NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019, 2018 and 2017
Note 1 — Organization and Business of Company
Allegiant Travel Company (the “Company”) is a leisure travel company focused on providing travel services and products to residents of under-served cities in the United States. The Company operates a low-cost passenger airline which sells air transportation both on a stand-alone basis and bundled with the sale of ancillary air-related and third party services and products. The Company also provides air transportation under fixed fee flying arrangements, generates other ancillary revenues, and operates non-airline related entities which include the development of Sunseeker Resort and related golf course, Allegiant Nonstop family entertainment centers, and Teesnap golf course management solution.
Scheduled service and fixed fee air transportation services have similar operating margins, economic characteristics, and production processes (check-in, baggage handling and flight services) which target the same class of customers, and are subject to the same regulatory environment. As a result, the Company believes its airline activities operate under one reportable segment and does not separately track expenses for scheduled service and fixed fee air transportation services. The Company's non-airline related entities represent separate reportable segments and include Sunseeker Resort, and other non-airline activities. Refer to Note 15 for additional information.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Allegiant Travel Company and its majority-owned operating subsidiaries. The Company's investments in unconsolidated affiliates, which are 50 percent or less owned, are accounted for under the equity or cost method. All intercompany balances and transactions have been eliminated.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from these estimates.
The Company adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), (the "New Lease Standard") effective January 1, 2019 using the modified retrospective transition approach. Under this method, the cumulative effect adjustment to the opening balance of retained earnings was recognized at the adoption date. As a result, the Company was not required to adjust its comparative period financial information for effects of the standard or make the new required lease disclosures for periods before the date of adoption on January 1, 2019. See Recent Accounting Pronouncements below for further information.
Cash and Cash Equivalents
Cash and cash equivalents include investments and interest bearing instruments with maturities of three months or less at the balance sheet date. Such investments are carried at cost which approximates fair value.
Restricted Cash
Restricted cash represents escrowed funds under fixed fee contracts, and cash collateral held against letters of credit required by hotel properties for guaranteed room availability, airports and certain other parties.
Accounts Receivable
Accounts receivable are carried at face amount which approximates fair value. They consist primarily of amounts due from credit card companies associated with the sale of tickets for future travel. These receivables are short-term and generally settle within a few days of sale. There are also receivables related to commission amounts due from Enterprise Holdings Inc. based on terms in the rental car provider agreement, as well as income tax receivables, and amounts due related to fixed fee charter agreements. If deemed necessary, the Company records charges to its allowance for doubtful accounts for amounts not expected to be collected, for which the balance was immaterial for all years presented. The Company also had outstanding receivables from a third party as of December 31, 2019 and 2018, of which $11.4 million and $12.7 million, respectively, was due more than one year after the balance sheet date and is classified with the Company's other assets.
Short-term and Long-term Investments
The Company’s investments in marketable securities are classified as available-for-sale and are reported at fair value with the net unrealized gain or (loss) reported as a component of accumulated other comprehensive income in shareholders’ equity.
Investment securities with original maturities of three months or less are classified as cash equivalents. Investment securities with original maturities greater than three months are classified as either short-term investments or long-term investments based
on the maturity date in relation to the balance sheet date. Short term investments have a maturity date less than or equal to one year from the balance sheet date, and long-term investments have a maturity date greater than one year from the balance sheet date. As of December 31, 2019, the Company’s long-term investments consisted of corporate debt securities, federal agency debt securities, US Treasury Bonds, and municipal debt securities with contractual maturities of less than 24 months.
The amortized cost of investment securities sold is determined by the specific identification method with any realized gains or losses reflected in other (income) expense. The Company had minimal realized losses during the years ended December 31, 2019, 2018, and 2017. The Company believes unrealized losses related to debt securities are not other-than-temporary and does not intend to sell these securities prior to amortized cost recoverability.
The Company attempts to minimize its concentration risk with regard to its cash, cash equivalents, and investment portfolio. This is accomplished by diversifying and limiting amounts among different counterparties, the type of investment, and the amount invested in any individual security, commercial paper, or money market fund.
Expendable Parts, Supplies and Fuel, Net
Expendable parts, supplies and fuel inventories are valued at cost using the first-in, first-out method. Such inventories are charged to expense as they are used in operations. An obsolescence allowance for expendable parts and supplies is based on salvage values and the average remaining useful life of the Airbus fleet. The allowance for expendable parts and supplies was $2.7 million and $14.4 million at December 31, 2019 and 2018, respectively, the decrease related to the retirement of the MD-80 fleet type in November 2018. Rotable aircraft parts inventories are included in property and equipment.
Operating Lease Right-of-Use Asset and Liability
The Company determines if an arrangement is a lease at inception and has lease agreements for office facilities, office equipment, certain airport and terminal facilities, and other space and assets with non-cancelable lease terms. Certain real estate and property leases, and various other operating leases are measured on the balance sheet with a lease liability and right-of-use asset ("ROU"). Airport terminal leases mostly include variable lease payments outside of those based on a fixed index, and are therefore excluded from consideration.
ROU assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make scheduled lease payments. ROU assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. The present value of lease payments is calculated using the incremental borrowing rate at lease commencement, which takes into consideration recent debt issuances as well as other applicable market data available.
Lease payments include fixed payments, variable payments based on an index or rate, reasonably certain purchase options, termination penalties, and others as required by the New Lease Standard. Lease payments do not include variable lease payments other than those that depend on an index or rate, any guarantee by the lessee of the lessor’s debt, or any amount allocated to non-lease components.
Lease terms include options to extend when it is reasonably certain that the option will be exercised. Leases with a term of twelve months or less are not recorded on the balance sheet. Additionally, lease and non-lease components are accounted for as a single lease component for real estate agreements.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives less any estimated salvage value. Property under finance leases and related obligations are initially recorded at an amount equal to the present value of future minimum lease payments computed on the basis of the Company’s incremental borrowing rate, and depreciation is recorded on a straight-line basis and is included within depreciation and amortization expense. The estimated useful lives of the principal asset classes are shown below.
|
|
|
Aircraft, engines and related rotable parts
|
10-25 years
|
Buildings and leasehold improvements
|
10-25 years
|
Equipment
|
3-10 years
|
Computer hardware and software
|
3-10 years
|
In estimating the useful lives and residual values of aircraft, the Company primarily relies upon actual experience with the same or similar aircraft types, current and projected future market information, and recommendations from other industry sources. Subsequent revisions to these estimates could be caused by changing market prices of the Company’s aircraft, changes in utilization of the aircraft, and other fleet events. These estimates are evaluated each reporting period and adjusted if necessary.
Changes in the estimate for useful lives or residual values of the Company’s property and equipment could result in changes in depreciation expense.
Interest is capitalized using the Company’s weighted average borrowing rate and depreciated over the estimated useful life of the related asset(s) acquired/developed. Capitalized interest for the years ended December 31, 2019, 2018 and 2017 was $4.5 million, $2.4 million and $3.2 million, respectively.
Software Capitalization
The Company capitalizes certain internal and external costs related to the acquisition and development of computer software during the application development stage of projects. The Company amortizes these capitalized costs using the straight-line method over the estimated useful life of the software, which typically ranges from three to ten years. The Company had unamortized computer software development costs of $55.7 million and $41.3 million as of December 31, 2019 and 2018, respectively. Amortization expense related to computer software was $12.2 million, $14.1 million and $15.9 million for the years ended December 31, 2019, 2018 and 2017, respectively. Costs incurred during the preliminary and post-implementation stages are expensed as incurred.
Aircraft Maintenance and Repair Costs
The Company accounts for all non-major maintenance and repair costs incurred for its Airbus fleet under the direct expense method. Under this method, maintenance and repair costs for aircraft are charged to operating expenses as incurred. Maintenance and repair costs includes all parts, materials, and line maintenance activities required to maintain the Company's fleet.
The Company accounts for major maintenance costs of its Airbus airframes and the related CFM engines using the deferral method. Under this method, the Company capitalizes the cost of major maintenance events, which are amortized as a component of depreciation and amortization expense, over the estimated period until the next scheduled major maintenance event. During 2019 and 2018, the Company capitalized $64.1 million and $34.2 million of costs for engines with associated amortization expense of $11.1 million and $4.5 million, respectively. During 2019 and 2018, the Company capitalized $18.4 million and $15.5 million of costs for airframes with associated amortization expense of $14.9 million and $8.0 million, respectively.
