What changed in this filing

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Item 1. Financial Statements

2025-04-25 compared with 2024-10-28 · 259 added, 397 removed, 475 unchanged (58% of the section changed)

3 unchanged sentences

(in millions)

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Current assets:

34 unchanged sentences

Retained earnings 16,080 16,332

Accumulated other comprehensive income ( 37 ) —

Accumulated other comprehensive loss ( 24 ) ( 25 )

Treasury stock, at cost ( 11,789 ) ( 11,044 )

3 unchanged sentences

Southwest Airlines Co.

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Statement of Comprehensive Loss

(in millions, except per share amounts)

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

2024 2023 2024 2023

Three months ended March 31,

OPERATING REVENUES:

11 unchanged sentences

Total operating expenses 6,651 6,722

OPERATING INCOME 38 117 43 628

OTHER EXPENSES (INCOME):

OPERATING LOSS ( 223 ) ( 393 )

NON-OPERATING EXPENSES (INCOME):

Interest expense 46 65

2 unchanged sentences

Other (gains) losses, net 18 ( 12 )

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

INCOME BEFORE INCOME TAXES 89 237 269 919

PROVISION FOR INCOME TAXES 22 44 65 202

NET INCOME $ 67 $ 193 $ 204 $ 717

NET INCOME PER SHARE, BASIC $ 0.11 $ 0.32 $ 0.34 $ 1.20

NET INCOME PER SHARE, DILUTED $ 0.11 $ 0.31 $ 0.34 $ 1.15

COMPREHENSIVE INCOME $ 19 $ 336 $ 167 $ 574

Total non-operating income ( 31 ) ( 95 )

LOSS BEFORE INCOME TAXES ( 192 ) ( 298 )

BENEFIT FOR INCOME TAXES ( 43 ) ( 67 )

NET LOSS $ ( 149 ) $ ( 231 )

NET LOSS PER SHARE, BASIC $ ( 0.26 ) $ ( 0.39 )

NET LOSS PER SHARE, DILUTED $ ( 0.26 ) $ ( 0.39 )

COMPREHENSIVE LOSS $ ( 148 ) $ ( 212 )

WEIGHTED AVERAGE SHARES OUTSTANDING

7 unchanged sentences

Balance at December 31, 2024 $ 888 $ 4,199 $ 16,332 $ ( 25 ) $ ( 11,044 ) $ 10,350

Repurchase of common stock — — — — ( 758 ) (a) ( 758 )

Issuance of common and treasury stock pursuant to Employee stock plans — ( 10 ) — — 13 3

4 unchanged sentences

Balance at March 31, 2025 $ 888 $ 4,210 $ 16,080 $ ( 24 ) $ ( 11,789 ) $ 9,365

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

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

(a) Includes excise tax incurred on share repurchases, net of issuances.

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

4 unchanged sentences

— — ( 107 ) — — ( 107 )

Comprehensive loss — — ( 159 ) ( 147 ) — ( 306 )

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) — — ( 231 ) 19 — ( 212 )

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

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

See accompanying notes.

2 unchanged sentences

(in millions)

Three months ended Nine months ended

September 30, September 30,

2024 2023 2024 2023

Three months ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 67 $ 193 $ 204 $ 717

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

Net loss $ ( 149 ) $ ( 231 )

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

Depreciation and amortization 396 408

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

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

Unrealized/realized loss on fuel derivative instruments — 1

Deferred income taxes ( 43 ) ( 68 )

Gain on sale-leaseback transactions ( 3 ) —

Changes in certain assets and liabilities:

4 unchanged sentences

Other liabilities ( 63 ) ( 71 )

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

Cash collateral provided to derivative counterparties ( 22 ) —

Other, net 8 ( 39 )

3 unchanged sentences

Assets constructed for others — ( 9 )

Proceeds from sale-leaseback transactions 24 —

Purchases of short-term investments ( 51 ) ( 1,678 )

3 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

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

Proceeds from Employee stock plans 17 15

Repurchase of common stock ( 750 ) —

Payments of long-term debt and finance lease obligations ( 5 ) ( 8 )

10 unchanged sentences

Right-of-use assets acquired or modified under operating leases $ 14 $ 16

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

See accompanying notes.

4 unchanged sentences

Financial Derivative Instruments

Comprehensive Income

Net Income Per Share

Comprehensive Loss

Net Loss Per Share

Fair Value Measurements

2 unchanged sentences

Financing Activities

Shareholder Rights Plan

Restructuring

Notes to Condensed Consolidated Financial Statements

2 unchanged sentences

BASIS OF PRESENTATION

Basis of Presentation

Southwest Airlines Co.

