Southwest Airlines 2007 Annual Report Download - page 63

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on its financial condition, results of operations, or cash
flow.
3. Acquisition of Certain Assets
In fourth quarter 2004, Southwest was selected as
the winning bidder at a bankruptcy-court approved auc-
tion for certain ATA Airlines, Inc. (ATA) assets. As
part of the transaction, which was approved in December
2004, Southwest agreed to pay $40 million for certain
ATA assets, consisting of the leasehold rights to six of
ATA’s leased Chicago Midway Airport gates and the
rights to a leased aircraft maintenance hangar at Chicago
Midway Airport. In addition, Southwest provided ATA
with $40 million in debtor-in-possession financing while
ATA remained in bankruptcy, and also guaranteed the
repayment of an ATA construction loan to the City of
Chicago for $7 million. As part of this original transac-
tion, Southwest committed, upon ATA’s emergence
from bankruptcy, to convert the debtor-in-possession
financing to a term loan, payable over five years, and
to invest $30 million cash in ATA convertible preferred
stock.
During fourth quarter 2005, ATA Airlines, Inc.
(ATA) entered into an agreement in which an investor,
MatlinPatterson Global Opportunities Partners II, would
provide financing to enable ATA to emerge from bank-
ruptcy. As part of this transaction, Southwest entered into
an agreement with ATA to acquire the leasehold rights to
four additional leased gates at Chicago Midway Airport in
exchange for a $20 million reduction in the Company’s
debtor-in-possession loan. Upon ATA’s emergence from
bankruptcy, which took place on February 28, 2006,
ATA repaid the remaining $20 million balance of the
debtor-in-possession financing to the Company, and
provided a letter of credit to support Southwest’s obli-
gation under the construction loan to the City of Chi-
cago. In addition, Southwest was relieved of its
commitment to purchase ATA convertible preferred
stock.
Southwest and ATA also agreed on a code share
arrangement, under which each carrier can exchange
passengers on certain designated flights. This agreement
was approved and implemented during first quarter 2005,
although it has since been enhanced and adjusted.
4. Commitments
The Company’s contractual purchase commitments
primarily consist of scheduled aircraft acquisitions from
Boeing. As of December 31, 2007, the Company had
contractual purchase commitments with Boeing for 29
737-700 aircraft deliveries in 2008, 20 scheduled for
delivery in 2009, 10 each in 2010 thru 2012, and 29
thereafter. In addition, the Company has options and
purchase rights for an additional 138 737-700s that it
may acquire during 2009-2014. The Company has the
option, which must be exercised 18 months prior to the
contractual delivery date, to substitute 737-600s or
737-800s for the 737-700s. As of December 31,
2007, aggregate funding needed for firm commitments
is approximately $3.2 billion, subject to adjustments for
inflation, due as follows: $747 million in 2008, $498 mil-
lion in 2009, $341 million in 2010, $444 million in
2011, $458 million in 2012, and $684 million thereafter.
5. Accrued Liabilities
2007 2006
(In millions)
Retirement plans (Note 14) ......................................... $ 132 $ 165
Aircraft rentals .................................................. 125 128
Vacation pay .................................................... 164 151
Advances and deposits (Note 10) ..................................... 2,020 546
Deferred income taxes ............................................. 370 78
Other ......................................................... 296 255
Accrued liabilities............................................... $3,107 $1,323
6. Revolving Credit Facility
The Company has a revolving credit facility under
which it can borrow up to $600 million from a group of
banks. The facility expires in August 2010 and is unse-
cured. At the Company’s option, interest on the facility
can be calculated on one of several different bases. For
most borrowings, Southwest would anticipate choosing a
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)