Southwest Airlines 2005 Annual Report Download - page 58

SOUTHWEST AIRLINES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
On October 30, 2001, the Company issued the Company may terminate the arrangements in any
$614 million Pass Through Certificates consisting of year on either of those dates, with certain conditions.
$150 million 5.1% Class A-1 certificates, $375 million The Company pledged two aircraft as collateral for the
5.5% Class A-2 certificates, and $89 million 6.1% transactions.
Class B certificates. A separate trust was established for On February 28, 1997, the Company issued
each class of certificates. The trusts used the proceeds $100 million of senior unsecured 7
3
/ 8 % Debentures due
from the sale of certificates to acquire equipment notes, March 1, 2027. Interest is payable semi-annually on
which were issued by Southwest on a full recourse basis. March 1 and September 1. The debentures may be
Payments on the equipment notes held in each trust will redeemed, at the option of the Company, in whole at
be passed through to the holders of certificates of such any time or in part from time to time, at a redemption
trust. The equipment notes were issued for each of 29 price equal to the greater of the principal amount of the
Boeing 737 -700 aircraft owned by Southwest and are debentures plus accrued interest at the date of redemp-
secured by a mortgage on such aircraft. Interest on the tion or the sum of the present values of the remaining
equipment notes held for the certificates is payable scheduled payments of principal and interest thereon,
semiannually, on May 1 and November 1. Beginning discounted to the date of redemption at the comparable
May 1, 2002, principal payments on the equipment treasury rate plus 20 basis points, plus accrued interest
notes held for the Class A-1 certificates are due semian- at the date of redemption.
nually until the balance of the certificates mature on
May 1, 2006. The entire principal of the equipment During 1992, the Company issued $100 million of
notes for the Class A-2 and Class B certificates are senior unsecured 7
7
/ 8 % Notes due September 1, 2007.
scheduled for payment on November 1, 2006. During Interest is payable semi-annually on March 1 and
2003, the Company entered into an interest rate swap September 1. The notes are not redeemable prior to
agreement relating to the $375 million 5.5% Class A-2 maturity.
certificates. See Note 10 for further information.
The net book value of the assets pledged as
In fourth quarter 1999, the Company entered into collateral for the Company's secured borrowings, prima-
two identical 13-year floating rate financing arrange- rily aircraft and engines, was $856 million at Decem-
ments, whereby it borrowed a total of $56 million from ber 31, 2005.
French banking partnerships. Although the interest on
the borrowings are at floating rates, the Company As of December 31, 2005, aggregate annual prin-
estimates that, considering the full effect of the ""net cipal maturities (not including amounts associated with
present value benefits'' included in the transactions, the interest rate swap agreements, and interest on capital
effective economic yield over the 13-year term of the leases) for the five-year period ending December 31,
loans will be approximately LIBOR minus 67 basis 2010, were $612 million in 2006, $127 million in
points. Principal and interest are payable semi-annually 2007, $28 million in 2008, $29 million in 2009,
on June 30 and December 31 for each of the loans and $30 million in 2010, and $1.2 billion thereafter.
8. Leases
The Company had nine aircraft classified as capital leases at December 31, 2005. The amounts applicable to
these aircraft included in property and equipment were:
2005 2004
(In millions)
Flight equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $164 $173
Less accumulated depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 113 126
$51 $47
Total rental expense for operating leases, both aircraft and other, charged to operations in 2005, 2004, and 2003
was $409 million, $403 million, and $386 million, respectively. The majority of the Company's terminal operations
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