Allegiant Travel CO 10-K

Item 8. Financial Statements and Supplementary Data 53 Index to Consolidated Financial Statements Title Page No. Report of Independent Registered Public Accounting Firm (PCAOB ID 165) 55 Consolidated Balance Sheets as of December 31, 2023 and 2022 57 Consolidated Statements of Income for the years ended December 31, 2023, 2022, and 2021 58 Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022, and 2021 59 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2023, 2022, and 2021 60 Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021 61 Notes to Consolidated Financial Statements for the years ended December 31, 2023, 2022, and 2021 62 Note 1 - Organization and Business of Company 62 Note 2 - Summary of Significant Accounting Policies 63 Note 3 - Special Charges 69 Note 4 - Revenue Recognition 70 Note 5 - Property and Equipment 71 Note 6 - Long-Term Debt 72 Note 7 - Leases 75 Note 8 - Shareholders' Equity 77 Note 9 - Fair Value Measurements 78 Note 10 - Income Taxes 80 Note 11 - Related Party Transactions 82 Note 12 - Employee Benefit Plans 83 Note 13 - Commitments and Contingencies 84 Note 14 - Segments 85 54 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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, 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, 2023, 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 29, 2024 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 3 to the consolidated financial statements, the Sunseeker Resort at Charlotte Harbor (Sunseeker Resort) was damaged during 2023 as a result of Hurricane Idalia. Based on the Company’s assessment of the damage and the anticipated future restoration costs, which approximate the carrying amount of the portion of the assets that were damaged, an estimated $23.6 million loss was recorded as a reduction to the carrying amount of the Sunseeker Resort during the year ended December 31, 2023. 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 adjustor. We compared the confirmation of the future restoration costs from the insurance claim adjustor to the 55 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 29, 2024 56 ALLEGIANT TRAVEL COMPANY CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) December 31, 2023 December 31, 2022 CURRENT ASSETS Cash and cash equivalents $ 143,259 $ 229,989 Restricted cash 16,325 15,457 Short-term investments 671,414 725,063 Accounts receivable 70,743 106,578 Expendable parts, supplies and fuel, net of reserve of $ 10,284 and $ 8,079 36,335 35,546 Prepaid expenses and other current assets 63,054 161,636 TOTAL CURRENT ASSETS 1,001,130 1,274,269 Property and equipment (including $ 129,646 and $ 80,591 from VIEs, Note 6), net of accumulated depreciation of $ 964,866 and $ 814,837 3,447,111 2,810,693 Long-term investments 56,004 63,318 Deferred major maintenance, net of accumulated amortization of $ 143,275 and $ 108,779 165,767 157,410 Operating lease right-of-use assets, net 100,707 111,679 Deposits and other assets 98,691 $ 93,928 TOTAL ASSETS: $ 4,869,410 $ 4,511,297 CURRENT LIABILITIES Accounts payable 54,484 58,335 Accrued liabilities 305,078 226,276 Current operating lease liabilities 20,873 19,973 Air traffic liability 353,488 379,459 Current loyalty program liability 38,447 32,888 Current maturities of long-term debt and finance lease obligations (including $ 22,627 and $ 9,315 from VIEs, Note 6), net of related costs of $ 8,038 and $ 6,599 439,937 152,900 TOTAL CURRENT LIABILITIES 1,212,307 869,831 LONG-TERM DEBT AND OTHER NONCURRENT LIABILITIES Long-term debt and finance lease obligations (including $ 107,737 and $ 69,812 from VIEs, Note 6), net of current maturities and related costs of $ 14,477 and $ 16,866 1,819,717 1,944,078 Deferred income taxes 384,602 346,388 Noncurrent operating lease liabilities 82,410 94,972 Noncurrent loyalty program liability 32,366 23,612 Other noncurrent liabilities 9,448 11,718 TOTAL LIABILITIES: $ 3,540,850 $ 3,290,599 COMMITMENTS AND CONTINGENCIES (NOTE 13) SHAREHOLDERS' EQUITY Common stock, par value $ 0.001 , 100,000,000 shares authorized; 25,501,823 and 25,086,278 shares issued; 18,269,090 and 18,128,182 shares outstanding in 2023 and 2022 respectively 26 25 Treasury shares, at cost, 7,232,733 and 6,958,096 shares in 2023 and 2022, respectively ( 681,932 ) ( 660,023 ) Additional paid in capital 741,055 709,471 Accumulated other comprehensive income, net 3,991 1,257 Retained earnings 1,265,420 1,169,968 TOTAL EQUITY: $ 1,328,560 $ 1,220,698 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY: $ 4,869,410 $ 4,511,297 The accompanying notes are an integral part of these consolidated financial statements. 57 ALLEGIANT TRAVEL COMPANY CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) Year Ended December 31, 2023 2022 2021 OPERATING REVENUES: Passenger $ 2,324,397 $ 2,137,762 $ 1,578,436 Third party products 112,579 100,959 86,487 Fixed fee contracts 68,548 60,937 41,184 Other 4,333 2,171 1,803 Total operating revenues 2,509,857 2,301,829 1,707,910 OPERATING EXPENSES: Aircraft fuel 695,871 814,803 440,235 Salaries and benefits 687,803 552,413 484,573 Station operations 256,560 255,168 243,346 Depreciation and amortization 223,130 197,542 181,035 Maintenance and repairs 123,802 117,814 105,943 Sales and marketing 114,616 100,678 72,742 Aircraft lease rentals 24,948 23,621 21,242 Other 133,501 113,532 83,902 Payroll Support Programs grant recognition — — ( 202,181 ) Special charges, net of recoveries 28,645 34,612 13,998 Total operating expenses 2,288,876 2,210,183 1,444,835 OPERATING INCOME 220,981 91,646 263,075 OTHER (INCOME) EXPENSES: Interest income ( 46,615 ) ( 16,469 ) ( 1,814 ) Interest expense 153,186 115,711 68,474 Capitalized interest ( 45,132 ) ( 12,640 ) — Other, net 491 91 ( 205 ) Total other expenses 61,930 86,693 66,455 INCOME BEFORE INCOME TAXES 159,051 4,953 196,620 INCOME TAX PROVISION 41,455 2,460 44,767 NET INCOME $ 117,596 $ 2,493 $ 151,853 Earnings per share to common shareholders: Basic $ 6.32 $ 0.14 $ 8.69 Diluted $ 6.29 $ 0.14 $ 8.68 Shares used for computation: Basic 17,945 17,959 17,212 Diluted 18,019 18,034 17,231 Cash dividends declared per share: $ 1.20 $ — $ — The accompanying notes are an integral part of these consolidated financial statements. 