Southwest Airlines 2008 Annual Report Download - page 75

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the “net present value benefits” included in the
transactions, the effective economic yield over the
13-year term of the loans will be approximately
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 to a floating
rate. See Note 10 for more information on the
interest-rate swap agreement.
On March 1, 2002, the Company issued $385
million senior unsecured Notes due March 1, 2012.
The notes bear interest at 6.5 percent, payable semi-
annually on March 1 and September 1. 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
arrangements, 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 benefits” included in the
transactions, the effective economic yield over the
13-year term of the loans will be approximately
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 7.375% 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 scheduled payments of principal and
interest thereon, discounted 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 $222
million at December 31, 2008.
The net book value of the assets pledged as
collateral for the Company’s secured borrowings,
primarily aircraft and engines, was $1.8 billion at
December 31, 2008. In addition, the Company has
pledged a total of 20 of its Boeing 737-700 aircraft as
collateral in the case that it has obligations related to
its fuel derivative instruments with a specific
counterparty that are valued in excess of $300
million, but below $700 million. At December 31,
2008, the Company’s net collateral obligation to this
counterparty was $240 million, all of which was in
cash.
As of December 31, 2008, aggregate annual
principal 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, 2013, were
$72 million in 2009, $574 million in 2010, $479
million in 2011, $453 million in 2012, $70 million in
2013, and $1.9 billion thereafter.
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