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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
Commission File No. 1-6033
UAL CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware |
36-2675207
|
| (State or other jurisdiction of |
(IRS Employer
|
| incorporation or organization) |
Identification No.)
|
| Location: 1200 East Algonquin Road, Elk Grove Township, Illinois |
|
| Mailing Address: P. O. Box 66919, Chicago, Illinois |
|
| (Address of principal executive offices) |
|
Registrant' s telephone number, including area code
(847) 700-4000
Securities registered pursuant to Section 12(b) of the
Act:
| NAME OF EACH EXCHANGE | |
| TITLE OF EACH CLASS | ON WHICH REGISTERED |
| Common Stock, $.01 par value | New York, Chicago and |
| Pacific Stock Exchanges | |
| Depositary Shares each representing | |
| 1/1,000 of a share of Series B | |
| Preferred Stock, without par value | New York Stock Exchange |
Securities registered pursuant to Section 12 (g) of the Act:
NONE
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 by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant' s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of voting stock held by non-affiliates
of the Registrant was $1,997,225,062 as of February 28, 2001. The
number of shares of common stock outstanding as of February 28, 2001 was
52,773,342.
Documents Incorporated by Reference
Part III of this Form 10-K incorporates by reference certain information from the Registrant' s definitive Proxy Statement for its Annual Meeting of Stockholders to be held on May 17, 2001.
PART I
ITEM 1. BUSINESS.
UAL Corporation ("UAL" or
the "Company") was incorporated under the laws of the State of Delaware
on December 30, 1968. The world headquarters of the Company are located
at 1200 East Algonquin Road, Elk Grove Township, Illinois 60007.
The Company' s mailing address is P.O. Box 66919, Chicago, Illinois 60666.
The telephone number for the Company is (847) 700-4000.
The Company is a holding
company and its principal subsidiary is United Air Lines, Inc., a Delaware
corporation ("United"), which is wholly owned. United accounted for
virtually all of the Company' s revenues and expenses in 2000. United
is a major commercial air transportation company, engaged in the transportation
of persons, property and mail throughout the U.S. and abroad.
Airline Operations
During 2000, United carried,
on average, more than 231,000 passengers per day and flew more than 126
billion revenue passenger miles. It is the world' s largest airline
as measured by revenue passenger miles flown, providing passenger service
in 28 countries. United' s network, supplemented with strategic airline
alliances, provides comprehensive transportation service within its North
America segment and to international destinations within its Pacific, Atlantic,
and Latin America segments. Operating revenues attributed to United'
s North America segment were $13.1 billion in 2000, $12.5 billion in 1999
and $12.0 billion in 1998. Operating revenues attributed to United'
s international segments were $6.2 billion in 2000, $5.5 billion in 1999
and $5.5 billion in 1998.
North America.
United operates hubs in Chicago, Denver, Los Angeles, San Francisco and
Washington Dulles and has the most extensive U.S. route system of any airline,
ranking first in capacity share in all of its U.S. hubs. Within the
North America segment, United also operates United Shuttle®, which
is designed to provide high-frequency air service in competitive markets,
as well as critical traffic feed to United' s mainline operations.
United Shuttle is principally concentrated on the West Coast and in Denver.
United Shuttle offers approximately 455 daily flights on 30 routes among
23 cities in the western U.S. United' s North America operations
accounted for 67.7% of United' s revenues in 2000.
Pacific.
Via its Tokyo hub, United provides passenger service between its U.S. gateway
cities (Chicago, Honolulu, Los Angeles, New York, San Francisco and Seattle)
and the Asian cities of Bangkok, Hong Kong, Seoul, Shanghai and Singapore.
United also provides nonstop service between Hong Kong and each of Chicago,
Los Angeles, San Francisco, and Singapore; between San Francisco and each
of Beijing, Osaka, Seoul, Shanghai, Sydney and Taipei; and between Los
Angeles and each of Auckland, Melbourne and Sydney.
In November 2000, United
received authority to fly two additional frequencies to China. The
new authority allows United to operate daily service between San Francisco
and Shanghai. Additionally, United plans to resume around-the-world
service in April 2001, adding service between Delhi and each of London
and Hong Kong. Also during April 2001, United plans to add nonstop
service between New York and Hong Kong.
The air services agreement
between the U.S. and Japan provides an unlimited number of frequencies
to United and certain other carriers. United also holds significant
traffic rights beyond Japan. These rights will allow United to add
service from Japan to other Asian points as regulatory, competitive and
economic conditions warrant.
In 2000, United was the leading
U.S carrier in the Pacific in terms of transpacific available seat miles
and the most flights available. United' s Pacific operations accounted
for 16.4% of United' s revenues in 2000.
Atlantic.
During 2000, Washington-Dulles served as United' s primary gateway to Europe,
serving Amsterdam, Brussels, Frankfurt, London, Milan, Munich, and Paris.
Chicago has become United' s secondary European gateway, offering nonstop
service in 2000 to each of Dusseldorf, Frankfurt, London and Paris.
United also provides nonstop service between: London and Boston, Los Angeles,
Newark, New York and San Francisco; Paris and each of Los Angeles and San
Francisco; and between Frankfurt and San Francisco.
In February 2001, United
inaugurated nonstop service between Chicago and Amsterdam. In April
2001, United plans to discontinue service between London and each of Amsterdam
and Brussels, concurrent with the resumption of service between London
and Delhi. In June 2001, United plans to add seasonal service between
Denver and Frankfurt. In 2000, United' s Atlantic operations accounted
for 11.7% of United' s operating revenues.
Latin America.
During 2000, United' s primary gateway to Latin America was Miami, providing
passenger service between Miami and each of Buenos Aires, Caracas, Montevideo,
Rio de Janeiro, Santiago and Sao Paolo. United also provided service
between Los Angeles and each of Guatemala City, Mexico City, and San Salvador;
between New York and each of Buenos Aires, Sao Paolo, and San Juan; between
Chicago and each of Aruba, Buenos Aires, Mexico City, San Juan, St. Thomas,
and Sao Paolo; between Mexico City and each of San Francisco and Washington
Dulles; and between Washington-Dulles and St. Thomas. United also
provides service between San Jose, Costa Rica and each of Mexico City and
Guatemala City.
The newly amended air services
agreement between the U.S. and Argentina provides for additional capacity
in the U.S.-Argentina market and enables United to operate any size aircraft
on any or all of its 21 weekly flights to Argentina without restriction.
Prior to this amendment, United and American Airlines were the only U.S.
passenger carriers operating between the U.S. and Argentina. Under
the new agreement, Delta and Continental have each been awarded access
to Argentina and will respectively commence daily service in April and
December 2001. In 2000, United' s Latin America operations accounted
for 4.2% of United' s revenues.
Financial information relative
to the Company' s operating segments can be found in Note 19 in the Notes
to Consolidated Financial Statements in this Form 10-K.
US Airways Acquisition.
During 2000, UAL announced plans to acquire US Airways Group, Inc.
in an all-cash transaction for $4.3 billion. The Company expects
that the new network created by the acquisition will make travel more convenient
for passengers, connecting US Airways eastern U.S. markets with United'
s extensive east-west and international networks, and create the nation'
s most comprehensive airline network. This transaction, which the
Company anticipates closing in the second quarter of 2001, is still subject
to regulatory clearance and other customary closing conditions.
In addition, UAL and AMR
Corporation announced in January 2001 the approval of a binding memorandum
of understanding, under which American Airlines will provide competitive
service on key hub-to-hub routes where United and US Airways currently
are the only competitors with non-stop flights. In addition, UAL
will transfer assets that would have been surplus to the needs of the combined
United/US Airways operations, consisting of gates, slots and up to 86 aircraft.
AMR will pay UAL approximately $1.2 billion in cash for this transaction
and assume certain US Airways obligations.
For more information on the
US Airways acquisition, see "US Airways Acquisition" in Item 7. Management'
s Discussion and Analysis of Financial Condition and Results of Operations.
United Cargo®.
United Cargo generated over $900 million in freight and mail revenue.
As a part of United' s decision to retire its remaining DC-10 passenger
aircraft, United Cargo discontinued its international freighter operation
on December 24, 2000. With United' s growing fleet of cargo-friendly
widebody aircraft, however, it is expected that revenues will continue
to increase through time-sensitive delivery services, e-commerce initiatives
and customer loyalty programs.
United Cargo' s premium international
time-definite service, TD.Guaranteed, was expanded to more U.S. destinations
with intra-U.S. connections, which more than doubled TD.Guaranteed revenue
since the product was introduced in 1999. In addition, another time-sensitive
product, United Sameday, was introduced in 2000 for the small package,
door-to-door delivery service, which may be booked via a toll-free number
or the Internet (www.unitedsameday.com).
Fuel.
Changes in fuel prices are industry-wide occurrences that benefit or harm
United' s competitors as well as United. Fuel-hedging activities
may affect the degree to which fuel-price changes affect individual companies.
To assure adequate supplies of fuel and to provide a measure of control
over fuel costs, United ships fuel on major pipelines and stores fuel close
to its major hub locations.
United' s results of operations
are significantly affected by the price and availability of jet fuel.
It is estimated that, absent hedging, every $.01 change in the average
annual price-per-gallon of jet fuel causes a change of approximately $31
million in United' s annual fuel costs. United' s average price per
gallon of jet fuel in 2000 increased 40%, as compared to the previous year.
However, the average price of spot jet fuel in the U.S. Gulf Coast increased
71% during that same period. United' s price in 2000 was mitigated
by a fuel hedging program that was primarily an options-based strategy,
through which the upside was retained while the downside was eliminated.
Insurance.
United carries liability insurance of a type customary in the air transportation
industry, in amounts which it deems adequate, covering passenger liability,
public liability, property damage liability, and physical damage insurance
on United' s aircraft and property.
Marketing Strategy
Besides offering convenient
scheduling throughout its domestic and international segments, United seeks
to attract high yield customers and create customer preference by providing
a comprehensive network, an attractive frequent-flyer program, and enhanced
service initiatives.
Alliances.
United has formed bilateral alliances with other airlines to provide its
customers more choices and to participate worldwide in markets that it
cannot serve directly for commercial or governmental reasons. An
alliance is a collaborative marketing arrangement between carriers, which
can include joint frequent flyer participation, code-sharing of flight
operations, coordination of reservations, baggage handling, and flight
schedules, and other resource sharing activities. "Code-sharing"
is an agreement under which a carrier' s flights can be marketed under
the two-letter airline designator code of another carrier. Through
an alliance, carriers can provide their customers a seamless global travel
network under their own airline code. United now participates
in a multilateral alliance, the Star AllianceÔ
.
The Star Alliance is an integrated
worldwide transport network, which provides customers with global recognition
and a wide range of other benefits. Collectively, the Star Alliance
carriers served more than 815 destinations in over 130 countries during
2000. The Star Alliance enables its member carriers to more effectively
compete with other worldwide alliances. Founded in 1997 by United
and five other carriers, the Star Alliance has grown to fifteen carriers.
Besides United, the Star Alliance includes: Air Canada, Air New Zealand,
All Nippon Airways, Ansett Australia, Austrian Airlines, British Midland,
Lauda Air, Lufthansa, Mexicana, SAS, Singapore Airways, Thai International
Airways, Tyrolean and Varig. United currently holds bilateral immunity
with Air Canada and integrated antitrust immunity with Lufthansa, SAS,
and the Austrian Group.
United has also formed independent
alliances with other air carriers. Current agreements exist between
United and each of Aeromar, ALM Antillean, Aloha, BWIA, Cayman Airways,
Continental Connection, Emirates, Saudi Arabian Airlines, and Spanair.
In addition, United has a
marketing program in North America known as United Express®,
under which independent regional carriers, utilizing turboprop equipment
and regional jets, feed United' s major airports and international gateways.
The carriers in the United Express program serve small and medium-sized
cities in the U.S., linking those cities to United' s hubs. United
Express carriers include Air Wisconsin Airlines Corporation, Atlantic Coast
Airlines, Great Lakes Aviation and Sky West Airlines. Effective May
1, 2001, Great Lakes Aviation will no longer be a United Express carrier,
but will continue its relationship with United as an alliance carrier.
Mileage Plus®.
United established the frequent flyer program to develop and retain
passenger loyalty by offering awards and services to frequent travelers.
Over 40 million members have enrolled in Mileage Plus since it was started
in 1981. Mileage Plus members earn mileage credit for flights on
United, United Shuttle, United Express, the Star Alliance carriers and
certain other airlines which participate in the program. Miles can
also be earned by utilizing the goods and services of non-airline program
participants, such as hotels, car rental companies, bank credit card issuers,
and a variety of other businesses. Mileage credits can be redeemed
for free, discounted or upgrade travel awards on United and other participating
airlines, or, to a limited extent, other travel and non-travel industry
awards.
Travel awards can be redeemed
at the "Standard" level for any unsold seat on any United flight to every
destination served by United. Redemption at the "Saver" award level,
however, is restricted with blackout dates and capacity controlled inventory,
thereby limiting the use of Saver awards on certain flights.
When a travel award level
is attained, liability is recorded for the incremental costs of providing
travel, based on expected redemptions. United' s incremental costs
include the additional costs of providing service to the award recipient,
such as fuel, meal, personnel and ticketing costs, for what would otherwise
be a vacant seat. The incremental costs do not include any contribution
to overhead or profit. For mileage sold to other program participants
prior to January 1, 2000, revenue was recognized when the miles were sold.
Beginning January 1, 2000, a portion of revenue from the sale of mileage
is deferred and recognized when the transportation is provided. (See Item
8, Note 1(i) "Summary of Significant Accounting Policies - Mileage Plus
Awards" in the Notes to Consolidated Financial Statements.)
At December 31, 2000, the
estimated number of outstanding awards was approximately 10.8 million,
as compared with 7.0 million at the end of the prior year. United
estimates that 8.9 million of such awards will ultimately be redeemed and,
accordingly, has recorded a liability amounting to $564 million, which
includes the deferred revenue from the sale of miles to program participants.
Based on historical data, the difference between the awards expected to
be redeemed and the total awards outstanding arises because: (1)
some awards will never be redeemed, (2) some will be redeemed for non-travel
benefits, and (3) some will be redeemed on partner carriers.
In 2000, 1.97 million Mileage
Plus travel awards were used on United. This number represents the
number of awards for which travel was actually provided in 2000 and not
the number of seats that were allocated to award travel. In 1999,
2.24 million awards were used, while 2.13 million awards were used in 1998.
Such awards represented 7.2% of United' s total revenue passenger miles
in 2000, 8.7% in 1999, and 8.6% in 1998. Passenger preference for
Saver awards, which have inventory controls, keep displacement of revenue
passengers at a minimum. Travel award seats flown on United represent
72% of the total awards issued, of which 87% are used for travel within
the U.S. and Canada. In addition to the awards issued for travel
on United, approximately 10% of the total awards issued are used for travel
on partner airlines.
Economy Plus®.
In late 1999, United announced Economy Plus, which is a reconfiguration
of the first six to eleven rows of the United Economy cabins on aircraft
serving the North America market. This reconfigured area provides
four to five additional inches of legroom for United' s Premier®
frequent-flyers and full-fare United Economy customers, many of whom often
travel in the United Economy cabin. United was the first U.S. airline
to offer additional legroom on its North America flights and completed
the seat reconfiguration in early 2000.
In early 2001, United announced
that it is reconfiguring its fleet of three-cabin international aircraft
to create Economy Plus seating. In doing so, United becomes the first
U.S. airline to offer premium seating area in the front of its economy
cabin on both its North America and international flights. United
also unveiled plans to enhance United Business class throughout its international
fleet to offer customers an additional seven inches of legroom.
Distribution Channels.
The overwhelming majority of United' s airline inventory continues to be
distributed through the traditional channels of travel agencies and computer
reservation systems (CRS). United uses the Apollo reservation system,
which is hosted by Galileo International, a CRS in which United holds approximately
a 15% equity interest. The hosting agreement with Galileo continues
through 2004.
Electronic Commerce.
Consumers are increasingly turning to online avenues to meet their travel
needs. United is using e-commerce capabilities to strengthen and
enhance its market position, attract new customer segments, and reduce
the overall costs of booking transportation. Additionally, United
is utilizing e-commerce capabilities in initiatives addressing opportunities
in the areas of cargo, process improvement and customer connectivity.
On October 3, 2000, UAL formed
United NewVentures, a new subsidiary to provide innovative solutions for
its customers, to strengthen United' s airline business and to create incremental
value for UAL Corporation' s stockholders. United NewVentures, Inc.
is a wholly owned subsidiary of UAL.
United NewVentures currently
has two divisions, United NetVentures and United NetWorks. United
NetWorks incorporates the E-Commerce Division created in January, 2000.
The focus of United NetVentures is business development of non-United branded
businesses, enhancing United' s e-commerce partnerships and identifying
new e-commerce opportunities with strategic partners. United' s involvement
in projects such as Orbitz, Hotwire and Cordiem, a business-to-business
Internet exchange, are managed by United NetVentures.
United NetWorks is responsible
for all United-branded e-commerce activities, such as strategy, operations,
planning, and support of united.com, the airline' s web site, as well as
wireless initiatives, such as proactive customer notification of flight
information. United NetWorks is also responsible for the Mileage
Plus non-airline relationships, which currently include over ninety partners
among car rental, hotel, telecommunications, shopping, dining and financial
services companies.
Our United Commitmentsm.
To renew its commitment to improve key areas of customer satisfaction and
as part of an industry-wide, voluntary initiative, United implemented a
comprehensive customer service plan, Our United Commitment, in late 1999
and fully deployed it in 2000. Our United Commitment addresses issues
identified by United' s frequent flyer customers as being most important
to them, such as improved communication, increased information throughout
the travel experience, more efficient baggage handling and greater responsiveness
to customer inquiries.
On February 13, 2001, the
Inspector General of the U.S. Department of Transportation released its
full-year report on the effectiveness of the airline industry' s voluntary
initiatives. Although the report found that progress had been made
in some areas, it stressed that the industry continues to fall short in
notifying passengers about flight delays and cancellations. The report
is based on a review of the voluntary programs of 17 carriers, including
United.
Over the past year, United
introduced new services aimed at helping customers avoid delays, keeping
customers informed when delays and cancellations occur, and minimizing
the impact of cancellations and delays upon customers. Examples of
such new services include:
--Deploying an industry-leading proactive flight paging system;
--Installing United EasyCheck-Insm kiosks, allowing customers
with E-tickets to bypass airport lines and check themselves in;
--Deploying state-of-the-art mobile "chariot" workstations in all hub
airports, providing additional passenger check-in stations;
--Installing the United EasyInfosm digital electronic information
display systems, which give real-time information; and
--Launching the customer advocate center, which proactively accommodates
customers in anticipation of irregular operations.
While the report identified
where the airlines have been lacking, United received praise for measures
that went beyond actions required by Our United Commitment. The report
stated that initiatives such as more legroom between seats, expansion of
overhead baggage compartments and providing chariots to reduce lines were
additional efforts to make the travel experience better. Additionally,
United was one of only three airlines to incorporate its customer service
plan into its contract of carriage.
Industry Conditions
Operating Environment.
The air travel business is subject to seasonal fluctuations. United'
s operations are often adversely impacted by winter weather and United'
s first- and fourth-quarter results normally reflect reduced travel demand.
Operating results for the Company are generally better in the second and
third quarters. In addition to weather conditions, air traffic control
limitations and concerted employee job actions may from time-to-time cause
disruptions in operations.
Competition.
The airline industry is highly competitive. In domestic markets,
new and existing carriers are free to initiate service on any route.
United' s domestic competitors include all of the other major U.S. airlines
as well as regional carriers, some of which have lower cost structures
than United.
In its international service,
United competes not only with U.S. carriers but also with foreign carriers,
including national flag carriers, which in certain instances enjoy forms
of governmental support not available to U.S. carriers. Competition
on certain international routes is subject to varying degrees of governmental
regulations (see "Government Regulation"). United has advantages
over foreign air carriers in the U.S. because of its ability to generate
U.S. origin-destination traffic from its integrated domestic route systems,
and because foreign carriers are prohibited by U.S. law from carrying local
passengers between two points in the U.S. United experiences comparable
restrictions in foreign countries.
In addition, U.S. carriers
are often constrained from carrying passengers to points beyond designated
international gateway cities due to limitations in air service agreements
or restrictions imposed unilaterally by foreign governments. To compensate
for these structural limitations, U.S. and foreign carriers have entered
into alliances and marketing arrangements that allow the carriers to provide
traffic feed to each other' s flights. (See "Marketing Strategy -
Alliances")
Government Regulation
General.
All carriers engaged in air transportation in the U.S. are subject
to regulation by the U.S. Department of Transportation ("DOT"). The
DOT has authority to: issue certificates of public convenience and necessity
for domestic air transportation and, through the Federal Aviation Administration
("FAA"), air-carrier operating certificates; authorize the provision of
foreign air transportation by U.S. carriers; prohibit unjust discrimination;
prescribe forms of accounts and require reports from air carriers; regulate
methods of competition, including the provision and use of computerized
reservation systems; and administer regulations providing for consumer
protection, including regulations governing the accessibility of air transportation
facilities for handicapped individuals. United holds certificates
of public convenience and necessity, as well as air-carrier operating certificates,
and therefore is subject to DOT regulations. The FAA also administers
the U.S. air traffic control system and oversees aviation safety issues.