3 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 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.

The unaudited Condensed Consolidated Financial Statements for the interim periods ended March 31, 2025 and 2024 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.

Financial results for the Company and airlines in general can be seasonal in nature.

In many years, the Company's revenues, as well as its Operating income and Net income, have performed better in its second and third fiscal quarters than in its first and fourth fiscal quarters.

Air travel is also significantly impacted by general economic conditions, the amount of disposable income available to consumers and changes in consumer behavior, unemployment levels, corporate travel budgets, global pandemics, extreme or severe weather and natural disasters, fears of terrorism or war, governmental actions, and other factors beyond the Company's control.

For example, absent other factors, travel demand is generally higher during the summer period, or the Company’s second and third fiscal quarters.

However, air travel is also significantly impacted by general economic conditions, the amount of disposable income available to consumers and changes in consumer behavior, unemployment levels, corporate travel budgets, global pandemics, extreme or severe weather and natural disasters, fears of terrorism or war, governmental actions, and other factors beyond the Company's control.

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 fuel hedging program.

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.

Operating results for the three months ended March 31, 2025, are not necessarily indicative of the results that may be expected for future quarters or for the year ended December 31, 2025.

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, 2024.

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 nine months ended September 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.

During second quarter 2024, the Company identified certain Boeing 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 nine months ended September 30, 2024:

Operating Segments and Related Disclosures

The Company's chief operating decision maker, the Company's President, Chief Executive Officer, & Vice Chairman of the Board of Directors, assesses performance for the Company's single reportable segment and decides how to allocate resources based on its Net income or loss (see the unaudited Condensed Consolidated Statement of Comprehensive Loss).

For single reportable segment-level financial information, total assets, revenues from external customers, depreciation and amortization expense, interest income and interest expense, provision for income taxes, other non-operating expenses, and significant non-cash transactions, see Item 1.

Financial Statements.

NEW ACCOUNTING PRONOUNCEMENTS

On November 4, 2024, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses.

This standard responds to investor input by requiring public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the notes to the financial statements.

This standard is effective for all entities that are subject to Subtopic 220-40, for annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027, 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 disclosures.

Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

Three months ended Nine months ended

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

Depreciation and amortization expense $ 30 $ 39

Net income * $ ( 19 ) $ ( 25 )

Net income per basic share $ ( 0.03 ) $ ( 0.04 )

Net income per diluted share $ ( 0.03 ) $ ( 0.04 )

* 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):

On December 14, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

3 unchanged sentences

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):

Improvements to Reportable Segment Disclosures.

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, and interim periods within fiscal years beginning after December 15, 2024, but early adoption is permitted.

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.

The Company will include all required disclosures within its Form 10-K for the year ended December 31, 2025, utilizing the retrospective application as permitted in the standard.

FINANCIAL DERIVATIVE INSTRUMENTS

2 unchanged sentences

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

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 historically aimed to reduce volatility in operating expenses through its fuel hedging program.

Based on higher fuel hedging premium costs over time and other factors, the Company has discontinued its fuel hedging program and has no plans to add additional derivatives to its portfolio, which currently extends through 2027.

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.

2 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 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 has entered 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.

Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

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.

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:

As of March 31, 2025, the Company had fuel derivative contracts in place through 2027.

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

Maximum fuel hedged as of

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

2025 1,033 Brent crude oil

March 31, 2025 Derivative underlying commodity type as of

Period (by year) (gallons in millions) (a) March 31, 2025

Remainder of 2025 775 Brent crude oil

2026 945 Brent crude oil

3 unchanged sentences

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 hedging portfolio, any subsequent changes in fair value of those positions are marked to market through the unaudited Condensed Consolidated Statement of Comprehensive Income.

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 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 Income.

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.

In some situations, an entire commodity type used in hedging may cease to qualify for special hedge accounting treatment.

As an example, in certain prior periods, the Company's routine statistical analysis performed to determine which commodities qualified for special hedge accounting treatment on a prospective basis indicated that West Texas Intermediate ("WTI") crude oil-based derivatives no longer qualified for hedge accounting, and therefore the Company could no longer demonstrate that derivatives based on WTI crude oil prices would result in effective hedges on a prospective basis.

As such, all WTI-based instruments were de-designated from their hedging relationships, and the changes in fair value of all of the Company's derivatives based in WTI were recorded directly to Other (gains) losses on a prospective basis.

The Company's routine statistical analysis performed for the three months ended March 31, 2025, indicated that all commodities currently being utilized by the Company qualify for hedge accounting.

