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
September 30, 1997 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) 792-4000
(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 November 12, 1997 : 147,146,248
SOUTHWEST AIRLINES CO.
FORM 10-Q
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Southwest Airlines Co.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
<S>
ASSETS
Current assets: <C> <C>
Cash and cash equivalents $554,118 $581,841
Accounts receivable 106,000 73,440
Inventories of parts and supplies 52,281 51,094
Deferred income taxes 12,303 11,560
Prepaid expenses and other current
assets 32,276 33,055
Total current assets 756,978 750,990
Property and equipment:
Flight equipment 3,894,762 3,435,304
Ground property and equipment 581,341 523,958
Deposits on flight equipment
purchase contracts 227,899 198,366
4,704,002 4,157,628
Less allowance for depreciation 1,323,068 1,188,405
3,380,934 2,969,223
Other assets 4,122 3,266
$4,142,034 $3,723,479
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $164,510 $214,232
Accrued liabilities 394,707 368,625
Air traffic liability 205,292 158,098
Income taxes payable 6,526 -
Current maturities of long-term debt 119,635 12,327
Other current liabilities 7,960 12,122
Total current liabilities 898,630 765,404
Long-term debt less current maturities 632,143 650,226
Deferred income taxes 414,606 349,987
Deferred gains from sale and leaseback
of aircraft 260,716 274,891
Other deferred liabilities 28,489 34,659
Stockholders' equity:
Common stock 146,785 145,112
Capital in excess of par value 206,867 181,650
Retained earnings 1,553,798 1,321,550
Total stockholders' equity 1,907,450 1,648,312
$4,142,034 $3,723,479
</TABLE>
See accompanying notes.
Southwest Airlines Co.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
<S>
Operating revenues: <C> <C> <C> <C>
Passenger $949,540 $855,719 $2,710,327 $2,473,142
Freight 25,613 19,677 69,350 58,668
Other 22,088 16,096 61,551 42,519
Total operating revenues 997,241 891,492 2,841,228 2,574,329
Operating expenses:
Salaries, wages, and benefits 293,032 254,798 841,463 750,241
Fuel and oil 119,062 126,239 370,698 345,757
Maintenance materials
and repairs 72,430 70,565 185,688 199,598
Agency commissions 39,902 37,098 117,578 106,500
Aircraft rentals 50,402 47,960 151,250 138,879
Landing fees and other
rentals 51,966 49,158 152,454 140,003
Depreciation 49,873 46,171 145,768 136,295
Other operating expenses 168,804 156,569 480,949 454,522
Total operating expenses 845,471 788,558 2,445,848 2,271,795
Operating income 151,770 102,934 395,380 302,534
Other expenses (income):
Interest expense 16,428 14,717 47,872 44,642
Capitalized interest (5,709) (5,009) (14,448) (17,731)
Interest income (9,478) (7,480) (26,973) (16,878)
Nonoperating losses
(gains), net 142 463 1,318 (2,504)
Total other expenses 1,383 2,691 7,769 7,529
Income before income taxes 150,387 100,243 387,611 295,005
Provision for income taxes 57,876 39,385 150,394 115,828
Net income $92,511 $60,858 $237,217 $179,177
Weighted average common
and common equivalent
shares outstanding 154,433 150,808 152,407 152,295
Net income per common and
common equivalent share $.60 $.40 $1.56 $1.18
</TABLE>
See accompanying notes.
Southwest Airlines Co.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net cash provided by operating
activities $126,769 $82,033 $440,884 $445,924
Investing activities:
Net purchases of
property and equipment (165,040) (161,503) (577,514) (495,250)
Financing activities:
Issuance of long-term debt - - 98,764 -
Payment of long-term
debt and capital lease
obligations (3,610) (3,047) (10,182) (11,103)
Payment of cash dividends (1,688) (1,595) (6,565) (6,216)
Proceeds from aircraft
sale and leaseback
transactions - 198,000 - 330,000
Proceeds from Employee
stock plans 19,903 1,857 26,890 13,312
Net cash provided by
financing activites 14,605 195,215 108,907 325,993
Net increase (decrease)
in cash and cash equivalents (23,666) 115,745 (27,723) 276,667
Cash and cash equivalents
at beginning of period 577,784 478,285 581,841 317,363
Cash and cash equivalents
at end of period $554,118 $594,030 $554,118 $594,030
Cash payments for:
Interest, net of amount
capitalized $19,840 $17,276 $42,446 $35,220
Income taxes $59,860 $36,556 $72,984 $58,447
</TABLE>
See accompanying notes.
