NOTE 5 - SHARE-BASED COMPENSATION PLANS

UAL maintains several share-based compensation plans. These plans provide for grants of qualified and non-qualified stock options, stock appreciation rights, restricted stock awards, RSUs, performance compensation awards, performance units, cash incentive awards and other types of equity-based and equity-related awards.

All awards are recorded as equity or a liability in the Company’s consolidated balance sheets. The share-based compensation expense is directly recorded in salaries and related costs or integration-related expense.

In February 2013, UAL granted share-based compensation awards pursuant to the United Continental Holdings, Inc. 2008 Incentive Compensation Plan. These share-based compensation awards include approximately 0.5 million shares of restricted stock and 0.5 million of RSUs that vest pro-rata over three years on the anniversary of the grant date. The time vested RSUs are cash-settled based on the 20-day average closing price of UAL common stock immediately prior to the vesting date. In addition, UAL granted 1.3 million RSUs that will vest based on UAL’s return on invested capital for the three years ending December 31, 2015. If this performance condition is achieved, cash payments will be made after the end of the performance period based on the 20-day average closing price of UAL common stock immediately prior to the vesting date. The Company accounts for the RSUs as liability awards.

The following table provides information related to UAL’s share-based compensation plan cost for the years ended December 31 (in millions):


	2013		2012		2011
Compensation cost: (a)
RSUs	$	88	$	37	$	18
Restricted stock		11		13		12
Share-based awards converted to cash awards		1		6		19
Stock options		—		1		5

Total	$	100	$	57	$	54

(a) All compensation cost is recorded to Salaries and related costs, with the exception of $9 million, $9 million and $17 million in 2013, 2012 and 2011, respectively, that was recorded in integration-related costs as a component of special charges.

The table below summarizes UAL’s unearned compensation and weighted-average remaining period to recognize costs for all outstanding share-based awards for the year ended December 31, 2013 (in millions, except as noted):


	Unearned Compensation		Weighted- Average Remaining Period (in years)
RSUs	$	36		1.3
Restricted stock		8		1.4
Stock options		—		0.6

Total	$	44

RSUs and Restricted Stock. All outstanding RSUs are settled in cash. As of December 31, 2013, UAL had recorded a liability of $118 million related to its RSUs. UAL paid $29 million, $35 million and $57 million related to its share-based liabilities during 2013, 2012 and 2011, respectively.

The table below summarizes UAL’s RSUs and restricted stock activity for the years ended December 31 (shares in millions):


	RSUs		Restricted Stock		Weighted- Average Grant Price
Non-vested at December 31, 2010		—		1	$	17.20
Granted		4		1		23.87
Vested		—		(1)		22.26
Surrendered		(1)		—		23.95

Non-vested at December 31, 2011		3		1		23.33
Granted		2		1		24.01
Vested		—		(1)		23.05
Surrendered		(1)		—		24.01

Non-vested at December 31, 2012		4		1		23.94
Granted		2		1		25.98
Vested		(1)		(1)		23.93
Surrendered		—		—		24.76

Non-vested at December 31, 2013		5		1		25.02

The fair value of RSUs and restricted stock vested in 2013, 2012 and 2011 was $22 million, $27 million and $7 million, respectively. The fair value of the restricted stock awards was primarily based upon the UAL common stock price on the date of grant. These awards are accounted for as equity awards. The fair value of the RSUs was based on the UAL common stock price as of the last day preceding the settlement date. These awards were accounted for as liability awards. Restricted stock vesting and the recognition of the expense is similar to the stock option vesting described below.

Stock Options. UAL has not granted any stock options since 2010. Historically, stock options were awarded with exercise prices equal to the fair market value of UAL’s common stock on the date of grant. UAL stock options generally vest over a period of either three or four years and have a contractual life of 10 years. The Continental stock options assumed by UAL at the Merger generally have an original contractual life of five years (management level employee options) or 10 years (outside directors). Expense related to each portion of an option grant is recognized on a straight-line basis over the specific vesting period for those options.

The table below summarizes UAL stock option activity for the years ended December 31 (in millions, except as noted):


	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2010		11	$	21.70
Exercised		(2)		10.77			$	33
Surrendered		(2)		29.07

Outstanding at December 31, 2011		7		23.80
Exercised		(1)		12.42				14
Surrendered		(1)		30.50

Outstanding at December 31, 2012		5		25.60
Exercised		(2)		16.28				27
Surrendered		—		27.49

Outstanding at December 31, 2013		3		31.63		2.2		18

Exercisable at December 31, 2013		3		32.00		2.2		16

The fair value of options is determined at the grant date, and at the Merger date in the case of Continental options, using a Black Scholes option pricing model, which requires the Company to make several assumptions. The risk-free interest rate is based on the U.S. treasury yield curve in effect for the expected term of the option at the time of grant. The dividend yield on UAL’s common stock was assumed to be zero since UAL did not have any plans to pay dividends at the time of the option grants.

The volatility assumptions were based upon historical volatilities of UAL and other comparable airlines whose shares are traded using daily stock price returns equivalent to the contractual term of the option. In addition, implied volatility data for both UAL and other comparable airlines, using current exchange-traded options, was utilized.

The expected lives of the options were determined based upon either a simplified assumption that the option will be exercised evenly from vesting to expiration or estimated using historical experience for the assumed options. The terms of certain awards do not provide for the acceleration of vesting upon retirement. In addition, certain awards and the assumed options awarded to employees that are retirement eligible either at the grant date or within the vesting period are considered vested at the respective retirement eligibility date.