Southwest Airlines 2015 Annual Report Download - page 100

Consolidated Statement of Cash Flows) as reimbursements are received from Broward County. As
of December 31, 2015, the Company had recorded construction costs related to the project
of $25 million.
Houston William P. Hobby Airport
The Company entered into a Memorandum of Agreement (“MOA”) with the City of Houston (“City”),
effective June 2012, to expand the existing Houston Hobby airport facility. As provided in the MOA,
the Company and the City entered into an Airport Use and Lease Agreement (“Lease”) to control the
execution of this expansion and the financial terms thereof. Per the MOA and Lease, this project
provided a new five-gate international terminal with international passenger processing facilities,
expansion of the security checkpoint, and upgrades to the Southwest Airlines ticket counter area. The
project cost approximately $156 million, and the Company provided the funding for, as well as
management over, the project. In return, the capital cost portion of the rent the Company pays for the
international facility is waived from the initial occupancy until the expiration of the Lease. However, at
any point following completion of the project, the City has the option to reimburse the Company’s
investment at the then-unamortized cost of the facility. This purchase would trigger payment of the
previously waived capital cost component of rents owed the City. Additionally, a small portion of the
project qualified for rental credits that will be utilized against the Company’s 2016 lease payments at
the airport. Construction was effectively completed in October 2015, at which time the Company
began operating from the new facility.
As a result of its significant involvement in the Houston Hobby project, the Company determined that
it is the owner of the facility for accounting purposes. As such, during construction, the Company
recorded expenditures as Assets constructed for others in the Consolidated Balance Sheet, along with a
corresponding outflow within Assets constructed for others, in the Consolidated Statement of Cash
Flows. As of December 31, 2015, the Company had recorded construction costs related to Houston
Hobby of $146 million.
Los Angeles International Airport
In March 2013, the Company executed a lease agreement with Los Angeles World Airports
(“LAWA”), which owns and operates Los Angeles International Airport (“LAX”). Under the lease
agreement, which was amended in June 2014, the Company is overseeing and managing the design,
development, financing, construction and commissioning of the airport’s Terminal 1 Modernization
Project (the “Project”) at a cost not to exceed $526 million. The Project is being funded primarily using
the Regional Airports Improvement Corporation (“RAIC”), which is a quasi-governmental special
purpose entity that acts as a conduit borrower under a syndicated credit facility provided by a group of
lenders. Loans made under the credit facility are being used to fund the development of the Project,
and the outstanding loans will be repaid with the proceeds of LAWA’s payments to purchase
completed Project phases. The Company has guaranteed the obligations of the RAIC under the credit
facility. Construction on the Project began during 2014 and is estimated to be completed during 2018.
The Company believes that, due to its agreed upon role in overseeing and managing the Project, it is
considered the owner of the Project for accounting purposes. LAWA will reimburse the Company for
the non-proprietary renovations, while the Company will not be reimbursed for proprietary
renovations. As a result, the $196 million of costs incurred as of December 31, 2015, are included
within Assets constructed for others, and all amounts that have been or will be reimbursed will be
included within Construction obligation on the accompanying Consolidated Balance Sheet.
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