Southwest Airlines 2013 Annual Report Download - page 106

Download and view the complete annual report

Please find page 106 of the 2013 Southwest Airlines annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 140

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140

by the Company for this transaction were included as a component of Acquisition and integration costs in the
Company’s Consolidated Statement of Income and were included as a component of Other, net in Cash flows
from operating activities in the Company’s Consolidated Statement of Cash Flows, and the corresponding
liability for this transaction is included as a component of Current liabilities and Other noncurrent liabilities in
the Company’s Consolidated Balance Sheet. See Note 2 for further information on the Company’s Acquisition
and integration costs. Following the initial recording of the $137 million liability in 2012, the Company paid $9
million in costs associated with the transaction, resulting in a liability balance of $128 million as of
December 31, 2012. During 2013, the Company paid $12 million in costs, and recorded $6 million in accretion
of the liability, resulting in a liability balance of $122 million as of December 31, 2013. The Company may also
incur other costs associated with this transaction, such as potential changes associated with the extension of the
time between when the Company removes an aircraft from revenue service and the time it is delivered to Delta.
The Company has anticipated a reasonable period of transition time for the conversion process, but for some
aircraft this period of time will be longer than anticipated due to the Company’s plans to halt all B717 service on
or around the end of 2014. The Company will follow “cease-use” date accounting guidance for these instances
and thus may incur additional charges at the time the aircraft are removed from service. Any additional charges
are not expected to be material.
9. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income per share (in millions except
per share amounts):
Year ended December 31,
2013 2012 2011
NUMERATOR:
Net income ......................................... $ 754 $ 421 $ 178
Incremental income effect of interest on 5.25% convertible
notes ............................................ 3 3 —
Net income after assumed conversion .................... $ 757 $ 424 $ 178
DENOMINATOR:
Weighted-average shares outstanding, basic ............... 710 750 774
Dilutive effect of Employee stock options and restricted stock
units ............................................ 2 1 1
Dilutive effect of 5.25% convertible notes ................ 6 6 —
Adjusted weighted-average shares outstanding, diluted ...... 718 757 775
NET INCOME PER SHARE:
Basic .............................................. $ 1.06 $ 0.56 $ 0.23
Diluted ............................................ $ 1.05 $ 0.56 $ 0.23
Potentially dilutive amounts excluded from calculations:
Stock options and restricted stock units ................... 9 35 48
5.25% convertible notes ............................... — — 6
10. FINANCIAL DERIVATIVE INSTRUMENTS
Fuel contracts
Airline operators are inherently dependent upon energy to operate and, therefore, are impacted by changes
in jet fuel prices. Furthermore, jet fuel and oil typically represent one of the largest operating expenses for
airlines. The Company endeavors to acquire jet fuel at the lowest possible cost and to reduce volatility in
operating expenses through its fuel hedging program. Although the Company may periodically enter into jet fuel
derivatives for short-term timeframes, because jet fuel is not widely traded on an organized futures exchange,
98