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 June 30, 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 July 19, 2018:
Class
 
Number of Shares
Common Stock, $0.0001 par value
 
68,252,441



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 June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Operating revenues:
 
 
 
 
 
 
 
Passenger
$
836,350

 
$
680,880

 
$
1,525,491

 
$
1,253,167

Other
15,421

 
19,305

 
30,418

 
36,975

Total operating revenues
851,771

 
700,185

 
1,555,909

 
1,290,142

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Aircraft fuel
246,180

 
142,294

 
450,826

 
282,076

Salaries, wages and benefits
187,756

 
129,892

 
342,852

 
257,030

Aircraft rent
41,745

 
52,566

 
91,936

 
109,636

Landing fees and other rents
58,602

 
45,592

 
108,232

 
86,040

Depreciation and amortization
45,618

 
35,331

 
84,991

 
66,840

Maintenance, materials and repairs
31,653

 
28,985

 
61,363

 
55,297

Distribution
34,997

 
29,835

 
65,628

 
55,607

Special charges
174

 
—

 
89,342

 
4,776

Loss on disposal of assets
4,644

 
1,493

 
5,492

 
2,598

Other operating
91,881

 
102,885

 
185,523

 
180,588

Total operating expenses
743,250

 
568,873

 
1,486,185

 
1,100,488

 
 
 
 
 
 
 
 
Operating income
108,521

 
131,312

 
69,724

 
189,654

 
 
 
 
 
 
 
 
Other (income) expense:
 
 
 
 
 
 
 
Interest expense
20,498

 
13,746

 
38,347

 
26,219

Capitalized interest
(2,296
)
 
(3,342
)
 
(4,548
)
 
(6,922
)
Interest income
(4,430
)
 
(1,828
)
 
(8,496
)
 
(3,141
)
Other expense
188

 
104

 
321

 
107

Special charges, non-operating
79,412

 
—

 
88,613


—

Total other (income) expense
93,372

 
8,680

 
114,237

 
16,263

 
 
 
 
 
 
 
 
Income (loss) before income taxes
15,149

 
122,632

 
(44,513
)
 
173,391

Provision (benefit) for income taxes
3,895

 
45,391

 
(10,845
)
 
64,889

 
 
 
 
 
 
 
 
Net income (loss)
$
11,254

 
$
77,241

 
$
(33,668
)
 
$
108,502

Basic earnings (loss) per share
$
0.16

 
$
1.11

 
$
(0.49
)
 
$
1.56

Diluted earnings (loss) per share
$
0.16

 
$
1.11

 
$
(0.49
)
 
$
1.56

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

1



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

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net income (loss)
$
11,254

 
$
77,241

 
$
(33,668
)
 
$
108,502

Unrealized gain (loss) on short-term investment securities, net of deferred taxes of $33, ($6), $26 and ($14)
101

 
(11
)
 
78

 
(24
)
Interest rate derivative loss reclassified into earnings, net of taxes of $18, $31, $39 and $62
61

 
53

 
120

 
107

Other comprehensive income
$
162

 
$
42

 
$
198

 
$
83

Comprehensive income (loss)
$
11,416

 
$
77,283

 
$
(33,470
)
 
$
108,585


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


2


Spirit Airlines, Inc.
Condensed Balance Sheets
(unaudited, in thousands)
 
 
June 30, 2018
 
December 31, 2017
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
812,362

 
$
800,849

Short-term investment securities
101,714

 
100,937

Accounts receivable, net
58,547

 
49,323

Aircraft maintenance deposits, net
107,252

 
175,615

Income tax receivable
70,672

 
69,844

Prepaid expenses and other current assets
79,788

 
85,542

Total current assets
1,230,335

 
1,282,110

 
 
 
 
Property and equipment:
 
 
 
Flight equipment
2,911,378

 
2,291,110

Ground property and equipment
168,039

 
155,166

Less accumulated depreciation
(261,314
)
 
