United Airlines 2008 Annual Report Download - page 77

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Actual collateral requirements, fuel purchase costs and cash requirements for hedge losses will vary
depending on changes in forward fuel prices, modifications to the Company’s fuel hedge portfolio and
other factors. The table below outlines the Company’s estimated collateral provisions at various crude oil
prices, based on the hedge portfolio as of January 16, 2009.
Price of Crude Oil, in Dollars per Barrel
Approximate Change in Cash Collateral for each
$5 per Barrel Change in the Price of Crude Oil
Above $105 ........................ Nocollateral required
At or above $85, but below $105 ........ $45million
At or above $25, but below $85......... $60million
Below$25......................... $40million
For example, using the table above, at an illustrative $35 per barrel at January 16, 2009, the
Company’s required collateral provision to its derivative counterparties would be approximately
$780 million.
Foreign Currency. United generates revenues and incurs expenses in numerous foreign currencies.
Such expenses include fuel, aircraft leases, commissions, catering, personnel expense, advertising and
distribution costs, customer service expenses and aircraft maintenance. Changes in foreign currency
exchange rates impact the Company’s results of operations through changes in the dollar value of foreign
currency-denominated operating revenues and expenses.
Despite the adverse effects a strengthening foreign currency may have on demand for
U.S.-originating traffic, a strengthening of foreign currencies tends to increase reported revenue and
operating income because the Company’s foreign currency-denominated operating revenue generally
exceeds its foreign currency-denominated operating expense for each currency. Likewise, despite the
favorable effects a weakening foreign currency may have on demand for U.S.-originating traffic, a
weakening of foreign currencies tends to decrease reported revenue and operating income.
The Company’s most significant net foreign currency exposures in 2008, based on exchange rates in
effect at December 31, 2008, are presented in the table below:
(In millions)
Currency Foreign Currency Value USD Value
Operating revenue net of operating expense
Chinese renminbi ......................... 2,440 $357
Canadian dollar........................... 263 216
European euro ........................... 71 99
Hong Kong dollar ......................... 714 92
Australian dollar .......................... 106 74
The Company uses foreign currency forward contracts to hedge a portion of its exposure to changes
in foreign currency exchange rates. As of December 31, 2008, the Company hedged a portion of its
expected foreign currency cash flows in the Australian dollar, Canadian dollar and European Euro. As
of December 31, 2008, the notional amount of these foreign currencies hedged with the forward
contracts in U.S. dollars was approximately $62 million, based on contractual forward rates. These
contracts had a fair value of $10 million at December 31, 2008 and expire at various dates through
March 2009. As of December 31, 2007, the notional amount of these foreign currencies hedged with the
forward contracts in U.S. dollars terms was approximately $346 million, with a fair value of $1 million.
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