UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1994 Commission File Number 33-21220*
UNITED AIR LINES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 36-2675206
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 East Algonquin Road, Elk Grove Township, Illinois 60007
Mailing Address: P.O. Box 66100, Chicago, Illinois 60666
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (708) 952-4000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Outstanding at
Class October 31, 1994
Common Stock ($5 par value) 200
* Registrant is the wholly-owned subsidiary of UAL Corporation
(File 1-6033). Registrant became subject to filing periodic
reports under the Securities Exchange Act of 1934 as a result of
a public offering of securities which became effective June 3,
1988 (Registration Nos. 33-21220 and 22-18246).
United Air Lines, Inc. and Subsidiary Companies
Report on Form 10-Q
For the Quarter Ended September 30, 1994
Index
Part I. Financial Information Page No.
Item 1. Financial statements:
Condensed statement of consolidated 3
financial position - as of September 30,
1994 (unaudited) and December 31, 1993
Statement of consolidated operations 5
(unaudited) - for the three months and nine
months ended September 30, 1994 and 1993
Condensed statement of consolidated 7
cash flows (unaudited) - for the nine
months ended September 30, 1994 and 1993
Notes to consolidated financial 8
statements (unaudited)
Item 2. Management's discussion and analysis 14
of financial condition and results of
operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
Index To Exhibits 23
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
United Air Lines, Inc. and Subsidiary Companies
Condensed Statement of Consolidated Financial Position
(In Millions)
<TABLE>
<CAPTION>
September 30,
1994 December 31,
Assets (Unaudited) 1993
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 661 $ 285
Short-term investments 946 681
Receivables, net 1,140 1,092
Related party receivables 425 397
Inventories, net 278 277
Deferred income taxes 132 127
Prepaid expenses and other 237 408
3,819 3,267
Operating property and equipment:
Owned 10,761 11,146
Accumulated depreciation and amortization (4,731) (4,678)
6,030 6,468
Capital leases 1,132 1,131
Accumulated amortization (434) (395)
698 736
6,728 7,204
Other assets:
Intangibles, net 791 789
Deferred income taxes 529 570
Other 394 323
1,714 1,682
$12,261 $12,153
See accompanying notes to consolidated financial statements.
</TABLE>
United Air Lines, Inc. and Subsidiary Companies
Condensed Statement of Consolidated Financial Position
(In Millions)
<TABLE>
<CAPTION>
September 30,
1994 December 31,
Liabilities and Shareholder's Equity (Unaudited) 1993
<S> <C> <C>
Current liabilities:
Short-term borrowings $ 269 $ 315
Current portions of long-term debt
and capital lease obligations 198 187
Advance ticket sales 1,261 1,036
Accounts payable 650 632
Other 2,947 2,705
5,325 4,875
Long-term debt 3,236 2,603
Long-term obligations under capital leases 739 824
Other liabilities and deferred credits:
Deferred pension liability 380 571
Postretirement benefit liability 1,125 1,058
Deferred gains 1,386 1,400
Other 198 113
3,089 3,142
Minority interest 47 35
Shareholder's equity:
Common stock - -
Additional capital invested 80 839
Retained earnings (deficit) (65) (95)
Unearned ESOP compensation (160) -
Other (30) (70)
(175) 674
Commitments and contingent liabilities
(See note)
$12,261 $12,153
See accompanying notes to consolidated financial statements.
</TABLE>
United Air Lines, Inc. and Subsidiary Companies
Statement of Consolidated Operations (Unaudited)
(In Millions)
<TABLE>
<CAPTION>
Three Months
Ended September 30
1994 1993
<S> <C> <C>
Operating revenues:
Passenger $3,400 $3,253
Cargo 169 174
Other operating revenues 230 164
3,799 3,591
Operating expenses:
Salaries and related costs 1,160 1,171
ESOP compensation expense 88 -
Commissions 389 367
Aircraft fuel 425 446
Rentals and landing fees 397 388
Purchased services 244 254
Depreciation and amortization 184 181
Aircraft maintenance 102 94
Food and beverages 141 88
Personnel expenses 62 67
Advertising and promotion 52 45
Other operating expenses 245 202
3,489 3,303
Earnings from operations 310 288
Other income (expense):
Interest expense (99) (82)
Interest capitalized 12 10
Interest income 18 38
Equity in earnings of affiliates 6 10
Miscellaneous, net (86) (37)
(149) (61)
Earnings before income taxes 161 227
Provision for income taxes 80 76
Net earnings $ 81 $ 151
See accompanying notes to consolidated financial statements.
</TABLE>
United Air Lines, Inc. and Subsidiary Companies
Statement of Consolidated Operations (Unaudited)
(In Millions)
<TABLE>
<CAPTION>
Nine Months
Ended September 30
1994 1993
<S> <C> <C>
Operating revenues:
Passenger $ 9,273 $8,888
Cargo 501 478
Other operating revenues 690 487
10,464 9,853
Operating expenses:
Salaries and related costs 3,578 3,476
ESOP compensation expense 88 -
Commissions 1,083 986
Aircraft fuel 1,174 1,305
Rentals and landing fees 1,157 1,087
Purchased services 698 742
Depreciation and amortization 539 541
Aircraft maintenance 329 281
Food and beverages 355 238
Personnel expenses 186 193
Advertising and promotion 116 120
Other operating expenses 724 610
10,027 9,579
Earnings from operations 437 274
Other income (expense):
Interest expense (260) (266)
Interest capitalized 31 43
Interest income 47 63
Equity in earnings of affiliates 20 25
Miscellaneous, net (130) (66)
(292) (201)
Earnings before income taxes, cumulative effect
of accounting change and extraordinary item 145 73
Provision for income taxes 89 24
Earnings before cumulative effect of
accounting change and extraordinary item 56 49
Cumulative effect of accounting change,
net of tax (26) -
Extraordinary loss on early extinguishment
of debt, net of tax - (19)
Net earnings $ 30 $ 30
See accompanying notes to consolidated financial statements.
</TABLE>
United Air Lines, Inc. and Subsidiary Companies
Condensed Statement of Consolidated Cash Flows (Unaudited)
(In Millions)
<TABLE>
<CAPTION>
Nine Months
Ended September 30
1994 1993
<S> <C> <C>
Cash and cash equivalents at beginning of
period $ 285 $ 454
Cash flows from operating activities 1,119 760
Cash flows from investing activities:
Additions to property and equipment (416) (1,319)
Proceeds on disposition of property and
equipment 413 1,067
Decrease (increase) in short-term investments (249) 270
Other, net 47 (88)
(205) (70)
Cash flows from financing activities:
Cash dividend to parent company (1,041) -
Issuance of long-term debt 735 -
Repayment of long-term debt (108) (644)
Principal payments under capital
lease obligations (78) (47)
Decrease in short-term borrowings (46) (19)
(538) (710)
Increase in cash and cash equivalents 376 (20)
Cash and cash equivalents at end of period $ 661 $ 434
Cash paid during the period for:
Interest (net of amounts capitalized) $ 207 $ 261
Income taxes $ 3 $ 42
Non-cash transactions:
Long-term debt incurred in connection
with additions to equipment $ 18 $ 490
Capital lease obligations incurred $ - $ 69
Unrealized loss on investments $ 2 $ -
See accompanying notes to consolidated financial statements.
