Southwest Airlines 2014 Annual Report Download - page 104

and $59 million for the years ended December 31, 2014, 2013, and 2012, respectively, and is included as
a component of Depreciation and amortization expense in the accompanying Consolidated Statement of
Income.
Income taxes
The Company accounts for deferred income taxes utilizing an asset and liability method,
whereby deferred tax assets and liabilities are recognized based on the tax effect of temporary
differences between the financial statements and the tax basis of assets and liabilities, as measured by
current enacted tax rates. The Company also evaluates the need for a valuation allowance to reduce
deferred tax assets to estimated recoverable amounts.
The Company’s policy for recording interest and penalties associated with uncertain tax
positions is to record such items as a component of income before income taxes. Penalties are recorded
in Other (gains) losses, net, and interest paid or received is recorded in Interest expense or Interest
income, respectively, in the Consolidated Statement of Income. Amounts recorded for penalties and
interest related to uncertain tax positions were immaterial for all years presented.
Concentration risk
Approximately 83 percent of the Company’s full-time equivalent Employees are unionized and
are covered by collective bargaining agreements. The Company manages this risk by maintaining
positive relationships with its Employees and its Employees’ Representatives. The majority of the
Company’s unionized Employees, including its Pilots, Mechanics, Ramp, Operations, Provisioning and
Freight Agents, Flight Attendants, Material Specialists, Dispatchers, Flight Crew Training Instructors,
Flight Simulator Technicians, and Facilities Maintenance Technicians are in discussions on labor
agreements or have labor agreements which will become amendable within one year. These Employee
groups represent approximately 70 percent of the Company’s full-time equivalent Employees as of
December 31, 2014.
The Company attempts to minimize its concentration risk with regards to its cash, cash
equivalents, and its investment portfolio. This is accomplished by diversifying and limiting amounts
among different counterparties, the type of investment, and the amount invested in any individual
security or money market fund.
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.
As of December 31, 2014, the Company operates an all-Boeing fleet, all of which are
variations of the Boeing 737. Following the 2011 acquisition of AirTran, the Company also operated a
fleet of Boeing 717’s, but these aircraft were removed from the Company’s operations prior to the end
of 2014. See Note 7 for further information. If the Company were unable to acquire additional aircraft
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