Frontier Airlines 2008 Annual Report Download - page 70

Debt Issue Costs are capitalized and are amortized using the effective interest method, to interest expense over the term of
the related debt.
Goodwill and Intangible Assets are accounted for in accordance with SFAS No. 142, Goodwill and Other Intangible Assets.
Goodwill and intangible assets that have indefinite useful lives are not amortized but are tested if a triggering event occurred or at least
annually for impairment. Management reviewed the carrying value of goodwill and concluded that no asset impairment existed as of
December 31, 2008. Intangible assets that have finite useful lives are amortized over their useful lives to an estimated residual value
and reviewed for impairment at each reporting date. At December 31, 2008 the remaining amortization period for the
Ronald Reagan Washington National Airport commuter slots is 22 years. Estimated amortization expense will approximate $388 per
year.
Long-Lived Assets—Management reviews long-lived assets for possible impairment, if there is a triggering event that
detrimentally affects operations. The primary financial indicator used by the Company to assess the recoverability of its long-lived
assets held and used is undiscounted future cash flows from operations. The amount of impairment if any, is measured based on
estimated fair value or projected future cash flows using a discount rate reflecting the Company's average cost of funds. Management
has concluded that no asset impairment of long-lived assets existed as of December 31, 2008.
Deferred Credits and Other Non Current Liabilities consist of credits for parts and training from the aircraft and engine
manufacturers, deferred gains from the sale and leaseback of aircraft and spare jet engines and deferred revenue from the Delta
warrant surrender and pre-petition claim. Deferred credits are amortized on a straight-line basis as a reduction of aircraft or engine rent
expense over the term of the respective leases. The deferred revenue is amortized as an adjustment to regional airline services revenue
based on the weighted average aircraft in service over the life of the Delta agreements.
Comprehensive Income—The Company reports comprehensive income in accordance with SFAS No. 130, Reporting
Comprehensive Income, which establishes standards for reporting and displaying comprehensive income and its components in
financial statements. The Company had accumulated other comprehensive loss relating to treasury lock agreements of $2,577, $3,009
and $3,877, net of tax, at December 31, 2008, 2007 and 2006, respectively.
Income Taxes—The Company accounts for income taxes using the asset and liability method. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts for existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in future years in which those temporary differences are
expected to be recovered or settled. The measurement of deferred tax assets is adjusted by a valuation allowance, if necessary, to
recognize the future tax benefits to the extent, based on available evidence; it is more likely than not they will be realized.
Aircraft Maintenance and Repair is charged to expense as incurred under the direct expense method. Engines and certain
airframe component overhaul and repair costs are subject to power-by-the-hour contracts with external vendors and are expensed as
the aircraft are flown.
Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Such management estimates include, but are not limited to, recognition of revenue,
provision for inventory write-downs, valuation of stock-based compensation, valuation of goodwill and long-lived assets, valuation of
notes receivable, provision for doubtful accounts, provision for accrued aircraft return costs and valuation of deferred tax assets.
Under the code-share agreements, the Company estimates operating costs for certain “pass through” costs and records revenue based
on these estimates. Actual results could differ from those estimates.
Revenue Recognition—Regional airline service revenues, charter revenues and ground handling revenues are recognized in
the period the services are provided. Under our fixed-fee arrangements with our Partners, the Company receives fixed-fees, as well as
reimbursement of specified “pass-through” costs on a gross basis with additional possible incentives from our Partners for superior
service. Regional airline service revenues are recognized in the period the service is provided and we perform an estimate of the profit
component based upon the information available at the end of the accounting period.
The reimbursement of specified costs, known as “pass-through costs”, may include aircraft ownership cost, passenger
liability and hull insurance, aircraft property taxes, fuel, landing fees and catering. All revenue recognized under these contracts is
presented at the gross amount billed for reimbursement pursuant to Emerging Issues Tax Force Issue (“EITF”) No. 99-19 Reporting
Revenue Gross as a Principal versus Net as an Agent.
Under the Company’s code-share agreements, the Company is reimbursed an amount per aircraft designed to compensate the
Company for certain aircraft ownership costs. In accordance with EITF No. 01-08, Determining Whether an Arrangement Contains a
Lease, the Company has concluded that a component of its revenue under the agreement discussed above is rental income, inasmuch
as the agreement identifies the “right of use” of a specific type and number of aircraft over a stated period of time. The amount
deemed to be rental income during fiscal 2008, 2007 and 2006 was $348,416, $310,250 and $258,600, respectively, and has been
included in regional airline services revenue on the Company’s consolidated statements of income.
Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, March 16, 2009 Powered by Morningstar® Document Research℠