Southwest Airlines 2004 Annual Report Download - page 39

The following table aggregates the Company's material expected contractual obligations and commitments as of
December 31, 2004:
Obligations by Period
Beyond
Contractual Obligations 2005 2006-2007 2008-2009 2009 Total
(In millions)
Long-term debt(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 129 $ 707 $ 25 $ 936 $1,797
Capital lease commitments(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 24 26 26 26 102
Operating lease commitments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 343 535 430 1,369 2,677
Aircraft purchase commitments(3)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 920 1,232 105 Ì 2,257
Other purchase commitments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 120 78 15 127 340
Total contractual obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,536 $2,578 $601 $2,458 $7,173
(1) Includes current maturities, but excludes amounts associated with interest rate swap agreements
(2) Includes amounts classiÑed as interest
(3) Firm orders from the manufacturer
The Company currently expects that it will issue a those that are both most important to the portrayal of
portion of its $650 million in outstanding shelf registra- the Company's Ñnancial condition and results and re-
tions for public debt securities during 2005. quire management's most subjective judgments. The
Company's most critical accounting policies and esti-
There were no outstanding borrowings under the mates are described below.
revolving credit facility at December 31, 2004. See
Note 6 to the Consolidated Financial Statements for Revenue Recognition
more information.
As described in Note 1 to the Consolidated Finan-
In January 2004, the Company's Board of Direc-
cial Statements, tickets sold for passenger air travel are
tors authorized the repurchase of up to $300 million of
initially deferred as ""Air traÇc liability.'' Passenger
the Company's common stock, utilizing present and
revenue is recognized and air traÇc liability is reduced
anticipated proceeds from the exercise of Employee
when the service is provided (i.e., when the Öight takes
stock options. Repurchases are made in accordance with
place). ""Air traÇc liability'' represents tickets sold for
applicable securities laws in the open market or in
future travel dates and estimated future refunds and
private transactions from time to time, depending on
exchanges of tickets sold for past travel dates. The
market conditions. During 2004, the Company repur-
balance in ""Air traÇc liability'' Öuctuates throughout
chased approximately 17.0 million of its common shares
the year based on seasonal travel patterns and fare sale
for a total of approximately $246 million.
activity. The Company's ""Air traÇc liability'' balance at
December 31, 2004 was $529 million, compared to
Critical Accounting Policies and Estimates
$462 million as of December 31, 2003.
The Company's Consolidated Financial State-
ments have been prepared in accordance with United Estimating the amount of tickets that will be
States GAAP. The Company's signiÑcant accounting refunded, exchanged, or forfeited involves some level of
policies are described in Note 1 to the Consolidated subjectivity and judgment. The majority of the Com-
Financial Statements. The preparation of Ñnancial state- pany's tickets sold are nonrefundable, which is the
ments in accordance with GAAP requires the Com- primary source of forfeited tickets. According to the
pany's management to make estimates and assumptions Company's ""Contract of Carriage'', tickets that are sold
that aÅect the amounts reported in the Consolidated but not Öown on the travel date can be reused for
Financial Statements and accompanying footnotes. The another Öight, up to a year from the date of sale, or can
Company's estimates and assumptions are based on be refunded (if the ticket is refundable). A small
historical experiences and changes in the business envi- percentage of tickets (or partial tickets) expire unused.
ronment. However, actual results may diÅer from esti- Fully refundable tickets are rarely forfeited. ""Air traÇc
mates under diÅerent conditions, sometimes materially. liability'' includes an estimate of the amount of future
Critical accounting policies and estimates are deÑned as refunds and exchanges, net of forfeitures, for all unused
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