What changed in this filing

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Item 1. Financial Statements

2024-07-29 compared with 2024-04-26 · 288 added, 152 removed, 542 unchanged (45% of the section changed)

3 unchanged sentences

(in millions)

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Current assets:

40 unchanged sentences

Southwest Airlines Co.

Condensed Consolidated Statement of Comprehensive Loss

Condensed Consolidated Statement of Comprehensive Income

(in millions, except per share amounts)

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2024 2023 2024 2023

OPERATING REVENUES:

11 unchanged sentences

Total operating expenses 6,956 6,242 13,677 12,232

OPERATING LOSS ( 393 ) ( 284 )

OPERATING INCOME 398 795 6 511

OTHER EXPENSES (INCOME):

4 unchanged sentences

Total other income ( 80 ) ( 91 ) ( 175 ) ( 171 )

LOSS BEFORE INCOME TAXES ( 298 ) ( 205 )

BENEFIT FOR INCOME TAXES ( 67 ) ( 46 )

NET LOSS $ ( 231 ) $ ( 159 )

NET LOSS PER SHARE, BASIC $ ( 0.39 ) $ ( 0.27 )

NET LOSS PER SHARE, DILUTED $ ( 0.39 ) $ ( 0.27 )

COMPREHENSIVE LOSS $ ( 212 ) $ ( 306 )

INCOME BEFORE INCOME TAXES 478 886 181 682

PROVISION FOR INCOME TAXES 111 203 44 158

NET INCOME $ 367 $ 683 $ 137 $ 524

NET INCOME PER SHARE, BASIC $ 0.61 $ 1.15 $ 0.23 $ 0.88

NET INCOME PER SHARE, DILUTED $ 0.58 $ 1.08 $ 0.23 $ 0.84

COMPREHENSIVE INCOME $ 359 $ 544 $ 148 $ 238

WEIGHTED AVERAGE SHARES OUTSTANDING

13 unchanged sentences

Balance at March 31, 2024 $ 888 $ 4,138 $ 15,959 $ 19 $ ( 10,808 ) $ 10,196

Issuance of common and treasury stock pursuant to Employee stock plans — 12 — — 5 17

Share-based compensation — 7 — — — 7

Cash dividends, $ 0.18 per share

— — ( 108 ) — — ( 108 )

Stock warrants repurchase — ( 6 ) — — — ( 6 )

Comprehensive income (loss) — — 367 ( 8 ) — 359

Balance at June 30, 2024 $ 888 $ 4,151 $ 16,218 $ 11 $ ( 10,803 ) $ 10,465

Common Stock Capital in excess of par value Retained earnings Accumulated other comprehensive income (loss) Treasury stock Total

6 unchanged sentences

Balance at March 31, 2023 $ 888 $ 4,058 $ 15,995 $ 197 $ ( 10,836 ) $ 10,302

Issuance of common and treasury stock pursuant to Employee stock plans — 11 — — 5 16

Share-based compensation — 34 — — — 34

Cash dividends, $ 0.18 per share

— — ( 107 ) — — ( 107 )

Comprehensive income (loss) — — 683 ( 139 ) — 544

Balance at June 30, 2023 $ 888 $ 4,103 $ 16,571 $ 58 $ ( 10,831 ) $ 10,789

See accompanying notes.

2 unchanged sentences

(in millions)

Three months ended

Three months ended Six months ended

June 30, June 30,

2024 2023 2024 2023

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss $ ( 231 ) $ ( 159 )

Net income $ 367 $ 683 $ 137 $ 524

Adjustments to reconcile net loss to cash provided by (used in) operating activities:

9 unchanged sentences

Other liabilities ( 45 ) ( 44 ) ( 117 ) ( 90 )

Cash collateral received from (provided to) derivative counterparties — ( 30 )

Cash collateral provided to derivative counterparties ( 20 ) ( 16 ) ( 20 ) ( 46 )

Other, net ( 13 ) ( 118 ) ( 54 ) ( 178 )

8 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Payroll Support Program stock warrants repurchase ( 6 ) — ( 6 ) —

Proceeds from Employee stock plans 15 14 30 22

2 unchanged sentences

Other, net 3 4 ( 20 ) 6

Net cash used in financing activities ( 232 ) ( 262 )

Net cash provided by (used in) financing activities 4 10 ( 227 ) ( 253 )

NET CHANGE IN CASH AND CASH EQUIVALENTS ( 225 ) 799 ( 1,146 ) ( 334 )

12 unchanged sentences

Financial Derivative Instruments

Comprehensive Loss

Net Loss Per Share

Comprehensive Income

Net Income Per Share

Fair Value Measurements

2 unchanged sentences

Financing Activities

Subsequent Events

Notes to Condensed Consolidated Financial Statements

8 unchanged sentences

This disruption and subsequent recovery efforts resulted in the cancellation of more than 16,700 flights during the period from December 21 through December 31, 2022.

These events also created a deceleration in bookings, primarily isolated to January and February 2023, as well as increased first quarter 2023 expenses by approximately $ 55 million, which are included in the accompanying unaudited Condensed Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2023.

These first quarter 2023 expenses included reimbursements to Customers impacted by the cancellations for costs they incurred in excess of the amounts accrued as of December 31, 2022, adjustments to the estimated value of Rapid Rewards points offered as a gesture of goodwill to Customers as a result of changes in the estimates of the points expected to be redeemed, and additional premium pay and additional compensation for Employees directly or indirectly impacted by the cancellations and recovery efforts.

2 unchanged sentences

Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States ("GAAP") for complete financial statements.

The unaudited Condensed Consolidated Financial Statements for the interim periods ended March 31, 2024 and 2023 include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods.

The unaudited Condensed Consolidated Financial Statements for the interim periods ended June 30, 2024 and 2023 include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods.

This includes all normal and recurring adjustments and elimination of significant intercompany transactions.

3 unchanged sentences

These and other factors, such as the price of jet fuel in some periods, the nature of the Company's fuel hedging program, and the periodic volatility of commodities used by the Company for hedging jet fuel, have created, and may continue to create, significant volatility in the Company's financial results.

