Southwest Airlines 2004 Annual Report Download - page 57

SOUTHWEST AIRLINES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
each class of certiÑcates. The trusts used the proceeds On February 28, 1997, the Company issued
from the sale of certiÑcates to acquire equipment notes, $100 million of senior unsecured 7 3/8% Debentures
which were issued by Southwest on a full recourse basis. due March 1, 2027. Interest is payable semi-annually on
Payments on the equipment notes held in each trust will March 1 and September 1. The Debentures may be
be passed through to the holders of certiÑcates of such redeemed, at the option of the Company, in whole at
trust. The equipment notes were issued for each of any time or in part from time to time, at a redemption
29 Boeing 737-700 aircraft owned by Southwest and are price equal to the greater of the principal amount of the
secured by a mortgage on such aircraft. Interest on the Debentures plus accrued interest at the date of redemp-
equipment notes held for the certiÑcates is payable tion or the sum of the present values of the remaining
semiannually, beginning May 1, 2002. Beginning scheduled payments of principal and interest thereon,
May 1, 2002, principal payments on the equipment discounted to the date of redemption at the comparable
notes held for the Class A-1 certiÑcates are due semian- treasury rate plus 20 basis points, plus accrued interest
nually until the balance of the certiÑcates mature on at the date of redemption.
May 1, 2006. The entire principal of the equipment During 1995, the Company issued $100 million of
notes for the Class A-2 and Class B certiÑcates are senior unsecured 8% Notes due March 1, 2005. Interest
scheduled for payment on November 1, 2006. During is payable semi-annually on March 1 and September 1.
2003, the Company entered into an interest rate swap The Notes are not redeemable prior to maturity.
agreement relating to the $375 million 5.5% Class A-2
certiÑcates. See Note 10 for further information. During 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
In fourth quarter 1999, the Company entered into
September 1. The Notes are not redeemable prior to
two identical 13-year Öoating rate Ñnancing arrange-
maturity.
ments, whereby it borrowed a total of $56 million from
French banking partnerships. Although the interest on The net book value of the assets pledged as
the borrowings are at Öoating rates, the Company collateral for the Company's secured borrowings, prima-
estimates that, considering the full eÅect of the ""net rily aircraft and engines, was $889 million at Decem-
present value beneÑts'' included in the transactions, the ber 31, 2004.
eÅective economic yield over the 13-year term of the
loans will be approximately LIBOR minus 67 basis As of December 31, 2004, aggregate annual prin-
points. Principal and interest are payable semi-annually cipal maturities (not including amounts associated with
on June 30 and December 31 for each of the loans and interest rate swap agreements, and interest on capital
the Company may terminate the arrangements in any leases) for the Ñve-year period ending December 31,
year on either of those dates, with certain conditions. 2009, were $146 million in 2005, $604 million in
The Company pledged two aircraft as collateral for the 2006, $120 million in 2007, $22 million in 2008,
transactions. $24 million in 2009, and $960 million thereafter.
8. Leases
The Company had seven aircraft classiÑed as capital leases at December 31, 2004. The amounts applicable to
these aircraft included in property and equipment were:
2004 2003
(In millions)
Flight equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $173 $171
Less accumulated depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 126 114
$47 $57
Total rental expense for operating leases, both aircraft and other, charged to operations in 2004, 2003, and 2002
was $403 million, $386 million, and $371 million, respectively. The majority of the Company's terminal operations
space, as well as 88 aircraft, were under operating leases at December 31, 2004. Future minimum lease payments under
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