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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 _______________________________________________________________________
Form 10-Q
_______________________________________________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-35186
_______________________________________________________________________
SPIRIT AIRLINES, INC.
(Exact name of registrant as specified in its charter)
_______________________________________________________________________
Delaware
38-1747023
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
2800 Executive Way
Miramar, Florida
33025
(Address of principal executive offices)
(Zip Code)

(954) 447-7920
(Registrant’s telephone number, including area code) 
_______________________________________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “small reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
ý
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
o
(Do not check if a smaller reporting company)
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.     o
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes  o    No  ý
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the close of business on April 19, 2018:
Class
 
Number of Shares
Common Stock, $0.0001 par value
 
68,250,665




Table of Contents
INDEX
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I. Financial Information
ITEM 1.
UNAUDITED CONDENSED FINANCIAL STATEMENTS
Spirit Airlines, Inc.
Condensed Statements of Operations
(unaudited, in thousands, except per share amounts)
 
 
Three Months Ended March 31,
 
2018
 
2017
Operating revenues:
 
 
 
Passenger
$
689,141

 
$
572,287

Other
14,997

 
17,670

Total operating revenues
704,138

 
589,957

 
 
 
 
Operating expenses:
 
 
 
Aircraft fuel
204,646

 
139,782

Salaries, wages and benefits
155,096

 
127,138

Aircraft rent
50,191

 
57,070

Landing fees and other rents
49,630

 
40,448

Depreciation and amortization
39,373

 
31,509

Maintenance, materials and repairs
29,710

 
26,312

Distribution
30,631

 
25,772

Special charges
89,168

 
4,776

Loss on disposal of assets
848

 
1,105

Other operating
93,642

 
77,703

Total operating expenses
742,935

 
531,615

 
 
 
 
Operating income (loss)
(38,797
)
 
58,342

 
 
 
 
Other (income) expense:
 
 
 
Interest expense
17,849

 
12,473

Capitalized interest
(2,252
)
 
(3,580
)
Interest income
(4,066
)
 
(1,313
)
Other expense
133

 
3

Special charges, non-operating
9,201

 

Total other (income) expense
20,865

 
7,583

 
 
 
 
Income (loss) before income taxes
(59,662
)
 
50,759

Provision (benefit) for income taxes
(14,740
)
 
19,498

 
 
 
 
Net income (loss)
$
(44,922
)
 
$
31,261

Basic earnings per share
$
(0.66
)
 
$
0.45

Diluted earnings per share
$
(0.66
)
 
$
0.45

The accompanying Notes are an integral part of these Condensed Financial Statements.

1



Spirit Airlines, Inc.
Condensed Statements of Comprehensive Income
(unaudited, in thousands)

 
Three Months Ended March 31,
 
2018
 
2017
Net income (loss)
$
(44,922
)
 
$
31,261

Unrealized gain (loss) on short-term investment securities, net of deferred taxes of ($8) and ($8)
(23
)
 
(13
)
Interest rate derivative loss reclassified into earnings, net of taxes of $21 and $31
58

 
53

Other comprehensive income (loss)
$
35

 
$
40

Comprehensive income (loss)
$
(44,887
)
 
$
31,301


The accompanying Notes are an integral part of these Condensed Financial Statements.


2



Spirit Airlines, Inc.
Condensed Balance Sheets
(unaudited, in thousands)
 
 
March 31, 2018
 
December 31, 2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
898,457

 
$
800,849

Short-term investment securities
101,254


100,937

Accounts receivable, net
52,313

 
49,323

Aircraft maintenance deposits, net
95,167


175,615

Income tax receivable
69,844

 
69,844

Prepaid expenses and other current assets
81,806

 
85,542

Total current assets
1,298,841

 
1,282,110

 
 
 
 
Property and equipment:
 
 
 
Flight equipment
2,853,431

 
2,291,110

Ground property and equipment
161,398

 
155,166

Less accumulated depreciation
(235,532
)
 
(207,808
)
 