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:

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

Balance Sheet Fair value at Fair value at Fair value at Fair value at

Asset derivatives

Balance Sheet Fair value at Fair value at

(in millions) location 3/31/2025 12/31/2024

3 unchanged sentences

Total derivatives designated as hedges $ 92 $ 130

Derivatives not designated as hedges (a)

Fuel derivative contracts (gross) Prepaid expenses and other current assets $ 7 $ — $ 2 $ —

Total derivatives $ 134 $ 223 $ 2 $ —

(a) Represents the position of each trade before consideration of offsetting positions with each counterparty and does not include the impact of cash collateral deposits provided to or received from counterparties.

1 unchanged sentence

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 September 30, December 31,

Balance Sheet March 31, December 31,

(in millions) location 2025 2024

2 unchanged sentences

Receivable from third parties for fuel contracts Accounts and other receivables — 1

All of the Company's derivative instruments are subject to agreements that follow the netting guidance in the applicable accounting standards for derivatives and hedging.

All of the Company's fuel derivative instruments are subject to agreements that follow the netting guidance in the applicable accounting standards for derivatives and hedging.

The types of derivative instruments the Company has determined are subject to netting requirements in the accompanying unaudited Condensed Consolidated Balance Sheet are those in which the Company pays or receives cash for transactions with the same counterparty and in the same currency via one net payment or receipt.

For cash collateral held by the Company or provided to counterparties, the Company nets such amounts against the fair value of the Company's derivative portfolio by each counterparty.

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 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.

The Company has elected to utilize netting for its fuel 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.

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:

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)

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

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)

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

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.

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

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 nine months ended September 30, 2024 and 2023:

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, 2025 and 2024:

Location and amount recognized in income on cash flow hedging relationships

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

Three months ended March 31, 2025 Three months ended March 31, 2024

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

Total $ 38 $ 1 $ 22 $ 2

(Gain) loss on cash flow hedging relationships

Loss on cash flow hedging relationships

Commodity contracts:

Amount of (gain) loss reclassified from AOCI into income 15 — ( 52 ) —

Amount of loss reclassified from AOCI into income 38 — 22 —

Location and amount recognized in income on cash flow hedging relationships

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

Total $ 54 $ 6 $ ( 93 ) $ 5

(Gain) loss on cash flow hedging relationships

Commodity contracts:

Amount of (gain) loss reclassified from AOCI into income 54 — ( 93 ) —

Amount of loss reclassified from AOCI into income — 1 — 2

Derivatives designated and qualified in cash flow hedging relationships

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

Three months ended

September 30,

(in millions) 2024 2023

Fuel derivative contracts $ 61 $ ( 175 )

Other — ( 7 )

Total $ 61 $ ( 182 )

Notes to Condensed Consolidated Financial Statements

3 unchanged sentences

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

Nine months ended

September 30,

Three months ended

(in millions) 2025 2024

Fuel derivative contracts $ 29 $ ( 1 )

Other — ( 7 )

Total $ 83 $ 71

Derivatives not designated as hedges

1 unchanged sentence

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

September 30,

(in millions) 2025 2024

Fuel derivative contracts $ — $ 1 Other (gains) losses, net

Derivatives not designated as hedges

(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 associated with premiums paid for fuel derivative contracts that settled/expired during the three and nine months ended September 30, 2024 and 2023.

The Company also recorded expense associated with premiums paid for fuel derivative contracts that settled/expired during the three months ended March 31, 2025 and 2024.

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) 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:

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

September 30,

(in millions) 2025 2024

Fuel derivative contracts designated as hedges $ 37 $ 39 Fuel and oil

Fuel derivative contracts not designated as hedges 5 — Other (gains) losses, net

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

Fuel derivative contracts designated as hedges $ 114 $ 91 Fuel and oil

Fuel derivative contracts not designated as hedges 5 — 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 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.

Included in the Company’s cumulative unrealized losses from fuel hedges as of March 31, 2025, recorded in AOCI, were approximately $ 95 million in unrealized losses, net of taxes, which are expected to be realized in earnings during the twelve months subsequent to March 31, 2025.

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 September 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 March 31, 2025, or as of December 31, 2024.

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

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.

Credit Risk and Collateral

2 unchanged sentences

However, the Company has not experienced any significant credit loss as a result of counterparty nonperformance in the past.

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 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 September 30, 2024, at which such postings are triggered:

To manage credit risk,

Notes to Condensed Consolidated Financial Statements

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Notes to Condensed Consolidated Financial Statements

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, 2025, 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 may be 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.

As of March 31, 2025, the Company had no cash collateral provided to or held from derivative counterparties.