(207,808
)
 
2,818,103

 
2,238,468

Deposits on flight equipment purchase contracts
240,224

 
253,687

Long-term aircraft maintenance deposits
141,183

 
150,617

Deferred heavy maintenance, net
172,799

 
99,915

Other long-term assets
79,081

 
121,003

Total assets
$
4,681,725

 
$
4,145,800

 
 
 
 
Liabilities and shareholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
50,310

 
$
22,822

Air traffic liability
357,645

 
263,711

Current maturities of long-term debt and capital leases
145,865

 
115,430

Other current liabilities
346,407

 
262,370

Total current liabilities
900,227

 
664,333

 
 
 
 
Long-term debt, less current maturities
1,731,766

 
1,387,498

Deferred income taxes
295,601

 
308,814

Deferred gains and other long-term liabilities
20,630

 
22,581

Shareholders’ equity:
 
 
 
Common stock

7

 
7

Additional paid-in-capital
365,536

 
360,153

Treasury stock, at cost
(66,840
)
 
(65,854
)
Retained earnings
1,436,064

 
1,469,732

Accumulated other comprehensive income (loss)
(1,266
)
 
(1,464
)
Total shareholders’ equity
1,733,501

 
1,762,574

Total liabilities and shareholders’ equity
$
4,681,725

 
$
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) 
 
Six Months Ended June 30,
 
2018
 
2017
Operating activities:

 

Net income (loss)
$
(33,668
)
 
$
108,502

Adjustments to reconcile net income (loss) to net cash provided by operations:

 

Losses reclassified from other comprehensive income
159


167

Stock-based compensation
5,381

 
4,671

Allowance for doubtful accounts (recoveries)
(12
)
 
(51
)
Amortization of deferred gains and losses and debt issuance costs
4,552

 
4,761

Depreciation and amortization
84,991

 
66,840

Deferred income tax expense (benefit)
(17,604
)
 
64,789

Loss on disposal of assets
5,492

 
2,598

Lease termination costs
—


4,776

Special charges, non-operating
88,613

 
—




 


Changes in operating assets and liabilities:


 
 
Accounts receivable
(9,212
)
 
(6,808
)
Aircraft maintenance deposits, net
11,222

 
(17,940
)
Prepaid income taxes
—


(1,598
)
Long-term deposits and other assets
3,003

 
(17,507
)
Deferred heavy maintenance
(94,267
)
 
(28,191
)
Income tax receivable
(828
)
 
—

Accounts payable
25,413

 
16,387

Air traffic liability
93,936

 
108,574

Other liabilities
83,809

 
13,518

Other
8

 
239

Net cash provided by operating activities
250,988

 
323,727

Investing activities:
 
 
 
Purchase of available-for-sale investment securities
(73,687
)

(68,459
)
Proceeds from the maturity of available-for-sale investment securities
72,964


67,857

Proceeds from sale of property and equipment
9,500

 
—

Pre-delivery deposits for flight equipment, net of refunds
(92,205
)
 
(79,357
)
Capitalized interest
(4,178
)

(6,375
)
Purchase of property and equipment
(323,229
)
 
(269,519
)
Net cash used in investing activities
(410,835
)
 
(355,853
)
Financing activities:
 
 
 
Proceeds from issuance of long-term debt
440,340


255,827

Proceeds from stock options exercised
2

 
29

Payments on debt obligations
(60,649
)
 
(49,980
)
Payments on capital lease obligations
(205,403
)
 
(119
)
Repurchase of common stock
(986
)
 
(1,217
)
Debt issuance costs
(1,944
)

(4,164
)
Net cash provided by financing activities
171,360

 
200,376

Net (decrease) increase in cash and cash equivalents
11,513

 
168,250

Cash and cash equivalents at beginning of period
800,849

 
700,900

Cash and cash equivalents at end of period
$
812,362

 
$
869,150

Supplemental disclosures
 
 
 
Cash payments for:
 
 
 
Interest, net of capitalized interest
$
16,769

 
$
16,869

Income taxes paid, net of refunds
$
3,270

 
$
4,340

Non-cash transactions:
 
 
 
Capital expenditures funded by capital lease borrowings
$
(315
)

$
(1,370
)

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 Company's 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

Recently Adopted Accounting Pronouncements

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 3, Revenue Recognition for information regarding the Company's adoption of ASU 2014-09 and to Note 4, 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.

