Southwest Airlines 2012 Annual Report Download - page 121

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The total aggregate intrinsic value of options exercised for all plans during the years ended December 31,
2012, 2011, and 2010, was $1 million, $1 million, and $4 million, respectively. The total grant date fair value of
shares vesting during the years ended December 31, 2012, 2011, and 2010, was $13 million, $13 million, and
$10 million, respectively.
Employee Stock Purchase Plan
Under the amended 1991 Employee Stock Purchase Plan (ESPP), which has been approved by
Shareholders, the Company is authorized to issue up to a remaining balance of 3 million shares of the Company’s
common stock to Employees of the Company. These shares may be issued at a price equal to 90 percent of the
market value at the end of each monthly purchase period. Common stock purchases are paid for through periodic
payroll deductions. For the years ended December 31, 2012, 2011, and 2010, participants under the plan
purchased 2.2 million shares, 1.7 million shares, and 1.3 million shares at average prices of $8.01, $9.73, and
$11.25, respectively. The weighted-average fair value of each purchase right under the ESPP granted for the
years ended December 31, 2012, 2011, and 2010, which is equal to the ten percent discount from the market
value of the Common Stock at the end of each monthly purchase period, was $0.89, $1.03, and $1.23,
respectively.
Taxes
A portion of the Company’s granted options qualify as incentive stock options for income tax purposes. As
such, a tax benefit is not recorded at the time the compensation cost related to the options is recorded for book
purposes due to the fact that an incentive stock option does not ordinarily result in a tax benefit unless there is a
disqualifying disposition. Grants of non-qualified stock options result in the creation of a deferred tax asset,
which is a temporary difference, until the time that the option is exercised. Due to the treatment of incentive
stock options for tax purposes, the Company’s effective tax rate from year to year is subject to variability.
15. EMPLOYEE RETIREMENT PLANS
Defined contribution plans
Southwest has defined contribution plans covering substantially all of its Employees. Contributions under
all defined contribution plans are primarily based on Employee compensation and performance of the Company.
The Company sponsors Employee savings plans under section 401(k) of the Internal Revenue Code, which
include Company matching contributions. In addition, the Southwest Airlines Co. ProfitSharing Plan
(ProfitSharing Plan) is a defined contribution plan to which the Company may contribute a percentage of its
eligible pre-tax profits, as defined, on an annual basis. No Employee contributions to the ProfitSharing Plan are
allowed. AirTran Employees became eligible to participate in Southwest’s ProfitSharing Plan beginning
January 1, 2012.
Company contributions to all defined contribution plans expensed in 2012, 2011, and 2010, reflected as a
component of Salaries, wages, and benefits, were $370 million, $316 million, and $350 million, respectively.
Postretirement benefit plans
Southwest and AirTran provide postretirement benefits to qualified retirees in the form of medical and
dental coverage. Employees must meet minimum levels of service and age requirements as set forth by the
Company, or as specified in collective bargaining agreements with specific workgroups. Employees meeting
these requirements, as defined, may use accrued unused sick time to pay for medical and dental premiums from
the age of retirement until age 65.
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