Until the full retirement of the MD-80 aircraft in November 2018, the Company accounted for major maintenance costs of the MD-80 airframes and JT8D-219 engines, as well as all non-major maintenance and repair costs incurred for the MD-80 fleet, under the direct expense method.
Measurement of Impairment of Long-Lived Assets
The Company records impairment losses on long-lived assets used in operations, consisting principally of property and equipment, when events or changes in circumstances indicate, in management’s judgment, that the assets might be impaired, and the undiscounted future cash flows estimated to be generated by those assets are less than the carrying amount of those assets. In making these determinations, the Company utilizes certain assumptions, including, but not limited to: (i) estimated fair value of the assets; and (ii) estimated future cash flows expected to be generated by these assets, which are based on additional assumptions such as asset utilization, length of service for which the asset will be used in operations, and estimated salvage values.
For the years ended December 31, 2019 and 2018, the Company did not incur any impairment losses. For the year ended December 31, 2017, the Company incurred impairment losses related to various aircraft parts of $1.3 million, which were classified within Other operating expense.
For the year ended December 31, 2017, the Company also recorded a non-cash impairment charge of $35.3 million on its fleet of MD-80 aircraft, engines, and related assets, as a result of its review of fleet value. This represented a full impairment of these assets, and as such, these assets had no remaining book value as of December 31, 2017.
Revenue Recognition
Passenger revenue
Passenger revenue includes scheduled service revenue, ancillary air-related charges, and travel point redemptions from the co-branded Allegiant World Mastercard® credit card.
Scheduled service revenue consists of ticket revenue generated from nonstop flights in the Company’s route network, recognized either when the transportation is provided or when the itinerary expires unused. Nonrefundable scheduled itineraries expire on the date of the intended flight, unless the date is extended by notification from the customer in advance. Itineraries sold for transportation not yet used, as well as unexpired credits, are included in air traffic liability.
Ancillary air-related charges include various unbundled services and products related to the flight such as baggage fees, the use of the Company’s website to purchase scheduled service transportation, advance seat assignments, and other services. Revenues from air-related charges are recognized when the transportation is provided. If a customer cancels a flight, a voucher may be issued for a future flight, at which time the associated revenue is recognized. Additionally, the Company estimates the value of vouchers that will expire unused and recognizes such revenue at the time of issuance.
Various taxes and fees, assessed on the sale of tickets to customers, are collected by the Company serving as an agent, and remitted to taxing authorities. These taxes and fees are not included as revenue in the Company’s consolidated statements of income and are recorded as a liability until remitted to the appropriate taxing authority.
Revenue from travel point redemptions from the co-branded credit card are described in the Affinity Credit Card Program section.
Third party products revenue
Ancillary third party products revenue is generated from the sale of hotel rooms, rental cars and ticket attractions, as well as marketing revenue associated with the co-branded credit card. Revenue from the sale of third party products is recognized at the time the product is utilized, such as the time a purchased hotel room is occupied. The Company follows accounting standards for determining the amount of revenue to be recognized for each element of a bundled sale involving third party products in addition to airfare. Revenue from the sale of third party products is recorded net of amounts paid to wholesale providers, travel agent commissions, and transaction costs.
Pursuant to the co-brand arrangement with Bank of America, the Company has various performance obligations which are collectively referred to as the marketing component. These obligations consist of use of the Company’s brand and access to its member lists, and certain other advertising and marketing elements. The marketing component is recorded as third party products revenue in the period in which points are awarded to the credit card holders.
Fixed fee contract revenue
Fixed fee contract revenue consists of agreements to provide charter service on a year-round and ad hoc basis. Fixed fee contract revenue is recognized when the transportation is provided.
Other revenue
Other revenue is generated from non-airline activities as well as leasing aircraft and engines. Lease revenue is recognized ratably over the lease term.
Affinity Credit Card Program
The Allegiant World Mastercard® is issued by Bank of America through which arrangement points are sold and consideration is received under an agreement with a seven year scheduled duration expiring in 2023. Under this arrangement, the Company identified the following deliverables: travel points to be awarded (the travel component), use of the Company’s brand and access to its member lists, and certain other advertising and marketing elements (collectively the marketing component). Applying guidance under Accounting Standards Update (“ASU”) 2009-13 - Revenue Recognition (Topic 606): Multiple-Deliverable Revenue Arrangements, each of these deliverables is accounted for separately and allocation of the consideration from the agreement is determined based on the relative selling price of each deliverable. The Company applied a level of management judgment and estimation in determining the best estimate of selling price for each deliverable by considering multiple inputs and methods including, but not limited to, the redemption value of points awarded, discounted cash flows, brand value, volume discounts, published selling prices, number of points to be awarded and number of points to be redeemed.
Revenue from the travel component is deferred based on its relative selling price and is recognized into passenger revenue when the points are redeemed by cardholders. Revenue from the marketing component is considered earned in the period in which points are sold and is therefore recognized into third party products revenue in the same period.
Advertising Costs
Advertising costs are charged to expense in the period incurred. Advertising expense was $29.1 million, $28.8 million and $20.9 million for the years ended December 31, 2019, 2018 and 2017, respectively. In third quarter 2019, the Company entered into a naming rights agreement with the Raiders of the National Football League for the professional football stadium in Las Vegas set to open in 2020. Prepayments and other associated advertising expenses will be recognized beginning in mid-2020 through the term of this agreement.
Earnings per Share
Basic and diluted earnings per share are computed pursuant to the two-class method as opposed to the treasury method. Under the two-class method, the Company attributes net income to two classes, common stock and unvested restricted stock awards. Unvested restricted stock awards granted to employees under the Company’s Long-Term Incentive Plan are considered participating securities because they receive non-forfeitable rights to cash dividends at the same rate as common stock.
Diluted net income per share is calculated using the more dilutive of two methods. Under both methods, the exercise of employee stock options is assumed using the treasury stock method. The assumption of vesting of restricted stock, however, differs as described below:
|
|
1.
|
Assume vesting of restricted stock using the treasury stock method.
|
|
|
2.
|
Assume unvested restricted stock awards are not vested, and allocate earnings to common shares and unvested restricted stock awards using the two-class method.
|
For the years ended December 31, 2019, 2018 and 2017, the second method above was used in the computation because it was more dilutive than the first method. The following table sets forth the computation of net income per share on a basic and diluted basis for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands, except per share data)
|
2019
|
|
2018
|
|
2017
|
Basic:
|
|
|
|
|
|
Net income
|
$
|
232,117
|
|
|
$
|
161,802
|
|
|
$
|
198,148
|
|
Less net income allocated to participating securities
|
(3,413
|
)
|
|
(2,106
|
)
|
|
(2,965
|
)
|
Net income attributable to common stock
|
$
|
228,704
|
|
|
$
|
159,696
|
|
|
$
|
195,183
|
|
Earnings per share, basic
|
$
|
14.27
|
|
|
$
|
10.02
|
|
|
$
|
12.14
|
|
Weighted-average shares outstanding
|
16,027
|
|
|
15,941
|
|
|
16,073
|
|
Diluted:
|
|
|
|
|
|
|
|
Net income
|
$
|
232,117
|
|
|
$
|
161,802
|
|
|
$
|
198,148
|
|
Less net income allocated to participating securities
|
(3,410
|
)
|
|
(2,104
|
)
|
|
(2,962
|
)
|
Net income attributable to common stock
|
$
|
228,707
|
|
|
$
|
159,698
|
|
|
$
|
195,186
|
|
Earnings per share, diluted
|
$
|
14.26
|
|
|
$
|
10.00
|
|
|
$
|
12.13
|
|
Weighted-average shares outstanding
|
16,027
|
|
|
15,941
|
|
|
16,073
|
|
Dilutive effect of stock options and restricted stock
|
51
|
|
|
53
|
|
|
74
|
|
Adjusted weighted-average shares outstanding under treasury stock method
|
16,078
|
|
|
15,994
|
|
|
16,147
|
|
Participating securities excluded under two-class method
|
(37
|
)
|
|
(27
|
)
|
|
(52
|
)
|
Adjusted weighted-average shares outstanding under two-class method
|
16,041
|
|
|
15,967
|
|
|
16,095
|
|
Stock awards outstanding of 19,928; 77,037; and 5,752 shares (not in thousands) for 2019, 2018, and 2017, respectively, were excluded from the computation of diluted earnings per share as they were antidilutive.
