United Airlines 2011 Annual Report Download - page 54

Table of Contents
Contingencies
Contingent Senior Unsecured Notes
UAL is obligated under an indenture to issue to the Pension Benefit Guaranty Corporation (“PBGC”) up to $500 million aggregate principal amount of 8%
Notes in up to eight equal tranches of $62.5 million if a triggering event occurs (with each tranche issued no later than 45 days following the end of any
applicable fiscal year). A triggering event occurs when UAL’s EBITDAR (as defined in the 8% Notes indenture) exceeds $3.5 billion over the prior 12 months
ending June 30 or December 31 of any applicable fiscal year. The 12 month measurement periods began with the fiscal year ended December 31, 2009 and will
end with the fiscal year ending December 31, 2017. If any 8% Notes are issued, the Company will not receive any cash.
Financial triggering events under the 8% Notes indenture occurred at June 30, 2011 and December 31, 2011 and, as a result, UAL issued two tranches of
$62.5 million of the 8% Notes to the PBGC in January 2012. These tranches will mature 15 years from their respective triggering dates with interest accruing
from the triggering date at a rate of 8% per annum. The notes are payable in cash in semi-annual installments starting June 30, 2012 and will be callable, at
UAL’s option, at any time at par, plus accrued and unpaid interest.
These are the first two such occurrences of UAL’s obligation to issue the 8% Notes. Since the issuance of subsequent tranches of the 8% Notes is based upon
future operating results, UAL cannot predict whether future issuances will occur or the timing of any such issuances. Any future issuances of the 8% Notes
could adversely impact the Company’s results of operations because of increased charges to earnings for the then fair value of the principal amount of the
notes issued and increased interest expense related to the 8% Notes. Issuance of such notes could adversely impact the Company’s liquidity due to increased
cash required to meet interest and principal payments.
Legal and Environmental. The Company has certain contingencies resulting from litigation and claims 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 the litigation and claims 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.
Other Contingencies. Many aspects of the Company’s operations are subject to increasingly stringent federal, state and local and international laws
protecting the environment. Future environmental regulatory developments, such as climate change regulations in the U.S. and abroad, could adversely affect
operations and increase operating costs in the airline industry. There are certain laws and regulations relating to climate change that apply to the Company,
including the EU ETS (which is subject to international dispute), environmental taxes for certain international flights (including the United Kingdom’s Air
Passenger Duty and Germany’s departure ticket tax), limited greenhouse gas reporting requirements, and the State of California’s cap and trade regulations
(which impacts United’s San Francisco maintenance center). In addition, there are land-based planning laws that could apply to airport expansion projects,
requiring a review of greenhouse gas emissions, and could affect airlines in certain circumstances.
As of January 1, 2012, the EU ETS required the Company to ensure that by each compliance date, it has obtained sufficient emission allowances equal to the
amount of carbon dioxide emissions with respect to flights to and from EU member states in the preceding calendar year. Such allowances are to be
surrendered on an annual basis to the relevant government with an initial compliance date of April 30, 2013 for emissions subject to the EU ETS in 2012. For
2012, the Company estimates it will receive from the United Kingdom allowances equal to approximately 80% of the Company’s carbon emissions relative to
the 2010 base year, leaving a remaining amount that will need to be purchased by the Company. The amount of such allowances provided by the United
Kingdom is expected to decrease in the future, potentially leaving a greater amount of allowances that may be required to be purchased. Additionally, any
increase in emissions would require the purchase of additional carbon
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