58 ALLEGIANT TRAVEL COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Year Ended December 31, 2023 2022 2021 NET INCOME $ 117,596 $ 2,493 $ 151,853 Other comprehensive income: Change in available for sale securities, net of tax 2,734 ( 799 ) 2,083 TOTAL COMPREHENSIVE INCOME $ 120,330 $ 1,694 $ 153,936 The accompanying notes are an integral part of these consolidated financial statements. 59 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, 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 Share-based compensation 415 1 31,584 — — — 31,585 Shares repurchased by the Company and held as treasury shares ( 374 ) — — — — ( 30,076 ) ( 30,076 ) Stock issued under employee stock purchase plan 100 — — — — 8,167 8,167 Cash dividends, $ 1.20 per share — — — — ( 22,144 ) — ( 22,144 ) Other comprehensive income — — — 2,734 — — 2,734 Net income — — — — 117,596 — 117,596 Balance at December 31, 2023 18,269 $ 26 $ 741,055 $ 3,991 $ 1,265,420 $ ( 681,932 ) $ 1,328,560 The accompanying notes are an integral part of these consolidated financial statements. 60 ALLEGIANT TRAVEL COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year ended December 31, 2023 2022 2021 OPERATING ACTIVITIES: Net income $ 117,596 $ 2,493 $ 151,853 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 223,130 197,542 181,035 (Gain) loss on aircraft and other equipment disposals 920 2,158 ( 3,052 ) Special charges, net of recoveries 27,189 34,268 13,998 Share-based compensation expense 29,749 15,198 16,127 Deferred income taxes 38,214 2,178 43,761 Other adjustments ( 11,284 ) 12,082 14,777 Changes in certain assets and liabilities: Accounts receivable 29,390 ( 33,887 ) ( 14,717 ) Tax receivable 3,932 3,697 143,624 Prepaid expenses ( 1,825 ) ( 10,625 ) ( 4,026 ) Accounts payable ( 5,031 ) 14,770 10,402 Accrued liabilities 79,881 58,309 48,060 Air traffic liability ( 25,971 ) 72,006 ( 55 ) Deferred major maintenance ( 67,862 ) ( 54,675 ) ( 59,747 ) Other assets/liabilities ( 14,936 ) ( 12,464 ) ( 3,847 ) Net cash provided by operating activities 423,092 303,050 538,193 INVESTING ACTIVITIES: Purchase of investment securities ( 890,880 ) ( 1,267,266 ) ( 1,248,575 ) Proceeds from maturities of investment securities 976,804 1,301,286 954,970 Aircraft pre-delivery deposits ( 342,167 ) ( 96,532 ) ( 11,924 ) Purchase of property and equipment, including capitalized interest ( 528,320 ) ( 434,690 ) ( 243,613 ) Purchase of note receivable — — ( 50,000 ) Insurance proceeds from damage to property & equipment 35,730 5,450 98 Other investing activities 26,956 328 5,766 Net cash used in investing activities ( 721,877 ) ( 491,424 ) ( 593,278 ) FINANCING ACTIVITIES: Proceeds from issuance of common stock — — 335,139 Cash dividends paid to shareholders ( 22,144 ) — — Proceeds from the issuance of debt and finance lease obligations 642,581 863,627 281,657 Repurchase of common stock ( 30,078 ) ( 29,905 ) — Principal payments on debt and finance lease obligations ( 480,818 ) ( 701,596 ) ( 301,096 ) Debt issuance costs ( 7,116 ) ( 14,297 ) ( 8,287 ) Sunseeker construction financing disbursements (deposits) 102,330 ( 92,650 ) ( 30,000 ) Other financing activities 8,168 7,940 8,054 Net cash provided by financing activities 212,923 33,119 285,467 NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH ( 85,862 ) ( 155,255 ) 230,382 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD 245,446 400,701 170,319 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD $ 159,584 $ 245,446 $ 400,701 CASH PAYMENTS/(RECEIPTS) FOR: Interest paid, net of amount capitalized $ 111,912 $ 82,903 $ 43,511 Income tax paid (refunds) 1,012 308 ( 128,540 ) SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS Right-of-use (ROU) assets acquired $ 8,320 $ — $ 33,260 Purchases of property and equipment in accrued liabilities $ 71,672 $ 54,641 $ 17,671 Flight equipment acquired under finance leases — 192,457 101,340 The accompanying notes are an integral part of these consolidated financial statements. 61 ALLEGIANT TRAVEL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2023, 2022 and 2021 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 owns and operates the Sunseeker Resort and Aileron, the related golf course. 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. 62 Note 2 — Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include the accounts of Allegiant Travel Company and its majority-owned operating subsidiaries. The Company's investments in unconsolidated affiliates, which are 50 percent or less owned, are accounted for under the equity or cost method. All intercompany balances and transactions have been eliminated. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from these estimates. The Company 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, 2023, 2022, and 2021. 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 fleet. The obsolescence allowance for expendable parts and supplies was $ 10.3 million and $ 8.1 million at December 31, 2023 and 2022, 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 for the Sunseeker Resort and a note receivable from the counter-party in the Company’s joint venture alliance. 