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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 2020
 
 
 
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from               to            
Commission File Number 001-33166
algtheaderq417a16.jpg
Allegiant Travel Company
(Exact Name of Registrant as Specified in Its Charter)
Nevada
20-4745737
 
 
(State or Other Jurisdiction of Incorporation or Organization)
(IRS Employer Identification No.)
 
 
 
1201 North Town Center Drive
 
Las Vegas,
Nevada
89144
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (702) 851-7300

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
Common stock, par value $.001
 
ALGT
 
NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
Accelerated filer
 
 
 
 
 
Non-accelerated filer
 
Smaller reporting company
 
 
 
 
 
Emerging growth company
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No

As of July 28, 2020, the registrant had 16,242,332 shares of common stock, $.001 par value per share, outstanding.




ALLEGIANT TRAVEL COMPANY
FORM 10-Q
TABLE OF CONTENTS

PART I.
FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
ITEM 5.
 
 
 
ITEM 6.
 
 
 
 

2



PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

ALLEGIANT TRAVEL COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands)

 
June 30, 2020
 
December 31, 2019
 
(unaudited)
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
272,210

 
$
121,888

Restricted cash
15,432

 
14,897

Short-term investments
390,864

 
335,928

Accounts receivable
208,573

 
25,516

Expendable parts, supplies and fuel, net
25,856

 
28,375

Prepaid expenses and other current assets
24,552

 
35,617

TOTAL CURRENT ASSETS
937,487

 
562,221

Property and equipment, net
2,076,448

 
2,236,808

Long-term investments

 
15,542

Deferred major maintenance, net
131,141

 
129,654

Operating lease right-of-use assets, net
99,819

 
22,081

Deposits and other assets
28,074

 
44,497

TOTAL ASSETS:
$
3,272,969

 
$
3,010,803

CURRENT LIABILITIES
 
 
 
Accounts payable
$
51,286

 
$
27,667

Accrued liabilities
225,284

 
161,693

Air traffic liability
354,735

 
249,950

Current maturities of long-term debt and finance lease obligations, net of related costs
227,732

 
173,274

TOTAL CURRENT LIABILITIES
859,037

 
612,584

Long-term debt and finance lease obligations, net of current maturities and related costs
1,273,439

 
1,248,579

Deferred income taxes
292,728

 
232,520

Other noncurrent liabilities
111,205

 
33,569

TOTAL LIABILITIES:
2,536,409

 
2,127,252

SHAREHOLDERS' EQUITY
 
 
 
Common stock, par value $.001
23

 
23

Treasury shares
(648,118
)
 
(617,579
)
Additional paid in capital
310,628

 
289,933

Accumulated other comprehensive income, net
425

 
98

Retained earnings
1,073,602

 
1,211,076

TOTAL EQUITY:
736,560

 
883,551

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY:
$
3,272,969

 
$
3,010,803

 
The accompanying notes are an integral part of these consolidated financial statements.

3



ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
 (unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
OPERATING REVENUES:
 
 
 
 
 
 
 
Passenger
$
116,520

 
$
454,779

 
$
495,431

 
$
874,755

Third party products
8,443


18,208

 
24,419

 
35,350

Fixed fee contracts
3,237

 
12,487

 
12,156

 
23,061

Other
5,147

 
6,285

 
10,522

 
10,215

   Total operating revenues
133,347

 
491,759

 
542,528

 
943,381

OPERATING EXPENSES:
 
 
 
 
 
 
 
Salary and benefits
94,790

 
113,592

 
207,436

 
233,003

Aircraft fuel
27,358

 
119,987

 
116,171

 
219,670

Station operations
27,405

 
45,870

 
68,405

 
84,835

Depreciation and amortization
43,296

 
38,494

 
86,995

 
74,676

Maintenance and repairs
13,032

 
20,877

 
34,827

 
43,701

Sales and marketing
8,909

 
20,540

 
27,364

 
41,466

Aircraft lease rental
1,427

 

 
2,389

 

Other
23,752

 
24,294

 
50,468

 
46,849

CARES Act grant recognition
(74,539
)
 

 
(74,539
)
 

Special charges
81,169

 

 
247,267

 

   Total operating expenses
246,599

 
383,654

 
766,783

 
744,200

OPERATING INCOME (LOSS)
(113,252
)
 
108,105

 
(224,255
)
 
199,181

OTHER (INCOME) EXPENSES:
 
 
 