See Note 3 for further information on fuel and the Company's hedging program.

Operating results for the three months ended March 31, 2024, are not necessarily indicative of the results that may be expected for future quarters or for the year ended December 31, 2024.

See Note 3 for further information on fuel and the Company's fuel hedging program.

Operating results for the three and six months ended June 30, 2024, are not necessarily indicative of the results that may be expected for future quarters or for the year ended December 31, 2024.

For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

NEW ACCOUNTING PRONOUNCEMENTS

On December 14, 2023, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

This standard increases transparency and decision usefulness of income tax disclosures for investors by requiring information to

During second quarter 2024, the Company identified certain 737-700 ("-700") aircraft that are planned for early retirement in 2025.

These accelerated retirement dates, and the corresponding impact to depreciation expense, are considered a change in estimate and resulted in the following impact to Depreciation and amortization expense for the three and six months ended June 30, 2024:

Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

better assess how an entity's operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows.

Three months ended Six months ended

(in millions, except per share amounts) June 30, 2024 June 30, 2024

Depreciation and amortization expense $ 10 $ 10

Net income * $ ( 6 ) $ ( 6 )

Net income per basic share $ ( 0.01 ) $ ( 0.01 )

Net income per diluted share $ ( 0.01 ) $ ( 0.01 )

* net of profitsharing benefit and income taxes

NEW ACCOUNTING PRONOUNCEMENTS

On December 14, 2023, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

This standard increases transparency and decision usefulness of income tax disclosures for investors by requiring information to better assess how an entity's operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows.

This standard requires entities to provide enhanced disclosures related to the income tax rate reconciliation and income taxes paid.

4 unchanged sentences

This standard improves reportable segment disclosures by adding and enhancing interim disclosure requirements, clarifying circumstances in which entities can disclose multiple segment measures of profit or loss, providing new segment disclosure requirements for entities with a single reportable segment, and adding other disclosure requirements.

This standard is effective for all entities that are subject to Topic 280, Segment Reporting for annual periods beginning after December 15, 2023, but early adoption is permitted.

This standard is effective for all entities that are subject to Topic 280, Segment Reporting for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, but early adoption is permitted.

The Company is evaluating this new standard but does not expect it to have a significant impact on its financial statement presentation or results.

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Furthermore, jet fuel typically represents one of the largest operating expenses for airlines.

The Company endeavors to acquire jet fuel at the lowest possible cost and to reduce volatility in operating expenses through its fuel hedging program.

The Company endeavors to acquire jet fuel at the lowest possible net cost and to reduce volatility in operating expenses through its fuel hedging program.

The Company has used financial derivative instruments for both short-term and long-term timeframes, and historically has used a mixture of purchased call options, collar structures (which include both a purchased call option and a sold put option), call spreads (which include a purchased call option and a sold call option), put spreads (which include a purchased put option and a sold put option), and fixed price swap agreements in its portfolio.

3 unchanged sentences

The level at which the Company is economically hedged for a particular period is also dependent on current market prices for that period, as well as the types of derivative instruments held and the strike prices of those instruments.

For example, the Company may enter into "out-of-the-money" option contracts (including "catastrophic" protection, which the Company defines as prices significantly higher than historical average levels), which may not generate intrinsic gains at settlement if market prices do not rise above the option strike price.

Therefore, even though the Company may have an economic hedge in place for a particular period, that hedge may not produce any hedging gains at settlement and may even produce hedging losses depending on market prices, the types of instruments held, and the strike prices of those instruments.

For example, the Company may

Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

As of March 31, 2024, the Company had fuel derivative instruments in place to provide coverage at varying price levels.

The following table provides information about the Company’s volume of fuel hedging on an economic basis:

enter into "out-of-the-money" option contracts (including "catastrophic" protection, which the Company defines as prices significantly higher than historical average levels), which may not generate intrinsic gains at settlement if market prices do not rise above the option strike price.

As of June 30, 2024, the Company had fuel derivative instruments in place to provide coverage at varying price levels.

The following table provides information about the Company’s volume of fuel hedged on an economic basis:

Maximum fuel hedged as of

March 31, 2024 Derivative underlying commodity type as of

Period (by year) (gallons in millions) (a) March 31, 2024

June 30, 2024 Derivative underlying commodity type as of

Period (by year) (gallons in millions) (a) June 30, 2024

Remainder of 2024 633 West Texas Intermediate ("WTI") crude oil, Brent crude oil, and Heating oil

1 unchanged sentence

2026 832 Brent crude oil

(a) Due to the types of derivatives utilized by the Company and different price levels of those contracts, these volumes represent the maximum economic hedge in place and may vary significantly as market prices and the Company's flight schedule fluctuate.

Upon proper qualification, the Company accounts for its fuel derivative instruments as cash flow hedges.

Qualification is re-evaluated quarterly, and all periodic changes in fair value of the derivatives designated as hedges are recorded in Accumulated other comprehensive income ("AOCI") until the underlying jet fuel is consumed.

When the Company has sold derivative positions in order to effectively "close" or offset a derivative already held as part of its fuel derivative instrument portfolio, any subsequent changes in fair value of those positions are marked to market through the unaudited Condensed Consolidated Statement of Comprehensive Loss.

Likewise, any changes in fair value of those positions that were offset by entering into the sold positions and were de-designated as hedges are concurrently marked to market through the unaudited Condensed Consolidated Statement of Comprehensive Loss .

When the Company has sold derivative positions in order to effectively "close" or offset a derivative already held as part of its fuel hedging portfolio, any subsequent changes in fair value of those positions are marked to market through the unaudited Condensed Consolidated Statement of Comprehensive Income.

However, any changes in value related to hedges that were deferred as part of AOCI while designated as a hedge would remain until the originally forecasted transaction occurs.

In a situation where it becomes probable that a fuel hedged forecasted transaction will not occur, any gains and/or losses that have been recorded to AOCI would be required to be immediately reclassified into the unaudited Condensed Consolidated Statement of Comprehensive Loss.

