Allegiant Travel CO 10-K

Item 8. Financial Statements 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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, 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, 2022, 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, 2023 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 Loss associated with Sunseeker Resort As discussed in Note 2 to the consolidated financial statements, the Sunseeker Resort at Charlotte Harbor (Sunseeker Resort) was damaged during 2022 as a result of Hurricane Ian, another weather-related event and a fire. Based on the Company’s assessment of these damages and the anticipated future restoration costs, which approximate the carrying amount of the portion of the assets that were damaged, an estimated $52.1 million loss was recorded as a reduction to the carrying amount of the Sunseeker Resort during the year ended December 31, 2022. We identified the evaluation of the estimated loss associated with the Sunseeker Resort as a critical audit matter. Subjective auditor judgment was required to evaluate the estimated loss and the assumption that the future restoration costs approximate the carrying amount of the damaged assets. 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 property loss estimation process, including a control related to determining the assumption that the future restoration costs approximate the carrying amount of the damaged assets. We evaluated the reasonableness of the estimated loss by obtaining a confirmation of the anticipated restoration costs estimated by the Company’s insurance claim adjustor directly from that 53 adjustor. We compared the confirmation of the future restoration costs from the insurance claim adjustor to the estimated loss recorded by the Company. We evaluated certain publicly available costing indices to assess the Company’s assumption that the future restoration costs approximate the carrying amount of the damaged assets. /s/ KPMG LLP We have served as the Company’s auditor since 2016. Dallas, Texas February 27, 2023 54 ALLEGIANT TRAVEL COMPANY CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) December 31, 2022 December 31, 2021 CURRENT ASSETS Cash and cash equivalents $ 229,989 $ 363,378 Restricted cash 15,457 37,323 Short-term investments 725,063 819,478 Accounts receivable 106,578 62,659 Expendable parts, supplies and fuel, net of reserve of $ 8,079 and $ 6,041 35,546 27,500 Prepaid expenses and other current assets 161,636 28,073 TOTAL CURRENT ASSETS 1,274,269 1,338,411 Property and equipment (including $ 80,591 and $ 84,406 from VIEs, Note 6), net of accumulated depreciation of $ 814,837 and $ 696,178 2,810,693 2,259,507 Long-term investments 63,318 2,231 Deferred major maintenance, net of accumulated amortization of $ 108,779 and $ 75,177 157,410 146,850 Operating lease right-of-use assets, net 111,679 130,087 Deposits and other assets 93,928 113,987 TOTAL ASSETS: $ 4,511,297 $ 3,991,073 CURRENT LIABILITIES Accounts payable $ 58,335 $ 43,566 Accrued liabilities 259,164 162,892 Current operating lease liabilities 19,973 19,081 Air traffic liability 379,459 307,453 Current maturities of long-term debt and finance lease obligations (including $ 9,315 and $ 9,000 from VIEs, Note 6), net of related costs of $ 6,599 and $ 7,751 152,900 130,053 TOTAL CURRENT LIABILITIES 869,831 663,045 LONG-TERM DEBT AND OTHER NONCURRENT LIABILITIES Long-term debt and finance lease obligations (including $ 69,812 and $ 79,127 from VIEs, Note 6), net of current maturities and related costs of $ 16,866 and $ 15,664 1,944,078 1,612,486 Deferred income taxes 346,388 346,137 Noncurrent operating lease liabilities 94,972 115,067 Other noncurrent liabilities 35,330 30,786 TOTAL LIABILITIES: 3,290,599 2,767,521 COMMITMENTS AND CONTINGENCIES (NOTE 13) SHAREHOLDERS' EQUITY Common stock, par value $ 0.001 , 100,000,000 shares authorized; 25,086,278 and 24,763,793 shares issued; 18,128,182 and 18,111,381 shares outstanding in 2022 and 2021 respectively 25 25 Treasury shares, at cost, 6,958,096 and 6,652,412 shares in 2022 and 2021, respectively ( 660,023 ) ( 638,057 ) Additional paid in capital 709,471 692,053 Accumulated other comprehensive gain, net 1,257 2,056 Retained earnings 1,169,968 1,167,475 TOTAL EQUITY: 1,220,698 1,223,552 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY: $ 4,511,297 $ 3,991,073 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, 2022 2021 2020 OPERATING REVENUES: Passenger $ 2,137,762 $ 1,578,436 $ 902,187 Third party products 100,959 86,487 46,482 Fixed fee contracts 60,937 41,184 26,865 Other 2,171 1,803 14,539 Total operating revenues 2,301,829 1,707,910 990,073 OPERATING EXPENSES: Aircraft fuel 814,803 440,235 221,827 Salaries and benefits 552,413 484,573 377,825 Station operations 255,168 243,346 144,771 Depreciation and amortization 197,542 181,035 176,267 Maintenance and repairs 117,814 105,943 63,895 Sales and marketing 100,678 72,742 43,517 Aircraft lease rental 23,621 21,242 9,828 Other 113,532 83,902 79,277 Payroll Support Programs grant recognition — ( 202,181 ) ( 152,448 ) Special charges 34,612 13,998 306,299 Total operating expenses 2,210,183 1,444,835 1,271,058 OPERATING INCOME (LOSS) 91,646 263,075 ( 280,985 ) OTHER (INCOME) EXPENSES: Interest income ( 16,469 ) ( 1,814 ) ( 5,509 ) Interest