What changed in this filing

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Item 1. Financial Statements

2024-10-28 compared with 2024-07-29 · 209 added, 167 removed, 663 unchanged (36% of the section changed)

3 unchanged sentences

(in millions)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Current assets:

42 unchanged sentences

(in millions, except per share amounts)

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

Three months ended September 30, Nine months ended September 30,

2024 2023 2024 2023

17 unchanged sentences

Interest income ( 121 ) ( 156 ) ( 392 ) ( 425 )

Other gains, net ( 5 ) ( 7 ) ( 17 ) ( 21 )

Other (gains) losses, net 16 ( 23 ) ( 1 ) ( 44 )

Total other income ( 51 ) ( 120 ) ( 226 ) ( 291 )

27 unchanged sentences

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

Issuance of common and treasury stock pursuant to Employee stock plans — 10 — — 5 15

Share-based compensation — 19 — — — 19

Cash dividends, $ 0.18 per share

— — ( 107 ) — — ( 107 )

Comprehensive income (loss) — — 67 ( 48 ) — 19

Balance at September 30, 2024 $ 888 $ 4,180 $ 16,178 $ ( 37 ) $ ( 10,798 ) $ 10,411

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

12 unchanged sentences

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

Issuance of common and treasury stock pursuant to Employee stock plans — 9 — — 4 13

Share-based compensation — 23 — — — 23

Cash dividends, $ 0.18 per share

— — ( 107 ) — — ( 107 )

Comprehensive income — — 193 143 — 336

Balance at September 30, 2023 $ 888 $ 4,135 $ 16,657 $ 201 $ ( 10,827 ) $ 11,054

See accompanying notes.

2 unchanged sentences

(in millions)

Three months ended Six months ended

June 30, June 30,

Three months ended Nine months ended

September 30, September 30,

2024 2023 2024 2023

1 unchanged sentence

Net income $ 67 $ 193 $ 204 $ 717

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

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

Depreciation and amortization 438 375 1,250 1,107

Unrealized mark-to-market adjustment on available for sale securities — — — ( 4 )

Unrealized/realized loss on fuel derivative instruments 1 6 2 6

Unrealized/realized gain (loss) on fuel derivative instruments 15 ( 21 ) 17 ( 14 )

Deferred income taxes 19 57 62 214

5 unchanged sentences

Other liabilities ( 18 ) ( 89 ) ( 136 ) ( 180 )

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

Cash collateral received from (provided to) derivative counterparties ( 8 ) 40 ( 28 ) ( 6 )

Other, net ( 7 ) 19 ( 60 ) ( 159 )

6 unchanged sentences

Other, net — — ( 29 ) —

Net cash used in investing activities ( 206 ) ( 627 ) ( 791 ) ( 2,204 )

Net cash provided by (used in) investing activities 458 ( 64 ) ( 334 ) ( 2,268 )

CASH FLOWS FROM FINANCING ACTIVITIES:

4 unchanged sentences

Other, net 2 ( 1 ) ( 19 ) 4

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

Net cash used in financing activities ( 210 ) ( 213 ) ( 437 ) ( 466 )

NET CHANGE IN CASH AND CASH EQUIVALENTS 361 339 ( 785 ) 5

5 unchanged sentences

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:

Right-of-use assets acquired under operating leases $ 6 $ 22 $ 21 $ 69

Right-of-use assets acquired or modified under operating leases $ 23 $ 9 $ 42 $ 78

Flight and ground equipment acquired or modified under finance leases $ 17 $ — $ 16 $ —

See accompanying notes.

10 unchanged sentences

Financing Activities

Subsequent Events

Shareholder Rights Plan

Notes to Condensed Consolidated Financial Statements

5 unchanged sentences

The unaudited Condensed Consolidated Financial Statements include accounts of the Company and its wholly owned subsidiaries.

In late December 2022, the Company experienced a wide-scale operational disruption as extreme winter weather across a significant portion of the United States impacted its operational plan and flight schedules.

Subsequent to Winter Storm Elliott, the Company was challenged to realign flight crews, flight schedules, and aircraft for a period of several days during this peak demand travel period.

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 Income for the six months ended June 30, 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.

Based on the Company's wide-scale operational disruption, the Company has been subject to inquiries and investigations by governmental agencies (including with respect to a December 2023 settlement with the Department of Transportation) and could be subject to fines and/or penalties resulting from those inquiries and investigations, as well as litigation from Customers and Shareholders.

