Whats with SWA debt maturity plan?

[3BCat]

JP Morgan lists Southwest's Debt Maturity Schedule as being $604M in 2006. This is a four fold increase over last year. They had $146M coming due in '05, and $120M due in '07. What is the reason for so much debt to be due in '06?

I also heard they are getting rid of some of their middle managers at a rapid pace. If this is true, are they slashing jobs to offset their coming debts?

Does anyone know more about this?

 

[Hutchman]

JP Morgan lists Southwest's Debt Maturity Schedule as being $604M in 2006. This is a four fold increase over last year. They had $146M coming due in '05, and $120M due in '07. What is the reason for so much debt to be due in '06?

I also heard they are getting rid of some of their middle managers at a rapid pace. If this is true, are they slashing jobs to offset their coming debts?

Does anyone know more about this?

Maybe the 30+ aircraft they are getting this year????????????

 

[3BCat]

That seems unlikely. If they get 30+ aircraft this year, they will finance these over several years. The debt spikes, then drops to the previous levels and below.

 

[StaySeated]

According to the 10K, the long term debt is not aircraft purchases. Southwest has another $740 million in aircraft purchase commitments, not including leases. The $604 million is not broken out seperately but is a portion of

"[FONT=&quot]a $1.0 billion increase in accrued liabilities, primarily related to a $620 million increase in counterparty deposits associated with the Company’s fuel hedging program."


[/FONT][FONT=&quot][/FONT]

 

[3BCat]

"[FONT=&quot]a $1.0 billion increase in accrued liabilities, primarily related to a $620 million increase in counterparty deposits associated with the Company’s fuel hedging program."


Thanks. Sounds fairly reasonable to me, as they have 70% of their '06 fuel hedged at $36/barrel. They also had 85% of '05 fuel hedged at $26/bbl. I'm not sure that will account for the entire four-fold increase in debt maturity, but they will be hedging more fuel for the future.

Regarding employee cuts, I hope this is nothing more than a rumor.[/FONT]

 

[T45Flyer]

"[FONT=&quot]Regarding employee cuts, I hope this is nothing more than a rumor.[/FONT]

Could be based on some truth. Not cuts, but re-assignment. Gary Kelly has been cleaning house. After he took over as CEO he let the dust settle. Rumor has it he has seen several middle managers that are not getting the job done. Ground Ops/Inflight types. Our turn times have gotten longer and hurting performance. It seems to be Gary's opinion that if you can't do it, I will find someone who will. I like it.

 

[SWA/FO]

also heard they are getting rid of some of their middle managers at a rapid pace. If this is true, are they slashing jobs to offset their coming debts?

Kelly is getting rid of the fat. If you're not getting the job done - SWA will throw you a retirement party.

 

[chase]

Due to changes in the accounting rules stock options are included in revenue/debt numbers beginning in '06. The original stock options granted to those on property from '94 through '04 all received stock options.All of these grants expire on 31 Dec '06...the other options granted in the extension in '06 may also be included in some of these numbers also...some folks have already exercised these for $4-5 dollar gains per share. Many have already exercised their original options but there are quite a few that are still outstanding. For many (including me) those options are underwater...not complaining mind you....& for others.

I'm not a CPA or Sarbanes-Oxley expert so any of these maynot be a contributor to those increasing debt pronouncements. Whether in fact the debt includes these or not, it is hard to say but they are being accounted somewhere on the financial reports. I would suspect if they are, at the end of the year the overall estimate will be much higher since not all of the options will be above water & therefore will have cost the company zero...that will help the bottom line since no expense will be forthcoming.

Any other ideas out there on why the increase in debt this year

 

[StaySeated]

Chase is correct, the new rules increase expenses but they are accounted for in "salaries and wages" and do not add more than $65 million to the salaries and wage line on the balance sheet.

"On January 1, 2006, the Company will be required to adopt SFAS 123R, which, among other things, will require the recording in the financial statements of non-cash compensation expense related to stock options. Prior to 2006, the Company had only shown, as permitted by SFAS 123, pro forma financial results including the effects of share-based compensation expense in the footnotes to the financial statements. See Note 1 to the Consolidated Financial Statements for these pro forma results related to years 2005, 2004, and 2003. As a result of this accounting change, the Company expects its first quarter 2006 salaries, wages, and benefits to experience an increase in expense of approximately $20 million that was not present in first quarter 2005, due to the Company’s previous method of accounting under SFAS 123. Based on stock options issued to Employees prior to January 1, 2006, for the full year 2006, the Company expects salaries, wages, and benefits to experience an expense increase of approximately $65 million due to the adoption of SFAS 123R. See Note 2 to the Consolidated Financial Statements for more information on the 2006 adoption of SFAS 123R."



I am not a cpa, I am just back on reserve killing time.