Southwest Airlines 1994 Annual Report Download

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© 1994 Southwest Airlines Co.
This annual report was downloaded from our website at http://www.iflyswa.com

Table of contents

  • Page 1
    © 1994 Southwest Airlines Co. This annual report was downloaded from our website at http://www.iflyswa.com

  • Page 2
    ...Of Income ...24 Consolidated Statement Of Stockholders' Equity...25 Consolidated Statement Of Cash Flows...26 Notes to Consolidated Financial Statements ...27 Independent Auditors...37 Corporate Data ...38 Directors...39 Officers...40 Dedication ...42 Southwest Airlines - 1994 Annual Report Page 2

  • Page 3
    ...) 1994 1993 Percent Change Operating revenues Operating expenses Operating income Operating margin Net income (1) Net margin (1) Net income per common and common equivalent share (1) Stockholders equity Return on average stockholders equity (1) Debt as a percentage of invested capital Stockholders...

  • Page 4
    Consolidated Highlights Net Income $179 $154 $97 $51 $33 1991 1992 1993 1994 $175 $150 $100 $50 1990 Net Income per Share $1.05 $0.68 $0.39 $0.25 $1.22 $1.00 $0.75 $.050 $0.25 1992 1993 1994 1990 1991 Southwest Airlines - 1994 Annual Report Page 4

  • Page 5
    ...well as leisure travelers. The Company, incorporated in Texas, commenced Customer Service on June 18, 1971 with three Boeing 737 aircraft serving three Texas cities-Dallas, Houston, and San Antonio. At yearend 1994, Southwest operated 199 Boeing 737 aircraft and provided service to 45 airports in 44...

  • Page 6
    ... Agents; 11. Negotiated a landmark Pilot contract with the Southwest Airlines Pilots' Association (SWAPA), fundamentally offering stock options in lieu of pay increases; 12. Sustained a year-long collision with Continental Lite, indirectly in Texas and directly on the Midway Airport-Cleveland...

  • Page 7
    ...Continental Airlines' repetitive "50 percent off" sales, which both deprived us of Customers and reduced yields per revenue passenger mile; and, to a lesser extent, the introduction of the United Shuttle in our Oakland markets. We also experienced a technological problem with our Reservations System...

  • Page 8
    ...it allows us to profitably offer Customers what they want most from safe air transportation-low fares. Southwest is THE Low Fare Airline every day, everywhere we fly. Our operating costs per available seat mile were 2.3 percent lower in 1994 than 1993, a distinct accomplishment considering the heavy...

  • Page 9
    ... Cost Operating Revenue Per Available Seat Mile 20¢ 15¢ 7.23¢ 7.10¢ 7.89¢ 8.35¢ 8.07¢ 10¢ 5¢ 1992 1993 1994 1990 1991 Operating Expense Per Available Seat Mile 20¢ 15¢ 6.73¢ 6.76¢ 7.03¢ 7.25¢ 7.08¢ 10¢ 5¢ 1992 1993 1994 1990 1991 Southwest Airlines - 1994 Annual Report Page...

  • Page 10
    ... or downtown airports such as Dallas Love Field, Houston Hobby, Chicago Midway, Oakland, Burbank, Ontario, San Jose, and Baltimore. We avoid many congested hub airports altogether and enhance our ability to sustain high productivity and reliable ontime performance. Aircraft are scheduled to minimize...

  • Page 11
    ... our Boeing 737 jets in an all-coach configuration and believe they are attractive, safe, and comfortable for our Customers and cost-effective to operate in high-frequency short- to medium-range markets. Operating a single aircraft type has proven to be efficient and safe. Our fleet age is among the...

  • Page 12
    ... trips; confirmed but open seating; superior beverage service without the need for a meal as the flights are short; but, most of all, the friendly, caring, and enthusiastic service delivered by our Employees. We also received in 1994 the top ranking in the annual Airline Quality Rating report for...

  • Page 13
    ... industry fare sales and increased competition in shorthaul markets. Despite heavy advertising costs to support seven new cities and these campaigns, our overall cost per available seat mile actually declined in 1994 as our People posted record earnings. Another Triple Crown was earned for Customer...

  • Page 14
    ...) Los Angeles (LAX) Louisville (SDF) Lubbock (LBB) Midland/Odessa (MAF) Nashville (BNA) New Orleans (MSY) Oakland (OAK) Oklahoma City (OKC) Omaha (OMA) Ontario (ONT) Orange County (SNA) Phoenix (PHX) Portland (PDX) Reno/Tahoe (RNO) Sacramento (SMF) St. Louis (STL) Salt Lake City (SLC) San Antonio...