The following table provides the fair values of fuel derivatives and applicable collateral posting threshold amounts as of March 31, 2025, at which such postings are triggered:

Counterparty (CP)

1 unchanged sentence

Fair value of fuel derivatives $ 22 $ 12 $ 13 $ 7 $ 9 $ 8 $ 8 $ 10 $ 3 $ 92

Cash collateral held from CP 22 — — — — — — — — 22

Option to substitute LC for cash N/A N/A (a)

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Notes to Condensed Consolidated Financial Statements

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 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 gain (loss) on fuel derivative instruments, net of

deferred taxes of ($ 14 ) and $ 41

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

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

COMPREHENSIVE INCOME $ 19 $ 336

Nine months ended September 30,

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, 2025 and 2024 were as follows:

Three months ended March 31,

(in millions) 2025 2024

NET INCOME $ 204 $ 717

Unrealized loss on fuel derivative instruments, net of

NET LOSS $ ( 149 ) $ ( 231 )

Unrealized gain on fuel derivative instruments, net of

deferred taxes of $ — and $ 6

( 42 ) ( 150 )

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

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

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

Reclassification to earnings 15 — 2 ( 4 ) 13

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

Total other comprehensive income $ 1 $ 19

COMPREHENSIVE LOSS $ ( 148 ) $ ( 212 )

A rollforward of the amounts included in AOCI, net of taxes, is shown below for the three months ended March 31, 2025:

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

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Reclassification to earnings 38 — 1 ( 9 ) 30

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

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 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

AOCI components

Unrealized loss on fuel derivative instruments $ 15 Fuel and oil expense

$ 11 Net of tax

Other $ 2 Other operating expenses

$ 2 Net of tax

Total reclassifications for the period $ 13 Net of tax

Nine months ended September 30, 2024

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

Balance at March 31, 2025 $ ( 193 ) $ 167 $ ( 6 ) $ 8 $ ( 24 )

The following table illustrates the significant amounts reclassified out of each component of AOCI for the three months ended March 31, 2025:

Three months ended March 31, 2025

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

AOCI components

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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.

Passenger revenue associated with tickets is recognized when the performance obligation to the Customer is satisfied, which is primarily when travel is provided.

For air travel on Southwest, the amount of tickets (which includes flight credits—also referred to as partial tickets) that will go unused, referred to as breakage, is estimated and recognized in Passenger revenue once the scheduled flight date has passed.

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 nine months ended September 30, 2024 and 2023:

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

The following table provides the components of Passenger revenue recognized for the three months ended March 31, 2025 and 2024:

Three months ended March 31,

(in millions) 2025 2024

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Total passenger revenues $ 5,811 $ 5,712

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

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:

As of March 31, 2025, and December 31, 2024, 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) September 30, 2024 December 31, 2023

(in millions) March 31, 2025 December 31, 2024

Air traffic liability - passenger travel and ancillary passenger services $ 4,061 $ 3,393

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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 nine months ended September 30, 2024 and 2023 were as follows:

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

Rollforwards of the Company's Air traffic liability - loyalty program for the three months ended March 31, 2025 and 2024 were as follows:

Three months ended March 31,

(in millions) 2025 2024

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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 September 30, 2024 and 2023 were as follows:

Nine months ended September 30,

Rollforwards of the amounts included in Air traffic liability as of March 31, 2025 and 2024 were as follows:

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

Three months ended March 31,

(in millions) 2025 2024

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

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

Under the Company's current 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.

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 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.

Customer flight credits represent approximately 7 percent and 8 percent of the total Air traffic liability balance as of March 31, 2025, and December 31, 2024, respectively.

On March 11, 2025, the Company announced a change to its flight credit policy.

Flight credits issued for reservations booked and ticketed or changed on or after May 28, 2025, will have a specified expiration date.

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

For the three months ended March 31, 2025 and 2024, the Company recognized $ 569 million and $ 542 million of such revenue, respectively, the majority of which is within Other operating revenues.

Through the co-branded credit card agreement with Chase, the Company sells loyalty points, certain marketing benefits, which consist of the use of the Southwest Airlines brand and access to Rapid Rewards Member lists, licensing and advertising elements, and the use of the Company’s resource team, and other airline benefits.

The Company allocates consideration received to performance obligations based on the relative fair value of those obligations.

In first quarter 2025, the Company and Chase executed an amendment to the co-branded credit card agreement that extended the term of the agreement and added enhanced airline benefits for Cardmembers associated with the Company's planned assigned and premium seating initiative.