United' s operations require
licenses issued by the aviation authorities of the foreign countries that
United serves. Foreign aviation authorities may from time to time
impose a greater degree of economic regulation than exists with respect
to United' s North America operations. United' s ability to serve
some international markets and its expansion into many of these markets
are presently restricted by a lack of aviation agreements to allow such
service or, in some cases, by the restrictive terms of such agreements.
In connection with its international
services, United is required to make regular filings with the DOT and to
observe tariffs establishing the fares charged and the rules governing
the transportation provided. In certain cases, fares and schedules
require the approval of the relevant foreign governments. Shifts
in U.S. or foreign government aviation policies can lead to the alteration
or termination of existing air service agreements between the U.S. and
other governments, and could diminish the value of United' s international
route authority. United' s operating rights under the air services
agreements might not be preserved in such cases.
Airport Access.
Historically, take-off and landing rights ("slots") at Chicago O' Hare
International, New York John F. Kennedy International, New York LaGuardia
and Washington Reagan National airports have been limited by the "high
density traffic rule." Under this rule, slots may be bought, sold
or traded. In April 2000, the U.S. President signed the Wendell H.
Ford Investment and Reform Act for the 21st Century ("AIR 21") which includes
a phase-out of slots at Chicago' s O' Hare International Airport and New
York' s LaGuardia and JFK airports. Starting in May 2000, AIR 21
has allowed carriers to operate foreign air service at Chicago O' Hare
without slots, thereby eliminating the government' s need to withdraw slots
from incumbent carriers.
As part of the phase-out
of the high density traffic rule, slot exemptions were made available for
new entrants, as well as for carriers providing service to small- to medium-sized
and non-hub airports. This exemption, however, led to a significant
increase of flights into and out of LaGuardia that far exceeded that airport'
s capacity. As a result, all carriers operating at LaGuardia, including
United, incurred a significant number of delays and cancellations during
2000.
To reduce the resulting traffic
congestion problems, the FAA implemented a slot lottery system for determining
the additional carriers that may operate from LaGuardia. The lottery
system is currently in effect and has substantially reduced delays and
cancellations. The slot lottery was designed as a temporary remedy;
the FAA is currently considering a number of capacity management alternatives
at LaGuardia for long-term improvement, including making slot lotteries
permanent.
AIR 21 also provides that
nearly $40 billion from the U.S. Aviation Trust Fund is to be invested
in aviation facilities, equipment and training, examples of which could
be radar modernization, airport construction projects, and the hiring and
training of air traffic controllers.
Across the Atlantic, the
Commission of the European Union ("EU") has proposed a regulation that
would, if enacted, dramatically alter the manner in which airport slots
are held and allocated. The centerpiece of the proposal is that a
slot at major airports would have a life-span of only ten years, at which
time it would automatically revert to the airport slot controller.
The proposal has been met with fierce opposition from airlines. The
Commission will likely re-evaluate its original proposal and consider a
milder form of slot reform.
United currently has a sufficient
number of leased gates and other airport facilities, but expansion by United
may be constrained at certain airports by insufficient availability of
gates on attractive terms or other factors, such as noise restrictions.
Safety.
The FAA has regulatory jurisdiction over flight operations generally, including
equipment, ground facilities, maintenance, communications and other matters.
United' s aircraft and engines are maintained in accordance with the standards
and procedures recommended and approved by the manufacturers and the FAA.
From time to time, the FAA
issues airworthiness directives ("ADs") which require air carriers to undertake
inspections and to make unscheduled modifications and improvements on aircraft,
engines and related components and parts. The ADs sometimes cause
United to incur substantial, unplanned expense when aircraft or engines
are removed from service prematurely in order to undergo mandated inspections
or modifications. The issuance of any particular AD may have a greater
or lesser impact on United, compared to its competitors, depending upon
the equipment covered by the directive. Civil and criminal sanctions
may be assessed for not complying with the ADs.
The Air Transport Association
("ATA"), an industry organization to which United belongs, and the Department
of Defense ("DoD") have signed a memorandum of understanding, establishing
procedures for auditing international code-share partners that carry DoD
personnel. Based on the DOT/FAA Safety Program Guidelines issued
to all U.S. carriers, United has also established a safety review plan
for Star Alliance and code-share airlines. Audits are conducted on
both prospective and existing code-share partners. The FAA reviews
audit reports and makes code-share approval recommendations to the DOT.
Passenger Rights Legislation.
Following the February 2001 report of the DOT Inspector General, several
pieces of legislation were introduced by members of the U.S. Congress to
implement a variety of changes in the airline industry, such as: requiring
airlines to disclose all available fares; allowing consumers to purchase
any published fare from an airline or a travel agent; requiring airlines
to disclose the number of seats available for frequent flyer travelers;
and granting authority to the DOT to intervene and roll back fares in certain
markets.
In 2000, the EU' s transport
commissioner proposed two legislative alternatives for limiting airlines'
use of overbooking as a revenue management device. The first alternative
would distinguish between an intention to fly and a confirmed booking.
If the passenger has only indicated an intention to fly, the passenger
would be allowed to cancel without penalty and the airline would be allowed
to give away the seat. For a confirmed booking, however, an airline
would have no choice but to provide a seat for a passenger with a confirmed
booking. The second alternative under consideration is to limit an
airline' s ability to overbook. The limitation would be combined
with efforts to encourage airlines to stage auctions where the carrier
improves its compensation offer until someone is tempted to surrender his
or her seat.
It is not clear what form
that any of the U.S. or European legislation might ultimately take.
Privacy Laws.
An initiative of significant impact within the EU and elsewhere is the
introduction of privacy standards that apply to companies transmitting
private information from the EU to countries abroad. To comply with
the privacy directives, the U.S. Commerce Department and the EU Commission
have agreed to safe harbor principles. Although the safe harbor principles
are voluntary at this point, United plans to comply with them. In
mid-2001, the U.S. Commerce Department and the EU Commission will review
the status of voluntary compliance.
Canada, Argentina and Australia
have enacted new privacy laws covering the collection and disclosure of
personally identifiable information. These laws have either gone
into force or will go into force later this year, and may have an impact
on the way United collects and transmits personal identifiable information
in these jurisdictions.
Environmental Regulations.
United operates a number of underground and above-ground storage tanks
throughout its system. They are used for the storage of fuels and
deicing fluids. United has been identified as a Potentially Responsible
Party in some state and federal recovery actions involving soil and ground
water contamination. The Company has been working with the relevant
government agencies to resolve the issues and believes they will be resolved
without material adverse effect on the Company.
Employees - Labor Matters
At December 31, 2000, the
Company and its subsidiaries had more than 102,000 employees. Approximately
80 % of United' s employees are represented by various labor organizations.
Collective bargaining agreements
are negotiated under the Railway Labor Act, which governs labor relations
in the transportation industry, and typically do not contain an expiration
date. Instead, they specify a date called the amendable date, by
which either party may notify the other of its desire to amend the agreement.
Upon reaching the amendable date, the contract is considered "open for
amendment." Prior to the amendable date, neither party is required
to agree to modifications to the bargaining agreement. Nevertheless,
nothing prevents the parties from agreeing to start negotiations or to
modify the agreement in advance of the amendable date.
Contracts remain in effect
while new agreements are negotiated. During the negotiating period,
both the Company and the negotiating union are required to maintain the
status quo. Recent operating disruptions suggest, however, that some
members of the negotiating employee group may engage in activities designed
to "slow down" the airline. These slowdown tactics may involve refusal
to work overtime, increased sick leave usage and other disruptive behavior
that could have an adverse impact on operations.
United' s collective bargaining
agreements with the International Association of Machinists and Aerospace
Workers ("IAM") became amendable on July 12, 2000. United is currently
in negotiations with the IAM, under the auspices of the National Mediation
Board ("NMB"). Under the law, the parties are not allowed to resort
to self-help, such as strikes or lock-outs, until they are released from
mediation by the NMB, and then only after a 30 day cooling-off period.
However, the NMB can request the U.S. president to create a Presidential
Emergency Board, the creation of which imposes an additional 60-day bar
against self-help remedies. If the parties fail to reach a resolution
by the end of the 60 days, the U.S. Congress can impose a settlement.
The Company cannot predict when the current negotiations will be resolved.
For additional information on the status of negotiations, see "Labor Agreements"
in Item 7. Management' s Discussion and Analysis of Financial Condition
and Results of Operations.
The employee groups, number
of employees, labor organization and current contract status for each of
United' s major collective bargaining groups in the U.S., as of December
31, 2000, are as follows:
| Number of | Contract Open | ||
| Employee Group | Employees | Union | for Amendment |
| Pilots | 10,045 | ALPA | Sept. 1, 2004 |
| Flight Attendants | 24,199 | AFA | March 1, 2006* |
| Mechanics/Ramp | 15,706 | IAM | July 12, 2000 |
| Passenger Service | 31,606 | IAM | July 12, 2000 |
* The collective bargaining agreement between the Company and the AFA
provides for mid-term wage adjustments.
Corporate Governance and the ESOPs
Background.
In July 1994, the stockholders of UAL approved a plan of recapitalization
that provided an approximately 55% equity and voting interest in UAL to
certain employees of United, in exchange for wage concessions and work-rule
changes. The employees' equity interest was allocated to individual
employee accounts through the year 2000 under the Employee Stock Ownership
Plans ("ESOPs") created as part of the recapitalization. The entire
ESOP voting interest is voted by the ESOP trustee at the direction of,
and on behalf of, the employees participating in the ESOPs.
As part of the recapitalization,
the Company' s stockholders approved an elaborate governance structure,
which is contained principally in the Company' s Restated Certificate of
Incorporation ("UAL Charter") and the ESOPs. Among other matters,
the UAL Charter provides that the Company' s Board of Directors is to consist
of five public directors, four independent directors, and three employee
directors which are appointed by different classes of stockholders (see
the Company' s Proxy Statement for its Annual Meeting of Stockholders for
information concerning the processes for electing the directors and for
Board committee requirements). A number of special stockholder and
Board voting requirements were also established, as summarized below.
Special Voting.
In specified circumstances ("Extraordinary Matters"), actions by UAL or
United Airlines require approval of either (a) 75% of the entire Board,
including at least one union director, or (b) 75% of the voting stock present
at a stockholder meeting. "Extraordinary Matters" include certain
business transactions outside the ordinary course of business, significant
asset dispositions, and most issuances of equity securities. Most
issuances of equity securities are also subject to a first refusal agreement
in favor of employees participating in the ESOPs.
Other special voting requirements
apply to amendments to the UAL Charter and certain bylaws, repurchases
of common stock, stock sales to employee benefit plans, and business transactions
with labor. The special voting rights referred to in the previous paragraph
will continue until "Sunset" (defined below), at which time the corporate
governance section will convert to a more traditional form, providing for
nine public directors and three employee directors.
In the case of a merger or
Control Transaction (defined below) that involves an Uninstructed Trustee
Action (defined below), any required stockholder approval must also include
at least a majority of the votes represented by all outstanding shares
of the Director Preferred Stocks (defined below), UAL common stock and
such other classes and series of stock that vote together with the common
stock as a single class ("Single Class Voting").
"Sunset." The
Voting Preferred Stock (see Item 8, Note 13 of the Notes to Consolidated
Financial Statements) outstanding at any
time commands voting power for approximately 55% of the vote of all classes
of capital stock in all matters requiring a stockholder vote, other than
the election of members of the Board of Directors. The Voting Preferred
Stock will generally continue to represent approximately 55% of the aggregate
voting power until Sunset, even though the common stock issuable upon conversion
of the ESOP stock may represent more or less than 55% of the fully diluted
common stock of UAL. Sunset will occur when the common shares issuable
upon conversion of Class 1 and Class 2 ESOP convertible preferred stock
(see Item 8, Note 13 of the Notes to Consolidated Financial
Statements), plus any common equity (generally common stock
issued or issuable at the time of the recapitalization) held by any other
Company sponsored employee benefit plans, plus any available unissued ESOP
shares held in the ESOPs equal, in the aggregate, less than 20% of the
common equity and available unissued ESOP shares of UAL. For purposes
of measuring the Sunset, employee ownership was approximately 63.84% at
December 31, 2000.
Control Transactions.
A "Control Transaction" is a tender or exchange offer, or other opportunity
to dispose of or convert at least 3% of UAL common stock, Class 1 and Class
2 ESOP convertible preferred stock into common stock, and Voting Preferred
Stocks, or any transaction or series of related transactions in which any
person or group acquires or seeks to acquire control of UAL or of all or
substantially all of the assets of UAL and its subsidiaries. In a
Control Transaction, ESOP participants are entitled to instruct the ESOP
trustee as to whether to tender, sell, convert or otherwise dispose of
shares allocated to their accounts under the ESOP, and current employees
who are ESOP participants may give the same instructions for ESOP shares
that have been issued, but not yet allocated to participants. Shares
held by the Supplemental ESOP will be tendered or directed by the Supplemental
ESOP Committee.
If a Control Transaction
results in the sale or exchange of any shares held by the ESOPs, the proceeds
will be used to acquire, to the extent possible, shares of common stock
(or preferred stock which is convertible into common) that qualify as "employer
securities" as defined in Internal Revenue Code Section 409(l). If
UAL shares do not qualify as "employer securities," then the shares must
be "employer securities" of a public company having a Moody' s senior long-term
debt rating at least as good as that of UAL and United at such time.
If such securities cannot be acquired, then UAL, ALPA and the IAM will
make appropriate arrangements reasonably satisfactory to the unions to
protect the interests of the participants.
Uninstructed Trustee Actions.
An uninstructed trustee action refers to situations in which the ESOP trustee
adopts a course of action without obtaining instructions from the ESOP
participants, or disregards their instructions, including situations involving
Control Transactions. Under specific circumstances, this action can
cause the Voting Preferred Stocks to be converted into UAL common stock,
with the special voting rights of these shares transferring to the Director
Preferred Stocks (defined as Class Pilot MEC, IAM, and SAM junior preferred
stock -- see Item 8, Note 13 of the Notes to Consolidated Financial
Statements) in the following approximate percentages: to the
holder of the Class Pilot MEC Preferred Stock, 46.23%; to the holder of
the Class IAM Preferred Stock, 37.13% ; and to the holders of the Class
SAM Preferred Stock, 16.64%. The Director Preferred Stocks will continue
to hold the Single Class Voting Rights until Sunset, or if Sunset occurs
because of, or within one year of, an uninstructed trustee action, July
12, 2010.
Specific
circumstances that give rise to a transfer of voting rights include:
(b) the ESOP trustee disposes of 10% or more of the common
equity represented by the Class 1 and Class 2 ESOP Preferred Stock (other
than in connection with the usual distribution or diversification under
the ESOP).
(2)
In addition, one of the following circumstances must be present:
(a) such transaction would not have been approved if the trustee
had solicited and/or followed the instructions;
(b) no timely solicitation of instructions occurs, and the
matter would not have been approved had the ESOP trustee cast all its votes
against the matter, or
(c) a matter that does not require a stockholder vote to approve
such transaction.
This section is intended
as a general summary and is qualified in its entirety by reference to the
UAL Charter, the Stockholders' Agreements, the First Refusal Agreement,
the ESOPs and the other exhibits to this Form 10-K.
ITEM 2. PROPERTIES.
Flight Equipment
As of December 31, 2000,
United' s operating aircraft fleet totaled 604 jet aircraft, of which 289
were owned and 315 were leased. These aircraft are listed below:
| Average | Average | |||||
| Aircraft Type | No. of Seats | Owned | Leased* | Total | Age (Years) | |
| A319-100 | 120 | 14 | 18 | 32 | 2 | |
| A320-200 | 138 | 19 | 49 | 68 | 4 | |
| B727-200 | 141 | 67 | 8 | 75 | 22 | |
| B737-200 | 103 | 24 | 0 | 24 | 22 | |
| B737-300 | 120 | 10 | 91 | 101 | 12 | |
| B737-500 | 104 | 27 | 30 | 57 | 9 | |
| B747-400 | 368 | 23 | 21 | 44 | 6 | |
| B757-200 | 182 | 41 | 57 | 98 | 9 | |
| B767-200 | 168 | 19 | 0 | 19 | 18 | |
| B767-300 | 219 | 15 | 20 | 35 | 6 | |
| B777-200 | 288 | 30 | 18 | 48 | 3 | |
| DC10-30 | 298 | 0 | 3 | 3 | 23 | |
| TOTAL OPERATING | 289 | 315 | 604 | 10 | ||
| FLEET | ||||||
*United'
s aircraft leases have initial terms of 10 to 26 years, and expiration
dates range from 2001 through 2020. Under the terms of all leases,
United has the right to purchase the aircraft at the end of the lease term,
in some cases at fair market value and in others, at fair market value
or a percentage of cost.
As of December 31, 2000,
110 of the 289 aircraft owned by United were encumbered under debt agreements.
On February 1, 2001, United
exercised options to acquire 15 additional aircraft. The following
table sets forth United' s firm aircraft orders and expected delivery schedules
as of December 31, 2000, plus the additional 15 aircraft:
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Ground Facilities and Equipment
United has entered into various
leases relating to its use of airport-landing areas, gates, hangar sites,
terminal buildings and other airport facilities in most of the municipalities
it serves. Major leases expire at Chicago O' Hare in 2018, Los Angeles
in 2021, San Francisco in 2011, and Washington Dulles in 2014. United
also has leased ticketing, sales and general office space in the downtown
and outlying areas of most of the larger cities in its system. In
suburban Chicago, United owns a 106-acre complex consisting of more than
one million square feet of office space for its world headquarters, a computer
facility and a training center.
United' s Maintenance Operation
Center ("MOC") at San Francisco International Airport occupies 129 acres
of land, three-million square feet of floor space and 12 aircraft hangar
docks under a lease expiring in 2003, with an option to extend for 10 years.
United' s Indianapolis Maintenance Center, a major aircraft maintenance
and overhaul facility, is operated under a lease with the Indianapolis
Airport Authority that expires in 2031. United also has a major facility
at the Oakland, California airport, dedicated to widebody airframe maintenance.
At Denver International Airport,
United operates under a lease and use agreement expiring in 2025, and occupies
52 gates and more than one million square feet of exclusive or preferential
use terminal building space. United' s flight training center, located
in the City and County of Denver, can accommodate 36 flight simulators
and more than 90 computer-based training stations.
In connection with the Company'
s planned acquisition of US Airways, the Company has announce plans to
invest up to $160 million in constructing a 300,000 to 360,000 square foot
maintenance complex in Pittsburgh. The Commonwealth of Pennsylvania
and Allegheny County have proposed to provide $60 million in incentive
assistance based, in part, on a job retention program.
ITEM 3. LEGAL PROCEEDINGS.
1. Frank, et al. v. United; EEOC v.
United
As previously reported in
our Form 10-Q for the quarter ended September 30, 2000, a class action
lawsuit against United was filed February 7, 1992 in federal district court
in California, alleging that United' s former flight attendant weight program,
in effect from 1989 to 1994, unlawfully discriminated against flight attendants
on the grounds of sex, age and other factors, and seeking monetary relief.
On April 29, 1994, the class was certified as to the sex and age claims.
Following extensive motion practice, on March 10, 1998, the district court
dismissed all the claims against United. Following an appeal to the
Court of Appeals for the Ninth Circuit, a three judge panel of the Ninth
Circuit, on June 21, 2000, overturned the ruling and held that United'
s former weight program violated the law. The court ruled that the
plaintiffs were entitled to judgment as a matter of law on their claims
for discrimination based on sex and that a trial was required for determination
on their claims for age discrimination. In addition, the appellate
court reversed the dismissal of all individual class representative claims
of discrimination and the case was remanded to the district court for further
proceedings. United' s petition for en banc review by an 11-judge
panel was denied on August 11, 2000. On December 8, 2000, United
petitioned for a review of the Ninth Circuit decision by the U.S. Supreme
Court, but that petition was denied on March 5, 2001. In accordance
with the appellate court ruling, the case will go back to the district
court for further proceedings with respect to the age discrimination claims
and for a determination of damages with respect to the sex discrimination
claims.
2. United v. Mesa Airlines, Inc. and WestAir
Commuter Airlines, Inc.
As previously reported in
our Form 10-Q for the quarter ended September 30, 2000, United sued Mesa
Airlines, Inc. and its subsidiary, WestAir Commuter Airlines, Inc., on
June 23, 1997, in the U.S. District Court for the Northern District of
Illinois, seeking an order declaring that United had the right to make
certain market adjustments in markets served by WestAir' s United Express
service in California. On January 22, 1998, United notified Mesa
that it was terminating Mesa' s United Express contract and United amended
its complaint to add claims against Mesa for failure to fly and for monetary
damages. Mesa and WestAir filed claims against United alleging, among
other things, wrongful termination of their contract and fraud, and seeking
monetary damages. On July 5, 2000, the Seventh Circuit Court of Appeals
affirmed the dismissal of Mesa' s tort claims, including its claim alleging
fraud on the ground that those claims are preempted by the Airline Deregulation
Act. Mesa filed a petition for certiorari with the U.S. Supreme Court.
