NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of Allegiant Travel Company (the “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, and are insignificant to the consolidated financial statements. All intercompany balances and transactions have been eliminated.
These unaudited consolidated financial statements reflect all normal recurring adjustments which management believes are necessary to present fairly the financial position, results of operations, and cash flows of the Company for the respective periods presented. Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto included in the annual report of the Company on Form 10-K for the year ended December 31, 2019 and filed with the Securities and Exchange Commission.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect 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.
Recent Accounting Pronouncements
On June 16, 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. The standard requires the use of an “expected loss” model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale debt securities and requires estimated credit losses to be recorded as allowances instead of reductions to amortized cost of the securities. The Company adopted this accounting standard prospectively as of January 1, 2020, and it did not have a significant impact on its consolidated financial statements.
Note 2 — Impact of the COVID-19 Pandemic
In December 2019, a novel strain of coronavirus (“COVID-19”) was reported in Wuhan, China. The World Health Organization (“WHO”) declared COVID-19 a “pandemic” on March 11, 2020 and the U.S. government declared a national state of emergency on March 13, 2020. The U.S. government has implemented enhanced screenings, quarantine requirements and other travel restrictions in connection with the COVID-19 outbreak. U.S. state governments have instituted similar measures, such as “shelter-in-place” requirements, and declared states of emergency. In addition, the U.S. government has strongly recommended “social distancing” measures, including avoiding gathering in groups of more than 10 people and avoiding discretionary travel. Many attractions in the leisure destinations the Company serves, such as Walt Disney World in Orlando, Florida and Las Vegas hotels, have temporarily closed, also impacting travel to these destinations.
Government restrictions and consumer fears relating to COVID-19 have impacted flight loads, resulted in unprecedented cancellations of bookings and substantially reduced demand for new bookings. While the Company performed largely as expected in January and February of 2020, a severe reduction in air travel during March 2020 resulted in a 36.0 percent decline in operating revenues for March 2020 as compared to March 2019. To the date of this report, a steep decline in demand has continued throughout the airline industry, and the Company is continuously reevaluating flight schedules based on demand trends.
The Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted in March 2020, providing support for the airline industry and other businesses and individuals.
The Company has taken many actions to mitigate the effects of COVID-19 on its business, as outlined below:
Network and Customer Experience
|
|
•
|
Reduced April capacity by 87.4 percent
|
|
|
•
|
Continually evaluating forward schedules to adjust capacity according to demand trends
|
|
|
•
|
Waived change and cancellation fees for all customers
|
|
|
•
|
Extended expiry on credit vouchers to two years
|
|
|
•
|
Offered refunds on all flights canceled by the Company and also on itineraries canceled by customers
|
Cash Outlay Reduction
|
|
•
|
Suspended all stock buybacks and dividends
|
|
|
•
|
Executives have reduced salaries by 50 percent and Board members are foregoing cash compensation
|
|
|
•
|
Enacted a hiring freeze and offering voluntary leave
|
|
|
–
|
More than 1,100 team members are currently participating in some form of pay reduction program
|
|
|
•
|
Suspended nearly all contractor positions, subscriptions, non-essential training and travel
|
|
|
•
|
Suspended all non-essential capital expenditures including, but not limited to, Sunseeker Resorts, Teesnap and Allegiant Nonstop family entertainment centers
|
|
|
•
|
Extended payment terms and renegotiating contracts with vendors
|
Liquidity Response
|
|
•
|
Implemented immediate and meaningful cash burn reductions, which is the Company's most effective way to manage liquidity
|
|
|
•
|
Received additional financing of $31.0 million in April 2020, secured by two aircraft
|
|
|
•
|
As of April 30, 2020 the Company had 28 unencumbered aircraft and eight unencumbered spare engines
|
|
|
•
|
In April 2020, signed payroll support agreement with U.S. Department of Treasury (the "Treasury") in the amount of $171.9 million comprised of $150.3 million in direct grants and a $21.6 million low-interest, unsecured 10-year loan
|
|
|
–
|
Received first installment of $86.0 million in April, with remainder expected over the next three months
|
|
|
–
|
The Company will issue warrants to the U.S. Department of the Treasury to purchase 25,898 shares at a strike price of $83.33 per share
|
|
|
•
|
Expect to receive federal income tax refunds in 2020 and 2021 of up to $194.0 million related to 2018, 2019, and 2020 net operating loss carrybacks due to the change in loss carryback period under the CARES Act
|
|
|
•
|
Submitted application under the Loan Program under CARES Act with the option to access up to $276.0 million secured loan by the end of September 2020
|
Given the above actions and the Company's assumptions about the future impact of COVID-19 on travel demand, which could be materially different due to the inherent uncertainties of the current operating environment, the Company expects to meet its cash obligations as well as remain in compliance with the debt covenants in its existing financing agreements for the next 12 months based on its current level of unrestricted cash and short-term investments, its anticipated access to liquidity as discussed above, and projected cash flows from operations.