 
 
 
 
Interest expense
14,053

 
20,942

 
32,206

 
39,025

Capitalized interest

 
(1,038
)
 
(4,067
)
 
(2,541
)
Interest income
(1,417
)
 
(3,502
)
 
(3,728
)
 
(6,703
)
Loss on debt extinguishment

 

 
1,222

 
3,677

Special charges
19,830

 

 
26,632

 

Other, net
698

 
(86
)
 
623

 
15

   Total other expenses
33,164

 
16,316

 
52,888

 
33,473

INCOME (LOSS) BEFORE INCOME TAXES
(146,416
)
 
91,789

 
(277,143
)
 
165,708

INCOME TAX PROVISION (BENEFIT)
(53,313
)
 
21,246

 
(151,030
)
 
38,041

NET INCOME (LOSS)
$
(93,103
)
 
$
70,543

 
$
(126,113
)
 
$
127,667

Earnings (loss) per share to common shareholders:
 
 
 
 
 
 
 
Basic
$
(5.85
)
 
$
4.33

 
$
(7.93
)
 
$
7.85

Diluted
$
(5.85
)
 
$
4.33

 
$
(7.93
)
 
$
7.84

Shares used for computation:
 
 
 
 
 
 
 
Basic
15,902

 
16,063

 
15,927

 
16,037

Diluted
15,902

 
16,069

 
15,927

 
16,050

 
 
 
 
 
 
 
 
Cash dividends declared per share:
$

 
$
0.70

 
$
0.70

 
$
1.40


The accompanying notes are an integral part of these consolidated financial statements.

4



ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
NET INCOME (LOSS)
$
(93,103
)
 
$
70,543

 
$
(126,113
)
 
$
127,667

Other comprehensive income (loss):
 

 
 

 
 
 
 
Change in available for sale securities, net of tax
1,057

 
177

 
324

 
654

Foreign currency translation adjustments
(8
)
 
9

 
3

 
3

Total other comprehensive income
1,049

 
186

 
327

 
657

TOTAL COMPREHENSIVE INCOME (LOSS)
$
(92,054
)
 
$
70,729

 
$
(125,786
)
 
$
128,324


The accompanying notes are an integral part of these consolidated financial statements.

5



ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
(unaudited)
 
Three Months Ended June 30, 2020
 
Common stock outstanding
 
Par value
 
Additional paid-in capital
 
Accumulated other comprehensive income (loss)
 
Retained earnings
 
Treasury shares
 
Total shareholders' equity
Balance at March 31, 2020
16,199

 
$
23

 
$
295,267

 
$
(624
)
 
$
1,166,588

 
$
(651,352
)
 
$
809,902

Share-based compensation

 

 
14,409

 

 

 

 
14,409

Stocks issued under employee stock purchase plan
41

 

 

 

 

 
3,234

 
3,234

Cash dividends

 

 

 

 
117

 

 
117

Other comprehensive income

 

 

 
1,049

 

 

 
1,049

CARES Act warrant issuance

 

 
952

 

 

 

 
952

Net loss

 

 

 

 
(93,103
)
 

 
(93,103
)
Balance at June 30, 2020
16,240

 
$
23

 
$
310,628

 
$
425

 
$
1,073,602

 
$
(648,118
)

$
736,560

 
Six Months Ended June 30, 2020
 
Common stock outstanding
 
Par value
 
Additional paid-in capital
 
Accumulated other comprehensive income
 
Retained earnings
 
Treasury shares
 
Total shareholders' equity
Balance at December 31, 2019
16,303

 
$
23

 
$
289,933

 
$
98

 
$
1,211,076

 
$
(617,579
)
 
$
883,551

Share-based compensation
113

 

 
19,743

 

 

 

 
19,743

Shares repurchased by the Company and held as treasury shares
(217
)
 

 

 

 

 
(33,773
)
 
(33,773
)
Stocks issued under employee stock purchase plan
41

 

 

 

 

 
3,234

 
3,234

Cash dividends declared, $0.70 per share for the year

 

 

 

 
(11,361
)
 

 
(11,361
)
Other comprehensive income

 

 

 
327

 

 

 
327

CARES Act warrant issuance

 

 
952

 

 

 

 
952

Net loss

 

 

 

 
(126,113
)
 

 
(126,113
)
Balance at June 30, 2020
16,240

 
$
23

 
$
310,628

 
$
425

 
$
1,073,602

 
$
(648,118
)
 