63 The Company also had outstanding receivables from third parties as of December 31, 2023 and 2022, of which $ 17.0 million and $ 18.3 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. At lease commencement, the present value of lease payments is calculated using the rate implicit in the lease, if known, or an estimated incremental borrowing rate 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 using the rate implicit in the lease, if known, or on the basis of the Company’s estimated 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 - 39 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. The Company is required to make pre-delivery payments ("PDPs") towards the purchase price of new aircraft and engines prior to delivery. These deposits are included in flight equipment on the Company's consolidated balance sheets. 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 fifteen years . The Company had unamortized computer software development costs of $ 139.1 million and $ 80.2 million as of December 31, 2023 and 2022, respectively. Amortization expense related to computer software was $ 12.4 million, $ 15.2 million and $ 10.6 million for the years ended December 31, 2023, 2022 and 2021 respectively. Costs incurred during the preliminary and post-implementation stages are expensed as incurred. 64 Aircraft Maintenance and Repair Costs The Company accounts for all non-major maintenance and repair costs incurred for its fleet under the direct expense method. Under this method, maintenance and repair costs for aircraft are charged to maintenance and repair expenses as 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 airframes and 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 2023 and 2022, the Company capitalized $ 68.5 million and $ 60.6 million of major maintenance costs. Amortization expense related to major maintenance costs was $ 55.5 million, $ 43.8 million, and $ 42.1 million for the years ended December 31, 2023, 2022, and 2021 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. The Company did not recognize any impairment for the years ended December 31, 2023 and December 31, 2022. Revenue Recognition Passenger revenue Passenger revenue includes scheduled service revenue, ancillary air-related charges, and travel point redemptions from the co-brand Allegiant credit card and the Company's non-card loyalty program. Revenue from travel point redemptions from the co-brand credit card and the loyalty program are described in the Allways Rewards ® Credit Card Program and Allways Rewards ® Loyalty Program sections below. 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 vouchers, 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. 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-brand 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-brand credit card and the loyalty program are described in the Allways Rewards ® Credit Card Program and Allways Rewards ® Loyalty Program sections below. Fixed fee contract revenue 65 Fixed fee contract revenue consists of fees under agreements to provide charter service on a year-round and ad hoc basis. Fixed fee contract revenue is recognized when the transportation is provided. Sunseeker Resort Sunseeker Resort's revenue from contracts with customers primarily consists of sales of rooms, food and beverage, golf, retail and other goods and services. As compensation for such goods and services, the Company is typically entitled to a fixed nightly fee for an agreed upon period and additional fixed fees for any ancillary services purchased. These fees are generally payable at the time the hotel guest checks out of the hotel. The Company generally satisfies the performance obligations over time, and the Company recognizes the revenue from room sales and from other ancillary guest services on a daily basis, as the rooms are occupied and the Company has rendered the services. Sunseeker Resort revenues are included in other revenue in the consolidated statements of income. Allways Rewards® Credit Card Program Under the Allegiant co-brand credit card arrangement, points are sold and consideration is received under an agreement with the issuer bank that expires in 2031. 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 the underlying service 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, rental cars, and at the Sunseeker Resort, the program leverages Allegiant's partnerships to offer additional rewards to members, including sports tickets and exclusive experiences. Members can also earn points by using their Allegiant co-brand 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 (“breakage”) 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 $ 41.0 million, $ 40.1 million and $ 31.3 million for the years ended December 31, 2023, 2022 and 2021, respectively. Preopening expenses Preopening expenses represent personnel, advertising, and other costs incurred prior to the opening of Sunseeker Resort and are expensed as incurred. During the year ended December 31, 2023, the Company incurred $ 26.5 million of preopening expenses related to the opening of the Resort, which is included in salaries and benefits expense, sales and marketing expense, and other expense in the consolidated statements of income. Earnings per Share Basic and diluted earnings per share are computed using the two-class 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. 