2,779,297

 
2,238,468

Deposits on flight equipment purchase contracts
205,040

 
253,687

Long-term aircraft maintenance deposits
149,751

 
150,617

Deferred heavy maintenance, net
138,942

 
99,915

Other long-term assets
82,560

 
121,003

Total assets
$
4,654,431

 
$
4,145,800

 
 
 
 
Liabilities and shareholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
31,674

 
$
22,822

Air traffic liability
357,193

 
263,711

Current maturities of long-term debt and capital leases
280,281

 
115,430

Other current liabilities
378,178

 
262,370

Total current liabilities
1,047,326

 
664,333

 
 
 
 
Long-term debt, less current maturities
1,570,926

 
1,387,498

Deferred income taxes
292,888

 
308,814

Deferred gains and other long-term liabilities
23,486

 
22,581

Shareholders’ equity:
 
 
 
Common stock

7

 
7

Additional paid-in-capital
363,230

 
360,153

Treasury stock, at cost
(66,813
)
 
(65,854
)
Retained earnings
1,424,810

 
1,469,732

Accumulated other comprehensive loss
(1,429
)
 
(1,464
)
Total shareholders’ equity
1,719,805

 
1,762,574

Total liabilities and shareholders’ equity
$
4,654,431

 
$
4,145,800

The accompanying Notes are an integral part of these Condensed Financial Statements.

3



Spirit Airlines, Inc.
Condensed Statements of Cash Flows
(unaudited, in thousands) 
 
Three Months Ended March 31,
 
2018
 
2017
Operating activities:

 

Net income
$
(44,922
)
 
$
31,261

Adjustments to reconcile net income to net cash provided by operations:

 

Losses reclassified from other comprehensive income
79


84

Stock-based compensation
3,075

 
2,816

Allowance for doubtful accounts (recoveries)
(7
)
 
(30
)
Amortization of deferred gains and losses and debt issuance costs
1,624

 
3,351

Depreciation and amortization
39,373

 
31,509

Deferred income tax expense (benefit)
(20,266
)
 
19,474

Loss on disposal of assets
848

 
1,105

Lease termination costs


4,776

Special charges, non-operating
9,201

 




 


Changes in operating assets and liabilities:


 


Accounts receivable
(2,983
)
 
(7,526
)
Aircraft maintenance deposits, net
14,844

 
(12,774
)
Prepaid income taxes


(846
)
Long-term deposits and other assets
3,512

 
(13,559
)
Deferred heavy maintenance
(50,712
)
 
(9,558
)
Accounts payable
6,227

 
18,937

Air traffic liability
93,483

 
104,285

Other liabilities
117,779

 
(382
)
Other
(20
)
 
115

Net cash provided by operating activities
171,135

 
173,038

Investing activities:
 
 
 
Purchase of available-for-sale investment securities
(30,853
)

(24,490
)
Proceeds from the maturity of available-for-sale investment securities
30,504


24,219

Pre-delivery deposits for flight equipment, net of refunds
(41,580
)
 
(44,752
)
Capitalized interest
(1,500
)

(1,647
)
Purchase of property and equipment
(237,221
)
 
(111,141
)
Net cash used in investing activities
(280,650
)
 
(157,811
)
Financing activities:
 
 
 
Proceeds from issuance of long-term debt
227,128


115,526

Proceeds from stock options exercised
2

 

Payments on debt and capital lease obligations
(18,847
)
 
(10,235
)
Repurchase of common stock
(959
)
 
(1,034
)
Debt issuance costs
(201
)

(2,274
)
Net cash provided by financing activities
207,123

 
101,983

Net (decrease) increase in cash and cash equivalents
97,608

 
117,210

Cash and cash equivalents at beginning of period
800,849

 
700,900

Cash and cash equivalents at end of period
$
898,457

 
$
818,110

Supplemental disclosures
 
 
 
Cash payments for:
 
 
 
Interest, net of capitalized interest
$
8,569

 
$
3,943

Income taxes paid, net of refunds
$
679

 
$
2,881

Non-cash transactions:
 
 
 
Capital expenditures funded by capital lease borrowings
$
(237,042
)

$
(130
)

The accompanying Notes are an integral part of these Condensed Financial Statements.