$
736,560


6




 
Three Months Ended June 30, 2019
 
Common stock outstanding
 
Par value
 
Additional paid-in capital
 
Accumulated other comprehensive income (loss)
 
Retained earnings
 
Treasury shares
 
Total shareholders' equity
Balance at March 31, 2019
16,284

 
$
23

 
$
276,247

 
$
(190
)
 
$
1,069,690

 
$
(607,316
)
 
$
738,454

Share-based compensation
6

 

 
4,536

 

 

 

 
4,536

Shares repurchased by the Company and held as treasury shares
(5
)
 

 

 

 

 
(730
)
 
(730
)
Stock issued under employee stock purchase plan
20

 

 

 

 

 
2,931

 
2,931

Cash dividends declared, $0.70 per share

 

 

 

 
(11,411
)
 

 
(11,411
)
Other comprehensive income

 

 

 
186

 

 

 
186

Net income

 

 

 

 
70,543

 

 
70,543

Balance at June 30, 2019
16,305


$
23


$
280,783


$
(4
)

$
1,128,822


$
(605,115
)

$
804,509

 
Six Months Ended June 30, 2019
 
Common stock outstanding
 
Par value
 
Additional paid-in capital
 
Accumulated other comprehensive income (loss)
 
Retained earnings
 
Treasury shares
 
Total shareholders' equity
Balance at December 31, 2018
16,183

 
$
23

 
$
270,935

 
$
(661
)
 
$
1,025,061

 
$
(605,037
)
 
$
690,321

Share-based compensation
124

 

 
9,848

 

 

 

 
9,848

Shares repurchased by the Company and held as treasury shares
(22
)
 

 

 

 

 
(3,009
)
 
(3,009
)
Stock issued under employee stock purchase plan
20

 

 

 

 

 
2,931

 
2,931

Cash dividends, $1.40 per share

 

 

 

 
(22,805
)
 

 
(22,805
)
Other comprehensive income (loss)

 

 

 
657

 
(551
)
 

 
106

Net income

 

 

 

 
127,667

 

 
127,667

Cumulative effect of the New Lease Standard

 

 

 

 
(550
)
 

 
(550
)
Balance at June 30, 2019
16,305

 
$
23

 
$
280,783

 
$
(4
)
 
$
1,128,822

 
$
(605,115
)
 
$
804,509


The accompanying notes are an integral part of these consolidated financial statements.

7



ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

 
Six Months Ended June 30,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(126,113
)
 
$
127,667

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
86,995

 
74,676

Special charges
263,497

 

Other adjustments
81,630

 
41,667

Changes in certain assets and liabilities:
 
 
 
Air traffic liability
104,785

 
54,820

Deferred CARES Act grant recognition
62,814

 

Other - net
(196,942
)
 
(21,318
)
Net cash provided by operating activities
276,666

 
277,512

Cash flows from investing activities:
 
 
 
Purchase of investment securities
(296,979
)
 
(130,627
)
Proceeds from maturities of investment securities
258,751

 
258,076

Purchase of property and equipment
(170,673
)
 
(234,469
)
Proceeds from sale-leaseback transactions
48,000

 

Other investing activities
2,303

 
10,201

Net cash used in investing activities
(158,598
)
 
(96,819
)
Cash flows from financing activities:
 
 
 
Cash dividends paid to shareholders
(11,361
)
 
(22,805
)
Proceeds from the issuance of debt
175,712

 
770,435

Repurchase of common stock
(33,773
)
 

Principal payments on debt and finance lease obligations
(98,171
)
 
(522,616
)
Debt issuance costs
(2,852
)
 
(30,759
)
Other financing activities
3,234

 
(2,689
)
Net cash provided by financing activities
32,789

 
191,566

NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
150,857

 
372,259

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD
136,785

 
95,911

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD
$
287,642

 
$
468,170

 
 
 
 
CASH PAYMENTS (RECEIPTS) FOR:
 
 
 
Interest paid, net of amount capitalized
$
26,065

 
$
36,886

Income tax refunds
(45,321
)
 
(3,340
)
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
 
 
 
Right-of-use (ROU) assets acquired
$
86,012

 
$
23,320

Purchases of property and equipment in accrued liabilities
22,106

 
6,043


The accompanying notes are an integral part of these consolidated financial statements.

8



ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1 — Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Allegiant Travel Company (the “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, and are insignificant to the consolidated financial statements. All intercompany balances and transactions have been eliminated.

