Southwest Airlines 2000 Annual Report Download - page 33

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.
On March 7, 1995, the Company issued $100 million of
senior unsecured 8% Notes due March 1, 2005. Interest is
payable semi-annually on March 1 and September 1. The
Notes are not redeemable prior to maturity.
On September 9, 1992, the Company issued $100 million of
senior unsecured 7 7/8% Notes due September 1, 2007.
Interest is payable semi-annually on March 1 and September
1. The Notes are not redeemable prior to maturity.
During 1991, the Company issued $100 million of senior
unsecured 9.4% Notes and $100 million of senior unsecured 8
3/4% Notes due July 1, 2001 and October 15, 2003,
respectively. Interest on the Notes is payable semi-annually.
The Notes are not redeemable prior to maturity.
In addition to the credit facilities described above, Southwest
has an unsecured Bank Credit Agreement with a group of
banks that permits Southwest to borrow through May 6, 2002,
on a revolving credit basis, up to $475 million. Interest rates on
borrowings under the Credit Agreement can be, at the option of
Southwest, the greater of the agent bank’s prime rate or the
federal funds rate plus 50 basis points, LIBOR plus 17 basis
points, or a fixed rate offered by the banks at the time of
borrowing. The commitment fee is 8 basis points per annum.
There were no outstanding borrowings under this agreement,
or prior similar agreements, at December 31, 2000 and 1999.
6. LEASES
Total rental expense for operating leases charged to
operations in 2000, 1999, and 1998 was $330.7 million, $318.2
million, and $305.2 million, respectively. The majority of the
Company’s terminal operations space, as well as 94 aircraft,
was under operating leases at December 31, 2000. The
amounts applicable to capital leases included in property and
equipment were:
(In thousands)2000 1999
Flight equipment $ 164,909 $ 164,957
Less accumulated amortization 92,763 85,722
$ 72,146 $ 79,235
Future minimum lease payments under capital leases and
noncancelable operating leases with initial or remaining terms
in excess of one year at December 31, 2000, were:
(In thousands)
Capital
Leases
Operating
Leases
2001 $ 17,391 $ 274,564
2002 17,561 262,142
2003 17,750 237,627
2004 17,650 213,782
2005 23,507 203,385
After 2005 78,891 1,701,793
Total minimum lease payments 172,750 $ 2,893,293
Less amount representing interest 55,667
Present value of minimum lease
payments 117,083
Less current portion 6,829
Long-term portion $ 110,254
The aircraft leases generally can be renewed at rates based
on fair market value at the end of the lease term for one to five
years. Most aircraft leases have purchase options at or near
the end of the lease term at fair market value, but generally not
to exceed a stated percentage of the lessor’s defined cost of
the aircraft.
7. FINANCIAL INSTRUMENTS
The Company utilizes a variety of financial derivative
instruments to hedge a portion of its exposure to jet fuel price
increases. During 2000 and 1999, the Company recognized
gains of $113.5 million and $14.8 million, respectively, from
hedging activities. At December 31, 2000, approximately $49.9
million was due from third parties, and accordingly, is included
in “Accounts and other receivables” in the accompanying
Consolidated Balance Sheet. For further details of the
Company’s fuel hedge positions at December 31, 2000, see
Quantitative and Qualitative Disclosures about Market Risk in
Management’s Discussion and Analysis of Financial Condition
and Results of Operations and Recent Accounting
Developments in Note 1. The fair value of the Company’s
financial derivative instruments at December 31, 2000, was
approximately $98.3 million.
Any outstanding financial derivative instruments 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, 2000, the Company
had an agreement with two counterparties containing bilateral
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