4



Notes to Condensed Financial Statements
(unaudited)
1.
Basis of Presentation
The accompanying unaudited condensed financial statements include the accounts of Spirit Airlines, Inc. (the Company). These unaudited condensed financial statements reflect all normal recurring adjustments which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company for the respective periods presented. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. These unaudited interim condensed financial statements should be read in conjunction with the audited financial statements of the Company and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission on February 13, 2018.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect both the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.
The interim results reflected in the unaudited condensed financial statements are not necessarily indicative of the results that may be expected for other interim periods or for the full year.
Certain prior period amounts have been reclassified to conform to the current year's presentation and the adoption of Accounting Standards Update (ASU) No. 2014-09, (ASU 2014-09) "Revenue from Contracts with Customers".
2.
Recent Accounting Developments

Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) No. 2014-09, (ASU 2014-09) "Revenue from Contracts with Customers." The objective of ASU 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The Company adopted this guidance on January 1, 2018 utilizing the full retrospective method of adoption allowed by the standard, in order to provide for comparative results in all periods presented. The most significant impact of this ASU is the elimination of the incremental cost method for frequent flier program accounting, which requires the Company to re-value and record a liability associated with customer flight miles earned as part of the Company’s frequent flier program with a relative fair value approach. The classification and timing of recognition of certain ancillary fees is also impacted by the adoption of ASU 2014-09. While the adoption did not have a significant impact on earnings, the classification of certain revenues, such as bags, seats and other travel-related fees are now deemed part of the single performance obligation of providing passenger transportation. Refer to Note 4, Revenue Recognition for information regarding the Company's adoption of ASU 2014-09 and to Note 5, Revenue Disaggregation for the presentation of passenger revenues disaggregated by fare and non-fare.

Financial Instruments

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10).” ASU 2016-01 makes several modifications to Subtopic 825-10 including the elimination of the available-for-sale classification of equity investments, and requires equity investments with readily determinable fair values to be measured at fair value with changes in fair value recognized in net income. ASU 2016-01 is effective for the Company for interim and annual periods beginning January 1, 2018. The Company adopted this guidance on January 1, 2018 with no material impact on the financial statements.

Leases

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." This standard will generally require all leases with durations greater than twelve months to be recognized on the condensed balance sheet and is effective for the Company in the first quarter of 2019, with early adoption permitted. The Company is currently evaluating the new guidance and believes adoption of this standard will have a significant impact on its condensed balance sheets although adoption is not expected to significantly change the recognition, measurement or presentation of lease expenses within the statements of

5

Notes to Condensed Financial Statements—(Continued)

operations and cash flows. Refer to Note 10, Commitments and Contingencies for information regarding the Company's undiscounted future lease payments and the timing of those payments.

Accounting for Credit Losses

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses." The standard requires the use of an "expected loss" model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale securities and requires estimated credit losses to be recorded as allowances instead of reductions to amortized cost of the securities. This standard is effective for the Company for fiscal years, and interim periods within those years, beginning January 1, 2020, with early adoption permitted. The Company is evaluating the new guidance, but does not expect it to have a material impact on its financial statements.

Statement of Cash Flows

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows." The standard is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This standard is effective for the Company for fiscal years, and interim periods within those years, beginning January 1, 2018. The Company adopted this guidance on January 1, 2018 with no material impact on the financial statements.

Income Taxes

In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The standard amends Accounting Standards Codification 740, Income Taxes (ASC 740) to provide guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the Tax Act) pursuant to Staff Accounting Bulletin No. 118. The provisional income tax amounts recorded may be affected as the Company gains a more thorough understanding of the tax law, including those related to the deductibility of acquired assets, state tax treatment and amounts related to employee compensation. The Company is evaluating the new guidance, but does not expect it to have a material impact on its financial statements.