SOUTHWEST AIRLINES CO.
Notes to Condensed Consolidated Financial Statements
1. Basis of presentation - The accompanying unaudited
condensed consolidated financial statements of Southwest Airlines
Co. (Company) 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 September 30, 1997 and 1996 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 nine month periods ended September 30, 1997 are not
necessarily indicative of the results that may be expected for
the year ended December 31, 1997. 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, 1996.
2. Dividends - During the three month periods ended
September 30, 1997, June 30, 1997, and March 31, 1997, dividends
of $.01155 per share were declared on the 146,109,112,
145,643,837, and 145,335,143 shares of common stock then
outstanding, respectively. During the three month periods ended
September 30, 1996, June 30, 1996, and March 31, 1996, dividends
of $.011 per share were declared on the 144,956,331, 144,715,343,
and 144,452,894 shares of common stock then outstanding,
respectively.
3. Long-term debt - During February 1997, the Company
issued $100 million of senior unsecured 7 3/8 percent Debentures
due March 1, 2027. Interest on the Debentures is payable semi-
annually on March 1 and September 1, commencing September 1,
1997. The Debentures may be redeemed, at the option of the
Company, in whole at any time or in part from time to time, at a
redemption price equal to the greater of the principal amount of
the Debentures plus accrued interest at the date of redemption or
the sum of the present values of the remaining scheduled payments
of principal of the Debentures and interest thereon discounted to
the date of redemption plus accrued interest at the date of
redemption.
4. Stockholders' equity - On September 25, 1997, the
Company's Board of Directors declared a three-for-two stock split
of the Company's common stock which will be distributed on
November 26, 1997. In addition, the Board increased the
quarterly dividend to $.01 per share on the post-split shares.
5. Recently issued accounting standard - In February 1997,
the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted for
interim and annual periods ending after December 15, 1997. At
that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating basic
earnings per share, the dilutive effect of stock options will be
excluded. Basic earnings per share for the three and nine month
periods ended September 30, 1997 would be $.63 and $1.63,
respectively, and for the three and nine month periods ended
September 30, 1996 would be $.42 and $1.24, respectively.
Diluted earnings per share for the three and nine month periods
ended September 30, 1997 would be $.60 and $1.56, respectively,
and for the three and nine month periods ended September 30, 1996
would be $.40 and $1.18, respectively.
6. 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 nine month
periods ended September 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Three months ended
September 30,
1997 1996 Change
<S> <C> <C> <C>
Revenue passengers carried 13,019,325 12,846,516 1.3 %
Revenue passenger miles
(RPMs) (000s) 7,565,832 7,333,497 3.2 %
Available seat miles
(ASMs) (000s) 11,492,134 10,479,825 9.7 %
Load factor 65.8% 70.0% (4.2)pts.
Average length of
passenger haul 581 571 1.8 %
Trips flown 200,942 191,979 4.7 %
Average passenger fare $72.93 $66.61 9.5 %
Passenger revenue yield
per RPM $.1255 $.1167 7.5 %
Operating revenue yield
per ASM $.0868 $.0851 2.0 %
Operating expenses per ASM $.0736 $.0752 (2.1)%
Average fuel cost per
gallon $.5841 $.6615 (11.7)%
Number of employees at
period-end 23,840 23,066 3.4 %
Size of fleet at period-
end 258 241 7.1 %
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
September 30,
<S> <C> <C> <C>
Revenue passengers carried 37,787,869 36,826,493 2.6 %
Revenue passenger miles
(RPMs) (000s) 21,113,381 19,979,952 5.7 %
Available seat miles
(ASMs) (000s) 32,990,974 30,286,698 8.9%
Load factor 64.0% 66.0% (2.0)pts.
Average length of
passenger haul 559 543 2.9 %
Trips flown 587,153 558,788 5.1 %
Average passenger fare $71.72 $67.16 6.8 %
Passenger revenue yield
per RPM $.1284 $.1238 3.7 %
Operating revenue yield
per ASM $.0861 $.0850 1.3 %
Operating expenses per ASM $.0741 $.0750 (1.2)%
Average fuel cost per
gallon $.6318 $.6279 0.6 %
Number of employees at
period-end 23,840 23,066 3.4 %
Size of fleet at period-
end 258 241 7.1 %
</TABLE>
Material Changes in Results of Operations
Consolidated net income for the three months ended
September 30, 1997 was $92.5 million ($.60 per share) compared
with $60.9 million ($.40 per share) earned in third quarter 1996.
