Southwest Airlines 2010 Annual Report Download - page 104
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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:
2010 2009 2008
Wtd-average discount rate .................................. 4.30% 4.80% 6.13%
Assumed healthcare cost trend rate (1) ........................ 7.50% 8.00% 8.00%
(1) The assumed healthcare cost trend rate is assumed to remain at 7.5% for 2011, 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 future cash flows associated with the Company’s future payments under its postretirement
obligations to a yield curve created using high quality bonds that closely match those expected future 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.
17. 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, 2010 and 2009, are as follows:
(In millions) 2010 2009
(As adjusted-
Note 3)
DEFERRED TAX LIABILITIES:
Accelerated depreciation ...................................... $3,020 $2,893
Other ...................................................... 112 40
Total deferred tax liabilities ................................ 3,132 2,933
DEFERRED TAX ASSETS:
Fuel derivative instruments .................................... 194 343
Deferred gains from sale and leaseback of aircraft .................. 49 55
Capital and operating leases .................................... 22 38
Accrued employee benefits .................................... 226 220
Stock-based compensation ..................................... 42 86
State taxes ................................................. 74 70
Business partner income ...................................... 129 77
Net operating losses and credit carrybacks ........................ 3 56
Other ...................................................... 114 79
Total deferred tax assets ................................... 853 1,024
Net deferred tax liability .................................. $2,279 $1,909
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