þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
TEXAS
|
74-1563240
|
(State
or other jurisdiction of
|
(IRS
Employer
|
incorporation
or organization)
|
Identification
No.)
|
P.O.
Box 36611, Dallas, Texas
|
75235-1611
|
(Address
of principal executive offices)
|
(Zip
Code)
|
March
31, 2007
|
December
31, 2006
|
||||||
ASSETS
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
1,618
|
$
|
1,390
|
|||
Short-term
investments
|
315
|
369
|
|||||
Accounts
and other receivables
|
278
|
241
|
|||||
Inventories
of parts and supplies, at cost
|
174
|
181
|
|||||
Fuel
derivative contracts
|
558
|
369
|
|||||
Prepaid
expenses and other current assets
|
56
|
51
|
|||||
Total
current assets
|
2,999
|
2,601
|
|||||
Property
and equipment, at cost:
|
|||||||
Flight
equipment
|
12,041
|
11,769
|
|||||
Ground
property and equipment
|
1,384
|
1,356
|
|||||
Deposits
on flight equipment purchase contracts
|
757
|
734
|
|||||
14,182
|
13,859
|
||||||
Less
allowance for depreciation and amortization
|
3,897
|
3,765
|
|||||
10,285
|
10,094
|
||||||
Other
assets
|
954
|
765
|
|||||
$
|
14,238
|
$
|
13,460
|
||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
$
|
643
|
$
|
643
|
|||
Accrued
liabilities
|
1,748
|
1,323
|
|||||
Air
traffic liability
|
1,010
|
799
|
|||||
Current
maturities of long-term debt
|
123
|
122
|
|||||
Total
current liabilities
|
3,524
|
2,887
|
|||||
Long-term
debt less current maturities
|
1,556
|
1,567
|
|||||
Deferred
income taxes
|
2,183
|
2,104
|
|||||
Deferred
gains from sale and leaseback of aircraft
|
117
|
120
|
|||||
Other
deferred liabilities
|
304
|
333
|
|||||
Stockholders'
equity:
|
|||||||
Common
stock
|
808
|
808
|
|||||
Capital
in excess of par value
|
1,155
|
1,142
|
|||||
Retained
earnings
|
4,264
|
4,307
|
|||||
Accumulated
other comprehensive income
|
716
|
582
|
|||||
Treasury
stock, at cost
|
(389
|
)
|
(390
|
)
|
|||
Total
stockholders' equity
|
6,554
|
6,449
|
|||||
$
|
14,238
|
$
|
13,460
|
||||
See
accompanying notes.
|
Three
months ended March 31,
|
|||||||
2007
|
2006
|
||||||
OPERATING
REVENUES:
|
|||||||
Passenger
|
$
|
2,112
|
$
|
1,938
|
|||
Freight
|
30
|
35
|
|||||
Other
|
56
|
46
|
|||||
Total
operating revenues
|
2,198
|
2,019
|
|||||
OPERATING
EXPENSES:
|
|||||||
Salaries,
wages, and benefits
|
767
|
716
|
|||||
Fuel
and oil
|
564
|
501
|
|||||
Maintenance
materials and repairs
|
136
|
104
|
|||||
Aircraft
rentals
|
39
|
40
|
|||||
Landing
fees and other rentals
|
136
|
120
|
|||||
Depreciation
and amortization
|
135
|
124
|
|||||
Other
operating expenses
|
337
|
316
|
|||||
Total
operating expenses
|
2,114
|
1,921
|
|||||
OPERATING
INCOME
|
84
|
98
|
|||||
OTHER
EXPENSES (INCOME):
|
|||||||
Interest
expense
|
29
|
34
|
|||||
Capitalized
interest
|
(13
|
)
|
(12
|
)
|
|||
Interest
income
|
(13
|
)
|
(18
|
)
|
|||
Other
(gains) losses, net
|
(68
|
)
|
(2
|
)
|
|||
Total
other expenses (income)
|
(65
|
)
|
2
|
||||
INCOME
BEFORE INCOME TAXES
|
149
|
96
|
|||||
PROVISION
FOR INCOME TAXES
|
56
|
35
|
|||||
NET
INCOME
|
$
|
93
|
$
|
61
|
|||
NET
INCOME PER SHARE, BASIC
|
$
|
.12
|
$
|
.08
|
|||
NET
INCOME PER SHARE, DILUTED
|
$
|
.12
|
$
|
.07
|
|||
WEIGHTED
AVERAGE SHARES
|
|||||||
OUTSTANDING:
|
|||||||
Basic
|
786
|
803
|
|||||
Diluted
|
800
|
836
|
|||||
See
accompanying notes.
