Southwest Airlines 2013 Annual Report Download - page 90

Balance Sheet. Realized net gains and losses on specific investments, if any, are reflected in Interest income in
the accompanying Consolidated Statement of Income. Both unrealized and realized gains and/or losses
associated with investments were immaterial for all years presented.
Noncurrent investments consist of investments with maturities of greater than twelve months. At
December 31, 2013, these primarily consisted of the Company’s auction rate security instruments that it expects
will not be redeemed during 2014. See Note 11 for further information. Noncurrent investments are included as a
component of Other assets in the Consolidated Balance Sheet.
Accounts and other receivables
Accounts and other receivables are carried at cost. They primarily consist of amounts due from credit card
companies associated with sales of tickets for future travel, amounts due from business partners in the
Company’s frequent flyer programs, and amounts due from counterparties associated with fuel derivative
instruments that have settled. The allowance for doubtful accounts was immaterial at December 31, 2013, 2012,
and 2011. In addition, the provision for doubtful accounts and write-offs for 2013, 2012, and 2011 were each
immaterial.
Inventories
Inventories consist primarily of aircraft fuel, flight equipment expendable parts, materials, and supplies.
All of these items are carried at average cost, less an allowance for obsolescence. These items are generally
charged to expense when issued for use. The reserve for obsolescence was $36 million and $34 million at
December 31, 2013, and 2012, respectively. In addition, the Company’s provision for obsolescence and write-
offs for 2013, 2012, and 2011 were each immaterial.
Property and equipment
Property and equipment is stated at cost. Depreciation is provided by the straight-line method to estimated
residual values over periods generally ranging from 23 to 25 years for flight equipment and 5 to 30 years for
ground property and equipment once the asset is placed in service. Residual values estimated for aircraft
generally range from 2 to 20 percent and for ground property and equipment generally range from 0 to 10
percent. Property under capital leases and related obligations are initially recorded at an amount equal to the
present value of future minimum lease payments computed on the basis of the Company’s incremental borrowing
rate or, when known, the interest rate implicit in the lease. Amortization of property under capital leases is on a
straight-line basis over the lease term and is included in Depreciation and amortization expense. Leasehold
improvements generally are amortized on a straight-line basis over the shorter of the estimated useful life of the
improvement or the remaining term of the lease. Assets constructed for others primarily consists of airport
improvement projects, once placed into service, in which the Company is considered the accounting owner of the
facilities, and such assets are amortized to estimated residual value over the term of the Company’s lease or the
expected life of the asset. See Note 4.
The Company evaluates its long-lived assets used in operations for impairment when events and
circumstances indicate that the undiscounted cash flows to be generated by that asset are less than the carrying
amounts of the asset and may not be recoverable. Factors that would indicate potential impairment include, but
are not limited to, significant decreases in the market value of the long-lived asset(s), a significant change in the
long-lived asset’s physical condition, and operating or cash flow losses associated with the use of the long-lived
asset. If an asset is deemed to be impaired, an impairment loss is recorded for the excess of the asset book value
in relation to its estimated fair value.
Aircraft and engine maintenance
The cost of scheduled inspections and repairs and routine maintenance costs for all aircraft and engines are
charged to Maintenance materials and repairs expense as incurred. The Company also has “power-by-the-hour”
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