</TABLE>
United Air Lines, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements (Unaudited)
The Company
United Air Lines, Inc. ("United") is a wholly-owned subsidiary of
UAL Corporation ("UAL").
Interim Financial Statements
The consolidated financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to or as permitted by such rules and regulations, although
United believes that the disclosures are adequate to make the
information presented not misleading. In management's opinion, all
adjustments (which, except for the effects of the employee investment
transaction, include only normal recurring adjustments) necessary for a
fair presentation of the results of operations for the three and nine
month periods have been made. These financial statements should be read
in conjunction with the consolidated financial statements and footnotes
thereto included in United's Annual Report on Form 10-K for the year
1993.
Employee Investment Transaction and Recapitalization
On July 12, 1994, the shareholders of UAL approved a plan of
recapitalization to provide an approximately 55% equity interest in UAL
(subject to increase to up to 63%) to certain employees of United in
exchange for wage concessions and work-rule changes. The employees'
equity interest will be allocated to individual employees through the
year 2000 under Employee Stock Ownership Plans ("ESOPs") which were
created as a part of the recapitalization. Pursuant to the terms of the
plan of recapitalization, holders of old UAL common stock received
approximately $2.1 billion in cash and the remaining 45% (subject to
decrease down to 37%) of the equity in the form of new common stock. In
connection with the recapitalization, United issued $370 million of
10.67% debentures due in 2004 and $371 million of 11.21% debentures due
in 2014 and paid a dividend of $1.041 billion to UAL. Pretax costs of
$169 million were incurred in connection with the recapitalization,
including transaction costs and severance payments to certain former
United employees. Of these costs, $48 million were recorded as
operating expenses while the remaining $121 million were recorded in
"Miscellaneous, net."
Reclassification
In 1994, United began recording certain air transportation price
adjustments, which were previously recorded as commissions, as
adjustments to revenue. Certain amounts in the Statements of
Consolidated Operations for 1993 have been reclassified to conform with
the current presentation.
Stock Compensation Under ESOPs
"ESOP compensation expense" in the 1994 third quarter and
nine-month period represents the estimated average fair value of the
ESOP convertible preferred stock which was committed to be released to
employees in the third quarter.
Other Income (Expense) - Miscellaneous
Included in "Miscellaneous, net" were certain costs incurred in
connection with the employee investment transaction and recapitalization
amounting to $80 million and $121 million, respectively, in the 1994
third quarter and nine-month period. Included in "Miscellaneous, net"
in the 1993 third quarter and nine-month period was a $59 million charge
to reduce the net book value of 15 DC-10 aircraft to estimated
realizable value and a $17 million gain resulting from the final
settlement for overpayment of annuities purchased in 1985 to cover
certain vested pension benefits. In addition, United recorded $27
million of interest income in 1993 in connection with the final
settlement of the pension benefits. Also included were foreign exchange
gains (losses) of $9 million in the 1994 nine-month period, $(16)
million in the 1993 nine-month period and $8 million in the 1993 third
quarter. Foreign exchange gains in the 1994 third quarter were
insignificant.
Income Taxes
The provisions for income taxes are based on estimated effective
tax rates which differ from the federal statutory rate of 35%
principally due to state income taxes and certain nondeductible
expenses, including certain expenses related to the ESOP transaction.
The effective tax rates for 1994 are based on the actual effective tax
rates, including nondeductible expenses, for the periods. The effective
tax rates for 1993 were based on annual estimates. Deferred tax assets
are recognized based upon United's history of operating earnings,
expectations for the future and potential tax planning strategies.
Accounting Changes
United adopted Statement of Financial Accounting Standards
("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits,"
effective January 1, 1994. SFAS No. 112 requires recognition of the
liability for postemployment benefits during the period of employment.
Such benefits include company paid continuation of group life insurance
and medical and dental coverage for certain employees after employment
but before retirement. The effect of adopting SFAS No. 112 was a
cumulative charge for recognition of the transition liability of $42
million, before tax benefits of $16 million. The ongoing expenses
related to postemployment benefits will vary based on actual claims
experience.
United also adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," effective January 1, 1994.
United's investments in such securities are included in "Cash and cash
equivalents" and "Short-term investments." The following information
pertains to United's investments in such securities at September 30,
1994 (in millions):
Gross Gross
Aggregate Unrealized Unrealized Average
Fair Holding Holding Cost Maturity
Value Gains Losses Basis (Months)
Available-for-sale:
U.S. government
agency debt
securities $ 283 $ - $ 1 $ 284 9
Corporate debt
securities $ 266 $ - $ 2 $ 268 11
Other debt
securities $ 117 $ - $ - $ 117 11
Held-to-maturity:
U.S. government
agency debt
securities $ 74 $ - $ - $ 74 6
Corporate debt
securities $ 349 $ - $ - $ 349 3
Other debt
securities $ 503 $ - $ - $ 503 2
The net unrealized holding loss on available-for-sale securities
of $3 million has been recorded as a component of shareholders' equity,
net of related tax benefits. The proceeds from sales of
available-for-sale securities were $48 million and $159 million,
respectively, for the three and nine months ended September 30, 1994.
Such sales resulted in insignificant gross realized gains and losses,
based on the cost of securities sold. These gains and losses were
included in interest income for the period.
Affiliates
United owns 38% of the Galileo International Partnership
("Galileo") through a wholly-owned subsidiary. United's investment in
Galileo, which owns the Apollo and Galileo computer reservations
systems, is carried on the equity basis. United also owns 77% of the
Apollo Travel Services Partnership ("ATS") and its accounts are
consolidated. Prior to a September 1993 merger, United owned 50% of the
Covia Partnership ("Covia") and 25.6% of Galileo Ltd., two of Galileo's
and ATS's predecessor companies, which were accounted for on the equity
basis.
Under operating agreements with Covia prior to the merger, United
provided certain computer support services for, and purchased computer
reservation services, communications and other information from, Covia.
Revenues derived from the sale of services to Covia amounted to
approximately $4 million in the 1993 third quarter and $21 million in
the 1993 nine-month period. The cost to United of services purchased
from Covia amounted to approximately $51 million in the 1993 third
quarter and $168 million in the 1993 nine-month period. Under operating
agreements with Galileo subsequent to the merger, United purchases
computer reservation services from Galileo and provides marketing, sales
and communication services to Galileo. Revenues derived from the sale
of services to Galileo amounted to approximately $60 million in the 1994
third quarter and $178 million in the 1994 nine-month period. The cost
to United of services purchased from Galileo amounted to approximately
$24 million in the 1994 third quarter and $70 million in the 1994
nine-month period.
Summarized financial information of Galileo follows (in millions):
September 30, December 31,
1994 1993
(Unaudited)
Current assets $172 $141
Non-current assets 438 467
Total assets 610 608
Current liabilities 186 173
Long-term liabilities 383 440
Total liabilities 569 613
Net assets $ 41 $ (5)
Periods Ended September 30, 1994
Three Months Nine Months
(Unaudited)
Services revenues $214 $614
Costs and expenses 200 565
Net earnings $ 14 $ 49
Long-term Debt
In connection with the July 1994 recapitalization, United issued
$370 million of 10.67% debentures due in 2004 and $371 million of 11.21%
debentures due in 2014. The debentures are unsecured obligations.
