Southwest Airlines 2014 Annual Report Download - page 98

Short-term and noncurrent investments
Short-term investments consist of investments with original maturities of greater than three
months but less than twelve months when purchased. These are primarily short-term securities issued
by the U.S. Government and certificates of deposit issued by domestic banks. All of these investments
are classified as available-for-sale securities and are stated at fair value, which approximates cost. For
all short-term investments, at each reset period or upon reinvestment, the Company accounts for the
transaction as Proceeds from sales of short-term investments for the security relinquished, and
Purchases of short-investments for the security purchased, in the accompanying Consolidated
Statement of Cash Flows. Unrealized gains and losses, net of tax, if any, are recognized in
Accumulated other comprehensive income (loss) (“AOCI”) in the accompanying Consolidated
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, 2014, these primarily consisted of the Company’s auction rate security instruments
that it expects will not be redeemed during 2015. 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 program, and amounts due from counterparties associated
with fuel derivative instruments that have settled. The allowance for doubtful accounts was immaterial
at December 31, 2014 and 2013. In addition, the provision for doubtful accounts and write-offs for
2014 and 2013 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 $46 million
and $36 million at December 31, 2014, and 2013, respectively. In addition, the Company’s provision
for obsolescence and write-offs for 2014, 2013, and 2012 were each immaterial.
Property and equipment
Property and equipment is stated at cost. Capital expenditures includes payments made for
aircraft, other flight equipment, purchase deposits related to future aircraft deliveries, and ground and
other property and equipment. 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.
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