-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EsLocxuNm4itvVFVc9vlf2Cy9FLVHFpmFabpRTgfW9cs4JCVIb790R7IcxvnUqw7 PteBgvxVgksQkf2OlYz4Bw== 0000092380-04-000002.txt : 20040122 0000092380-04-000002.hdr.sgml : 20040122 20040122085117 ACCESSION NUMBER: 0000092380-04-000002 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030930 ITEM INFORMATION: FILED AS OF DATE: 20040122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHWEST AIRLINES CO CENTRAL INDEX KEY: 0000092380 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 741563240 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07259 FILM NUMBER: 04536580 BUSINESS ADDRESS: STREET 1: 2702 LOVE FIELD DR STREET 2: P O BOX 36611 CITY: DALLAS STATE: TX ZIP: 75235 BUSINESS PHONE: 2147924000 MAIL ADDRESS: STREET 1: PO BOX 36611 CITY: DALLAS STATE: TX ZIP: 75235-1611 FORMER COMPANY: FORMER CONFORMED NAME: AIR SOUTHWEST CO DATE OF NAME CHANGE: 19760108 8-K 1 earnings8k4q03.txt 8K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): January 22, 2004 SOUTHWEST AIRLINES CO. (Exact name of registrant as specified in its charter) TEXAS (State or other jurisdiction of incorporation) 1-7259 74-1563240 (Commission File Number) (IRS Employer Identification No.) P. O. Box 36611, Dallas, Texas 75235-1611 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (214) 792-4000 N/A (Former name or former address, if changed since last report) Item 12. Results of Operations and Financial Condition. On January 22, 2004, the Registrant issued a press release announcing its financial results for the year ended December 31, 2003. The press release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference. The information furnished in this Item 12 shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Exchange Act of 1933, as amended, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such filing. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SOUTHWEST AIRLINES CO. (Registrant) By: /s/ Gary C. Kelly Gary C. Kelly Executive Vice President - Chief Financial Officer Date: January 22, 2004
INDEX TO EXHIBITS Exhibit No. Exhibit 99.1 Registrant's [2003 Year End] Earnings Release.
EX-1 3 ex99-1.txt EXHIBIT 99.1 2003 4TH QUARTER & ANNUAL EARNINGS RELEASE CONTACT: Investor Relations (214) 792-4415 SOUTHWEST AIRLINES REPORTS FOURTH QUARTER EARNINGS AND 31st CONSECUTIVE YEAR OF PROFITABILITY DALLAS, TEXAS - January 22, 2004 - Southwest Airlines net income for fourth quarter 2003 was $66 million, compared to $42 million for fourth quarter 2002. Net income per diluted share was $.08 for fourth quarter 2003, compared to $.05 in fourth quarter 2002. The Company also reported its 31st consecutive year of profitability, with annual net income of $442 million or $.54 per diluted share, compared to 2002 net income of $241 million or $.30 per diluted share. Excluding special items in each year, 2003 net income was $298 million or $.36 per diluted share, compared to $198 million or $.24 per diluted share for 2002. Fourth Quarter 2003 Operating Results Total operating revenues for fourth quarter 2003 increased 8.3 percent to $1.52 billion, compared to $1.4 billion for fourth quarter 2002. Operating income increased 26.1 percent to $111 million from $88 million in fourth quarter 2002. Revenue passenger miles (RPMs) increased 5.3 percent in fourth quarter 2003, as compared to a 4.0 percent increase in available seat miles (ASMs), resulting in a 0.8 point increase in load factor to 63.8 percent. The passenger revenue yield per RPM increased 2.6 percent to 12.57 cents from 12.25 cents in fourth quarter 2002. Operating revenue yield per ASM (RASM) increased 4.0 percent to 8.29 cents from 7.97 cents in fourth quarter 2002. Total fourth quarter 2003 operating expenses were $1.4 billion, an increase of 7.1 percent compared to $1.3 billion in fourth quarter 2002. Operating expenses per ASM (CASM) for fourth quarter 2003 increased 2.9 percent to 7.69 cents, compared to 7.47 cents in fourth quarter 2002. Unit cost increases resulted primarily from higher labor, maintenance, airport, and jet fuel costs, net of hedging and fuel efficiency gains. The Company's hedging program resulted in the recognition of $41 million and $29 million in gains during fourth quarter 2003 and 2002, respectively, and annual gains of $171 million and $45 million for 2003 and 2002, respectively. Excluding fuel, CASM for fourth quarter 2003 increased 2.8 percent to 6.51 cents, compared to 6.33 cents for fourth quarter 2002. /more "Other expenses" were $10 million and $24 million for fourth quarter 2003 and 2002, respectively. Interest expense