In the second quarter of 1993, United retired $500 million of
senior subordinated notes. The notes were scheduled to mature in 1995
($150 million) and 1998 ($350 million). An extraordinary loss of $19
million, after tax benefits of $9 million, was recorded in the first
quarter of 1993, based on United's stated intention to retire the notes.
Retirement Plans
Due to changes in expected future salaries as a result of the
employee investment transaction, United revalued its U. S. pension
obligations as of July 1, 1994. The assumed rate of increase in
compensation was 3.15% compared to 4% as of December 31, 1993. The
weighted-average discount rate used by United for the valuation of
pension obligations at July 1, 1994 was 8.5%, compared to 7.5% at
December 31, 1993.
The effect of the changes was to decrease the projected benefit
obligation for the U. S. plans from $4.948 billion at December 31, 1993
to 4.415 billion at July 1, 1994 and to decrease the accumulated benefit
obligation from $4.134 billion at December 31, 1993 to $4.022 billion at
July 1, 1994. The fair value of plan assets was $3.562 billion at
December 31, 1993, compared to $3.425 at July 1, 1994. Accordingly,
pension expense for the 1994 third quarter was $25 million less than the
amount recorded in the first and second quarters.
Contingencies and Commitments
United 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 United is subject and its prior
experience, that the ultimate disposition of these contingencies is not
expected to materially affect United's consolidated financial position
or results of operations.
At September 30, 1994, commitments for the purchase of property
and equipment, principally aircraft, approximated $4.0 billion, after
deducting advance payments. An estimated $0.3 billion will be spent
during the remainder of 1994, $1.1 billion in 1995, $0.7 billion in
1996, $1.3 billion in 1997, $0.4 billion in 1998, and $0.2 billion after
1998. The major commitments are for the purchase of thirty-four B777
aircraft which are expected to be delivered between 1995 and 1999.
These amounts reflect United's revised capital spending plan and
agreements with The Boeing Company and engine manufacturers, announced
in April 1993, to convert certain aircraft orders into options. Under
the terms of the agreements, if United does not elect to confirm the
delivery of these option aircraft before 1998, it would forfeit
significant deposits.
In addition to the B777 order, United has arrangements with Airbus
Industrie and International Aero Engines to lease 33 A320 aircraft,
which are scheduled for delivery through 1998. At September 30, 1994,
United also had options for an additional 168 B737 aircraft, 43 B757
aircraft, 34 B777 aircraft, 49 B747 aircraft, 8 B767 aircraft and 50
A320 aircraft.
Foreign Currency Transactions
In the first quarter of 1994, United entered into a ten-year
foreign currency swap contract to replace existing short-term foreign
currency call options and forward contracts to reduce exposure to
currency fluctuations in connection with 33 billion of Japanese
yen-denominated obligations. The call options and forward contracts
replaced by the currency swap expired under their own terms, and the
insignificant loss that resulted was included in income for the quarter,
offsetting the insignificant gain recorded from the related obligations
that were being hedged.
The currency swap contract, which was designated as a hedge,
effectively fixed, at then current exchange rates, future principal,
interest and lease payments. The swap contract had a notional amount of
$466 million at September 30, 1994 and this notional amount will reduce
periodically as payments are made. The currency swap contract exactly
matched the cash flows and maturities of the obligations and related
interest it was designed to hedge.
Foreign currency gains and losses on the portion of the contract
hedging recorded obligations are included in income currently, exactly
offsetting the foreign currency losses and gains on the obligations.
Foreign currency gains and losses on the portion of the contract hedging
future interest payments are deferred and included in interest as it
accrues. United's theoretical risk in the swap is the cost of replacing
the contract at current market rates in the event of default by the
counterparty; however, United does not anticipate such default since the
counterparty is a major money center bank with an investment grade
rating by all rating agencies. Furthermore, the risk of such default is
mitigated by provisions in the contract which require either party to
post increasing amounts of collateral as either their credit rating
deteriorates or the value of the contract moves against them.
Counterparty credit risk is minimal since currency is exchanged
simultaneously throughout the duration of the contract. The fair value
of the currency swap contract to United at September 30, 1994 was
approximately $27 million based on the reduction in the yen to dollar
exchange rate since United entered into the contract.
In October 1994, the portion of the contract hedging future
interest payments was terminated. The resulting gain, net of losses
previously deferred in connection with the interest payments, will be
deferred and amortized over the remaining life of the obligations.
After termination of this portion of the contract, the notional amount
of the swap contract was $300 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EMPLOYEE INVESTMENT TRANSACTION AND RECAPITALIZATION
On July 12, 1994, the shareholders of UAL Corporation ("UAL"),
parent company of United Air Lines, Inc. ("United"), approved a plan of
recapitalization that provides 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 will
be allocated to individual employee accounts through the year 2000 under
Employee Stock Ownership Plans ("ESOPs") which were created as a part of
the recapitalization. The employee interest may increase to up to 63%,
depending on the average market value of UAL common stock in the year
after the transaction closed. Based on the average market value of UAL
common stock through October 31, 1994, the market value of UAL common
stock for the remainder of the measuring period would have to average at
least $154 for any adjustment to be made in the ESOP percentage
interest. Pursuant to the terms of the plan of recapitalization,
holders of old UAL common stock received approximately $2.1 billion in
cash and the remaining 45% (subject to reduction to not less than 37%)
of the equity in the form of new common stock. In connection with the
recapitalization, United issued $370 million of 10.67% debentures due in
2004 and $371 million of 11.21% debentures due in 2014 and paid a
dividend of $1.041 billion to UAL. Approximately $169 million of costs,
before any related taxes, were incurred in connection with the
recapitalization, including transaction costs and severance payments to
certain former United employees.
The employee investment transaction has put in place a lower cost
structure which is designed to allow United to compete effectively
against low-cost carriers currently influencing the domestic marketplace
and improve its long-term financial viability. The transaction also
facilitated the creation of a low-cost short-haul operation, Shuttle by
United, which began operating on October 1, 1994. The success of these
efforts is dependent upon a number of factors, including the state of
the competitive environment in the airline industry, competitive
responses to United's efforts, United's ability to achieve enduring cost
savings through productivity improvements and in the renegotiation of
labor agreements at the end of the investment period and, in the case of
the Shuttle by United, United's ability to deliver a product which is
competitive in both qualitative and price terms and which is accepted by
the marketplace.
As a result of the recapitalization, United's capital structure
became more highly leveraged. With the increase in debt and reduction
in equity resulting from the recapitalization, United's exposure to
certain industry risks could be greater than might have been the case
prior to the recapitalization. In addition, the transaction resulted in
new labor agreements for certain employee groups and a new corporate
governance structure, which was designed to achieve balance between the
various employee-owner groups and public shareholders. The new labor
agreements and governance structure could inhibit management's ability
to alter strategy in a volatile, competitive industry by restricting
certain operating and financing activities, including the sale of assets
and the issuance of equity securities and the ability to achieve
additional reductions in wages and benefits. United's ability to react
to competition may be hampered further by the fixed long-term nature of
these various agreements.
The employee investment transaction and recapitalization had an
initial adverse effect on United's cash position as a result of the cash
paid to UAL and certain other recapitalization costs. However, the
transaction is expected to result in an improvement to cash flow through
the term of the employee investment. This improvement is expected to
result from the employee concessions which reduce cash expenses,
partially offset by the additional interest expense on the debentures
and foregone interest on the cash paid to UAL.
