NOTE 6 - FINANCIAL
INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The table below presents
disclosures about the financial assets and liabilities measured at
fair value on a recurring basis in the Company’s financial
statements (in millions):
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March 31,
2016 |
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December 31,
2015 |
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Total |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Level 1 |
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Level 2 |
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Level 3 |
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Cash and cash
equivalents
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$ |
1,795 |
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$ |
1,795 |
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$ |
— |
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$ |
— |
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$ |
3,006 |
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$ |
3,006 |
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$ |
— |
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$ |
— |
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Short-term
investments:
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Corporate debt
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859 |
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— |
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859 |
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— |
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891 |
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— |
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891 |
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— |
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Asset-backed
securities
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725 |
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— |
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725 |
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— |
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710 |
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— |
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710 |
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— |
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Certificates of deposit
placed through an account registry service
(“CDARS”)
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250 |
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— |
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250 |
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— |
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281 |
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— |
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281 |
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— |
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U.S. government and agency
notes
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105 |
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— |
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105 |
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— |
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72 |
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— |
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72 |
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— |
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Auction rate
securities
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9 |
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— |
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— |
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9 |
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9 |
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— |
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— |
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9 |
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Other fixed-income
securities
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28 |
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— |
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28 |
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— |
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26 |
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— |
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26 |
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— |
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Other investments measured
at NAV (a)
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201 |
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— |
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— |
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— |
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201 |
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— |
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— |
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— |
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Enhanced equipment trust
certificates (“EETC”)
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24 |
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— |
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— |
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24 |
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26 |
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— |
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— |
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26 |
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Fuel derivatives liability,
net
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32 |
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— |
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32 |
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— |
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124 |
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— |
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124 |
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— |
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Foreign currency
derivatives liability, net
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1 |
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— |
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1 |
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— |
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— |
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— |
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— |
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— |
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Restricted cash
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180 |
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180 |
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— |
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— |
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206 |
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206 |
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— |
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— |
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Note: Amounts for UAL and
United are substantially the same as of March 31, 2016 and
December 31, 2015.
(a) In accordance with the
relevant accounting standards, certain investments that are
measured at fair value using the NAV per share (or its equivalent)
practical expedient have not been classified in the fair value
hierarchy. The fair value amounts presented in this table are
intended to permit reconciliation of the fair value hierarchy to
the amounts presented in the statement of financial position. The
investments measured using NAV are shares of mutual funds that
invest in fixed-income instruments including bonds, debt
securities, and other similar instruments issued by various U.S.
and non-U.S. public- or private-sector entities. The Company can
redeem its shares at any time at NAV subject to a three-day
settlement period.
Available-for-sale
investment maturities - The short-term investments shown in the
table above are classified as available-for-sale. As of
March 31, 2016, asset-backed securities have remaining
maturities of less than one year to approximately 34 years,
corporate debt securities have remaining maturities of less than
one year to approximately six years and CDARS have maturities of
less than one year. U.S. government and other securities have
maturities of less than one year to approximately three years. The
EETC securities mature in 2019.
Derivative instruments and
investments presented in the tables above have the same fair value
as their carrying value. The table below presents the carrying
values and estimated fair values of financial instruments not
presented in the tables above (in millions):
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Fair Value of Debt by
Fair Value Hierarchy Level |
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March 31,
2016 |
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December 31,
2015 |
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Carrying
Amount |
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Fair
Value |
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Carrying
Amount |
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Fair
Value |
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Total |
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Level 1 |
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Level 2 |
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Level 3 |
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Total |
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Level 1 |
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Level 2 |
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Level 3 |
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Long-term debt
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$ |
10,767 |
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$ |
11,180 |
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$ |
— |
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$ |
8,309 |
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$ |
2,871 |
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$ |
10,897 |
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$ |
11,371 |
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$ |
— |
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$ |
8,646 |
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$ |
2,725 |
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Fair value of the financial
instruments included in the tables above was determined as
follows:
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Description
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Fair Value
Methodology
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Cash and cash equivalents |
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The carrying amounts approximate fair value because of the
short-term maturity of these assets. |
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Short-term investments and
Restricted
cash
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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. |
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Fuel derivatives |
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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. |
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Foreign currency derivatives |
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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. |
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Debt |
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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. |
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