3.
Special Charges

During the three months ended March 31, 2018, under the guidance of the National Mediation Board (NMB), the Company effectively negotiated and amended the collective bargaining agreement with the Air Line Pilots Association, International (ALPA). In connection with the amended agreement, the Company recorded $89.2 million in special charges within operating expenses in the statement of operations. The total amount includes a one-time $80.7 million ratification incentive bonus, including payroll taxes, and an $8.5 million adjustment related to other contractual provisions. The ratification incentive bonus is expected to be paid during the second quarter of 2018.

During the three months ended March 31, 2018, the Company recorded $9.2 million in special charges, non-operating within other (income) expense in the statement of operations. On March 28, 2018, the Company entered into an aircraft sale agreement to acquire fourteen A319-100 aircraft previously operated by the Company under operating leases. The agreement provides for the purchase by the Company of each aircraft to occur during the second quarter 2018. The aggregate gross purchase price for the 14 aircraft is $285.0 million, and the payment of the price for each aircraft at the time of the sale will be comprised of a cash payment net of the amount of maintenance reserves and security deposits for such aircraft held by the applicable lessor pursuant to the lease for such aircraft. The contract was deemed a lease modification which resulted in a change of classification from operating leases to capital leases for the 14 aircraft. The capital lease assets have been recorded at the fair value of the aircraft. The obligation will be accreted up to the net cash payment price with interest charges recognized in special charges, non-operating in the statement of operations. The Company determined the valuation of the aircraft based on third-party appraisals considering the condition of the aircraft (a Level 3 measurement). 

During the three months ended March 31, 2017, the Company purchased one engine which was previously financed under an operating lease agreement. The purchase price of the engine was $8.1 million, comprised of a cash payment of $3.8 million and the non-cash application of maintenance reserves and security deposits held by the previous lessor of $4.3 million. The Company estimated the fair value of the engine to be $3.1 million and has recorded the purchased engine at fair value within flight equipment on the condensed balance sheets. The Company determined the valuation of the engine based on a third-party appraisal considering the condition of the engine (a Level 3 measurement). The Company recognized $4.8 million

6

Notes to Condensed Financial Statements—(Continued)

as a cost of terminating the lease within special charges on the condensed statement of operations, made up of the excess of the purchase price paid over the fair value of the engine, less other non-cash items of $0.2 million.
4.
Revenue Recognition

Passenger revenues

Fare revenues. Tickets sold are initially deferred as “air traffic liability.” Passenger fare revenues are recognized at time of departure when transportation is provided. All tickets sold by the Company are nonrefundable. An unused ticket expires at the date of scheduled travel and is recognized as revenue at the date of scheduled travel. Passenger revenues reported prior to the adoption of ASU 2014-09 are now reported as fare revenues within passenger revenues in the Company's disaggregated revenue table within Note 5, Revenue Disaggregation.
As of December 31, 2017 and 2016, the Company had air traffic liability (ATL) balances of  $263.7 million and $220.2 million, respectively. During the three months ended March 31, 2018, substantially all of the ATL balance as of December 31, 2017 has been recognized. The remaining balance of the December 31, 2017 liability is expected to be recognized during 2018.

Non-fare revenues.The adoption of ASU 2014-09 impacted the classification of certain ancillary items such as bags, seats and other travel-related fees, since they are deemed part of the single performance obligation of providing passenger transportation. These ancillary items are now recognized in non-fare revenues within passenger revenues in the Company's disaggregated revenue table within Note 5, Revenue Disaggregation.
 
Other. Other revenue primarily consists of the marketing component of the sale of frequent flyer miles to the Company's credit card partner and commissions revenue from the sale of various items such as hotels and rental cars.

