Attached files
file | filename |
---|---|
8-K - FORM 8K 3RD QUARTER 2009 EARNINGS RELEASE - SOUTHWEST AIRLINES CO | coverpage8k.htm |
Exhibit
99.1
Restatement of GAAP results
CONTACT: Investor
Relations (214)
792-4415
SOUTHWEST
AIRLINES REPORTS THIRD QUARTER FINANCIAL RESULTS
DALLAS,
TEXAS – October 15, 2009 – Southwest Airlines (NYSE:LUV) today reported its
third quarter 2009 financial results. Net loss for third quarter 2009
was $16 million, or $.02 loss per diluted share, compared to a net loss of $120
million, or $.16 loss per diluted share, for third quarter
2008. Third quarter 2009 results included special items (net of
profitsharing and taxes) consisting of a charge of $27 million relating to
the Company's early-out program and a net loss of $12 million, relating to
non-cash, mark-to-market and other items associated with a portion of the
Company’s fuel hedge portfolio. Additional information
regarding these special items is included in this release and in the
accompanying reconciliation tables. Excluding special items,
third quarter 2009 net income was $23 million, or $.03 per diluted share,
compared to $69 million, or $.09 per diluted share, for third quarter
2008. The third quarter 2009 net income, excluding special items,
exceeded Thomson's First Call's mean estimate of $.02 per diluted
share.
Gary C.
Kelly, Chairman of the Board, President, and Chief Executive Officer, stated: “I
am extremely proud of our Southwest Employees. To produce a profit,
excluding special items, in this environment is a remarkable
accomplishment. Sixty days ago, even a modest profit seemed
unattainable. Despite the continuation of a depressed economy, our
People fought hard, and have staged an impressive revenue recovery from where we
were in June. Our third quarter 2009 unit revenues declined 2.2
percent from a year ago, a substantial improvement from the six percent
year-over-year decline experienced in second quarter. It is a true
testament to their Warrior Spirits during these most challenging of
times.
"A number
of revenue initiatives were planned for 2009, and, because travel demand was
much worse than planned, a number of audibles were called. First and
foremost, through our sophisticated aircraft schedule optimization process,
approximately 10 percent of our flights were eliminated from our system over the
last year, which were unprofitable and less popular flights. We made
the decision to keep our fleet essentially flat in 2009, to be prepared for weak
travel demand. Even so, we produced available capacity through
optimization efforts that was redeployed during the last year to substantial new
markets: Minneapolis/St. Paul; New York La Guardia; and Boston
Logan. These large markets fit well within our expansive route
system, and have achieved instant success; and, we look forward to adding
Milwaukee next month.
"Next, we
recently upgraded our website, introducing a new and improved southwest.com. While this
enhanced version lays the necessary foundation for future revenue generating
features, it is already producing gains in average fares and achieving higher
booking rates. Since second quarter, we also have implemented another
round of enhancements to our revenue management structure and
techniques. It, too, is already yielding returns that should
strengthen our revenue trends, prospectively.
"Unplanned
for this year, but producing nice returns, are our new pet fare, Unaccompanied
Minor service charge, and our newest product, EarlyBird Check-in, which allows
our Customers to automatically get an assigned boarding position before general
check-in occurs. All of these products are meeting our expectations
and made possible through technology upgrades and enhancements this
year.
"In July,
we launched a WOW! Sale for post-Labor Day travel, which set all-time booking
records for daily sales, and helped drive our September monthly load factor
up over 11 points from last year, setting a record for the month and
quarter. Favorable year-over-year load factor comparisons are
continuing thus far in October 2009, with month-to-date passenger unit revenues
up approximately one percent from the respective year-ago period.
"Finally,
we have enjoyed a positive reaction to our Bags Fly Free
Campaign. Customer response has been tremendous, and we believe we
are gaining a substantial amount of Customers and revenues by differentiating
ourselves in a significant and meaningful way from other airlines and
underscoring our commitment to Low Fares.
"While
this is a significant amount of change to construct, implement, and manage, our
People have simply done a marvelous job, and the results attest to
it. Our Department of Transportation Customer Satisfaction ranking
leads the industry, and our ontime performance is the best in years and near the
top of the industry.
"With
respect to our third quarter cost performance, despite the significant
year-over-year benefit of lower energy prices, we are still experiencing
substantial cost pressures that demand continued discipline and focus on
containing costs and maximizing productivity. Excluding fuel and
special items, our unit costs increased 6.6 percent from the same period a year
ago. With our planned fourth quarter year-over-year capacity
reduction of eight percent, we anticipate cost pressures to continue and
presently expect our fourth quarter 2009 unit costs, excluding fuel and special
items, to exceed third quarter 2009’s 7.11 cents."
Southwest
will discuss its third quarter 2009 results on a conference call at 11:30
a.m. Eastern Time today. A live broadcast of the conference call will
be available at southwest.com.
/more
Operating
Results
Total
operating revenues for third quarter 2009 decreased 7.8 percent to $2.7 billion,
compared to $2.9 billion for third quarter 2008. Total third quarter
2009 operating expenses were $2.6 billion, compared to $2.8 billion in third
quarter 2008. Operating income for third quarter 2009 was $22
million, compared to $86 million in third quarter 2008. Excluding
special items, operating income was $129 million in third quarter 2009, compared
to $147 million last year.