declined 25.9 percent due to lower effective interest rates and the October 2003 redemption of $100 million of senior unsecured 8 3/4 percent Notes due October 15, 2003. Capitalized interest increased to $10 million from $4 million in fourth quarter 2002 as a result of higher Boeing aircraft progress payments. The fourth quarter 2003 income tax rate of 34.9 percent reflected lower effective state income tax rates. James F. Parker, Vice Chairman and Chief Executive Officer, stated: "Although 2003 represented another year of adversity for our industry, Southwest produced its 31st consecutive year of profitability, which will enable us to reward our dedicated Employees with a $126 million contribution to our Company profitsharing plan. "As the economy recovers and demand for business travel increases, our unit revenue trends gradually continue to improve. Our fourth quarter 2003 RASM increased 4.0 percent from last year's improved performance of 7.97 cents. Although the first half of January 2004 showed modest unit revenue growth, bookings suggest that January's load factor could fall below last year's performance of 58.0 percent. "As expected, we are experiencing some cost pressures. Our low cost competitive advantage will endure, however. Our overall unit costs for fourth quarter 2004 were up 2.9 percent versus last year's fourth quarter due to a variety of items. While this increase is less than anticipated, we are not satisfied with these inflationary trends and are aggressively implementing various measures to improve our productivity. Effective December 15, 2003, Southwest no longer pays a travel agency commission on flights booked by traditional travel agencies, which will reduce operating costs by approximately $40 million annually. We also recently announced the consolidation of our reservation operations from nine into six Reservation Centers. Although we will incur restructuring charges estimated in the $20 million range in first quarter 2004, we expect ongoing annual operating cost savings to exceed that amount. "We continue to be impacted by high energy costs. Although we were well protected and recognized approximately $41 million in effective hedging gains in fourth quarter 2003 fuel and oil expense, our average jet fuel costs per gallon increased 4.7 percent versus last year's fourth quarter. We are also substantially hedged in first quarter 2004 at 82 percent with caps under $24 per barrel. Even with that hedge, based on /more current market conditions, our estimated first quarter 2004 average jet fuel costs per gallon is in the 75 to 80 cents range. For the remainder of 2004, we are over 80 percent hedged in each quarter with caps approximating $24 per barrel. For 2005, we are approximately 70 percent hedged with caps in the $24 per barrel range. "Excluding estimated reservation operations restructuring costs, we expect overall unit costs to increase again in first quarter 2004 as compared to last year's first quarter. We expect cost pressures will begin to ease in second half 2004. "With our low cost advantage and outstanding service, we are excited about our growth opportunities, particularly our entry into the Philadelphia market in May 2004. As a result, we recently exercised options to acquire five more 737-700s in 2005, which brings our current 2005 firm aircraft orders and options to 28 and 6, respectively. Our total 2004 expected Boeing 737-700 additions remain at 47. After subtracting planned 737-200 retirements, we plan to grow annual capacity in the 7 to 8 percent range in 2004 and approximately 11 percent in 2005. "Our priorities, with respect to our financial position, are to maintain high liquidity levels, a strong balance sheet, and A credit ratings, while still growing the airline and generating value for our Employee and non-Employee Shareholders. We are anticipating substantial proceeds from future exercises of Employee stock options. In consideration of our strong cash position, strong balance sheet, and desire to maximize value for our Employee and non-Employee Shareholders, our Board has authorized the repurchase of up to $300 million of Southwest Airlines common stock from time to time in the open market, from the proceeds of future Employee stock option exercises. "Southwest was included in Global Finance magazine's January 2004 'Expert's List of the World's Most Socially Responsible Companies' and recently recognized as the 'Best Domestic Airline of the Year' by Travel Weekly magazine. We commend our caring and altruistic Employees for these honors. "For information regarding the