Allegiant Travel CO 10-K

Item 8. Financial Statements 52 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Allegiant Travel Company: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Allegiant Travel Company and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. 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, 2021, 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, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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 judgments. 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. Estimated credit vouchers not expected to be redeemed As discussed in Note 4 to the consolidated financial statements, the Company recorded an air traffic liability of $307.5 million, of which $67.0 million relates to credit vouchers for future travel as of December 31, 2021. In response to the COVID-19 pandemic, the contract duration for credit vouchers issued for canceled travel between January 1, 2020 and June 30, 2021 was extended from one to two years from the original booking date. The air traffic liability as of December 31, 2021 represents the value of credit vouchers for future travel, less an estimate for the amount of credit vouchers that are not expected to be redeemed prior to their contractual expiration date. The amount of such credit vouchers expected to expire unused is estimated based on the Company’s historical usage data for credit vouchers. We identified the evaluation of certain credit vouchers used to determine the estimated air traffic liability as a critical audit matter. Subjective and challenging auditor judgment was required to evaluate the estimated amount of credit vouchers issued for canceled travel between January 1, 2020 and June 30, 2021 that are expected to expire unused. There is inherent uncertainty associated with management’s assumption of the historical usage data, which may differ from future usage of these credit vouchers. 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 related to the Company’s air traffic liability process, including controls related to the estimated amount of credit vouchers expected to expire unused. We assessed the 53 reasonableness of the Company’s estimate of credit vouchers issued between January 1, 2020 and June 30, 2021 expected to expire unused by comparing expected future usage to historical usage. We also evaluated the Company’s estimated amount of credit vouchers expected to expire unused by comparing it to our expectation, developed based on actual expirations of these credit vouchers that occurred subsequent to December 31, 2021. /s/ KPMG LLP We have served as the Company’s auditor since 2016. Dallas, Texas March 1, 2022 54 ALLEGIANT TRAVEL COMPANY CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) December 31, 2021 December 31, 2020 CURRENT ASSETS Cash and cash equivalents $ 363,378 $ 152,764 Restricted cash 37,323 17,555 Short-term investments 819,478 532,477 Accounts receivable 62,659 192,215 Expendable parts, supplies and fuel, net of reserve of $6,041 and $4,323 27,500 24,006 Prepaid expenses and other current assets 28,073 24,616 TOTAL CURRENT ASSETS 1,338,411 943,633 Property and equipment (including $84,406 and $187,166 from VIEs, Note 7), net of accumulated depreciation of $696,178 and $598,546 2,259,507 2,050,311 Long-term investments 2,231 — Deferred major maintenance, net of accumulated amortization of $75,177 and $57,022 146,850 127,463 Operating lease right-of-use assets, net 130,087 115,911 Deposits and other assets 113,987 21,607 TOTAL ASSETS: $ 3,991,073 $ 3,258,925 CURRENT LIABILITIES Accounts payable $ 43,566 $ 34,197 Accrued liabilities 162,892 116,093 Current operating lease liabilities 19,081 14,313 Air traffic liability 307,453 307,508 Current maturities of long-term debt and finance lease obligations (including $9,000 and $17,610 from VIEs, Note 7), net of related costs of $7,751 and $7,527 130,053 217,234 TOTAL CURRENT LIABILITIES 663,045 689,345 LONG-TERM DEBT AND OTHER NONCURRENT LIABILITIES Long-term debt and finance lease obligations (including $79,127 and $135,683 from VIEs, Note 7), net of current maturities and related costs of $15,664 and $15,926 1,612,486 1,441,777 Deferred income taxes 346,137 301,763 Noncurrent operating lease liabilities 115,067 102,289 Other noncurrent liabilities 30,786 24,388 TOTAL LIABILITIES: 2,767,521 2,559,562 COMMITMENTS AND CONTINGENCIES (NOTE 14) SHAREHOLDERS' EQUITY Common stock, par value $.001, 100,000,000 shares authorized; 24,763,793 and 23,097,737 shares issued; 18,111,381 and 16,405,565 shares outstanding in 2021 and 2020 respectively 25 23 Treasury shares, at cost, 6,652,412 and 6,692,172 shares in 2021 and 2020, respectively ( 638,057 ) ( 646,008 ) Additional paid in capital 692,053 329,753 Accumulated other comprehensive gain (loss), net 2,056 ( 27 ) Retained earnings 1,167,475 1,015,622 TOTAL EQUITY: 1,223,552 699,363 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY: $ 3,991,073 $ 3,258,925 The accompanying notes are an integral part of these consolidated financial statements. 55 ALLEGIANT TRAVEL COMPANY CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) Year Ended December 31, 2021 2020 2019 OPERATING REVENUES: Passenger $ 1,578,436 $ 902,187 $ 1,682,955 Third party products 86,487 46,482 70,012 Fixed fee contracts 41,184 26,865 65,057 Other 1,803 14,539 22,941 Total operating revenues 1,707,910 990,073 1,840,965 OPERATING EXPENSES: Salary and benefits 484,573 377,825 450,448 Aircraft fuel 440,235 221,827 427,827 Station operations 243,346 144,771 171,420 Maintenance and repairs 105,943 63,895 91,713 Depreciation and amortization 181,035 176,267 155,852 Sales and marketing 72,742 43,517 78,910 Aircraft lease rental 21,242 9,828 — Other 83,902 79,277 100,845 Payroll Support Programs grant recognition ( 202,181 ) ( 152,448 ) — Special charges 13,998 306,299 — Total operating expenses 1,444,835 1,271,058 1,477,015 OPERATING INCOME (LOSS) 263,075 ( 280,985 ) 363,950 OTHER (INCOME) EXPENSES: Interest income ( 1,814 ) ( 5,509 ) ( 12,523 ) Interest expense 68,403 60,493 76,801 Loss on extinguishment of debt 71 1,222 3,677 Special charges — 26,632 — Other, net ( 205 ) ( 2,756 ) ( 5,252 ) Total other expenses 66,455 80,082 62,703 INCOME (LOSS) BEFORE INCOME TAXES 196,620 ( 361,067 ) 301,247 INCOME TAX PROVISION (BENEFIT) 44,767 ( 176,974 ) 69,130 NET INCOME (LOSS) $ 151,853 $ ( 184,093 ) $ 232,117 Earnings (loss) per share to common shareholders: Basic $ 8.69 $ ( 11.53 ) $ 14.27 Diluted $ 8.68 $ ( 11.53 ) $ 14.26 Shares used for computation: Basic 17,212 15,992 16,027 Diluted 17,231 15,992 16,041 Cash dividends declared per share: $ — $ 0.70 $ 2.80 The accompanying notes are an integral part of these consolidated financial statements. 56 ALLEGIANT TRAVEL COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Year Ended December 31, 2020 2020 2019 NET INCOME (LOSS) $ 151,853 $ ( 184,093 ) $ 232,117 Other comprehensive income (loss): Change in available for sale securities, net of tax 2,083 ( 178 ) 750 Foreign currency translation adjustments — 53 9 Total other comprehensive income (loss) 2,083 ( 125 ) 759 TOTAL COMPREHENSIVE INCOME (LOSS) $ 153,936 $ ( 184,218 ) $ 232,876 The accompanying notes are an integral part of these consolidated financial statements. 57 ALLEGIANT TRAVEL COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (in thousands, except share amounts) Accumulated Common Additional other Total stock Par paid-in comprehensive Retained Treasury shareholders' outstanding value capital income (loss) earnings shares equity Balance at December 31, 2018 16,183 $ 23 $ 270,935 $ ( 661 ) $ 1,025,061 $ ( 605,037 ) $ 690,321 Share-based compensation 213 — 18,998 — — — 18,998 Shares repurchased by the Company and held as treasury shares ( 132 ) — — — — ( 18,569 ) ( 18,569 ) Stock issued under employee stock purchase plan 39 — — — — 6,027 6,027 Cash dividends declared, $2.80 per share — — — — ( 45,552 ) — ( 45,552 ) 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 Share-based compensation 262 — 38,445 — — — 38,445 Shares repurchased by the Company and held as treasury shares ( 217 ) — — — — ( 33,773 ) ( 33,773 ) Stock issued under employee stock purchase plan 57 — — — — 5,344 5,344 Cash dividends, $0.70 per share (1) — — — — ( 11,361 ) — ( 11,361 ) Other comprehensive income (loss) — — — ( 125 ) — — ( 125 ) Payroll Support Programs 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 Share-based compensation 113 — 27,058 — — — 27,058 Issuance of common stock, net of forfeitures 1,553 2 335,137 — — — 335,139 Stock issued under employee stock purchase plan 40 — — — — 7,951 7,951 Other comprehensive income — — — 2,083 — — 2,083 Payroll Support Programs warrant issuance — — 105 — — — 105 Net income — — — — 151,853 — 151,853 Balance at December 31, 2021 18,111 $ 25 $ 692,053 $ 2,056 $ 1,167,475 $ ( 638,057 ) $ 1,223,552 (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 payroll support programs, the Company has agreed not to pay cash dividends through September 30, 2022. The accompanying notes are an integral part of these consolidated financial statements. 