expense 115,711 68,474 61,715 Capitalized interest ( 12,640 ) — ( 4,067 ) Special charges — — 26,632 Other, net 91 ( 205 ) 1,311 Total other expenses 86,693 66,455 80,082 INCOME (LOSS) BEFORE INCOME TAXES 4,953 196,620 ( 361,067 ) INCOME TAX PROVISION (BENEFIT) 2,460 44,767 ( 176,974 ) NET INCOME (LOSS) $ 2,493 $ 151,853 $ ( 184,093 ) Earnings (loss) per share to common shareholders: Basic $ 0.14 $ 8.69 $ ( 11.53 ) Diluted $ 0.14 $ 8.68 $ ( 11.53 ) Shares used for computation: Basic 17,959 17,212 15,992 Diluted 18,034 17,231 15,992 Cash dividends declared per share: $ — $ — $ 0.70 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, 2022 2021 2020 NET INCOME (LOSS) $ 2,493 $ 151,853 $ ( 184,093 ) Other comprehensive income: Change in available for sale securities, net of tax ( 799 ) 2,083 ( 178 ) Foreign currency translation adjustments — — 53 Total other comprehensive income (loss) ( 799 ) 2,083 ( 125 ) TOTAL COMPREHENSIVE INCOME (LOSS) $ 1,694 $ 153,936 $ ( 184,218 ) 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, 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 declared, $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 Share-based compensation 323 — 17,418 — — — 17,418 Shares repurchased by the Company and held as treasury shares ( 379 ) — — — — ( 29,905 ) ( 29,905 ) Stock issued under employee stock purchase plan 73 — — — — 7,939 7,939 Other comprehensive (loss) — — — ( 799 ) — — ( 799 ) Net income — — — — 2,493 — 2,493 Balance at December 31, 2022 18,128 $ 25 $ 709,471 $ 1,257 $ 1,169,968 $ ( 660,023 ) $ 1,220,698 (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 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, 2022 2021 2020 OPERATING ACTIVITIES: Net income (loss) $ 2,493 $ 151,853 $ ( 184,093 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 197,542 181,035 176,267 (Gain) loss on aircraft and other equipment disposals 2,158 ( 3,052 ) ( 1,811 ) Special charges 34,268 13,998 292,790 Share-based compensation expense 15,198 16,127 19,287 Deferred income taxes 2,178 43,761 69,344 Other adjustments 12,082 14,777 19,136 Changes in certain assets and liabilities: Accounts receivable ( 33,887 ) ( 14,717 ) 4,390 Tax receivable 3,697 143,624 ( 164,585 ) Prepaid expenses ( 10,625 ) ( 4,026 ) 10,224 Accounts payable 14,770 10,402 7,016 Accrued liabilities 58,309 48,060 ( 26,386 ) Air traffic liability 72,006 ( 55 ) 57,558 Deferred major maintenance ( 54,675 ) ( 59,747 ) ( 40,352 ) Other assets/liabilities ( 12,464 ) ( 3,847 ) ( 4,163 ) Net cash provided by operating activities 303,050 538,193 234,622 INVESTING ACTIVITIES: Purchase of investment securities ( 1,267,266 ) ( 1,248,575 ) ( 686,600 ) Proceeds from maturities of investment securities 1,301,286 954,970 504,600 Aircraft pre-delivery deposits ( 96,532 ) ( 11,924 ) — Purchase of property and equipment, including capitalized interest ( 434,690 ) ( 243,613 ) ( 281,159 ) Proceeds from sale-leaseback transactions — — 87,580 Purchase of note receivable — ( 50,000 ) — Other investing activities 5,778 5,864 9,888 Net cash (used in) investing activities ( 491,424 ) ( 593,278 ) ( 365,691 ) FINANCING ACTIVITIES: Proceeds from issuance of common stock — 335,139 — Cash dividends paid to shareholders (1) — — ( 11,361 ) Proceeds from the issuance of debt and finance lease obligations 863,627 281,657 427,987 Repurchase of common stock ( 29,905 ) — ( 33,773 ) Principal payments on debt and finance lease obligations ( 701,596 ) ( 301,096 ) ( 217,766 ) Debt issuance costs ( 14,297 ) ( 8,287 ) ( 7,203 ) Other financing activities ( 84,710 ) ( 21,946 ) 6,719 Net cash provided by financing activities 33,119 285,467 164,603 NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH ( 155,255 ) 230,382 33,534 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD 400,701 170,319 136,785 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD $ 245,446 $ 400,701 $ 170,319 CASH PAYMENTS/(RECEIPTS) FOR: Interest paid, net of amount capitalized $ 82,903 $ 43,511 $ 48,002 Income tax paid (refunds) 308 ( 128,540 ) ( 95,229 ) SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS Right-of-use (ROU) assets acquired $ — $ 33,260 $ 115,082 Purchases of property and equipment in accrued liabilities $ 54,641 $ 17,671 $ 19,294 Flight equipment acquired under finance leases 192,457 101,340 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 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, 2022, 2021 and 2020 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 Sunseeker Resort represents a separate reportable segment. Refer to Note 14 for additional information. 60 Note 2 — Sunseeker Special Charges As a result of Hurricane Ian’s direct hit on the southwest coast of Florida on September 28, 2022, the construction site of Sunseeker Resort at Charlotte Harbor (the "Resort" or "Sunseeker Resort") was damaged. Additionally in the fourth quarter, there was another weather-related event and a fire that caused additional damage. Within days after the hurricane, the Company and insurance providers began to assess the damage to the Resort and that damage assessment remains ongoing. Based on the Company’s assessment of these damages and the anticipated future restoration costs, which approximate the carrying amount of the portion of the assets that were damaged, an estimated $ 52.1 million loss was recorded, offset by $ 18.1 million of recorded insurance recoveries during the year ended December 31, 2022, resulting in a Sunseeker special charge of $ 34.0 million. This charge also reduced the carrying amount of the Resort. The estimate is preliminary and subject to change as the damage assessment by the Company and the insurance providers continues. The amount of losses recorded to date will continue to be offset in future periods by amounts to be recovered under the Company’s insurance policies. In 2023, the Company expects to receive insurance proceeds approximating the losses recorded to date. 