66 2. Assume unvested restricted stock awards are not vested, and allocate earnings to common shares and unvested restricted stock awards using the two-class method. For the years ended December 31, 2023, 2022 and 2021, the second method above was used in the computation because it was more dilutive than the first method. The following table sets forth the computation of net income per share on a basic and diluted basis for the periods indicated: Year ended December 31, (in thousands, except per share data) 2023 2022 2021 Basic: Net income $ 117,596 $ 2,493 $ 151,853 Less income allocated to participating securities ( 4,188 ) ( 32 ) ( 2,218 ) Net income attributable to common stock $ 113,408 $ 2,461 $ 149,635 Earnings per share, basic $ 6.32 $ 0.14 $ 8.69 Weighted-average shares outstanding 17,945 17,959 17,212 Diluted: Net income $ 117,596 $ 2,493 $ 151,853 Less income allocated to participating securities ( 4,175 ) ( 32 ) ( 2,215 ) Net income attributable to common stock $ 113,421 $ 2,461 $ 149,638 Earnings per share, diluted $ 6.29 $ 0.14 $ 8.68 Weighted-average shares outstanding 17,945 17,959 17,212 Dilutive effect of stock options and restricted stock 249 132 145 Adjusted weighted-average shares outstanding under treasury stock method 18,194 18,091 17,357 Participating securities excluded under two-class method ( 175 ) ( 57 ) ( 126 ) Adjusted weighted-average shares outstanding under two-class method 18,019 18,034 17,231 Stock awards outstanding of 81,748 , 79,644 , and 815 shares (not in thousands) as of December 31, 2023, 2022, and 2021, 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 compensation cost is measured based on grant date fair value. The Company’s share-based employee compensation plan is more fully discussed in Not e 12 . Income Taxes The Company recognizes deferred income taxes based on the asset and liability method required by accounting standards. Deferred tax assets and liabilities are determined based on the timing differences between book basis for financial reporting purposes and tax basis of the 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 recorded 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. 67 The tax positions failing to qualify for initial recognition are recognized in the first subsequent interim period they meet the “more likely than not” standard. If it is subsequently determined that a previously recognized tax position no longer meets the “more likely than not” standard, it is required that the tax position be derecognized. As applicable, the Company will recognize accrued penalties and interest related to unrecognized tax benefits in the provision for income taxes. Recent Accounting Pronouncements In October 2023, the Financial Standards Accounting Board (FASB) issued Accounting Standards Update (ASU) 2023-06, Disclosure Improvements to align the requirements in the FASB Accounting Standards Codification with the SEC's regulations in response to the SEC's August 2018 final rule that updated and simplified certain disclosure requirements. Each amendment in the ASU will only be effective on the date the related disclosures are removed from Regulation S-X or Regulation S-K by the SEC, and will no longer be effective if the SEC has not removed the applicable disclosure requirement by June 30, 2027. Early adoption is prohibited. The Company is currently evaluating the potential impact that the standard will have on its financial statement disclosures. In November 2023, the FASB issued ASU 2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for the Company's annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures. In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topics 740): Improvements to Income Tax Disclosures." The new standard requires expanded income tax disclosure of specific categories in the rate reconciliation and income taxes paid, disaggregated by jurisdiction. ASU 2023-09 is effective for the Company's annual periods beginning January 1, 2025, with early adoption and retrospective application permitted. The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures. 68 Note 3 — 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 of 2022, there was another weather-related event and a fire that caused additional damage. Based on the Company’s assessment of these damages and the anticipated future restoration costs, an estimated loss of $ 52.1 million was recorded as a special charge in 2022, which was offset by $ 18.1 million of recorded insurance recoveries during 2022. In 2023, an additional $ 2.4 million of loss was recorded as a result of updated damage assessments by the Company and the insurance providers. During third quarter 2023, the Sunseeker Resort construction site incurred additional damages related to Hurricane Idalia. Based on the Company’s assessment of these damages and the anticipated future restoration costs, an estimated loss of $ 23.6 million was recorded as a special charge in 2023. The estimate is preliminary and subject to change as the damage assessment by the Company and the insurance providers continues. During the years ended December 31, 2023 and December 31, 2022, the Company recorded losses of $ 26.0 million and $ 52.1 million, respectively, which were offset by $ 32.5 million and $ 18.1 million of insurance recoveries, respectively. To date, the Company has recorded insurance recoveries of $ 1.0 million and $ 49.5 million, respectively, related to the 2023 and 2022 hurricanes and related weather events. The Company anticipates that additional insurance recoveries related to the losses incurred in 2023 and 2022 will be recorded in future periods. Due to the heavy maintenance needs on certain aging Airbus airframes and capacity constraints at the Company's maintenance, repair, and overhaul contractors, the Company reevaluated its fleet plan and identified 21 airframes for early retirement to coincide with 737 MAX aircraft deliveries as scheduled under an amendment to the Company's agreement with The Boeing Company signed in September 2023. Two airframes were fully retired