United Airlines 2008 Annual Report Download - page 15

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ITEM 1A. RISK FACTORS.
The following risk factors should be read carefully when evaluating the Company’s business and the
forward-looking statements contained in this report and other statements the Company or its representatives
make from time to time. Any of the following risks could materially adversely affect the Company’s business,
operating results, financial condition and the actual outcome of matters as to which forward-looking
statements are made in this report.
Risks Related to the Company’s Business
The Company may be unable to continue to comply with certain covenants in its Amended Credit Facility and
other agreements which, if not complied with, could accelerate repayment of the Amended Credit Facility and
similarly impact the Company’s obligations under certain other agreements, thereby materially and adversely
affecting the Company’s liquidity.
In February 2007, the Company entered into an Amended and Restated Revolving Credit, Term
Loan and Guaranty Agreement dated as of February 2, 2007 with JPMorgan Chase Bank, N.A, Citicorp
USA, Inc., J.P. Morgan Securities Inc., Citigroup Global Markets, Inc. and Credit Suisse Securities
(USA) LLC (the “Amended Credit Facility”) after prepaying $972 million of its then outstanding credit
facility debt. The Amended Credit Facility requires compliance with certain covenants, which were
further amended in May 2008. A summary of the current financial covenants includes the following:
The Company must maintain a ratio of EBITDAR to the sum of the following fixed charges for
such period: (a) cash interest expense and (b) cash aircraft operating rental expense. EBITDAR
represents earnings before interest expense net of interest income, income taxes, depreciation,
amortization, aircraft rent and certain cash and non-cash charges as further defined by the Amended
Credit Facility. The other adjustments to EBITDAR include items such as foreign currency transaction
gains or losses, increases or decreases in our deferred revenue obligation, share-based compensation
expense, non-recurring or unusual losses, any non-cash non-recurring charge or non-cash restructuring
charge, a limited amount of cash restructuring charges, certain cash transaction costs incurred with
financing activities and the cumulative effect of a change in accounting principle. The requirement to
meet this ratio was suspended for the four quarters beginning with the second quarter of 2008 and
ending with the first quarter of 2009, but such requirement resumes beginning in the second quarter of
2009. The required ratio for the periods ended June 30, 2009, September 30, 2009 and December 31,
2009 shall be computed based on three months ended June 30, 2009, the six months ended September 30,
2009 and the nine months ended December 31, 2009, respectively; and, the required ratio in subsequent
quarters shall be computed based on the twelve months preceding each quarter-end. The Company must
also maintain a minimum unrestricted cash balance of $1.0 billion at any time.
Failure to comply with any applicable covenants in effect for any reporting period could result in a
default under the Amended Credit Facility. Additionally, the Amended Credit Facility contains a
cross-default provision with respect to other credit arrangements that exceed $50 million. Although the
Company was in compliance with all required financial covenants as of December 31, 2008, and the
Company is not required to comply with a fixed charge coverage ratio until the three month period
ending June 30, 2009, continued compliance depends on many factors, some of which are beyond the
Company’s control, including the overall industry revenue environment and the level of fuel costs. There
are no assurances that the Company will continue to comply with its Amended Credit Facility covenants.
Failure to comply with applicable covenants in any reporting period would result in a default under the
Amended Credit Facility, which could have a material adverse impact on the Company depending on the
Company’s ability to obtain a waiver of, or otherwise mitigate, the impact of the default.
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