United Airlines 2010 Annual Report Download - page 150

As of December 31, 2009, Continental’s 5% Convertible Notes had a principal amount, unamortized
discount and net carrying amount of $175 million, $6 million and $169 million, respectively, and were
convertible into shares of Continental common stock at a conversion price of $20 per share. The amount of
interest expense recognized and effective interest rate for the Continental 5% Convertible Notes for the periods
shown below, were as follows (in millions):
Nine Months Ended
September 30,
Year Ended
December 31,
2010 2009 2008
Contractual coupon interest .............................. $ 6 $ 9 $ 9
Amortization of discount ................................ 6 12 11
Interest expense ....................................... $12 $21 $20
Effective interest rate ................................... 13% 13% 13%
6% Convertible Junior Subordinated Debentures. In November 2000, Continental Airlines Finance Trust
II, a Delaware statutory business trust (the “Trust”) of which Continental owns all the common trust securities,
completed a private placement of five million 6% convertible preferred securities, called Term Income
Deferrable Equity Securities or “TIDES.” The TIDES have a liquidation value of $50 per preferred security and
are convertible at any time at the option of the holder into shares of UAL common stock at a conversion rate of
$57.14 per share of common stock (equivalent to approximately 0.875 of a share of UAL common stock for each
preferred security). Distributions on the preferred securities are payable by the Trust at an annual rate of 6% of
the liquidation value of $50 per preferred security.
The sole assets of the Trust are 6% Convertible Junior Subordinated Debentures (the “6% Convertible
Debentures”) with an aggregate principal amount of $248 million as of December 31, 2010 issued by Continental
and which mature on November 15, 2030. The 6% Convertible Debentures are redeemable by Continental, in
whole or in part, on or after November 20, 2003 at designated redemption prices. If Continental redeems the 6%
Convertible Debentures, the Trust must redeem the TIDES on a pro rata basis having an aggregate liquidation
value equal to the aggregate principal amount of the 6% Convertible Debentures redeemed. Otherwise, the
TIDES will be redeemed upon maturity of the 6% Convertible Debentures, unless previously converted.
Taking into consideration Continental’s obligations under (i) the preferred securities guarantee relating to
the TIDES, (ii) the indenture relating to the 6% Convertible Debentures to pay all debt and obligations and all
costs and expenses of the Trust (other than U.S. withholding taxes) and (iii) the indenture, the declaration of trust
relating to the TIDES and the 6% Convertible Debentures, Continental has fully and unconditionally guaranteed
payment of (i) the distributions on the TIDES, (ii) the amount payable upon redemption of the TIDES and
(iii) the liquidation amount of the TIDES.
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