Consolidated net income for the nine months ended September 30,
1997 was $237.2 million ($1.56 per share) compared with $179.2
million ($1.18 per share) earned for the nine months ended
September 30, 1996.
Consolidated operating revenues increased 11.9 percent for
the third quarter of 1997 and 10.4 percent for the nine months
ended September 30, 1997, as compared to the corresponding
periods of the prior year, primarily as a result of an 11.0
percent and 9.6 percent increase, respectively, in consolidated
passenger revenues. The increase in passenger revenues resulted
from a 3.2 percent and 5.7 percent increase in revenue passenger
miles (RPMs) for the three and nine month periods ended September
30, 1997, respectively, coupled with 7.5 percent and 3.7 percent
increases in passenger revenue yield per RPM over these same
periods.
While RPMs increased 3.2 percent in third quarter 1997 and
5.7 percent in the nine month period ended September 30, 1997,
available seat miles (ASMs) increased 9.7 percent and 8.9 percent
for these same periods. This resulted in load factors of 65.8
percent and 64.0 percent for the three and nine month periods
ended September 30, 1997, respectively, compared with 70.0% and
66.0% for the corresponding periods of the prior year. Load
factors were lower in 1997 generally as a result of higher fares
and less promotional activity. The increase in ASMs resulted
primarily from the net addition of 17 aircraft since third
quarter 1996.
Due to last fall's heavy promotional activities, load factor
for October 1997 of 63.1 percent fell below last year's October
load factor of 72.2 percent but was in line with historical
performances. Revenue yield per passenger mile in October 1997
was up sharply from October of last year. Thus far, November and
December bookings are good which should result in more favorable
year-over-year load factor comparisons. (The immediately
preceding sentence is a forward-looking statement which involves
uncertainties that could result in actual results differing
materially from expected results. Some significant factors
include, but may not be limited to, competitive pressure such as
fare sales and capacity changes by other carriers, general
economic conditions, and variations in advance booking trends.)
In August 1997, the Taxpayer Relief Act of 1997 was enacted,
which included, among other things, a revision, phased in over
five years, of the then current ten percent federal excise tax on
domestic tickets to (ultimately) an excise tax of 7.5 percent and
a fee of $3.00 per passenger segment. Effective October 1, 1997
through September 30, 1998, the tax rate was reduced to nine
percent of the ticket price for amounts paid for transportation
beginning on or after October 1, 1997 and a new $1.00 flight
segment tax was imposed. From October 1, 1998 to September 30,
1999, the tax rate will decrease to eight percent and the segment
tax will increase to $2.00. Beginning October 1, 1999, the tax
rate will change to 7.5 percent of the ticket price. However,
the segment tax will increase to $2.25 from October 1, 1999 to
December 31, 1999; $2.50 during 2000; $2.75 during 2001; and
$3.00 per segment during 2002. Thereafter, the $3.00 segment tax
will be indexed to changes in the Consumer Price Index (CPI).
The legislation also includes a new tax on the sale of frequent
flier miles, raises the international departure fee, and
institutes a new international arrival fee. Management estimates
these changes may increase Southwest's tax burden by $25 to $35
million in 1998. Effective October 1, 1997, the Company raised
fares to attempt to offset the immediate impact of these changes.
Management cannot predict how successful these fare increases
will be or how successful the Company will be in offsetting
future scheduled tax increases. (The immediately preceding three
sentences are forward-looking statements which involve
uncertainties that could result in actual results differing
materially from expected results. Some significant factors
include, but may not be limited to, regulations implementing the
tax, competitors' response to the tax, and the ability to pass
through the tax in the form of fare increases.)
On October 27, 1997, the International Air Transportation
Competition Act of 1979 was amended to allow scheduled service
from Dallas Love Field to Alabama, Mississippi, and Kansas. By
mid-November, the Company's reservations system will offer
service from Dallas Love Field to Jackson via connecting flights
through Houston and service from Dallas Love Field to Birmingham
via connecting flights through New Orleans or Houston. No
additional flights have been added, thus far, from Dallas Love
Field to Alabama, Mississippi, or Kansas.