The
Company’s third quarter 2009 total operating expenses decreased 5.7 percent from
third quarter 2008 largely due to lower energy prices, and were down 7.5
percent, excluding special items. Even with approximately $78 million
in unfavorable cash settlements from derivative contracts in third quarter 2009,
economic fuel costs decreased 17.4 percent to $2.13 per gallon, including
taxes. This excludes a reduction in premium expense of $13 million
included in "other expenses" relating to the sale of call options relating to
third quarter 2009. As of yesterday, the Company had derivative
contracts in place for over 45 percent of its estimated fourth quarter 2009
consumption resulting in an estimated fourth quarter 2009 fuel cost per gallon,
based on current market prices, in the $2.25 range (including
taxes). For 2010, the Company has derivative contracts in place for
over 65 percent of its estimated fuel consumption resulting in an estimated 2010
fuel cost per gallon, based on current market prices, in the $2.40 range
(including taxes). The total market value (as of yesterday) of the
Company's net fuel derivative contracts for the remainder of 2009 through 2013
reflects a net liability of approximately $526 million.
Third
quarter 2009 total operating expenses included a special item related to the
Company’s voluntary early-out program, in which approximately 1,400 Employees
elected to participate. In accordance with the accounting guidance in
ASC Topic 715 (originally issued as FAS 88, “Employers’ Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits”), the Company accrued the total cost of the program of
approximately $66 million during third quarter 2009. Of this amount,
approximately $32 million was paid out to Employees who left the Company prior
to September 30, 2009, and the remaining $34 million will be paid out in
subsequent periods. The Company expects annual savings in subsequent
years from the program to exceed the cost of the program.
“Other
expenses” were $42 million for third quarter 2009, compared to $291 million for
third quarter 2008. The $249 million decrease in total other expenses
primarily resulted from $2 million in “other losses” recognized in third quarter
2009 versus $269 million in “other losses” recognized in third quarter
2008. In both periods, these “other losses” primarily resulted from
unrealized gains/losses associated with our fuel hedging program. The
cost of the hedging program (which includes the premium costs of derivative
contracts) of $35 million in third quarter 2009 and $20 million in third quarter
2008 is also included in "other (gains) losses." Third quarter 2009
interest expense increased $13 million from third quarter 2008 primarily due to
financing transactions the Company completed since third quarter
2008. Lower market interest rates coupled with lower Boeing aircraft
progress payments generated less capitalized interest in third quarter 2009
compared to the same period last year. Interest income also decreased
versus third quarter 2008 due to lower market interest rates.
Net cash
provided by operations for the nine months ended September 30, 2009 was
$493
million, which was net of a $185 million increase in cash posted as collateral
to the Company’s fuel hedge counterparties since December 31,
2008. Capital expenditures for the first nine months of 2009 were
$471 million.
During
third quarter 2009, the Company borrowed $124 million under a new term loan
agreement secured by five Boeing 737-700 aircraft. The Company has
minimal contractual debt obligations for the remainder of 2009.
At the
end of third quarter 2009, the Company replaced its previous $600 million
unsecured revolving credit facility with a new $600 million unsecured revolving
credit facility that will expire in October 2012. In addition to this
fully available $600 million revolving credit facility, as of yesterday, the
Company had approximately $2.4 billion in cash and short-term investments, net
of $355 million in cash collateral paid to its fuel hedge
counterparties.
Total
operating revenues for the nine months ended September 30, 2009 decreased 7.9
percent to $7.6 billion, while total operating expenses decreased 4.6 percent to
$7.5 billion, resulting in operating income of $95 million for the first nine
months of 2009 versus $380 million in the first nine months of
2008. Excluding special items, operating income was $342 million and
$487 million, for the nine months ended September 30, 2009 and 2008,
respectively. Net loss for the nine months ended September 30, 2009
was $16 million, or $.02 loss per diluted share, compared to net income of $234
million, or $.32 per diluted share, for the same period last
year. Excluding special items, net income for the nine months ended
September 30, 2009 was $61 million, or $.08 per diluted share, compared to $233
million, or $.32 per diluted share, for the same period last year.
/more
Restatement of GAAP results
On
October 14, 2009, the Company determined that its financial statements for the
three and six month periods ended June 30, 2009 contained an error in the
application of Accounting Standards Codification (ASC) Topic 815 to
specific derivatives in the Company’s hedge portfolio. See
Supplemental Schedule I for a reconciliation of previously reported GAAP results
to the restated amounts.
