Southwest Airlines 2001 Annual Report Download - page 22

In addition, the Company recorded special charges of $48 million in
2001 arising from the terrorist attacks. Total special charges included
a $30 million reduction in “Passenger revenue” resulting from refunds
of nonrefundable fares, $13 million in charges to “Other operating
expenses” for write-downs of various assets due to impairment, and
other charges that are included in “Other (gains) losses, net.”
4. COMMITMENTS
In response to the decrease in demand for air travel since the
terrorist attacks, the Company modified its schedule for future aircraft
deliveries and the timing of its future capital expenditure
commitments. In November 2001, Southwest entered into a trust
arrangement with a special purpose entity (the Trust) and assigned its
purchase agreement with Boeing to the Trust with respect to 19 Boeing
737-700 aircraft originally scheduled to be delivered from September
2001 through April 2002. Southwest subsequently entered into a
purchase agreement with the Trust to purchase the aircraft at new
delivery dates from January 2002 through April 2003. As of
December 31, 2001, the Trust has purchased a total of 11 completed
aircraft, and the remaining eight aircraft will be purchased by the Trust
from Boeing when the aircraft are completed in 2002. Southwest has
the option to accelerate purchases from the Trust at any time.
Although Southwest does not have legal title to the assets of the
Trust and has not guaranteed the liabilities of the Trust, Southwest
does exercise certain rights of ownership over the Trust assets.
Consequently, the assets (i.e., “Flight equipment” and “Deposits on
flight equipment purchase contracts”) and associated liabilities (i.e.,
“Aircraft purchase obligations”) of the Trust have been recorded in the
accompanying Consolidated Balance Sheet as of December 31, 2001.
The Company’s contractual purchase commitments consist primarily
of scheduled aircraft acquisitions. Excluding the aircraft acquired or to
be acquired by the Trust, the Company has contractual purchase
commitments with Boeing for no 737-700 aircraft deliveries in 2002,
13 scheduled for delivery in 2003, 23 in 2004, 24 in 2005, 22 in 2006,
and 31 thereafter. In addition, the Company has options to purchase up
to 87 737-700s during 2004 – 2008 and purchase rights for an additional
217 737-700s during 2007 – 2012. The Company has the option, which
must be exercised two years prior to the contractual delivery date, to
substitute 737-600s or 737-800s for the 737-700s. Including the
amounts associated with the Trust that are included as liabilities in the
Company’s Consolidated Balance Sheet as of December 31, 2001,
aggregate funding needed for firm commitments is approximately
$3.7 billion, subject to adjustments for inflation, due as follows:
$319 million in 2002, $689 million in 2003, $685 million in 2004,
$719 million in 2005, $641 million in 2006, and $622 million thereafter.
5. ACCRUED LIABILITIES
(in thousands) 2001 2000
Retirement plans (Note 13) $147,110 $180,340
Aircraft rentals 120,554 117,302
Vacation pay 83,105 72, 1 1 5
Other 196,771 130,1 17
$ 547,540 $ 499,874
6. SHORT-TERM BORROWINGS
In September 2001, the Company borrowed the full $475 million
available under its unsecured revolving credit line with a group of
banks. Borrowings under the credit line bear interest at six-month
LIBOR plus 17 basis points and amounts are repayable on or before
May 6, 2002. The interest rate (approximately 3.26 percent as of
December 31, 2001), however, may change based on changes in the
Company’s credit rating. The Company intends to repay the borrowings
in full prior to the due date with either cash on hand or proceeds from
the issuance of long-term debt securities. The full $475 million is
classified as a current liability in the Consolidated Balance Sheet at
December 31, 2001. There were no outstanding borrowings under this
agreement at December 31, 2000.
7. LONG-TERM DEBT
(in thousands) 2001 2000
9.4% Notes due 2001 $ - $100,000
8 3/4% Notes due 2003 100,000 100,000
Aircraft Secured Notes
due 2004 200,000 200,000
8% Notes due 2005 100,000 100,000
Pass Through Certificates 614,250 -
7 7/8% Notes due 2007 100,000 100,000
French Credit Agreements 52,310 54,243
7 3/8% Debentures due 2027 100,000 100,000
Capital leases (Note 8) 109,268 117,083
1,375,828 871 ,326
Less current maturities 39,567 108,752
Less debt discount and
issue costs 9, 1 0 3 1,582
$ 1,327, 1 58 $ 760,992
On October 30, 2001, the Company issued $614.3 million Pass
Through Certificates consisting of $150.0 million 5.1% Class A-1
certificates, $375.0 million 5.5% Class A-2 certificates, and $89.3 million
6.1% Class B certificates. A separate trust was established for each
class of certificates. The trusts used the proceeds from the sale of
certificates to acquire equipment notes, which were issued by
Southwest on a full recourse basis. Payments on the equipment notes
held in each trust will be passed through to the holders of certificates
of such trust. The equipment notes were issued for each of 29 Boeing
737-700 aircraft owned by Southwest and are secured by a mortgage
on such aircraft. Interest on the equipment notes held for the
certificates is payable semi-annually, beginning May 1, 2002. Beginning
May 1, 2002, principal payments on the equipment notes held for the
Class A-1 certificates are due semi-annually until the balance of the
certificates mature on May 1, 2006. The entire principal of the
equipment notes for the Class A-2 and Class B certificates are scheduled
for payment on November 1, 2006.
In July 2001, the Company redeemed $100 million of senior
unsecured 9.4% Notes originally issued in 1991.
In fourth quarter 1999, the Company issued $200 million of floating
rate Aircraft Secured Notes (the Notes), due 2004. The Notes are
funded by a bank through a commercial paper conduit program and are
secured by eight aircraft. Interest rates on the Notes are based on the
conduit’s actual commercial paper rate, plus fees, for each period and
SOUTHWEST AIRLINES CO. 2001 ANNUAL REPORT
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