Southwest Airlines 2009 Annual Report Download - page 67

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2009
To manage risk associated with financial derivative instruments held, the Company selects and will
periodically review counterparties based on credit ratings, limits its exposure to a single counterparty, and
monitors the market position of the program and its relative market position with each counterparty. The
Company also has agreements with 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, 2009, the Company had provided $330 million in cash
collateral deposits to its counterparties under these bilateral collateral provisions. 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 or associated aircraft parts from Boeing, or Boeing was unable or unwilling to provide adequate support
for its products, the Company’s operations would be adversely impacted. In addition, the Company would be
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 a sole supplier for aircraft engines and would therefore also be
materially adversely impacted in the event of a mechanical or regulatory issue associated with its engines. The
Company considers its relationship with Boeing and other suppliers 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 June 2009, the Financial Accounting Standards Board (“FASB”) issued ASC 810 (originally issued as
SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”. Among other items, ASC 810 responds to
concerns about the application of certain key provisions of FIN 46(R), including those regarding the transparency
of the involvement with variable interest entities. ASC 810 is effective for calendar year companies beginning on
January 1, 2010. The Company does not believe the adoption of ASC 810 will have a significant impact on its
financial position, results of operations, cash flows, or disclosures.
On September 23, 2009, the FASB ratified Emerging Issues Task Force Issue No. 08-1, “Revenue
Arrangements with Multiple Deliverables” (EITF 08-1). EITF 08-1 updates the current guidance pertaining to
multiple-element revenue arrangements included in ASC Subtopic 605-25, which originated primarily from EITF
00-21, also titled “Revenue Arrangements with Multiple Deliverables.” EITF 08-1 will be effective for annual
reporting periods beginning January 1, 2011 for calendar-year entities. The Company utilizes the accounting
guidance provided in “Revenue Arrangements with Multiple Deliverables” in the timing of recognition of
revenue associated with the sale of frequent flyer credits to business partners. See Note 1. Specifically, the
Company applies the residual method, as currently allowed, but which will be prohibited under EITF 08-1. The
Company is currently evaluating the impact of EITF 08-1 on its financial position, results of operations, cash
flows, and disclosures.
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