Southwest Airlines 2011 Annual Report Download - page 65

Net cash used in investing activities in 2011 totaled $1.1 billion, versus $1.3 billion used in 2010. Investing
activities in both years included payments for new 737-700 aircraft delivered to the Company and progress
payments for future aircraft deliveries. The Company purchased 18 new Boeing 737-700 aircraft in 2011, versus
the purchase of 11 Boeing 737-700s in 2010. See Note 4 to the Consolidated Financial Statements. Investing
activities for 2011 and 2010 also reflect $48 million and $772 million, respectively, related to changes in the
balance of the Company’s short-term investments.
Net cash used in financing activities was $766 million in 2011. During 2011, the Company repaid $557
million in debt and capital lease obligations that came due, repurchased approximately $225 million of its
outstanding common stock through a share repurchase program, and used $81 million in cash to repay
convertible note holders following the acquisition of AirTran. Net cash used in financing activities was $149
million in 2010. During 2010, the Company repaid $155 million in debt and capital lease obligations that came
due, and also repaid $44 million from a credit line borrowing associated with auction rate security instruments
that were redeemed back to its counterparty. See Note 7 to the Consolidated Financial Statements for more
information on the issuance and redemption of long-term debt.
OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, AND CONTINGENT
LIABILITIES AND COMMITMENTS
The Company has contractual obligations and commitments primarily with regard to future purchases of
aircraft, payment of debt, and lease arrangements. In addition to aircraft acquired as a result of the AirTran
acquisition, the Company received 20 Boeing 737-700 aircraft in 2011, 18 of which were new aircraft purchased
from Boeing and two of which were leased from a third party. The Company also retired ten older leased and
owned 737-300 aircraft from service during 2011. During December 2011, the Company and Boeing announced
a significant revision to the Company’s future firm aircraft order book. Among other items, the revision included
the incorporation of AirTran’s future orders into the Company’s agreement, the addition of 58 new 737NG firm
orders, and the Company’s placement of a firm order for 150 of Boeing’s new 737 MAX aircraft which is
expected to enter service in 2017. In addition to these orders from Boeing, during July 2011, the Company
executed an agreement to lease five new 737-800 aircraft from a third party. These aircraft are expected to be
placed into service in mid-2012 and are expected to replace older aircraft, which are currently scheduled to be
retired. Under the Company’s agreement with Boeing, it has the option to substitute 737-600s for the 737-700s
ordered with at least 24 months notice prior to the contractual delivery date and can substitute 737-800s for the
737-700s with at least twelve months notice. See Note 4 to the Consolidated Financial Statements for a complete
table of the Company’s firm orders, options, and purchase rights with Boeing. For aircraft commitments with
Boeing, the Company is required to make cash deposits toward the purchase of aircraft in advance. These
deposits are classified as Deposits on flight equipment purchase contracts in the Consolidated Balance Sheet until
the aircraft is delivered, at which time deposits previously made are deducted from the final purchase price of the
aircraft and are reclassified as Flight equipment.
The leasing of aircraft (including the sale and leaseback of aircraft) provides flexibility to the Company as a
source of financing. Although the Company is responsible for all maintenance, insurance, and expense associated
with operating leased aircraft, and retains the risk of loss for these aircraft, it has not made any guarantees to the
lessors regarding the residual value (or market value) of the aircraft at the end of the lease terms. As of
December 31, 2011, the Company, including AirTran, operated 199 leased aircraft, of which 192 are under
operating leases. As prescribed by GAAP, assets and obligations under operating leases are not included in the
Company’s Consolidated Balance Sheet. Disclosure of the contractual obligations associated with the Company’s
leased aircraft is included below as well as in Note 8 to the Consolidated Financial Statements.
The Company is required to provide standby letters of credit to support certain obligations that arise in the
ordinary course of business. Although the letters of credit are off-balance sheet, the majority of obligations to
which they relate are reflected as liabilities in the Consolidated Balance Sheet. Outstanding letters of credit
totaled $230 million at December 31, 2011.
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