in 2023 and the remaining airframes are scheduled to be retired between January 2024 and September 2025. The accelerated depreciation on these airframes resulting from a change in the estimated useful life is recorded as a special charge of $ 35.1 million for the year ended December 31, 2023. Special charges in 2021 were incurred due to the impacts of the COVID-19 pandemic. The charges were related to accelerated depreciation on aircraft identified for early retirement, impairment loss on a building related to a discontinued business unit, and acceleration of certain stock awards. A portion of the special charge recorded in 2022 relates to accelerated depreciation on the last of the COVID-19 aircraft identified for early retirement, which amount is separate from the $ 35.1 million described above. Special Charges The table below summarizes special charges recorded during the years ended December 31, 2023, 2022, and 2021. Year Ended December 31, (in thousands) 2023 2022 2021 Sunseeker weather and related events $ 26,045 $ 52,095 $ — Sunseeker weather and related events, insurance recoveries (1) ( 32,491 ) ( 18,050 ) — Accelerated depreciation on airframes identified for early retirement 35,091 567 2,521 COVID-19 and related charges — — 11,477 Total special charges $ 28,645 $ 34,612 $ 13,998 (1) Includes $ 8.3 million of business interruption insurance proceeds for the year ended December 31, 2023. No business interruption insurance recoveries were received for the years ended December 31, 2022 or December 31, 2021. 69 Note 4 — Revenue Recognition Passenger revenue Passenger revenue is the most significant category in the Company's reported operating revenues, as outlined below: Year Ended December 31, (in thousands) 2023 2022 2021 Scheduled service $ 1,133,001 $ 1,062,753 $ 769,371 Ancillary air-related charges 1,137,226 1,025,549 788,064 Loyalty redemptions 54,170 49,460 21,001 Total passenger revenue $ 2,324,397 $ 2,137,762 $ 1,578,436 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, 2023, the air traffic liability balance was $ 353.5 million, of which approximately $ 303.6 million was related to forward bookings, with the remaining $ 49.9 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 $ 379.5 million that was recorded in the air traffic liability balance at December 31, 2022, substantially all was recognized into passenger revenue during the 12 months ended December 31, 2023. 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 during this period 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) 2023 2022 Balance at January 1 $ 56,500 $ 40,449 Points awarded 68,483 65,511 Points redeemed ( 54,170 ) ( 49,460 ) Balance at December 31 $ 70,813 $ 56,500 The current portion of the loyalty program liability represents the 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. 70 Note 5 — Property and Equipment Property and equipment consisted of the following: As of December 31, (in thousands) 2023 2022 Airline Flight equipment $ 3,346,216 $ 2,937,767 Computer hardware and software 274,927 209,808 Land and buildings/leasehold improvements 63,863 62,227 Other property and equipment 109,727 95,156 Sunseeker Resort Land and buildings/leasehold improvements 559,112 — Other property and equipment 53,743 — Construction in progress 4,389 320,572 Total property and equipment 4,411,977 3,625,530 Less accumulated depreciation and amortization ( 964,866 ) ( 814,837 ) Property and equipment, net $ 3,447,111 $ 2,810,693 As of December 31, 2023, the Company had firm commitments to purchase 51 aircraft which are expected to be delivered between 2024 and 2026. Accrued capital expenditures as of December 31, 2023 and 2022 were $ 71.7 million and $ 54.6 million, respectively . 71 Note 6 — Long-Term Debt Long-term debt consisted of the following: As of December 31, (in thousands) 2023 2022 Fixed-rate debt and finance lease obligations due through 2032 $ 1,834,754 $ 1,720,998 Variable-rate debt due through 2029 424,900 375,980 Total long-term debt and finance lease obligations, net of related costs 2,259,654 2,096,978 Less current maturities, net of related costs 439,937 152,900 Long-term debt and finance lease obligations, net of current maturities and related costs $ 1,819,717 $ 1,944,078 Weighted average fixed-interest rate on debt 6.3 % 6.5 % Weighted average variable-interest rate on debt 7.9 % 6.1 % Interest Rate(s) Per Annum at As of December 31, (in thousands) Maturity Dates December 31, 2023 2023 2022 Senior secured notes 2027 7.25 % $ 550,000 $ 700,000 Consolidated variable interest entities 2024 — 2029 2.92 % — 5.19 % 130,650 79,453 Revolving credit facilities 2024 — 2027 7.97 % 200,000 30,327 Debt secured by aircraft, engines, other equipment and real estate 2025 — 2031 1.87 % — 8.26 % 596,271 466,335 Finance leases 2028 — 2032 4.44 % — 7.01 % 455,248 494,328 Construction loan agreement 2028 5.75 % 350,000 350,000 Total debt $ 2,282,169 $ 2,120,443 Related costs ( 22,515 ) ( 23,465 ) Total debt net of related costs $ 2,259,654 $ 2,096,978 Maturities of long-term debt as of December 31, 2023, for the next five years and thereafter, in the aggregate, are: (in thousands) As of December 31, 2023 2024 (1) 439,937 2025 180,611 2026 176,152 2027 709,354 2028 328,569 Thereafter 425,031 Total debt and finance lease obligations, net of related costs $ 2,259,654 (1) Includes pre-delivery deposit financing which is due upon delivery of each respective aircraft 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 $ 75.0 million revolving credit facility (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. The 2027 Notes will mature on August 15, 2027. 