Share-Based Compensation
The Company accounts for share-based compensation in accordance with accounting standards which require the compensation cost related to share-based payment transactions be recognized in the Company’s consolidated statements of income. The share-based cost is measured based on grant date fair value. The Company’s share-based employee compensation plan is more fully discussed in Note 12.
Income Taxes
The Company recognizes deferred income taxes based on the asset and liability method required by accounting standards. Deferred tax assets and liabilities are determined based on the timing differences between book basis for financial reporting purposes and tax basis of the asset and liability and measured using the enacted tax rates and provisions of the enacted tax law. A valuation allowance for deferred tax assets is provided if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company determines the net non-current deferred tax assets or liabilities separately for federal, state, foreign and other local jurisdictions.
The Company’s income tax returns are subject to examination by the Internal Revenue Service (“IRS”) and other tax authorities in the jurisdictions where the Company operates. The Company assesses potentially unfavorable outcomes of such examinations based on the criteria set forth in uncertain tax position accounting standards. The accounting standards prescribe a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.
Accounting standards for income taxes utilize a two-step approach for evaluating tax positions. Recognition (Step I) occurs when the Company concludes that a tax position, based on its technical merits, is more likely than not to be sustained upon examination. Measurement (Step II) is only addressed if the position is deemed to be more likely than not to be sustained. Under Step II, the tax benefit is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement.
The tax positions failing to qualify for initial recognition are recognized in the first subsequent interim period they meet the “more likely than not” standard. If it is subsequently determined that a previously recognized tax position no longer meets the “more likely than not” standard, it is required that the tax position be derecognized. As applicable, the Company will recognize accrued penalties and interest related to unrecognized tax benefits in the provision for income taxes.
Recent Accounting Pronouncements
In February 2016, the FASB issued the New Lease Standard. This standard requires leases, other than short-term, to be recognized on the balance sheet as a liability and a corresponding right-of-use asset.
This standard was effective for interim and annual reporting periods beginning after December 15, 2018 and the Company adopted the New Lease Standard as of January 1, 2019. The Company also elected the package of practical expedients, which among other things, does not require reassessment of lease classification.
The Company adopted the New Lease Standard using the modified retrospective transition approach as of the effective date as permitted by the amendments in ASU 2018-11, "Targeted Improvements - Leases (Topic 842)." Under this method, the cumulative effect adjustment to the opening balance of retained earnings was recognized at the adoption date. As a result, the Company was not required to adjust its comparative period financial information for effects of the standard or make the new required lease disclosures for periods before the date of adoption on January 1, 2019.
The Company's consolidated balance sheet was affected by this standard, but the consolidated statement of income and liquidity were not significantly impacted. The most significant change to the consolidated balance sheet upon adoption on January 1, 2019 related to the recognition of new right-of-use (ROU) assets of $18.0 million and operating liabilities of $19.1 million. The Company's accounting for finance leases remains substantially unchanged. See Note 7 for more information on the impact of this standard.
Note 3 — Revenue Recognition
Passenger revenue allocation
Passenger revenue is the most significant category in our reported operating revenues, as outlined below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
Scheduled service
|
$
|
897,631
|
|
|
$
|
898,653
|
|
|
$
|
821,621
|
|
Ancillary air-related charges
|
770,206
|
|
|
621,939
|
|
|
547,860
|
|
Co-brand redemptions
|
15,118
|
|
|
13,109
|
|
|
2,556
|
|
Total passenger revenue
|
$
|
1,682,955
|
|
|
$
|
1,533,701
|
|
|
$
|
1,372,037
|
|
Sales of passenger tickets not yet flown are recorded in air traffic liability. Passenger revenue is recognized when transportation is provided or when ticket voucher breakage occurs, to the extent different from estimated breakage.
The contract term of passenger tickets is twelve months and revenue associated with future travel will principally be recognized within this time frame. Substantially all of the $212.2 million that was recorded in the air traffic liability balance at December 31, 2018 was recognized into passenger revenue during the twelve months ended December 31, 2019.
Co-brand redemptions
In relation to the travel component of the co-branded credit card contract with Bank of America, the Company has a performance obligation to provide cardholders with points to be used for future travel award redemptions. Therefore, consideration received from Bank of America related to the travel component is deferred based on its relative selling price and is recognized into passenger revenue when the points are redeemed and the transportation is provided.
The following table presents the activity of the co-brand point liability as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in thousands)
|
2019
|
|
2018
|
Balance at January 1
|
$
|
10,708
|
|
|
$
|
8,903
|
|
Points awarded
|
20,023
|
|
|
14,914
|
|
Points redeemed
|
(15,118
|
)
|
|
(13,109
|
)
|
Balance at December 31
|
$
|
15,613
|
|
|
$
|
10,708
|
|
As of December 31, 2019 and 2018, $11.6 million and $9.6 million, respectively, of the current points liability is reflected in accrued liabilities and represents the current estimate of revenue to be recognized in the next twelve months based on historical trends, with the remaining balance reflected in other noncurrent liabilities and expected to be recognized into revenue in periods thereafter.
Note 4 — Property and Equipment
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
(in thousands)
|
2019
|
|
2018
|
Flight equipment
|
$
|
2,289,157
|
|
|
$
|
1,905,157
|
|
Computer hardware and software
|
171,516
|
|
|
140,385
|
|
Land and buildings/leasehold improvements
|
98,885
|
|
|
85,925
|
|
Other property and equipment
|
161,760
|
|
|
89,778
|
|
Total property and equipment
|
2,721,318
|
|
|
2,221,245
|
|
Less accumulated depreciation and amortization
|
(484,510
|
)
|
|
(373,977
|
)
|
Property and equipment, net
|
$
|
2,236,808
|
|
|
$
|
1,847,268
|
|
As of December 31, 2019, the Company had firm commitments to purchase 11 Airbus A320 series aircraft and seven engines which are expected to be delivered between 2020 and 2022.
As of December 31, 2019, the majority of the year-over-year increase in Other property and equipment noted above is related to the development of Sunseeker Resort.
Accrued capital expenditures as of December 31, 2019 and 2018 were $16.5 million and $5.5 million, respectively.
Note 5 — Accrued Liabilities
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
(in thousands)
|
2019
|
|
2018
|
Salaries, wages and benefits
|
$
|
44,441
|
|
|
$
|
34,406
|
|
Sunseeker Resort development
|
15,209
|
|
|
721
|
|
Passenger taxes and fees
|
14,653
|
|
|
10,982
|
|
Station expenses
|
14,573
|
|
|
12,918
|
|
Maintenance and repairs
|
12,713
|
|
|
11,016
|
|
Property taxes
|
12,272
|
|
|
8,017
|
|
Loyalty card program liability
|
11,567
|
|
|
9,625
|
|
Interest
|
6,514
|
|
|
14,276
|
|
Advertising accruals
|
3,303
|
|
|
4,337
|
|
Other accruals
|
26,448
|
|
|
15,729
|
|
Total accrued liabilities
|
$
|
161,693
|
|
|
$
|
122,027
|
|
Note 6 — Long-Term Debt
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
(in thousands)
|
2019
|
|
2018
|
Fixed-rate debt and finance lease obligations due through 2029(1)
|
$
|
235,071
|
|
|
$
|
640,806
|
|
Variable-rate debt due through 2029
|
1,186,782
|
|
|
630,927
|
|
Total long-term debt and finance lease obligations, net of related costs
|
1,421,853
|
|
|
1,271,733
|
|
Less current maturities, net of related costs(1)
|
173,274
|
|
|
152,287
|
|
Long-term debt and finance lease obligations, net of current maturities and related costs
|
$
|
1,248,579
|
|
|
$
|
1,119,446
|
|
|
|
|
|
Weighted average fixed-interest rate on debt
|
3.7
|
%
|
|
5.3
|
%
|
Weighted average variable-interest rate on debt
|
4.5
|
%
|
|
4.2
|
%
|
(1) As of December 31, 2018, $428.0 million of the Company's Unsecured Senior Notes were classified as long-term as the Company had the intent and ability to refinance the borrowings on a long-term basis. The Notes were refinanced in February 2019, as discussed below.