Consolidated freight revenues increased 30.2 percent in the
third quarter of 1997 and 18.2 percent for the nine months ended
September 30, 1997 as compared to the same periods of the prior
year, due to increased capacity and increased service resulting,
in part, from the United Parcel Service labor strike. Other
revenues increased 37.2 percent in the third quarter 1997 and
44.8 percent for the nine months ended September 30, 1997,
primarily due to increased revenues from the sale of frequent
flyer credits to participating partners in the Rapid Rewards
program.
Operating expenses per ASM decreased 2.1 percent and 1.2
percent for the three months and nine months ended September 30,
1997, respectively, primarily due to lower jet fuel prices; lower
aircraft engine repair costs; lower advertising spending; and
favorable results from numerous Companywide cost reduction
efforts.
Southwest Airlines Co.
Consolidated Operating Expenses per ASM
(in cents except percent change)
<TABLE>
<CAPTION>
Three months ended
September 30,
Increase Percent
1997 1996 (decrease) change
<S> <C> <C> <C> <C>
Salaries, wages, and benefits 2.23 2.17 .06 2.8
Profitsharing and Employee
savings plans .32 .26 .06 23.1
Fuel and oil 1.04 1.20 (.16) (13.3)
Maintenance materials
and repairs .63 .68 (.05) (7.4)
Agency commissions .35 .35 - -
Aircraft rentals .44 .46 (.02) (4.3)
Landing fees and other rentals .45 .47 (.02) (4.3)
Depreciation .43 .44 (.01) (2.3)
Other operating expenses 1.47 1.49 (.02) (1.3)
Total 7.36 7.52 (.16) (2.1)
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
September 30,
Increase Percent
1997 1996 (decrease) change
<S> <C> <C> <C> <C>
Salaries, wages, and benefits 2.25 2.22 .03 1.4
Profitsharing and Employee
savings plans .30 .26 .04 15.4
Fuel and oil 1.12 1.14 (.02) (1.8)
Maintenance materials
and repairs .56 .66 (.10) (15.2)
Agency commissions .36 .35 .01 2.9
Aircraft rentals .46 .46 - -
Landing fees and other rentals .46 .46 - -
Depreciation .44 .45 (.01) (2.2)
Other operating expenses 1.46 1.50 (.04) (2.7)
Total 7.41 7.50 (.09) (1.2)
</TABLE>
Salaries, wages, and benefits per ASM increased 2.8 percent
and 1.4 percent for the three and nine month periods ended
September 30, 1997, respectively, as compared to the same periods
of the prior year, primarily due to increased health care
costs.
The Company's flight attendants are subject to an agreement
with the Transport Workers Union of America, AFL-CIO (TWU), which
became amendable May 31, 1996. Southwest is currently in
negotiations with TWU to amend the contract.
Profitsharing and Employee savings plans expense per ASM
increased 23.1 percent and 15.4 percent for the three and nine
months ended September 30, 1997 as compared to the same periods
of the prior year due to higher earnings available for
profitsharing in 1997.
Fuel and oil expense per ASM decreased 13.3 percent and 1.8
percent in third quarter 1997 and the nine month period then
ended due to lower jet fuel prices. The average price paid for
jet fuel in the three and nine month periods ended September 30,
1997 was $.5841 and $.6318 per gallon, respectively, compared to
$.6615 and $.6279 for the corresponding periods in 1996. Since
the end of third quarter 1997, fuel prices have averaged
approximately $.61 per gallon.
Maintenance materials and repairs per ASM decreased 7.4
percent and 15.2 percent for the three and nine month periods
ended September 30, 1997, respectively, as compared to the
corresponding periods of 1996, primarily as a result of lower
engine overhaul costs.
On August 1, 1997, the Company signed a ten year engine
maintenance contract with General Electric Engine Services, Inc.
(General Electric). Under the terms of the contract, Southwest
will pay General Electric a rate per flight hour in exchange for
General Electric performing substantially all engine maintenance
for the CFM56-3 engines on the 737-300 and 737-500 aircraft.
Agency commissions per ASM remained unchanged for the third
quarter 1997 and increased 2.9 percent for the nine months ended
September 30, 1997. The increase in the nine months ended
September 30, 1997 is primarily due to an increase in operating
revenue yield per ASM.
Aircraft rentals per ASM decreased 4.3 percent for the third
quarter 1997 and remained unchanged for the nine months ended
September 30, 1997, compared to the corresponding periods of
1996. The decrease in third quarter 1997 is primarily due to a
lower percentage of the aircraft fleet being leased.
