01—Abstract
Summary
Summary of the 10-K/A filed February 11, 2015. Cited figures are marked; the original filing is the authoritative source.
Southwest Airlines Co. reported record 2014 results in this 10-K.
GAAP net income was $1.1 billiona, or $1.64 per diluted share, up 50.7 percent from $754 million in 2013, on a 5.1 percent increase in Operating revenues. Operating income was $2.2 billion on a GAAP basis and $2.4 billion on a non-GAAP basis, both described as Company records. Non-GAAP net income, which excludes fuel hedge mark-to-market effects and AirTran acquisition and integration costs, was $1.4 billion, or $2.01 per diluted share.
Operating expenses were roughly flat, as lower fuel prices and strategic initiatives offset higher Salaries, wages, and benefits expense, which included a record $355 millionb of Employee profitsharing expense. Pre-tax ROIC, excluding special items, rose to 21.2 percent from 13.1 percent. The AirTran integration was effectively completed in December 2014, with cumulative acquisition and integration costs of $536 million and an expected total of about $550 million once the remaining AirTran 717-200 aircraft leave the fleet in 2015.
The company launched international service in 2014, received 33 Boeing 737-800s, and is the launch customer for the 737 MAX 8 and MAX 7, with firm orders for 170 MAX 8 and 30 MAX 7 aircraft. Management expects 2015 capacity to grow six to seven percent and 2015 capital expenditures of $1.7 billion to $1.8 billionc, excluding assets constructed for others. Liquidity remained strong, with unrestricted cash and short-term investments of $3.0 billion at year-end, net cash from operating activities of $2.9 billion, and share repurchases of approximately $955 million during 2014.
Fuel hedging was reduced after the second-half 2014 oil price decline, and the company is now effectively unhedged for 2015 at current price levels. The filing notes that fuel derivative contracts had a fair value of $(1,001) million at December 31, 2014, and that $(740) million of losses were deferred in AOCI.
02—Key points
Key Highlights
- Record 2014 GAAP net income of $1.1 billion ($1.64 per diluted share), up 50.7 percent from 2013; non-GAAP net income of $1.4 billion ($2.01 per diluted share), up 73.5 percent.
- Operating revenues rose 5.1 percent, driven by strong demand and strategic initiatives; Passenger revenue grew $937 million, or 5.6 percent.
- Operating expenses were roughly flat at $16.38 billion, with fuel and oil expense down 8.2 percent on a lower economic jet fuel price ($2.92 per gallon versus $3.12).
- Pre-tax ROIC excluding special items reached 21.2 percent, versus 13.1 percent in 2013.
- AirTran integration was effectively completed in December 2014, with cumulative costs of $536 million and about $500 million in net pre-tax synergies achieved during 2014.
- Year-end unrestricted cash and short-term investments of $3.0 billion; operating cash flow of $2.9 billion; about $955 million of stock repurchased in 2014.
- Fleet modernization continues with 170 firm MAX 8 and 30 firm MAX 7 orders; 2015 capacity is expected to grow six to seven percent and capex is estimated at $1.7 to $1.8 billion.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-K/AFY2014filed February 11, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $18.61B$17.70B | +5.1% |
| Operating Expenses | $16.38B$16.42B | −0.2% |
| Operating Income | $2.23B$1.28B | +74.1% |
| Interest Expense | $130.00M$131.00M | −0.8% |
| Net Income | $1.14B$754.00M | +50.7% |
| EPS (Basic) | $1.65$1.06 | +55.7% |
| EPS (Diluted) | $1.64$1.05 | +56.2% |
| Shares Outstanding (Basic) | 687.00M710.00M | −3.2% |
| Shares Outstanding (Diluted) | 696.00M718.00M | −3.1% |
05—Questions
Frequently Asked Questions
What drove the increase in Southwest's 2014 net income?
The filing attributes the 50.7 percent increase in GAAP net income primarily to a 5.1 percent increase in Operating revenues, driven by strong demand for air travel and the Company's strategic initiatives. Operating expenses remained relatively flat, benefiting from those initiatives and from lower fuel prices.
What is the difference between GAAP and non-GAAP results in this filing?
Non-GAAP results exclude unrealized non-cash adjustments and reclassifications from fuel derivative accounting, along with AirTran acquisition and integration costs and collective bargaining ratification bonuses. Non-GAAP net income was $1.4 billion, or $2.01 per diluted share, compared with GAAP net income of $1.1 billion, or $1.64 per diluted share. The filing notes that these measures may not be comparable to similarly titled measures used by other companies.
How exposed is Southwest to fuel price changes going forward?
As of January 16, 2015, the Company had reduced its fuel hedging position after the second-half 2014 oil price decline and stated it is effectively unhedged for 2015 at current price levels. It had derivatives covering about 10 percent of estimated fuel consumption in 2016 and about 30 percent in 2017. The filing provides a sensitivity table showing estimated full-year 2015 economic jet fuel prices from $1.15 to $1.25 per gallon at a $30 Brent crude assumption, up to $2.40 to $2.50 at $70.
What are the main capacity and capital spending plans for 2015?
The Company manages to a baseline of roughly 700 aircraft and expects capacity (ASMs) to grow about six percent year over year, mainly from more efficient use of the existing fleet. It estimates 2015 capital expenditures of $1.7 billion to $1.8 billion, excluding assets constructed for others, which are estimated at $50 million to $100 million net of reimbursements.
How is the company's balance sheet and liquidity position described?
The Company reported unrestricted cash and short-term investments of $3.0 billion at December 31, 2014, and a $1 billion unsecured revolving credit facility expiring in April 2018 with no amounts outstanding. Its credit ratings were upgraded during 2014 by Moody's (senior unsecured debt to Baa2) and Standard and Poor's (to BBB), and Fitch affirmed BBB with a positive outlook. The Company also paid $139 million in dividends in 2014.
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