  • Page 15
    ...,491 1990 (in millions) 1991 1992 1993 1994 Revenue passenger Miles 30,000 13,787 18,827 21,611 20,000 10,000 9,959 11,296 1990 1991 1992 1993 1994 Passenger Load Factor 61.1 64.5 68.4 67.3 80% 60% 40% 20% 1990 1991 1992 1993 1994 60.7 Southwest Airlines - 1994 Annual Report Page 15

  • Page 16
    ... diverse route structure that spans 45 cities in 22 states. We have the dominant market share in our niche, the shorthaul, high-frequency, point-to-point market, with over 65 percent in our top 100 markets as of second quarter 1994. We offer the best Customer Service according to U.S. Department of...

  • Page 17
    ... SABRE Basic Booking Request, our enhanced Ticket By Mail product, and expanded reservations operations should all combine to help reduce distribution costs. During 1995, we currently plan to add twenty-seven 737-300 aircraft to our fleet and one new city, Omaha, Nebraska, to our route system, which...

  • Page 18
    ... in average jet fuel cost per gallon and lower agency commission costs, offset by increased aircraft rentals. Operating expenses per ASM for 1994 and 1993 (excluding 1993 merger expenses) were as follows: Operating expenses per ASM Salaries, wages, and benefits Profitsharing and Employee savings...

  • Page 19
    ...own Southwest Airlines Air Travel ("SWAT") system allowing high-volume travel agents direct access to reservations; introduced overnight ticket delivery for travel agents; reduced to three the number of advance days reservations required for overnight delivery of tickets to customers (Ticket By Mail...

  • Page 20
    ... system from charter to scheduled service and the addition of 16 aircraft to the Southwest fleet. The additional 16 Southwest aircraft were primarily used to expand California, St. Louis, and Chicago markets and to initiate service from Louisville, Baltimore, and San Jose. Freight revenues increased...

  • Page 21
    ...the sale/leaseback financing by Southwest, since late 1992, of seven 737-300 aircraft with long-term operating leases. Also in 1993, Southwest leased one used 737-300 aircraft under a long-term operating lease and one used 737-200 aircraft under a short-term operating lease. Depreciation expense per...

  • Page 22
    ... long-term operating leases (increasing total commitments for operating leases by $145.0 million). Morris also generated $17.8 million from certain bank borrowings. These proceeds were primarily used to finance aircraft-related capital expenditures and to provide working capital. Southwest Airlines...

  • Page 23
    ...long-term debt Total current liabilities Long-term debt less current maturities (Note 6) Deferred income taxes (Note 11) Deferred gains from sale and leaseback of aircraft Other deferred liabilities Commitments and contingencies (Notes 4, 7, and 11) Stockholders' equity (Notes 8 and 9): Common stock...

  • Page 24
    ...Statement Of Income Operating revenues: Passenger Freight Charter and other Total operating revenues Operating expenses: Salaries, wages, and benefits (Note 10) Fuel and oil Maintenance materials and repairs Agency commissions Aircraft...$ .71 .09 $ .80 Southwest Airlines - 1994 Annual Report Page 24

  • Page 25
    ...Statement Of Stockholders' Equity Consolidated Statement Of Stockholders' Equity Years Ended December 31, 1994, 1993, And 1992 (in thousands except per share amounts) Common Stock Capital In Excess of Par Value Retained Earnings Treasury Stock Total Balance at December 31, 1991 Public common stock...

  • Page 26
    ...Net cash used in investing activities Cash flows from financing activities: Issuance of long-term debt Proceeds from public common stock offering(Note 8) Proceeds from aircraft sale and leaseback transactions Proceeds from sale of preferred stock, pooled company Payment of long-term debt and capital...

  • Page 27
    ... outstanding stock of Morris Air Corporation (Morris), a low-fare commercial/charter air carrier based in Salt Lake City. The acquisition was accounted for as a pooling of interests and, accordingly, the Company's consolidated financial statements were restated to include the accounts and operations...

  • Page 28
    ... overhaul maintenance program with the Federal Aviation Administration (FAA), Southwest changed its method of accounting for scheduled airframe overhauls costs from the direct expense method to that of capitalizing and amortizing the costs over the periods benefited. The Company believes this method...