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. The Company has reclassified certain prior period amounts to conform to the current period presentation . Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments and interest bearing instruments with original maturities of three months or less when purchased. 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 recorded at invoiced 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, 2022, 2021, and 2020. 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 expendable parts, supplies and fuel 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 $ 8.1 million and $ 6.0 million at December 31, 2022 and 2021, respectively. Deposits and Other Assets Deposits and Other Assets consist primarily of airport deposits, aircraft lease 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 62 outstanding receivables from third parties as of December 31, 2022 and 2021, of which $ 18.3 million and $ 12.4 million respectively, was due more than one year after the balance sheet date. 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 - 15 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 by applying a capitalization rate to the weighted-average carrying amount of expenditures for qualifying assets over the period and depreciated over the estimated useful life of the related asset(s) acquired/developed. 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 $ 80.2 million and $ 43.3 million as of December 31, 2022 and 2021, respectively. Amortization expense related to computer software was $ 15.2 million, $ 10.6 million and $ 9.6 million for the years ended December 31, 2022, 2021 and 2020 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 maintenance and repair expenses as 63 incurred. Maintenance and repair costs include all parts, materials, and line maintenance activities required to maintain the Company's fleet. The Company accounts for major maintenance costs of its Airbus airframes and the related CFM engines using the deferral method. Under this method, the Company capitalizes the cost of major maintenance events, which are amortized as a component of depreciation and amortization expense, over the estimated period until the next scheduled major maintenance event. During 2022 and 2021, the Company capitalized $ 4.1 million and $ 23.3 million of major maintenance costs for engines. Amortization expense related to major maintenance costs for engines was $ 21.5 million, $ 21.0 million, and 17.6 million for the years ended December 31, 2022, 2021, and 2020 respectively. During 2022 and 2021, the Company capitalized $ 56.5 million and $ 39.0 million of major maintenance costs for airframes. Amortization expense related to major maintenance costs for airframes was $ 22.3 million, $ 21.1 million and $ 19.9 million for the years ended December 31, 2022, 2021 and 2020 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, 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. The Company did not recognize any impairment for the year ended December 31, 2022. Revenue Recognition Passenger revenue Passenger revenue includes scheduled service revenue, ancillary air-related charges, and travel point redemptions from the co-branded Allegiant 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 in scheduled service revenue 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. 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. 64 Fixed fee contract revenue Fixed fee contract revenue consists of agreements to provide charter service on a year-round and ad hoc basis. Fixed fee contract revenue is recognized when the transportation is provided. Affinity Credit Card Program The Allegiant co-branded credit card 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 co-branded credit card. 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. The stand alone selling price of points is adjusted for an estimate of points that will not be redeemed using a statistical model based on historical redemption patterns to develop an estimate of the likelihood of future redemption. Advertising Costs Advertising costs are charged to expense in the period incurred. Advertising expense was $ 40.1 million, $ 31.3 million and $ 12.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. 