The employee investment transaction will reduce United's cash
operating expenses due to wage and benefit reductions, work-rule changes
and the startup of Shuttle by United. These cash expense reductions
will be offset by non-cash compensation charges for stock periodically
committed to be released to employees under the ESOPs and additional
interest expense on the debentures. The amount of the non-cash
compensation expense cannot be predicted, because it is based on the
future fair value of UAL's stock. It is anticipated that tax provisions
(credits) in future periods could be impacted by certain nondeductible
expenses related to the ESOPs. Additionally, timing differences between
book expenses and tax deductions related to the ESOPs could impact the
balance of the net deferred tax asset in the future.
LIQUIDITY AND CAPITAL RESOURCES
United's total of cash and cash equivalents was $661 million at
September 30, 1994, compared to $285 million at December 31, 1993. Cash
flows from operating activities of $1.119 billion more than offset cash
used in financing and investing activities. Cash flows used in
financing activities included the $1.041 billion dividend paid to UAL,
principal payments under debt and capital lease obligations of $108
million and $78 million, respectively, and a $46 million reduction of
short-term borrowings, all of which was partially offset by the issuance
of $741 million of debentures. Investing activities resulted in a net
cash outflow of $205 million.
In the first nine months of 1994, United took delivery of twelve
A320 aircraft and two B747 aircraft. With the exception of one B747,
these aircraft were acquired under operating leases. Property
additions, including the B747 and spare parts, amounted to $416 million.
Property dispositions, including the sale and leaseback of five B737
aircraft, one B747 aircraft and one B757 aircraft, resulted in proceeds
of $413 million.
At September 30, 1994, commitments for the purchase of property
and equipment, principally aircraft, approximated $4.0 billion, after
deducting advance payments. An estimated $0.3 billion will be spent
during the remainder of 1994, $1.1 billion in 1995, $0.7 billion in
1996, $1.3 billion in 1997, $0.4 billion in 1998, and $0.2 billion after
1998. The major commitments are for the purchase of thirty-four B777
aircraft which are expected to be delivered between 1995 and 1999.
These amounts reflect United's revised capital spending plan and
agreements with The Boeing Company and engine manufacturers, announced
in April 1993, to convert certain aircraft orders into options. Under
the terms of the agreements, if United does not elect to confirm the
delivery of these option aircraft before 1998, it would forfeit
significant deposits.
In addition to the B777 order, United has arrangements with Airbus
Industrie and International Aero Engines to lease 33 A320 aircraft,
which are scheduled for delivery through 1998. At September 30, 1994,
United also had options for an additional 168 B737 aircraft, 43 B757
aircraft, 34 B777 aircraft, 49 B747 aircraft, 8 B767 aircraft and 50
A320 aircraft. United continually reviews its fleet to determine
whether aircraft acquisitions will be used to expand the fleet or to
replace older aircraft, depending on market and regulatory conditions at
the time of delivery. Funds necessary to finance aircraft acquisitions
are expected to be obtained from internally generated funds, irrevocable
external financing arrangements or other external sources.
At September 30, 1994, UAL and United had an effective shelf
registration statement on file with the Securities and Exchange
Commission to offer up to $1.035 billion of securities, including
secured and unsecured debt, equipment trust and pass through
certificates, equity or a combination thereof. United's ability to
issue equity securities is limited by its certificate of incorporation,
which was restated in connection with the recapitalization.
United's senior unsecured debt is rated BB by Standard and Poor's
("S & P") and Baa3 by Moody's Investors Service Inc. ("Moody's"). Both
rating agencies affirmed the ratings upon the shareholder approval of
the employee investment transaction. S & P removed the securities from
CreditWatch but believes the outlook is negative due to "concerns about
UAL's ability to achieve planned cost reductions and revenue gains from
[Shuttle by United]." Moody's stated "the outlook for United's ratings,
however, remains negative due to concern over the company's future
financial flexibility."
RESULTS OF OPERATIONS
United's results of operations for interim periods are not
necessarily indicative of those for an entire year, as a result of
seasonal factors to which United is subject. First and fourth quarter
results are normally affected by reduced travel demand in the fall and
winter and United's operations, particularly at its Chicago and Denver
hubs, are adversely affected by winter weather on occasion.
The results of operations in the airline business historically
fluctuate significantly in response to general economic conditions.
This is because small fluctuations in yield (passenger revenue per
revenue passenger mile) and cost per available seat mile can have a
significant effect on operating results. United anticipates
industrywide fare levels, increasing low-cost competition, general
economic conditions, fuel costs, international governmental policies and
other factors will continue to affect its operating results.
Prior to the September 1993 merger of the Covia Partnership and
The Galileo Company Limited, United's investments in these companies
were carried on the equity basis. United now owns 77% of Apollo Travel
Services ("ATS"), one of the companies formed in the merger, and its
accounts are consolidated with those of United. As a result, United's
consolidated operating revenues and expenses have increased. In
addition, the sales of flight kitchen assets in late 1993 and early 1994
had the effect of reducing United's salaries and related costs and
increasing, to a lesser degree, catering costs. These changes have
affected the 1994 comparisons to 1993 as indicated in the discussion
below.
In 1994, United began recording certain air transportation price
adjustments, which were previously recorded as commissions, as
adjustments to revenue. Operating revenue and expense amounts and
related operating statistics for 1993 periods have been adjusted to
conform with the current presentation.
In October 1994, United announced that it will discontinue service
to 15 unprofitable destinations by early 1995 and will reallocate
resources elsewhere, including the Shuttle by United. United will incur
certain route restructuring costs, which are expected to be immaterial.
However, this restructuring is expected to result in improvements to
operating earnings of approximately $25 million annually.
The income tax provisions for 1994 were significantly impacted by
the nondeductibility of certain recapitalization costs and the statutory
change in the deductibility of other expenses.
Specific factors affecting United's consolidated operations for
the third quarter and first nine months of 1994 are described below.
Third Quarter 1994 Compared with Third Quarter 1993.
United's earnings from operations improved from $288 million in
the third quarter of 1993 to $310 in the third quarter of 1994.
United's net earnings in the third quarter of 1994 were $81 million.
These earnings included $128 million of pre-tax non-recurring expenses
incurred in connection with the recapitalization. Excluding these
expenses, third quarter 1994 net income would have been $177 million.
Net income in the third quarter of 1993 was $151 million.
Operating revenues increased $208 million (6%). United's revenue
per available seat mile increased 7% to 9.43 cents. Passenger revenues
increased $147 million (5%) due principally to a 7% increase in revenue
passenger miles, partially offset by a 2% decrease in yield to 10.98
cents. Domestic revenue passenger miles increased 7%, Pacific and Latin
America each increased 11% and Atlantic increased 1%. Available seat
miles decreased 1% systemwide, as decreases of 3% and 4% on Domestic and
Atlantic routes, respectively, were offset by a 6% increase in the
Pacific. As a result, United's system passenger load factor increased
5.9 points to 76.6%.
Cargo revenues decreased $5 million (3%), as both freight and mail
revenues decreased. Other operating revenues increased $66 million
(40%) primarily as a result of the consolidation of ATS and an increase
in fuel sales.
