Spirit Airlines 2012 Annual Report Download - page 39

revenues. We record a liability upon collection from the customer and relieve the liability when payments are remitted to the applicable governmental agency or airport.
Our Operating Expenses
Our operating expenses consist of the following line items.
Aircraft Fuel. Aircraft fuel expense is our single largest operating expense. It includes the cost of jet fuel, related federal taxes, fueling into-plane fees and
transportation fees. It also includes realized and unrealized gains and losses arising from any fuel price hedging activity.
Salaries, Wages and Benefits. Salaries, wages and benefits expense includes the salaries, hourly wages, bonuses and equity compensation paid to employees for their
services, as well as the related expenses associated with employee benefit plans and employer payroll taxes.
Aircraft Rent. Aircraft rent expense consists of monthly lease rents for aircraft and spare engines under the terms of the related operating leases and is recognized on a
straight-line basis. Aircraft rent expense also includes that portion of maintenance reserves, also referred to as supplemental rent, paid to aircraft lessors in advance of the
performance of major maintenance activities that is not probable of being reimbursed to us by the lessor. To the extent we had any return condition obligations which we
believe are probable, those would be considered contingent rent and would be included within aircraft rent expense. Aircraft rent expense is net of the amortization of gains
and losses on sale and leaseback transactions on our flight equipment. Presently, all of our aircraft and spare engines are financed under operating leases.
Landing Fees and Other Rents.
Landing fees and other rents include both fixed and variable facilities expenses, such as the fees charged by airports for the use or lease
of airport facilities, overfly fees paid to other countries and the monthly rent paid for our headquarters facility.
Distribution. Distribution expense includes all of our direct costs to sell, including the cost of web support, our third-party call center, travel agent commissions and
related GDS fees, and credit card transaction fees, associated with the sale of our tickets and other products and services.
Maintenance, Materials and Repairs. Maintenance, materials and repairs expense includes all parts, materials, repairs and fees for repairs performed by third-party
vendors directly required to maintain our fleet. It excludes direct labor cost related to our own mechanics, which is included under salaries, wages and benefits. It also
excludes the amortization of heavy maintenance expenses, which we defer under the deferral method of accounting and amortize on a straight-line or usage basis until the
next estimated overhaul event.
Depreciation and Amortization. Depreciation and amortization expense includes the depreciation of fixed assets we own and leasehold improvements. It also includes
the amortization of heavy maintenance expenses we defer under the deferral method of accounting for heavy maintenance events and recognize into expense on a straight-
line or usage basis until the next overhaul event.
Loss on Disposal of Assets. Loss on disposal of assets includes the net losses on the disposal of our fixed assets, including losses on sale and leaseback transactions.
Other Operating Expenses. Other operating expenses include airport operations expense and fees charged by third-party vendors for ground handling services and
food and liquor supply service expenses, passenger re-accommodation expense, the cost of passenger liability and aircraft hull insurance, all other insurance policies except
for employee health insurance, travel and training expenses for crews and ground personnel, professional fees, personal property taxes and all other administrative and
operational overhead expenses. No individual item included in this category represented more than 5% of our total operating expenses.
Special Charges (Credits). Special charges (credits) include termination costs, restructuring costs, secondary offering costs, and the gain on the sale of take-off and
landing slots.
In June 2012, we transferred four permanent air carrier slots at Ronald Reagan National Airport (“DCA”) to another airline for $9.1 million . Due to FAA regulations,
the gain of $9.1 million was fully deferred at the time of the sale. The Company recognized the $9.1 million
gain within special charges (credits) in the third quarter of 2012,
the period in which the FAA operating restriction lapsed and written confirmation of the slot transfer was received by the buyer from the FAA.
On July 31, 2012, certain stockholders affiliated with Oaktree Capital Management ("Oaktree") sold an aggregate of 9,394,927 shares of common stock in an
underwritten public offering. The Company incurred a total of $0.7 million in costs
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