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Transcript of Southwest Airlines
Pro Forma Balance Sheet
Net Operating Cash Flow
General Footnote Findings
One subsidiary, Air Tran Holdings LLC.
Cash and cash equivalents beyond necessary operating requirements are invested
Investments with original maturities of three months or less are considered cash equivalents
Allowance for doubtful accounts was considered immaterial
Short-term securities are held available-for-sale at fair market value. Valued at $3.757 billion.
Inventory carried at average cost
Property and equipment stated at cost.
NOCF carry forward of $34 million, for deferred tax asset of $12 million
Southwest carries an allowance for obsolescence of Inventory
This reserve is an off balance sheet, off income statement item.
The reserve was $36 million in 2013, and $34 million in 2012
Southwest Airlines: A Financial Analysis
Team 1 – Summer 2014
Southwest went through two big accounting changes that heavily impacted the financial outcomes of recent years
First the company changed several retirement dates on aircrafts in their fleet in the first quarter of 2012.
This resulted in an increase of $12 million in depreciation expense in 2012 that would otherwise not be there.
The company also changes the residual value of multiple aircrafts in the third quarter of 2013.
This decreased the residual value of these aircrafts by 10% down to 2%.
This increased depreciation expense by $34 million in 2012, and $26 million in 2013
Four aircrafts that were capital leases in 2013, compared to 2 in 2012. Totaling out to $57 million and $37 million
Total rental expenses, which does include operating leases, totaled out to $997 million in 2013
Most of the companies terminal operating space is leases, as well as 160 planes in their fleet
Under note 8, the company has estimated their total lease payments for 2014-18, which amounts to $3.89 billion.
$8 million each of those years will be capital leases.
They also leased all 88 Boeing 717-200 aircrafts to Delta Airlines.
They moved 13 to Delta in 2013, and expect to move three every month after.
The transaction of these aircrafts cost the company $137 million
Two of these aircraft are capital leases
Founded 47 years ago by Rollin King and Herb Kelleher
If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline
Acquired AirTran May 2, 2011
Rapid Rewards Program
Reported Profits for 41 consecutive years
Limited Freight/cargo/business seating
Turnover of Executives
Expanded Travel Destinations
Invest in Bio Fuel before it becomes normal
Financial Instability of other airlines
Acquisition of AirTran
Large Unionized Labor Force
Acts of Terror/Weather conditions
Contingencies and Commitments Footnote
Zero material effect of any future legal proceedings
Southwest has huge financial commitments in Dallas, Houston, Miami, and Broward County, Florida.
The estimated costs of these projects will be $519, $400, $156, and $295 million respectively.
Cost of Capital
Valuation: NPV Method
Accounting Changes Footnote
Future NPV Including Terminal Value:
Should we aquire Southwest?