Southwest Airlines 2014 Annual Report Download - page 97

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Southwest Airlines Co.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Southwest Airlines Co. (the “Company”) operates Southwest Airlines, a major domestic
airline. The Consolidated Financial Statements include the accounts of the Company and its wholly
owned subsidiaries, which include AirTran Holdings, LLC. On May 2, 2011 (the “acquisition date”),
the Company acquired all of the outstanding equity of AirTran Holdings, Inc. (“AirTran Holdings”),
the former parent company of AirTran Airways, Inc. (“AirTran Airways”). Throughout these Notes,
the Company makes reference to AirTran, which is meant to be inclusive of the following: (i) for
periods prior to the acquisition date, AirTran Holdings and its subsidiaries, including, among others,
AirTran Airways; and (ii) for periods on and after the acquisition date, AirTran Holdings, LLC, the
successor to AirTran Holdings, and its subsidiaries, including among others, AirTran Airways. The
accompanying Consolidated Financial Statements include the results of operations and cash flows for
all periods presented and 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 Statement of Cash Flows for the year ended December 31, 2013, the Company has
reclassified $14 million from Capital expenditures to Assets constructed for others. See Note 4 for
further information.
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 original maturities of three months or less
when purchased 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 fair value.
As of December 31, 2014, $266 million in cash collateral deposits were provided by the
Company to its fuel hedge counterparties and no cash collateral deposits were held by or provided by
the Company to its interest rate hedge counterparties. As of December 31, 2013, the Company had no
cash collateral deposits held by or provided by the Company to its fuel hedge counterparties and the
Company had provided cash collateral deposits totaling $32 million to its interest rate hedge
counterparties. Cash collateral amounts provided or held associated with fuel and interest rate
derivative instruments are not restricted in any way and earn interest income at an agreed upon rate that
approximates the rates earned on short-term securities issued by the U.S. Government. Depending on
the fair value of the Company’s fuel and interest rate 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.
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