This news
release contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Specific forward-looking statements
include, without limitation, statements relating to (i) the Company’s revenue
and cost-cutting initiatives and its expectations related to such initiatives;
(ii) its fleet plans and expectations; (iii) its growth plans and expectations;
and (iv) its expectations regarding future results of operations. These
forward-looking statements are based on the Company's current intent,
expectations, and projections and are not guarantees of future
performance. These statements involve risks, uncertainties,
assumptions, and other factors that are difficult to predict and that could
cause actual results to vary materially from those expressed in or indicated by
them. Factors include, among others, (i) the price and availability
of aircraft fuel, the impact of hedge accounting, and any changes to the
Company’s strategies for addressing fuel price volatility; (ii) continued
economic uncertainty, which could continue to impact the demand for air travel
and the Company’s ability to adjust fares; (iii) the impact of fuel prices and
economic conditions on the Company’s overall business plan and strategies; (iv)
competitor capacity decisions; (v) the Company's ability to timely and
effectively prioritize its revenue and cost reduction initiatives and its
related ability to timely implement, transition, and maintain the necessary
information technology systems and infrastructure to support these initiatives;
(vi) the results of labor negotiations; and (vii) other factors, as described in
the Company's filings with the Securities and Exchange Commission, including the
detailed factors discussed under the heading "Risk Factors" in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and
under the heading “Forward-looking statements” in the Company’s Quarterly
Reports on Form 10-Q for the quarters ended March 31, 2009, and June 30,
2009.
/more
CONDENSED
CONSOLIDATED STATEMENT OF INCOME
|
||||||||||||||||||||||||
(in
millions, except per share amounts)
|
||||||||||||||||||||||||
(unaudited)
|
||||||||||||||||||||||||
Three
months ended
|
Nine
months ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
Percent
|
Percent
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
OPERATING
REVENUES:
|
||||||||||||||||||||||||
Passenger
|
$ | 2,550 | $ | 2,767 | (7.8 | ) | $ | 7,308 | $ | 7,927 | (7.8 | ) | ||||||||||||
Freight
|
28 | 37 | (24.3 | ) | 87 | 108 | (19.4 | ) | ||||||||||||||||
Other
|
88 | 87 | 1.1 | 243 | 254 | (4.3 | ) | |||||||||||||||||
Total
operating revenues
|
2,666 | 2,891 | (7.8 | ) | 7,638 | 8,289 | (7.9 | ) | ||||||||||||||||
OPERATING
EXPENSES:
|
||||||||||||||||||||||||
Salaries,
wages, and benefits
|
909 | 856 | 6.2 | 2,607 | 2,494 | 4.5 | ||||||||||||||||||
Fuel
and oil
|
826 | 1,051 | (21.4 | ) | 2,250 | 2,795 | (19.5 | ) | ||||||||||||||||
Maintenance
materials and repairs
|
184 | 190 | (3.2 | ) | 557 | 523 | 6.5 | |||||||||||||||||
Aircraft
rentals
|
47 | 38 | 23.7 | 140 | 115 | 21.7 | ||||||||||||||||||
Landing
fees and other rentals
|
192 | 167 | 15.0 | 537 | 497 | 8.0 | ||||||||||||||||||
Depreciation
and amortization
|
162 | 152 | 6.6 | 462 | 445 | 3.8 | ||||||||||||||||||
Other
operating expenses
|
324 | 351 | (7.7 | ) | 990 | 1,040 | (4.8 | ) | ||||||||||||||||
Total
operating expenses
|
2,644 | 2,805 | (5.7 | ) | 7,543 | 7,909 | (4.6 | ) | ||||||||||||||||
OPERATING
INCOME
|
22 | 86 | (74.4 | ) | 95 | 380 | (75.0 | ) | ||||||||||||||||
OTHER
EXPENSES (INCOME):
|
||||||||||||||||||||||||
Interest
expense
|
48 | 35 | 37.1 | 140 | 95 | 47.4 | ||||||||||||||||||
Capitalized
interest
|
(5 | ) | (6 | ) | 16.7 | (16 | ) | (20 | ) | 20.0 | ||||||||||||||
Interest
income
|
(3 | ) | (7 | ) | 57.1 | (11 | ) | (18 | ) | 38.9 | ||||||||||||||
Other
(gains) losses, net
|
2 | 269 |
n.a.
|
2 | (38 | ) |
n.a.
|
|||||||||||||||||
Total
other expenses (income)
|
42 | 291 |
n.a.
|
115 | 19 |
n.a.
|
||||||||||||||||||
INCOME
(LOSS) BEFORE INCOME TAXES
|
(20 | ) | (205 | ) | 90.2 | (20 | ) | 361 | (105.5 | ) | ||||||||||||||
PROVISION
(BENEFIT) FOR INCOME TAXES
|
(4 | ) | (85 | ) | 95.3 | (4 | ) | 127 | (103.1 | ) | ||||||||||||||
NET
INCOME (LOSS)
|
$ | (16 | ) | $ | (120 | ) | 86.7 | $ | (16 | ) | $ | 234 | (106.8 | ) | ||||||||||
NET
INCOME (LOSS) PER SHARE:
|
||||||||||||||||||||||||
Basic
|
($.02 | ) | ($.16 | ) | ($.02 | ) | $.32 | |||||||||||||||||
Diluted
|
($.02 | ) | ($.16 | ) | ($.02 | ) | $.32 | |||||||||||||||||
WEIGHTED
AVERAGE SHARES OUTSTANDING:
|
||||||||||||||||||||||||
Basic
|
742 | 736 | 741 | 734 | ||||||||||||||||||||
Diluted
|
742 | 736 | 741 | 739 |
/more
SOUTHWEST
AIRLINES CO.
