Southwest Airlines 2014 Annual Report Download - page 58

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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.
Further information on (i) the Company’s fuel hedging program, (ii) the requirements of
accounting for derivative instruments, and (iii) the causes of hedge ineffectiveness and/or mark-to-
market gains or losses from derivative instruments is included in Note 10 to the Consolidated Financial
Statements.
In addition to its “economic” financial measures, as defined above, the Company has also
provided other non-GAAP financial measures, including results that it refers to as “excluding special
items,” as a result of items that the Company believes are not indicative of its ongoing operations.
These include expenses associated with the Company’s acquisition and integration of AirTran and
collective bargaining contract ratification bonuses. The Company believes that evaluation of its
financial performance can be enhanced by a presentation of results that exclude the impact of these
items in order to evaluate the results on a comparative basis with results in prior periods that do not
include such items and as a basis for evaluating operating results in future periods. As a result of the
Company’s acquisition of AirTran, which closed on May 2, 2011, the Company has incurred
substantial charges associated with integration of the two companies. Given that the AirTran
integration process had been effectively completed as of December 31, 2014, the Company does not
anticipate significant future integration expenditure requirements. While the Company cannot predict
the exact timing or amounts of such charges, it does expect to treat these charges as special items in its
future presentation of non-GAAP results.
The Company has also provided return on invested capital, which is a non-GAAP financial
measure. The Company believes return on invested capital is a meaningful measure because it
quantifies how well the Company generates operating income relative to the capital it has invested in
its business. Although return on invested capital is commonly used as a measure of capital efficiency,
definitions of return on invested capital may differ; therefore, the Company is providing an explanation
of its calculation for return on invested capital (before taxes and excluding special items) in the
accompanying reconciliation.
YEAR IN REVIEW
For the 42nd consecutive year, the Company was profitable, recording GAAP and non-GAAP
results for 2014 and 2013 as follows:
50