|
Three
months ended March 31,
|
|||||||
2007
|
2006
|
||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||
Net
income
|
$
|
93
|
$
|
61
|
|||
Adjustments
to reconcile net income to
|
|||||||
cash
provided by operating activities:
|
|||||||
Depreciation
and amortization
|
135
|
124
|
|||||
Deferred
income taxes
|
42
|
35
|
|||||
Amortization
of deferred gains on sale and
|
|||||||
leaseback
of aircraft
|
(4
|
)
|
(4
|
)
|
|||
Share-based
compensation expense
|
13
|
22
|
|||||
Excess
tax benefits from share-based compensation arrangements
|
(29
|
)
|
(28
|
)
|
|||
Changes
in certain assets and liabilities:
|
|||||||
Accounts
and other receivables
|
(37
|
)
|
(13
|
)
|
|||
Other
current assets
|
(56
|
)
|
14
|
||||
Accounts
payable and accrued liabilities
|
383
|
317
|
|||||
Air
traffic liability
|
210
|
280
|
|||||
Other
|
(133
|
)
|
(57
|
)
|
|||
Net
cash provided by (used in) operating activities
|
617
|
751
|
|||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||
Purchases
of property and equipment, net
|
(325
|
)
|
(262
|
)
|
|||
Purchases
of short-term investments
|
(914
|
)
|
(850
|
)
|
|||
Proceeds
from sales of short-term investments
|
968
|
782
|
|||||
Proceeds
from ATA Airlines, Inc. debtor in possession loan
|
-
|
20
|
|||||
Other
|
-
|
1
|
|||||
Net
cash used in investing activities
|
(271
|
)
|
(309
|
)
|
|||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||
Proceeds
from Employee stock plans
|
78
|
107
|
|||||
Payments
of long-term debt and capital lease obligations
|
(9
|
)
|
(37
|
)
|
|||
Payments
of cash dividends
|
(7
|
)
|
(7
|
)
|
|||
Repurchase
of common stock
|
(209
|
)
|
(214
|
)
|
|||
Excess
tax benefits from share-based compensation arrangements
|
29
|
28
|
|||||
Other
|
-
|
1
|
|||||
Net
cash provided by (used in) financing activities
|
(118
|
)
|
(122
|
)
|
|||
NET
INCREASE (DECREASE) IN CASH
|
|||||||
AND
CASH EQUIVALENTS
|
228
|
320
|
|||||
CASH
AND CASH EQUIVALENTS AT
|
|||||||
BEGINNING
OF PERIOD
|
1,390
|
2,280
|
|||||
CASH
AND CASH EQUIVALENTS
|
|||||||
AT
END OF PERIOD
|
$
|
1,618
|
$
|
2,600
|
|||
CASH
PAYMENTS FOR:
|
|||||||
Interest,
net of amount capitalized
|
$
|
19
|
$
|
20
|
|||
Income
taxes
|
$
|
1
|
$
|
-
|
|||
See
accompanying notes.
