Allegiant Travel CO

Note 2 —Acquisition of Sun Country

On May 13, 2026, the Company acquired all of the issued and outstanding shares of capital stock of Sun Country, for total purchase consideration of approximately $976.0 million. This acquisition, which was accounted for as a business combination, is intended to further the Company’s ambition to be a leading leisure-focused U.S. airline, expanding service to more markets across the United States, as well as international destinations, and providing more people with access to affordable, convenient air travel. Information regarding the purchase accounting applied is as follows:

Purchase Consideration

At the effective time of the acquisition, each outstanding share of Sun Country common stock, par value $0.01 per share, was converted into the right to receive $4.10 in cash, without interest, and 0.1557 shares of Allegiant common stock, par value $0.001 per share. Certain outstanding Sun Country equity awards were replaced or accelerated in connection with the acquisition. In addition, purchase consideration included certain change in control payments, including the settlement of warrants issued to Amazon and a tax receivable agreement with pre-IPO shareholders of Sun Country.

The total purchase consideration was as follows:

Preliminary Purchase Price Allocation

The excess of the purchase price over identifiable intangible assets and net tangible assets was allocated to goodwill. The fair values assigned to assets acquired and liabilities assumed are based on management’s best estimates and assumptions as of the acquisition date and are considered preliminary pending finalization of closing balance items as well as valuation analyses pertaining to assets acquired and liabilities assumed. During the measurement period, which may not exceed one year from the acquisition date in accordance with Accounting Standards Codification 805, Business Combinations, the Company may record adjustments to the preliminary fair values of assets acquired and liabilities assumed. The Company has recorded certain immaterial measurement period adjustments during the three months ended September 30, 2026, with corresponding adjustments to goodwill. The following table presents the preliminary allocation of the purchase price as of the closing date and as adjusted as of September 30, 2026:

Goodwill is primarily attributed to the assembled workforce and anticipated synergies and economies of scale expected from the integration of the Sun Country business. The synergies include certain cost savings, operating efficiencies and other strategic benefits projected to be achieved as a result of the Sun Country acquisition. The goodwill was assigned to the Sun Country reporting segment and the amount recognized is not deductible for tax purposes.

The operating results of Sun Country have been included in the Company's consolidated financial statements for the three months ended September 30, 2026 and for the nine months ended September 30, 2026 but only from the acquisition date of May 13, 2026.

Intangible assets

The estimated fair value and weighted average useful life of the Sun Country intangible assets are as follows:

The trademarks represent the right to use the Sun Country trade names currently used in its operations. The Company has determined the trademarks to be finite-lived intangible assets, as the Company plans to phase out the trademarks as Sun Country is integrated into the Allegiant Air network. Customer relationships include the value of relationships acquired under the Sun Country co-brand credit card. The useful life was derived from the time period over which the majority of the cash flows are expected to be generated. These finite-lived intangible assets will be amortized using the straight-line method over their useful lives for the amortization of the associated intangible assets. At and for the period from May 13, 2026 to September 30, 2026, the amortization expense and accumulated amortization of the Company's intangible assets were $4.1 million.

Acquisition-related costs

During the nine months ended September 30, 2026, the Company incurred costs directly attributable to the acquisition of $83.7 million. These costs are presented within the special charges line item within the consolidated statements of operations. Refer to Note 3 for further information on special charges.

Employee Benefit Plans

In connection with the acquisition, the Company registered 874,302 shares of common stock issuable in connection with the SCA Acquisitions Holdings, LLC Amended and Restated Incentive Equity Plan, dated as of July 1, 2019 (the "2019 Plan") and the Sun Country Airlines Holdings, Inc. 2021 Omnibus Incentive Plan ("the 2021 Plan", and together with the 2019 Plan, the "Plans"). Unvested restricted stock units ("RSUs") and performance stock units ("PSUs") outstanding under the Plans were converted to Allegiant Travel Company RSUs, and all options outstanding under the Plans were converted to Allegiant Travel Company options as provided in the merger agreement.

The Company granted 268,627 converted RSUs with a total fair value of $19.5 million. $3.7 million of the fair value was allocated to purchase consideration as the pre-acquisition value of the RSUs, and $10.4 million of the fair value was recognized as employee separation expense within special charges during the nine months ended September 30, 2026. The remaining unrecognized compensation cost will be recognized as salaries and wages expense through the remaining vesting term. At September 30, 2026, the remaining weighted average term was 1.1 years.

