NOTE 6—HEDGING ACTIVITIES

Aircraft Fuel Hedges. The Company has a risk management strategy to hedge a portion of its price risk related to projected aircraft fuel requirements. The Company periodically enters into derivative contracts to mitigate the adverse financial impact of potential increases in the price of fuel. The Company does not enter into derivative instruments for non-risk management purposes. Prior to April 1, 2010, United's fuel hedges were not accounted for as fair value or cash flow hedges under accounting principles related to hedge accounting. Effective April 1, 2010, United designated substantially all of its outstanding fuel derivative contracts, which settle in periods subsequent to June 30, 2010, as cash flow hedges under applicable accounting standards. In addition, substantially all new fuel derivative contracts entered into subsequent to April 1, 2010 were designated as cash flow hedges.

For fuel derivative instruments designated as cash flow hedges, the Company records the effective portion of periodic changes in the fair value of the derivatives in accumulated other comprehensive income (loss) ("AOCI") until the underlying fuel is consumed and recorded in fuel expense. Hedge ineffectiveness results when the change in the fair value of the derivative instrument exceeds the change in the value of the Company's expected future cash outlay to purchase and consume fuel. To the extent that the periodic changes in the fair value of the derivatives are not effective, that ineffectiveness is recorded to miscellaneous nonoperating income (expense) in the statements of consolidated operations. Nonoperating income (expense) for the three and nine months ended September 30, 2011 includes $56 million and $87 million, respectively, of expense resulting from ineffectiveness caused by a decrease in fuel hedge values in excess of the decrease in aircraft fuel prices during the quarter. The impact has been concentrated in hedges utilizing crude oil derivative contracts.

The Company records each derivative instrument as a derivative asset or liability (on a gross basis) in its consolidated balance sheets and, accordingly, records any related collateral on a gross basis.

As of September 30, 2011, our projected fuel requirements for the remainder of 2011 were hedged as follows:


	Maximum Price					Minimum Price
	% of Expected Consumption			Weighted Average Price (per gallon)		% of Expected Consumption			Weighted Average Price (per gallon)
UAL (a)
Heating oil collars		19	%	$	3.27		19	%	$	2.63
Heating oil call options		5			3.23		N/A			N/A
Heating oil swaps		4			2.93		4			2.93
West Texas Intermediate ("WTI") crude oil call options		12			2.35		N/A			N/A
WTI crude oil swaps		10			2.19		10			2.19
Aircraft fuel call options		2			3.21		N/A			N/A
Aircraft fuel swaps		4			3.03		4			3.03

Total		56	%				37	%

(a)	As of September 30, 2011, UAL had also hedged 34% of projected first half 2012 fuel consumption.

The following tables present information about the financial statement classification of the Company's derivatives (in millions):


		September 30, 2011						December 31, 2010
Derivatives designated as hedges	Balance Sheet Location	UAL		United		Continental		UAL		United		Continental
Assets:
Fuel contracts due within one year	Receivables	$	25	$	14	$	11	$	375	$	277	$	98

Liabilities:
Fuel contracts due within one year	Other Current Liabilities	$	100	$	62	$	38	$	—	$	—	$	—


	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective portion)					Gain (Loss) Reclassified from AOCI into Income (Fuel Expense) (Effective Portion)					Amount of Gain (Loss) Recognized in Income (Nonoperating Expense) (Ineffective Portion)
	Three Months Ended September 30,					Three Months Ended September 30,					Three Months Ended September 30,
Fuel contracts	2011			2010		2011		2010			2011			2010
UAL	$	(181	)	$	79	$	94	$	(72	)	$	(56	)	$	12
United		(91	)		79		90		(72	)		(33	)		12
Continental (a)		(90	)		33		4		(16	)		(23	)		—

(a)	For Continental, the 2011 period represents Successor and the 2010 period represents Predecessor.


