Southwest Airlines 1994 Annual Report Download - page 29

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Notes to Consolidated Financial Statements
Southwest Airlines – 1994 Annual Report Page 29
This change in accounting principle had the effect of a one-time adjustment increasing net income for the
year ended December 31, 1992 by approximately $12,538,000 (net of provision for income taxes and
profitsharing of approximately $11,500,000).
CHANGE IN ACCOUNTING ESTIMATE Effective January 1, 1992, the Company revised the estimated useful
lives of its 737-200 aircraft from 15 years to 15-19 years. This change was the result of the Company's
assessment of the remaining useful lives of its 737-200 aircraft following the recent promulgation of rules
by the FAA for the phase out of Stage 2 aircraft by December 31, 1999. The effect of this change was to
reduce depreciation expense approximately $3,680,000, or $.03 per share, for the year ended December
31, 1992.
4. Commitments
The Company's contractual purchase commitments consist primarily of scheduled aircraft acquisitions.
Twenty-five 737-300 aircraft are scheduled for delivery in 1995, 18 in 1996, and ten in 1997. Four 737-
700s are scheduled for delivery in 1997, 16 in 1998, 16 in 1999, 15 in 2000, and 12 in 2001. In addition,
the Company has options to purchase up to eleven 737-300s in 1997 and up to sixty-three 737-700s
during 1998-2004. The Company has the option, which must be exercised two years prior to the
contractual delivery date, to substitute 737-400s or 737-500s for the 737-300s to be delivered during 1997
and 737-600s or 737-800s for the 737-700s delivered subsequent to 1999. Aggregate funding needed for
these commitments was approximately $3,042.7 million, subject to adjustments for inflation, due as
follows: $602.6 million in 1995, $489.5 million in 1996, $447.8 million in 1997, $445.4 million in 1998,
$452.9 million in 1999, $366.0 million in 2000, and $238.5 million in 2001. In addition, the Company
has an agreement in principle to lease two used 737-300 aircraft in 1995.
The Company uses jet fuel fixed price swap arrangements to hedge its exposure to price fluctuations on
approximately 5 percent of its annual fuel requirements. As of December 31, 1994, the Company had jet
fuel swap agreements with broker-dealers to exchange monthly payments on notional quantities
amounting to 2,100,000 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 have been insignificant. Although the agreements expose the Company to credit loss in the
event of nonperformance by the other parties to the agreements, the Company does not anticipate such
nonperformance.
5. Accrued Liabilities (in thousands)
1994 1993
Aircraft rentals $67,407 $55,459
Profitsharing and savings plans (Note 10) 53,512 45,691
Aircraft maintenance costs 37,330 37,853
Vacation pay 31,801 26,781
Taxes, other than income 25,001 19,183
Interest 20,270 21,311
Merger expenses -8,527
Other 53,658 50,528
$288,979 $265,333