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

5
Notes to Condensed Financial Statements—(Continued)

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.

Recently Issued Accounting Pronouncements Not Yet Adopted

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 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 the 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.

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 provisional accounting impacts for the Company may change in future reporting periods until the accounting is finalized, which will occur no later than the fourth quarter of 2018. The Company does not expect the guidance to have a material impact on its financial statements.

3.
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 4, 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 six months ended June 30, 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 the remainder of 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 4, Revenue Disaggregation.
 
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

6
Notes to Condensed Financial Statements—(Continued)

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 and amounts expected to expire are 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.

Other revenues

Other revenues primarily consist 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.


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 ASU 2014-09 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 ASU 2014-09 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.

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 six months ended June 30, 2018 and 2017, total cash sales from this agreement was $19.9 million and $25.0 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.

7
Notes to Condensed Financial Statements—(Continued)

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 estimates are not likely to be redeemed ("breakage"), the Company recognizes the associated value proportionally during the period in which the remaining mileage credits are 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.

The following tables show adjustments made due to the adoption of ASU 2014-09 on the December 31, 2017 and 2016 statements of operations. 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.


8
Notes to Condensed Financial Statements—(Continued)

 
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 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 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 ASU 2014-09 on the December 31, 2017 and 2016 balance sheets. 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.
 
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

Air traffic liability
246,404

 
17,307

 
263,711

Current maturities of long-term debt
115,430

 
—

 
115,430

Other current liabilities
262,370

 
—

 
262,370

Total current liabilities
647,026

 
17,307

 
664,333

 
 
 
 
 
 
Long-term debt, less current maturities
1,387,498

 
—

 
1,387,498

Deferred income taxes
313,140

 
(4,326
)
 
308,814

Deferred gains and other long-term liabilities
19,205

 
3,376

 
22,581

Shareholders’ equity:
 
 
 
 
 
Common stock: Common stock, $0.0001 par value, 240,000,000 shares authorized at December 31, 2017; 69,770,795 issued and 68,196,964 outstanding as of December 31, 2017

7

 
—

 
7

Additional paid-in-capital
360,153

 
—

 
360,153

Treasury stock, at cost: 1,573,831 shares as of December 31, 2017
(65,854
)
 
—

 
(65,854
)
Retained earnings
1,484,239

 
(14,507
)
 
1,469,732

Accumulated other comprehensive income (loss)
(1,464
)
 
—

 
(1,464
)
Total shareholders’ equity
1,777,081

 
(14,507
)
 
1,762,574

Total liabilities and shareholders’ equity
$
4,143,950

 
$
1,850

 
$
4,145,800



13
Notes to Condensed Financial Statements—(Continued)

 
December 31, 2016
 
(in thousands)
 
As Reported
 
Topic 606 Adjustment
 
As Adjusted
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
700,900

 
$
—

 
$
700,900

Short-term investment securities
100,155

 
—

 
100,155

Accounts receivable, net
41,136

 
—

 
41,136

Aircraft maintenance deposits, net
87,035

 
—

 
87,035

Income tax receivable
—

 
—

 
—

Prepaid expenses and other current assets
46,619

 
1,702

 
48,321

Total current assets
975,845

 
1,702

 
977,547

 
 
 
 
 
 
Property and equipment:
 
 
 
 
 
Flight equipment
1,461,525

 
—

 
1,461,525

Ground property and equipment
126,206

 
—

 
126,206

Less accumulated depreciation
(122,509
)
 