Company's Corporate Governance Program, please see the new Corporate Governance section, under Investor Relations at southwest.com." Net cash provided by operations for fourth quarter 2003 was $291 million. We ended the year with $1.87 billion in cash plus our available unsecured revolving credit line of $575 million. /more Operating revenues for the year ended December 31, 2003 increased 7.5 percent to $5.9 billion while operating expenses increased 6.8 percent to $5.5 billion, resulting in operating income of $483 million. Excluding special items, operating revenues for the year ended December 31, 2003 increased 8.2 percent to $5.9 billion while operating expenses increased 6.3 percent to $5.4 billion, resulting in operating income of $523 million. Net income for 2003 increased 83.4 percent to $442 million, compared to $241 million in 2002. Net income per diluted share for the year was $.54 versus $.30 in 2002. Excluding special items, 2003 net income was $298 million, or $.36 per diluted share, versus 2002 net income of $198 million, or $.24 per diluted share. Special Items The Company believes it is helpful to management and investors to evaluate ongoing operational performance and trends by excluding special items, as described below, for comparative purposes. A reconciliation of key financial measures, excluding these special items, is included in this release, pursuant to Regulation G issued by the Securities and Exchange Commission. There were no special items in fourth quarter 2003 or fourth quarter 2002. Pursuant to the April 2003 Emergency Wartime Supplemental Appropriations Act of 2002, the Company received a $271 million cash payment from the U.S. government, which is included as "Other gains" in its Condensed Consolidated Statement of Income for 2003. This special item, which was recorded in second quarter 2003, resulted in an increase of approximately $40 million to Employee profitsharing expense. Pursuant to the Air Transportation Safety and System Stabilization Act, which was enacted following the September 2001 terrorist attacks, the Company recognized $48 million from the U.S. Government, which is included in "Other gains" in its Condensed Consolidated Statements of Income for 2002. This special item was recorded in third quarter 2002. The Company's 2002 results also included an additional $36 million in passenger revenue recognized during second quarter 2002 from a reduction in estimated future refunds and exchanges included in "Air traffic liability." Southwest Airlines will conduct a conference call to discuss its quarterly earnings today at 11:30 a.m. Eastern Time. A live broadcast of the conference call will be available at www.southwest.com. /more 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 the Securities and Exchange Commission, including without limitation, the Company's Annual Report on Form 10-K for the year ended 2002. 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. /more
SOUTHWEST AIRLINES CO. CONDENSED CONSOLIDATED STATEMENT OF INCOME (in millions except per share amounts) (unaudited) Three months ended Year Ended December 31, December 31, Percent Percent 2003 2002 Change 2003 2002 Change OPERATING REVENUES: Passenger $1,467 $1,357 8.1 $5,741 $5,341 7.5 Freight 24 22 9.1 94 85 10.6 Other 26 22 18.2 102 96 6.3 Total operating revenues 1,517 1,401 8.3 5,937 5,522 7.5 OPERATING EXPENSES: Salaries, wages, and benefits 566 519 9.1 2,224 1,993 11.6 Fuel and oil 214 200 7.0 830 762 8.9 Maintenance materials and repairs 109 94 16.0 430 390 10.3 Agency commissions 12 13 (7.7) 48 55 (12.7) Aircraft rentals 46 47 (2.1) 183 187 (2.1) Landing fees and other rentals 96 87 10.3 372 345 7.8 Depreciation and amortization 99 93 6.5 384 356 7.9 Other operating expenses 264 260 1.5 983 1,017 (3.3) Total operating expenses 1,406 1,313 7.1 5,454 5,105 6.8 OPERATING INCOME 111 88 26.1 483 417 15.8 OTHER EXPENSES (INCOME): Interest expense 20 27 (25.9) 91 106 (14.2) Capitalized interest (10) (4) 150.0 (33) (17) 94.1 Interest income (6) (8) (25.0) (24) (37) (35.1) Other (gains) losses, net 6 9 n.a. (259) (28) n.a. Total other expenses (income) 10 24 n.a. (225) 24 n.a. INCOME BEFORE INCOME TAXES 101 64 57.8 708 393 80.2 PROVISION FOR INCOME TAXES 35 22 59.1 266 152 75.0 NET INCOME $66 $42 57.1 $442 $241 83.4 NET INCOME PER SHARE: Basic $ .08 $ .05 $ .56 $ .31 Diluted $ .08 $ .05 $ .54 $ .30 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 788 775 783 773 Diluted 833 813 822 809