|
||||||||||||||||||||||||
RECONCILIATION
OF REPORTED AMOUNTS TO NON-GAAP ITEMS (SEE NOTE)
|
||||||||||||||||||||||||
(in
millions, except per share amounts)
|
||||||||||||||||||||||||
(unaudited)
|
||||||||||||||||||||||||
Note
regarding use of non-GAAP financial measures
|
||||||||||||||||||||||||
The
financial results provided in this news release "excluding special items"
are non-GAAP results that are provided as supplemental
information. These results primarily
|
||||||||||||||||||||||||
reflect
items calculated on an "economic" basis and should not be relied upon as
alternative measures to Generally Accepted Accounting Principles
(GAAP). Management has
|
||||||||||||||||||||||||
established
the concept of "economic" results to provide visibility to the
non-current, non-cash aspects of its fuel hedging program and accounting,
which can materially impact
|
||||||||||||||||||||||||
the
Company's current financial results, but may not provide a clear picture
of the Company's liquidity and ongoing operations. Therefore, items
presented below on an "economic"
|
||||||||||||||||||||||||
basis
include only the cash settlement gains or losses for derivative
instruments that settled in the current accounting period; therefore,
these gains or losses are known and have
|
||||||||||||||||||||||||
been
realized. Items that are excluded from the Company’s economic results
as shown in the below table primarily consist of certain “unrealized”
gains or losses associated with
|
||||||||||||||||||||||||
derivatives
that settled in a prior period or will settle in a future period. The
excluded items primarily consist of hedge ineffectiveness as defined in
Accounting Standards Codification
|
||||||||||||||||||||||||
Topic
815 (ASC Topic 815, originally issued as SFAS 133, “Accounting for
Derivative Instruments and Hedging Activities,” as amended), related to
derivative instruments that will settle
|
||||||||||||||||||||||||
in
future periods and changes in market value for future period derivatives
that do not qualify for special hedge accounting, as defined in ASC Topic
815. Further information on (i) the
|
||||||||||||||||||||||||
Company’s
fuel hedging program, (ii) the requirements and accounting associated with
ASC Topic 815, and (iii) the causes of hedge ineffectiveness and/or
mark-to-market gains or losses
|
||||||||||||||||||||||||
from
derivative instruments is included in the Company’s Annual Report on Form
10-K for the fiscal year ended December 31, 2008, and in the Company’s
subsequent Quarterly Reports
|
||||||||||||||||||||||||
on
Form 10-Q. Special items also include a charge of $27 million (net of
profitsharing and taxes) during third quarter 2009 related to the
Company's early-out program, which management
|
||||||||||||||||||||||||
does not believe is a meaningful indicator of the Company's expected ongoing performance. | ||||||||||||||||||||||||
Because
the Company’s results, as reported under GAAP, can contain significant
gains or losses associated with “unrealized” items, management believes a
supplemental “economic”
|
||||||||||||||||||||||||
financial
presentation that excludes these items allows it and the Company’s
investors to more accurately measure and monitor the Company’s comparative
performance on a consistent
|
||||||||||||||||||||||||
basis.
Management also believes “economic” results provide a clearer picture of
the impact of earnings results on the Company’s liquidity, as the items
being excluded are unrealized
|
||||||||||||||||||||||||
gains
or losses that do not affect the Company’s liquidity. Finally, because
management internally uses both GAAP and non-GAAP results to evaluate the
Company’s performance,
|
||||||||||||||||||||||||
management
believes the provision of a supplemental “economic” presentation provides
greater transparency to investors regarding management’s views with
respect to the Company’s
|
||||||||||||||||||||||||
ongoing
operations.
