Southwest Airlines 1998 Annual Report Download - page 45

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45
SOUTHWEST AIRLINES CO. ¤ SIX STORIES OF FREEDOM
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION Southwest Airlines Co. (Southwest) is a major domestic
airline that provides shorthaul, high-frequency, point-to-point, low-fare service. The
consolidated financial statements include the accounts of Southwest and its wholly
owned subsidiaries (the Company). All significant intercompany balances and
transactions have been eliminated. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these estimates.
Certain prior year amounts have been reclassified for comparison purposes.
CASH AND CASH EQUIVALENTS Cash equivalents consist of certificates of deposit
and investment grade commercial paper issued by major corporations and financial
institutions that are highly liquid and have original maturities of three months or less.
Cash and cash equivalents are carried at cost, which approximates market value.
INVENTORIES Inventories of flight equipment expendable parts, materials, and
supplies are carried at average cost. These items are charged to expense when issued
for use.
PROPERTY AND EQUIPMENT Depreciation is provided by the straight-line method
to estimated residual values over periods ranging from 20 to 25 years for flight
equipment and 3 to 30 years for ground property and equipment. Property under capital
leases and related obligations are 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. Amortization of
property under capital leases is on a straight-line basis over the lease term and is
included in depreciation expense. The Company records impairment losses on long-
lived assets used in operations when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows to be generated by those assets
are less than the carrying amounts of those assets.