The Company did not have any such situations where a derivative ceased to qualify for hedge accounting during 2023, or during the three months ended March 31, 2024.

The Company did not have any such situations where a derivative ceased to qualify for hedge accounting during 2023, or during the six months ended June 30, 2024.

All cash flows associated with purchasing and selling fuel derivatives are classified as Other operating cash flows in the unaudited Condensed Consolidated Statement of Cash Flows.

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In addition, the Company had the following amounts associated with fuel derivative instruments and hedging activities in its unaudited Condensed Consolidated Balance Sheet:

Balance Sheet March 31, December 31,

Balance Sheet June 30, December 31,

(in millions) location 2024 2023

14 unchanged sentences

(i) (ii) (iii) = (i) + (ii) (i) (ii) (iii) = (i) + (ii)

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Description Balance Sheet location Gross amounts of recognized assets Gross amounts offset in the Balance Sheet Net amounts of assets presented in the Balance Sheet Gross amounts of recognized assets Gross amounts offset in the Balance Sheet Net amounts of assets presented in the Balance Sheet

5 unchanged sentences

(i) (ii) (iii) = (i) + (ii) (i) (ii) (iii) = (i) + (ii)

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Description Balance Sheet location Gross amounts of recognized liabilities Gross amounts offset in the Balance Sheet Net amounts of liabilities presented in the Balance Sheet Gross amounts of recognized liabilities Gross amounts offset in the Balance Sheet Net amounts of liabilities presented in the Balance Sheet

3 unchanged sentences

(a) The net amounts of derivative assets and liabilities are reconciled to the individual line item amounts presented in the unaudited Condensed Consolidated Balance Sheet in Note 8.

The following tables present the impact of derivative instruments and their location within the unaudited Condensed Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2024 and 2023:

Location and amount recognized in income on cash flow and fair value hedging relationships

Three months ended March 31, 2024 Three months ended March 31, 2023

The following tables present the impact of derivative instruments and their location within the unaudited Condensed Consolidated Statement of Comprehensive Income for the three and six months ended June 30, 2024 and 2023:

Location and amount recognized in income on cash flow hedging relationships

Three months ended June 30, 2024 Three months ended June 30, 2023

(in millions) Fuel and oil Other operating expenses Fuel and oil Other operating expenses

7 unchanged sentences

Notes to Condensed Consolidated Financial Statements

Location and amount recognized in income on cash flow hedging relationships

Six months ended June 30, 2024 Six months ended June 30, 2023

(in millions) Fuel and oil Other operating expenses Fuel and oil Other operating expenses

Total $ 39 $ 4 $ ( 42 ) $ 3

(Gain) loss on cash flow hedging relationships

Commodity contracts:

Amount of (gain) loss reclassified from AOCI into income 39 — ( 42 ) —

Amount of loss reclassified from AOCI into income — 4 — 3

Derivatives designated and qualified in cash flow hedging relationships

3 unchanged sentences

Fuel derivative contracts $ 23 $ 126

Other $ — ( 1 )

Total $ 23 $ 125

Derivatives designated and qualified in cash flow hedging relationships

(Gain) loss recognized in AOCI on derivatives, net of tax

Six months ended

(in millions) 2024 2023

Fuel derivative contracts $ 22 $ 252

Total $ 22 $ 252

Derivatives not designated as hedges

3 unchanged sentences

Fuel derivative contracts $ 2 $ 6 Other (gains) losses, net

The Company also recorded expense associated with premiums paid for fuel derivative contracts that settled/expired during the three months ended March 31, 2024 and 2023.

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

Derivatives not designated as hedges

(Gain) loss recognized in income on derivatives

Six months ended Location of (gain) loss recognized in income on derivatives

(in millions) 2024 2023

Fuel derivative contracts $ 3 $ 6 Other (gains) losses, net

The Company also recorded expense (benefit) associated with premiums paid (received) for fuel derivative contracts that settled/expired during the three and six months ended June 30, 2024 and 2023.

Gains and/or losses associated with fuel derivatives that qualify for hedge accounting are ultimately recorded to Fuel and oil expense.

Gains and/or losses associated with fuel derivatives that do not qualify for hedge accounting are recorded to Other (gains) and losses, net.

The following table presents the impact of premiums paid for fuel derivative contracts and their location within the unaudited Condensed Consolidated Statement of Comprehensive Loss during the period the contract settles:

Premium expense recognized in income on derivatives

Three months ended Location of premium expense recognized in income on derivatives

Gains and/or losses associated with fuel derivatives that do not qualify for hedge accounting are recorded to Other gains, net.

The following tables present the impact of premiums paid (received) for fuel derivative contracts and their location within the unaudited Condensed Consolidated Statement of Comprehensive Income during the period the contract settles:

Premium expense (benefit) recognized in income on derivatives

Three months ended Location of premium expense (benefit) recognized in income on derivatives

(in millions) 2024 2023

Fuel derivative contracts designated as hedges $ 40 $ 30 Fuel and oil

Fuel derivative contracts not designated as hedges ( 1 ) — Other (gains) losses, net

Premium expense (benefit) recognized in income on derivatives

Six months ended Location of premium expense (benefit) recognized in income on derivatives

(in millions) 2024 2023

Fuel derivative contracts designated as hedges $ 79 $ 61 Fuel and oil

Fuel derivative contracts not designated as hedges ( 1 ) — Other (gains) losses, net

The fair values of the derivative instruments, depending on the type of instrument, were determined by the use of present value methods or option value models with assumptions about commodity prices based on those observed in underlying markets or provided by third parties.

Included in the Company’s cumulative unrealized losses from fuel hedges as of March 31, 2024, recorded in AOCI, were approximately $ 34 million in unrealized losses, net of taxes, which are expected to be realized in the unaudited Condensed Consolidated Statement of Comprehensive Loss during the twelve months subsequent to March 31, 2024.

