EXHIBIT 99.1
CONTACT: Investor Relations (214) 792-4415
SOUTHWEST AIRLINES REPORTS FIRST QUARTER EARNINGS
REVENUES EXCEED $2.0 BILLION
DALLAS, TEXAS -- April 20, 2006 -- Southwest Airlines (NYSE:LUV) today
reported first quarter 2006 net income of $61 million, or $.07 per diluted
share, compared to $59 million for first quarter 2005, or $.07 per diluted
share, as adjusted (see below).
The Company's first quarter 2006 and 2005 net income includes
unrealized gains/losses associated with Statement of Financial Accounting
Standard (SFAS) 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended. Excluding these unrealized SFAS 133 gains/losses (see
Supplemental Schedule II), net income for first quarter 2006 increased 49
percent to $64 million, or $.08 per diluted share, compared to $43 million, or
$.05 per diluted share for first quarter 2005, as adjusted. These results
exceeded First Call's mean estimate of $.07 per diluted share for first quarter
2006.
Prior year results have been adjusted to retroactively apply the
adoption of SFAS 123R, "Share-Based Payment", which requires all stock-based
compensation to be expensed and accounted for using a fair value based method.
The adoption of SFAS 123R resulted in stock-based compensation expense of $22
million (before income taxes and profitsharing), or $.01 per diluted share, and
$20 million (before income taxes), or $.02 per diluted share, in first quarters
2006 and 2005, respectively.
Results for 2005 also have been adjusted for the Company's election to
change its method of accounting for airframe maintenance of Boeing 737-300 and
- -500 aircraft from the deferral method to the direct expense method. As required
by SFAS 154, "Accounting Changes and Error Corrections", the Company has
adjusted prior periods to show financial statements as if the direct expense
method had been used in all prior years. This adjustment resulted in additional
pretax maintenance expense of $5 million for first quarter 2005, which did not
result in a material impact to diluted earnings per share.
The Company has provided a reconciliation (see Supplemental Schedule I)
of previously reported results for 2005 to results adjusted for the Company's
two accounting changes, which were both effective January 1, 2006.
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Gary C. Kelly, CEO, stated: "We are pleased with the continued and
consistent improvement in our earnings performance. Excluding SFAS 133 items,
our first quarter 2006 earnings of $64 million were up 49 percent over last
year's adjusted earnings of $43 million. Despite soaring energy costs, this
represented another quarter of strong earnings growth and a stellar performance
by the People of Southwest Airlines.
"Even though Easter was in April this year (versus March last year),
our revenues increased 21.4 percent, or 11.3 percent per available seat mile.
Demand for our low fares and high quality Customer Service was strong, resulting
in a record first quarter load factor of 69.2 percent, up 3.8 points from first
quarter 2005. Thus far, strong load factor and revenue trends have continued in
April, and Customer bookings for the remainder of second quarter 2006 are
strong.
"We continued to maintain Low Fare Leadership in America, increasing
yields simply to offset ever-higher jet fuel prices. Passenger revenue yields
per mile increased 5.4 percent in first quarter 2006 versus the year ago period.
"As expected, our unit costs increased 10.4 percent in first quarter
2006 due to higher jet fuel costs. Despite a $133 million benefit from our fuel
hedging position, our first quarter 2006 jet fuel costs per gallon increased
62.8 percent to $1.46 per gallon. For second quarter 2006, we are over 75
percent hedged with prices capped at $36 per barrel. Based on this hedging
position and current market conditions, we expect our second quarter 2006 fuel
cost per gallon to be in the $1.45 to $1.50 range. We are over 70 percent hedged
for the remainder of 2006 at $36 per barrel; over 60 percent in 2007 at $39 per
barrel; over 35 percent in 2008 at $38 per barrel; and about 30 percent in 2009
at $39 per barrel.
"Excluding fuel, our unit cost performance was in line with our
expectations at 6.43 cents and down slightly from the adjusted year ago
performance. Once again, the People of Southwest Airlines delivered more, making
an efficient airline even more efficient. Although we expect second quarter 2006
unit costs, excluding fuel, to increase from first quarter 2006's 6.43 cents, we
are pleased with our cost control efforts. And, thanks to our Employees, we are
optimistic we can achieve our full-year 2006 goal of flat year-over-year unit
costs, excluding fuel, at 6.48 cents.
