting Chief Financial Officer of United Continental Holdings, Inc., the holding company whose primary subsidiary is United Airlines, Inc., will speak at the 2016 J.P. Morgan Aviation, Transportation and Industrials Conference on March 8, 2016. Attached hereto as Exhibit 99.1 are slides that will be presented at that time.
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 No. |
Description | |
| 99.1* | United Continental Holdings, Inc. slide presentation delivered on March 8, 2016 | |
| * | Furnished herewith electronically. |
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 AIRLINES, INC. | ||
| By: | /s/ Chris Kenny | |
| Name: | Chris Kenny | |
| Title: | Vice President and Controller | |
Date: March 8, 2016
EXHIBIT INDEX
| Exhibit No. |
Description | |
| 99.1* | United Continental Holdings, Inc. slide presentation delivered on March 8, 2016 | |
| * | Furnished herewith electronically. |
| Exhibit 99.1
|
JPMorgan Aviation, Transportation and Industrials Conference
United Continental Holdings, Inc.
March 8, 2016
Gerry Laderman – SVP Finance and acting Chief Financial Officer Doug Leo – SVP Revenue Management, Pricing and Network
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Safe Harbor Statement
Certain statements included in this release 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,” “goals” and similar expressions are intended to identify forward-looking statements. Additionally, forward-looking statements include statements that 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 report are based upon information available to us on the date of this report. 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, including optimizing our revenue; 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 aircraft fuel and energy refining capacity in relevant markets); our ability to cost-effectively hedge against increases in the price of aircraft 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; 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 and environmental regulations); the impact of regulatory, investigative and legal proceedings and legal compliance risks; the impact of any management changes; our CEO’s health prognosis and return to work on a full-time basis; 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; and other risks and uncertainties set forth under Item 1A., Risk Factors, of UAL’s 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.
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Focused on making United the best airline for employees, customers and shareholders
Improve the operation
Execute on revenue and network initiatives Continue sensible cost management Optimize capital allocation
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Investing in people, processes and systems to drive further improvement
Employee engagement
Tools & technology
Out and back flying
Operational simplification
Consolidated arrival A:00
+6.1 pts
58.8%
52.7%
FY1 FY1
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Consolidated completion factor
+1.5 pts
97.5%
96.0%
FY1 FY1
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Investing in people, processes and systems to drive further improvement
Employee engagement
Out and back flying
Tools & technology
Operational simplification
Consolidated arrival A:001
+15.8 pts
67.0%
51.2%
YTD1 YTD1
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Consolidated completion factor1
+0.3 pts
95.7% 96.0%
YTD1 YTD1
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1Through end of February 2015 and 2016
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Focused on making United the best airline for employees, customers and shareholders
Improve the operation
Execute on revenue and network initiatives Continue sensible cost management Optimize capital allocation
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Network and fleet themes support margin improvement
Grow capacity in line with demand
Allocate capacity to maximize profitability
Fly domestic more cost efficiently
Improve segmentatio n & differentiatio n
Expect 1Q16 PRASM to decrease 6%—8% year-over-year
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Aligning capacity with demand to maximize revenue
FY16 expected capacity
Year-over-year change
1.0%—2.0%
2.1%—3.1%
1.5%—2.5%
Domesti Internation Consolidate c al d
? Build capacity and network based on demand
? Overall capacity growth at or below GDP on average
? Shift capacity among markets to maximize profitability
? Moving planned growth out of Houston and into Denver and San Francisco
? Grow domestic hubs
? Exit Kennedy and consolidate transcon flying out of Newark
? Leverage leading international position
? New destinations include Auckland, Athens and Singapore
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Reducing reliance on 50-seat aircraft…
50 seat aircraft fleet
357
318 ~60% decrease
254 238
<100
YE1 YE1 YE1 YE16 YE19
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4 5 E E |
? Address regional pilot shortage? Lower cost per seat? Improve reliability? Address customer preference
? Add ancillary revenue opportunities
Source: SEC filings. YE16E as of January 21, 2016 Investor Update
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Upgauging fleet drives margin expansion while also addressing regional pilot shortage
Average seats/departure
Year-over-year change
FY16E consolidated capacity
7.0% Year-over-year change
~5.0%
~5.0%
1.5%—2.5%
31% 3.
