United Airlines 2007 Annual Report Download - page 64

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate and Foreign Currency Exchange Rate Risks. United's exposure to market risk associated with changes in interest rates relates primarily
to its debt obligations and short-term investments. The Company does not use derivative financial instruments in its investment portfolio. United's policy is to
manage interest rate risk through a combination of fixed and variable rate debt and by entering into swap agreements, depending upon market conditions. A
portion of United's aircraft lease obligations ($497 million in equivalent U.S. dollars at December 31, 2007) is denominated in foreign currencies that expose the
Company to risks associated with changes in foreign exchange rates. To hedge against some of this risk, United has placed foreign currency deposits (primarily
for euros) to meet foreign currency lease obligations denominated in those respective currencies. Since unrealized mark-to-market gains or losses on the foreign
currency deposits are offset by the losses or gains on the foreign currency obligations, United has hedged its overall exposure to foreign currency exchange rate
volatility with respect to its foreign lease deposits and obligations. The fair value of these deposits is determined based on the present value of future cash flows
using an appropriate swap rate. The fair value of long-term debt is predominantly based on the present value of future cash flows using a U.S. Treasury rate that
matches the remaining life of the instrument, adjusted by a credit spread and, to a lesser extent, on the quoted market prices for the same or similar issues. The
table below presents information as of December 31, 2007 about certain of the Company's financial instruments that are sensitive to changes in interest and
exchange rates. Amounts shown below are the same for both UAL and United, except as noted.
2007
Expected Maturity Dates
(In millions)
Fair
Value
2008
2009
2010
2011
2012
Thereafter
Total
UAL ASSETS(a)
Cash equivalents
Fixed rate $ 1,259 $ — $ — $ — $ — $ — $ 1,259 $ 1,259
Avg. interest rate 5.12% — — — — — 5.12%
Short term investments
Fixed rate $ 2,295 $ — $ — $ — $ — $ — $ 2,295 $ 2,295
Avg. interest rate 5.04% — — — — — 5.04%
Lease deposits
Fixed rate—EUR deposits $ 147 $ 24 $ 241 $ 16 $ — $ — $ 428 $ 511
Accrued interest 23 10 29 7 — — 69
Avg. interest rate 4.93% 4.34% 6.66% 4.41% — — 6.54%
Fixed rate—USD deposits $ — $ — $ 11 $ — $ — $ — $ 11 $ 20
Accrued interest — — 8 — — — 8
Avg. interest rate — — 6.49% — — — 6.49%
UAL LONG-TERM
DEBT(a)
U. S. Dollar denominated
Variable rate debt $ 189 $ 162 $ 229 $ 152 $ 156 $ 1,622 $ 2,510 $ 2,405
Avg. interest rate 6.09% 6.12% 6.15% 6.22% 6.26% 6.31% 6.18%
Fixed rate debt(a) $ 489 $ 576 $ 689 $ 672 $ 228 $ 2,180 $ 4,834 $ 4,391
Avg. interest rate 6.54% 6.56% 6.44% 6.34% 6.17% 6.07% 6.40%
(a)
Amounts also represent United except that United's carrying value and fair value of variable rate debt is approximately $3 million lower than the
reported UAL amounts and United's cash equivalents and short-term investments are approximately $56 million lower than the reported UAL
amounts.
63
Source: UNITED AIR LINES INC, 10-K, February 29, 2008