Changes and cancellations. Customers may elect to change or cancel their itinerary prior to the date of departure. For changes, a service charge is recognized at time of departure of newly scheduled travel and is deducted from the face value of the original purchase price of the ticket, and the original ticket becomes invalid. For cancellations, a service charge is assessed and the amount remaining after deducting the service charge is called a credit shell which generally expires 60 days from the date the credit shell is created and can be used towards the purchase of a new ticket and the Company’s other service offerings. Both the service charge and credit shell amounts are recorded as deferred revenue, net of the amount expected to expire, which is recognized as revenue upon issuance of the credit shell and is estimated based on historical experience. Estimating the amount of credits that will go unused involves some level of subjectivity and judgment. However, given the relatively short period of time to expiration, this does not have a significant impact on the Company's financial statements.

Frequent Flyer Program
    
The Company's frequent flyer program generates customer loyalty by rewarding customers with mileage credits to travel on Spirit. When traveling, customers earn redeemable mileage credits for each mile flown on Spirit. Customers can also earn mileage credits through participating companies such as the co-branded Spirit credit card. Mileage credits are redeemable by customers in future periods for air travel on Spirit.

To reflect the mileage credits earned, the program includes two types of transactions that are considered revenue arrangements with multiple performance obligations: (1) mileage credits earned with travel and (2) mileage credits sold to co-branded credit card partner.

The adoption of the ASU eliminated the incremental cost method for frequent flier program accounting, which required the Company to re-value and record a liability associated with customer flight miles earned with travel as part of the Company’s frequent flier program with a relative fair value. Upon adoption of the ASU on January 1, 2018, the Company recorded an increase to its air traffic liability of $12.4 million.

Passenger ticket sales earning mileage credits. Passenger ticket sales earning mileage credits provide customers with (1) mileage credits earned and (2) air transportation. The Company values each performance obligation on a standalone basis. To value the mileage credits earned, the Company considers the quantitative value a passenger receives by redeeming miles for a ticket rather than paying cash, which is referred to as equivalent ticket value (ETV).

The Company defers revenue for the mileage credits when earned and recognize loyalty travel awards in passenger revenue as the miles are redeemed and services are provided. The Company records the air transportation portion of the passenger ticket sales in air traffic liability and recognizes passenger revenue when transportation is provided or if the ticket goes unused.

7

Notes to Condensed Financial Statements—(Continued)


Sale of mileage credits. Customers may earn mileage credits based on their spending with the Company's co-branded credit card company with which the Company has an agreement to sell mileage credits. The contract to sell mileage credits under this agreement has multiple performance obligations. During the three months ended March 31, 2018 and 2017, total cash sales from this agreement was $10.0 million and $11.7 million, respectively, which are allocated to travel and other performance obligations, as discussed below.

The Company's co-brand credit card agreement provides for joint marketing where cardholders earn mileage credits for making purchases using co-branded cards. During 2015, the Company extended its agreement with the administer of the FREE SPIRIT affinity credit card program to extend through 2022. The Company accounts for this agreement consistently with the accounting method that allocates the consideration received to the individual products and services delivered. The value is allocated based on the relative selling prices of those products and services, which generally consists of (i) travel miles to be awarded, (ii) licensing of brand and access to member lists and (iii) advertising and marketing efforts. The Company determined the best estimate of the selling prices by considering discounted cash flow analysis using multiple inputs and assumptions, including: (1) the expected number of miles awarded and number of miles redeemed, (2) ETV for the award travel obligation, (3) licensing of brand and access to member lists and (4) advertising and marketing efforts. 

The Company defers the amount for award travel obligation as part of loyalty deferred revenue within air traffic liability on the balance sheet and recognizes loyalty travel awards in passenger revenue as the mileage credits are used for travel. Revenue allocated to the remaining performance obligations, primarily marketing components, is recorded in other revenue over time as miles are delivered.

Mileage breakage. For mileage credits that the Company estimate are not likely to be redeemed ("breakage"), the Company recognize the associated value proportionally during the period in which the remaining mileage credits are expected to be redeemed. Management uses statistical models to estimate breakage based on historical redemption patterns. A change in assumptions as to the period over which mileage credits are expected to be redeemed, the actual redemption activity for mileage credits or the estimated fair value of mileage credits expected to be redeemed could have an impact on revenues in the year in which the change occurs and in future years.

