Southwest Airlines 2013 Annual Report Download - page 67

reduction in salvage values for the Company’s Classic Fleet. See Note 3 to the Consolidated Financial Statements
for further information on these changes in estimates. In addition, approximately 34 percent of this increase was
due to a full year of depreciation associated with the purchase of 18 aircraft (737-700s) in 2011 and the purchase
of 29 aircraft (737-800s) during 2012 and approximately $16 million of this increase was due to the inclusion of
the full year of AirTran results in 2012, while the 2011 results only include AirTran Depreciation and
amortization expense following the acquisition date. On a per ASM basis, the Company’s Depreciation and
amortization expense for 2012 increased by 11.9 percent compared to 2011, primarily due to the acceleration of
depreciation expense associated with the aircraft in the Company’s Classic Fleet that were retired in 2012,
coupled with a reduction in salvage values for the Company’s Classic Fleet.
For 2012, the Company incurred $183 million of Acquisition and integration costs related to the
acquisition of AirTran compared to $134 million for 2011. These 2012 costs primarily consisted of costs
associated with the Company’s lease/sublease transaction for AirTran’s Boeing 717-200 fleet, consulting, flight
crew training, seniority integration, and facility integration expenses. See Note 2 and Note 8 to the Consolidated
Financial Statements.
Other operating expenses for 2012 increased by $160 million, or 8.5 percent, compared to 2011.
Approximately $65 million of this increase was due to the inclusion of the full year of AirTran results in 2012,
while the 2011 results only include AirTran Other operating expenses following the acquisition date. Excluding
the results of AirTran in both periods, Other operating expenses for 2012 increased 5.8 percent on a dollar basis
compared to 2011. This increase was primarily due to consulting fees, WiFi enplanement fees, and other costs
associated with completed and ongoing projects, the majority of which were related to the Company’s strategic
initiatives as previously discussed. On a per ASM basis, the Company’s Other operating expenses for 2012
increased by 3.2 percent compared to 2011, also due to consulting and other outside services costs associated
with completed and ongoing projects.
Other
Other expenses (income) include interest expense, capitalized interest, interest income, and other gains and
losses. Interest expense for 2012 decreased by $47 million, or 24.2 percent, compared to 2011, primarily as a
result of the Company’s repayment of its $400 million 10.5% notes in December 2011 and $385 million 6.5%
notes in March 2012. See Note 2 to the Consolidated Financial Statements.
Capitalized interest for 2012 increased by $9 million, or 75.0 percent, compared to 2011, primarily due to
an increase in average progress payment balances for scheduled future aircraft deliveries.
Interest income for 2012 decreased by $3 million, or 30.0 percent, compared to 2011, primarily due to
lower rates earned on invested cash and short-term investments.
Other (gains) losses, net, primarily includes amounts recorded as a result of the Company’s hedging
activities. See Note 10 to the Consolidated Financial Statements for further information on the Company’s
hedging activities. The following table displays the components of Other (gains) losses, net, for the years ended
December 31, 2012 and 2011:
Year ended December 31,
(in millions) 2012 2011
Mark-to-market impact from fuel contracts settling in future
periods ................................................. $ (221) $ 21
Ineffectiveness from fuel hedges settling in future periods .......... 42 33
Realized ineffectiveness and mark-to-market (gains) or losses ....... (42) 35
Premium cost of fuel contracts ................................ 36 107
Other .................................................... 4 2
$ (181) $ 198
59