	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective portion)						Gain (Loss) Reclassified from AOCI into Income (Fuel Expense) (Effective Portion)					Amount of Gain (Loss) Recognized in Income (Nonoperating Expense) (Ineffective Portion)
	Nine Months Ended September 30,						Nine Months Ended September 30,					Nine Months Ended September 30,
Fuel contracts	2011			2010			2011		2010			2011			2010
UAL	$	112		$	(66	)	$	526	$	(72	)	$	(87	)	$	9
United		145			(66	)		427		(72	)		(38	)		9
Continental (a)		(33	)		(4	)		99		(23	)		(49	)		(2	)

(a)	For Continental, the 2011 period represents Successor and the 2010 period represents Predecessor.

Derivative Credit Risk and Fair Value

The Company is exposed to credit losses in the event of nonperformance by counterparties to its derivative instruments. While the Company records derivative instruments on a gross basis, the Company monitors its net derivative position with each counterparty to monitor credit risk. Based on the fair value of our fuel derivative instruments, our counterparties may require us to post collateral when the price of the underlying commodity decreases, and we may require our counterparties to provide us with collateral when the price of the underlying commodity increases. The following table presents information related to the Company's derivative credit risk as of September 30, 2011 (in millions):


	UAL		United		Continental
Net derivative liability with counterparties	$	75	$	48	$	27
Collateral held by the Company		—		—		—
Collateral posted by the Company (a)		2		2		—
Potential loss related to the failure of the Company's counterparties to perform		1		—		1

(a)	Classified as a current receivable.

Hedging Activities

NOTE 6—HEDGING ACTIVITIES

Aircraft Fuel Hedges. The Company has a risk management strategy to hedge a portion of its price risk related to projected aircraft fuel requirements. The Company periodically enters into derivative contracts to mitigate the adverse financial impact of potential increases in the price of fuel. The Company does not enter into derivative instruments for non-risk management purposes. Prior to April 1, 2010, United's fuel hedges were not accounted for as fair value or cash flow hedges under accounting principles related to hedge accounting. Effective April 1, 2010, United designated substantially all of its outstanding fuel derivative contracts, which settle in periods subsequent to June 30, 2010, as cash flow hedges under applicable accounting standards. In addition, substantially all new fuel derivative contracts entered into subsequent to April 1, 2010 were designated as cash flow hedges.

For fuel derivative instruments designated as cash flow hedges, the Company records the effective portion of periodic changes in the fair value of the derivatives in accumulated other comprehensive income (loss) ("AOCI") until the underlying fuel is consumed and recorded in fuel expense. Hedge ineffectiveness results when the change in the fair value of the derivative instrument exceeds the change in the value of the Company's expected future cash outlay to purchase and consume fuel. To the extent that the periodic changes in the fair value of the derivatives are not effective, that ineffectiveness is recorded to miscellaneous nonoperating income (expense) in the statements of consolidated operations. Nonoperating income (expense) for the three and nine months ended September 30, 2011 includes $56 million and $87 million, respectively, of expense resulting from ineffectiveness caused by a decrease in fuel hedge values in excess of the decrease in aircraft fuel prices during the quarter. The impact has been concentrated in hedges utilizing crude oil derivative contracts.

The Company records each derivative instrument as a derivative asset or liability (on a gross basis) in its consolidated balance sheets and, accordingly, records any related collateral on a gross basis.

As of September 30, 2011, our projected fuel requirements for the remainder of 2011 were hedged as follows:


	Maximum Price					Minimum Price
	% of Expected Consumption			Weighted Average Price (per gallon)		% of Expected Consumption			Weighted Average Price (per gallon)
UAL (a)
Heating oil collars		19	%	$	3.27		19	%	$	2.63
Heating oil call options		5			3.23		N/A			N/A
Heating oil swaps		4			2.93		4			2.93
West Texas Intermediate ("WTI") crude oil call options		12			2.35		N/A			N/A
WTI crude oil swaps		10			2.19		10			2.19
Aircraft fuel call options		2			3.21		N/A			N/A
Aircraft fuel swaps		4			3.03		4			3.03

Total		56	%				37	%

(a)	As of September 30, 2011, UAL had also hedged 34% of projected first half 2012 fuel consumption.

