Southwest Airlines 2006 Annual Report Download - page 71

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The assumed healthcare cost trend rates have a
significant effect on the amounts reported for the Com-
pany’s plan. A one-percent change in all healthcare cost
trend rates used in measuring the APBO at December 31,
2006, would have the following effects:
1% Increase 1% Decrease
(In millions)
Increase (decrease) in total
service and interest cost. . $2 $(2)
Increase (decrease) in the
APBO .............. $8 $(8)
The Company’s plans are unfunded, and benefits are
paid as they become due. For 2006, both benefits paid
and Company contributions to the plans were each
$5 million. For 2005, both benefits paid and Company
contributions to the plans were each $2 million. Esti-
mated future benefit payments expected to be paid for
each of the next five years are $6 million in 2007,
$8 million in 2008, $10 million in 2009, $12 million
in 2010, $15 million in 2011, and $106 million for the
next five years thereafter.
On December 31, 2006, the Company adopted the
recognition and disclosure provisions of SFAS 158.
SFAS 158 required 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 December 31, 2006 Consolidated Balance
Sheet, with a corresponding adjustment to accumulated
other comprehensive income, net of tax. The net adjust-
ment to accumulated other comprehensive income at
adoption of $11 million ($7 million net of tax) repre-
sents the net unrecognized actuarial losses and unrecog-
nized prior service costs. The effects of adopting the
provisions of SFAS 158 on the Company’s Consolidated
Balance Sheet at December 31, 2006, are presented in the
following table.
The following table shows the calculation of the
accrued postretirement benefit cost recognized in “Other
deferred liabilities” on the Company’s Consolidated Bal-
ance Sheet at December 31, 2006 and 2005:
2006 2005
(In millions)
Funded status ................. $(111) $(94)
Unrecognized net actuarial loss .... 7 4
Unrecognized prior service cost .... 4 6
Accumulated other comprehensive
income.................... (11) —
Cost recognized on Consolidated
Balance Sheet ............... $(111) $(84)
The Company’s periodic postretirement benefit
cost for the years ended December 31, 2006, 2005,
and 2004, included the following:
2006 2005 2004
(In millions)
Service cost ............... $15 $12 $10
Interest cost............... 545
Amortization of prior service
cost . . . ................ 222
Recognized actuarial loss...... (1) —1
Net periodic postretirement
benefit cost ............. $21 $18 $18
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. The Company used the following actu-
arial assumptions to account for its postretirement benefit
plans at December 31:
2006 2005 2004
Wtd-average discount rate . . . 5.25% 5.25% 6.25%
Assumed healthcare cost
trend rate(1) .......... 8.50% 9.00% 10.00%
(1) The assumed healthcare cost trend rate is assumed
to remain at 8.50% for 2007, then decline gradually
to 5% by 2014 and remain level thereafter.
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)