—

 
(122,509
)
 
1,465,222

 
—

 
1,465,222

Deposits on flight equipment purchase contracts
325,688

 
—

 
325,688

Long-term aircraft maintenance deposits
199,415

 
—

 
199,415

Deferred heavy maintenance, net
75,534

 
—

 
75,534

Other long-term assets
110,223

 
—

 
110,223

Total assets
$
3,151,927

 
$
1,702

 
$
3,153,629

 
 
 
 
 
 
Liabilities and shareholders’ equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
15,193

 
$
—

 
$
15,193

Air traffic liability
206,392

 
13,792

 
220,184

Current maturities of long-term debt
84,354

 
—

 
84,354

Other current liabilities
226,011

 
—

 
226,011

Total current liabilities
531,950

 
13,792

 
545,742

 
 
 
 
 
 
Long-term debt, less current maturities
897,359

 
—

 
897,359

Deferred income taxes
308,143

 
(5,443
)
 
302,700

Deferred gains and other long-term liabilities
19,868

 
2,776

 
22,644

Shareholders’ equity:
 
 
 
 
 
Common stock: Common stock, $0.0001 par value, 240,000,000 shares authorized at December 31, 2016; 73,549,872 issued and 69,326,202 outstanding as of December 31, 2016
7

 
—

 
7

Additional paid-in-capital
551,004

 
—

 
551,004

Treasury stock, at cost: 4,223,670 shares as of December 31, 2016
(218,692
)
 
—

 
(218,692
)
Retained earnings
1,063,633

 
(9,423
)
 
1,054,210

Accumulated other comprehensive income (loss)
(1,345
)
 
—

 
(1,345
)
Total shareholders’ equity
1,394,607

 
(9,423
)
 
1,385,184

Total liabilities and shareholders’ equity
$
3,151,927

 
$
1,702

 
$
3,153,629


    


14
Notes to Condensed Financial Statements—(Continued)

4.
Revenue Disaggregation
Operating revenues is comprised of passenger revenues, which includes fare and non-fare revenues, and other revenues. The following table shows disaggregated operating revenues for the first and second quarter of 2018 and each quarter of 2017.
 
For the Quarter Ended
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
(in thousands)
Operating revenues:
 
 
 
 
 
 
 
 
 
 
 
Fare
$
439,549

 
$
342,695

 
$
337,324

 
$
355,593

 
$
371,443

 
$
299,035

Non-fare
396,801

 
346,446

 
313,323

 
313,479

 
309,437

 
273,252

Total passenger revenues
836,350

 
689,141

 
650,647

 
669,072

 
680,880

 
572,287

Other revenues
15,421

 
14,997

 
15,535

 
18,155

 
19,305

 
17,670

Total operating revenues
$
851,771

 
$
704,138

 
$
666,182

 
$
687,227

 
$
700,185

 
$
589,957

The following table shows disaggregated operating revenues for years ended December 31, 2017 and 2016.
 
Year Ended December 31,
 
2017
 
2016
 
(in thousands)
 
As Reported
 
Topic 606 Adjustment
 
As Adjusted
 
As Reported
 
Topic 606 Adjustment
 
As Adjusted
Operating revenues:
 
 
 
 
 
 
 
 
 
 
 
Fare
$
1,366,034

 
$
(2,639
)
 
$
1,363,395

 
$
1,200,621

 
$
(2,514
)
 
$
1,198,107

Non-fare
—

 
1,209,492

 
1,209,492

 
—

 
1,059,694

 
1,059,694

Total passenger revenues
1,366,034

 
1,206,853

 
2,572,887

 
1,200,621

 
1,057,180

 
2,257,801

Other revenues
1,281,632

 
(1,210,967
)
 
70,665

 
1,121,335

 
(1,059,115
)
 
62,220

Total operating revenues
$
2,647,666

 
$
(4,114
)
 
$
2,643,552

 
$
2,321,956

 
$
(1,935
)
 
