Southwest Airlines 1997 Annual Report Download - page 32

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32
SOUTHWEST AIRLINES CO. ♥ FIVE SYMBOLS OF FREEDOM
Landing fees and other rentals per ASM increased 4.5 percent in 1996, compared to
1995, which included an airport credit of $4.9 million.
Depreciation expense per ASM increased 4.7 percent in 1996, compared to 1995,
due to an increase in the percentage of owned aircraft.
Other operating expenses per ASM increased 9.4 percent in 1996, compared to 1995.
This increase was primarily due to increased advertising costs resulting from the
expansion into Florida and Providence, Rhode Island, as well as a new advertising
campaign; the 4.3 cent per gallon tax on commercial aviation jet fuel purchased for use
in domestic operations, which became effective October 1, 1995; and increased airport
security costs. The additional fuel tax increased 1996 and 1995 “other operating
expenses” by $32.7 million and $7.4 million, respectively.
OTHER “ Other expenses (income)” included interest expense, capitalized interest,
interest income, and nonoperating gains and losses. Capitalized interest decreased
$9.1 million in 1996 as a result of certain amendments to aircraft purchase contracts
during third quarter 1995 that affected the timing of payments. Interest income for 1996
increased $5.7 million primarily due to higher invested cash balances.
INCOME TAXES The provision for income taxes, as a percentage of income before
taxes, decreased in 1996 to 39.3 percent from 40.2 percent in 1995. The decrease
primarily was the result of lower effective state tax rates.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations was $610.6 million in 1997, compared to $615.2
million in 1996. (Operating cash flows in 1996 were inflated by $79.4 million due to a
one-time deferral allowed by the federal government for payment of excise taxes. On a
pro forma basis, operating cash flows would have been $690.0 million in 1997 versus
$535.8 million in 1996.)
During 1997, additional funds of $98.8 million were generated from the February
issuance of $100 million of senior unsecured 7 3/8% Debentures due March 1, 2027.
These proceeds primarily were used to finance aircraft-related capital expenditures and
to provide working capital.
During 1997, capital expenditures of $688.9 million primarily were for the purchase of
15 new 737-300 aircraft and three new 737-700 aircraft along with progress payments
for future aircraft deliveries. At December 31, 1997, capital commitments of the
Company primarily consisted of scheduled aircraft acquisitions and related flight
equipment.
As of December 31, 1997, Southwest had 126 new 737-700s on firm order, including
22 to be delivered in 1998, with options to purchase another 62. Aggregate funding
required for firm commitments approximated $3,109.8 million through the year 2004, of
which $565.7 million related to 1998. See Note 2 to the Consolidated Financial
Statements for further information.