Southwest Airlines 1995 Annual Report Download - page 25

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Morris operational functions to Southwest, primarily contract services which decreased $8.8
million (24.4 percent per ASM), offset by an increase in advertising costs of $24.1 million (22.9
percent per ASM) primarily associated with the start-up of seven new cities and new competitive
pressures in 1994.
OTHER “ Other expenses (income)” included interest expense, interest income, and nonoperating
gains and losses. Interest expense decreased $5.1 million in 1994 due to the March 1, 1993
redemption of $100 million senior unsecured 9% Notes due 1996 and the repayment of
approximately $54.0 million of Morris long-term debt during first quarter 1994. Capitalized
interest increased $8.6 million in 1994 as a result of higher levels of advance payments on
aircraft compared to 1993. Interest income for 1994 decreased $1.9 million primarily due to lower
cash balances available for short-term investment.
INCOME TAXES The provision for income taxes decreased in 1994 as a percentage of income
before taxes, excluding cumulative effect of accounting changes, to 40.1 percent from 40.6
percent in 1993. The 1993 rate was higher due to deferred tax adjustments in 1993 related to the
1993 increase in the federal corporate income tax rate from 34 percent to 35 percent (see Note
11 to the Consolidated Financial Statements). This was offset by increased 1994 effective state
income tax rates.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations was $456.4 million in 1995, compared to $412.7 million in 1994.
During 1995, additional funds of $321.7 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 $607.9 million). In addition, $98.8 million was generated from the March
1995 issuance of $100 million in senior unsecured 8% Notes due in 2005.
During 1995, capital expenditures of $728.6 million primarily were for the purchase of 23 new
737-300 aircraft, one used 737-300 aircraft previously leased by Morris, and progress payments
for future aircraft deliveries. At December 31, 1995, capital commitments of the Company
consisted primarily of scheduled aircraft acquisitions.
As of January 1996, Southwest had one hundred 737s on firm order, including twenty to be
delivered in 1996, with options to purchase another sixty-seven. Aggregate funding required for
firm commitments approximated $2,614.0 million through the year 2001 of which $461.5 million
related to 1996. See Note 4 to the Consolidated Financial Statements for further information.
As of December 31, 1995 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, 1995 of $317.4 million, internally generated funds, and
a revolving credit line with a group of banks of up to $460 million (none of which had been drawn
at December 31, 1995). In addition, the Company will also consider various borrowing or leasing
options to maximize earnings and supplement cash requirements.
The Company currently has outstanding shelf registrations for the issuance of $260.6 million
public debt securities.
Cash provided from operations was $412.7 million in 1994 as 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). These proceeds were primarily used to
finance aircraft-related capital expenditures and to provide working capital.