Southwest Airlines 2002 Annual Report Download - page 47

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28 | SOUTHWEST AIRLINES CO. 2002 10-K
of these items. Assuming floating market rates
in effect as of December 31, 2002, were held
constant throughout a 12-month period, a
hypothetical ten percent change in those rates
would correspondingly change the Company’s net
earnings and cash flows associated with these
items by approximately $1.3 million. Using these
assumptions and considering the Company’s
cash balance and floating-rate debt outstanding
at December 31, 2002, an increase in rates
would have a net positive effect on the
Company’s earnings and cash flows, while a
decrease in rates would have a net negative
effect on the Company’s earnings and cash
flows. However, a ten percent change in market
rates would not impact the Company’s earnings
or cash flow associated with the Company’s
publicly traded fixed-rate debt or its Certificates.
The Company is also subject to various types of
liquidity and financing risk included in
agreements with financial institutions that
process credit card transactions on behalf of the
Company, the Company’s revolving credit facility,
and outstanding debt agreements. Such risks
included the Company maintaining minimum
credit ratings, the Company’s assets (for secured
debt) maintaining minimum fair values, and the
Company achieving minimum covenant ratios
with regard to its available or outstanding debt
agreements. The Company met or exceeded the
minimum standards set forth in these agree-
ments as of December 31, 2002. However, if
conditions change and the Company failed to
meet the minimum standards set forth in the
agreements, it could reduce the availability of
cash under the agreements or increase the costs
to keep the agreements intact as written.