Edgar Filing: Spirit Airlines, Inc.

Document

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



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.	Condensed Financial Statements (unaudited)	1
		Condensed Statements of Operations - Three Months Ended March 31, 2018 and 2017	1
		Condensed Statements of Comprehensive Income - Three Months Ended March 31, 2018 and 2017	2
		Condensed Balance Sheets – March 31, 2018 and December 31, 2017	3
		Condensed Statements of Cash Flows – Three Months Ended March 31, 2018 and 2017	4
		Notes to Condensed Financial Statements	5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
		Glossary of Airline Terms	36
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
	Item 4.	Controls and Procedures	39
Part II. Other Information
	Item 1.	Legal Proceedings	40
	Item 1A.	Risk Factors	41
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
	Item 3.	Defaults Upon Senior Securities	42
	Item 4.	Mine Safety Disclosures	42
	Item 5.	Other Information	42
	Item 6.	Exhibits	43
Signature			44

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.

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.

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.

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.

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

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

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.

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.

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

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

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

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

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

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	22,822		$	—	$	22,822