The following tables present information about the financial statement classification of the Company's derivatives (in millions):


		September 30, 2011						December 31, 2010
Derivatives designated as hedges	Balance Sheet Location	UAL		United		Continental		UAL		United		Continental
Assets:
Fuel contracts due within one year	Receivables	$	25	$	14	$	11	$	375	$	277	$	98

Liabilities:
Fuel contracts due within one year	Other Current Liabilities	$	100	$	62	$	38	$	—	$	—	$	—


	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective portion)					Gain (Loss) Reclassified from AOCI into Income (Fuel Expense) (Effective Portion)					Amount of Gain (Loss) Recognized in Income (Nonoperating Expense) (Ineffective Portion)
	Three Months Ended September 30,					Three Months Ended September 30,					Three Months Ended September 30,
Fuel contracts	2011			2010		2011		2010			2011			2010
UAL	$	(181	)	$	79	$	94	$	(72	)	$	(56	)	$	12
United		(91	)		79		90		(72	)		(33	)		12
Continental (a)		(90	)		33		4		(16	)		(23	)		—

(a)	For Continental, the 2011 period represents Successor and the 2010 period represents Predecessor.


	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective portion)						Gain (Loss) Reclassified from AOCI into Income (Fuel Expense) (Effective Portion)					Amount of Gain (Loss) Recognized in Income (Nonoperating Expense) (Ineffective Portion)
	Nine Months Ended September 30,						Nine Months Ended September 30,					Nine Months Ended September 30,
Fuel contracts	2011			2010			2011		2010			2011			2010
UAL	$	112		$	(66	)	$	526	$	(72	)	$	(87	)	$	9
United		145			(66	)		427		(72	)		(38	)		9
Continental (a)		(33	)		(4	)		99		(23	)		(49	)		(2	)

(a)	For Continental, the 2011 period represents Successor and the 2010 period represents Predecessor.

Derivative Credit Risk and Fair Value

The Company is exposed to credit losses in the event of nonperformance by counterparties to its derivative instruments. While the Company records derivative instruments on a gross basis, the Company monitors its net derivative position with each counterparty to monitor credit risk. Based on the fair value of our fuel derivative instruments, our counterparties may require us to post collateral when the price of the underlying commodity decreases, and we may require our counterparties to provide us with collateral when the price of the underlying commodity increases. The following table presents information related to the Company's derivative credit risk as of September 30, 2011 (in millions):


	UAL		United		Continental
Net derivative liability with counterparties	$	75	$	48	$	27
Collateral held by the Company		—		—		—
Collateral posted by the Company (a)		2		2		—
Potential loss related to the failure of the Company's counterparties to perform		1		—		1

(a)	Classified as a current receivable.

Hedging Activities

NOTE 6—HEDGING ACTIVITIES

Aircraft Fuel Hedges. The Company has a risk management strategy to hedge a portion of its price risk related to projected aircraft fuel requirements. The Company periodically enters into derivative contracts to mitigate the adverse financial impact of potential increases in the price of fuel. The Company does not enter into derivative instruments for non-risk management purposes. Prior to April 1, 2010, United's fuel hedges were not accounted for as fair value or cash flow hedges under accounting principles related to hedge accounting. Effective April 1, 2010, United designated substantially all of its outstanding fuel derivative contracts, which settle in periods subsequent to June 30, 2010, as cash flow hedges under applicable accounting standards. In addition, substantially all new fuel derivative contracts entered into subsequent to April 1, 2010 were designated as cash flow hedges.

For fuel derivative instruments designated as cash flow hedges, the Company records the effective portion of periodic changes in the fair value of the derivatives in accumulated other comprehensive income (loss) ("AOCI") until the underlying fuel is consumed and recorded in fuel expense. Hedge ineffectiveness results when the change in the fair value of the derivative instrument exceeds the change in the value of the Company's expected future cash outlay to purchase and consume fuel. To the extent that the periodic changes in the fair value of the derivatives are not effective, that ineffectiveness is recorded to miscellaneous nonoperating income (expense) in the statements of consolidated operations. Nonoperating income (expense) for the three and nine months ended September 30, 2011 includes $56 million and $87 million, respectively, of expense resulting from ineffectiveness caused by a decrease in fuel hedge values in excess of the decrease in aircraft fuel prices during the quarter. The impact has been concentrated in hedges utilizing crude oil derivative contracts.

