United Airlines 2012 Annual Report Download - page 94

Table of Contents
(r) The Company records expenses associated with amendable labor agreements when the employee group has earned the
compensation and the amounts are probable and estimable. These include costs associated with lump sum cash payments that would be made in
conjunction with the ratification of labor agreements. To the extent these upfront costs are in lieu of future pay increases, they would be capitalized
and amortized over the term of the labor agreements. If not, these amounts would be expensed when they become probable and estimable.
(s) United has third-party business revenue that includes fuel sales, catering, ground handling, maintenance services and
frequent flyer award non-air redemptions, and third-party business revenue is recorded in other revenue. The Company has a contract to sell
aircraft fuel to a third party which is earnings-neutral but results in revenue and expense, specifically cost of sale which is unrelated to the operation
of the airline. United also incurs third-party business expenses, such as maintenance, ground handling and catering services for third parties, fuel
sales and non-air mileage redemptions, and those third-party business expenses are recorded in other operating expenses.

The following summarizes Continental Predecessor accounting policies that materially differ from the Company’s accounting policies, described above.
Continental Predecessor recognized passenger revenue for ticket breakage when the ticket expired unused.
Continental accounted for mileage credits earned by flying on Continental under an incremental cost model, rather than a
deferred revenue model. For those frequent flyer accounts that had sufficient mileage credits to claim the lowest level of free travel, Continental recorded a
liability for either the estimated incremental cost of providing travel awards that were expected to be redeemed for travel on Continental or the contractual rate of
expected redemption on alliance carriers. Incremental cost included the cost of fuel, meals, insurance and miscellaneous supplies, less any fees charged to the
passenger for redeeming the rewards, but did not include any costs for aircraft ownership, maintenance, labor or overhead allocation. The liability was
adjusted periodically based on awards earned, awards redeemed, changes in the incremental costs and changes in the frequent flyer program. Changes in the
liability were recognized as passenger revenue in the period of change.

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-04 (“ASU 2011-04”), 
 Some of the key
amendments to the fair value measurement guidance include the highest and best use and valuation premise for nonfinancial assets, application to financial
assets and financial liabilities with offsetting positions in market risks or counterparty credit risk, premiums or discounts in fair value measurement and fair
value of an instrument classified in a reporting entity’s shareholders’ equity. Additional disclosures for fair value measurements categorized in Level 3 of the
fair value hierarchy include a quantitative disclosure of the unobservable inputs and assumptions used in the measurement, a description of the valuation
processes in place, a narrative description of the sensitivity of the fair value to changes in unobservable inputs and interrelationships between those inputs and
the level in the fair value hierarchy of items that are not measured at fair value in the consolidated balance sheet but whose fair value must be disclosed. ASU
2011-04 became effective for the Company’s annual and interim periods beginning January 1, 2012, and the required disclosures are disclosed in Note 12 of
this report.
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