Southwest Airlines 1999 Annual Report Download - page 38

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December 31, 1999, the Company had hedged positions in place to limit its exposure to
fuel price increases at the following levels:
Period
Approximate % of
Expected
Requirements
Hedged
Approximate
Gallons Hedged
Type of Hedge
Instrument
First Quarter 2000 27% 63.0 million options
Second Quarter 2000 – – –
Third Quarter 2000 5% 13.7 million swaps
Fourth Quarter 2000 10% 26.3 million swaps
First Quarter 2001 9% 23.1 million swaps
The fair value of these agreements at December 31, 1999, representing the amount
the Company would receive if the agreements were settled early, was not material.
Any outstanding call options or fixed swap agreements expose the Company to
credit loss in the event of nonperformance by the counterparties to the agreements, but the
Company does not expect any of the counterparties to fail to meet their obligations. The
credit exposure related to these financial instruments is represented by the fair value of
contracts with a positive fair value at the reporting date. To manage credit risks, the
Company selects counterparties based on credit ratings, limits its exposure to a single
counterparty, and monitors the market position of the program and its relative market
position with each counterparty. At December 31, 1999, the Company had an agreement
with one counterparty containing a bilateral collateral provision whereby cash deposits are
required if market risk exposure exceeds a specified threshold amount. Neither the
Company nor the counterparty exceeded the threshold amount at December 31, 1999. The
Company is in the process of negotiating similar agreements with other counterparties.
The Company does not hold or issue any financial instruments for trading purposes.
The carrying amounts and estimated fair values of the Company’s long-term debt at
December 31, 1999, were as follows:
(In thousands)Carrying Value Fair Value
9.4% Notes due 2001 $100,000 $103,330
8 3/4% Notes due 2003 100,000 104,160
Aircraft Secured Notes due 2004 200,000 200,000
8% Notes due 2005 100,000 101,460
7 7/8% Notes due 2007 100,000 100,730
French Credit Agreements 55,844 55,844
7 3/8% Debentures due 2027 100,000 92,680