Southwest Airlines 2009 Annual Report Download - page 27

its flight training center at Dallas Love Field (which houses eight 737 simulators), and its corporate headquarters,
also located at 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 (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. The LFMP is discussed in more detail below under “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.” As of December 31, 2009, the Company operated
six Customer Support and Services centers. The centers located in Chicago, Albuquerque, and Oklahoma City
occupy leased space. The Company owns its Houston, Phoenix, and San Antonio centers.
The Company performs substantially all line maintenance on its aircraft and provides ground support
services at most of the airports it serves. However, the Company has arrangements with certain aircraft
maintenance firms for major component inspections and repairs for its airframes and engines, which comprise the
majority of the Company’s annual aircraft maintenance costs.
Item 3. Legal Proceedings
During the first quarter and early second quarter of 2008, the Company was named as a defendant in two
putative class actions on behalf of persons who purchased air travel from the Company while the Company was
allegedly in violation of FAA safety regulations. Claims alleged by the plaintiffs in these two putative class
actions include breach of contract, breach of warranty, fraud/misrepresentation, unjust enrichment, and negligent
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. 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 Internal Revenue Service (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 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 flows.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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