Southwest Airlines 2012 Annual Report Download - page 1

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SOUTHWEST AIRLINES CO.
2012 ANNUAL REPORT TO SHAREHOLDERS
To our Shareholders:
The year 2012 represented our 40th consecutive year of profitability—a
remarkable feat unmatched in the U.S. aviation industry. Our profits were boosted by
an outstanding record revenue performance. Our critical strategic initiatives
contributed significantly to the 52 percent surge in cash flow from operations in 2012.
In 2012, we added Southwest Airlines service to two new states, Georgia and Iowa,
and six new airports: Hartsfield-Jackson Atlanta International, Akron-Canton
Regional, Dayton International, Des Moines International, Key West International, and
Ronald Reagan Washington National. Our 2012 operational performance was superb,
with Southwest achieving 83.1 percent ontime for the year and recording the best
baggage handling in our history.
Our 2012 net income was $421 million, or $.56 per diluted share, including
special items (primarily noncash, mark-to-market, and other items required for a
portion of the Company’s fuel hedge portfolio, as well as costs associated with the
acquisition and integration of AirTran). Excluding special items, our 2012 profits
increased 26 percent year-over-year to $417 million, or $.56 per diluted share.
We remain focused on preserving our financial strength and enhancing
Shareholder value. In May 2012, our Board of Directors authorized an increase in our
previous share repurchase authorization to $1 billion, and a 122 percent increase in
our quarterly dividend. These actions, coupled with the generation of a healthy
$716 million in free cash flow1during 2012, enabled us to return $422 million to
Shareholders through stock repurchases ($400 million) and dividends ($22 million). In
2012, we repurchased approximately 46 million shares of common stock at an
average price per share of $8.78, which compares favorably to yesterday’s closing
price of $12.64. In addition, yesterday’s stock price represents an increase of over
50 percent from a year ago. We repaid $578 million in debt and capital lease
obligations during 2012. As a result, our debt-to-total capital ratio (including aircraft
leases) declined to approximately 41 percent at yearend. As of December 31, 2012,
our cash and short-term investments were a strong $3 billion, with a fully-available
$800 million bank line-of-credit. We remain the only investment grade-rated U.S.
airline.
1Free cash flow is calculated as operating cash flows of $2.064 billion less capital expenditures of $1.348 billion.
Additional information regarding non-GAAP financial measures is included in the accompanying Form 10-K for the
fiscal year ended December 31, 2012.

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