Exhibit 99.1
CONTACT: Investor Relations Public Relations
(214) 792-4415 (214) 792-4847
SOUTHWEST AIRLINES REPORTS SECOND QUARTER EARNINGS
DALLAS, TEXAS -- July 21, 2003 -- Southwest Airlines' net income for
second quarter 2003 was $246 million, compared to second quarter 2002 net
income of $102 million. Diluted net income per share was $.30 for second
quarter 2003, compared to $.13 for second quarter 2002. The Company's second
quarter net income for both 2003 and 2002 included special items, described
below. Excluding special items, second quarter 2003 net income increased 22.6
percent to $103 million, or $.13 per diluted share, compared to second quarter
2002 net income of $84 million, or $.10 per diluted share. These results
compare favorably to First Call's consensus estimate of $.12 per diluted share
for second quarter 2003.
Special Items
Pursuant to the April 2003 Emergency Wartime Supplemental Appropriations
Act, the Company received a $271 million cash payment from the U.S. government
(government grant), which was recognized as "Other gains" in its unaudited
Condensed Consolidated Statement of Income for second quarter 2003. This
special item resulted in an increase of approximately $41 million to Employee
profitsharing expense. Second quarter 2002 results included an additional $36
million in passenger revenue from a reduction in estimated future refunds and
exchanges included in "Air traffic liability." The Company believes it is
helpful to management and investors to evaluate ongoing operational performance
and trends by excluding these special items for comparative purposes. A
reconciliation of key financial measures excluding these special items is
included in this release, pursuant to Regulation G issued by the Securities and
Exchange Commission.
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Operating Results
Total operating revenues for second quarter 2003 increased 2.9 percent
to $1.52 billion, compared to $1.47 billion for second quarter 2002. Excluding
the special item in 2002, operating revenues increased 5.4 percent from $1.44
billion in second quarter 2002. Revenue passenger miles (RPMs) increased 4.6
percent in second quarter 2003, compared to a 4.2 percent increase in available
seat miles (ASMs), resulting in a load factor of 70.1 percent versus the second
quarter 2002 load factor of 69.9 percent.
The passenger revenue yield per RPM decreased 1.8 percent, to 11.67 cents,
from 11.88 cents in second quarter 2002. Excluding the special item in 2002,
the passenger revenue yield per RPM increased 0.8 percent, to 11.67 cents, from
11.58 cents in second quarter 2002. Operating revenue per ASM (RASM) decreased
1.3 percent, to 8.47 cents, from 8.58 cents in second quarter 2002. Excluding
the special item in 2002, RASM increased 1.2 percent, to 8.47 cents, from 8.37
cents in second quarter 2002.
Total second quarter 2003 operating expenses were $1.38 billion, an
increase of 7.1 percent, compared to $1.28 billion for the same year ago period.
Excluding special items, operating expenses were $1.33 billion in second quarter
2003, an increase of 4.4 percent. Operating expenses per ASM (CASM) for second
quarter 2003 increased 2.7 percent, to 7.68 cents, from 7.48 cents in second
quarter 2002, due to higher profitsharing expense on the government grant.
Excluding special items, CASM increased slightly to 7.46 cents in second quarter
2003, compared to 7.44 cents in second quarter 2002. For second quarter 2003,
the Company benefited from $36 million of hedging gains recorded in "Fuel and
oil," resulting in jet fuel costs per gallon of 67.4 cents, which was flat with
second quarter 2002.
Operating income for second quarter 2003 was $140 million, a decrease of
25.9 percent, compared to $189 million for second quarter 2002. Excluding
special items in both years, operating income increased 13.8 percent to $181
million for second quarter 2003, compared to $159 million for the same period in
2002.
"Other income" was $257 million for second quarter 2003 versus "other
expenses" of $20 million for second quarter 2002. The $277 million swing in
"other income" resulted primarily from the government grant in second quarter
2003 and a $5 million decline in net interest expense. Interest expense
declined 14.8 percent to $23 million primarily due to lower interest rates.
