Southwest Airlines 2014 Annual Report Download - page 72

Income Taxes
The Company’s effective tax rate was approximately 37.6 percent for 2013, compared with
38.5 percent for 2012.
Liquidity and Capital Resources
Net cash provided by operating activities for 2014, 2013, and 2012 was $2.9 billion,
$2.5 billion, and $2.1 billion, respectively. Operating cash inflows are primarily derived from
providing air transportation to Customers. The vast majority of tickets were purchased prior to the day
on which travel was provided and, in some cases, several months before the anticipated travel date.
Operating cash outflows are related to the recurring expenses of airline operations. The operating cash
flows for 2014, 2013, and 2012 were impacted primarily by the Company’s results of operations, as
adjusted for non-cash items, which increased significantly year-over-year for each period, as well as
changes in the Air traffic liability and Accounts payable and accrued liabilities. Operating cash flows
can also be significantly impacted by the Company’s fuel and interest rate hedge positions and the
corresponding cash collateral requirements associated with those positions. During 2014 the Company
provided $233 million in cash collateral to derivative counterparties, and in 2013 and 2012 the
Company received $57 million and $233 million, respectively, in cash collateral from derivative
counterparties. Cash flows associated with entering into new fuel derivatives, which are also classified
as Other, net, operating cash flows, were net outflows of $247 million in 2014, net inflows of
$60 million in 2013, and net inflows of $23 million in 2012. Net cash provided by operating activities
is primarily used to finance capital expenditures, repay debt, fund stock repurchases, pay dividends,
and provide working capital.
Net cash used in investing activities for 2014, 2013, and 2012 was $1.7 billion, $1.4 billion,
and $833 million, respectively. Investing activities in 2014, 2013, and 2012 included payments for new
aircraft delivered to the Company, progress payments for future aircraft deliveries, as well as purchases
and sales of short-term and noncurrent investments, which fluctuate primarily based on anticipated
working capital needs. Investing activities in 2014 also included payments associated with airport
construction projects, denoted as Assets constructed for others. See Note 4 to the Consolidated
Financial Statements for further information. During 2014, 2013, and 2012 the Company’s purchases
and sales of short-term and noncurrent investments resulted in net cash provided of $105 million,
$63 million, and $515 million, respectively. The Company currently estimates its 2015 capital
expenditures to be in the $1.7 billion to $1.8 billion range, excluding assets constructed for others
which is estimated to be in the $50 million to $100 million range, net of reimbursements.
Net cash used in financing activities for 2014, 2013, and 2012 was $1.2 billion, $851 million,
and $947 million, respectively. During 2014 the Company repaid $561 million in debt and capital lease
obligations, compared with repayments of $313 million and $578 million during 2013 and 2012,
respectively. During 2014 the Company issued $300 million 2.75% senior unsecured notes due 2019
under the shelf registration statement. See Note 6 to the Consolidated Financial Statements for further
information. The Company repurchased approximately $955 million of its outstanding common stock
through authorized share repurchases during 2014, compared with repurchases of $540 million and
$400 million during 2013 and 2012, respectively. The Company also paid $139 million in dividends to
Shareholders during 2014, compared to $71 million in 2013 and $22 million in 2012. Although the
Company currently intends to continue paying dividends on a quarterly basis for the foreseeable future,
the Company’s Board of Directors may change the timing, amount, and payment of dividends on the
64