Southwest Airlines 2013 Annual Report Download - page 43

fees. On August 2, 2010, the Court dismissed plaintiffs’ claims that AirTran and Delta had violated Section 2 of
the Sherman Act; the Court let stand the claims of a conspiracy with respect to the imposition of a first bag fee
and the airlines’ capacity and pricing decisions. On June 30, 2010, the plaintiffs filed a motion to certify a class,
which AirTran and Delta have opposed. The parties have submitted briefs on class certification, and AirTran
filed a motion to exclude the class certification reports of plaintiffs’ expert. The Court has not yet ruled on the
class certification motion or the related motion to exclude plaintiffs’ expert. The parties engaged in extensive
discovery, which was extended due to discovery disputes between plaintiffs and Delta, but discovery has now
closed. On June 18, 2012, the parties filed a Stipulation and Order that plaintiffs have abandoned their claim that
AirTran and Delta conspired to reduce capacity. On August 31, 2012, AirTran and Delta moved for summary
judgment on all of plaintiffs’ remaining claims, but discovery disputes between plaintiffs and Delta have delayed
further briefing on summary judgment. On November 15, 2013, the Court entered an order referring the case to
mediation, and the mediation is scheduled to begin on February 4, 2014. On December 2, 2013, plaintiffs moved
for discovery sanctions against Delta, and the Court has suspended further briefing on the motions for class
certification, to exclude plaintiffs’ expert on class certification, and for summary judgment until the sanctions
motion is resolved. While AirTran has denied all allegations of wrongdoing, including those in the Consolidated
Amended Complaint, and intends to defend vigorously any and all such allegations, results of legal proceedings
such as this one cannot be predicted with certainty. Regardless of its merit, this litigation and any potential future
claims against the Company or AirTran may be both time consuming and disruptive to the Company’s operations
and cause significant expense and diversion of management attention. Should AirTran and the Company fail to
prevail in this or other matters, the Company may be faced with significant monetary damages or injunctive relief
that could materially adversely affect its business and might materially affect its financial condition and
operating results.
The application of the acquisition method of accounting resulted in the Company recording a significant
amount of goodwill, which could result in significant future impairment charges and negatively affect the
Company’s financial results.
In accordance with applicable acquisition accounting rules, the Company recorded goodwill on its
Consolidated Balance Sheet to the extent the AirTran acquisition purchase price exceeded the net fair value of
AirTran’s tangible and intangible assets and liabilities as of the acquisition date. Goodwill is not amortized, but is
tested for impairment at least annually. Future impairment of Goodwill could be recorded in the Company’s
results of operations as a result of changes in assumptions, estimates, or circumstances, some of which are
beyond the Company’s control. Factors which could result in an impairment, holding other assumptions constant,
could include, but are not limited to: (i) reduced passenger demand as a result of domestic or global economic
conditions; (ii) higher prices for jet fuel; (iii) lower fares or passenger yields as a result of increased competition
or lower demand; (iv) a significant increase in future capital expenditure commitments; and (v) significant
disruptions to the Company’s operations as a result of both internal and external events such as terrorist
activities, actual or threatened war, labor actions by Employees, or further industry regulation. The Company can
provide no assurance that a significant impairment charge will not occur in one or more future periods. Any such
charges may materially negatively affect the Company’s financial results. See Note 1 to the Consolidated
Financial Statements for further information.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Aircraft
Southwest and AirTran operated a total of 680 Boeing aircraft in-service as of December 31, 2013, of
which 160 and four were under operating and capital leases, respectively.
35