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Southwest Airlines Annual Report (Amendment), Year Ended Dec 31, 2006

Filing Date
Filed April 24, 2007
Period End
December 31, 2006
Security
LUV
In the record · 2016–202610-K1210-Q338-K204

LUV filed 12 annual reports (10-K), 33 quarterly reports (10-Q) and 204 current reports (8-K) between 2016 and 2026.

  1. Leadership change8-K · Jan ’17Jan ’17
  2. FY2018 annual report10-K · Feb ’19Feb ’19
  3. Leadership change8-K · Nov ’21Nov ’21
  4. Material agreement8-K · Nov ’25Nov ’25

01—Abstract

Summary

Summary of the 10-K/A filed April 24, 2007. Cited figures are marked; the original filing is the authoritative source.

Southwest Airlines Co. filed Amendment No. 2 on Form 10-K/A for the fiscal year ended December 31, 2006.

The amendment's stated purpose is to include the conformed signature of Ernst & Young LLP on its audit report; no other changes are made to the financial statements or to any other item beyond updated exhibits (officer certifications and an updated auditor consent). The financial statements presented show 2006 operating revenues of $9.09 billiona ($9,086 million), up from $7.58 billion in 2005, and net income of $499 million, or $.61 per diluted share, compared with $484 million, or $.60 per diluted share, in 2005. Operating expenses rose to $8.15 billion in 2006, led by fuel and oil expense of $2.14 billion, up from $1.34 billion in 2005.

Operating income was $934 millionb, versus $725 million the prior year. Other (gains) losses, net was a $151 million expense in 2006, compared with a $90 million gain in 2005, reflecting fuel-hedge ineffectiveness and the loss of hedge accounting on certain derivatives. The company reported net cash provided by operating activities of $1.41 billion, down from $2.12 billion, and spent $1.40 billion on property and equipment.

It repurchased $800 millionc of common stock in 2006 under three authorizations totaling $1.0 billion. At year-end 2006, Southwest held cash and cash equivalents of $1.39 billion and short-term investments of $369 million, against long-term debt of $1.57 billion (plus $122 million current maturities). Total stockholders' equity was $6.45 billion.

The filing states that fuel derivatives had a net fair value asset of approximately $999 milliond, and that about 95 percent of anticipated 2007 jet fuel requirements were protected by hedges at average crude oil equivalent prices of approximately $50 per barrel. Management also disclosed that a 2006 change in accounting for airframe maintenance was applied retrospectively to prior periods, with the effect on 2006 net income described as not material.

02—Key points

Key Highlights

  1. Total operating revenues rose to $9,086 million in 2006 from $7,584 million in 2005; passenger revenue was $8,750 million.
  2. Net income was $499 million, or $.61 per diluted share, versus $484 million, or $.60 per diluted share, in 2005.
  3. Fuel and oil expense increased to $2,138 million from $1,341 million, and fuel and oil represented approximately 26.2 percent of operating expenses in 2006.
  4. Other (gains) losses, net was a $151 million loss in 2006, compared with a $90 million gain in 2005, including approximately $101 million of net losses from hedge ineffectiveness and loss of hedge accounting.
  5. The company repurchased 49 million shares for $800 million in 2006 under programs totaling $1.0 billion authorized during the year.
  6. Cash and cash equivalents were $1,390 million at December 31, 2006, and net cash from operating activities was $1,406 million.
  7. Fuel hedges protect nearly 95 percent of anticipated 2007 total jet fuel requirements at average crude oil equivalent prices of approximately $50 per barrel; the fuel derivative net fair value was approximately $999 million.

03—Questions

Frequently Asked Questions

  1. Why was this amended 10-K/A filed?

    Amendment No. 2 was filed to include the conformed signature of Ernst & Young LLP on its Report of Independent Registered Public Accounting Firm. The filing states that no other changes were made to the financial statements, and the only other changes are updated exhibits, including officer certifications and an updated auditor consent.

  2. How did Southwest's profitability change in 2006?

    Net income was $499 million, or $.61 per diluted share, in 2006, up from $484 million, or $.60 per diluted share, in 2005. Operating income rose to $934 million from $725 million, though other (gains) losses, net swung to a $151 million expense from a $90 million gain in 2005.

  3. What drove the increase in operating expenses?

    Total operating expenses rose to $8,152 million from $6,859 million. The largest increase was in fuel and oil, which grew to $2,138 million from $1,341 million, and salaries, wages, and benefits increased to $3,052 million from $2,782 million.

  4. What is the company's fuel hedging position?

    The filing states that Southwest had protected nearly 95 percent of its 2007 total anticipated jet fuel requirements at average crude oil equivalent prices of approximately $50 per barrel. Fuel derivative contracts were in place for 65 percent of expected 2008 fuel consumption at approximately $49 per barrel. The net fair value of financial derivative instruments at December 31, 2006, was approximately $999 million.

  5. How did the balance sheet and cash flows change?

    Cash and cash equivalents declined to $1,390 million from $2,280 million, and total stockholders' equity was $6,449 million, down from $6,675 million. Net cash from operating activities fell to $1,406 million from $2,118 million, and the company repurchased $800 million of common stock during 2006.

04—Continue

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