"We recently announced our request for two gates at Washington Dulles
International Airport and intention to start service this fall. As our 63rd
airport, Dulles represents an exciting opportunity to complement our existing
service to the Washington D.C. metro area from Baltimore/Washington
International Thurgood Marshall Airport, our fourth largest operation. We are
very pleased with the strong Customer response to our
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new Denver service, which we commenced on January 3, 2006 and currently offer 20
daily nonstop departures to five cities. We also continue to grow our existing
route system, with upcoming service additions to Nashville, Las Vegas, New
Orleans, and Philadelphia.
"Chicago Midway also continues to provide expansion opportunities. In
fourth quarter 2005, ATA Airlines, Inc. entered into an agreement in which an
investor would provide financing to enable ATA to emerge from bankruptcy. As
part of this transaction, in December 2005, we acquired the leasehold rights to
four additional gates at Chicago Midway Airport in exchange for a $20 million
reduction in our debtor-in-possession (DIP) loan to ATA. Upon ATA's emergence
from bankruptcy on February 28, 2006, ATA repaid Southwest in cash the remaining
$20 million balance of the DIP loan. In addition, we were relieved of our
commitment to purchase $30 million of ATA convertible preferred stock. As part
of this agreement, we expanded our codeshare with ATA and will be enhancing our
Rapid Rewards program to provide new award destinations via ATA.
"We are confident about our future growth opportunities as evidenced by
our agreement with Boeing today to exercise 79 options for delivery of Boeing
737-700 aircraft in 2007 through 2012, bringing our current firm orders to 140.
We also have 116 options, with delivery positions in 2008 through 2012, and 54
purchase rights for delivery through December 31, 2014." (See Supplemental
Schedule IV.)
For the tenth year in a row, Fortune magazine recognized Southwest
Airlines in its annual survey of corporate reputations. Among all industries in
2006, Fortune listed Southwest Airlines as number three among America's Top Ten
Most Admired Corporations. The Company was also recently recognized for the
seventh consecutive year by Business Ethics magazine as one of the 100 Best
Corporate Citizens that excel at serving a variety of stakeholders.
Institutional Investor magazine named Southwest Airlines as America's Most
Shareholder-Friendly Airline in its survey of investors and analysts. Finally,
Southwest Airlines Cargo was recently named "Airline of the Year" by the Express
Delivery & Logistics Association, for the second year in a row, marking the
sixth consecutive year that the Company has been honored for its excellence in
air cargo delivery service.
Southwest will discuss its first quarter 2006 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.
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Operating Results (compared to adjusted 2005 results)
Total operating revenues for first quarter 2006 increased 21.4 percent
to $2.02 billion, compared to $1.66 billion for first quarter 2005. Operating
income increased 21.0 percent to $98 million from $81 million in first quarter
2005. Excluding the impact of SFAS 133 items, operating income increased 38.6
percent to $115 million from $83 million in first quarter 2005. Revenue
passenger miles (RPMs) increased 15.4 percent in first quarter 2006, as compared
to a 9.1 percent increase in available seat miles (ASMs), resulting in a 3.8
point increase in load factor to 69.2 percent. The passenger revenue yield per
RPM increased 5.4 percent to 12.68 cents from 12.03 cents in first quarter 2005.
Operating revenue yield per ASM (RASM) increased 11.3 percent to 9.15 cents from
8.22 cents in first quarter 2005.
Total first quarter 2006 operating expenses were $1.92 billion,
compared to $1.58 billion in first quarter 2005. Operating expenses per ASM
(CASM) for first quarter 2006 increased 11.3 percent to 8.70 cents, compared to
7.82 cents in first quarter 2005. Excluding SFAS 133 items, CASM for first
quarter 2006 increased 10.4 percent to 8.62 cents, compared to 7.81 cents for
first quarter 2005. CASM, excluding fuel, for first quarter 2006 was down
slightly from last year's 6.44 cents.