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, 2022 and 2021, the second method above was used in the computation because it was more dilutive than the first method. Given the net loss generated 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) 2022 2021 2020 Basic: Net income (loss) $ 2,493 $ 151,853 $ ( 184,093 ) Less income allocated to participating securities ( 32 ) ( 2,218 ) ( 236 ) Net income (loss) attributable to common stock $ 2,461 $ 149,635 $ ( 184,329 ) Earnings (loss) per share, basic $ 0.14 $ 8.69 $ ( 11.53 ) Weighted-average shares outstanding 17,959 17,212 15,992 Diluted: Net income (loss) $ 2,493 $ 151,853 $ ( 184,093 ) Less income allocated to participating securities ( 32 ) ( 2,215 ) ( 236 ) Net income (loss) attributable to common stock $ 2,461 $ 149,638 $ ( 184,329 ) Earnings (loss) per share, diluted $ 0.14 $ 8.68 $ ( 11.53 ) Weighted-average shares outstanding 17,959 17,212 15,992 Dilutive effect of stock options and restricted stock 132 145 — Adjusted weighted-average shares outstanding under treasury stock method 18,091 17,357 15,992 Participating securities excluded under two-class method ( 57 ) ( 126 ) — Adjusted weighted-average shares outstanding under two-class method 18,034 17,231 15,992 Stock awards outstanding of 79,644 , 815 , and 24,004 shares (not in thousands) as of December 31, 2022, 2021, and 2020, 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 Not e 1 2 . 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 assets and liabilities 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 January 7, 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848). This new standard provides optional temporary guidance for entities transitioning away from London Interbank Offered Rate ("LIBOR") to new reference interest rates so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions with Topic 848. These amendments do not apply to any contract modifications made after December 31, 2024, any new hedging relationships entered into after December 31, 2024, or to existing hedging relationships evaluated for effectiveness existing as of December 31, 2024, that apply certain optional practical expedients. This standard was effective immediately and may be applied (i) on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or (ii) on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. The Company had no material LIBOR-related contract modifications during the twelve months ended December 31, 2022. 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) 2022 2021 2020 Scheduled service $ 1,062,753 $ 769,371 $ 435,668 Ancillary air-related charges 1,025,549 788,064 453,545 Loyalty redemptions 49,460 21,001 12,974 Total passenger revenue $ 2,137,762 $ 1,578,436 $ 902,187 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, 2022, the air traffic liability balance was $ 379.5 million, of which approximately $ 308.7 million was related to forward bookings, with the remaining $ 70.8 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, 2021, 77.0 percent was recognized into passenger revenue during the 12 months ended December 31, 2022. 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 The following table presents the activity of the co-brand credit card and the loyalty program as of the dates indicated: Year Ended December 31, (in thousands) 2022 2021 Balance at January 1 $ 40,490 $ 21,841 Points awarded 65,511 39,650 Points redeemed ( 49,460 ) ( 21,001 ) Balance at December 31 $ 56,541 $ 40,490 As of December 31, 2022 and 2021, $ 32.9 million and $ 17.8 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) 2022 2021 Flight equipment $ 2,937,767 $ 2,573,657 Computer hardware and software 209,808 160,237 Land and buildings/leasehold improvements 62,227 59,735 Other property and equipment 95,156 78,192 Sunseeker Resort 320,572 83,864 Total property and equipment 3,625,530 2,955,685 Less accumulated depreciation and amortization ( 814,837 ) ( 696,178 ) Property and equipment, net $ 2,810,693 $ 2,259,507 As of December 31, 2022, the Company had firm commitments to purchase 54 aircraft which are expected to be delivered between 2023 and 2025. Accrued capital expenditures as of December 31, 2022 and 2021 were $ 54.6 million and $ 17.7 million, respectively. 69 Note 6 — Long-Term Debt Long-term debt consisted of the following: As of December 31, (in thousands) 2022 2021 Fixed-rate debt and finance lease obligations due through 2032 $ 1,720,998 $ 827,382 Variable-rate debt due through 2029 375,980 915,157 Total long-term debt and finance lease obligations, net of related costs 2,096,978 1,742,539 Less current maturities, net of related costs 152,900 130,053 Long-term debt and finance lease obligations, net of current maturities and related costs $ 1,944,078 $ 1,612,486 Weighted average fixed-interest rate on debt 6.5 % 5.8 % Weighted average variable-interest rate on debt 6.1 % 2.5 % Interest Rate(s) Per Annum at As of December 31, (in thousands) Maturity Dates December 31, 2022 2022 2021 Term Loan and senior secured notes 2024 — 2027 7.25 % — 8.50 % $ 700,000 $ 685,857 Consolidated variable interest entities 2024 — 2029 3.23 % — 4.10 % 79,453 88,513 Revolving credit facilities 2023 — 2027 6.83 % 30,327 — Debt secured by aircraft, engines, other equipment and real estate 2023 — 2029 1.87 % — 7.16 % 466,335 472,267 Finance leases 2023 — 2032 4.44 % — 8.36 % 494,328 318,493 Construction loan agreement 2028 5.75 % 350,000 175,000 Unsecured debt n/a n/a — 25,824 Total debt $ 2,120,443 $ 1,765,954 Related costs ( 23,465 ) ( 23,415 ) Total debt net of related costs $ 2,096,978 $ 1,742,539 Maturities of long-term debt as of December 31, 2022, for the next five years and thereafter, in the aggregate, are: (in thousands) As of December 31, 2022 2023 $ 