58 ALLEGIANT TRAVEL COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year ended December 31, 2021 2020 2019 OPERATING ACTIVITIES: Net income (loss) 151,853 $ ( 184,093 ) $ 232,117 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 181,035 176,267 155,852 Gain on aircraft and other equipment disposals ( 3,052 ) ( 1,811 ) ( 8,475 ) Special charges 13,998 292,790 — Share-based compensation expense 16,127 19,287 18,226 Deferred income taxes 43,761 69,344 68,466 Other adjustments 14,777 19,136 5,521 Changes in certain assets and liabilities: Accounts receivable ( 14,717 ) 4,390 10,498 Tax receivable 143,624 ( 164,585 ) — Prepaid expenses ( 4,026 ) 10,224 ( 5,483 ) Accounts payable 10,402 7,016 ( 2,103 ) Accrued liabilities 48,060 ( 26,386 ) 21,331 Air traffic liability ( 55 ) 57,558 37,720 Deferred major maintenance ( 59,747 ) ( 40,352 ) ( 81,133 ) Other assets/liabilities ( 3,847 ) ( 4,163 ) ( 10,327 ) Net cash provided by operating activities 538,193 234,622 442,210 INVESTING ACTIVITIES: Purchase of investment securities ( 1,248,575 ) ( 686,600 ) ( 436,237 ) Proceeds from maturities of investment securities 954,970 504,600 454,813 Purchase of property and equipment, including capitalized interest ( 255,537 ) ( 281,159 ) ( 506,845 ) Proceeds from sale-leaseback transactions — 87,580 — Purchase of note receivable ( 50,000 ) — — Other investing activities 5,864 9,888 11,806 Net cash used in investing activities ( 593,278 ) ( 365,691 ) ( 476,463 ) FINANCING ACTIVITIES: Proceeds from issuance of common stock 335,139 — — Cash dividends paid to shareholders (1) — ( 11,361 ) ( 45,552 ) Proceeds from the issuance of debt and finance lease obligations 281,657 427,987 874,936 Repurchase of common stock — ( 33,773 ) ( 18,569 ) Principal payments on debt and finance lease obligations ( 301,096 ) ( 217,766 ) ( 705,763 ) Debt issuance costs ( 8,287 ) ( 7,203 ) ( 33,333 ) Other financing activities ( 21,946 ) 6,719 3,408 Net cash provided by financing activities 285,467 164,603 75,127 NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 230,382 33,534 40,874 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD 170,319 136,785 95,911 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD $ 400,701 $ 170,319 $ 136,785 CASH PAYMENTS/(RECEIPTS) FOR: Interest paid, net of amount capitalized $ 43,511 $ 48,002 $ 65,152 Income tax refunds ( 128,540 ) ( 95,229 ) ( 2,157 ) SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS Right-of-use (ROU) assets acquired $ 33,260 $ 115,082 $ 2,510 Purchases of property and equipment in accrued liabilities $ 17,671 $ 19,294 $ 25,830 Flight equipment acquired under finance leases 101,340 27,765 — (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 payroll support programs, the Company has agreed not to pay cash dividends through September 30, 2022. The accompanying notes are an integral part of these consolidated financial statements. 59 ALLEGIANT TRAVEL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2021, 2020 and 2019 Note 1 — Organization and Business of Company Allegiant Travel Company (the “Company”) is a leisure travel company focused on providing travel services and products to residents of under-served cities in the United States. The Company operates a low-cost, 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. 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. Previously, the Company also operated Allegiant Nonstop family entertainment centers and the Teesnap golf course management solution. Scheduled service and fixed fee air transportation services have similar operating margins, economic characteristics, and production processes (check-in, baggage handling and flight services) which target the same class of customers, and are subject to the same regulatory environment. As a result, the Company believes its airline activities operate under one reportable segment and does not separately track expenses for scheduled service and fixed fee air transportation services. The Company's non-airline related entities represent separate reportable segments and include Sunseeker Resort, and other non-airline activities. Refer to Note 16 for additional information. 60 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 and the airline industry experienced a severe reduction in air travel which continued into 2021 to some extent. Demand in the foreseeable future will continue to be affected by fluctuations in COVID-19 cases, variants, hospitalizations, deaths, treatment efficacy and the availability of vaccines. The Company is continuously reevaluating flight schedules and adjusting capacity based on demand trends. During 2020 and 2021, Congress enacted various legislation which provided support for the airline industry. This included The Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") enacted in March 2020, the Consolidated Appropriations Act, 2021 enacted in December 2020 (the “Payroll Support Program Extension”) and the American Rescue Plan Act enacted in March 2021) (the “ARPA”). 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 and received $ 91.8 million under the Payroll Support Program Extension. In April 2021, the Company received $ 13.8 million in additional funds related to the PSP2 which included a loan of $ 1.7 million. In consideration for these additional funds, the Company issued additional warrants ( the "PSP2 Warrants") to the Treasury to acquire 924 shares of common stock at a price of $ 179.23 per share (based on the price of the Company's common stock on the Nasdaq Global Select Market on December 24, 2020). The funds under PSP2 were used exclusively for wages, salaries and benefits. In April 2021, the Company through its airline operating subsidiary Allegiant Air, LLC entered into a Payroll Support Program 3 Agreement (the "PSP3") with the Treasury under the ARPA and received a total of $ 98.4 million. The funds were used exclusively for wages, salaries and benefits. As of December 31, 2021, all Payroll Support Program funds have been fully utilized. Special Charges The table below summarizes special charges recorded during 2021 and 2020. For the Year Ended December 31, 2021 Airline Sunseeker Resort Other non-airline Total Operating $ 13,453 $ — $ 545 $ 13,998 Non-operating — — — — Total special charges $ 13,453 $ — $ 545 $ 13,998 Additional detail for the $ 14.0 million of total special charges for 2021 appears below: • $ 2.5 million resulting from the accelerated retirement of two airframes and three engines • $ 0.5 million impairment loss on a building in Chesterfield, Missouri associated with the Allegiant Nonstop family entertainment line of business. • $ 10.9 million related to the acceleration of certain existing stock awards. For the Year Ended December 31, 2020 Airline Sunseeker Resort Other non-airline Total 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 of total special charges (operating and non-operating) for 2020 appears below: • $ 161.6 million in impairment charges primarily in our non-airline subsidiaries • $ 98.0 million resulting from the accelerated retirement 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 for additional salaries 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 • $ 26.6 million related to termination of a loan agreement intended to finance the development of Sunseeker Resort-Charlotte Harbor • $ 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 61 Note 3 — Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include the accounts of Allegiant Travel Company and its majority-owned operating subsidiaries. The Company's investments in unconsolidated affiliates, which are 50 percent or less owned, are accounted for under the equity or cost method. All intercompany balances and transactions have been eliminated. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from these estimates. Cash and Cash Equivalents Cash and cash equivalents include investments and interest bearing instruments with original maturities of three months or less. Such investments are carried at cost which approximates fair value. Restricted Cash Restricted cash represents escrowed funds under fixed fee contracts, and cash collateral held against letters of credit required by hotel properties for guaranteed room availability, airports and certain other parties. Accounts Receivable Accounts receivable are carried at face amount which approximates fair value. 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 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. 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 (loss) 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 in the years presented. Investment securities with original maturities of three months or less are classified as cash equivalents. Investment securities with original maturities greater than three months are classified as either short-term investments or long-term investments based on the maturity date in relation to the balance sheet date. Short-term investments have a maturity date less than or equal to one year from the balance sheet date, and long-term investments have a maturity date greater than one year from the balance sheet date. The amortized cost of investment securities sold is determined by the specific identification method with any realized gains or losses reflected in other (income) expense. The Company had minimal realized losses during the years ended December 31, 2021, 2020, and 2019. The Company believes unrealized losses related to debt securities are not other-than-temporary and does not intend to sell these securities prior to amortized cost recoverability. The Company attempts to minimize its concentration risk with regard to its cash, cash equivalents, and investment portfolio. This is accomplished by diversifying and limiting amounts among different counterparties, the type of investment, and the amount invested in any individual security, commercial paper, or money market fund. Expendable Parts, Supplies and Fuel, Net Expendable parts, supplies and fuel inventories are valued at cost using the first-in, first-out method. Such inventories are charged to expense as they are used in operations. An obsolescence allowance for expendable parts and supplies is based on salvage values and the average remaining useful life of the Airbus fleet. The obsolescence allowance for expendable parts and supplies was $ 6.0 million and $ 4.3 million at December 31, 2021 and 2020, respectively. Rotable aircraft parts inventories are included in property and equipment. Deposits and Other Assets Deposits and Other Assets consist primarily of airport deposits, aircraft purchase deposits, deposits as required by the construction loan agreement and a note receivable to the counter-party in the Company’s joint venture alliance. The Company also had outstanding receivables from third parties as of December 31, 2021 and 2020, of which $ 12.4 million and $ 10.9 million respectively, was due more than one year after the balance sheet date. 62 Operating Lease Right-of-Use Asset and Liability 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. ROU assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make scheduled lease payments. ROU assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. The present value of lease payments is calculated using an estimated incremental borrowing rate at lease commencement, which takes into consideration recent debt issuances as well as other applicable market data available. Lease payments include fixed payments, variable payments based on an index or rate, reasonably certain purchase options, termination penalties, and others as required by the Accounting Standards (ASU) 2016-02, Leases (Topic 842). Lease payments do not include variable lease payments other than those that depend on an index or rate, any guarantee by the lessee of the lessor’s debt, or any amount allocated to non-lease components. Lease terms include options to extend when it is reasonably certain that the option will be exercised. Leases with a term of 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. Property and Equipment Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives less any estimated salvage value. Property under finance leases and related obligations are initially recorded at an amount equal to the present value of future minimum lease payments computed on the basis of the Company’s incremental borrowing rate, and depreciation is recorded on a straight-line basis and is included within depreciation and amortization expense. The estimated useful lives of the principal asset classes are shown below. Aircraft, engines and related rotable parts 10-25 years Buildings and leasehold improvements 10-25 years Equipment 3-10 years Computer hardware and software 3-10 years In estimating the useful lives and residual values of aircraft, the Company primarily relies upon actual experience with the same or similar aircraft types, current and projected future market information, and input from other industry sources. Subsequent revisions to these estimates could be caused by changing market prices of the Company’s aircraft, changes in utilization of the aircraft, and other fleet events. Changes in the estimate for useful lives or residual values of the Company’s property and equipment could result in changes in depreciation expense. Interest is capitalized using the Company’s weighted average borrowing rate and depreciated over the estimated useful life of the related asset(s) acquired/developed. Capitalized interest for the years ended December 31, 2021, 2020 and 2019 was $ 0.2 million, $ 4.1 million and $ 4.5 million, respectively. Software Capitalization The Company capitalizes certain internal and external costs related to the acquisition and development of computer software during the application development stage of projects. The Company amortizes these capitalized costs using the straight-line method over the estimated useful life of the software, which typically ranges from three to ten years . The Company had unamortized computer software development costs of $ 43.3 million and $ 42.3 million as of December 31, 2021 and 2020, respectively. Amortization expense related to computer software was $ 10.6 million, $ 9.6 million and $ 12.2 million for the years ended December 31, 2021, 2020 and 2019 respectively. Costs incurred during the preliminary and post-implementation stages are expensed as incurred. Aircraft Maintenance and Repair Costs The Company accounts for all non-major maintenance and repair costs incurred for its Airbus fleet under the direct expense method. Under this method, maintenance and repair costs for aircraft are charged to operating expenses as incurred. Maintenance and repair costs includes all parts, materials, and line maintenance activities required to maintain the Company's fleet. 63 The Company accounts for major maintenance costs of its Airbus airframes and the related CFM engines using the deferral method. Under this method, the Company capitalizes the cost of major maintenance events, which are amortized as a component of depreciation and amortization expense, over the estimated period until the next scheduled major maintenance event. During 2021 and 2020, the Company capitalized $ 23.3 million and $ 12.8 million of major maintenance costs for engines with associated amortization expense of $ 21.0 million and $ 17.6 million respectively. During 2021 and 2020, the Company capitalized $ 39.0 million and $ 22.6 million of major maintenance costs for airframes. Amortization expense related to major maintenance costs was $ 21.1 million, $ 19.9 million and $ 14.9 million for the years ended December 31, 2021, 2020 and 2019 respectively. Measurement of Impairment of Long-Lived Assets The Company records impairment losses on long-lived assets used in operations, consisting principally of property and equipment, when events or changes in circumstances indicate, in management’s judgment, that the assets might be impaired, and the undiscounted future cash flows estimated to be generated by those assets are less than the carrying amount of those