Southwest Airlines 2009 Annual Report Download - page 62

Download and view the complete annual report

Please find page 62 of the 2009 Southwest Airlines annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 108

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Southwest Airlines Co. (the Company) is a major domestic airline that provides point-to-point, low-fare
service. The Consolidated Financial Statements include the accounts of the Company and its wholly owned
subsidiaries. All significant inter-entity balances and transactions have been eliminated. The preparation of
financial statements in conformity with generally accepted accounting principles in the United States (GAAP)
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 period amounts have been reclassified to conform to the current presentation. In
the Consolidated Balance Sheet as of December 31, 2008, the Company’s cash collateral deposits related to fuel
derivatives that have been provided to a counterparty have been adjusted to show a “net” presentation against the
fair value of the Company’s fuel derivative instruments. The entire portion of cash collateral deposits as of
December 31, 2008, $240 million, has been reclassified to reduce “Other deferred liabilities.” In the Company’s
2008 Form 10-K filing, these cash collateral deposits were presented “gross” and all were included as an increase
to “Prepaid expenses and other current assets.” This change in presentation was made in order to comply with the
requirements of Accounting Standards Codification (“ASC”) Subtopic 210-20 (originally issued as part of FIN
39-1, “Amendment of FASB Interpretation No. 39”), which was required to be adopted by the Company
effective January 1, 2008. Following the Company’s 2008 Form 10-K filing on February 2, 2009, the Company
became aware that the requirements of ASC Subtopic 210-20 had not been properly applied to its financial
derivative instruments within the financial statements. The Company determined that the effect of this error was
not material to its financial statements and disclosures taken as a whole, and decided to apply ASC Subtopic
210-20 prospectively beginning with its first quarter 2009 Form 10-Q. Also, in the Consolidated Statement of
Cash Flows for the years ended December 31, 2008, and 2007, the Company has reclassified certain unrealized
noncash gains and/or losses recorded on fuel derivative instruments and the cash collateral received from
counterparties to its fuel hedging program, in order to conform to the current year presentation. The current
presentation now displays these items as separate captions, rather than netting them within other line items as in
prior periods. These reclassifications had no impact on net cash flows provided by operations.
In preparing the accompanying consolidated financial statements, the Company has reviewed, as determined
necessary by the Company’s management, events that have occurred after December 31, 2009, up until the
issuance of the financial statements, which occurred on January 29, 2010.
Cash and cash equivalents
Cash in excess of that necessary for operating requirements is invested in short-term, highly liquid, income-
producing investments. Investments with maturities of three months or less are classified as cash and cash
equivalents, which primarily consist of certificates of deposit, money market funds, and investment grade
commercial paper issued by major corporations and financial institutions. Cash and cash equivalents are stated at
cost, which approximates market value.
Short-term and noncurrent investments
Short-term investments consist of investments with maturities of greater than three months but less than
twelve months. These are primarily investment grade commercial paper issued by major corporations and
financial institutions, short-term securities issued by the U.S. Government, certificates of deposit issued by
domestic banks, and certain auction rate securities that will be redeemed during 2010. All of these investments
are classified as available-for-sale securities and are stated at fair value, which approximates costs, except for
54