|
||||||||||||||||||||||||
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
Percent
|
Percent
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Fuel
and oil expense - unhedged
|
$ | 697 | $ | 1,438 | $ | 1,857 | $ | 3,949 | ||||||||||||||||
Less:
Fuel hedge (gains) losses included in fuel and oil expense
|
129 | (387 | ) | 393 | (1,154 | ) | ||||||||||||||||||
Fuel
and oil expense - GAAP
|
$ | 826 | $ | 1,051 | (21.4 | ) | $ | 2,250 | $ | 2,795 | (19.5 | ) | ||||||||||||
Add/(Deduct):
Net impact from fuel contracts (1)
|
(51 | ) | (61 | ) | (191 | ) | (107 | ) | ||||||||||||||||
Fuel
and oil expense - economic
|
$ | 775 | $ | 990 | (21.7 | ) | $ | 2,059 | $ | 2,688 | (23.4 | ) | ||||||||||||
Operating
income, as reported
|
$ | 22 | $ | 86 | $ | 95 | $ | 380 | ||||||||||||||||
Add/(Deduct):
Net impact from fuel contracts (1)
|
51 | 61 | 191 | 107 | ||||||||||||||||||||
Operating
income - economic
|
$ | 73 | $ | 147 | $ | 286 | $ | 487 | ||||||||||||||||
Add:
Charge from voluntary early out program, net
|
56 | - | 56 | - | ||||||||||||||||||||
Operating
income, non-GAAP
|
$ | 129 | $ | 147 | (12.2 | ) | $ | 342 | $ | 487 | (29.8 | ) | ||||||||||||
Other
(gains) losses, net, as reported
|
$ | 2 | $ | 269 | $ | 2 | $ | (38 | ) | |||||||||||||||
Add/(Deduct):
Net impact from fuel contracts (1)
|
39 | (247 | ) | 112 | 91 | |||||||||||||||||||
Other
losses, net, non-GAAP
|
$ | 41 | $ | 22 | 86.4 | $ | 114 | $ | 53 | 115.1 | ||||||||||||||
Net
income (loss), as reported
|
$ | (16 | ) | $ | (120 | ) | $ | (16 | ) | $ | 234 | |||||||||||||
Add/(Deduct):
Net impact from fuel contracts (1)
|
12 | 308 | 79 | 16 | ||||||||||||||||||||
Income
tax impact of fuel contracts
|
- | (119 | ) | (29 | ) | (5 | ) | |||||||||||||||||
$ | (4 | ) | $ | 69 | $ | 34 | $ | 245 | ||||||||||||||||
Add:
Charge from voluntary early out program, net
|
27 | - | 27 | - | ||||||||||||||||||||
Add
(Deduct): Change in Illinois state income tax law, net
|
- | - | - | (12 | ) | |||||||||||||||||||
Net
income, non-GAAP
|
$ | 23 | $ | 69 | (66.7 | ) | $ | 61 | $ | 233 | (73.8 | ) | ||||||||||||
Net
income (loss) per share, diluted, as reported
|
$ | (.02 | ) | $ | (.16 | ) | $ | (.02 | ) | $ | .32 | |||||||||||||
Add/(Deduct):
Net impact from fuel contracts
|
.01 | .25 | .06 | .01 | ||||||||||||||||||||
$ | (.01 | ) | $ | .09 | $ | .04 | $ | .33 | ||||||||||||||||
Add:
Impact of special items, net
|
.04 | - | .04 | (.01 | ) | |||||||||||||||||||
Net
income per share, diluted, non-GAAP
|
$ | .03 | $ | .09 | (66.7 | ) | $ | .08 | $ | .32 | (75.0 | ) | ||||||||||||
(1)
See Reconciliation of Impact from Fuel Contracts
|
/more
RECONCILIATION
OF IMPACT FROM FUEL CONTRACTS (SEE PREVIOUS NOTE)
|
||||||||||||||||
(in
millions)
|
||||||||||||||||
(unaudited)
|
||||||||||||||||
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Fuel & Oil Expense
|
||||||||||||||||
Add/(Deduct):
Impact from current period settled contracts
|
||||||||||||||||
included
in Other (gains) losses, net
|
$ | (1 | ) | $ | 9 | $ | (30 | ) | $ | (34 | ) | |||||
Add/(Deduct):
Other impact of fuel contracts settling in the
|
||||||||||||||||
current
or a prior period
|
(50 | ) | (70 | ) | (161 | ) | (73 | ) | ||||||||
Impact
from fuel contracts to Fuel & Oil Expense
|
$ | (51 | ) | $ | (61 | ) | $ | (191 | ) | $ | (107 | ) | ||||
Operating Income
|
||||||||||||||||
Add/(Deduct):
Impact from current period settled contracts
|
||||||||||||||||
included
in Other (gains) losses, net
|
$ | 1 | $ | (9 | ) | $ | 30 | $ | 34 | |||||||
Add/(Deduct):
Other impact of fuel contracts settling in the
|
||||||||||||||||
current
or a prior period
|
50 | 70 | 161 | 73 | ||||||||||||
Impact
from fuel contracts to Operating Income
|
$ | 51 | $ | 61 | $ | 191 | $ | 107 | ||||||||
Other (gains) losses
|
||||||||||||||||
Add/(Deduct):
Mark-to-market impact from fuel contracts
|
||||||||||||||||
settling
