-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, dIqh3AjzrnaWD5zQ9w+5UeRai7rbvbvRlyalM3/Ev2WIYV9Qz2r4nOo+PdFD49JZ owOKs7wTb18qnaRQS4Wk5w== 0000092380-95-000031.txt : 19950814 0000092380-95-000031.hdr.sgml : 19950814 ACCESSION NUMBER: 0000092380-95-000031 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHWEST AIRLINES CO CENTRAL INDEX KEY: 0000092380 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 741563240 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07259 FILM NUMBER: 95561972 BUSINESS ADDRESS: STREET 1: 2702 LOVE FIELD DR CITY: DALLAS STATE: TX ZIP: 75235 BUSINESS PHONE: 2149044000 MAIL ADDRESS: STREET 1: PO BOX 36611 CITY: DALLAS STATE: TX ZIP: 75235-1611 FORMER COMPANY: FORMER CONFORMED NAME: AIR SOUTHWEST CO DATE OF NAME CHANGE: 19760108 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 1995 OR ____TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________ Commission file No. 1-7259 SOUTHWEST AIRLINES CO. (Exact name of registrant as specified in its charter) TEXAS 74-1563240 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. Box 36611, Dallas, Texas 75235-1611 (Address of principal executive offices) (Zip Code) (214) 904-4000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Number of shares of Common Stock outstanding as of the close of business on August 9, 1995: 143,787,798 SOUTHWEST AIRLINES CO. FORM 10-Q Part I - FINANCIAL INFORMATION Item 1. Financial Statements Southwest Airlines Co. CONDENSED CONSOLIDATED BALANCE SHEET (in thousands) (unaudited)
June 30, 1995 December 31, 1994 ASSETS Current assets: Cash and cash equivalents $400,898 $174,538 Accounts receivable 93,426 75,692 Inventories of parts and supplies 39,760 37,565 Prepaid expenses and other 33,036 27,103 Total current assets 567,120 314,898 Property and equipment: Flight equipment 2,717,301 2,564,551 Ground property and equipment 418,181 384,501 Deposits on flight equipment purchase contracts 408,214 393,749 3,543,696 3,342,801 Less allowance for depreciatin 921,368 837,838 2,622,328 2,504,963 Other assets 3,060 3,210 $3,192,508 $2,823,071 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $141,772 $117,599 Accrued liabilities 337,309 288,979 Air traffic liability 177,474 106,139 Income taxes payable 19,281 Current maturities of long-term debt 13,396 9,553 Total current liabilities 689,232 522,270 Long-term debt less current maturities 673,980 583,071 Deferred income taxes 254,725 232,850 Deferred gains from sale and leaseback of aircraft 238,626 217,677 Other deferred liabilities 23,247 28,497 Stockholders' equity: Common stock 143,684 143,256 Capital in excess of par value 156,630 151,746 Retained earnings 1,012,384 943,704 Total stockholders' equity 1,312,698 1,238,706 3,192,508 2,823,071 see accompanying notes
Southwest Airlines Co. CONDENSED CONSOLIDATED STATEMENT OF INCOME (in thousands except per share amounts) (unaudited)
Three months ended Six months ended June 30, June 30, 1995 1994 1995 1994 Operating revenues: Passenger $710,275 $637,979 $1,307,103 $1,234,981 Freight 16,120 13,220 31,005 26,019 Other 11,810 9,857 21,096 19,468 Total operating revenues $738,205 661,056 1,359,204 1,280,468 Operating expenses: Salaries, wages, and benefits 217,258 189,923 420,830 367,838 Fuel and oil 88,880 73,517 172,056 148,487 Maintenance materials and repairs 52,580 43,741 104,253 93,643 Agency commissions 31,230 35,085 60,745 69,623 Aircraft rentals 42,065 31,202 80,480 62,027 Landing fees and other rentals 39,443 36,864 79,976 72,988 Depreciation 38,209 33,814 75,556 66,290 Other operating expenses 125,115 115,076 238,474 221,692 Total operating expenses 634,780 559,222 1,232,370 1,102,588 Operating income 103,425 101,834 126,834 177,880 Other expenses (income): Interest expense 15,087 13,153 28,773 27,132 Capitalization interest (8,415) (6,307) (16,900) (11,816) Interest income (5,518) (2,031) (7,410) (4,145) Nonoperating losses (gains), net 1,470 (137) 1,536 15 Total other expense 2,624 4,678 5,999 11,186 Income before income taxes 100,801 97,156 120,835 166,694 Provision for income taxes 41,077 38,634 49,285 66,325 Net income $59,724 $58,522 $71,550 $100,369 Weighted average common and common equivalent shares outstanding 147,348 147,374 146,940 147,487 Net income per common and common equivalent share $.41 $.40 $.49 $.68 See accompanying notes.