assets. In making these determinations, the Company utilizes certain assumptions, including, but not limited to: (i) estimated fair value of the assets; and (ii) estimated future cash flows expected to be generated by these assets, which are based on additional assumptions such as asset utilization, length of service for which the asset will be used in operations, and estimated salvage values. For the year ended December 31, 2019, the Company did not incur any impairment losses. For the year ended December 31, 2020, the Company recorded a $ 161.6 million impairment as a result of COVID-19. For the year ended December 31, 2021, the Company recorded a $ 0.5 million impairment loss on a building in Chesterfield, Missouri associated with the Allegiant Nonstop family entertainment line of business. Revenue Recognition Passenger revenue Passenger revenue includes scheduled service revenue, ancillary air-related charges, and travel point redemptions from the co-branded Allegiant World Mastercard® credit card and the Company's non-card loyalty program. Scheduled service revenue consists of ticket revenue generated from nonstop flights in the Company’s route network, recognized either when the transportation is provided or when ticket voucher breakage occurs. Nonrefundable scheduled itineraries expire on the date of the intended flight, unless the date is extended by notification from the customer in advance. Itineraries sold for transportation not yet used, as well as unexpired credits, are included in air traffic liability. Ancillary air-related charges include various services and products related to the flight such as baggage fees, the use of the Company’s website to purchase scheduled service transportation, advance seat assignments, and other services which are not included in the base ticket price. Revenues from air-related charges are recognized when the transportation is provided. If a customer cancels a flight, a voucher may be issued for a future flight, at which time the associated revenue is recognized upon completion of the future flight. Additionally, the Company estimates the value of vouchers that will expire unused and recognizes such revenue at the time of issuance. Various taxes and fees, assessed on the sale of tickets to customers, are collected by the Company serving as an agent, and remitted to taxing authorities. These taxes and fees are not included as revenue in the Company’s consolidated statements of income and are recorded as a liability until remitted to the appropriate taxing authority. Revenue from travel point redemptions from the co-branded credit card and the Loyalty program are described in the Affinity Credit Card Program and Allways Rewards Loyalty Program sections below. Third party products revenue Ancillary third party products revenue is generated from the sale of hotel rooms, rental cars and ticket attractions, as well as marketing revenue associated with the co-branded credit card. Revenue from the sale of third party products is recognized at the time the product is utilized, such as the time a purchased hotel room is occupied. Revenue from the sale of third party products is recorded net of amounts paid to wholesale providers, travel agent commissions, and transaction costs. Pursuant to the co-brand arrangement with Bank of America, the Company has various performance obligations which are collectively referred to as the marketing component. These obligations consist of use of the Company’s brand and access to its member lists, and certain other advertising and marketing elements. The marketing component is recorded as third party products revenue in the period in which points are awarded to the credit card holders. Fixed fee contract revenue 64 Fixed fee contract revenue consists of agreements to provide charter service on a year-round and ad hoc basis. Fixed fee contract revenue is recognized when the transportation is provided. Other revenue Other revenue is generated from non-airline activities as well as leasing aircraft and engines. Lease revenue is recognized ratably over the lease term. Affinity Credit Card Program The Allegiant World Mastercard® is issued by Bank of America through which arrangement points are sold and consideration is received under an agreement that 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). 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 expected 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 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. Allways Rewards Loyalty Program Allegiant’s Allways Rewards Loyalty Program enables program Members to earn points for every dollar they spend on the Company’s website. Under the program, which launched in August 2021, Members continue to accumulate points until the time they decide to redeem them. In addition to opportunities to redeem points for flights, lodging and rental cars, the program leverages Allegiant's partnerships to offer additional rewards to Members, including sports and live music event tickets and exclusive experiences. Members can also earn points by using their Allegiant World Mastercard®. Under Allways Rewards, Members receive one point for every dollar spent at Allegiant.com, and two points per $1 for spending over $500 (excluding taxes and fees). The Company utilizes the deferred revenue method of accounting for points earned through the program based on the stand alone selling price and revenue is recognized when points are redeemed and the underlying service has been provided. Advertising Costs Advertising costs are charged to expense in the period incurred. Advertising expense was $ 31.3 million, $ 12.4 million and $ 29.1 million for the years ended December 31, 2021, 2020 and 2019, respectively. 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 Basic and diluted earnings per share are computed pursuant to the two-class method as opposed to the treasury method. Under the two-class method, the Company attributes net income to two classes, common stock and unvested restricted stock awards. Unvested restricted stock awards granted to employees under the Company’s Long-Term Incentive Plan are considered participating securities because they receive non-forfeitable rights to cash dividends at the same rate as common stock. Diluted net income per share is calculated using the more dilutive of two methods. Under both methods, the exercise of employee stock options is assumed using the treasury stock method. The assumption of vesting of restricted stock, however, differs as described below: 1. Assume vesting of restricted stock using the treasury stock method. 2. Assume unvested restricted stock awards are not vested, and allocate earnings to common shares and unvested restricted stock awards using the two-class method. 65 For the years ended December 31, 2021 and 2019, the second method above was used in the computation because it was more dilutive than the first method. 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) 2021 2020 2019 Basic: Net income (loss) $ 151,853 $ ( 184,093 ) $ 232,117 Less income allocated to participating securities ( 2,218 ) ( 236 ) ( 3,413 ) Net income (loss) attributable to common stock $ 149,635 $ ( 184,329 ) $ 228,704 Earnings (loss) per share, basic $ 8.69 $ ( 11.53 ) $ 14.27 Weighted-average shares outstanding 17,212 15,992 16,027 Diluted: Net income (loss) $ 151,853 $ ( 184,093 ) $ 232,117 Less income allocated to participating securities ( 2,215 ) ( 236 ) ( 3,410 ) Net income (loss) attributable to common stock $ 149,638 $ ( 184,329 ) $ 228,707 Earnings (loss) per share, diluted $ 8.68 $ ( 11.53 ) $ 14.26 Weighted-average shares outstanding 17,212 15,992 16,027 Dilutive effect of stock options and restricted stock 145 — 51 Adjusted weighted-average shares outstanding under treasury stock method 17,357 15,992 16,078 Participating securities excluded under two-class method ( 126 ) — ( 37 ) Adjusted weighted-average shares outstanding under two-class method 17,231 15,992 16,041 Stock awards outstanding of 815 , 24,004 , and 19,928 shares (not in thousands) as of December 31, 2021, 2020, and 2019, respectively, were excluded from the computation of diluted earnings per share as they were antidilutive. Share-Based Compensation The Company accounts for share-based compensation in accordance with accounting standards which require the compensation cost related to share-based payment