(~2.0%) (~1.0%)
Gaug Departure Stage Capacit e s Lengt y
(0.5%) h FY1 FY1 FY1 FY16
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4 5 E |
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Current structure features misalignment between customer willingness to pay, fares, and product/extras
Customer type Fares Product/extras
High value Average Pure price
Lowest available fares
Premier benefits
Regular and ancillary
No frills
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Entry level fares permit us to better align products/extras and prices with segmented expectations and willingness to pay
Customer type Fares Product/extras
High value Average Pure price
Lowest qualifying fare
Entry level fares
Premier benefits
Regular and ancillary
No frills
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Focused on making United the best airline for employees, customers and shareholders
Improving long-term shareholder value Execute on revenue and network initiatives Continue sensible cost management Optimize capital allocation
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Demonstrating good cost performance through a
business cycle
Non-fuel CASM1
Year-over-year change
~2.5%
~1.5% Pilot agreement
FY14 FY16E 13%.
Average
~1.0% Excluding
0.5%—1.5% new labor agreements
(0.7%)
FY1 FY1 FY16
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1Excluding special charges, fuel, third-party business and profit sharing expense. 2016E as of 2015 Annual Report Form 10-K. For a GAAP to
Non-GAAP reconciliation, see Appendix A
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Making good progress in improving efficiency and reducing non-fuel costs
Annual non-fuel savings
($M)
Maintenance
Productivity
Real estate
$1,000
$800
$380
FY1 FY1 FY16
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Will remain flexible in our management of future fuel
expense
Focus on outlook
for net fuel
exposure, net of
potential revenue
impact
Build risk profile Continually assess
considering ability to absorb or
competitive self-insure net fuel
environment exposure
Hedge when
mitigating net fuel
exposure improves
the ability to
achieve our
business plan
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Focused on making United the best airline for employees, customers and shareholders
Improve the operation
Execute on revenue and network initiatives Continue sensible cost management Optimize capital allocation
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Generating meaningful cash flow
Operating cash flow Free cash flow1
($B) ($B)
$6.0 $2.5
$2.6
$1.4
$0.9 ($0.5)
($0.9)
($1.6)
FY1 FY1 FY1 FY1
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3 4 5 FY1 FY1 FY1 FY1 |
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3 4 5 |
1For a GAAP to Non-GAAP reconciliation, see Appendix A
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Optimize capital allocation
Invest in Continue to make investments to support business priorities
business
Strengthen the Achieve investment grade balance sheet and well-funded
balance sheet pension plans
Shareholder On track to complete $3B share repurchase authorization in
compensation 2016
Maintain unrestricted liquidity balance of $5B—$6B, including revolver
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Investing in aircraft to support business priorities
Increase mainline flying to address Accelerate 747 Re-invest in existing regional pilot retirements fleet shortage
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Recent fleet announcements
Placed order for 25 737-700 aircraft Accelerating 747 retirement to 2018
In order to meet capacity needs, while also accelerating 747 retirements, converting 787s originally planned for delivery beyond 2019 into five 787-9s and four 777-300ERs with delivery beginning in 2017
? Brings total 737-700 order book to 65 ? To accelerate retirements while also
? Reduces 50 seat fleet to less than 100 meeting capacity needs, converting
by the end of 2019 787s originally scheduled for delivery
in 2020 and beyond into five 787-9s and
? Leverages commonality and reduces four 777-300ERs with deliveries
complexity beginning in 2017
? No meaningful increase to long-term
capital expenditure
Now expect FY16 capital expenditures1 to be $3.1B - $3.3B and average annual capital expenditures to be $3.8B - $4.0B from 2016 – 2019, including ~$2.8B of aircraft capital expenditures
1Gross capital expenditures include net purchase deposits and exclude fully reimbursable capital projects
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United’s balance sheet is well positioned among peers
2015 debt, pension, and post-retirement
