Southwest Airlines 2013 Annual Report Download - page 96

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Pro forma impact of the acquisition
The unaudited pro forma results presented below include the effects of the AirTran acquisition as if it had
been consummated as of January 1, 2011. The pro forma results include the amortization associated with
estimates for the acquired intangible assets, fair value adjustments for deferred revenue, favorable/unfavorable
leasehold interests, property and equipment, and long-term debt. In addition, the pro forma results do not include
any anticipated synergies, or the assumption of hedge accounting for AirTran’s derivative instruments, or other
expected benefits of the acquisition. Accordingly, the unaudited pro forma financial information below is not
necessarily indicative of either future results of operations or results that might have been achieved had the
acquisition been consummated as of January 1, 2011.
Year ended
December 31,
(in millions, except per share data) 2011
Total operating revenues ............................... $ 16,601
Net income ......................................... 160
Net income per share, basic ............................. 0.21
Net income per share, diluted ........................... 0.21
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). The
impact of this change on 2013 was not material.
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., 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). The impact of this change on the year ended December 31, 2013,
was an increase in depreciation expense of approximately $26 million, excluding profitsharing and income taxes
($14 million after 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, and the Company adopted
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