152,900 2024 330,615 2025 159,708 2026 153,255 2027 707,481 Thereafter 593,019 Total debt and finance lease obligations, net of related costs $ 2,096,978 Senior Secured Notes In August, 2022, the Company issued $ 550.0 million in aggregate principal amount of its 7.250 % Senior Secured Notes due 2027 (the “2027 Notes”) pursuant to an Indenture, dated as of August 17, 2022. The 2027 Notes are secured by first priority security interests in, subject to permitted liens, substantially all of the property and assets of the Company and its subsidiaries (other than Sunseeker Resort and its subsidiaries), except that the collateral package excludes aircraft, aircraft engines, real property and certain other assets. The collateral also secures the Company’s existing $ 150.0 million 8.500 % Senior Secured Notes due 2024 and the Company’s revolving credit facility through Barclays Bank, PLC (described below), on a pari passu basis. The 2027 Notes bear interest at a fixed rate of 7.25 percent per annum, payable in cash on February 15 and August 15 of each year, beginning February 15, 2023. The 2027 Notes will mature on August 15, 2027. 70 The 2027 Notes contain certain covenants that limit the ability of the Company to, among other things: (i) make restricted payments; (ii) incur indebtedness or issue preferred stock; (iii) create or incur certain liens; (iv) dispose of loyalty program or brand intellectual property collateral; (v) merge, consolidate or sell all or substantially all assets and (vi) enter into certain transactions with affiliates. The 2027 Notes also require the Company to comply with certain affirmative covenants, including to maintain a minimum aggregate amount of liquidity of $ 300.0 million. If the Company fails to satisfy the minimum liquidity requirement, then the Company will be required to pay additional interest on all outstanding 2027 Notes in an amount equal to 2.0 % per annum of the principal amount of such 2027 Notes until the Company demonstrates compliance with the liquidity requirement. The Company used the net proceeds from the sale of the 2027 Notes to repay the Company’s Term Loan B, which had an outstanding principal amount of $ 533.0 million, and to pay costs and expenses of the transaction. 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 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 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, and the American Rescue Plan Act enacted in March 2021 (collectively the “Payroll Support Programs”). 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 PSP Notes were to mature in full after ten years, and bore 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 were prepayable at any time at par, without penalty. As of December 31, 2022, the Company had fully repaid the PSP Notes. Revolving Credit Facilities In August, 2022, the Company entered into a credit agreement with MUFG Bank, Ltd under which the Company is entitled to borrow up to $ 100.0 million. The revolving credit facility has a term of 24 months and the borrowing ability is based on the value of aircraft and engines placed into the collateral pool. The notes under the facility bear interest at a floating rate based on SOFR. As of December 31, 2022, the facility remains undrawn. In August, 2022, the Company entered into a credit agreement with certain lenders and Barclays Bank PLC as administrative agent and lead arranger that provides a senior secured revolving loan facility of $ 75.0 million. The facility is secured by the same collateral that secures the 2027 Notes, has a term of 57 months and notes under the facility bear interest at a floating rate based on SOFR. As of December 31, 2022, the facility remains undrawn. 71 In September, 2022, the Company entered into a credit agreement with Norddeutsche Landesbank Girozentrale (acting through its New York branch) and Landesbank Hessen-Thüringen Girozentrale (the "Lenders") under which the Company is entitled to borrow up to $ 300.0 million. The revolving credit facility has a term of 24 months and the borrowing ability is based on the amount of pre-delivery deposits paid with respect to up to 20 737-MAX aircraft, the purchase rights for which the Company may choose to place in the collateral pool. The facility is secured by the purchase rights for the applicable aircraft. The commitment amount at the time of signing is $ 200.0 million and the facility may be increased to $ 300.0 million subject to agreement between the Company and the Lenders. Any notes under the facility will bear interest at a floating rate based on SOFR and all borrowings will be due no later than December 31, 2024 or upon delivery of the applicable aircraft. As of December 31, 2022, the Company has drawn $ 30.3 million under this facility. In March 2021, the Company entered into a 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, 2022, no aircraft collateral had been added to the collateral pool and the facility was undrawn. Other Secured Debt The Company is party to financing agreements under which aircraft, other equipment or other assets serve as collateral. Below are described those debt transactions entered into during 2022. In April 2022, the Company borrowed $ 62.3 million under a loan agreement secured by Airbus A320 series aircraft. The notes bear interest at a fixed rate, payable in quarterly installments maturing in April 2027. In April 2022, the Company borrowed $ 46.0 million under a loan agreement secured by Airbus A320 series aircraft. The notes bear interest at a variable rate, payable in quarterly installments maturing 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 has borrowed $ 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. 