Financial Instruments and Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2014

Financial Assets and Liabilities Measured at Fair Value on Recurring Basis

The table below presents disclosures about the financial assets and financial liabilities measured at fair value on a recurring basis in the Company’s financial statements (in millions):


	June 30, 2014								December 31, 2013
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	UAL
Cash and cash equivalents	$	3,424	$	3,424	$	—	$	—	$	3,220	$	3,220	$	—	$	—
Short-term investments:
Asset-backed securities		910		—		910		—		694		—		694		—
Corporate debt		790		—		790		—		685		—		685		—
Certificates of deposit placed through an account registry service (“CDARS”)		308		—		308		—		301		—		301		—
Auction rate securities		26		—		—		26		105		—		—		105
U.S. government and agency notes		40		—		40		—		38		—		38		—
Other fixed income securities		298		—		298		—		78		—		78		—
Fuel derivatives, net		116		—		116		—		104		—		104		—
Enhanced equipment trust certificates (“EETC”)		59		—		—		59		61		—		—		61
Foreign currency derivative asset (liability), net		(1)		—		(1)		—		1		—		1		—
Restricted cash		351		351		—		—		395		395		—		—

	United
Cash and cash equivalents	$	3,418	$	3,418	$	—	$	—	$	3,214	$	3,214	$	—	$	—
Short-term investments:
Asset-backed securities		910		—		910		—		694		—		694		—
Corporate debt		790		—		790		—		685		—		685		—
CDARS		308		—		308		—		301		—		301		—
Auction rate securities		26		—		—		26		105		—		—		105
U.S. government and agency notes		40		—		40		—		38		—		38		—
Other fixed income securities		298		—		298		—		78		—		78		—
Fuel derivatives, net		116		—		116		—		104		—		104		—
EETC		59		—		—		59		61		—		—		61
Foreign currency derivative asset (liability), net		(1)		—		(1)		—		1		—		1		—
Restricted cash		351		351		—		—		395		395		—		—
Convertible debt derivative asset		449		—		—		449		480		—		—		480
Convertible debt option liability		(263)		—		—		(263)		(270)		—		—		(270)

Activity for "Level Three" Financial Assets and Financial Liabilities

The table below presents disclosures about the activity for “Level 3” financial assets and financial liabilities (in millions):


	Three Months Ended June 30,
	2014								2013
	UAL and United				United				UAL and United				United
	Student Loan-Related Auction Rate Securities		EETC		Convertible Debt Supplemental Derivative Asset		Convertible Debt Conversion Option Liability		Student Loan-Related Auction Rate Securities		EETC		Convertible Debt Supplemental Derivative Asset		Convertible Debt Conversion Option Liability

Balance at March 31	$	96	$	59	$	584	$	(352)	$	108	$	61	$	413	$	(209)
Purchases, (sales), issuances and (settlements) (net)		(74)		—		(62)		34		—		—		—		—
Gains and (losses):
Reported in earnings:
Realized		9		—		(5)		5		—		—		—		—
Unrealized		—		—		(68)		50		—		—		(18)		10
Reported in other comprehensive income (loss)		(5)		—		—		—		7		1		—		—

Balance at June 30	$	26	$	59	$	449	$	(263)	$	115	$	62	$	395	$	(199)


	Six Months Ended June 30,
	2014								2013
	UAL and United				United				UAL and United				United
	Student Loan-Related Auction Rate Securities		EETC		Convertible Debt Supplemental Derivative Asset		Convertible Debt Conversion Option Liability		Student Loan-Related Auction Rate Securities		EETC		Convertible Debt Supplemental Derivative Asset		Convertible Debt Conversion Option Liability

Balance at January 1	$	105	$	61	$	480	$	(270)	$	116	$	63	$	268	$	(128)
Purchases, (sales), issuances and settlements (net)		(84)		(3)		(62)		34		(10)		(2)		—		—
Gains and (losses):
Reported in earnings:
Realized		10		—		(5)		5		2		—		—		—
Unrealized		—		—		36		(32)		1		—		127		(71)
Reported in other comprehensive income (loss)		(5)		1		—		—		6		1		—		—

Balance at June 30	$	26	$	59	$	449	$	(263)	$	115	$	62	$	395	$	(199)

Carrying Values and Estimated Fair Values of Financial Instruments

The table below presents the carrying values and estimated fair values of financial instruments not presented in the tables above (in millions):


	Fair Value of Debt by Fair Value Hierarchy Level
	June 30, 2014										December 31, 2013
	Carrying Amount		Fair Value								Carrying Amount		Fair Value
			Total		Level 1		Level 2		Level 3				Total		Level 1		Level 2		Level 3
UAL debt	$	11,522	$	12,771	$	—	$	9,182	$	3,589	$	11,539	$	12,695	$	—	$	8,829	$	3,866
United debt		11,423		12,453		—		8,864		3,589		11,388		12,249		—		8,383		3,866

Fair Value Methodology for Financial Instruments

Fair value of the financial instruments included in the tables above was determined as follows:


Description		Fair Value Methodology
Cash and cash equivalents		The carrying amounts approximate fair value because of the short-term maturity of these assets.

Short-term investments and Restricted cash		Fair value is based on (a) the trading prices of the investment or similar instruments, (b) an income approach, which uses valuation techniques to convert future amounts into a single present amount based on current market expectations about those future amounts when observable trading prices are not available, (c) internally-developed models of the expected future cash flows related to the securities, or (d) broker quotes obtained by third-party valuation services.

Fuel derivatives		Derivative contracts are privately negotiated contracts and are not exchange traded. Fair value measurements are estimated with option pricing models that employ observable inputs. Inputs to the valuation models include contractual terms, market prices, yield curves, fuel price curves and measures of volatility, among others.

Foreign currency derivatives		Fair value is determined with a formula utilizing observable inputs. Significant inputs to the valuation models include contractual terms, risk-free interest rates and forward exchange rates.

Debt		Fair values were based on either market prices or the discounted amount of future cash flows using our current incremental rate of borrowing for similar liabilities.

Convertible debt derivative asset and option liability		United used a binomial lattice model to value the conversion options and the supplemental derivative assets. Significant binomial model inputs that are not objectively determinable include volatility and the Company’s credit risk component of the discount rate.

Level 3

Fair Value Methodology for Financial Instruments

Quantitative Information About Level 3 Fair Value Measurements (in millions)

Item

Fair Value at
June 30, 2014

Valuation Technique

Unobservable Input

Range

(Weighted Average)

Auction rate securities

Valuation Service / Broker Quotes

Broker quotes (a)

EETC

Discounted Cash Flows

Structure credit risk (b)

Convertible debt

derivative asset

449

Binomial Lattice Model

Expected volatility (c)

Own credit risk (d)

40% - 60% (41%)

Convertible debt

option liability

(263

)

Binomial Lattice Model

Expected volatility (c)

Own credit risk (d)

40% - 60% (42%)

(a) Broker quotes obtained by a third-party valuation service.

(b) Represents the credit risk premium of the EETC structure above the risk-free rate that the Company has determined market participants would use when pricing the instruments.

(c) Represents the range in volatility estimates that the Company has determined market participants would use when pricing the instruments.

(d) Represents the range of Company-specific risk adjustments that the Company has determined market participants would use as a model input.

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

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