United Airlines 2012 Annual Report Download - page 55

Table of Contents
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. These amounts are recorded based on the Company’s assessments of the likelihood of their eventual disposition.
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 European Union Emissions Trading Scheme (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.
Off-Balance Sheet Arrangements. An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an
unconsolidated entity under which a company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under
derivative instruments classified as equity, or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing,
liquidity, market risk or credit risk support, or that engages in leasing, hedging or research and development arrangements. The Company’s primary off-
balance sheet arrangements include operating leases, which are summarized in the contractual obligations table in 
above, and certain municipal bond obligations, as discussed below.
As of December 31, 2012, United had cash collateralized $77 million of letters of credit, most of which had previously been issued under the Amended Credit
Facility. United also had $300 million of performance bonds. Continental had letters of credit and performance bonds relating to various real estate, customs
and aircraft financing obligations at December 31, 2012 in the amount of approximately $67 million. Most of the letters of credit have evergreen clauses and
are expected to be renewed on an annual basis and the performance bonds have expiration dates through 2016.
As of December 31, 2012, United and Continental are the guarantors of approximately $270 million and $1.6 billion, respectively, in aggregate principal
amount of tax-exempt special facilities revenue bonds and interest thereon. These bonds, issued by various airport municipalities, are payable solely from
rentals paid under long-term agreements with the respective governing bodies. The leasing arrangements associated with a majority of these obligations are
accounted for as operating leases and are not recorded in United’s and Continental’s financial statements. The leasing arrangements associated with a minority
of these obligations are accounted for as capital leases. The annual lease payments for those obligations accounted for as operating leases are included in the
operating lease payments in the contractual obligations table in  above.
Increased Cost Provisions. In the Company’s financing transactions that include loans, the Company typically agrees to reimburse lenders for any reduced
returns with respect to the loans due to any change in capital requirements and, in the case of loans in which the interest rate is based on LIBOR, for certain
other increased costs that the lenders incur in carrying these loans as a result of any change in law, subject in most cases to certain mitigation obligations of the
lenders. At December 31, 2012, UAL had $2.6 billion of floating rate debt (consisting of United’s $1.9 billion and Continental’s $658 million of debt) and
$347 million of fixed rate debt (consisting of United’s $186 million and Continental’s $161 million of debt), with remaining terms of up to ten years, that are
subject to these increased cost provisions. In several financing transactions involving loans or leases from non-U.S. entities, with remaining terms of up to
nine years and an aggregate balance of $2.8 billion (consisting of United’s $2.1 billion and Continental’s $744 million balance), we bear the risk of any
change in tax laws that would subject loan or lease payments thereunder to non-U.S. entities to withholding taxes, subject to customary exclusions.
54