The Company records each derivative instrument as a derivative asset or liability (on a gross basis) in its consolidated balance sheets and, accordingly, records any related collateral on a gross basis.

As of September 30, 2011, our projected fuel requirements for the remainder of 2011 were hedged as follows:


	Maximum Price					Minimum Price
	% of Expected Consumption			Weighted Average Price (per gallon)		% of Expected Consumption			Weighted Average Price (per gallon)
UAL (a)
Heating oil collars		19	%	$	3.27		19	%	$	2.63
Heating oil call options		5			3.23		N/A			N/A
Heating oil swaps		4			2.93		4			2.93
West Texas Intermediate ("WTI") crude oil call options		12			2.35		N/A			N/A
WTI crude oil swaps		10			2.19		10			2.19
Aircraft fuel call options		2			3.21		N/A			N/A
Aircraft fuel swaps		4			3.03		4			3.03

Total		56	%				37	%

(a)	As of September 30, 2011, UAL had also hedged 34% of projected first half 2012 fuel consumption.

The following tables present information about the financial statement classification of the Company's derivatives (in millions):


		September 30, 2011						December 31, 2010
Derivatives designated as hedges	Balance Sheet Location	UAL		United		Continental		UAL		United		Continental
Assets:
Fuel contracts due within one year	Receivables	$	25	$	14	$	11	$	375	$	277	$	98

Liabilities:
Fuel contracts due within one year	Other Current Liabilities	$	100	$	62	$	38	$	—	$	—	$	—


	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective portion)					Gain (Loss) Reclassified from AOCI into Income (Fuel Expense) (Effective Portion)					Amount of Gain (Loss) Recognized in Income (Nonoperating Expense) (Ineffective Portion)
	Three Months Ended September 30,					Three Months Ended September 30,					Three Months Ended September 30,
Fuel contracts	2011			2010		2011		2010			2011			2010
UAL	$	(181	)	$	79	$	94	$	(72	)	$	(56	)	$	12
United		(91	)		79		90		(72	)		(33	)		12
Continental (a)		(90	)		33		4		(16	)		(23	)		—

(a)	For Continental, the 2011 period represents Successor and the 2010 period represents Predecessor.


	Amount of Gain (Loss) Recognized in AOCI on Derivatives (Effective portion)						Gain (Loss) Reclassified from AOCI into Income (Fuel Expense) (Effective Portion)					Amount of Gain (Loss) Recognized in Income (Nonoperating Expense) (Ineffective Portion)
	Nine Months Ended September 30,						Nine Months Ended September 30,					Nine Months Ended September 30,
Fuel contracts	2011			2010			2011		2010			2011			2010
UAL	$	112		$	(66	)	$	526	$	(72	)	$	(87	)	$	9
United		145			(66	)		427		(72	)		(38	)		9
Continental (a)		(33	)		(4	)		99		(23	)		(49	)		(2	)

(a)	For Continental, the 2011 period represents Successor and the 2010 period represents Predecessor.

Derivative Credit Risk and Fair Value

The Company is exposed to credit losses in the event of nonperformance by counterparties to its derivative instruments. While the Company records derivative instruments on a gross basis, the Company monitors its net derivative position with each counterparty to monitor credit risk. Based on the fair value of our fuel derivative instruments, our counterparties may require us to post collateral when the price of the underlying commodity decreases, and we may require our counterparties to provide us with collateral when the price of the underlying commodity increases. The following table presents information related to the Company's derivative credit risk as of September 30, 2011 (in millions):


	UAL		United		Continental
Net derivative liability with counterparties	$	75	$	48	$	27
Collateral held by the Company		—		—		—
Collateral posted by the Company (a)		2		2		—
Potential loss related to the failure of the Company's counterparties to perform		1		—		1

(a)	Classified as a current receivable.