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SOUTHWEST AIRLINES CO. RECONCILIATION OF REPORTED AMOUNTS TO NON-GAAP ITEMS (SEE NOTE) (unaudited) Year ended December 31, Percent (in millions, except per share amounts) 2003 2002 Change Operating revenue, as reported $5,937 $5,522 Passenger revenue adjustment - (36) Operating revenue, excluding special item $5,937 $5,486 8.2 Operating expenses, as reported $5,454 $5,105 Profitsharing impact of Stabilization Act grant - (7) Profitsharing impact of Wartime Act grant (40) - Profitsharing impact of passenger revenue adjustment - (6) Operating expenses, excluding special items $5,414 $5,092 6.3 Operating income, as reported $483 $417 Profitsharing impact of Stabilization Act grant - 7 Profitsharing impact of Wartime Act grant 40 - Passenger revenue adjustment, net of profitsharing - (30) Operating income, excluding special items $523 $394 32.7 Net income, as reported $442 $241 Stabilization Act grant, net of income taxes and profitsharing - (25) Wartime Act grant, net of income taxes and profitsharing (144) - Passenger revenue adjustment, net of income taxes and profitsharing - (18) Net income, excluding special items $298 $198 50.5 Net income per share, diluted, as reported $.54 $.30 Stabilization Act grant, net of income taxes and profitsharing - (.03) Wartime Act grant, net of income taxes and profitsharing (.18) - Passenger revenue adjustment, net of income taxes and profitsharing - (.03) Net income per share, diluted, excluding special items $.36 $.24 50.0
NOTE: The above schedule reconciles the financial measures, excluding special items, included in this press release to the most comparable GAAP financial measures. The special items were a $271 million Wartime Act grant received in second quarter 2003 pursuant to the April 2003 Emergency Wartime Supplemental Appropriations Act, a $48 million Stabilization Act grant received in the third quarter 2002, and $36 million in additional passenger revenue from a reduction in estimated refunds and exchanges included in "Air traffic liability" in second quarter 2002. The $271 million Wartime Act grant was received as a result of the war with Iraq and is recorded in "Other gains." The $48 million Stabilization Act grant was received as a result of the unfavorable impact of the September 11, 2001 terrorist attacks on the airline industry and is recorded in "Other gains." The $36 million passenger revenue adjustment was primarily due to a revision in estimated forfeited tickets, resulting from a change in Customer travel patterns and higher than usual mix of discount, nonrefundable ticket sales following the September 11, 2001 terrorist attacks. In management's view, comparative analysis of results can be enhanced by excluding the impact of these special items. None of these items are indicative of the Company's ongoing operating performance for the applicable period, nor should they be considered in developing trend analysis for future periods, including 2004. /more
SOUTHWEST AIRLINES CO. COMPARATIVE CONSOLIDATED OPERATING STATISTICS (unaudited) Three months ended December 31, 2003 2002 Change Revenue passengers carried 16,289,875 15,554,337 4.7 % Revenue passenger miles (RPMs) (000s) 11,664,359 11,082,514 5.3 % Available seat miles (ASMs) (000s) 18,293,171 17,582,610 4.0 % Load factor 63.8% 63.0% 0.8 pts. Average length of passenger haul 716 713 0.4 % Trips flown 238,365 238,163 0.1 % Average passenger fare $90.03 $87.25 3.2 % Average passenger fare, excluding special items n.a. n.a. n.a. Passenger revenue yield per RPM (cents) 12.57 12.25 2.6 % Passenger revenue yield per RPM, excluding special items n.a. n.a. n.a. Operating revenue yield per ASM (cents) 8.29 7.97 4.0 % Operating revenue yield per ASM, excluding special items n.a. n.a. n.a. Operating expenses per ASM (cents) 7.69 7.47 2.9 % Operating expenses per ASM, excluding special items n.a. n.a. n.a. Operating expenses per ASM, excluding fuel (cents) 6.51 6.33 2.8 % Operating expenses per ASM, excluding fuel and special items n.a. n.a. n.a. Fuel costs per gallon, excluding fuel tax (cents) 74.2 70.9 4.7 % Fuel consumed, in gallons (millions) 288 282 2.1 % Number of Employees at period-end 32,847 33,705 (2.5)% Size of fleet at period-end 388 375 3.5 %