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 72 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. In November 2023, the Company prepaid the entirety of the $ 150.0 million outstanding on its 8.500 % Senior Secured Notes issued in October 2020 and originally due February 2024. 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. During 2023, the Company, through a wholly owned subsidiary, entered into similarly structured agreements with trusts to borrow $ 63.0 million collateralized by aircraft and engines. The trusts were funded at inception. The borrowings bear interest at fixed rates and are payable in monthly installments through October 2028 and February 2029, at which time the Company will have purchase options at fixed amounts. As these transactions are common control transactions, the Company, as the primary beneficiary, has measured and recorded the assets and liabilities at their carrying values, which were $ 51.6 million and $ 63.0 million respectively, at the time of borrowing. Revolving Credit Facilities In August 2022, the Company entered into a credit agreement under which the Company is entitled to borrow up to $ 100.0 million. In October 2023, the Company extended the term of this agreement to August 2025 with all other terms to remain the same. The borrowing ability of the facility is based on the value of aircraft and engines placed into the collateral pool. The notes under the facility will bear interest at a floating rate based on SOFR. As of December 31, 2023, the facility remains undrawn. In August 2022, the Company entered into a credit agreement 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, 2023, the facility remains undrawn. In September 2022, the Company entered into a credit agreement under which the Company is entitled to borrow up to $ 200.0 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 on certain 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. Any notes under the facility bear interest at a floating rate based on SOFR and all borrowings are due no later than December 31, 2024 or upon delivery of the applicable aircraft. As of December 31, 2023, the Company has fully drawn all $ 200.0 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. In February, 2023, the Company extended the term of this agreement to March 2026 and upsized the capacity to $ 100.0 million. The borrowing ability is based on the value of the aircraft and engines placed into the collateral pool. The notes for amounts borrowed under the facility will bear interest at a floating rate based on SOFR. As of December 31, 2023, the facility remains undrawn. 73 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 2023. In November 2023, the Company entered into a pre-delivery deposit financing facility to borrow up to $ 158.0 million secured by the Company's purchase rights for certain Boeing 737 MAX aircraft. The facility bears a floating interest rate based on SOFR and is due upon delivery of each aircraft or no later than June 30, 2025. As of December 31, 2023, the Company has drawn $ 113.9 million under the facility. In September 2023, the Company entered into a credit agreement under which the Company is entitled to borrow up to $ 412.1 million. In September 2023, the Company received funding of $ 196.4 million under the facility, which is collateralized by aircraft. The proceeds were used in part to pay off existing debt collateralized by aircraft. The outstanding balance bears interest at a fixed rate, to be paid in quarterly installments of principal and interest, and matures in September 2031. The remaining undrawn balance of the facility will be funded upon delivery of, and collateralized by, Boeing 737 MAX aircraft currently on order from Boeing. Future draws collateralized by 737 MAX aircraft will bear interest at a rate determined at the time of drawdown and will have a term of twelve years. In May 2023, the Company borrowed $ 92.7 million under a loan agreement secured by aircraft. The notes bear interest at a fixed rate, payable in quarterly installments maturing in May 2028. During the year ended December 31, 2023, the Company made a total of $ 207.8 million in payments to extinguish six variable rate facilities secured by aircraft. 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 borrowed $ 350.0 million 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. As of December 31, 2023, the entirety of the borrowed funds have been released from the construction disbursement account. Finance Leases The Company has finance lease obligations related to 23 aircraft, which impacted the Company's recognized assets and liabilities as of December 31, 2023. See Note 7 for more information on finance lease obligations. 74 Note 7 — Leases The Company had 23 aircraft under finance leases and 17 aircraft under operating leases as of December 31, 2023 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 2023 2022 2021 Finance lease costs: Amortization of assets Depreciation and amortization $ 27,170 $ 17,579 $ 13,274 Interest on lease liabilities Interest expense 27,502 23,034 11,168 Operating lease cost Aircraft lease rentals; Station operations; Maintenance and repairs; Other operating expense 25,246 24,986 22,697 Variable lease cost Station operations; Maintenance and repairs; Other operating expense 1,563 1,469 2,565 Total lease cost $ 81,481 $ 67,068 $ 49,704 Lease position as of December 31, 2023 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 2023 2022 Assets Operating lease assets Operating lease right-of-use assets, net $ 100,707 $ 111,679 Finance lease assets Property and equipment, net of accumulated depreciation 483,083 537,766 Total lease assets $ 583,790 $ 649,445 Liabilities Current Operating Current operating lease liabilities $ 20,873 $ 19,973 Finance Current