Southwest Airlines 2008 Annual Report Download - page 90

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s periodic postretirement benefit
cost for the years ended December 31, 2008, 2007,
and 2006, included the following:
2008 2007 2006
(In millions)
Service cost ................. $14 $16 $15
Interest cost ................. 565
Amortization of prior service
cost ...................... 222
Recognized actuarial loss ....... (3) — (1)
Net periodic postretirement
benefit cost ................ $18 $24 $21
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 actuarial assumptions to account for its
postretirement benefit plans at December 31:
2008 2007 2006
Wtd-average discount rate .... 6.13% 5.75% 5.50%
Assumed healthcare cost trend
rate(1) .................. 8.00% 8.00% 8.50%
(1) The assumed healthcare cost trend rate is
assumed to remain at to 8.0% for 2009, then
decline gradually to 5% by 2023 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.
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, 2008 and 2007, are as follows:
2008 2007
(In millions)
DEFERRED TAX LIABILITIES:
Accelerated depreciation ............................................ $2,760 $2,612
Fuel derivative instruments .......................................... —884
Other ........................................................... 29 19
Total deferred tax liabilities ....................................... 2,789 3,515
DEFERRED TAX ASSETS:
Fuel derivative instruments .......................................... 567 —
Deferred gains from sale and leaseback of aircraft ........................ 60 65
Capital and operating leases ......................................... 47 58
Accrued employee benefits .......................................... 211 187
Stock-based compensation .......................................... 93 110
State taxes ....................................................... 69 75
Business partner income ............................................ 81 78
Other ........................................................... 86 37
Total deferred tax assets .......................................... 1,214 610
Net deferred tax liability .......................................... $1,575 $2,905
71