Southwest Airlines 2015 Annual Report Download - page 101

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Dallas Love Field
During 2008, the City of Dallas approved the Love Field Modernization Program (“LFMP”), a project
to reconstruct Dallas Love Field with modern, convenient air travel facilities. Pursuant to a Program
Development Agreement with the City of Dallas and the Love Field Airport Modernization
Corporation (or “LFAMC,” a Texas non-profit “local government corporation” established by the City
of Dallas to act on the City of Dallas’ behalf to facilitate the development of the LFMP), the Company
managed this project. Major construction was effectively completed by December 31, 2014. This
project consisted 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.
Although the City of Dallas received commitments from various sources that are helping to fund
portions of this 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 were 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.
In conjunction with the Company’s significant presence at Dallas Love Field, the Company agreed to
manage the majority of the LFMP project. Based on the pertinent factors in place at the time the
agreement was made, the Company utilized the accounting guidance provided for lessees involved in
asset construction. As of December 31, 2015, the Company had recorded LFMP construction costs of
$548 million within Assets constructed for others and had recorded a liability of $536 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, 2015, associated with the LFMP assets in service was $36 million. The corresponding
LFMP liabilities are being 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. The imputed interest rate associated with
construction obligation was nominal for 2015 and 2014. During 2015, the City of Dallas issued
additional bonds for the construction of a new parking garage. The Company has not guaranteed the
principal or interest payments on these bonds, but remains the accounting owner of this project.
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
management does not expect that the outcome in any of its currently ongoing legal proceedings or the
outcome of any adjustments presented by the IRS, individually or collectively, will have a material
adverse effect on the Company’s financial condition, results of operations, or cash flow.
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