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
March 31, 2000 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 April 26, 2000:
496,228,775
SOUTHWEST AIRLINES CO.
FORM 10-Q
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Southwest Airlines Co.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $542,561 $418,819
Accounts receivable 122,123 73,448
Inventories of parts and supplies 66,534 65,152
Deferred income taxes 21,355 20,929
Prepaid expenses and other current assets 52,892 52,657
Total current assets 805,465 631,005
Property and equipment:
Flight equipment 5,884,287 5,768,506
Ground property and equipment 751,027 742,230
Deposits on flight equipment purchase
contracts 400,698 338,229
7,036,012 6,848,965
Less allowance for depreciation 1,914,483 1,840,799
5,121,529 5,008,166
Other assets 13,039 12,942
$5,940,033 $5,652,113
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $209,079 $156,755
Accrued liabilities 559,953 538,896
Air traffic liability 484,279 256,942
Income taxes payable 45,768 -
Current maturities of long-term debt 7,254 7,873
Total current liabilities 1,306,333 960,466
Long-term debt less current maturities 868,023 871,717
Deferred income taxes 672,656 692,342
Deferred gains from sale and leaseback of
aircraft 218,906 222,700
Other deferred liabilities 60,897 69,100
Stockholders' equity:
Common stock 507,805 505,005
Capital in excess of par value 40,668 35,436
Retained earnings 2,456,615 2,385,854
Treasury stock at cost (191,870) (90,507)
Total stockholders' equity 2,813,218 2,835,788
$5,940,033 $5,652,113
</TABLE>
See accompanying notes.
Southwest Airlines Co.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
2000 1999
<S> <C> <C>
OPERATING REVENUES:
Passenger $1,199,885 $1,034,359
Freight 27,066 25,093
Other 15,696 16,119
Total operating revenues 1,242,647 1,075,571
OPERATING EXPENSES:
Salaries, wages, and benefits 381,489 344,012
Fuel and oil 197,071 85,668
Maintenance materials and repairs 93,565 89,491
Agency commissions 37,216 39,081
Aircraft rentals 49,347 49,806
Landing fees and other rentals 65,019 57,983
Depreciation 66,698 56,786
Other operating expenses 196,834 186,127
Total operating expenses 1,087,239 908,954
OPERATING INCOME 155,408 166,617
OTHER EXPENSES (INCOME):
Interest expense 17,223 13,387
Capitalized interest (7,001) (6,984)
Interest income (6,649) (5,535)
Other (gains) losses, net (4,138) 9,647
Total other expenses (income) (565) 10,515
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 155,973 156,102
PROVISION FOR INCOME TAXES 60,330 60,255
NET INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 95,643 95,847
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (Net of Income
Taxes of $14.0 million) 22,131 -
NET INCOME $73,512 $95,847
NET INCOME PER SHARE, BASIC BEFORE
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE $ .19 $ .19
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE .04 -
NET INCOME PER SHARE, BASIC $ .15 $ .19
NET INCOME PER SHARE, DILUTED
BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE $ .18 $ .18
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE .04 -
NET INCOME PER SHARE, DILUTED $ .14 $ .18
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 497,157 501,154
Diluted 526,356 535,923
</TABLE>
See accompanying notes.
Southwest Airlines Co.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
2000 1999
<S> <C> <C>
NET CASH PROVIDED BY OPERATING
ACTIVITIES $415,565 $310,652
INVESTING ACTIVITIES:
Net purchases of property and
equipment (191,810) (289,096)
FINANCING ACTIVITIES:
Payments of long-term debt and
capital lease obligations (4,411) (7,413)
Payments of cash dividends (5,510) (5,001)
Proceeds from Employee stock
plans 11,271 17,921
Repurchases of common stock (101,363) -
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (100,013) 5,507
NET INCREASE IN CASH AND CASH
EQUIVALENTS 123,742 27,063
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 418,819 378,511
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $542,561 $405,574
CASH PAYMENTS FOR:
Interest, net of amount
capitalized $12,453 $14,611
Income taxes $621 $1,009
</TABLE>
See accompanying notes.
SOUTHWEST AIRLINES CO.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of presentation - The accompanying unaudited
condensed consolidated financial statements of Southwest Airlines
Co. (Company) have been prepared in accordance with accounting
principles generally accepted in the United States 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 accounting
principles generally accepted in the United States for complete
financial statements. The condensed consolidated financial
statements for the interim periods ended March 31, 2000 and 1999
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 months ended March 31, 2000 are
not necessarily indicative of the results that may be expected for
the year ended December 31, 2000. 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, 1999.