Special Charges
The effects of COVID-19 triggered an impairment review as of March 31, 2020, and due to the uncertainty of our non-airline activity moving forward a non-cash impairment charge was recognized during the first quarter (see Note 12 for additional detail). The Company also identified expenses that were unique and specific to COVID-19. This includes salary expense, additional aircraft cleaning expense, and other various expenses. See below for a summary of charges by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Airline
|
|
Sunseeker Resort
|
|
Other
non-airline
|
|
Total
|
COVID-19 related expenses
|
|
$
|
9,540
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,540
|
|
Impairment of assets (non-cash)
|
|
—
|
|
|
136,793
|
|
|
26,567
|
|
|
163,360
|
|
Total special charges
|
|
$
|
9,540
|
|
|
$
|
136,793
|
|
|
$
|
26,567
|
|
|
$
|
172,900
|
|
Note 3 — Revenue Recognition
Passenger Revenue
Passenger revenue is the most significant category in our reported operating revenues. Passenger revenue is primarily composed of scheduled service revenue (including passenger ticket sales and credit voucher breakage), revenue from ancillary air-related charges (including seat fees, baggage fees, and other travel-related services performed in conjunction with a passenger’s flight), as well as co-brand credit card point redemptions, as outlined below:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in thousands)
|
2020
|
|
2019
|
Scheduled service
|
$
|
197,261
|
|
|
$
|
234,772
|
|
Ancillary air-related charges
|
176,964
|
|
|
181,700
|
|
Co-brand redemptions
|
4,686
|
|
|
3,505
|
|
Total passenger revenue
|
$
|
378,911
|
|
|
$
|
419,977
|
|
Sales of passenger tickets not yet flown are recorded in air traffic liability. Passenger revenue is recognized when transportation is provided or when ticket voucher breakage occurs, to the extent different from estimated breakage. As of March 31, 2020, approximately 45 percent of the air traffic liability balance was related to forward bookings, with the remaining 55 percent related to credit vouchers for future travel.
The contract term of passenger tickets is twelve months and revenue associated with future travel will principally be recognized within this time frame. During the three months ended March 31, 2020, $191.6 million was recognized into passenger revenue that was recorded in the air traffic liability balance of $250.0 million at December 31, 2019.
In April 2020, the Company announced that credits issued for canceled travel in April through the end of the COVID-19 pandemic will have an extended expiration date which is two years from the original booking date. This change will be considered in estimating the future breakage rate, which represents the value of credit vouchers that are not expected to be redeemed prior to their contractual expiration date.
Co-brand redemptions
In relation to the travel component of the co-branded credit card contract with Bank of America, the Company has a performance obligation to provide cardholders with points to be used for future travel award redemptions. Therefore, consideration received from Bank of America related to the travel component is deferred based on its relative selling price and is recognized into passenger revenue when the points are redeemed and the transportation is provided.
The following table presents the activity of the co-brand point liability as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
(in thousands)
|
2020
|
|
2019
|
Balance at January 1
|
$
|
15,613
|
|
|
$
|
10,708
|
|
Points awarded (deferral of revenue)
|
6,354
|
|
|
4,164
|
|
Points redeemed (recognition of revenue)
|
(4,686
|
)
|
|
(3,505
|
)
|
Balance at March 31
|
$
|
17,281
|
|
|
$
|
11,367
|
|
As of March 31, 2020 and 2019, $12.5 million and $8.9 million, respectively, of the current points liability is reflected in Accrued liabilities and represents the Company's current estimate of revenue to be recognized in the next twelve months based on historical trends, with the remaining balance reflected in other noncurrent liabilities expected to be recognized into revenue in periods thereafter. Given the inherent uncertainty of the current operating environment due to COVID-19, the Company will continue to monitor redemption patterns and may adjust its estimates in the future.
