What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-01 compared with 2020-02-27 · 414 added, 231 removed, 673 unchanged (49% of the section changed)

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Amounts are shown in thousands, except for per share amounts.

March 31 June 30 (1)

September 30 December 31

Operating revenues $ 409,181 $ 133,347 $ 200,984 $ 246,561

Operating income (117,805) (113,252) (33,081) (23,648)

Earnings per share to common shareholders:

Net income (loss) (33,009) (93,103) (29,143) (28,838)

Earnings (loss) per share to common shareholders:

Basic $ (2.08) $ (5.85) $ (1.82) $ (1.79)

Diluted (2.08) (5.85) (1.82) (1.79)

Operating revenues $ 451,622 $ 491,759 $ 436,509 $ 461,074

Operating income 91,078 108,105 72,116 92,652

Net income 57,124 70,543 43,929 60,522

Earnings per share to common shareholders:

Basic $ 3.52 $ 4.33 $ 2.70 $ 3.72

Diluted 3.52 4.33 2.70 3.72

(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.

The quarterly earnings per share amounts for a year will not add to the earnings per share for that year due to the weighting of shares used in calculating per share data.

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generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 27, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2019 due to the modified retrospective adoption of Accounting Standards Update 2016-02, Leases (Topic 842).

As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the modified retrospective adoption of Accounting Standards Update 2016-02, Leases (Topic 842).

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of the amortization period of deferred engine major maintenance costs

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Impairment of Sunseeker Resort property and equipment

As discussed in Note 2 and Note 17 to the consolidated financial statements, the Company recorded an impairment charge of $128.9 million related to the property and equipment of the Sunseeker Resort (Sunseeker), the Company’s resort development in Southwest Florida.

When events or circumstances are identified that indicate the assets may be impaired, the Company estimates the future undiscounted cash flows expected to be generated by Sunseeker to determine if the cash flows are less than the carrying amount of the Sunseeker property and equipment.

When the undiscounted cash flows are less than the carrying amount of the assets, the Company estimates the fair value of the assets to determine if the assets are impaired by comparing the fair value to the carrying value.

Due to the decreased demand and U.S.

government travel restrictions and quarantine requirements caused by COVID-19, a triggering event was identified as of March 31, 2020 and the Company determined the sum of the undiscounted cash flows was less than the assets’ carrying value.

As a result, management estimated the fair value of the assets related to Sunseeker and the Company recorded an impairment charge representing the difference between the carrying value of the Sunseeker property and equipment and the estimated fair value of these assets.

We identified the evaluation of impairment of Sunseeker property and equipment as a critical audit matter.

Subjective auditor judgment was required to evaluate the key assumptions used to estimate the fair value of the Sunseeker

property and equipment.

Specifically, the market transaction assumptions used to assess the fair value of the assets were challenging to test as they represented subjective determinations of market and economic conditions.

The audit effort associated with this estimate required the use of professionals with specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s property and equipment impairment process, including controls related to the evaluation of market transaction valuation assumptions.

We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the reasonableness of the estimate of the fair value of the Sunseeker property and equipment.

The valuation professionals obtained market data for similar transactions to compare to the Company’s fair value estimate.

A mortization period of deferred engine major maintenance costs

As discussed in Note 3 to the consolidated financial statements, the Company accounts for major maintenance costs of its Airbus fleet using the deferral method.

For the year ended December 31, 2020, the Company recognized $17.6 million of amortization expense for the cost of engine major maintenance as a component of depreciation and amortization.

The amortization period associated with major maintenance costs is based on the estimated period until the next scheduled major maintenance event.

The timing of next major maintenance events is based on certain assumptions, which are dependent upon forecasted aircraft utilization levels.

The amortization period associated with engine major maintenance costs is based on the estimated period until the next scheduled engine major maintenance event.

The timing of next engine major maintenance events is based on certain assumptions, which are dependent upon expected future engine utilization levels.

We identified the evaluation of the amortization period of deferred engine major maintenance costs as a critical audit matter.

The Company uses historical aircraft utilization as a significant indicator to estimate future aircraft utilization in the determination of the amortization period.

A higher degree of auditor judgment was required to evaluate the relevance of the use of historical aircraft utilization data to predict future aircraft utilization levels.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s aircraft major maintenance cost process, including controls over the development of the estimated future aircraft utilization levels.

We developed an independent estimate of the amortization period using actual aircraft utilization data and compared our independent estimate to that of the Company.

analyzed the amortization period by performing sensitivity analyses on the forecasted aircraft utilization levels to assess the impact on the Company’s amortization expense.

A high degree of auditor judgment was required to evaluate future engine utilization levels, including the relevance of the use of historical engine utilization data used to assess the reasonableness of expected future engine utilization levels.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s engine major maintenance cost process, including controls over the development of the expected future engine utilization levels used in the determination of the related amortization period.

We developed an estimate of the amortization period using actual engine utilization data and compared our estimate to that of the Company.

We further analyzed the amortization period by performing sensitivity analyses on the expected future engine utilization levels to assess the impact on the Company’s amortization expense.

We have served as the Company’s auditor since 2016.