Southwest Airlines Co. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (unaudited)
Three months ended Six months ended June 30, June 30, 1995 1994 1995 1994 Net cash provided by operating activities $193,792 $129,560 $298,203 $252,154 Investing activities: Net purchases of property and equipment (157,012) (252,196) (358,286) (373,461) Financing activities: Issuance of long-term debt - - 98,811 - Payment of long-term debt and capital lease obligations (1,615) (1,637) (5,027) (59,504) Payment of cash dividends (1,436) (1,430) (4,303) (2,858) Proceeds from aircraft sale and leaseback transactions $191,650 - $191,650 - Proceeds from Employee stock plans 2,770 2,021 5,312 4,665 Net cash provided by (used in) financing activities 191,369 (1,046) 286,443 (57,697) Net increase (decrease) in cash and cash equivalents 228,149 (123,682) 226,360 (179,004) Cash and cash equivalents at beginning of period 172,749 240,249 174,538 295,571 Cash and cash equivalents at end of period $400,898 $116,567 $400,898 $116,567 Cash payments for: Interest, net of amount capitalized - - $11,111 $16,607 Income taxes $5,996 $28,314 $7,827 $37,510 See accompanying notes.
SOUTHWEST AIRLINES CO. Notes to Condensed Consolidated Financial Statements 1. Basis of presentation - The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The condensed consolidated financial statements for the interim periods ended June 30, 1995 and 1994 include all adjustments (which include only normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. Operating results for the three and six month periods ended June 30, 1995 are not necessarily indicative of the results that may be expected for the year ended December 31, 1995. For further information, refer to the consolidated financial statements and footnotes thereto included in the Southwest Airlines Co. annual report on Form 10-K for the year ended December 31, 1994. 2. Dividends - During the three month periods ended June 30, 1995, March 31,1995, June 30, 1994, and March 31, 1994, dividends of $.01 were declared on the 143,648,993, 143,411,223, 143,042,383 and 142,856,850 shares of common stock then outstanding, respectively. 3. Long-term debt - During March 1995, the Company issued $100 million of 8% senior unsecured notes due March 2005. Interest on the Notes is payable semi-annually on March 1 and September 1, commencing September 1, 1995. The Notes may not be redeemed prior to maturity. 4. Leases - During and subsequent to the end of second quarter 1995, the Company completed transactions for the sale and leaseback of six and two new Boeing 737 aircraft, respectively. The lease terms, which require periodic lease payments through 2019, increased the Company's commitments for operating leases by $485 million. 5. Reclassifications - Certain prior year amounts have been reclassified for comparison purposes. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Comparative Consolidated Operating Statistics Relevant operating statistics for the three and six month periods ended June 30, 1995 and 1994 are as follows:
Three months ended Six months ended June 30, June 30, 1995 1994 1995 1994 Revenue passengers carried 11,513,556 10,773,624 21,617,113 20,693,465 Revenue passenger miles (RPMs) (000s) 5,992,044 5,454,546 11,198,329 10,496,351 Available seat miles (ASMs) (000s) 8,923,859 7,793,554 17,447,197 15,334,297 Load factor 67.1% 70.0% 64.2% 68.5% Average length of passenger haul 520 506 518 507 Trips flown 170,010 151,858 333,795 299,466 Average passenger fare $61.69 $59.22 $60.47 $59.68 Passenger revenue yield per RPM $.1185 $.1170 $.1167 $.1177 Operating revenue yield per ASM $.0827 $.0848 $.0779 $.0835 Operating expenses per ASM $.0711 $.0718 $.0706 $.0719 Average fuel cost per gallon $.5437 $.5119 $.5374 $.5253 Number of employees at period-end 18,985 15,796 18,985 15,796 Size of fleet at period-end 210 189 210 189
