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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
counterparties containing early termination rights
and/or bilateral collateral provisions whereby
security is required if market risk exposure exceeds a
specified threshold amount or credit ratings fall
below certain levels. At December 31, 2008, the
Company had provided $240 million in cash
collateral deposits to one of its counterparties under
these bilateral collateral provisions. The cash
collateral provided to the counterparty has been
recorded as a reduction to “Cash and cash
equivalents” and an increase to “Prepaid expenses
and other current assets.” Cash collateral deposits
serve to decrease, but not totally eliminate, the credit
risk associated with the Company’s hedging
program. See Note 10 for further information.
The Company operates an all-Boeing 737 fleet
of aircraft. If the Company was unable to acquire
additional aircraft from Boeing, or Boeing was
unable or unwilling to provide adequate support for
its products, the Company’s operations could be
adversely impacted. However, the Company
considers its relationship with Boeing to be excellent
and believes the advantages of operating a single
fleet type outweigh the risks of such a strategy.
2. Recent Accounting Developments
In March 2008, the Financial Accounting
Standards Board (FASB) issued Statement No. 161,
“Disclosures about Derivative Instruments and
Hedging Activities — an amendment of FASB
Statement No. 133” (Statement 161). Statement 161
requires entities that utilize derivative instruments to
provide qualitative disclosures about their objectives
and strategies for using such instruments, as well as
any details of credit-risk-related contingent features
contained within derivatives. Statement 161 also
requires entities to disclose additional information
about the amounts and location of derivatives located
within the financial statements, how the provisions of
SFAS 133 have been applied, and the impact that
hedges have on an entity’s financial position,
financial performance, and cash flows. Statement 161
is effective for fiscal years and interim periods
beginning after November 15, 2008, with early
application encouraged. The Company currently does
not anticipate the adoption of Statement 161 will
have a material impact on the disclosures already
provided.
In June 2008, the FASB issued an exposure draft
of a proposed amendment to SFAS 133. As proposed,
this amendment would make several significant
changes to the way in which entities account for
hedging activities involving derivative instruments.
Financial derivative instruments and hedging are one
of the Company’s Critical Accounting Policies and
Estimates as disclosed in “Part II, Item 7,” and, as
such, the proposed amendment could have a
significant impact on the timing of potential gains
and/or losses recognized in the Company’s future
earnings. However, the Company does not believe
the proposed amendment would have a significant
impact on the economic benefit provided by its
hedging activities or its decision to utilize derivative
instruments in managing its risk associated with
changing jet fuel prices. The FASB has not yet issued
a final Statement.
In October 2008, the FASB issued Staff Position
No. FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset is
Not Active” (FSP 157-3). FSP 157-3 clarifies the
application of SFAS 157, which the Company
adopted as of January 1, 2008, in cases where a
market is not active. The Company has considered
the guidance provided by FSP 157-3 in its
determination of estimated fair values as of
December 31, 2008, and the impact was not material.
3. Acquisition of Certain Assets And Codeshare
Relationship
In fourth quarter 2004, the Company was
selected as the winning bidder at a bankruptcy-court
approved auction for certain ATA Airlines, Inc.
(ATA) assets. As part of the transaction, the
Company acquired the leasehold rights to six of
ATA’s leased Chicago Midway Airport gates. In
addition, the Company provided ATA with $40
million in debtor-in-possession financing while ATA
remained in bankruptcy, and also guaranteed the
repayment of an ATA construction loan to the City of
Chicago for $7 million.
During fourth quarter 2005, ATA Airlines, Inc.
(ATA) entered into an agreement in which an
investor, MatlinPatterson Global Opportunities
Partners II, would provide financing to enable ATA
to emerge from bankruptcy. As part of this
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