Landing fees and other rentals per ASM decreased 4.3 percent
for the three month period ended September 30, 1997, and remained
unchanged for the nine month period ended September 30, 1997
compared to the corresponding periods of 1996. The third quarter
1997 decrease is primarily due to a 4.4 percent increase in the
average aircraft trip distance compared to third quarter 1996.
Depreciation expense per ASM decreased 2.3 percent for third
quarter 1997 and 2.2 percent for the nine months ended September
30, 1997 as compared to the same periods of 1996 due to a higher
mix of longer-lived depreciable assets.
Other operating expenses per ASM decreased 1.3 percent and
2.7 percent for the three and nine month periods ended September
30, 1997, respectively. These decreases were primarily due to
lower advertising spending, lower insurance rates, lower
passenger costs, and favorable results from numerous Companywide
cost reduction efforts.
The Company is in the process of converting its computer
systems to be Year 2000 compliant. The conversion is expected to
be completed by the end of 1998 at a total cost of approximately
$10 to $15 million ($3.5 million in 1997). The Company is
expensing costs attributable to Year 2000 compliance. The
Company is in the process of assessing Year 2000 compliance by
significant vendors. This assessment is incomplete, but management
is not aware of any Year 2000 issues that would materially
adversely affect operations or results thereof.
Other expenses (income) for the three months and nine months
ended September 30, 1997 included interest expense, capitalized
interest, interest income, and nonoperating gains and losses.
Interest expense increased for the three and nine months ended
September 30, 1997 as compared to same periods in 1996 due to the
February 1997 issuance of $100 million of senior unsecured 7 3/8
percent Debentures due March 1, 2027. Capitalized interest
increased in third quarter 1997 and decreased for the nine month
period ended September 30, 1997 as a result of the timing of
payments related to aircraft purchase contracts. Interest income
increased for the three and nine months ended September 30, 1997
due to higher invested cash balances.
Material Changes in Financial Condition
Net cash provided by operating activities was $126.8 million
for the three months ended September 30, 1997. During the twelve
months ended September 30, 1997, cash of $610.2 million was
provided from operations. This cash was primarily used to
finance aircraft-related expenditures and provide working
capital.
For the twelve months ended September 30, 1997, net capital
expenditures were $759.7 million, which were primarily for the
purchase of 20 new 737-300 aircraft and progress payments for
future aircraft deliveries.
As of September 30, 1997, the Company had authority from its
Board of Directors to purchase up to 2,500,000 shares of its
Common Stock from time to time on the open market. No shares
have been purchased since 1990.
The Company's contractual commitments at September 30, 1997
consist primarily of scheduled aircraft acquisitions. Four 737-
700s are scheduled for delivery in 1997, 21 in 1998, 18 in 1999,
15 in 2000, and 12 in 2001. In addition, the Company has options
to purchase up to sixty-seven 737-700s during 1998-2004. The
Company has the option, which must be exercised two years prior
to the contractual delivery date, to substitute 737-600s or 737-
800s for the 737-700s delivered subsequent to 1999. Aggregate
funding needed for these commitments is approximately $1,675.6
million at September 30, 1997 due as follows: $73.1 million in
1997; $532.7 million in 1998; $547.4 million in 1999; $318.1
million in 2000; and $204.3 million in 2001.
Boeing Commercial Airplane Group has announced that there
will be delayed deliveries of some commercial aircraft in the
near term. These delays are expected to cause the Company's
current aircraft delivery schedule for the next twelve months to
slip by approximately one month. Management does not expect a
significant impact on operation results as a result of these
delays.
The Company has various options available to meet its
capital and operating commitments, including cash on hand at
September 30, 1997 of $554.1 million, internally generated funds,
and a revolving credit line with a group of banks of up to $475
million (none of which had been drawn at September 30, 1997). 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 $414.4 million public debt securities which
it currently intends to substantially utilize for aircraft
financings during the remainder of 1997, 1998, and 1999.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company received a statutory notice of
deficiency from the Internal Revenue Service (the
"IRS") in which the IRS proposed to disallow deductions
claimed by the Company on its federal income tax
returns for the taxable years 1989 through 1991 for the
costs of certain aircraft inspection and maintenance
procedures. The IRS has proposed similar adjustments
to the tax returns of numerous other members of the
airline industry. In response to the statutory notice
of deficiency, the Company filed a petition in the
United States Tax Court on October 30, 1997, seeking a
determination that the IRS erred in disallowing the
deductions claimed by the Company and that there is no
deficiency in the Company's tax liability for the
taxable years in issue. It is expected that the Tax
Court's decision will not be entered for several years.