Maturities of long-term debt as of December 31, 2019, for the next five years and thereafter, in the aggregate, are:
|
|
|
|
|
(in thousands)
|
As of December 31, 2019
|
2020
|
$
|
173,275
|
|
2021
|
185,025
|
|
2022
|
117,016
|
|
2023
|
104,183
|
|
2024
|
542,943
|
|
Thereafter
|
299,411
|
|
Total debt and finance lease obligations, net of related costs
|
$
|
1,421,853
|
|
Total long-term debt is presented net of related costs of $23.6 million and $5.0 million at December 31, 2019 and 2018, respectively.
Consolidated Variable Interest Entities
The Company evaluates ownership, contractual lease arrangements and other interests in entities to determine if they are variable interest entities ("VIEs") based on the nature and extent of those interests. The Company consolidates a VIE when, among other criteria, it has the power to direct the activities that most significantly impact the VIE’s economic performance as well as the obligation to absorb losses or the right to receive benefits of the VIE, thus making the Company the primary beneficiary of the VIE.
In October 2019, the Company, through a wholly owned subsidiary, entered into agreements with a trust to borrow $23.5 million secured by one Airbus A320 series aircraft. The trust was funded on inception. These borrowings bear interest at a blended rate of 3.2 percent and are payable in monthly installments through October 2024, at which time the Company will have a purchase option at a fixed amount. As this transaction is a common control transaction, the Company, as the primary beneficiary, has measured and recorded the assets and liabilities at their carrying values, which were $18.6 million and $23.5 million, respectively, at the time of borrowing.
In March 2019, the Company, through a wholly owned subsidiary, entered into agreements with a trust to borrow $44.0 million secured by one aircraft. The trust was funded on inception. These borrowings bear interest at a blended rate of 3.8 percent and are payable in quarterly installments through April 2029, at which time the Company will have a purchase option at a fixed amount. As this transaction is a common control transaction, the Company, as the primary beneficiary, has measured and recorded the assets and liabilities at their carrying values, which were $38.5 million and $44.0 million, respectively, at the time of borrowing.
In September 2018, the Company, through a wholly owned subsidiary, entered into agreements with a trust to borrow $44.0 million secured by one Airbus A320 series aircraft. The trust was funded on inception. These borrowings bear interest at a
blended rate of 4.0 percent and are payable in quarterly installments through September 2028, at which time the Company will have a purchase option at a fixed amount. As this transaction is a common control transaction, the Company, as the primary beneficiary, has measured and recorded the assets and liabilities at their carrying values, which were $37.8 million and $44.0 million, respectively, at the time of borrowing.
Senior Secured Revolving Credit Facility
The Company has a senior secured revolving credit facility under which it is entitled to borrow up to $81.0 million. The facility has a term of 24 months and the borrowing ability is based on the value of the Airbus A320 series aircraft placed in the collateral pool. In December 2019, the Company drew down $81.0 million under this facility. Aircraft may remain in the collateral pool for up to two years, and, as of December 31, 2019, there were eight aircraft in the pool. The notes for the amounts borrowed under the facility bear interest at a floating rate based on LIBOR and are due in March 2021.
Other Secured Debt
In June 2019, the Company entered into an agreement to borrow $213.0 million secured by 23 aircraft, for which a portion of the proceeds were used to repay $112.2 million in debt. The borrowing bears interest at a floating rate based on LIBOR, and is payable in quarterly installments through June 2024.
During the second quarter 2019, the Company borrowed a total of $63.4 million under loan agreements secured by spare engines. The borrowings bear interest at a floating rate based on LIBOR, and are payable in quarterly installments, with terms ranging from seven to ten years.
Term Loan
In February 2019, the Company entered into a Credit and Guaranty Agreement (the “Term Loan”) to borrow $450.0 million, guaranteed by all of the Company's subsidiaries, excluding Sunseeker Resorts Inc. and its subsidiaries, and other insignificant subsidiaries (the "Term Loan Guarantors"). The Term Loan is secured by substantially all property and assets of the Company and the Term Loan Guarantors, excluding aircraft and aircraft engines, and excluding certain other assets. The Term Loan has a five-year term, bears interest based on LIBOR and provides for quarterly interest payments along with quarterly principal payments of $1.1 million through February 2024, at which time the Term Loan is due. The Term Loan may be prepaid at any time without penalty.
General Unsecured Senior Notes
Until February 2019, the Company had outstanding $450.0 million aggregate principal amount of senior unsecured obligations (the "Notes") which bore interest at 5.5 percent per year and matured in July 2019.
In connection with the Term Loan discussed above, the Company completed a tender offer in February 2019, whereby it purchased $347.9 million of the Notes, and incurred related debt extinguishment costs of $3.7 million. The remaining $102.1 million of the Notes were paid at their maturity in July 2019.
Construction Loan Agreement
In March 2019, Sunseeker Florida, Inc. (“SFI”), a wholly-owned subsidiary of the Company, entered into a Construction Loan Agreement with certain lenders affiliated with TPG Sixth Street Partners, LLC (the “Lender”). Under the Construction Loan Agreement, SFI may borrow up to $175.0 million (the “Loan”) to fund the construction of Phase 1 of Sunseeker Resort -Charlotte Harbor (the “Project”). No amount has been drawn under this agreement as of December 31, 2019.
Under the Construction Loan Agreement, the Lender is to provide the final $175.0 million of funding for the Project, with initial funding to come from the Company. The loan is secured by the Project and, for a period of time, the surrounding land owned by SFI. The Company has guaranteed one-third of the debt, has agreed to bear responsibility under a Non-Recourse Carve-Out Guaranty, and has agreed to guarantee completion of the Project in accordance with approved plans and specifications. All of the shares in SFI are also pledged to secure the loan. The Loan bears interest based on LIBOR and matures in March 2023.
Finance Leases
The Company has finance lease obligations related to five aircraft, which impacted the Company's recognized assets and liabilities as of December 31, 2019, but did not result in any significant cash receipts or cash payments during the year. See Note 7 for more information on finance lease obligations.
Note 7 — Leases
Total rental expense for operating leases for the years ended December 31, 2019, 2018 and 2017 was $15.0 million, $12.7 million and $9.0 million, respectively.
The Company had five aircraft under finance leases as of December 31, 2019 with remaining terms to 2029.
Lease Costs
The components of lease costs recognized on the statements of income were as follows:
|
|
|
|
|
|
|
|
|
|
Year ended
|
(in thousands)
|
Classification on the Statements of Income
|
|
December 31, 2019
|
Finance lease costs:
|
|
|
|
Amortization of assets
|
Depreciation and amortization
|
|
$
|
6,517
|
|
Interest on lease liabilities
|
Interest expense
|
|
5,264
|
|
Operating lease cost
|
Station operations; Maintenance and repairs; Other operating expense
|
|
3,541
|
|
Variable lease cost
|
Station operations; Maintenance and repairs; Other operating expense
|
|
2,274
|
|
Total lease cost
|
|
|
$
|
17,596
|
|
Lease position as of December 31, 2019
The table below presents the lease-related assets and liabilities recorded on the balance sheet.