obligations1
($ B)
Invest in
business $36.9
Strengthen the $ 23.8
balance sheet $20.4 $29.3
$10.1
$17.0
Shareholder $13.7
compensation $7.6
$3.4
UA DA AA
L L L
Debt Pension & post-retirement
1: Year-end 2015 gross debt including aircraft rent capitalized at 7x, pension and post-retirement liability
Source: SEC filings; pension and postretirement obligations obtained from Note 8 – Pension and Other
Postretirement Plans, Note 9—Employee Benefit Plans and Note 13—Retirement Benefits from UAL’s,
DAL’s and AAL’s 2015 Form 10-K, respectively
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Significant progress in lowering interest expense and increasing unencumbered asset base
Annual interest expense Unencumbered assets3
($M) ($ B)
(~35%)
$1,047 $ 8.6
$ 3.5
$ 5.1
$669
$0.6
$0.3 $0.4
FY 1 FY YE 1,2 YE16
10 15 E
12010 data is pro forma 10 4
2Numbers may not sum due to rounding Aircraft Non-aircraft
3Assumes encumbered assets become unencumbered at maturity of related debt financing
4Non-aircraft includes spare engines, spare parts, routes, slots, simulators, ground equipment, passenger loading bridges and other property
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Have increased the pace of the
buyback Share repurchases
($M)
Invest in
business ~$1,500
Strengthen the
balance sheet
$520
$200 $250 $262
Shareholder
compensation
1Q1 2Q1 3Q1 4Q1 1Q16 2
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5 5 5 E |
% shares repurchased1 ~1% ~2% ~3% ~6% ~13%
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Cumulative percent of shares repurchased since end of 4Q14 |
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1Q16E assumes average close price quarter to date through March 4, 2016 and March 7th close price of $57.72 for the rest of the quarter |
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Focused on making United the best airline for employees, customers and shareholders
Improve the operation
Execute on revenue and network initiatives Continue sensible cost management Optimize capital allocation
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Appendix A: reconciliation of GAAP to Non-GAAP financial measures
UAL evaluates its financial performance utilizing various accounting principles generally accepted in the United States of America (GAAP) and Non-GAAP financial measures, including income (loss) before income taxes excluding special items, net income (loss) excluding special items, net earnings (loss) per share excluding special items, and CASM, among others. CASM is a common metric used in the airline industry to measure an airline’s cost structure and efficiency. Pursuant to SEC Regulation G, UAL has included the following reconciliation of reported Non-GAAP financial measures to comparable financial measures reported on a GAAP basis. UAL believes that adjusting for special items is useful to investors because special charges are non-recurring charges not indicative of UAL’s ongoing performance. In addition, the company believes that adjusting for MTM gains and losses from fuel derivative contracts settling in future periods and prior period gains and losses on fuel derivative contracts settled in the current period is useful because the adjustments allow investors to better understand the cash impact of settled fuel derivative contracts in a given period. UAL also believes that excluding third-party business expenses, such as maintenance, ground handling and catering services for third parties, fuel sales and non-air mileage redemptions, provides more meaningful disclosure because these expenses are not directly related to UAL’s core business. UAL also believes that excluding fuel costs from certain measures is useful to investors because it provides an additional measure of management’s performance excluding the effects of a significant cost item over which management has limited influence. UAL excludes profit sharing because this exclusion allows investors to better understand and analyze our recurring cost performance and provides a more meaningful comparison of our core operating costs to the airline industry. UAL also believes that adjusting capital expenditures for fully reimbursable projects is useful to investors in order to appropriately reflect the non-reimbursable funds spent on capital expenditures. For additional information related to special items, see Note 17 to the financial statements included in the 2015 Annual Report Form 10-K.
Forward Looking Projections. UAL is unable to reconcile certain forward-looking projections to GAAP as the nature or amount of special items cannot be estimated at this time.
