Southwest Airlines 1994 Annual Report Download - page 22

Management's Discussion and Analysis of Financial Condition and Results of Operations
Southwest Airlines – 1994 Annual Report Page 22
OTHER “ Other expenses(income)” included interest expense, interest income, and nonoperating gains
and losses. Interest expense, net of capitalized interest, decreased 7.0 percent in 1993 due to the March 1,
1993 early redemption of $100 million in senior unsecured 9% Notes due 1996. See Note 6 to the
Consolidated Financial Statements for further information. Net nonoperating losses in 1993 resulted from
the write-down of certain internal system development costs and the settlement of certain employment-
related litigation for $1.7 million.
INCOME TAXES The provision for income taxes increased in 1993, as a percentage of income before
income taxes and cumulative effect of accounting changes, to 40.6 percent from pro forma 38.1 percent in
1992. The increase was primarily the result of the increase in the federal income tax rate. See Note 11 to
the Consolidated Financial Statements for further information.
Liquidity And Capital Resources
Cash provided from operations was $412.7 million in 1994, compared to $392.7 million in 1993. During
1994, additional funds of $315.0 million were generated from the sale and leaseback of ten new 737-300
aircraft subject to long-term operating leases (increasing total commitments for operating leases by $619.0
million).
During 1994, capital expenditures of $788.6 million were primarily for the purchase of 18 new 737-300
aircraft, one used 737-300 aircraft previously leased by Morris, and progress payments for future aircraft
deliveries. At December 31, 1994, capital commitments of the Company consisted primarily of scheduled
aircraft acquisitions.
As of January 1995, Southwest had one-hundred-sixteen 737s on firm order, including twenty-five to be
delivered in 1995, with options to purchase another seventy-four. Aggregate funding required for firm
commitments approximated $3,042.7 million through the year 2001 of which $602.6 million related to
1995. See Note 4 to the Consolidated Financial Statements for further information.
The Company recently completed the construction of a $10.0 million reservation center in Little Rock,
Arkansas, which began accepting calls on January 24, 1995, and announced that it will build an
additional reservation center in Oklahoma City scheduled to open in second quarter 1995. Total estimated
cost of the new Oklahoma City reservation center is approximately $10.0 million.
As of December 31, 1994 and since 1990, the Company had authority from its Board of Directors to
purchase 3,750,000 shares of its common stock from time-to-time on the open market. No shares have
been purchased since 1990.
The Company has various options available to meet its capital and operating commitments, including cash
on hand at December 31, 1994 of $174.5 million, internally generated funds, and a revolving credit line
with a group of banks of up to $300 million (none of which had been drawn at December 31, 1994). In
addition, the Company will also consider various borrowing or leasing options to maximize earnings and
supplement cash requirements.
At yearend, the Company had outstanding shelf registrations for the issuance of $100 million senior
unsecured notes and $98 million pass-through certificates relating to sale/leaseback transactions. The
Company presently intends to utilize these sources of financing during 1995.
Cash provided from operations was $392.7 million in 1993 as compared to $282.1 million in 1992.
During 1993, additional funds of $90.0 million were generated from the sale and leaseback of three new
737-300 aircraft subject to 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.