Frontier Airlines 2004 Annual Report Download - page 53

The following sets forth the revenue and accounts receivable (as a percentage of revenue and net receivables) information for the code - share partners:
Substantially all of the Company's revenue is derived from agreements with its code - share partners. US Airways filed a petition for Chapter 11 bankruptcy protection on September 12,
2004. In connection with this filing, US Airways has not yet assumed the Company's code - share agreement and could choose to terminate the agreement. United is attempting to reorganize its
business under Chapter 11 of the bankruptcy code. The Company continues to operate its normal flight schedules with US Airways and United.
Delta has recently reported operating losses primarily due to an uncompetitive cost structure and announced that if it fails to achieve a competitive cost structure it will need to restructure
through bankruptcy. In December 2004, we agreed to reduce our compensation level on the ERJ - 145 fleet by 3% through May 2016. (See Note 11.)
Termination of the US Airways, American, Delta or United regional jet code - share agreements could have a material adverse effect on the Company's financial position, results of
operations and cash flows. Contingency plans have been developed to address potential outcomes of the US Airways and United bankruptcy proceedings.
In connection with the US Airways bankruptcy filing, the Company recorded an allowance for doubtful accounts for pre - petition receivables due from US Airways of $3,200 in 2004.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation—
The consolidated financial statements include the accounts of the Company and its wholly - owned subsidiaries, Chautauqua and Republic Airline. All
significant intercompany accounts and transactions are eliminated in consolidation.
Risk Management—
The Company accounts for derivatives in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and
interpreted . Fuel swaps were not designated as hedging instruments and, accordingly, were carried at fair value in prepaid expenses and other current assets or accrued liabilities with gains and
losses recorded in other income. Other income for the year ended December 31, 2002 includes a gain of $228, for fuel swap agreements. The Company did not enter into any fuel swap
agreements during the years ended December 31, 2004 and 2003.
In anticipation of financing the purchase of regional jet aircraft on firm order with the manufacturer, we entered into eight treasury lock agreements in April 2004 with notional amounts
totaling $253,500 and a weighted average interest rate of 4.23% with expiration dates from July 2004 through March 2005. In addition, the Company entered into six treasury lock agreements
in August 2004 with notional amounts totaling $120,000 and a weighted average interest rate of 4.80% with expiration dates from September 2004 through June 2005. Management designated
the treasury lock agreements as cash flow hedges of forecasted transactions. The treasury lock agreements will be settled at each respective settlement date, which are expected to be the
purchase dates of the respective aircraft. The Compnay settled seven agreements during the year ended December 31, 2004 and the net amount paid was $2,969 and was recorded in
accumulated other comprehensive loss, net of tax. Of this amount, the Company reclassified $21 and expect to reclassify $198 to interest expense for the year ended December 31, 2004 and
the year ending December 31, 2005, respectively. Amounts paid or received on the settlement dates are recorded to accumulated other comprehensive income and amortized or accreted to
interest expense over the terms of the respective aircraft debt. As of December 31, 2004 the fair value of the treasury locks was a liability of $4,012 based on quoted market values.
Cash and Cash Equivalents—
Cash equivalents consist of short - term, highly liquid investments with maturities of three months or less when purchased. Substantially all of our cash is
on hand with one bank.
Statement of Cash Flows Supplementary Information
US Airways
American
Delta
United
America
West
Revenue for the years ended:
December 31, 2004
41
%
17
%
35
%
7
%
December 31, 2003
40
23
29
8
%
December 31, 2002
53
31
1
15
Receivables as of:
December 31, 2004
31
37
6
1
December 31, 2003
35
21
15
Years Ended December 31,
2004
2003
2002
CASH PAID (REFUNDED) FOR INTEREST AND INCOME TAXES:
Interest — net of amount capitalized
$
26,705
$
18,379
$
10,438
Income taxes paid (refunded)
373
(575
)
(3,435
)
NON- CASH TRANSACTIONS:
Deferred credits
662
650
1,200
Conversion of accrued interest to subordinated note payable to affiliate
107
1,512
1,997
Preferred stock dividends declared
170
413
Aircraft, inventories, and other equipment purchased through financing arrangements
318,456
241,690
156,080
Warrants issued
10,263
1,587
3,480
Warrants surrendered
(6,756
)
Aircraft options purchased through financing arrangements
768
Company financed sale of assets held for sale — affiliated company
8,583
Fair value of interest rate hedge
(4,012
)
43