These unaudited consolidated financial statements reflect all normal recurring adjustments which management believes are necessary to present fairly the financial position, results of operations, and cash flows of the Company for the respective periods presented. Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto included in the annual report of the Company on Form 10-K for the year ended December 31, 2019 and filed with the Securities and Exchange Commission.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.

Recent Accounting Pronouncements

On June 16, 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. The standard requires the use of an “expected loss” model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale debt securities and requires estimated credit losses to be recorded as allowances instead of reductions to amortized cost of the securities. The Company adopted this accounting standard prospectively as of January 1, 2020, and it did not have a significant impact on its consolidated financial statements.

Note 2 — Impact of the COVID-19 Pandemic

The rapid spread of COVID-19 and the related government restrictions, social distancing measures, and consumer fears have impacted flight loads, resulted in unprecedented cancellations of bookings and substantially reduced demand for new bookings throughout the airline industry. Starting in March 2020, the Company experienced a severe reduction in air travel, which continued into the second quarter 2020. Although there were incremental demand increases during portions of the second quarter 2020, an increase in reported COVID-19 cases in various parts of the country towards the end of the quarter caused another decline in bookings. It is evident that demand in the foreseeable future will continue to fluctuate in response to fluctuations in COVID-19 cases, hospitalizations, deaths, treatment efficacy and the availability of a vaccine. The Company is continuously reevaluating flight schedules based on demand trends.

The Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted in March 2020, providing support for the airline industry and other businesses and individuals.

On April 20, 2020, the Company through its airline operating subsidiary Allegiant Air, LLC entered into a Payroll Support Program Agreement (the “PSPA”) with the U.S. Department of the Treasury ("Treasury") for an award Allegiant Air would receive under the CARES Act. The total amount allocated to Allegiant Air under the Payroll Support Program established under the CARES Act is $171.9 million. The Company received three installments of the award during the second quarter 2020, totaling $154.7 million. The fourth and final installment of $17.2 million was received in July 2020. The proceeds of the award must be used exclusively for wages, salaries and benefits.

The $154.7 million received under the PSPA during the second quarter 2020 includes direct grants, a $16.4 million loan, and warrants to purchase 19,700 shares of the Company's common stock, as further discussed below.

In consideration for the grant, Allegiant Air issued to Treasury a low-interest rate, senior unsecured term promissory note (the “PSP Note”) which will mature 10 years after issuance. The principal amount of the PSP Note is $21.6 million, of which $16.4 million relates to the funds received during the second quarter 2020, and the remaining $5.2 million relates to the funds received in July 2020. The PSP Note is guaranteed by the Company and is prepayable at any time at par (see Note 5).


9



Also in consideration for the grant, the Company issued warrants (the “PSP Warrants”) to Treasury to purchase 25,889 shares of common stock of the Company at a price of $83.33 per share (based on the closing price of the Company’s common stock on The Nasdaq Global Select Market on April 9, 2020). Warrants to purchase 19,700 shares (valued at $1.0 million) were issued in May and June 2020, and warrants for the remaining 6,189 shares (valued at $0.3 million) were issued in July 2020. The PSP Warrants expire five years after issuance, and will be exercisable either through net share settlement or cash, at the Company’s option. The PSP Warrants include customary anti-dilution provisions, do not have any voting rights and are freely transferable, with registration rights.

In connection with the PSPA, the Company is required to comply with the relevant provisions of the CARES Act, including those prohibiting the repurchase of common stock and the payment of common stock dividends until September 30, 2021, as well as those restricting the payment of certain executive compensation for periods through March 24, 2022.

Given the Company's efforts to conserve and raise liquidity and the Company's assumptions about the future impact of COVID-19 on travel demand, which could be materially different due to the inherent uncertainties of the current operating environment, the Company expects to meet its cash obligations as well as remain in compliance with the debt covenants in its existing financing agreements for the next 12 months based on its current level of unrestricted cash and short-term investments, its anticipated access to liquidity and tax refunds, and projected cash flows from operations.