Dallas, Texas

February 27, 2020

March 1, 2021

ALLEGIANT TRAVEL COMPANY

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(in thousands, except share amounts)

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

CURRENT ASSETS

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Expendable parts, supplies and fuel, net of reserve of $4,323 and $2,748 24,006 28,375

Prepaid expenses

Other current assets

Prepaid expenses and other current assets 24,616 35,617

TOTAL CURRENT ASSETS 943,633 562,221

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Deferred major maintenance, net of accumulated amortization of $57,022 and $34,423 127,463 129,654

Operating lease right-of-use asset

Operating lease right-of-use assets, net 115,911 22,081

Deposits and other assets 21,607 44,497

TOTAL ASSETS:

$ 3,258,925 $ 3,010,803

CURRENT LIABILITIES

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Accrued liabilities 116,093 159,031

Current operating lease liabilities 14,313 2,662

Air traffic liability 307,508 249,950

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Deferred income taxes 301,763 232,520

Noncurrent operating lease liabilities 102,289 21,290

Other noncurrent liabilities 24,388 12,279

TOTAL LIABILITIES:

2,559,562 2,127,252

COMMITMENTS AND CONTINGENCIES (NOTE 14)

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TOTAL EQUITY:

699,363 883,551

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY:

$ 3,258,925 $ 3,010,803

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

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Year ended December 31,

2020 2019 2018

OPERATING REVENUES:

Passenger $ 902,187 $ 1,682,955 $ 1,533,701

Third party products 46,482 70,012 58,060

Fixed fee contract 26,865 65,057 50,286

Other 14,539 22,941 25,400

Total operating revenues 990,073 1,840,965 1,667,447

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Aircraft fuel 221,827 427,827 445,814

Station operations

Depreciation and amortization 176,267 155,852 129,351

Station operations 144,771 171,420 161,019

Maintenance and repairs 63,895 91,713 99,015

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Aircraft lease rentals 9,828 — 868

Special charge

Other 79,277 100,845 100,515

CARES Act grant recognition ( 152,448 ) — —

Special charges 306,299 — —

Total operating expenses 1,271,058 1,477,015 1,423,988

OPERATING INCOME

OPERATING INCOME (LOSS) ( 280,985 ) 363,950 243,459

OTHER (INCOME) EXPENSES:

Interest expense 60,493 76,801 56,116

Interest income ( 5,509 ) ( 12,523 ) ( 9,226 )

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Loss on extinguishment of debt 1,222 3,677 —

Interest expense

Special charges 26,632 — —

Other, net 1,311 ( 780 ) ( 395 )

Total other expenses 80,082 62,703 44,141

INCOME BEFORE INCOME TAXES

PROVISION FOR INCOME TAXES

Earnings per share to common shareholders:

INCOME (LOSS) BEFORE INCOME TAXES ( 361,067 ) 301,247 199,318

INCOME TAX PROVISION (BENEFIT) ( 176,974 ) 69,130 37,516

NET INCOME (LOSS) $ ( 184,093 ) $ 232,117 $ 161,802

Earnings (loss) per share to common shareholders:

Basic $ ( 11.53 ) $ 14.27 $ 10.02

Diluted $ ( 11.53 ) $ 14.26 $ 10.00

Shares used for computation:

Basic 15,992 16,027 15,941

Diluted 15,992 16,041 15,967

Cash dividends declared per share:

$ 0.70 $ 2.80 $ 2.80

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

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Year ended December 31,

2020 2019 2018

NET INCOME (LOSS) $ ( 184,093 ) $ 232,117 $ 161,802

Other comprehensive income (loss):

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(in thousands, except share amounts)

comprehensive

shareholders'

income (loss)

Common Additional other Total

stock Par paid-in comprehensive Retained Treasury shareholders'

outstanding value capital income (loss) earnings shares equity

Balance at December 31, 2017 16,066 $ 23 $ 253,840 $ ( 2,840 ) $ 907,943 $ ( 605,655 ) $ 553,311

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Cash dividends declared, $2.80 per share — — — — ( 45,247 ) — ( 45,247 )

Other comprehensive (loss)

Other comprehensive income — — — 2,179 563 — 2,742

Net income — — — — 161,802 — 161,802

Balance at December 31, 2018 16,183 $ 23 $ 270,935 $ ( 661 ) $ 1,025,061 $ ( 605,037 ) $ 690,321

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Other comprehensive income — — — 759 — — 759

Net income — — — — 232,117 — 232,117

Cumulative effect of the New Lease Standard (see Note 8) $ ( 550 ) $ ( 550 )

Balance at December 31, 2019 16,303 $ 23 $ 289,933 $ 98 $ 1,211,076 $ ( 617,579 ) $ 883,551

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Stock issued under employee stock purchase plan 57 — — — — 5,344 5,344

Cash dividends declared, $2.80 per share

Other comprehensive income

Cumulative effect of the New Lease Standard (see Note 7)

Cash dividends, $.70 per share for the year (1)

— — — — ( 11,361 ) — ( 11,361 )

Other comprehensive income (loss) — — — ( 125 ) — — ( 125 )

CARES Act warrant issuance — — 1,375 — — — 1,375

Net loss — — — — ( 184,093 ) — ( 184,093 )

Balance at December 31, 2020 16,405 $ 23 $ 329,753 $ ( 27 ) $ 1,015,622 $ ( 646,008 ) $ 699,363

(1) Dividend declared and paid in the first quarter of 2020 prior to the onset of the pandemic.

As a part of accepting benefits from the Treasury under PSPA and PSP2, the Company has agreed not to pay cash dividends through March 31, 2022.