transactions be recognized in the Company’s consolidated statements of income. The share-based cost is measured based on grant date fair value. The Company’s share-based employee compensation plan is more fully discussed in Note 13. Income Taxes The Company recognizes deferred income taxes based on the asset and liability method required by accounting standards. Deferred tax assets and liabilities are determined based on the timing differences between book basis for financial reporting purposes and tax basis of the asset and liability and measured using the enacted tax rates and provisions of the enacted tax law. A valuation allowance for deferred tax assets is provided if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company determines the net non-current deferred tax assets or liabilities separately for federal, state, foreign and other local jurisdictions. The Company’s income tax returns are subject to examination by the Internal Revenue Service (“IRS”) and other tax authorities in the jurisdictions where the Company operates. The Company assesses potentially unfavorable outcomes of such examinations based on the criteria set forth in uncertain tax position accounting standards. The accounting standards prescribe a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. Accounting standards for income taxes utilize a two-step approach for evaluating tax positions. Recognition (Step I) occurs when the Company concludes that a tax position, based on its technical merits, is more likely than not to be sustained upon examination. Measurement (Step II) is only addressed if the position is deemed to be more likely than not to be sustained. Under Step II, the tax benefit is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. The tax positions failing to qualify for initial recognition are recognized in the first subsequent interim period they meet the “more likely than not” standard. If it is subsequently determined that a previously recognized tax position no longer meets the “more likely than not” standard, it is required that the tax position be derecognized. As applicable, the Company will recognize accrued penalties and interest related to unrecognized tax benefits in the provision for income taxes. 66 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 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 adopted ASU 2019-12 in the first quarter of 2021 and its adoption did not have a material effect on the Company's consolidated financial statements. On November 17, 2021, the Financial Accounting Standards Board (the "FASB") issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. The new standard increases transparency of government assistance by focusing on the types of assistance given, an entity's accounting for the assistance, and the effect of the assistance on the entity's financial statements to allow for more comparable information for investors and other financial statement users. This standard is effective for all entities under the scope for financial statements issued for annual periods beginning after December 15, 2021, but early adoption is permitted. The Company adopted the standard early as of January 1, 2021. See Note 2 for further information on the Company's treatment of government assistance received. 67 Note 4 — Revenue Recognition Passenger revenue Passenger revenue is the most significant category in our reported operating revenues, as outlined below: Year Ended December 31, (in thousands) 2021 2020 2019 Scheduled service $ 769,371 $ 435,668 $ 897,631 Ancillary air-related charges 788,064 453,545 770,206 Loyalty redemptions 21,001 12,974 15,118 Total passenger revenue $ 1,578,436 $ 902,187 $ 1,682,955 Sales of passenger tickets not yet flown are recorded in air traffic liability. Passenger revenue is recognized when transportation is provided. As of December 31, 2021, the air traffic liability balance was $ 307.5 million, of which approximately $ 240.5 million was related to forward bookings, with the remaining $ 67.0 million related to credit vouchers for future travel. The normal contract term of passenger tickets is 12 months and passenger revenue associated with future travel will principally be recognized within this time frame. Of the $ 307.5 million that was recorded in the air traffic liability balance at December 31, 2020, 88.0 percent was recognized into passenger revenue during the 12 months ended December 31, 2021. In 2020, the Company announced that credit vouchers issued for canceled travel beginning in January 2020 would have an extended expiration date of two years from the original booking date. This policy continued for credit vouchers issued through June 30, 2021. Estimates of passenger revenue to be recognized from air traffic liability for credit voucher breakage may be subject to variability and differ from historical experience due to the change in contract duration and uncertainty regarding demand for future air travel. Effective July 1, 2021, vouchers issued have an expiration date of one year from the original booking date. The Company periodically evaluates the estimated amount of credit vouchers expected to expire unused and any adjustment is removed from air traffic liability and included in passenger revenue in the period in which the evaluation is complete. Loyalty redemptions In relation to the travel component of the co-branded credit card contract with Bank of America, the Company has a performance obligation to provide cardholders with points to be used for future travel award redemptions. Therefore, consideration received from Bank of America related to the travel component is deferred based on its relative selling price and is recognized into passenger revenue when the points are redeemed and the transportation is provided. The following table presents the activity of the co-brand point liability as of the dates indicated: Year Ended December 31, (in thousands) 2021 2020 Balance at January 1 $ 21,841 $ 15,613 Points awarded 39,650 19,202 Points redeemed ( 21,001 ) ( 12,974 ) Balance at December 31 $ 40,490 $ 21,841 As of December 31, 2021 and 2020, $ 17.8 million and $ 10.9 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. 68 Note 5 — Property and Equipment Property and equipment consisted of the following: As of December 31, (in thousands) 2021 2020 Flight equipment $ 2,576,315 $ 2,331,499 Computer hardware and software 160,459 149,727 Land and buildings/leasehold improvements 86,036 87,030 Other property and equipment 132,875 80,601 Total property and equipment 2,955,685 2,648,857 Less accumulated depreciation and amortization ( 696,178 ) ( 598,546 ) Property and equipment, net $ 2,259,507 $ 2,050,311 As of December 31, 2021, the Company had firm commitments to purchase fifty-one aircraft which are expected to be delivered between 2022 and 2025. Accrued capital expenditures as of December 31, 2021 and 2020 were $ 17.7 million and $ 16.9 million, respectively. 69 Note 6 — Accrued Liabilities Accrued liabilities consisted of the following: As of December 31, (in thousands) 2021 2020 Salaries, wages and benefits $ 38,313 $ 21,878 Sunseeker Resort development 12,241 14,084 Maintenance and repairs 11,718 12,847 Loyalty program liability 17,787 10,929 Station expenses 21,297 10,526 Property taxes 7,853 9,042 Interest 10,519 6,560 Passenger taxes and fees 14,324 4,686 Advertising accruals 1,863 890 Other accruals 26,977 24,651 Total accrued liabilities $ 162,892 $ 116,093 70 Note 7 — Long-Term Debt Long-term debt consisted of the following: As of December 31, (in thousands) 2021 2020 Fixed-rate debt and finance lease obligations due through 2032 $ 827,382 $ 525,240 Variable-rate debt due through 2029 915,157 1,133,771 Total long-term debt and finance lease obligations, net of related costs 1,742,539 1,659,011 Less current maturities, net of related costs 130,053 217,234 Long-term debt and finance lease obligations, net of current maturities and related costs $ 1,612,486 $ 1,441,777 Weighted average fixed-interest rate on debt 5.8 % 5.7 % Weighted average variable-interest rate on debt 2.5 % 2.4 % Maturities of long-term debt as of December 31, 2021, for the next five years and thereafter, in the aggregate, are: (in thousands) As of December 31, 2021 2022 $ 130,053 2023 130,723 2024 800,849 2025 107,434 2026 100,776 Thereafter 472,704 Total debt and finance lease obligations, net of related costs $ 1,742,539 Total long-term debt is presented net of related costs of $ 23.4 million and $ 23.5 million at December 31, 2021 and 2020, 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 The Company evaluates ownership, contractual lease arrangements and other interests in entities to determine if they are variable interest entities ("VIEs") based on the nature and extent of those interests. The Company consolidates a VIE when, among other criteria, it has the power to direct the activities that most significantly impact the VIE’s economic performance as well as the obligation to absorb losses or the right to receive benefits of the VIE, thus making the Company the primary beneficiary of the VIE. In October 2019, the Company, through a wholly owned subsidiary, entered into agreements with a trust to borrow $ 23.5 million secured by one Airbus A320 series aircraft. The trust was funded on inception. The borrowing bears interest at a blended rate of 71 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. In March 2019, the Company, through a wholly owned subsidiary, entered into agreements with a trust to borrow $ 44.0 million secured by one Airbus A320 series aircraft. The trust was funded on inception. 