|
Three
months ended March 31,
|
|||||||
2007
|
2006
|
||||||
NUMERATOR:
|
|||||||
Net
income available to
|
|||||||
common
shareholders
|
$
|
93
|
$
|
61
|
|||
DENOMINATOR:
|
|||||||
Weighted-average
shares
|
|||||||
outstanding,
basic
|
786
|
803
|
|||||
Dilutive
effect of Employee stock
|
|||||||
options
|
14
|
33
|
|||||
Adjusted
weighted-average shares
|
|||||||
outstanding,
diluted
|
800
|
836
|
|||||
NET
INCOME PER SHARE:
|
|||||||
Basic
|
$
|
.12
|
$
|
.08
|
|||
Diluted
|
$
|
.12
|
$
|
.07
|
|||
|
Three
months ended March 31,
|
||||||||
2007
|
2006
|
|||||||
Net
income
|
$
|
93
|
$
|
61
|
||||
Unrealized
gain (loss) on derivative instruments,
|
||||||||
net
of deferred taxes of $84 and $72
|
135
|
116
|
||||||
Other,
net of deferred taxes of $0 and $1
|
(1
|
)
|
1
|
|||||
Total
other comprehensive income
|
134
|
117
|
||||||
Comprehensive
income
|
$
|
227
|
$
|
178
|
Accumulated
|
|||||||||
Fuel
|
other
|
||||||||
hedge
|
comprehensive
|
||||||||
derivatives
|
Other
|
income
(loss)
|
|||||||
Balance
at December 31, 2006
|
$
|
584
|
$
|
(2
|
)
|
$
|
582
|
||
2007
changes in value
|
174
|
(1
|
)
|
173
|
|||||
Reclassification
to earnings
|
(39
|
)
|
-
|
(39
|
|||||
Balance
at March 31, 2007
|
$
|
719
|
$
|
(3
|
)
|
$
|
716
|
March
31,
|
December
31,
|
|||||
2007
|
2006
|
|||||
|
|
|||||
Noncurrent
fuel derivatives contracts, at fair value
|
$
|
819
|
$
|
630
|
||
Other
|
135
|
135
|
||||
Other
assets
|
$
|
954
|
$
|
765
|
||
March
31,
|
December
31,
|
|||||
2007
|
2006
|
|||||
Retirement
Plans
|
$
|
174
|
$
|
165
|
||
Aircraft
Rentals
|
109
|
128
|
||||
Vacation
Pay
|
156
|
151
|
||||
Advances
and deposits
|
885
|
546
|
||||
Deferred
income taxes
|
125
|
78
|
||||
Other
|
299
|
255
|
||||
Accrued
liabilities
|
$
|
1,748
|
$
|
1,323
|
Three
months ended March 31,
|
|||||||
(In
millions)
|
2007
|
|
2006
|
||||
|
|
|
|||||
Service
cost
|
$
|
4
|
$
|
4
|
|||
Interest
cost
|
1
|
1
|
|||||
Amortization
of prior service cost
|
-
|
-
|
|||||
Recognized
actuarial loss
|
-
|
-
|
|||||
Net
periodic postretirement benefit cost
|
$
|
5
|
$
|
5
|
Three
months ended March 31,
|
||||||||||
|
||||||||||
2007
|
2006
|
Change
|
||||||||
Revenue
passengers carried
|
19,960,933
|
19,199,488
|
4.0
|
%
|
||||||
Enplaned
passengers
|
22,903,073
|
22,015,484
|
4.0
|
%
|
||||||
Revenue
passenger miles (RPMs) (000s)
|
16,109,071
|
15,280,497
|
5.4
|
%
|
||||||
Available
seat miles (ASMs) (000s)
|
23,678,376
|
22,079,458
|
7.2
|
%
|
||||||
Load
factor
|
68.0
|
%
|
69.2
|
%
|
(1.2)
|
pts | ||||
Average
length of passenger haul (miles)
|
807
|
796
|
1.4
|
%
|
||||||
Average
aircraft stage length (miles)
|
627
|
617
|
1.6
|
%
|
||||||
Trips
flown
|
276,900
|
262,449
|
5.5
|
%
|
||||||
Average
passenger fare
|
|
$105.79
|
|
$100.94
|
4.8
|
%
|
||||
Passenger
revenue yield per RPM (cents)
|
13.11
|
12.68
|
3.4
|
%
|
||||||
Operating
revenue yield per ASM (cents)
|
9.28
|
9.15
|
1.4
|
%
|
||||||
Operating
expenses per ASM (cents)
|
8.93
|
8.70
|
2.6
|
%
|
||||||
Operating
expenses per ASM, excluding fuel (cents)
|
6.54
|
6.43
|
1.7
|
%
|
||||||
Fuel
costs per gallon, excluding fuel tax
|
|
$1.59
|
|
$1.51
|
5.3
|
%
|
||||
Fuel
consumed, in gallons (millions)
|
354
|
329
|
7.6
|
%
|
||||||
Fulltime
equivalent Employees at period-end
|
32,961
|
31,396
|
5.0
|
%
|
||||||
Size
of fleet at period-end
|
489
|
451
|
8.4
|
%
|
Three
months ended March 31,
|
Per
ASM
|
Percent
|
||||||||||||
2007
|
2006
|
Change
|
Change
|
|||||||||||
Salaries,
wages, and benefits
|
3.24
|
3.24
|
-
|
-
|
||||||||||
Fuel
and oil
|
2.38
|
2.27
|
.11
|
4.8
|
||||||||||
Maintenance