Note 4 — Property and Equipment
Property and equipment:
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2020
|
|
December 31, 2019
|
Flight equipment, including pre-delivery deposits
|
$
|
2,397,141
|
|
|
$
|
2,289,157
|
|
Computer hardware and software
|
153,842
|
|
|
171,516
|
|
Land and buildings/leasehold improvements
|
81,954
|
|
|
98,885
|
|
Other property and equipment
|
80,816
|
|
|
161,760
|
|
Total property and equipment
|
2,713,753
|
|
|
2,721,318
|
|
Less accumulated depreciation and amortization
|
(503,032
|
)
|
|
(484,510
|
)
|
Property and equipment, net
|
$
|
2,210,721
|
|
|
$
|
2,236,808
|
|
Accrued capital expenditures as of March 31, 2020 and December 31, 2019 were $46.5 million and $16.5 million, respectively.
Note 5 — Long-Term Debt
Long-term debt and finance lease obligations:
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2020
|
|
December 31, 2019
|
Fixed-rate debt and finance lease obligations due through 2029
|
$
|
230,531
|
|
|
$
|
235,071
|
|
Variable-rate debt due through 2029
|
1,257,458
|
|
|
1,186,782
|
|
Total long-term debt and finance lease obligations, net of related costs
|
1,487,989
|
|
|
1,421,853
|
|
Less current maturities, net of related costs
|
223,600
|
|
|
173,274
|
|
Long-term debt and finance lease obligations, net of current maturities and related costs
|
$
|
1,264,389
|
|
|
$
|
1,248,579
|
|
|
|
|
|
Weighted average fixed-interest rate on debt
|
3.8
|
%
|
|
3.7
|
%
|
Weighted average variable-interest rate on debt
|
3.7
|
%
|
|
4.5
|
%
|
Maturities of long-term debt and finance lease obligations for the remainder of 2020 and for the next four years and thereafter, in the aggregate, are: remaining in 2020 - $140.9 million; 2021 - $185.8 million; 2022 - $117.8 million; 2023 - $105.0 million; 2024 - $639.1 million; and $299.4 million thereafter.
Senior Secured Revolving Credit Facility
The Company has a senior secured revolving credit facility under which it is able to borrow up to $81.0 million. The facility has a term of 24 months and the borrowing ability is based on the value of the Airbus A320 series aircraft placed in the collateral pool. In 2019 the Company drew down $81.0 million under this facility. Aircraft remain in the collateral pool for up to two years, and, as of March 31, 2020, there were eight aircraft in the collateral pool. The notes for the amounts borrowed under the facility bear interest at a floating rate based on LIBOR and are due in March 2021.
Term Loan
In February 2019, the Company entered into a Credit and Guaranty Agreement (the “Term Loan”) to borrow $450.0 million, guaranteed by all of the Company's subsidiaries, excluding Sunseeker Resorts Inc. and its subsidiaries, and other insignificant subsidiaries (the "Term Loan Guarantors"). In February 2020 the Company entered into an amendment to the Term Loan under which the interest rate was reduced by 150 basis points, and the principal amount of the debt was increased by a net amount of $100.0 million to $545.5 million. Quarterly principal payments increased under the amendment, but the remaining provisions were substantially unchanged, including the maturity date. The Term Loan is secured by substantially all property and assets of the Company and the Term Loan Guarantors, excluding aircraft and aircraft engines, and excluding certain other assets. The Term Loan bears interest based on LIBOR and provides for quarterly interest payments along with quarterly principal payments of $1.4 million through February 2024, at which time the Term Loan is due. The Term Loan may be prepaid at any time without penalty.
Note 6 — Income Taxes
The Company recorded a $97.7 million tax benefit for the three months ended March 31, 2020, which was 74.7 percent of loss before taxes, compared to a $16.8 million tax provision, or 22.7 percent of income before taxes, for the three months ended March 31, 2019. The effective tax rate for the three months ended March 31, 2020 differed from the statutory federal income tax rate of 21.0 percent primarily due to the tax accounting impact of the CARES Act which includes a $39.6 million discrete federal income tax benefit related to the full utilization of 2018 and 2019 net operating losses against taxable income in earlier years in which 35.0 percent was the enacted tax rate; the ability to carryback the 2020 net operating loss at a 35.0 percent rate applicable in earlier years; a deferred tax remeasurement related to the 2020 tax year; and state taxes.
