United Airlines 2012 Annual Report Download - page 23

Table of Contents
The Company’s ability to use its net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes may be
significantly limited due to various circumstances, including certain possible future transactions involving the sale or issuance of UAL common
stock, or if taxable income does not reach sufficient levels.
As of December 31, 2012, UAL reported consolidated federal net operating loss (“NOL”) carryforwards of approximately $10 billion.
The Company’s ability to use its NOL carryforwards may be limited if it experiences an “ownership change” as defined in Section 382 (“Section 382”) of the
Internal Revenue Code of 1986, as amended. An ownership change generally occurs if certain stockholders increase their aggregate percentage ownership of a
corporation’s stock by more than 50 percentage points over their lowest percentage ownership at any time during the testing period, which is generally the three-
year period preceding any potential ownership change.
There is no assurance that the Company will not experience a future ownership change under Section 382 that may significantly limit or possibly eliminate its
ability to use its NOL carryforwards. Potential future transactions involving the sale or issuance of UAL common stock, including the exercise of conversion
options under the terms of the Company’s convertible debt, repurchase of such debt with UAL common stock, issuance of UAL common stock for cash and
the acquisition or disposition of such stock by a stockholder owning 5% or more of UAL common stock, or a combination of such transactions, may
increase the possibility that the Company will experience a future ownership change under Section 382.
Under Section 382, a future ownership change would subject the Company to additional annual limitations that apply to the amount of pre-ownership change
NOLs that may be used to offset post-ownership change taxable income. This limitation is generally determined by multiplying the value of a corporation’s
stock immediately before the ownership change by the applicable long-term tax-exempt rate. Any unused annual limitation may, subject to certain limits, be
carried over to later years, and the limitation may under certain circumstances be increased by built-in gains in the assets held by such corporation at the time
of the ownership change. This limitation could cause the Company’s U.S. federal income taxes to be greater, or to be paid earlier, than they otherwise would
be, and could cause all or a portion of the Company’s NOL carryforwards to expire unused. Similar rules and limitations may apply for state income tax
purposes. The Company’s ability to use its NOL carryforwards will also depend on the amount of taxable income it generates in future periods. Its NOL
carryforwards may expire before the Company can generate sufficient taxable income to use them in full.
UAL’s amended and restated certificate of incorporation limits certain transfers of its stock which could have an effect on the market price of UAL
common stock.
To reduce the risk of a potential adverse effect on the Company’s ability to use its NOL carryforwards for federal income tax purposes, UAL’s amended and
restated certificate of incorporation contains a 5% ownership limitation. This limitation generally remains effective until February 1, 2014, or until such later
date as may be approved by the UAL Board of Directors (the “Board of Directors”) in its sole discretion. The limitation prohibits (i) an acquisition by a single
stockholder of shares that results in that stockholder owning 5% or more of UAL common stock and (ii) any acquisition or disposition of common stock by
a stockholder that already owns 5% or more of UAL common stock, unless prior written approval is granted by the Board of Directors.
Any transfer of common stock in violation of these restrictions will be void and will be treated as if such transfer never occurred. This provision of UAL’s
amended and restated certificate of incorporation may impair or prevent a sale of common stock by a stockholder and adversely affect the price at which a
stockholder can sell UAL common stock. In addition, this limitation may have the effect of delaying or preventing a change in control of the Company,
creating a perception that a change in control cannot occur or otherwise discouraging takeover attempts that some stockholders may consider beneficial, which
could also adversely affect the market price of the UAL common stock. The Company cannot predict the effect that this provision in UAL’s amended and
restated certificate of incorporation may have on the market price of the UAL common stock. For additional information regarding the 5% ownership
limitation, please refer to UAL’s amended and restated certificate of incorporation available on the Company’s website.
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