Net cash provided by operations for first quarter 2006 was $751
million, which included a $205 million increase in fuel hedge-related collateral
deposits. Capital expenditures were $262 million for first quarter 2006. In
January 2006, the Company's Board of Directors authorized purchases of up to
$300 million of the Company's common stock. As of yesterday, the Company had
repurchased 15.4 million shares of common stock for a total of $261 million. The
Company ended first quarter 2006 with $2.9 billion in cash and short-term
investments. In addition, the Company had a fully available unsecured revolving
credit line of $600 million.
First quarter 2006 "other expenses" of $2 million consisted of $4
million in net interest expense offset by $2 million in "other gains" resulting
primarily from SFAS 133 items. Excluding these SFAS 133 items, "other losses"
were $11 million for first quarter 2006, consisting primarily of costs
associated with the Company's fuel hedging program.
This news release contains forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995. All forward-looking statements
involve risks and uncertainties that could cause actual results to differ
materially from the plans, intentions, and expectations reflected in or
suggested by the forward-looking statements. Additional information concerning
the factors which could cause actual results to differ materially from the
forward-looking statements are contained in the Company's periodic filings with
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the Securities and Exchange Commission, including without limitation, the
Company's Annual Report on Form 10-K for the year ended 2005 and subsequent
filings. The Company undertakes no obligation to publicly update or revise any
forward-looking statements to reflect events or circumstances that may arise
after the date of this press release.
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SOUTHWEST AIRLINES CO.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in millions except per share amounts)
(unaudited)
THREE MONTHS ENDED
MARCH 31,
------------------------------------------------
Percent
2006 2005 Change
------------ ------------ ------------
OPERATING REVENUES:
Passenger $ 1,938 $ 1,592 21.7
Freight 35 34 2.9
Other 46 37 24.3
------------ ------------
Total operating revenues 2,019 1,663 21.4
OPERATING EXPENSES:
Salaries, wages, and benefits 716 660 8.5
Fuel and oil 501 279 79.6
Maintenance materials and repairs 104 106 (1.9)
Aircraft rentals 40 43 (7.0)
Landing fees and other rentals 120 113 6.2
Depreciation and amortization 124 112 10.7
Other operating expenses 316 269 17.5
------------ ------------
Total operating expenses 1,921 1,582 21.4
------------ ------------
OPERATING INCOME 98 81 21.0
OTHER EXPENSES (INCOME):
Interest expense 34 27 25.9
Capitalized interest (12) (9) 33.3
Interest income (18) (7) 157.1
Other (gains) losses, net (2) (19) n.a.
------------ ------------
Total other expenses (income) 2 (8) n.a.
------------ ------------
INCOME BEFORE INCOME TAXES 96 89 7.9
PROVISION FOR INCOME TAXES 35 30 16.7
------------ ------------
NET INCOME $ 61 $ 59 3.4
============ ============
NET INCOME PER SHARE:
Basic $ .08 $ .08
Diluted $ .07 $ .07
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 803 784
Diluted 836 802
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SOUTHWEST AIRLINES CO.
COMPARATIVE CONSOLIDATED OPERATING STATISTICS
(unaudited)
Three months ended
March 31,
------------------------------------------------
2006 2005 Change
------------ ------------ ------------
Revenue passengers carried 19,199,483 17,474,557 9.9%
Enplaned passengers 22,015,484 19,780,746 11.3%
Revenue passenger miles (RPMs) (000s) 15,280,497 13,238,009 15.4%
Available seat miles (ASMs) (000s) 22,079,458 20,231,599 9.1%
Load factor 69.2% 65.4% 3.8 pts.