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

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Year ended December 31,

2020 2019 2018

OPERATING ACTIVITIES:

Net income (loss) $ ( 184,093 ) $ 232,117 $ 161,802

Adjustments to reconcile net income to net cash provided by operating activities:

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(Gain)/loss on aircraft and other equipment disposals ( 1,811 ) ( 8,475 ) 2,360

Special charge

Special charges 292,790 — —

Share-based compensation expense 19,287 18,226 15,098

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Accounts receivable 4,390 10,498 35,624

Tax receivable ( 164,585 ) — —

Prepaid expenses 10,224 ( 5,483 ) ( 5,191 )

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Purchase of property and equipment, including capitalized interest ( 281,159 ) ( 506,845 ) ( 334,774 )

Proceeds from sale-leaseback transactions 87,580 — —

Other investing activities 9,888 11,806 677

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Cash dividends paid to shareholders (1)

( 11,361 ) ( 45,552 ) ( 45,247 )

Proceeds from the issuance of debt 427,987 874,936 211,225

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SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS

Right-of-use (ROU) assets acquired $ 115,082 $ 2,510 $ —

Property capitalized under operating leases $ 19,294 $ 25,830 $ —

Flight equipment acquired under finance leases 27,765 — 127,625

(1) Dividend declared and paid in the first quarter of 2020 prior to the onset of the pandemic.

As a part of accepting benefits from the Treasury under PSPA and PSP2, the Company has agreed not to pay cash dividends through March 31, 2022.

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

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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.

The Company operates a low-cost, low utilization 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.

Previously, the Company also operated Allegiant Nonstop family entertainment centers.

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.

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Refer to Note 16 for additional information.

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 through the remainder of 2020.

Demand in the foreseeable future will continue to be affected by fluctuations in COVID-19 cases, hospitalizations, deaths, treatment efficacy and the effectiveness and availability of vaccines.

The Company is continuously reevaluating flight schedules and adjusting capacity 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.

Allegiant Air received a total of $ 176.9 million under the PSPA during 2020.

The proceeds of the award were used exclusively for wages, salaries and benefits during the second and third quarters of 2020, in accordance with the agreement.

The $ 176.9 million received under the PSPA during the second and third quarters of 2020 includes direct grants of $ 153.8 million, a $ 23.1 million loan, and warrants to purchase 27,681 shares of the Company's common stock with a fair value of $ 1.4 million, 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 $ 23.1 million.

The PSP Note is guaranteed by the Company and is prepayable at any time at par (see Note 7).

Also in consideration for the grant, the Company issued warrants (the “PSP Warrants”) to Treasury to purchase 27,681 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).

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.

As indicated above, the Company made significant progress on strengthening its liquidity through efforts including suspending all stock buybacks and dividends;

temporarily reducing executives salaries by 50 percent and temporarily foregoing cash compensation of Board members;

enacting a hiring freeze and offering voluntary leave;

eliminating cash bonuses;

suspending all non-essential capital expenditures including, but not limited to, Sunseeker Resorts, Teesnap and Allegiant Nonstop family entertainment centers;

and extending payment terms and renegotiating contracts with vendors.

On December 27, 2020, the Consolidated Appropriations Act, 2021 (the "Payroll Support Program Extension") was signed into law.

This Payroll Support Program Extension provides an additional $ 15.0 billion in support to the airline industry.

See Note 18 - Subsequent Events.

Given the above actions 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 projected cash flows from operations.

Special Charges

The effects of COVID-19 triggered an impairment review, and non-cash impairment charges were recognized during the year ended December 31, 2020 (see Note 17 - 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 twelve months ended December 31, 2020.

See the table below for a summary of operating and non-operating special charges recorded by segment during the year ended December 31, 2020.

(in thousands) Airline Sunseeker Resort Other non-airline Total

Year Ended December 31, 2020

Operating $ 141,713 $ 137,994 $ 26,592 $ 306,299

Non-operating — 26,632 — 26,632

Total special charges $ 141,713 $ 164,626 $ 26,592 $ 332,931

Additional detail for the $ 332.9 million total special charges (operating and non-operating) for the year ended December 31, 2020 appears below:

– $ 161.6 million in impairment charges

– Includes Airline - $ 5.0 million;

Sunseeker Resort - $ 128.9 million;

Kingsway - $ 1.1 million;

Other non-airline $ 26.6 million

– $ 98.0 million adjustment resulting from the accelerated retirements of eight airframes and five engines, loss on sale leaseback transactions of eight aircraft, and write-offs of other aircraft related assets

– $ 35.1 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 - $ 32.1 million;

Sunseeker Resort - $ 2.9 million

– $ 5.0 million related to suspension of construction at Sunseeker Resort

– $ 6.6 million write-down on various non-aircraft assets and other various expenses

Non-operating

– $ 26.6 million which includes termination fees and debt issuance costs related to the termination of the loan agreement with Sixth Street Partners (formerly TSSP).

Note 3 — Summary of Significant Accounting Policies

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See Recent Accounting Pronouncements below for further information.

The Company adopted Accounting Standards Update (ASU) 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326) effective January 1, 2020.

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.

Cash and Cash Equivalents

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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.

In addition to income tax receivables, the accounts receivable 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.

based on terms in the rental car provider agreement 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.

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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.

For investments in an unrealized loss position, the Company determines whether a credit loss exists by considering information about the collectability of the instrument and current market conditions.

There have been no credit losses.

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.

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.

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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.

The obsolescence allowance for expendable parts and supplies was $ 4.3 million and $ 2.7 million at December 31, 2020 and 2019, respectively.

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").

The Company determines if an arrangement is a lease at inception and has lease agreements for aircraft, 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, aircraft leases, and various other operating leases are measured on the balance sheet with a lease liability and right-of-use ("ROU") asset.

