Southwest Airlines 2013 Annual Report Download - page 95

To manage risk associated with financial derivative instruments held, the Company selects and will
periodically review counterparties based on credit ratings, limits its exposure to a single counterparty, and
monitors the market position of the program and its relative market position with each counterparty. The
Company also has agreements with counterparties containing early termination rights and/or bilateral collateral
provisions whereby security is required if market risk exposure exceeds a specified threshold amount or credit
ratings fall below certain levels. Collateral deposits provided to or held from counterparties serve to decrease, but
not totally eliminate, the credit risk associated with the Company’s hedging program. See Note 10 for further
information.
The Company currently operates an all-Boeing fleet, the majority of which are variations of the Boeing
737. If the Company were unable to acquire additional aircraft or associated aircraft parts from Boeing, or
Boeing were unable or unwilling to make timely deliveries of aircraft or to provide adequate support for its
products, the Company’s operations would be materially adversely impacted. In addition, the Company would be
materially adversely impacted in the event of a mechanical or regulatory issue associated with the Boeing 737 or
Boeing 717 aircraft type, whether as a result of downtime for part or all of the Company’s fleet or because of a
negative perception by the flying public. The Company is also dependent on sole suppliers for aircraft engines
and certain other aircraft parts and would, therefore, also be materially adversely impacted in the event of the
unavailability of, or a mechanical or regulatory issue associated with, engines and other parts.
The Company has historically entered into agreements with some of its co-brand, payment, and loyalty
partners that contain exclusivity aspects which place certain confidential restrictions on the Company from
entering into certain arrangements with other payment and loyalty partners. These arrangements generally extend
for the terms of the partnerships, none of which currently extend beyond May 2017. The Company believes the
financial benefits generated by the exclusivity aspects of these arrangements outweigh the risks involved with
such agreements.
2. AIRTRAN ACQUISITION AND RELATED MATTERS
Expenses related to the AirTran acquisition and integration
The Company has incurred and expects to continue to incur substantial Acquisition and integration
expenses in connection with the AirTran acquisition, including the necessary costs associated with integrating the
operations of the two companies. While the Company has assumed that a certain level of expenses will be
incurred, there are many factors that could affect the total amount or the timing of these expenses, and many of
the expenses that will be incurred are, by their nature, difficult to estimate. In some periods, these expenses have
exceeded the estimated financial benefits that the Company achieved from the AirTran acquisition and the
remaining integration of the companies could continue to result in the Company taking significant charges
against earnings. The Company incurred acquisition and integration-related costs for the years ended
December 31, 2013, 2012, and 2011, of $86 million, $183 million, and $134 million, respectively, primarily
consisting of costs associated with the lease and sublease of AirTran’s Boeing 717-200 fleet, consulting,
Employee training, seniority integration, financial advisory fees, severance, technology integration projects, and
facility integration expenses. In the Consolidated Statement of Income, these costs are classified as Acquisition
and integration expenses.
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