Mind the GAAP: Understanding our Financial Results

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Mind the GAAP: Understanding our Financial Results

Sat, 10/18/2008 - 09:36 — Sharon Maas

Whew--what a week for us last week. We announced our third quarter financial results, and it was a complicated and comprehensive communication. There has been much online conversation about what it all means, and our news release really is the best source.

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Thanks so much, Sharon - Despite my best efforts, I was still a little confused…until I read through your post three times.

I thought I was going to have to take out a SFSWAE seeking SMAFA ad (Single Female Southwest Airlines Employee seeking Single Male Airline Financial Analysts) for a private tutorial (wink)!

Next time, you’ll have to explain what terms like mark-to-market and revolver drawdown mean.

Paula Berg — Sat, 10/18/2008 - 10:04

Mark-to-market is the assignment of current market values to future hedge positions (contracts) which is what Sharon explained above as resulting in unrealized, or "paper," gains (2Q) or losses (3Q). A very oversimplified example: You have a hedging contract to purchase oil at $80/barrel in 2010, but the current market value is $70/barrel. Under mark-to-market, you must value that contract as if you were paying $80/barrel for $70/barrel oil today, so you end up with an unrealized loss of $10/barrel.

A revolver drawdown is the borrowing of money from a revolving line of credit. A bank has agreed to loan $600M. Of that, Southwest has opted to borrow $400M. $200M remains available to be borrowed, and the $400M, or any portion thereof, can be borrowed again once it has been repaid (hence "revolving"). Southwest is on the hook for interest payments on that $400M in the meantime.

Drew — Sat, 10/18/2008 - 19:53

Could you also list past history of financial results excluding hedging and other "paper" losses and gains?

The reason I ask is that because in the past part of Southwest's success has come from those gains, and I haven't read explanatory posts like this one that they were not real gains!

Thank you, and look forward to seeing the past "operating" results.

Anonymous — Mon, 10/20/2008 - 01:30

Thank you so much for the clarification and insight into how all of this works. I know Southwest will continue to be the head of the airline industry.

Caleb Fox — Mon, 10/20/2008 - 08:43

Hey, Southwest, thanks for holding the line on fuel surcharges ... in spite of that rare quarterly loss! Here's hoping you steal market share away from the rest of the industry, until they learn their lesson and drop their surcharges, too.

As publisher of www.travelgaygent.com, a website for LGBT travel agents, I'm urging all our readers to send more business your way. From hotels to cruises to ground packages, the entire travel industry will improve when the other airlines drop their surcharges and people start flying again.

http://travelgaygent.wordpress.com/2008/10/21/agents-hold-key-to-ending-...

Secret Gaygentman — Tue, 10/21/2008 - 11:13

That is amazing, thank you for offering all that you offer to the consumers and allowing us to fly at amazing rates to visit loved ones coast to coast! I am proud to be a consumer of Southwest, there is no othe way to fly I hope the company far exceeds all the others. Keep on doing what you are doing because it is working. I reccomend this company to everyone I know that has a need to fly. The rates are again, amazing along with the customer service. Please put a hub in Knoxville, TN so I don't have to drive to Nashville!!! Even if you cannot I will still make the 5hr trip just to have fair rates with great service!!

cddsatm — Wed, 10/22/2008 - 23:14

a wise man once told me and I quote , " I know a thing or two about a thing or two , dont mess with the bull , u mess with the bull and youll get the horns " . Now why mess with the bull when u left him assured his own space with nobody to give him a hard time , now he was minding his own , and going about his own biz , As if bulls dont have enough stress it dosnt matter its gonna put up a fight till It cant no more HE'S NUTS and you go and take his source food now its about survival so now the bull must provide for himself and his young but growing calf , not to mention his unhappy cow from california , moooing and moooing day and night ,dont you know happy cows come from california and we all know what cali is known for , Its the Cheese . I was taught that in order to run a successful peanut packing company , you not only do you need to supply quality peanut packing services , but you must build a good relationship with the customer kinda like family and make you the one he calls on everytime ,turbulance can be shakey so why not satisfy with a nut or 2 . But even with Family when its about biz , buisness is buisness . I know a thing or two when it comes to packing peanuts I do my own boxing , So i guess that makes me a professional boxer not a packer .....

peanut packer — Fri, 10/16/2009 - 15:46

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