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. In September 2018, the Company, through a wholly owned subsidiary, entered into agreements with a trust to borrow $ 44.0 million secured by one Airbus A320 series aircraft. The trust was funded on inception. 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. Payroll Support Program Loans In 2020 and 2021, the Company entered into low-interest rate, senior unsecured term promissory notes (the "PSP Notes") with the Treasury under the Payroll Support Programs. The Notes mature in full after ten years, and bear interest at a rate of 1.0 percent per annum for the first five years and, thereafter, at the secured overnight financing rate (SOFR) plus 2 percent. The PSP Notes are prepayable at any time at par, without penalty. As of December 31, 2021, the Company received $ 24.7 million in funds under the PSP Notes, which is recorded within noncurrent debt on the balance sheet. In connection with the Payroll Support Programs, the Company is required to comply with the relevant provisions of the CARES Act, the Payroll Support Program Extension and ARPA, including those prohibiting the repurchase of common stock and the payment of common stock dividends through September 30, 2022, as well as those restricting the payment of certain executive compensation for periods through March 31, 2023. Senior Secured Revolving Credit Facility The senior secured revolving credit facility under which the Company was able to borrow up to $ 81.0 million matured on March 31, 2021 and the outstanding balance of $ 46.5 million was paid at that time In March 2021, the Company entered into a new revolving credit facility under which it is entitled to borrow up to $ 50.0 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 into the collateral pool. The notes for amounts borrowed under the facility bear interest at a floating rate based on LIBOR and are due in March 2023. As of December 31, 2021, no aircraft collateral had been added to the collateral pool and the facility was undrawn. Other Secured Debt 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. Construction Loan Agreement In October 2021, Sunseeker Florida, Inc. (“SFI”), a wholly-owned subsidiary of the Company, entered into a Credit Agreement pursuant to which SFI may borrow up to $ 350.0 million funded by one or more entities directly or indirectly managed by Castlelake, L.P.(“Lender”) to fund the remaining construction of the initial phases of Sunseeker Resort at Charlotte Harbor (the "Resort"). The Loan is secured by the Resort. All of the shares in SFI are also pledged to secure the Loan. The Loan bears interest at 5.75 percent per annum payable semi-annually, provides for semi-annual principal payments of $ 26.0 million beginning in 2025 and matures in October 2028. The Credit Agreement includes covenants similar to the covenants in the Company’s Term Loan. To support the credit, the Company has guaranteed the full amount of the debt, has agreed to guarantee completion of the Project in accordance with approved plans and specifications and made a $ 30 million deposit into a construction disbursement account. As of December 31, 2021, $ 175.0 million has been advanced. 72 Finance Leases The Company has finance lease obligations related to fifteen aircraft, which impacted the Company's recognized assets and liabilities as of December 31, 2021. See Note 8 for more information on finance lease obligations. 73 Note 8 — Leases The Company had 15 aircraft under finance leases and 17 aircraft under operating leases as of December 31, 2021 with remaining terms through 2032. Lease Costs The components of lease costs recognized on the statements of income were as follows: Year Ended December 31, (in thousands) Classification on the Statements of Income 2021 2020 Finance lease costs: Amortization of assets Depreciation and amortization $ 13,274 $ 6,631 Interest on lease liabilities Interest expense 11,168 5,335 Operating lease cost Aircraft lease rentals; Station operations; Maintenance and repairs; Other operating expense 22,697 12,616 Variable lease cost Station operations; Maintenance and repairs; Other operating expense 2,565 3,560 Total lease cost $ 49,704 $ 28,142 Lease position as of December 31, 2021 The table below presents the lease-related assets and liabilities recorded on the balance sheet. As of December 31, (in thousands) Classification on the Balance Sheet 2021 2020 Assets Operating lease assets Operating lease right-of-use assets, net $ 130,087 $ 115,911 Finance lease assets Property and equipment, net 338,469 133,175 Total lease assets $ 468,556 $ 249,086 Liabilities Current Operating Current operating lease liabilities $ 19,081 $ 14,313 Finance Current maturities of long-term debt and finance lease obligations 16,960 9,767 Noncurrent Operating Noncurrent operating lease liabilities 115,067 102,289 Finance Long-term debt and finance lease obligations 301,532 117,060 Total lease liabilities $ 452,640 $ 243,429 Weighted-average remaining lease term Operating leases 7.7 years 8.3 years Finance leases 7.8 years 7.6 years Weighted-average discount rate Operating leases 5.4 % 5.4 % Finance leases 5.2 % 5.0 % 74 Sale-Leaseback Transactions In March 2021, the Company entered into a sale-leaseback transaction involving three aircraft and generating $ 105.0 million of proceeds. The lease was classified as a finance lease and as a result, the transaction did not qualify as a sale. The aircraft were not removed from property and equipment in the Company's balance sheet and the Company recorded a financial liability in the amount of $ 105.0 million. The proceeds from this transaction are treated as cash inflows from finance lease obligations and reported in financing activities on the statement of cash flows. 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 year ended December 31. Year Ended December 31, (in thousands) 2021 2020 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows for operating leases $ 18,987 $ 13,102 Operating cash flows for finance leases 10,697 5,335 Financing cash flows for finance leases 14,675 15,908 Maturities of Lease Liabilities The table below indicates the future minimum payments of lease liabilities as of December 31, 2021. (in thousands) Operating Leases Finance Leases 2022 $ 25,781 $ 32,822 2023 25,618 44,813 2024 25,299 29,268 2025 23,158 29,268 2026 13,184 28,968 Thereafter 49,317 250,141 Total lease payments 162,357 415,280 Less imputed interest ( 28,209 ) ( 96,788 ) Total lease obligations 134,148 318,492 Less current obligations ( 19,081 ) ( 16,960 ) Long-term lease obligations $ 115,067 $ 301,532 75 Note 9 — Shareholders’ Equity The Company is authorized by its Board of Directors to acquire the Company’s stock through open market purchases under its share repurchase program. As repurchase authority is exhausted, the Board of Directors has, to date, authorized additional expenditures for share repurchases. The Company suspended stock repurchases upon the onset of the pandemic and as part of accepting benefits from the Treasury under the Payroll Support Programs, the Company has agreed not to repurchase stock through September 30, 2022. Share repurchases consisted of the following during the periods indicated: Year Ended December 31, 2021 2020 2019 Shares repurchased (1) — 197,570 103,943 Average price per share $ — $ 155.14 $ 141.64 Total (in thousands) $ — $ 30,651 $ 14,723 (1) Share amounts shown above include only open market repurchases and do not include shares withheld from employees for tax withholding obligations related to restricted stock vestings, which were 19,001 and 27,700 shares for 2020 and 2019, respectively. Cash dividends declared by the Board and paid by the Company consisted of the following during the periods indicated: Year Ended December 31, 2021 2020 2019 Total quarterly cash dividends declared, per share $ — $ 0.70 $ 2.80 Total cash dividends paid (in thousands) — 11,361 45,552 The Company suspended payment of cash dividends upon the onset of the pandemic and as part of accepting benefits from the Treasury under the Payroll Support Programs, the Company has agreed not to pay cash dividends through September 30, 2022. 