United Airlines 2008 Annual Report Download - page 25

The Company’s high level of fixed obligations could limit its ability to fund general corporate requirements and
obtain additional financing, could limit its flexibility in responding to competitive developments and could
increase its vulnerability to adverse economic and industry conditions.
The Company has a significant amount of financial leverage from fixed obligations, including its
amended credit facility, aircraft lease and debt financings, leases of airport property and other facilities,
and other material cash obligations. In addition, as of December 31, 2008, the Company had pledged a
substantial amount of its assets as collateral to secure its various fixed obligations. The Company’s high
level of fixed obligations, a downgrade in the Company’s credit ratings or poor credit market conditions
could impair its ability to obtain additional financing, if needed, and reduce its flexibility to conduct its
business. Certain of the Company’s existing indebtedness also requires it to meet covenants and financial
tests to maintain ongoing access to those borrowings. See Note 12, “Debt Obligations and Card
Processing Agreements,” in Combined Notes to Consolidated Financial Statements for further details
related to the Company’s credit agreements and assets pledged as collateral. A failure to timely pay its
debts or other material uncured breach of its contractual obligations could result in a variety of adverse
consequences, including the acceleration of the Company’s indebtedness, the withholding of credit card
sale proceeds by its credit card service providers and the exercise of other remedies by its creditors and
equipment lessors that could result in material adverse effects on the Company’s operations and
financial condition. In such a situation, it is unlikely that the Company would be able to fulfill its
obligations to repay the accelerated indebtedness, make required lease payments, or otherwise cover its
fixed costs.
The Company’s net operating loss carry forward may be limited or possibly eliminated.
As of December 31, 2008, the Company had a net operating loss (“NOL”) carry forward tax benefit
of approximately $2.6 billion for federal and state income tax purposes that primarily originated before
UAL’s emergence from bankruptcy and will expire over a five to twenty year period. This tax benefit is
mostly attributable to federal pre-tax NOL carry forwards of $7.0 billion. If the Company were to have a
change of ownership within the meaning of Section 382 of the Internal Revenue Code, under certain
conditions, its annual federal NOL utilization could be limited to an amount equal to its market
capitalization at the time of the ownership change multiplied by the federal long-term tax exempt rate. A
change of ownership under Section 382 of the Internal Revenue Code is defined as a cumulative change
of 50 percentage points or more in the ownership positions of certain stockholders owning 5% or more
of the Company’s common stock over a three year rolling period.
To reduce the risk of a potential adverse effect on the Company’s ability to utilize its NOL carry
forward for federal income tax purposes, UAL’s restated certificate of incorporation contains a “5%
Ownership Limitation,” applicable to all stockholders except the Pension Benefit Guaranty Corporation
(“PBGC”). The 5% Ownership Limitation remains effective until February 1, 2011. The 5% Ownership
Limitation prohibits (i) the acquisition by a single stockholder of shares representing 5% or more of the
common stock of UAL Corporation and (ii) any acquisition or disposition of common stock by a
stockholder that already owns 5% or more of UAL Corporation’s common stock, unless prior written
approval is granted by the UAL Board of Directors. The percentage ownership of a single stockholder can
be computed by dividing the number of shares of common stock held by the stockholder by the sum of the
shares of common stock issued and outstanding plus the number of shares of common stock still held in
reserve for payment to unsecured creditors under the Plan of Reorganization. For additional information
regarding the 5% Ownership Limitation, please refer to UAL’s restated certificate available on its website.
While the purpose of these transfer restrictions is to prevent a change of ownership from occurring
within the meaning of Section 382 of the Internal Revenue Code (which ownership change might
materially and adversely affect the Company’s ability to utilize its NOL carry forward or other tax
attributes), no assurance can be given that such an ownership change will not occur, in which case the
availability of the Company’s substantial NOL carry forward and other federal income tax attributes
might be significantly limited or possibly eliminated. Any transfers of common stock that are made in
violation of the restrictions set forth above will be void and, pursuant to UAL’s restated certificate of
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