The Company estimated the selling prices and volumes over the term of the amended agreement in order to determine the allocation of proceeds to each of the three performance obligations identified in the agreement, which have been characterized as a transportation component, a marketing component, and an airline benefits component.

The Company records Passenger revenue related to loyalty point redemptions for air travel when the travel is delivered, the marketing elements are recognized as Other revenue when the performance obligations related to those services are satisfied, which is generally the same period consideration is received from Chase, and the airline benefits are recognized as Passenger revenue when they are provided.

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.

Notes to Condensed Consolidated Financial Statements

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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.

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 — (a) 5 15 15

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

Weighted-average shares outstanding, basic 599 596 598 595

Dilutive effects of Convertible Notes — 42 43 42

Dilutive effect of restricted stock units 2 2 2 2

Adjusted weighted-average shares outstanding, diluted 601 640 643 639

NET INCOME PER SHARE:

Three months ended March 31,

Net loss attributable to common stockholders $ ( 149 ) $ ( 231 )

Weighted-average shares outstanding, basic and diluted 584 597

NET LOSS PER SHARE:

Basic $ ( 0.26 ) $ ( 0.39 )

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Restricted stock units 3 3

(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.

Stock warrants — 2

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 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

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

investments consist of instruments classified as Level 1.

As of March 31, 2025, 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, 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.

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

The Company’s Treasury Department, which reports to the Chief Financial Officer, determines the value of option contracts utilizing an option pricing model based on inputs that are either readily available in public markets, can be derived from information available in publicly quoted markets, or are provided by financial institutions that trade these contracts.

The Company determines the value of option contracts utilizing an option pricing model based on inputs that are either readily available in public markets, can be derived from information available in publicly quoted markets, or are provided by financial institutions that trade these contracts.

The option pricing model used by the Company is an industry standard model for valuing options and is a similar model used by the broker/dealer community (i.e., the Company’s counterparties).

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The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values.

To validate the reasonableness of the Company’s option pricing model, on a monthly basis, the Company compares its option valuations to third party valuations.

To validate the reasonableness of the Company’s option pricing model, on a monthly basis, the Company compares its option valuations to third party

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

If any significant differences were to be noted, they would be researched in order to determine the reason.

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The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of derivative contracts it holds.

Included in Other available-for-sale securities are the Company’s investments associated with its deferred compensation plans, which consist of mutual funds that are publicly traded and for which market prices are readily available.

Included in Equity securities are the Company’s investments primarily associated with its deferred compensation plans, which consist of mutual funds that are publicly traded and for which market prices are readily available.

These plans are non-qualified deferred compensation plans designed to hold contributions in excess of limits established by the Internal Revenue Code of 1986, as amended.

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

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

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 September 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 March 31, 2025, and December 31, 2024:

Fair value measurements at reporting date using:

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

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

Description March 31, 2025 (Level 1) (Level 2) (Level 3)

Assets (in millions)

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Commercial paper 45 — 45 —

Certificates of deposit 2 — 2 —

Time deposits 300 — 300 —

Short-term investments:

Treasury bills 690 690 — —

Certificates of deposit 118 — 118 —

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Total assets $ 8,696 $ 8,141 $ 463 $ 92

Fuel derivatives:

Option contracts (b) $ ( 2 ) $ — $ — $ ( 2 )

(a) Cash equivalents are primarily composed of money market investments and treasury bills.

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

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

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

Fair value measurements at reporting date using:

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Cash equivalents (a) $ 7,209 $ 7,209 $ — $ —

Commercial paper 135 — 135 —

Certificates of deposit 21 — 21 —

Time deposits 300 — 300 —

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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 nine months ended September 30, 2024, or the year ended December 31, 2023.

The following tables present the

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

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 nine months ended September 30, 2024:

Fair value measurements using significant unobservable inputs (Level 3)

(in millions) Fuel derivatives

Balance as of June 30, 2024 $ 220

Total loss for the period

Included in earnings ( 29 ) (a)

Included in other comprehensive income ( 79 )

Purchases 31 (b)

Settlements ( 11 )

Balance as of September 30, 2024 $ 132

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 September 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 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.

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, 2025, or the year ended December 31, 2024.

The following table presents the 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, 2025:

Fair value measurements using significant unobservable inputs (Level 3)

2 unchanged sentences

Total loss for the period

Included in earnings ( 31 ) (a)

Included in other comprehensive income ( 108 )

Purchases 97 (b)

Settlements ( 49 )

Balance as of September 30, 2024 $ 132

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 at September 30, 2024

Included in other comprehensive loss ( 38 )

Balance as of March 31, 2025 $ 92

The amount of total losses for the period

included in other comprehensive income attributable to the

included in other comprehensive loss attributable to the

change in unrealized gains or losses relating

to assets still held at September 30, 2024

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

to assets still held as of March 31, 2025

The significant unobservable input used in the fair value measurement of the Company’s derivative option contracts is implied volatility.

