Southwest Airlines 2014 Annual Report Download - page 105

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or associated aircraft parts from Boeing, or Boeing were unable or unwilling to make timely deliveries
of aircraft or to provide adequate support for its products, the Company’s operations would be
materially adversely impacted. In addition, the Company would be materially adversely impacted in
the event of a mechanical or regulatory issue associated with the Boeing 737 aircraft type, whether as a
result of downtime for part or all of the Company’s fleet or because of a negative perception by the
flying public. The Company is also dependent on sole suppliers for aircraft engines and certain other
aircraft parts and would, therefore, also be materially adversely impacted in the event of the
unavailability of, or a mechanical or regulatory issue associated with, engines and other parts.
The Company has historically entered into agreements with some of its co-brand, payment,
and loyalty partners that contain exclusivity aspects which place certain confidential restrictions on the
Company from entering into certain arrangements with other payment and loyalty partners. These
arrangements generally extend for the terms of the partnerships, none of which currently extend
beyond May 2017. The Company believes the financial benefits generated by the exclusivity aspects of
these arrangements outweigh the risks involved with such agreements.
2. NEW ACCOUNTING PRONOUNCEMENTS
On May 28, 2014, the Financial Accounting Standards Board and the International Accounting
Standards Board issued converged guidance on recognizing revenue in contracts with customers. The
new guidance establishes a single core principle in the Accounting Standards Update (“ASU”) No. 2014-
09, which is the recognition of revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. This guidance will affect any reporting organization that either enters into
contracts with customers to transfer goods or services or enters into contracts for the transfer of non-
financial assets. This ASU is effective for fiscal years, and interim periods within those years, beginning
on or after December 15, 2016, and early adoption is not permitted. The Company believes the most
significant impacts of this ASU on its accounting will be (i) the elimination of the incremental cost
method for frequent flyer accounting, which would require the Company to re-value its liability earned
by Customers associated with flights points with a relative fair value approach, and (ii) the requirement
that the Company discontinue use of the residual method in allocating funds from the sale of frequent
flyer points to business partners in its frequent flyer program, which would also require the adoption of a
relative fair value approach. The Company is continuing to evaluate the new guidance and plans to
provide additional information about its expected financial impact at a future date.
On August 27, 2014, the Financial Accounting Standards Board issued ASU No. 2014-15.
This standard provides guidance on determining when and how to disclose going-concern uncertainties
in the financial statements. The new standard requires management to perform interim and annual
assessments of an entity’s ability to continue as a going concern within one year of the date the
financial statements are issued. This ASU is effective for fiscal years, and interim periods within those
years, beginning on or after December 15, 2016, with early adoption permitted. The Company is
evaluating the new guidance and plans to provide additional information about its expected impact at a
future date.
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