Southwest Airlines 2015 Annual Report Download - page 67

May 13, 2015, the Company’s Board of Directors approved a new $1.5 billion share repurchase
program. Following the Board of Directors’ authorization of the Company’s new $1.5 billion share
repurchase program, the Company entered into the following share repurchases:
Share repurchases Shares received Cash paid
Second Quarter Accelerated Share Repurchase Program 8,085,077 $ 300,000,000
Third Quarter Accelerated Share Repurchase Program 12,892,204 500,000,000
Total 20,977,281 $ 800,000,000
On July 8, 2015, Moody’s upgraded the Company’s secured equipment trust certificates and its senior
unsecured debt rating to “Baa1” from “Baa2.” The upgrade of the Company’s senior unsecured debt
rating was based on improving credit metrics, with the Company having meaningfully strengthened its
earnings, cash flow and financial leverage in recent years while executing the AirTran integration.
On October 30, 2015, Fitch upgraded the Company’s debt rating to “BBB+” from “BBB” and revised
the rating outlook to positive from stable. Fitch noted the Company’s improved credit portfolio due to
the integration of AirTran, its continued pay down of debt, and its credit metrics, which have returned
to pre-recession levels.
Standard and Poor’s credit rating for the Company is ‘BBB’ and is unchanged from 2014.
The Company has a large net deferred tax liability on its Consolidated Balance Sheet. The deferral of
income taxes has resulted in a significant benefit to the Company and its liquidity position. Since the
Company purchases the majority of the aircraft it acquires, it has been able to utilize accelerated
depreciation methods (including bonus depreciation) available under the Internal Revenue Code of
1986, as amended, in 2015 and in previous years, which has enabled the Company to defer the cash tax
payments associated with these depreciable assets to future years. Based on the Company’s scheduled
future aircraft deliveries from Boeing and existing tax laws in effect, the Company will continue to
defer a portion of cash income taxes to future years. The Company has paid in the past, and will
continue to pay in the future, significant cash taxes to the various taxing jurisdictions where it operates.
The Company expects to be able to continue to meet such obligations utilizing cash and investments on
hand, as well as cash generated from its ongoing operations.
Off-Balance Sheet Arrangements, Contractual Obligations, and Contingent Liabilities and
Commitments
The Company has contractual obligations and commitments primarily with regard to future purchases
of aircraft, payment of debt, and lease arrangements. During December 2015, the Company and Boeing
revised the Company’s future firm aircraft order book to reflect 33 additional -800s, and the conversion
of its remaining 25 -700 firm orders to -800s. For aircraft commitments with Boeing, the Company is
required to make cash deposits toward the purchase of aircraft in advance. These deposits are classified
as Deposits on flight equipment purchase contracts in the Consolidated Balance Sheet until the aircraft
is delivered, at which time deposits previously made are deducted from the final purchase price of the
aircraft and are reclassified as Flight equipment. See Note 4 to the Consolidated Financial Statements
for a complete table of the Company’s firm orders, options, and purchase rights with Boeing and other
parties.
The leasing of aircraft (including the sale and leaseback of aircraft) provides flexibility to the Company
as a source of financing. Although the Company is responsible for all maintenance, insurance, and
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