Southwest Airlines 2011 Annual Report Download - page 105

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In addition, the Company also had the following amounts associated with fuel derivative instruments and
hedging activities in its Consolidated Balance Sheet:
(in millions) Balance Sheet location
December 31,
2011
December 31,
2010
Cash collateral deposits provided to counterparties—
noncurrent .........................................
Offset against
Other noncurrent
liabilities $ 41 $125
Cash collateral deposits provided to counterparties—current .... Offset against
Accrued liabilities 185 —
Cash collateral deposits held from counterparty—noncurrent . . . Offset against
Other assets — 60
Due to third parties for settled fuel contracts ................. Accrued liabilities 21 —
Receivable from third parties for settled fuel contracts ......... Accounts and other
receivables 3 1
The following tables present the impact of derivative instruments and their location within the
Consolidated Statement of Income for the years ended December 31, 2011 and 2010:
Derivatives in cash flow hedging relationships
(Gain) loss
recognized in AOCI on
derivatives (effective
portion)
(Gain) loss
reclassified from AOCI
into income (effective
portion)(a)
(Gain) loss
recognized in income
on derivatives
(ineffective portion) (b)
Year ended
December 31,
Year ended
December 31,
Year ended
December 31,
(in millions) 2011 2010 2011 2010 2011 2010
Fuel derivative contracts ................. $44* $(47)* $111* $283* $ 35 $ (7)
Interest rate derivatives .................. 32* 15* — — — —
Total ................................. $76 $(32) $111 $283 $ 35 $ (7)
* Net of tax
(a) Amounts related to fuel derivative contracts and interest rate derivatives are included in Fuel and oil and
Interest expense, respectively.
(b) Amounts are included in Other (gains) losses, net.
Derivatives not in cash flow hedging relationships
(Gain) loss recognized in income on
derivatives
Year ended
December 31,
Location of (gain) loss
recognized in income on
derivatives(in millions) 2011 2010
Fuel derivative contracts ...................................... $53 $(26) Other (gains) losses, net
The Company also recorded expense associated with premiums paid for fuel derivative contracts that
settled/expired during 2011, 2010, and 2009 of $107 million, $134 million, and $148 million, respectively. These
amounts are excluded from the Company’s measurement of effectiveness for related hedges and are included as a
component of Other (gains) losses, net, in the Consolidated Statement of Income.
The fair values of the derivative instruments, depending on the type of instrument, were determined by the
use of present value methods or option value models with assumptions about commodity prices based on those
observed in underlying markets or provided by third parties. Included in the Company’s cumulative net
unrealized losses from fuel hedges as of December 31, 2011, were approximately $93 million in unrealized
losses, net of taxes, which are expected to be realized in earnings during the twelve months subsequent to
December 31, 2011. In addition, as of December 31, 2011, the Company had already recognized cumulative net
99