Southwest Airlines 2003 Annual Report Download - page 58

7. LONG-TERM DEBT
(In millions) 2003 2002
8 3/4% Notes due 2003 $ -$ 100
Aircraft Secured Notes due 2004 175 175
8% Notes due 2005 100 100
Pass through Certificates 564 586
7 7/8% Notes due 2007 100 100
French Credit Agreements 47 50
6 1/2% Notes due 2012 371 385
7 3/8% Debentures due 2027 100 100
Capital leases (Note 8) 91 100
1,548 1,696
Less current maturities 206 131
Less debt discount and issue costs 10 12
$ 1,332 $ 1,553
In October 2003, the Company redeemed $100 million of senior unsecured 8 3/4% Notes originally issued in
1991.
On March 1, 2002, the Company issued $385 million senior unsecured Notes (Notes) due March 1, 2012. The
Notes bear interest at 6.5 percent, payable semi-annually beginning on September 1, 2002. Southwest used
the net proceeds from the issuance of the Notes, approximately $380 million, for general corporate purposes,
including the repayment of the Company’s credit facility in March 2002. See Note 6. During 2003, the
Company entered into an interest rate swap agreement relating to these Notes. See Note 10 for further
information.
On October 30, 2001, the Company issued $614 million Pass Through Certificates consisting of $150 million
5.1% Class A-1 certificates, $375 million 5.5% Class A-2 certificates, and $89 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
semiannually, beginning May 1, 2002. Beginning May 1, 2002, principal payments on the equipment notes
held for the Class A-1 certificates are due semiannually 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. During 2003, the Company entered into an interest rate swap agreement
relating to the $375 million 5.5% Class A-2 certificates. See Note 10 for further information.
In fourth quarter 1999, the Company issued $200 million of floating rate Aircraft Secured Notes (the Notes), due
November 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 are expected to average approximately LIBOR plus 36 basis points over the term of the
Notes. Interest is payable monthly and the Company can prepay the Notes in whole or in part prior to maturity.
The Company prepaid $25 million of the Notes during 2002.
Also in fourth quarter 1999, the Company entered into two identical 13-year floating rate financing
arrangements, whereby it effectively borrowed a total of $56 million from French banking partnerships. For
presentation purposes, the Company has classified these identical borrowings as one $56 million transaction. The
effective rate of interest over the 13-year term of the loans is LIBOR plus 32 basis points. Principal and interest
are payable semi-annually on June 30 and December 31 for each of the loans and the Company may terminate
the arrangements in any year on either of those dates, with certain conditions. The Company has pledged two
aircraft as collateral for the transactions.
On February 28, 1997, the Company issued $100 million of senior unsecured 7 3/8% Debentures due March 1,
2027. Interest is payable semi-annually on March 1 and September 1. The Debentures may be redeemed, at the