Southwest Airlines 1999 Annual Report Download - page 32

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indicate that the assets might be impaired and the undiscounted cash flows to be
generated by those assets are less than the carrying amounts of those assets.
AIRCRAFT AND ENGINE MAINTENANCE The cost of scheduled engine inspections
and repairs and routine maintenance costs for aircraft and engines are charged to
maintenance expense as incurred. Scheduled airframe inspections and repairs, known as
“D” checks, are generally performed every ten years. Costs related to “D” checks are
capitalized and amortized over the estimated period benefited, presently the least of ten
years, time until the next “D” check, or the remaining life of the aircraft. Modifications that
significantly enhance the operating performance or extend the useful lives of aircraft or
engines are capitalized and amortized over the remaining life of the asset.
REVENUE RECOGNITION Passenger revenue is recognized when transportation
is provided. Tickets sold but not yet used are included in “Air traffic liability,” which includes
estimates that are evaluated and adjusted periodically. Any adjustments resulting therefrom
are included in results of operations for the periods in which the evaluations are completed.
FREQUENT FLYER PROGRAM The Company accrues the estimated
incremental cost of providing free travel awards earned under its Rapid Rewards frequent
flyer program. The Company also sells flight segment credits and related services to
companies participating in its Rapid Rewards frequent flyer program. The revenue related
to the sale of flight segment credits is recognized when the credits are sold (see Recent
Accounting Developments).
ADVERTISING The Company expenses the costs of advertising as incurred.
Advertising expense for the years ended December 31, 1999, 1998, and 1997 was
$137.7 million, $119.7 million, and $113.0 million, respectively.
STOCK-BASED EMPLOYEE COMPENSATION Pursuant to Statement of Financial
Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation,
the Company accounts for stock-based compensation plans utilizing the provisions of
Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to
Employees and related Interpretations. See Note 9.