Material Changes in Results of Operations Consolidated net income for the three months ended June 30, 1995 was $59.7 million ($.41 per share) compared with $58.5 million ($.40 per share) earned in second quarter 1994. Consolidated operating revenues increased 11.7 percent for the second quarter of 1995 and 6.1 percent for the six months ended June 30, 1995, as compared to the corresponding periods of the prior year, primarily as a result of an 11.3 percent and 5.8 percent increase, respectively, in consolidated passenger revenues. The increase in passenger revenues resulted from a 9.9 percent and 6.7 percent increase in revenue passenger miles (RPMs) for the three and six month periods ended June 30, 1995, respectively. Available seat miles (ASMs) increased 14.5 percent and 13.8 percent in second quarter 1995 and the six month period ended June 30, 1995, respectively, resulting in load factors of 67.1 percent and 64.2 percent for these same periods. The passenger revenue yield per RPM increased 1.3 percent to $.1185 for the three months ended June 30, 1995 and decreased .8 percent to $.1167 for the six months ended June 30, 1995. The second quarter 1995 load factor and revenue yield per RPM were considerably stronger than first quarter 1995 results of 61.1 percent and $.1146, respectively. This improved performance is primarily due to the resolution of fourth quarter 1994 and first quarter 1995 reservation system capacity issues, increased fares, enhanced revenue management, and continued development of our new markets. While revenue yield rebounded in second quarter 1995, and positive comparisons are expected for third quarter 1995, load factor continues to lag behind last year. However, year over year load factor comparisons should continue to improve in the third quarter, based on current traffic trends and aggressive adjustments made to our schedule in late second quarter 1995 to eliminate certain unproductive weekend flights. Non-fuel unit cost comparisons will be negatively impacted by these schedule changes and will, most likely, be higher than year-ago unit costs by as much as two percent, due to lower aircraft utilization. Consolidated freight revenues increased 21.9 percent in the second quarter of 1995 and 19.2 percent for the six months ended June 30, 1995 as compared to the same periods of the prior year, primarily due to increased capacity. Other revenues increased 19.8 percent in the second quarter 1995 and 8.4 percent for the six months ended June 30, 1995, primarily due to increased charter and inflight service revenues. Operating expenses per ASM decreased 1.0 percent for the three months and 1.8 percent for the six months ended June 30, 1995 as follows: Southwest Airlines Co. Consolidated Operating Expenses per ASM (in cents except percent change)
Three months ended June 30, Increase Percent 1995 1994 (decrease) change Salaries, wages, and benefits 2.15 2.15 - - Profitsharing and Employee savings plans .28 .29 <.01> <3.4> Fuel and oil 1.00 .94 .06 6.4 Maintenance materials and repairs .59 .56 .03 5.4 Agency commissions .35 .45 <.10> <22.2> Aircraft rentals .47 .40 .07 17.5 Landing fees and other rentals .44 .47 <.03> <6.4> Depreciation .43 .43 - - Other operating expenses 1.40 1.49 <.09> <6.0> Total 7.11 7.18 <.07> <1.0>
Six months ended June 30, Increase Percent 1995 1994 (decrease) change Salaries, wages and benefits 2.21 2.14 .07 3.3 Profitsharing and Employee savings plans .20 .26 <.06> <23.1> Fuel and oil .99 .97 .02 2.1 Maintenance materials and repairs .60 .61 <.01> <1.6> Agency commissions .35 .45 <.10> <22.2> Aircraft rentals .46 .40 .06 15.0 Landing fees and other rentals .46 .48 <.02> <4.2> Depreciation .43 .43 - Other operating expenses 1.36 1.45 <.09> <6.2> Total 7.06 7.19 <.13> <1.8>
Salaries, wages, and benefits per ASM were flat for the three months ended June 30, 1995 and increased 3.3 percent for the six months ended June 30, 1995 compared to prior year periods. These year over year comparisons are negatively impacted primarily by first half 1994 increases in headcount necessary to transition Morris Air operational functions, which in some instances were performed by outside vendors, to Southwest. Fleet service employees are subject to an agreement with the Ramp, Operations and Provisioning Association, which became amendable in December 1994 and is currently in negotiation. Profitsharing and Employee savings plans expense per ASM decreased 3.4 percent and 23.1 percent for the three months and six months ended June 30, 1995, respectively, as compared to the corresponding periods of the prior year primarily due to lower operating income per ASM. Fuel and oil expense per ASM increased 6.4 percent and 2.1 percent in second quarter 1995 and the six month period then ended due to higher jet fuel prices. The average price paid for fuel in the three month and six month periods ended June 30, 1995 increased 6.2 percent and 2.3 percent, respectively, over the corresponding