Southwest Airlines 2014 Annual Report Download - page 100

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counterparty do not sufficiently match the level of services received during the period, expense is
recorded on a straight-line basis over the term of the agreement based on our best estimate of expected
future aircraft utilization. For its engine maintenance contracts that do not transfer risk to the service
provider, the Company records expense on a time and materials basis when an engine repair event
takes place. 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.
Goodwill and intangible assets
The Company applies a fair value based impairment test to the carrying value of goodwill and
indefinite-lived intangible assets on an annual basis (as of October 1), or more frequently if certain
events or circumstances indicate that an impairment loss may have been incurred. The FASB standard
“Testing Indefinite-Lived Intangible Assets for Impairment” gives companies the option to perform a
qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible
asset is impaired rather than calculating the fair value of the indefinite-lived intangible asset. The
Company adopted this standard and has applied the provisions to its annual indefinite-lived intangible
asset impairment test for 2014.
The Company first utilizes a qualitative approach and analyzes various factors to determine if
events and circumstances have affected the fair value of the goodwill and indefinite-lived intangible
assets. If the Company determines it is more likely than not that the asset value may be impaired, the
Company then uses the quantitative approach to assess the asset’s fair value and amount of
impairment. As a result of the Company’s qualitative analyses performed during 2014 the Company
concluded it was more likely than not that the fair values of its Goodwill and Indefinite-lived intangible
assets was greater than the carrying value and; therefore, a quantitative assessment was not necessary.
Intangible assets primarily consist of acquired leasehold rights to certain airport owned gates at
Chicago’s Midway International Airport, take-off and landing slots at certain domestic slot-controlled
airports, and certain intangible assets recognized from the AirTran acquisition. The following table is a
summary of the Company’s intangible assets, which are included as a component of Other assets in the
Company’s Consolidated Balance Sheet, as of December 31, 2014 and 2013:
Year ended December 31, 2014 Year ended December 31, 2013
(in millions)
Weighted-
average useful
life (in years)
Gross carrying
amount
Accumulated
amortization
Gross carrying
amount
Accumulated
Amortization
Customer
relationships/marketing
agreements 9 $ 38 $ 26 $ 39 $ 23
Trademarks/trade names 6 36 30 36 25
Owned domestic slots Indefinite 303 n/a 93 n/a
Leased domestic slots (a) 39 19 5 19 4
Non-compete agreements 2 5 5 5 5
Gate leasehold rights 19 60 32 60 29
Total 15 $ 461 $ 98 $ 252 $ 86
(a) Useful life of leased slots is based on the stated lease term.
92