Note 7 — Leases
The Company evaluates all operating leases and they are measured on the balance sheet with a lease liability and right-of-use asset (“ROU”) at inception. 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. Airport terminal leases mostly include variable lease payments outside of those based on a fixed index, and are therefore not recorded as ROU assets.
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Classification on the Balance Sheet
|
March 31, 2020
|
|
December 31, 2019
|
Assets
|
|
|
|
|
Operating lease assets(1)
|
Operating lease right-of-use assets
|
$
|
70,260
|
|
|
$
|
22,081
|
|
Finance lease assets(2)
|
Property and equipment, net
|
110,036
|
|
|
111,665
|
|
Total lease assets
|
|
$
|
180,296
|
|
|
$
|
133,746
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current
|
|
|
|
|
Operating(1)
|
Accrued liabilities
|
$
|
5,954
|
|
|
$
|
2,662
|
|
Finance(2)
|
Current maturities of long-term debt and finance lease obligations
|
7,750
|
|
|
7,666
|
|
Noncurrent
|
|
|
|
|
Operating(1)
|
Other noncurrent liabilities
|
66,545
|
|
|
21,290
|
|
Finance(2)
|
Long-term debt and finance lease obligations
|
105,960
|
|
|
107,930
|
|
Total lease liabilities
|
|
$
|
186,209
|
|
|
$
|
139,548
|
|
(1) Represents assets and liabilities of three aircraft, office facilities, office equipment, certain airport and terminal facilities, and other assets under operating lease
(2) Represents assets and liabilities of five aircraft under finance lease
Note 8 — Fair Value Measurements
The Company utilizes the market approach to measure the fair value of its financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. The assets classified as Level 2 primarily utilize quoted market prices or alternative pricing sources including transactions involving identical or comparable assets and models utilizing market observable inputs for valuation of these securities. No changes in valuation techniques or inputs occurred during the three months ended March 31, 2020.
Financial instruments measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
(in thousands)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Level 1
|
|
Level 2
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
47,774
|
|
|
$
|
47,774
|
|
|
$
|
—
|
|
|
$
|
42,653
|
|
|
$
|
42,653
|
|
|
$
|
—
|
|
Commercial paper
|
7,135
|
|
|
—
|
|
|
7,135
|
|
|
5,807
|
|
|
—
|
|
|
5,807
|
|
Municipal debt securities
|
4,547
|
|
|
—
|
|
|
4,547
|
|
|
1,202
|
|
|
—
|
|
|
1,202
|
|
Total cash equivalents
|
59,456
|
|
|
47,774
|
|
|
11,682
|
|
|
49,662
|
|
|
42,653
|
|
|
7,009
|
|
Short-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
158,060
|
|
|
—
|
|
|
158,060
|
|
|
145,975
|
|
|
—
|
|
|
145,975
|
|
Commercial paper
|
142,667
|
|
|
—
|
|
|
142,667
|
|
|
161,286
|
|
|
—
|
|
|
161,286
|
|
Municipal debt securities
|
8,678
|
|
|
—
|
|
|
8,678
|
|
|
12,237
|
|
|
—
|
|
|
12,237
|
|
US Treasury bonds
|
3,076
|
|
|
—
|
|
|
3,076
|
|
|
2,915
|
|
|
—
|
|
|
2,915
|
|
Federal agency debt securities
|
2,465
|
|
|
—
|
|
|
2,465
|
|
|
13,515
|
|
|
—
|
|
|
13,515
|
|
Total short-term
|
314,946
|
|
|
—
|
|
|
314,946
|
|
|
335,928
|
|
|
—
|
|
|
335,928
|
|
Long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal agency debt securities
|
11,019
|
|
|
—
|
|
|
11,019
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Corporate debt securities
|
—
|
|
|
—
|
|
|
—
|
|
|
15,396
|
|
|
—
|
|
|
15,396
|
|
US Treasury bonds
|
—
|
|
|
—
|
|
|
—
|
|
|
146
|
|
|
—
|
|
|
146
|
|
Total long-term
|
11,019
|
|
|
—
|
|
|
11,019
|
|
|
15,542
|
|
|
—
|
|
|
15,542
|
|
Total financial instruments
|
$
|
385,421
|
|
|
$
|
47,774
|
|
|
$
|
337,647
|
|
|
$
|
401,132
|
|
|
$
|
42,653
|
|
|
$
|
358,479
|
|
None of the Company's debt is publicly held and as a result, the Company has determined the estimated fair value of these notes to be Level 3. Certain inputs used to determine fair value 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, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
(in thousands)
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Hierarchy Level
|
Non-publicly held debt
|
$
|
1,397,339
|
|
|
$
|
1,235,274
|
|
|
$
|
1,329,882
|
|
|
$
|
1,140,232
|
|
|
3
|
Due to their short-term nature, the carrying amounts of cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value.