Average length of passenger haul (miles) 796 758 5.0%
Average aircraft stage length (miles) 617 596 3.5%
Trips flown 262,449 249,119 5.4%
Average passenger fare $ 100.94 $ 91.15 10.7%
Passenger revenue yield per RPM (cents) 12.68 12.03 5.4%
Operating revenue yield per ASM (cents) 9.15 8.22 11.3%
Operating expenses per ASM (GAAP, in cents) 8.70 7.82 11.3%
Operating expenses per ASM (economic, in cents) 8.62 7.81 10.4%
Operating expenses per ASM, excluding fuel (cents) 6.43 6.44 (0.2)%
Fuel costs per gallon, excluding fuel tax (unhedged) $ 1.863 $ 1.409 32.2%
Fuel costs per gallon, excluding fuel tax (GAAP) $ 1.514 $ .903 67.7%
Fuel costs per gallon, excluding fuel tax (economic) $ 1.462 $ .898 62.8%
Fuel consumed, in gallons (millions) 329 307 7.2%
Number of Employees at period-end 31,396 30,974 1.4%
Size of fleet at period-end 451 424 6.4%
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SOUTHWEST AIRLINES CO.
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
(unaudited)
MARCH 31, December 31,
2006 2005
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,600 $ 2,280
Short-term investments 320 251
Accounts and other receivables 250 258
Inventories of parts and supplies, at cost 158 150
Fuel hedge contracts 705 641
Prepaid expenses and other current assets 59 40
------------ ------------
Total current assets 4,092 3,620
Property and equipment, at cost:
Flight equipment 10,789 10,592
Ground property and equipment 1,274 1,256
Deposits on flight equipment purchase contracts 691 660
------------ ------------
12,754 12,508
Less allowance for depreciation and amortization 3,403 3,296
------------ ------------
9,351 9,212
Other assets 1,280 1,171
------------ ------------
$ 14,723 $ 14,003
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 585 $ 524
Accrued liabilities 2,361 2,074
Air traffic liability 929 649
Current maturities of long-term debt 574 601
------------ ------------
Total current liabilities 4,449 3,848
Long-term debt less current maturities 1,368 1,394
Deferred income taxes 1,752 1,681
Deferred gains from sale and leaseback of aircraft 132 136
Other deferred liabilities 257 269
Stockholders' equity:
Common stock 808 802
Capital in excess of par value 1,024 963
Retained earnings 4,016 4,018
Accumulated other comprehensive income 1,009 892
Treasury stock, at cost (92) --
------------ ------------
Total stockholders' equity 6,765 6,675
------------ ------------
$ 14,723 $ 14,003
============ ============
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SOUTHWEST AIRLINES CO.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
(unaudited)
THREE MONTHS ENDED
MARCH 31,
------------------------------
2006 2005
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 61 $ 59
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 124 112
Deferred income taxes 35 30
Amortization of deferred gains on sale and
leaseback of aircraft (4) (4)
Share-based compensation expense 22 20
Excess tax benefits from share-based
compensation arrangements (28) (6)
Changes in certain assets and liabilities:
Accounts and other receivables (13) (85)
Other current assets 14 (12)
Accounts payable and accrued liabilities 317 593
Air traffic liability 280 195
Other (57) (38)
------------ ------------
Net cash provided by operating activities 751 864
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (262) (407)
Change in short-term investments, net (68) 257
Payment for assets of ATA Airlines, Inc. -- (6)
Proceeds from ATA Airlines, Inc. debtor in possession loan 20 --
Other investing activities, net 1 --
------------ ------------
Net cash used in investing activities (309) (156)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt -- 300
Proceeds from Employee stock plans 107 19
Payments of long-term debt and capital lease obligations (37) (108)
Payments of cash dividends (7) (7)
Repurchase of common stock (214) (55)
Excess tax benefits from share-based
compensation arrangements 28 6
Other, net 1 (3)
------------ ------------
Net cash provided by (used in) financing activities (122) 152
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 320 860
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,280 1,048
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,600 $ 1,908
============ ============
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SOUTHWEST AIRLINES CO.