All Sun Country stock options were vested prior to the acquisition. Outstanding Sun Country options were converted to 324,059 Allegiant Travel Company options as provided in the merger agreement. The fair value of the converted stock options was $17.5 million, the entirety of which was recognized as purchase consideration. There have been no exercises of these options as of September 30, 2026. The weighted average exercise price of the outstanding stock options is $32.96 per share.

Pro forma impact of the acquisition

The unaudited pro forma financial information presented below represents a summary of the consolidated results of operations for the Company and Sun Country as if the acquisition had been consummated as of January 1, 2025. The pro forma results do not include any anticipated synergies, or other expected benefits of the acquisition. Accordingly, the unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been consummated as of January 1, 2025.

The pro forma information includes adjustments for estimated acquisition-related costs of $92.0 million, which includes acquisition related costs and change in control payments, assumed to have been incurred on January 1, 2025.

Note 3 —Special Charges

Allegiant Air and Sun Country

The Company has identified airframes for early retirement to coincide with 737 MAX aircraft deliveries as scheduled under an amendment to the Company's agreement with The Boeing Company signed in September 2023. To date, the Company has retired a total of 19 airframes under this plan. The remaining airframes are to be retired between November 2026 and January 2027. The accelerated depreciation on these airframes resulting from a change in the estimated useful life is recorded as a special charge during the three and nine months ended September 30, 2026 and 2025.

In fourth quarter 2025, the Company committed to a plan to redevelop certain internal-use software to better suit operational needs. As a result, the estimated useful life of the existing internal-use software asset was shortened. The accelerated amortization resulting from the change in estimated useful life was recorded as a special charge during the three and nine months ended September 30, 2026. During third quarter 2026, the Company extended its redevelopment timeline to align with Sun Country software integration milestones and extended the useful life of the software asset beyond its previously shortened useful life and the amortization schedule was adjusted accordingly.

On May 13, 2026, the Company completed its acquisition of Sun Country. During the three and nine months ended September 30, 2026, the Company incurred costs directly related to integration and other transaction costs, which included legal and professional fees, change in control payments, and other employee-related expenses. These costs are presented as special charges in the Company's consolidated statements of income. The Company expects to incur additional acquisition-related costs as the integration continues. The acquisition is more fully discussed in Note 2.

In second quarter 2025, the Company recorded $12.1 million of special charges related to corporate restructuring efforts taken in response to softness in air travel demand due to heightened macroeconomic uncertainty. These efforts included voluntary separation packages offered to corporate and operational personnel, termination of certain marketing agreements and abandonment of certain IT assets no longer being used.

In first quarter 2026, the Company recorded an allowance for credit losses related to a note receivable arising from the Company's financing of the purchase oftwo flight simulators by a third party in 2016 and 2017. The counterparty to the note receivable declared bankruptcy during first quarter 2026, which led the Company to conclude that a credit loss is probable for the full amount outstanding. The Company continues to evaluate the matter, and the allowance may be adjusted as additional information becomes available.

Sunseeker Resort

In second quarter 2025, the Company recorded special charges of $102.2 million related to the sale of Sunseeker Resort at Charlotte Harbor (the "Resort" or "Sunseeker Resort") and the associated Aileron Golf Course. The sale was completed on September 4, 2025. The Resort was also impacted by weather events occurring between 2022 and 2024, with the related costs and insurance recoveries recorded within special charges as incurred. No further insurance recoveries are expected. During the three and nine months ended September 30, 2026, the Company recorded income related to final closing adjustments from the sale of the Resort, which is also included in special charges.

Special Charges Table

The table below summarizes special charges recorded during the three and nine months ended September 30, 2026, and 2025.

Note 4 —Revenue Recognition

Passenger Revenue

Passenger revenue is the most significant category in the Company's reported operating revenues, as outlined below:

Sales of passenger tickets not yet flown are recorded in air traffic liability. As of September 30, 2026, the air traffic liability balance was $632.5 million, of which approximately $587.7 million was related to forward bookings, with the remaining $44.8 million related to credit vouchers for future travel.

The normal contract term of passenger tickets is 12 months and passenger revenue associated with future travel will principally be recognized within this time frame. Of the $363.3 million that was recorded in the air traffic liability balance as of December 31, 2025, substantially all was recognized into passenger revenue during the nine months ended September 30, 2026. The amount recognized in 2026 from the prior year-end air traffic liability balance does not include Sun Country passenger revenue as air traffic liability attributable to Sun Country was not included in the Company's prior year-end balance.