That petition was denied, ending the appeals process for the tort claims.
On March 5, 2001, the parties agreed to a settlement and have since dismissed
the remaining claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to
a vote of security holders of the Company during the fourth quarter of
2000.
Executive Officers of the Registrant
Information regarding the
executive officers of the Company is as follows:
James E. Goodwin.
Age 56. Mr. Goodwin has been Chairman and Chief Executive Officer
of the Company and United since July 1999. Prior to his current position,
he was President and Chief Operating Officer of the Company and United
from September 1998; from April 1995 until September 1998, he served as
Senior Vice President - North America of United.
Rono Dutta.
Age 49. Mr. Dutta has been President of the Company and United since
July 1999. Prior to his current position, he served as Senior Vice
President - Planning of United.
Douglas A. Hacker.
Age 45. Mr. Hacker has been Executive Vice President and Chief
Financial Officer of the Company and Executive Vice President - Finance
& Planning and Chief Financial Officer of United since July 1999.
Prior to his current position, he had served as Senior Vice President and
Chief Financial Officer for the Company and United.
William P. Hobgood.
Age 62. Mr. Hobgood has been Senior Vice President - People of United
since March 1997 and Senior Vice President of the Company since September
1999. Prior to joining United, he was in private practice as an attorney
specializing in mediation and arbitration, including labor-management issues.
Francesca M. Maher.
Age 43. Ms. Maher has been Senior Vice President, General Counsel
and Secretary of the Company and United since October 1998. From
June 1997 until October 1998, she was Vice President, General Counsel and
Secretary of the Company and United. Previously, she was Vice President
- - Law and Corporate Secretary of the Company and Vice President-Law, Deputy
General Counsel and Corporate Secretary of United.
Andrew P. Studdert.
Age 44. Mr. Studdert has been Executive Vice President and Chief
Operating Officer of the Company and of United since July 1999. Prior
to his current position, he served as Senior Vice President - Fleet Operations
of United from September 1997. He served as Senior Vice President
and Chief Information Officer of United from April 1995 to September 1997.
There are no family relationships
among the executive officers of the Company. The executive officers
of the Company serve at the discretion of the Board of Directors.
PART II
ITEM 5. MARKET FOR REGISTRANT' S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company' s Common Stock,
$.01 par value (the "Common Stock"), is traded principally on the New York
Stock Exchange (the "NYSE") under the symbol UAL, and is also listed on
the Chicago Stock Exchange and the Pacific Stock Exchange. The following
sets forth for the periods indicated the high and low sales prices and
dividends paid per share of the Company' s Common Stock on the NYSE Composite
Tape.
| High | Low | Dividends Paid | ||
| 2000: | ||||
| 1st quarter | $ 79 | $ 45 3/4 | ||
| 2nd quarter | 65 1/8 | 49 | $0.3125 | |
| 3rd quarter | 61 5/8 | 40 1/4 | $0.3125 | |
| 4th quarter | 43 15/16 | 34 1/16 | $0.3125 | |
| 1999: | ||||
| 1st quarter | $ 80 1/4 | $ 57 9/16 | ||
| 2nd quarter | 87 3/8 | 60 1/16 | ||
| 3rd quarter | 69 3/8 | 58 3/16 | ||
| 4th quarter | 78 3/4 | 60 1/8 | ||
The Company initiated a quarterly
dividend during the second quarter of 2000. The payment of any future
dividends on the Common Stock and the amount thereof will be determined
by the Board of Directors of the Company based on the financial condition
of the Company and other relevant factors.
On March 14, 2001, based
on reports by the Company' s transfer agent for the Common Stock, there
were 23,542 common stockholders of record.
Item 6. Selected Financial Data and Operating
Statistics
| (In Millions, Except Per Share and Rates) |
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| Income Statement Data: | |||||
| Operating revenues |
$ 19,352
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$ 18,027
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$ 17,561
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$ 17,378
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$ 16,362
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| Earnings before extraordinary item | |||||
| and cumulative effect |
265
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1,238
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821
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958
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600
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| Net earnings |
50
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1,235
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821
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949
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533
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| Per share amounts, diluted: | |||||
| Earnings before extraordinary item | |||||
| and cumulative effect |
1.89
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9.97
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6.83
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9.04
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5.85
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| Net earnings |
0.04
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9.94
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6.83
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8.95
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5.06
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| Cash dividends declared per common share |
1.25
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-
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-
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-
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-
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| Pro Forma Income Statement Data1: | |||||
| Earnings before extraordinary item |
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$ 1,209
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$ 774
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$ 931
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$ 553
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| Net earnings |
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1,206
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774
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922
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486
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| Per share amounts, diluted: | |||||
| Earnings before extraordinary item |
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9.71
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6.38
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8.76
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5.29
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| Net earnings |
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9.68
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6.38
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8.67
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4.50
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| Other Information: | |||||
| Total assets at year-end |
$ 24,355
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$ 20,963
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$ 18,559
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$ 15,464
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$ 12,677
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| Long-term debt and capital lease | |||||
| obligations, including current portion, | |||||
| and redeemable preferred stock |
7,487
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5,369
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5,345
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4,278
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3,385
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| Revenue passengers |
85
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87
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87
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84
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82
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| Revenue passenger miles |
126,933
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125,465
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124,609
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121,426
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116,697
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| Available seat miles |
175,485
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176,686
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174,008
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169,110
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162,843
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| Passenger load factor |
72.3%
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71.0%
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71.6%
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71.8%
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71.7%
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| Breakeven passenger load factor |
69.4%
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64.9%
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64.9%
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66.0%
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66.0%
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| Passenger revenue per passenger mile (cents) |
13.3
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12.5
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12.4
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12.6
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12.4
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| Operating revenue per available seat mile (cents) |
11.0
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10.2
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10.1
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10.3
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10.0
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| Operating expense per available seat mile (cents) |
10.6
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9.4
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9.2
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9.5
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9.3
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| Fuel gallons consumed |
3,101
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3,065
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3,029
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2,964
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2,883
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| Average price per gallon of jet fuel (cents) |
81.0
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57.9
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59.0
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69.5
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72.2
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1 The pro forma income statement amounts reflect
adjustments to the historical income statement data assuming the Company
had adopted the provisions of Staff Accounting Bulletin 101 ("SAB 101")
in prior periods. (See Note 1i "Summary of Significant Accounting
Policies - Mileage Plus Awards" in the Notes to Consolidated Financial
Statements.)
Item 7. Management' s Discussion and Analysis of Financial Condition and
Results of Operations
This section contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are identified with an asterisk (*). Forward-looking statements represent the Company' s expectations and beliefs concerning future events, based on information available to the Company on the date of the filing of this Form 10K. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that could significantly impact the expected results referenced in the forward-looking statements are listed in the last paragraph of the section, "Outlook for 2001."
US Airways Acquisition
On May 24, 2000, UAL announced
that it had entered into a definitive merger agreement with US Airways
Group, Inc. ("US Airways") pursuant to which US Airways will be acquired
by the Company in an all-cash transaction for $4.3 billion. Additionally,
UAL will assume approximately $1.7 billion in US Airways net debt and $6.3
billion in operating leases. On October 12, 2000, the stockholders
of US Airways approved the merger. The transaction, which the Company
anticipates closing in the second quarter of 2001, is still subject to
regulatory clearance and other customary closing conditions. Definitive
financing arrangements have not yet been determined although UAL expects
to incur approximately $4.5 billion in additional indebtedness, through
a combination of bank and public financing, to cover the cost of the acquisition
as well as additional costs related to the integration of the airlines.
Subject to regulatory approval
of the transaction and the successful outcome of negotiations with local
authorities, the Company announced its intentions to expand US Airways'
maintenance facility in Pittsburgh at a total projected cost of $160 million.
Additionally, the Company recognizes that it will incur significant costs
associated with the integration of US Airways in order to achieve the anticipated
benefits to both the Company and the millions of passengers and hundreds
of communities served by United throughout the United States. The
Company expects that the new network will make traveling more convenient
for passengers, connecting US Airways' eastern U.S. markets with
United' s east-west and international markets, thereby creating the nation'
s most comprehensive airline network. However, the Company recognizes
that it may encounter difficulties in achieving these significant benefits.
As part of the agreement with US Airways, UAL generally has agreed to pay
US Airways a $50 million termination fee in the event the merger does not
take place.
In addition, UAL and US Airways
entered into a binding memorandum of understanding with Robert Johnson,
a member of the US Airways Group Board of Directors, under which Mr. Johnson
would buy certain of US Airways' assets and create a new airline,
to be called DC Air, which would compete on numerous routes currently served
by US Airways in the Washington D.C. area.
In a transaction designed
to enhance the competitive benefits of the proposed merger with US Airways
and address regulatory concerns, UAL and AMR Corporation ("AMR") on January
9, 2001 announced the approval of a binding memorandum of understanding,
under which AMR' s American Airlines subsidiary ("American") will provide
competitive service on key hub-to-hub routes where United and US Airways
currently are the only competitors with non-stop flights. As part
of the agreement, American will also enter into a 20-year joint venture
with United to jointly provide service on routes currently served by the
US Airways Shuttle between New York' s LaGuardia Airport, Washington, D.C.'
s Reagan National Airport and Boston' s Logan Airport. In addition,
United will transfer a number of gates, slots and up to 86 aircraft acquired
in its merger with US Airways to American deemed to be surplus to the combined
United and US Airways entity.
AMR will pay UAL up to $1.2
billion in cash for this transaction. In addition, American will
assume certain lease obligations and buy certain spare engines and other
parts associated with the aircraft being transferred. The transaction
will provide financial benefits to UAL by reducing the debt requirements
related to the acquisition of US Airways.
On March 2, 2001, UAL announced
that it had reached agreement with Atlantic Coast Airlines Holdings, Inc.
("ACAI"), for US Airways to sell its three wholly owned regional airlines
to ACAI for an initial purchase price of $200 million. UAL and ACAI
will seek to agree upon the ultimate purchase price over an 18-month period.
If an ultimate purchase price is not agreed as to a carrier, then the transaction
as to that carrier is subject to being unwound. If ACAI is not the
ultimate purchaser of at least one of the carriers, they will receive a
fee of up to $10 million. The transaction, which is contingent upon
and will occur at the same time as closing of the proposed acquisition
of US Airways, is subject to regulatory approvals and to certain termination
rights by UAL. In addition, at closing, the three carriers (Allegheny
Airlines, Piedmont Airlines and PSA Airlines) are expected to execute agreements
to provide feeder service to the combined United and US Airways network.
Results of Operations
During 2000, the Company experienced significant operational disruptions, as a result of labor-related delays and cancellations, as well as weather and air traffic control limitations, which adversely affected both revenue and expense performance. The Company attempted to mitigate the impact of these operational difficulties by reducing capacity, particularly in the domestic markets, where most of the problems were concentrated. The Company estimates the revenue shortfall arising from these disruptions and associated schedule reductions and cancellations to be somewhere between $700 and $750 million for the year.
Summary of Results -
UAL' s earnings from operations
were $654 million in 2000, compared to operating earnings of $1.4 billion
in 1999. UAL' s net earnings in 2000 were $50 million ($0.04 per
share, diluted), compared to net earnings of $1.2 billion in 1999 ($9.94
per share, diluted).
The 2000 earnings include
an extraordinary loss of $6 million, after tax, on early extinguishment
of debt and the cumulative effect of a change in accounting principle of
$209 million, net of tax. The 2000 earnings also include an impairment
loss of $38 million, net of tax ($0.33 per share, diluted), related to
the Company' s equity investment in Priceline.com, as well as a gain of
$69 million, net of tax ($0.60 per share, diluted), on the sale of its
investment in GetThere.com (see Note 6 "Investments" in the Notes to
Consolidated Financial Statements).
The 1999 earnings include
an extraordinary loss of $3 million, after tax, on early extinguishment
of debt and an after-tax gain of $468 million ($4.19 per share, diluted),
on the sale of certain of the Company' s investments, as further described
in Note 6 "Investments" in the Notes to Consolidated Financial Statements.
2000 Compared with 1999 -
Operating Revenues.
Operating revenues increased $1.3 billion (7%) and United' s revenue
per available seat mile (unit revenue) increased 8% to 11.02 cents.
Passenger revenues increased $1.1 billion (7%) primarily due to a 6% increase
in yield to 13.25 cents. United' s revenue passenger miles increased
1%, while available seat miles decreased 1%, resulting in a passenger load
factor increase of 1.3 points to 72.3%. The decrease in available
seat miles reflects the Company' s response to the operational difficulties
as well as the impact of Economy Plus. The following analysis by
market is based on information reported to the DOT:
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Cargo revenues increased $25 million (3%) on increased freight ton miles of 3%, as freight yields remained constant and mail yields increased 1%. Other operating revenues increased $152 million (19%) primarily due to increased fuel sales to third parties and additional revenues from operating agreements with Galileo International, Inc. ("Galileo"), offset by the decrease in other revenues related to the change in accounting for Mileage Plus sale of miles to third parties (see Note 1i "Summary of Significant Accounting Policies - Mileage Plus Awards" in the Notes to Consolidated Financial Statements).
Operating Expenses.
Operating expenses increased $2.1 billion (12%) and United' s cost per
available seat mile increased 13% from 9.41 to 10.63 cents. Salaries
and related costs increased $1.1 billion (19%) due to a new salary program
implemented for non-contract employees, the impact of the new ALPA contract,
and the estimated costs of IAM contracts which became amendable in July
2000 and are currently under negotiation. ESOP compensation expense
decreased $609 million (81%) as the Company discontinued recording ESOP
compensation expense once the final ESOP shares were committed to be released
in April 2000. Aircraft fuel increased $735 million (41%) due to
a 40% increase in the cost of fuel to 81.0 cents per gallon. Commissions
decreased $114 million (10%) due to a change in the commission structure
implemented in the fourth quarter of 1999. Purchased services increased
$136 million (9%) due to increases in computer reservations fees and credit
card discount fees. Depreciation and amortization increased $138
million (16%) due to an increase in the number of owned aircraft and losses
on disposition of aircraft and other equipment. Cost of sales increased
$436 million (72%) primarily due to costs associated with fuel sales to
third parties.
Other Income and Expense.
Other income (expense) amounted to $223 million in expense in 2000
compared to $551 million in income in 1999. Interest expense
increased $40 million (11%) due to increased debt issuances in 2000.
Interest income increased $33 million (49%) due to higher investment balances.
In addition, 2000 included a $109 million gain on the sale of GetThere.com
stock and a $61 million investment impairment related to warrants held
in Priceline.com, while 1999 included a $669 million gain on the sale of
Galileo stock and a $62 million gain on the sale of Equant N.V. ("Equant")
stock.
1999 Compared with 1998 -
Operating Revenues.
Operating revenues increased $466 million (3%) and United' s revenue per
available seat mile (unit revenue) increased 1% to 10.17 cents. Passenger
revenues increased $264 million (2%) due to a 1% increase in United' s
revenue passenger miles and a 1% increase in yield to 12.48 cents.
Available seat miles across the system were up 2% year over year; however,
passenger load factor decreased 0.6 points to 71.0% as traffic only increased
1% system-wide. The following analysis by market is based on information
reported to the DOT:
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| North America |
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| Pacific |
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| Atlantic |
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| System |
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Cargo revenues decreased
$7 million (1%) despite increased freight ton miles of 5%, as a 4% decline
in freight yield combined with a 3% decline in mail yield. Other
operating revenues increased $209 million (19%) due to increases in frequent
flyer program partner related revenues and fuel sales to third parties.
Operating Expenses.
Operating expenses increased $553 million (3%) and United' s cost per available
seat mile increased 2% from 9.24 to 9.41 cents. ESOP compensation
expense decreased $73 million (9%), reflecting the decrease in the estimated
average fair value of ESOP stock committed to be released to employees
as a result of UAL' s lower common stock price. Salaries and related
costs increased $329 million (6%) as a result of increased staffing in
customer-contact positions, as well as salary increases for most labor
groups which took effect July 1, 1998. Commissions decreased $186
million (14%) due to a change in the commission structure implemented in
the third quarter 1998 as well as a slight decrease in commissionable revenues.
In addition, in October 1999, the Company reduced the base commissions
for tickets purchased in the U.S. and Canada to 5%, subject to roundtrip
caps of $50 and $100 for domestic and international tickets, respectively.
Purchased services increased $70 million (5%) due to increases in computer
reservations fees and year 2000-related expenses. Depreciation and
amortization increased $74 million (9%) due to an increase in the number
of owned aircraft and losses on disposition of aircraft partially offset
by changes in depreciable lives of certain aircraft. In addition,
United wrote-down two non-operating B747-200 aircraft to net realizable
value. Cost of sales increased $128 million (27%) primarily due to
costs associated with fuel sales to third parties. Aircraft maintenance
increased $65 million (10%) due to an increase in heavy maintenance visits.
Other Income and Expense.
Other income (expense) amounted to $551 million in income in 1999 compared
to $222 million in expense in 1998. Interest capitalized, primarily
on aircraft advance payments, decreased $30 million (29%). Interest
income increased $9 million (15%) due to higher investment balances.
In addition, 1999 included a $669 million gain on the sale of Galileo stock
and a $62 million gain on the sale of Equant stock.
Liquidity and Capital Resources
Liquidity -
UAL' s total of cash and
cash equivalents and short-term investments was $2.3 billion at December
31, 2000, compared to $689 million at December 31, 1999. Operating
activities during the year generated $2.5 billion.
Property additions, including
aircraft, aircraft spare parts, facilities and ground equipment, amounted
to $2.5 billion, while property dispositions resulted in proceeds of $324
million. In 2000, United took delivery of four A319, twelve A320,
one B747, three B767 and eight B777 aircraft. Twenty-six of these
aircraft were purchased and two were acquired under capital leases.
Five of the aircraft purchased during the year were later sold and then
leased back under capital leases. In addition, United retired three
DC10-10, four DC10-30F and seven B747 aircraft.
During 2000, the Company
made payments of $81 million for the repurchase of 1.3 million shares of
common stock. Financing activities included the issuance of $2.4
billion in equipment trust certificates, as well as principal payments
under debt and capital lease obligations of $441 million and $283 million,
respectively. Included in the debt payments was the retirement of
$116 million of long-term debt prior to maturity. Additionally, UAL
issued, and subsequently retired, $200 million in long-term debt during
the period to finance the acquisition of aircraft. UAL may also from
time to time repurchase on the open market, in privately negotiated purchases
or otherwise, its debt and equity securities.
Included in cash and cash
equivalents at December 31, 2000 were $39 million of securities held by
third parties under securities lending agreements, as well as collateral
in the amount of 102% of the value of the securities lent. United
is obligated to reacquire the securities at the end of the contract.
As of December 31, 2000,
UAL had a working capital deficit of $2.0 billion as compared to $2.5 billion
at December 31, 1999. Historically, UAL has operated with a working
capital deficit and, as in the past, UAL expects to meet all of its obligations
as they become due.
Prior Years.
Operating activities in 1999 generated cash flows of $2.4 billion and the
Company' s sale of part of its investments in Galileo and Equant provided
$828 million in cash. Cash was used primarily to fund net additions
to property and equipment ($2.2 billion) and to repurchase common stock
($261 million). Financing activities also included principal payments
under debt and capital lease obligations of $513 million and $248 million,
respectively.
Operating activities in 1998
generated cash flows of $3.2 billion. Cash was used primarily to
fund net additions to property and equipment ($2.4 billion) and to repurchase
common stock ($459 million). Financing activities also included repayments
of long-term debt totaling $271 million and payments under capital leases
of $322 million, as well as aircraft lease deposits of $154 million.
Additionally, the Company issued $928 million in debt and used part of
the proceeds to purchase $693 million in equipment certificates under Company
operating leases.
Capital Commitments -
At December 31, 2000, commitments
for the purchase of property and equipment, principally aircraft, approximated
$4.7 billion, after deducting advance payments. Of this amount, an
estimated $2.5 billion is due to be spent in 2001. For further details,
see Note 18 "Commitments, Contingent Liabilities and Uncertainties" in
the Notes to Consolidated Financial Statements.
Capital Resources -
Funds necessary to finance
aircraft acquisitions are expected to be obtained from internally generated
funds, external financing arrangements or other external sources.
Additionally, during 2001, UAL anticipates requiring additional financing
for its planned acquisition of US Airways.
At December 31, 2000, UAL
and United had an effective shelf registration statement on file with the
Securities and Exchange Commission to offer up to $2.5 billion of securities,
including secured and unsecured debt, equipment trust and pass through
certificates or a combination thereof. United also has available
approximately $1.7 billion in short-term revolving credit facilities, as
well as a separate $227 million short-term borrowing facility, as described
in Note 8 "Short-Term Borrowings" in the Notes to Consolidated Financial
Statements.