Operating expenses increased $186 million (6%). United's cost per
available seat mile increased 7% from 8.11 cents to 8.66 cents,
including the ESOP compensation expense and certain one-time expenses
incurred in connection with the recapitalization. Without these costs,
United's cost per available seat mile would have been 8.32 cents. ESOP
compensation expense of $88 million represents the value of ESOP stock
committed to be released to employees for the quarter. Food and
beverages increased $53 million (60%) due to the new catering
arrangements resulting from the flight kitchen sales and increased
passenger volumes. Commissions increased $22 million (6%) due
principally to increased commissionable revenues. Advertising and
promotion increased $7 million (16%) due primarily to increased media
advertising to introduce Shuttle by United and employee ownership of
UAL. Other operating expenses increased $43 million (21%) due to the
consolidation of ATS and higher fuel sales.
Salaries and related costs decreased $11 million (1%) primarily
due to savings resulting from ESOP related wage and benefit concessions
of $98 million and a lower number of employees as a result of the flight
kitchen sales, partially offset by higher costs associated with employee
benefits and certain one-time costs incurred in connection with the ESOP
transaction. Aircraft fuel expense decreased $21 million (5%), due to a
3% decrease in the average price per gallon of fuel to 59.4 cents and a
2% decrease in consumption. Purchased services decreased $10 million
(4%), as certain services, principally computer reservations and
communications, are now provided by ATS.
Other expense amounted to $149 million in the third quarter of
1994 compared to $61 million in the third quarter of 1993. Interest
expense increased $17 million (21%) due to interest on the debentures
issued in connection with the recapitalization. Interest income
decreased $20 million (53%) due primarily to interest received in 1993
in connection with the final settlement of pension benefits. Included
in "Miscellaneous, net" in the third quarter of 1994 were charges of $80
million for costs incurred in connection with the employee investment
transaction and recapitalization and a $6 million charge for minority
interests in ATS. Included in the 1993 third quarter was a $59 million
charge to reduce the net book value of 15 DC-10 aircraft to estimated
realizable value, a $17 million gain resulting from the final settlement
of pension benefits and foreign exchange gains of $8 million. Foreign
exchange gains in the 1994 third quarter were insignificant.
Nine Months 1994 Compared with Nine Months 1993.
In both 1994 and 1993, United recorded net earnings of $30
million. However, the 1994 nine-month period included $169 million of
pretax expenses incurred in connection with the recapitalization, of
which $48 million were in operating expenses. Excluding these expenses,
1994 nine-month net income would have been $158 million. The 1994
results also include a $26 million after tax charge for the cumulative
effect of adopting Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits," which United
adopted effective January 1, 1994. The 1993 results include an
extraordinary loss of $19 million on the early extinguishment of debt.
Operating revenues increased $611 million (6%). United's revenue
per available seat mile increased 6% to 9.20 cents. Passenger revenues
increased $385 million (4%) due primarily to a 6% increase in revenue
passenger miles, partially offset by a 2% decrease in yield to 11.37
cents. Domestic revenue passenger miles increased by 2.6 billion (5%)
while International increased by 2.1 billion (7%). Available seat miles
remained unchanged systemwide, as increases of 4% in the Pacific and
Atlantic were offset by decreases of 1% on Domestic routes and 4% in
Latin America. As a result, system passenger load factor increased 4.0
points to 71.4%.
Cargo revenues increased $23 million (5%), due to increased
freight revenues partially offset by decreased mail revenues. Freight
and mail revenue ton miles increased 3%; however, freight yield
increased 6% while mail yield decreased 8%. Other operating revenues
increased $203 million (42%) primarily as a result of the consolidation
of ATS and an increase in fuel sales.
Operating expenses increased $448 million (5%). United's cost per
available seat mile also increased 5% from 8.43 cents to 8.81 cents,
which includes certain one-time costs relating to the recapitalization
and ESOP compensation expense. Without these costs, United's cost per
available seat mile would have been 8.69 cents. Food and beverages
increased $117 million (49%) due to the new catering arrangements
resulting from the flight kitchen sales. Salaries and related costs
increased $102 million (3%) primarily due to higher average wage rates
for certain employee groups, higher costs associated with pension and
medical benefits and certain one-time costs related to the
recapitalization, partially offset by a lower number of employees as a
result of the flight kitchen sales and lower wage rates for employees
participating in the ESOPs. Commissions increased $97 million (10%) due
principally to increased commissionable revenues. An increase of $70
million (6%) in rentals and landing fees reflects rent associated with a
higher number of aircraft on operating leases, including new aircraft
acquired in the past year. Aircraft maintenance increased $48 million
(17%) as a result of higher vendor-provided maintenance. Other
operating expenses increased $114 million (19%) due to the consolidation
of ATS and higher fuel sales.
Aircraft fuel expense decreased $131 million (10%), due to a 9%
decrease in the average price per gallon of fuel to 58.2 cents and a 1%
decrease in consumption. Purchased services decreased $44 million (6%),
as certain services, principally computer reservations and
communications, have been provided by ATS since the time of the merger.
Other expense amounted to $292 million in the 1994 nine-month
period compared to $201 million in 1993. Interest expense decreased $6
million (2%), as lower interest resulting from the extinguishment of
$500 million of subordinated debt in 1993 was partially offset by higher
interest resulting from the debentures issued in July 1994. Interest
capitalized decreased $12 million (28%) as a result of lower advance
payments on new aircraft. Interest income decreased $16 million (25%)
due primarily to interest received in 1993 in connection with the final
settlement of pension benefits. Included in "Miscellaneous, net" in
1994 were charges of $121 million for fees and costs incurred in
connection with the employee investment transaction and
recapitalization, an $18 million charge for minority interests in ATS
and foreign exchange gains of $9 million. Included in 1993 was a $59
million charge to reduce the net book value of 15 DC-10 aircraft to
estimated realizable value, a $17 million gain resulting from the final
settlement of pension benefits and foreign exchange losses of $16
million.
Part II
Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 4.1 - Indenture dated as of July 1,
1991 between United Air Lines, Inc. and The
Bank of New York (filed as Exhibit 4(a) to
United Air Lines, Inc.'s Registration
Statement on Form S-3 (No. 33-57192) and
incorporated herein by reference).
Exhibit 4.2 - Officer's Certificate relating
to United Air Lines, Inc.'s Series A
Debentures due 2004 and Series B Debentures
due 2014.
Exhibit 12.1 - Computation of Ratio of
Earnings To Fixed Charges.
Exhibit 27 - Financial Data Schedule.
(b) No reports on Form 8-K have been filed
during the third quarter of 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
UNITED AIR LINES, INC.
By:/s/ Gerald Greenwald
Gerald Greenwald
Chairman and Chief
Executive Officer
By:/s/ Douglas A. Hacker
Douglas A. Hacker
Senior Vice President-Finance
(Principal Financial and
Accounting Officer)
Dated: November 10, 1994
Exhibit Index
Exhibit No. Description
4.1 Indenture dated as of July 1, 1991 between
United Air Lines, Inc. and The Bank of New
York (filed as Exhibit 4(a) to United Air
Lines, Inc.'s Registration Statement on Form S-
3 (No. 33-57192) and incorporated herein by
reference).
4.2 Officer's Certificate relating to United
Air Lines, Inc.'s Series A Debentures
due 2004 and Series B Debentures due
2014.
12.1 Computation of Ratio of Earnings To Fixed Charges.
27 Financial Data Schedule.
EXHIBIT 4.2
UNITED AIR LINES, INC.