Included in the Company’s cumulative unrealized losses from fuel hedges as of June 30, 2024, recorded in AOCI, were approximately $ 53 million in unrealized losses, net of taxes, which are expected to be realized in the unaudited Condensed Consolidated Statement of Comprehensive Income during the twelve months subsequent to June 30, 2024.

Interest Rate Swaps

The Company is at times party to certain interest rate swap agreements that are accounted for as cash flow hedges, but had none in place as of March 31, 2024, or as of December 31, 2023.

The Company is at times party to certain interest rate swap agreements that are accounted for as cash flow hedges, but had none in place as of June 30, 2024, or as of December 31, 2023.

The Company also did not have any interest rate swap agreements designated as fair value hedges, as defined, during the periods presented.

During the three months ended March 31, 2023, all of the Company's interest rate swap agreements qualified for the "shortcut" or "critical terms match" methods of accounting for hedges, which dictate that the hedges were assumed to be perfectly effective at origination, and, thus, there was no ineffectiveness to be recorded in the unaudited Condensed Consolidated Statement of Comprehensive Loss.

All interest rate swap agreements were terminated prior to December 31, 2023.

During the six months ended June 30, 2023, all of the Company's interest rate swap agreements qualified for the "shortcut" or "critical terms match" methods of accounting for hedges, which dictate that the hedges were assumed to be perfectly

Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

effective at origination, and, thus, there was no ineffectiveness to be recorded in the unaudited Condensed Consolidated Statement of Comprehensive Income.

All interest rate swap agreements were terminated prior to December 31, 2023.

Credit Risk and Collateral

Credit exposure related to fuel derivative instruments is represented by the fair value of contracts that are an asset to the Company at the reporting date.

Credit exposure related to fuel derivative instruments is represented by the fair value of contracts that are an asset to the Company as of the reporting date.

At such times, these outstanding instruments expose the Company to credit loss in the event of nonperformance by the counterparties to the agreements.

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To manage credit risk, the Company selects and periodically reviews counterparties based on credit ratings, limits its exposure with respect to each counterparty, and monitors the market position of the fuel hedging program and its relative market position with each counterparty.

As of March 31, 2024, the Company had agreements with all of its active counterparties containing early termination rights and/or bilateral collateral provisions whereby security is required if market risk exposure exceeds a specified threshold amount based on the counterparty's credit rating.

As of June 30, 2024, the Company had agreements with all of its active counterparties containing early termination rights and/or bilateral collateral provisions whereby security is required if market risk exposure exceeds a specified threshold amount based on the counterparty's credit rating.

The Company also had agreements with counterparties in which cash deposits and letters of credit were required to be posted as collateral whenever the net fair value of derivatives associated with those counterparties exceeds specific thresholds.

In certain cases, the Company has the ability to substitute among these different forms of collateral at its discretion.

The following table provides the fair values of fuel derivatives, amounts posted as collateral, and applicable collateral posting threshold amounts as of March 31, 2024, at which such postings are triggered:

The following table provides the fair values of fuel derivatives, amounts posted as collateral, and applicable collateral posting threshold amounts as of June 30, 2024, at which such postings are triggered:

Counterparty (CP)

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Notes to Condensed Consolidated Financial Statements

COMPREHENSIVE LOSS

Comprehensive income (loss) includes changes in the fair value of certain financial derivative instruments that qualify for hedge accounting and actuarial gains/losses arising from the Company’s postretirement benefit obligation.

The differences between Net loss and Comprehensive loss for the three months ended March 31, 2024 and 2023 were as follows:

Three months ended March 31,

COMPREHENSIVE INCOME

Comprehensive income includes changes in the fair value of certain financial derivative instruments that qualify for hedge accounting and actuarial gains/losses arising from the Company’s postretirement benefit obligation.

The differences between Net income and Comprehensive income for the three and six months ended June 30, 2024 and 2023 were as follows:

Three months ended June 30,

(in millions) 2024 2023

NET LOSS $ ( 231 ) $ ( 159 )

NET INCOME $ 367 $ 683

Unrealized loss on fuel derivative instruments, net of

deferred taxes of ($ 3 ) and ($ 42 )

( 10 ) ( 137 )

Other, net of deferred taxes of $ — and $ 5

Total other comprehensive loss $ ( 8 ) $ ( 139 )

COMPREHENSIVE INCOME $ 359 $ 544

Six months ended June 30,

(in millions) 2024 2023

NET INCOME 137 524

Unrealized gain (loss) on fuel derivative instruments, net of

2 unchanged sentences

Total other comprehensive income (loss) 11 ( 286 )

COMPREHENSIVE LOSS $ ( 212 ) $ ( 306 )

A rollforward of the amounts included in AOCI, net of taxes, is shown below for the three months ended March 31, 2024:

COMPREHENSIVE INCOME 148 238

A rollforward of the amounts included in AOCI, net of taxes, is shown below for the three and six months ended June 30, 2024:

(in millions) Fuel derivatives Defined benefit plan items Other Deferred tax impact Accumulated other comprehensive income (loss)

Balance at March 31, 2024 $ ( 112 ) $ 149 $ ( 13 ) $ ( 5 ) $ 19

Changes in fair value ( 30 ) — — 7 ( 23 )

Reclassification to earnings 17 — 2 ( 4 ) 15

Balance at June 30, 2024 $ ( 125 ) $ 149 $ ( 11 ) $ ( 2 ) $ 11

(in millions) Fuel derivatives Defined benefit plan items Other Deferred tax impact Accumulated other comprehensive income (loss)

Balance at December 31, 2023 $ ( 135 ) $ 149 $ ( 15 ) $ 1 $ —

1 unchanged sentence

Reclassification to earnings 39 — 4 ( 10 ) 33

Balance at March 31, 2024 $ ( 112 ) $ 149 $ ( 13 ) $ ( 5 ) $ 19

The following table illustrates the significant amounts reclassified out of each component of AOCI for the three months ended March 31, 2024:

Three months ended March 31, 2024

(in millions) Amounts reclassified from AOCI Affected line item in the unaudited Condensed Consolidated Statement of Comprehensive Loss

