What can you learn from the Management Discussion and Analysis of Financial Condition and Results of Operations (MD&A)? Give two facts learned from reading this section
Answer: Item 7 is Management's Discussion and Analysis of Financial Condition and Results of Operations. It starts with a comparison between management accounting used to run the business and GAAP accounting. It describes in detail the difference between results in 2014 and 2015. The most significant difference was, “Fuel and oil expense for 2015 decreased by $1.7 billion, or 31.7 percent, compared with 2014.” However, the amount of the decrease wasn’t predicted perfectly so, “As a result of the Company's fuel hedging program, the Company recognized losses totaling $254 million in Fuel and oil expense for 2015, compared with net gains totaling $28 million for 2014” This means Southwest didn’t keep all of the benefits of the reduction in fuel costs. Also, there is a comparison between 2013 and 2014.
Another significant item was about income tax. “The Company's effective tax rate was approximately 37.3 percent for 2015, compared with 37.4 percent for 2014.”
Southwest information from:
https://www.sec.gov/Archives/edgar/data/92380/000009238016000175/luv-12312015x10k.htm#s33F2C1321617BA7BB9B30236ED8E4834
