Southwest Airlines 2011 Annual Report Download - page 92

Download and view the complete annual report

Please find page 92 of the 2011 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 141

  • 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
  • 141

Intangible assets
Identifiable intangibles were created as a result of the acquisition of AirTran, which are being amortized as
follows:
• Customer Relationships: Amortized based on an accelerated amortization schedule to reflect the
estimated free cash flows the customer relationships are expected to provide.
• Trademarks/Trade names: Amortized based on an accelerated amortization schedule to reflect the
estimated free cash flows the assets are expected to provide.
• Domestic Slots: Straight-line amortization for owned slots based on the applicable estimated useful
life. Straight-line amortization for leased slots over the applicable lease term.
• Internally developed software: Straight-line amortization over the expected useful life of the software.
• Non-compete agreements: Straight-line amortization over the term of the applicable contract.
See Note 1 for further information on intangible assets.
Leasehold Interest
Lease fair value adjustments for operating leases were created as a result of the acquisition of AirTran. The
fair value adjustments represent the net present value of the differences between contractual lease rates and the
estimated fair market lease rates for similar leased assets at the acquisition date. An asset (liability) results when
the contractual lease rates are more (less) favorable than market lease terms at the valuation date. As of
December 31, 2011, the lease fair value adjustments are classified within Other assets and Other non-current
liabilities in the amounts of $2 million and $376 million, respectively. The lease fair value adjustments are
amortized on a straight-line basis to aircraft rentals over the individual applicable remaining lease terms. The
aggregate amortization income (reduction of expense) for the year ended December 31, 2011, was $26 million.
Estimated aggregate amortization income (reduction of expense) for the five succeeding years and thereafter is as
follows: 2012 - $39 million, 2013 - $39 million, 2014 - $39 million, 2015 - $39 million, 2016 - $39 million, 2017
and thereafter - $155 million. The weighted-average useful life for the leasehold interest asset is 9 years and for
the leasehold interest liability is 10 years, for a total weighted-average leasehold useful life of 10 years.
Goodwill
Goodwill in the amount of $970 million has been recorded for the acquisition of AirTran. Goodwill is
calculated as the excess of the consideration transferred over the fair value of net assets recognized and
represents the estimated future economic benefits arising from other assets acquired that could not be
individually identified and separately recognized. Goodwill will not be amortized, but will be tested for
impairment at least annually or more frequently if events and circumstances indicate impairment may exist. None
of the goodwill is deductible for tax purposes. Specifically, the goodwill recorded as part of the acquisition of
AirTran includes:
• The synergies and other benefits that are expected to result from combining the operations of AirTran
with the operations of the Company; and
• Any intangible assets that do not qualify for separate recognition, such as the AirTran trained and
assembled workforce.
The recorded amounts for assets and liabilities are provisional and subject to change. However, the
Company does not expect that any future adjustments will be material. The following are the more significant
items that are subject to change:
• The fair value of specific executory contracts, and deferred income taxes and liabilities, pending
finalization of valuation efforts; and
• The purchase price allocable to goodwill, as a result of changes to the aforementioned items.
86