|
|
|
|
|
|
|
|
|
|
As of
|
(in thousands)
|
Classification on the Balance Sheet
|
|
December 31, 2019
|
Assets
|
|
|
|
Operating lease assets
|
Operating lease right-of-use assets, net
|
|
$
|
22,081
|
|
Finance lease assets
|
Property and equipment, net
|
|
111,665
|
|
Total lease assets
|
|
|
$
|
133,746
|
|
|
|
|
|
Liabilities
|
|
|
|
Current
|
|
|
|
Operating
|
Accrued liabilities
|
|
$
|
2,662
|
|
Finance
|
Current maturities of long-term debt and finance lease obligations
|
|
7,666
|
|
Noncurrent
|
|
|
|
Operating
|
Other noncurrent liabilities
|
|
21,290
|
|
Finance
|
Long-term debt and finance lease obligations
|
|
107,930
|
|
Total lease liabilities
|
|
|
$
|
139,548
|
|
|
|
|
|
Weighted-average remaining lease term
|
|
|
|
Operating leases
|
|
|
9.1 years
|
|
Finance leases
|
|
|
9.9 years
|
|
Weighted-average discount rate
|
|
|
|
Operating leases
|
|
|
4.3
|
%
|
Finance leases
|
|
|
4.4
|
%
|
Other Information
The table below presents supplemental cash flow information related to leases during the twelve months ended December 31, 2019.
|
|
|
|
|
|
|
|
Year ended
|
(in thousands)
|
|
December 31, 2019
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
Operating cash flows for operating leases
|
|
$
|
2,927
|
|
Operating cash flows for finance leases
|
|
5,264
|
|
Financing cash flows for finance leases
|
|
7,336
|
|
Maturities of Lease Liabilities
The table below indicates the future minimum payments of lease liabilities as of December 31, 2019.
|
|
|
|
|
|
|
|
|
(in thousands)
|
Operating Leases
|
|
Finance Leases
|
2020
|
$
|
3,629
|
|
|
$
|
12,600
|
|
2021
|
3,447
|
|
|
12,600
|
|
2022
|
3,428
|
|
|
11,095
|
|
2023
|
3,282
|
|
|
10,500
|
|
2024
|
2,946
|
|
|
10,500
|
|
Thereafter
|
12,431
|
|
|
92,959
|
|
Total lease payments
|
29,163
|
|
|
150,254
|
|
Less imputed interest
|
(5,211
|
)
|
|
(34,658
|
)
|
Total lease obligations
|
23,952
|
|
|
115,596
|
|
Less current obligations
|
(2,662
|
)
|
|
(7,666
|
)
|
Long-term lease obligations
|
$
|
21,290
|
|
|
$
|
107,930
|
|
The Company adopted the New Lease Standard on January 1, 2019 as noted above, and as required, the following disclosure is provided for periods prior to adoption. Future annual minimum lease payments as of December 31, 2018 were as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
Operating Leases
|
|
Finance Leases
|
2019
|
$
|
8,102
|
|
|
$
|
12,600
|
|
2020
|
6,031
|
|
|
12,600
|
|
2021
|
3,643
|
|
|
12,600
|
|
2022
|
1,630
|
|
|
11,095
|
|
2023
|
1,626
|
|
|
10,500
|
|
Thereafter
|
8,297
|
|
|
103,458
|
|
Total lease payments
|
$
|
29,329
|
|
|
162,853
|
|
Less imputed interest
|
|
|
(39,922
|
)
|
Total lease obligations
|
|
|
122,931
|
|
Less current obligations
|
|
|
(7,336
|
)
|
Long-term lease obligations
|
|
|
$
|
115,595
|
|
Note 8 — Shareholders’ Equity
The Company is authorized by its Board of Directors to acquire the Company’s stock through open market purchases under its share repurchase program. As repurchase authority is exhausted, the Board of Directors has, to date, authorized additional expenditures for share repurchases.
Share repurchases consisted of the following during the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Shares repurchased(1)
|
103,943
|
|
|
—
|
|
|
604,497
|
|
Average price per share
|
$
|
141.64
|
|
|
NA
|
|
|
$
|
142.66
|
|
Total (in thousands)
|
$
|
14,723
|
|
|
$
|
—
|
|
|
$
|
86,240
|
|
(1) Share amounts shown above include only open market repurchases and do not include shares withheld from employees for tax withholding obligations related to restricted stock vestings, which were 27,700, 22,981, and 27,606 shares for 2019, 2018, and 2017 respectively.
Cash dividends declared by the Board and paid by the Company consisted of the following during the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Total quarterly cash dividends declared, per share
|
$
|
2.80
|
|
|
$
|
2.80
|
|
|
$
|
2.80
|
|
Total cash dividends paid (in thousands)
|
45,552
|
|
|
45,247
|
|
|
45,720
|
|
As of December 31, 2019, the Company had $85.3 million in unused share repurchase authority remaining under the Board approved program.
Note 9 — Fair Value Measurements
Investments
The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Accounting standards pertaining to fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 - Defined as observable inputs such as quoted prices in active markets for identical assets or liabilities
Level 2 - Defined as inputs other than Level 1 inputs that are either directly or indirectly observable
Level 3 - Defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions
The Company uses the market approach valuation technique to determine fair value for investment securities. The assets classified as Level 1 consist of money market funds for which original cost approximates fair value. The assets classified as Level 2 consist of commercial paper, municipal debt securities, federal agency debt securities, corporate debt securities, and US treasury bonds, which are valued using quoted market prices or alternative pricing sources including transactions involving identical or comparable assets and models utilizing market observable inputs. The Company has no investment securities classified as Level 3.
For those assets classified as Level 2 that are not in active markets, the Company obtains fair value from pricing sources using quoted market prices for identical or comparable instruments, and uses pricing models which include all significant observable inputs: maturity dates, issue dates, settlement dates, benchmark yields, reported trades, broker-dealer quotes, issue spreads, benchmark securities, bids, offers and other market related data. These inputs are observable or can be derived from, or corroborated by, observable market data for substantially the full term of the asset.
Financial instruments measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
As of December 31, 2018
|
(in thousands)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Level 1
|
|
Level 2
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
42,653
|
|
|
$
|
42,653
|
|
|
$
|
—
|
|
|
$
|
43,281
|
|
|
$
|
43,281
|
|
|
$
|
—
|
|
Commercial paper
|
|
5,807
|
|
|
—
|
|
|
5,807
|
|
|
29,138
|
|
|
—
|
|
|
29,138
|
|
Municipal debt securities
|
|
1,202
|
|
|
—
|
|
|
1,202
|
|
|
—
|
|
|
—
|
|
|
—
|
|
US Treasury Bonds
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,415
|
|
|
—
|
|
|
1,415
|
|
Total cash equivalents
|
|
49,662
|
|
|
42,653
|
|
|
7,009
|
|
|
73,834
|
|
|
43,281
|
|
|
30,553
|
|
Short-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
161,286
|
|
|
—
|
|
|
161,286
|
|
|
180,846
|
|
|
—
|
|
|
180,846
|
|
Corporate debt securities
|
|
145,975
|
|
|
—
|
|
|
145,975
|
|
|
101,489
|
|
|
—
|
|
|
101,489
|
|
Federal agency debt securities
|
|
13,515
|
|
|
—
|
|
|
13,515
|
|
|
11,887
|
|
|
—
|
|
|
11,887
|
|
Municipal debt securities
|
|
12,237
|
|
|
—
|
|
|
12,237
|
|
|
14,252
|
|
|
—
|
|
|
14,252
|
|
US Treasury Bonds
|
|
2,915
|
|
|
—
|
|
|
2,915
|
|
|
5,990
|
|
|
—
|
|
|
5,990
|
|
Total short-term
|
|
335,928
|
|
|
—
|
|
|
335,928
|
|
|
314,464
|
|
|
—
|
|
|
314,464
|
|
Long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
15,396
|
|
|
—
|
|
|
15,396
|
|
|
37,334
|
|
|
—
|
|
|
37,334
|
|
US Treasury Bonds
|
|
146
|
|
|
—
|
|
|
146
|
|
|
2,901
|
|
|
—
|
|
|
2,901
|
|
Federal agency debt securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,291
|
|
|
—
|
|
|
11,291
|
|
Total long-term
|
|
15,542
|
|
|
—
|
|
|
15,542
|
|
|
51,526
|
|
|
—
|
|
|
51,526
|
|
Total financial instruments
|
|
$
|
401,132
|
|
|
$
|
42,653
|
|
|
$
|
358,479
|
|
|
$
|
439,824
|
|
|
$
|
43,281
|
|
|
$
|
396,543
|
|
There were no significant transfers between Level 1 and Level 2 assets for the years ended December 31, 2019 or 2018.