2. Dividends - During the three month period ended March
31, 2000, dividends of $.0055 per share were declared on the
497.1 million shares of common stock then outstanding.
During the three month period ended March 31, 1999, dividends of
$.005 per share were declared on the 501.9 million shares of
common stock then outstanding.
3. Common stock - On May 20, 1999, the Company's Board of
Directors declared a three-for-two stock split, distributing 168.0
million shares on July 19, 1999. All per share data presented in
the accompanying unaudited condensed consolidated financial
statements and notes thereto have been restated for the stock
split.
4. Reclassifications - Certain prior year amounts have been
reclassified to conform to the current year presentation. Most
notably, this includes the reclassification of $15.1 million of
Other Revenue to Passenger Revenue as a result of the change in
accounting principle effective January 1, 2000. See Note 6 for
further information.
5. Net income per share - The following table sets forth the
computation of basic and diluted net income per share (in
thousands except per share amounts):
<TABLE>
<CAPTION>
Three months ended
March 31,
2000 1999
<S> <C> <C>
NUMERATOR:
Net income before cumulative effect
of change in accounting principle $95,643 $95,847
Cumulative effect of change in
accounting principle 22,131 -
Net income available to common
stockholders $73,512 $95,847
DENOMINATOR:
Weighted-average shares
outstanding, basic 497,157 501,154
Dilutive effect of Employee stock
options 29,199 34,769
Adjusted weighted-average shares
outstanding, diluted 526,356 535,923
NET INCOME PER SHARE:
Basic, before cumulative effect of
change in accounting principle $.19 $.19
Cumulative effect of change in
accounting principle .04 -
Basic $.15 $.19
Diluted, before cumulative effect
of change in accounting principle $.18 $.18
Cumulative effect of change in
accounting principle .04 -
Diluted $.14 $.18
</TABLE>
6. Accounting Change - Effective January 1, 2000, the Company
adopted Staff Accounting Bulletin 101 (SAB 101) issued by the
Securities and Exchange Commission in December 1999. As a result
of adopting SAB 101, the Company changed the way it recognizes
revenue from the sale of flight segment credits to companies
participating in its Rapid Rewards frequent flyer program. Prior
to the issuance of SAB 101, the Company recorded revenue to "Other
revenue" when flight segment credits were sold, consistent with
most other major airlines. Beginning January 1, 2000, the Company
recognizes "Passenger revenue" when free travel awards are earned
and flown. Due to this change, the Company recorded a cumulative
adjustment of $22.1 million (net of income taxes of $14.0 million)
or $.04 per share, basic and diluted. The impact of adopting SAB
101 on first quarter 2000 was to reduce income before cumulative
effect of change in accounting principle by $822,000. Net income
per share before cumulative effect of change in accounting
principle as reported for first quarter 2000 was not affected by
the change. The Company also reclassified for comparison
purposes, the revenue reported in prior periods related to the
sale of flight segment credits from "Other revenue" to "Passenger
revenue." Reported and pro forma amounts for 1999 by quarter
assuming the change in accounting was applied retroactively are as follows:
<TABLE>
<CAPTION>
Three months ended (unaudited)
As reported March 31 June 30 Sept 30 Dec 31 1999
<S> <C> <C> <C> <C> <C>
Net income $95,847 $157,757 $126,978 $93,796 $474,378
Net income per share,
basic $.19 $.31 $.25 $.19 $.94
Net income per share,
diluted $.18 $.29 $.24 $.18 $.89
Three months ended (unaudited)
Pro forma March 31 June 30 Sept 30 Dec 31 1999
Net income $94,083 $155,530 $127,055 $93,076 $469,744
Net income per share,
basic $.19 $.31 $.25 $.18 $.93
Net income per share,
diluted $.18 $.29 $.24 $.17 $.88
</TABLE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Comparative Consolidated Operating Statistics
Relevant operating statistics for the three months ended
March 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
2000 1999 * Change
<S> <C> <C> <C>
Revenue passengers carried 14,389,276 12,933,578 11.3%
Revenue passenger miles (RPMs) (000s) 9,453,201 8,046,484 17.5%
Available seat miles (ASMs) (000s) 14,153,959 12,392,978 14.2%
Load factor 66.8% 64.9% 1.9 pts.