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 September 30, 2024:

Notes to Condensed Consolidated Financial Statements

3 unchanged sentences

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

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

2025 24 - 30 %

Fuel derivatives Option model Implied volatility Second quarter 2025 17 - 32 %

Third quarter 2025 24 - 30 %

Fourth quarter 2025 24 - 27 %

2026 22 - 31 %

2027 21 - 25 %

(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 September 30, 2024, are presented in the table below.

(a) Implied volatility weighted by the notional amount (barrels of underlying commodity) that will settle in each 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, 2025, 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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The Company utilizes indicative pricing from counterparties and a discounted cash flow method to estimate the fair value of the Level 3 items.

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

5.25 % Notes due 2025

$ 1,302 $ 1,303 Level 2

1.25 % Convertible Notes due 2025

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

1.25 % Convertible Notes (a)

2025 1,611 1,606 Level 2

3.00 % Notes due 2026

2026 300 292 Level 2

7.375 % Debentures due 2027

7.375 % Debentures

2027 106 111 Level 2

3.45 % Notes due 2027

2027 300 291 Level 2

5.125 % Notes due 2027

5.125 % Notes

2027 1,727 1,741 Level 2

2.625 % due 2030

2.625 % Notes

2030 500 449 Level 2

1.000 % Payroll Support Program Loan due 2030 (a)

1.000 % Payroll Support Program Loan (b)

2030 976 994 Level 3

1.000 % Payroll Support Program Loan due 2031 (a)

1.000 % Payroll Support Program Loan (b)

2031 566 554 Level 3

1.000 % Payroll Support Program Loan due 2031 (a)

1.000 % Payroll Support Program Loan (b)

2031 526 509 Level 3

(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.

(a) The maturity date for the convertible notes occurs in May 2025.

(b) 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 would have occurred on April 20, 2025;

however, the Company prepaid this tranche in full on April 17, 2025.

See Note 10 for further information.

Notes to Condensed Consolidated Financial Statements

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SUPPLEMENTAL FINANCIAL INFORMATION

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

(in millions) March 31, 2025 December 31, 2024

Trade receivables $ 47 $ 47

4 unchanged sentences

Reinsurance receivable 145 168

Other 113 157

Accounts and other receivables $ 1,078 $ 1,110

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

(in millions) March 31, 2025 December 31, 2024

Derivative contracts $ 71 $ 90

3 unchanged sentences

Other assets $ 1,048 $ 1,081

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

(in millions) March 31, 2025 December 31, 2024

Accounts payable trade $ 396 $ 339

7 unchanged sentences

Accounts payable $ 1,925 $ 1,818

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

Voluntary Separation Program $ 65 $ 65

Profitsharing and savings plans 72 141

(in millions) March 31, 2025 December 31, 2024

Voluntary Separation Program and severance pay $ 68 $ 48

Profit-sharing and savings plans 38 151

Vacation pay 670 657

3 unchanged sentences

Interest 44 23

Bonus and incentive pay (a) 180 2,022

Bonus pay 77 208

Reinsurance payable 205 249

5 unchanged sentences

Notes to Condensed Consolidated Financial Statements

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

Voluntary Separation Program $ 7 $ 61

(in millions) March 31, 2025 December 31, 2024

Postretirement obligation $ 259 $ 256

2 unchanged sentences

Other noncurrent liabilities $ 923 $ 909

(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 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.

Other 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.

Other operating expenses consist of aircraft rentals, distribution costs, advertising expenses, personnel expenses, professional fees, and certain technology-related costs, among 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 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 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

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

The Company received 11 -8 aircraft deliveries from Boeing in first quarter 2025 and retired 12 737-700 ("-700") aircraft and two 737-800 ("-800") aircraft.

In addition, during first quarter 2025, the Company exercised nine -7 options for delivery in 2026.

As a result of Boeing's delivery delays, the Company has previously replanned its capacity and delivery expectations multiple times and will continue to closely monitor the ongoing aircraft delivery delays with Boeing and further adjust expectations as needed.

As of March 31, 2025, the Company had the following firm orders and options for future periods:

The Boeing Company

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2031 45 — 45 90

305 (a) 196 (b) 171 672

2 unchanged sentences

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

(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 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.