At December 31, 2000, United'
s senior unsecured debt was rated BB+ by Standard and Poor' s ("S&P")
and Baa3 by Moody' s Investors Service Inc. ("Moody' s"). UAL' s
Series B preferred stock and redeemable preferred securities were rated
B+ by S&P and Ba3 by Moody' s. Immediately following UAL' s announcement
of the planned acquisition of US Airways, S&P placed UAL and United
securities on CreditWatch with negative implications.
Other Information
Labor Agreements -
On April 12, 2000, the Company'
s contract with ALPA became amendable and in October 2000, the parties
signed a new contract. The agreement, which will become amendable
September 1, 2004, includes provisions for an immediate increase in wages
of 21.5% to 28.7%, retroactive to April 12, as well as additional annual
increases of 4.5% to 5.6% for the duration of the contract. Additionally,
the contract allows United Express carriers to increase the number of small
jets beyond the current 65-jet limit up to an additional 150 immediately
as replacements for existing turboprops, with additional increases in small
jets as United' s fleet grows. United may also share in profits and
losses of revenues with foreign carriers with whom United has antitrust
immunity, provided United gets its proportionate share of the flying.
In addition, the Company has reached agreement with ALPA to provide United
pilots with protections that are realistically representative of their
pre-merger expectations.
On July 12, 2000, the Company'
s contracts with the IAM became amendable. The Company has been in
negotiations with the IAM since January 2000 for new contracts. Since
September 2000, the negotiations have been conducted with the assistance
of the National Mediation Board. Under the terms of the Railway Labor
Act, United' s current agreements with the IAM will remain in effect while
negotiations continue. The Company has agreed that wage increases
under the new IAM contracts will be retroactive to July 12, 2000 and the
estimated costs of those contracts have been included in the Company' s
results for 2000. The Company and the IAM had also initialed an agreement
on December 12, 2000 that would have provided for job protection benefits
to most mechanics, including relocation protection in the case of displacement
due to the merger transaction. The IAM has recently notified the
Company that they consider that agreement to be rescinded. Talks
are ongoing and United hopes to reach agreement with the IAM on these issues.
The Company' s contract with
the AFA, which becomes amendable in 2006, provides for a mid-term wage
conference in the first quarter of 2001. However, in September 2000,
United and the AFA began wage discussions unrelated to the contract that
would have avoided the need for this wage conference. The parties
also began addressing integration issues related to United' s acquisition
of US Airways at this time. The Company and the AFA have not reached
agreement on these issues to date and the Company began wage conference
negotiations per the contract in February 2001. The Company is continuing
to seek to resolve all outstanding issues with the AFA, although arbitration
may be required per the collective bargaining agreement, if an agreement
cannot be reached on wages. It is the Company' s desire through these
discussions to avoid any AFA operational action that would significantly
inconvenience its customers or disrupt schedules. However, should
such action occur, the Company will take appropriate steps to minimize
the impact to the Company and its customers.
E-Commerce -
In October 2000, UAL announced
the formation of United NewVentures, Inc., a wholly owned subsidiary which
will create businesses to provide innovative solutions for its customers,
strengthen United' s airline business and create incremental value for
UAL' s stockholders. The subsidiary employs about 100 people, primarily
from the Company' s former e-commerce organization and consists of two
divisions, United NetWorks and United NetVentures.
United NetWorks focuses on
expanding United-branded e-commerce and wireless activities, including
the recently redesigned united.com web site, as well as assuming responsibility
for marketing the sale of Mileage Plus miles to third parties. Gross
air bookings on united.com in 2000 grew more than 101% over last year.
Total passenger revenue from sales over the Internet reached $755 million
for the year compared to $400 million for 1999, an 89% increase.
United NetVentures will manage
United' s investments in other Internet ventures, including two new multi-airline
travel-oriented web sites, Orbitz and Hotwire, and identify new business
opportunities in e-commerce.
Foreign Operations -
United generates revenues
and incurs expenses in numerous foreign currencies. These expenses
include aircraft leases, commissions, catering, personnel expense, advertising
and distribution costs, customer service expenses and aircraft maintenance.
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 may 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.
With a worldwide network
and significant sales and marketing efforts in the U.S. as well as every
major economic region in the world, United is able to mitigate its exposure
to fluctuations in any single foreign currency. The Company' s biggest
net exposures are typically for Japanese yen, Hong Kong dollars, Australian
dollars, British pounds and the euro. During 2000, yen-denominated
operating revenue net of yen-denominated operating expense was approximately
21 billion yen (approximately $195 million), Hong Kong dollar-denominated
operating revenue net of Hong Kong dollar-denominated operating expense
was approximately 1,397 million Hong Kong dollars (approximately $179 million),
British pound-denominated operating revenue net of British pound-denominated
operating expense was approximately 97 million British pounds (approximately
$142 million), Australian dollar-denominated operating revenue net of Australian
dollar-denominated operating expense was approximately 154 million Australian
dollars (approximately $90 million), and euro-denominated operating revenue
net of euro-denominated operating expense was approximately 34 million
euro (approximately $33 million).
To reduce the impact of exchange
rate fluctuations on United' s financial results, the Company hedged some
of the risk of exchange rate volatility on its anticipated future foreign
currency revenues by purchasing put options (consisting of Japanese yen,
euro, Australian dollars and British pounds) and selling Hong Kong dollar
forwards. To reduce hedging costs, the Company sells a correlation
option in the first four currencies referred to above. United also
attempts to reduce its exposure to transaction gains and losses by converting
excess local currencies generated to U.S. dollars on a timely basis and
by entering into currency forward or exchange contracts. The total
notional amount of outstanding currency options and forward exchange contracts,
and their respective fair market values as of December 31, 2000, are summarized
in Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.
United' s foreign operations
involve insignificant amounts of physical assets; however, the Company
does have sizable intangible assets related to acquisitions of Atlantic
and Latin America route authorities. Operating authorities in international
markets are governed by bilateral aviation agreements between the United
States and foreign countries. Changes in U.S. or foreign government
aviation policies can lead to the alteration or termination of existing
air service agreements that could adversely impact the value of United'
s international route authority. Significant changes in such policies
could also have a material impact on UAL' s operating revenues and results
of operations. In addition, the Financial Accounting Standards Board
("FASB") has issued an Exposure Draft, "Business Combinations and Intangible
Assets - Accounting for Goodwill," which could impact the Company' s accounting
for these assets. For further details, see "New Accounting Pronouncements"
below.
Airport Rents and Landing Fees -
United is charged facility
rental and landing fees at virtually every airport at which it operates.
In recent years, many airports have increased or sought to increase rates
charged to airlines as a means of compensating for increasing demands upon
airport revenues. Airlines have challenged certain of these increases
through litigation and in some cases have not been successful. The
FAA and the DOT have instituted an administrative hearing process to judge
whether rate increases are legal and valid. However, to the extent
the limitations on such charges are relaxed or the ability of airlines
to challenge such charges is restricted, the rates charged by airports
may increase substantially. Management cannot predict either the
likelihood or the magnitude of any such increase.
Environmental and Legal Contingencies -
United has been named as
a Potentially Responsible Party at certain Environmental Protection Agency
("EPA") cleanup sites which have been designated as Superfund Sites.
United' s alleged proportionate contributions at the sites are minimal;
however, at sites where the EPA has commenced litigation, potential liability
is joint and several. Additionally, United has participated and is
participating in remediation actions at certain other sites, primarily
airports. The estimated cost of these actions is accrued when it
is determined that it is probable that United is liable. Environmental
regulations and remediation processes are subject to future change, and
determining the actual cost of remediation will require further investigation
and remediation experience. Therefore, the ultimate cost cannot be
determined at this time. However, while such cost may vary from United'
s current estimate, United believes the difference between its accrued
reserve and the ultimate liability will not be material.*
UAL has certain other contingencies
resulting from this and other litigation and claims 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 such contingencies and prior experience, that the ultimate
disposition of these contingencies is not likely to materially affect UAL'
s financial condition, operating results or liquidity.*
Common Stock Dividends -
During 2000, UAL instituted an annual dividend of $1.25 per share on UAL common stock. Accordingly, UAL paid $36 million ($0.3125 per share) in common dividends in each of the second, third and fourth quarters of 2000. In addition, on December 14, UAL' s Board of Directors declared a dividend of $0.3125 per share payable on February 1, 2001 to stockholders of record January 16, 2001.
New Accounting Pronouncements - -
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"), which establishes accounting and reporting standards
requiring that every derivative instrument be recorded in the balance sheet
as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative' s fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative' s gains and
losses to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate and assess
the effectiveness of transactions that receive hedge accounting.
The effective date of SFAS No. 133 was delayed one year, to fiscal years
beginning after June 15, 2000. The Company plans to adopt SFAS No.
133, which was subsequently amended by SFAS No. 138, in the first quarter
of 2001. United has reviewed its various contracts to determine which
contracts meet the requirements of SFAS No. 133, as amended, and need to
be reflected as derivatives under the standard and accounted for at fair
value. Accordingly, the Company will recognize a charge for the cumulative
effect of a change in accounting principle of $8 million, net of tax, in
the first quarter 2001. In addition, the Company believes the adoption
of SFAS 133 will increase volatility in earnings and other comprehensive
income.
On February 14, 2001, the FASB issued an Exposure Draft "Business Combinations
and Intangible Assets - Accounting for Goodwill." The Exposure Draft
requires the use of a non-amortization approach to account for purchased
goodwill and for separately recognized (non-goodwill) intangible assets
that have an indefinite useful economic life. Under this approach,
goodwill and certain intangibles would not be amortized, but would be written
down and expensed against earnings only in periods in which the recorded
value is more than the fair value. The Company has not yet quantified
the impacts of adopting the new Exposure Draft, but it could result in
significant changes to the classification and recording of intangibles
and amortization expense currently on the books, as well as the accounting
for the planned acquisition of US Airways.
Outlook for 2001*-
The softening of the U.S.
economy has had an industry-wide effect on business travel; as a result,
the Company has experienced a decrease in high-yield near-term bookings.
In addition, passenger revenue performance is expected to be negatively
impacted by the reduced capacity level put in place to improve operational
reliability. Given these weaker-than-anticipated revenues, combined
with higher labor costs and fuel prices, the Company expects first-quarter
results to be substantially below the current First Call consensus of $2.82
loss per share.
The Company had previously
provided full-year guidance, including the possible effects of its planned
acquisition of US Airways, based on business plans prepared before the
onset of the revenue deterioration. With the weakening of the U.S.
economic situation, the Company has taken steps to reduce planned 2001
spending by $200 million. However, based on expectations that revenue
weakness will continue, the Company now expects performance to be below
plan levels for the full year.
The uncertainty surrounding
key factors affecting the Company' s financial performance, such as the
breadth and length of the U.S. economic slowdown, the outcome of the planned
United and US Airways merger and the outcome of labor negotiations and
the cost of fuel, among other factors, precludes the Company from providing
any specific estimates on results at this time.
Information included in the
above outlook section, as well as certain statements made throughout the
Management' s Discussion and Analysis of Financial Condition and Results
of Operations that are identified by an asterisk (*) is forward-looking
and involves risks and uncertainties that could result in actual results
differing materially from expected results. Forward-looking statements
represent the Company' s expectations and beliefs concerning future events,
based on information available to the Company as of the date of this filing.
Some factors that could significantly impact revenues, expenses, unit costs,
and the results and benefits of the pending merger between United and US
Airways include, without limitation, the airline pricing environment; industry
capacity decisions; competitors' route decisions; obtaining regulatory
approvals for the United and US Airways merger; successfully integrating
the businesses of United and US Airways; costs related to the United and
US Airways merger; achieving cost-cutting synergies resulting from the
United and US Airways merger; labor integration issues; the ultimate outcome
of existing litigation; the success of the Company' s cost-control efforts;
the cost of crude oil and jet fuel; the results of union contract negotiations
and their impact on labor costs; operational disruptions as a result of
bad weather, air traffic control-related difficulties and labor issues;
the growth of e-commerce and off-tariff distribution channels; the effective
deployment of customer service tools and resources; actions of the U.S.,
foreign and local governments; foreign currency exchange rate fluctuations;
the economic environment of the airline industry and the economic environment
in general.
Investors should not place
undue reliance on the forward-looking information contained herein, which
speaks only as of the date of this filing. UAL disclaims any intent
or obligation to update or alter any of the forward-looking statements
whether in response to new information, unforeseen events, changed circumstances
or otherwise.
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk
Interest Rate Risk -
United' s exposure to market risk associated with changes in interest rates
relates primarily to its debt obligations and short-term investments.
United does not use derivative financial instruments in its investments
portfolio. United' s policy is to manage interest rate risk through
a combination of fixed and floating rate debt and entering into swap agreements,
depending upon market conditions. A portion of the borrowings are
denominated in foreign currencies which exposes the Company to risks associated
with changes in foreign exchange rates. To hedge against some of
this risk, the Company has placed foreign currency deposits (primarily
for Japanese yen, French francs, German marks and euros) to meet foreign
currency lease obligations designated in the respective currencies.
Since unrealized mark-to-market gains or losses on the foreign currency
deposits are offset by the losses or gains on the foreign currency obligations,
the Company reduces its overall exposure to foreign currency exchange rate
volatility. The fair value of these deposits is determined based
on the present value of future cash flows using an appropriate swap rate.
The fair value of long-term debt is based on the quoted market prices for
the same or similar issues or the present value of future cash flows using
a U.S. Treasury rate that matches the remaining life of the instrument,
adjusted by a credit spread.
| (In Millions) |
|
|
|
|||||||
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ASSETS | ||||||||||
| Cash equivalents | ||||||||||
| Fixed rate |
$1,674
|
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
$1,674
|
$1,674
|
$ 231
|
$ 231
|
| Avg. interest rate |
6.68%
|
-
|
-
|
-
|
-
|
-
|
6.68%
|
5.27%
|
||
| Variable rate |
$ 5
|
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
$ 5
|
$ 5
|
$ 79
|
$ 79
|
| Avg. interest rate |
6.96%
|
-
|
-
|
-
|
-
|
-
|
6.96%
|
6.23%
|
||
| Short term investments | ||||||||||
| Fixed rate |
$ 590
|
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
$ 590
|
$ 590
|
$ 298
|
$ 298
|
| Avg. interest rate |
6.96%
|
-
|
-
|
-
|
-
|
-
|
6.96%
|
5.96%
|
||
| Variable rate |
$ 75
|
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
$ 75
|
$ 75
|
$ 81
|
$ 81
|
| Avg. interest rate |
6.77%
|
-
|
-
|
-
|
-
|
-
|
6.77%
|
6.42%
|
||
| Lease deposits | ||||||||||
| Fixed rate - yen deposits |
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
$ 348
|
$ 348
|
$ 394
|
$ 378
|
$ 423
|
| Avg. interest rate |
-
|
-
|
-
|
-
|
-
|
3.06%
|
3.06%
|
3.07%
|
||
| Fixed rate - FF deposits |
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
$ 10
|
$ 10
|
$ 9
|
$ 10
|
$ 9
|
| Avg. interest rate |
-
|
-
|
-
|
-
|
-
|
5.61%
|
5.61%
|
5.61%
|
||
| Fixed rate - DM deposits |
$ 2
|
$ 2
|
$ 2
|
$ 2
|
$ 2
|
$ 304
|
$ 314
|
$ 354
|
$ 167
|
$ 177
|
| Avg. interest rate |
4.57%
|
4.53%
|
4.57%
|
4.60%
|
4.63%
|
6.79%
|
6.72%
|
6.49%
|
||
| Fixed rate - EUR deposits |
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
$ 26
|
$ 26
|
$ 24
|
$ 27
|
$ 23
|
| Avg. interest rate |
-
|
-
|
-
|
-
|
-
|
4.14%
|
4.14%
|
4.14%
|
||
| Fixed rate- USD deposits |
$ -
|
$ -
|
$ -
|
$ -
|
$ -
|
$ 12
|
$ 12
|
$ 13
|
$ 11
|
$ 10
|
| Avg. interest rate |
-
|
-
|
-
|
-
|
-
|
6.49%
|
6.49%
|
6.49%
|
||
| LONG-TERM DEBT | ||||||||||
| U. S. Dollar denominated | ||||||||||
| Fixed rate debt |
$ 87
|
$ 86
|
$ 218
|
$ 333
|
$ 246
|
$ 2,514
|
$3,484
|
$3,617
|
$1,433
|
$1,542
|
| Avg. interest rate |
7.62%
|
7.63%
|
8.43%
|
9.85%
|
7.73%
|
7.64%
|
7.90%
|
8.26%
|
||
| Variable rate debt |
$ 83
|
$ 569
|
$ 523
|
$ 17
|
$ 17
|
$ 174
|
$1,383
|
$1,383
|
$1,307
|
$1,307
|
| Avg. interest rate |
6.23%
|
5.91%
|
6.70%
|
6.34%
|
6.34%
|
6.43%
|
6.30%
|
6.26%
|
||
Foreign Currency Risk
- - United has established a foreign currency hedging program using currency
forwards and options (purchasing put options and selling correlation options)
to hedge exposure to the Japanese yen, Hong Kong dollar, British pound,
Australian dollar and the euro. The goal of the hedging program is
to effectively manage risk associated with fluctuations in the value of
the foreign currency, thereby making financial results more stable and
predictable. United does not use currency forwards or currency options
for trading purposes.
|
|
|||
| (In millions, except average contract rates) |
|
|
|
|
|
|
|
|
| Forward exchange contracts |
|
||
| Japanese Yen - Purchased forwards |
$ 141
|
112.33
|
$ (3)
|
| - - Sold forwards |
$ 66
|
114.71
|
$ -
|
| Hong Kong Dollar - Sold forwards |
$ 23
|
7.79
|
$ -
|
| French Franc - Purchased forwards |
$ 50
|
5.05
|
$ (5)
|
| Euro - Purchased forwards |
$ 140
|
1.30
|
$ (14)
|
As of December 31, 1999,
United had $144 million of Japanese yen purchased forwards outstanding
with a fair value of $(1) million, $62 million yen sold forwards with a
fair value of $0 and $402 million yen put options with a fair value of
$7 million.
Price Risk (Aircraft Fuel)
- - When market conditions indicate risk reduction is achievable, United
enters into fuel option contracts to reduce its price risk exposure to
jet fuel. The option contracts are designed to provide protection
against sharp increases in the price of aircraft fuel. Based on current
market conditions, United does not believe risk reduction is achievable
and is no longer entering into new option contracts. As market conditions
change, so may United' s hedging program. In addition, to a limited
extent, United trades short-term heating oil futures and option contracts,
which are immaterial.
At December 31, 1999, United
had $1.1 billion in purchased call option contracts for crude oil with
an estimated fair value of $120 million.
*Estimated fair values represent the amount United would pay/receive on December 31, 2000 to terminate the contracts.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors, UAL Corporation:
We have audited the accompanying statements of consolidated financial
position of UAL Corporation (a Delaware corporation) and subsidiary companies
as of December 31, 2000 and 1999, and the related statements of consolidated
operations, consolidated cash flows and consolidated stockholders'
equity for each of the three years in the period ended December 31, 2000.
These financial statements and the schedule referred to below are the responsibility
of the Company' s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of UAL
Corporation and subsidiary companies as of December 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
As explained in Note 1 of the Notes to Consolidated Financial Statements,
effective January 1, 2000, the Company changed certain of its accounting
principles for revenue recognition as a result of the adoption of Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements."