Current activity of frequent flyer program. Mileage credits are combined in one homogeneous pool and are not separately identifiable. As such, the revenue is comprised of miles that were part of the frequent flyer deferred revenue balance at the beginning of the period as well as miles that were issued during the period.




























8

Notes to Condensed Financial Statements—(Continued)

The following tables show adjustments made due to the adoption of Accounting Standards Update (ASU) No. 2014-09, (ASU 2014-09) "Revenue from Contracts with Customers" on the December 31, 2017 and 2016 statements of operations, respectively. Previously reported results were derived from audited financial statements included in Company's Annual Report on Form 10-K for the fiscal years ended December 31, 2017 and December 31, 2016, as applicable.

 
Year ended December 31, 2017
 
(in thousands, except share and per share data)
 
As Reported
 
Topic 606 Adjustment
 
As Adjusted
Operating revenues:
 
 
 
 
 
Passenger
$
1,366,034

 
$
1,206,853

 
$
2,572,887

Other
1,281,632

 
(1,210,967
)
 
70,665

Total operating revenues
2,647,666

 
(4,114
)
 
2,643,552

 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Aircraft fuel
615,581

 

 
615,581

Salaries, wages and benefits
527,959

 

 
527,959

Aircraft rent
205,852

 

 
205,852

Landing fees and other rents
180,655

 

 
180,655

Depreciation and amortization
140,152

 

 
140,152

Maintenance, materials and repairs
110,439

 

 
110,439

Distribution
113,620

 
(148
)
 
113,472

Special charges
12,629

 

 
12,629

Loss on disposal of assets
4,168

 

 
4,168

Other operating
347,820

 

 
347,820

Total operating expenses
2,258,875

 
(148
)
 
2,258,727

 
 
 
 
 
 
Operating income
388,791

 
(3,966
)
 
384,825

 
 
 
 
 
 
Other (income) expense:
 
 
 
 
 
Interest expense
57,302

 

 
57,302

Capitalized interest
(13,793
)
 

 
(13,793
)
Interest income
(8,736
)
 

 
(8,736
)
Other expense
366

 

 
366

Total other (income) expense
35,139

 

 
35,139

 
 
 
 
 
 
Income before income taxes
353,652

 
(3,966
)
 
349,686

Provision (benefit) for income taxes
(66,954
)
 
1,118

 
(65,836
)
 
 
 
 
 
 
Net income
$
420,606

 
$
(5,084
)
 
$
415,522

Basic earnings per share
$
6.08

 
$
(0.07
)
 
$
6.00

Diluted earnings per share
$
6.06

 
$
(0.07
)
 
$
5.99


    

9

Notes to Condensed Financial Statements—(Continued)

 
Year ended December 31, 2016
 
(in thousands, except share and per share data)
 
As Reported
 
Topic 606 Adjustment
 
As Adjusted
Operating revenues:
 
 
 
 
 
Passenger
$
1,200,621

 
$
1,057,180

 
$
2,257,801

Other
1,121,335

 
(1,059,115
)
 
62,220

Total operating revenues
2,321,956

 
(1,935
)
 
2,320,021

 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Salaries, wages and benefits
472,471

 

 
472,471

Aircraft fuel
447,553

 

 
447,553

Aircraft rent
201,675

 

 
201,675

Landing fees and other rents
151,679

 

 
151,679

Depreciation and amortization
101,136

 

 
101,136

Maintenance, materials and repairs
98,587

 

 
98,587

Distribution
96,627

 
268

 
96,895

Special charges
37,189

 

 
37,189

Loss on disposal of assets
4,187

 

 
4,187

Other operating
267,191

 

 
267,191

Total operating expenses
1,878,295

 
268

 
1,878,563

 
 
 
 
 
 
Operating income
443,661

 
(2,203
)
 
441,458

 
 
 
 
 
 
Other (income) expense:
 
 
 
 
 
Interest expense
41,654

 

 
41,654

Capitalized interest
(12,705
)
 

 
(12,705
)
Interest income
(5,276
)
 