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Year Ended December 31, 2003 2002 Change Revenue passengers carried 65,673,945 63,045,988 4.2 % Revenue passenger miles (RPMs) (000s) 47,943,066 45,391,903 5.6 % Available seat miles (ASMs) (000s) 71,790,425 68,886,546 4.2 % Load factor 66.8% 65.9% 0.9 pts. Average length of passenger haul 730 720 1.4 % Trips flown 949,882 947,331 0.3 % Average passenger fare $87.42 $84.72 3.2 % Average passenger fare, excluding special items $87.42 $84.15(c) 3.9 % Passenger revenue yield per RPM (cents) 11.97 11.77 1.7 % Passenger revenue yield per RPM, excluding special items (cents) 11.97 11.69(c) 2.4 % Operating revenue yield per ASM (cents) 8.27 8.02 3.1 % Operating revenue yield per ASM, excluding special items (cents) 8.27 7.96(c) 3.9 % Operating expenses per ASM (cents) 7.60 7.41 2.6 % Operating expenses per ASM, excluding special items (cents) 7.54(a) 7.39(b)(c)2.0 % Operating expenses per ASM, excluding fuel (cents) 6.44 6.30 2.2 % Operating expenses per ASM, excluding fuel and special items (cents) 6.38(a) 6.28(b)(c)1.6 % Fuel costs per gallon, excluding fuel tax (cents) 72.3 68.0 6.3 % Fuel consumed, in gallons (millions) 1,143 1,117 2.3 % Number of Employees at period-end 32,847 33,705 (2.5)% Size of fleet at period-end 388 375 3.5 %
(a) Amounts exclude profitsharing impact of $271 million Wartime Act grant in second quarter 2003. (b) Amounts exclude profitsharing impact of $48 million Stabilization Act grant in third quarter 2002. (c) Amounts exclude $36 million in additional passenger revenue in second quarter 2002 from a reduction in air traffic liability, and related impact to operating expenses. /more
SOUTHWEST AIRLINES CO. CONDENSED CONSOLIDATED BALANCE SHEET (unaudited) December 31, (in millions) 2003 2002 ASSETS Current assets: Cash and cash equivalents $1,865 $1,815 Accounts and other receivables 132 175 Inventories of parts and supplies, at cost 93 86 Fuel hedge contracts 164 113 Prepaid expenses and other current assets 59 43 Total current assets 2,313 2,232 Property and equipment, at cost: Flight equipment 8,646 8,025 Ground property and equipment 1,117 1,042 Deposits on flight equipment purchase contracts 787 389 10,550 9,456 Less allowance for depreciation and amortization 3,107 2,810 7,443 6,646 Other assets 122 76 $9,878 $8,954 LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $405 $362 Accrued liabilities 650 529 Air traffic liability 462 412 Current maturities of long-term debt 206 131 Total current liabilities 1,723 1,434 Long-term debt less current maturities 1,332 1,553 Deferred income taxes 1,420 1,227 Deferred gains from sale and leaseback of aircraft 168 184 Other deferred liabilities 183 134 Stockholders' equity: Common stock 789 777 Capital in excess of par value 258 136 Retained earnings 3,883 3,455 Accumulated other comprehensive income 122 54 Total stockholders' equity 5,052 4,422 $9,878 $8,954
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SOUTHWEST AIRLINES CO. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) Three months ended Year ended December 31, December 31, (in millions) 2003 2002 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $66 $42 $442 $241 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 99 93 384 356 Deferred income taxes 7 44 183 170 Amortization of deferred gains on sale and leaseback of aircraft (4) (4) (16) (15) Amortization of scheduled airframe inspections & repairs 12 12 49 46 Income tax benefit from Employee stock option exercises 41 38 41 38 Changes in certain assets and liabilities: Accounts and other receivables 11 (49) 43 (103) Other current assets (4) 5 (19) (10) Accounts payable and accrued liabilities 149 (10) 129 (149) Air traffic liability (106) (85) 50 (38) Income taxes payable (5) - - - Other 25 28 50 (16) Net cash provided by operating activities 291 114 1,336 520 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment, net (383) (231)(1,238) (603) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt - - - 385 Proceeds from trust arrangement - - - 119 Proceeds from Employee stock plans 31 16 93 57 Payments of long-term debt and capital lease obligations (109) (9) (130) (65) Payment of trust arrangement - (20) - (385) Payment of short term debt - - - (475) Payments of cash dividends - - (14) (14) Other, net 1 1 3 (4) Net cash provided by (used in) financing activities (77) (12) (48) (382) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (169) (129) 50 (465) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,034 1,944 1,815 2,280 CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,865 $1,815 $1,865 $1,815
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Southwest Airlines Co. Boeing 737-700 Delivery Schedule As of 12/31/2003 Prior Schedule Current Schedule Firm Options* Firm Options* 2004 47 - 47** - 2005 23 11 28 6 2006 22 12 22 12 2007 25 29 25 29 2008 6 45 6 45 2009-2012 - 177 - 177 Total 123 274 128 269 *Includes purchase rights **Includes one leased aircraft
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