I really need help on this.

\f7. LEASES (EXCERPTN The Company's ' eet' included' 28 ' aircraft on ' capital 'lease ' as 'of' December'B 1, '20 15,' compared'with' 16' aircraft on' capital lease, ' including'tweB7l7s,' as' of" December-\"3 1,' 2014. 'Amounts applicable to 'these ajrcra-that-areincludedin-propertyand-equipment-werezl 91 u u D {ID {I CUE} I} E n (in millions)r1 9 2015!! 9 2014!! :1 Flight equipment 953 435W}; 214:\" Less: accumulated amortization 9 29: 9 2 2:\" '11 9 $ 406C 9 $ 192% (\"11] Total rental expense 'for'operating lease s, Aboth - aircraft'and other, ' charg ed'to operations in '20 l 5, '201 4, 'and' 201 3 ' was ' $909 - million, ' $93 1 ' million, ' and' $997 ' million, - respectively. - The majority' of' the Company's terminal operations space, 'aswell'as '95 'aircra, 'wereunder-operating leases 'at'December'B 1 , '201 5. 'For' aircraft operating leases 'and 'for terminal operations 'leases, 'expense -is included in ' Aircra rentals 'and -in' Landing 'fees and 'otherrentals; respectively, 'in'the Consolidated'Statement'of' Income. 'Future minimum lease - payments under - capital - leas es -and- noncancelable -operating -leases - and rentals to -be received -under- subleases with initial 'orremajning terms in excess of one year at December? 1, '2015, werel \"91 H :1 El DE [1 {CI} [1 CUBE DUI! [I HIE} In LFMP- u Capital Operating] facility- Operang (in millions)r1 9 leases 9 leasesu 9 Subleasesn 9 lease\" leaseg'net 2016B 9$ 461E9$ 636C955 (103)I9$ 243238 5571:;1 2017:1 9 46B: 9 6243 9 (103)X 9 24K 545:}: 2018:! 9 45K 9 551B 9 (102)! 9 251: 474:\" 2019!! 9 451 9 479B 9 (97)! 9 25K 40715;: 202m: 9 44K 9 3595 9 (78)1 9 26K 3071:\" Thereaern 9 209K 9 961B 9 (66)! 9 634K 1,529En Totalminimumlease paynzlemsrI 955 435K 9 $ 3,61 OE 9!! (549)K 9 $ 758I$ 3,819In Less amount representinginterestu 9 79K 9 91 9 \"I! 9 91 \"h n Presentrvalueofminimum'leasc' r1 payments 9 ma: 5 93 s 0a q q: $1 Less current portion 9 32K 9 93 9 91 9 9n 91 I1 Inng-temiportionn 9 $ 324:: 9 93 9 91 9 9'1 9b '-LS note: These are operating lease-payments Wd-facilim at love Field -in-Dallas.1| l (1301] 'll -Page Break-ql 6. LONG-TERM DEBT (EXCERPTW H u [I III! [1 [EU U I II (in millionsyl 9 December-31, -201 53 9 December-31, 20141;: 5.75%Notesdue2016n 9$ 307E935 3131:\" 5.25% Convertible Senior-Notes -due 2016!! 9 1! 1r 9 113m 5.125%-Notesdue2017n 9 309:9 316% French Credit Agreements due-20181.53%II 9 25K 9 361:: Fixed-rate '737 AircmNotes payable through 20187.02%r1 9 17: 9 24m 2.75%Notesdue'2019 9 303:9 3001:; Term'lcan-Agreement-due 20196.315/ou 9 143:9 178Eu Term 'Loan-Agreement-due 20] 94. 84%U 9 36K 9 73m 2.65% Notes due ~2020H 9 494: 9 En Term -Loan-Agreement-due 2020_5_223%o 9 329: 9 372m Floating-rate 737 Aircra'Notes payable'through 2020:! 9 257: 9 300m Pass'Through'Certicat/es'due 2022624%H 9 340: 9 355%: 7.375% -Debenturcs-due-2027II 9 132: 9 1349: Capital ~1easesu 9 395K 9 199K; 91 9$ 3,198E9S 2,7131En Less current maturitiesn 9 63 7: 9 258%: Less debt'discountandissuance com 9 20: 9 21m 91 9 $ 2,541t 9 $ 143432;: 9 1l 'Il During November-2015, the Company is sued $500 mil] ion'senior 1ms ecured notes 'due 2020. -The notes bearinterest - at -2.65 percent, and are payable semi-annually in-arre ars on May -5 and November-5. Concurrently, the Company- entered into a xed-m-oating interest rate swap-to convert the interest 'on 'these unsecured notes to a oating rate ' until their maturity. See Note -1 0 -for-mher-information-onthe interest-rate swap -agreement.1| 'll During November-2014, the Company issued $300 mil] ion'senior uns ecured notes 'due '2019 . -The notes bearinterest- at -2.7 5 percent, payable semi-annually-in arrears on 'May -6 and November 6. Concurrently, the Company entered ' into -a xed-to-oating interest rate swap to convertthe interest -on these unsecurednotes to-a oating rate until their - maturity. 'See Note *1 0 for 'irther-infcrmation on the interest-rate 'swap agreement. 1] 'II On -Iulyl , - 2009, the Company'entered-into a term-loan agreementproviding 'for -loans to the Company-aggregating up to -$ 124 million, to be secured by mortgages 'on 've of the Company\" 5 '737-700 aircraft. The Company has- borrowed the -full S 1 24 million-and secured this >loan with the requisite ve aircra mortgages. The -loan matures >on- Julyl ,-2019, and is repayable semi-annually ininstallments of principal that began -J anuaryl , 2010. -The '1 can bears- interest 'at a xed rate 'of-4. 