Southwest Airlines 2006 Annual Report Download - page 43

The following table aggregates the Company’s material expected contractual obligations and commitments as of
December 31, 2006:
Contractual Obligations 2007
2008
- 2009
2010
- 2011
Beyond
2011 Total
Obligations by Period
(In millions)
Long-term debt(1) ........................ $ 111 $ 25 $ 29 $1,507 $1,672
Interest commitments(2) .................... 45 80 80 277 482
Capital lease commitments(3) ................ 16 32 27 — 75
Operating lease commitments ................. 360 598 453 1,000 2,411
Aircraft purchase commitments(4) . . . .......... 1,004 1,225 656 184 3,069
Other purchase commitments ................. 34 47 26 — 107
Total contractual obligations ................ $1,570 $2,007 $1,271 $2,968 $7,816
(1) Includes current maturities, but excludes amounts associated with interest rate swap agreements
(2) Related to fixed-rate debt
(3) Includes amounts classified as interest
(4) Firm orders from the manufacturer
There were no outstanding borrowings under the
revolving credit facility at December 31, 2006. See Note 6
to the Consolidated Financial Statements for more infor-
mation on the Company’s revolving credit facility.
In January 2004, the Company’s Board of Directors
authorized the repurchase of up to $300 million of the
Company’s common stock, utilizing present and antic-
ipated proceeds from the exercise of Employee stock
options. Repurchases were made in accordance with
applicable securities laws in the open market or in private
transactions from time to time, depending on market
conditions. This program was completed during first
quarter 2005, resulting in the total repurchase of approx-
imately 20.9 million of the Company’s common shares.
In 2006, the Company’s Board of Directors autho-
rized three separate programs for the repurchase of up to
a total of $1.0 billion of the Company’s Common
Stock — $300 million authorized in January 2006,
$300 million authorized in May 2006, and $400 million
authorized in November 2006. Repurchases have been
made in accordance with applicable securities laws in the
open market or in private transactions from time to time,
depending on market conditions. Through December 31,
2006, these programs resulted in the repurchase of a total
of 49.1 million shares for $800 million.
Critical Accounting Policies and Estimates
The Company’s Consolidated Financial Statements
have been prepared in accordance with U.S. GAAP
(GAAP). The Company’s significant accounting poli-
cies are described in Note 1 to the Consolidated Financial
Statements. The preparation of financial statements in
accordance with GAAP requires the Company’s man-
agement to make estimates and assumptions that affect
the amounts reported in the Consolidated Financial
Statements and accompanying footnotes. The Company’s
estimates and assumptions are based on historical expe-
rience and changes in the business environment. How-
ever, actual results may differ from estimates under
different conditions, sometimes materially. Critical
accounting policies and estimates are defined as those
that are both most important to the portrayal of the
Company’s financial condition and results and require
management’s most subjective judgments. The Compa-
ny’s most critical accounting policies and estimates are
described below.
Revenue Recognition
As described in Note 1 to the Consolidated Finan-
cial Statements, tickets sold for passenger air travel are
initially deferred as “Air traffic liability.” Passenger rev-
enue is recognized and air traffic liability is reduced when
the service is provided (i.e., when the flight takes place).
“Air traffic liability” represents tickets sold for future
travel dates and estimated future refunds and exchanges of
tickets sold for past travel dates. The balance in “Air
traffic liability” fluctuates throughout the year based on
seasonal travel patterns and fare sale activity. The Com-
pany’s “Air traffic liability” balance at December 31,
2006 was $799 million, compared to $649 million as of
December 31, 2005.
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