Average length of passenger haul 657 622 5.6%
Trips flown 218,615 202,546 7.9%
Average passenger fare $83.39 $79.97 4.3%
Passenger revenue yield per RPM (cents) 12.69 12.85 (1.2)%
Operating revenue yield per ASM (cents) 8.78 8.68 1.2%
Operating expenses per ASM (cents) 7.68 7.33 4.8%
Operating expenses per ASM, excluding fuel
(cents) 6.29 6.64 (5.3)%
Fuel costs per gallon, excluding fuel tax
(cents) 81.98 39.32 108.5%
Number of Employees at period-end 27,911 26,532 5.2%
Size of fleet at period-end 315 287 9.8%
* Average passenger fare and passenger
revenue yield per RPM have been restated
for comparison purposes to reflect the
reclassifications related to the change in
accounting principle.
</TABLE>
Material Changes in Results of Operations
Consolidated net income before the cumulative effect of
change in accounting principle for the first quarter ended March
31, 2000 was $95.6 million ($.18 per share, diluted), as compared
to first quarter 1999 net income of $95.8 million ($.18 per share,
diluted), a decrease of .2 percent. The prior year's net income
per share amounts have been restated for the 1999 three-for-two
stock split (see Note 3 to the unaudited Condensed Consolidated
Financial Statements). The cumulative effect of change in
accounting principle for first quarter 2000 was $22.1 million, net
of taxes of $14.0 million (see Note 6 to the unaudited Condensed
Consolidated Financial Statements). Net income, after the
cumulative effect of change in accounting principle, for first
quarter 2000 was $73.5 million.
First quarter 2000 consolidated operating revenues increased
15.5 percent compared to first quarter 1999 primarily due to a
16.0 percent increase in passenger revenues. The increase in
passenger revenues primarily resulted from an 11.3 percent
increase in revenue passengers carried and a 17.5 percent increase
in RPMs partially offset by a 1.2 percent decrease in passenger
revenue yield per RPM (passenger yield). The slight decrease in
passenger yield is primarily due to a 5.6 percent increase in
average length of passenger haul compared to first quarter 1999,
partially offset by a 4.3 percent increase in average passenger
fare.
The increase in RPMs and a 14.2 percent increase in ASMs
resulted in a load factor of 66.8 percent, or 1.9 points above
first quarter 1999. The increase in ASMs resulted primarily from
the net addition of 28 aircraft since first quarter 1999, which
represents a 9.8 percent increase in the Company's fleet size.
Thus far, load factors in April and bookings for May and
June appear to be consistent with or better than those experienced
in the same prior year periods. (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.)
Consolidated freight revenues increased 7.9 percent in first
quarter 2000 compared to the same 1999 period primarily due to an
increase in capacity. Other revenues decreased 2.6 percent in
first quarter 2000 primarily due to a decrease in charter
revenues. The Company had less aircraft devoted to its charter
business in first quarter 2000 in part due to delays in new
aircraft deliveries from Boeing. These delays were the result of
a 40-day strike beginning in mid-February 2000 by the Society of
Professional Engineering Employees in Aerospace. The strike,
which ended in late March 2000, has also caused some delays in new
aircraft deliveries in early second quarter 2000.
Operating expenses per ASM for first quarter 2000 increased
4.8 percent to $.0768, compared to $.0733 for first quarter 1999,
primarily due to a significant increase in average jet fuel
prices. The average fuel cost per gallon of $.8198 was more than
double first quarter 1999's average cost per gallon of $.3932.
Excluding fuel expense, operating expenses per ASM decreased 5.3
percent in first quarter 2000 compared to first quarter 1999. Unit
costs are expected to continue to be adversely affected by higher
fuel prices in second quarter 2000 versus second quarter 1999.
Excluding fuel, the Company expects a decrease in unit costs in
second quarter 2000 compared to second quarter 1999. (The
immediately preceding two sentences are forward-looking statements
which involve uncertainties that could result in actual results
differing materially from expected results. Such uncertainties
include, but may not be limited to, the largely unpredictable
levels of jet fuel prices.)
Southwest Airlines Co.
Operating Expenses per ASM
(in cents except percent change)
<TABLE>
<CAPTION>
Three months ended
March 31, Inc/ Percent
2000 1999 (Dec) Change
<S> <C> <C> <C> <C>
Salaries, wages, and
benefits 2.40 2.44 (.04) (1.6)
Employee profitsharing
and savings plans .29 .34 (.05) (14.7)
Fuel and oil 1.39 .69 .70 101.4
Maintenance materials
and repairs .66 .72 (.06) (8.3)
Agency commissions .26 .32 (.06) (18.8)
Aircraft rentals .35 .40 (.05) (12.5)
Landing fees and other
rentals .46 .47 (.01) (2.1)
Depreciation .47 .46 .01 2.2
Other operating expenses 1.40 1.49 (.09) (6.0)
Total 7.68 7.33 .35 4.8
</TABLE>
Salaries, wages, and benefits per ASM decreased 1.6 percent
in first quarter 2000 compared to the same 1999 period, primarily
due to increases in productivity.