materials
|
||||||||||||||
and
repairs
|
.58
|
.47
|
.11
|
23.4
|
||||||||||
Aircraft
rentals
|
.16
|
.18
|
(.02
|
)
|
(11.1
|
)
|
||||||||
Landing
fees and other rentals
|
.58
|
.55
|
.03
|
5.5
|
||||||||||
Depreciation
|
.57
|
.56
|
.01
|
1.8
|
||||||||||
Other
operating expenses
|
1.42
|
1.43
|
(.01
|
)
|
(0.7
|
)
|
||||||||
Total
|
8.93
|
8.70
|
.23
|
2.6
|
The
Boeing Company
|
||||||||||||||||||||
Purchase
|
Previously
|
|||||||||||||||||||
Firm
|
Options
|
Rights
|
Owned
|
|
Total
|
|||||||||||||||
2007
|
37
|
2
|
* |
39
|
** | |||||||||||||||
2008
|
32
|
2
|
34
|
|||||||||||||||||
2009
|
18
|
18
|
36
|
|||||||||||||||||
2010
|
10
|
32
|
42
|
|||||||||||||||||
2011
|
10
|
30
|
40
|
|||||||||||||||||
2012
|
10
|
30
|
40
|
|||||||||||||||||
2008-2014
|
- | - |
54
|
54
|
||||||||||||||||
117
|
112
|
54
|
2
|
285
|
||||||||||||||||
*Intend
to lease two previously owned 737-700 aircraft from a third
party.
|
||||||||||||||||||||
**2007
delivery dates: eight in first quarter, eleven in second quarter,
eleven
|
||||||||||||||||||||
in third quarter and nine in fourth quarter.
|
Average
|
Number
|
Number
|
Number
|
|||||||||||||
737
Type
|
Seats
|
Age
(Yrs)
|
of
Aircraft
|
Owned
|
Leased
|
|||||||||||
-300
|
137
|
15.9
|
194
|
112
|
82
|
|||||||||||
-500
|
122
|
15.9
|
25
|
16
|
9
|
|||||||||||
-700
|
137
|
4.1
|
270
|
268
|
2
|
|||||||||||
TOTALS
|
9.4
|
489
|
396
|
93
|
(i) |
the
price and availability of aircraft
fuel;
|
(ii) |
the
impact of governmental regulations on our operating costs, as well
as our
operations generally;
|
(iii) |
competitor
capacity and load factors; and
|
(iv) |
other
factors as set forth in our filings with the Securities and Exchange
Commission, including the detailed factors discussed under the heading
“Risk Factors” in our Annual Report on Form 10-K for the year ended
December 31, 2006.
|
(a)
|
(b)
|
(c)
|
(d)
|
||||||||||
Total
number of
|
Maximum
dollar
|
||||||||||||
shares
purchased
|
value
of shares that
|
||||||||||||
Total
number
|
Average
|
as
part of publicly
|
may
yet be purchased
|
||||||||||
of
shares
|
price
paid
|
announced
plans
|
under
the plans
|
||||||||||
Period
|
purchased
|
per
share
|
or
programs
|
or
programs
|
|||||||||
|
|
|
|
||||||||||
January
1, 2007 through
January
31, 2007
|
4,200,000
|
$
|
15.72
|
4,200,000
|
$
|
133,723,357
|
|||||||
February
1, 2007 through February 28, 2007
|
5,700,000
|
$
|
15.44
|
5,700,000
|
$
|
45,715,357
|
|||||||
March
1, 2007 through March 31, 2007
|
3,632,600
|
$
|
15.11
|
3,632,600
|
$
|
290,826,771
|
|||||||
Total
|
13,532,600
|
13,532,600
|
3.1
|
Restated
Articles of Incorporation of Southwest (incorporated by reference
to
|
|
Exhibit 4.1
to Southwest’s Registration Statement on Form S-3
(File
|
||
No. 33-52155));
Amendment to Restated Articles of Incorporation of
Southwest
|
||
(incorporated
by reference to Exhibit 3.1 to Southwest’s Quarterly Report on
|
||
Form 10-Q
for the quarter ended June 30, 1996 (File
No. 1-7259));
|
||
Amendment
to Restated Articles of Incorporation of Southwest (incorporated
by
|
||
reference
to Exhibit 3.1 to Southwest’s Quarterly Report on Form 10-Q for
the
|
||
quarter
ended June 30, 1998 (File No. 1-7259)); Amendment to Restated
Articles of
|
||
Incorporation
of Southwest (incorporated by reference to Exhibit 4.2 to
Southwest’s
|
||
Registration
Statement on Form S-8 (File No. 333-82735);
|
||
Amendment
to Restated Articles of Incorporation of Southwest (incorporated
by
|
||
reference
to Exhibit 3.1 to Southwest’s Quarterly Report on Form 10-Q for
the
|
||
quarter
ended June 30, 2001 (File No. 1-7259)).
