Southwest Airlines 2002 Annual Report Download - page 40

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SOUTHWEST AIRLINES CO. 2002 10-K | 21
Other. “Other expenses (income)” included
interest expense, capitalized interest, interest
income, and other gains and losses. Interest
expense was flat compared to 2000. Following
the terrorist attacks, the Company borrowed the
full $475 million available under its revolving
credit facility and issued $614.3 million in long-
term debt in the form of Pass-Through
Certificates. See Note 7 to the Consolidated
Financial Statements. The increase in expense
caused by these borrowings was offset by a
decrease in interest rates on the Company’s
floating rate debt and the July 2001 redemption
of $100 million of unsecured notes. Capitalized
interest decreased $7.0 million, or 25.3 percent,
primarily as a result of lower 2001 progress
payment balances for scheduled future aircraft
deliveries as compared to 2000. The lower
progress payments were due in part to the
deferral of Boeing 737 aircraft firm orders and
options following the terrorist attacks. Interest
income increased $2.5 million, or 6.2 percent,
primarily due to higher invested cash balances,
partially offset by lower rates. Other gains in 2001
primarily resulted from $235 million received as
the Company’s share of government grant funds
under the Air Stabilization Act, intended to offset
the Company’s direct and incremental losses
caused by the terrorist attacks, through the end
of 2001. See Note 3 to the Company’s Consoli-
dated Financial Statements for further discussion
of the Air Stabilization Act and grants from the
government.
Income Taxes. The provision for income taxes,
as a percentage of income before taxes,
decreased slightly to 38.24 percent in 2001 from
38.54 percent in 2000. The decrease primarily
resulted from lower effective state tax rates in
2001.
Liquidity and Capital Resources
Net cash provided by operating activities was
$520.2 million in 2002 compared to $1.5 billion
in 2001. The decrease in operating cash flows
was primarily due to the decrease in net income
and the deferral of approximately $186 million in
2001 excise tax payments until January 2002, as
provided for in the Air Stabilization Act.
Cash flows used in investing activities in
2002 totaled $603.1 million compared to
$997.8 million in 2001. Investing activities in
both years consisted primarily of payments for
new 737-700 aircraft delivered to the Company
and progress payments for future aircraft
deliveries. Of the 23 new aircraft the Company
put into service during 2002, 11 were recorded
(on the Consolidated Statement of Cash Flows
and on the Consolidated Balance Sheet) through
the consolidation of a special purpose trust (the
Trust) during 2001. See Note 4 to the Consoli-
dated Financial Statements for more information
on the Trust. A total of eight new 737-700 aircraft
were recorded through consolidation of the Trust
during 2002. The remaining four new 737-700
aircraft deliver-ed to the Company in 2002 were
purchased directly from Boeing. The Trust was
dissolved prior to December 31, 2002.
Net cash used in financing activities was
$381.7 million in 2002 compared to cash
generated by financing activities of $1.3 billion in
2001. Cash used in financing activities during
2002 was primarily for the repayment of the
Company’s $475 million revolving credit facility
that the Company drew down in September 2001
and for the repayment of the Trust. These uses
were partially offset by cash generated from the
issuance of $385 million in unsecured notes in
March 2002. Financing cash flows in 2001 were
generated from borrowings the Company made
from its $475 million revolving credit facility and
the issuance of $614.3 million in long-term debt.
These borrowings were partially offset by the
redemption of $100 million unsecured notes in
2001. See Note 6 and Note 7 to the Consoli-
dated Financial Statements for more information
on these financing activities. Cash generated in
2002 and in 2001 was primarily used to finance
aircraft-related capital expenditures and provide
working capital.
The Company has various options available to
meet its capital and operating commitments,
including cash on hand at December 31, 2002,