Airtran 2008 Annual Report Download - page 64

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Off-Balance Sheet Arrangements
An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an
unconsolidated entity under which a company has (1) made guarantees, (2) a retained or a contingent interest in
transferred assets, (3) an obligation under derivative instruments classified as equity or (4) any obligation
arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market
risk or credit risk support to the company, or that engages in leasing, hedging or research and development
arrangements with the company.
We have no arrangements of the types described in the first three categories that we believe may have a material
current or future affect on our financial condition, liquidity or results of operations. Certain guarantees that we
do not expect to have a material current or future effect on our financial condition, liquidity or resulted
operations are disclosed in ITEM 8. “FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, Note 3
– Commitments and Contingencies.”
We have variable interests in many of our aircraft leases. The lessors are trusts established specifically to
purchase, finance and lease aircraft to us. These leasing entities meet the criteria of variable interest entities, as
defined by Financial Accounting Standards Board (FASB) Interpretation 46, Consolidation of Variable Interest
Entities. We are generally not the primary beneficiary of the leasing entities if the lease terms are consistent
with market terms at the inception of the lease and do not include a residual value guarantee, a fixed-price
purchase option or similar feature that obligates us to absorb decreases in value or entitles us to participate in
increases in the value of the aircraft. This is the case in the majority of our aircraft leases; however, we have
two aircraft leases that contain fixed-price purchase options that allow us to purchase the aircraft at
predetermined prices on specified dates during the lease term. We have not consolidated the related trusts
because even taking into consideration these purchase options, we are not the primary beneficiary based on our
cash flow analysis.
Critical Accounting Policies and Estimates
General. The discussion and analysis of our financial condition and results of operations is based upon our
Consolidated Financial Statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities at the date of our financial statements.
Our actual results may differ from these estimates under different assumptions or conditions. Critical
accounting policies are defined as those that are reflective of significant judgments and uncertainties, and are
sufficiently sensitive to result in materially different results under different assumptions and conditions. The
following is a description of what we believe to be our most critical accounting policies and estimates. See
Notes to the Consolidated Financial Statements for a description of our financial accounting policies.
Revenue Recognition. Passenger revenue is recognized when transportation is provided. Ticket sales for
transportation which has not yet been provided are recorded as air traffic liability. Air traffic liability represents
tickets sold for future travel dates. The balance of the air traffic liability fluctuates throughout the year based on
seasonal travel patterns and fare sale activity. Passenger revenue accounting is inherently complex and the
measurement of the air traffic liability is subject to some uncertainty.
A nonrefundable ticket expires at the date of scheduled travel unless the customer exchanges the ticket in
advance of such date for a credit to be used by the customer as a form of payment for another ticket. We
recognize as revenue the value of a non-refundable ticket at the date of scheduled travel unless the customer
exchanges his or her ticket for credit. A percent of credits expire unused. We recognize as revenue over time, in
proportion to the credits that are used, the value of credits that we expect to go unused based on historical
experience. Estimating the amount of credits that will go unused involves some level of subjectivity and
judgment. Changes in our estimate of the amount of unused credits could have an effect on our revenues.
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