|
||
3.2
|
Bylaws
of Southwest, as amended through January 2007 (incorporated by reference
|
|
to
Exhibit 3.2 to Southwest’s Current Report on Form 8-K dated
January 18, 2007).
|
||
10.1
|
Supplemental
Agreement No. 52 to Purchase Agreement No. 1810,
|
|
dated
January 19, 1994 between The Boeing Company and
Southwest.
|
||
Pursuant
to 17 CFR 240.24b-2, confidential information has been
omitted
|
||
and
has been filed separately with the Securities and Exchange
Commission
|
||
pursuant
to a Confidential Treatment Application filed with the
|
||
Commission.
|
||
31.1
|
Rule
13a-14(a) Certification of Chief Executive Officer
|
|
31.2
|
Rule
13a-14(a) Certification of Chief Financial Officer
|
|
32.1
|
Section
1350 Certifications of Chief Executive Officer and Chief
Financial
|
|
Officer
|
|
SOUTHWEST
AIRLINES CO.
|
|
April
20, 2007
|
By
|
/s/
Laura H. Wright
|
Laura
H. Wright
|
||
Chief
Financial Officer
|
||
(On
behalf of the Registrant and in
|
||
her
capacity as Principal Financial
|
||
and
Accounting Officer)
|
||
3.1
|
Restated
Articles of Incorporation of Southwest (incorporated by reference
to
|
|
Exhibit 4.1
to Southwest’s Registration Statement on Form S-3
(File
|
||
No. 33-52155));
Amendment to Restated Articles of Incorporation of
Southwest
|
||
(incorporated
by reference to Exhibit 3.1 to Southwest’s Quarterly Report on
|
||
Form 10-Q
for the quarter ended June 30, 1996 (File
No. 1-7259));
|
||
Amendment
to Restated Articles of Incorporation of Southwest (incorporated
by
|
||
reference
to Exhibit 3.1 to Southwest’s Quarterly Report on Form 10-Q for
the
|
||
quarter
ended June 30, 1998 (File No. 1-7259)); Amendment to Restated
Articles of
|
||
Incorporation
of Southwest (incorporated by reference to Exhibit 4.2 to
Southwest’s
|
||
Registration
Statement on Form S-8 (File No. 333-82735);
|
||
Amendment
to Restated Articles of Incorporation of Southwest (incorporated
by
|
||
reference
to Exhibit 3.1 to Southwest’s Quarterly Report on Form 10-Q for
the
|
||
quarter
ended June 30, 2001 (File No. 1-7259)).
|
||
3.2
|
Bylaws
of Southwest, as amended through January 2007 (incorporated by reference
|
|
to
Exhibit 3.2 to Southwest’s Current Report on Form 8-K dated
January 18, 2007).
|
||
Supplemental
Agreement No. 52 to Purchase Agreement No. 1810,
|
||
dated
January 19, 1994 between The Boeing Company and
Southwest.
|
||
Pursuant
to 17 CFR 240.24b-2, confidential information has been
omitted
|
||
and
has been filed separately with the Securities and Exchange
Commission
|
||
pursuant
to a Confidential Treatment Application filed with the
|
||
Commission.
|
||
Rule
13a-14(a) Certification of Chief Executive Officer
|
||
Rule
13a-14(a) Certification of Chief Financial Officer
|
||
Section
1350 Certifications of Chief Executive Officer and Chief
Financial
|
||
Officer
|