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule referenced in
Item 14(a) 2 herein is presented for purposes of complying with the Securities
and Exchange Commission' s rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as
a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 22, 2001
UAL Corporation and Subsidiary Companies
Statements of Consolidated Operations
(In millions, except per share)
|
|
|||
| Operating revenues: |
|
|
|
| Passenger |
$ 16,932
|
$ 15,784
|
$ 15,520
|
| Cargo |
931
|
906
|
913
|
| Other operating revenues |
1,489
|
1,337
|
1,128
|
|
19,352
|
18,027
|
17,561
|
|
| Operating expenses: | |||
| Salaries and related costs |
6,730
|
5,670
|
5,341
|
| ESOP compensation expense |
147
|
756
|
829
|
| Aircraft fuel |
2,511
|
1,776
|
1,788
|
| Commissions |
1,025
|
1,139
|
1,325
|
| Purchased services |
1,711
|
1,575
|
1,505
|
| Aircraft rent |
919
|
876
|
893
|
| Landing fees and other rent |
959
|
949
|
881
|
| Depreciation and amortization |
1,058
|
867
|
793
|
| Cost of sales |
1,038
|
602
|
474
|
| Aircraft maintenance |
698
|
689
|
624
|
| Other operating expenses |
1,902
|
1,737
|
1,630
|
|
18,698
|
16,636
|
16,083
|
|
| Earnings from operations |
654
|
1,391
|
1,478
|
| Other income (expense): | |||
| Interest expense |
(402)
|
(362)
|
(355)
|
| Interest capitalized |
77
|
75
|
105
|
| Interest income |
101
|
68
|
59
|
| Equity in earnings (losses) of affiliates |
(12)
|
37
|
72
|
| Gain on sale of investments |
109
|
731
|
-
|
| Investment impairment |
(61)
|
-
|
-
|
| Miscellaneous, net |
(35)
|
2
|
(103)
|
|
(223)
|
551
|
(222)
|
|
| Earnings before income taxes, distributions on preferred | |||
| securities, extraordinary item and cumulative effect |
431
|
1,942
|
1,256
|
| Provision for income taxes |
160
|
699
|
429
|
| Earnings before distributions on preferred securities, | |||
| extraordinary item and cumulative effect |
271
|
1,243
|
827
|
| Distributions on preferred securities, net of tax |
(6)
|
(5)
|
(6)
|
| Earnings before extraordinary item and cumulative effect |
265
|
1,238
|
821
|
| Extraordinary loss on early extinguishment of debt, net of tax |
(6)
|
(3)
|
- -
|
| Cumulative effect of accounting change, net of tax |
(209)
|
- -
|
- -
|
| Net earnings |
$ 50
|
$ 1,235
|
$ 821
|
|
=====
|
=====
|
=====
|
|
| Per share, basic: | |||
| Earnings before extraordinary item and cumulative effect |
$ 4.29
|
$ 21.26
|
$ 12.71
|
| Extraordinary loss on early extinguishment of debt, net of tax |
(0.13)
|
(0.06)
|
- -
|
| Cumulative effect of accounting change, net of tax |
(4.08)
|
- -
|
- -
|
| Net earnings |
$ 0.08
|
$ 21.20
|
$ 12.71
|
|
=====
|
=====
|
=====
|
|
| Per share, diluted: | |||
| Earnings before extraordinary item and cumulative effect |
$ 1.89
|
$ 9.97
|
$ 6.83
|
| Extraordinary loss on early extinguishment of debt, net of tax |
(0.06)
|
(0.03)
|
- -
|
| Cumulative effect of accounting change, net of tax |
(1.79)
|
- -
|
- -
|
| Net earnings |
$ 0.04
|
$ 9.94
|
$ 6.83
|
|
=====
|
=====
|
=====
|
|
See accompanying Notes to Consolidated Financial Statements.
UAL Corporation and Subsidiary Companies
Statements of Consolidated Financial Position
(In Millions)
|
|
||
| Assets |
|
|
| Current assets: | ||
| Cash and cash equivalents |
$ 1,679
|
$ 310
|
| Short-term investments |
665
|
379
|
| Receivables, less allowance for doubtful | ||
| accounts (2000 - - $14; 1999 - $13) |
1,216
|
1,284
|
| Aircraft fuel, spare parts and supplies, less | ||
| obsolescence allowance (2000 - $55; 1999 - $45) |
424
|
340
|
| Income tax receivables |
110
|
32
|
| Deferred income taxes |
225
|
222
|
| Prepaid expenses and other |
460
|
368
|
|
4,779
|
2,935
|
|
| Operating property and equipment: | ||
| Owned - | ||
| Flight equipment |
14,888
|
13,518
|
| Advances on flight equipment |
810
|
809
|
| Other property and equipment |
3,714
|
3,368
|
|
19,412
|
17,695
|
|
| Less - Accumulated depreciation and amortization |
5,583
|
5,207
|
|
13,829
|
12,488
|
|
| Capital leases - | ||
| Flight equipment |
3,055
|
2,929
|
| Other property and equipment |
99
|
93
|
|
3,154
|
3,022
|
|
| Less - Accumulated amortization |
640
|
645
|
|
2,514
|
2,377
|
|
|
16,343
|
14,865
|
|
| Other assets: | ||
| Investments |
435
|
750
|
| Intangibles, less accumulated amortization | ||
| (2000 - $306; 1999 - $279) |
671
|
568
|
| Aircraft lease deposits |
710
|
594
|
| Prepaid rent |
567
|
585
|
| Other |
850
|
666
|
|
3,233
|
3,163
|
|
|
$ 24,355
|
$ 20,963
|
|
|
=====
|
=====
|
|
See accompanying Notes to Consolidated Financial Statements.
UAL Corporation and Subsidiary Companies
Statements of Consolidated Financial Position
(In millions, except share data)
|
|
||
| Liabilities and Stockholders' Equity |
|
|
| Current liabilities: | ||
| Notes payable |
$
- -
|
$ 61
|
| Long-term debt maturing within one year |
170
|
92
|
| Current obligations under capital leases |
269
|
190
|
| Advance ticket sales |
1,454
|
1,412
|
| Accounts payable |
1,188
|
967
|
| Accrued salaries, wages and benefits |
1,508
|
1,002
|
| Accrued aircraft rent |
840
|
783
|
| Other accrued liabilities |
1,352
|
904
|
|
6,781
|
5,411
|
|
| Long-term debt |
4,688
|
2,650
|
| Long-term obligations under capital leases |
2,261
|
2,337
|
| Other liabilities and deferred credits: | ||
| Deferred pension liability |
136
|
70
|
| Postretirement benefit liability |
1,557
|
1,489
|
| Deferred gains |
912
|
986
|
| Accrued aircraft rent |
408
|
390
|
| Deferred income taxes |
1,241
|
1,147
|
| Other |
511
|
339
|
|
4,765
|
4,421
|
|
| Commitments and contingent liabilities (Note 18) | ||
| Company-obligated mandatorily redeemable | ||
| preferred securities of a subsidiary trust |
99
|
100
|
| Preferred stock committed to Supplemental ESOP |
571
|
893
|
| Stockholders' equity: | ||
| Serial preferred stock (Note 12) |
-
|
-
|
| ESOP preferred stock (Note 13) |
-
|
-
|
| Common stock at par, $0.01 par value; authorized 200,000,000 | ||
| shares; issued 68,834,167 shares at December 31, 2000 and | ||
| 65,771,802 shares at December 31, 1999 |
1
|
1
|
| Additional capital invested |
4,530
|
4,099
|
| Retained earnings |
1,998
|
2,138
|
| Unearned ESOP preferred stock |
-
|
(28)
|
| Stock held in treasury, at cost - | ||
| Preferred, 10,213,519 depositary shares at December 31, | ||
| 2000 and 1999 (Note 12) |
(305)
|
(305)
|
| Common, 16,295,475 shares at December 31, 2000 and | ||
| 14,995,219 shares at December 31, 1999 |
(1,179)
|
(1,097)
|
| Accumulated other comprehensive income |
152
|
352
|
| Other |
(7)
|
(9)
|
|
5,190
|
5,151
|
|
|
$ 24,355
|
$ 20,963
|
|
|
======
|
======
|
|
See accompanying Notes to Consolidated Financial Statements.
UAL Corporation and Subsidiary Companies
Statements of Consolidated Cash Flows
(In Millions)
|
|
|||
|
|
|
|
|
| Cash and cash equivalents at beginning of year |
$ 310
|
$ 390
|
$ 295
|
| Cash flows from operating activities: | |||
| Net earnings |
50
|
1,235
|
821
|
| Adjustments to reconcile to net cash provided by | |||
| operating activities - | |||
| ESOP compensation expense |
147
|
756
|
829
|
| Cumulative effect of accounting change, net of tax |
209
|
-
|
-
|
| Extraordinary loss on debt extinguishment, net of tax |
6
|
3
|
-
|
| Gain on sale of investments |
(109)
|
(731)
|
-
|
| Investment impairment |
61
|
-
|
-
|
| Pension funding less than (greater than) expense |
(21)
|
94
|
101
|
| Deferred postretirement benefit expense |
153
|
65
|
149
|
| Depreciation and amortization |
1,058
|
867
|
793
|
| Provision for deferred income taxes |
317
|
590
|
307
|
| Undistributed (earnings) losses of affiliates |
13
|
(20)
|
(62)
|
| Decrease (increase) in receivables |
68
|
(146)
|
(97)
|
| Decrease (increase) in other current assets |
(208)
|
2
|
105
|
| Increase (decrease) in advance ticket sales |
42
|
(17)
|
162
|
| Increase (decrease) in accrued income taxes |
(77)
|
(76)
|
38
|
| Increase (decrease) in accounts payable | |||
| and accrued liabilities |
761
|
(86)
|
69
|
| Amortization of deferred gains |
(66)
|
(66)
|
(64)
|
| Other, net |
68
|
(49)
|
43
|
|
2,472
|
2,421
|
3,194
|
|
| Cash flows from investing activities: | |||
| Additions to property and equipment |
(2,538)
|
(2,389)
|
(2,832)
|
| Proceeds on disposition of property and equipment |
324
|
154
|
452
|
| Proceeds on sale of investments |
147
|
828
|
-
|
| Decrease (increase) in short-term investments |
(286)
|
46
|
125
|
| Other, net |
(168)
|
(263)
|
(63)
|
|
(2,521)
|
(1,624)
|
(2,318)
|
|
| Cash flows from financing activities: | |||
| Reacquisition of preferred stock |
-
|
-
|
(3)
|
| Repurchase of common stock |
(81)
|
(261)
|
(459)
|
| Proceeds from issuance of long-term debt |
2,515
|
286
|
928
|
| Repayment of long-term debt |
(441)
|
(513)
|
(271)
|
| Principal payments under capital leases |
(283)
|
(248)
|
(322)
|
| Purchase of equipment certificates under Company leases |
(208)
|
(47)
|
(693)
|
| Decrease in equipment certificates under Company leases |
228
|
33
|
22
|
| Increase (decrease) in short-term borrowings |
(61)
|
(123)
|
184
|
| Aircraft lease deposits |
(138)
|
(20)
|
(154)
|
| Cash dividends |
(118)
|
(10)
|
(10)
|
| Other, net |
5
|
26
|
(3)
|
|
1,418
|
(877)
|
(781)
|
|
| Increase (decrease) in cash and cash equivalents during the year |
1,369
|
(80)
|
95
|
| Cash and cash equivalents at end of year |
$ 1,679
|
$ 310
|
$ 390
|
|
=====
|
=====
|
=====
|
|
See accompanying Notes to Consolidated Financial Statements.
UAL Corporation and Subsidiary Companies
Statements of Consolidated Stockholders' Equity
(In millions, except per share)
|
|
|
||||||||
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
Income |
|
|
|
| Balance at December 31, 1997 |
$ -
|
$ 1
|
$ 2,876
|
$ 309
|
$ (177)
|
$ (663)
|
$ (2)
|
$ (7)
|
$ 2,337
|
| Year ended December 31, 1998: | |||||||||
| Net earnings |
-
|
-
|
-
|
821
|
-
|
-
|
-
|
-
|
821
|
| Other comprehensive income, net: | |||||||||
| Unrealized gains on securities, net |
-
|
-
|
-
|
-
|
-
|
-
|
1
|
-
|
1
|
| Minimum pension liability adj. |
-
|
-
|
-
|
- -
|
-
|
-
|
(1)
|
-
|
(1)
|
| Total comprehensive income |
-
|
-
|
-
|
821
|
-
|
-
|
- -
|
-
|
821
|
| Cash dividends on preferred | |||||||||
| stock ($1.44 per Series B share) |
-
|
-
|
-
|
(10)
|
-
|
-
|
-
|
-
|
(10)
|
| Common stock repurchases |
-
|
-
|
-
|
-
|
-
|
(459)
|
-
|
-
|
(459)
|
| Issuance and amortization of | |||||||||
| ESOP preferred stock |
-
|
-
|
823
|
-
|
6
|
-
|
-
|
-
|
829
|
| ESOP dividend ($8.89 per share) |
-
|
-
|
42
|
(92)
|
50
|
-
|
-
|
-
|
-
|
| Preferred stock committed to | |||||||||
| Supplemental ESOP |
-
|
-
|
(177)
|
-
|
-
|
-
|
-
|
-
|
(177)
|
| Other |
- -
|
- -
|
(47)
|
- -
|
- -
|
(18)
|
-
|
5
|
(60)
|
| Balance at December 31, 1998 |
- -
|
1
|
3,517
|
1,028
|
(121)
|
(1,140)
|
(2)
|
(2)
|
3,281
|
| Year ended December 31, 1999: | |||||||||
| Net earnings |
-
|
-
|
-
|
1,235
|
-
|
-
|
-
|
-
|
1,235
|
| Other comprehensive income, net: | |||||||||
| Unrealized gains on securities, net |
-
|
-
|
-
|
- -
|
-
|
-
|
354
|
-
|
354
|
| Total comprehensive income |
-
|
-
|
-
|
1,235
|
-
|
-
|
354
|
-
|
1,589
|
| Cash dividends on preferred | |||||||||
| stock ($1.44 per Series B share) |
-
|
-
|
-
|
(10)
|
-
|
-
|
-
|
-
|
(10)
|
| Common stock repurchases |
-
|
-
|
-
|
-
|
-
|
(261)
|
-
|
-
|
(261)
|
| Issuance and amortization of | |||||||||
| ESOP preferred stock |
-
|
-
|
740
|
-
|
16
|
-
|
-
|
-
|
756
|
| ESOP dividend ($8.89 per share) |
-
|
-
|
38
|
(115)
|
77
|
-
|
-
|
-
|
-
|
| Preferred stock committed to | |||||||||
| Supplemental ESOP |
-
|
-
|
(201)
|
-
|
-
|
-
|
-
|
-
|
(201)
|
| Other |
- -
|
- -
|
5
|
- -
|
- -
|
(1)
|
- -
|
(7)
|
(3)
|
| Balance at December 31, 1999 |
- -
|
1
|
4,099
|
2,138
|
(28)
|
(1,402)
|
352
|
(9)
|
5,151
|
| Year ended December 31, 2000: | |||||||||
| Net earnings |
-
|
-
|
-
|
50
|
-
|
-
|
-
|
-
|
50
|
| Other comprehensive income, net: | |||||||||
| Unrealized losses on securities, net |
-
|
-
|
-
|
-
|
-
|
-
|
(196)
|
-
|
(196)
|
| Minimum pension liability adj. |
-
|
-
|
-
|
- -
|
-
|
-
|
(4)
|
-
|
(4)
|
| Total comprehensive income |
-
|
-
|
-
|
50
|
-
|
-
|
(200)
|
-
|
(150)
|
| Cash dividends on preferred | |||||||||
| stock ($1.44 per Series B share) |
-
|
-
|
-
|
(10)
|
-
|
-
|
-
|
-
|
(10)
|
| Cash dividends on common | |||||||||
| stock ($1.25 per share) |
-
|
-
|
-
|
(144)
|
-
|
-
|
-
|
-
|
(144)
|
| Common stock repurchases |
-
|
-
|
-
|
-
|
-
|
(81)
|
-
|
-
|
(81)
|
| Issuance and amortization of | |||||||||
| ESOP preferred stock |
-
|
-
|
147
|
-
|
-
|
-
|
-
|
-
|
147
|
| ESOP dividend ($8.89 per share) |
-
|
-
|
8
|
(36)
|
28
|
-
|
-
|
-
|
-
|
| Preferred stock committed to | |||||||||
| Supplemental ESOP |
-
|
-
|
322
|
-
|
-
|
-
|
-
|
-
|
322
|
| Other |
- -
|
- -
|
(46)
|
- -
|
- -
|
(1)
|
- -
|
2
|
(45)
|
| Balance at December 31, 2000 |
$ -
|
$ 1
|
$ 4,530
|
$ 1,998
|
$ -
|
$(1,484)
|
$ 152
|
$ (7)
|
$ 5,190
|
|
====
|
====
|
=====
|
=====
|
====
|
=====
|
====
|
====
|
====
|
|
See accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
(a) Basis of
Presentation - UAL Corporation ("UAL") is a holding company whose
principal subsidiary is United Air Lines, Inc. ("United"). The consolidated
financial statements include the accounts of UAL and all of its majority-owned
affiliates (collectively "the Company"). All significant intercompany
transactions are eliminated. Certain prior-year financial statement items
have been reclassified to conform to the current year' s presentation.
(b) Use of Estimates
- - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(c) Airline Revenues
- - Passenger fares and cargo revenues are recorded as operating revenues
when the transportation is furnished. The value of unused passenger
tickets is included in current liabilities.
(d) Cash and
Cash Equivalents and Short-term Investments - Cash in excess of
operating requirements is invested in short-term, highly liquid, income-producing
investments. Investments with a maturity of three months or less
on their acquisition date are classified as cash and cash equivalents.
Other investments are classified as short-term investments.
From time to time, United
lends certain of its securities classified as cash and cash equivalents
and short-term investments to third parties. United requires collateral
in an amount exceeding the value of the securities and is obligated to
reacquire the securities at the end of the contract. United accounts
for these transactions as secured borrowings rather than sales and does
not remove the securities from the balance sheet. At December 31,
2000, United was obligated to repurchase $39 million of securities lent
to third parties.
At December 31, 2000 and
1999, $598 million and $406 million, respectively, of investments in debt
securities included in cash and cash equivalents and short-term investments
were classified as available-for-sale, and $1.7 billion and $177 million,
respectively, were classified as held-to-maturity. Investments in
debt securities classified as available-for-sale are stated at fair value
based on the quoted market prices for the securities, which does not differ
significantly from their cost basis. Investments classified as held-to-maturity
are stated at cost which approximates market due to their short-term maturities.
The gains or losses from sales of available-for-sale securities are included
in interest income for each respective year.
(e) Derivative Financial Instruments -
Foreign Currency - - From time to time, United enters into Japanese yen forward exchange contracts to minimize gains and losses on the revaluation of short-term yen-denominated liabilities. The yen forwards typically have short-term maturities and are marked to fair value at the end of each accounting period. The unrealized mark-to-market gains and losses on the yen forwards generally offset the losses and gains recorded on the yen liabilities.
United has also entered
into forwards and swaps to reduce exposure to currency fluctuations on
Japanese yen-, euro- and French franc-denominated capital lease obligations.
The cash flows of the forwards and swaps mirror those of the capital leases.
The premiums on the forwards and swaps, as measured at inception, are being
amortized over their respective lives as components of interest expense.
Any gains or losses realized upon early termination of these forwards and
swaps are deferred and recognized in income over the remaining life of
the underlying exposure.
The Company hedges
some of the risks of exchange rate volatility on its anticipated future
Japanese yen, euro, Australian dollar and British pound revenues by purchasing
put options with little or no intrinsic value and on Hong Kong dollar revenues
by entering into forward contracts. The amount and duration of these
options are synchronized with the expected revenues, and thus, the put
options have been designated as a hedge. The premiums on purchased
option contracts are amortized over the lives of the contracts. Unrealized
gains on purchased put option contracts are deferred until contract expiration
and then recognized as a component of passenger revenue. To reduce
hedging costs, the Company sells a correlation option in the first four
currencies referred to above. The unrealized mark-to-market gains
and losses on the correlation options are included in Miscellaneous, net,
net of premiums received.
Interest Rates
- - United may from time to time, enter into swaps to reduce exposure
to interest rate fluctuations in connection with certain debt, capital
leases and operating leases. The cash flows of the swaps mirror those
of the underlying exposures. The premiums on the swaps, as measured
at inception, are amortized over their respective lives as components of
interest expense. Any gains or losses realized upon the early termination
of these swaps are deferred and recognized in income over the remaining
life of the underlying exposure.
Aircraft Fuel
- - Under favorable market conditions, United uses purchased call options
to hedge a portion of its price risk related to aircraft fuel purchases.
The purchased call options have been designated as a hedge. Gains
or losses on hedge positions, net of premiums paid, are recognized upon
contract expiration as a component of aircraft fuel inventory. In
addition, to a limited extent, United trades short-term heating oil futures
contracts. Unrealized losses on these contracts are recorded currently
in income while unrealized gains are deferred until contract expiration.
Both gains and losses are recorded as a component of aircraft fuel expense.
(f) Aircraft
Fuel, Spare Parts and Supplies - Aircraft fuel and maintenance
and operating supplies are stated at average cost. Flight equipment
spare parts are stated at average cost less an obsolescence allowance.
(g) Operating
Property and Equipment - Owned operating property and equipment
is stated at cost. Property under capital leases, and the related
obligation for future lease payments, are initially recorded at an amount
equal to the then present value of those lease payments.
Depreciation and amortization
of owned depreciable assets is based on the straight-line method over their
estimated service lives. Leasehold improvements are amortized over
the remaining period of the lease or the estimated service life of the
related asset, whichever is less. Aircraft are depreciated to estimated
salvage values, generally over lives of 4 to 30 years; buildings are depreciated
over lives of 25 to 45 years; and other property and equipment are depreciated
over lives of 3 to 15 years.
Properties under capital
leases are amortized on the straight-line method over the life of the lease,
or in the case of certain aircraft, over their estimated service lives.
Lease terms are 10 to 30 years for aircraft and flight simulators and 25
years for buildings. Amortization of capital leases is included in
depreciation and amortization expense.
Maintenance and repairs,
including the cost of minor replacements, are charged to maintenance expense
accounts. Costs of additions to and renewals of units of property
are charged to property and equipment accounts.