The Company periodically evaluates the estimated amount of credit vouchers expected to expire unused and any adjustment is removed from air traffic liability and included in passenger revenue in the period in which the evaluation is complete.

Contract Assets

The Company's contract assets primarily relate to unamortized costs incurred by Sun Country to prepare the Amazon cargo aircraft for service, as well as the value of the Amazon warrants that is amortized against cargo revenue over the remaining term of the ATSA. The balances as of September 30, 2026, which are approximately $33.1 million, are included in prepaid expenses and other current assets and deposits and other assets on the Condensed Consolidated Balance Sheet.

Loyalty redemptions

In connection with Allegiant's co-brand credit card program and Allways Rewards® loyalty program, as well as Sun Country's co-brand credit card program and the Sun Country Rewards loyalty program, the Company has a performance obligation to its members to honor future travel award redemptions. The accounting for and recognition of the loyalty program redemptions are discussed in the Summary of Significant Accounting Policies in the Company's annual 10-K filing.

The following table presents the activity of the co-brand credit cards and the loyalty programs as of the dates indicated:

(1)Includes issuance and redemption of Sun Country Rewards loyalty points after May 13, 2026.

(2)Revenue recognized from points redeemed includes points issued under the respective loyalty programs during the period and points that were included in the loyalty program liability at the beginning of the period. Allegiant's and Sun Country's loyalty programs are administered and accounted for separately.

(3) The current portion of the loyalty program liability represents the estimate of revenue to be recognized in the next 12 months based on historical trends, with the remaining balance reflected in noncurrent liabilities expected to be recognized into revenue in periods thereafter.

In October 2026, the Company entered into an addendum to the Affinity Agreement (the “Agreement”) with Bank of America, N.A. The Agreement extends the term through 2036 and modifies certain other terms. The Company will continue to allocate consideration received under the Agreement to the separately identifiable performance obligations using the estimated selling price allocation methodology described in the Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K.

Third Party Products Revenue

Third party products revenue primarily includes revenue associated with Allegiant and Sun Country's loyalty programs, which is comprised of the marketing component of point sales to the co-brand credit card provider and other marketing related payments. Third party products revenue totaled $78.7 million and $60.3 million for the nine months ended September 30, 2026 and 2025, respectively. The accounting and recognition of marketing services related to Allegiant's loyalty program are discussed in the Summary of Significant Accounting Policies in the Company's annual 10-K filing. The remaining amounts included within third party products revenue relate mostly to sales of travel insurance, hotel rooms, rental cars and ticket attractions.

Resort Revenue

The sale of Sunseeker Resort was completed on September 4, 2025. As such, only the revenues during the three and nine months ended September 30, 2025 are presented in the table below:

Revenue from banquets, golf, retail, and spa services was included in other resort revenue. Resort revenue was recognized as the underlying services or goods were provided, with minimal timing differences between service delivery and payment.

Note 5 —Property and Equipment

The following table summarizes the Company's property and equipment as of the dates indicated:

As of September 30, 2026, the Company had firm commitments to purchase 29 aircraft which are expected to be delivered between 2026 and 2028. Subsequent to that date, the Company exercised options to purchase an additional six Boeing 737 MAX aircraft, bringing the total firm commitments to 34 aircraft as of October 30, 2026. These additional aircraft are scheduled for delivery in 2028.

Note 6 —Long-Term Debt

The following table summarizes the Company's long-term debt and finance lease obligations, net of related costs, as of the dates indicated:

Maturities of long-term debt and finance lease obligations as of September 30, 2026, for the next five years and thereafter, in the aggregate, are:

Senior Secured Notes

During third quarter 2026, the Company redeemed the remaining $25.5 million aggregate principal amount of the Senior Secured Notes due 2027 (the "2027 Notes") through a tender offer and a notice of redemption. As a result, the 2027 Notes were fully repaid as of September 30, 2026.

Consolidated Variable Interest Entities

The Company evaluates ownership, contractual lease arrangements and other interests in entities to determine if they are variable interest entities ("VIEs") based on the nature and extent of those interests. The Company consolidates a VIE when, among other criteria, it has the power to direct the activities that most significantly impact the VIE’s economic performance as well as the obligation to absorb losses or the right to receive benefits of the VIE, thus making the Company the primary beneficiary of the VIE.

Revolving Credit Facilities

In March 2021, the Company entered into a revolving credit facility, which, as amended to date, entitles it to borrow up to $100.0 million. In April 2025, the agreement was amended to extend the maturity date to April 2028. The borrowing ability under the facility is based on the value of the aircraft and engines placed into the collateral pool. Amounts drawn under the facility will bear interest at a floating rate based on SOFR. As of September 30, 2026, the facility remains undrawn.