Officers' Certificate
Pursuant to Sections 2.1 and 3.1 of the
Indenture, dated as of July 1, 1991 (the "Indenture"),
between United Air Lines, Inc., a Delaware corporation
(the "Company"), and The Bank of New York, a New York
banking corporation, as trustee (the "Trustee"), the
undersigned officers of the Company hereby certify on
behalf of the Company as follows:
1. Authorization. The establishment of two
series of Securities of the Company has been approved and
authorized in accordance with the provisions of the
Indenture pursuant to resolutions adopted by unanimous
written consent by the Board of Directors of the Company
on May 11, 1994 and June, 30, 1994.
2. Compliance with Covenants and Conditions
Precedent. All covenants and conditions precedent
provided for in the Indenture relating to the
establishment of series of Securities have been complied
with.
3. Terms. The terms of the series of
Securities established pursuant to this Officer's
Certificate shall be as follows:
(i) Title. The titles of the
series of Securities are (a) the 10.67% Series
A Senior Debentures due 2004 (the "Series A
Debentures") and (b) the 11.21% Series B Senior
Debentures due 2014 (the "Series B Debentures"
and, together with the Series A Debentures, the
"Debentures").
(ii) Aggregate Principal
Amount. The aggregate principal amount of the
Debentures that may be authenticated and
delivered pursuant to the Indenture (except for
Debentures authenticated and delivered upon
registration of transfer of, or in exchange
for, or in lieu of, other Debentures pursuant
to Sections 3.4, 3.5, 3.6, 8.6 and 10.7 of the
Indenture and except for any Debentures that,
pursuant to the last paragraph of Section 3.3
of the Indenture, are deemed never to have been
authenticated and delivered under the
Indenture) shall not exceed, (a) with respect
to the Series A Debentures, U.S. $370,200,000
and, (b) with respect to the Series B
Debentures, U.S. $371,000,000.
(iii) Stated Maturity. The
principal of each Series A Debenture shall be
payable on May 1, 2004, and the principal of
each Series B Debenture shall be payable on May
1, 2014.
(iv) Rate of Interest; Interest
Payment Dates; Regular Record Dates. Each
Series A Debenture shall bear interest at the
rate of 10.67% per annum, and each Series B
Debenture shall bear interest at the rate of
11.21% per annum. Interest on the Debentures
shall be payable semi-annually on May 1 and
November 1 of each year, commencing on November
1, 1994. The Regular Record Date for interest
payable on each Debenture on each May 1 shall
be the immediately preceding April 15 and the
Regular Record Date for interest payable on
each November 1 shall be the immediately
preceding October 15. The Debentures shall
bear interest from July 12, 1994, or from the
most recent Interest Payment Date to which
interest has been paid or duly provided for
until the principal thereof is paid or made
available for payment. Each Debenture issued
after the date upon which the Debentures are
first issued under the Indenture (the "Issue
Date") (whether issued upon transfer of or in
exchange for an outstanding Debenture or issued
for any other reason) shall be entitled to
receive interest from the last Interest Payment
Date in respect of which interest was paid or,
if none, from the Issue Date, provided that if
(i) any Debenture is issued after the record
date with respect to any Interest Payment Date
and before the interest with respect to such
Interest Payment Date is paid and (ii) the
interest with respect to such Interest Payment
Date is paid in full when due in respect of all
the Debentures that were outstanding on such
record date, then such newly issued Debenture
shall not be entitled to receive any interest
with respect to such Interest Payment Date.
(v) Place of Payment. Subject
to Section 9.2 of the Indenture, payment of the
principal of and interest on the Debentures
shall be made at the Corporate Trust Office of
the Trustee or at any other office or agency
designated by the Company for such purpose;
provided that at the option of the Company,
payment of interest may be made by check mailed
to the address of the Person entitled thereto
as such address shall appear in the Register on
the applicable Regular Record Date.
(vi) Optional Redemption. The
Series A Debentures and the Series B Debentures
may not be redeemed prior to their respective
stated maturities.
(vii) Denomination. Debentures
shall be issued in denominations of $1,000 and
integral multiples thereof.
(viii) Debentures Fully
Registered. Each Debenture shall be issued in
fully registered form, without coupons, and
shall be represented by a certificate issued in
definitive form.
(ix) Defeasance and Covenant
Defeasance. The defeasance and covenant
defeasance provisions of the Indenture shall be
applicable to the Debentures. For the purpose
of such defeasance or covenant defeasance, the
term "Government Obligations" shall not include
obligations referred to in the definition of
such term that are not obligations of the
United States or an agency or instrumentality
of the United States.
(x) Debentures not Issued in
Global Form. The Debentures shall not be
issued in whole or in part in temporary or
permanent global form.
(xi) Debentures Issued Without
Guarantees. Guarantees shall not be endorsed
upon the Debentures.
(xii) Debentures not
Convertible. The Debentures shall not be
convertible into common stock, other securities
or any other property of the Company.
(xiii) Debentures not
Subordinated. The Debentures shall not be
subordinated to any other Indebtedness of the
Company.
(xiv) Other Terms. All other
terms of the Series A Debentures shall be as
set forth in the form of Series A Debentures
attached hereto as Exhibit A, and all other
terms of the Series B Debentures shall be as
set forth in the form of Series B Debentures
attached hereto as Exhibit B.
4. Forms. Each Series A Debenture shall be
substantially in the form attached hereto as Exhibit A
and may have such other terms as are provided in such
form, and each Series B Debenture shall be substantially
in the form attached hereto as Exhibit B and may have
such other terms as are provided in the form.
Capitalized terms used herein and not otherwise
defined herein have the meanings specified in the
Indenture.
Each of the undersigned, for himself/herself,
states that s/he has read and is familiar with the
provisions of Article 2 of the Indenture relating to the
establishment of the form of Security representing a
series of Securities thereunder and Article 3 of the
Indenture relating to the establishment of a series of
Securities thereunder, and in each case, the definitions
therein relating thereto; that s/he is generally familiar
with the other provisions of the Indenture and with the
affairs of the Company and its acts and proceedings and
that the statements and opinions made by him/her in this
Certificate are based upon such familiarity; that, in
his/her opinion, s/he has made such examination or
investigation as is necessary to enable him/her to
express an informed opinion as to whether or not the
covenants and conditions referred to above have been
complied with; and, that in his/her opinion, the
covenants and conditions referred to above have been
complied with.
Insofar as this Certificate relates to legal
matters, it is based, as provided for in Section 1.3 of
the Indenture, upon the opinion of Counsel delivered to
the Trustee contemporaneously herewith pursuant to
Section 3.3 of the Indenture and relating to the
Debentures.
IN WITNESS WHEREOF, the undersigned have
hereunder signed this Certificate on behalf of the
Company this 12th day of July, 1994.
UNITED AIR LINES, INC.
By: /s/ Douglas A. Hacker
_________________________
Name: Douglas A. Hacker
Title: Senior Vice President
- Finance
By: /s/ Patricia S. Fisher
__________________________
Name: Patricia S. Fisher
Title: Vice President and
Treasurer
EXHIBIT A
UNITED AIR LINES, INC.