Special Charges

The effects of COVID-19 triggered an impairment review, and a non-cash impairment charge was recognized during the six months ended June 30, 2020 (see Note 12 - Impairment for additional detail). The Company also identified expenses that were unique and specific to COVID-19. The impairment charges and other expenses that resulted from the effects of COVID-19 are recorded as special charges within both operating and non-operating expenses during the six months ended June 30, 2020. See the table below for a summary of operating and non-operating special charges recorded by segment during the three and six months ended June 30, 2020.
(in thousands)
 
Airline
 
Sunseeker Resort(1)
 
Other
non-airline
 
Total
Three Months Ended June 30, 2020
 
 
 
 
 
 
 
 
Operating
 
$
75,902

 
$
5,452

 
$
(185
)
 
$
81,169

Non-operating
 

 
19,830

 

 
19,830

Total special charges
 
$
75,902

 
$
25,282

 
$
(185
)
 
$
100,999

Six Months Ended June 30, 2020
 
 
 
 
 
 
 
 
Operating
 
$
85,442

 
$
135,443

 
$
26,382

 
$
247,267

Non-operating
 

 
26,632

 

 
26,632

Total special charges
 
$
85,442

 
$
162,075

 
$
26,382

 
$
273,899

(1) $6.8 million in special charges for Sunseeker Resort, related to expense during the first quarter 2020, were reclassified from operating special expense to non-operating special expense for the six months ended June 30, 2020

See additional detail below for the $273.9 million total special charges (operating and non-operating) for the six months ended June 30, 2020:

$168.4 million in impairment charges
Includes Airline - $5.0 million; Sunseeker Resort - $136.8 million; Other non-airline - $26.6 million
$58.6 million adjustment resulting from the accelerated retirements of seven airframes and five engines, loss on sale leaseback transaction of four aircraft, and write-offs of other aircraft related assets
$19.7 million adjustment for additional salary and benefits expense in relation to the elimination of positions as well as other non-recurring compensation expense associated with the acceleration of certain existing stock awards
Includes Airline - $19.3 million; Sunseeker Resort - $0.4 million
$19.8 million accrual on the expectation to terminate the loan agreement with Sixth Street Partners (formerly TSSP) intended to finance the development of Sunseeker Resorts Charlotte Harbor, expected to be paid in the second half of 2020
$5.0 million related to suspension of construction at Sunseeker
$2.4 million write-down on various non-aircraft assets and other various expenses


10


Note 3 — Revenue Recognition

Passenger Revenue

Passenger revenue is the most significant category in our reported operating revenues. Passenger revenue is primarily composed of scheduled service revenue (including passenger ticket sales and credit voucher breakage), revenue from ancillary air-related charges (including seat fees, baggage fees, and other travel-related services performed in conjunction with a passenger’s flight), as well as co-brand credit card point redemptions, as outlined below:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
2020
 
2019
 
2020
 
2019
Scheduled service
$
48,680

 
$
237,685

 
$
245,941

 
$
472,456

Ancillary air-related charges
65,294

 
213,527

 
242,258

 
395,227

Co-brand redemptions
2,546

 
3,567

 
7,232

 
7,072

Total passenger revenue
$
116,520

 
$
454,779

 
$
495,431

 
$
874,755



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. As of June 30, 2020, approximately 38.8 percent of the air traffic liability balance was related to forward bookings, with the remaining 61.2 percent related to credit vouchers for future travel.

The normal contract term of passenger tickets is twelve months and revenue associated with future travel will principally be recognized within this time frame. During the six months ended June 30, 2020, $182.2 million was recognized into passenger revenue that was recorded in the air traffic liability balance of $250.0 million at December 31, 2019.

In April 2020, the Company announced that credits issued for canceled travel in April through the end of the COVID-19 pandemic will have an extended expiration date of two years from the original booking date. This change has been considered in estimating the future breakage rate, which represents the value of credit vouchers that are not expected to be redeemed prior to their contractual expiration date.

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:
 
Six Months Ended June 30,
(in thousands)
2020
 
2019
Balance at January 1
$
15,613

 
$
10,708

Points awarded (deferral of revenue)
10,962

 
8,827

Points redeemed (recognition of revenue)
(7,232
)
 
(7,072
)
Balance at June 30
$
19,343

 
$
12,463



As of June 30, 2020 and 2019, $12.4 million and $9.8 million, respectively, of the current points liability is reflected in Accrued liabilities and represents the Company's 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 expected to be recognized into revenue in periods thereafter. Given the inherent uncertainty of the current operating environment due to COVID-19, the Company will continue to monitor redemption patterns and may adjust its estimates in the future.