(h) Intangibles
- - Intangibles consist primarily of route acquisition costs and intangible
pension assets (see Note 16 "Retirement and Postretirement Plans").
Route acquisition costs are amortized over 40 years. During 2001,
the FASB issued an Exposure Draft "Business Combinations and Intangible
Assets - Accounting for Goodwill" which could impact the Company' s accounting
for intangible assets. See Other Information, "New Accounting
Pronouncements" in Management' s Discussion and Analysis of Financial
Condition and Results of Operations.
(i) Mileage
Plus Awards - United accrues the estimated incremental cost of
providing free travel awards earned under its Mileage Plus frequent flyer
program when such award levels are reached. United, through its wholly
owned subsidiary, Mileage Plus Holdings, Inc., sells mileage credits to
participating partners in the Mileage Plus program.
Effective January 1,
2000, the Company changed its method of accounting for the sale of mileage
to participating partners in its Mileage Plus program, in accordance with
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements."
Under the new accounting method, a portion of revenue from the sale of
mileage (previously recognized in other revenue) is deferred and recognized
as passenger revenue when the transportation is provided. Accordingly,
UAL has recorded a charge of $209 million, net of tax, for the cumulative
effect of a change in accounting principle to reflect the application of
the accounting method to prior years. This change resulted in a reduction
to revenues of approximately $38 million for 2000 and would have reduced
1999 revenues by $45 million.
The pro forma effect
of the accounting change on net income and earnings per share as previously
reported for 1999 and prior years is as follows:
|
|
|
|
|
|
||
| Earnings before extraordinary | ||||||
| items (in millions) | As reported |
$ 1,238
|
$ 821
|
$ 958
|
$ 600
|
$ 378
|
| Pro forma |
$ 1,209
|
$ 774
|
$ 931
|
$ 553
|
$ 348
|
|
| Earnings per share before | ||||||
| extraordinary items | ||||||
| Basic | As reported |
$ 21.26
|
$12.71
|
$14.98
|
$ 8.76
|
$ 6.98
|
| Pro forma |
$ 20.71
|
$11.87
|
$14.52
|
$ 7.92
|
$ 6.37
|
|
| Diluted | As reported |
$ 9.97
|
$ 6.83
|
$ 9.04
|
$ 5.85
|
$ 5.23
|
| Pro forma |
$ 9.71
|
$ 6.38
|
$ 8.76
|
$ 5.29
|
$ 4.81
|
|
| Net earnings (in millions) | As reported |
$ 1,235
|
$ 821
|
$ 949
|
$ 533
|
$ 349
|
| Pro forma |
$ 1,206
|
$ 774
|
$ 922
|
$ 486
|
$ 319
|
|
| Net earnings per share | ||||||
| Basic | As reported |
$ 21.20
|
$12.71
|
$14.83
|
$ 7.57
|
$ 6.39
|
| Pro forma |
$ 20.65
|
$11.87
|
$14.37
|
$ 6.73
|
$ 5.78
|
|
| Diluted | As reported |
$ 9.94
|
$ 6.83
|
$ 8.95
|
$ 5.06
|
$ 4.82
|
| Pro forma |
$ 9.68
|
$ 6.38
|
$ 8.67
|
$ 4.50
|
$ 4.40
|
(j) Deferred
Gains - Gains on aircraft sale and leaseback transactions are deferred
and amortized over the lives of the leases as a reduction of rental expense.
(k) Advertising- Advertising costs, which are
included in other operating expenses, are expensed as incurred. Advertising
expense was $269 million, $232 million and $213 million for the years ended
December 31, 2000, 1999 and 1998, respectively.
(2) Employee Stock Ownership Plans and Recapitalization
On July 12, 1994, the
stockholders of UAL approved a plan of recapitalization to provide an approximately
55% equity interest in UAL to certain employees of United in exchange for
wage concessions and work-rule changes. The employees' equity
interest was allocated to individual employees through the year 2000 under
Employee Stock Ownership Plans ("ESOPs") which were created as a part of
the recapitalization.
The ESOPs cover employees
represented by ALPA, the IAM and U.S. management and salaried employees.
The ESOPs include a "Leveraged ESOP," a "Non-Leveraged ESOP" and a "Supplemental
ESOP." Both the Leveraged ESOP and the Non-Leveraged ESOP are tax-qualified
plans while the Supplemental ESOP is not a tax-qualified plan. Shares
are delivered to employees primarily through the Leveraged ESOP, then through
the Non-Leveraged ESOP, and finally, through the Supplemental ESOP.
The equity interests
were delivered to employees through two classes of preferred stock (Class
1 and Class 2 ESOP Preferred Stock, collectively "ESOP Preferred Stock"),
and the voting interests were delivered through three separate classes
of preferred stocks (Class P, M and S Voting Preferred Stock, collectively,
"Voting Preferred Stock"). The Class 1 ESOP Preferred Stock was delivered
to an ESOP trust in seven separate sales under the Leveraged ESOP, the
last of which occurred on January 5, 2000. Based on Internal Revenue
Code Limitations, shares of the Class 2 ESOP Preferred Stock are either
contributed to the Non-Leveraged ESOP or allocated as "book entry" shares
to the Supplemental ESOP annually through the year 2000. The classes
of preferred stock are described more fully in Note 13, "ESOP Preferred
Stock."
The Leveraged ESOP
and Non-Leveraged ESOP are being accounted for under AICPA Statement of
Position 93-6, "Employers' Accounting for Employee Stock Ownership
Plans." For the Leveraged ESOP, as shares of Class 1 ESOP Preferred
Stock are sold to an ESOP trust, the Company reports the issuance as a
credit to additional capital invested and records a corresponding charge
to unearned ESOP preferred stock. ESOP compensation expense is recorded
for the average fair value of the shares committed to be released during
the period with a corresponding credit to unearned ESOP preferred stock
for the cost of the shares. Any difference between the fair value
of the shares and the cost of the shares is charged or credited to additional
capital invested. For the Non-Leveraged ESOP, the Class 2 ESOP Preferred
Stock is recorded as additional capital invested as the shares are committed
to be contributed, with the offsetting charge to ESOP compensation expense.
The ESOP compensation expense is based on the average fair value of the
shares committed to be contributed. The Supplemental ESOP is being
accounted for under Accounting Principles Board Opinion 25, "Accounting
for Stock Issued to Employees" ("APB 25").
Shares of ESOP Preferred
Stock are legally released or allocated to employee accounts as of year-end.
Dividends on the ESOP Preferred Stock are also paid at the end of the year.
Dividends on unallocated shares are used by the ESOP to pay down the loan
from UAL and are not considered dividends for financial reporting purposes.
Dividends on allocated shares are satisfied by releasing shares from the
ESOP' s suspense account to the employee accounts and are charged to equity.
During 2000, 2,390,931
shares of Class 1 ESOP Preferred Stock, 434,465 shares of Class 2 ESOP
Preferred Stock and 2,819,479 shares of Voting Preferred Stock were allocated
to employee accounts, and another 248,572 shares of Class 2 ESOP Preferred
Stock were allocated in the form of "book entry" shares, effective December
31, 1999. Another 198,629 shares of Class 2 ESOP Preferred Stock
previously allocated in book entry form were issued and either contributed
to the qualified plan or converted and sold on behalf of terminating employees.
At December 31, 2000, the year-end allocation of Class 1 ESOP Preferred
Stock to employee accounts had not yet been completed; however, there were
669,820 shares of Class 1 ESOP Preferred Stock committed to be released.
For the Class 2 ESOP Preferred Stock, 187,276 shares were committed to
be contributed to employees at December 31, 2000. The fair value
of the unearned ESOP shares recorded on the balance sheet at December 31,
1999 was $41 million.
For the Class 2 ESOP
Preferred Stock committed to be contributed to employees under the Supplemental
ESOP, employees can elect to receive their "book entry" shares in cash
upon termination of employment. The estimated fair value of such
shares at December 31, 2000 and 1999 was $304 million and $954 million,
respectively.
(3) Other Income (Expense) - Miscellaneous
Included in Other income
(expense) - "Miscellaneous, net" was $(22) million, $4 million and $(84)
million in foreign exchange gains (losses) in 2000, 1999 and 1998, respectively.
(4) Other Comprehensive Income
The following table presents
the tax effect of those items included in other comprehensive income:
|
|
|||||||||
| (In Millions) |
|
|
|
||||||
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
| Unrealized holding gains (losses) | |||||||||
| arising during period |
$(297)
|
$101
|
$(196)
|
$ 547
|
$ (193)
|
$ 354
|
$ 1
|
$ -
|
$ 1
|
| Minimum pension liability |
(6)
|
2
|
(4)
|
-
|
-
|
-
|
(1)
|
-
|
(1)
|
| Total other comprehensive income |
$(303)
|
$103
|
$(200)
|
$ 547
|
$ (193)
|
$ 354
|
$ -
|
$ -
|
$ -
|
|
===
|
===
|
===
|
===
|
===
|
===
|
===
|
===
|
===
|
|
Unrealized gains (losses)
on securities primarily represent gains (losses) on the Company' s investments
in Galileo and Equant as discussed in Note 6 "Investments."
(5) Per Share Amounts
Basic earnings per share
were computed by dividing net income before extraordinary item and cumulative
effect by the weighted-average number of shares of common stock outstanding
during the year. In addition, diluted earnings per share amounts
include potential common shares, including common shares issuable upon
conversion of ESOP shares committed to be released.
| Earnings Attributable to Common Stockholders (in millions) |
|
|
|
| Net income before extraordinary item and cumulative effect |
$ 265
|
$1,238
|
$ 821
|
| Preferred stock dividends |
(46)
|
(125)
|
(102)
|
| Earnings attributable to common stockholders (Basic and Diluted) |
$ 219
|
$1,113
|
$ 719
|
|
====
|
====
|
====
|
|
| Shares (in millions) | |||
| Weighted average shares outstanding (Basic) |
51.3
|
52.3
|
56.5
|
| Convertible ESOP preferred stock |
64.5
|
58.0
|
47.1
|
| Other |
0.7
|
1.3
|
1.6
|
| Weighted average number of shares (Diluted) |
116.5
|
111.6
|
105.2
|
|
====
|
====
|
====
|
|
| Earnings Per Share | |||
| Basic |
$ 4.29
|
$21.26
|
$12.71
|
| Diluted |
$ 1.89
|
$ 9.97
|
$ 6.83
|
At December 31, 2000, stock
options to purchase 5,646,557 shares of common stock were outstanding,
but were not included in the computation of diluted earnings per share,
because the exercise price of these options was greater than the average
market price of the common shares.
(6) Investments
During 2000, UAL invested
approximately $24 million in Orbitz, an entity which is developing an Internet
travel web site. UAL owns approximately 25% of Orbitz and accounts
for this investment using the equity method of accounting.
During 1998 and 1999, United
invested approximately $51 million in GetThere.com (a leading provider
of Internet-based travel planning products tailored to individual, corporate,
travel supplier and travel agency customers) resulting in a 28% minority
interest consisting of common stock, warrants and options. United
accounted for its investment in GetThere.com using the equity method of
accounting.
On October 6, 2000, Sabre
Holdings Corporation acquired all of the outstanding common stock of GetThere.com
for $17.75 per share. Accordingly, after converting its options and
warrants, United tendered all of its shares for net proceeds of $147 million,
resulting in a gain of approximately $69 million, net of tax.
During 2000, United recorded
an impairment loss of $38 million, net of tax, related to its warrants
held in Priceline.com.
In June 1999, United sold
17,500,000 common shares of Galileo in a secondary offering for $766 million,
resulting in a gain of approximately $428 million, net of tax. This
sale reduced United' s holdings in Galileo from 32 percent to approximately
15 percent, requiring United to discontinue the equity method of accounting
for its investment in Galileo. United has classified its remaining
15,940,000 shares of Galileo common stock as available-for-sale.
The market value of these shares at December 31, 2000 ($319 million) is
reflected in investments on the balance sheet and the market value in excess
of United' s investment is classified net-of-tax ($144 million) in accumulated
other comprehensive income. The market value of United' s investment
in Galileo at December 31, 1999 was $477 million. Included in the
Company' s retained earnings is approximately $248 million of undistributed
earnings of Galileo and its predecessor companies.
United owns 1,391,791 depositary certificates in Equant, a provider of international data network services to multinational businesses and a single source for global desktop communications. Each depositary certificate represents a beneficial interest in an Equant common share and the investment is classified as available-for-sale. The market value in excess of United' s investment is classified net-of-tax ($24 million) in accumulated other comprehensive income. In December 1999, United sold 709,000 shares of common stock in Equant in a secondary offering by Equant for $62 million. At December 31, 2000 and 1999, the estimated fair value of United' s remaining investment in Equant was approximately $36 million and $156 million, respectively.
(7) Income Taxes
In 2000, UAL incurred
both a regular and an alternative minimum tax ("AMT") loss. The carryback
of the regular tax loss to 1999 and 1998 and the carryback loss of the
AMT loss to 1998 will produce both federal and state refunds and generate
additional AMT credits. The primary differences between UAL' s regular
tax loss and AMT loss are the depreciation adjustments and preferences.
The provision for income
taxes is summarized as follows:
| (In Millions) |
|
|
|
|
| Current - | ||||
| Federal |
$ (133)
|
$ 93
|
$ 113
|
|
| State |
(24)
|
16
|
9
|
|
|
(157)
|
109
|
122
|
||
| Deferred - | ||||
| Federal |
278
|
536
|
270
|
|
| State |
39
|
54
|
37
|
|
|
317
|
590
|
307
|
||
|
$ 160
|
$ 699
|
$ 429
|
||
|
====
|
====
|
====
|
The income tax provision
differed from amounts computed at the statutory federal income tax rate,
as follows:
| (In Millions) |
|
|
|
| Income tax provision at statutory rate |
$ 151
|
$ 680
|
$ 440
|
| State income taxes, net of federal income | |||
| tax benefit |
10
|
46
|
30
|
| ESOP dividends |
(32)
|
(40)
|
(33)
|
| Nondeductible employee meals |
24
|
24
|
24
|
| Tax credits |
-
|
-
|
(7)
|
| Other, net |
7
|
(11)
|
(25)
|
|
$ 160
|
$ 699
|
$ 429
|
|
|
====
|
====
|
====
|
Temporary differences
and carryforwards that give rise to a significant portion of deferred tax
assets and liabilities for 2000 and 1999 are as follows:
| (In Millions) |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
| Employee benefits, including | ||||
| postretirement medical and ESOP |
$ 1,076
|
$ 214
|
$ 990
|
$ 135
|
| Depreciation, capitalized interest | ||||
| and transfers of tax benefits |
-
|
3,009
|
-
|
2,489
|
| Gains on sale and leasebacks |
307
|
-
|
335
|
-
|
| Rent expense |
461
|
-
|
435
|
-
|
| AMT credit carryforwards |
371
|
-
|
210
|
-
|
| Other |
1,012
|
1,020
|
758
|
1,029
|
|
$3,227
|
$ 4,243
|
$ 2,728
|
$ 3,653
|
|
|
=====
|
=====
|
=====
|
=====
|
|
At December 31, 2000,
UAL and its subsidiaries had $371 million of federal AMT credits and $43
million of federal and state net operating losses which may be carried
forward to reduce the tax liabilities of future years.
United has an agreement
with a syndicate of banks for a $750 million revolving credit facility
expiring in 2002. Interest on drawn amounts under the facility is
calculated at floating rates based on the London interbank offered rate
("LIBOR") plus a margin which is subject to adjustment based on certain
changes in the credit ratings of United' s long-term senior unsecured debt.
Among other restrictions, the credit facility contains a covenant that
restricts United' s ability to grant liens on or otherwise encumber certain
identified assets with a market value of approximately $1.1 billion.
Additionally, United
has available $900 million in short-term secured aircraft financing facilities.
Interest on drawn amounts under the facilities is calculated at floating
rates based on LIBOR plus a margin.
At December 31, 1999,
United had outstanding $61 million under a separate short-term borrowing
facility, bearing an average interest rate of 5.72%. Receivables
amounting to $233 million were pledged by United to secure repayment of
such outstanding borrowings. The maximum available borrowing amount
under this arrangement is $227 million. There were no borrowings
outstanding under this arrangement at December 31, 2000.
(9) Long-Term Debt
A summary of long-term
debt, including current maturities, as of December 31 is as follows (interest
rates are as of December 31, 2000):
| (In Millions) |
|
|
| Secured notes, 5.97% to 8.99%, averaging | ||
| 7.33%, due through 2014 |
$ 3,417
|
$ 1,229
|
| Debentures, 9.00% to 11.21%, averaging | ||
| 9.89%, due through 2021 |
646
|
762
|
| Promissory notes, 11.00%, due 2000 |
-
|
1
|
| Commercial paper, 6.71%, due through 2003 |
549
|
571
|
| Special facility bonds, 5.63% to 6.25%, | ||
| averaging 5.71%, due through 2034 |
255
|
190
|
|
4,867
|
2,753
|
|
| Less: Unamortized discount on debt |
(9)
|
(11)
|
| Current maturities |
(170)
|
(92)
|
|
$ 4,688
|
$ 2,650
|
|
|
=====
|
=====
|
|
See Item 7a "Quantitative
and Qualitative Disclosures About Market Risk" for disclosures regarding
the fair values of debt.
In addition to scheduled
principal payments, in 2000 and 1999 the Company repaid $116 million and
$23 million, respectively, in principal amount of debentures prior to maturity.
The debentures were scheduled to mature at various times through 2021.
Extraordinary losses of $6 million and $3 million, respectively, net of
tax benefits of $4 million and $2 million, respectively, was recorded reflecting
amounts paid in excess of the debt carrying value.
The Company, through
a special-purpose financing entity that is consolidated, has issued commercial
paper to refinance certain lease commitments. Although the issued
commercial paper has short maturities, the Company expects to continually
rollover this obligation throughout the 5-year life of its supporting liquidity
facility or bank standby facility. As such, the commercial paper
is classified as a long-term obligation in the Company' s statement of
financial position.
In July 2000, the Company
issued $921 billion in enhanced equipment trust certificates to refinance
certain owned aircraft and aircraft under operating leases. Net proceeds
after refinancing the operating leases was $622 million. In December
2000, the Company issued an additional $1.5 billion in enhanced equipment
trust certificates to refinance certain owned aircraft.
At December 31, 2000,
United had recorded $255 million in special facilities revenue bonds to
finance the acquisition and construction of certain facilities at Los Angeles,
San Francisco and Miami. United guarantees the payment of these bonds
under various payment and loan agreements. The bond proceeds are
restricted to expenditures on the facilities and unspent amounts are classified
as other assets in the balance sheet.
In February 2001, United
recorded an additional $200 million in special facility bonds to finance
the acquisition and construction of certain facilities at Chicago.
At December 31, 2000,
United had outstanding a total of $1.4 billion of long-term debt bearing
interest rates at 22.5 to 60.0 basis points over LIBOR.
Maturities of long-term
debt for each of the four years after 2001 are: 2002 - $655 million;
2003 - $741 million; 2004 - $350 million; and 2005 - $264 million.
Various assets, principally aircraft, having an aggregate book value of
$4.1 billion at December 31, 2000, were pledged as security under various
loan agreements.
(10) Lease Obligations
The Company leases
aircraft, airport passenger terminal space, aircraft hangars and related
maintenance facilities, cargo terminals, other airport facilities, real
estate, office and computer equipment and vehicles.
Future minimum lease
payments as of December 31, 2000, under capital leases (substantially all
of which are for aircraft) and operating leases having initial or remaining
noncancelable lease terms of more than one year are as follows:
| (In Millions) |
|
|
|
|
|
|
|
|
| Payable during - | |||
| 2001 |
$ 941
|
$ 612
|
$ 472
|
| 2002 |
922
|
574
|
415
|
| 2003 |
972
|
541
|
316
|
| 2004 |
1,008
|
514
|
325
|
| 2005 |
1,022
|
504
|
293
|
| After 2005 |
9,445
|
7,279
|
1,867
|
| Total minimum lease payments |
$14,310
|
$10,024
|
3,688
|
| Imputed interest (at rates of 5.3% to 12.2%) |
======
|
=====
|
(1,158)
|
| Present value of minimum lease payments |
2,530
|
||
| Current portion |
(269)
|
||
| Long-term obligations under capital leases |
$ 2,261
|
||
|
=====
|
|||
As of December 31,
2000, United leased 315 aircraft, 82 of which were under capital leases.
These leases have terms of 10 to 26 years, and expiration dates range from
2001 through 2020.
In connection with the financing
of certain aircraft accounted for as capital leases, United had on deposit
at December 31, 2000 an aggregate 40 billion yen ($348 million), 661 million
German marks ($314 million), 67 million French francs ($10 million), 28
million Euro ($26 million) and $12 million in certain banks and had pledged
an irrevocable security interest in such deposits to certain of the aircraft
lessors. These deposits will be used to pay off an equivalent amount
of recorded capital lease obligations.
Amounts charged to rent expense,
net of minor amounts of sublease rentals, were $1.5 billion in 2000, $1.4
billion in 1999 and $1.4 billion in 1998. Included in 2000 rental
expense was $21 million in contingent rentals, resulting from changes in
interest rates for operating leases under which the rent payments are based
on variable interest rates.