Long-term Debt
As of December 31, 2019, none of the Company’s debt agreements are publicly held and, therefore, the estimated fair value of these notes is considered to be Level 3, as certain inputs used to determine the fair value of these agreements are unobservable and could be sensitive to changes in inputs. The Company utilizes the discounted cash flow method to estimate the fair value of Level 3 debt.
Carrying value and estimated fair value of long-term debt, including current maturities and without reduction for related costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
As of December 31, 2018
|
|
|
(in thousands)
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Fair Value Level
|
Non-publicly held debt
|
|
$
|
1,329,882
|
|
|
$
|
1,140,232
|
|
|
$
|
703,372
|
|
|
$
|
619,379
|
|
|
3
|
Publicly held debt
|
|
—
|
|
|
—
|
|
|
450,463
|
|
|
451,026
|
|
|
2
|
Total long-term debt
|
|
$
|
1,329,882
|
|
|
$
|
1,140,232
|
|
|
$
|
1,153,835
|
|
|
$
|
1,070,405
|
|
|
|
Other
Due to the short term nature, carrying amounts of cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value.
Note 10 — Income Taxes
The Company is subject to income taxation in the United States, foreign countries and various state jurisdictions in which it operates. In accordance with income tax accounting standards, the Company recognizes tax benefits or expenses on the temporary differences between the financial reporting and tax bases of its assets and liabilities.
In 2019, 2018, and 2017, the Company recorded net tax provisions of $69.1 million, $37.5 million and $0.9 million, respectively. Cash taxes, net of refunds, were $2.2 million, $41.6 million and $18.0 million, respectively.
Components of Income before Income Taxes from Continuing Operations
The components of income before taxes for domestic and foreign operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
Domestic
|
|
$
|
299,330
|
|
|
$
|
195,843
|
|
|
$
|
180,314
|
|
Foreign
|
|
1,917
|
|
|
3,475
|
|
|
18,693
|
|
Total
|
|
$
|
301,247
|
|
|
$
|
199,318
|
|
|
$
|
199,007
|
|
Income Tax Provision/(Benefit)
The provision for income taxes is composed of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
Current:
|
|
|
|
|
|
Federal
|
$
|
(34
|
)
|
|
$
|
(3,707
|
)
|
|
$
|
(44,385
|
)
|
State
|
505
|
|
|
(650
|
)
|
|
664
|
|
Foreign
|
530
|
|
|
1,086
|
|
|
558
|
|
Total current
|
1,001
|
|
|
(3,271
|
)
|
|
(43,163
|
)
|
Deferred:
|
|
|
|
|
|
Federal
|
63,430
|
|
|
41,593
|
|
|
41,015
|
|
State
|
4,699
|
|
|
3,744
|
|
|
1,978
|
|
Foreign
|
—
|
|
|
(4,550
|
)
|
|
1,029
|
|
Total deferred
|
68,129
|
|
|
40,787
|
|
|
44,022
|
|
Total income tax provision
|
$
|
69,130
|
|
|
$
|
37,516
|
|
|
$
|
859
|
|
Reconciliation of Effective Tax Rate
The effective tax rate on income before income taxes differed from the federal statutory income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
(in thousands)
|
2019
|
|
2018
|
|
2017
|
Income tax expense at federal statutory rate
|
$
|
63,262
|
|
|
$
|
41,857
|
|
|
$
|
68,639
|
|
State income taxes, net of federal income tax benefit
|
5,070
|
|
|
3,560
|
|
|
2,739
|
|
Federal tax reform impact
|
—
|
|
|
—
|
|
|
(74,738
|
)
|
Foreign income tax expense
|
530
|
|
|
(3,464
|
)
|
|
1,587
|
|
Other
|
268
|
|
|
(4,437
|
)
|
|
2,632
|
|
Total income tax expense
|
$
|
69,130
|
|
|
$
|
37,516
|
|
|
$
|
859
|
|
Deferred Taxes
The major components of the Company’s net deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
(in thousands)
|
2019
|
|
2018
|
Deferred tax assets:
|
|
|
|
Accrued vacation
|
$
|
907
|
|
|
$
|
595
|
|
Accrued bonus
|
5,523
|
|
|
3,792
|
|
State taxes
|
88
|
|
|
86
|
|
Accrued property taxes
|
1,742
|
|
|
1,615
|
|
Stock-based compensation expense
|
1,415
|
|
|
1,310
|
|
Net operating loss
|
58,066
|
|
|
38,875
|
|
Less: valuation allowance
|
1,193
|
|
|
1,193
|
|
Total deferred tax assets
|
66,548
|
|
|
45,080
|
|
Deferred tax liabilities:
|
|
|
|
Prepaid expenses
|
6,211
|
|
|
4,436
|
|
Depreciation
|
278,554
|
|
|
202,595
|
|
Other
|
14,522
|
|
|
2,103
|
|
Total deferred tax liabilities
|
299,287
|
|
|
209,134
|
|
Net deferred tax liabilities
|
$
|
232,739
|
|
|
$
|
164,054
|
|
Net Operating Loss and Tax Credit Carryforwards
As of December 31, 2019, the Company recognized federal and state net operating loss carryforwards for income tax purposes in the amount of $56.5 million and $1.5 million, respectively. Federal net operating loss carryforwards will not expire per the Tax Act. The majority of the state net operating loss carryforward amounts will expire between 2022 and 2037 while some state net operating losses have an indefinite carryforward period.
The Company previously recognized a federal capital loss carryforward of $0.7 million, as remeasured pursuant to the Tax Act, as of December 31, 2016 which begins to expire in 2021. As of December 31, 2019, the Company also recognized foreign tax credit and R&D tax credit carryforward in the amount of $2.5 million and $1.9 million which begin to expire in 2028 and 2024, respectively.
Tax Contingencies
The reconciliation of the Company's tax contingencies is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
(in thousands)
|
|
2019
|
|
2018
|
|
2017
|
Beginning Balance
|
|
$
|
4,175
|
|
|
$
|
778
|
|
|
$
|
837
|
|
Increases for tax position of prior years
|
|
—
|
|
|
3,364
|
|
|
251
|
|
Increases for tax position of current year
|
|
146
|
|
|
293
|
|
|
46
|
|
Decreases for tax positions of prior years
|
|
(135
|
)
|
|
(10
|
)
|
|
—
|
|
Settlements
|
|
(216
|
)
|
|
(110
|
)
|
|
(356
|
)
|
Decreases for lapses in statute of limitations
|
|
—
|
|
|
(140
|
)
|
|
—
|
|
Ending Balance
|
|
$
|
3,970
|
|
|
$
|
4,175
|
|
|
$
|
778
|
|
The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company’s income tax returns are subject to examination by the Internal Revenue Service as well as other taxing jurisdictions. The timing of the resolution of income tax examinations is uncertain, and the ultimate resolution with these taxing authorities may differ from the amounts accrued. Therefore, the Company cannot currently provide an estimate of the range of possible outcomes in the next twelve months.
Note 11— Related Party Transactions
During the years ended December 31, 2019 and 2018, there were no related party transactions that required disclosure.
In December 2017, the Company completed a transaction with ISM Connect, LLC ("ISM"), an entity in which the Company's Chairman and Chief Executive Officer ("CEO") owns a majority interest. In exchange for a noncontrolling minority interest in ISM, the Company licensed the right to use certain portions of its internally developed software, but strictly limited to ISM's digital media signage business. The Company retains all rights in the software without restriction. This interest was valued at $2.3 million and no subsequent transactions with ISM are expected.
Entities owned or controlled by the Company's Chairman and CEO were paid for the building of corporate training content. The Company made no payments during 2019 and 2018 and paid $0.2 million in 2017. No further payments are expected.
Note 12 — Employee Benefit Plans
401(k) Plan
The Company has a defined contribution plan covering all eligible employees. Under the plan, employees may contribute up to 90 percent of their eligible annual compensation with the Company making matching contributions on employee deferrals of up to 5 percent of eligible employee wages. In January 2017, the Company increased its matching contributions on pilot deferrals to 10 percent of eligible wages resulting from the pilot collective bargaining agreement.
