Southwest Airlines 2015 Annual Report Download - page 65

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The Company incurred $126 million in Acquisition and integration costs in 2014, which primarily
consisted of expense associated with the removal of the remaining B717 fleet from service during
December 2014, B717 fleet conversion costs, fleet integration, Employee training, facility integration,
and technology integration projects. During 2013, the Company recorded $86 million in Acquisition
and integration expense, which primarily consisted of B717 fleet conversion costs, fleet integration,
Employee training, technology integration projects, and facility integration expenses.
Other operating expenses for 2014 increased by $79 million, or 3.7 percent, compared with 2013. On a
per ASM basis, Other operating expenses for 2014 increased 3.1 percent, compared with 2013. On
both a dollar and per ASM basis, approximately 40 percent of the increase was the result of higher
contract programming and consulting expenses, 20 percent of the increase was the result of
maintenance agreement contract rate increases, and the remainder of the increase was due to
individually insignificant items.
Other
Other (gains) losses, net, primarily includes amounts recorded as a result of the Company’s hedging
activities. See Note 10 to the Consolidated Financial Statements for further information on the
Company’s hedging activities. The following table displays the components of Other (gains) losses,
net, for the years ended December 31, 2014, and 2013:
Year ended December 31,
(in millions) 2014 2013
Mark-to-market impact from fuel contracts settling in future periods $ 251 $ (103)
Ineffectiveness from fuel hedges settling in future periods 5 11
Realized ineffectiveness and mark-to-market (gains) or losses (4) 3
Premium cost of fuel contracts 62 60
Other (5) (3)
$ 309 $ (32)
Income Taxes
The Company’s effective tax rate was approximately 37.4 percent for 2014, compared with 37.6
percent for 2013.
Liquidity and Capital Resources
Net cash provided by operating activities for 2015, 2014, and 2013 was $3.2 billion, $2.9 billion, and
$2.5 billion, respectively. Operating cash inflows are primarily derived from providing air
transportation to Customers. The vast majority of tickets are purchased prior to the day on which travel
is 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 2015,
2014, and 2013 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 Accrued liabilities balances. Operating cash flows also can be significantly
impacted by the Company’s fuel and interest rate hedge positions and the corresponding cash collateral
requirements associated with those positions. The Company has the ability to post aircraft in lieu of
cash collateral in certain situations, and did so during 2015. See Note 10 to the Consolidated Financial
57