Airport terminal leases mostly include variable lease payments outside of those based on a fixed index, and are therefore excluded from consideration.

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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.

Leases with a term of 12 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.

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The estimated useful lives of the principal asset classes are shown below.

Aircraft, engines and related rotable parts

Buildings and leasehold improvements

Computer hardware and software

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.

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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.

During 2020 and 2019, the Company capitalized $ 12.8 million and $ 64.1 million of major maintenance costs for engines with associated amortization expense of $ 17.6 million and $ 11.1 million, respectively.

During 2020 and 2019, the Company capitalized $ 22.6 million and $ 18.4 million of major maintenance costs for airframes with associated amortization expense of $ 19.9 million and $ 14.9 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.

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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 year ended December 31, 2020, the Company recorded a $ 161.6 million impairment as a result of COVID-19.

The impairment is more fully discussed in Note 17.

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

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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.

Revenue from travel point redemptions from the co-branded credit card are described in the Affinity Credit Card Program section below.

Third party products revenue

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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.

The Allegiant World Mastercard® is issued by Bank of America through which arrangement points are sold and consideration is received under an agreement that was amended in 2020 and expires in 2029.

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.

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).

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.

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 and transportation is provided.

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.

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Advertising expense was $ 12.4 million, $ 29.1 million and $ 28.8 million for the years ended December 31, 2020, 2019 and 2018, 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.

In 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 which opened in 2020.

Prepayments and other associated advertising expenses began in mid-2020 and will continue through the term of this agreement.

Earnings per Share

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For the years ended December 31, 2019 and 2018, 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:

Given the loss position in 2020, both methods yield the same result.

The following table sets forth the computation of net income (loss) per share on a basic and diluted basis for the periods indicated:

Year ended December 31,

(in thousands, except per share data) 2020 2019 2018

Less net income allocated to participating securities

Net income attributable to common stock

Earnings per share, basic

Net income (loss) $ ( 184,093 ) $ 232,117 $ 161,802

Less net income (loss) allocated to participating securities ( 236 ) ( 3,413 ) ( 2,106 )

Net income (loss) attributable to common stock $ ( 184,329 ) $ 228,704 $ 159,696

Earnings (loss) per share, basic $ ( 11.53 ) $ 14.27 $ 10.02

Weighted-average shares outstanding 15,992 16,027 15,941

Less net income allocated to participating securities

Net income attributable to common stock

Earnings per share, diluted

Net income (loss) $ ( 184,093 ) $ 232,117 $ 161,802

Less net income (loss) allocated to participating securities ( 236 ) ( 3,410 ) ( 2,104 )

Net income (loss) attributable to common stock $ ( 184,329 ) $ 228,707 $ 159,698

Earnings (loss) per share, diluted $ ( 11.53 ) $ 14.26 $ 10.00

Weighted-average shares outstanding 15,992 16,027 15,941

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Adjusted weighted-average shares outstanding under two-class method 15,992 16,041 15,967

Stock awards outstanding of 19,928 ;

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.

Stock awards outstanding of 24,004 , 19,928 , and 77,037 shares (not in thousands) as of December 31, 2020, 2019, and 2018, respectively, were excluded from the computation of diluted earnings per share as they were antidilutive.

Share-Based Compensation

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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 requires leases, other than short-term, to be recognized on the balance sheet as a liability and a corresponding ROU 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.

2 unchanged sentences

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 Company's consolidated balance sheet was affected by this standard, but the consolidated statements of income and cash flows 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.

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See Note 7 for more information on the impact of this standard.

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 Company adopted this accounting standard prospectively as of January 1, 2020, and it did not have a significant impact on its consolidated financial statements

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

This standard is intended to simplify various aspects related to accounting for income taxes and is effective for fiscal years

beginning after December 15, 2020, including interim periods therein, and early adoption is permitted.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740.

The Company plans to adopt ASU 2019-12 in the first quarter of 2021 and its adoption is not expected to have a material effect on the Company's consolidated financial statements.

Note 4 — Revenue Recognition

Passenger revenue allocation

Passenger revenue

Passenger revenue is the most significant category in our reported operating revenues, as outlined below:

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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 .

As of December 31, 2020, approximately 27.9 percent of the air traffic liability balance was related to forward bookings, with the remaining 72.1 percent related to credit vouchers for future travel.

The normal contract term of passenger tickets is 12 months and revenue associated with future travel will principally be recognized within this time frame.

$ 201.0 million of the $ 250.0 million that was recorded in the air traffic liability balance at December 31, 2019 was recognized into passenger revenue during the 12 months ended December 31, 2020.

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.

The Company later announced that this extension would also apply to credits issued for cancelled travel in January through March 2020.

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

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Balance at December 31 $ 21,841 $ 15,613

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.

As of December 31, 2020 and 2019, $ 10.9 million and $ 11.6 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 12 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 5 — Property and Equipment

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Land and buildings/leasehold improvements (1)

87,030 98,885

Other property and equipment 80,601 161,760

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Property and equipment, net $ 2,050,311 $ 2,236,808

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.

(1) Balance includes a building currently held for sale in Chesterfield, Missouri with a carrying value of $ 4.8 million

As of December 31, 2020, the Company had firm commitments to purchase three Airbus A320 series aircraft which are expected to be delivered between 2021 and 2022.

Accrued capital expenditures as of December 31, 2020 and 2019 were $ 16.9 million and $ 16.5 million, respectively.