(11) Company-Obligated Mandatorily Redeemable Preferred Securities of a
Subsidiary Trust
In December 1996, UAL Corporation
Capital Trust I (the "Trust") issued $75 million of its 13 1/4% Trust Originated
Preferred Securities (the "Preferred Securities") in exchange for 2,999,304
depositary shares, each representing 1/1000 of one share of Series B 12
1/4% preferred stock (see Note 12 "Serial Preferred Stock"). Concurrent
with the issuance of the Preferred Securities and the related purchase
by UAL of the Trust' s common securities, the Company issued to the Trust
$77 million aggregate principal amount of its 13 1/4% Junior Subordinated
Debentures (the "Debentures") due 2026. The Debentures are and will
be the sole assets of the Trust. The interest and other payment dates
on the Debentures correspond to the distribution and other payment dates
on the Preferred Securities. Upon maturity or redemption of the Debentures,
the Preferred Securities will be mandatorily redeemed. The Debentures
are redeemable at UAL' s option, in whole or in part, on or after July
12, 2004, at a redemption price equal to 100% of the principal amount to
be redeemed, plus accrued and unpaid interest to the redemption date.
Upon the repayment of the Debentures, the proceeds thereof will be applied
to redeem the Preferred Securities.
There is a full and unconditional
guarantee by UAL of the Trust' s obligations under the securities issued
by the Trust. However, the Company' s obligations are subordinate
and junior in right of payment to certain other of its indebtedness.
UAL has the right to defer payments of interest on the Debentures by extending
the interest payment period, at any time, for up to 20 consecutive quarters.
If interest payments on the Debentures are so deferred, distributions on
the Preferred Securities will also be deferred. During any deferral,
distributions will continue to accrue with interest thereon. In addition,
during any such deferral, UAL may not declare or pay any dividend or other
distribution on, or redeem or purchase, any of its capital stock.
The fair value of the Preferred
Securities at December 31, 2000 and 1999 was $85 million and $83 million,
respectively.
(12) Serial Preferred Stock
At December 31, 2000, UAL
had outstanding 3,203,177 depositary shares, each representing 1/1000 of
one share of Series B 12 1/4% preferred stock, with a liquidation preference
of $25 per depositary share ($25,000 per Series B preferred share) and
a stated capital of $0.01 per Series B preferred share. Under its
terms, any portion of the Series B preferred stock or the depositary shares
is redeemable for cash after July 11, 2004, at UAL' s option, at the equivalent
of $25 per depositary share, plus accrued dividends. The Series B
preferred stock is not convertible into any other securities, has no stated
maturity and is not subject to mandatory redemption.
The Series B preferred stock
ranks senior to all other preferred and common stock, except the Preferred
Securities, as to receipt of dividends and amounts distributed upon liquidation.
The Series B preferred stock has voting rights only to the extent required
by law and with respect to charter amendments that adversely affect the
preferred stock or the creation or issuance of any security ranking senior
to the preferred stock. Additionally, if dividends are not paid for
six cumulative quarters, the Series B preferred stockholders are entitled
to elect two additional members to the UAL Board of Directors until all
dividends are paid in full. Pursuant to UAL' s restated certificate
of incorporation, UAL is authorized to issue a total of 50,000 shares of
Series B preferred stock.
During 1998, UAL repurchased
64,300 depositary shares, at an aggregate cost of $3 million, to be held
in treasury.
UAL is authorized to issue
up to 15,986,584 additional shares of serial preferred stock.
(13) ESOP Preferred Stock
The following activity related
to UAL' s outstanding ESOP preferred stocks (see Note 2 for a description
of the ESOPs):
|
|
|
|
|
| Balance December 31, 1997 |
8,652,618
|
806,260
|
7,266,406
|
| Shares issued |
2,011,812
|
177,166
|
3,073,969
|
| Converted to common |
(213,061)
|
(116,104)
|
(331,620)
|
| Balance December 31, 1998 |
10,451,369
|
867,322
|
10,008,755
|
| Shares issued |
1,955,756
|
227,689
|
3,073,969
|
| Converted to common |
(306,662)
|
(146,975)
|
(457,401)
|
| Balance December 31, 1999 |
12,100,463
|
948,036
|
12,625,323
|
| Shares issued |
539,177
|
855,998
|
3,073,968
|
| Converted to common |
(420,958)
|
(283,428)
|
(710,056)
|
| Balance December 31, 2000 |
12,218,682
|
1,520,606
|
14,989,235
|
|
========
|
========
|
========
|
An aggregate of 17,675,345
shares of Class 1 and Class 2 ESOP Preferred Stock was issued to employees
under the ESOPs. Each share of ESOP Preferred Stock is convertible
into four shares of UAL common stock. Shares typically are converted
to common as employees retire or otherwise leave the Company. The
stock has a par value of $0.01 per share and is nonvoting. The Class
1 ESOP Preferred Stock has a liquidation value of $126.96 per share plus
all accrued and unpaid dividends; the Class 2 does not have a liquidation
value. The Class 1 ESOP Preferred Stock provided a fixed annual dividend
of $8.8872 per share, which ceased on March 31, 2000; the Class 2 does
not pay a fixed dividend.
Class P, M and S Voting Preferred
Stocks were established to provide the voting power to the employee groups
participating in the ESOPs. Additional Voting Preferred Stock was
issued as shares of the Class 1 and Class 2 ESOP Preferred Stock were allocated
to employees. In the aggregate, 17,675,345 shares of Voting Preferred
Stock were issued through the year 2000. The Voting Preferred Stock
outstanding at any time commands voting power for approximately 55% of
the vote of all classes of capital stock in all matters requiring a stockholder
vote, other than for the election of members of the Board of Directors.
The Voting Preferred Stock has a par value and liquidation preference of
$0.01 per share. The stock is not entitled to receive any dividends
and is convertible into .0004 shares of UAL common stock.
Class Pilot MEC, IAM, SAM
and I junior preferred stock (collectively "Director Preferred Stocks")
were established to effectuate the election of one or more members to UAL'
s Board of Directors. One share each of Class Pilot MEC and Class
IAM junior preferred stock is authorized and issued. The Company
is authorized to issue ten shares each of Class SAM and Class I junior
preferred stock. There are three shares of Class SAM and four shares
of Class I issued. Each of the Director Preferred Stocks has a par
value and liquidation preference of $0.01 per share. The stock is
not entitled to receive any dividends and Class I will be redeemed automatically
upon the transfer of the shares to any person not elected to the Board
of Directors or upon the occurrence of the "Sunset." (See "Corporate
Governance and the ESOPs" in Item 1. Business.)
(14) Common Stockholders' Equity
Changes in the number of
shares of UAL common stock outstanding during the years ended December
31 were as follows:
|
|
|
|
|
| Shares outstanding at beginning of year |
50,776,583
|
51,804,653
|
57,320,486
|
| Stock options exercised |
187,400
|
939,262
|
382,136
|
| Shares issued from treasury under | |||
| compensation arrangements |
32,458
|
89,745
|
11,944
|
| Shares acquired for treasury |
(1,326,877)
|
(3,877,912)
|
(7,237,975)
|
| Forfeiture of restricted stock |
(5,800)
|
(5,800)
|
(7,600)
|
| Conversion of ESOP preferred stock |
2,817,829
|
1,814,731
|
1,316,786
|
| Other |
57,099
|
11,904
|
18,876
|
| Shares outstanding at end of year |
52,538,692
|
50,776,583
|
51,804,653
|
|
========
|
========
|
========
|
During 2000, 1999 and
1998, the Company repurchased 1,258,263, 3,754,802 and 7,061,109 shares
of common stock, respectively, at a total purchase price of $81 million,
$261 million and $459 million, respectively.
(15) Stock Options and Awards
The Company has granted
options to purchase common stock to various officers and employees.
The option price for all stock options is at least 100% of the fair market
value of UAL common stock at the date of grant. Options generally
vest and become exercisable in four equal, annual installments beginning
one year after the date of grant, and generally expire in ten years.
As a result of the
1994 recapitalization, all outstanding options became fully vested at the
time of the transaction and those options are exercisable for shares of
old common stock, each of which is in turn converted into two shares of
new common stock and $84.81 in cash upon exercise. Subsequent to
the recapitalization, the Company granted stock options which are exercisable
for shares of new common stock.
The Company has also
awarded shares of restricted stock to officers and key employees.
These shares generally vest over a five-year period and are subject to
certain transfer restrictions and forfeiture under certain circumstances
prior to vesting. Unearned compensation, representing the fair market
value of the stock at the measurement date for the award, is amortized
to salaries and related costs over the vesting period. During 2000
and 1999, respectively, 23,000 and 75,000 shares of restricted stock were
issued from treasury. No shares were issued in 1998. As of
December 31, 2000, 98,000 shares were restricted and still nonvested.
Additionally, 265,952 shares were reserved for future awards under the
plan.
Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123") establishes a fair value based method of accounting for stock options.
The Company has elected to continue using the intrinsic value method of
accounting prescribed in APB 25, as permitted by SFAS No. 123. Had
compensation cost for awards been determined based on the fair value at
the grant dates consistent with the method of SFAS No. 123, the Company'
s net income and earnings per share would have instead been reported as
the pro forma amounts indicated below:
|
|
|
|
||
| Net income (in millions) | As reported |
$ 50
|
$ 1,235
|
$ 821
|
| Pro forma |
$ 33
|
$ 1,219
|
$ 812
|
|
| Basic net earnings per share | As reported |
$ 0.08
|
$ 21.20
|
$12.71
|
| Pro forma |
$(0.24)
|
$ 20.89
|
$12.55
|
|
| Diluted net earnings per share | As reported |
$ 0.04
|
$ 9.94
|
$ 6.83
|
| Pro forma |
$(0.10)
|
$ 9.79
|
$ 6.74
|
|
The weighted-average grant
date fair value of restricted shares issued was $51.83 for shares issued
in 2000 and $69.51 for shares issued in 1999. The fair value of each
option grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
|
|
|
|
|
| Risk-free interest rate |
6.4%
|
5.2%
|
5.6%
|
| Dividend yield |
2.4%
|
0.0%
|
0.0%
|
| Volatility |
35.0%
|
34.0%
|
33.0%
|
| Expected life (years) |
4.0
|
4.0
|
4.0
|
The Black-Scholes option
valuation model was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly subjective
assumptions including expected stock price volatility. Because the
Company' s stock options have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management' s opinion,
the existing models do not necessarily provide a reliable single measure
of the fair value of its stock options.
Stock option activity for
the past three years was as follows:
|
|
|
|
||||
| Old Share Options: |
|
|
|
|||
|
|
|
|
|
|
|
|
| Outstanding at beginning of year |
76,350
|
$ 116.74
|
118,475
|
$ 121.64
|
168,393
|
$ 121.65
|
| Exercised |
(26,600)
|
$ 102.73
|
(42,125)
|
$ 130.53
|
(49,918)
|
$ 121.67
|
| Outstanding at end of year |
49,750
|
$ 124.23
|
76,350
|
$ 116.74
|
118,475
|
$ 121.64
|
| Options exercisable at year-end |
49,750
|
$ 124.23
|
76,350
|
$ 116.74
|
118,475
|
$ 121.64
|
|
|
|
|
||||
| New Share Options: |
|
|
|
|||
|
|
|
|
|
|
|
|
| Outstanding at beginning of year |
6,513,709
|
$ 53.27
|
5,411,836
|
$ 45.07
|
4,749,612
|
$ 36.27
|
| Granted |
1,447,600
|
$ 53.24
|
2,081,600
|
$ 64.29
|
1,064,200
|
$ 81.40
|
| Exercised |
(134,200)
|
$ 29.91
|
(855,012)
|
$ 25.67
|
(282,300)
|
$ 28.79
|
| Terminated |
(261,912)
|
$ 67.50
|
(124,715)
|
$ 70.74
|
(119,676)
|
$ 57.12
|
| Outstanding at end of year |
7,565,197
|
$ 53.19
|
6,513,709
|
$ 53.27
|
5,411,836
|
$ 45.07
|
| Options exercisable at year-end |
4,101,248
|
$ 44.00
|
3,240,210
|
$ 38.26
|
3,400,607
|
$ 29.97
|
| Reserved for future grants at year-end |
280,331
|
1,466,019
|
3,422,904
|
|||
| Wtd avg fair value of options | ||||||
| granted during the year |
|
|
|
|||
The following information
related to stock options outstanding as of December 31, 2000:
|
|
|
||||
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Old Share Options: | |||||
|
|
|
|
|
|
|
| New Share Options: | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(16) Retirement and Postretirement Plans
The Company has various retirement
plans, both defined benefit and defined contribution, which cover substantially
all employees. The Company also provides certain health care benefits,
primarily in the U.S., to retirees and eligible dependents, as well as
certain life insurance benefits to retirees. The Company has reserved
the right, subject to collective bargaining agreements, to modify or terminate
the health care and life insurance benefits for both current and future
retirees.
The following table sets
forth the reconciliation of the beginning and ending balances of the benefit
obligation and plan assets, the funded status and the amounts recognized
in the statement of financial position for the defined benefit and other
postretirement plans as of December 31:
| (In Millions) | ||||
| Change in Benefit Obligation |
|
|
||
|
|
|
|
|
|
| Benefit obligation at beginning of year |
$ 7,381
|
$ 8,038
|
$ 1,465
|
$ 1,626
|
| Service cost |
269
|
295
|
47
|
53
|
| Interest cost |
629
|
583
|
120
|
116
|
| Plan participants' contributions |
1
|
1
|
8
|
7
|
| Amendments |
260
|
1
|
3
|
-
|
| Actuarial (gain) loss |
1,162
|
(1,161)
|
164
|
(254)
|
| Foreign currency exchange rate changes |
(15)
|
12
|
-
|
-
|
| Benefits paid |
(435)
|
(388)
|
(101)
|
(83)
|
| Benefit obligation at end of year |
$ 9,252
|
$ 7,381
|
$ 1,706
|
$ 1,465
|
|
=====
|
=====
|
=====
|
=====
|
|
| Change in Plan Assets | ||||
|
|
|
|
|
|
| Fair value of plan assets at beginning of year |
$ 8,701
|
$ 7,654
|
$ 113
|
$ 112
|
| Actual return on plan assets |
21
|
1,255
|
8
|
6
|
| Employer contributions |
230
|
175
|
88
|
71
|
| Plan participants' contributions |
1
|
1
|
8
|
7
|
| Foreign currency exchange rate changes |
(7)
|
4
|
-
|
-
|
| Benefits paid |
(435)
|
(388)
|
(101)
|
(83)
|
| Fair value of plan assets at end of year |
$ 8,511
|
$ 8,701
|
$ 116
|
$ 113
|
|
=====
|
=====
|
=====
|
=====
|
|
| Funded status |
$ (741)
|
$ 1,320
|
$ (1,590)
|
$ (1,352)
|
| Unrecognized actuarial (gains) losses |
14
|
(1,870)
|
(54)
|
(229)
|
| Unrecognized prior service costs |
806
|
604
|
2
|
- -
|
| Net amount recognized |
$ 79
|
$
54
|
$ (1,642)
|
$ (1,581)
|
|
=====
|
=====
|
=====
|
=====
|
|
| Amounts recognized in the statement of | ||||
| financial position consist of: |
|
|
|
|
| Prepaid (accrued) benefit cost |
$ 79
|
$ 54
|
$ (1,642)
|
$ (1,581)
|
| Accrued benefit liability |
(266)
|
(151)
|
-
|
-
|
| Intangible asset |
255
|
148
|
-
|
-
|
| Accumulated other comprehensive income |
11
|
3
|
- -
|
- -
|
| Net amount recognized |
$ 79
|
$ 54
|
$ (1,642)
|
$ (1,581)
|
|
=====
|
=====
|
=====
|
=====
|
|
| Weighted-average assumptions |
|
|
|
|
| Discount rate |
|
|
|
|
| Expected return on plan assets |
|
|
|
|
| Rate of compensation increase |
|
|
|
|
The assumed health care cost
trend rates for gross claims paid were 4.5% and 4.0% for 2000 and 1999,
respectively.
The net periodic benefit
cost included the following components:
| (In Millions) |
|
|
||||
|
|
|
|
|
|
|
|
| Service cost |
$ 269
|
$ 295
|
$ 276
|
$ 47
|
$ 53
|
$ 48
|
| Interest cost |
629
|
583
|
533
|
120
|
116
|
109
|
| Expected return on plan assets |
(740)
|
(665)
|
(581)
|
(9)
|
(9)
|
(8)
|
| Amortization of prior service cost | ||||||
| including transition obligation/(asset) |
58
|
57
|
57
|
-
|
-
|
-
|
| Recognized actuarial (gain)/loss |
(7)
|
1
|
9
|
(9)
|
(5)
|
(4)
|
| Net period benefit costs |
$ 209
|
$ 271
|
$ 294
|
$ 149
|
$ 155
|
$ 145
|
|
=====
|
=====
|
=====
|
=====
|
=====
|
=====
|
|
Total pension expense for
all retirement plans (including defined contribution plans) was $302 million
in 2000, $285 million in 1999 and $304 million in 1998.
The projected benefit obligation,
accumulated benefit obligation, and fair value of plan assets for the plans
with accumulated benefit obligations in excess of plan assets were $1.0
billion, $632 million and $61 million, respectively, as of December 31,
2000 and $500 million and $444 million and $47 million, respectively, as
of December 31, 1999.
Assumed health care cost
trend rates have a significant effect on the amounts reported for the health
care plan. A one-percentage-point change in assumed health care trend
rate would have the following effects:
| (In Millions) |
|
|
| Effect on total service and interest cost |
|
|
| Effect on postretirement benefit obligation |
|
|
Changes in interest rates
or rates of inflation may impact the assumptions used in the valuation
of pension obligations and postretirement obligations including discount
rates and rates of increase in compensation, resulting in increases or
decreases in United' s pension and postretirement liabilities and pension
and postretirement costs.
(17) Financial Instruments and Risk Management
See Item 7A. Quantitative
and Qualitative Disclosures About Market Risk ("Item 7A") for a discussion
of the Company' s foreign currency and fuel price risk management activities,
and the fair value of all significant financial instruments.
Credit Exposures of Derivatives
The Company' s theoretical
risk in the derivative financial instruments described in Item 7A is the
cost of replacing the contracts at current market rates in the event of
default by any of the counterparties. However, the Company does not
anticipate such default as counterparties are selected based on credit
ratings and the relative market positions with each counterparty are monitored.
Financial Guarantees
Special facility revenue
bonds have been issued by certain municipalities to build or improve airport
and maintenance facilities leased by United. Under the lease agreements,
United is required to make rental payments in amounts sufficient to pay
the maturing principal and interest payments on the bonds. At December
31, 2000, $1.2 billion principal amount of such bonds was outstanding.
As of December 31, 2000, UAL and United had jointly guaranteed $35 million
of such bonds and United had guaranteed $1.2 billion of such bonds, including
accrued interest. The payments required to satisfy these obligations
are included in the future minimum lease payments disclosed in Note 10,
"Lease Obligations."
Concentrations of Credit Risk
The Company does not believe
it is subject to any significant concentration of credit risk. Most
of the Company' s receivables result from sales of tickets to individuals
through geographically dispersed travel agents, company outlets or other
airlines, often through the use of major credit cards. These receivables
are short term, generally being settled shortly after the sale.
(18) Commitments, Contingent Liabilities and Uncertainties
The Company 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 the Company 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. UAL records liabilities for legal and environmental
claims against it in accordance with generally accepted accounting principles.
These amounts are recorded based on the Company' s assessments of the likelihood
of their eventual settlements. The amounts of these liabilities could
increase or decrease in the near term, based on revisions to estimates
relating to the various claims.
At December 31, 2000, commitments
for the purchase of property and equipment, principally aircraft, approximated
$4.7 billion, after deducting advance payments. An estimated $2.5
billion will be spent in 2001, $1.7 billion in 2002 and $0.5 in 2003.
The major commitments are for the purchase of A319, A320, B767, and B777
aircraft, which are scheduled to be delivered through 2003. The above
numbers include a recent conversion of 15 option aircraft to firm orders
to be delivered in 2003.
In connection with the construction
of the Indianapolis Maintenance Center, United agreed to spend an aggregate
$800 million on capital investments by the year 2001 and employ at least
7,500 individuals by the year 2004. In the event such targets are
not reached, United may be required to make certain payments to the city
of Indianapolis and state of Indiana.
Approximately 80% of United' s employees are represented by various labor organizations. The labor contracts with the IAM became amendable in July 2000. The Company is currently in the process of negotiating these contracts. The contracts with ALPA and the AFA become amendable in 2004 and 2006, respectively. See Other Information, "Labor Agreements" in Management' s Discussion and Analysis of Financial Condition and Results of Operations for details.