Balance at June 30, 2024 $ ( 125 ) $ 149 $ ( 11 ) $ ( 2 ) $ 11

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

The following tables illustrate the significant amounts reclassified out of each component of AOCI for the three and six months ended June 30, 2024:

Three months ended June 30, 2024

(in millions) Amounts reclassified from AOCI Affected line item in the unaudited Condensed Consolidated Statement of Comprehensive Income

AOCI components

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Total reclassifications for the period $ 15 Net of tax

Six months ended June 30, 2024

(in millions) Amounts reclassified from AOCI Affected line item in the unaudited Condensed Consolidated Statement of Comprehensive Income

AOCI components

Unrealized loss on fuel derivative instruments $ 39 Fuel and oil expense

$ 29 Net of tax

Other $ 4 Other operating expenses

$ 4 Net of tax

Total reclassifications for the period $ 33 Net of tax

Passenger Revenues

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

The Company’s contracts with its Customers primarily consist of its tickets sold, which are initially deferred as Air traffic liability.

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Revenue is categorized by revenue source as the Company believes it best depicts the nature, amount, timing, and uncertainty of revenue and cash flow.

The following table provides the components of Passenger revenue recognized for the three months ended March 31, 2024 and 2023:

Three months ended March 31,

The following table provides the components of Passenger revenue recognized for the three and six months ended June 30, 2024 and 2023:

Three months ended June 30, Six months ended June 30,

(in millions) 2024 2023 2024 2023

3 unchanged sentences

Total passenger revenues $ 6,712 $ 6,409 $ 12,424 $ 11,514

As of March 31, 2024, and December 31, 2023, the components of Air traffic liability, including contract liabilities based on tickets sold and unused flight credits available to the Customer, both of which are net of recorded breakage, and loyalty points available for redemption, within the unaudited Condensed Consolidated Balance Sheet were as follows:

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

As of June 30, 2024, and December 31, 2023, the components of Air traffic liability, including contract liabilities based on tickets sold and unused flight credits available to the Customer, both of which are net of recorded breakage, and loyalty points available for redemption, within the unaudited Condensed Consolidated Balance Sheet were as follows:

Balance as of

(in millions) March 31, 2024 December 31, 2023

(in millions) June 30, 2024 December 31, 2023

Air traffic liability - passenger travel and ancillary passenger services $ 4,114 $ 3,363

2 unchanged sentences

The balance in Air traffic liability - passenger travel and ancillary passenger services also includes flight credits not currently associated with a ticket that can be applied by Customers towards the purchase of future travel.

These flight credits are typically created as a result of a prior ticket cancellation or exchange, and are reflected net of associated breakage.

Rollforwards of the Company's Air traffic liability - loyalty program for the three months ended March 31, 2024 and 2023 were as follows:

Three months ended March 31,

These flight credits are typically created as a result of a prior ticket cancellation or exchange, and are recorded net of associated breakage.

Rollforwards of the Company's Air traffic liability - loyalty program for the three and six months ended June 30, 2024 and 2023 were as follows:

Three months ended June 30, Six months ended June 30,

(in millions) 2024 2023 2024 2023

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Air traffic liability includes consideration received for ticket and loyalty related performance obligations which have not been satisfied as of a given date.

Rollforwards of the amounts included in Air traffic liability as of March 31, 2024 and 2023 were as follows:

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

Three months ended March 31,

Rollforwards of the amounts included in Air traffic liability as of June 30, 2024 and 2023 were as follows:

Six months ended June 30,

(in millions) 2024 2023

7 unchanged sentences

However, as the Company believes that a portion of Customer flight credits issued will not be redeemed, it estimates and records breakage associated with such amounts.

The amount of Customer flight credits represents approximately 6 percent and 8 percent of the total Air traffic liability balance as of March 31, 2024, and December 31, 2023, respectively.

The amount of Customer flight credits represents approximately 6 percent and 8 percent of the total Air traffic liability balance as of June 30, 2024, and December 31, 2023, respectively.

The Company recognized revenue related to the marketing, advertising, and other travel-related benefits of the revenue associated with various loyalty partner agreements including, but not limited to, its co-branded credit card agreement with Chase Bank USA, N.A, within Other operating revenues.

For the three months ended March 31, 2024 and 2023, the Company recognized $ 542 million and $ 521 million, respectively.

NET LOSS PER SHARE

The following table sets forth the computation of basic and diluted net loss per share (in millions, except per share amounts).

Basic net loss per share is calculated by dividing net loss by the weighted average of shares outstanding during the period.

Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

Three months ended March 31,

Net loss attributable to common stockholders $ ( 231 ) $ ( 159 )

Weighted-average shares outstanding, basic and diluted 597 594

NET LOSS PER SHARE:

Basic $ ( 0.39 ) $ ( 0.27 )

Diluted $ ( 0.39 ) $ ( 0.27 )

Antidilutive amounts excluded from calculations:

Convertible debt 43 42

Restricted stock units 3 3

Stock warrants 2 1

For the three months ended June 30, 2024 and 2023, the Company recognized $ 556 million and $ 540 million, respectively.

For the six months ended June 30, 2024 and 2023, the Company recognized $ 1.1 billion and $ 1.1 billion, respectively.

Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share (in millions, except per share amounts).

Basic net income per share is calculated by dividing net income by the weighted average of shares outstanding during the period.

Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

For the three and six months ended June 30, 2024 and 2023, an immaterial number of shares related to the Company's restricted stock units and stock warrants, were excluded from the denominator because inclusion of such shares would be antidilutive.

The Company paid $ 6 million during June 2024 to repurchase and cancel its outstanding stock warrants, previously issued in connection with the Payroll Support Program.

