Southwest Airlines 2007 Annual Report Download - page 65

agreement to convert this fixed-rate debt to a floating rate.
See Note 10 for more information on the interest-rate swap
agreement.
In fourth quarter 2004, the Company entered into
four identical 13-year floating-rate financing arrange-
ments, whereby it borrowed a total of $112 million from
French banking partnerships. Although the interest rates
on the borrowings float, the Company estimates that,
considering the full effect of the “net present value ben-
efits” included in the transactions, the effective economic
yield over the 13-year term of the loans will be approx-
imately LIBOR minus 45 basis points. Principal and
interest are payable semi-annually on June 30 and
December 31 for each of the loans, and the Company
may terminate the arrangements in any year on either of
those dates, under certain conditions. The Company
pledged four aircraft as collateral for the transactions.
In September 2004, the Company issued $350 million
senior unsecured Notes due 2014. The notes bear interest at
5.25 percent, payable semi-annually in arrears, on April 1
and October 1. Concurrently, the Company entered into an
interest-rate swap agreement to convert this fixed-rate debt
toafloatingrate.SeeNote10formoreinformationonthe
interest-rate swap agreement. Southwest used the net pro-
ceeds from the issuance of the notes for general corporate
purposes.
On March 1, 2002, the Company issued $385 mil-
lion senior unsecured Notes due March 1, 2012. The
notes bear interest at 6.5 percent, payable semi-annually
on March 1 and September 1. Southwest used the net
proceeds from the issuance of the notes for general
corporate purposes. During 2003, the Company entered
into an interest rate swap agreement relating to these
notes. See Note 10 for further information.
In fourth quarter 1999, the Company entered into
two identical 13-year floating rate financing arrange-
ments, whereby it borrowed a total of $56 million from
French banking partnerships. Although the interest rates
on the borrowings float, the Company estimates that,
considering the full effect of the “net present value ben-
efits” included in the transactions, the effective economic
yield over the 13-year term of the loans will be approx-
imately LIBOR minus 67 basis points. Principal and
interest are payable semi-annually on June 30 and
December 31 for each of the loans and the Company
may terminate the arrangements in any year on either of
those dates, with certain conditions. The Company
pledged two aircraft as collateral for the transactions.
On February 28, 1997, the Company issued
$100 million of senior unsecured 73⁄8% Debentures due
March 1, 2027. Interest is payable semi-annually on
March 1 and September 1. The debentures may be
redeemed, at the option of the Company, in whole at
any time or in part from time to time, at a redemption
price equal to the greater of the principal amount of the
debentures plus accrued interest at the date of redemption
or the sum of the present values of the remaining sched-
uled payments of principal and interest thereon, dis-
counted to the date of redemption at the comparable
treasury rate plus 20 basis points, plus accrued interest at
the date of redemption. In January 2007, the Company
entered into an interest-rate swap agreement to convert
this fixed-rate debt to a floating rate. See Note 10 for
more information on the interest-rate swap agreement.
The Company is required to provide standby letters
of credit to support certain obligations that arise in the
ordinary course of business. Although the letters of credit
are an off-balance sheet item, the majority of obligations
to which they relate are reflected as liabilities in the
Consolidated Balance Sheet. Outstanding letters of credit
totaled $211 million at December 31, 2007.
The net book value of the assets pledged as collateral
for the Company’s secured borrowings, primarily aircraft
and engines, was $660 million at December 31, 2007.
As of December 31, 2007, aggregate annual prin-
cipal maturities of debt and capital leases (not including
amounts associated with interest rate swap agreements
and interest on capital leases) for the five-year period
ending December 31, 2012, were $40 million in 2008,
$42 million in 2009, $50 million in 2010, $44 million in
2011, $418 million in 2012, and $1.5 billion thereafter.
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)