Southwest Airlines 1998 Annual Report Download - page 37

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37
SOUTHWEST AIRLINES CO. ¤ SIX STORIES OF FREEDOM
The Company does not have significant exposure to changing interest rates on its
long-term debt because the interest rates are fixed and the financial leverage is
modest. Additionally, the Company does not have significant exposure to changing
interest rates on invested cash, which was $379 million and $623 million at December
31, 1998 and 1997, respectively. The Company invests available cash in certificates of
deposit and investment grade commercial paper that have maturities of three months or
less. As a result, the interest rate market risk implicit in these investments at December
31, 1998, is low, as the investments mature within three months. The Company has not
undertaken any additional actions to cover interest rate market risk and is not a party to
any other interest rate market risk management activities.
A hypothetical ten percent change in market interest rates over the next year would
not impact the Company’s earnings or cash flow as the interest rates on the Company’s
long-term debt are fixed and its cash investments are short-term. A ten percent change
in market interest rates would not have a material effect on the fair value of the
Company’s publicly traded long-term debt or its short-term cash investments.
The Company does not purchase or hold any derivative financial instruments for
trading purposes.
IMPACT OF THE YEAR 2000
The Company is in the process of converting its computer systems to be Year 2000
ready. This project encompasses information technology systems as well as embedded
technology assets. The project also includes an assessment of material third-party
relationships and associated risks. The project as it relates to internal systems and
equipment consists of four phases: identification, assessment, remediation, and testing.
This project is expected to be substantially completed by June 30, 1999.