Note 9 — Earnings per Share
Basic and diluted earnings per share are computed pursuant to the two-class method. Under this method, the Company attributes net income to two classes: common stock and unvested restricted stock. Unvested restricted stock awards granted to employees under the Company’s Long-Term Incentive Plan are considered participating securities as 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 the 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:
|
|
1.
|
Assume vesting of restricted stock using the treasury stock method.
|
|
|
2.
|
Assume unvested restricted stock awards are not vested, and allocate earnings to common shares and unvested restricted stock awards using the two-class method.
|
For the three months ended March 31, 2020 and 2019, respectively, the second method, which assumes unvested awards are not vested, 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 (share count and dollar amounts other than per-share amounts in table are in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
Basic:
|
|
|
|
Net income (loss)
|
$
|
(33,009
|
)
|
|
$
|
57,124
|
|
Less net income allocated to participating securities
|
(236
|
)
|
|
(799
|
)
|
Net income (loss) attributable to common stock
|
$
|
(33,245
|
)
|
|
$
|
56,325
|
|
Earnings (loss) per share, basic
|
$
|
(2.08
|
)
|
|
$
|
3.52
|
|
Weighted-average shares outstanding
|
15,952
|
|
|
16,011
|
|
Diluted:
|
|
|
|
|
|
Net income (loss)
|
$
|
(33,009
|
)
|
|
$
|
57,124
|
|
Less net income allocated to participating securities
|
(236
|
)
|
|
(798
|
)
|
Net income (loss) attributable to common stock
|
$
|
(33,245
|
)
|
|
$
|
56,326
|
|
Earnings (loss) per share, diluted
|
$
|
(2.08
|
)
|
|
$
|
3.52
|
|
Weighted-average shares outstanding
|
15,952
|
|
|
16,011
|
|
Dilutive effect of stock options and restricted stock
|
62
|
|
|
31
|
|
Adjusted weighted-average shares outstanding under treasury stock method
|
16,014
|
|
|
16,042
|
|
Participating securities excluded under two-class method
|
(62
|
)
|
|
(29
|
)
|
Adjusted weighted-average shares outstanding under two-class method
|
15,952
|
|
|
16,013
|
|
Note 10 — Commitments and Contingencies
As of March 31, 2020, the Company had commitments to purchase eight Airbus A320 aircraft as well as purchase agreements for four spare engines.
The Company's contractual purchase commitments consist primarily of aircraft and engine acquisitions. The total future commitments are as follows:
|
|
|
|
|
(in thousands)
|
March 31, 2020
|
Remaining in 2020
|
$
|
126,141
|
|
2021
|
37,900
|
|
2022
|
21,000
|
|
Total commitments
|
$
|
185,041
|
|
Contingencies
The Company is subject to certain legal and administrative actions it considers routine to its business activities. The Company believes the ultimate outcome of any potential and pending legal or administrative matters will not have a material adverse impact on its financial position, liquidity or results of operations.
Note 11 — 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 three operating segments: the Airline, Sunseeker Resort, and other non-airline.
Airline Segment
The Airline segment operates as a single business unit and includes all scheduled service air transportation, ancillary air-related products and services, third party products and services, fixed fee contract air transportation and other airline-related revenue. The CODM evaluation includes, but is not limited to, route and flight profitability data, ancillary and third party product and service offering statistics, and fixed fee contract information when making resource allocation decisions with the goal of optimizing consolidated financial results.