SUPPLEMENTAL SCHEDULE I
RECONCILIATION OF PREVIOUSLY REPORTED AMOUNTS TO ADJUSTED AMOUNTS
AND TO NON-GAAP ITEMS (SEE NOTE)
(in millions, except per share amounts)
(unaudited)
2005
-----------------------------------------------------------
Three months ended Year ended
--------------------------------------------- ----------
March 31 June 30 Sept 30 Dec 31 Dec 31
-------- ------- -------- -------- ---------
NET INCOME, AS PREVIOUSLY REPORTED $ 76 $ 159 $ 227 $ 86 $ 548
Less: impact of SFAS 123R (Salaries, wages, and benefits) (1) (20) (18) (19) (23) (80)
Less: impact of change in maintenance accounting
(Maintenance materials and repairs) (5) (4) (6) -- (15)
Add: Income tax benefit from accounting changes (2) 8 7 8 7 31
-------- ------- -------- -------- ---------
NET INCOME - ADJUSTED (GAAP BASIS) $ 59 $ 144 $ 210 $ 70 $ 484
Add/(Deduct): non-GAAP adjustments (16) 2 (55) 11 (59)
-------- ------- -------- -------- ---------
NET INCOME - ADJUSTED (ECONOMIC BASIS) $ 43 $ 146 $ 155 $ 81 $ 425
======== ======= ======== ======== =========
WEIGHTED-AVERAGE SHARES OUTSTANDING, DILUTED, AS
PREVIOUSLY REPORTED 812 811 810 823 814
Less: impact of SFAS 123R (1) (10) (9) (8) (7) (8)
-------- ------- -------- -------- ---------
WEIGHTED-AVERAGE SHARES OUTSTANDING, DILUTED - ADJUSTED 802 802 802 816 806
======== ======= ======== ======== =========
NET INCOME PER SHARE, BASIC, AS PREVIOUSLY REPORTED $ .10 $ .20 $ .29 $ .11 $ .70
Less: impact of SFAS 123R, net of tax (1) (.02) (.02) (.01) (.02) (.08)
Less: impact of maintenance accounting change, net of tax -- -- (.01) -- (.01)
-------- ------- -------- -------- ---------
NET INCOME PER SHARE, BASIC - ADJUSTED (GAAP BASIS) $ .08 $ .18 $ .27 $ .09 $ .61
Add/(Deduct): non-GAAP adjustments (.02) .01 (.07) .01 (.07)
-------- ------- -------- -------- ---------
NET INCOME PER SHARE, BASIC - ADJUSTED (ECONOMIC BASIS) $ .06 $ .19 $ .20 $ .10 $ .54
======== ======= ======== ======== =========
NET INCOME PER SHARE, DILUTED, AS PREVIOUSLY REPORTED $ .09 $ .20 $ .28 $ .10 $ .67
Less: impact of SFAS 123R, net of tax (1) (.02) (.02) (.02) (.01) (.06)
Less: impact of maintenance accounting change, net of tax -- -- -- -- (.01)
-------- ------- -------- -------- ---------
NET INCOME PER SHARE, DILUTED - ADJUSTED (GAAP BASIS) $ .07 $ .18 $ .26 $ .09 $ .60
Add/(Deduct): non-GAAP adjustments (.02) -- (.07) .01 (.07)
-------- ------- -------- -------- ---------
NET INCOME PER SHARE, DILUTED - ADJUSTED (ECONOMIC BASIS) $ .05 $ .18 $ .19 $ .10 $ .53
======== ======= ======== ======== =========
(1) The adjustments to prior years from the adoption of SFAS 123R differ from
the amounts disclosed in previous years' financial statements due to the
treatment of the assumed impact of profitsharing expense. In prior periods, the
Company's disclosures have reflected share-based compensation expense net of
applicable profitsharing expense, due to the fact that if share-based
compensation expense had been recorded, Company profitsharing contributions
would have been reduced. However, although the Company has elected to adjust
prior period financial statements, the Company's Profitsharing Plan precludes
the Company from changing prior years' profitsharing contributions made or
accrued. The profitsharing amount related to 2005 was $12 million, or $3 million
per quarter. On a per share basis for 2005, the $12 million resulted in a
difference of $.02, both basic and diluted.
(2) Tax impact related to the SFAS 123R accounting change was $6 million in the
first three quarters of 2005 and $7 million in fourth quarter 2005. The
remaining tax impact related to the maintenance accounting change.
