Southwest Airlines 2009 Annual Report Download - page 43

from December 31, 2007, to December 31, 2008 (in conjunction with falling energy prices). Cash flows
associated with purchasing derivatives, which are also classified as operating cash flows, were a net outflow of
$86 million in 2009, a net outflow of $418 million for 2008, and were immaterial for 2007. Cash flows from
operating activities for 2009 were also driven by the $99 million in net income, plus noncash depreciation and
amortization expense of $616 million. For further information on the Company’s hedging program and
counterparty deposits, see Note 10 to the Consolidated Financial Statements, and “Item 7A. Quantitative and
Qualitative Disclosures about Market Risk,” respectively. Operating cash generated is used primarily to finance
aircraft-related capital expenditures and to provide working capital.
Net cash flows used in investing activities in 2009 totaled $1.6 billion, versus $978 million used in 2008.
Investing activities in both years included payments for new 737-700 aircraft delivered to the Company and
progress payments for future aircraft deliveries. The Company purchased 13 new 737-700 aircraft in 2009 versus
the purchase of 26 737-700s in 2008. See Note 4 to the Consolidated Financial Statements. Investing activities
for 2009 and 2008 also reflect $986 million and $55 million, respectively, related to changes in the balance of the
Company’s short-term investments. The Company increased its short-term investments in 2009 compared to
2008 due to higher overall cash balances and in order to seek higher returns on its cash holdings.
Net cash provided by financing activities was $330 million in 2009. During 2009, the Company raised $381
million from the sale and leaseback of 11 737-700 aircraft, and borrowed $332 million and $124 million under
secured term loan arrangements. Also during 2009, the Company repaid the $400 million it had borrowed during
2008 under its revolving credit agreement. Net cash provided by financing activities was $1.7 billion in 2008.
During 2008, the Company borrowed $600 million under a term loan agreement, borrowed $400 million under
its revolving credit facility, sold $400 million of Secured Notes, and raised approximately $173 million from a
sale and leaseback transaction involving five of the Company’s 737-700 aircraft. During 2008, the Company also
received $117 million in proceeds from Employees’ exercise of stock options and $91 million from a credit line
borrowing. These inflows were partially offset by the Company’s repurchase of $54 million of its Common
Stock, representing a total of 4.4 million shares. See Note 7 to the Consolidated Financial Statements for more
information on the issuance and redemption of long-term debt.
OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, AND CONTINGENT
LIABILITIES AND COMMITMENTS
The Company has contractual obligations and commitments primarily with regard to future purchases of
aircraft, payment of debt, and lease arrangements. The Company received 13 Boeing 737-700 aircraft in 2009, all
of which were new aircraft from Boeing. The Company also removed 13 of its older leased and owned 737-300
aircraft from service during 2009 and executed sale and leaseback transactions for 11 of its owned 737-700
aircraft. As of December 31, 2009, the Company had firm orders for a total of 91 737-700 aircraft for the years
2010 through 2016. The Company also had options for 59 737-700 aircraft from 2011 through 2017, with an
additional 54 purchase rights for 737-700 aircraft through 2018 (as further described in Note 4 to the
Consolidated Financial Statements). The Company has the option to substitute 737-600s or -800s for the -700s.
This option is applicable to aircraft ordered from Boeing and must be exercised 18 months prior to the
contractual delivery date.
The leasing of aircraft (including the sale and leaseback of aircraft) effectively provides flexibility to the
Company as a source of financing. Although the Company is responsible for all maintenance, insurance, and
expense associated with operating leased aircraft, and retains the risk of loss for these aircraft, it has not made
any guarantees to the lessors regarding the residual value (or market value) of the aircraft at the end of the lease
terms. As of December 31, 2009, the Company operated 97 leased aircraft, of which 88 are operating leases. As
prescribed by Generally Accepted Accounting Principles (GAAP), assets and obligations under operating leases
are not included in the Company’s Consolidated Balance Sheet. Disclosure of the contractual obligations
associated with the Company’s leased aircraft is included below as well as in Note 8 to the Consolidated
Financial Statements.
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