Interest income for second quarter 2003 declined 22.2 percent, also
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due to lower interest rates. Capitalized interest increased 60 percent to $8
million in second quarter 2003 as a result of higher Boeing aircraft progress
payments.
James F. Parker, Vice Chairman and Chief Executive Officer, stated:
"Considering the challenges we faced in second quarter with the Iraq war and
the difficult airline industry pricing environment, we are proud of our better
than expected earnings performance. Excluding the $271 million government
grant, our second quarter 2003 net income of $103 million slightly exceeded
last year's second quarter earnings of $102 million, even though second quarter
2002 included $36 million (pretax) related to a reduction in air traffic
liability.
"Although bookings softened early in the quarter as a result of the war
in Iraq, traffic and revenues finally began to improve in mid-June. Thus far,
traffic and load factors for this month and bookings for the remainder of July
and August are strong due to high demand for vacation travel. Thus far in
third quarter 2003, unit revenues are exceeding year ago levels. The outlook
for the economy remains uncertain, however, and we remain concerned about
travel demand post-Labor Day.
"We continue to benefit from our successful fuel hedging program. We
were 100 percent hedged in second quarter 2003, which resulted in a reduction
in 'Fuel and oil' expense of $36 million. We are 87 percent hedged in both
third quarter 2003 and fourth quarter 2003 under $24 per barrel. We remain 80
percent hedged for 2004, with caps approximating $23 per barrel.
"Excluding fuel and special items, unit costs were 6.37 cents, slightly
above last year's second quarter cost performance of 6.34 cents. We expect
third quarter 2003 unit costs, excluding fuel, to exceed last year's third
quarter unit costs of 6.23 cents.
"Based on our current revenue and cost outlook and barring any unforeseen
event, we expect third quarter 2003 earnings to exceed third quarter 2002
earnings of $75 million, which included a federal grant of $48 million (pretax)
received pursuant to the 2001 Air Transportation Safety and System Stabilization
Act.
"Although the last 22-month period has been the most difficult ever for
the airline industry, our superb Employees remain focused more than ever on
their mission to spread the Freedom to Fly to Americans. As a consequence of
their dedication and improved revenue trends, we recently exercised our
remaining 2004 options for the delivery of nine 737-700s next year. In
addition, we exercised six 2005 options for accelerated delivery in 2004 and
accelerated the firm delivery of two 2005 aircraft to 2004. These changes to
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our Boeing 737-700 delivery schedule bring our current 2004 firm orders to 42
aircraft, which, after subtracting planned 737-200 retirements, results in a
planned annual capacity increase in the 6 to 7 percent range in 2004."
Net cash provided by operations was $905 million and capital expenditures
were $518 million for the six months ended June 30, 2003. We ended second
quarter 2003 with $2.2 billion cash on hand plus our available unsecured
revolving credit line of $575 million.
Total operating revenues for the six months ended June 30, 2003 increased
5.0 percent to $2.87 billion while total operating expenses increased 7.5
percent to $2.68 billion, resulting in operating income in first half 2003 of
$186 million versus $238 million in first half 2002. Excluding special items,
first half 2003 operating revenues increased 6.4 percent to $2.87 billion while
operating expenses increased 6.2 percent to $2.64 billion, resulting in a 9.1
percent increase in first half 2003 operating income to $227 million. Net
income for the six-month period was $270 million ($.33 per diluted share)
versus $123 million ($.15 per diluted share) for first half 2002. Excluding
special items, net income increased 21.0 percent to $127 million ($.16 per
diluted share) compared to $105 million ($.13 per diluted share).
Southwest Airlines will conduct a conference call to discuss its
quarterly earnings today at 10:30 a.m. Eastern Time. A live broadcast of the
conference call will be available via the World Wide Web at www.southwest.com.