in future periods
|
$ | (11 | ) | $ | (202 | ) | $ | 21 | $ | 110 | ||||||
Add/(Deduct):
Ineffectiveness from fuel hedges settling in future
periods
|
49 | (36 | ) | 61 | (53 | ) | ||||||||||
Add/(Deduct):
Impact from current period settled contracts
|
||||||||||||||||
included
in Other (gains) losses, net
|
1 | (9 | ) | 30 | 34 | |||||||||||
Impact
from fuel contracts to Other (gains) losses
|
$ | 39 | $ | (247 | ) | $ | 112 | $ | 91 | |||||||
Net Income
|
||||||||||||||||
Add/(Deduct):
Mark-to-market impact from fuel contracts
|
||||||||||||||||
settling
in future periods
|
$ | 11 | $ | 202 | $ | (21 | ) | $ | (110 | ) | ||||||
Add/(Deduct):
Ineffectiveness from fuel hedges settling in future
periods
|
(49 | ) | 36 | (61 | ) | 53 | ||||||||||
Add/(Deduct):
Other impact of fuel contracts settling in the
|
||||||||||||||||
current
or a prior period
|
50 | 70 | 161 | 73 | ||||||||||||
Impact
from fuel contracts to Net income *
|
$ | 12 | $ | 308 | $ | 79 | $ | 16 | ||||||||
*
Excludes income tax impact of unrealized items
|
/more
COMPARATIVE
CONSOLIDATED OPERATING STATISTICS
|
||||||||||||||||||||||||
(unaudited)
|
||||||||||||||||||||||||
Three
months ended
|
Nine
months ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Revenue
passengers carried
|
22,375,593 | 22,243,013 | 0.6 | % | 64,811,451 | 67,741,176 | (4.3 | )% | ||||||||||||||||
Enplaned
passengers
|
26,396,360 | 25,686,181 | 2.8 | % | 75,951,788 | 77,945,753 | (2.6 | )% | ||||||||||||||||
Revenue
passenger miles (RPMs) (000s)
|
19,706,579 | 18,822,810 | 4.7 | % | 56,281,687 | 56,226,510 | 0.1 | % | ||||||||||||||||
Available
seat miles (ASMs) (000s)
|
24,771,016 | 26,287,035 | (5.8 | )% | 74,495,618 | 77,815,557 | (4.3 | )% | ||||||||||||||||
Load
factor
|
79.6 | % | 71.6 | % |
8.0
|
pts. | 75.6 | % | 72.3 | % |
3.3
|
pts. | ||||||||||||
Average
length of passenger haul (miles)
|
881 | 846 | 4.1 | % | 868 | 830 | 4.6 | % | ||||||||||||||||
Average
aircraft stage length (miles)
|
640 | 642 | (0.3 | )% | 641 | 635 | 0.9 | % | ||||||||||||||||
Trips
flown
|
283,663 | 300,537 | (5.6 | )% | 852,371 | 898,759 | (5.2 | )% | ||||||||||||||||
Average
passenger fare
|
$113.95 | $124.38 | (8.4 | )% | $112.76 | $117.02 | (3.6 | )% | ||||||||||||||||
Passenger
revenue yield per RPM (cents)
|
12.94 | 14.70 | (12.0 | )% | 12.98 | 14.10 | (7.9 | )% | ||||||||||||||||
Operating
revenue yield per ASM (cents)
|
10.76 | 11.00 | (2.2 | )% | 10.25 | 10.65 | (3.8 | )% | ||||||||||||||||
CASM,
GAAP (cents)
|
10.67 | 10.67 | 0.0 | % | 10.13 | 10.16 | (0.3 | )% | ||||||||||||||||
CASM,
GAAP excluding fuel (cents)
|
7.34 | 6.67 | 10.0 | % | 7.11 | 6.57 | 8.2 | % | ||||||||||||||||
CASM,
excluding special items (cents)
|
10.24 | 10.44 | (1.9 | )% | 9.79 | 10.03 | (2.4 | )% | ||||||||||||||||
CASM,
excluding fuel and special items (cents)
|
7.11 | 6.67 | 6.6 | % | 7.03 | 6.57 | 7.0 | % | ||||||||||||||||
Fuel
costs per gallon, including fuel tax (unhedged)
|
$1.91 | $3.75 | (49.1 | )% | $1.71 | $3.44 | (50.3 | )% | ||||||||||||||||
Fuel
costs per gallon, including fuel tax (GAAP)
|
$2.27 | $2.73 | (16.8 | )% | $2.07 | $2.43 | (14.8 | )% | ||||||||||||||||
Fuel
costs per gallon, including fuel tax (economic)
|
$2.13 | $2.58 | (17.4 | )% | $1.89 | $2.34 | (19.2 | )% | ||||||||||||||||
Fuel
consumed, in gallons (millions)
|
363 | 382 | (5.0 | )% | 1,083 | 1,143 | (5.2 | )% | ||||||||||||||||
Fulltime
equivalent Employees at period-end *
|
34,806 | 35,538 | (2.1 | )% | 34,806 | 35,538 | (2.1 | )% | ||||||||||||||||
Aircraft
in service at period-end
|
545 | 538 | 1.3 | % | 545 | 538 | 1.3 | % | ||||||||||||||||
CASM
(unit costs) - Operating expenses per ASM
|
||||||||||||||||||||||||
RASM
(unit revenue) - Operating revenue yield per ASM
|
||||||||||||||||||||||||
*
Headcount is defined as "Active" fulltime equivalent Employees for both
periods presented.
|
/more
SOUTHWEST
AIRLINES CO.