maturities of long-term debt and finance lease obligations 25,352 39,080 Noncurrent Operating Noncurrent operating lease liabilities 82,410 94,972 Finance Long-term debt and finance lease obligations 429,896 455,248 Total lease liabilities $ 558,531 $ 609,273 Weighted-average remaining lease term Operating leases 7.4 years 7.0 years Finance leases 7.1 years 7.8 years Weighted-average discount rate Operating leases 5.5 % 5.4 % Finance leases 5.9 % 5.9 % 75 Other Information The table below presents supplemental cash flow information related to leases during the years ended December 31, 2023 and 2022. Year Ended December 31, (in thousands) 2023 2022 2021 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows for operating leases $ 25,774 $ 25,775 $ 18,987 Operating cash flows for finance leases 27,672 22,366 10,697 Financing cash flows for finance leases 39,044 16,621 14,675 Maturities of Lease Liabilities The table below indicates the future minimum payments of lease liabilities as of December 31, 2023. (in thousands) Operating Leases Finance Leases 2024 $ 25,912 $ 51,408 2025 23,850 51,408 2026 13,896 51,108 2027 11,688 51,108 2028 9,997 65,908 Thereafter 42,616 336,168 Total lease payments 127,959 607,108 Less imputed interest ( 24,676 ) ( 151,860 ) Total lease obligations 103,283 455,248 Less current obligations ( 20,873 ) ( 25,352 ) Long-term lease obligations $ 82,410 $ 429,896 76 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 U.S. 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, 2023 2022 2021 Shares repurchased (1) 309,155 377,529 — Average price per share $ 78.61 $ 78.94 $ — Total (in thousands) $ 24,303 $ 29,802 $ — (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 65,284 , 1,423 , and zero shares (not in thousands) for 2023, 2022, and 2021 respectively. Cash dividends declared by the Board and paid by the Company consisted of the following during the periods indicated: Year Ended December 31, 2023 2022 2021 Total quarterly cash dividends declared, per share $ 1.20 $ — $ — Total cash dividends paid (in thousands) 22,144 — — The Company suspended payment of cash dividends upon the onset of the pandemic, and as part of accepting benefits from the U.S. Treasury under the Payroll Support Programs, the Company agreed not to pay cash dividends through September 30, 2022. The Company recommenced payment of cash dividends in the second half of 2023. 77 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, U.S. treasury bonds 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, 2023 As of December 31, 2022 (in thousands) Total Level 1 Level 2 Total Level 1 Level 2 Cash equivalents Money market funds $ 33,613 $ 33,613 $ — $ 88,073 $ 88,073 $ — Commercial paper 19,575 — 19,575 50,791 — 50,791 Municipal debt securities 7,848 — 7,848 8,599 — 8,599 Federal agency debt securities 8,201 — 8,201 — — — US Treasury bonds 2,000 — 2,000 — — — Total cash equivalents 71,237 33,613 37,624 147,463 88,073 59,390 Short-term Commercial paper 237,870 — 237,870 421,279 — 421,279 Corporate debt securities 210,982 — 210,982 166,136 — 166,136 Federal agency debt securities 194,522 — 194,522 107,222 — 107,222 US Treasury Bonds 14,126 — 14,126 — — — Municipal debt securities 13,914 — 13,914 30,426 — 30,426 Total short-term 671,414 — 671,414 725,063 — 725,063 Long-term Corporate debt securities 43,869 — 43,869 35,688 — 35,688 Federal agency debt securities 12,135 — 12,135 20,050 — 20,050 Municipal debt securities — — — 7,580 — 7,580 Total long-term 56,004 — 56,004 63,318 — 63,318 Total financial instruments $ 798,655 $ 33,613 $ 765,042 $ 935,844 $ 88,073 $ 847,771 There were no significant transfers between Level 1 and Level 2 assets for the years ended December 31, 2023 or 2022. 78 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. Carrying value and estimated fair value of long-term debt, including current maturities and without reduction for related costs: As of December 31, 2023 As of December 31, 2022 (in thousands) Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value Fair Value Level Non-publicly held debt $ 1,826,921 $ 1,815,351 $ 1,626,114 $ 1,561,939 3 Other Due to the short term nature, carrying amounts of cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value. 79 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. The entirety of the Company's income before taxes are from its domestic operations. Income Tax Provision/(Benefit) The provision (benefit) for income taxes is composed of the following: Year ended December 31, (in thousands) 2023 2022 2021 Current: Federal $ — $ 6 $ ( 494 ) State 3,306 73 552 Foreign 204 209 ( 6 ) Total current 3,510 288 52 Deferred: Federal 36,910 1,189 40,693 State 1,035 983 4,022 Total deferred 37,945 2,172 44,715 Total income tax provision $ 41,455 $ 2,460 $ 44,767 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) 2023 2022 2021 Income tax expense at federal statutory rate $ 33,401 $ 1,040 $ 41,575 State income taxes, net of federal income tax benefit 3,503 1,189 4,257 Foreign income tax expense 204 210 ( 6 ) Executive compensation 3,692 57 2,359 Federal tax credits ( 2,034 ) ( 1,103 ) ( 385 ) Stock compensation 1,936 1,016 ( 2,058 ) Other 753 51 ( 975 ) Total income tax expense $ 41,455 $ 2,460 $ 44,767 80 Deferred Taxes The major components of the Company’s net deferred tax assets and liabilities are as follows: As of December 31, (in thousands) 2023 2022 Deferred tax assets: Employee benefits $ 8,410 $ 9,938 Net operating loss 22,237 30,370 Tax credits 4,128 4,290 Other (1) 30,576 18,644 Less: valuation allowance 1,214 1,214 Total deferred tax assets 64,137 62,028 Deferred tax liabilities: Prepaid expenses 4,516 4,223 Depreciation 434,620 399,622 Other 9,603 4,571 Total deferred tax liabilities 448,739 408,416 Net deferred tax liabilities $ 384,602 $ 346,388 (1) Other deferred tax assets consists of interest expense and research and development expenses. Net Operating Loss and Tax Credit Carryforwards At December 31, 2023, the Company recognized $ 14.0 million and $ 8.2 million of tax-effected Federal and state net operating loss carryforwards, respectively. Under the current law, the Federal net operating losses do not expire and state net operating loss carryforward amounts begin to expire in 2024 . 