This news release contains forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995. All forward-looking
statements involve risks and uncertainties that could cause actual results to
differ materially from the plans, intentions, and expectations reflected in or
suggested by the forward-looking statements. Additional information concerning
the factors which could cause actual results to differ materially from the
forward-looking statements is contained in the Company's periodic filings with
the Securities and Exchange Commission, including without limitation, the
Company's Annual Report on Form 10-K for the year ended 2002. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements to reflect events or circumstances that may arise after the date of
this press release.
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SOUTHWEST AIRLINES CO.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(unaudited)
(in millions except per share amounts)
Three months ended Six months ended
June 30, June 30,
Percent Percent
2003 2002 Change 2003 2002 Change
OPERATING REVENUES:
Passenger $1,465 $1,425 2.8 $2,771 $2,640 5.0
Freight 25 22 13.6 47 43 9.3
Other 25 26 (3.8) 48 47 2.1
Total operating revenues 1,515 1,473 2.9 2,866 2,730 5.0
OPERATING EXPENSES:
Salaries, wages, and benefits 587 501 17.2 1,103 963 14.5
Fuel and oil 194 189 2.6 402 359 12.0
Maintenance materials and
repairs 104 101 3.0 210 198 6.1
Agency commissions 13 15 (13.3) 25 29 (13.8)
Aircraft rentals 46 47 (2.1) 91 94 (3.2)
Landing fees and other rentals 91 88 3.4 181 171 5.8
Depreciation 95 86 10.5 188 171 9.9
Other operating expenses 245 257 (4.7) 480 507 (5.3)
Total operating expenses 1,375 1,284 7.1 2,680 2,492 7.5
OPERATING INCOME 140 189 (25.9) 186 238 (21.8)
OTHER EXPENSES (INCOME):
Interest expense 23 27 (14.8) 49 53 (7.5)
Capitalized interest (8) (5) 60.0 (15) (9) 66.7
Interest income (7) (9) (22.2) (12) (19) (36.8)
Other (gains) losses, net (265) 7 n.a. (272) 9 n.a.
Total other expenses (income)(257) 20 n.a. (250) 34 n.a.
INCOME BEFORE INCOME TAXES 397 169 134.9 436 204 113.7
PROVISION FOR INCOME TAXES 151 67 125.4 166 81 104.9
NET INCOME $246 $102 141.2 $270 $123 119.5
NET INCOME PER SHARE:
Basic $ .32 $ .13 146.2 $ .35 $ .16 118.8
Diluted $ .30 $ .13 130.8 $ .33 $ .15 120.0
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 780 772 779 771
Diluted 820 809 814 810
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SOUTHWEST AIRLINES CO.
RECONCILIATION OF REPORTED AMOUNTS TO NON-GAAP ITEMS (SEE NOTE)
(unaudited)
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<Caption>
(In millions, except per share amounts)
Three months ended Six months ended
June 30, June 30,
Percent Percent
2003 2002 Change 2003 2002 Change
Operating revenue, as reported $1,515 $1,473 $2,866 $2,730
Passenger revenue adjustment - (36) - (36)
Operating revenue, excluding
special item $1,515 $1,437 5.4 $2,866 $2,694 6.4
Operating expenses,
as reported $1,375 $1,284 $2,680 $2,492
Profitsharing impact of
government grant (41) - (41) -
Profitsharing impact of
passenger revenue adjustment - (6) - (6)
Operating expenses, excluding
special items $1,334 $1,278 4.4 $2,639 $2,486 6.2
Operating income, as reported $140 $189 $186 $238
Profitsharing impact of
government grant 41 - 41 -
Passenger revenue adjustment,
net of profitsharing - (30) - (30)
Operating income, excluding
special items $181 $159 13.8 $227 208 9.1
Net income, as reported $246 $102 $270 $123
Government grant, net of income
taxes and profitsharing (143) - (143) -
Passenger revenue adjustment,
net of income taxes and
profitsharing - (18) - (18)
Net income, excluding special
items $103 $84 22.6 $127 $105 21.0
Net income per share, diluted,
as reported $.30 $.13 $.33 $.15
Government grant, net of income
taxes and profitsharing (.17) - (.17) -
Passenger revenue adjustment,
net of income taxes and
profitsharing - (.03) - (.02)
Net income per share, diluted,
excluding special items $.13 $.10 30.0 $.16 $.13 23.1
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NOTE: The above schedule reconciles the financial measures, excluding special
items, included in this press release to the most comparable GAAP financial
measures. The special items were a $271 million government grant received in
second quarter 2003 pursuant to the April 2003 Emergency Wartime Supplemental
Appropriations Act, and $36 million in additional passenger revenue from a
reduction in estimated refunds and exchanges included in "Air traffic
liability" in second quarter 2002. The $271 million government grant was
received as a result of the war with Iraq and is recorded in "Other gains."