|
||||||||
CONDENSED
CONSOLIDATED BALANCE SHEET
|
||||||||
(in
millions)
|
||||||||
(unaudited)
|
||||||||
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 902 | $ | 1,368 | ||||
Short-term
investments
|
1,352 | 435 | ||||||
Accounts
and other receivables
|
225 | 209 | ||||||
Inventories
of parts and supplies, at cost
|
196 | 203 | ||||||
Deferred
income taxes
|
365 | 365 | ||||||
Prepaid
expenses and other current assets
|
87 | 73 | ||||||
Total
current assets
|
3,127 | 2,653 | ||||||
Property
and equipment, at cost:
|
||||||||
Flight
equipment
|
13,761 | 13,722 | ||||||
Ground
property and equipment
|
1,870 | 1,769 | ||||||
Deposits
on flight equipment purchase contracts
|
233 | 380 | ||||||
15,864 | 15,871 | |||||||
Less
allowance for depreciation and amortization
|
5,166 | 4,831 | ||||||
10,698 | 11,040 | |||||||
Other
assets
|
275 | 375 | ||||||
$ | 14,100 | $ | 14,068 | |||||
LIABILITIES
& STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 694 | $ | 668 | ||||
Accrued
liabilities
|
918 | 1,012 | ||||||
Air
traffic liability
|
1,214 | 963 | ||||||
Current
maturities of long-term debt
|
198 | 163 | ||||||
Total
current liabilities
|
3,024 | 2,806 | ||||||
Long-term
debt less current maturities
|
3,378 | 3,498 | ||||||
Deferred
income taxes
|
1,947 | 1,904 | ||||||
Deferred
gains from sale and leaseback of aircraft
|
125 | 105 | ||||||
Other
noncurrent liabilities
|
409 | 802 | ||||||
Stockholders'
equity:
|
||||||||
Common
stock
|
808 | 808 | ||||||
Capital
in excess of par value
|
1,226 | 1,215 | ||||||
Retained
earnings
|
4,876 | 4,919 | ||||||
Accumulated
other comprehensive loss
|
(715 | ) | (984 | ) | ||||
Treasury
stock, at cost
|
(978 | ) | (1,005 | ) | ||||
Total
stockholders' equity
|
5,217 | 4,953 | ||||||
$ | 14,100 | $ | 14,068 |
/more
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS
|
||||||||||||||||
(in
millions)
|
||||||||||||||||
(unaudited)
|
||||||||||||||||
Three
months ended
|
Nine
months ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||||||
Net
income (loss)
|
$ | (16 | ) | $ | (120 | ) | $ | (16 | ) | $ | 234 | |||||
Adjustments
to reconcile net income (loss) to
|
||||||||||||||||
cash
provided by operating activities:
|
||||||||||||||||
Depreciation
and amortization
|
162 | 152 | 462 | 445 | ||||||||||||
Unrealized
loss on fuel derivative instruments
|
12 | 307 | 79 | 17 | ||||||||||||
Deferred
income taxes
|
4 | (48 | ) | (1 | ) | 81 | ||||||||||
Amortization
of deferred gains on sale and
|
||||||||||||||||
leaseback
of aircraft
|
(4 | ) | (3 | ) | (11 | ) | (9 | ) | ||||||||
Share-based
compensation expense
|
3 | 4 | 10 | 14 | ||||||||||||
Excess
tax benefits from share-based
|
||||||||||||||||
compensation
arrangements
|
(4 | ) | 8 | (6 | ) | 11 | ||||||||||
Changes
in certain assets and liabilities:
|
||||||||||||||||
Accounts
and other receivables
|
12 | 62 | (16 | ) | (105 | ) | ||||||||||
Other
current assets
|
11 | (48 | ) | (7 | ) | (98 | ) | |||||||||
Accounts
payable and accrued liabilities
|
(143 | ) | (379 | ) | (38 | ) | (46 | ) | ||||||||
Air
traffic liability
|
6 | (28 | ) | 251 | 344 | |||||||||||
Cash
collateral received from (provided to) fuel
|
||||||||||||||||
derivative
counterparties
|
- | (1,940 | ) | (185 | ) | 495 | ||||||||||
Other,
net
|
29 | (243 | ) | (29 | ) | (359 | ) | |||||||||
Net
cash provided by (used in) operating activities
|
72 | (2,276 | ) | 493 | 1,024 | |||||||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||||||
Purchases
of property and equipment, net
|
(198 | ) | (178 | ) | (471 | ) | (765 | ) | ||||||||
Purchases
of short-term investments
|
(1,707 | ) | (794 | ) | (4,797 | ) | (4,241 | ) | ||||||||
Proceeds
from sales of short-term investments
|
1,608 | 926 | 3,955 | 3,570 | ||||||||||||
Other,
net
|
- | - | 1 | - | ||||||||||||
Net
cash used in investing activities
|
(297 | ) | (46 | ) | (1,312 | ) | (1,436 | ) | ||||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||||||
Proceeds
from sale and leaseback transactions
|
- | - | 381 | - | ||||||||||||
Issuance
of Long-term debt
|
124 | - | 456 | 600 | ||||||||||||
Proceeds
from Employee stock plans
|
4 | 85 | 11 | 113 | ||||||||||||
Payments
of long-term debt and capital lease obligations
|
(22 | ) | (15 | ) | (64 | ) | (41 | ) | ||||||||
Payment
of revolving credit facility
|
- | - | (400 | ) | - | |||||||||||
Proceeds from credit line borrowing | 83 | - | 83 | - | ||||||||||||
Payment
of credit line borrowing
|
(91 | ) | - | |||||||||||||
Payments
of cash dividends
|
(3 | ) | (3 | ) | (13 | ) | (13 | ) | ||||||||
Repurchase
of common stock
|
- | - | - | (54 | ) | |||||||||||
Excess
tax benefits from share-based
|
||||||||||||||||
compensation
arrangements
|
4 | (8 | ) | 6 | (11 | ) | ||||||||||
