United Airlines 2008 Annual Report Download - page 135

Legal and Environmental Contingencies. 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
information currently available, the views of legal counsel, the nature of contingencies to which the
Company is subject and prior experience, that the ultimate disposition of these contingencies will not
materially affect the Company’s consolidated financial position or results of operations.
The Company records liabilities for legal and environmental claims when a loss is probable and
reasonably estimable. These amounts are recorded based on the Company’s assessments of the
likelihood of their eventual disposition. The amounts of these liabilities could increase or decrease in the
near term, based on revisions to estimates relating to the various claims.
The Company anticipates that if ultimately found liable, its damages from claims arising from the
events of September 11, 2001 could be significant; however, the Company believes that, under the Air
Transportation Safety and System Stabilization Act of 2001, its liability will be limited to its insurance
coverage.
The Company continues to analyze whether any potential liability may result from air cargo/
passenger surcharge cartel investigations following the receipt of a Statement of Objections that the
European Commission (the “Commission”) issued to 26 companies on December 18, 2007. The
Statement of Objections sets out evidence related to the utilization of fuel and security surcharges and
exchange of pricing information that the Commission views as supporting the conclusion that an illegal
price-fixing cartel had been in operation in the air cargo transportation industry. United received a copy
of the Statement of Objections and has provided written and oral responses vigorously disputing the
Commission’s allegations against the Company. Nevertheless, United will continue to cooperate with the
Commission’s ongoing investigation. Based on its evaluation of all information currently available, the
Company has determined that no reserve for potential liability is required and will continue to defend
itself against all allegations that it was aware of or participated in cartel activities. However, penalties for
violation of European competition laws can be substantial and a finding that the Company engaged in
improper activity could have a material adverse impact on our consolidated financial position and results
of operations.
Contingent Senior Unsecured Notes. UAL is obligated to issue up to $500 million of 8% senior
unsecured notes to the PBGC in up to eight equal tranches of $62.5 million upon the occurrence of
certain financial triggering events. Beginning with fiscal year ending December 31, 2009 and through
fiscal year ending December 31, 2017, a triggering event may occur when, among other things, the
Company’s EBITDAR exceeds $3.5 billion over a prior twelve month period. In certain circumstances,
UAL common stock may be issued in lieu of issuance of the notes. See Note 12, “Debt Obligations and
Card Processing Agreements,” for further information.
Commitments. At December 31, 2008, future commitments for the purchase of property and
equipment, principally aircraft, include approximately $0.6 billion of binding commitments and
$2.4 billion of nonbinding commitments. The nonbinding commitments of $2.4 billion are related to
42 A319 and A320 aircraft. These orders may be cancelled which would result in the forfeiture of
$91 million of advance payments provided to the manufacturer. The Company also reached an
agreement with the engine manufacturer eliminating all provisions pertaining to firm commitments and
support for future Airbus aircraft. While this permits future negotiations on engine pricing with any
engine manufacturer, restructured aircraft manufacturer commitments have assumed that aircraft will be
delivered with installed engines at list price. As discussed in Note 3, “Asset Impairments and Intangible
Assets,” in 2008 the Company determined these aircraft deposits were completely impaired and
wrote-off their entire carrying value because it is highly unlikely that the Company will take these aircraft
deliveries, which will require forfeiture of these deposits. The Company’s current commitments would
require the payment of an estimated $0.2 billion in 2009, $0.7 billion for the combined years of 2010 and
2011, $1.4 billion for the combined years of 2012 and 2013 and $0.7 billion thereafter.
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