The $36 million passenger revenue adjustment was primarily due to a change in
Customer travel patterns and a higher than usual mix of low-fare nonrefundable
ticket sales following the September 11, 2001 terrorist attacks.
In management's view, comparative analysis of results can be enhanced by
excluding the impact of these special items. Neither item is indicative of the
Company's ongoing operating performance for that period, nor should they be
considered in developing trend analysis for future periods, including third
quarter 2003.
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SOUTHWEST AIRLINES CO.
COMPARATIVE CONSOLIDATED OPERATING STATISTICS
(unaudited)
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<Caption>
Three months ended
June 30,
2003 2002 Change
Revenue passengers carried 17,063,496 16,772,419 1.7%
Revenue passenger miles(RPMs) (000s) 12,550,665 11,998,867 4.6%
Available seat miles (ASMs) (000s) 17,893,765 17,172,875 4.2%
Load factor 70.1% 69.9% .2pts.
Average length of passenger haul 736 715 2.9%
Trips flown 237,518 236,830 0.3%
Average passenger fare $85.87 $84.98 1.0%
Average passenger fare, excluding
special items $85.87 $82.84* 3.7%
Passenger revenue yield per RPM (cents) 11.67 11.88 (1.8)%
Passenger revenue yield per RPM, excluding
special items (cents) 11.67 11.58* 0.8%
Operating revenue yield per ASM (cents) 8.47 8.58 (1.3)%
Operating revenue yield per ASM, excluding
special items (cents) 8.47 8.37* 1.2%
Operating expenses per ASM (cents) 7.68 7.48 2.7%
Operating expenses per ASM, excluding
special items (cents) 7.46^ 7.44* 0.3%
Operating expenses per ASM,
excluding fuel (cents) 6.60 6.38 3.4%
Operating expenses per ASM, excluding fuel
and special items (cents) 6.37^ 6.34* 0.5%
Fuel costs per gallon, excluding fuel tax (cents) 67.4 67.4 -
Fuel consumed, in gallons (millions) 286 280 2.1%
Number of Employees at period-end 32,902 33,149 (0.7)%
Size of fleet at period-end 379 366 3.6%
</Table>
^ Amounts exclude profitsharing impact of $271 million government grant
* Amounts exclude $36 million in additional passenger revenue from a reduction
in air traffic liability, and related impact to operating expenses.
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<Caption>
Six months ended
June 30,
2003 2002 Change
Revenue passengers carried 32,141,033 31,235,701 2.9%
Revenue passenger miles (RPMs) (000s) 23,446,366 22,391,457 4.7%
Available seat miles (ASMs) (000s) 35,292,897 33,692,832 4.7%
Load factor 66.4% 66.5% (.1)pts.