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 2027 Notes. To support the credit, the Company has guaranteed the full amount of the debt, has agreed to guarantee completion of the remaining construction in accordance with approved plans and specifications and made a $ 30.0 million deposit into a construction disbursement account. The lender funded $ 175.0 million of the loan in October 2021 and in 2022, the Lender funded the remaining $ 175.0 million into the construction disbursement account for the Resort. As of December 31, 2022, $ 117.5 million of borrowed funds remains in the construction disbursement account which is recorded in other current assets. Finance Leases The Company has finance lease obligations related to 24 aircraft, which impacted the Company's recognized assets and liabilities as of December 31, 2022. See Note 7 for more information on finance lease obligations. 72 Note 7 — Leases The Company had 24 aircraft under finance leases and 17 aircraft under operating leases as of December 31, 2022 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 2022 2021 Finance lease costs: Amortization of assets Depreciation and amortization $ 17,579 $ 13,274 Interest on lease liabilities Interest expense 23,034 11,168 Operating lease cost Aircraft lease rentals; Station operations; Maintenance and repairs; Other operating expense 24,986 22,697 Variable lease cost Station operations; Maintenance and repairs; Other operating expense 1,469 2,565 Total lease cost $ 67,068 $ 49,704 Lease position as of December 31, 2022 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 2022 2021 Assets Operating lease assets Operating lease right-of-use assets, net $ 111,679 $ 130,087 Finance lease assets Property and equipment, net 537,766 338,469 Total lease assets $ 649,445 $ 468,556 Liabilities Current Operating Current operating lease liabilities $ 19,973 $ 19,081 Finance Current maturities of long-term debt and finance lease obligations 39,080 16,960 Noncurrent Operating Noncurrent operating lease liabilities 94,972 115,067 Finance Long-term debt and finance lease obligations 455,248 301,532 Total lease liabilities $ 609,273 $ 452,640 Weighted-average remaining lease term Operating leases 7.0 years 7.7 years Finance leases 7.8 years 7.8 years Weighted-average discount rate Operating leases 5.4 % 5.4 % Finance leases 5.9 % 5.2 % 73 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) 2022 2021 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows for operating leases $ 25,775 $ 18,987 Operating cash flows for finance leases 22,366 10,697 Financing cash flows for finance leases 16,621 14,675 Maturities of Lease Liabilities The table below indicates the future minimum payments of lease liabilities as of December 31, 2022. (in thousands) Operating Leases Finance Leases 2023 $ 25,549 $ 66,751 2024 25,241 51,408 2025 23,158 51,408 2026 13,184 51,108 2027 10,955 51,108 Thereafter 38,362 402,094 Total lease payments 136,449 673,877 Less imputed interest ( 21,504 ) ( 179,549 ) Total lease obligations 114,945 494,328 Less current obligations ( 19,973 ) ( 39,080 ) Long-term lease obligations $ 94,972 $ 455,248 74 Note 8 — Shareholders’ Equity The Company is authorized by its Board of Directors to acquire the Company’s stock through open market purchases under its share repurchase program. As repurchase authority is exhausted, the Board of Directors has, to date, authorized additional expenditures for share repurchases. 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 agreed not to repurchase stock through September 30, 2022. The Company recommenced repurchasing shares in the fourth quarter 2022 after those restrictions expired. Share repurchases consisted of the following during the periods indicated: Year Ended December 31, 2022 2021 2020 Shares repurchased (1) 377,529 — 197,570 Average price per share $ 78.94 $ — $ 155.14 Total (in thousands) $ 29,802 $ — $ 30,651 (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 1,423 and 19,001 shares (not in thousands) for 2022 and 2020, respectively. Cash dividends declared by the Board and paid by the Company consisted of the following during the periods indicated: Year Ended December 31, 2022 2021 2020 Total quarterly cash dividends declared, per share $ — $ — $ 0.70 Total cash dividends paid (in thousands) — — 11,361 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 agreed not to pay cash dividends through September 30, 2022. The Company has yet to recommence payment of cash dividends. 