10.67% Series A Senior Debenture due 2004
No:_________ $_____________
CUSIP _______
UNITED AIR LINES, INC., a Delaware corporation
(herein called the "Company," which term includes any
successor corporation under the Indenture hereinafter
referred to), hereby promises to pay to or
registered assigns, the principal sum of
Dollars on May 1, 2004
Interest Payment Dates: May 1 and November 1
Record Dates: April 15 and October 15
Reference is hereby made to the further
provisions of this Security set forth on the reverse
hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this
Security to be signed manually or by facsimile by its
duly authorized officers.
UNITED AIR LINES, INC.
By______________________________
Name:
Title:
By______________________________
Name:
Title:
This is one of the Securities of a series
issued under the within-mentioned Indenture.
Dated: THE BANK OF NEW YORK,
as Trustee
By
Authorized Signatory
[Reverse of Security]
UNITED AIR LINES, INC.
10.67% Series A Senior Debenture due 2004
(1) Interest. UNITED AIR LINES, INC., a
Delaware corporation (the "Company"), promises to pay
interest on the principal amount of this Security on
November 1, 1994, and semi-annually thereafter on May 1
and November 1 in each year, accruing from July 12, 1994,
or from the most recent interest payment date to which
interest has been paid or duly provided for, at the rate
of 10.67% per annum, until the principal hereof is paid
or duly provided for. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
The Company will pay interest (including
interest accruing on or after the filing of any petition
in bankruptcy or reorganization relating to the Company
whether or not a claim for post-filing interest is
allowed in such proceeding) on overdue principal and
interest (including interest accruing on or after the
filing of any petition in bankruptcy or reorganization
relating to the Company whether or not a claim for post-
filing interest is allowed in such proceeding) on overdue
installments of interest, to the extent lawful, at the
rate borne by the Securities.
(2) Method of Payment. The Company will pay
interest on the Securities (except defaulted interest) to
the Persons who are registered Holders of Securities at
the close of business on the record date for the next
interest payment date even though Securities are
cancelled after the record date and on or before the
interest payment date. Holders must surrender Securities
to a Paying Agent to collect principal payments. The
Company will pay principal and interest in money of the
United States of America that at the time of payment is
legal tender for payment of public and private debts.
However, the Company may pay principal and interest by
check payable in such money. It may mail an interest
check to a Holder's registered address. If a payment
date is not a Business Day at a place of payment, payment
may be made at that place on the next succeeding Business
Day, and no interest on the amount payable on such
payment date will accrue for the intervening period.
(3) Paying Agent, Registrar. Initially, The
Bank of New York (the "Trustee") will act as Paying Agent
and Registrar through its office at 101 Barclay Street,
21-West, New York, New York 10286 and, for purposes of
the presentation and surrender of Securities for
transfer, exchange or payment of principal, through the
office of the Trustee initially located at 101 Barclay
Street, Trust Services Window, Lobby Level, New York, New
York 10286. The Company may change any Paying Agent,
Registrar or co-Registrar without prior notice to any
Holder. The Company or its Affiliates may act in any
such capacity, except in certain circumstances.
(4) Indenture. The Company issued the
Securities under an Indenture dated as of July 1, 1991
(the "Indenture") between the Company and the Trustee.
The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S.
Code SECTION 77aaa-77bbbb) as in effect on the date upon which
the Securities are first issued under the Indenture (the
"Issue Date"). The Securities are subject to all such
terms, and Holders are referred to the Indenture and the
Trust Indenture Act for a statement of such terms. The
Securities are unsecured general obligations of the
Company limited to $370.2 million in aggregate principal
amount. All capitalized terms used in this Security and
not defined herein will have the meanings assigned to
them in the Indenture.
(5) Optional Redemption. The Securities may
not be redeemed prior to their final stated maturity at
the option of the Company.
(6) Denominations, Transfer, Exchange. The
Securities are in fully registered form without coupons
in denominations of $1,000 and integral multiples
thereof. The transfer of Securities may be registered
and Securities may be exchanged as provided in the
Indenture. The Registrar may require a Holder, among
other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required
by law or permitted by the Indenture. The Registrar need
not exchange or register the transfer of any Security or
portion of a Security selected for redemption. Also, it
need not exchange or register the transfer of any
Securities for a period of 15 days before a selection of
Securities to be redeemed.
(7) Persons Deemed Owners. The registered
Holder of a Security may be treated as its owner for all
purposes.
(8) Amendments and Waivers. Subject to
certain exceptions, the Indenture or the Securities may
be amended with the consent of the Holders of at least a
majority in principal amount of the Securities then
outstanding, and any existing Default (except a Default
in payment of principal of or interest on the Securities)
may be waived with the consent of the Holders of a
majority in principal amount of the Securities then
outstanding. The Indenture or the Securities may be
amended or supplemented without the consent of any Holder
only to cure any ambiguity, defect or inconsistency, to
make any change that does not materially and adversely
affect the rights of any Holder or to comply with the
Trust Indenture Act.
(9) Defaults and Remedies. If an Event of
Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the
Securities may declare all the Securities to be due and
payable immediately. Holders may not enforce the
Indenture or the Securities except as provided in the
Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or
the Securities. Subject to certain limitations, Holders
of a majority in principal amount of the Securities may
direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders notice of any
continuing Default (except a Default in payment of
principal or interest) if it determines that withholding
notice is in their interests. The Company must furnish
quarterly and annual compliance certificates to the
Trustee.
(10) Trustee Dealings with Company. The
Trustee, in its individual or any other capacity, may
make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal
with the Company or its Affiliates, as if it were not
Trustee.
(11) No Recourse Against Others. A director,
officer, employee or stockholder, as such, of the Company
or the Trustee will not have any liability for any
obligations of the Company or the Trustee under the
Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their
creation. Each Holder by accepting a Security waives and
releases all such liability. The waiver and release are
part of the consideration for the issue of the
Securities.
(12) Authentication. This Security will not be
valid until authenticated by the manual signature of the
Trustee or an authenticating agent.
(13) Abbreviations. Customary abbreviations
may be used in the name of a Holder or an assignee, such
as: TEN COM (= as tenants in common), TEN ENT (= as
tenants by the entireties), JT TEN (= as joint tenants
with right of survivorship and not as tenants in common),
CUST (= Custodian), and U/G/M/A (= Uniform Gifts to
Minors Act).
(14) Governing Law. THIS SECURITY WILL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
THE COMPANY WILL FURNISH TO ANY HOLDER UPON
WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE
INDENTURE. REQUESTS MAY BE MADE TO: UNITED AIR LINES,
INC., P.O. BOX 66100, CHICAGO, ILLINOIS 60666,
ATTENTION: TREASURER.
EXHIBIT B
UNITED AIR LINES, INC.
11.21% Series B Senior Debenture due 2014
No:_________ $_____________
CUSIP _______
UNITED AIR LINES, INC., a Delaware corporation
(herein called the "Company," which term includes any
successor corporation under the Indenture hereinafter
referred to), hereby promises to pay to or
registered assigns, the principal sum of
Dollars on May 1, 2014
Interest Payment Dates: May 1 and November 1
Record Dates: April 15 and October 15
Reference is hereby made to the further
provisions of this Security set forth on the reverse
hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this
Security to be signed manually or by facsimile by its
duly authorized officers.
UNITED AIR LINES, INC.
By______________________________
Name:
Title:
By______________________________
Name:
Title:
This is one of the Securities of a series
issued under the within-mentioned Indenture.
Dated: THE BANK OF NEW YORK,
as Trustee
By
Authorized Signatory
[Reverse of Security]
UNITED AIR LINES, INC.