(in millions, except CASM amounts)
Consolidated CASM 2015 2014 2013
Operating expense $32,698 $36,528 $37,030
Special charges 326 443 520
Third-party business expenses 291 534 694
Aircraft fuel and related taxes 7,522 11,675 12,345
Profit sharing 698 235 190
Operating expense excluding above items $23,861 $23,641 $23,281
ASMs – consolidated 250,003 246,021 245,354
CASM (cents) 13.08 14.85 15.09
CASM, excluding special charges 12.95 14.67 14.88
CASM, excluding special charges and third-party business expenses 12.83 14.45 14.60
CASM, excluding special charges, third-party business expenses and fuel 9.82 9.70 9.57
CASM, excluding special charges, third-party business expenses, fuel
and profit sharing 9.54 9.61 9.49
Source: Item 6 of UAL’s 2014 Form 10-K and January 22, 2015 Earnings
Release
NM: not meaningful
Pre-tax margin 2015 2014 2013 2012
Income (loss) before income taxes $4,219 $1,128 $539 ($724)
Add: Special charges 528 517 520 1,323
See
Add: Economic Hedge Adjustments (249) 327 (45) Note 1
Note 1: United began reporting earnings excluding Economic Hedge Adjustments in 2014 for the years ended 2014 and 2013.
Adjusted income before income taxes $4,498 1,972 1,014 599
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Appendix A: reconciliation of GAAP to Non-GAAP financial measures (continued)
Return on invested capital (ROIC) is a Non-GAAP financial measure that we believe provides useful supplemental information for management and investors by measuring the
effectiveness of our operations’ use of invested capital to generate profits.
Twelve Months Ended Twelve Months Ended Twelve Months Ended Twelve Months Ended
(in millions) December 31, 2015 December 31, 2014 December 31, 2013 (d) December 31, 2012
Net Operating Profit After Tax (NOPAT)
Pre-tax income excluding special items (a) $4,498 $1,972 $1,059 $599
NOPAT adjustments (b) 1,265 1,439 1,453
NOPAT $5,598 $3,237 $2,498 $2,052
Effective tax rate 0.4% 0.3% (2.4%) 1.7%
Invested Capital (five-quarter average)
Total assets $39,210 $37,568 $37,198 $38,083
Invested capital adjustments (c) 12,495 12,302 12,592
Average invested capital $26,703 $25,073 $24,896 $25,491
ROIC 21.0% 12.9% 10.0% 8.0%
(b) NOPAT adjustments include: adding back (net of tax shield) interest expense, the interest component of capitalized aircraft rent, and net interest on pension while removing
Notes:interest tax expense.
(a)(c) Non-GAAP Invested capital Financial adjustments Reconciliation include: adding back capital aircraft rent (at 7.0X) and deferred income taxes, less advance ticket sales, frequent flyer deferred revenue, tax
valuation allowance, and other non-interest bearing liabilities. Twelve Months Ended Twelve Months Ended Twelve Months Ended Twelve Months Ended
December 31, 2015 December 31, 2014 December 31, 2013 December 31, 2012
Pre-tax (d) The income 2013 ROIC(loss) calculation agrees to the amounts presented in the fiscal year 2013 $ earnings 4,219 release. In 2014, we $ modified 1,128 the ROIC calculation $539 to reflect economic hedge ($724)
adjustments. If we presented 2013 ROIC using the 2014 methodology, 2013 ROIC would be 9.9%.
Add: Special items 279 844 520 1,323
Pre-tax income excluding special items $4,498 27 $1,972 $1,059 $599
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Appendix A: reconciliation of GAAP to Non-GAAP financial measures (continued)
Twelve Months Ended Twelve Months Ended Twelve Months Ended Twelve Months Ended
Capital Expenditures (in millions) December 31, 2015 December 31, 2014 December 31, 2013 December 31, 2012
Capital Expenditures ? GAAP $2,747 $2,005 $2,164 $2,016
Property and equipment acquired through the issuance of
debt $866 1,114 229 544
Airport construction financing $17 14 40 50
Fully reimbursable projects ($124) (49) (45) (35)
Adjusted capital expenditures ? Non?GAAP $3,506 $3,084 $2,388 $2,575
Free Cash Flow (in millions)
Net cash provided by operating activities $5,992 $2,634 $1,444 $935
Less: adjusted capital expenditures ? Non?GAAP 3,506 3,084 2,388 2,575
Free Cash Flow $2,486 ($450) ($944) ($1,640)
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