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Note 4 — Property and Equipment

The following table summarizes the Company's property and equipment as of the dates indicated:
(in thousands)
June 30, 2020
 
December 31, 2019
Flight equipment, including pre-delivery deposits
$
2,312,146

 
$
2,289,157

Computer hardware and software
147,688

 
171,516

Land and buildings/leasehold improvements
82,071

 
98,885

Other property and equipment
81,571

 
161,760

Total property and equipment
2,623,476

 
2,721,318

Less accumulated depreciation and amortization
(547,028
)
 
(484,510
)
Property and equipment, net
$
2,076,448

 
$
2,236,808



Accrued capital expenditures as of June 30, 2020 and December 31, 2019 were $22.1 million and $16.5 million, respectively.

Note 5 — Long-Term Debt

The following table summarizes the Company's Long-term debt and finance lease obligations as of the dates indicated:
(in thousands)
June 30, 2020
 
December 31, 2019
Fixed-rate debt and finance lease obligations due through 2029
$
273,157

 
$
235,071

Variable-rate debt due through 2029
1,228,014

 
1,186,782

Total long-term debt and finance lease obligations, net of related costs
1,501,171

 
1,421,853

Less current maturities, net of related costs
227,732

 
173,274

Long-term debt and finance lease obligations, net of current maturities and related costs
$
1,273,439

 
$
1,248,579

 
 
 
 
Weighted average fixed-interest rate on debt
3.2
%
 
3.7
%
Weighted average variable-interest rate on debt
2.6
%
 
4.5
%


Maturities of long-term debt and finance lease obligations for the remainder of 2020 and for the next four years and thereafter, in the aggregate, are: remaining in 2020 - $108.8 million; 2021 - $189.6 million; 2022 - $121.7 million; 2023 - $108.8 million; 2024 - $643.0 million; and $329.3 million thereafter.

CARES Act Payroll Support Program Loan

In April 2020 the Company entered into a low-interest rate, senior unsecured term promissory note (the "PSP" Note") with the Treasury under the CARES Act payroll support program loan. The PSP Note will mature 10 years after issuance and bears interest at a rate of 1.0 percent for the first five years, with interest at the secured overnight financing rate (SOFR) plus 2.0 percent thereafter. The PSP Note is prepayable at any time at par, without penalty.

During the second quarter 2020, the Company received $16.4 million in funds under the PSP Note, which is recorded within noncurrent debt on the balance sheet.

In connection with the PSP Note, the Company is required to comply with the relevant provisions of the CARES Act, including those prohibiting the repurchase of common stock and the payment of common stock dividends until September 30, 2021, as well as those restricting the payment of certain executive compensation for periods through March 24, 2022.

Senior Secured Revolving Credit Facility

The Company has a senior secured revolving credit facility under which it is able 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 2019 the Company drew down $81.0 million under this facility. Aircraft remain in the collateral pool for up to two years, and, as of June 30, 2020, there were eight aircraft in the collateral 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


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In April 2020, the Company borrowed $31.0 million under a loan agreement secured by two aircraft. The note bears interest at a fixed rate, payable in quarterly installments over eight 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"). In February 2020 the Company entered into an amendment to the Term Loan under which the interest rate was reduced by 150 basis points, and the principal amount of the debt was increased by a net amount of $100.0 million to $545.5 million. Quarterly principal payments increased under the amendment, but the remaining provisions were substantially unchanged, including the maturity date. 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 bears interest based on LIBOR and provides for quarterly interest payments along with quarterly principal payments of $1.4 million through February 2024, at which time the Term Loan is due. The Term Loan may be prepaid at any time without penalty.

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 could borrow up to $175.0 million (the “Loan”) to fund the construction of Phase 1 of Sunseeker Resort -Charlotte Harbor. As of June 30, 2020, no amount had been drawn under this agreement.

Due to the various impacts of COVID-19, the Company suspended construction of Sunseeker Resort, and it is uncertain when construction will resume. In light of these conditions, the Company negotiated a settlement agreement in principle with the Lender to terminate the Loan. As the settlement was probable and estimable, as determined during the second quarter 2020, $19.8 million related to the settlement was accrued as of June 30, 2020. The expense is reflected within non-operating special charges on the statement of income, and the related accrual is reflected within accrued liabilities on the balance sheet. The settlement is expected be paid in installments between the date the settlement is signed and the end of 2020.