 
(5,276
)
Other expense
528

 

 
528

Total other (income) expense
24,201

 

 
24,201

 
 
 
 
 
 
Income before income taxes
419,460

 
(2,203
)
 
417,257

Provision (benefit) for income taxes
154,581

 
(807
)
 
153,774

 
 
 
 
 
 
Net income
$
264,879

 
$
(1,396
)
 
$
263,483

Basic earnings per share
$
3.77

 
$
(0.02
)
 
$
3.75

Diluted earnings per share
$
3.76

 
$
(0.02
)
 
$
3.74












10

Notes to Condensed Financial Statements—(Continued)

The following table shows adjusted balances after the adoption of ASU 2014-09, "Revenue from Contracts with Customers" on the quarterly statements of operations for each quarter of 2017.
 
For the Quarter ended
 
March 31, 2017
 
June 30, 2017
 
September 30, 2017
 
December 31, 2017
 
(in thousands, except share and per share data)
Operating revenues:
 
 
 
 
 
 
 
Passenger
$
572,287

 
$
680,880

 
$
669,072

 
$
650,647

Other
17,670

 
19,305

 
18,155

 
15,535

Total operating revenues
589,957

 
700,185

 
687,227

 
666,182

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Aircraft fuel
139,782

 
142,294

 
158,300

 
175,205

Salaries, wages and benefits
127,138

 
129,892

 
134,114

 
136,815

Aircraft rent
57,070

 
52,566

 
53,396

 
42,820

Landing fees and other rents
40,448

 
45,592

 
48,498

 
46,117

Depreciation and amortization
31,509

 
35,331

 
36,840

 
36,472

Maintenance, materials and repairs
26,312

 
28,985

 
26,176

 
28,966

Distribution
25,772

 
29,835

 
29,695

 
28,170

Special charges
4,776

 

 
7,853

 

Loss on disposal of assets
1,105

 
1,493

 
516

 
1,054

Other operating
77,703

 
102,885

 
87,965

 
79,267

Total operating expenses
531,615

 
568,873

 
583,353

 
574,886

 
 
 
 
 
 
 
 
Operating income
58,342

 
131,312

 
103,874

 
91,296

 
 
 
 
 
 
 
 
Other (income) expense:
 
 
 
 
 
 
 
Interest expense
12,473

 
13,746

 
15,018

 
16,065

Capitalized interest
(3,580
)
 
(3,342
)
 
(3,203
)
 
(3,668
)
Interest income
(1,313
)
 
(1,828
)
 
(2,605
)
 
(2,990
)
Other expense
3

 
104

 
114

 
145

Total other (income) expense
7,583

 
8,680

 
9,324

 
9,552

 
 
 
 
 
 
 
 
Income before income taxes
50,759

 
122,632

 
94,550

 
81,744

Provision (benefit) for income taxes
19,498

 
45,391

 
34,506

 
(165,231
)
 
 
 
 
 
 
 
 
Net income
$
31,261

 
$
77,241

 
$
60,044

 
$
246,975

Basic earnings per share
$
0.45

 
$
1.11

 
$
0.87

 
$
3.59

Diluted earnings per share
$
0.45

 
$
1.11

 
$
0.86

 
$
3.58







11

Notes to Condensed Financial Statements—(Continued)


The following table shows quarterly adjustments made due to the adoption of ASU 2014-09, "Revenue from Contracts with Customers" on the statements of operations for 2017.

