Southwest Airlines 2011 Annual Report Download - page 67

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Repurchases are made in accordance with applicable securities laws in the open market or in private transactions
from time to time, depending on market conditions, and may be discontinued at any time.
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 and the Love Field Airport Modernization Corporation
(or LFAMC, a Texas non-profit “local government corporation” established by the City to act on the City’s
behalf to facilitate the development of the LFMP), the Company is managing this project. Major construction
commenced during 2010, with completion of the project scheduled for the second half of 2014. Although subject
to change, 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.
During fourth quarter 2010, the LFAMC issued $310 million in tax-exempt facility revenue bonds (LFMP
Bonds), the proceeds of which have been or will be used: (1) to finance a significant portion of the ongoing costs
of the LFMP; and (2) to reimburse the Company for approximately $80 million in early LFMP expenditures
made (such expenditures and reimbursement were authorized pursuant to a June 25, 2008 Inducement Resolution
approved by the Dallas City Council and subsequent Resolutions by the LFAMC). Repayment of the LFMP
Bonds will be through the “Facilities Payments” described below. Reimbursement of the Company for its
payment of Facilities Payments are expected to be made through recurring ground rents, fees, and other revenues
collected at the Airport. The Company has guaranteed principal, premium, and interest on the issued bonds.
Depending on funding needs and the timing of these funds from other sources, an additional tranche of bonds is
expected to be issued during 2012. It is currently expected that the total amount spent on the LFMP project will
be approximately $519 million.
Prior to the issuance of the LFMP Bonds by the LFAMC, the Company entered into two separate funding
agreements: (1) a “Facilities Agreement” pursuant to which the Company is obligated to make debt service
payments on the principal and interest amounts associated with the LFMP Bonds (Facilities Payments), less other
sources of funds the City of Dallas may apply to the repayment of the LFMP Bonds (including but not limited to
passenger facility charges collected from passengers originating from the Airport); and (2) a “Revenue Credit
Agreement” pursuant to which the City of Dallas will reimburse the Company for the Facilities Payments made
by the Company.
A majority of the monies transferred from the City of Dallas to the Company under the Revenue Credit
Agreement are expected to originate from a reimbursement account created in the “Use and Lease Agreement”
between the City of Dallas and the Company. The Use and Lease Agreement is a 20-year agreement providing
for, among other things, the Company’s lease of space at the Airport from the City of Dallas. The remainder of
such monies transferred from the City of Dallas to the Company under the Revenue Credit Agreement is
expected to originate from (1) use and lease agreements with other airlines, (2) various concession agreements,
and (3) other Airport miscellaneous revenues.
The Company’s liquidity could be impacted by the LFMP to the extent there is not an additional future
successful bond issuance or there is a timing difference between the Company’s payment of the Facilities
Payments pursuant to the Facilities Agreement and the transfer of monies back to the Company pursuant to the
Revenue Credit Agreement; however, the Company does not currently anticipate the occurrence of either of these
items. The LFMP is not expected to have a significant impact on the Company’s capital resources or financial
position. See Note 4 to the Consolidated Financial Statements for further information and accounting
requirements related to the LFMP.
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