Other,
net
|
(9 | ) | - | (16 | ) | (5 | ) | |||||||||
Net
cash provided by financing activities
|
181 | 59 | 353 | 589 | ||||||||||||
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
(44 | ) | (2,263 | ) | (466 | ) | 177 | |||||||||
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
946 | 4,653 | 1,368 | 2,213 | ||||||||||||
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 902 | $ | 2,390 | $ | 902 | $ | 2,390 |
/more
SUPPLEMENTAL
SCHEDULE I
|
||||||||||||
RECONCILIATION
OF PREVIOUSLY REPORTED AMOUNTS TO RESTATED AMOUNTS -
|
||||||||||||
GAAP BASIS
(SEE NOTE)
|
||||||||||||
(in
millions, except per share amounts)
|
||||||||||||
(unaudited)
|
||||||||||||
2009
|
||||||||||||
Six
months
|
||||||||||||
Three
months ended
|
ended
|
|||||||||||
March
31
|
June
30
|
June
30
|
||||||||||
Operting
income (loss), as previously reported
|
$ | (50 | ) | $ | 123 | $ | 73 | |||||
Add: Impact
of error (see Note)
|
- | - | - | |||||||||
Less: Income
tax expense impact from error
|
- | - | - | |||||||||
Operating
income (loss) - adjusted
|
$ | (50 | ) | $ | 123 | $ | 73 | |||||
Net
income (loss), as previously reported
|
$ | (91 | ) | $ | 54 | $ | (37 | ) | ||||
Add: Impact
of error (see Note)
|
- | 57 | 57 | |||||||||
Less: Income
tax expense impact from error
|
- | (20 | ) | (20 | ) | |||||||
Net
income (loss) - adjusted
|
$ | (91 | ) | $ | 91 | $ | - | |||||
Net
income (loss) per share, basic, as previously reported
|
$ | (.12 | ) | $ | .07 | $ | (.05 | ) | ||||
Add: Impact
of error (see Note)
|
- | .05 | .05 | |||||||||
Net
income (loss) per share, basic - adjusted
|
$ | (.12 | ) | $ | .12 | $ | - | |||||
Net
income (loss) per share, diluted, as previously reported
|
$ | (.12 | ) | $ | .07 | $ | (.05 | ) | ||||
Add: Impact
of error (see Note)
|
- | .05 | .05 | |||||||||
Net
income (loss) per share, diluted - adjusted
|
$ | (.12 | ) | $ | .12 | $ | - | |||||
Note:
|
||||||||||||
On
October 14, 2009, the Company determined that its financial statements for
the three and six months ended June 30, 2009 contained an error
with
|
||||||||||||
respect
to one rule within ASC Topic 815 (originally issued as SFAS 133,
“Accounting for Derivative Instruments and Hedging Activities”,
as
|
||||||||||||
amended
). Specifically, in conjunction with facilitating the implementation of
new hedge accounting software in April 2009, existing
hedging
|
||||||||||||
instruments
were de-designated and re-designated as
new hedges. Included in the re-designation however, were certain
derivative
|
||||||||||||
instruments
that were in a net written option position that would not qualify as
hedges according to ASC Topic 815. The result of this error was that
a
|
||||||||||||
portion
of the increase in fair value of these derivatives was deferred as part of
Accumulated Other Comprehensive Income/Loss (AOCI), when
in
|
||||||||||||
fact
those increases should have been recognized in earnings in second quarter
2009 . This would have increased GAAP Net income by $37
million.
|
||||||||||||
The
net increase in fair value related to these instruments, totaling $57
million, before taxes, during second quarter 2009, relates entirely to
unrealized
|
||||||||||||
changes
in fair value as substantially all of the instruments will not settle
until periods subsequent to 2009. As discussed in Note 5 of the
Company’s
|
||||||||||||
second
quarter Form 10-Q, such changes in fair value are typically included as
part of its change in derivatives that are marked-to-market
through
|
||||||||||||
earnings
when such instruments do not qualify for special hedge
accounting. This error had no impact on the Company's
economic/non-GAAP results
|
||||||||||||
that
were furnished on Form 8-K on July 23, 2009, since the Company excludes
the impact of these types of unrealized gains and losses from such
results.
|
||||||||||||
Furthermore,
since the Company classifies these unrealized noncash changes in value as
a component of Other (gains) losses, net in the
unaudited
|
||||||||||||
Condensed
Consolidated Statement of Income, this error also had no impact on the
Company's operating income for the quarter or the six month
period
|
||||||||||||
ended
June 30, 2009, nor did it impact the Company's net cash flows for second
quarter 2009. The impact on the Company's unaudited
Condensed
|
||||||||||||
Consolidated
Balance Sheet would have been an increase to AOCI of $35 million, an
increase to Retained earnings of $37 million, a decrease to
Accrued
|
||||||||||||
liabilities
of $5 million, and an increase to Deferred income taxes of $3 million as
of June 30, 2009. This error had no impact on any financial
statements
|
||||||||||||
prior
to those issued for second quarter 2009.
|
***