5 unchanged sentences

Sunseeker Resort development 14,084 15,209

Passenger taxes and fees

Station expenses

Maintenance and repairs 12,847 12,713

Property taxes

Loyalty card program liability 10,929 11,567

Station expenses 10,526 14,573

Property taxes 9,042 12,272

Interest 6,560 6,514

Passenger taxes and fees 4,686 14,653

Advertising accruals 890 3,303

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Weighted average variable-interest rate on debt 2.4 % 4.5 %

(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, 2020, for the next five years and thereafter, in the aggregate, are:

(in thousands)

As of December 31, 2019

(in thousands) As of December 31, 2020

2021 $ 217,234

Thereafter 272,167

Total debt and finance lease obligations, net of related costs $ 1,659,011

Total long-term debt is presented net of related costs of $ 23.5 million and $ 23.6 million at December 31, 2020 and 2019, respectively.

Term Loan and Senior Secured Notes

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 with a zero percent floor 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.

In October 2020, the Company closed on the private offering of $ 150.0 million principal amount of 8.5 percent Senior Secured Notes due 2024 (the "Senior Secured Notes").

The Senior Secured Notes and related guarantees are secured by first priority security interests in the same collateral package as securing the Term Loan and the debt is subject to an Intercreditor Agreement with the collateral agent for the Term Loan.The guarantors of the Notes include all significant subsidiaries other than Sunseeker Resorts, Inc.

and its subsidiaries.

Consolidated Variable Interest Entities

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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.

The borrowing bears interest at a blended rate of 3.2 percent and is 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.

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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.

The borrowing bears interest at a blended rate of 3.8 percent and is 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.

1 unchanged sentence

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.

The borrowing bears interest at a blended rate of 4.0 percent and is 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.

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.

The Note matures in full on April 20, 2030, and bears interest at a rate of 1.0 percent per annum prior to April 20, 2025 and, thereafter, at the secured overnight financing rate (SOFR) plus 2 percent.

The PSP Note is prepayable at any time at par, without penalty.

During 2020, the Company received $ 23.1 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.

These restrictions have been extended until March 31, 2022 with respect to stock repurchases and payment of dividends and until October 1, 2022 with respect to executive compensation limits as a result of the Payroll Support Extension Program.

Senior Secured Revolving Credit Facility

2 unchanged sentences

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.

Principal payments were made during 2020 totaling $ 27.1 million, and the remaining balance as of December 31, 2020 is $ 53.9 million.

Aircraft remain in the collateral pool for up to two years , and, as of December 31, 2020, there were six 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 .

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.

In September 2020, the Company borrowed $ 84.0 million under a loan agreement secured by aircraft and spare engines.

The note bears interest at a fixed rate, payable in monthly installments maturing in September 2025 and September 2026 for the spare engines and aircraft, respectively.

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 with a maturity date in April 2028.

General Unsecured Notes

In connection with the Term Loan discussed above, the Company completed a tender offer in February 2019, whereby it purchased $ 347.9 million of its previously outstanding unsecured notes due July 2019, and incurred related debt extinguishment costs of $ 3.7 million.

The remaining $ 102.1 million of the unsecured notes were paid at their maturity in July 2019.

Construction Loan Agreement

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(“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.

Under the Construction Loan Agreement, SFI would have been able to borrow up to $ 175.0 million (the “Loan”) to fund the construction of Phase 1 of Sunseeker Resort - Charlotte Harbor.

No amount was ever 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 reached a $ 19.8 million settlement agreement with the Lender to terminate the Loan which was fully paid in 2020.

The expense is reflected within non-operating special charges on the statement of income.

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.

The Company has finance lease obligations related to six aircraft, which impacted the Company's recognized assets and liabilities as of December 31, 2020.

See Note 8 for more information on finance lease obligations.

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Total rental expense for operating leases for the years ended December 31, 2020, 2019 and 2018 was $ 24.6 million, $ 15.0 million and $ 12.7 million, respectively.

The Company had five aircraft under finance leases as of December 31, 2019 with remaining terms to 2029.

The Company had six aircraft under finance leases as of December 31, 2020 with remaining terms through 2029.

The components of lease costs recognized on the statements of income were as follows:

(in thousands)

Classification on the Statements of Income

December 31, 2019

Year Ended December 31,

(in thousands) Classification on the Statements of Income 2020 2019

Finance lease costs:

Amortization of assets

Depreciation and amortization

Interest on lease liabilities

Interest expense

Operating lease cost

Amortization of assets Depreciation and amortization $ 6,631 $ 6,517

Interest on lease liabilities Interest expense 5,335 5,264

Operating lease cost Aircraft lease rentals;

Station operations;

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Other operating expense 12,616 3,541

Variable lease cost

Station operations;

Variable lease cost Station operations;

Maintenance and repairs;

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The table below presents the lease-related assets and liabilities recorded on the balance sheet.

(in thousands)

Classification on the Balance Sheet

December 31, 2019

Operating lease assets

Operating lease right-of-use assets, net

Finance lease assets

Property and equipment, net

As of December 31,

(in thousands) Classification on the Balance Sheet 2020 2019

Operating lease assets Operating lease right-of-use assets, net $ 115,911 $ 22,081

Finance lease assets Property and equipment, net 133,175 111,665

Total lease assets $ 249,086 $ 133,746

Accrued liabilities

Current maturities of long-term debt and finance lease obligations

Other noncurrent liabilities

Long-term debt and finance lease obligations

Operating Current operating lease liabilities $ 14,313 $ 2,662

Finance Current maturities of long-term debt and finance lease obligations 9,767 7,666

Operating Noncurrent operating lease liabilities 102,289 21,290

Finance Long-term debt and finance lease obligations 117,060 107,930

Total lease liabilities $ 243,429 $ 139,548

Weighted-average remaining lease term

Operating leases

Finance leases

Operating leases 8.3 years 9.1 years

Finance leases 7.6 years 9.9 years

Weighted-average discount rate

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Finance leases 5.0 % 4.4 %

Sale-Leaseback Transactions

During the year ended December 31, 2020, the Company entered into sale-leaseback transactions involving eight total aircraft.

