Southwest Airlines 2013 Annual Report Download - page 53

Download and view the complete annual report

Please find page 53 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

Return on Invested Capital (ROIC) (in millions) (unaudited)
Year Ended
December 31, 2013
Year Ended
December 31, 2012
Year Ended
December 31, 2011
Operating Income, as reported .......... $ 1,278 $ 623 $ 693
Add: Net impact from fuel contracts ....... 84 32 —
Add: Acquisition and integration costs ..... 86 183 132
Add: Asset impairment, net (1) ........... — — 14
Operating Income, non-GAAP .......... $ 1,448 $ 838 $ 839
Net adjustment for aircraft leases (2) ....... 143 117 129
Adjustment for fuel hedge accounting ...... (60) (36) (107)
Adjusted Operating Income,
non-GAAP ......................... $ 1,531 $ 919 $ 861
Average invested capital (3) ............ $ 11,664 $ 12,575 $ 12,439
Equity adjustment for hedge accounting .... 50 145 184
Adjusted average invested capital ....... $ 11,714 $ 12,720 $ 12,623
ROIC, pre-tax ........................ 13.1% 7.2% 6.8%
(1) Net of profitsharing impact
(2) Net adjustment related to presumption that all aircraft in fleet are owned (i.e., the impact of eliminating
aircraft rent expense and replacing with estimated depreciation expense for those same aircraft).
(3) Average invested capital represents a five quarter average of debt, net present value of aircraft leases, and
equity.
Note Regarding Use of Non-GAAP Financial Measures
The Company’s Consolidated Financial Statements are prepared in accordance with accounting principles
generally accepted in the United States (GAAP). These GAAP financial statements include (i) unrealized non-
cash adjustments and reclassifications, which can be significant, as a result of accounting requirements and
elections made under accounting pronouncements relating to derivative instruments and hedging and (ii) other
charges the Company believes are not indicative of its ongoing operational performance.
As a result, the Company also provides financial information in this filing that was not prepared in accordance
with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP.
The Company provides supplemental non-GAAP financial information, including results that it refers to as
“economic,” which the Company’s management utilizes to evaluate its ongoing financial performance and the
Company believes provides greater transparency to investors as supplemental information to its GAAP results. The
Company’s economic financial results differ from GAAP results in that they only include the actual cash
settlements from fuel hedge contracts — all reflected within Fuel and oil expense in the period of settlement. Thus,
Fuel and oil expense on an economic basis reflects the Company’s actual net cash outlays for fuel during the
applicable period, inclusive of settled fuel derivative contracts. Any net premium costs paid related to option
contracts are reflected as a component of Other (gains) losses, net, for both GAAP and non-GAAP (including
economic) purposes in the period of contract settlement. The Company believes these economic results provide a
better measure of the impact of the Company’s fuel hedges on its operating performance and liquidity since they
exclude the unrealized, non-cash adjustments and reclassifications that are recorded in GAAP results in accordance
with accounting guidance relating to derivative instruments, and they reflect all cash settlements related to fuel
derivative contracts within Fuel and oil expense. This enables the Company’s management, as well as investors, to
consistently assess the Company’s operating performance on a year-over-year or quarter-over-quarter basis after
considering all efforts in place to manage fuel expense. However, because these measures are not determined in
accordance with GAAP, such measures are susceptible to varying calculations and not all companies calculate the
measures in the same manner. As a result, the aforementioned measures, as presented, may not be directly
comparable to similarly titled measures presented by other companies.
45