  • Page 29
    ...gallons per month, over the ensuing three months. Under the swap agreements, the Company pays or receives the difference between the daily average jet fuel price and a fixed price of approximately $.518 per gallon. Gains and losses on such transactions are recorded as adjustments to fuel expense and...

  • Page 30
    ... Financial Statements 6. Long-Term Debt (In Thousands) 1994 1993 9 1/4% Notes due 1998 9.4% Notes due 2001 8 3/4% Notes due 2003 7 7/8% Notes due 2007 Capital leases (Note 7) Secured notes payable to financial institutions, repaid in 1994 Industrial Revenue Bonds, repaid in 1994 Other Less current...

  • Page 31
    ...near the end of the lease term at fair market value, but generally not to exceed a stated percentage of the lessor's defined cost of the aircraft. 8. Common Stock At December 31, 1994, the Company had common stock reserved for issuance pursuant to Employee stock benefit plans (12,009,293 shares) and...

  • Page 32
    ... treasury) in a public offering. Net proceeds from the sale of approximately $86,946,000 were added to the working capital of the Company for general corporate purposes, including the acquisition of aircraft and related equipment. 9. Stock Plans In May 1991, the Company's stockholders approved the...

  • Page 33
    ... the sale of common stock to Employees of the Company at a price equal to 90% of the market value at the end of each purchase period. Common stock purchases are paid for through periodic payroll deductions. Participants under the plan received 290,054 shares in 1994, 182,459 shares (59,442 pre-split...

  • Page 34
    ... generally vest over five years with credit for prior years' service granted. Company matching contributions expensed in 1994, 1993, and 1992 were $19,817,000, $13,986,000, and $11,611,000, respectively. 11. Income Taxes Effective January 1, 1993, the Company changed its method of accounting...

  • Page 35
    ...): 1992 Depreciation Deferred gains on sale\leasebacks Scheduled airframe overhauls Vacation pay Alternative minimum tax Other, net $27,947 (4,275) 6,336 (1,220) (10,645) 3,117 $21,260 In January 1994, Southwest received an examination report from the Internal Revenue Service proposing certain...

  • Page 36
    ... diluted earnings per share have not been presented as the fully dilutive effect of shares issuable upon the exercise of options under the Company's Stock Option Plans or conversion of Convertible Subordinated Debentures is anti-dilutive or is not material. Southwest Airlines - 1994 Annual Report...

  • Page 37
    ... Company changed its method of accounting for income taxes and postretirement benefits. Also as discussed in Note 3, during 1992, the Company changed its method of accounting for scheduled airframe overhauls. ERNST & YOUNG LLP Dallas, Texas January 26, 1995 Southwest Airlines - 1994 Annual Report...

  • Page 38
    ... Data Transfer Agent and Registrar Continental Stock Transfer & Trust Company 2 Broadway New York, New York 10004 (212) 509-4000 Stock Exchange Listing New York Stock Exchange Ticker Symbol: LUV Auditors Ernst & Young LLP Dallas, Texas General Offices P. O. Box 36611 Dallas, Texas 75235-1611 Annual...

  • Page 39
    ... Executive Officer, Southern Investors Service Co., Inc., Houston, Texas (Real Estate Development); Audit and Compensation Committees June M. Morris Founder and former Chief Executive Officer of Morris Air Corporation, Salt Lake City, Utah; Audit Committee Southwest Airlines - 1994 Annual Report...

  • Page 40
    ...-Inflight Service James F. Parker* Vice President-General Counsel Robert W. Rapp, Jr. Vice President-Systems Ron Ricks* Vice President-Governmental Affairs Dave Ridley Vice President-Marketing and Sales Joyce C. Rogge Vice President-Advertising and Promotions Southwest Airlines - 1994 Annual Report...

  • Page 41
    ... E. Sterbenz Vice President-Flight Operations Keith L. Taylor Vice President-Revenue Management James C. Wimberly* Vice President-Ground Operations William D. Lyons Controller John D. Owen Treasurer * Indicates Member of Executive Planning Committee Southwest Airlines - 1994 Annual Report Page 41

  • Page 42
    ... This Southwest Airlines Annual Report is dedicated to our 1994 Heroes of the Heart, our Technical Services Department, the most spirited group of Electronic Technicians in the industry. Your efficiency and resourcefulness help make us the Low Fare Airline. Southwest Airlines - 1994 Annual Report...