Sunseeker Resort Segment
The Sunseeker Resort segment represents activity related to the development and construction of Sunseeker Resort in Southwest Florida, as well as the operation of Kingsway golf course. Due to the various impacts of COVID-19, the Company suspended construction of Sunseeker Resort and temporarily closed operation of Kingsway golf course. At this time, it is uncertain when construction will resume and when the golf course will re-open. The Company recognized a $136.8 million non-cash impairment charge related to Sunseeker assets in the first quarter 2020 (refer to Note 12 for additional information).
Other non-Airline Segment
The other non-airline segment includes the Teesnap golf course management solution and Allegiant Nonstop family entertainment centers. Allegiant Nonstop family entertainment centers are comprised of games, attractions, and food facilities.
Due to the impacts of COVID-19, the Company temporarily closed the Allegiant Nonstop location in Warren, MI, and permanently closed the Allegiant Nonstop location in Clearfield, Utah. The Company also permanently discontinued all activity for the Allegiant Nonstop location in West Jordan, Utah, which was being developed. An $18.3 million non-cash impairment charge was recognized in connection with these closures (refer to Note 12 for additional information).
In July 2019, management began evaluating strategic alternatives for Teesnap, and its business-to-business software as a service offering. In the first quarter of 2020, the Company recognized a non-cash $8.3 million impairment charge over Teesnap assets (refer to Note 12 for additional information). Teesnap remains an asset held for sale.
Selected information for the Company's segments and the reconciliation to the consolidated financial statement amounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Airline(1)
|
|
Sunseeker Resort(2)
|
|
Other non- airline(3)
|
|
Consolidated
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
Operating revenue:
|
|
|
|
|
|
|
|
Passenger
|
$
|
378,911
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
378,911
|
|
Third party products
|
15,976
|
|
|
—
|
|
|
—
|
|
|
15,976
|
|
Fixed fee contract
|
8,919
|
|
|
—
|
|
|
—
|
|
|
8,919
|
|
Other
|
876
|
|
|
621
|
|
|
3,878
|
|
|
5,375
|
|
Operating income (loss)
|
51,119
|
|
|
(139,235
|
)
|
|
(29,689
|
)
|
|
(117,805
|
)
|
Interest expense, net
|
11,199
|
|
|
576
|
|
|
—
|
|
|
11,775
|
|
Depreciation and amortization
|
42,451
|
|
|
476
|
|
|
772
|
|
|
43,699
|
|
Capital expenditures
|
118,899
|
|
|
45,160
|
|
|
442
|
|
|
164,501
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
Operating revenue:
|
|
|
|
|
|
|
|
Passenger
|
$
|
419,977
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
419,977
|
|
Third party products
|
17,141
|
|
|
—
|
|
|
—
|
|
|
17,141
|
|
Fixed fee contract
|
10,575
|
|
|
—
|
|
|
—
|
|
|
10,575
|
|
Other
|
631
|
|
|
902
|
|
|
2,396
|
|
|
3,929
|
|
Operating income (loss)
|
98,490
|
|
|
(1,222
|
)
|
|
(6,190
|
)
|
|
91,078
|
|
Interest expense, net
|
13,221
|
|
|
158
|
|
|
—
|
|
|
13,379
|
|
Depreciation and amortization
|
35,229
|
|
|
156
|
|
|
797
|
|
|
36,182
|
|
Capital expenditures
|
108,920
|
|
|
5,275
|
|
|
8,356
|
|
|
122,551
|
|
(1) Includes $9.5 million special charge in the first quarter 2020
(2) Includes $136.8 million special charge in the first quarter 2020
(3) Includes $26.6 million special charge in the first quarter 2020
Total assets were as follows as of the dates indicated:
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2020
|
|
December 31, 2019
|
Airline
|
$
|
3,132,812
|
|
|
$
|
2,830,236
|
|
Sunseeker Resort
|
38,223
|
|
|
133,362
|
|
Other non-airline
|
20,872
|
|
|
47,205
|
|
Consolidated
|
$
|
3,191,907
|
|
|
$
|
3,010,803
|
|
Note 12 — Impairment
Accounting Standards Codification (ASC) 360 - Property, Plant, and Equipment (ASC 360) requires long-lived assets to be assessed for impairment when events and circumstances indicate that the assets may be impaired.
