Southwest Airlines 2009 Annual Report Download - page 44

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The Company is required to provide standby letters of credit to support certain obligations that arise in the
ordinary course of business. Although the letters of credit are off-balance sheet, the majority of obligations to
which they relate are reflected as liabilities in the Consolidated Balance Sheet. Outstanding letters of credit
totaled $285 million at December 31, 2009.
The following table aggregates the Company’s material expected contractual obligations and commitments
as of December 31, 2009:
Obligations by period (in millions)
Contractual obligations 2010
2011
- 2012
2013
- 2014
Beyond
2014 Total
Long-term debt (1) ........................ $ 176 $ 996 $ 573 $1,714 $ 3,459
Interest commitments — fixed (2) ............ 93 186 186 531 996
Interest commitments — floating (3) .......... 85 139 117 170 511
Capital lease commitments (4) ............... 15 12 — — 27
Operating lease commitments ............... 414 712 476 1,032 2,634
Aircraft purchase commitments (5) ........... 344 1,021 1,143 692 3,200
Other purchase commitments ................ 81 110 15 — 206
Total contractual obligations ............ $1,208 $3,176 $2,510 $4,139 $11,033
(1) Includes principal only
(2) Related to fixed-rate debt only
(3) Interest obligations associated with floating-rate debt (either at issuance or through swaps) is estimated
utilizing forward interest rate curves as of December 31, 2009, and can be subject to significant fluctuation.
(4) Includes amounts classified as interest
(5) Firm orders from Boeing
In addition to the above contractual fixed obligations, the Company also had estimated obligations at
December 31, 2009, related to its fuel derivative positions for the years 2010 through 2013 (based on the
contractual settlement date of those derivative instruments, but excluding the impact of the $330 million in cash
collateral deposits that have been provided to counterparties, which will effectively reduce the net cash flows
paid as the derivative instruments settle). Although the fair value of these positions can fluctuate significantly
based on forward market prices for crude oil, heating oil, and unleaded gasoline, the following table displays
these estimated obligations as of December 31, 2009 (in millions):
2010 2011 2012 2013 Total
Fuel derivative obligations (gross) ................... $124 $114 $ 109 $130 $ 477
Net of cash collateral deposits ...................... (92) (48) (107) (83) (330)
Net fuel derivative obligations ...................... $ 32 $ 66 $ 2 $ 47 $147
Available to the Company at December 31, 2009, was cash on hand and short-term investments totaling
$2.6 billion, anticipated future internally generated funds from operations, and its $600 million bank revolving
line of credit. In addition, the Company will also consider various borrowing or leasing options to maximize
liquidity and supplement cash requirements as needed. Notwithstanding current economic conditions and the
current liquidity environment, the Company believes it has access to financing arrangements because of its
current investment grade credit ratings, unencumbered assets, modest leverage, and consistent profitability,
which should enable it to meet its 2010 capital and operating requirements. As of December 31, 2009, the book
value of the Company’s unencumbered aircraft totaled approximately $5.4 billion.
In 2009, Standard & Poor’s and Fitch both downgraded the Company’s credit rating from “BBB+” to
“BBB” based on lower demand, especially among business travelers, and continued volatility in fuel
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