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SOUTHWEST AIRLINES CO.
SUPPLEMENTAL SCHEDULE II
RECONCILIATION OF REPORTED AMOUNTS TO NON-GAAP ITEMS (SEE NOTE)
(in millions, except per share amounts)
(unaudited)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
Percent
2006 2005 Change
------ ------ --------
FUEL AND OIL EXPENSE - UNHEDGED $ 617 $ 434
Less: fuel hedge gains included in fuel and oil expense (116) (155)
------ ------
GAAP FUEL AND OIL EXPENSE, AS REPORTED 501 279 79.6
Add/(Deduct): impact from settled contracts
included in Other (gains) losses, net 10 (4)
Add/(Deduct): fuel contract impact recognized in earnings
in prior periods for contracts settling in the current period (27) 2
------ ------
FUEL AND OIL EXPENSE - ECONOMIC BASIS $ 484 $ 277 74.7
======= ======
OPERATING INCOME, AS REPORTED $ 98 $ 81
Add/(Deduct): impact from settled contracts
included in Other (gains) losses, net (10) 4
Add/(Deduct): fuel contract impact recognized in earnings
in prior periods for contracts settling in the current period 27 (2)
------ ------
OPERATING INCOME - ECONOMIC FUEL BASIS $ 115 $ 83 38.6
======= ======
OTHER (GAINS) LOSSES, NET, AS REPORTED $ (2) $ (19)
Add/(Deduct): Mark-to-market impact from fuel contracts
settling in future periods 40 10
Add/(Deduct): Ineffectiveness from fuel hedges settling in future periods (17) 13
Add/(Deduct): impact from settled contracts
included in Other (gains) losses, net (10) 4
------ ------
OTHER (GAINS) LOSSES, NET - ECONOMIC FUEL BASIS $ 11 $ 8 n.a.
======= ======
NET INCOME, AS REPORTED $ 61 $ 59
Add/(Deduct): Mark-to-market impact from fuel contracts
settling in future periods (40) (10)
Add/(Deduct): Ineffectiveness from fuel hedges settling in future periods 17 (13)
Add/(Deduct): fuel contract impact recognized in earnings
in prior periods for contracts settling in the current period 27 (2)
Income tax impact of unrealized items (1) 9
------ ------
NET INCOME - ECONOMIC FUEL BASIS $ 64 $ 43 48.8
======= ======
NET INCOME PER SHARE, DILUTED, AS REPORTED $ .07 $ .07
Add/(Deduct): impact of fuel contracts, net of income taxes .01 (.02)
------ ------
NET INCOME PER SHARE, DILUTED - ECONOMIC FUEL BASIS $ .08 $ .05 60.0
======= ======
Note regarding use of non-GAAP financial measures
The non-GAAP items referred to in this news release are provided as supplemental
information, and should not be relied upon as alternative measures to Generally
Accepted Accounting Principles (GAAP). These non-GAAP measures include items
calculated by the Company on an "economic" basis, which excludes certain
unrealized items that are recorded as a result of SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended. The unrealized items
consist of gains or losses for derivative instruments that will settle in future
accounting periods or gains or losses that have been recognized in prior period
results, but which have settled in the current period. This includes
ineffectiveness, as defined, for future period instruments and the change in
market value for future period derivatives that no longer qualified for special
hedge accounting, as defined in SFAS 133.
The Company's management utilizes both the GAAP and the non-GAAP results in this
news release to evaluate the Company's performance and believes that comparative
analysis of results can be enhanced by excluding the impact of the unrealized
items. Management believes in certain cases, the Company's GAAP results are not
indicative of the Company's operating performance for the applicable period, nor
should they be considered in developing trend analysis for future periods. In
addition, since fuel expense is such a large part of the Company's operating
costs and is subject to extreme volatility, the Company believes it is useful to
provide investors with the Company's true economic cost of fuel for the periods
presented, based on cash settlements from hedging activities, but excluding the
unrealized impact of hedges that will settle in future periods or were
recognized in prior periods.
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SOUTHWEST AIRLINES CO.