As described in Note 2, in the first quarter of 2020, our operations and liquidity were significantly impacted by decreased passenger demand and U.S. government travel restrictions and quarantine requirements due to COVID-19. As a result of these events and circumstances, the Company performed impairment tests on its long-lived assets in connection with the preparation of its financial statements.
In accordance with ASC 360, an impairment of a long-lived asset or group of long-lived assets exists only when the sum of the estimated undiscounted future cash flows expected to be generated directly by the assets are less than the carrying value of the assets. Assets were grouped by operating segment when estimating future cash flows, and further grouped within each segment as applicable. Estimates of future cash flows were generally based on historical results, and management's best estimate of future market and operating conditions.
Airline Segment
Long-lived assets for the Airline segment consist primarily of owned flight and ground equipment. To test the recoverability of the Company's airline operating fleet, undiscounted future cash flows for each aircraft under the Company's current expected operating fleet plan were assessed and it was determined that there was no impairment as of March 31, 2020. As the Company obtains greater clarity about the duration and extent of reduced demand and potentially executes further capacity adjustments, the Company will continue to evaluate its current fleet compared to network requirements and may decide to permanently retire aircraft.
Sunseeker Resort Segment
Long-lived assets for Sunseeker Resort and related Kingsway golf course consist primarily of the land, construction in process, building, and other various equipment. As a result of the impairment tests performed, the Company determined the sum of the undiscounted cash flows were less than the long-lived assets\' carrying value. A $136.8 million impairment charge was recorded to reflect the difference between the carrying values of these assets and their fair values. Fair value reflects management's best estimate, including valuation inputs from third parties and recent market transactions.
Other non-Airline Segment
Long-lived assets for Allegiant Nonstop family entertainment centers consist primarily of leasehold improvements, arcade games, various equipment, and ROU assets. As a result of the impairment tests performed, the Company determined the sum of the undiscounted cash flows were less than the long-lived assets' carrying value. An $18.3 million impairment charge was recorded to reflect the difference between the carrying values of these assets and their fair values. Fair value reflects management's best estimate, including valuation inputs from third parties and recent market trends.
Long-lived assets for Teesnap consist primarily of capitalized software and computer equipment. As a result of the impairment tests performed, the Company determined the sum of the undiscounted cash flows were less than the long-lived assets' carrying value. Management does not expect to recover any of the book value of the assets through operations, and an $8.3 million impairment charge was recorded to write down all long-lived assets to a net book value of zero. This reflects management's best estimate of the fair value of these assets based on recent market trends.
Note 13 — Subsequent Events
On April 20, 2020, the Company through its airline operating subsidiary Allegiant Air, LLC entered into a Payroll Support Program Agreement (the “PSPA”) with the Treasury for an award Allegiant Air will receive under the CARES Act. The total amount allocated to Allegiant Air under the Payroll Support Program established under the CARES Act is approximately $171.9 million, and is to be received in installments. The Company received the first installment of the grant in April 2020, which totaled $86.0 million. The majority of the remaining support under the PSPA is expected to be received in the second quarter 2020. The proceeds must be used exclusively for wages, salaries and benefits.
In consideration for the grant, Allegiant Air issued to Treasury a low-interest rate, senior unsecured term promissory note (the “PSP Note”) which, when the full amount of the award is funded, will be in the principal amount of approximately $21.6 million. The PSP Note will mature 10 years after issuance. The PSP Note is guaranteed by the Company and is prepayable at any time at par.
Also in consideration for the grant, the Company will issue to Treasury warrants (the “PSP Warrants”) to purchase 25,898 shares of common stock of the Company at a price of $83.33 per share (based on the closing price of the Company’s common stock on The Nasdaq Global Select Market on April 9, 2020). The PSP Warrants will expire five years after issuance, and will be exercisable either through net share settlement or cash, at the Company’s option. The PSP Warrants will include customary anti-dilution provisions, will not have any voting rights and will be freely transferable, with registration rights.
In connection with the PSPA, the Company will be required to comply with the relevant provisions of the CARES Act, including those prohibiting the repurchase of common stock and the payment of common stock dividends until September 30, 2021, as well as those restricting the payment of certain executive compensation for periods through March 24, 2022.