75 Note 9 — Fair Value Measurements Investments The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Accounting standards pertaining to fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1 - Defined as observable inputs such as quoted prices in active markets for identical assets or liabilities Level 2 - Defined as inputs other than Level 1 inputs that are either directly or indirectly observable Level 3 - Defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions The Company uses the market approach valuation technique to determine fair value for investment securities. The assets classified as Level 1 consist of money market funds for which original cost approximates fair value. The assets classified as Level 2 consist of commercial paper, municipal debt securities, federal agency debt securities 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, 2022 As of December 31, 2021 (in thousands) Total Level 1 Level 2 Total Level 1 Level 2 Cash equivalents Money market funds $ 88,073 $ 88,073 $ — $ 25,019 $ 25,019 $ — Commercial paper 50,791 — 50,791 179,455 — 179,455 Municipal debt securities 8,599 — 8,599 63,875 — 63,875 Total cash equivalents 147,463 88,073 59,390 268,349 25,019 243,330 Short-term Commercial paper 421,279 — 421,279 419,469 — 419,469 Corporate debt securities 166,136 — 166,136 234,436 — 234,436 Federal agency debt securities 107,222 — 107,222 — — — Municipal debt securities 30,426 — 30,426 165,572 — 165,572 Total short-term 725,063 — 725,063 819,477 — 819,477 Long-term Corporate debt securities 35,688 — 35,688 — — — Federal agency debt securities 20,050 — 20,050 — — — Municipal debt securities 7,580 — 7,580 2,231 — 2,231 Total long-term 63,318 — 63,318 2,231 — 2,231 Total financial instruments $ 935,844 $ 88,073 $ 847,771 $ 1,090,057 $ 25,019 $ 1,065,038 There were no significant transfers between Level 1 and Level 2 assets for the years ended December 31, 2022 or 2021. 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. 76 Carrying value and estimated fair value of long-term debt, including current maturities and without reduction for related costs: As of December 31, 2022 As of December 31, 2021 (in thousands) Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Fair Value Level Non-publicly held debt $ 1,626,114 $ 1,561,939 $ 1,447,462 $ 1,261,170 3 Other Due to the short term nature, carrying amounts of cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value. 77 Note 10 — 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. 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) 2022 2021 2020 Domestic $ 4,953 $ 196,620 $ ( 361,242 ) Foreign — — 175 Total $ 4,953 $ 196,620 $ ( 361,067 ) Income Tax Provision/(Benefit) The provision (benefit) for income taxes is composed of the following: Year ended December 31, (in thousands) 2022 2021 2020 Current: Federal $ 6 $ ( 494 ) $ ( 195,572 ) State 73 552 ( 211 ) Foreign 209 ( 6 ) 132 Total current 288 52 ( 195,651 ) Deferred: Federal 1,189 40,693 24,126 State 983 4,022 ( 5,449 ) Total deferred 2,172 44,715 18,677 Total income tax provision (benefit) $ 2,460 $ 44,767 $ ( 176,974 ) 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) 2022 2021 2020 Income tax expense (benefit) at federal statutory rate $ 1,040 $ 41,575 $ ( 70,459 ) State income taxes, net of federal income tax benefit 1,189 4,257 ( 5,495 ) CARES Act — — ( 97,988 ) Foreign income tax expense 210 ( 6 ) 132 Other 21 ( 1,059 ) ( 3,164 ) Total income tax expense (benefit) $ 2,460 $ 44,767 $ ( 176,974 ) 78 Deferred Taxes The major components of the Company’s net deferred tax assets and liabilities are as follows: As of December 31, (in thousands) 2022 2021 Deferred tax assets: Employee benefits $ 9,938 $ 6,656 Net operating loss 30,370 7,827 Tax credits 4,290 4,523 Other (1) 18,644 1,295 Less: valuation allowance 1,214 1,214 Total deferred tax assets 62,028 19,087 Deferred tax liabilities: Prepaid expenses 4,223 3,625 Depreciation 399,622 352,123 Other 4,571 9,476 Total deferred tax liabilities 408,416 365,224 Net deferred tax liabilities $ 346,388 $ 346,137 (1) Other deferred tax assets consists of interest expense and R&D expenses. Net Operating Loss and Tax Credit Carryforwards At December 31, 2022, the Company recognized $ 22.8 million and $ 7.5 million of tax-effected Federal and state net operating loss carryforwards respectively. Under the current law, the Federal net operating losses do not expire. While a portion of the state net operating loss carryforward amounts will expire between 2023 and 2040, the majority of these net operating losses have an indefinite carryforward period. 79 Note 11— Related Party Transactions During the years ended December 31, 2022, 2021 and 2020, there were no related party transactions that required disclosure. 80 Note 12 — Employee Benefit Plans 401(k) Plan The Company has a defined contribution plan covering all eligible employees. Under the plan, employees may contribute up to 90 percent of their eligible annual compensation with the Company making matching contributions on employee deferrals of up to 5 percent of eligible employee wages. The matching contributions on pilot deferrals is 200 percent for the first 5 percent of eligible wages as provided under the pilot collective bargaining agreement. The Company recognized expense under this plan of $ 24.0 million, $ 21.4 million, and $ 18.6 million for the years ended December 31, 2022, 2021 and 2020, 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 2022 Long-Term Incentive Plan (the "2022 Plan"). The 2022 Plan is administered by the 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 2022, 2021, and 2020: 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, 2020 56,866 $ 90.63 $ 14.10 As of December 31, 2021 39,760 $ 174.68 $ 30.00 As of December 31, 2022 73,268 $ 97.85 $ 16.25 (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, 2022, 2021 and 2020, the Company recorded compensation expense of $ 16.3 million, $ 17.2 million and $ 20.1 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 $ 32.4 million as of December 31, 2022 for unvested restricted stock expected to be recognized over a weighted-average period of 1.86 years. As of December 31, 2022, there was $ 0.9 million unrecognized compensation cost related to stock options and no unrecognized compensation cost for cash-settled SARs. 