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Non-Operating Results
The decline in interest expense, net is driven by reduced levels of debt and lower interest rates. Our principal amount of debt has declined
from $15.4 billion at the beginning of 2011 to $11.2 billion at December 31, 2013 . During 2012 and 2011, we recorded $118 million and $68
million in losses from the early extinguishment of debt, which primarily related to the write-off of debt discounts. These debt discounts are
primarily a result of fair value adjustments recorded in 2008 to reduce the carrying value of Northwest long-term debt due to purchase
accounting. As a result of these write-offs and scheduled amortization, our unamortized debt discount has decreased from $935 million at the
beginning of 2011 to $383 million at December 31, 2013 .
Income Taxes
We consider all income sources, including other comprehensive income, in determining the amount of tax benefit allocated to continuing
operations. The following table shows the components of our income tax benefit (provision):
During the December 2013 quarter, after considering all relevant factors, we concluded that our deferred income tax assets are more likely
than not to be realized. Accordingly, at December 31, 2013, we released almost all of our valuation allowance against our net deferred income
tax assets. The release of the allowance primarily resulted in a net tax benefit of $8.0 billion that was recorded in income tax benefit (provision)
in our Consolidated Statement of Operations. Beginning in 2014, we expect to record income tax expense with an effective rate of approximately
38%. At December 31, 2013 , we had $15.3 billion of U.S. federal pre-tax net operating loss carryforwards. Accordingly, we believe we will not
pay any cash federal income taxes during the next several years. Our U.S. federal pre-tax net operating loss carryforwards do not begin to expire
until 2023 . See Note 12 of the Notes to the Consolidated Financial Statements for more information.
During 2012 and 2011, we did not record an income tax provision for U.S. federal income tax purposes since our deferred tax assets were
fully reserved by a valuation allowance. During 2011, we recorded an income tax benefit of $85 million, primarily related to the recognition of
alternative minimum tax refunds.
37
Year Ended December 31,
Favorable (Unfavorable)
(in millions) 2013 2012 2011
2013 vs. 2012 2012 vs. 2011
Interest expense, net
$
(698
)
(812
)
$
(901
)
114
89
Amortization of debt discount, net
(154
)
(193
)
(193
)
39
—
Loss on extinguishment of debt —
(
118
)
(68
)
118
(50
)
Miscellaneous, net
(21
)
(27
)
(44
)
17
Total other expense, net
$
(873
)
(1,150
)
$
(1,206
)
277
56
Year Ended December 31,
(in millions) 2013 2012 2011
Current tax benefit (provision):
Federal
$
24
—
91
State and local
(3
)
15
(6
)
International
(14
)
(2
)
Deferred tax provision:
Federal
7,197
(4
)
2
State and local
794
(13
)
—
Income tax benefit (provision)
$
8,013
(16
)
85