Southwest Airlines 2009 Annual Report Download - page 63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2009
$75 million in auction rate securities that are classified as trading securities as discussed in Note 11. For all short-
term investments, at each reset period, the Company accounts for the transaction as “Proceeds from sales of
short-term investments” for the security relinquished, and a “Purchase of short-investments” for the security
purchased, in the accompanying Consolidated Statement of Cash Flows. Unrealized gains and losses, net of tax,
are recognized in “Accumulated other comprehensive income (loss)” in the accompanying Consolidated Balance
Sheet. Realized net gains on specific investments, which totaled $3 million in 2009, $13 million in 2008, and $17
million in 2007, are reflected in “Interest income” in the accompanying Consolidated Statement of Income.
Noncurrent investments consist of investments with maturities of greater than twelve months. At
December 31, 2009, these primarily consisted of the Company’s auction rate security instruments that it expects
will not be redeemed during 2010. See Note 11 for further information. Noncurrent investments are included as a
component of “Other assets” in the Consolidated Balance Sheet.
As of December 31, 2009 and 2008, the Company had provided cash collateral deposits to its fuel hedge
counterparties totaling $330 million and $240 million, respectively. Although cash collateral amounts provided
or held associated with fuel derivative instruments are not restricted in any way, investment earnings from these
deposits generally must be remitted back to the entity that provided the deposit. Depending on the fair value of
the Company’s fuel derivative instruments, the amounts of collateral deposits held or provided at any point in
time can fluctuate significantly. See Note 10 for further information on these collateral deposits and fuel
derivative instruments.
Accounts and other receivables
Accounts and other receivables are carried at cost. They primarily consist of amounts due from credit card
companies associated with sales of tickets for future travel and amounts due from counterparties associated with
fuel derivative instruments that have settled. The amount of allowance for doubtful accounts as of December 31,
2009, 2008, and 2007 was immaterial. In addition, the provision for doubtful accounts and write-offs for 2009,
2008, and 2007 were immaterial.
Inventories
Inventories primarily consist of flight equipment expendable parts, materials, aircraft fuel, and supplies. All
of these items are carried at average cost, less an allowance for obsolescence. These items are generally charged
to expense when issued for use. The reserve for obsolescence was immaterial at December 31, 2009, 2008, and
2007. In addition, the Company’s provision for obsolescence and write-offs for 2009, 2008, and 2007 was
immaterial.
Property and equipment
Property and equipment is stated at cost. Depreciation is provided by the straight-line method to estimated
residual values over periods generally ranging from 23 to 25 years for flight equipment and 5 to 30 years for
ground property and equipment once the asset is placed in service. Residual values estimated for aircraft are
generally 10 to 15 percent and for ground property and equipment range from zero to 10 percent. Property under
capital leases and related obligations is 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. Leasehold improvements generally are amortized on a straight-line basis
over the shorter of the estimated useful life of the improvement or the remaining term of the lease.
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