$
2,320,021


The Company is managed as a single business unit that provides air transportation for passengers. Operating revenues by geographic region as defined by the Department of Transportation ("DOT") area are summarized below:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(in millions)
DOT—Domestic
$
768.3

 
$
640.0

 
$
1,417.4

 
$
1,184.3

DOT—Latin America
83.5

 
60.2

 
138.5

 
105.8

Total
$
851.8

 
$
700.2

 
$
1,555.9

 
$
1,290.1



5.
Special Charges

Special Charges, Operating


15
Notes to Condensed Financial Statements—(Continued)

During the first quarter of 2018, the Company negotiated and amended the collective bargaining agreement with the Air Line Pilots Association, International ("ALPA"), under the guidance of the National Mediation Board ("NMB"). In connection with the amended agreement, the Company incurred a one-time ratification incentive bonus of $80.7 million, including payroll taxes, and an $8.5 million adjustment related to other contractual provisions. As a result, the Company recorded $89.3 million in special charges within operating expenses in the statement of operations for the six months ended June 30, 2018. During the second quarter of 2018, the Company paid $75.8 million of the ratification incentive bonus with the remainder expected to be paid during the third quarter of 2018.

During the six months ended June 30, 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 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 as a cost of terminating the lease within special charges on the condensed statement of operations, comprised of the excess of the purchase price paid over the fair value of the engine, less other non-cash items of $0.2 million.

Special Charges, Non-Operating

During the three and six months ended June 30, 2018, the Company recorded $79.4 million and $88.6 million, respectively, in special charges, non-operating within other (income) expense in the statement of operations. During the first quarter of 2018, the Company entered into an aircraft purchase agreement for the purchase of 14 A319 aircraft previously operated under operating leases by the Company. The aggregate gross purchase price for the 14 aircraft was $285.0 million, and the price for each aircraft at the time of the sale was 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. During the first quarter of 2018, the capital lease assets were recorded at the fair value of the aircraft within flight equipment on the condensed balance sheets. During the second quarter of 2018, the purchase of the 14 aircraft was completed and the obligation was 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). 

6.
Earnings per Share
The following table sets forth the computation of basic and diluted earnings (loss) per common share:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(in thousands, except per share amounts)
Numerator
 
 
 
 
 
 
 
Net income (loss)
$
11,254

 
$
77,241

 
$
(33,668
)
 
$
108,502

Denominator
 
 
 
 
 
 
 
Weighted-average shares outstanding, basic
68,251

 
69,370

 
68,237

 
69,359

Effect of dilutive stock awards
59

 
191

 
—

 
217

Adjusted weighted-average shares outstanding, diluted
68,310

 
69,561

 
68,237

 
69,576

Net income (loss) per share
 
 
 
 
 
 
 
Basic earnings (loss) per common share
$
0.16

 
$
1.11

 
$
(0.49
)
 
$
1.56

Diluted earnings (loss) per common share
$
0.16

 
$
1.11

 
$
(0.49
)
 
$
1.56

 
 
 
 
 
 
 
 
Anti-dilutive weighted-average shares
248


17

 
264

 
52



16
Notes to Condensed Financial Statements—(Continued)

7.
Short-term Investment Securities

The Company's short-term investment securities consist of available-for-sale asset-backed securities with contractual maturities of twelve months or less. These securities are stated at fair value within current assets on the Company's condensed balance sheets. Realized gains and losses on sales of investments, if any, are reflected in non-operating income (expense) in the condensed statements of operations.