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

In addition, the Company has included the remaining 63 of its 2024 contractual but undelivered aircraft ( 27 -7s and 36 -8s) within its 2025 contractual commitments.

The 2025 contractual detail is as follows:

The Boeing Company

-7 Firm Orders -8 Firm Orders Total

2024 Contractual Deliveries 27 36 63

2025 Contractual Deliveries 43 30 73

2025 Combined Contractual Total 70 66 136

Based on the Company's current agreement with Boeing, capital commitments associated with firm orders as of March 31, 2025, were:

(in billions) 2025 2026 2027 2028 2029 2030 and thereafter Total

Payments for capital commitments $ 3.2 (a) $ 2.2 $ 2.5 $ 2.8 $ 2.5 $ 2.8 $ 16.0

(a) Capital commitments associated with the Company's firm orders in 2025 of $ 3.2 billion include approximately $ 1.9 billion primarily related to the existing scheduled 73 MAX aircraft to be delivered in 2025 and $ 1.3 billion related to 63 MAX aircraft ( 27 -7s and 36 -8s) that were contractually committed for 2024, but were not received.

Subsequent to March 31, 2025, and through April 24, 2025, the Company exercised three -7 options for delivery in 2026, resulting in an immaterial change to the Company's 2026 capital commitments.

Contingencies

4 unchanged sentences

The Ninth Circuit’s decision may adversely affect the Company’s defenses in the USERRA proceeding and may give rise to additional litigation in this or other areas.

On March 22, 2024, the parties in the Company's case submitted a proposed case schedule through trial.

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.

On October 29, 2024, the Company filed a motion to decertify the class, which was then fully briefed and set for hearing.

On February 13, 2025, the parties filed a notice of settlement advising the Court that they reached a settlement in principle, and the parties made a stipulated request for the Court to vacate the case schedule, including the hearing on the Company's decertification motion, and to set a deadline of June 19, 2025, for the filing of either a motion for preliminary approval of the class settlement or a status update about the timing of the remaining steps in the settlement process.

The Court granted the stipulation on February 14, 2025.

The proposed settlement is fully accrued as of March 31, 2025.

Notes to Condensed Consolidated Financial Statements

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FINANCING ACTIVITIES

Convertible Notes due 2025

On May 1, 2020, the Company completed the public offering of $ 2.3 billion aggregate principal amount of Convertible Senior Notes (the "Convertible Notes").

The Convertible Notes bear interest at a rate of 1.25 % and will mature on May 1, 2025.

The Convertible Notes bear interest at a rate of 1.25 percent and will mature on May 1, 2025.

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 documents.

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.

The Company intends to settle conversions by paying cash up to the principal amount of the Convertible Notes, with any excess conversion value settled in cash or shares of common stock.

Holders may convert their Convertible Notes at their option on or after February 1, 2025, and prior to the close of business on April 29, 2025, as stated in the offering documents.

The Company has elected to settle conversions in cash.

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 July 2024, the bond conversion rate changed, and was 27.1951 as of September 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 September 30, 2024, and December 31, 2023.

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

However, based on the Company's most recent cash dividends declared in February 2025, the bond conversion rate changed, and was 27.5005 as of March 31, 2025.

There were no partial extinguishments of debt during the three months ended March 31, 2025 and 2024.

An immaterial amount of Convertible Note conversions were initiated during the first quarter of 2025.

The Convertible Notes will settle in the second quarter of 2025.

As a result, the balance as of March 31, 2025, and December 31, 2024, is classified as Current maturities of long-term debt in the accompanying unaudited Condensed Consolidated Balance Sheet.

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

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

Three months ended March 31,

(in millions) 2025 2024

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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 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.

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

The Company had no changes to contingencies with regards to the Convertible Notes during the three months ended March 31, 2025.

The effective interest rate associated with the Convertible Notes was approximately 1.9 percent for the three months ended March 31, 2025.

Payroll Support Program Loan due 2030

During 2020 and 2021, the Company entered into definitive documentation with the United States Department of the Treasury ("Treasury") with respect to payroll funding support ("Payroll Support") pursuant to three separate Payroll Support programs:

the "PSP1 Payroll Support Program" in April 2020 under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act");

the "PSP2 Payroll Support Program” in January 2021 under the Consolidated Appropriations Act, 2021;

and the "PSP3 Payroll Support Program" in April 2021 under the American Rescue Plan Act of 2021.

As consideration for its receipt of funding under each of these Payroll Support programs, the Company issued promissory notes in favor of Treasury (each initially classified as a component of Long-term debt less current maturities in the unaudited Condensed Consolidated Balance Sheet).

The note associated with the PSP1 Payroll Support Program is due in April 2030.

