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Spirit Airlines: Detailed Analysis of the Financial Reports

Spirit Airlines: Detailed Analysis of the Financial Reports. Module 10 Carl Brinker March 31, 2014. Agenda. Company Background Expanding the Balance Sheet and Income Statement Other Findings and Observations Conclusions. Company Background. Company Background. Ultra-low cost carrier

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Spirit Airlines: Detailed Analysis of the Financial Reports

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  1. Spirit Airlines: Detailed Analysis of the Financial Reports Module 10 Carl Brinker March 31, 2014

  2. Agenda • Company Background • Expanding the Balance Sheet and Income Statement • Other Findings and Observations • Conclusions

  3. Company Background

  4. Company Background • Ultra-low cost carrier • 2-star rating (lowest in USA) • Hubs in Texas and Florida • Revenues of $1.3 billion (small carrier) • JetBlue: $4.9 billion • Delta: $35 billion • Initial Public Offering in June 2011 • Carries no long-term debt – unusual for industry • Known for controversies • Poor safety record & customer service ratings • Questionable advertising campaigns

  5. Expanding the Balance Sheet and Income Statement

  6. Expanding the Financials • Spirit’s Notes to the Financial Statements: • Short: 14 pages in total • Not user friendly: paragraph format • Very little detail

  7. Expanding the Balance Sheet Example: Other Current Liabilities

  8. Expanding the Balance Sheet

  9. Expanding the Balance Sheet Final Product: It still balances!

  10. Expanding the Income Statement

  11. Expanding the Income Statement Example: Fuel Expense

  12. Expanding the Income Statement

  13. Expanding the Income Statement Final Product: Same Net Income as 10-K Income Statement

  14. Other Findings and Observations

  15. Other Findings • Tax Receivable Agreement (TRA) • 2011 Agreement: Tax savings from NOLs would be paid out to shareholders after IPO • 2013: 2009’s return amended to lower NOL amount, reduction in value of TRA agreement ($2.4 million) • Shareholders demanding original amount, no resolution as of 12/31/2013 • Currently in dispute with AFA-CWA (flight attendant union), with no resolution probable in the near future

  16. What was Missing? • No discussion - $320 million (23% of operating expenses) • Aircraft rent • Landing fees and “other rent” • Distribution • Net Income grew 63%, but Revenue only grew 25% • More detailed explanation of expenses in footnotes would help users understand why this occurred

  17. Conclusions • Financial statement footnotes disclosure the bare minimum required • Some questionable vague wording and omissions • e.g. Hedging and Allowance for Doubtful Accounts • Expanding statements granted limited useful information • Notes revealed some important nonfinancial information • e.g. Tax Receivable Agreement conflict

  18. Questions?

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