The Company recognized expense under this plan of $19.0 million, $19.1 million and $14.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Share-based employee compensation
The Company reserved 2,000,000 shares of common stock for the Company to grant stock options, restricted stock, cash-settled stock appreciation rights ("SARs") and other stock-based awards to certain officers, directors and employees of the Company under the 2016 Long-Term Incentive Plan (the "2016 Plan"). The 2016 Plan is administered by the Company’s compensation committee of the Board of Directors. As of December 31, 2019, a portion of unexercised cash-settled SARs remain outstanding under the 2006 Long-Term Incentive Plan which has otherwise expired.
Employee Stock Purchase Plan
The Company reserved 1,000,000 shares of common stock for employee purchases under the 2014 Employee Stock Purchase Plan ("ESPP"). Shares are purchased semi-annually, at a discount, based on the market value at period-end. Employees may contribute up to 25 percent of their base pay per offering period, not to exceed $25,000 each calendar year, for the purchase of common stock. The ESPP is a compensatory plan under applicable accounting guidance and results in the recognition of compensation expense.
The following table provides information about the Company’s ESPP activity during 2019, 2018, and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of shares purchased
|
|
Average price paid per share
|
|
Weighted-average fair value of discount under the ESPP (1)
|
As of December 31, 2017
|
|
18,498
|
|
|
$
|
126.81
|
|
|
$
|
14.09
|
|
As of December 31, 2018
|
|
33,300
|
|
|
$
|
134.31
|
|
|
$
|
16.79
|
|
As of December 31, 2019
|
|
38,464
|
|
|
$
|
133.54
|
|
|
$
|
23.51
|
|
(1) The weighted-average fair value of the discount under the ESPP granted is equal to a percentage discount from the market value of the common stock at the end of each semi-annual purchase period. The Company increased the discount from 10 percent to 15 percent for the second offering period of 2018. 15 percent is the maximum allowable discount under the ESPP.
Compensation expense
For the years ended December 31, 2019, 2018 and 2017, the Company recorded compensation expense of $19.2 million, $15.6 million and $14.0 million, respectively, related to restricted stock, stock options, cash-settled SARs and the ESPP. Forfeiture rates are estimated at the time of grant based on historical actuals for similar grants, and are matched to actuals over the vesting period.
The unrecognized compensation cost was $28.5 million for unvested restricted stock expected to be recognized over a weighted-average period of 1.22 years. As of December 31, 2019, there was no unrecognized compensation cost for either cash-settled SARs or stock options.
Stock options
The fair value of stock options granted is estimated as of the grant date using the Black-Scholes option pricing model. The contractual terms of the Company’s stock option awards granted range from five to ten years. A summary of option activity as of December 31, 2019, 2018 and 2017, and changes during the years then ended, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life (years)
|
|
Aggregate Intrinsic Value (thousands)
|
Outstanding at December 31, 2016
|
43,589
|
|
|
$
|
84.04
|
|
|
1.55
|
|
$
|
3,590
|
|
Exercised
|
(16,014
|
)
|
|
60.20
|
|
|
|
|
|
Outstanding at December 31, 2017
|
27,575
|
|
|
$
|
97.88
|
|
|
0.72
|
|
$
|
1,568
|
|
Exercised
|
(17,838
|
)
|
|
92.04
|
|
|
|
|
|
Outstanding at December 31, 2018
|
9,737
|
|
|
$
|
108.59
|
|
|
0.18
|
|
$
|
—
|
|
Exercised
|
(9,737
|
)
|
|
108.59
|
|
|
|
|
|
Outstanding at December 31, 2019
|
—
|
|
|
$
|
—
|
|
|
0.00
|
|
$
|
—
|
|
During the years ended December 31, 2019, 2018 and 2017, the total intrinsic value of options exercised was $0.2 million, $1.4 million and $1.3 million, respectively. Cash received from option exercises for the years ended December 31, 2019, 2018 and 2017 was $1.1 million, $1.6 million and $1.0 million, respectively.
Restricted stock awards
The closing price of the Company's stock on the date of grant is used as the fair value for the issuance of restricted stock. A summary of the status of non-vested restricted stock grants during the years ended December 31, 2019, 2018 and 2017 is presented below:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Grant Date Fair Value Per Share
|
Non-vested at December 31, 2016
|
253,658
|
|
|
$
|
146.01
|
|
Granted
|
125,442
|
|
|
165.61
|
|
Vested
|
(91,338
|
)
|
|
145.08
|
|
Forfeited
|
(94,872
|
)
|
|
157.95
|
|
Non-vested at December 31, 2017
|
192,890
|
|
|
$
|
153.32
|
|
Granted
|
102,842
|
|
|
155.02
|
|
Vested
|
(85,410
|
)
|
|
153.85
|
|
Forfeited
|
(14,128
|
)
|
|
154.65
|
|
Non-vested at December 31, 2018
|
196,194
|
|
|
$
|
153.88
|
|
Granted
|
218,477
|
|
|
143.72
|
|
Vested
|
(104,816
|
)
|
|
152.07
|
|
Forfeited
|
(15,047
|
)
|
|
148.97
|
|
Non-vested at December 31, 2019
|
294,808
|
|
|
$
|
147.25
|
|
The total fair value of restricted stock that vested during the years ended December 31, 2019, 2018 and 2017 was $15.9 million, $13.4 million and $13.3 million, respectively.
Cash-settled SARs
Cash-settled SARs are liability classified awards for which the fair value and compensation expense recognized are updated monthly using the Black-Scholes option pricing model.
The following range of assumptions in the Black-Scholes pricing model was used to determine fair value as of December 31 of the years indicated below (all cash-settled SARs were fully vested as of December 31, 2019):
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Weighted-average volatility
|
|
35.0
|
%
|
|
32.8
|
%
|
Expected term (in years)
|
|
0.8
|
|
|
0.2 - 1.9
|
|
Risk-free interest rate
|
|
2.6
|
%
|
|
0.6% - 1.9%
|
|
Dividend yield
|
|
1.68
|
%
|
|
1.62
|
%
|
These rights were fully vested as of December 31, 2019. Expected volatilities used for award valuation are based on the historical volatility of the Company's common stock price.
Expected term represents the weighted average time between the award’s grant date and its expected exercise date. The Company estimated the expected term assumption in 2019, 2018 and 2017 using historical award exercise activity and employee termination activity.
The risk-free interest rate for periods equal to the expected term of an award is based on a blended historical rate using Federal Reserve rates for U.S. Treasury securities.
The dividend yield reflects the effect that paying a dividend has on the fair value of the Company's stock.
The contractual term of the Company’s cash-settled SARs awards granted is five years.
A summary of cash-settled SARs awards activity during the years ended December 31, 2019, 2018 and 2017 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of SARs
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term (years)
|
|
Aggregate Intrinsic Value (thousands)
|
Balance at December 31, 2016
|
|
104,608
|
|
|
$
|
153.86
|
|
|
|
|
|
Forfeited
|
|
(14,682
|
)
|
|
177.60
|
|
|
|
|
|
Exercised
|
|
(9,462
|
)
|
|
106.25
|
|
|
|
|
|
Balance at December 31, 2017
|
|
80,464
|
|
|
$
|
155.13
|
|
|
|
|
|
Forfeited
|
|
(12,890
|
)
|
|
181.47
|
|
|
|
|
|
Exercised
|
|
(13,642
|
)
|
|
98.37
|
|
|
|
|
|
Balance at December 31, 2018
|
|
53,932
|
|
|
$
|
163.19
|
|
|
|
|
|
Exercised
|
|
(9,886
|
)
|
|
135.53
|
|
|
|
|
|
Balance at December 31, 2019
|
|
44,046
|
|
|
$
|
169.40
|
|
|
0.68
|
|
$
|
204
|
|
Vested at December 31, 2019
|
|
44,046
|
|
|
$
|
169.40
|
|
|
0.68
|
|
$
|
204
|
|
Exercisable at December 31, 2019
|
|
44,046
|
|
|
$
|
169.40
|
|
|
0.68
|
|
$
|
204
|
|
Note 13 — Commitments and Contingencies
The Company leases assets including office facilities, office equipment, certain airport and terminal facilities, and other space. These commitments have remaining non-cancelable lease terms, which range from 2020 to 2048. Refer to Note 7 for more information on the Company's lease agreements.