The accompanying unaudited Condensed Consolidated Financial Statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

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 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.

The unaudited Condensed Consolidated Financial Statements for the interim periods ended September 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.

4 unchanged sentences

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.

Operating results for the three and nine months ended September 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.

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:

Subsequent to Winter Storm Elliott, the Company was challenged to realign flight crews, flight schedules, and aircraft for a period of several days during this peak demand travel period.

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.

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

Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

Three months ended Six months ended

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

Three months ended Nine months ended

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

Depreciation and amortization expense $ 30 $ 39

9 unchanged sentences

This standard is effective for all entities that are subject to Topic 740, Income Taxes for annual periods 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.

The Company has evaluated this new standard and does not expect it to have a significant impact on its financial statement disclosures.

The Company will adopt this standard as of January 1, 2025.

On November 27, 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

2 unchanged sentences

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.

This standard is applicable to the Company due to the single reportable segment requirement.

The Company plans on including all required disclosures within its Form 10-K for the year ended December 31, 2024.

FINANCIAL DERIVATIVE INSTRUMENTS

7 unchanged sentences

The Company defines its "economic" hedge as the net volume of fuel derivative contracts held, including the impact of positions that have been offset through sold positions, regardless of whether those contracts qualify for hedge accounting.

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

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

Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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.

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.

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

As of September 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

June 30, 2024 Derivative underlying commodity type as of

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

September 30, 2024 Derivative underlying commodity type as of

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

Remainder of 2024 316 West Texas Intermediate ("WTI") crude oil, Brent crude oil, and Heating oil

1 unchanged sentence

2026 945 Brent crude oil

2027 101 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 fluctuate and if the Company's published flight schedule or capacity plans change.

5 unchanged sentences

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 Income.

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.

The following table presents the location of all assets and liabilities associated with the Company’s derivative instruments within the unaudited Condensed Consolidated Balance Sheet:

During third quarter 2024, the routine statistical analysis performed by the Company to determine which commodities qualify for special hedge accounting treatment on a prospective basis indicated that WTI crude oil-based derivatives no longer qualify for hedge accounting.

This change is primarily due to the fact that the correlation between WTI crude oil prices and jet fuel prices during recent periods has not been as strong as in the past, and therefore the Company can no longer demonstrate that derivatives based on WTI crude oil prices will result in effective hedges on a prospective basis.

As such, all WTI-based instruments have been de-designated from their hedging relationships and the change in fair value of all of the Company's derivatives based in WTI have been recorded to Other (gains) losses for third quarter 2024, and will also be marked to market in the same manner in fourth quarter 2024.

The Company currently has no WTI crude oil based derivatives that settle beyond December 31, 2024.

The change in fair value of the Company's WTI derivative contracts during third quarter 2024 was a decrease of $ 23 million, which resulted in a corresponding loss in the Condensed Consolidated Statement of Comprehensive Income.

Any amounts previously recorded to AOCI will remain there until such time as the original forecasted transaction occurs in accordance with hedge accounting requirements.

Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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.

The following table presents the location of all assets and liabilities associated with the Company’s derivative instruments within the unaudited Condensed Consolidated Balance Sheet:

Asset derivatives Liability derivatives

11 unchanged sentences

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 June 30, December 31,

Balance Sheet September 30, December 31,

(in millions) location 2024 2023

6 unchanged sentences

The Company has elected to utilize netting for its derivative instruments and also classifies such amounts as either current or noncurrent, based on the net fair value position with each of the Company's counterparties in the unaudited Condensed Consolidated Balance Sheet.

If its fuel derivative instruments are in a net asset position with a counterparty, cash collateral amounts held are first netted against current outstanding derivative asset amounts associated with that counterparty until that balance is zero, and then any remainder is applied against the fair value of noncurrent outstanding derivative instruments.

The Company had the following recognized financial assets and financial liabilities resulting from those transactions that meet the scope of the disclosure requirements as necessitated by applicable accounting guidance for balance sheet offsetting:

If the Company's fuel derivative instruments are in a net asset position with a counterparty, cash collateral amounts held are first netted against current outstanding derivative asset amounts associated with that counterparty until that balance is zero, and then any remainder is applied against the fair value of noncurrent outstanding derivative instruments.

Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

Offsetting of derivative assets

1 unchanged sentence

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

June 30, 2024 December 31, 2023

September 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)

June 30, 2024 December 31, 2023

September 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 Income for the three and six months ended June 30, 2024 and 2023:

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

Location and amount recognized in income on cash flow hedging relationships

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

Three months ended September 30, 2024 Three months ended September 30, 2023

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

4 unchanged sentences

Amount of loss reclassified from AOCI into income — 2 — 2

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

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

Nine months ended September 30, 2024 Nine months ended September 30, 2023

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

7 unchanged sentences

Three months ended

September 30,

(in millions) 2024 2023

2 unchanged sentences

Total $ 61 $ ( 182 )

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

Derivatives designated and qualified in cash flow hedging relationships

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

Six months ended

Nine months ended

September 30,

(in millions) 2024 2023

Fuel derivative contracts $ 83 $ 78

Other — ( 7 )

Total $ 83 $ 71

2 unchanged sentences

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

September 30,

(in millions) 2024 2023

Fuel derivative contracts $ 29 $ ( 33 ) Other (gains) losses, net

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

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

September 30,

(in millions) 2024 2023

Fuel derivative contracts $ 31 $ ( 26 ) 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.

The Company also recorded expense associated with premiums paid for fuel derivative contracts that settled/expired during the three and nine months ended September 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, 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

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

The following tables present the impact of premiums paid for fuel derivative contracts and their location within the unaudited Condensed Consolidated Statement of Comprehensive Income 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

September 30,

(in millions) 2024 2023

1 unchanged sentence

Fuel derivative contracts not designated as hedges 5 — 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

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

Premium expense recognized in income on derivatives

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

September 30,

(in millions) 2024 2023

2 unchanged sentences

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 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.

Included in the Company’s cumulative unrealized losses from fuel hedges as of September 30, 2024, recorded in AOCI, were approximately $ 85 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 September 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 June 30, 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 September 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 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

Southwest Airlines Co.

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.

During the nine months ended September 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 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.

4 unchanged sentences

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 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.

As of September 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 June 30, 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 September 30, 2024, at which such postings are triggered:

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

Counterparty (CP)

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(d) Cash collateral is not required based on the current credit rating.

Notes to Condensed Consolidated Financial Statements

3 unchanged sentences

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,

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

Three months ended September 30,

(in millions) 2024 2023

NET INCOME $ 67 $ 193

Unrealized loss on fuel derivative instruments, net of

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

deferred taxes of ($ 14 ) and $ 41

( 10 ) ( 137 )

Other, net of deferred taxes of $ — and $ 2

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

Total other comprehensive income (loss) $ ( 48 ) $ 143

COMPREHENSIVE INCOME $ 19 $ 336

Six months ended June 30,

Nine months ended September 30,

(in millions) 2024 2023

NET INCOME $ 204 $ 717

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

Unrealized loss on fuel derivative instruments, net of

deferred taxes of ($ 12 ) and ($ 45 )

( 42 ) ( 150 )

Other, net of deferred taxes of $ 1 and $ 6

Total other comprehensive income (loss) 11 ( 286 )

Total other comprehensive loss $ ( 37 ) $ ( 143 )

COMPREHENSIVE INCOME $ 167 $ 574

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

A rollforward of the amounts included in AOCI, net of taxes, is shown below for the three and nine months ended September 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

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

Changes in fair value ( 79 ) — — 18 ( 61 )

Reclassification to earnings 15 — 2 ( 4 ) 13

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

Balance at September 30, 2024 $ ( 189 ) $ 149 $ ( 9 ) $ 12 $ ( 37 )

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

2 unchanged sentences

Reclassification to earnings 54 — 6 ( 14 ) 46

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

Balance at September 30, 2024 $ ( 189 ) $ 149 $ ( 9 ) $ 12 $ ( 37 )

Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

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

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

Three months ended September 30, 2024

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

5 unchanged sentences

Total reclassifications for the period $ 13 Net of tax

Six months ended June 30, 2024

Nine months ended September 30, 2024

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

9 unchanged sentences

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 and six months ended June 30, 2024 and 2023:

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

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

Three months ended September 30, Nine months ended September 30,

(in millions) 2024 2023 2024 2023

6 unchanged sentences

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:

As of September 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) June 30, 2024 December 31, 2023

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

Air traffic liability - passenger travel and ancillary passenger services $ 3,814 $ 3,363

3 unchanged sentences

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,

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

Three months ended September 30, Nine months ended September 30,

(in millions) 2024 2023 2024 2023

5 unchanged sentences

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 June 30, 2024 and 2023 were as follows:

Six months ended June 30,

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

Nine months ended September 30,

(in millions) 2024 2023

4 unchanged sentences

Air traffic liability - ending balance $ 8,700 $ 9,000

(a) Current period sales includes passenger travel, ancillary services, flight loyalty, and partner loyalty

(a) Current period sales include passenger travel, ancillary services, flight loyalty, and partner loyalty

Under the Company's policy, flight credits never expire.