The notes associated with the PSP2 and PSP3 Payroll Support Programs are due in January and April 2031, respectively.

Notes to Condensed Consolidated Financial Statements

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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.

As each aircraft was purchased, the Company relieved its related lease liability but continued to recognize the cost of the aircraft within Property and equipment in the unaudited Condensed Consolidated Balance Sheet.

As of March 31, 2023, the Company had completed the purchase of all 39 aircraft, including the 31 aircraft purchased in 2022.

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 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.

On the day after the fifth anniversary of each note, the interest rate is scheduled to change to the Secured Overnight Financing Rate plus two percent.

During first quarter 2025, the Company made the decision to prepay the first Payroll Support Program Loan in advance of the fifth anniversary date of April 20, 2025.

As a result, the balance as of March 31, 2025, is classified as Current maturities of long-term debt in the accompanying unaudited Condensed Consolidated Balance Sheet.

On April 17, 2025, the Company made an early prepayment in full of this loan of $ 976 million, utilizing available cash on hand.

Revolving Credit Facility

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, 2025 and 2024, there were no amounts outstanding under the Amended Credit Agreement.

Sale-Leaseback

As more fully described in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, in fourth quarter 2024 the Company entered into an agreement with UMB Bank, N.A.

("UMB Bank") involving the sale of 36 of the Company’s -800 aircraft that qualified as sale-leaseback arrangements under applicable accounting guidance.

In first quarter 2025, the Company completed the agreement through the sale of one additional -800 aircraft to UMB Bank for $ 24 million, and then immediately leased the aircraft back for approximately three years .

This resulted in a recognized gain of $ 3 million in first quarter 2025, reflected within Other operating expenses, net in the accompanying unaudited Condensed Consolidated Statement of Comprehensive Loss.

Repurchase of Common Stock

Under an accelerated share repurchase program entered into by the Company with third-party financial institutions in first quarter 2025 (the "First Quarter 2025 ASR Program"), the Company paid $ 750 million and received an initial delivery of 19,867,550 shares during February 2025, representing an estimated 80 percent of the shares to be purchased by the Company under the First Quarter 2025 ASR Program.

This share amount was based on the $ 30.20 closing price of the Company's common stock on February 19, 2025.

Final settlement of the First Quarter 2025 ASR Program occurred in April 2025 and was based on a discount to the volume-weighted average price per share of the Company's common stock during a calculation period completed in April 2025.

Upon settlement, the third-party financial institutions delivered 4,242,267 additional shares of the Company’s common stock to the Company.

Upon completion of the First Quarter 2025 ASR Program in April 2025, the average purchase price per share for the 24,109,817 shares repurchased was $ 31.11 .

Additionally, in January 2025, a third-party financial institution delivered 1,010,663 additional shares of the Company's common stock to the Company upon settlement of an accelerated share repurchase program entered into by the Company with the third-party financial institution in fourth quarter 2024 (the "Fourth Quarter 2024 ASR Program").

Upon completion of the Fourth Quarter 2024 ASR Program in January 2025, the average purchase price per share for the 7,806,450 shares repurchased under the program was $ 32.02 .

Notes to Condensed Consolidated Financial Statements

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Notes to Condensed Consolidated Financial Statements

SHAREHOLDER RIGHTS PLAN

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”), payable to the shareholders of record at the close of business on July 15, 2024.

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.

RESTRUCTURING

On February 17, 2025, the Company announced a reduction in its workforce designed to reduce operating costs, increase efficiency, and create a leaner and more agile organization as part of its transformational plan.

The workforce reduction of approximately 1,750 Employee roles was focused almost entirely on corporate overhead and leadership positions and represented approximately 15 percent of corporate positions, including senior leadership.

Separations are expected to be substantially complete by the end of second quarter 2025.

As a result of this workforce reduction, the Company recorded a one-time expense of $ 62 million in first quarter 2025, which is included on the unaudited Condensed Consolidated Statement of Comprehensive Loss as part of Salaries, wages, and benefits and Other operating expenses.

Substantially all of the expense is due to Employee severance payments and related professional fees and is expected to be substantially paid in second quarter 2025.

The Company does not expect to incur any material additional costs in connection with this reduction in workforce.

Additionally, as of March 31, 2025, $ 43 million of this one-time expense is included as part of Accrued liabilities on the unaudited Condensed Consolidated Balance Sheet .

Amounts paid in first quarter 2025 totaled approximately $ 19 million and primarily relate to salary and benefits paid to Employees during their respective notice period in accordance with the Worker Adjustment and Retraining Notification Act.

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