As of June 30, 2018 and December 31, 2017, the Company had $101.7 million and $100.9 million in short-term available-for-sale investment securities, respectively. During the six months ended June 30, 2018, these investments earned interest income at a weighted-average fixed rate of approximately 1.4%. For the three and six months ended June 30, 2018, an unrealized gain of $101 thousand and an unrealized gain of $78 thousand, net of deferred taxes of $33 thousand and $26 thousand, respectively, was recorded within accumulated other comprehensive income/(loss) ("AOCI") related to these investment securities. For the three and six months ended June 30, 2017, an unrealized loss of $11 thousand and $24 thousand, net of deferred taxes of $6 thousand and $14 thousand, respectively, was recorded within AOCI related to these investment securities. The Company has not recognized any realized gains or losses related to these securities as the Company has not transacted any sale of these securities. As of June 30, 2018 and December 31, 2017, $27 thousand and $105 thousand, net of tax, respectively, remained in AOCI, related to these instruments.

8.
Accrued Liabilities
Other current liabilities as of June 30, 2018 and December 31, 2017 consist of the following:
 
June 30, 2018
 
December 31, 2017
 
(in thousands)
Federal excise and other passenger taxes and fees payable
$
78,393

 
$
42,036

Salaries and wages
77,363

 
54,338

Airport obligations
59,981

 
56,299

Aircraft maintenance
44,065

 
33,033

Fuel
24,543

 
25,171

Interest payable
19,620

 
11,384

Aircraft and facility lease obligations
14,020

 
16,992

Other
28,422

 
23,117

Other current liabilities
$
346,407

 
$
262,370



9.
Financial Instruments and Risk Management
As part of the Company’s risk management program, the Company from time to time uses a variety of financial instruments to reduce its exposure to fluctuations in the price of jet fuel and interest rates. The Company does not hold or issue derivative financial instruments for trading purposes.

The Company is exposed to credit losses in the event of nonperformance by counterparties to these financial instruments. The Company periodically reviews and seeks to mitigate exposure to the financial deterioration and nonperformance of any counterparty by monitoring the absolute exposure levels, each counterparty's credit ratings and the historical performance of the counterparties relating to hedge transactions. The credit exposure related to these financial instruments is limited to the fair value of contracts in a net receivable position at the reporting date. The Company also maintains security agreements that require the Company to post collateral if the value of selected instruments falls below specified mark-to-market thresholds. The Company records financial derivative instruments at fair value, which includes an evaluation of each counterparty's credit risk. As of June 30, 2018, the Company did not hold any derivatives with requirements to post collateral.

Fuel Derivative Instruments

From time to time, the Company may enter into fuel derivative contracts in order to mitigate the risk of future volatility in fuel prices. The Company's fuel derivative contracts, if any, generally consist of United States Gulf Coast jet fuel swaps ("jet fuel swaps") and United States Gulf Coast jet fuel options ("jet fuel options"). Both jet fuel swaps and jet fuel options are used at times to protect the refining price risk between the price of crude oil and the price of refined jet fuel, and to manage the risk of increasing fuel prices. Fair value of the instruments is determined using standard option valuation models.

17
Notes to Condensed Financial Statements—(Continued)


The Company accounts for any fuel derivative contracts at fair value and recognizes them in the balance sheet in prepaid expenses and other current assets or other current liabilities. The Company did not enter into any fuel derivative instruments during the six months ended June 30, 2018 and 2017 and did not have any outstanding fuel derivatives as of June 30, 2018 and December 31, 2017. Historically, the Company has not elected hedge accounting on any fuel derivative instruments entered into and, as a result, changes in the fair value of fuel derivative contracts, if any, were recorded in aircraft fuel expense.
Interest Rate Swaps
From time to time, the Company may enter into interest rate swaps to fix the benchmark interest rate component of interest payments or for other reasons. These instruments limit the Company's exposure to changes in the benchmark interest rate in the period from the trade date through the date of maturity. Interest rate swaps may be designated as cash flow hedges. The Company generally accounts for interest rate swaps at fair value and recognizes them in the balance sheet in prepaid expenses and other current assets or other current liabilities with changes in fair value recorded within AOCI. As of June 30, 2018 and December 31, 2017, the Company did not have any outstanding interest rate swaps.
Realized gains and losses from cash flow hedges are recorded in the statement of cash flows as a component of cash flows from operating activities. Subsequent to the issuance of each debt instrument, amounts remaining in AOCI are amortized over the life of the fixed-rate debt instrument. During the six months ended June 30, 2018 and 2017, there were no unrealized gains or losses recorded within AOCI related to these instruments as they settled in 2015. For the three and six months ended June 30, 2018, the Company reclassified interest rate swap losses of $61 thousand and $120 thousand, net of tax of $18 thousand and $39 thousand, respectively, into earnings. For the three and six months ended June 30, 2017, the Company reclassified interest rate swap losses of $53 thousand and $107 thousand, net of tax of $31 thousand and $62 thousand, respectively, into earnings. As of June 30, 2018 and December 31, 2017, $1.2 million and $1.4 million, net of tax, respectively, remained in AOCI, related to these instruments.

