Southwest Airlines 2012 Annual Report Download - page 69

Company will continue to defer significant cash income taxes to future years. The Company has in the past and
will continue in the future to pay significant cash taxes to the various taxing jurisdictions where it operates. The
Company expects to be able to continue to meet such obligations utilizing cash and investments on hand, as well
as cash generated from its ongoing operations.
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. The Company received 34 Boeing 737-800 aircraft in 2012,
29 of which were new aircraft purchased from Boeing and five of which were leased from a third party. The
Company also retired 38 older leased and owned 737-300 and 737-500 aircraft from service during 2012. 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 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, 2012, the Company operated 189 leased aircraft, of which 187 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 $208 million at December 31, 2012.
The Company is a “well-known seasoned issuer” and has an effective shelf registration statement registering
an indeterminate amount of debt or equity securities for future sales. The Company intends to use the proceeds
from any future securities sales off this shelf registration statement for general corporate purposes. The Company
has not issued any securities under this shelf registration statement to date. The Company also has an
$800 million unsecured revolving credit facility, which provides flexibility in the Company’s cash management
and planning activities. No amounts were outstanding under this facility at December 31, 2012. See Note 6 to the
Consolidated Financial Statements for further information.
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