Southwest Airlines 2013 Annual Report Download - page 115

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The Company’s investments associated with its excess benefit plan consist of mutual funds that are
publicly traded and for which market prices are readily available. This plan is a non-qualified deferred
compensation plan designed to hold Employee contributions in excess of limits established by Section 415 of the
Internal Revenue Code of 1986, as amended. Payments under this plan are made based on the participant’s
distribution election and plan balance. Assets related to the funded portion of the deferred compensation plan are
held in a rabbi trust, and the Company remains liable to these participants for the unfunded portion of the plan.
The Company records changes in the fair value of the liability and the asset in the Company’s earnings.
All of the Company’s auction rate security instruments, totaling $39 million (net) at December 31, 2013,
are classified as available-for-sale securities and are reflected at their estimated fair value in the Consolidated
Balance Sheet. The Company’s Treasury Department determines the estimated fair values of these securities
utilizing a discounted cash flow analysis. The Company has performed, and routinely updates, a valuation for
each of its auction rate security instruments, considering, among other items, the collateralization underlying the
security investments, the expected future cash flows, including the final maturity, associated with the securities,
estimates of the next time the security is expected to have a successful auction or return to full par value,
forecasted reset rates based on LIBOR or the issuer’s net loan rate, and a counterparty credit spread. To validate
the reasonableness of the Company’s discounted cash flow analyses, the Company compares its valuations to
third party valuations on a quarterly basis.
The following tables present the Company’s assets and liabilities that are measured at fair value on a
recurring basis at December 31, 2013, and December 31, 2012:
Fair value measurements at reporting date using:
Description December 31, 2013
Quoted prices in
active markets
for identical assets
(Level 1)
Significant
other observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
(in millions)
Assets
Cash equivalents
Cash equivalents (a) ......................... $ 992 $ 992 $ — $ —
Commercial paper ........................... 280 — 280 —
Certificates of deposit ........................ 23 — 23 —
Eurodollar Time Deposits ..................... 60 — 60 —
Short-term investments:
Treasury bills .............................. 1,570 1,570 — —
Certificates of deposit ........................ 227 — 227 —
Noncurrent investments (b)
Auction rate securities ....................... 39 — — 39
Interest rate derivatives (see Note 10) ............. 20 — 20 —
Fuel derivatives:
Swap contracts (c) ........................... 16 — 16 —
Option contracts (c) ......................... 458 — — 458
Option contracts (d) ......................... 9 — — 9
Other available-for-sale securities ................ 63 58 — 5
Total assets ................................. $ 3,757 $ 2,620 $ 626 $ 511
Liabilities
Fuel derivatives:
Swap contracts (c) ........................... $ (8) $ — $ (8) $ —
Option contracts (c) ......................... (274) — — (274)
Option contracts (d) ......................... (21) — — (21)
Interest rate derivatives (see Note 10) ............. (77) — (77) —
Deferred compensation ......................... (158) (158) — —
Total liabilities ............................... $ (538) $ (158) $ (85) $ (295)
(a) Cash equivalents are primarily composed of money market investments.
(b) Noncurrent investments are included in Other assets in the Consolidated Balance Sheet.
(c) In the Consolidated Balance Sheet amounts are presented as a net asset. See Note 10.
(d) In the Consolidated Balance Sheet amounts are presented as a net liability. See Note 10.
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