Southwest Airlines 2011 Annual Report Download - page 93

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A single estimate of fair value results from a complex series of judgments about future events and
uncertainties and relies heavily on estimates and assumptions. The Company’s judgments used to determine the
estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can
materially impact its results of operations.
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, 2010. The pro forma results include the amortization associated with
estimates (certain of which are preliminary) 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, 2010.
Year ended
December 31,
(in millions, except per share data) 2011 2010
Total operating revenues .............................. $16,601 $14,721
Net income ........................................ 160 499
Net income per share, basic ............................ .21 .63
Net income per share, diluted .......................... .21 .63
3. Accounting Changes and New Accounting Pronouncements
On September 23, 2009, the Financial Accounting Standards Board (“FASB”) ratified Accounting
Standards Update (“ASU”) No. 2009-13 (formerly referred to as Emerging Issues Task Force Issue No. 08-1),
“Revenue Arrangements with Multiple Deliverables.” ASU No. 2009-13 requires the allocation of consideration
among separately identified deliverables contained within an arrangement, based on their relative selling prices.
The Company utilizes current accounting guidance, also titled “Revenue Arrangements with Multiple
Deliverables,” in the timing of recognition of revenue associated with the sale of frequent flyer points and/or
credits to business partners. The Company applies the residual method, which is allowed with respect to the
Company’s revenue arrangements in their current form, but which is prohibited under ASU No. 2009-13 with
respect to new and modified revenue arrangements. ASU No. 2009-13 is effective for revenue arrangements
entered into or materially modified in fiscal years beginning on or after January 1, 2011. Subsequent to adoption
of ASU No. 2009-13, the Company has not entered into or materially modified any of its revenue arrangements,
thus ASU No. 2009-13 currently has no impact on the Company. However, ASU No. 2009-13 could have a
significant impact on future results as new or materially modified revenue arrangements with certain partners are
established in the normal course of business.
On December 29, 2010, the FASB ratified ASU No. 2010-29, “Disclosure of Supplementary Pro Forma
Information for Business Combinations.” This ASU specifies that when a business combination occurs, the
company must only disclose revenue and earnings of the combined entity as though the business combination
that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting
period. This ASU also expands the supplemental pro forma disclosures under Topic 805, “Business
Combinations,” formerly Statement of Financial Accounting Standards No. 141(R), to include a description of
the nature and amount of material, non-recurring pro forma adjustments directly attributable to the business
combination included in the reported pro forma revenue and earnings. This ASU is effective prospectively for
business combinations in which the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2010. Because the Company acquired AirTran on May 2, 2011, the
Company implemented this ASU for the interim period ended June 30, 2011. The Company has prepared pro
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