In August 2022, the Company entered into a credit agreement that provided a senior secured revolving loan facility of $75.0 million, with an original term of 57 months. The facility is secured by the same collateral that secures the Company's 2031 Senior Secured Notes, and borrowings under the facility will bear interest at a floating rate based on SOFR. In December 2025, the Company amended the revolving loan facility to increase the total commitment to $150.0 million and extend the maturity date to December 5, 2030. As of September 30, 2026, the facility remains undrawn.

Debt Secured by Aircraft

In April 2026, the Company entered into credit agreements with a borrowing capacity of up to $176.0 million, to be secured by new aircraft upon delivery. During the three months ended September 30, 2026, the Company borrowed the remaining $132.0 million available under the agreements, resulting in the facility being fully drawn. The loans bear interest at a variable rate based on three-month SOFR and arepayable in quarterly installments over a term of 10 years.

In May 2026, the Company entered into a credit agreement with a borrowing capacity of up to $85.6 million to be secured by certain unencumbered aircraft in the Company's fleet and new aircraft upon delivery. During the three months ended September 30, 2026, the Company borrowed the remaining undrawn amount of $45.0 million, resulting in the facility being fully drawn. The borrowing bears interest at a variable rate based on three-month SOFR and is payable in quarterly installments over a term of 12 years.

In July 2026, the Company entered into a credit agreement with a borrowing capacity of up to $177.5 million secured by certain unencumbered aircraft. The loans under this facility bear interest at a fixed rate and are payable in quarterly installments over a term offive tosix years. No amounts were outstanding under the facility as of September 30, 2026. Subsequent to that date in October 2026, the Company drew down the entire balance available under the facility.

PDP Financing

In November 2023, the Company entered into a pre-delivery deposit financing facility to borrow up to $158.0 million, secured by the Company's purchase rights for certain Boeing 737 MAX aircraft. The facility bears a floating interest rate based on SOFR and was originally due upon delivery of each aircraft or no later than June 30, 2025. In April 2025, the Company entered into an amendment to extend the maturity date of the agreement to no later than March 2027. The Company drew the full amount available under the facility between November 2023 and April 2026. During third quarter 2026, the Company repaid the remaining $11.3 million outstanding under the facility, resulting in the facility being fully repaid.

In July 2026, the Company entered into an amendment and restatement of the November 2023 facility with an additional borrowing capacity of $231.0 million. The amended facility is secured by the Company’s purchase rights for certain aircraft, bears interest at a floating rate based on SOFR and terminates in March 2028. During third quarter 2026, the Company borrowed $71.8 million under the amended facility. The borrowings are repayable upon delivery of each aircraft or no later than March 2028. As of September 30, 2026, $159.2 million remained available to draw under the amended facility.

Note 7 —Income Taxes

The Company recorded a $4.9 million income tax benefit at a 24.3 percent effective tax rate and an $8.6 million income tax benefit at a 16.5 percent effective tax rate for the three months ended September 30, 2026 and 2025, respectively. The effective tax rate for the three months ended September 30, 2026 differed from the statutory federal income tax rate of 21.0 percent primarily due to costs incurred as a result of the acquisition, state income taxes, and the impact of permanent book-tax differences.

The Company recorded an $18.3 million income tax expense at an effective tax rate of 44.9 percent and a $22.1 million income tax benefit at a 22.4 percent effective tax rate for the nine months ended September 30, 2026 and 2025, respectively. The effective tax rate for the nine months ended September 30, 2026 differed from the statutory federal income tax rate of 21.0 percent primarily due to costs incurred as a result of the acquisition, state income taxes, and the impact of permanent book-tax differences.

Note 8 —Fair Value Measurements

The Company utilizes the market approach to measure the fair value of its financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. The assets classified as Level 2 primarily utilize quoted market prices or alternative pricing sources including transactions involving identical or comparable assets and models utilizing market observable inputs for valuation of these securities. No changes in valuation techniques or inputs occurred during the nine months ended September 30, 2026.

Financial instruments measured at fair value on a recurring basis:

None of the Company's long-term debt is publicly traded. The Company has determined the estimated fair value of all of its debt to be Level 3, as certain inputs used to determine the fair value of these agreements are unobservable and, therefore, could be sensitive to changes in inputs. The Company utilizes the discounted cash flow method to estimate the fair value of Level 3 debt.

