Southwest Airlines 1998 Annual Report Download - page 34

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34
SOUTHWEST AIRLINES CO. ¤ SIX STORIES OF FREEDOM
OTHER “ Other expenses (income)” included interest expense, capitalized interest,
interest income, and nonoperating gains and losses. Interest expense increased $4.2
million in 1997 primarily due to the February 1997 issuance of $100 million of senior
unsecured 7 3/8% Debentures due March 1, 2027. Capitalized interest decreased $2.5
million in 1997 as a result of the timing of payments related to aircraft purchase
contracts. Interest income for 1997 increased $10.8 million primarily due to higher
invested cash balances.
INCOME TAXES The provision for income taxes, as a percentage of income before
taxes, decreased in 1997 to 38.5 percent from 39.3 percent in 1996. The decrease
resulted from lower effective state tax rates, including a reduced California income tax
rate.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations was $886.1 million in 1998, compared to $610.6
million in 1997.
During 1998, capital expenditures of $947.1 million primarily were for the purchase of
22 new 737-700 aircraft and four used 737-300 aircraft along with progress payments
for future aircraft deliveries. In February 1998, the Company redeemed $100 million of
senior unsecured 9 1/4% Notes originally issued in February 1991. At December 31,
1998, capital commitments of the Company primarily consisted of scheduled aircraft
acquisitions and related flight equipment.
As of July 22, 1998, the Board of Directors increased the Company’s authorization to
repurchase shares of its outstanding common stock to $100 million. The Company
completed this repurchase program during third quarter 1998, resulting in the
repurchase of approximately 4.9 million post-split shares.
As of December 31, 1998, Southwest had 105 new 737-700s on firm order, including
32 to be delivered in 1999, with options to purchase another 62. Aggregate funding
required for firm commitments approximated $2,492.5 million through the year 2004, of
which $715.9 million related to 1999. See Note 2 to the Consolidated Financial
Statements for further information.