Southwest Airlines 2009 Annual Report Download - page 69

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
December 31, 2009
and reckless operation of an aircraft. Also in connection with this incident, during the first quarter and early
second quarter of 2008, the Company received four letters from Shareholders demanding the Company
commence an action on behalf of the Company against members of its Board of Directors and any other
allegedly culpable parties for damages resulting from an alleged breach of fiduciary duties owed by them to the
Company. In August 2008, Carbon County Employees Retirement System and Mark Cristello filed a related
Shareholder derivative action in Texas state court naming certain directors and officers of the Company as
individual defendants and the Company as a nominal defendant. The derivative action claimed breach of
fiduciary duty and sought recovery by the Company of alleged monetary damages sustained as a result of the
purported breach of fiduciary duty, as well as costs of the action. A Special Committee appointed by the
Independent Directors of the Company evaluated the Shareholder demands, and, in December 2009, the court
approved a settlement submitted by the parties, which was immaterial to the Company. The Company believes
the remaining class action lawsuits are immaterial to the Company’s financial position and without merit and
intends to vigorously defend itself with respect to those lawsuits.
The Company is subject to various legal proceedings and claims arising in the ordinary course of business,
including, but not limited to, examinations by the IRS. The IRS regularly examines the Company’s federal
income tax returns and, in the course thereof, proposes adjustments to the Company’s federal income tax liability
reported on such returns. It is the Company’s practice to vigorously contest those proposed adjustments it deems
lacking of merit.
The Company’s management does not expect that the outcome in any of its currently ongoing legal
proceedings or the outcome of any proposed adjustments presented to date by the IRS, individually or
collectively, will have a material adverse effect on the Company’s financial condition, results of operations or
cash flow.
During 2008, the City of Dallas approved the Love Field Modernization Program (LFMP), a project to
reconstruct Dallas Love Field (Airport) with modern, convenient air travel facilities. Pursuant to a Program
Development Agreement (PDA) with the City of Dallas, the Company is managing this project, and major
construction is expected to commence during the first half of 2010, with completion scheduled for the second
half of 2014. Although subject to change, at the current time the project is expected to include the renovation of
the Airport airline terminals and 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.
The PDA authorizes reimbursement of the Company of up to $75 million upon the issuance of bonds that
will be used as funding for construction. As of December 31, 2009, the Company had spent a total of $31 million
of its own funds on a portion of the LFMP project, and the Company has classified this amount as “Ground
property and equipment” in its Consolidated Balance Sheet.
The Company has agreed to manage the majority of the LFMP project, and as a result, will be evaluating its
ongoing accounting requirements in consideration of accounting guidance provided for lessees involved in asset
construction. As of the current time, the Company has not yet made a final determination of its accounting for the
LFMP. It is currently expected that the bonds being utilized to finance the majority of the LFMP will be issued
during early 2010, at which time the Company will be able to finalize its conclusions regarding its ongoing
accounting treatment for the LFMP. It is also anticipated that the Company would guarantee principal, premium
(if any), and interest on the bonds.
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