The transactions qualified as sales, and generated $ 87.6 million of proceeds.

As a result of the sales, the aircraft were removed from property and equipment in the Company's balance sheet, resulting in a $ 53.2 million loss on the sales.

The loss is reflected within operating special charges on the statement of income since the Company would not likely have completed the transactions absent cash conservation efforts as a result of COVID-19.

The leased aircraft were subsequently recorded within operating lease right-of-use assets, with the related lease liabilities recorded within current and noncurrent operating lease liabilities on the balance sheet.

The proceeds from the sales of aircraft in these transactions are treated as cash inflows from investing activities on the statement of cash flows.

Other Information

The table below presents supplemental cash flow information related to leases during the twelve months ended December 31, 2019 .

The table below presents supplemental cash flow information related to leases during the year ended December 31.

Year Ended December 31,

(in thousands) 2020 2019

December 31, 2019

Cash paid for amounts included in the measurement of lease liabilities

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The table below indicates the future minimum payments of lease liabilities as of December 31, 2020.

(in thousands)

Operating Leases

Finance Leases

Total lease payments

Less imputed interest

Total lease obligations

Less current obligations

Long-term lease obligations

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

(in thousands) Operating Leases Finance Leases

2021 $ 20,055 $ 15,871

2022 20,313 14,366

2023 20,160 26,045

2024 19,853 10,500

2025 17,723 10,500

Thereafter 44,486 82,458

Total lease payments 142,590 159,740

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As repurchase authority is exhausted, the Board of Directors has, to date, authorized additional expenditures for share repurchases.

The Company suspended stock repurchases upon the onset of the pandemic and as part of accepting benefits from the Treasury under the PSPA and PSP2, the Company has agreed not to repurchase stock through March 31, 2022.

Share repurchases consisted of the following during the periods indicated:

Year Ended December 31,

2020 2019 2018

Shares repurchased (1)

Average price per share

197,570 103,943 —

Average price per share $ 155.14 $ 141.64 NA

Total (in thousands) $ 30,651 $ 14,723 $ —

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Year Ended December 31,

2020 2019 2018

Total quarterly cash dividends declared, per share $ 0.70 $ 2.80 $ 2.80

Total cash dividends paid (in thousands) 11,361 45,552 45,247

As of December 31, 2019 , the Company had $ 85.3 million in unused share repurchase authority remaining under the Board approved program.

The Company suspended payment of cash dividends upon the onset of the pandemic and as part of accepting benefits from the Treasury under the PSPA and PSP2, the Company has agreed not to pay cash dividends through March 31, 2022.

Note 10 — Fair Value Measurements

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Financial instruments measured at fair value on a recurring basis:

As of December 31, 2019

As of December 31, 2018

(in thousands)

As of December 31, 2020 As of December 31, 2019

(in thousands) Total Level 1 Level 2 Total Level 1 Level 2

Cash equivalents

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Municipal debt securities 34,338 — 34,338 1,202 — 1,202

US Treasury Bonds

Federal agency debt securities 51,400 — 51,400 — — —

Total cash equivalents 139,986 5,340 134,646 49,662 42,653 7,009

7 unchanged sentences

US Treasury Bonds — — — 146 — 146

Federal agency debt securities

Total long-term — — — 15,542 — 15,542

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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.

None of the Company's long-term debt is publicly traded.

The Company has determined the estimated fair value of all of this debt to be Level 3, as certain inputs used to determine the fair value of these agreements are unobservable and, therefore, 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

As of December 31, 2020 As of December 31, 2019

(in thousands) Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Fair Value Level

Non-publicly held debt $ 1,555,637 $ 1,191,008 $ 1,329,882 $ 1,140,232 3

Publicly held debt

Total long-term debt

Due to the short term nature, carrying amounts of cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value.

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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.

In 2020, 2019 and 2018, the Company recorded net tax (benefit)/provision of $( 177.0 ) million, $ 69.1 million and $ 37.5 million, respectively.

Cash taxes, net of refunds, were $( 95.2 ) million, $ 2.2 million and $ 41.6 million, respectively.

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(in thousands) 2020 2019 2018

Domestic $ ( 361,242 ) $ 299,330 $ 195,843

Foreign 175 1,917 3,475

Total $ ( 361,067 ) $ 301,247 $ 199,318

Income Tax Provision/(Benefit)

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(in thousands) 2020 2019 2018

Federal $ ( 195,572 ) $ ( 34 ) $ ( 3,707 )

State ( 211 ) 505 ( 650 )

Foreign 132 530 1,086

Total current ( 195,651 ) 1,001 ( 3,271 )

Federal 24,126 63,430 41,593

State ( 5,449 ) 4,699 3,744

Foreign — — ( 4,550 )

Total deferred 18,677 68,129 40,787

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State income taxes, net of federal income tax benefit ( 5,495 ) 5,070 3,560

Federal tax reform impact

CARES Act ( 97,988 ) — —

Foreign income tax expense 132 530 ( 3,464 )

Other ( 3,164 ) 268 ( 4,437 )

Total income tax expense $ ( 176,974 ) $ 69,130 $ 37,516

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Accrued bonus — 5,523

State taxes — 88

Accrued property taxes 1,111 1,742

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Net operating loss 15,979 58,066

Tax credit 10,995 —

valuation allowance 1,214 1,193

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Prepaid expenses 2,517 6,211

Depreciation 308,266 278,554

Other 20,242 14,522

Total deferred tax liabilities 331,025 299,287

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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.

