Southwest Airlines 2009 Annual Report Download - page 57

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triggers in which cash collateral would be required to be posted with the counterparty if the Company’s credit
rating falls below investment grade by two of the three major rating agencies, and if the Company were in a net
liability position with the counterparties. As of December 31, 2009, there was no cash posted with these
counterparties. The Company was in a net fuel hedge liability position with one of these counterparties at
December 31, 2009. Assuming its credit rating were below investment grade as of that date, the Company would
have been required to post approximately $27 million in cash collateral deposits with that counterparty.
The Company currently has processing agreements with organizations that process credit card transactions
arising from purchases of air travel tickets by its Customers utilizing American Express, Discover and
MasterCard/VISA. Credit card processors have financial risk associated with tickets purchased for travel
because, although the processor generally forwards the cash related to the purchase to the Company soon after
the purchase is completed, the air travel generally occurs after that time, and the processor would have liability if
the Company does not ultimately provide the air travel. Under these processing agreements, and based on
specified conditions, increasing amounts of cash reserves could be required to be posted with the counterparty.
A majority of the Company’s sales transactions are processed by Chase Paymentech. Should chargebacks
processed by Chase Paymentech reach a certain level, proceeds from advance ticket sales could be held back and
used to establish a reserve account to cover such chargebacks and any other disputed charges that might occur.
Additionally, cash reserves are required to be established if the Company’s credit rating falls to specified levels
below investment grade. Cash reserve requirements are based on the Company’s public debt rating and a
corresponding percentage of the Company’s “Air traffic liability.”
As of December 31, 2009, the Company was in compliance with all credit card processing agreements.
However, the inability to enter into credit card processing agreements would have a material adverse effect on
the business of the Company. The Company believes that it will be able to continue to renew its existing credit
card processing agreements or will be able to enter into new credit card processing agreements with other
processors in the future.
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