81 Note 11— Related Party Transactions During the years ended December 31, 2023, 2022 and 2021, there were no related party transactions that required disclosure. 82 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 Company recognized expense under this plan of $ 25.5 million, $ 24.0 million, and $ 21.4 million for the years ended December 31, 2023, 2022 and 2021, 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 2023, 2022, and 2021: Year Ended Total number of shares purchased in year Average price paid per share Weighted-average fair value of discount under the ESPP (1) December 31, 2021 39,760 $ 174.68 $ 30.00 December 31, 2022 73,268 $ 97.85 $ 16.25 December 31, 2023 99,802 $ 85.27 $ 14.44 (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, 2023, 2022 and 2021, the Company recorded compensation expense of $ 31.5 million, $ 16.3 million and $ 17.2 million, respectively, related to restricted stock, stock options 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 $ 39.7 million as of December 31, 2023 for unvested restricted stock expected to be recognized over a weighted-average period of 2.69 years. As of December 31, 2023, there was $ 0.1 million unrecognized compensation cost related to 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. Most of the Company's unvested restricted stock awards, subject generally to the individual's continued employment or service, vest over a three year period or longer for certain of the Company's executive officers. A summary of the status of non-vested restricted stock grants during the y ears ended December 31, 2023, 2022 and 2021 is presented below: Shares Weighted Average Grant Date Fair Value Per Share 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 Granted 567,004 93.57 Vested ( 238,020 ) 119.00 Forfeited ( 151,459 ) 94.07 Non-vested at December 31, 2023 607,393 $ 94.64 The total grant date fair value of restricted stock that vested during the years ended December 31, 2023, 2022 and 2021 was $ 28.3 million, $ 13.4 million and $ 27.0 million, respectively. 83 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 2024 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, 2023 2024 $ 866,545 2025 673,612 2026 159,679 Total purchase commitments $ 1,699,836 Aircraft Commitments As of December 31, 2023, the Company had entered into purchase agreements for 51 aircraft which are expected to deliver from 2024 through 2026. Contingencies The Company is party to collective bargaining agreements with the employee groups listed below. As of December 31, 2023, the percentage of full-time equivalent employees for each of these pay groups was as follows: As of December 31, 2023 Pilots 17.9 % Flight Attendants 23.4 Maintenance Technicians 11.2 Flight Dispatchers 0.9 Total 53.4 % As of December 31, 2023, the Company employed approximately 6,700 full-time equivalent employees, 41.3 percent of whom are covered by collective bargaining agreements with various labor unions that are currently amendable and are i n negotiation. 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. 84 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 operates as a single business unit and includes hotel rooms and suites for occupancy, group meeting facilities, food and beverage options, the Aileron Golf Course and other Resort amenities. The Resort opened on December 15, 2023. The CODM evaluation includes, but is not limited to, demand for hospitality offerings, occupancy rates, room pricing, food and beverage offerings, other charge points at the Resort and competitive information when making resource allocations with the goal of optimizing consolidated financial results. For the year ended December 31, 2023, the Company recorded $ 26.5 million of preopening expenses related to the opening of the Resort, which is included in salaries and benefits expense, sales and marketing expense, and other expense in the consolidated statements of income. 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 Consolidated Year Ended December 31, 2023 Operating revenue: Passenger $ 2,324,397 $ — $ 2,324,397 Third party products 112,579 — 112,579 Fixed fee contract 68,548 — 68,548 Other 1,444 2,889 4,333 Operating income (loss) 251,468 ( 30,487 ) 220,981 Interest income ( 46,615 ) — ( 46,615 ) Interest expense (1) 130,512 21,868 152,380 Capitalized interest ( 21,838 ) ( 23,294 ) ( 45,132 ) Depreciation and amortization 220,915 2,215 223,130 Capital expenditures 568,309 321,044 889,353 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 income ( 16,469 ) — ( 16,469 ) Interest expense (1) 92,785 16,046 108,831 Capitalized interest ( 4,308 ) ( 8,332 ) ( 12,640 ) 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 income ( 1,814 ) — ( 1,814 ) Interest expense (1) 66,585 1,818 68,403 Depreciation and amortization 180,923 112 181,035 Capital expenditures 309,982 50,629 360,611 (1) Excludes losses on debt extinguishment. Total assets were as follows as of the dates indicated: (in thousands) As of December 31, 2023 As of December 31, 2022 Airline $ 4,213,288 $ 4,047,134 Sunseeker Resort 656,122 464,163 Consolidated $ 4,869,410 $ 4,511,297 86 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.