periods in 1994. Since the end of second quarter 1995, fuel prices have averaged approximately $.53 per gallon. Maintenance materials and repairs per ASM increased 5.4 percent in second quarter 1995 as compared to the respective period of 1994 primarily as a result of performing more engine overhauls during second quarter 1995. Agency commissions per ASM decreased by 22.2 percent for the three month and six month periods ended June 30, 1995, as compared to the corresponding periods of 1994. As a result of 1994 and first quarter 1995 enhancements to Southwest's ticket delivery systems for direct Customers, as described below, the travel agency sales mix decreased from approximately 55 percent of total passenger sales in second quarter 1994 to 45 percent in second quarter 1995. The Company expects to maintain this travel agency sales mix in third quarter 1995. In response to actions taken by our competitor-owned reservations systems, we reduced our operating costs and enhanced our ticket delivery systems by developing our own Southwest Airlines Air Travel ("SWAT") system, allowing high-volume travel agents direct access to reservations; introduced overnight ticket delivery for travel agents; reduced to three the number of advanced days reservations required for overnight delivery of tickets to customers (Ticket By Mail); developed our own Ticketless system, which was rolled out system-wide on January 31, 1995; and effective March 30, 1995, subscribed to a new level of service with SABRE that allows SABRE travel agencies to electronically pursue other cost-effective solutions for automating non-SABRE travel agency bookings. Aircraft rentals per ASM increased 17.5 percent and 15.0 percent for the three month and six month periods ended June 30, 1995, compared to the corresponding periods of 1994. The increase was primarily due to the sale/leaseback financing of six aircraft with long-term operating leases during April 1995 and a higher percentage of the fleet being leased aircraft. Other operating expenses per ASM decreased 6.0 percent and 6.2 percent for the three and six month periods ended June 30, 1995, respectively. These decreases were primarily due to operating efficiencies resulting from the transition of Morris operational functions to Southwest, commencing first quarter 1994. Other expenses (income) for the three months and six months ended June 30, 1995 included interest expense, interest income, and nonoperating gains and losses. Interest expense increased in the first half of 1995 as compared to the first half of 1994 due to the March 1995 issuance of $100 million of 8 percent senior unsecured Notes due March 2005. Capitalized interest increased for the three month and six month periods ended June 30, 1995 as a result of increased aircraft progress payments as compared to the same periods of the prior year. Interest income increased for the three and six months ended June 30, 1995 due to higher invested cash balances and higher short-term interest rates. Material Changes in Financial Condition Net cash provided by operating activities was $193.8 million for the three months ended June 30, 1995. During April 1995, the Company generated $191.7 million from the sale/leaseback of six Boeing 737 aircraft. During the twelve months ended June 30, 1995, cash of $458.7 million was provided from operations. This cash was primarily used to finance aircraft-related expenditures and provide working capital. For the twelve months ended June 30, 1995, net capital expenditures were $773.5 million, which were primarily used for the purchase of 17 new and one used 737-300 aircraft, which had been previously leased by Morris, and progress payments for future aircraft deliveries. As of June 30, 1995, the Company had authority by 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 pursuant to this authority since 1990. The Company's contractual commitments at June 30, 1995 consist primarily of scheduled aircraft acquisitions. Sixteen 737-300s are scheduled for delivery in the remainder of 1995, 18 in 1996, and 10 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. In July 1995, the Company exercised an option to purchase three 737-300s to be delivered in 1997. Aggregate funding needed for these commitments, including the three 1997 option aircraft, is approximately $2,886.7 million at June 30, 1995 due as follows: $371.1 million in 1995; $506.3 million in 