Southwest Airlines 1999 Annual Report Download - page 31

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION Southwest Airlines Co. (Southwest) is a major domestic
airline that primarily 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 restated to conform to the current year presentation.
CASH AND CASH EQUIVALENTS Cash equivalents consist of certificates of
deposit and investment grade commercial paper issued by major corporations and
financial institutions. Cash and cash equivalents 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. See Note 2 for further information on
aircraft depreciation. 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
F12