76 Note 10 — Fair Value Measurements Investments The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Accounting standards pertaining to fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1 - Defined as observable inputs such as quoted prices in active markets for identical assets or liabilities Level 2 - Defined as inputs other than Level 1 inputs that are either directly or indirectly observable Level 3 - Defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions The Company uses the market approach valuation technique to determine fair value for investment securities. The assets classified as Level 1 consist of money market funds for which original cost approximates fair value. The assets classified as Level 2 consist of commercial paper, municipal debt securities, federal agency debt securities and corporate debt securities, which are valued using quoted market prices or alternative pricing sources including transactions involving identical or comparable assets and models utilizing market observable inputs. The Company has no investment securities classified as Level 3. For those assets classified as Level 2 that are not in active markets, the Company obtains fair value from pricing sources using quoted market prices for identical or comparable instruments, and uses pricing models which include all significant observable inputs: maturity dates, issue dates, settlement dates, benchmark yields, reported trades, broker-dealer quotes, issue spreads, benchmark securities, bids, offers and other market related data. These inputs are observable or can be derived from, or corroborated by, observable market data for substantially the full term of the asset. Financial instruments measured at fair value on a recurring basis: As of December 31, 2021 As of December 31, 2020 (in thousands) Total Level 1 Level 2 Total Level 1 Level 2 Cash equivalents Money market funds $ 25,019 $ 25,019 $ — $ 5,340 $ 5,340 $ — Commercial paper 179,455 — 179,455 48,908 — 48,908 Municipal debt securities 63,875 — 63,875 34,338 — 34,338 Federal agency debt securities — — — 51,400 — 51,400 Total cash equivalents 268,349 25,019 243,330 139,986 5,340 134,646 Short-term Commercial paper 419,469 — 419,469 229,821 — 229,821 Corporate debt securities 234,436 — 234,436 166,768 — 166,768 Municipal debt securities 165,572 — 165,572 87,290 — 87,290 Federal agency debt securities — — — 48,598 — 48,598 Total short-term 819,477 — 819,477 532,477 — 532,477 Long-term Municipal debt securities 2,231 — 2,231 — — — Total long-term 2,231 — 2,231 — — — Total financial instruments $ 1,090,057 $ 25,019 $ 1,065,038 $ 672,463 $ 5,340 $ 667,123 There were no significant transfers between Level 1 and Level 2 assets for the years ended December 31, 2021 or 2020. Long-term 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. 77 Carrying value and estimated fair value of long-term debt, including current maturities and without reduction for related costs: As of December 31, 2021 As of December 31, 2020 (in thousands) Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Fair Value Level Non-publicly held debt $ 1,447,462 $ 1,261,170 $ 1,555,637 $ 1,191,008 3 Other Due to the short term nature, carrying amounts of cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value. 78 Note 11 — Income Taxes The Company is subject to income taxation in the United States and various state jurisdictions in which it operates. In accordance with income tax accounting standards, the Company recognizes tax benefits or expenses on the temporary differences between the financial reporting and tax bases of its assets and liabilities. In 2021, 2020 and 2019, the Company recorded net tax (benefit)/provision of $ 44.8 million, $( 177.0 ) million and $ 69.1 million, respectively. Cash taxes, net of (refunds), were $( 128.5 ) million, $( 95.2 ) million and $( 2.2 ) million, respectively. Components of Income before Income Taxes from Continuing Operations The components of income before taxes for domestic and foreign operations consisted of the following: Year ended December 31, (in thousands) 2021 2020 2019 Domestic $ 196,620 $ ( 361,242 ) $ 299,330 Foreign — 175 1,917 Total $ 196,620 $ ( 361,067 ) $ 301,247 Income Tax Provision/(Benefit) The provision (benefit) for income taxes is composed of the following: Year ended December 31, (in thousands) 2021 2020 2019 Current: Federal $ ( 494 ) $ ( 195,572 ) $ ( 34 ) State 552 ( 211 ) 505 Foreign ( 6 ) 132 530 Total current 52 ( 195,651 ) 1,001 Deferred: Federal 40,693 24,126 63,430 State 4,022 ( 5,449 ) 4,699 Foreign — — — Total deferred 44,715 18,677 68,129 Total income tax provision (benefit) $ 44,767 $ ( 176,974 ) $ 69,130 Reconciliation of Effective Tax Rate The effective tax rate on income before income taxes differed from the federal statutory income tax rate as follows: Year ended December 31, (in thousands) 2021 2020 2019 Income tax expense (benefit) at federal statutory rate $ 41,575 $ ( 70,459 ) $ 63,262 State income taxes, net of federal income tax benefit 4,257 ( 5,495 ) 5,070 CARES Act — ( 97,988 ) — Foreign income tax expense ( 6 ) 132 530 Other ( 1,059 ) ( 3,164 ) 268 Total income tax expense $ 44,767 $ ( 176,974 ) $ 69,130 79 Deferred Taxes The major components of the Company’s net deferred tax assets and liabilities are as follows: As of December 31, (in thousands) 2021 2020 Deferred tax assets: Accrued vacation $ 1,197 $ 1,024 Accrued bonus 4,086 — State taxes 248 — Accrued property taxes 1,048 1,111 Stock-based compensation expense 1,372 1,025 Net operating loss 7,827 15,979 Tax credit 4,523 10,995 Less: valuation allowance 1,214 1,214 Total deferred tax assets 19,087 28,920 Deferred tax liabilities: Prepaid expenses 3,625 2,517 Depreciation 352,123 308,266 Other 9,476 19,900 Total deferred tax liabilities 365,224 330,683 Net deferred tax liabilities $ 346,137 $ 301,763 Net Operating Loss and Tax Credit Carryforwards Pursuant to the CARES Act, the Company carried back net operating tax 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 generated in 2014 - 2020 in the amount of $ 5.7 million and $ 5.2 million respectively to be released. During 2021, the Company utilized $ 2.3 million and $ 4.5 million of the released foreign tax credits and general business credits. Unused foreign tax credit and general business credits will expire in 2026 – 2030, but the Company expects to utilize these credits prior to the expiration. In addition, as of December 31, 2021, the Company recognized state net operating loss carryforwards for income tax purposes in the amount of $ 7.8 million. A portion of the state net operating loss carryforward amounts will expire between 2022 and 2040 while a majority of these net operating losses have an indefinite carryforward period. 80 Note 12— Related Party Transactions During the years ended December 31, 2021, 2020 and 2019, there were no related party transactions that required disclosure. 81 Note 13 — Employee Benefit Plans 401(k) Plan The Company has a defined contribution plan covering all eligible employees. Under the plan, employees may contribute up to 90 percent of their eligible annual compensation with the Company making matching contributions on employee deferrals of up to 5 percent of eligible employee wages. The matching contributions on pilot deferrals is 200 percent for the first 5 percent of eligible wages resulting from the pilot collective bargaining agreement. The Company recognized expense under this plan of $ 21.4 million, $ 18.6 million, and $ 19.