Management believes that the final resolution of this
controversy will not have a materially adverse effect
upon the results of operations of the Company. This
forward-looking statement is based on management's
current understanding of the relevant law and facts; it
is subject to various contingencies including the views
of legal counsel, changes in the IRS' position, the
potential cost and risk associated with litigation and
the actions of the IRS, judges and juries.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
(11.1) Computation of Earnings Per Share
(27) Financial Data Schedule
b) Reports on Form 8-K
None
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.
<TABLE>
<S> <C>
November 13, 1997 /s/ Gary C. Kelly
Date Gary C. Kelly
Vice President - Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
</TABLE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
(11.1) Computation of Earnings Per Share
(27) Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000092380
<NAME> SOUTHWEST AIRLINES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 554,118
<SECURITIES> 0
<RECEIVABLES> 106,000
<ALLOWANCES> 0
<INVENTORY> 52,281
<CURRENT-ASSETS> 756,978
<PP&E> 4,704,002
<DEPRECIATION> 1,323,068
<TOTAL-ASSETS> 4,142,034
<CURRENT-LIABILITIES> 898,630
<BONDS> 0
0
0
<COMMON> 146,785
<OTHER-SE> 1,760,665
<TOTAL-LIABILITY-AND-EQUITY> 4,142,034
<SALES> 0
<TOTAL-REVENUES> 2,841,228
<CGS> 0
<TOTAL-COSTS> 2,445,848
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,872
<INCOME-PRETAX> 387,611
<INCOME-TAX> 150,394
<INCOME-CONTINUING> 237,217
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 237,217
<EPS-PRIMARY> 1.56
<EPS-DILUTED> 1.52
</TABLE>
EXHIBIT (11.1)
Page 1 of 4
<TABLE>
<CAPTION>
Southwest Airlines Co.
Computation of Earnings Per Share
For the Three Months Ended September 30, 1997
Fully
Primary Diluted
<S> <C> <C>
Weighted average shares outstanding 146,107,201 146,107,201
Shares issuable upon exercise of
outstanding stock options
(treasury stock method) 8,325,526 9,889,530
Weighted average common and common
equivalent shares 154,432,727 155,996,731
Earnings for per share computations $92,511,000 $92,511,000
Earnings per common and common
equivalent share $0.60 $0.59
</TABLE>
EXHIBIT (11.1)
Page 2 of 4
<TABLE>
<CAPTION>
Southwest Airlines Co.
Computation of Earnings Per Share
For the Three Months Ended September 30, 1996
Fully
Primary Diluted
<S> <C> <C>
Weighted average shares outstanding 144,928,794 144,928,794
Shares issuable upon exercise of
outstanding stock options
(treasury stock method) 5,879,425 5,878,891
Weighted average common and common
equivalent shares 150,808,219 150,807,685
Earnings for per share computations $60,858,000 $60,858,000
Earnings per common and common
equivalent share $0.40 $0.40
</TABLE>
EXHIBIT (11.1)
Page 3 of 4
<TABLE>
<CAPTION>
Southwest Airlines Co.
Computation of Earnings Per Share
For the Nine Months Ended September 30, 1997
Fully
Primary Diluted
<S> <C> <C>
Weighted average shares outstanding 145,674,106 145,674,106
Shares issuable upon exercise of
outstanding stock options
(treasury stock method) 6,732,990 10,034,325
Weighted average common and common
equivalent shares 152,407,096 155,708,431
Earnings for per share computations $237,217,000 $237,217,000
Earnings per common and common
equivalent share $1.56 $1.52
</TABLE>
EXHIBIT (11.1)
Page 4 of 4
<TABLE>
<CAPTION>
Southwest Airlines Co.
Computation of Earnings Per Share
For the Nine Months Ended September 30, 1996
Fully
Primary Diluted
<S> <C> <C>
Weighted average shares outstanding 144,650,014 144,650,014
Shares issuable upon exercise of
outstanding stock options
(treasury stock method) 7,645,456 7,994,033
Weighted average common and common
equivalent shares 152,295,470 152,644,047
Earnings for per share computations $179,177,000 $179,177,000
Earnings per common and common
equivalent share $1.18 $1.17
</TABLE>