SUPPLEMENTAL SCHEDULE III
RECONCILIATION OF REPORTED AMOUNTS TO NON-GAAP ITEMS (AS ADJUSTED -
SEE NOTE ON SCHEDULE II)
(in millions, except per share amounts)
(unaudited)
2005
----------------------------------------------------
Three months ended
-------------------------------------- Year ended
June 30 Sept 30 Dec 31 Dec 31
---------- ---------- ---------- ----------
FUEL AND OIL EXPENSE - UNHEDGED $ 526 $ 613 $ 660 $ 2,234
Less: fuel hedge impact included in fuel and oil expense (196) (276) (265) (892)
---------- ---------- ---------- ----------
GAAP FUEL AND OIL EXPENSE, AS REPORTED 330 337 395 1,342
Add/(Deduct): impact from settled contracts
included in Other (gains) losses, net 5 (22) 5 (24)
Add/(Deduct): fuel contract impact recognized in earnings
in prior periods for contracts settling in the current period (5) 3 2 10
---------- ---------- ---------- ----------
FUEL AND OIL EXPENSE - ECONOMIC BASIS $ 330 $ 318 $ 402 $ 1,328
========== ========== ========== ==========
OPERATING INCOME, AS REPORTED (ADJUSTED) $ 256 $ 248 $ 140 $ 725
Add/(Deduct): impact from settled contracts
included in Other (gains) losses, net (5) 22 (5) 24
Add/(Deduct): fuel contract impact recognized in earnings
in prior periods for contracts settling in the current period 5 (3) (2) (10)
---------- ---------- ---------- ----------
OPERATING INCOME - ECONOMIC FUEL BASIS (ADJUSTED) $ 256 $ 267 $ 133 $ 739
========== ========== ========== ==========
OTHER (GAINS) LOSSES, NET, AS REPORTED $ 11 $ (104) $ 22 $ (90)
Add/(Deduct): Mark-to-market impact from fuel contracts
settling in future periods 2 73 (8) 77
Add/(Deduct): Ineffectiveness from fuel hedges settling in future periods 1 14 (11) 9
Add/(Deduct): impact from settled contracts
included in Other (gains) losses, net (5) 22 (5) 24
---------- ---------- ---------- ----------
OTHER (GAINS) LOSSES, NET - ECONOMIC FUEL BASIS $ 9 $ 5 $ (2) $ 20
========== ========== ========== ==========
NET INCOME, AS REPORTED (ADJUSTED) $ 144 $ 210 $ 70 $ 484
Add/(Deduct): Mark-to-market impact from fuel contracts
settling in future periods (2) (73) 8 (77)
Add/(Deduct): Ineffectiveness from fuel hedges settling in future periods (1) (14) 11 (9)
Add/(Deduct): fuel contract impact recognized in earnings
in prior periods for contracts settling in the current period 5 (3) (2) (10)
Income tax impact of unrealized items -- 35 (6) 37
---------- ---------- ---------- ----------
NET INCOME - ECONOMIC FUEL BASIS (ADJUSTED) $ 146 $ 155 $ 81 $ 425
========== ========== ========== ==========
NET INCOME PER SHARE, DILUTED, AS REPORTED (ADJUSTED) $ .18 $ .26 $ .09 $ .60
Add/(Deduct): impact of fuel contracts, net of income taxes -- (.07) .01 (.07)
---------- ---------- ---------- ----------
NET INCOME PER SHARE, DILUTED - ECONOMIC FUEL BASIS (ADJUSTED) $ .18 $ .19 $ .10 $ .53
---------- ---------- ---------- ----------
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SOUTHWEST AIRLINES CO
SUPPLEMENTAL SCHEDULE IV
BOEING 737-700 DELIVERY SCHEDULE
PURCHASE
FIRM OPTIONS RIGHTS
------------ ------------ ------------
2006 33*
2007 36
2008 30 6
2009 18 18
2010 10 32
2011 10 30
2012 10 30
2008-2014 -- -- 54
------------ ------------ ------------
147 116 54
============ ============ ============
*Includes six aircraft delivered in first quarter and one aircraft delivered
thus far in April
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