Profitsharing and Employee savings plan expenses per ASM
decreased 14.7 percent from first quarter 1999 to first quarter
2000, primarily as a result of earnings available for
profitsharing declining in 2000 while capacity continued to
increase.
Fuel and oil expense per ASM increased 101.4 percent in first
quarter 2000 due to a 108.5 percent increase in the average jet
fuel cost per gallon compared to the same 1999 period. The
average price paid for jet fuel in first quarter 2000 was $.8198
per gallon compared to $.3932 in first quarter 1999, including the
effects of hedging activities. The Company's first quarter 2000
and 1999 average jet fuel prices are net of approximately $3.2
million in gains and $2.8 million in losses from hedging
activities, respectively. As of April 20, 2000, the Company had
hedged the majority of its anticipated jet fuel requirements for
the remainder of the year. For second quarter 2000, the Company
had hedged 39 percent of its requirements with fixed crude oil
swaps at an average price of $26.90 per barrel and capped 46
percent of its requirements with crude oil options at an average
of $26.50 per barrel. For third quarter 2000, the Company had
hedged 70 percent of its requirements with fixed crude oil swaps
at an average price of $23.60 per barrel and capped 30 percent of
its requirements with crude oil options at an average of $24.50
per barrel. For fourth quarter 2000, the Company had hedged 70
percent of its requirements with fixed crude oil swaps at an
average price of $22.50 per barrel and capped 30 percent of its
requirements with crude oil options at an average of $23.25 per
barrel. Despite these hedge positions, the Company is expecting
significantly higher average net jet fuel cost per gallon for
second quarter 2000 compared to second quarter 1999. The
Company's fuel hedging strategy could result in the Company not
fully benefiting from certain jet fuel price declines. (The
immediately preceding two sentences are forward-looking
statements, which involve uncertainties that could result in
actual results differing materially from expected results. Such
uncertainties include, but may not be limited to, the largely
unpredictable levels of jet fuel prices.)
Maintenance materials and repairs per ASM decreased 8.3
percent for first quarter 2000 compared to the same prior year
period. This decrease was primarily due to a reduction in
scheduled engine maintenance related to the Company's 737-200
aircraft. First quarter 1999 was an unusually high period for
engine maintenance related to the Company's 737-200 aircraft
fleet. The engines on these aircraft are not covered by the
Company's maintenance contract with General Electric Engine
Services, Inc.; therefore, repairs are expensed on a time and
materials basis.
Agency commissions per ASM decreased 18.8 percent for first
quarter 2000 compared to first quarter 1999, primarily due to an
increase in direct sales. More than 25 percent of the Company's
first quarter 2000 revenues were attributable to direct bookings
through the Company's Internet site compared to less than 15
percent in the same prior year period. The increase in Internet
revenues contributed to the Company's percentage of commissionable
revenues decreasing from 37.8 percent in first quarter 1999 to
31.0 percent in first quarter 2000.
Aircraft rentals per ASM decreased 12.5 percent for first
quarter 2000 compared to first quarter 1999 due to a lower
percentage of the aircraft fleet being leased.
Landing fees and other rentals per ASM decreased 2.1 percent
for first quarter 2000 compared to first quarter 1999. The net
decrease was the result of a decrease in landing fees per ASM of
5.0 percent, partially offset by an increase in other rentals per
ASM of 1.7 percent. Although landing fees declined on a per ASM
basis, they were flat on a per trip basis. The growth in ASMs
exceeded the trip growth primarily due to an increase in the
average distance per trip flown. Other rental expense per ASM
increased primarily due to the Company's expansion of facilities
in several airports.
Depreciation expense per ASM increased 2.2 percent for first
quarter 2000 compared to first quarter 1999 primarily due to a
higher percentage of owned aircraft. Of the 33 aircraft added to
the Company's fleet over the past twelve months, 32 have been
purchased. This, combined with the retirement of 5 leased
aircraft, has increased the Company's percentage of aircraft owned
or on capital lease from 65 percent at March 31, 1999 to 70
percent at March 31, 2000.
Other expenses (income) for first quarter 2000 included
interest expense, capitalized interest, interest income, and other
gains and losses. Interest expense increased in first quarter
2000 compared to first quarter 1999 primarily due to the Company's
issuance of $256 million of long-term debt in fourth quarter 1999.
Interest income increased in first quarter 2000 compared to first
quarter 1999 primarily due to higher invested cash balances. Cash
balances were higher primarily due to strong first quarter 2000
sales. Other gains in first quarter 2000 were primarily due to
proceeds received from the favorable conclusion of a lawsuit.
