Southwest Airlines 2012 Annual Report Download - page 96

Download and view the complete annual report

Please find page 96 of the 2012 Southwest Airlines annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 140

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140

3. ACCOUNTING CHANGES AND NEW ACCOUNTING PRONOUNCEMENTS
During first quarter 2012, the Company changed the estimated retirement dates of several 737-300 and
737-500 aircraft based on revisions in the Company’s fleet plan. This change, which was accounted for on a
prospective basis, resulted in an acceleration of depreciation expense, since the majority of these aircraft had
previously been expected to retire in periods beyond 2012, but were subsequently expected to be retired during
2012. For the year ended December 31, 2012, the impact of this change was an increase in depreciation expense
of approximately $12 million, excluding the impact of profitsharing and income taxes ($6 million after the
impact of profitsharing and taxes, with a $.01 decrease in both basic and diluted net income per share).
During third quarter 2012, the Company changed the estimated residual values of its entire fleet of owned
737-300 and 737-500 aircraft. This change was based on an agreement entered into during July 2012, pursuant to
which the Company will lease or sublease certain aircraft to Delta Air Lines, Inc. (“Delta”), and the resulting
impact this transaction will have on how the Company manages the ultimate retirement of its owned 737-300 and
737-500 aircraft. See Note 8 for further information on the lease/sublease transaction. Based on the expected
retirement dates and current and expected future market conditions related to its owned 737-300 and 737-500
aircraft, the Company reduced the residual values of these aircraft from approximately ten percent of original
cost to approximately two percent of original cost. As this reduction in residual value is considered a change in
estimate, it has been accounted for on a prospective basis, and thus the Company will record additional
depreciation expense over the remainder of the useful lives for each aircraft. The impact of this change on the
year ended December 31, 2012 was an increase in depreciation expense of approximately $34 million, excluding
the impact of profitsharing and income taxes ($18 million after the impact of profitsharing and taxes, with a
$.02 decrease in both basic and diluted net income per share).
On December 16, 2011, the Financial Accounting Standards Board ratified Accounting Standards Update
(“ASU”) No. 2011-11, “Disclosures about Offsetting Assets and Liabilities.” The new disclosure requirements
mandate that entities disclose both gross and net information about instruments and transactions eligible for
offset in the statement of financial position, as well as instruments and transactions subject to an agreement
similar to a master netting arrangement. In addition, the standard requires disclosure of collateral received and
posted in connection with master netting agreements or similar arrangements. This ASU is effective for fiscal
years, and interim periods within those years, beginning on or after January 1, 2013. This ASU will not have a
material effect on the Company’s financial position or results of operations, but will change the Company’s
disclosure policies for financial derivative instruments. The Company plans to adopt this ASU for the interim
period ending March 31, 2013.
88