 
 
 
Adjustments, for the Quarter ended
 
 
 
Full Year 2017 As Reported
 
March 31, 2017
 
June 30, 2017
 
September 30, 2017
 
December 31, 2017
 
Full Year 2017 Adjusted
 
(in thousands, except share and per share data)
Operating revenues:
 
 
 
 
 
 
 
 
 
 
 
Passenger
$
1,366,034

 
$
272,525

 
$
308,959

 
$
312,865

 
$
312,504

 
$
2,572,887

Other
1,281,632

 
(274,314
)
 
(310,455
)
 
(312,869
)
 
(313,329
)
 
70,665

Total operating revenues
2,647,666

 
(1,789
)
 
(1,496
)
 
(4
)
 
(825
)
 
2,643,552

 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Aircraft fuel
615,581

 

 

 

 

 
615,581

Salaries, wages and benefits
527,959

 

 

 

 

 
527,959

Aircraft rent
205,852

 

 

 

 

 
205,852

Landing fees and other rents
180,655

 

 

 

 

 
180,655

Depreciation and amortization
140,152

 

 

 

 

 
140,152

Maintenance, materials and repairs
110,439

 

 

 

 

 
110,439

Distribution
113,620

 
(726
)
 
(73
)
 
226

 
425

 
113,472

Special charges
12,629

 

 

 

 

 
12,629

Loss on disposal of assets
4,168

 

 

 

 

 
4,168

Other operating
347,820

 

 

 

 

 
347,820

Total operating expenses
2,258,875

 
(726
)
 
(73
)
 
226

 
425

 
2,258,727

 
 
 
 
 
 
 
 
 
 
 
 
Operating income
388,791

 
(1,063
)
 
(1,423
)
 
(230
)
 
(1,250
)
 
384,825

 
 
 
 
 
 
 
 
 
 
 
 
Other (income) expense:
 
 
 
 
 
 
 
 
 
 
 
Interest expense
57,302

 

 

 

 

 
57,302

Capitalized interest
(13,793
)
 

 

 

 

 
(13,793
)
Interest income
(8,736
)
 

 

 

 

 
(8,736
)
Other expense
366

 

 

 

 

 
366

Total other (income) expense
35,139

 

 

 

 

 
35,139

 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
353,652

 
(1,063
)
 
(1,423
)
 
(230
)
 
(1,250
)
 
349,686

Provision (benefit) for income taxes
(66,954
)
 
(389
)
 
(522
)
 
(84
)
 
2,113

 
(65,836
)
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
420,606

 
$
(674
)
 
$
(901
)
 
$
(146
)
 
$
(3,363
)
 
$
415,522

Basic earnings per share
$
6.08

 
$
(0.01
)
 
$
(0.01
)
 
$

 
$
(0.05
)
 
$
6.00

Diluted earnings per share
$
6.06

 
$
(0.01
)
 
$
(0.01
)
 
$

 
$
(0.05
)
 
$
5.99


    

    





12

Notes to Condensed Financial Statements—(Continued)

The following tables show adjustments made due to the adoption of Accounting Standards Update (ASU) No. 2014-09, (ASU 2014-09) "Revenue from Contracts with Customers" on the December 31, 2017 and 2016 balance sheets, respectively. Previously reported results were derived from audited financial statements included in Company's Annual Report on Form 10-K for the fiscal years ended December 31, 2017 and December 31, 2016, as applicable.
 
Year ended December 31, 2017
 
(in thousands)
 
As Reported
 
Topic 606 Adjustment
 
As Adjusted
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
800,849

 
$

 
$
800,849

Short-term investment securities
100,937

 

 
100,937

Accounts receivable, net
49,323

 

 
49,323

Aircraft maintenance deposits, net
175,615

 

 
175,615

Income tax receivable
69,844

 

 
69,844

Prepaid expenses and other current assets
83,692

 
1,850

 
85,542

Total current assets
1,280,260

 
1,850

 
1,282,110

 
 
 
 
 
 
Property and equipment:
 
 
 
 
 
Flight equipment
2,291,110

 

 
2,291,110

Ground property and equipment
155,166

 

 
155,166

Less accumulated depreciation
(207,808
)
 

 
(207,808
)
 
2,238,468

 

 
2,238,468

Deposits on flight equipment purchase contracts
253,687

 

 
253,687

Long-term aircraft maintenance deposits
150,617

 

 
150,617

Deferred heavy maintenance, net
99,915

 

 
99,915

Other long-term assets
121,003

 

 
121,003

Total assets
$
4,143,950

 
$
1,850

 
$
4,145,800