Southwest Airlines 1996 Annual Report Download - page 37

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37
date, to substitute 737-600s or 737-800s for the -700s delivered subsequent to 1999. Aggregate
funding needed for these commitments is approximately $1,960.1 million, subject to adjustments
for inflation, due as follows: $515.1 million in 1997, $420.0 million in 1998, $502.2 million in
1999, $318.3 million in 2000, and $204.5 million in 2001.
The Company has historically used jet fuel and heating oil fixed price swap arrangements
to hedge its exposure to price fluctuations on an insignificant percentage of its annual fuel
requirements. As of December 31, 1996, the Company had no open swap agreements, although
the hedging program has not been discontinued. As of December 31, 1995, the Company had a
heating oil swap agreement with a broker-dealer to exchange monthly payments on a notional
quantity of 1,050,000 gallons during May 1996. Under the swap agreement, the Company paid
or received the difference between the daily average heating oil price and a fixed price of $.46
per gallon.
The Company’s principal hedging program utilizes the purchase of crude oil call options
at a nominal premium and at volumes of up to 30 percent of its annual fuel requirements.
Gains and losses on hedging transactions are recorded as adjustments to fuel expense and
have been insignificant. Any such future agreements expose the Company to credit loss in the
event of nonperformance by the other parties to the agreements. The Company does not
anticipate such nonperformance.
3. ACCRUED LIABILITIES
(in thousands)
1996 1995
Aircraft rentals $ 121,384 $ 105,534
Employee profitsharing and savings
plans (Note 8)
61,286 55,253
Vacation pay 44,763 38,777
Aircraft maintenance costs 25,942 31,463
Taxes, other than income 25,574 22,478
Interest 21,853 22,326
Other 79,945 73,588
$ 380,747 $ 349,419