11.21% Series B Senior Debenture due 2014
(1) Interest. UNITED AIR LINES, INC., a
Delaware corporation (the "Company"), promises to pay
interest on the principal amount of this Security on
November 1, 1994, and semi-annually thereafter on May 1
and November 1 in each year, accruing from July 12, 1994,
or from the most recent interest payment date to which
interest has been paid or duly provided for, at the rate
of 11.21% per annum, until the principal hereof is paid
or duly provided for. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
The Company will pay interest (including
interest accruing on or after the filing of any petition
in bankruptcy or reorganization relating to the Company
whether or not a claim for post-filing interest is
allowed in such proceeding) on overdue principal and
interest (including interest accruing on or after the
filing of any petition in bankruptcy or reorganization
relating to the Company whether or not a claim for post-
filing interest is allowed in such proceeding) on overdue
installments of interest, to the extent lawful, at the
rate borne by the Securities.
(2) Method of Payment. The Company will pay
interest on the Securities (except defaulted interest) to
the Persons who are registered Holders of Securities at
the close of business on the record date for the next
interest payment date even though Securities are
cancelled after the record date and on or before the
interest payment date. Holders must surrender Securities
to a Paying Agent to collect principal payments. The
Company will pay principal and interest in money of the
United States of America that at the time of payment is
legal tender for payment of public and private debts.
However, the Company may pay principal and interest by
check payable in such money. It may mail an interest
check to a Holder's registered address. If a payment
date is not a Business Day at a place of payment, payment
may be made at that place on the next succeeding Business
Day, and no interest on the amount payable on such
payment date will accrue for the intervening period.
(3) Paying Agent, Registrar. Initially, The
Bank of New York (the "Trustee") will act as Paying Agent
and Registrar through its office at 101 Barclay Street
21-West, New York, New York 10286 and, for purposes of
the presentation and surrender of Securities for
transfer, exchange or payment of principal, through the
office of the Trustee initially located at 101 Barclay
Street, Trust Services Window, Lobby Level, New York, New
York 10286. The Company may change any Paying Agent,
Registrar or co-Registrar without prior notice to any
Holder. The Company or its Affiliates may act in any
such capacity, except in certain circumstances.
(4) Indenture. The Company issued the
Securities under an Indenture dated as of July 1, 1991
(the "Indenture") between the Company and the Trustee.
The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S.
Code SECTION 77aaa-77bbbb) as in effect on the date upon which
Securities are first issued under the Indenture (the
"Issue Date"). The Securities are subject to all such
terms, and Holders are referred to the Indenture and the
Trust Indenture Act for a statement of such terms. The
Securities are unsecured general obligations of the
Company limited to $371 million in aggregate principal
amount. All capitalized terms used in this Security and
not defined herein will have the meanings assigned to
them in the Indenture.
(5) Optional Redemption. The Securities may
not be redeemed prior to their final stated maturity at
the option of the Company.
(6) Denominations, Transfer, Exchange. The
Securities are in fully registered form without coupons
in denominations of $1,000 and integral multiples
thereof. The transfer of Securities may be registered
and Securities may be exchanged as provided in the
Indenture. The Registrar may require a Holder, among
other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required
by law or permitted by the Indenture. The Registrar need
not exchange or register the transfer of any Security or
portion of a Security selected for redemption. Also, it
need not exchange or register the transfer of any
Securities for a period of 15 days before a selection of
Securities to be redeemed.
(7) Persons Deemed Owners. The registered
Holder of a Security may be treated as its owner for all
purposes.
(8) Amendments and Waivers. Subject to
certain exceptions, the Indenture or the Securities may
be amended with the consent of the Holders of at least a
majority in principal amount of the Securities then
outstanding, and any existing Default (except a Default
in payment of principal of or interest on the Securities)
may be waived with the consent of the Holders of a
majority in principal amount of the Securities then
outstanding. The Indenture or the Securities may be
amended or supplemented without the consent of any Holder
only to cure any ambiguity, defect or inconsistency, to
make any change that does not materially and adversely
affect the rights of any Holder or to comply with the
Trust Indenture Act.
(9) Defaults and Remedies. If an Event of
Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the
Securities may declare all the Securities to be due and
payable immediately. Holders may not enforce the
Indenture or the Securities except as provided in the
Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or
the Securities. Subject to certain limitations, Holders
of a majority in principal amount of the Securities may
direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders notice of any
continuing Default (except a Default in payment of
principal or interest) if it determines that withholding
notice is in their interests. The Company must furnish
quarterly and annual compliance certificates to the
Trustee.
(10) Trustee Dealings with Company. The
Trustee, in its individual or any other capacity, may
make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal
with the Company or its Affiliates, as if it were not
Trustee.
(11) No Recourse Against Others. A director,
officer, employee or stockholder, as such, of the Company
or the Trustee will not have any liability for any
obligations of the Company or the Trustee under the
Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their
creation. Each Holder by accepting a Security waives and
releases all such liability. The waiver and release are
part of the consideration for the issue of the
Securities.
(12) Authentication. This Security will not be
valid until authenticated by the manual signature of the
Trustee or an authenticating agent.
(13) Abbreviations. Customary abbreviations
may be used in the name of a Holder or an assignee, such
as: TEN COM (= as tenants in common), TEN ENT (= as
tenants by the entireties), JT TEN (= as joint tenants
with right of survivorship and not as tenants in common),
CUST (= Custodian), and U/G/M/A (= Uniform Gifts to
Minors Act).
(14) Governing Law. THIS SECURITY WILL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
THE COMPANY WILL FURNISH TO ANY HOLDER UPON
WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE
INDENTURE. REQUESTS MAY BE MADE TO: UNITED AIR LINES,
INC., P.O. BOX 66100, CHICAGO, ILLINOIS 60666,
ATTENTION: TREASURER.
Exhibit 12.1
United Air Lines, Inc. and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1994 1993
(In Millions)
Earnings:
<S> <C> <C>
Earnings before income taxes $ 145 $ 73
Fixed charges, from below 767 802
Undistributed earnings of affiliates (20) -
Interest capitalized (31) (43)
Earnings $ 861 $ 832
Fixed charges:
Interest expense $ 260 $ 266
Portion of rental expense
representative of the
interest factor 507 536
Fixed charges $ 767 $ 802
Ratio of earnings to
fixed charges 1.12 1.04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNITED
AIR LINES INC.'S STATEMENT OF CONSOLIDATED OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1994 AND CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL
POSITION AS OF SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<PERIOD-TYPE> 9-MOS
<CASH> 661
<SECURITIES> 946
<RECEIVABLES> 1,140
<ALLOWANCES> 0
<INVENTORY> 278
<CURRENT-ASSETS> 3,819
<PP&E> 11,893
<DEPRECIATION> 5,165
<TOTAL-ASSETS> 12,261
<CURRENT-LIABILITIES> 5,325
<BONDS> 3,975
0
0
<COMMON> 0
<OTHER-SE> (175)
<TOTAL-LIABILITY-AND-EQUITY> 12,261
<SALES> 0
<TOTAL-REVENUES> 10,464
<CGS> 0
<TOTAL-COSTS> 10,027
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 260
<INCOME-PRETAX> 145
<INCOME-TAX> 89
<INCOME-CONTINUING> 56
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (26)
<NET-INCOME> 30
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