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 June 30, 2024, and December 31, 2023, respectively.

Customer flight credits represent approximately 6 percent and 8 percent of the total Air traffic liability balance as of September 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 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.

For the three months ended September 30, 2024 and 2023, the Company recognized $ 538 million and $ 526 million of such revenue, respectively.

For each of the nine month periods ended September 30, 2024 and 2023, the Company recognized $ 1.6 billion.

Notes to Condensed Consolidated Financial Statements

5 unchanged sentences

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,

The Company paid approximately $ 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 September 30, Nine months ended September 30,

2024 2023 2024 2023

Net income $ 67 $ 193 $ 204 $ 717

Interest expense 5 5 9 10

Interest expense — (a) 5 15 15

Net income attributable to common stockholders $ 67 $ 198 $ 219 $ 732

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Diluted $ 0.11 $ 0.31 $ 0.34 $ 1.15

Antidilutive amounts excluded from calculations:

Convertible debt 44 — — —

Restricted stock units — 1 1 1

(a) For the three months ended September 30, 2024, Interest expense is not added back to the numerator due to the Convertible Notes being anti-dilutive.

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

As of September 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.

The majority of the Company’s cash equivalents and short-term investments consist of instruments classified as Level 1.

However, the Company has certificates of deposit, commercial paper, and time deposits that are classified as Level 2, due to the fact that the fair value for these instruments is determined utilizing observable inputs in non-active markets.

Equity securities primarily consist of investments with readily determinable market values associated with the Company’s excess benefit plan.

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

The majority of the Company’s cash equivalents and short-term

Notes to Condensed Consolidated Financial Statements

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Notes to Condensed Consolidated Financial Statements

have historically consisted solely of swap agreements.

investments consist of instruments classified as Level 1.

Equity securities primarily consist of investments with readily determinable market values associated with the Company’s excess benefit plan.

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.

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 Income.

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) losses, net line, respectively, of the unaudited Condensed Consolidated Statement of Comprehensive Income.

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

Description September 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 six months ended June 30, 2024, or the year ended December 31, 2023.

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

The following tables present the

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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 and six months ended June 30, 2024:

Company’s activity for items measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 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

Balance as of June 30, 2024 $ 220

Total loss for the period

Included in earnings ( 29 ) (a)

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Settlements ( 11 )

Balance as of June 30, 2024 $ 220

Balance as of September 30, 2024 $ 132

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 June 30, 2024

to assets still held as of September 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 June 30, 2024

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

to assets still held as of September 30, 2024

(a) Included in Other (gains) losses, 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.

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Balance as of December 31, 2023 $ 223

Total gains (losses) for the period

Total loss for the period

Included in earnings ( 31 ) (a)

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Settlements ( 49 )

Balance as of June 30, 2024 $ 220

Balance as of September 30, 2024 $ 132

The amount of total losses for the period

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change in unrealized gains or losses relating

to assets still held at June 30, 2024

to assets still held at September 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 at June 30, 2024

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

to assets still held at September 30, 2024

(a) Included in Other (gains) losses, 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 June 30, 2024:

Notes to Condensed Consolidated Financial Statements

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

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

Fourth quarter 2024 22 - 30 %

Fuel derivatives Option model Implied volatility Fourth quarter 2024 17 - 44 %

2025 24 - 30 %

2026 22 - 27 %

2027 21 - 24 %

(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 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 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 September 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;

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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.

The fifth anniversary for the first tranche occurs in April 2025.

Notes to Condensed Consolidated Financial Statements

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SUPPLEMENTAL FINANCIAL INFORMATION

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

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

Trade receivables $ 50 $ 104

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Accounts and other receivables $ 1,177 $ 1,154

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

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

Derivative contracts $ 92 $ 102

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Other assets $ 1,073 $ 964

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

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

Accounts payable trade $ 389 $ 265

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Dividends payable — 107

Accrued third party services 181 269

Third party services 123 269

Other payable 205 218

Accounts payable $ 1,518 $ 1,862

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

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

Voluntary Separation Program $ 65 $ 65

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Reinsurance payable 265 190

Aircraft maintenance

Other 295 253

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Notes to Condensed Consolidated Financial Statements

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

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

Voluntary Separation Program $ 7 $ 61

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Other noncurrent liabilities $ 933 $ 981

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

(a) Balance as of December 31, 2023 primarily consists of contract labor ratification bonuses and/or accruals.

