Southwest Airlines 2012 Annual Report Download - page 102

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quarter 2009, the Company entered into a fixed-to-floating interest rate swap to convert the interest on these
unsecured notes to a floating rate until their maturity. See Note 10 for further information on the interest-rate
swap agreement.
During February 2005, the Company issued $300 million senior unsecured notes due 2017. The notes bear
interest at 5.125 percent, payable semi-annually in arrears, with the first payment made on September 1, 2005. In
January 2007, the Company entered into an interest rate swap agreement to convert this fixed-rate debt to a
floating rate; however, the interest rate swap was terminated in January 2011. See Note 10 for more information
on the interest rate swap agreement and termination.
In fourth quarter 2004, the Company entered into four identical 13-year floating-rate financing arrangements,
whereby it borrowed a total of $112 million from French banking partnerships. Although the interest rates on the
borrowings float, the Company estimated at inception 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 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; however, the interest
rate swap was terminated in January 2011. See Note 10 for more information on the interest rate swap agreement
and termination.
On March 1, 2002, the Company issued $385 million senior unsecured notes due March 1, 2012. The notes
bore 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 to convert this fixed-rate debt to a floating rate. The notes and
associated interest rate swap matured and were redeemed on March 1, 2012, utilizing available cash on hand.
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 on the borrowings was at a floating rate, the Company estimated at inception 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 was approximately LIBOR minus 67 basis points. Principal and interest were paid
semi-annually on June 30 and December 31 for each of the loans. The Company had pledged two aircraft as
collateral for the transactions. These financing arrangements were paid in full on the final principal payment date
of December 31, 2012, utilizing available cash on hand.
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; however, the interest rate swap was terminated in December 2012. See Note 10 for more
information on the interest rate swap agreement and termination.
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 the
obligations to which they relate are reflected as liabilities in the Consolidated Balance Sheet. Outstanding letters
of credit totaled $208 million at December 31, 2012.
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