Other losses in first quarter 1999 resulted primarily from a write-
down associated with the consolidation of certain software
development projects.
Liquidity and Capital Resources
Net cash provided by operating activities was $415.6 million
for the three months ended March 31, 2000 and $1,106.6 million for
the 12 months then ended. Also, during fourth quarter 1999,
additional funds of $256 million were generated through the
issuance of floating rate long-term debt from two separate
financing transactions. Cash generated for the 12 months ended
March 31, 2000 was primarily used to finance aircraft-related
capital expenditures, provide working capital, and repurchase
approximately $191.9 million of the Company's outstanding common
stock. The Company began this repurchase program during third
quarter 1999. The program has resulted in the repurchase of
approximately 11.8 million post-split shares through March 31,
2000 at an average cost of $16.20 per share.
During the 12 months ended March 31, 2000, net capital
expenditures were $1,070.5 million, which primarily related to the
purchase of 28 new 737-700 aircraft, one used 737-700 aircraft,
three used 737-300 aircraft, and progress payments for future
aircraft deliveries.
The Company's contractual commitments consist primarily
of scheduled aircraft acquisitions. As of March 31, 2000,
29 737-700s are scheduled for delivery in the remainder of 2000,
23 in 2001, 21 in 2002, five in 2003, and five in 2004. In
addition, the Company has options to purchase up to 62 737-700s
during 2003-2006. 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 2000. Aggregate funding needed for fixed
commitments at March 31, 2000 was approximately $1,867 million
due as follows: $589 million in 2000; $520 million in 2001; $516
million in 2002; $153 million in 2003; and $89 million in 2004.
The Company has various options available to meet its capital
and operating commitments, including cash on hand at March 31,
2000 of $542.6 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 March 31, 2000). 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 $318.8 million in public debt securities which it
may utilize for aircraft financing during 2000 and 2001.
The Company recently announced new service to Albany, New
York, beginning May 7, 2000, with daily nonstop service to
Baltimore/Washington, Las Vegas, and Orlando. The Company also
intends to begin service to at least one additional new city in
2000.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
See Item 7A. Quantitative and Qualitative Disclosures About
Market Risk in the Company's Annual Report on Form 10-K for the
year ended December 31, 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 defer 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 financial position
and results of operations of the Company.
Item 2. Changes in Securities and Use of Proceeds
Recent Sales of Unregistered Securities
During the first quarter of 2000, Herbert D. Kelleher
exercised unregistered options to purchase Southwest
Airlines Co. Common Stock as follows:
<TABLE>
<CAPTION>
Number of Shares Option Price Date of
Purchased Exercise
<C> <C> <C>
854,295 $1.00 1/26/2000
</TABLE>
The issuance of the above shares to Mr. Kelleher were
exempt from the registration provisions of the
Securities Act of 1933, as amended (the "Act"), by
reason of the provision of Section 4(2) of the Act
because, among other things, of the limited number of
participants in such transactions and the agreement and
representation of Mr. Kelleher that he was acquiring
such securities for investment and not with a view to
distribution thereof. The certificates representing the
shares issued to Mr. Kelleher contain a legend to the
effect that such shares are not registered under the Act
and may not be transferred except pursuant to a
registration statement which has become effective under
the Act or to an exemption from such registration. The
issuance of such shares was not underwritten.
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
(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.
May 4, 2000 /s/ Gary C. Kelly
Date Gary C. Kelly
Vice President - Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
INDEX TO EXHIBITS
Exhibit
Number Exhibit
(27) Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000092380
<NAME> SOUTHWEST AIRLINES CO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 542,561
<SECURITIES> 0
<RECEIVABLES> 122,123
<ALLOWANCES> 0
<INVENTORY> 66,534
<CURRENT-ASSETS> 805,465
<PP&E> 7,036,012
<DEPRECIATION> 1,914,483
<TOTAL-ASSETS> 5,940,033
<CURRENT-LIABILITIES> 1,306,333
<BONDS> 0
0
0
<COMMON> 507,805
<OTHER-SE> 2,305,413
<TOTAL-LIABILITY-AND-EQUITY> 5,940,033
<SALES> 0
<TOTAL-REVENUES> 1,242,647
<CGS> 0
<TOTAL-COSTS> 1,087,239
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,223
<INCOME-PRETAX> 155,973
<INCOME-TAX> 60,330
<INCOME-CONTINUING> 95,643
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 22,131
<NET-INCOME> 73,512
<EPS-BASIC> .15
<EPS-DILUTED> .14
</TABLE>