Three months ended June 30, Six months ended June 30,

2024 2023 2024 2023

Net income $ 367 $ 683 $ 137 $ 524

Interest expense 5 5 9 10

Net income attributable to common stockholders $ 372 $ 688 $ 146 $ 534

Weighted-average shares outstanding, basic 599 595 598 595

Dilutive effects of Convertible Notes 43 42 43 42

Dilutive effect of restricted stock units 1 2 2 2

Adjusted weighted-average shares outstanding, diluted 643 639 643 639

NET INCOME PER SHARE:

Basic $ 0.61 $ 1.15 $ 0.23 $ 0.88

Diluted $ 0.58 $ 1.08 $ 0.23 $ 0.84

FAIR VALUE MEASUREMENTS

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and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of March 31, 2024, the Company held certain items that are required to be measured at fair value on a recurring basis.

As of June 30, 2024, the Company held certain items that are required to be measured at fair value on a recurring basis.

These included cash equivalents, short-term investments (primarily treasury bills), fuel derivative contracts, and available-for-sale securities.

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The Company’s derivative instruments consist of over-the-counter contracts, which are not traded on a public exchange.

Fuel derivative instruments currently consist solely of option contracts, whereas interest rate derivatives have historically consisted solely of swap agreements.

Fuel derivative instruments currently consist solely of option contracts, whereas interest rate derivatives

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

have historically consisted solely of swap agreements.

See Note 3 for further information on the Company’s derivative instruments and hedging activities.

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Assets related to the funded portions of the deferred compensation plans are held in a rabbi trust, and the Company remains liable to these participants for the unfunded portion of the plans.

The Company records changes in the fair value of plan obligations and plan assets, which net to zero, within the Salaries, wages, and benefits line and Other gains, net line, respectively, of the unaudited Condensed Consolidated Statement of Comprehensive Loss.

Notes to Condensed Consolidated Financial Statements

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Notes to Condensed Consolidated Financial Statements

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2024, and December 31, 2023:

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2024, and December 31, 2023:

Fair value measurements at reporting date using:

Quoted prices in active markets for identical assets Significant other observable inputs Significant unobservable inputs

Description March 31, 2024 (Level 1) (Level 2) (Level 3)

Description June 30, 2024 (Level 1) (Level 2) (Level 3)

Assets (in millions)

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(b) In the unaudited Condensed Consolidated Balance Sheet amounts are presented as an asset.

The Company did not have any material assets or liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2024, or the year ended December 31, 2023.

The following table presents the

The Company did not have any material assets or liabilities measured at fair value on a nonrecurring basis during the six months ended June 30, 2024, or the year ended December 31, 2023.

The following tables present the

Notes to Condensed Consolidated Financial Statements

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Notes to Condensed Consolidated Financial Statements

Company’s activity for items measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2024:

Company’s activity for items measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2024:

Fair value measurements using significant unobservable inputs (Level 3)

(in millions) Fuel derivatives

Balance as of March 31, 2024 $ 257

Total gains (losses) for the period

Included in earnings ( 2 ) (a)

Included in other comprehensive income ( 30 )

Purchases 16 (b)

Settlements ( 21 )

Balance as of June 30, 2024 $ 220

The amount of total losses for the period

included in earnings attributable to the

change in unrealized gains or losses relating

to assets still held as of June 30, 2024

The amount of total losses for the period

included in other comprehensive income attributable to the

change in unrealized gains or losses relating

to assets still held as of June 30, 2024

(a) Included in Other gains, net, within the unaudited Condensed Consolidated Statement of Comprehensive Income .

(b) The purchase of fuel derivatives is recorded on a gross basis based on the structure of the derivative instrument and whether a contract with multiple derivatives was purchased as a single instrument or separate instruments.

Fair value measurements using significant unobservable inputs (Level 3)

(in millions) Fuel derivatives

Balance as of December 31, 2023 $ 223

Total gains (losses) for the period

Included in other comprehensive loss 1

Included in earnings ( 3 ) (a)

Included in other comprehensive income ( 29 )

Purchases 67 (b)

Settlements ( 38 )

Balance as of March 31, 2024 $ 257

Balance as of June 30, 2024 $ 220

The amount of total losses for the period

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change in unrealized gains or losses relating

to assets still held as of March 31, 2024

to assets still held at June 30, 2024

The amount of total losses for the period

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change in unrealized gains or losses relating

to assets still held as of March 31, 2024

(a) Included in Other gains, net, within the unaudited Condensed Consolidated Statement of Comprehensive Loss .

to assets still held at June 30, 2024

(a) Included in Other gains, net, within the unaudited Condensed Consolidated Statement of Comprehensive Income .

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Holding other inputs constant, an increase (decrease) in implied volatility would have resulted in a higher (lower) fair value measurement, respectively, for the Company’s derivative option contracts.

The following table presents a range and weighted average of the unobservable inputs utilized in the fair value measurements of the Company’s fuel derivatives classified as Level 3 as of March 31, 2024:

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

Quantitative information about Level 3 fair value measurements

Valuation technique Unobservable input Period (by year) Range Weighted Average (a)

Fuel derivatives Option model Implied volatility Second quarter 2024 14 - 33 %

Third quarter 2024 21 - 31 %

Fuel derivatives Option model Implied volatility Third quarter 2024 16 - 35 %

Fourth quarter 2024 22 - 30 %

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(a) Implied volatility weighted by the notional amount (barrels of underlying commodity) that will settle in respective period.

The carrying amounts and estimated fair values of the Company’s short-term and long-term debt (including current maturities), as well as the applicable fair value hierarchy tier, as of March 31, 2024, are presented in the table below.

The fair values of the Company’s publicly held long-term debt are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets;

The carrying amounts and estimated fair values of the Company’s outstanding debt (including current maturities), as well as the applicable fair value hierarchy tier, as of June 30, 2024, are presented in the table below.

The fair values of the Company’s publicly held debt are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets;

therefore, the Company has categorized these agreements as Level 2.

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The Company utilizes indicative pricing from counterparties and a discounted cash flow method to estimate the fair value of the Level 3 items.

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

(in millions) Carrying value Estimated fair value Fair value level hierarchy

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(a) The interest rate will change to Secured Overnight Financing Rate plus two percent on the fifth anniversary of the loans.