Pursuant to the CARES Act, the Company carried back net operating losses generated in 2018, 2019 and 2020 in the amounts of $ 185.4 million, $ 116.7 million and $ 422.1 million respectively to tax years ended December 31, 2013 through December 31, 2016.

The net operating loss carryback resulted in prior years’ foreign tax credits and general business credits being released, and these credits generated in 2014 - 2020 in the amount of $ 5.7 million and $ 5.2 million will be carried forward.

The foreign tax credit and general business credits will expire 2024 – 2040, but the Company expects to utilize these credits prior to the expiration.

In addition, as of December 31, 2020, the Company recognized federal and state net operating loss carryforwards for income tax purposes in the amount of $ 8.5 million and $ 7.4 million, respectively.

Federal net operating loss carryforwards will not expire per the “Tax Cuts and Jobs Act” (the “Tax Act”).

The majority of the state net operating loss carryforward amounts will expire between 2022 and 2040 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.

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 expired in 2021.

Tax Contingencies

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Decreases for tax positions of prior years ( 3,602 ) ( 135 ) ( 10 )

Settlements ( 26 ) ( 216 ) ( 110 )

Decreases for lapses in statute of limitations — — ( 140 )

1 unchanged sentence

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 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.

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During the years ended December 31, 2020 and 2019, 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 13 — Employee Benefit Plans

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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 matching contributions on pilot deferrals is 10 percent of eligible wages resulting from the pilot collective bargaining agreement.

The Company recognized expense under this plan of $ 18.6 million, $ 19.0 million, and $ 19.1 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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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

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The following table provides information about the Company’s ESPP activity during 2020, 2019, and 2018:

Total number of shares purchased

Average price paid per share

Weighted-average fair value of discount under the ESPP (1)

Total number of shares purchased in year Average price paid per share Weighted-average fair value of discount under the ESPP (1)

As of December 31, 2018 33,300 $ 134.31 $ 16.79

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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.

The unrecognized compensation cost was $ 27.5 million as of December 31, 2020 for unvested restricted stock expected to be recognized over a weighted-average period of 1.34 years.

As of December 31, 2020, there was no unrecognized compensation cost for either cash-settled SARs or stock options.

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A summary of option activity as of December 31, 2020, 2019 and 2018, and changes during the years then ended, is presented below:

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life (years)

Aggregate Intrinsic Value (thousands)

Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value (thousands)

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 $ —

Exercised — —

Outstanding at December 31, 2020 — $ — 0.00 $ —

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A summary of the status of non-vested restricted stock grants during the years ended December 31, 2020, 2019 and 2018 is presented below:

Weighted Average Grant Date Fair Value Per Share

Shares Weighted Average Grant Date Fair Value Per Share

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

Granted 267,169 137.80

Vested ( 291,303 ) 147.58

Forfeited ( 5,147 ) 145.82

Non-vested at December 31, 2020 265,527 $ 142.25

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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):

2020 2019 2018

Weighted-average volatility — % — % 35.0 %

Expected term (in years)

Expected term (in years) N/A N/A 0.8

Risk-free interest rate — % — % 2.6 %

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A summary of cash-settled SARs awards activity during the years ended December 31, 2020, 2019 and 2018 is presented below:

Weighted Average Exercise Price

Weighted Average Remaining Contractual Term (years)

Aggregate Intrinsic Value (thousands)

# of SARs Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value (thousands)

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

Forfeited ( 29,046 ) 181.47

Exercised ( 15,000 ) 186.85

Balance at December 31, 2020 — $ — 0.00 $ —

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Note 14 — Commitments and Contingencies

The Company leases assets including office facilities, office equipment, certain airport and terminal facilities, and other space.

The Company leases assets including aircraft, office facilities, office equipment, certain airport and terminal facilities, and other space.

These commitments have remaining non-cancelable lease terms, which range from 2021 to 2048.

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The total future commitments are as follows:

(in thousands)

As of December 31, 2019

(in thousands) As of December 31, 2020

Total purchase commitments $ 86,900

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.

Through December 31, 2020, the Company has entered into purchase agreements for five Airbus A320 series aircraft which are expected to deliver in 2021 and 2022.

Contingencies

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Note 15 — 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

(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

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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

(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 16 — 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.

Company's CODM is the executive leadership team, which reviews information about the Company's three operating segments:

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.

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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.

Due to the various impacts of COVID-19, the Company suspended construction of Sunseeker Resort and temporarily closed operation of Kingsway Golf Course.

At this time, it is uncertain if and when construction will resume and the golf course will re-open.

Other non-Airline Segment

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Allegiant Nonstop family entertainment centers are comprised of games, attractions, and food facilities.

Due to the impacts of COVID-19, the Company permanently closed the Allegiant Nonstop locations in Warren, MI, Clearfield, Utah, and the Allegiant Nonstop location in West Jordan, Utah, which was being developed.