1996; $506.5 million in 1997; $445.4 million in 1998; $452.9 million in 1999; $366.0 million in 2000; and $238.5 million in 2001. The Company has various options available to meet its capital and operating commitments, including cash on hand at June 30, 1995 of $400.9 million, $64 million from the July 1995 sale/leaseback of two new 737-300 aircraft, and a $460 million revolving credit line with a group of banks. In addition, the Company will also consider various external financing options to maximize earnings and cash flows and maintain a strong capital structure. PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company has received examination reports from the Internal Revenue Service proposing certain adjustments to Southwest's income tax returns for 1987 through 1991. The adjustments relate to certain types of aircraft financings consummated by Southwest, as well as other members of the aviation industry, during that time period. Southwest intends to vigorously protest the adjustments made with which it does not agree. The industry's difference with the IRS involves complex issues of law and fact which are likely to take a substantial period of time to resolve. Management believes that final resolution of such protest will not have a materially adverse effect upon the results of operations of Southwest. Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Shareholders was held on May 18, 1995. At the meeting 74,641,807 shares of stock were voted against a shareholders proposal requesting that the Board of Directors commit Southwest to the goal of creating a "high-performance workplace", 13,539,321 shares were voted for the proposal, 6,227,637 abstained, and there were 28,817,321 broker non-votes. Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K a) Exhibits (11) Computation of Earnings Per Share (27) Financial Data Schedule b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SOUTHWEST AIRLINES CO. August 9, 1995 /s/ Gary C. Kelly Date Gary C. Kelly Vice President - Finance and Chief Financial Officer (Principal Financial and Accounting Officer)
EX-11.1 2
EXHIBIT (11) Page 1 of 4 Southwest Airlines Co. Computation of Earnings Per Share For the Three Months Ended June 30, 1995 Fully Primary Diluted Weighted average shares outstanding 143,606,941 143,606,941 Shares issuable upon exercise of outstanding stock options (treasury stock method) 3,740,600 3,859,725 Weighted average common and common equivalent shares 147,347,541 147,466,666 Earnings for per share computations $59,724,000 $59,724,000 Earnings per common and common equivalent share $0.41 $0.41
EXHIBIT (11) Page 2 of 4 Southwest Airlines Co. Computation of Earnings Per Share For the Three Months Ended June 30, 1994 Fully Primary Diluted Weighted average shares outstanding 143,001,902 143,001,902 Shares issuable upon exercise of outstanding stock options (treasury stock method) 4,372,576 4,372,576 Weighted average common and common equivalent shares 147,374,478 147,374,478 Earnings for per share computations $58,522,000 $58,522,000 Earnings per common and common equivalent share $0.40 $0.40
EXHIBIT (11) Page 3 of 4 Southwest Airlines Co. Computation of Earnings Per Share For the Six Months Ended June 30, 1995 Fully Primary Diluted Equivalent shares outstanding at March 31, 1995 146,532,231 146,532,231 Equivalent shares outstanding at June 30, 1995 147,347,541 147,466,666 Total Shares outstanding 293,879,772 293,998,897 Average number of equivalent shares outstanding 146,939,886 146,999,449 Earnings for per share computations $71,550,000 $71,550,000 Earnings per common and common equivalent share $0.49 $0.49
EXHIBIT (11) Page 4 of 4 Southwest Airlines Co. Computation of Earnings Per Share For the Six Months Ended June 30, 1994 Fully Primary Diluted Equivalent shares outstanding at March 31, 1994 147,600,272 147,601,742 Equivalent shares outstanding at June 30, 1994 147,347,478 147,374,478 Total Shares outstanding 294,974,750 294,976,220 Average number of equivalent shares outstanding 147,487,375 147,488,110 Earnings for per share computations $100,369,000 $100,369,000 Earnings per common and common equivalent share $0.68 $0.68
EX-27 3
5 6-MOS DEC-31-1995 JUN-30-1995 400,898 0 93,426 0 39,760 567,120 3,543,696 921,368 3,192,508 689,232 0 143,684 0 0 1,169,014 3,192,508 0 1,359,204 0 1,232,370 0 0 28,773 120,835 49,285 71,550 0 0 0 71,550 .49 .49
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