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

SUPPLEMENTAL FINANCIAL INFORMATION

(in millions) March 31, 2024 December 31, 2023

(in millions) June 30, 2024 December 31, 2023

Trade receivables $ 67 $ 104

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Accounts and other receivables $ 1,346 $ 1,154

(in millions) March 31, 2024 December 31, 2023

(in millions) June 30, 2024 December 31, 2023

Derivative contracts $ 122 $ 102

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Other assets $ 1,045 $ 964

(in millions) March 31, 2024 December 31, 2023

(in millions) June 30, 2024 December 31, 2023

Accounts payable trade $ 330 $ 265

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Accounts payable $ 2,028 $ 1,862

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

(in millions) March 31, 2024 December 31, 2023

(in millions) June 30, 2024 December 31, 2023

Voluntary Separation Program $ 64 $ 65

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Accrued liabilities $ 1,870 $ 3,606

(in millions) March 31, 2024 December 31, 2023

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

(in millions) June 30, 2024 December 31, 2023

Voluntary Separation Program $ 20 $ 61

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Other noncurrent liabilities $ 926 $ 981

(a) Primarily consists of anticipated contract labor ratification bonuses and/or accruals.

(a) Primarily consists of contract labor ratification bonuses and/or accruals.

Also includes non-contract incentive pay.

Approximately $ 1.35 billion was paid in first quarter 2024 to Pilots as a ratification bonus upon the ratification of the labor contract agreement with the Southwest Airlines Pilots Association ("SWAPA").

Approximately $ 1.9 billion was paid in the six months ended June 30, 2024 to Pilots, Flight Attendants, and Ramp, Operations, Provisioning, and Cargo Agents as bonuses upon the ratification of the labor contract agreements with the Southwest Airlines Pilots Association ("SWAPA"), Transport Workers of America Union Local 556 ("TWU 556"), and the Transport Workers Union Local 555 ("TWU 555"), respectively.

For further information on derivative instruments, see Note 3.

Other Operating Expenses

Other operating expenses consist of aircraft rentals, distribution costs, advertising expenses, personnel expenses, professional fees, and other operating costs, none of which individually exceeded 10 percent of Total operating expenses.

Other operating expenses consist of aircraft rentals, distribution costs, advertising expenses, personnel expenses, professional fees, certain technology-related costs, and other operating costs, none of which individually exceeded 10 percent of Total operating expenses.

COMMITMENTS AND CONTINGENCIES

The Company's contractual order book with The Boeing Company ("Boeing") for 737-7 ("-7") and 737-8 ("-8") aircraft, which extends to 2031, was designed to support the Company's growth and fleet modernization plans, while also providing significant flexibility to manage its fleet size, including opportunities to accelerate fleet modernization efforts if growth opportunities do not materialize.

The Company received five -8 aircraft deliveries from Boeing in first quarter 2024 and retired three 737-700 ("-700") aircraft.

The Company's contractual order book with The Boeing Company ("Boeing") for 737-7 ("-7") and 737-8 ("-8") aircraft, which extends to 2031, was designed to support the Company's growth and fleet modernization plans, while also providing significant flexibility and optionality to manage its fleet gauge and size, including opportunities to accelerate fleet modernization efforts if growth opportunities do not materialize.

The Company received five -8 aircraft deliveries from Boeing in second quarter 2024 and retired six -700 aircraft and one 737-800 ("-800") aircraft.

Boeing continues to experience delays in fulfilling its commitments with regards to delivery of MAX aircraft to the Company, as a result of manufacturing challenges, as well as delays in achieving FAA certification of one of its new aircraft types, the -7, for which Southwest expects to be the launch customer.

As a result of Boeing's delivery delays, the Company has conservatively re-planned its capacity and delivery expectations for the remainder of this year and next.

The Company entered into a Supplemental Agreement with Boeing to formalize the conversion of 19 2025 -7 firm orders into -8 firm orders as of March 31, 2024.

Therefore, as of March 31, 2024, the Company had the following firm orders and options for future periods:

During first quarter 2024, as a result of Boeing's delivery delays, the Company conservatively re-planned its capacity and delivery expectations for the remainder of this year and for 2025.

While the Company has not further adjusted capacity expectations this quarter, it will continue to closely monitor the ongoing aircraft delivery delays with Boeing and adjust expectations, conservatively, as needed.

During April 2024, the Company shifted one 2025 -8 option into 2026.

As of June 30, 2024, the Company had the following firm orders and options for future periods:

Notes to Condensed Consolidated Financial Statements

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(b) The Company has flexibility to designate firm orders or options as -7s or -8s, upon written advance notification as stated in the contract.

Given the Company's continued discussions with Boeing and expected aircraft delivery delays, the Company is currently planning for approximately 20 -8 aircraft deliveries in 2024.

Based on the Company's current agreement with Boeing, capital commitments associated with firm orders as of March 31, 2024, were:

Given the Company's continued discussions with Boeing and expected aircraft delivery delays, the Company continues to plan for approximately 20 -8 aircraft deliveries in 2024.

Based on the Company's current agreement with Boeing, capital commitments associated with firm orders as of June 30, 2024, were:

$ 1.8 billion remaining in 2024, $ 1.7 billion in 2025, $ 1.8 billion in 2026, $ 2.6 billion in 2027, $ 2.9 billion in 2028, $ 2.5 billion in 2029, and $ 2.8 billion thereafter.

Subsequent to June 30, 2024 and through July 25, 2024, the Company exercised two -7 options for delivery in 2025, and converted two 2025 -7 firm orders to -8 firm orders, resulting in the Company's 2025 capital commitments increasing to $ 1.8 billion.

Contingencies

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The Company is currently not able to estimate a range of possible loss with regards to the litigation to which it is a defendant.

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

FINANCING ACTIVITIES

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Interest on the notes is payable semi-annually in arrears.

Holders may convert their Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding February 1, 2025, in the event certain conditions are met, as stated in the offering

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

The Convertible Notes did not meet the criteria to be converted as of the date of the financial statements, and thus are classified as Long-term debt in the accompanying unaudited Condensed Consolidated Balance Sheet as of March 31, 2024.