10.
Commitments and Contingencies
Aircraft-Related Commitments and Financing Arrangements
The Company’s contractual purchase commitments consist primarily of aircraft and engine acquisitions through manufacturers. During the first quarter of 2018, the Company negotiated revisions to its A320 aircraft order. The Company originally had 14 A320neo aircraft scheduled for delivery in 2019. Pursuant to the revisions, 5 of the 14 scheduled A320neo aircraft were converted to A320ceo aircraft and are scheduled to be delivered in 2018 and 2019. As of June 30, 2018, the Company's aircraft orders consisted of the following:
 
 
Airbus
 
 
 
A320ceo
 
A320neo
 
Total
remainder of 2018
 
7
 

 
7
2019
 
2
 
9
 
11
2020
 

 
16
 
16
2021
 

 
18
 
18
 
 
9
 
43
 
52

On March 28, 2018, the Company entered into an aircraft purchase agreement for the purchase of 14 A319 aircraft, which were previously financed under operating lease agreements. The contract was deemed a lease modification which resulted in a change of classification from operating leases to capital leases for the 14 aircraft. As a result, the Company recorded a short-term capital lease asset of $236.7 million within flight equipment and a short-term capital lease obligation of $143.8 million, net of the related maintenance reserves and security deposits, within current maturities of long-term debt and capital leases on the condensed balance sheet as of March 31, 2018. The purchase of all 14 aircraft was completed as of June 30, 2018 for an aggregate gross purchase price of $285.0 million, which was comprised of cash payments, net of the application of cash maintenance and security deposits held by the previous lessor. For additional information, refer to Note 5, Special Charges.
During the first quarter of 2018, the Company entered into an agreement to purchase six new engines. As of June 30, 2018, the Company had purchased four of the six new engines, unencumbered. In addition, the Company sold 5 used engines for $9.5 million at a loss of $4.4 million which is recorded within loss on disposal of assets in the statement of operations. The

18
Notes to Condensed Financial Statements—(Continued)

Company also has two spare engine orders for V2500 SelectTwo engines with International Aero Engines ("IAE") and nine spare engine orders for PurePower PW1100G-JM engines with Pratt & Whitney. Spare engines are scheduled for delivery from 2018 through 2023. Purchase commitments for these aircraft and engines, including estimated amounts for contractual price escalations and pre-delivery payments, are expected to be $345.6 million for the remainder of remainder of 2018, $600.7 million in 2019, $821.6 million in 2020, $785.1 million in 2021, $16.8 million in 2022, and $7.9 million in 2023 and beyond. As of June 30, 2018, the Company had secured debt financing commitments of $117.0 million for 3 aircraft, scheduled for delivery in the remainder of 2018, and did not have financing commitments in place for the remaining 49 Airbus aircraft currently on firm order, which are scheduled for delivery in 2018 through 2021.
Interest commitments related to the secured debt financing of 53 delivered aircraft as of June 30, 2018 are $40.3 million for the remainder of 2018, $73.4 million in 2019, $67.0 million in 2020, $60.7 million in 2021, $54.4 million in 2022, and $170.8 million&#