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. Share-based employee compensation The Company reserved 2,000,000 shares of common stock for the Company to grant stock options, restricted stock, cash-settled stock appreciation rights ("SARs") and other stock-based awards to certain officers, directors and employees of the Company under the 2016 Long-Term Incentive Plan (the "2016 Plan"). The 2016 Plan is administered by the Company’s compensation committee of the Board of Directors. Employee Stock Purchase Plan The Company reserved 1,000,000 shares of common stock for employee purchases under the 2014 Employee Stock Purchase Plan ("ESPP"). Shares are purchased semi-annually, at a discount, based on the market value at period-end. Employees may contribute up to 25 percent of their base pay per offering period, not to exceed $ 25,000 each calendar year, for the purchase of common stock. The ESPP is a compensatory plan under applicable accounting guidance and results in the recognition of compensation expense. The following table provides information about the Company’s ESPP activity during 2021, 2020, and 2019: 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, 2019 38,464 $ 133.54 $ 23.51 As of December 31, 2020 56,866 $ 90.63 $ 14.10 As of December 31, 2021 39,760 $ 174.68 $ 30.00 (1) The weighted-average fair value of the discount under the ESPP granted is equal to a percentage discount from the market value of the common stock at the end of each semi-annual purchase period. 15 percent is the maximum allowable discount under the ESPP. Compensation expense For the years ended December 31, 2021, 2020 and 2019, the Company recorded compensation expense of $ 17.2 million, $ 20.1 million and $ 19.2 million, respectively, related to restricted stock, stock options, cash-settled SARs and the ESPP. Forfeiture rates are estimated at the time of grant based on historical actuals for similar grants, and are matched to actuals over the vesting period. The unrecognized compensation cost was $ 23.3 million as of December 31, 2021 for unvested restricted stock expected to be recognized over a weighted-average period of 2.22 years. As of December 31, 2021, there was no unrecognized compensation cost for either cash-settled SARs or stock options. Restricted stock awards The closing price of the Company's stock on the date of grant is used as the fair value for the issuance of restricted stock. A summary of the status of non-vested restricted stock grants during the years ended December 31, 2021, 2020 and 2019 is presented below: Shares Weighted Average Grant Date Fair Value Per Share 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 Granted 120,456 194.66 Vested ( 197,530 ) 136.71 Forfeited ( 6,900 ) 147.05 Non-vested at December 31, 2021 181,553 $ 183.63 The total fair value of restricted stock that vested during the years ended December 31, 2021, 2020 and 2019 was $ 27.0 million, $ 43.0 million and $ 15.9 million, respectively. 82 Note 14 — Commitments and Contingencies 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 2022 to 2048. Refer to Note 8 for more information on the Company's lease agreements. The Company's contractual purchase commitments consist primarily of aircraft and engine acquisitions. The total future commitments are as follows: (in thousands) As of December 31, 2021 2022 224,587 2023 632,072 2024 765,758 2025 305,068 Total purchase commitments $ 1,927,485 Aircraft Commitments As of December 31, 2021, the Company had entered into purchase agreements for 51 aircraft which are expected to deliver between 2022 through 2025. Contingencies The Company is party to collective bargaining agreements with the employee groups listed below. As of December 31, 2021, the percentage of full-time equivalent employees for these pay groups were as follows: As of December 31, 2021 Flight Attendants 24.4 % Pilots 33.5 Maintenance Technicians 12.2 Flight Dispatchers 0.9 Total 71.0 % See Item I - Business, for further discussion on the status of each group which has elected union representation. The Company is subject to certain other legal and administrative actions it considers routine to its business activities. The Company believes the ultimate outcome of any pending legal or administrative matters will not have a material adverse impact on its financial position, liquidity or results of operations. 83 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 Allowance for expendable parts and supplies For the Year Ended December 31, 2021 $ 4,323 $ 1,718 $ — $ 6,041 For the Year Ended December 31, 2020 2,748 1,575 — 4,323 For the Year Ended December 31, 2019 (1) 14,410 2,257 ( 13,919 ) 2,748 (1) Increase in write offs mostly related to disposal of MD-80 fleet parts in 2019. 84 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. The Company's CODM is the executive leadership team, which reviews information about the Company's two operating segments: Airline and Sunseeker Resort. Airline Segment The Airline segment operates as a single business unit and includes all scheduled service air transportation, ancillary air-related products and services, third party products and services, fixed fee contract air transportation and other airline-related revenue. The CODM evaluation includes, but is not limited to, route and flight profitability data, ancillary and third party product and service offering statistics, and fixed fee contract information when making resource allocation decisions with the goal of optimizing consolidated financial results. Sunseeker Resort Segment The Sunseeker Resort segment represents activity related to the development and construction of Sunseeker Resort in Southwest Florida, as well as the operation of Kingsway Golf Course. Plans for the resort include a 500 -room hotel and two towers offering an estimated 180 one, two and three-bedroom suites, bar and restaurant options, and other amenities. 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. The construction of Sunseeker Resort is an extension of the Company's leisure travel focus and it is expected that many customers flying to Southwest Florida on Allegiant will elect to stay at this resort and enjoy its amenities. Other non-Airline Segment The other non-airline segment includes the Teesnap golf course management solution and Allegiant Nonstop family entertainment centers. Allegiant Nonstop family entertainment centers featured 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 April 2021, the Company closed on a transaction to sell 85 percent of Teesnap. 85 Selected information for the Company's segments and the reconciliation to the consolidated financial statement amounts are as follows: (in thousands) Airline Sunseeker Resort Other non - airline Consolidated Year Ended December 31, 2021 Operating revenue: Passenger $ 1,578,436 $ — $ — $ 1,578,436 Third party products 86,487 — — 86,487 Fixed fee contract 41,184 — — 41,184 Other 133 ( 6 ) 1,676 1,803 Operating income (loss) 271,716 ( 7,998 ) ( 643 ) 263,075 Interest expense, net 64,529 1,818 — 66,347 Depreciation and amortization 180,923 112 — 181,035 Capital expenditures 309,982 50,629 — 360,611 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 ) Interest expense, net 50,355 562 — 50,917 Depreciation and amortization 174,882 615 770 176,267 Capital expenditures 262,748 45,160 442 308,350 Year Ended December 31, 2019 Operating revenue: Passenger $ 1,682,955 $ — $ — $ 1,682,955 Third party products 70,012 — — 70,012 Fixed fee contract 65,057 — — 65,057 Other 4,474 2,048 16,419 22,941 Operating income (loss) 388,740 ( 6,588 ) ( 18,202 ) 363,950 Interest expense, net 58,112 1,694 — 59,806 Depreciation and amortization 151,060 1,250 3,542 155,852 Capital expenditures 438,765 66,659 18,304 523,728 Total assets were as follows as of the dates indicated: (in thousands) As of December 31, 2021 As of December 31, 2020 Airline $ 3,871,751 $ 3,214,523 Sunseeker Resort 119,032 36,612 Other non-airline 290 7,790 Consolidated $ 3,991,073 $ 3,258,925 86 Note 17 — Subsequent Events Under the agreement entered into with The Boeing Company (“Boeing”) to acquire fifty ( 50 ) newly manufactured Boeing 737-MAX aircraft, the Company made pre-delivery deposits of $ 44.5 million in January 2022. 87 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 88