Average length of passenger 729 717 1.7%
Trips flown 470,605 468,025 0.6%
Average passenger fare $86.23 $84.52 2.0%
Average passenger fare, excluding
special items $86.23 $83.37* 3.4%
Passenger revenue yield per RPM (cents) 11.82 11.79 0.3%
Passenger revenue yield per RPM, excluding
special items (cents) 11.82 11.63* 1.6%
Operating revenue
yield per ASM (cents) 8.12 8.10 0.2%
Operating revenue yield per ASM, excluding
special items (cents) 8.12 8.00* 1.5%
Operating expenses per ASM (cents) 7.59 7.40 2.6%
Operating expenses per ASM, excluding
special items (cents) 7.48^ 7.38* 1.4%
Operating expenses per ASM,
excluding fuel (cents) 6.45 6.33 1.9%
Operating expenses per ASM, excluding fuel
and special items (cents) 6.34^ 6.31* 0.5%
Fuel costs per gallon, excluding fuel tax (cents) 71.0 65.4 8.6%
Fuel consumed, in gallons (millions) 563 548 2.7%
Number of Employees at period-end 32,902 33,149 (0.7)%
Size of fleet at period-end 379 366 3.6 %
</Table>
^ Amounts exclude profitsharing impact of $271 million government grant
* Amounts exclude $36 million in additional passenger revenue from a reduction
in air traffic liability, and related impact to operating expenses.
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SOUTHWEST AIRLINES CO.
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
(unaudited)
June 30, December 31,
2003 2002
ASSETS
Current assets:
Cash and cash equivalents $2,204 $1,815
Accounts and other receivables 128 175
Inventories of parts and supplies,
at cost 87 86
Fuel hedge contracts 111 113
Prepaid expenses and other
current assets 51 43
Total current assets 2,581 2,232
Property and equipment, at cost:
Flight equipment 8,211 8,025
Ground property and equipment 1,075 1,042
Deposits on flight equipment
purchase contracts 665 389
9,951 9,456
Less allowance for depreciation 3,001 2,810
6,950 6,646
Other assets 107 76
$9,638 $8,954
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $341 $362
Accrued liabilities 599 529
Air traffic liability 575 412
Income taxes payable 11 -
Current maturities of long-term debt 11 131
Total current liabilities 1,658 1,434
Long-term debt less current maturities 1,539 1,553
Deferred income taxes 1,388 1,227
Deferred gains from sale and
leaseback of aircraft 176 184
Other deferred liabilities 140 134
Stockholders' equity:
Common stock 782 777
Capital in excess of par value 163 136
Retained earnings 3,718 3,455
Accumulated other comprehensive income 74 54
Total stockholders' equity 4,737 4,422
$9,638 $8,954
</Table>
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SOUTHWEST AIRLINES CO.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
Three months ended Six months ended
June 30, June 30,
(in millions) 2003 2002 2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $246 $102 $270 $123
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation 95 86 188 171
Deferred income taxes 136 62 148 76
Amortization of deferred gains on sale and
leaseback of aircraft (4) (4) (8) (8)
Amortization of scheduled airframe
inspections & repairs 12 11 24 22
Changes in certain assets and liabilities:
Accounts and other receivables 31 4 47 (58)
Other current assets (7) (11) (8) 6
Accounts payable and accrued liabilities 59 77 52 (9)
Air traffic liability 40 (30) 163 81
Income taxes payable 11 - 11 -
Other 19 (4) 18 (18)
Net cash provided by operating activities 638 293 905 386
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (325) (144) (518) (253)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt - - - 385
Proceeds from trust arrangement - 60 - 119
Proceeds from Employee stock plans 20 11 32 31
Payments of long-term debt and
capital lease obligations (14) (50) (20) (55)
Payment of trust arrangement - (161) - (284)
Payment of revolving credit facility - - - (475)
Payments of cash dividends (4) (4) (11) (11)
Other, net - (1) 1 (5)
Net cash provided by (used in)
financing activities 2 (145) 2 (295)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 315 4 389 (162)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,889 2,114 1,815 2,280
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,204 $2,118 $2,204 $2,118
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Southwest Airlines Co.
Boeing 737-700 Delivery Schedule
Prior Schedule Current Schedule
Firm Options* Firm Options*
2003** 17 - 17 -
2004 25 9 42 -
2005 24 18 22 12
2006 22 16 22 16
2007 25 29 25 29
2008 6 45 6 45
2009-2012 - 177 - 177
Total 119 294 134 279
*Includes purchase rights
**Includes five aircraft delivered in first half 2003
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