The Company's contractual purchase commitments consist primarily of aircraft and engine acquisitions. The total future commitments are as follows:
|
|
|
|
|
(in thousands)
|
As of December 31, 2019
|
2020
|
$
|
204,521
|
|
2021
|
37,900
|
|
2022
|
21,000
|
|
Total purchase commitments
|
$
|
263,421
|
|
The Company had no aircraft sub-service expense in 2019. In 2018 and 2017 aircraft sub-service expense was $0.9 million, and $3.1 million, respectively.
Aircraft Commitments
During 2019, the Company entered into purchase agreements for eight Airbus A320 series aircraft as well as a purchase agreement for seven spare engines. Under these contracts and others previously entered into, eight aircraft are expected to be acquired in 2020, two in 2021, and one in 2022. The seven spare engines are all expected to be acquired in 2020.
During 2018, the Company entered into a purchase agreement for one Airbus A320 series aircraft that has yet to be purchased as of the end of 2019. This aircraft is expected to be acquired in 2022.
During 2016, the Company entered into purchase agreements for two Airbus A320 series aircraft that have yet to be purchased as of the end of 2019. These aircraft are expected to be acquired in 2020.
Contingencies
The Company is party to collective bargaining agreements with the employee groups listed below. As of December 31, 2019 the percentage of full-time equivalent employees for these pay groups were as follows:
|
|
|
|
|
As of December 31, 2019
|
Flight Attendants
|
31.6
|
%
|
Pilots
|
21.7
|
|
Flight Dispatchers
|
0.8
|
|
Total
|
54.1
|
%
|
See Item I - Business, for further discussion on the status of each group which has elected union representation.
The Company is subject to certain other legal and administrative actions it considers routine to its business activities. The Company believes the ultimate outcome of any pending legal or administrative matters will not have a material adverse impact on its financial position, liquidity or results of operations.
Note 14 — Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Balance at Beginning of Year
|
|
Changes Charged to Statement of Income Accounts
|
|
Write Offs (net of recoveries)
|
|
Balance at End of Year
|
Allowance for expendable parts and supplies
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2019(1)
|
$
|
14,410
|
|
|
$
|
2,257
|
|
|
$
|
(13,919
|
)
|
|
$
|
2,748
|
|
For the Year Ended December 31, 2018
|
13,756
|
|
|
2,624
|
|
|
(1,970
|
)
|
|
14,410
|
|
For the Year Ended December 31, 2017(2)
|
7,205
|
|
|
6,551
|
|
|
—
|
|
|
13,756
|
|
(1) Increase in write offs mostly related to disposal of MD-80 fleet parts in 2019.
(2) Changes during the year and ending balance include additional reserve of $2.0 million related to the MD-80 impairment charge.
Note 15 — Segments
Operating segments are components of a company for which separate financial and operating information is regularly evaluated and reported to the Chief Operating Decision Maker ("CODM"), and is used to allocate resources and analyze performance. The
Company's CODM is the executive leadership team, which reviews information about the Company's three operating segments: Airline, Sunseeker Resort, and other non-airline.
Airline Segment
The Airline segment operates as a single business unit and includes all scheduled service air transportation, ancillary air-related products and services, third party products and services, fixed fee contract air transportation and other airline-related revenue. The CODM evaluation includes, but is not limited to, route and flight profitability data, ancillary and third party product and service offering statistics, and fixed fee contract information when making resource allocation decisions with the goal of optimizing consolidated financial results.
Sunseeker Resort Segment
The Sunseeker Resort segment represents activity related to the development and construction of Sunseeker Resort in Southwest Florida, as well as the operation of Kingsway golf course. The golf course is a short drive from the resort site and is considered, from a planning and strategic perspective, to be an additional resort amenity.
Other non-Airline Segment
The other non-airline segment includes the Teesnap golf course management solution and Allegiant Nonstop family entertainment centers. Allegiant Nonstop family entertainment centers are comprised of games, attractions, and food facilities.
In July 2019, management began evaluating strategic alternatives for Teesnap, and its business-to-business software as a service offering. As the Company's current strategy has a business to customer focus, rather than business to business, management determined that the best course of action for both entities would be to sell Teesnap and management is actively pursuing this avenue. The carrying value of the disposal group expected be transferred in the sale is approximately $7.6 million as of December 31, 2019.
Selected information for the Company's segments and the reconciliation to the consolidated financial statement amounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Airline
|
|
Sunseeker Resort
|
|
Other non- airline
|
|
Consolidated
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
Operating revenue:
|
|
|
|
|
|
|
|
Passenger
|
$
|
1,682,955
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,682,955
|
|
Third party products
|
70,012
|
|
|
—
|
|
|
—
|
|
|
70,012
|
|
Fixed fee contract
|
65,057
|
|
|
—
|
|
|
—
|
|
|
65,057
|
|
Other
|
4,474
|
|
|
2,048
|
|
|
16,419
|
|
|
22,941
|
|
Operating income (loss)
|
388,740
|
|
|
(6,588
|
)
|
|
(18,202
|
)
|
|
363,950
|
|
Interest expense, net
|
58,112
|
|
|
1,694
|
|
|
—
|
|
|
59,806
|
|
Depreciation and amortization
|
151,060
|
|
|
1,250
|
|
|
3,542
|
|
|
155,852
|
|
Capital expenditures
|
438,765
|
|
|
66,659
|
|
|
18,304
|
|
|
523,728
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
Operating revenue:
|
|
|
|
|
|
|
|
Passenger
|
$
|
1,533,701
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,533,701
|
|
Third party products
|
58,060
|
|
|
—
|
|
|
—
|
|
|
58,060
|
|
Fixed fee contract
|
50,286
|
|
|
—
|
|
|
—
|
|
|
50,286
|
|
Other
|
17,125
|
|
|
601
|
|
|
7,674
|
|
|
25,400
|
|
Operating income (loss)
|
255,888
|
|
|
(3,299
|
)
|
|
(9,130
|
)
|
|
243,459
|
|
Interest expense, net
|
44,534
|
|
|
2
|
|
|
—
|
|
|
44,536
|
|
Depreciation and amortization
|
127,460
|
|
|
129
|
|
|
1,762
|
|
|
129,351
|
|
Capital expenditures
|
290,998
|
|
|
32,635
|
|
|
16,657
|
|
|
340,290
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
Operating revenue:
|
|
|
|
|
|
|
|
Passenger
|
$
|
1,372,037
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,372,037
|
|
Third party products
|
52,707
|
|
|
—
|
|
|
—
|
|
|
52,707
|
|
Fixed fee contract
|
48,708
|
|
|
—
|
|
|
—
|
|
|
48,708
|
|
Other
|
34,456
|
|
|
20
|
|
|
3,275
|
|
|
37,751
|
|
Operating income (loss)
|
237,055
|
|
|
(70
|
)
|
|
(6,355
|
)
|
|
230,630
|
|
Interest expense, net
|
33,182
|
|
|
—
|
|
|
—
|
|
|
33,182
|
|
Depreciation and amortization
|
119,421
|
|
|
—
|
|
|
2,292
|
|
|
121,713
|
|
Capital expenditures
|
543,706
|
|
|
22,287
|
|
|
2,446
|
|
|
568,439
|
|
Total assets were as follows as of the dates indicated:
|
|
|
|
|
|
|
|
|
(in thousands)
|
As of December 31, 2019
|
|
As of December 31, 2018
|
Airline
|
$
|
2,830,236
|
|
|
$
|
2,422,522
|
|
Sunseeker Resort
|
133,362
|
|
|
56,047
|
|
Other non-airline
|
47,205
|
|
|
20,099
|
|
Consolidated
|
$
|
3,010,803
|
|
|
$
|
2,498,668
|
|
Note 16 — Subsequent Events
As of February 13, 2020, the Company entered into an amendment to the Term Loan under which the interest rate has been reduced by 150 basis points, the principal amount of the debt was increased by $100.0 million to $545.5 million and the quarterly payments of principal were increased to $1.4 million. The remaining provisions of the Term Loan remain substantially unchanged, including the maturity date of February 2024.