Spirit Airlines 2012 Annual Report Download - page 66

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Notes to Financial Statements—(Continued)
All aircraft and spare engines are financed through operating leases with terms of 3 to 12 years for aircraft and 7 to 12 years for spare engines. Residual values for
major spare rotable parts, avionics, and assemblies are estimated to be 10% .
The following table illustrates the components of depreciation and amortization expense:
The Company capitalizes certain internal and external costs associated with the acquisition and development of internal use software for new products, and
enhancements to existing products that have reached the application development stage and meet recoverability tests. Capitalized costs include external direct costs of
materials and services utilized in developing or obtaining internal-use software, and labor cost for employees who are directly associated with and devote time to internal-
use
software projects. These costs are included in property and equipment.
Amortization of capitalized software development costs is charged to depreciation on a straight-line method basis. Amortization of capitalized software development
costs was $3.2 million , $2.0 million , and $1.1 million for the years ended 2012 , 2011 , and 2010 , respectively. The Company capitalized $2.3 million , $3.3 million , and
$2.4 million , of software development costs during the years ended 2012 , 2011 , and 2010 , respectively.
Measurement of Asset Impairments
The Company records impairment charges on long-lived assets used in operations when events and circumstances indicate that the assets may be impaired, the
undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets, and the net book value of the assets exceeds their
estimated fair value. In making these determinations, the Company uses certain assumptions, including, but not limited to: (i) estimated fair value of the assets; and
(ii) estimated, undiscounted future cash flows expected to be generated by these assets, which are based on additional assumptions such as asset utilization, length of service
the asset will be used in the Company’s operations, and estimated salvage values.
Capitalized Interest
Interest attributable to funds used to finance the acquisition of new aircraft is capitalized as an additional cost of the related asset. Capitalization of interest ceases
when the asset is no longer being prepared for its intended use or is ready for service.
Passenger Revenue Recognition
Tickets sold are initially deferred as “air traffic liability.”
Passenger revenue is recognized at time of departure when transportation is provided. A nonrefundable ticket
expires at the date of scheduled travel and is recognized as revenue at the date of scheduled travel.
Customers may elect to change their itinerary prior to the date of departure. A service charge is assessed and recognized on the date the change is initiated and is
deducted from the face value of the original purchase price of the ticket, and the original ticket becomes invalid. The amount remaining after deducting the service charge is
called a credit shell which 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. The amount of credits expected to expire is recognized as revenue upon issuance of the credit and is estimated based on historical experience. Estimating the
amount of credits that will go unused involves some level of subjectivity and judgment.
The Company is also required to collect certain taxes and fees from customers on behalf of government agencies and airports and remit these back to the applicable
governmental entity or airport on a periodic basis. These taxes and fees include U.S. federal transportation taxes, federal security charges, airport passenger facility charges,
and foreign arrival and departure taxes. These items are collected from customers at the time they purchase their tickets, but are not included in passenger revenue. The
Company records a liability upon collection from the customer and relieves the liability when payments are remitted to the applicable governmental agency or airport.
65
Year Ended December 31,
2012
2011
2010
(in thousands)
Depreciation
$
6,156
$
5,186
$
4,313
Amortization of heavy maintenance
9,100
2,574
1,307
Total depreciation and amortization
$
15,256
$
7,760
$
5,620