84 percent, 'and interest is payable semi-annually, 'which payments began on Januaryl ,- 2010. -In -September'2015, the Company prepaid $24 million on the -loau agreement, which in turnreleased one of' the encumbered aircra. -As such, the remaining four-aircra related-to this transaction are still encumbered-as of- December'Bl, 2015.1] 1T Requirement '4'\" Regardless 'of-whether 'you -chose gross -or'net 'in Requirement '1 , consider the cash ' ow pattern of ' the operating lease commitments during the -\"thereaer\" period. a)o Should 'you'detennine the cash 'ow pattern separately 'for the aircraft 'leasesabeled- operating leases), the -facility lease, and 'if'you 'chose net in Requirement-l the 'sublease, OR- should you combine all the cash 'ows across lease typ es 'for each -year and then determine - the pattern'H] No, '1 think the cash ow pattern should not-separate from the aircraft-lease. - {I ll b) How are you going to assign cash-ow in the -\"thereafter\" period-to specic -years? ll ll c). Describe an alternate (to your answer-in-part -(b)) cash-ow-pattern 'forthe \"thereafter\"- period 11 Requirement 311 Consider the discount rate you are going to 'use to determine the present -value -0 f-the operating - leases using several different approaches: 1] ll a)4 Estimate the discount rate used to account for-capital teases using the approach described in - the text b) Infer the discount rate 'used to account-for -c apital -l eases 'by nding the rate that equates the - calculated present value 'of the future capital -lease payments 'with the present value 'of the ' capital lease payments disclosed in the lease note. "Or'ou 'will need to make an-assumption about the -cash - ow pattern in the -\"thereafter\" period. )1] c)a Estimate an appropriate discount rate 'by examining Southwest' s debt note d) Discuss the pros and cons of 'each'of these-approaches. "Choose one -of the rates for your- analysis. 1] 11 11 Requirement-411 Construct-a pro forma balance sheet (at -12/3 1/1 5) for Southwest-assuming it'had-capitalized its - operating ~leases. "(There is an 'Excel template provided.) ' Use the cash -ow pattern from. Requirement ~2(b) and the-discount rate from Requirement '3 ((1). --Assume the pro forma asset and ' debt amounts related to the operating -leases are equal in amount. "Hon need not worry ab out the - separate effects '0 f constructive e apitalization on the portions -of'debt 'classified as current and ' noncuirent. ~Treat all debt-as a-single balance sheet -1ine item.) - How does the constructive - capitalization affect the 'c omp any's debt to total capital (Where total capital is debt plus equity) - ratio'HI Requirement-511 In this part, 'you will performsome sensitivity analyses to determine the extent to 'Which your- assumptions affect your results a)~ Repeat Requirement -4 using-the eash 'ow pattern from-Requirement ~2(c), holding all other- assumptions the same. "How sensitive is your analysis to the cash -ow assumption you- made?1] b) Repeat Requirement '4 using-discount rates that are -one percentage point-higher and -one - percentage point lower than in your original analysis in Requirement 4, holding all other ~ assumptions constant. ~-How sensitive is your analysis to the discount rate assumption you- made?1] 11 Note: - -In parts -5 (a) and -5 (b), you should present the pro fauna-b alance sheets 'under the revised ' assumptions and then discuss the sensitivities. ' -Do -not skip presentation -of the pro forma balance - sheets 11 Requirement-611 In this part, you 'will modify -your original analysis to allow the pro ~forma asset to be smaller than - the pro -forma liability. - -This refinement will introduce deferred income tax effects ll Repeat Requirement '4, but-assume the pro -forma asset related to operating leases -is 80% of the - pro ~forma ~debt related to operating leases. ~ Incorporate the-deferred tax effects of pro ~forma - capitalization, assuming the leases in question remain operating leases -for tax purposes. ~ (Think - about the implications for-cumulative pretax income -when -you revise the balance sheet -in~a-way - that changes assets and liabilities by different amounts. --How would that affect deferred taxes?)1l ll Note: - ~Again, -do not skip presentation of the pro -forma balance sheet ll - Requirement-711 Suppose -Southwest' s ~20 1 9 -fmancial statements are approximately the same as its ~20] 5 nancial- statements -(as originally issued), except for the effects of implementing the new-leasing- standard. --In other words, the December 3 1 , -2019 balance sheet would be 'equivalent'to the' December '3 l ,-2015 balance sheet ifnot for the adoption of the new standard. - 'Similarly, '2019' net income would be the'same as 2015 net income if not for adoption of the \"new-standardl a)~ Describe -q ualitatively~(no computations required) the amount-of additional li abilities ' Southwest would report at December '3 1 , '20 l 9 because of the 'change in the leasing rules. - - Would it be approximately equal to the amount of pro -forma 'debt you found in 'youranalysis, ' or would it be substantially greater than or less than that amount'] b) Describe -q ualitatively-(no computations required) the amount-of additional assets Southwest - would report at December '3 1 , '20 19 because ~o fthe change in the leasing rules. -~Would it be - approximately-equal to the amount of additional liabilities described in part -(a) of this - question, or would-it be substantially greater than or-less than that-amount'm c)a Describe -q ualitatively-(no -c omputations required) the amount-ofnet-income Southwest- would report in '20 19 under the new-leasing rules. --Would it be approximately equal to the - amount of net income it reported in -20 l 5, or 'would -it be substantially greater than or less - than that amount71] 11