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. The majority of the Company's unvested restricted stock awards, subject generally to the individual's continued employment or service, vest one third each year over a three year period. A summary of the status of non-vested restricted stock grants during the y ears ended December 31, 2022, 2021 and 2020 is presented below: Shares Weighted Average Grant Date Fair Value Per Share 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 Granted 374,540 89.31 Vested ( 74,170 ) 180.54 Forfeited ( 52,055 ) 123.01 Non-vested at December 31, 2022 429,868 $ 109.33 The total fair value of restricted stock that vested during the years ended December 31, 2022, 2021 and 2020 was $ 13.4 million, $ 27.0 million and $ 43.0 million, respectively. 81 Note 13 — 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 2023 to 2048. Refer to Note 7 for more information on the Company's lease agreements. The Company's contractual purchase commitments consist primarily of aircraft and engine acquisitions. The total future commitments are as follows: (in thousands) As of December 31, 2022 2023 536,617 2024 914,693 2025 480,992 Total purchase commitments $ 1,932,302 Aircraft Commitments As of December 31, 2022, the Company had entered into purchase agreements for 54 aircraft which are expected to deliver between 2023 through 2025. Contingencies The Company is party to collective bargaining agreements with the employee groups listed below. As of December 31, 2022, the percentage of full-time equivalent employees for each of these pay groups was as follows: As of December 31, 2022 Flight Attendants 32.7 % Pilots 20.9 Maintenance Technicians 10.1 Flight Dispatchers 0.9 Total 64.6 % As of December 31, 2022, the Company employed approximately 5,300 full-time equivalent employees, 53.6 percent of whom are covered by collective bargaining agreements with various labor unions that are currently amendable or will become amendable in one year. 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. 82 Note 14 — 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 renovation of Aileron Golf Course (formerly known as 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. 83 Selected information for the Company's segments and the reconciliation to the consolidated financial statement amounts are as follows: (in thousands) Airline Sunseeker Resort Consolidated Year Ended December 31, 2022 Operating revenue: Passenger $ 2,137,762 $ — $ 2,137,762 Third party products 100,959 — 100,959 Fixed fee contract 60,937 — 60,937 Other 2,169 2 2,171 Operating income (loss) 136,968 ( 45,322 ) 91,646 Interest expense, net (1) 72,008 7,714 79,722 Depreciation and amortization 197,433 109 197,542 Capital expenditures 475,254 288,408 763,662 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 1,803 — 1,803 Operating income (loss) 271,073 ( 7,998 ) 263,075 Interest expense, net (1) 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 13,889 650 14,539 Operating income (loss) ( 135,264 ) ( 145,721 ) ( 280,985 ) Interest expense, net (1) 50,355 562 50,917 Depreciation and amortization 175,652 615 176,267 Capital expenditures 263,190 45,160 308,350 (1) Excludes losses on debt extinguishment. Total assets were as follows as of the dates indicated: (in thousands) As of December 31, 2022 As of December 31, 2021 Airline $ 4,047,134 $ 3,872,041 Sunseeker Resort 464,163 119,032 Consolidated $ 4,511,297 $ 3,991,073 84 Note 15 — Subsequent Events On February 1, 2023, the Company, through a wholly owned subsidiary, entered into a new senior secured revolving credit facility under which it will be able to borrow up to $ 100.0 million based on the value of new and used aircraft and engines which the Company may choose (subject to certain concentration limits and asset age restrictions) to place in the collateral pool. The facility has a term of 36 months and once placed in the facility, such aircraft and engines may remain in the facility for the duration of the term at Company discretion. This credit facility will replace the revolving credit facility with the same lender which was to expire in March 2023. In February 2023, the Company, through a wholly owned subsidiary, entered into agreements with a trust to borrow $ 27.0 million secured by one Airbus A320 aircraft. The borrowing bears interest at a fixed rate and will be payable in monthly installments through March 2029, at which time, the Company will have a purchase option at a fixed amount. The aircraft was previously under a finance lease and a portion of the funds were used to exercise the purchase option. The balance of the proceeds from the loan will be used for general corporate purposes. 85 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.