Note 6 — Income Taxes

The Company recorded a $53.3 million tax benefit (36.4 percent effective tax rate) compared to a $21.2 million tax provision (23.1 percent effective tax rate) for the three months ended June 30, 2020 and 2019, respectively. The effective tax rate for the three months ended June 30, 2020 differed from the statutory federal income tax rate of 21.0 percent primarily due to the tax accounting impact of the CARES Act which allows the Company to carryback the 2020 net operating loss at the 35.0 percent rate applicable in earlier years.

The Company recorded a $151.0 million tax benefit (54.5 percent effective tax rate) compared to a $38.0 million tax provision (23.0 percent effective tax rate) for the six months ended June 30, 2020 and 2019, respectively. The 54.5 percent effective tax rate for the six months ended June 30, 2020 differed from the statutory federal income tax rate of 21.0 percent primarily due to the tax accounting impact of the CARES Act which includes a $39.6 million discrete federal income tax benefit related to the full utilization of 2018 and 2019 net operating losses as well as the ability to carryback the 2020 net operating loss at a 35.0 percent rate applicable in earlier years. The effective tax rate was also impacted by the remeasurement of deferred taxes and state taxes. 

Note 7 — Leases

The Company evaluates all operating leases and they are measured on the balance sheet with a lease liability and right-of-use asset (“ROU”) at inception. 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. Airport terminal leases mostly include variable lease

13



payments outside of those based on a fixed index, and are therefore not recorded as ROU assets.
(in thousands)
Classification on the Balance Sheet
June 30, 2020
 
December 31, 2019
Assets
 
 
 
 
Operating lease assets(1) 
Operating lease right-of-use assets
$
99,819

 
$
22,081

Finance lease assets(2)
Property and equipment, net
108,407

 
111,665

Total lease assets
 
$
208,226

 
$
133,746

 
 
 
 
 
Liabilities
 
 
 
 
Current
 
 
 
 
Operating(1)
Accrued liabilities
$
11,171

 
$
2,662

Finance(2)
Current maturities of long-term debt and finance lease obligations
7,836

 
7,666

Noncurrent
 
 
 
 
Operating(1)
Other noncurrent liabilities
90,257

 
21,290

Finance(2)
Long-term debt and finance lease obligations
103,969

 
107,930

Total lease liabilities
 
$
213,233

 
$
139,548

(1) Represents assets and liabilities of seven aircraft, office facilities, office equipment, certain airport and terminal facilities, and other assets under operating lease
(2) Represents assets and liabilities of five aircraft under finance lease

Sale-Leaseback Transaction

In June 2020, the Company entered into a sale-leaseback transaction on four aircraft. The transaction qualified as a sale, and generated $48.0 million of proceeds. The aircraft were removed from the Company's balance sheet within property and equipment, resulting in a $30.2 million loss on sale. The loss is reflected within operating special charges on the statement of income since the Company would not likely have transacted absent cash conservation efforts as a result of COVID. The leased aircraft were subsequently recorded within operating lease right-of-use assets, with the related lease liabilities recorded within accrued liabilities and other noncurrent liabilities on the balance sheet. This transaction is treated as an cash inflow from investing activities on the statement of cash flows.

Note 8 — Fair Value Measurements

The Company utilizes the market approach to measure the fair value of its financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. The assets classified as Level 2 primarily utilize quoted market prices or alternative pricing sources including transactions involving identical or comparable assets and models utilizing market observable inputs for valuation of these securities. No changes in valuation techniques or inputs occurred during the six months ended June 30, 2020.


14


Financial instruments measured at fair value on a recurring basis:
 
June 30, 2020
 
December 31, 2019
(in thousands)
Total
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
Cash equivalents
 
 
 
 
 
 
 
 
 
 
 
Money market funds
$
107,066

 
$
107,066

 
$

 
$
42,653

 
$
42,653

 
$

Municipal debt securities
32,575

 

 
32,575

 
1,202

 

 
1,202

Commercial paper
30,351

 

 
30,351

 
5,807

 

 
5,807

Federal agency debt securities
7,909

 

 
7,909

 

 

 

Total cash equivalents
177,901

 
107,066

 
70,835

 
49,662

 
42,653

 
7,009

Short-term
 

 
 

 
 
 
 

 
 

 
 

Commercial paper
208,194

 

 
208,194

 
161,286

 

 
161,286

Corporate debt securities
128,344

 

 
128,344

 
145,975

 

 
145,975

Municipal debt securities
36,892

 

 
36,892

 
12,237

 

 
12,237

Federal agency debt securities
14,375

 

 
14,375

 
13,515