Southwest Airlines 2009 Annual Report Download - page 92

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2009
The Company follows the accounting recognition and disclosure provisions of “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans”, which requires the Company to recognize the funded
status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of its benefit
plans in the Consolidated Balance Sheet, with a corresponding adjustment to “Accumulated other comprehensive
income (loss),” net of tax. The following table reconciles the funded status of the plan to the Company’s accrued
postretirement benefit cost recognized in “Other deferred liabilities” on the Company’s Consolidated Balance
Sheet at December 31, 2009 and 2008.
(In millions) 2009 2008
Funded status ......................................... $(86) $(101)
Unrecognized net actuarial gain ........................... (54) (32)
Unrecognized prior service cost ........................... 2 1
Accumulated other comprehensive income .................. 52 31
Cost recognized on Consolidated Balance Sheet .............. $(86) $(101)
During 2009, the Company recorded a $29 million actuarial gain as a decrease to the recognized obligation
with the offset to “Accumulated other comprehensive income (loss).” This actuarial gain is included above and
primarily resulted from changes in assumptions related to the estimated amount of unused sick time at retirement,
estimated age of Employees at retirement, and a change in the expense attribution period for a specific Employee
group.
The Company’s periodic postretirement benefit cost for the years ended December 31, 2009, 2008, and
2007, included the following:
(In millions) 2009 2008 2007
Service cost .............................................. $10 $14 $ 16
Interest cost .............................................. 4 5 6
Amortization of prior service cost ............................ 1 2 2
Recognized actuarial gain .................................. (7) (3) —
Net periodic postretirement benefit cost ....................... $ 8 $18 $ 24
Unrecognized prior service cost is expensed using a straight-line amortization of the cost over the average
future service of Employees expected to receive benefits under the plan. Actuarial gains are amortized utilizing
the minimum amortization method. The Company used the following actuarial assumptions to account for its
postretirement benefit plans at December 31:
2009 2008 2007
Wtd-average discount rate .................................. 4.80% 6.13% 5.75%
Assumed healthcare cost trend rate (1) ........................ 8.00% 8.00% 8.00%
(1) The assumed healthcare cost trend rate is assumed to remain at 8.0% for 2010, then decline gradually to 5%
by 2024 and remain level thereafter.
The selection of a discount rate is made annually and is selected by the Company based upon comparison of
the expected cash flows associated with the Company’s future payments under its postretirement obligations to a
hypothetical bond portfolio created using high quality bonds that closely match those expected cash flows. 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.
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