Carrying value and estimated fair value of long-term debt, including current maturities and without reduction for related costs, are as follows:

Due to their short-term nature, carrying amounts of cash, restricted cash, accounts receivable and accounts payable approximate fair value.

Note 9 —Earnings per Share

Basic and diluted earnings per share are computed pursuant to the two-class method. Under this method, the Company attributes net income to two classes: common stock and unvested restricted stock. Unvested restricted stock awards granted to employees under the Company’s Long-Term Incentive Plan or the Sun Country Airlines Holdings, Inc. 2021 Omnibus Incentive Plan are considered participating securities as they receive non-forfeitable rights to cash dividends at the same rate as common stock.

Diluted net income per share is calculated using the more dilutive of the two methods. Under both methods, the exercise of employee stock options is assumed using the treasury stock method. The assumption of vesting of restricted stock, however, differs:

1. Assume vesting of restricted stock using the treasury stock method.

2. Assume unvested restricted stock awards are not vested, and allocate earnings to common shares and unvested restricted stock awards using the two-class method.

The following table sets forth the computation of net income per share, on a basic and diluted basis, for the periods indicated (share count and dollar amounts other than per-share amounts in the table are in thousands):

Note 10 —Contingencies

The Company is subject to certain legal and administrative actions it considers routine to its business activities. The Company believes the ultimate outcome of any potential and pending legal or administrative matters will not have a material adverse impact on its financial position, liquidity or results of operations.

In 2025, Allegiant Air received a formal assessment of $9.9 million from the Transportation Security Administration ("TSA") related to the remittance of TSA security fees for the period covering October 1, 2019 to December 31, 2022. The Company disputes the TSA's interpretation of the applicable regulations and believes the assessment is without merit. The Company currently has a pending case in the U.S. Court of Appeals for the Ninth Circuit regarding this matter. Oral arguments were held on April 15, 2026, and the court decision is currently pending. Sun Country is in the initial stages of a similar TSA audit and has not received any formal assessment or preliminary findings. Based on the information that is currently available, the Company does not believe a loss in this matter is probable and no corresponding liability has been recorded. The Company does not expect that any potential liability arising for periods subsequent to the 2019 to 2022 audit assessment period will be material to the consolidated financial statements.

Note 11 —Segments

Operating segments are components of a company for which separate financial and operating information is regularly evaluated and reported to the Chief Operating Decision Maker ("CODM") and is used to allocate resources and analyze performance. The Company's CODM is the CEO. The CODM assesses segment performance and makes resource allocation decisions using information about each operating segment's operating income.

Following the acquisition of Sun Country on May 13, 2026, the Company operates Allegiant Air and Sun Country as separate brands under separate Federal Aviation Administration ("FAA") operating certificates. The CODM reviews financial results fortwo operating segments, Allegiant Air and Sun Country. As a result, the Company determined Sun Country was an operating and reportable segment beginning in the second quarter of 2026.

During 2025, the CODM reviewed separate financial information and made resource allocation decisions for the Company'stwo operating segments, Allegiant Air and Sunseeker Resort, using operating income and pretax income as the measures of segment profit or loss. The Resort was sold in September 2025 and deconsolidated from the Company's financial statements as of that date.

Allegiant Air Segment

The Allegiant Air segment includes scheduled service air transportation, ancillary air-related products and services, third party products and services, fixed fee contract air transportation and other airline-related revenue.

Sun Country Segment

The Sun Country segment includes scheduled service air transportation, ancillary air-related products and services, fixed fee contract air transportation, air cargo transportation, third party products and services, and other airline-related revenue.

Sunseeker Resort Segment

The Company's consolidated financial statements for 2025 include the operating results of Sunseeker Resort through the completion of the sale of the Resort's assets on September 4, 2025. The Sunseeker Resort segment included hotel rooms and suites for occupancy, group meeting facilities, food and beverage options, Aileron Golf Course and other Resort amenities.

Segment profit or loss, revenues, significant segment expenses, and asset information for each of the Company's operating segments are set forth below. Sun Country profit and loss is included beginning from May 13, 2026 and forward.

(1) Other operating expenses for the Allegiant Air and Sun Country segments consist of insurance, crew training and travel, legal expense, information technology, gains and losses on the sale of flight equipment, and other general and administrative expenses. Other operating expenses in the Sunseeker segment consist of food and beverage cost of goods sold, contract labor, property tax, insurance, and other general and administrative expenses.

Total assets were as follows as of the dates indicated: