Southwest Airlines 2013 Annual Report Download - page 124

2013 (2) 2012 (2) 2011
Wtd-average discount rate ............................... 5.05% 2.90% 4.05%
Assumed healthcare cost trend rate (1) ..................... 7.50% 8.00% 7.50%
(1) The assumed healthcare cost trend rate is assumed to remain at 7.5% for 2014, then decline gradually to
5.0% by 2024 and remain level thereafter.
(2) Includes AirTran plans.
The selection of a discount rate is made annually and is selected by the Company based upon comparison
of the expected future cash flows associated with the Company’s future payments under its consolidated
postretirement obligations to a yield curve created using high quality bonds that closely match those expected
future cash flows. This rate increased during 2013 due to both market conditions and a longer expected
participant service period. The assumed healthcare trend rate is also reviewed at least annually and is determined
based upon both historical experience with the Company’s healthcare benefits paid and expectations of how
those trends may or may not change in future years.
16. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The
components of deferred tax assets and liabilities at December 31, 2013 and 2012, are as follows:
(in millions) 2013 2012
DEFERRED TAX LIABILITIES:
Accelerated depreciation ........................................... $ 4,069 $ 3,939
Fuel derivative instruments ......................................... 36 33
Other ........................................................... 84 70
Total deferred tax liabilities ....................................... 4,189 4,042
DEFERRED TAX ASSETS:
Fuel derivative instruments ......................................... 8 40
Deferred gains from sale and leaseback of aircraft ....................... 24 24
Capital and operating leases ......................................... 163 179
Construction obligation ............................................ 168 127
Accrued engine maintenance ........................................ 90 84
Accrued employee benefits ......................................... 307 281
State taxes ....................................................... 74 77
Business partner income ............................................ 457 339
Net operating losses and credit carryforwards ........................... 14 83
Other ........................................................... 118 170
Total deferred tax assets .......................................... 1,423 1,404
Net deferred tax liability .......................................... $ 2,766 $ 2,638
The provision for income taxes is composed of the following:
(in millions) 2013 2012 2011
CURRENT:
Federal ............................................ $ 355 $ (45) $ 4
State .............................................. 44 12 13
Total current ...................................... 399 (33) 17
DEFERRED:
Federal ............................................ 62 287 122
State .............................................. (6) 10 6
Total deferred ..................................... 56 297 128
$ 455 $ 264 $ 145
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