United Airlines 2008 Annual Report Download - page 134

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fuel derivative instruments, our counterparties may require the Company to post additional amounts of
collateral when the price of the underlying commodity decreases and lesser amounts when the price of
the underlying commodity increases.
Derivative instruments and investments presented in the table above have the same fair value as
their carrying value. The table below presents the carrying values and estimated fair values of the
Company’s financial instruments not presented in the table above:
(In millions)
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
2008 2007
Long-tem debt (including current portion) .................. $6,789 $4,192 $7,093 $6,796
Preferred stock........................................ — — 371 401
Lease deposits ........................................ 326 351 516 531
Fair value of the above financial instruments was determined as follows:
Description Fair Value Methodology
Cash and Cash Equivalents,
Short-term Investments and
Restricted Cash
The carrying amounts approximate fair value because of the
short-term maturity of these investments.
Enhanced Equipment
Trust Certificates (“EETCs”)
The EETCs are not actively traded on an exchange. Fair value is
based on the trading prices of similar EETC instruments issued by
other airlines. The Company uses internal models and observable
and unobservable inputs to corroborate third party quotes. Because
certain inputs are unobservable, the Company categorized the
EETCs as Level 3.
Fuel Derivative Instruments Derivative contracts are privately negotiated contracts and are not
exchange traded. Fair value measurements are estimated with
option pricing models that employ observable and unobservable
inputs.
Foreign Currency Derivative
Instruments
Fair value is determined with a formula utilizing observable inputs.
Preferred Stock and Long-Term
Debt
The fair value is based on the quoted market prices for the same or
similar issues, discounted cash flow models using appropriate
market rates and the Black-Scholes model to value conversion rights
in UAL’s convertible preferred stock and debt instruments. The
Company’s credit risk was considered in estimating fair value.
(14) Commitments, Contingent Liabilities and Uncertainties
General Guarantees and Indemnifications. In the normal course of business, the Company enters
into numerous real estate leasing and aircraft financing arrangements that have various guarantees
included in the contracts. These guarantees are primarily in the form of indemnities. In both leasing and
financing transactions, the Company typically indemnifies the lessors and any tax/financing parties,
against tort liabilities that arise out of the use, occupancy, operation or maintenance of the leased
premises or financed aircraft. Currently, the Company believes that any future payments required under
these guarantees or indemnities would be immaterial, as most tort liabilities and related indemnities are
covered by insurance (subject to deductibles). Additionally, certain leased premises such as fueling
stations or storage facilities include indemnities of such parties for any environmental liability that may
arise out of or relate to the use of the leased premises.
134