Southwest Airlines 2000 Annual Report Download - page 32

Adopting this new method of accounting for 1999 and 1998
would have produced the following pro forma results (in
thousands, except per share amounts):
As reported, before the cumulative effect of accounting change
2000 1999 1998
Net income $625,224 $474,378 $433,431
Net income per
share – basic $1.25 $.94 $.87
Net income per
share – diluted $1.18 $.89 $.82
Pro forma, before the cumulative effect of accounting change
2000 1999 1998
Net income $625,224 $470,439 $428,449
Net income per
share – basic $1.25 $.94 $.86
Net income per
share – diluted $1.18 $.88 $.81
Effective January 1, 1999, the Company revised the
estimated useful lives of its 737-300 and -500 aircraft from 20
years to 23 years. This change was the result of the
Company’s assessment of the remaining useful lives of the
aircraft based on the manufacturer’s design lives, the
Company’s increased average aircraft stage (trip) length, and
the Company’s previous experience. The effect of this change
was to reduce depreciation expense approximately $25.7
million and increase net income $.03 per diluted share for the
year ended December 31, 1999.
3. COMMITMENTS
The Company’s contractual purchase commitments consist
primarily of scheduled aircraft acquisitions. Twenty-five 737-
700 aircraft are scheduled for delivery in 2001, 27 in 2002, 13
in 2003, 29 in 2004, five in 2005, and 47 thereafter. In addition,
the Company has options to purchase up to 87 737-700s
during 2003-2008 and purchase rights for an additional 217
737-700s during 2007–2012. The Company has the option,
which must be exercised two years prior to the contractual
delivery date, to substitute 737-600s or 737-800s for the 737-
700s scheduled subsequent to 2001. Aggregate funding
needed for firm commitments is approximately $4.0 billion,
subject to adjustments for inflation, due as follows: $668.3
million in 2001, $766.3 million in 2002, $472.2 million in 2003,
$640.7 million in 2004, $379.4 million in 2005, and $1.0 billion
thereafter.
4. ACCRUED LIABILITIES
(In thousands)2000 1999
Retirement plans (Note 10) $ 180,340 $ 138,566
Aircraft rentals 117,302 131,219
Vacation pay 72,115 62,937
Other 130,117 97,784
$ 499,874 $ 430,506
5. LONG-TERM DEBT
(In thousands)2000 1999
9.4% Notes due 2001 $ 100,000 $ 100,000
8 3/4% Notes due 2003 100,000 100,000
Aircraft Secured Notes due 2004 200,000 200,000
8% Notes due 2005 100,000 100,000
7 7/8% Notes due 2007 100,000 100,000
French Credit Agreements 54,243 55,844
7 3/8% Debentures due 2027 100,000 100,000
Capital leases (Note 6) 117,083 123,834
Other - 1,886
871,326 881,564
Less current maturities 108,752 7,873
Less debt discount 1,582 1,974
$ 760,992 $ 871,717
In fourth quarter 1999, the Company issued $200 million of
floating rate Aircraft Secured Notes, due 2004. The Notes are
funded by a bank through a commercial paper conduit program
and are secured by eight aircraft. Interest rates on the Notes
are based on the conduit’s actual commercial paper rate, plus
fees, for each period and are expected to average
approximately LIBOR plus 36 basis points over the term of the
Notes. Interest is payable monthly and the Company can
prepay the Notes in whole or in part prior to maturity.
Also in fourth quarter 1999, the Company entered into two
identical 13-year floating rate financing arrangements, whereby
it effectively borrowed a total of $56 million from French
banking partnerships. For presentation purposes, the
Company has classified these identical borrowings as one $56
million transaction. The effective rate of interest over the 13-
year term of the loans is LIBOR plus 32 basis points. Principal
and interest are payable semi-annually on June 30 and
December 31 for each of the loans and the Company may
terminate the arrangements in any year on either of those
dates, with certain conditions. The Company has pledged two
aircraft as collateral for the entire transaction.
On February 28, 1997, the Company issued $100 million of
senior unsecured 7 3/8% Debentures due March 1, 2027.
Interest is payable semi-annually on March 1 and September
1. The Debentures may be redeemed, at the option of the
F14