(19) Segment Information
United has a global route
network designed to transport passengers and cargo between destinations
in North America, the Pacific, the Atlantic and Latin America. These
regions constitute United' s four reportable segments. The accounting
policies for each of these segments are the same as those described in
Note 1, "Summary of Significant Accounting Policies," except that segment
financial information has been prepared using a management approach which
is consistent with how the Company' s management internally disaggregates
financial information for the purpose of making internal operating decisions.
UAL evaluates performance based on United' s earnings before income taxes
and gains on sales. Revenues are attributed to each reportable segment
based on the allocation guidelines provided by the U.S. Department of Transportation,
which classifies flights between the U.S. and foreign designations as part
of each respective region. A reconciliation of the total amounts
reported by reportable segments to the applicable amounts in the financial
statements follows:
| (In Millions) |
|
||||||
|
|
|||||||
|
|
|
|
|
||||
| America |
|
|
|
|
|
|
|
| Revenue |
$ 13,094
|
$ 3,161
|
$ 2,260
|
$ 816
|
$ 19,331
|
$ 21
|
$ 19,352
|
| Interest income |
55
|
23
|
16
|
5
|
99
|
2
|
101
|
| Interest expense |
234
|
95
|
66
|
21
|
416
|
(14)
|
402
|
| Equity in losses of affiliates |
(5)
|
(2)
|
(1)
|
-
|
(8)
|
(4)
|
(12)
|
| Depreciation and amortization |
630
|
176
|
141
|
43
|
990
|
68
|
1,058
|
| Earnings before income taxes, | |||||||
| investment impairment and | |||||||
| gains on sales |
205
|
60
|
102
|
10
|
377
|
6
|
383
|
| (In Millions) |
|
||||||
|
|
|||||||
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
| Revenue |
$ 12,516
|
$ 2,691
|
$ 1,973
|
$ 787
|
$ 17,967
|
$ 60
|
$ 18,027
|
| Interest income |
40
|
14
|
10
|
4
|
68
|
-
|
68
|
| Interest expense |
217
|
79
|
55
|
21
|
372
|
(10)
|
362
|
| Equity in earnings of affiliates |
21
|
9
|
5
|
2
|
37
|
-
|
37
|
| Depreciation and amortization |
550
|
145
|
115
|
42
|
852
|
15
|
867
|
| Earnings before income taxes | |||||||
| and gains on sales |
889
|
81
|
164
|
20
|
1,154
|
57
|
1,211
|
| (In Millions) |
|
||||||
|
|
|||||||
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
| Revenue |
$ 11,997
|
$ 2,843
|
$ 1,846
|
$ 832
|
$ 17,518
|
$ 43
|
$ 17,561
|
| Interest income |
33
|
14
|
8
|
3
|
58
|
1
|
59
|
| Interest expense |
207
|
84
|
49
|
22
|
362
|
(7)
|
355
|
| Equity in earnings of affiliates |
41
|
17
|
10
|
4
|
72
|
-
|
72
|
| Depreciation and amortization |
520
|
145
|
95
|
45
|
805
|
(12)
|
793
|
| Earnings (loss) before | |||||||
| income taxes |
1,118
|
(105)
|
185
|
22
|
1,220
|
36
|
1,256
|
| (In Millions) |
|
|
|
| Total earnings for reportable segments |
$ 377
|
$ 1,154
|
$ 1,220
|
| Gains on sales |
109
|
731
|
-
|
| Investment impairment |
(61)
|
-
|
-
|
| UAL subsidiary earnings |
6
|
57
|
36
|
| Total earnings before income taxes, distributions | |||
| on preferred securities, extraordinary item | |||
| and cumulative effect |
$ 431
|
$ 1,942
|
$ 1,256
|
|
=====
|
=====
|
=====
|
UAL' s operations involve
an insignificant level of dedicated revenue producing assets by reportable
segment. The overwhelming majority of UAL' s revenue producing assets
can be deployed in any of the four reportable segments. UAL has significant
intangible assets related to the acquisition of its Atlantic and Latin
America route authorities.
(20) Statement of Consolidated Cash Flows - Supplemental
Disclosures
Supplemental disclosures
of cash flow information and non-cash investing and financing activities
were as follows:
| (In Millions) |
|
|
|
| Cash paid during the year for: | |||
| Interest (net of amounts capitalized) |
$ 298
|
$ 260
|
$ 234
|
| Income taxes |
23
|
296
|
160
|
| Non-cash transactions: | |||
| Capital lease obligations incurred |
339
|
482
|
701
|
| Long-term debt incurred in connection | |||
| with additions to equipment |
32
|
-
|
-
|
| Increase (decrease) in pension intangible assets |
107
|
(123)
|
(15)
|
| Net unrealized gain (loss) on investments |
(196)
|
354
|
-
|
(21) Selected Quarterly Financial Data (Unaudited)
| (In Millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
| 2000: | |||||
| Operating revenues |
$ 4,546
|
$ 5,109
|
$ 4,905
|
$ 4,792
|
$ 19,352
|
| Earnings (loss) from operations |
252
|
605
|
(41)
|
(162)
|
654
|
| Earnings (loss) before extraordinary item | |||||
| and cumulative effect |
110
|
336
|
(110)
|
(71)
|
265
|
| Extraordinary loss on early | |||||
| extinguishment of debt, net |
-
|
-
|
(6)
|
-
|
(6)
|
| Cumulative effect of accounting change, net |
(209)
|
-
|
-
|
-
|
(209)
|
| Net earnings (loss) |
$ (99)
|
$ 336
|
$ (116)
|
$ (71)
|
$
50
|
| Per share amounts, basic: | |||||
| Earnings before extraordinary item | |||||
| and cumulative effect |
$ 1.42
|
$ 6.61
|
$ (2.17)
|
$ (1.40)
|
$ 4.29
|
| Extraordinary loss on early | |||||
| extinguishment of debt, net |
-
|
-
|
(0.13)
|
-
|
(0.13)
|
| Cumulative effect of accounting change, net |
(4.14)
|
-
|
-
|
-
|
(4.08)
|
| Net earnings |
$ (2.72)
|
$ 6.61
|
$ (2.30)
|
$ (1.40)
|
$ 0.08
|
| Net earnings per share, diluted |
$ (1.18)
|
$ 2.86
|
$ (2.30)
|
$ (1.40)
|
$ 0.04
|
| 1999: | |||||
| Operating revenues |
$ 4,160
|
$ 4,541
|
$ 4,845
|
$ 4,481
|
$ 18,027
|
| Earnings from operations |
146
|
433
|
619
|
193
|
1,391
|
| Earnings before extraordinary item |
78
|
672
|
359
|
129
|
1,238
|
| Extraordinary loss on early | |||||
| extinguishment of debt, net |
-
|
(3)
|
-
|
-
|
(3)
|
| Net earnings |
$ 78
|
$ 669
|
$ 359
|
$ 129
|
$ 1,235
|
| Per share amounts, basic: | |||||
| Earnings before extraordinary item |
$ 0.91
|
$ 12.26
|
$ 6.18
|
$ 1.85
|
$ 21.26
|
| Extraordinary loss on early | |||||
| extinguishment of debt, net |
-
|
(0.05)
|
-
|
-
|
(0.06)
|
| Net earnings |
$ 0.91
|
$ 12.21
|
$ 6.18
|
$ 1.85
|
$ 21.20
|
| Net earnings per share, diluted |
$ 0.44
|
$ 5.78
|
$ 2.89
|
$ 0.84
|
$ 9.94
|
The sum of quarterly earnings
per share amounts is not the same as annual earnings per share amounts
because of changing numbers of shares outstanding.
During the third quarter
of 2000, UAL recorded an investment impairment of $61 million related to
its warrants in Priceline.com. Additionally, in the fourth quarter
2000, UAL recognized a pre-tax gain of $109 million on the sale of its
investment in GetThere.com. (See Note 6 "Investments".)
During the second quarter
of 1999, UAL recognized a pre-tax gain of $669 million on the sale of a
portion of its investment in Galileo. Additionally, in the fourth
quarter 1999, UAL recognized a pre-tax gain of $62 million on the sale
of a portion of its investment in Equant. (See Note 6 "Investments".)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required
by this item is incorporated by reference from the Company' s definitive
proxy statement for its 2001 Annual Meeting of Stockholders. Information
regarding the executive officers is included in Part I of this Form 10-K
under the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
Information required
by this item is incorporated by reference from the Company' s definitive
proxy statement for its 2001 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
Information required
by this item is incorporated by reference from the Company' s definitive
proxy statement for its 2001 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required
by this item is incorporated by reference from the Company' s definitive
proxy statement for its 2001 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) 1. Financial
Statements. The financial statements required by this item are
listed in Item 8, "Financial Statements and Supplementary Data" herein.
2.
Financial Statement Schedules. The financial statement schedule
required by this item is listed below and included in this report after
the signature page hereto.
All other schedules are omitted because they are not applicable, not
required or the required information is shown in the consolidated financial
statements or notes thereto.
(b) Reports on Form 8-K.
Form 8-K dated October 19,
2000 to report a cautionary statement for purposes of the "Safe Harbor
for Forward Looking Statements" provision of the Private Securities Litigation
Reform Act.
Form 8-K dated November 6,
2000 to report a cautionary statement for purposes of the "Safe Harbor
for Forward Looking Statements" provision of the Private Securities Litigation
Reform Act.
SIGNATURES
Pursuant to the requirements
of Section 13 or 15(d) 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, on the 22nd day of February, 2001.
UAL CORPORATION
/s/ James E. Goodwin
James E. Goodwin
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below
on the 22nd day of February 2001 by the following persons on behalf of
the registrant and in the capacities indicated.
| /s/ James E. Goodwin | /s/ Douglas A. Hacker | |
| James E. Goodwin | Douglas A. Hacker | |
| Chairman of the Board and Chief Executive Officer (principal executive officer) | Executive Vice President and Chief Financial Officer (principal financial and accounting officer) | |
| /s/ Rono Dutta | /s/ Hazel R. O' Leary | |
| Rono Dutta | Hazel R. O' Leary | |
| President and Director | Director | |
| /s/ John W. Creighton, Jr. | /s/ Deval L. Patrick | |
| John W. Creighton, Jr. | Deval L. Patrick | |
| Director | Director | |
| /s/ Frederick C. Dubinsky | /s/ John F. Peterpaul | |
| Frederick C. Dubinsky | John F. Peterpaul | |
| Director | Director | |
| /s/ Richard D. McCormick | /s/ Paul E. Tierney, Jr. | |
| Richard D. McCormick | Paul E. Tierney, Jr. | |
| Director | Director | |
|
/s/ John F. McGillicuddy |
/s/ John K. Van de Kamp | |
| John F. McGillicuddy | John K. Van de Kamp | |
| Director | Director | |
| /s/ James J. O' Connor | ||
| James J. O' Connor | ||
| Director | ||
UAL Corporation and Subsidiary Companies
Schedule II - Valuation and Qualifying Accounts
For the Year Ended December 31, 2000
| (In Millions) |
|
|
|
||
|
|
|
|
|
||
|
|
|
|
|
|
|
| Reserve deducted from asset to which
it applies:
|
|||||
| Allowance for doubtful accounts |
|
|
|
|
|
|
|
|
|
|
|
|
| Obsolescence allowance - | |||||
| Flight equipment spare parts |
|
|
|
|
|
|
|
|
|
|
|
|
F-1
___________
1Deduction from reserve for purpose for which reserve was created.
UAL Corporation and Subsidiary Companies
Schedule II - Valuation and Qualifying Accounts
For the Year Ended December 31, 1999
| (In Millions) |
|
|
|
||
|
|
|
|
|
||
|
|
|
|
|
|
|
| Reserve deducted from asset to which
it applies:
|
|||||
| Allowance for doubtful accounts |
|
|
|
|
|
|
|
|
|
|
|
|
| Obsolescence allowance - | |||||
| Flight equipment spare parts |
|
|
|
|
|
|
|
|
|
|
|
|
F-2
___________
1Deduction from reserve for purpose for which reserve was created.
UAL Corporation and Subsidiary Companies
Schedule II - Valuation and Qualifying Accounts
For the Year Ended December 31, 1998
| (In Millions) |
|
|
|
||
|
|
|
|
|
||
|
|
|
|
|
|
|
| Reserve deducted from asset to which
it applies:
|
|||||
| Allowance for doubtful accounts |
|
|
|
|
|
|
|
|
|
|
|
|
| Obsolescence allowance - | |||||
| Flight equipment spare parts |
|
|
|
|
|
|
|
|
|
|
|
|
F-3
___________
1Deduction from reserve for purpose for which reserve was
created.
| 3.1 | Restated Certificate of Incorporation of UAL Corporation ("UAL"), as amended (filed as Exhibit 3.1 to UAL' s Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference). |
| 3.2 | By-laws (filed as Exhibit 3.2 to UAL' s Form 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference). |
| 4.1 | Deposit Agreement dated as of July 12, 1994 between UAL Corporation and holders from time to time of Depository Receipts described herein. |
| 4.2 | Indenture dated as of December 20, 1996 between UAL Corporation and The First National Bank of Chicago, as Trustee (filed as Exhibit 4.2 to UAL' s Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). |
| 4.3 | Officer' s Certificate relating to UAL' s 13-1/4% Junior Subordinated Debentures due 2026 (filed as Exhibit 4.3 to UAL' s Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). |
| 4.4 | Form of UAL' s 13-1/4% Junior Subordinated Debenture due 2026 (filed as Exhibit 4.4 to UAL' s Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). |
| 4.5 | Guarantee Agreement dated as of December 30, 1996 with respect to the 13-1/4% Trust Originated Preferred Securities of UAL Corporation Capital Trust I (filed as Exhibit 4.5 to UAL' s Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). |
| 4.6 | Amended and Restated Declaration of Trust of UAL Corporation Capital Trust I dated as of December 30, 1996 (filed as Exhibit 4.6 to UAL' s Form 10-K for year ended December 31, 1996 and incorporated herein by reference). |
| UAL' s indebtedness under any single instrument does not exceed 10% of UAL' s total assets on a consolidated basis. Copies of such instruments will be furnished to the Securities and Exchange Commission upon request. | |
| 10.1 | Amended and Restated Agreement and Plan of Recapitalization, dated as of March 25, 1994 (the "Recapitalization Agreement"), as amended, among UAL Corporation, the Air Line Pilots Association, International ("ALPA") and the International Association of Machinists and Aerospace Workers ("IAM"). |
| 10.2 | Second Amendment to the Agreement and Plan of Recapitalization, dated as of June 2, 1994, among UAL, ALPA and the IAM. |
| 10.3 | Agreement, dated as of July 16, 1996, pursuant to Section 1.6q of the Recapitalization Agreement among UAL, ALPA and IAM (filed as Exhibit 10.3 to UAL' s Form 10-Q for the quarter ended June 30, 1996 and incorporated herein by reference). |
| 10.4 | UAL Corporation Employee Stock Ownership Plan, effective as of July 12, 1994. |
| 10.5 | First Amendment to UAL Corporation Employee Stock Ownership Plan, dated December 28, 1994. |
| 10.6 | Second Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of August 17, 1995. |
| 10.7 | Third Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of December 28, 1995 (filed as Exhibit 10.7 to UAL' s Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). |
| 10.8 | Fourth Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of July 16, 1996 (filed as Exhibit 10.1 to UAL' s Form 10-Q for the quarter ended June 30, 1996 and incorporated herein by reference). |
| 10.9 | Fifth Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of December 31, 1996 (filed as Exhibit 10.10 of UAL' s Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). |
| 10.10 | Sixth Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of August 11, 1997 (filed as Exhibit 10.3 to UAL' s Form 10-Q for the quarter ended September 30, 1997, as amended, and incorporated herein by reference). |
| 10.11 | Seventh Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of May 19, 1999 (filed as Exhibit 10.10 to UAL' s Form 10-K for the year ended December 31, 2000 and incorporated herein by reference). |
| 10.12 | Eighth Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of November 10, 1999 (filed as Exhibit 10.11 to UAL' s Form 10-K for the year ended December 31, 2000 and incorporated herein by reference). |
| 10.13 | Ninth Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of October 29, 1999 (filed as Exhibit 10.12 to UAL' s Form 10-K for the year ended December 31, 2000 and incorporated herein by reference). |
| 10.14 | Tenth Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of April 28, 2000 (filed as Exhibit 10.3 to UAL' s Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference). |
| 10.15 | Eleventh Amendment to UAL Corporation Employee Stock Ownership Plan, dated as of December 29, 2000. |
| 10.16 | UAL Corporation Employee Stock Ownership Plan Trust Agreement between UAL Corporation and State Street Bank and Trust Company ("State Street"), effective July 12, 1994. |
| 10.17 | UAL Corporation Supplemental ESOP, effective as of July 12, 1994. |
| 10.18 | First Amendment to UAL Corporation Supplemental ESOP, dated February 22, 1995. |
| 10.19 | Second Amendment to UAL Corporation Supplemental ESOP, dated as of August 17, 1995. |
| 10.20 | Third Amendment to UAL Corporation Supplemental ESOP, dated as of December 28, 1995. |
| 10.21 | Fourth Amendment to UAL Corporation Supplemental ESOP, dated as of July 16, 1996 (filed as Exhibit 10.2 to UAL' s Form 10-Q for the quarter ended June 30, 1996 and incorporated herein by reference). |
| 10.22 | Fifth Amendment to UAL Corporation Supplemental ESOP, dated as of December 31, 1996 (filed as Exhibit 10.17 to UAL' s Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). |
| 10.23 | Sixth Amendment to UAL Corporation Supplemental ESOP, dated as of August 11, 1997 (filed as Exhibit 10.4 of UAL' s Form 10-Q for the quarter ended September 30, 1997, as amended, and incorporated herein by reference). |
| 10.24 | Seventh Amendment to UAL Corporation Supplemental ESOP, dated as of May 19, 1999 (filed as Exhibit 10.21 to UAL' s Form 10-K for the year ended December 31, 2000 and incorporated herein by reference). |
| 10.25 | Eighth Amendment to UAL Corporation Supplemental ESOP, dated as of November 10, 1999 (filed as Exhibit 10.22 to UAL' s Form 10-K for the year ended December 31, 2000 and incorporated herein by reference). |
| 10.26 | Ninth Amendment to UAL Corporation Supplemental ESOP, dated as of October 29, 1999 (filed as Exhibit 10.23 to UAL' s Form 10-K for the year ended December 31, 2000 and incorporated herein by reference). |
| 10.27 | Eleventh Amendment to UAL Corporation Supplemental ESOP |
| 10.28 | UAL Corporation Supplemental ESOP Trust Agreement between UAL Corporation and State Street, effective July 12, 1994. |
| 10.29 | Class I Junior Preferred Stockholders' Agreement, dated as of June 12, 1994. |
| 10.30 | Class SAM Preferred Stockholders' Agreement, dated as of July 12, 1994. |
| 10.31 | First Refusal Agreement, dated as of July 12, 1994, as amended (filed as Exhibit 10.25 to UAL' s Form 10-K for the year ended December 31, 1996 and incorporated herein by reference). |
| 10.32 | UAL Corporation 2000 Incentive Stock Plan (filed as Exhibit 10.1 to UAL' s Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference). |
| 10.33 | United Employees Performance Incentive Plan (filed as Exhibit 10.1 to UAL' s Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference). |
| 10.34 | UAL Corporation 1998 Restricted Stock Plan (filed as Exhibit 10.1 to UAL' s Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference). |
| 10.35 | Summary Description of Compensation and Benefits for Directors (filed as Exhibit 10.34 to UAL' s Form 10-K for the year ended December 31, 1999 and incorporated herein by reference). |
| 10.36 | UAL Corporation 1995 Directors Plan, as amended June 26, 1997 (filed as Exhibit 10.1 of UAL' s Form 10-Q for the quarter ended September 30, 1997, as amended, and incorporated herein by reference). |
| 10.37 | United Supplemental Retirement Plan (filed as Exhibit 10.35 of UAL' s 10-K for the year ended December 31, 1998 and incorporated herein by reference). |
| 10.38 | Description of Officer Benefits (filed as Exhibit 10.36 of UAL' s 10-K for the year ended December 31, 1998 and incorporated herein by reference). |
| 10.39 | Employment Agreement, dated as of April 12, 1999, between UAL Corporation, United Air Lines, Inc. and James E. Goodwin (filed as Exhibit 10.1 of UAL' s Form 10-Q for the quarter ended June 30, 1999 and incorporated herein by reference). |
| 10.40 | Employment Agreement between William P. Hobgood and UAL and United, dated March 1, 2000 (filed as Exhibit 10.1 of UAL' s Form 10-Q for the quarter ended March 31, 2000 and incorporated herein by reference). |
| 10.41 | 2000 Agreement between United Air Lines, Inc. and the Air Line Pilots in the service of United Air Lines, Inc. represented by the Air Line Pilots Association, International. |
| 12 | Computation of Ratio of Earnings to Fixed Charges. |
| 12.1 | Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividend Requirements. |
| 21 | List of UAL' s subsidiaries |
| 23 | Consent of Independent Public Accountants |
| 99 | Annual Report on Form 11-K for Employees' Stock Purchase Plan of UAL Corporation |
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