The Convertible Notes did not meet the criteria to be converted as of June 30, 2024, but are classified within Current maturities of long-term debt in the accompanying unaudited Condensed Consolidated Balance Sheet due to their maturity on May 1, 2025.

Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock, or a combination of cash and shares of common stock, at the Company’s election.

1 unchanged sentence

The initial conversion rate was 25.9909 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $ 38.48 per share of common stock).

However, based on the Company's most recent cash dividends declared in January 2024, the bond conversion rate changed, and was 26.8605 as of March 31, 2024.

The Company repurchased $ 689 million in principal of its Convertible Notes during the years ended December 31, 2021 and 2022, and the net carrying amount and principal amount of the Convertible Notes was $ 1.6 billion as of March 31, 2024, and December 31, 2023.

There were no Convertible Note conversions exercised or settled or partial extinguishments of debt during the three months ended March 31, 2024 and 2023.

However, based on the Company's most recent cash dividends declared in May 2024, the bond conversion rate changed, and was 27.0296 as of June 30, 2024.

There were no Convertible Note conversions exercised or settled or partial extinguishments of debt during the six months ended June 30, 2024 and 2023.

The Company recognized interest expense associated with the Convertible Notes as follows:

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

(in millions) 2024 2023 2024 2023

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The unamortized debt issuance costs are being recognized as non-cash interest expense based on the 5 -year term of the notes, through May 1, 2025, less amounts that were or will be required to be accelerated immediately upon conversion or repurchases.

The Company had no changes to contingencies with regards to the Convertible Notes during the three months ended March 31, 2024.

The effective interest rate associated with the Convertible Notes was approximately 1.9 percent for the three months ended March 31, 2024.

The Company had no changes to contingencies with regards to the Convertible Notes during the six months ended June 30, 2024.

The effective interest rate associated with the Convertible Notes was approximately 1.9 percent for the three and six months ended June 30, 2024.

In second quarter 2024, the Company repurchased and terminated the Company's outstanding stock warrants that were previously issued in connection with the Payroll Support Program.

The total value of the repurchase was approximately $ 6 million.

The Company has access to $ 1.0 billion under its amended and restated revolving credit facility (the "Amended Credit Agreement"), which expires in August 2028.

For the three months ended March 31, 2024 and 2023, there were no amounts outstanding under the Amended Credit Agreement.

For the six months ended June 30, 2024 and 2023, there were no amounts outstanding under the Amended Credit Agreement.

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

On December 5, 2022, the Company signed an aircraft sale agreement with AerCap Ireland Limited (“AerCap”) to purchase 39 -700 aircraft, all of which were already in the Company's fleet under finance lease terms.

2 unchanged sentences

The Company paid the lessor $ 88 million as part of this transaction for the remaining eight aircraft in first quarter 2023, of which $ 50 million was recorded as the elimination of the Company’s remaining finance lease obligation for the aircraft, and which was also reflected within Payments of long-term debt and finance lease obligations in the accompanying unaudited Condensed Consolidated Statement of Cash Flows.

The remaining $ 38 million was the net purchase price of the aircraft and is included as part of the Company’s Capital expenditures for the three months ended March 31, 2023.

As of March 31, 2024, the Company has 24 finance leased aircraft remaining.

The remaining $ 38 million was the net purchase price of the aircraft and is included as part of the Company’s Capital expenditures for the six months ended June 30, 2023.

As of June 30, 2024, the Company has 22 finance leased aircraft remaining.

There was no gain or loss recorded as a result of these transactions.

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

SUBSEQUENT EVENTS

On July 2, 2024, the Company's Board of Directors (the “Board”) adopted a shareholder rights plan and declared a dividend of one right (a “Right”) in respect of each of the Company’s issued and outstanding shares of common stock, par value $ 1.00 per share (“Common Stock”).

The dividend is payable to the shareholders of record at the close of business on July 15, 2024.

Each Right initially entitles the registered holder, subject to the terms of the Rights Agreement (as defined below), to purchase from the Company one ten-thousandth (a “Unit”) of a share of Common Stock, at a price equal to the quotient of $170.00 divided by ten thousand for each Unit of a share of Common Stock, subject to certain adjustments (as adjusted from time to time, the “Exercise Price”).

The terms of the Rights are set forth in the Rights Agreement, dated as of July 2, 2024 (as it may be amended from time to time, the “Rights Agreement”), by and between the Company and Equiniti Trust Company, LLC, as rights agent (or any successor rights agent, the “Rights Agent”).

The adoption of the Rights Agreement is intended to deter the acquisition of actual, de facto, or negative control of the Company by any person or group without appropriately compensating its Shareholders for that control.

In general terms, the Rights Agreement imposes significant dilution upon any person or group (other than the Company or certain related persons) that is or becomes the beneficial owner of 12.5 percent (the “Triggering Percentage”) or more of the Company’s outstanding Common Stock without the prior approval of the Board.

A person or group that becomes the beneficial owner of the Triggering Percentage or more is called an “Acquiring Person.” Any Rights held by an Acquiring Person will be null and void and may not be exercised.

Shareholders that beneficially own the Triggering Percentage or more of the Company’s outstanding Common Stock on the date the plan is adopted, are not considered Acquiring Persons;

however, such Shareholders generally may not acquire, or obtain the right to acquire, beneficial ownership of one or more additional shares of the Company’s outstanding Common Stock.

The term “beneficial ownership” is defined in the Rights Agreement and includes, among other things, certain securities that may be exercised or converted into shares of Common Stock and certain derivative arrangements.

The Rights will expire prior to the earliest of (i) the close of business on July 1, 2025;

(ii) the time at which the Rights are redeemed pursuant to the Rights Agreement;

(iii) the time at which the Rights are exchanged pursuant to the Rights Agreement;

and (iv) upon the occurrence of certain transactions.

This description of the Rights Agreement herein does not purport to be complete and is qualified in its entirety by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 3, 2024.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements