01—Abstract
Summary
Summary of the 10-K filed February 3, 2016. Cited figures are marked; the original filing is the authoritative source.
Southwest Airlines Co. reported record 2015 results, with net income of $2.2 billiona ($3.27 per diluted share), up 92.0 percent from 2014, marking the 43rd consecutive year of profitability.
Operating revenues were $19,820 millionb, up from $18,605 million, and operating expenses fell 4.1 percent to $15,704 million, mainly because of lower fuel prices. Operating income reached $4,116 million. Excluding special items, non-GAAP net income was a record $2.4 billion ($3.52 per diluted share).
The pre-tax ROIC excluding special items was 32.7 percent, compared with 21.2 percent in 2014. The results were helped by a $172 millionc one-time non-cash special revenue adjustment tied to the July 2015 amended co-branded credit card agreement with Chase Bank USA, N.A., which changed revenue accounting. Fuel and oil expense fell 31.7 percent to $3.6 billion, and the average economic jet fuel price per gallon declined 29.1 percent.
Salaries, wages, and benefits rose 17.5 percent to $6.4 billiond, reflecting $334 million in accrued union bonuses and record profitsharing expense of $620 million. Several union contracts remain in negotiations, including Pilots and Flight Attendants. Capital returns were significant: the company returned a record $1.4 billion to shareholders in 2015, including $180 million in dividends and $1.2 billion in share repurchases.
Liquidity was $3.1 billion of unrestricted cash and short-term investments at year-end, against a $1.0 billion revolving credit facility. The company also faces pending antitrust class actions and a DOJ civil investigative demand related to capacity, which the filing says cannot be predicted with certainty.
02—Key points
Key Highlights
- Net income of $2,181 million ($3.27 per diluted share), up 92.0 percent; non-GAAP net income of $2,355 million ($3.52 per diluted share), up 68.6 percent
- Operating revenues of $19,820 million, up from $18,605 million; the 2015 figure includes a $172 million special revenue adjustment from the amended Chase co-branded credit card agreement
- Operating expenses decreased 4.1 percent to $15,704 million, primarily due to lower fuel prices; fuel and oil expense was $3,616 million, down 31.7 percent
- Pre-tax ROIC, excluding special items, was 32.7 percent, compared with 21.2 percent in 2014
- Returned a record $1.4 billion to shareholders in 2015 ($180 million in dividends and $1.2 billion in share repurchases); $200 million remained under the $1.5 billion repurchase program
- Cash and short-term investments totaled $3.1 billion at year-end 2015, with a $1.0 billion unsecured revolving credit facility expiring April 2018
- Approximately 83 percent of employees are union-represented, and several major groups, including Pilots and Flight Attendants, remain in contract negotiations; 2016 capital expenditures are estimated at approximately $2.0 billion
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 3, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $19.82B$18.61B | +6.5% |
| Operating Expenses | $15.70B$16.38B | −4.1% |
| Operating Income | $4.12B$2.23B | +85.0% |
| Interest Expense | $121.00M$130.00M | −6.9% |
| Net Income | $2.18B$1.14B | +92.0% |
| EPS (Basic) | $3.30$1.65 | +100.0% |
| EPS (Diluted) | $3.27$1.64 | +99.4% |
| Shares Outstanding (Basic) | 661.00M687.00M | −3.8% |
| Shares Outstanding (Diluted) | 669.00M696.00M | −3.9% |
05—Questions
Frequently Asked Questions
Why did Southwest's 2015 net income nearly double?
The filing attributes the 92.0 percent increase primarily to a 6.5 percent rise in operating revenues, driven by strong demand for low-fare travel and 7.2 percent capacity growth, plus the impact of the July 2015 amended Chase agreement and its change in accounting methodology. Operating expenses also fell 4.1 percent, mainly because of lower fuel prices.
What one-time items affected 2015 results?
A $172 million non-cash special revenue adjustment was recorded as a result of the amended co-branded credit card agreement with Chase Bank USA, N.A. The company excludes this item from non-GAAP results. Other special items included $334 million in union contract bonuses and $39 million in acquisition and integration costs, along with a $37 million litigation settlement gain.
How much fuel hedging exposure does Southwest carry going forward?
As of January 15, 2016, the company was effectively unhedged for the first quarter of 2016. It had hedges covering approximately 20 percent of estimated 2016 fuel consumption, approximately 65 percent for 2017, and approximately 35 percent for 2018. The filing reports a net fuel derivative liability of $1.5 billion at December 31, 2015, and $835 million in cash collateral deposits provided to counterparties.
What legal risks does the company disclose?
The company faces a consolidated class action involving AirTran and Delta over first-bag fees, a U.S. Department of Justice civil investigative demand about capacity, and multiple consumer class actions filed in federal courts alleging capacity-restriction collusion among major airlines. Canadian class actions have also been filed. The company says the outcomes cannot be predicted with certainty and intends to defend vigorously.
06—Continue