Southwest Airlines 2010 Annual Report Download - page 57

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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, 2010, the Company operated 97 leased aircraft, of which 92 are under operating
leases. As prescribed by 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.
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 off-balance sheet, the majority of obligations to
which they relate are reflected as liabilities in the Consolidated Balance Sheet. Outstanding letters of credit
totaled $234 million at December 31, 2010.
The following table aggregates the Company’s material expected contractual obligations and commitments
as of December 31, 2010:
Obligations by period (in millions)
Contractual obligations 2011
2012 -
2013
2014 -
2015
Beyond
2015 Total
Long-term debt (1) ........................ $ 505 $ 605 $ 584 $1,591 $ 3,285
Interest commitments - fixed (2) ............. 81 147 123 186 537
Interest commitments - floating (3) ........... 66 67 84 125 342
Operating lease commitments ............... 386 747 524 886 2,543
Aircraft purchase commitments (4) ........... 594 1,377 1,265 540 3,776
Other commitments ....................... 78 119 7 717 921
Total contractual obligations ............ $1,710 $3,062 $2,587 $4,045 $11,404
(1) Includes principal only
(2) Related to fixed-rate debt only
(3) Interest obligations associated with floating-rate debt (either at issuance or through swaps) is estimated
utilizing forward interest rate curves as of December 31, 2010, and can be subject to significant fluctuation.
(4) Firm orders from Boeing
As discussed in Note 2 to the Consolidated Financial Statements, a portion of the consideration to be paid by
the Company in connection with its planned acquisition of AirTran will be in cash. The Company intends to fund
up to $670 million in cash consideration to AirTran stockholders out of cash on hand upon closing of the
acquisition, which is expected to occur during second quarter 2011. The Company also expects to incur
approximately $500 million in integration and closing costs associated with the acquisition, a portion of which
are expected to be in 2011, and which are expected to be funded with cash. The Company believes that its current
liquidity position, including cash and short-term investments of $3.5 billion as of December 31, 2010, anticipated
future internally generated funds from operations, and its fully available, unsecured revolving credit facility of
$600 million, will enable it to fund the acquisition without adding significant further borrowings. Additionally, as
discussed in Note 7 to the Consolidated Financial Statements and as set forth above in the contractual obligations
table, the Company has long term debt maturities of $400 million in December 2011 and $385 million in March
2012. The Company will continue to consider various borrowing or leasing options to maximize liquidity and
supplement cash requirements as needed. The Company believes it has access to financing arrangements because
of its current investment grade credit ratings, unencumbered assets, modest leverage, and consistent profitability,
which should enable it to meet its ongoing capital, operating, and other liquidity requirements. As of
December 31, 2010, the book value of the Company’s unencumbered aircraft totaled approximately $6.6 billion.
During 2008, the City of Dallas approved the Love Field Modernization Program (LFMP), a project to
reconstruct Dallas Love Field (Airport) with modern, convenient air travel facilities. Pursuant to a Program
Development Agreement (PDA) with the City of Dallas and the Love Field Airport Modernization Corporation
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