Southwest Airlines 2009 Annual Report Download - page 73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2009
In September 2004, the Company issued $350 million senior unsecured notes due 2014. The notes bear
interest at 5.25 percent, payable semi-annually in arrears on April 1 and October 1. Concurrently, the Company
entered into an interest rate swap agreement to convert this fixed-rate debt to a floating rate. See Note 10 for
more information on the interest rate swap agreement.
On March 1, 2002, the Company issued $385 million senior unsecured notes due March 1, 2012. The notes
bear interest at 6.5 percent, payable semi-annually on March 1 and September 1. During 2003, the Company
entered into an interest rate swap agreement to convert this fixed-rate debt to a floating rate. See Note 10 for
further information.
In fourth quarter 1999, the Company entered into two identical 13-year floating rate financing arrangements,
whereby it borrowed a total of $56 million from French banking partnerships. Although the interest rates on the
borrowings float, the Company estimates that, considering the full effect of the “net present value benefits”
included in the transactions, the effective economic yield over the 13-year term of the loans will be
approximately LIBOR minus 67 basis points. Principal and interest are payable semi-annually on June 30 and
December 31 for each of the loans and the Company may terminate the arrangements in any year on either of
those dates, with certain conditions. The Company pledged two aircraft as collateral for the transactions.
On February 28, 1997, the Company issued $100 million of senior unsecured 7.375% debentures due
March 1, 2027. Interest is payable semi-annually on March 1 and September 1. The debentures may be
redeemed, at the option of the Company, in whole at any time or in part from time to time, at a redemption price
equal to the greater of the principal amount of the debentures plus accrued interest at the date of redemption or
the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted
to the date of redemption at the comparable treasury rate plus 20 basis points, plus accrued interest at the date of
redemption. In January 2007, the Company entered into an interest rate swap agreement to convert this fixed-rate
debt to a floating rate. See Note 10 for more information on the interest rate swap agreement.
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 an off-balance sheet item, 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 net book value of the assets pledged as collateral for the Company’s secured borrowings, primarily
aircraft and engines, was $2.3 billion at December 31, 2009. In addition, the Company has pledged a total of up
to 49 of its Boeing 737-700 aircraft as collateral in the case that it has obligations related to its fuel derivative
instruments with counterparties that exceed certain thresholds. See Note 10 for further information on these
collateral arrangements. At December 31, 2009, the Company’s net collateral obligation with these
counterparties was $513 million, of which $330 million was in cash and $183 million was secured by aircraft.
As of December 31, 2009, aggregate annual principal maturities of debt and capital leases (not including
amounts associated with interest rate swap agreements and interest on capital leases) for the five-year period
ending December 31, 2014, were $190 million in 2010, $514 million in 2011, $493 million in 2012, $112 million
in 2013, $461 million in 2014, and $1.7 billion thereafter.
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