Southwest Airlines 2014 Annual Report Download - page 109

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is managing this project. Major construction commenced during 2010. The project consists of the
complete replacement of gate facilities with a new 20-gate facility, including infrastructure, systems
and equipment, aircraft parking apron, fueling system, roadways and terminal curbside, baggage
handling systems, passenger loading bridges and support systems, and other supporting infrastructure.
New ticketing and check-in areas opened during fourth quarter 2012, 12 new gates and new
concessions opened in 2013, and the remaining gates opened during October 2014. The majority of the
project had been completed as of December 31, 2014.
It is currently expected that the total construction costs associated with the LFMP project will
be approximately $519 million. Although the City of Dallas has received commitments from various
sources that are helping to fund portions of the LFMP project, including the Federal Aviation
Administration (“FAA”), the Transportation Security Administration, and the City of Dallas’ Aviation
Fund, the majority of the funds used are from the issuance of bonds. During fourth quarter 2010, $310
million of such bonds were issued by the LFAMC, and the Company has guaranteed principal and
interest payments on the bonds. An additional tranche of such bonds totaling $146 million was issued
during second quarter 2012, and the Company has guaranteed the principal and interest payments on
these bonds as well. The Company currently expects that as a result of the funding commitments from
the above mentioned sources and the bonds that have been issued thus far, no further bond issuances
guaranteed by the Company will be required to complete the LFMP project.
In conjunction with the Company’s significant presence at Dallas Love Field, its rights to occupy
16 of the available gates upon completion of the facility, and other factors, the Company agreed to manage
the majority of the LFMP project. In January 2015, the Company announced a long-term sublease
agreement that will transfer usage of two additional gates, giving the Company 18 gates in the newly rebuilt
20-gate facility at Dallas Love Field. Based on these facts, the Company evaluated its ongoing accounting
requirements in consideration of accounting guidance provided for lessees involved in asset construction.
The Company has recorded and will continue to record an asset and corresponding obligation for the cost of
the LFMP project until final completion of the project. As of December 31, 2014, the Company had
recorded LFMP construction costs of $504 million within Assets constructed for others and had recorded a
liability of $501 million within Construction obligation in its Consolidated Balance Sheet. Upon completion
of different phases of the LFMP project, the Company has placed the associated assets in service and has
begun depreciating the assets over their estimated useful lives. The amount of depreciation recorded for the
year ended December 31, 2014, associated with the LFMP assets in service was $20 million. The
corresponding LFMP liabilities will be reduced primarily through the Company’s airport rental payments to
the City of Dallas as the construction costs of the project are passed through to the Company via recurring
airport rates and charges. A portion of these payments are reflected as Repayment of construction obligation
in the Consolidated Statement of Cash Flows. Further, future contractual airport rental payments to the City
of Dallas are included in the schedule of future minimum lease payments in Note 7. The Company records
interest expense on the Construction obligation at an imputed rate based on the outstanding bonds.
The LFMP Construction is the only Asset Constructed for Others which has been placed into
service as of December 31, 2014, and its associated projects are estimated to have a weighted average
useful life of 27 years and a residual value of 17%.
Contingencies
The Company is from time to time subject to various legal proceedings and claims arising in
the ordinary course of business, including, but not limited to, examinations by the IRS. The Company’s
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