Also includes non-contract incentive pay.

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.

Approximately $ 1.9 billion was paid in the nine months ended September 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.

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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.

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:

The Company received nine -8 aircraft deliveries from Boeing in third quarter 2024 and retired 14 -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, delays in achieving FAA certification of one of its new aircraft types, the -7, for which Southwest expects to be the launch customer, and a work stoppage that began in September 2024.

During 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.

The Company will continue to closely monitor the ongoing aircraft delivery delays with Boeing and adjust expectations as needed.

In July 2024, the Company exercised two -7 options for delivery in 2025 and converted two 2025 -7 firm orders into 2025 -8 firm orders.

In September 2024, the Company exercised four -7 options for delivery in 2025.

As of September 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 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:

(c) Includes 19 -8 deliveries received year-to-date through September 30, 2024, and one additional -8 delivery received in October 2024.

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

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

$ 1.6 billion remaining in 2024, $ 1.8 billion in 2025, $ 1.8 billion in 2026, $ 2.6 billion in 2027, $ 2.9 billion in 2028, $ 2.5 billion in 2029, and $ 2.7 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.

Subsequent to September 30, 2024 and through October 24, 2024, the Company exercised five -7 options for delivery in 2025, one -7 option for delivery in 2026, and converted nine 2025 -7 firm orders into 2025 -8 firm orders, resulting in the Company's 2025 and 2026 capital commitments increasing to $ 2.0 billion and $ 1.9 billion, respectively.

Contingencies

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The Court subsequently set a trial date of July 21, 2025.

The Company is filing a motion for decertification with a hearing set for January 30, 2025.

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

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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 documents.

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.

The Convertible Notes did not meet the criteria to be converted as of September 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.

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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 May 2024, the bond conversion rate changed, and was 27.0296 as of June 30, 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 June 30, 2024, and December 31, 2023.

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

However, based on the Company's most recent cash dividends declared in July 2024, the bond conversion rate changed, and was 27.1951 as of September 30, 2024.

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

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

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

Three months ended September 30, Nine months ended September 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 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.

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

The effective interest rate associated with the Convertible Notes was approximately 1.9 percent for the three and nine months ended September 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.

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

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

Notes to Condensed Consolidated Financial Statements

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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 six months ended June 30, 2023.

As of June 30, 2024, the Company has 22 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 nine months ended September 30, 2023.

As of September 30, 2024, the Company has 19 finance leased aircraft remaining.

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

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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;

SHAREHOLDER RIGHTS PLAN

Each Right initially entitled 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 were set forth in the Rights Agreement, dated as of July 2, 2024 (as it may have been 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 was 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 imposed significant dilution upon any person or group (other than the Company or certain related persons) that was or became 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 became the beneficial owner of the Triggering Percentage or more was called an “Acquiring Person.” Any Rights held by an Acquiring Person would have become null and void and not exercisable.

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

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

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

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

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

(iii) the time at which the Rights were 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.

On October 23, 2024 (the “Cooperation Agreement Effective Date”), the Company entered into a Cooperation Agreement (“Cooperation Agreement”) by and among Elliott Investment Management L.P., a Delaware limited partnership, Elliott Associates, L.P., a Delaware limited partnership, Elliott International, L.P., a Cayman Islands limited partnership, and The Liverpool Limited Partnership, a Bermuda limited partnership.

Pursuant to the Cooperation Agreement, the Company agreed to terminate the Rights Agreement no later than two business days after the Cooperation Agreement Effective Date.

On October 25, 2024, the Company and the Rights Agent entered into the Amendment to the Rights Agreement (the “Amendment to the Rights Agreement”), which amended the Rights Agreement.

The Amendment to the Rights Agreement terminated the Rights Agreement by advancing the expiration time of the Rights to 5:00 P.M., New York City time, on October 25, 2024.

At the time of the termination of the Rights Agreement, all of the Rights, which were previously distributed to holders of the Company’s Common Stock pursuant to the Rights Agreement, expired.

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