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)

Sunseeker Resort

Other non- airline

(in thousands) Airline Sunseeker Resort Other non - airline Consolidated

Year Ended December 31, 2020

Operating revenue:

Passenger $ 902,187 $ — $ — $ 902,187

Third party products 46,482 — — 46,482

Fixed fee contract 26,865 — — 26,865

Other 1,462 650 12,427 14,539

Operating income (loss) ( 104,745 ) ( 145,721 ) ( 30,519 ) ( 280,985 )

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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

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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

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Total assets were as follows as of the dates indicated:

(in thousands)

As of December 31, 2019

As of December 31, 2018

(in thousands) As of December 31, 2020 As of December 31, 2019

Airline $ 3,214,523 $ 2,830,236

Sunseeker Resort 36,612 133,362

Other non-airline 7,790 47,205

Consolidated $ 3,258,925 $ 3,010,803

Note 17 — Impairment

Accounting Standards Codification (ASC) 360 - Property, Plant, and Equipment (ASC 360) requires long-lived assets to be assessed for impairment when events and circumstances indicate that the assets may be impaired.

As described in Note 2, the Company's operations and liquidity were significantly impacted by decreased passenger demand and U.S.

government travel restrictions and quarantine requirements due to COVID-19.

As a result of these events and circumstances, the Company performed impairment tests on its long-lived assets in connection with the preparation of its financial statements.

In accordance with ASC 360, an impairment of a long-lived asset or group of long-lived assets exists only when the sum of the estimated undiscounted future cash flows expected to be generated directly by the assets is less than the carrying value of the assets.

Assets were grouped by operating segment when estimating future cash flows, and further grouped within each segment as applicable.

Estimates of future cash flows were generally based on historical results, and management's best estimate of future market and operating conditions.

Airline Segment

Long-lived assets for the Airline segment consist primarily of owned and leased flight and ground equipment.

To test the recoverability of the Company's airline operating fleet, undiscounted future cash flows for each aircraft under the Company's current expected operating fleet plan were assessed and it was determined that there was no impairment as of December 31, 2020.

As the Company obtains greater clarity about the duration and extent of reduced demand due to COVID-19, the Company will continue to evaluate its current fleet compared to network requirements and may decide to permanently retire additional aircraft.

The Airline has an equity investment in a technology company.

A $ 5.0 million charge was recorded to impair the investment in the second quarter 2020.

As a result of the impairment, net book value of the investment is zero.

This decision reflects management's best estimate of the fair value of this investment based on recent market trends.

Sunseeker Resort Segment

Long-lived assets for Sunseeker Resort and related Kingsway Golf Course consist primarily of the land, construction in process, building, and other various equipment.

As a result of the impairment tests performed, the Company determined the sum of the undiscounted cash flows was less than the long-lived assets' carrying value.

Impairment charges of $ 128.9 million and $ 1.1 million were recorded for Sunseeker Resort and Kingsway Golf Course respectively, in the first quarter 2020 to reflect the difference between the carrying values of these assets and their fair values.

Fair value reflects management's best estimate, including valuation inputs from third parties and recent market transactions.

Based on an evaluation of impairment indicators in the second, third and fourth quarters 2020, no additional impairment was recognized.

Other non-airline Segment

Long-lived assets for Allegiant Nonstop family entertainment centers consisted primarily of leasehold improvements, arcade games, various equipment, and ROU assets.

As a result of the impairment tests performed, the Company determined the sum of the undiscounted cash flows were less than the long-lived assets' carrying value.

An $ 18.3 million impairment charge was recorded in the first quarter 2020 to reflect the difference between the carrying values of these assets and their fair values.

Fair value reflects management's best estimate, including valuation inputs from third parties and recent market trends.

Based on an evaluation of impairment indicators in the second, third and fourth quarters 2020, no additional impairment was recognized.

Long-lived assets for Teesnap consist primarily of capitalized software and computer equipment.

As a result of the impairment tests performed, the Company determined the sum of the undiscounted cash flows was less than the long-lived assets' carrying value.

Management does not expect to recover any of the book value of the assets through operations, and an $ 8.3 million impairment charge was recorded in the first quarter 2020 to write down all long-lived assets to a net book value of zero .

This reflects management's best estimate of the fair value of these assets as of the date of the impairment based on recent market trends.

Note 18 — 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.

On January 15, 2021, the Company through its airline operating subsidiary Allegiant Air, LLC entered into a Payroll Support Program Extension Agreement (the “PSP2”) with the Treasury for the first installment of an award Allegiant Air is to receive under the Payroll Support Program Extension.

The total amount expected to be allocated to Allegiant Air under the Payroll Support Extension Program is approximately $ 91.8 million.

The Company received an initial installment of $ 45.9 million in January 2021, which must be used exclusively for wages, salaries and benefits.

The remainder of funds are expected to be received during first quarter 2021.

If additional funds are allocated by the Treasury under the PSP2 such that the amount received by the Company exceeds $ 100.0 million, then Allegiant Air will issue a note for 30 percent of the funds received under the PSP2 in excess of $ 100.0 million

and the Company will issue to Treasury warrants to purchase a number of shares of common stock of the Company (based on 10 percent of the amount of Note issued) at a price of $ 179.23 per share (based on the closing price of the Company’s common stock on The Nasdaq Global Select Market on December 24, 2020).

In connection with the PSP2, the Company will be required to comply with the relevant provisions of the CARES Act for a longer period of time, including prohibiting the repurchase of common stock and the payment of cash dividends until March 31, 2022, as well as restricting the payment of certain executive compensation for periods through October 1, 2022.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data